Purchasing a newly constructed residential home or condominium can be exciting. However, when it comes to property taxes, new homeowners may often get taken aback when they receive what is referred to as a supplementary tax bill from their municipality or local taxing authority.
When a municipality or local taxing authority sets their property tax rates, they base their rate upon the assessed value of the property as determined by the Municipal Property Assessment Corporation (MCAP), a non-profit corporation funded by all Ontario municipalities whose mandate is to accurately assess and classify properties in compliance with the Assessment Act[1] and related regulations as set by the Province of Ontario.[2]
With newly constructed residential homes or condominiums, at the time of closing, the property tax rate is usually only assessed as against the vacant land and not against the improvements on the vacant land; in other words, the physical building or structure. Once MPAC completes their assessment of the property, the municipality or local taxing authority will normally issue a supplementary tax bill to the new homeowner shortly thereafter.
When the homeowner receives the supplementary tax bill in the mail, the homeowner can be confused and/or surprised. The homeowner will often refer to their final Statement of Adjustments as part of their closing package which they receive from their lawyer following closing and note that they have already paid the estimated property taxes for the year. Moreover, in some instances when the homeowner contacts their municipal tax office to inquire as to the reasoning behind the bill, they may be further surprised to hear that no payments have been made by the builder towards any of the property taxes, which the Purchaser has already paid for on closing.
When it comes to newly constructed homes and condominiums, the Agreement of Purchase and Sale will normally contain a clause stating that any post-closing adjustments should be dealt with directly with the builder and not with the builder’s lawyer. These post-closing adjustments will typically deal with property taxes since they are merely estimated at the time of closing and therefore subject to readjustment.
When a new homeowner receives a supplementary tax bill, a copy of the supplementary tax bill should be forwarded to the builder so that adjustments can be made accordingly. Generally, the builder will submit their portion of the supplementary tax bill directly to the municipality or local taxing authority, and mail the difference directly to the purchaser. Depending on the amount of property taxes estimated by the builder, in some cases, the homeowner may have to readjust post closing and pay back the builder, however this is not generally the case.
For newly constructed homes and condominiums, it is almost certain that a supplementary tax bill will be issued. When the supplementary tax bill is received, the due date may not provide sufficient time for the homeowner to obtain the adjustment from the builder. In this event, it is prudent for homeowners to set aside additional funds for the supplementary tax bill, or risk paying unnecessary penalties for late payment should the homeowner not be in a financial position to pay by the required due date.
Be prepared for the supplementary tax bill when buying a newly constructed home or condominium. If you have questions about it, speak with your legal advisor.
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[1] Assessment Act, R.S.O. 1990, c. A.31.
[2] Municipal Property Assessment Corporation (MPAC). (2010). Guide to Property Assessment for Newly-Built Homes. Toronto.