The $400,000 estimate is a 2020 figure that was chosen to reflect 2020 residential assessment values in the Study Area, as well as the value of "representative home values", as determined by the Province, in a variety of nearby communities, including Salmon Arm.
To understand the tax impact on a higher home value it is important to understand, first, how taxes paid by the residential properties are determined. To that end, note the following points:
- Every year, a municipal government estimates all of the costs it will incur to provide its full range of services. The government then determines how much revenue it will be able to raise from sources other than property taxes to pay the charges (such sources may include provincial grants, sales of services, and others). The difference between the total costs and the total non-tax revenues will equal the amount that the municipality needs to raise from property taxes.
- Most services provided by the local government are paid for using property value taxes — that is, the taxes that are calculated depending on the assessed value of a property. Some services such as water and sewer systems are typically paid using property parcel taxes (or a combination of parcel taxes and user fees). Parcel taxes tend to be charged as one flat rate for every parcel of property, irrespective of assessed value.
- The municipality must collect enough property value tax revenue to pay all of the service costs that are remaining after non-tax and parcel tax revenues have been taken into account. The municipality takes this amount required and allocates it across different property classes — e.g., residential (Class 1), light industrial (Class 5), business (Class 6), etc. The total amount to collect from the residential class (Class 1) is applied against the total assessed value of all residential properties in the municipality to determine the residential (Class 1) property tax rate. That rate is then applied to the assessed value of each individual residential property to determine how much the owner of that property must pay in property tax that year.
Because the same Class 1 property tax rate is applied to all residential properties, owners of homes that are assessed at a higher value will pay more tax than owners of homes assessed at a lower value. If one home is assessed at $800,000 and another at $400,000, the owner of the $800,000 home will, at the same tax rate, pay twice the amount of the owner of the $400,000 home for services that are funded using parcel value taxes. The total tax bill for the owner will not be exactly two times the size of the bill for the lower-value place because some services, as noted earlier, are funded using parcel taxes that do not change based on assessed value. But the total will be close to twice the amount since most services are funded using property value taxes.
The consultants have not created a sample residential tax notice for a home assessed at $800,000; they have, however, created a sample tax notice for a residential property valued at $600,000, which is 50% higher than the typical $400,000 value. The notice shows that the total tax owing (without the Home Owner Grant applied), would be 47% higher than the total tax owing on the same property assessed at $400,000. The comparison suggests that a residence valued at $800,000 — or, twice the $400,000 value — would pay close to two times the property tax.
On a related point, it is important to note that an increase in the value of all residential properties would not translate into a tax hike for everyone. If all properties increased in value, the property value tax rate would be adjusted downward to enable the municipality to raise the same amount of tax revenue (not more).