Municipal taxation and co-ownership

COLLECTIVE DWELLING, A SOURCE OF WEALTH FOR MUNICIPALITIES

Getting informed, getting involved, participating in public consultations, and exercising one’s right to vote in municipal elections are all important actions of civic engagement in one’s municipality.

As an individual or homeowner, paying property taxes is not often seen as a necessary element that contributes to the health, growth and wealth of society. In general, even housing is not seen as a major contributor to economic well-being.

The increase in property values and related taxes is a hot topic in the news. No one can escape the strong upward trend throughout Quebec – most of the province’s major cities have announced a property tax increase for 2022 hovering around 2%.

How are co-ownership property taxes determined, and what are they used for? One year, the amount to be paid seems relatively reasonable, but the next, surprise, the tax rate is adjusted and the bill goes up (or down). Why? How can paying these taxes be beneficial to society as a whole? And what is the benefit of collective dwellings for cities?

Here is an overview to demystify municipal taxation and understand how collective dwelling and densification can be a source of wealth for municipalities, society, and even the environment.

 

PROPERTY TAXES, WHAT ARE THEY FOR?

A key element of Quebec’s municipal tax system, the property assessment roll inventories the immovables located on a municipality’s territory and serves as the basis for calculating municipal taxes. It is used to distribute the tax burden among property owners and is in effect for three consecutive municipal fiscal years. It is also used as the basis for calculating school taxes - the rate is the same for all taxable buildings within the same territory.

Buildings (residential, commercial and industrial properties) are therefore assessed on the same basis and as of the same date. The value entered on the assessment roll becomes the valuation unit for the building, or a group of buildings. It is the municipal property assessment that establishes the value of a property, based on its real value, and that allows municipalities to determine the amount of taxes to be paid according to the categories of immovables, including that of buildings with six dwellings or more. It is the provisions of the Act Respecting Municipal Taxation – the property tax system with various rates – that provide the framework for the municipalities’ power to set different property tax rates for different categories of buildings. Municipal governments regularly adopt multiple tax rates: a general tax rate, one for infrastructure, and one for debt, for example. In Montréal, even the boroughs can set their own tax rates, in addition to those of the city centre.

The rates are established by multiplying the property assessment of a property with the municipal (set per $100 of assessment) or school tax rate, and are determined annually by the municipality’s operating budget. Note: The Act Respecting Municipal Taxation provides that municipalities may differentiate the tax rate between buildings with fewer than six dwellings and those with six or more dwellings.

Based on property assessment, municipal taxes finance, in part or in full, the cost of providing municipal services, such as waste collection, police and fire safety services, wastewater treatment, public transit, road services, and school buildings (lighting, heating, maintenance). Municipal taxes are therefore the main source of revenue for Quebec municipalities and school boards. And no property owner is exempt – all property owners must pay these taxes annually.

 

WHAT ABOUT CO-OWNERSHIPS?

While there are different rates applied to different categories of properties, there is also a distinction to be made between divided and undivided co-ownerships: each is considered as a different unit of assessment. Thus, in the case of undivided co-ownership, there will be a single lot number, or cadastre, which will describe the entire property, and the property taxes will be shared among the owners. The only thing left to do is to make sure that everyone pays their share!

In comparison, owners of divided co-ownerships have their own lot number; they also have their own tax notices (municipal and school taxes) – it is not the total value of the building that is entered on the property assessment roll. Each fraction (the private portion and the related rights in the common portions) is a separate assessment unit. It is therefore the value of each unit, as provided for in section 41 of the Act Respecting Municipal Taxation, that determines the property taxes. To this, the value of the share in the common areas is added: the portion of the assessment granted to the common areas is divided according to the share attributed between all the co-owners of the building.

Note: In some cases, the parking space is considered a separate private portion and will have its own lot number (cadastre). A co-owner will therefore receive two municipal tax bills – one for his or her private unit, and one for the parking space.

When the property value increases, this may represent an increase in the value of the co-owners’ assets. However, it is important not to confuse market value with municipal assessment: there may be a difference between the assessed value (established at a specific date) and a sale price, which is more reflective of the market conditions at the time of the transaction. The municipal assessment is only one indicator among others; supply and demand always enter the equation.

 

WHAT IS THE LINK BETWEEN PROPERTY TAXES, COLLECTIVE DWELLING, DENSIFICATION, AND WEALTH FOR MUNICIPALITIES?

Climate emergency, encroachment and pressure on natural environments and agricultural areas for residential purposes, encouraging car use, major public expenditure related to the development of infrastructures and services to the population, urban sprawl generates considerable expenses for municipalities and is costly to the State – and to society.

Characterized by, among other things low housing density, urban sprawl also contributes to the impoverishment of living environments through the scattering of activities and suburbanization (the growth of areas located on the outskirts of cities), commonly known as suburbs. And historically (the concept is said to have originated in the post-war period of the 1950s and accelerated in the 1970s, in part due to the widespread increase of households owning cars), it maintains low land values on the fringes of urban centres – an attraction for households seeking the affordability of these residential areas.

Densification that is mindful of the quality of the living environment, therefore, appears today to be an unavoidable method of responding to the issues of land development and sustainable development and is a response to the problems caused by urban sprawl. More and more municipalities in Quebec are integrating densification into their territory’s planning and development plans, as it has been the case for the cities of Laval, Longueuil, Montréal, and Québec for several years.

Moreover, in order to increase their tax base, municipalities seek to attract new residents and meet housing needs. In addition, the higher the population density, the higher the value of houses. For example, building six-story or higher dwellings, including co-ownerships, would make it possible to densify sectors of a city while making existing infrastructure more profitable, by reducing the impact of rising property values and increasing property tax revenues. A more compact living environment thus represents significant savings associated with infrastructure construction and maintenance costs: building new real estate projects where infrastructure already exists ensures substantial savings.

Other benefits of densifying (in height) include: making public transport services or public services such as schools more cost-effective; reducing the building’s footprint; and, contributing to local economic vitality and dynamism. Favoring transit-oriented developments also reduces travel distances by promoting accessibility and sustainable mobility.

It is therefore understandable that cities should aim for a certain elevation, but they must also consider everything that contributes to the construction of a living, attractive, greener environment that meets the needs of all those who live there. The city is, after all, a human and lively living environment. And who knows, the city of tomorrow may be built on our rooftops!