Why your property tax bill has two assessed values for your home

If you didn't stop reading at the how-much-you-owe section, you may have noticed your P.E.I. property tax bill has two assessed values for your home on it.

It's there on page 3 of the four-page bill: a market value assessment and a taxable value assessment.

To find out why there are two, CBC News talked to Provincial Tax Commissioner Ryan Pineau, who said it wasn't always done this way. The taxable value assessment began appearing on bills only in 2009.

"Under our legislation we're mandated to assess properties at their market value," said Pineau.

But there were concerns about this. In a potentially volatile housing market, how can an Island homeowner plan for what their property tax is going to be year-to-year, when the tax is based on the value of their home?

Providing certainty

Prior to 2009, the province offered a rebate that would keep increases in the tax bill in line with the consumer price index.

This applied only to the provincial tax bill, not municipal tax. In 2009, the province made a change to allow homeowners to accurately predict how their municipal tax might increase as well.

And this was the taxable value assessment. The government chose not to change the legislation that required a market value assessment, but to create a parallel system.

In 2009, these values were the same but from then on the taxable value assessment would increase at the same rate as the CPI, to a maximum of five per cent, while the market value assessment would continue to go up as housing prices did.

Owner-occupied homes would be taxed on the taxable value assessment, while the market value assessment would apply to commercial properties.

"It just gives certainty when you're continuing to stay in your home that your increases in assessment will follow inflation," said Pineau.

Tax and how long you've owned your home

As the system was set up, when a home was sold to a new owner the taxable value assessment would then be raised to the market value assessment for the new owner.

Over the years, these two assessments can diverge quite a lot. I have been in my home since the change was made in 2009, the full 13 years the system has been operating. On my property tax bill the market value assessment is 30 per cent higher than the taxable value assessment, which means if somebody bought my house tomorrow, their tax bill would be 30 per cent higher than the one I am scheduled to pay.

In general, Islanders who are new to their homes are paying higher taxes than people who have been in their homes a longer time.

"The goal was to give certainty," said Pineau, when asked about the fairness of this system.

"When somebody's buying a new property they're able to make that new decision as to what their budget can look at."

From a government perspective, the tax bills work out in the long term as properties turn over, he said.

Is that actually what my house is worth?

While it is clear how taxable value assessment goes up, market value assessment is less clear.

"It may not reflect what that house could currently sell for," said Pineau.

This is particularly true at a time when house prices are changing quickly, as they are now. Pineau acknowledged that the difference can be in the hundreds of thousands of dollars.

The province doesn't have the resources to individually assess every home. Instead, it tracks sales on groups of homes, similar homes in the same neighbourhood, over the previous three-year period. It calculates an increase for that group of homes, and then applies it on the property tax bill.

Because the province uses a three-year period for tracking sales prices it is likely to fall behind in a year where prices go up quickly. For example in 2022 prices are up 20 per cent.

But again, said Pineau, government is playing the long game.

"What tends to happen with the real estate market is there's an ebb and flow over time, so looking at a particular point in time it may seem like things are going to diverge, but over a longer period those tend to come in line," he said.

Over time, he said, he expects market value assessment and the actual value of a property will come together.

As for whether tax rates would come down if prices on the housing market continue to climb above the inflation rate, a spokesperson for the Department of Finance would only say the government is continually reviewing its framework of taxation measures.

A reminder

Property tax bills were mailed out on P.E.I. on May 6.

Island homeowners should all have their property tax bills now. If you don't, Pineau urges you to contact the tax commissioners office to get a copy as soon as possible.

The first instalment of property taxes are due May 31.