It hardly seems that any time at all has gone by since I last wrote about budget time – but a whole year has passed and here we are again. I think it is safe to say that no one really likes to pay taxes. They are however a necessary evil of the (in the case of municipal taxes) kind of community in which we want to live and support. There are a number of somewhat unique pieces that go into the reality of Wolfville’s municipal taxes and I thought I would take a few days – well maybe once a week for a few weeks – to share that information with you. These include:
- THE CAP – the subject of today’s blog.
- URBAN RURAL RESPONSIBILITIES – early next week
- OUR POPULATION RELATIVE TO OUR SURROUNDING NEIGHBOURS – late next week
- NON-MUNICIPAL ELEMENTS OF OUR MUNICIPAL TAXES – first week of February
- WOLFVILLE’S ANNUAL BUDGET PROCESS AND FIRST DRAFT OF OUR 2020/21 BUDGET – end of the first week of February.
THE CAP (Capped Assessment Program) was created in 2005 in response to significant increases in property valuation, largely in Nova Scotia’s south shore caused by the purchase of land adjacent to ocean views, by people from away who had significant resources. The resulting increase in property taxes based on market value assessment resulted in the likelihood that many long-time property owners, often older, and often with limited financial means, were in danger of losing their properties and homes. The Provincial Government responded by creating the CAP – property value was CAPPED at its original or current assessed rate (before values started to rise) and would only increase annually by the annual cost of living. This was intended to eliminate or minimize significant spikes in taxes that were not based on additional service levels. When a property changes hands its market value is reassessed – based in part on its purchase price. This response, done to protect those long-time residents of the south shore was soon extended throughout the Province.
Municipalities set their tax rate based on a rate X each $100 of property assessment. For example, in Wolfville, our current (2019/20) residential tax rate is $1.465/ $100 of assessment. So if your property is valued at a CAP rate of $200,000 or 2,000 “100’s” your property taxes for the current year would be $2,930.00 – or 2,000 X $1.465. The CAP is increased annually by the annual Cost of Living Adjustment (COLA).
Now your market value might be much higher. For example, if you were to ask realtor how much your house would bring if you put it up for sale they might tell $400,000. So the money you might realize from a sale may bear little resemblance to your (CAPPED) assessed value for the purpose of paying your taxes. I note that most property owners have just received their annual assessment notice from PVSC indicating both the CAPPED non-CAPPED rate. From only limited examples it is not clear that the non-CAPPED rates reflect Wolfville’s very hot housing market, but that is not an issue for this post. But I digress, how did we get from the initial CAPPED rate – which started either in 2005 or a later date when you purchased your current residential property?
To illustrate, let’s go back 10 years to 2010. The COLA between 2010 and 2020 averaged 1.77%. It was as high as 3.9% in 2011 and as low as .3% in 2016. If your property was purchased or “CAP assessed” at $200,000 in 2010 it would now be “CAP assessed” at $238,222. For argument’s sake if the tax rate was 1.4 in 2010 the homeowner’s taxes would have been $2,800 and now – assuming the same rate the taxes would be $3,335. In other words even if your property is CAPPED there will still be an increase in annual taxes based on the annual COLA.
Now if you sell that house and the new owners paid $400,000 the CAP would fall off for them – well it would now be CAPPED (this is an example) at $400,000 plus the annual COLA.
While the CAP was intended to protect vulnerable homeowners from unanticipated and significant increases in the year over year value of their properties, it has had many unfortunate consequences.
- New people to the housing market – often young people who pay the market price when they purchase the home find themselves paying much higher taxes (because the CAP has been removed) than their long-time neighbour – for exactly the same municipal services.
- Older people and empty-nesters who want to downsize similarly often purchase a home that while smaller is based on today’s market – they also are paying higher taxes.
- I mentioned earlier that Wolfville is currently experiencing a very hot housing market. People are moving here from across Canada – they like us, they really like us! But will they like us when they find they are paying taxes that are double, even triple what the person from whom they purchased paid? Blame the CAP not the Town of Wolfville.
- The CAP has led some people who might like to live in a more urban area to move elsewhere where the taxes are lower even though they don’t really want to move (more about the urban-rural divide in a future post).
The Town of Wolfville’s Director of Finance has often noted that if the CAP was removed about 80% of taxpayers would pay less – those newer residents (or newer to their homes) are paying a premium because they are paying for those whose property is long- CAPPED and are in fact not fully paying for the services provided. Province-wide it is noted that “54% of Nova Scotians are overpaying on their taxes and subsidizing the municipal services of others.” (from NSFM Media Advisory).
The Nova Scotia Federation of Municipalities (NSFM) has a resolution to work with the Province to remove the CAP in that it distorts the property tax system. The resolution recognizes the need to smooth out any removal. This resolution was accepted and an all-party Committee, chaired by NSFM Chair and Mayor of Yarmouth Pam Mood, has been established to review the CAP.
It is understood by all that just removing the CAP and letting assessments use market value assessment could create some significant sticker shock for some – the 20% of our residents who benefit from a very long CAP. Measures are being discussed to smooth out this increase so that a new problem won’t be created by solving an old one.
Expect to see more information in the news about Nova Scotia’s CAP situation over the next 12 months.