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By Altus Group | August 24, 2020

When will property tax assessments reflect the current COVID-19 impacted value?

The spread of COVID-19 has drastically changed economic conditions, leading to several market disruptions worldwide, while impacting every province and municipality differently. The same is true for commercial property where lasting effects are foreseeable on many property types, with some more impacted than others. From a taxpayer perspective, property owners, be it owner-occupiers or landlords trying to keep employees, tenants and patrons safe (while also trying to salvage their business operations and navigating a now months-long state of flux) are being encumbered with many property tax questions outside of their regular responsibilities. Concerns that are shared by homeowners, now faced with their assessment notices, tax bills and their own tribulations during these tumultuous times.

As we all continue to monitor developments and the guidelines of health authorities–while managing our respective businesses–cash flow and management of operating expenses are a preeminent concern for most. As such, many owners are looking to property tax professionals for guidance and reprieve in these trying times. With less income, owners are acutely aware of dramatic shifts in property performance and that values can be currently qualified as uncertain, if not volatile.

Base date and why it’s important

The point of time is an important distinction as the ‘base date of assessment’, or the date in which a value is derived in any given assessment year. The date varies throughout Atlantic Canada and across the country. Even under ‘normal’ circumstances (pre-COVID-19) the base date of assessment can be a cause of frustration to some appellants. As property tax professionals, and more specifically those of us who appeal properties on behalf of owners, many have encountered a situation where a base date was cited to preclude certain evidence by the respondent to an appeal.  

A common example is a comparable sale (or even a subject property sale) that would point to a reduction in assessed value that is subsequently refused because it occurred after a base date of assessment. Some of us may have even encountered this defense in dispute of data that falls within weeks, if not days of a base date. All else being equal, and assuming no evidence of a shift in value between the date of sale (or other market data), and base date, this simply does not stand to reason.  

Fortunately, when meaningful hindsight market data is available and falls close to the base date, our experience is the base date defense is becoming less prevalent when there has been no evidence of market change. This thinking is becoming somewhat antiquated and the Canadian Property Tax Association (CPTA) has previously published a whitepaper on this and various case law is available that support the use of hindsight data in many cases.  

Another example of base date frustration for appellants can occur when a base date of assessment varies significantly from an assessment year and a dramatic change in market is evident.  

Newfoundland (NL) is a good example of this, who until recently had a three-year assessment cycle, whereby (with some exceptions) an assessment stayed the same for three years and was based on a single base date. During the 2016-2018 assessment cycle the base date was January 1, 2014. This date was pertinent as dramatic drops in oil prices (and in some cases property value) occurred largely after the base date and did affect many property market values.  

To put this in perspective, in the third year of the cycle, 2018, a NL property was being assessed at its value from four years earlier in 2014. This is a significant lag and underlines the merit in timely assessment base dates and shortened assessment cycles. NL has since shortened their assessment cycles with St. John’s now having a twoyear cycle and properties outside St John’s reduced to a single year cycle. This has been the trend in many assessment jurisdictions in recent years, however COVID-19 is throwing many trends into disarray.        

The implications of COVID-19 are rather unique in that there has been a dramatic change within a very short window. As a result, even a shortened assessment cycle does little to quash the challenges many property owners are experiencing in the near term. Base dates also play a role in New Brunswick, where for example the 2020 assessment notices were released on March 1, only weeks ahead of the State of Emergency, but were based off of a value as of January 1, 2020 (prior to COVID-19’s proliferation in Canada) so the assessment authority’s position has been they cannot consider COVID-19 based arguments for 2020 appeals.  

That said, perception of property value is diminished for many during these times and a common question surfaces: “When will assessments reflect the current COVID-19 impacted value?” Although it’s possible some legislative change may occur, as it stands, the following are the first assessment years with base dates after the pandemic’s impacts began taking hold: 

New Brunswick (annual cycle) – 2021 assessments will have a base date of January 1, 2021 

Prince Edward Island (annual cycle) – 2021 assessment will have a base date of January 1, 2021 

Nova Scotia* (annual cycle) 2022 assessments will have a base date of January 1, 2021 

Municipalities outside St John’s, NL (annual cycle) – 2022 assessments will have a base date of January 1, 2021 

City of St. John’s, NL (two-year cycle) – 2024 assessment will have a base date of January 1, 2022  

*It is noted Nova Scotia distinguishes between base date (financial status) and state date (physical condition) 

What to watch going forward

Assessment authorities are tasked with a difficult undertaking with downward pressure on assessment values, and how this will play out is rather uncertain. The impact of the pandemic on published values are yet to be seen but it is reasonable to expect some asset types will be more impacted than others in the near term. 

In response, some assessment authorities nationally have looked to simply extend cycles, leaving values flat. In contrast, we would recommend a shorter and more timely assessment that captures the existing situation. Other assessment authorities, devoid of any purported ‘freeze’ in assessment, may be inclined simply to be less aggressive on value than in years past.  

It has not been uncommon, at least in Atlantic Canada, for assessments and tax base to creep up over time and it’s foreseeable assessors will hold off on some increases as they monitor the market for perceived impacts of COVID-19. For those with flat assessments, this may appease municipalities who rely so heavily on the tax base, but once base dates change post COVID-19, an assessment in-line with the previous cycle may be drastically different. Another alternative is to reduce assessments, particularly those most impacted, in order to capture the effects of the pandemic on values. The question then becomes: is the reduction enough?  

Under any scenario it’s clear a high volume of appeals can be expected. However, assessment makes up only one portion of the equation and the municipalities are also reeling with the effects of COVID-19. Municipalities rely on property taxation as their preeminent source of revenue. Demand for services and upkeep are balanced with tax levies on residential and commercial properties. The proposed tax levy must be balanced against the variety of services that taxes support as well as the ability of taxpayers to pay. Previous budgets are now defunct and as such we do expect more volatility in tax rates.  

The situation remains fluid and as property tax professionals we are a resource in monitoring developments in assessment jurisdictions throughout Canada. Through ongoing surveys, analysis of market transactions, and a focus on analytics of good data, we continue to track the impacts as they become more evident in the coming months and years. 

This article was originally published in the August 2020 CPTA newsletter.

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