According to value [Latin]. Tax levied
against property according to the value of
that property. This term is generally used
in reference to the calculation of real
property taxes. Once established, the
assessed value becomes the basis for realty
tax calculation.
A municipality will determine its
financial needs and establish an appropriate
budget. The total budget is then divided by
the assessed value of all properties to
arrive at a multiplier (tax rate) or mill
rate (the traditional rate used by
municipalities). This rate is applied in
relation to individual property assessments
to arrive at the current realty taxes
payable by the owner of that property.
The mill or tax rate charged normally
varies by type of property. For instance,
the rate for commercial property will
usually differ from residential. Methods for
calculating rates vary by provincial
jurisdiction. In Ontario the mill rate has
been replaced with a tax rate. Tax rates are
established by the municipality for various
property classes, e.g., residential,
multi-residential, commercial, and
industrial. The tax rate is simply a
percentage rather than a mill rate that is
expressed in tenths of a cent. The change
from mill rate to a percentage tax rate was
intended to simplify the process for
property owners including explanations on
tax notices.
Example of
Ad Valorem (Using Mill Rate)
Each year Anycity’s elected civic
officials determine the city budget for the
upcoming year. When required revenue is
established in line with the budget process,
this amount is divided by the total taxable
assessments and a figure called a mill rate
is struck. A mill is the unit of taxation
applied to taxable assessed value. One mill
amounts to $1.00 of tax for every $1,000 of
assessed value. In the simplest scenario, if
the city budget requires $7,500,000 and the
total assessment is $750,000,000, then the
calculation is:
$7,500,000 ÷
$750,000,000 = 10 mills
(or 0.01 or 1% in Ontario)
This means that for
every $1,000 of assessment, a property owner
pays $10.00 in municipal taxes. John and
Mary Smith live in Anycity and their home,
according to the value of the property, has
been assessed at $185,000. With a mill rate
of 10, the Smiths’ taxes are:
$185,000 ÷ 1,000 x 10
= $1,850.00
In
Ontario, the tax rate for purposes of this
example is 1%. The Smiths’ taxes are as
follows:
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