Bob Aaron email@example.com
March 5, 2011
Maple Leaf Square - Estimating unassessed taxes a tricky business
Closings of the units have been taking place in the last month, and purchasers have been concerned with calculation of some of the charges imposed by the builder.
The controversial charges arise from a municipal tax clause in the
Even if the taxes are neither assessed nor paid, they will be estimated by the builder for the calendar year in which the closing falls “as if the unit had been fully completed and separately assessed.” Any overpayment or underpayment is “subject to readjustment when the actual assessment for the unit is available.”
Of course, the amount of municipal taxes for newly-built homes or condominiums is never available on closing. It can sometimes take a year or even two for the Municipal Property Assessment Corporation (MPAC) to create an assessment roll number for the new residence, and assign a fair market value to it.
Typically MPAC bases its assessment of the fair market value of a
new condominium on the purchase price after deducting the GST or HST paid by
the purchaser. That assessed value is then forwarded to the City of
Since the builder has the right to collect realty taxes for the year of occupancy and the year of closing (if they fall in separate years), the issue is then how the builder estimates those taxes, and what mechanism is in place to ensure that appropriate refunds are issued if the amount collected on closing exceeds the taxes eventually charged by the city.
In the case of two of my clients buying a condominium in
In other words, when determining the market value of a newly-built
For property tax purposes, the City of
But that’s not how the developers of
On my client’s closing, they were charged estimated 2010 and 2011 taxes based on an annual estimate of $2981.14, or about $1,000 more than a realistic calculation of the city’s final tax bill.
How do builders arrive at this higher number? I believe the charge to my clients was
incorrectly based on the price including GST, times a multiple of 1.25
percent, which was the
When the final tax bills for 2010 and 2011 arrive in a year or two, the builder is responsible for paying them and for refunding the overcharge to the purchasers - if requested, and if the purchaser remembers having been overcharged. If purchasers do not remember to request the refund, or if ownership has changed hands in the interval, the builder may never be asked to refund the overcharge.
Based on 872 units and an overcharge of about $1,500 per unit, the developer has collected an extra $1.25 million, some of which may never be refunded. And that’s just this one project.
Mark Mandelbaum and Barry Fenton are the principals of Lanterra
Developments, the parent company of
Purchasers closing on new condominiums should be alert to the way in which their municipal taxes are calculated, and purchasers who are signing offers to buy new condominiums should make sure that the wording ensures that taxes will be calculated realistically on final closing.