Property Taxes Explained: Key Facts You Should Know Before Buying

There are countless “new” experiences you encounter after you make the shift from being a tenant to owning a home. One such new and intimidating part for many first-time homeowners is managing the long list of expenses, including the significant property taxes.

Municipalities collect property taxes from residents to cover the cost of essential local services that benefit everyone living in the area. Homeowners are required to pay these taxes at different points throughout the year. Homeowners who fail to pay property taxes according to the rules and deadlines can incur penalties or face legal action. However, there are many more key points about property taxes than this that you, as a new homeowner, absolutely need to be aware of.

Property Tax Basics Every Homebuyer Should Be Aware Of

1. Your Home’s Tax Bill Reflects Its Assessed Value, Not What You Paid

Many first-time homebuyers assume that the amount they pay for a house (sale price) determines their property tax bill. But that’s not accurate. In reality, your home’s assessed value, not the sale price, determines your property tax bill. The Municipal Property Assessment Corporation (MPAC) assigns this assessed value through standardised approaches.

So, if you have been estimating your new home’s property taxes based on the final sale price, it is time to recalculate. Your taxes could end up being higher or lower depending on MPAC’s assessment of your property.

2. Your Property Tax Bill Covers Two Key Components

Your property tax amount accounts for two primary costs, each serving a different purpose:

● Municipal Portion

The municipality collects this portion to fund essential services, such as:

• Road Maintenance
• Garbage Collection
• Public Transit
• Police and Fire Services

The municipal tax rate is set annually by your local council, based on the city’s or town’s budget needs.

● Education Portion

The second part of your tax bill goes towards funding Ontario’s public school system. Unlike the municipal portion, the provincial government sets the education tax rate.

In 2024, Toronto had a property tax rate of 0.71529%. Of this total rate, 0.55459% went to the municipality and 0.15300% to the education tax.

Some municipalities in Ontario also charge extra levies to fund area-specific programs or initiatives. For example, in Markham, the total property tax rate includes a levy that goes to the Regional Municipality of York. In Toronto, homeowners contribute to a City Building Fund.

3. Your Property’s Location Plays a Major Role in the Tax Rate You Pay

As mentioned earlier, your property tax bill includes an education portion set by the province. This part of the property tax bill stays the same no matter where you buy in Ontario.

However, municipalities decide their own tax rates. Hence, the municipal portion can differ dramatically from one city or town to another. The result? Even if two homes have the exact same assessed value, their annual property tax bills can be different depending on their location. For example, if your home’s assessed value is $800,000:

• In Markham, with a property tax rate of 0.6805%, your annual property tax would be around $5,444.
• In Windsor, with a higher property tax rate of 2.0328%, that same home would come with a tax bill of around $16,262.

That’s almost $11,000 more per year because of the city you live in.

4. Your Property Category Also Determines How Much Tax You Pay

The kind of property you own also plays a key role in how much property tax you pay. Municipalities adjust these rates annually to ensure fairness and meet revenue requirements across different property types. The 2025 residential property tax rate in Toronto is 0.754087%. On the other hand, the tax rate for industrial properties stands much higher at 2.384303%.

Properties are usually categorised as:

• Residential
• Multi-residential
• New multi-residential
• Commercial
• Industrial
• Managed Forests and Farmlands
• Pipelines

5. Assessed Values Can Go Up Mid-Cycle, And So Does Your Property Tax Bill

MPAC usually conducts a province-wide property assessment every four years. However, the COVID-19 pandemic put this regular schedule on hold. The last property assessment took place in 2016. Hence, officials still use the 2016 assessed values to calculate new property tax bills.

But here’s a catch. Even if the official reassessment is on hold, your property’s assessed value (and therefore your tax bill) can still increase under certain circumstances:

● Annual Municipal Budget Reviews

Every year, the municipal councils set their budgets and decide whether to adjust property taxes. If your municipality increases its tax rate, you could see a higher tax bill without a change in your home’s assessed value.

● Renovations or Major Home Upgrades

MPAC monitors significant changes to properties, and specific improvements can trigger a new assessment. Examples include:

• Finishing a basement or attic
• Adding a new structure, like a garage or extension
• Adding extra bedrooms or bathrooms
• Installing a swimming pool

When MPAC updates the assessments to reflect these improvements, you will receive a Property Assessment Change Notice. This new assessment reflects your home’s current value, and that can lead to higher taxes.

6. You Might Have to Pay an Adjusted Property Tax Amount Before Moving In

When you buy a home, you and the seller must split the year’s property taxes based on how long each of you owned the property. The seller pays for the portion of the year they lived in the home, and you, the buyer, cover the rest. This process is known as prorating, and it ensures a fair division of costs between both parties. Hence, depending on your closing date, brace up to pay part of the property taxes at the closing table.

One More Key Thing You Shouldn’t Skip!

We have already walked through the most important things you need to understand about property taxes. So, hopefully, you now feel better prepared and won’t be caught off guard by any unexpected tax surprises. But before you commit to buying your new home, there’s one extra step you should definitely take. You must confirm the exact property tax amount for your new home before you buy.

The easiest way to find this information is to ask the seller or real estate agent for a copy of the recent property tax bill. Taking this small step now means you can budget more confidently and step into homeownership without any surprises.