Property tax

A property tax (or millage tax) is an ad valorem tax levy on the value of property that the owner of the property is required to pay to a government in which the property is situated. Multiple jurisdictions may tax the same property.

There are three species or types of property: land, improvements to land (immovable man-made objects, such as buildings), and personal property (movable man-made objects). Real property (also called real estate or realty) means the combination of land and improvements. Under a property tax system, the state requires and/or performs an appraisal of the monetary value of each property, and tax is assessed in proportion to that value. Forms of property tax used vary between countries and jurisdictions.

A special assessment tax is sometimes confused with property tax. These are two distinct forms of taxation: one (ad valorem tax) relies upon the fair market value of the property being taxed for justification, and the other (special assessment) relies upon a special enhancement called a "benefit" for its justification.

The property tax rate is often given as a percentage. It may also be expressed as a permille (amount of tax per thousand currency units of property value), which is also known as a millage rate or mill levy. (A mill is also one-thousandth of a currency unit.) To calculate the property tax, the authority will multiply the assessed value of the property by the mill rate and then divide by 1,000. For example, a property with an assessed value of US $50,000 located in a municipality with a mill rate of 20 mills would have a property tax bill of US $1,000 per year. In more familiar terms, dividing the mills by 10 (moving the decimal point to the left by one) yields the percentage rate ; for example, 20 mills = 2.0%.

Countries

Australia

Australia has property taxes known as property or land rates. Land rates and frequency of payment are determined by local councils. Each council has land valuers who value the land's worth. The land's worth is the value of the land only; it does not include existing dwellings on the property. The assessed value of the land determines the total charges of rates. Rates can range from $100 per quarter to $1,000 per quarter depending on the location and value of the land. Quarterly payments are common, but frequency varies by locality. Australian property owners also pay water rates. Some councils include this in the total of the rates notice and provide a breakdown of water and land charges. Other councils may charge this separately. Depending on the municipality, water rates can be either a flat fee, user pay or a combination of both. Prospective buyers can get details about land and water rates from the local council before purchase.

Australia also has stamp duty, applied at the time a property is sold, by the purchaser to the Office of State Revenue. In addition to stamp duty there is also a Land Transfer Charge under the NSW State Revenue Legislation Amendment Bill 2010 (1 July 2010). The Charge will be levied as an ad valorem tax to be paid by the purchaser, for property above $500,000 in value, and is payable at the time a transfer document is lodged for registration with Land & Property Information (LPI).

Stamp duty rates are applied on a sliding scale of 1% to 6.75% based on the value of property and the state of Australia.

Canada

Many provinces in Canada levy property tax on real estate based upon the current use and value of the land. This is the major source of revenue for most municipal governments in Canada. While property tax levels vary among municipalities in a province there is usually common property assessment or valuation criteria laid out in provincial legislation. There is a trend to use a market value standard for valuation purposes in most provinces with varying revaluation cycles. A number of provinces have established an annual reassessment cycle where market activity warrants while others have longer periods between valuation periods.

Calculating Individual Property Taxes

In Ontario, for most properties (e.g., residential, farms), the property taxes can be calculated by multiplying the phased-in assessment indicated on the Property Assessment Notice by the tax rate.

Municipal tax rate x phased-in assessment for the particular taxation year = municipal portion of tax county/regional tax rate x phased-in assessment for the particular taxation year = county/regional portion of tax education tax rate x phased-in assessment for the particular taxation year = education portion of tax

municipal portion of tax + county/regional portion of tax + education portion of tax = Total Property Tax

In some cases (e.g., commercial, industrial, multi-residential properties), the Province or municipality may implement measures that affect the actual taxes paid on a property.

Chile

Land property taxes, called "territorial tax" or "contributions", are paid annually in four payments during the year. The rate varies between 1 to 2% of the fiscal value, depending on the use of the property (agricultural, habitation, commercial). The fiscal value is determined for each property by the Internal Tax Service, based on the land area and built area, the value of the construction materials, age, use and distance to commercial areas. The fiscal value is usually much lower than the market value. Non-business properties valued below a certain fiscal value are exempt (currently about USD$33K). Properties used for business face no exemption. The collected taxes go to the municipality where the property is located.

Hong Kong

In Hong Kong , there is a kind of tax named a property tax, but it is not an ad valorem tax; it is actually classified as an income tax.

According to HK Inland Revenue Ordinance IRO s5B, all property owners shall not be subject to this tax; unless the HK property owner has received a consideration, the example is rental income for the year of assessment. The property tax shall be computed on the net assessable value at the standard rate.

Year of Assessment

The period of assessment is from April 1 to March 31 of the following year.

Net assessable value

The formula is:

:Net assessable value = 80% of Assessable value.

:HK property tax payable = Net assessment value X Property tax standard rate

:Assessable value = Rental income + Premium + (Rental bad debt recovered — Irrecoverable rent) - Rates paid by owner.

Jamaica

This tax is paid in the same way as a mortgage, an annual payment depending on the value of one's assets, such as property.

India

Property tax or 'house tax' is a local tax on buildings, along with appurtenant land, and imposed on owners. It resembles the US-type wealth tax and differs from the excise-type UK rate. The tax power is vested in the states and it is delegated by law to the local bodies, specifying the valuation method, rate band, and collection procedures. The tax base is the annual ratable value (ARV) or area-based rating. Owner-occupied and other properties not producing rent are assessed on cost and then converted into ARV by applying a percentage of cost, usually six percent. Vacant land is generally exempt. Central government properties are exempt. Instead a 'service charge' is permissible under executive order. Properties of foreign missions also enjoy tax exemption without an insistence for reciprocity. The tax is usually accompanied by a number of service taxes, e.g., water tax, drainage tax, conservancy (sanitation) tax, lighting tax, all using the same tax base. The rate structure is flat on rural (panchayat) properties, but in the urban (municipal) areas it is mildly progressive with about 80% of assessments falling in the first two slabs. By all accounts, the property tax is under-utilised in the municipalities and not effectively used in the panchayats, mainly due to tax payer resistance.

Netherlands

Property tax (Dutch: Onroerendezaakbelasting (OZB)) is levied on homes on a municipal basis in two parts: for the one who lives in the house, and for the owner of the house. When one has a rental home, they are only liable for the living part of the tax.

United Kingdom

There is currently no ad valorem tax on residential property. Two former systems were dropped because of their extreme unpopularity. They were

Schedule A income tax, a central government tax that was levied on the imputed rent, that is the rent that owner-occupiers of land would have been receiving from a tenant had they not been living in the houses they owned. However, actual (as opposed to imputed) rent is still subject to income tax under Schedule A.

Rates, a local government tax that was levied in proportion to the assessed value of property; this proportion was not fixed or set by a schedule or formula, but rather floated according to the budget decided on by councillors (originally only elected by ratepayers), giving rise to a charge distributed proportionally over all the relevant properties. This was replaced under the Thatcher government by the Community Charge (popularly known as "poll tax"), which proved even more unpopular than the rates, and was replaced by a mixed Council Tax which combines elements of property tax and a poll tax. Rates are still (2010) levied on business property, though some classes of business are exempt.

United States

In the United States, property tax on real estate is usually levied by local government, at the municipal or county level. Rates vary across the states, between about 0.2% and 4% of the home value. The assessment is made up of two components—the improvement or building value, and the land or site value. In some states, personal property is also taxed. The property tax is the main tax supporting local education, police/fire protection, local governments, some free medical services, and most of other local infrastructure. Also, many U.S. state and local jurisdictions impose personal property taxes.

See also

Land value tax

References

Category:Real property law