Combine at dusk

Combine at dusk

Thursday, August 29, 2019

Assessing farmland value for property taxation - estimates alone aren't enough

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:


The Municipal Property Assessment Corporation (“MPAC”) is tasked with assessing the value of land in Ontario for the purpose of municipal property taxation.  The Assessment Act, the legislation that governs the process, provides that the assessment of land is to be based on its current value.  Current value means, in relation to land, “the amount of money the fee simple, if unencumbered, would sell for in an arm’s length transaction between a willing seller and a willing buyer.”  Where an assessed owner disputes the valuation made by MPAC, the owner may appeal the assessment to the Assessment Review Board (“ARB”) and request that the assessed value be adjusted.  In an appeal to the ARB, MPAC has the burden to prove the correctness of its assessment of current value.

The ARB recently issued three appeal decisions involving three separate rural properties owned by the same owner.  One property was roughly 165 acres in size, classified as farmland without any buildings, and comprising about 129 acres of Class 6 farmland (rocky bush land and swamp/marsh land) and 36 acres of “Class 4 overgrown ‘pasture’ land”.  The second property was a 160-farm with outbuildings, comprising about 141 acres of Class 6 farmland (rocky bush land and swamp/marsh land), just under 8 acres of Class 4 “pasture”, and 11 acres of Class 2 farmland.  The third property measured just over 7 acres and was classified as a farm residence with farm outbuildings.  MPAC had assessed the value of the 165-acre parcel at $31,500 for the 2017 taxation year and $47,000 for the 2018 taxation year.  MPAC assessed the value of the 160-acre farm at $32,000 for 2017 and $54,000 for 2018.  The smaller farm residential parcel was valued at $148,000 for 2017 and $175,000 for 2018.

The owner of the three properties appealed the MPAC assessments in all three cases on the basis that the values were not representative of the “true, significantly lower, value that would be more appropriate”.  And, in all three cases, it appears that the owner did not put forward his own proposed current value for the lands; rather, he challenged the correctness of the MPAC valuations, which had resulted in significant increases in the assessed values over a span of only three years.  The owner did not believe the increased assessments were fair or supported by evidence.

In each appeal, evidence was given on behalf of MPAC by the Property Valuation Analyst who had reviewed the properties and determined the assessed value for MPAC.  In valuing farmland, MPAC uses the “cost approach”, which assesses the value of any improvements to the land, and then adds that value to the bare land value that is derived by comparing the land in question with other farms in the neighbourhood.  For the 165-acre and 160-acre parcels, MPAC had assigned specific per acre values to the Class 6 land, the Class 4 land, and the Class 2 land.  MPAC then checked those values by comparing the two parcels with other vacant and improved lands sold in the vicinity between 2008 and 2016 (parcels ranging in size from about 62 acres to 157 acres).  Historical sale prices were adjusted based on trends to provide current 2016 values for the comparison.

For the smaller farm residential parcel, MPAC also used the cost approach.  MPAC valued buildings on the property (a house and some outbuildings) at replacement cost, and then reduced those values for depreciation.  MPAC then added in values for bare land based again on specific per acre values for Class 4 and Class 6 farmland.  The resulting value for the property was checked for accuracy against the sales of four comparable properties in the neighbourhood – the same four comparables used in the assessment of the larger 165-acre and 160-acre parcels. 

Where MPAC’s assessment of current value is appealed, MPAC “must not only estimate a current value but must present evidence clarifying how that value was arrived at and why it is right.”  In all three appeals, the ARB came to the same conclusion about MPAC’s valuation – “there is no clear path from the four selected comparable farm properties and the value given the Subject Property.”  The ARB noted that: “There were different values given for different types of farmland, which is to be expected, but not when those values are inconsistent within the same soil classification without explanation.”  The ARB also noted, in connection with the farm residential parcel, that the comparable sales involved much larger properties.  MPAC had failed to prove on a balance of probabilities that its assessments of current value of the three properties were correct.

Where MPAC has failed to provide adequate evidence, the ARB is then to analyze the evidence provided by the owner to see whether it is capable of providing a particular current value.  However, as noted above, the appellant owner didn’t provide evidence that could support a specific value for any of his three properties.  Where neither party in an assessment appeal provides adequate evidence of current value, the ARB fixes the assessment at the last uncontested assessed value.  In these recent cases, the ARB applied the 2016 assessed values to taxation years 2017 and 2018.

Read the decisions at: Case 1, Case 2, Case 3.

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