Tuesday, 18 April 2017 16:56

Exclusive: Real estate agents raise new problem inflamed by property tax assessment errors

The province’s real estate association is raising a new problem it says is being inflamed by widespread property tax assessment errors, contending that inflated assessments are now costing New Brunswick home buyers thousands of dollars in extra fees.

In doing so, the New Brunswick Real Estate Association says a current review of the property tax system ordered by the Gallant government does not go far enough.

The association is now slated to make a public call on Monday for the creation of a task force with a mandate to recommend how the assessment system can be completely overhauled and transformed into something more fair and equitable.

That review would follow the work of an independent judge the provincial government recently appointed to get to the bottom of how the implementation of a new property assessment system resulted in thousands of New Brunswickers getting incorrect tax bills.

The task force would then take a wider view of the issue and involve the public, according to the association.

The Liberal government pointed in a statement on Sunday to a full review of the property tax system completed by the past Progressive Conservative government five years ago, adding that it will wait for an independent review of current errors to run its course before considering any next steps to overhaul the assessment system.

New problem

The province’s real estate association contends that the impact of errors that have inflated property tax assessments is much more far reaching than a current controversy surrounding tax bills.

It also underscores problems with what is known as the province’s Property Transfer Tax, that requires a tax be paid based on either the actual sale price or the assessed value of a property in New Brunswick, whichever is higher.

“If thousands of assessments are wrong, what does that mean for the properties that were sold in New Brunswick this year and last?” Kari McBride, New Brunswick Real Estate Association past president and current chair of the association’s government relations committee, told the Telegraph-Journal in an interview.

“It means buyers may have unfairly paid too much transfer tax.”

McBride told the Telegraph-Journal that she sold a home in the Fredericton area on Saturday for $230,000.

But it was currently assessed at $264,900.

“When I informed my buyers that they would be paying the land transfer tax on the $264,900, they could not comprehend why,” McBride said. “They ended up negotiating for a lower price to offset the extra land transfer tax they would have to come up with at closing, while the seller was already taking an $18,000 loss from what he paid for the home in 2011.”

The association has chronicled several similar incidences in a paper it has presented to government. It contends that 55 per cent of all properties sold in the Moncton area last year - arguably the hottest real estate market in the province currently - were purchased below assessed value.

The problem is exacerbated even further after the Gallant government recently doubled the transfer tax, McBride also mentioned.

The 2016 budget increased the one-time tax payment on the purchase of a property from 0.5 per cent of the sale to one per cent. The Gallant government contended in a press release at the time that “New Brunswick’s real property transfer tax will remain among the lowest in the country.”

McBride said the group met privately with Finance Minister Cathy Rogers last week to present its concern and a call for government to levy tax based on the actual sale price of the property, “not someone’s estimate of its value.”

“The gap between sale prices in New Brunswick and assessed value keeps getting larger,” McBride said. “The property assessments issue is only part of the larger problem of property tax fairness in New Brunswick.

“Current property tax policies are unreasonable and unfair.”

She added: “They are certainly holding back investment in New Brunswick and punishing those who own or lease commercial space. The time to address the profound flaws in the system is now.”

New review

McBride said the association “wants a comprehensive review of the province’s entire property tax structure” to ensure that New Brunswick follows best practices, and is competitive in a global marketplace with an equitable tax system.

Premier Brian Gallant has appointed a retired judge to figure out exactly how New Brunswick property owners were knowingly given incorrect and inflated tax bills, also promising to eventually get government out of the assessment business.

Former Justice Joseph Robertson is leading a review of “all policies and procedures related to recent assessment processes,” including “the assessment methodology, factors related to timing and deadlines, the use of various technological aids, quality control processes, and the use of formulas to estimate values,” according to a government press release.

Of note, the property tax system recently underwent a significant review just a few years ago under the former Progressive Conservative government.

Public consultations were held that resulted in a white paper published by government.

The Property Tax Reform Act was then brought forward in late 2012 introducing, among other things, a 10-per-cent assessment spike protection mechanism to protect property owners from major one-year spikes.

Requests for comment to both the premier’s office and government departments were returned on Sunday by Finance Department spokeswoman Bonnie Doyle Creber who pointed to that previous review.

“The previous government undertook a comprehensive review of the property tax system from 2011 to 2012 under the leadership of then finance minister Blaine Higgs and then local government minister Bruce Fitch,” Doyle Creber said. “The system in place today is the result of that recent review.

“The focus right now is on correcting errors that occurred this year and on awaiting the results of Justice Robertson's review of the systemic issues in the property tax assessment system which has seen thousands of errors each and every year going back to at least 2010.”

Doyle Creber added that “whether further studies or changes are required is a question best addressed after Justice Robertson concludes his report.”

The real estate association believes Robertson’s review doesn’t go far enough and that problems with the overall system still exist.

“Equal or greater emphasis should be placed on developing the property tax system of the future, considering the important role it plays on both the overall revenue for the province and our potential for economic growth,” McBride said.

The association wants the government to establish a task force with a mandate to recommend changes to the property tax system.

“In our proposal the task force would focus on the future, incorporating any relevant recommendations from Justice Robertson,” McBride said. “This includes recommendations on who does the assessment, the guidelines that are used, and the rights and procedures for appeal.”

The task force would include the public, although an exact makeup of who would be involved and how hasn’t been formulated.

The Liberal government has also said it will introduce legislation next year to create an agency independent of the provincial government that will oversee property assessment.

McBride said the implications of that plan is still being studied by the association, declining to comment further.

Further changes

The association has also recommended that government must simplify property value assessment calculations.

It recommends that when a residential property is sold, the amount it actually sells for should be the assessed value base going forward.

For each year after, increases should be tied to either an annual cost-of-living increase, or the change in the average residential market price in each specific community.

If the property has not sold within a seven-year period, a visual inspection should be required.

The premise is that, year over year, properties gain equity, but not in huge spikes or declines.

“We as realtors, on a daily basis, have to explain to home buyers and home sellers that the assessed value of the home is rarely an accurate depiction of that property’s value,” McBride said. “It’s very confusing for the public, that is for certain.”