Wednesday, March 7, 2012

Divided versus Undivided, A Reader Asks about Taxes

MontReal Estate reader Sabrina read a post I wrote about the differences between divided and undivided properties. One of the most interesting differences about the two is that the property taxes on undivided properties are generally substantially lower on undivided than divided.

Sabrina wrote to ask how much of a difference there is. So here goes.

I can't give you a precise mathematical answer to the question, Sabrina. If you own a condo, your property taxes will be based on a formula the city works out every three years when it adjusts the property tax rolls.

For example, if you look at Plateau Mont Royal, the basic 2012 tax rate or mill rate is .8183 cents per $100 for evaluation if your unit is in a building with five units or less. Add to that .1403 cents per $100 of evaluation for water tax and a road improvement tax of .0047 cents per $100 of evaluation.

If you live in a condo, also known as a divided property, the city will base its evaluation on the value of your property alone, though the truth is that evaluations generally trail market values. Thank goodness.

If you have an undivided property, the property tax will be based on the value of the entire building and will be divided among the co-owners according to what percentage of the building they own. If your property is part of a triplex, that might work out to 31 per cent for the middle floor, 35 per cent for the ground floor and 34 per cent for the top floor. (The percentages can vary, depending on if the person on the ground floor also gets access to a basement, or whether the second floor is smaller than the third floor because of the staircase etc.)

Have I bored you to tears yet, Sabrina?

Here's a more visual illustration. I looked up four properties that sold within the last 6 months in the Plateau. All sold for between $345,000 and $350,000. Two are divided properties and two are undivided. Have a look.

Berri St. undivided. Sold $350,000.  Building evaluation $754,000. Ownership share = 30 per cent. Taxes= $2230.50

De Bullion St. divided. Sold for $350,000. Evaluation $343,000. Taxes= $3,965

Waverly St. undivided. Sold for $345,000. Building evaluation $510,300. Ownership share = 30 per cent. Taxes = $1567.

Henri-Julien Ave. divided. Sold for $350,000. Evaluation $270,3000. Taxes = $1,747.

As you can see, there can be wide differences in property taxes, depending on whether your evaluation is low or high. A low evaluation today will be corrected next time the property rolls are updated. The one thing that doesn't change is that the taxes on an undivided property are lower than those on a divided property that sells for the same price.

 I hope that helps, Sabrina. Thanks for writing!

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