The general formula for property taxes in Ontario is tax rate multiplied by property assessment value. However, this formula varies significantly for properties in the non-residential tax classes. The Province of Ontario protects commercial, industrial, and multi-residential properties from tax increases. The program limits or "caps" at 10 per cent any change to the property taxes of any individual property.
Effectively, capping protects landowners from paying their full level of taxes. They are paying less tax than they should if they calculate their taxes using the formula for residential taxes.
On the other side, when MPAC re-assesses all properties in Ontario, some commercial, industrial or multi-residential properties decline in value. Ordinarily, this decline would decrease property tax. However, capping uses "clawback" to fund revenue shortfall resulting from lower assessment values by withholding some or all of the reduction to property owners.