Property tax is a tax based on the assessed value of a property. If you own a property, you will have to pay property tax. It is used to pay for city services such as police, the fire department, and public transit as well as elementary and secondary education.
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Property taxes in Alberta are primarily made up of two components: a municipal tax and a provincial education tax. The former is used to fund municipal expenditures including city services, police and local infrastructure. The latter is used to fund primary and secondary education throughout Alberta.
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Municipal property tax rates are determined based on the budget needs of the municipality. Municipalities consider their expected spending and other revenue and use property taxes to make up for the rest. The specific property tax rate for a certain year depends on the budget of the municipality and its total assessment base (their tax base). If more tax revenue is necessary, tax rates will need to go up, and vice-versa.
Education property tax rates are also set by municipalities. Alberta sets a certain education tax rate every year and expects municipalities to fund their portion based off their assessment base. It is then up to the municipalities to determine how they will fund the education tax and to set their own education tax rates for different property types.
In 2020, the provincial education tax rate was set at 0.255% of total residential/farmland equalized assessment value and 0.375% of total equalized assessment value for non-residential properties.
Properties in Alberta are assessed every year by municipalities according to guidelines by the Ministry of Municipal Affairs and the Alberta Assessment and Property Tax Policy Unit. This is different from BC and Ontario where property assessments are conducted by a provincial entity. Most properties are assessed using a market value-based approach. There are three ways that municipalities can use to determine a property’s market value:
1.Sales Comparison Approach
Most properties are valued under this approach. This compares the sales of similar properties in the assessment year to determine a valuation for the property. The assessed value may not equal the actual market value or sale value of a property.
New properties are valued under this approach. This uses the cost of the property if someone were to rebuild it to determine a valuation for the property. This includes the price of the land and the price of all improvements (e.g. buildings) on top of it. While this takes into account the market value of the land, it does not consider the market value of the property as a whole.
For properties that are dedicated to generating income like rental properties or offices, an income-based approach is used. In these cases, it may not be possible to find recent sales of comparable properties. This approach uses the income generated by the property to determine its assessed value.
Farmland is one of the few types of property/land that are assessed under a regulated system rather than a market value. They also have some of the lowest property taxes relative to market value. They are valued based on the productive value of the land compared to a baseline set in 1995. The relative productivity is then multiplied by the baseline assessment value of 1995. This would be $450 per acre for irrigated arable land, $350 per acre for dry arable or dry pasture land, and $135 for woodlot lands. This value is then multiplied by an assessment year modifier published every year by the Ministry of Municipal Affairs to arrive at the assessed value.
Farmland Regulated Assessment Values are Significantly Lower than Market Prices
The assessment year modifier set by the Ministry of Municipal Affairs has remained unchanged at 1.00 to 1.03 since 1995. This means that farmland today is still valued at 1995 prices and with a maximum of $450 per acre. In contrast, sale prices have ranged between $600-$3,000 an acre for agricultural farmland and between $6,000-$10,000 for farmland closer to residential districts. This is a difference in valuation of up to more than 2,000%.
Farmland Exemptions to Buildings and Improvements
Usually, improvements like buildings on top of land are considered in property assessments. If you have an empty parcel of land, your assessed value will be lower than the same piece of land with a home on it. Farmland has an exemption from this consideration, however, with farming buildings being exempt from assessment. Residential buildings can also be exempt up to a certain limit.
Property assessments in Alberta are conducted annually and must be based on the value of the property on July 1st of the previous year. For example, a 2020 property assessment will be based on the value of the property on July 1st, 2019. This is called the Valuation Date.
Another important date is the Condition Date. When considering the value of a property, municipalities will take into account the prices on July 1st, the valuation date, but based off the condition of the property on December 31st. For example, if you added a new garage to your home in September, your property assessment will compare prices on July 1st of homes with a garage.
Property taxes have been part of Alberta since the 1800s. First introduced by Ontario with the Municipal Act of 1880, Alberta and other provinces soon adopted similar legislation. Since then, the history of property taxes and assessments in Alberta can be split into two distinct periods:
Pre-1995 and the Municipal Government Act
Up until 1995, all properties and land except for farmland including industrial and residential properties were assessed at market value. Assessments were conducted by municipalities once every eight years. Improvements such as buildings as well as farmland were assessed based on regulations set by the provincial government.
Post-1995 and the Municipal Government Act
The adoption of the Municipal Government Act in 1995 brought along many changes to property assessments. First, property assessments were to be conducted annually rather than every eight years. Second, new regulations were set for the determination of market value. Third, a new class of property assessments was made for properties like farmland, railways, and linear property including oil and gas wells and transmission lines. Every year, the Ministry of Municipal Affairs publishes guidelines and how these properties should be assessed.