At least once a year, most property owners reflect on whether or not property taxes are going to increase. Most feel any increase is bad, no increase is good, but a decrease is even better! The property tax we pay is composed of a few different components and based on a few different factors. In fact, most property owners do not fully understand what, why, and how property taxes work. Hopefully this article will provide some understanding around your property taxes and provide you with some insight as to where your property taxes dollars go.
The taxation of property has been an ongoing concern for property owners throughout the history of mankind. Some of the earliest records of man, that have been discovered, relate to property taxation. For example, the famous Rosetta Stone, an ancient Egyptian artifact written, or I should say carved, in 196 BC greatly contributed to the modern understanding of the Egyptian hieroglyphic writing system, was in fact a tax exemption document. Even in Canadian history property taxes actually predate income and sales taxes. In Canada, municipal and provincial governments have relied on and continue to rely on property taxes. Canada remains one of the most dependent countries on property taxes out of all the industrialized countries in the world.
Property tax is an ad valorem tax (a value based tax) imposed on a property owner on an annual basis. The property owner is required to pay this tax to the local authority (for Langdon that is Rocky View County). The amount levied is based on a small percentage of the fair market value (also known as the taxable assessed value) of the property. This small percentage is called the millage rate (or mill levy). Each mill is equivalent to to one-thousandth of a currency unit ($0.001) or 0.01%. For example 20 mills would equal $0.02 or 2.0%. The process to calculate the millage rate is somewhat different depending on which tax component you are talking about.
In Rocky View County, most property owners’ tax bill have two components: the Education
Property Tax and the Municipal Tax Levy. Both of these taxes are set independently and the
revenues generated by each go to different places. It is important to note that there is more than
one property type, as well. For example there is: residential and farmland, non-residential,
machinery and equipment, or a regulated properties.
The Education Property Tax (EPT) is a uniform provincial mill rate that is established by the
provincial government of Alberta. The EPT mill rate is determined by the amount of revenue
required to provide education in the province which is divided across different municipalities
based on their individualized varied equalized assessment. This amount that each municipality
must collect from property owners calculated by taking the EPT mill rate and multiplying it by
the municipality’s prior years’ total taxable assessments ( the municipality’s varied equalized
assessment). The province of Alberta has been able to either lower or freeze the EPT during the
last 17 years. In fact for 2010, the EPT has been lowered by 13.6 percent and now stands at 2.93
mills for residential and farmland property and 4.31 for non-residential property.
Annually the municipality submits the sum of all individual property assessments to the province, then the province applies the EPT mill rate and invoices the municipality for their requisition amount. The municipality in return collects the required pro-rata amount from each individual taxpayer and submits the taxes to the Alberta School Foundation Fund (ASFF).
The primary source of revenue for the municipality is the Municipal tax levy. This levy is determined by taking the revenue required for a given year to run the municipality and dividing that amount by the taxable assessment value of the taxable properties (also called the net tax digest). This calculation determines what the municipal mill rate for each category of property. Municipal tax revenues are used to provide the local government services and local improvements to infrastructure. For example suppose there was a municipality that had an annual operating budget of $1,000,000 and contained within this municipality there were 1000 residential homes assessed at $400,000 each. The mill rate for this municipality would equal 2.5 mills or 0.0025% of the individual property value. In general terms mill rate = [Annual Municipal Operating Budget / (number of properties x assessed value)] x 1000.
The higher the municipal operating budget (keeping the number of taxable properties and assessed values constant) will result in a higher mill rate and a higher municipal tax levy. On the other hand, the more taxable properties or the higher assessed value (keeping the municipal operating budget constant) results in a lower mill rate and lower municipal tax levy.
While most municipal tax levies come from market-value based properties (e.g. residential),
some municipalities have a significant portion of their revenue coming from tax levies on
regulated properties. Regulated properties are properties that seldom trade in the marketplace,
cross municipal boundaries, or are of unique nature. There are four categories of regulated
properties: farm property, machinery and equipment, linear property, and railways.
Both farm property and machinery and equipment property types are assessed by local tax
assessors. The assessed value for farm land is based on the productive value of the land (i.e. the
better soil the higher the assessed value). Machinery and equipment property type includes:
underground tanks, separators, fuel gas scrubbers, compressors, chemical injectors, and metering
and analysis equipment. Some businesses affected by machinery and equipment taxes are:
refineries, chemical plants, pulp and paper plants, and oil sand plants.
Linear property and Railway properties are not assessed by local assessors. Linear properties
(e.g. properties that cross municipal boundaries such as oil gas wells, pipelines to transport
petroleum, electric power systems, and cable systems) are assessed by a designated assessor
appointed by the Municipal Affairs department, while Railroad properties are charged a fixed
amount per kilometre of rail, based on the annual tonnage transported on the line.
So for 2009 taxation year, Rocky View’s assessed value of residential, farmland, non-residential,
machinery and equipment along with the respective municipal mill rates were:
|Property Class||Total Assessed Value||Municipal Mill Rates|
|Machinery and Equipment||$536,918,000||6.7377|
|Total Assessed Value (2009)||$12,799,585,577|
Naturally the next question would be how does Rocky View’s municipal tax rates compare with
other cities, towns, villages, and/or Counties within the Calgary region? Rocky View’s
municipal tax rates on Residential (or Farm Property) are fairly low at 2.2459. While the
municipal tax rate for non-residential property is not as favourable at 6.7377:
|City, Town, Village, County||Residential/Farm Property||Non-residential Property|
|Rocky View County||2.2459||6.7377|
|City of Calgary||2.6402||8.2132|
|City of Airdrie||3.5528||6.7429|
|Town of Cochrane||3.7200||6.3400|
|Town of Okotoks||4.2360||4.6380|
|Town of Canmore||1.6185||5.4761|
|Town of Chestermere||5.3288||6.8288|
|Town of Crossfield||6.2500||6.2500|
|Town of Strathmore||4.7100||5.4270|
|Town of Irricana||7.5544||7.5544|
|Town of High River||4.4124||4.4124|
|Village of Beiseker||8.5880||8.5880|
Source Government of Albert – Municipal Affairs, January 2010
The reader should also be aware that despite property taxation historically has been the major source of a municipality’s revenue base, there are a number of other taxes that may be charged by the municipality to generate revenue, such as: supplementary assessments, business revitalization zone taxes, local improvement taxes, special taxes, well-drilling equipment taxes, and business taxes. Taxation can be a confusing and complicated item without a little guidance, however, now with a basic understanding of the different types of taxes and how property tax is levied, a well informed property owner can begin to explore how are property tax dollars being spent? or the more important question what value am I getting for my tax dollars?