What are buyers’ top considerations when making an offer on a property? The listing price, competing offers and neighbourhood comparables are all carefully weighed. However, property tax – a recurring payment that can significantly impact a household’s shelter budget – is often overlooked.
Unlike other transactional closing costs such as land transfer tax, property tax is paid continuously through one’s homeownership on an annual basis. It can be a significant carrying cost, though the amount homeowners pay can vary dramatically depending on the value of their home and the municipality they live in.
In fact, according to new calculations from Zoocasa, an Albertan homeowner living in Grande Prairie (which has the highest property tax rate in the province at 1.48000%) would pay $4,767 more in tax on a home assessed at $500,000, compared to a resident in Fort McMurray, where the property tax rate is the lowest at 0.47454%.
Related Read: How Property Taxes Differ Across Canada
How Does Property Tax Work?
Property taxes are based on two distinctive parts:
- The assessed value of your home, as determined by the provincial tax authority. This assessment takes into account the age and condition of your home, any applicable renovations or upgrades, lot size and features, as well as comparable values in your neighbourhood.
- The residential rate set by the local tax authority or municipal council. The rate is set each year via a bylaw, and is based on the municipality’s forecasted expenditures and budget. The proceeds of property tax are an important funding method for city and town services such as schools, public transit, police and emergency services, street maintenance, and the upkeep of green spaces. A portion is also given to the provincial government as part of Alberta’s Education Property Tax.
The amount you’ll pay in property tax can be calculated by multiplying your most recent home value assessment by the residential rate set by your local municipality.
Other Factors That Impact Property Taxes
Because the residential tax rate is determined by individual cities based on their specific budgets, they have considerable leeway when setting it. Some municipalities may opt to keep residential tax rates lower as part of a campaign promise to residents, and to increase the attractiveness of the local property market.
The size of a city’s population and home values can also impact the amount of tax; municipalities with a larger tax base and a strong real estate market typically have more flexibility to keep the tax rate lower. For example, in response to softer Calgary real estate and Edmonton real estate prices, both cities hiked their property tax rates in 2017, to help recoup losses from lower home values.
In comparison, Toronto and Vancouver – markets that have seen sustained, steep price appreciation – have decreased their rates for nine and 14 years in a row, respectively.
Another factor is the city’s commercial-to-residential tax ratio; in most municipalities, businesses pay at least double the amount of tax than homeowners, with the Canadian average at 2.85. Generally, a higher commercial property tax rate translates to a lower residential rate, and vice-versa; a local council may opt to hike the latter if they feel their community needs to offer more competitive advantages to businesses.
Home Buyers Should Consider the Cost of Property Taxes
It’s important for home buyers to be aware of the local tax rate in their desired neighbourhood, and how it may rise or fall along with their property’s appreciation; having to abruptly pay more tax due to rising home prices can be a shock to any household budget.
Check out the infographic below to see which Albertan real estate markets have the lowest – and highest – property tax rates, and what homeowners could expect to pay based on sample assessments of $250,000, $500,000, and $1,000,000.
Property tax rates were sourced from each municipality’s website. August 2018 average home prices were sourced from each region’s real estate board.