Fundamentals of the Property Taxation System
Property taxation is the process of applying a tax rate to an assessed value of property to generate revenue to fund the delivery of services. The assessment of property serves as the framework to allocate property taxes among property owners. In Alberta, those property taxes are used to fund services delivered by municipal governments and regional and provincial programs such as education.
Municipalities are the authorities responsible to collect property taxes. The municipal tax portion is managed by the municipality to fund local operations and the education tax portion is transferred to the province to fund the Alberta School Foundation Fund.
Property taxes are not a fee for service, but a method of distributing the cost for local government services and education taxes fairly throughout a municipality.
Municipal property taxation
Each year, municipal councils will determine the amount of money they need to operate the municipality. From this amount, sources of revenue other than property tax, such as user fees and provincial grants, are subtracted. The remainder is the amount of money the municipality needs to collect through property taxes to provide services for the year.
Tax rates by assessment class and sub-class
The Municipal Government Act sets out the following classes of property and allows for sub-classes to be created for Classes 1-3:
- Class 1 – residential
- Class 2 – non-residential
- Class 3 – farmland
- Class 4 – machinery and equipment
Minimum property tax
A municipality may levy, by bylaw, a minimum amount of tax on each property. The minimum property tax is not a fixed surcharge; it is a tax floor amount. The minimum tax only applies to a property if the calculated tax rate multiplied by the assessed value of the property is lower than the amount set as the minimum tax.
Example - Council approves a property tax bylaw with a minimum tax payable of $100. The municipal residential property tax rate is set at 0.0025. A property is valued at $30,000 which when calculated ($30,000 x 0.0025) equals a tax bill of $75. Since this amount is less than the minimum tax of $100, the property owner would receive a tax notice of $100 owing.
The minimum property tax is only applicable to the municipal portion of the total property tax payable.