Edmonton Commercial Property Taxes are Rising 4x Faster than Inflation

The City of Edmonton just released the tax rates for 2018, and it ain’t pretty.

Before we get into the meat of the article, we’ll first provide a brief overview of how the tax rate is determined:

  1. The City prepares a budget to estimate how much it will cost to provide municipal services;
  2. Somewhat simultaneously, property assessments are calculated and send out early in the calendar year;
  3. The City allows a period of time for appeals;
  4. After this period expires, the City has the total assessed value of the property tax base;
  5. The City applies a tax rate (also called a mill rate) to residential, other residential (multi-family) and non-residential such that the corresponding property taxes cover a share of the budget.

Thus, the tax rate is only 1/2 of the property tax calculation, with the other 1/2 being the assessed value.

We compared the tax rates from 2010 to 2018 to show a very disturbing trend.  In 2010, the non-residential tax rate was 15.5588.  This number is expressed in mills, so the amount of taxes paid is equivalent to the assessed value of the property multiplied by the tax rate multiplied by 0.001.  We used an arbitrary value of $400,000 to compare residential and non-residential increases.  In 2018 the tax rate has jumped to 21.2187.  Here is the comparison from 2010 to 2018:

Screen Shot 2018-05-03 at 9.00.21 PM

The chart above assumes all property values increased in tandem with the provincial CPI (which has increased at an average compounded annual rate of 1.56% since 2010).  On this basis, values would have risen 13.2% in the past 8 years.

Stated another way, a commercial property assessed for $400,000 in 2010 would now be worth roughly $452,700 (if it increased at the same pace as CPI).  Again this is 13.2% over 8 years.  If we now take the property assessed at a theoretical $452,700 and apply 2018’s tax rate, the amount the owner is paying in taxes has increased a staggering 54.35% over that same time line.

Let’s emphasize this:

Over the past 8 years, Edmonton has had a 54.35% increase in commercial and industrial tax rates vs a 13.2% increase in provincial CPI.  

Now to be fair, the City of Edmonton phased out a business tax from 2008 to 2011.  The City was obviously concerned they were one of the few municipalities in the area that charged a business tax.  They liked the optics of removing the business tax (although the optics of having the highest tax rate in the region appears to be of little concern).

Although the business tax appears to have been fully rolled over into a property tax (with a generous premium for good measure), the results don’t change if we go back over the past few years.  Our economy was just entering the recession in 2015, and there appears to be signs that we are now exiting the recession in 2018.  According to Stats Canada, CPI in Alberta has increased 1.28% / year over the past 3 years (on average).  If we assume property values rose on par with the provincial CPI, and apply the increase in the tax rate, the results are equally as disturbing as the 8 year comparison we did above.

City of Edmonton Tax RatesIf we assume property values increased at the same pace as provincial CPI, the amount of taxes an owner of a non-residential property paid have increased 16.91% over the past 3 years, while CPI has only increased 3.89%.  In other words, in the time Alberta entered and exited the recession, property taxes in Edmonton have increased more than 4 times the rate of CPI.

Of course it’s not just property owners that pay these egregious increases.  In reality, the taxes are paid by the company that occupies the building.  Whether the company occupying the space owns or rents the building, these increases ultimately reduce profitability.  This means the company either has less money to re-invest into the business or it passes those costs along to the consumer.  In addition to increasing minimum wages and a carbon tax, businesses in Edmonton have been subjected to property taxes that are dramatically outpacing inflation.

So 2 questions come to mind:

  1. How does the City of Edmonton justify property taxes increasing 4x the rate of CPI?
  2. Why aren’t people more outraged?

Sources:

Inflation Calculator, Stats Canada, City of Edmonton

Disclaimer:

Our comments about the City of Edmonton’s wasteful mismanagement of tax revenue and expenses is solely our opinion and does not represent the views or opinions of any company, group or organization.  Also, our vitriol towards the City is not to be construed as real estate or investment advice and does not form part of any future contract.  This information has been obtained from sources deemed reliable but is to warranted to be so.  See our full disclaimer and privacy policy here.  We also acknowledge that properties will not increase uniformly with CPI, but for the purposes of this illustration we made that assumption.

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CHAD GRIFFITHS

CHAD GRIFFITHS

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Chad is a partner with NAI Commercial and has finished as a top 15 producer Canada-wide for the past three years. Chad owes his success largely to his commitment to uncompromising client representation, his active involvement in the real estate and business communities and a lifelong pursuit of continuous learning.

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RYAN BROWN

Partner

Ryan is a partner with NAI Commercial Real Estate in Edmonton. He is currently ranked nationally as one of NAI’s top advisors in Canada. Having completed his Bachelor of Commerce majoring in Finance, his eye for detail and great understanding of the numbers associated with any business decision makes him an asset to his clients while providing them the highest level of service.

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DARCIE BOUTEILLER

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5 thoughts on “Edmonton Commercial Property Taxes are Rising 4x Faster than Inflation

  • This is a great article! I have been trying to provide visibility to this trend to various City Councillors and for the most part they were completely indifferent. Secondly, the City instituted a study early last year to determine how Edmonton rated and/or compared to other comparable Cities (Canada, Us, etc) and one of the author’s conclusions was that the property taxes and/increases were not a factors. The author’s reasoning was because these costs would simply be passed downward… the tenants and/or the customers. One has to question the author’s credentials and background, as these type of costs affect a businesses product or service… and if the costs of these are too high, then the customer will simply go elsewhere. If this happens, then businesses will move to areas where costs are more affordable and reasonable.

    Also, your article is based upon a general sample set provided by the City. In fact may areas within the city saw much higher commercial property tax increases. On the South Side (old Strathcona.. not Whyte Ave) a number of the older buildings have been seeing yearly property tax increases from 12%, 22%, 29%, 34%, etc all based upon the City’s view of a property’s perceived (not real or substantiated) value. Bringing this information to Council fell again on deaf ears.

    Lastly, as to your comment about why people are not enraged? I think there are several reasons for this. The first is that the City very carefully manages what information they promote to the Media. Here our Mayor and Council enjoyed promoting the lowest (2017) property tax increase in 10 years… but fail to mention that this was residential. Unfortunately the City, the Mayor, and Council did not present the total property tax increases.
    The second is that most people are not business or commercial property owners and so they are simply unaware of these property tax increases and their implications. The Third is that the reporting on the Commercial rates and their increases have been under reported by the Media.

    Hopefully articles like yours and others now appearing in the Media will highlight this issue and perhaps provide some stimulus to Council to rethink their spending decisions, as businesses are closing, moving, or simply ignoring Edmonton as a potential business location.

    • Hi Kirby, thank you for the thoughtful comments. We agree with your sentiment, this is an issue that gets swept under the (residential) rug. Unfortunately the commercial tax base simply makes up a small percentage (quantity wise) of the total overall tax base.

      There just isn’t enough of a concerted voice opposing the non-residential tax base increasing 400% over inflation. Perhaps boma or NAIOP can (should?) make an effort to speak to the topic, but in the meantime we’ll be broadcasting from our blog / soapbox how egregious the situation really is.

      Thanks again for the comments.

  • Hi Chad ,
    You have share a great information on this page about the removal of property tax in inflation a most by writing an application with the specific reason to the government of Canada wand also attachment of legal property documents which is helpful for your property tax layer to pass you property tax claim with in a short period of time according to the rules and regulation of a country policy .
    Thanks .

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