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:
- The City prepares a budget to estimate how much it will cost to provide municipal services;
- Somewhat simultaneously, property assessments are calculated and send out early in the calendar year;
- The City allows a period of time for appeals;
- After this period expires, the City has the total assessed value of the property tax base;
- 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:
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.
If 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:
- How does the City of Edmonton justify property taxes increasing 4x the rate of CPI?
- Why aren’t people more outraged?
Inflation Calculator, Stats Canada, City of Edmonton
Chad GriffithsSIOR, CCIM
Chad is a partner with NAI Commercial Real Estate and focuses on the Greater Edmonton area. Chad entered the industry in 2004 and has completed over 400 commercial transactions with clients ranging from small, local companies to large institutional owners. Chad has been a top 15 producer Canada-wide since 2013.
Ryan BrownBCom, SIOR
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 executed in excess of $100 Million dollars worth of sales transactions and over 2 Million square feet of lease transactions, Ryan has developed a firm understanding of asset evaluation and an aptitude for building design, functionality, and practicality for long term use.
Darcie is a licensed Commercial Real Estate Agent in the Province of Alberta with a focus on the Edmonton market and its surrounding areas. Darcie accomplishes custom solutions for her clients through her personable nature and results driven attitude. Darcie can help if you are looking to invest in commercial real estate or are looking for representation for a sale or lease transactions.
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