The amendments that fall under this question aim to improve municipal funding models to ensure a balanced, consistent, and efficient collection of municipal revenue sources.

After hearing from Albertans about how this is important, we developed these MGA amendments to support how municipalities are funded.

Addressing Competitiveness and Fairness

Linking Residential and Non-Residential Property Tax Rates

What’s currently in place: Municipalities are free to set non-residential and residential tax rates independent of one another.

What’s the issue: Non-residential municipal property taxes have increased at rates faster than residential taxes. In some municipalities, this has resulted in owners of industrial property paying a much higher tax rate than residential property owners.

What we heard: Stakeholders from business and industry have requested a municipal tax framework that more equitably distributes property taxes among all property owners. Municipalities have indicated that any changes to the property tax framework should consider tax implications on residential property owners. Municipalities have emphasized that local councils are in the best position to make decisions for their taxpayers.

What’s changing: The MGA will be amended so that the highest non-residential tax rate can be no more than five times the lowest residential tax rate. Grandfathering provisions will be put in place to protect residential taxpayers from an immediate, dramatic increase to their residential tax rates if they live in a municipality where non-residential tax rates are greater than five times the residential rate.

What this means: For most Albertans, property taxes will continue to be wholly set at the discretion of their local councils. In municipalities where the non-residential tax rate is more than five times the residential tax rate, the percentage increase in the non-residential tax rate may not be more than the percentage increase in the residential tax rate. There were 19 such municipalities in 2015. It is anticipated these municipalities will, over time, move closer to the proposed five to one ratio.

When this takes effect: Upon proclamation of the Modernized Municipal Government Act.

Splitting Non-Residential Property Tax Rates

What’s currently in place: Non-residential properties are split into two subclasses for municipal taxation purposes: “improved” and “vacant.” Residential properties may be split into in any number or type of subclasses considered appropriate by the local municipality. In both instances, different tax rates may be applied to each subclass.

What’s the issue: The “improved” non-residential property class includes a range of businesses from large industrial plants to small local convenience stores. All businesses are charged the same tax rate despite their very different impacts on the municipality.

What we heard: Municipal stakeholders have asked for the ability to set different property tax rates for sub-classes of improved non-residential property. They believe this will allow for a fairer property tax framework. Business and industry stakeholders oppose creating new sub-classes for the improved non-residential tax rate. They believe this could lead to high-value industrial properties being taxed at a disproportionately higher rate than other businesses within the non-residential property class.

What’s changing: The MGA will be amended to enable splitting of the municipal non-residential class into subclasses. The regulations to accompany this change will be created with input from municipalities, assessors, and non-residential property owners to determine how splitting should be implemented to best enable a fair distribution of municipal non-residential property taxes. Any subclasses established under these provisions will be subject to the new limits on the ratio of non-residential tax rates as compared to residential tax rates.

What this means: Municipalities will be better able to set tax rates in a manner that reflects local circumstances.

When this takes effect: The tax year following proclamation of the Modernized Municipal Government Act.

 

Modernizing and Enhancing Consistency in the Assessment Process

Centralization of Industrial Property Assessment

What’s currently in place: Industrial property is comprised of several taxable property types such as machinery and equipment, pipelines, and rail lines. Assessment of these property types is carried out separately by municipalities and the province.

What we heard: Municipal and industry stakeholders have indicated the complex nature of industrial sites creates province-wide challenges in consistently applying definitions, determining who assesses which portions of the property, and identifying the appropriate appeal body. During focused consultations for the MGA, municipal and industry stakeholders agreed that assessment of property on designated industrial sites should be prepared by a central body.

What’s changing: Designated industrial property will be defined as major plants, properties regulated by provincial and federal regulators, linear property, and rail property. The assessment of all designated industrial property will be centralized within Municipal Affairs. Costs associated with centralizing assessment will be recovered from designated industrial property owners. Supplementary assessment on linear properties will be allowed, and a standard assessment condition date of October 31 annually will be established for designated industrial properties. All appeals related to designated industrial property will be heard by the Municipal Government Board.

When this takes effect: Designated industrial property assessment will be the responsibility of the province beginning in 2018.

Assessment and Taxation of Farm Buildings (Improvements) *Revised

What’s currently in place: Farm owners in both rural and urban municipalities receive a tax exemption on farm buildings, such as barns or quonsets. However, the tax exemption is different in urban and rural municipalities. In rural municipalities, farm buildings are not assessed, and are therefore completely exempt from municipal property taxes. In urban municipalities, farm buildings are assessed at 50 per cent of their market value and are taxed by the municipality at the non-residential tax rate.

What we heard: Municipalities and urban farm owners expressed concerns about the inconsistencies that occur in the assessment and taxation of urban and rural farm building owners living in the same region.

What’s changing: All farm buildings in urban and rural municipalities will not be assessed or charged municipal or education property taxes. Further work is under-way, led by the Alberta Association of Municipal Districts and Counties (AAMDC), to determine how intensive agricultural operations may be taxed.

**Updated Fall 2016**

Albertans wanted to ensure there would not be a loss of revenue or a potential increase of residential tax rates due to the exemption of urban farm buildings from assessment and taxation. Provisions were put in place to phase in farm building exemptions in urban municipalities over five years.

This and other house amendments were made to the Modernized Municipal Government Act during the Fall 2016 session of the legislature. See what changed.

When this takes effect: Upon proclamation of the Modernized Municipal Government Act.

Assessment of Farmland Intended for Development

What’s currently in place: Farm properties enjoy substantial assessment and tax benefits not afforded to commercial or residential properties. In some instances, top soil has been removed in preparation for development, limiting usefulness for farming operations, yet the property still receives the assessment and tax benefits intended for farmland. Land developers and investors, who intend to sell the land for development, may buy or hold farm property for future commercial or residential development. The owner may continue farming operations to take advantage of the substantial tax benefits until the land is ready for development. Consequently, owners of these lands pay considerably less tax than if the lands were assessed at market value.

What we heard: Municipalities and some Albertans are concerned that property owners, intent on developing farmland for commercial or residential purposes, are eligible for the assessment and tax benefits afforded to farm property. Developers have indicated that without access to these tax benefits, there is little incentive to maintain agricultural production on lands that may be held for years before development occurs.

What’s changing: Farmland will continue to be assessed as farmland until it is no longer used for farming operations. Regulations associated with the MGA will be clarified to ensure when farmland has its top soil removed, or is no longer being used for farming operations, it will no longer be assessed and taxed as farm property and will instead be assessed and taxed at market value.

When this takes effect: Upon proclamation of the Modernized Municipal Government Act and the amendment of the related regulation by fall 2017.

 

Enabling Efficient and Effective Assessment Processes

Access to Information for Assessors and Property Owners

What’s currently in place: Assessors can ask property owners to provide any information deemed necessary to accurately prepare a property tax assessment, or determine if a property should be assessed. Municipalities are required to provide property owners with enough information to determine how their property assessment was prepared.

What we heard: Property tax assessors and landowners have indicated that providing this information can be onerous, and the information provided from both sides is often regarded as incomplete by the other side.

What’s changing: The existing scope of information requirements for both property tax assessors and landowners will be clarified by enhancing the regulation-making authority and by providing detailed direction in a guide on best practices.

When this takes effect: Upon proclamation of the Modernized Municipal Government Act.

Assessment Complaints

What’s currently in place: The assessment process determines property values for property taxation purposes. The MGA sets out a complaints system for property owners who have concerns about their property assessments. The Act also provides property owners with the ability to ask for an independent review of their property assessment. Currently, there are three bodies that hear complaints, depending on the type of property being assessed: Local Assessment Review Boards, Composite Assessment Review Boards, and the Municipal Government Board.

What we heard: Municipalities and assessors provided feedback on the following issues related to the current system for assessment complaints and appeals:

  • Local Assessment Review Boards hear complaints about business tax and levies on business improvement areas. We heard that these complaints should be heard by Composite Assessment Review Boards so that costs can be awarded where appropriate.
  • An assessor is not allowed to make corrections to an assessment that is under complaint. We heard that allowing an assessor to make corrections to an assessment that is the subject of a complaint could sometimes help resolve the complaint more quickly.
  • When appealing an assessment complaint ruling to the courts, an appellant must first seek leave to appeal from the court to appeal. That is followed by the actual appeal, then finally the judicial review. We heard that the three stages of a legal appeal were redundant, since the system requires the courts to consider and rule on the same issue three times.

What’s changing: The MGA will be updated as follows:

  • Composite Assessment Review Boards will hear complaints about business taxes, as well as levies on business improvement areas. These boards will also be able to award costs to participants when appropriate.
  • Assessor will be able to make corrections to assessments under complaint without needing ratification from the assessment review board or having the complaint withdrawn first.
  • Assessment Review Board decisions may be appealed at Court of Queen’s Bench by judicial review only.

When this takes effect: Upon proclamation of the Modernized Municipal Government Act.

 

Areas Where No Legislative Change Will Occur

Industrial Exemptions

What’s currently in place: Some types of industrial property receive special tax benefits to encourage investment. Most prominently, machinery and equipment property is assessed at 77 per cent of its value, which is regulated. Machinery and equipment, as well as electric power generation property do not pay education tax.

What we heard: Municipalities would prefer that all property is assessed at 100 per cent of its value, and that all properties pay education tax equally.

What’s changing: There will be no change. These special tax benefits are an important part of how Alberta encourages investment. At this time, it makes sense to maintain these benefits to grow our economy.

What this means: The current system will remain in effect.

Assessment of Farmland

What’s currently in place: Farmland is assessed and taxed using agricultural productivity rates set by Municipal Affairs. The rates used to determine farmland assessments were developed in the 1970s and were based on the typical agricultural productivity of that time. These rates were last reviewed and updated in 1994.

What we heard: Municipalities and assessors indicated the current farmland rates are out of date and do not reflect technological, economic and market-related changes that have occurred in the agricultural industry.

What’s changing: There will be no change. Farmland will continue to be assessed using agricultural productivity rates. Maintaining the current rates provides stability for Alberta’s agriculture sector.

What this means: The current system and rates will remain in effect.

Assessment of Farm Residences

What’s currently in place: Under regulations associated with the MGA, the residential portion of a farm is defined as three acres and is assessed at market value. Currently, farmers in rural municipalities receive a partial property tax exemption for each residential home on their land. This exemption is based on property values set in 1989. The total reduction in taxes varies, depending on the amount of farm land the farmer owns, the number of homes on the farm property and the municipal tax rate.

What we heard: Municipalities and assessors have indicated that the effort required to administer this tax incentive is significant and results in a relatively small benefit to farmers. Some Albertans requested property assessment exemptions for farms to be limited to farming operations or farm land, not land associated with residences. Some Albertans expressed support for the exemption on farm residences, and consider it to be an important incentive.

What’s changing: There will be no change. Farm residences will continue to receive the partial tax exemption, and the residential portion of the farm will continue to be defined as three acres.

What this means: Farm residence assessment rules will not be changed.

Municipal Taxation Powers and Provincial Revenue Sharing

What’s currently in place: The largest source of revenue for municipalities is property taxes, followed by user fees and charges, then provincial grants. The MGA establishes a variety of revenue sources for municipalities to support their operations, including property taxes, targeted taxes (i.e. business tax, local improvement tax, etc.), levies, fees, fines and investment income. Municipalities may also enter into regional funding and cost-sharing agreements with neighbours for shared services.
Municipalities can access additional funding through discretionary provincial and federal transfers. The Municipal Sustainability Initiative, a provincial grant program, is the main source of provincial funding to municipalities.

What’s the issue: Municipalities have expressed concern that rising operational costs and a desire to provide a wider range of services may require additional taxation powers, plus a more predictable provincial grant framework.

What we heard: Municipalities requested new taxation powers and dedicated long-term funding through grants. They believe property taxes – their primary source of revenue –cannot keep pace with economic changes. As well, the value of a given property is not always an accurate reflection of an individual’s ability to pay. Both residential property owners, and business and industry owners with non-residential property, have expressed strong opposition to any approach that would increase their municipal taxes.

What is changing: There will be no change. No new taxes are proposed through the MGA Review. Municipalities will continue to work within the existing taxation and provincial grant framework to collect the required operating revenues.

What this means: Most Alberta municipalities are in good financial positions and are able to raise revenue year over year to fund their operations.

Linear Property Assessment and Taxation

What’s currently in place: Linear properties include gas and oil wells, pipelines, telecommunications and cable property, as well as the generation, transmission and distribution systems for electric power. Tax revenues from linear properties are collected by and remain in the municipality where the linear property is located.

What’s the issue: Some municipalities with large amounts of linear property and the subsequent tax revenue have voluntary cost-sharing agreements with their neighbouring municipalities to help fund services that benefit the entire region. Those municipalities with no linear properties or cost-sharing agreements have asked the province to pool all the taxes from linear properties, then redistribute them throughout Alberta (based on population) or within a region.

What we heard: Some municipalities have asked the province to collect and redistribute taxes from linear properties rather than allowing those revenues to remain in the municipality where they were collected.

What’s changing: There will be no change. Linear taxes will continue to be collected by and accrue to the municipality in which the property is located. Requirements for intermunicipal collaborative frameworks (see section on Requiring Regional Decision Making) will help ensure appropriate regional planning, services and funding of those services.

What this means: Municipalities will continue to collect and keep the taxes from linear properties within their boundaries. As mandatory Intermunicipal Collaboration Frameworks are set up, regional planning mechanisms will enhance sharing of those revenues.