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Equalized Assessment

Equalized assessment is a process to audit and adjust the assessment data that each municipality reports to the province in order to reach a level of fairness in assessment amongst municipalities. Equalized assessment data is used by the province to determine requisitions for regional or provincial programs (e.g. education property tax) or the allocation of grants to municipalities.

Why is equalization of assessment necessary?

The Municipal Government Act requires that properties be assessed at market value. Where possible, all properties would be assessed at 100 per cent of market value; however, in practice, property assessments may vary from market value to a limited degree. This variation is attributed to Alberta’s use of the mass appraisal approach to assess a large group of properties in a short period of time. Mass appraisal is a practice that is used widely in the assessment of property for the purposes of efficiency, but it does not necessarily always result in a value of 100 per cent of market value.

Because of this variance, equalization is necessary to adjust each municipality’s total assessment to 100 per cent of market value to create a level playing field between municipalities for the purpose of requisitions and grant allocation. 

Without this process, taxpayers in municipalities where overall assessments are above or below market value would be responsible for a disproportionate share of provincial education property taxes or municipalities would receive a disproportionate share of provincial grants that are distributed based on municipal assessment values.

How is equalized assessment calculated?

Each year, Alberta Municipal Affairs audits the assessment roll information provided by local assessors to analyze the differences between the assessed values and the actual sale prices of sold properties. This analysis results in an overall assessment level (between 95 and 105 per cent of market value) for each assessment class (residential or non-residential) in each municipality. For instance, if a municipality is deemed to have an assessment level of 97 per cent, it means that the assessments submitted by the assessor were, on average, found to be approximately 3 per cent lower than market value.

Municipal Affairs then uses this information to calculate equalized assessment based on the formula of:

Equalized assessment = taxable assessment ÷ assessment level

This formula will adjust each municipality’s total taxable assessment to 100 per cent of market value to allow for the fair distribution of provincial requisitions and grants.

Example

Town A has a total taxable residential assessment of $100 million and the audit by Municipal Affairs determines that Town A’s assessment level is 95 per cent of market value. Town B also has a total taxable residential assessment of $100 million, however, the audit determines that Town B’s assessment level is 105 percent of market value.

The table below shows that although the two municipalities reported the same taxable assessment, their equalized assessments actually represent a difference of over $10 million in value.

 

Town A

Town B

Difference

Taxable assessment (A)

$ 100,000,000

$ 100,000,000

$ 0

Assessment level (B)

95%

105%

 

Equalized assessment (A ÷ B)

$ 105,263,158

$ 95,238,095

$10,025,063

To demonstrate what this means for taxation purposes, assume that the province’s education property tax rate for residential property is $2.50 per $1,000 in assessment.

If provincial education tax requisitions were allocated to communities based on the municipal assessment totals, both Towns would be responsible to collect the same amount of education taxes ($250,000). However, after equalizing the assessments, Town A is responsible to collect $263,158 in education taxes and Town B must collect $238,095. As a result, property owners in Town A are responsible to pay over $25,000 more in education tax than Town B once their assessments are adjusted to 100 per cent of market value. This example demonstrates how equalized assessment addresses inequities to ensure that requisitions and grants are appropriately distributed between communities based on the full market value of property.

 

Town A

Town B

Difference

If education tax is calculated based on reported assessment

Municipal assessment

$ 100,000,000

$ 100,000,000

 

Provincial education tax rate

x         0.0025

x         0.0025

 

Education tax requisition

$ 250,000

$ 250,000

$ 0

If education tax is calculated based on equalized assessment (current practice)

Equalized assessment

$ 105,263,158

$ 95,238,095

 

Provincial education tax rate

x         0.0025

x         0.0025

 

Education tax requisition

$ 263,158

$ 238,095

$25,063

 

Timelines for equalized assessments

The following describes the timeline for preparing the equalized assessment.

2019

2020

2020

2020

2021

Assessor prepares assessments for the 2020 tax year.

 

Assessor establishes an assessment roll and the municipality levies property taxes on the assessments that were prepared in 2019.

 

Assessor remits the assessment information to Municipal Affairs for audit and equalization purposes.

 

Municipal Affairs audits each municipality’s 2020 assessment information and prepares an equalized assessment.

Municipal Affairs uses the equalized assessment prepared in 2020 using 2019 assessment values in the formulas for requisitions and grants in 2021.

Based on this timeline, it is worth noting that equalized assessments lag one year after municipal assessments.

Exemptions from equalized assessment

Properties that are exempt from taxation, or are only subject to municipal taxation, are excluded from the equalization calculation. Examples of these properties may include some senior citizens’ accommodation facilities and student dormitories.

Does equalized assessment address regional inequities in the responsibility of education tax?

No. Equalized assessment is an auditing process to ensure assessments prepared by municipalities are representative of market value. It does not attempt to create equity in terms of the burden of education taxes from one region to another. In other words, the equalization process does not address the issue whereby municipalities with high growth property values, such as a major city, may be responsible for a higher proportion of education taxes compared to municipalities with lower property values.

Resources

Check out the Resources page for links to helpful videos and documents from the Government of Alberta and other organizations.