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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 taxable assessment amongst municipalities. The province uses equalized assessments to determine each municipality’s requisition for a regional or provincial program or the allocation of grants to municipalities.

The most common example of a provincial program that is funded by property tax requisitions is the education tax.

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.

This variation is recognized by legislation which specifies that a group of properties may be assessed at an acceptable range below or above market value. The acceptable range is 95 to 105 per cent of market value.

Because this range may occur, equalization is necessary to adjust each municipality’s assessments to 100 per cent of market value. The equalization process aims to remove the variations in assessment levels to bring all assessments to 100 per cent of market value, thereby creating a level playing field between municipalities for the purpose of requisitions such as the provincial education property tax.

Without this process, taxpayers in municipalities where overall assessments are above or below market value would be responsible for a disproportionate share of provincial property taxes (i.e. education tax). In addition, those municipalities may 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. The audit analyzes 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.

An equalized assessment is then calculated by dividing the taxable assessment by the assessment level:

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.

An example of equalized assessment

Town A has a total taxable residential assessment of $100,000,000. The audit by Municipal Affairs determines that Town A’s assessment level is 95 per cent of market value.

Calculation of Equalized Assessment – Town A

Taxable Assessment
(A)

Assessment Level
(B)

Equalized Assessment
(A÷B)

$ 100,000,000 95% $ 105,263,158

 

Town B also has a total taxable residential assessment of $100,000,000. The audit determines that Town B’s assessment is 105 percent of market value.

Calculation of Equalized Assessment – Town B

Taxable Assessment
(A)

Assessment Level
(B)

Equalized Assessment
(A ÷ B)

$ 100,000,000 105% $ 95,238,095

The calculations demonstrate that although the two municipalities reported the same taxable assessment totals ($100,000,000), their equalized assessments actually represent a difference of over $10 million in assessment.

To demonstrate what this means for taxation purposes, assume that both municipalities had a residential education tax rate of 0.0025. If education taxes were calculated based on reported assessment totals, each Town would be responsible to collect $250,000 ($100,000,000 x 0.0025) in education tax. However, the equalized assessment process allocates the education tax based on 100 per cent of market value resulting in the following:

Education Tax Based on Equalized Assessments

 

Equalized Assessment

(A)

Education Tax Rate

(B)

Education Tax Collected

(A x B)

Town A $ 105,263,158 0.0025 $ 263,158
Town B $   95,238,095 0.0025 $ 238,095
    Variance $   25,063

This example demonstrates how residents of Town A should actually pay $25,063 more in education tax than Town B once their assessments are adjusted to 100 per cent of market value.

Timelines for equalized assessments

The following describes the timeline for preparing the equalized assessment.

2016  Assessor prepares assessments for the 2017 tax year.
2017  Assessor establishes an assessment roll and the municipality levies property taxes on the assessments that were prepared in 2016.
2017  Assessor remits the assessment information to Municipal Affairs for audit and equalization purposes.
2017 2017 Municipal Affairs audits each municipality’s 2017 assessment information and prepares an equalized assessment.
2018  Municipal Affairs uses the equalized assessment that was prepared in 2017 for the formulas for requisitions and grants in 2018.

Based on this timeline, it can be said that equalized assessments have a one-year time lag when compared to municipalities’ 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.

Equity in education tax

It is worth noting that equalized assessment 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.

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