Property assessment is the process of assigning a dollar value to a property for the purpose of taxation.
The Municipal Government Act defines property as a parcel of land, an improvement, or a parcel of land and an improvement to the land. An improvement is defined as a structure or items attached to a structure that would be transferred by a sale of the structure. Examples of an improvement may include a building, driveway, landscaping, manufactured home or machinery and equipment.
Who prepares assessments in Alberta?
Assessments are prepared by trained and certified assessors. Certification can be obtained from the Alberta Assessors’ Association, the International Association of Assessing Officers or the Appraisal Institute of Canada. Assessors are employed by the province, municipalities, and the private sector.
Each year, a municipality is required to appoint, through bylaw, an assessor as a designated officer. Once appointed, the municipality must notify the province of the designated person(s) and their educational qualifications.
How is property assessed?
Depending on the type of property, assessments are determined using either a market value based standard or a regulated procedure based standard.
Market Value Standard
The majority of properties in Alberta are assessed using the market value standard which estimates the value a property would likely sell for on the open real estate market. The method to calculate market value can be performed using one of three approaches:
- The sales comparison approach involves the analysis of recent sale prices of similar properties to determine the most probable price that a property would sell for on the open market between a willing buyer and seller. It is best suited to types of property that sell frequently (e.g. residential). This is the most common approach to assess property as assessors use a technique called ‘mass appraisal’ which allows assessors to accurately value a large number of properties in a short period of time using common data, mathematical models and statistical tests.
- The income approach may be used when there is insufficient sales data available and the property is income producing. This approach involves the capitalization of the expected future income to be generated by the property to determine its value. It is often used to assess property such as retail buildings, hotels, apartment buildings or rental office buildings.
- The cost approach is used when there is a limited amount of sales or rental information available or the property is a special use property. The cost approach is based on the principle that a buyer would not pay any more to purchase a property than it would cost to buy similar vacant land and build the same buildings or structures. It requires the assessor to calculate the market value of the land using the sales comparison approach and then add the cost to construct the improvements. The last step requires the assessor to subtract an amount that reflects the existing depreciation of the current buildings and structures.
Regulated Procedure Standard
Some properties are difficult to assess using the market value standard because the properties seldom trade in the market, cross municipal boundaries or are of a unique nature. These properties are assessed using a regulated standard. Alberta Municipal Affairs is responsible to prescribe rates and procedures to assess these types of properties, which include farmland, machinery and equipment, and designated industrial property.
What are the types and classes of property?
All properties are assigned to an assessment class for the purposes of applying a tax rate. The Municipal Government Act provides for four classes of property:
- Class 1 – residential
- Class 2 – non-residential
- Class 3 – farmland
- Class 4 – machinery and equipment
Class 1 – Residential property
Residential property consists of land and improvements where the primary use of the property is for housing. It is assessed by the municipal assessor using a market value standard.
Farm residences are included in Class 1 and consist of the residence and any non-farming improvements within a three-acre parcel surrounding the residence. The difference with farm residences is that if the residence is located in a rural municipality, regulations of the Municipal Government Act provide an exemption of up to $61,540 in assessment, depending on the value of the attached agricultural property. The greater the value of the agricultural property, the greater the assessment exemption will be applied to the farm residence, up to the $61,540 limit. A second exemption of up to $30,770 in assessment may apply if the farm property includes a second residence. The exemption limits have remained the same for several decades.
Farm residences in urban municipalities are not eligible for the exemption.
Class 2 – Non-residential property
Non-residential property generally consists of land and improvements where the primary use of the property is for business purposes. This includes properties such as commercial and retail property, industrial plants, railways, pipelines, telecommunications lines, farm buildings, and many other types.
Within the non-residential property class, there is a sub-category called designated industrial property. Designated industrial property is assessed by the provincial assessor and other non-residential property is assessed by the municipal assessor.
Designated industrial property is a new classification that was created in 2017. It is assessed using the regulated procedure standard and includes the following types of property:
- facilities regulated by the Alberta Energy Regulator, the Canadian Energy Regulator, or Alberta Utilities Commission;
- linear property (oil and gas wells and pipelines, railways, telecommunications and electric power systems) assessed by the province;
- property designated as a ‘major plant’ by the Alberta Machinery and Equipment Assessment Minister's Guidelines (for example, large refineries, upgraders, pulp and paper mills); and
- land and improvements associated with property regulated by the Alberta Energy Regulator, Alberta Utilities Commission or Canadian Energy Regulator and major plants.
Linear property is unique in terms of its assessment, partly because linear property sometimes crosses municipal boundaries and impacts the revenue of several municipalities and because it is assessed once it is deemed ‘capable of being used’.
In 2018, the province took responsibility for assessing all designated industrial property. Costs associated with the assessment of these properties is recouped through a separate tax rate that is only applied to designated industrial properties through the tax notice. Municipalities are responsible for collecting the designated industrial property tax requisition and remitting it to the province.
Farm buildings are included in Class 2 but are treated differently depending on their location. In rural municipalities, farm buildings are not assessed or taxed. In urban municipalities, farm buildings are currently assessed and taxed, however, the 2017 updates to the Municipal Government Act removed this provision and by 2022, the taxation of farm buildings will be phased out.
Class 3 – Farmland
Class 3 includes the land that is used for farming operations. This does not include farm residences or farm buildings as they are assessed under Class 1 and Class 2, respectively. Farming operations are defined as the raising, production and sale of agricultural products. Any portion of the parcel not meeting this definition is required to be assessed at market value.
Farmland is categorized by four classes, each with a base regulated assessment rate:
- dryland arable;
- dryland pasture;
- irrigated arable; and
The value of farmland is modified based on factors relating to agricultural production such as the region, soil depth, soil quality and distance from an urban municipality that provides agricultural services.
Class 4 – Machinery and equipment
Machinery and equipment (M&E) property is assessed under the regulated procedure based standard. M&E are the components or equipment within commercial and industrial properties where manufacturing or processing occurs. M&E property includes objects such as storage tanks, separators, compressors, chemical injectors, metering equipment, ovens, mixers, grinders and other equipment.
M&E is typically assessed by the municipal assessor, unless it is part of designated industrial property, then it is assessed by the province.
A municipality may create sub-classes within certain assessment classes to further categorize properties and/or to assign different tax rates within a class.
A council may, by bylaw:
- divide class 1 (residential) into sub-classes on any basis it considers appropriate. Common examples include residential and vacant residential; and
- divide class 2 (non-residential) into three sub-classes as follows:
- vacant non-residential property;
- small business property (fewer than 50 full-time employees); and
- other non-residential property.
There are restrictions to how tax rates can be set within the various classes and sub-classes. These are explained on the Municipal Property Taxes page.
Why and how is property inspected?
All newly constructed properties are inspected, which allows the assessor to collect key details that are used as part of Alberta’s mass appraisal system. The mass appraisal system categorizes properties into groups of comparable properties and determines their value using common data, mathematical models and statistical tests that allow assessors to accurately value a large number of properties in a short period time.
Existing properties are reviewed from time to time using an on-site inspection or digital mapping where the assessor will review and verify the physical details of the property.
The Municipal Government Act provides an assessor with the authority to enter and inspect the interior and exterior of a property and request any documents to assist in preparing the assessment. In carrying out these duties, the assessor must provide reasonable notice of an inspection, conduct the inspection at a reasonable time and produce identification.
What is the assessment roll?
An assessment roll is a listing of a municipality’s assessable properties and their assessed values. Each municipality must produce its assessment roll by February 28 of each year. The assessment roll must contain the following information for each property:
- owner of the property
- property type
- description of the property
- assessed value
- assessment class
- school support declaration
- taxable status (total or partial exemption from taxation)
What is the difference between the valuation date and the condition date?
There are two key legislated dates by which certain assessment processes must be complete – the valuation date and the condition date.
The valuation date is July 1 of each year which ensures that all properties are valued as of the same date. The market conditions as of this date will determine the assessment values on which taxes will be levied the following year. For example, for the 2020 tax year, the valuation date for property assessment is July 1, 2019.
The condition date for all property, with the exception of designated industrial property, is December 31 of each year. The condition date for designated industrial property is October 31. The condition date means that, while a property is valued based on the market conditions as of July 1, the recorded assessment will reflect the physical condition of the property on December 31.
On July 1, a property is assessed at $280,000. In October, the property owner builds a garage on the property. As such, the value of the property must be updated to reflect its condition as of December 31. If the garage had been in place as of July 1, its value would have been $20,000. Therefore, the assessed value of the property is recorded as $300,000 for the upcoming tax year.
What factors affect residential market value?
Factors that may affect residential market value include:
- total finished living area;
- quality and age of structure;
- level of modernization;
- building type (e.g. single detached, duplex, etc.);
- structure type (e.g. bungalow, two-storey, etc.);
- unit type if it is a condominium;
- type and size of garage;
- size, topography and access to the lot;
- views from the property; and
- proximity of the property to traffic, greenspaces, community services, commercial properties, multi-family properties, waterways, schools, trains, transmission lines and communication towers.
What is an assessment notice?
An assessment notice is the document that municipalities send to property owners to inform them about the assessment of their property. Assessment notices are created from the assessment roll so the owner of every property listed on the assessment roll will receive an assessment notice.
An assessment notice must show:
- the same information as the assessment roll;
- the notice of assessment date;
- the date by which the owner of the assessed property can file a complaint, which is 60 days after the notice of assessment date; and
- information on how to file a complaint.
This process is required each year. The assessment notice may be sent prior to, or in combination with, the property tax notice as long as it is mailed a minimum of seven days prior to the notice of assessment date.
More information about Alberta’s property assessment complaint system is available on the Appeals and Complaints page.
Why is there a one-year delay between property valuation and taxation?
The time delay between when property is valued (assessed) and when property owners actually receive their tax notices is one of the most common issues of confusion for property owners. Since property owners are responsible to pay their property taxes in June of each year, they often expect that the taxes they are paying will reflect the value of their property at that point in time. However, due to logistics, this is not possible. Assessors, municipal councils and the provincial government need a significant amount of time to determine property values, condition of properties, conduct appropriate audits, process assessment notices, approve budgets and set tax rates before tax notices can actually be mailed to property owners. This is why it is important for municipalities to communicate in the assessment notice and tax notice that the assessment is based on the value of the property as of July 1 the previous year.
What is a supplementary assessment?
Supplementary assessment is the process to allocate taxes on properties that are newly constructed during a year. It provides equity among property owners because as new construction is completed or occupied, the owners receive municipal services and therefore, supplementary tax contributes towards the cost of providing those services. Supplementary assessment is optional, and municipalities may undertake this process only after passing a bylaw.
A property of bare land is assessed on July 1, 2016 at $100,000 and no adjustments are made on the December 31, 2016 condition date. Therefore, the 2017 tax bill will be based on the $100,000 value of the property. In February 2017, the owner begins construction of a house on the property which is completed in October 2017. The new house is assessed to have a value of $250,000. The municipality will then send a supplementary assessment notice to the owner for the additional $250,000 in property value, and levy property taxes on a prorated basis the remaining months in the year (November and December 2017).
Access to assessment information
An assessed person has the right to receive or see all assessment-related information about their own property as well as a summary of information on properties similar to theirs. Sections 299 and 300 of the Municipal Government Act provide more detail as to what is required when a request is made.
A municipality cannot deny a request for assessment information as it is subject to the Freedom of Information and Protection of Privacy Act. However, municipalities must still maintain the confidentiality of personal information. For example, if requested, a municipality must provide a copy of the assessment roll, but the assessment roll cannot include the names of property owners.
What property is exempt from assessment?
The following properties are exempt from assessment:
- Publicly owned infrastructure or equivalent privately-owned facilities
- Property in First Nation reserves
- Property in Metis settlements
- Farm buildings located in rural municipalities
- Growing crops
- Items such as furniture, vehicles or other personal possessions as they do not meet the definition of property, which consists of land and improvements to land.
Since these properties are not assessed, they are not subject to property tax. Note that there are other types of properties that do not pay property tax that are not listed here. The reason is those properties are not exempt from assessment, but are they are exempt from taxation, which is a key difference. This is explained on the Fundamentals of Municipal Property Taxes page.
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