What is property assessment?
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 assessment in Alberta?
Assessments are prepared by trained and certified assessors. Certifications 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 municipalityis required to appoint, through bylaw, an assessor as a designated officer. Once appointed, the municipality must provide the province with a list of the designated person(s) and educational qualifications.
Approaches to assess the value of property
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:
- Sales comparison approach
- Income approach
- Cost approach
The sales comparison approach is the most common and preferred approach to determining property value. 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.
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. Those properties are assessed using a regulated standard. The Ministry of Municipal Affairs is responsible to prescribe rates and procedures to assess these types of properties, which include farmland, machinery and equipment, railway and linear property.
Sales comparison approach to determine market value
The sales comparison approach involves the comparison and 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 residential properties and other types of property that sell frequently.
Income approach to determine market value
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. The income approach may be used to assess property such as retail property, hotels, rental apartment buildings or rental office buildings.
Cost approach to determine market value
The cost approach will be 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. The cost approach requires the assessor to calculate the market value of the land using the sales comparison approach and then add to that amount the cost to construct the improvements. The last step requires the assessor to subtract an appropriate amount that reflects the existing depreciation of the current buildings and structures. The amount of depreciation can be dependent on wear and tear, a change in needs of the building, or loss due to its location.
Factors that affect residential market value
Factors that may affect residential market value include total finished living area, quality of structure, age of structure, level of modernization, building type (i.e. single detached, duplex, etc.), structure type (i.e. bungalow, two-storey, etc.), unit type in condominiums, type and size of garage, lot size, lot topography and access, views from the property and location of the property to traffic, greenspaces, community services, commercial properties, multi-family properties, waterways, schools, trains, transmission lines and communication towers.
Types of property
Property is typically categorized by the following types:
- Non-residential (properties used for commercial business)
- Machinery & equipment
- Railway property
- Linear property
Residential properties consist of land and improvements where the primary use of the property is for housing. Residential property is assessed by the municipal assessor.
Non-residential properties generally consist of land and improvements where the primary use of the property is for business purposes. Non-residential properties are assessed by the municipal assessor.
Note that it is common for references to non-residential property to also include railway and linear properties as they are categorized in the non-residential assessment class; however, those properties have distinctly different characteristics in how they are assessed.
Farm property is assessed by the municipal assessor using a regulated procedure based standard. Farm property has three elements for assessment purposes:
- farm buildings;
- farm residence(s); and
- land that is used for farming operations.
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 base assessment rates are modified based on factors relating to agricultural production such as the region, soil depth, soil quality and distance from an urban municipality that provides services.
Farm residences are considered to be three acres in size and are assessed as a separate parcel of land using a market value method. However, in rural municipalities, farm residences are exempt in whole or in part from assessment for property tax purposes. The amount of exemption is based on the assessed value of agricultural land and a number of other complex factors.
Machinery and equipment property
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. Examples of these properties include refineries, chemical plants, pulp and paper plants, upgraders, food processing facilities, grain and fertilizer handling facilities, bakeries and butcher shops. Within these sites, 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.
Most railway property is assessed by the municipal assessor under the regulated procedure based standard. The regulated rates and procedures are determined by the:
- base cost per kilometre of track;
- assessment year modifier to bring the base cost of the track up to current year values; and an,
- annual tonnage factor based on traffic.
If necessary, adjustments are made to the assessment to account for depreciation.
In cases where railway property is not located within a railway right-of-way, the property is assessed using a market value method of assessment. This would apply to railway track within an industrial complex.
Linear property is assessed under the regulated procedure based standard. Linear property consists of gas and oil wells, pipelines, telecommunications and cable property, and electrical power property used for generation, transmission and distribution.
Linear properties are assessed once they are deemed to be “capable of being used”. The province is responsible for the assessment of linear properties because of the complex nature of the properties and that they sometimes cross municipal boundaries and impact the revenues of several municipalities. Municipalities are responsible to reimburse the province for costs incurred to assess linear property.
Who to contact for assessment information
The following table offers a quick reference for municipalities in determining who to contact regarding municipal property assessments.
|Municipal Assessor||Alberta Municipal Affairs
Assessent Services Branch
|Machinery and equipment|
Valuation and condition dates
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 on 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 2017 tax year, the valuation date for property assessment is July 1, 2016.
The second legislated date in the valuation process is the condition date. All property, with the exception of linear property, is assessed based on the condition as of December 31 of each year. The condition date for linear 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. During the fall season, 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, the value would have been $20,000. Therefore, the assessed value of the property is recorded as $300,000 for the upcoming tax year.
Delay between assessment valuation and taxation
The time delay between when property is valued and when property owners actually receive their tax notices is cause for one of the most common points 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, conditions 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 property is valued almost one year prior to when a property owner receives his or her tax notice.
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
A municipality may create sub-classes within certain assessment classes. This practice is generally intended to categorize properties to a greater extent or for the purpose of assigning a different tax rate to each sub-class.
A council may, by bylaw:
- divide class 1 into sub-classes on any basis it considers appropriate. Common examples include residential and vacant residential.
- divide class 2 into the sub-class of vacant non-residential and improved non-residential.
An assessment roll is a listing of a municipality’s assessable properties and their assessed values. Each municipality must produce the 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
- assessed class
- school support declaration
- taxable status (total or partial exemption from taxation)
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. This process is necessary to ensure the information used in the property’s assessment remains accurate.
The Municipal Government Act provides an assessor with the authority to enter and inspect the interior and exterior of 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.
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 every assessed person listed on the assessment roll will receive an assessment notice.
An assessment notice must show:
- The same information as the assessment roll
- The date the assessment notice is sent
- The date by which a complaint must be made which must be at least 60 days after the assessment notice is sent
- The name and address of the designated officer with whom a complaint must be filed
This process is required each year. The assessment notice may be sent prior to or in combination with the property tax notice.
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. A supplementary assessment notice is sent to the owner for the additional $250,000 in value of the property, and prorated property taxes are levied for the remaining months in the year (November and December 2017).
The example demonstrates that supplementary assessment provides for the prorated taxation of properties that are constructed during the current tax year.
Supplementary taxes = Supplementary assessment X (Supplementary months ÷ 12 months) X tax rate
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.
It should be noted that a municipality cannot deny a request for assessment information as it is not subject to the Freedom of Information and Protection of Privacy Act. That being said, municipalities must still maintain the confidentiality of 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.
Exemptions from property assessment
Not all property is assessed for property tax purposes. Property does not include items such as furniture, vehicles or other personal possessions. Properties that are not assessed include:
- Publicly owned infrastructure or equivalent privately owned facilities
- Property in Indian reserves
- Property in Metis settlements
There are a series of properties that are assessed but are exempt (in whole or in part) from taxation. This is explained on the Fundamentals of Property Taxation page.
- Guide to Property Assessment and Taxation in Alberta
- MGA Review Discussion Paper: Farm Property Assessment and Taxation
- MGA Review Discussion Paper: Machinery & Equipment Property Assessment and Taxation
- MGA Review Discussion Paper: Railway Property Assessment
- MGA Review Discussion Paper: Linear Property Assessment and Taxation
- City of Airdrie Video: How assessment and taxation work