A progressive property tax system, where those with higher incomes or with higher-valued properties are taxed at a higher rate, is not likely in Edmonton.
That’s according to a report presented at Wednesday’s City of Edmonton executive committee meeting. City council had asked staff to explore a “mansion tax” back in June 2022.
Both the federal and provincial income tax systems are progressive, but property tax, Edmonton’s primary revenue source, is unique, according to the city report.
“Property tax, also known as an ad valorem (according to value) tax, is based on property wealth, and determines ability to pay based on property value,” reads the report. “This is distinct from income tax, which is directly linked to income and determines tax distribution based on this same metric.”
The main reason this sort of system wouldn’t work is that the city is bound by provincial legislation — the Municipal Government Act — and has few tools at its disposal to introduce “elements of progressivity into a property tax system.”
One of those tools is that the city could set different tax rates for different types of properties by creating subclasses.
The city already has different tax rates for different types of properties: properties with four or more dwelling units under one owner are taxed at a 15 per cent higher rate than most other residential properties, and those types of properties fall under the “Other Residential” subclass.
However, the city said it recommends the subclasses are based on the physical characteristics of a property, like whether it’s a house or apartment, or by its square footage. The city said basing a subclass on the characteristics of its occupants — such as income — is likely not allowed under provincial law.
“Municipalities also do not have a reliable method to access accurate income information at an individual taxpayer level,” reads the report.
Another approach would be to set a different tax rate for the portion of property value that is above a certain number. This is used in B.C. for education taxes, where taxpayers with highly-valued properties pay a higher tax rate on the portion over $3 million.
City administration said this would be risky because that sort of subclass is not laid out in Alberta’s Municipal Government Act.
Moshe Lander is an economics professor at Concordia University in Montreal and owns a home in Edmonton. He said if council were to pursue a progressive property tax system, homeowners with multi-million dollar homes would likely move out to adjoining cities like St. Albert and Sherwood Park.
“The reality is that this doesn’t necessarily solve the budgetary issues,” said Lander.
Lander recommends the city explore raising fees for different goods and services, like charging for entry into city parks, adding tolls to popular roads and bridges and raising taxes for those with multiple children in the school system.
“If you are really looking to try and raise funds, property taxes is one way, but there’s lots of other options on the table there,” said Lander.
Ward papastew Coun. Michael Janz has been a proponent of the idea of a progressive property tax system and said the report starts a conversation around finding new revenue streams for the financially-strapped city.
“(The report) allows us to raise issues of equity at other channels such as Alberta Municipalities and advocating to the provincial government. Even if no action comes out of the meeting today, it’s still important that this informs us and sets us up for future advocacy,” said Janz.
Mayor Amarjeet Sohi said there is an element of progressivity built into the property tax system already, given the taxes are based on the assessed value of the property.
“(A progressive system) doesn’t reap the benefits that some people think it would,” Sohi said.
Other possible changes to Edmonton’s property tax system
Other changes to the tax system were discussed Wednesday and might encourage the construction of denser housing and reduce rents over the long term, and one of those changes would be the elimination of the aforementioned Other Residential subclass.
Eliminating the subclass would mean properties in that subclass would see a reduction of about 11.7 per cent on the municipal portion of their property tax bill and most other residential properties would see an increase of about 1.6 per cent.
The Other Residential subclass is mostly comprised of rental properties, ranging from fourplexes to high-rise rental apartment buildings, but does not include condos, because condos are individually titled.
Reducing taxes for the subclass could incentivize the construction of denser housing, but not by much, according to the city.
“While some industry stakeholders indicated that property taxes are one of their largest expense items, others suggested that decision-making in the sector depends more on other factors such as interest rates and the cost of construction and procurement,” said the report.
“A modest shift in property taxes is unlikely to change investment decisions in most cases.”
Sohi said he’s heard from administration that even if taxes are reduced for owners of rental buildings, those savings aren’t usually passed onto renters.
“There’s no correlation on reducing property taxes on the landlords that it will transfer to relief for tenants,” he said.
Ward Nakota Isga Coun. Andrew Knack said it would be a headache to try to mess with provincial legislation to make property taxes progressive. He agrees with the phasing-out of the “Other Residential” subclass but doesn’t think the city should in turn give a lower tax rate to denser properties.
“Let’s make it all equitable so that everyone gets charged the same rate,” he said.
“Let’s stop penalizing apartments and mobile home communities, which are currently charged a higher rate, which actually makes no sense — from an economic perspective, higher density is more cost effective.”
Kalen Anderson is the executive director of the Urban Development Institute, a non-profit that represents developers in Edmonton. She said high-level city policy talks about encouraging high-density development, but this tax doesn’t reflect that.
“If we want to be able to enable over time more of this kind of development to happen in Edmonton and to align with our City Plan, to enable more density and more access to transit, does it make sense to have one type of housing paying more than others?” she said.
Anderson said developers in Edmonton face tax rates that are 80 per cent higher than those in Calgary, making the neighbour to the south more attractive for developers to build rental buildings.
The Canadian Mortgage and Housing Corporation’s annual rental market report for 2022 found the supply of purpose-built rentals in Edmonton is growing at a pace higher than any other previous decade with data going back to 1990.
The discrepancy in tax rate between the two cities is due to more than just the higher tax rate, according to city administration.
Anderson said she doesn’t necessarily want denser housing forms to get a tax break.
“Industry is not actually asking for any sort of preferential treatment for this type of housing. If anything, what we’re asking for is better equity across all types of housing,” she said.
The phase-out of the subclass could happen starting this year and be done over a period of years.
Another change would be introducing new subclasses based on the density of housing. The city presented two options: to base the subclass on the number of dwellings on each unit of land, or the number of dwellings divided by the size of land it occupies.
Both approaches, similar in nature, create an incentive for denser development, but the city doesn’t expect it to be significant.
The report said city administration does not have any big concerns if council chooses to get rid of the Other Residential subclass, but it should do so if council chooses to add new subclasses based on density, and it recommends ample engagement with residents.
The executive committee didn’t make a decision Wednesday, instead choosing to forward the debate to a future city council meeting.
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