Property tax rates in Calgary and Edmonton much higher for businesses than residents
In recent years, Calgary has learned the hard way about relying too heavily on the commercial property tax base to fund local services. Due to the significant drop in downtown commercial real estate values, city hall’s unenviable options include service cuts, tax hikes and city staff reductions.
In other cities across Alberta (and indeed the rest of Canada), residents and businesses should quickly determine whether their communities are similarly vulnerable by comparing how their commercial properties (businesses, essentially) are taxed relative to residential properties.
To that end, a recent study by the Fraser Institute compares property tax ratios (the commercial rate relative to the residential rate) across Canada’s largest metropolitan areas. In the Calgary and Edmonton regions, which comprise 39 municipalities—home to more than half of all Albertans—business tax rates were 1.7 times higher (on average) than residential rates in 2018, but with significant variation depending on the municipality.
For example, in the suburbs of Cochrane (Calgary region) and St. Albert (Edmonton region), business property tax rates were less than 1.4 times residential rates. Conversely, businesses tax rates in Calgary (3.1 times higher than residential) and Edmonton (2.5 times higher) were significantly higher.
Although these ratios are based on the combined property tax rates levied by municipalities (to fund local services such as roads, sewers and policing) and the provincial government (to fund education), the gap between commercial and residential rates is driven primarily by city hall. In Calgary, the municipal-only property tax rate on businesses was almost four times higher than municipal-only residential rates in 2018. In Edmonton, this rate was almost three times higher for businesses than residents.
And again, the consequences of this overreliance are clear—particularly in Calgary, which has faced serious budget challenges in recent years as the energy sector grappled with the sharp decline in global commodity prices. Downtown commercial vacancy has soared past 25 per cent, meaning fewer tenants and lower rents in downtown office space, in turn putting downward pressure on the commercial real estate market (the total value of office space in Calgary has plummeted from $23.9 billion to $16.6 billion—a 31 per cent decline). Lower assessed values mean less tax revenue, forcing the city to implement some combination of higher property tax rates and spending restraint. It has chosen a bit of both, though challenges remain.
Ultimately, it’s for citizens to question the rationale of property tax rates set by city hall and the province. Do these rates reflect sound tax principles such as “user-pays” to better match services received with taxes paid? Should municipalities shift certain services away from reliance on the general tax base, and towards user fees? How do higher business property tax rates affect local small businesses, particularly during tough times?
These questions and many more should be part of a difficult but necessary conversation about the purpose and extent of property taxation, which is long overdue in Calgary, the rest of Alberta and beyond.