Today we are going to show another example of how the chronically cash strapped City of Calgary is leaving millions of dollars of annual revenue on the table each year.  I am going to suggest a number of reasons why this is the way it is, and propose some possible solutions.  

First, the issue is one of equitable distribution of property taxes so the City can provide the services it deems necessary.  Council is required for political reasons to hold property taxes low, and has over the years done a reasonable job of this.  However,  I have noted some trends in inner city taxation in the area I know best, so we can just look at Killarney for the specifics.

• Taxes for long term owners of property are much lower than for buyers of new housing vs the true value of the properties (City appraisals are way off for older property)
• Taxes for larger bungalows on 50 ft lots are often much lower, possibly thousands of dollars lower annually than they would be if values were accurately appraised
• The property owners that have enjoyed the greatest uplift in land values often bear the smallest share of the property tax bill, yet are the most able, due to large equity gain in the home, pay more taxes vs heavily indebted new buyers 
• Families with children that purchase new homes appear to be taxed the most heavily while those that have enjoyed decades of quality living in great communities pay the least tax on property.
• Rebuilding infrastructure does not seem to be paid for by those who have lived in homes the longest, yet is disproportionately paid for by new buyers by the large new City fees like the off-site levy.

The City has advanced techniques to track and adjust property tax levels on individual sites, and quickly adjusts values upwards when it chooses to do so.  I have had properties under construction or recently completed be hit with immediate and major tax increases.  This is puzzling when older properties see little annual assessment changes despite large valuation changes.

I have come to believe the reason for this is the City wants to avoid antagonizing older, possibly senior, and likely vocal complainers with politically incorrect tax hikes. It does not want to be seen as the Council that oversaw massive takes hikes to 'vulnerable' seniors, pensioners, those on fixed incomes, etc.  The issue seems to one of optics rather than equitable sharing of tax.

Here is an example of a massively undertaxed home in Killarney, valued by the City at only $535k. 

I met the owner of the property.  He and I had a long discussion about the community.  He mentioned he had bought the place 20 years earlier for about $180k, had little interest in moving, and often spent his retirement at his cottage in BC.  This doesn't sound like the prototype of a senior hurting for cash.  For this property, I have estimated the tax at $3475, and I believe it should be raised, along with the assessment, to an annual tax rate of $4870, an annual increate of $1395.  This is just one of many examples of older homes being massively undercharged for taxes.

This is a cut and paste of how the City assesses property tax.

Property assessment is a value placed on a property for municipal and provincial taxation purposes. The City of Calgary assesses each property annually to distribute fair and equitable taxation. The estimated value of each property comes from the measurement, analysis and interpretation of the real estate market and is governed by the Municipal Government Act. This process is based on mass appraisal models that are an expression of how supply and demand factors interact in the real estate market.

How properties are assessed 

Your annual property assessment reflects the estimated market value (the amount it likely would have sold for on the open market) of your property based on the valuation date of July 1 of the previous year, as set by the Municipal Government Act. Real estate market conditions may change from the valuation date to when you receive your current assessment. Market changes that have occurred since July 1 of the previous year will be reflected on the following year’s assessment. Following the assessment notice mailing, there is a 60-day Customer Review Period  in which you are able to contact us with any questions you have. 

To determine market value, we use one of three approaches to value:

• Sales comparison: comparing to sales of similar properties
• Income: capitalize the income being generated by the property
• Cost: land value, plus the depreciated replacement cost of the improvement

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If the City was actually assessing property accurately there would be equitable distribution of taxation.  What we have now is a very skewed situation where older houses are under assessed, and newer houses are accurately assessed.  I will revisit the property highlighted above and see if favourable market conditions over the past year have resulted in more accurate appraisals on these older homes (I doubt it).

Rather than taxing long term residents who have enjoyed a massive windfall in property value, the City like to charge builders and new buyers more.  Builders are an easy target because they are a group that nobody really likes, is fairly small, and would garner little sympathy from the public when discussing taxation rates, and even if all the builders in the City voted, it would have zero impact on an election.

New buyers are an easy target too, because if someone can afford to pay the high cost of inner city housing, then surely they can pay more tax than the neighbour who's lived there for thirty years.  New buyers have less justification to complain about tax because they could choose to not buy the house.  Long term residents seem to get a tax discount by the City because they could possibly be forced to move if taxation was too high (I don't think this is true, but again, it is optics not reality that matters).

My solution to this issue is fairly simple, first the tax system needs to change to better reflect use of expensive infrastructure, and congestion fees on roads such as Deerfoot and Glenmore would be a fine place to start.  Second, inner city areas need more accurate appraisals.  Third, inner city areas should get some discount vs outlying areas that have huge needs for police stations, fire halls, roads, arenas and schools, so this would soften any impact of accurate appraisals on long time home owners.  I do realize this will never happen, so perhaps this is a completely pointless discussion.    

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