If you own your own home, there’s no getting
around property taxes. Property taxes are levied by municipalities to pay for
local services, such as government offices, public schools, first responders,
utility infrastructure, roads, and parks. These taxes are the primary source of
revenue for local governments.
The total taxes you must pay for the year are
assessed by your municipality. They are calculated based on your property
valuation for the year and multiplying that by the municipality’s current tax
rate.
If you are renting, property taxes are priced
into your monthly rent, so there’s no need to account for them or pay them
separately. If you’ve recently moved into a home you’ve purchased, however,
you’re responsible for ensuring they are paid, on time and in full.
Here are some of the most important things you
should know about property taxes:
- Payment is due annually. Due dates and payment structures vary depending on
the city, county, or local administrative body. In Edmonton, for example,
payment is due in full by June 30. The Edmonton municipal government sends out
property assessment notices in January, which provides home owners with a
property valuation and an estimate of the property tax due for that year. The
official bill is sent out in May. - As with income taxes, there are late-payment penalties charged to
homeowners who don’t pay their property tax on time. In Edmonton, the total
amount applied to any outstanding balance can reach as high as 15% for the
current year – and more charges are added if the balance continues to remain
unpaid the following year. As a result, it’s crucial to have the necessary
funds set aside so that payment can be made on time. - Payments can be set up with your mortgage lender or the balance can be paid
in full by the due date. From a budgeting and cash flow perspective, it may be
a better idea to make periodic payments through your lender rather than one
lump sum amount. Mortgage lenders estimate the total property tax payment for
the year and then divide that amount by the number of mortgage payments to be
made for that year. The funds allocated to property taxes are held in escrow
until they are due. The downside of paying through a mortgage lender is that
funds tied up in escrow cannot be invested elsewhere, resulting in missed
investment opportunities. The interest earned in escrow accounts is generally
minimal when compared with the many investment options available. - Mortgage lenders who collect funds for property taxes on homeowners’ behalf
are going off an estimate, so it’s possible that you may find yourself short
paying the municipality when the due date rolls around. For example, if the
actual amount you owe is $4,000 but your lender pays $3,800, you must cover the
$200 shortage. Therefore, it’s imperative that you know your total tax
liability for the year and how much you will actually have to pay to the
municipality. To offset the risk of collecting insufficient funds, some lenders
purposefully collect more than necessary per payment. - Property taxes can get tricky when it comes to the purchase of a new
property, so be sure you do your homework in this area. Using Edmonton as an
example (with a June 30 due date), if the closing date of the sale of the
property occurs on August 1, and the seller has paid the property taxes in
full, the buyer owes the seller for five months’ worth of taxes assessed for
that year. The reason for this is because property taxes that are paid in
full covers the taxes owing for the previous six months and the following six months
of that year.
Property
taxes are here to stay – you will continue to pay them, even after your
mortgage is paid off. When shopping for a new home, always keep in mind the
estimated property tax you will end up paying each year, and how it will fit in
your budget. You can also stay up-to-date with your current year’s assessments,
local tax rates, payment options, and other information by visiting your
municipality’s website.
Contact Us Today:
Email: sarah.penney@ratefair.ca
Call: 780-405-5449
