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.