When buying a new home from a Builder, it’s important to consider and discuss how municipal property taxes are assessed and charged with your real estate lawyer in Edmonton. How it works will depend on the terms of your purchase contract. There are several things to consider.
Types of Property Taxes
First, you’ll want to understand the basics of the two primary types of property tax on new homes and how tax is assessed.
- Original Tax Assessment – In this scenario, the city will assess your property at the beginning of the calendar year and determine its value. In cases where the home is under construction at the time of the assessment, the overall assessment value is based on the lot only and will be lower than the final value of the home in most cases. This is the assessment that is used to calculate the initial annual tax bill.
- Supplementary Tax Assessment – Once the home is fully constructed or almost fully constructed, the city will do another assessment and determine the actual value for the home. They will then levy any applicable additional taxes for part of the year based on the increase in home value.
At the time of closing, you will need to pay the Builder the balance of your deposit funds, if any. There will also be an adjustment for property tax. The adjustment is usually based on the Original Tax Assessment because the City has not yet had the opportunity to issue the Supplementary Assessment. What this means for you is that the tax adjustment will likely favour the Builder because of the lower total tax amount.
Each homebuilder has their own way of dealing with Supplementary Tax Assessments ie. Tax bills received after you have taken possession of the property based on the new value of the property. Again, the way they deal with it is likely set out in the purchase contract and will be explained to you by your Builder and real estate lawyer. The Supplementary Tax Assessment may be deal with as follows:
- No further adjustments following closing. This is the most common. You will be responsible for any supplementary tax assessments received following the Closing Date even if the assessment period on the tax bill starts prior to your Closing Date.
- Adjustment for the supplementary assessment. Some builders will adjust post closing once your receive the supplementary assessment for that year. They will reimburse you for their share of the supplementary assessment if any. You are to deal with the builder directly to complete the adjustment and your builder will give you instructions at the time of closing.
See my article on Property Tax Adjustments for an explanation on how property taxes are adjusted for in the home buying and selling process.