Small acreage owners throughout the province of Saskatchewan can see a range of low property taxes right up to high rates that can drive them to sell in search of a more affordable place to live.
Two small acreages, selling on the market at the same time, for the same price, can each bear a very different tax burden. While one owner might pay $1,500 a year, the comparable property might pay $5,000.
It’s a common reaction to automatically blame the municipal government for those high tax rates, however your local rural municipality in Saskatchewan have less control than you may think over what you pay in property taxes.
But they set the mill rates, don’t they?
Yes and no.. the key word here is “set“. Your municipal government doesn’t set the mill rates, they calculate them. Those calculations are based on multiple factors, the only one of which they have full control over is the annual budget for the tax year in question. They decide how much is needed overall, but they do not have complete control over what each property owner pays. The only rates your local government might set would be;
- minimum tax rates; which are usually put in place to create fairness when provincial exemptions create an environment where some properties might pay little or no taxes at all or
- tax levies; which may be applied throughout a municipality or just to a particular neighbourhood. Tax levies are often seen where an improvement is made that benefits only one region and the cost of which is spread out among those who benefit either in a single tax year or over as much as 20 years. One example of that might be a unorganized hamlet within an RM receiving a water system upgrade. A $500,000 water system upgrade would cost the residents of a hamlet of 50 property owners $ 10,000 each if the municipality needed to recoup that cost in one year but the can use a levy to spread the burden out over several years by collecting it $500 at a time for that 20 years.
Using the total they need to collect to operate for the year, they deduct what is provided in provincial and federal transfers and grants, and the balance is the amount that must be divided among all the ratepayers.
In recent years a combination of cut programs and reduced transfers has meant more of that operating budget burden is being shifted to the municipality, increasing the total that they need to collect from ratepayers.
If you have concerns that your Rural Municipality may be overspending or inappropriately managing resources, when you get your tax bill, or even your assessment notice, is not the time to speak up. The budgets for your current year’s tax roll would have been an ongoing process starting in the fall of the previous year. Your council would be meeting and discussing the upcoming year’s budgets over the course of several months in meetings open to the public to attend and observe.
So who is responsible for deciding I pay $5,000 while another small acreage only pays $1,500?
The majority of the decision of how taxes are applied to each property in a rural municipality lies with SAMA, the Saskatchewan Assessment Management Agency and with Provincial Legislation that dictates what portion the assessed values are taxable, the rules for exemptions, which SAMA must follow and in that legislation lies a major cause of varying property tax bills on seemingly similar properties.
In the The Municipalities Act; Section 293 – Exemptions from taxation in rural municipalities, subsection 2 outlines exemptions as they apply to agriculture. In Subsection 2(e) it is established how a dwelling can receive the exemption that can create an imbalance of tax bills between two seemingly similar properties;
(2) In addition to the exemptions provided for by section 292, the following are exempt from taxation in rural municipalities:
(a) unoccupied buildings that are residential in nature and that are situated on land;
(b) buildings that are used to grow plants in an artificial environment;
(c) improvements, other than dwellings, that are used exclusively in connection with the agricultural operation that is owned or operated by the owner or lessee of the improvements;
(d) the portions of improvements, other than dwellings, that are:
(i) used partly in connection with the agricultural operation that is owned or operated by the owner or lessee of the improvements and partly for other purposes; and
(ii) determined by the Saskatchewan Assessment Management Agency to be attributable to that agricultural operation;
(e) a dwelling that is situated outside of an organized hamlet or an area established pursuant to clause 53(3)(i) and occupied by an owner or a lessee of land, to the extent of the amount of the assessment of the dwelling that does not exceed the total of the assessments of any land in the rural municipality or in any adjoining municipality that is owned or leased by:
(i) the occupant, the occupant’s spouse or both of them;
(ii) subject to subsection (3), a partnership of which the occupant is a partner; or
(iii) subject to subsection (3), a corporation of which the occupant is a shareholder.The Municipalities Act http://www.publications.gov.sk.ca/freelaw/documents/PIT/Statutes/M/M36-1-2014-11-18.pdf
For each taxable dollar of agricultural land you own or lease, you get a “credit” deducted from your dwelling. This is an offset designed to reduce the tax burden on agricultural operations. While you may feel some of these large corporate farms can afford to go without the exemptions, they aren’t the ones who eliminating agricultural exemptions would harm. Without this offset, it’s the smaller family farms that would be hit the hardest.
More is less when it comes to taxes on small acreages with agricultural land
Quite literally, in fact. The more agricultural acres you own, the lower your taxes on your home go.
When determining the actual land values for small acreages, the same rule is applied to all yard sites. The first 3 acres is deemed residential, regardless of it’s use. It is rated along with the house at the 80% taxable rate.
The remainder of your acres you own of agricultural land are rated at 45 – 55% depending on the quality and that figure is how you get exemptions.
So if you own a ten acre property the house and first three acres are taxable as residential, 80% of their assessed value is taxable. But then that remaining 7 acres may be agricultural land, even if it’s current use is not part of a farming operation. The assessor applies a separate value for those 7 acres then, because it is classed agricultural, the taxable amount is usually 55% of the assessed value.
The exemption would then be applied by deducting that 55% taxable value of the agricultural land from the taxable value of your house only.
- $100,000 assessed value of your house x 80% = $80,000 Taxable value of your house
- $1,000 assessed value of the first three acres deemed residential x 80% = $800.00 taxable value of your yard
- $5,000 assessed value of your remaining 7 acres x 55% = $2,750 Taxable value of your remaining 7 acres
So you will pay taxes on $2,750 at the agricultural mill rate, and residential taxes on the $800 for your yard site and $80,000 – $2,750. Your exemption reduces the taxable value of your house to $77,750.
The exemption can only apply to your residence, not the yard site, and only up to it’s taxable value. So if you owned agricultural land with a taxable value (after the 55%) of $100,000, you would only get an exemption of the $80,000. The exemption can also be applied for if you lease agricultural land for a farm operation.
Understanding your assessment notice.
You receive two notices each year, the first will be your Notice of Assessment, followed later in the year by your actual Tax Notice.
It is vital that you review that Notice of Assessment and if you disagree with your assessment you can file an appeal.
Do not wait until you receive your tax bill, it is too late by then!
It is through an intricate and complicated system that each property is assessed and, though they may look similar, no two properties are alike.
While many factors do play into your final tax bill, as a small acreage owner there are some important ones you should be aware of;
Tax classes can vary from one rural municipality to the next but the core classes you will see in all are; Residential, Agricultural, Commercial and Industrial.
Tax classes do not necessarily reflect your actual zoning of your property. You could have a property zoned agricultural but use it as a residence and run a business out of a shop, in which case your property may be divided into three tax classes, Residential for the house and first three acres, agricultural for your remaining acres and the building you use for your business could be deemed commercial in your SAMA assessment.
Tax classes are important to understand because they can have a large impact on your final tax bill. Each class dictates what portion of your total assessed value will be taxable. Residential is set at 80% provincewide, most Agricultural is 55% (though some parcels, are set at 45%, and some are deemed no value and not even assessed at all, such as some swamps and beaver ponds), and commercial is taxed at the full 100%.
Once the data from SAMA is used by your municipality, each tax class is again given different mill rates, so your property from each tax class may have a different mill rate applied to each.
Methods of Assessment
SAMA uses a variety of assessment methods to determine the value of your property and buildings. Small acreages in rural areas are frequently assessed using the Cost Method. The main reason for that is other methods, such as the Comparative Method, are difficult to apply as they require sufficient comparable property sales to establish local values.
Very oversimplified, the Cost Method calculates what it would cost to build your home and buildings, based on square footage, quality of construction and features, less depreciation with adjustments made for condition and a Market Adjustment Factor, intended to keep your value in line with others in your neighbourhood or with similar, but not necessarily comparable, property types.
MAF – Market Adjustment Factor
Even if the Cost Method is used, a bit of comparable information in relation to actual sales is applied to the value of your home using the MAF (Market Adjustment Factor). Recorded property sales are used to make a final adjustment on the value of your home by comparing actual sale prices with their assessed values. The MAF reflects average selling prices for comparable improvements.
“A MAF is calculated for each sale and the MAF applied is developed from the median of comparable sales in the neighbourhood”2016 SAMA AGM Presentation – Property Assessment 201 http://www.sama.sk.ca/pdfs/speeches/2016AGM/SAMATraining.pdf
Assessed value of your home seem high? Check the MAF!
In one example, there are three small acreages within a one mile stretch of road. Two have seen extensive upgrades and, on the open market, would sell for more than the third property. The third one is comparable in age, size and features, however has seen little upgrades in the nearly 50 years since it was built. Looking closer at the assessment data for each, it is discovered that the assessed value of that third property is in line with the other two and fair.
Where the imbalance comes in is the MAF that was applied to each one. The two houses with plenty of upgrades saw a MAF of .88 applied to their assessed values, but the third one got a MAF of 1.39 applied to it.
So what that means is, if each had an assessed value of $100,000 before the MAF was applied, the two nice ones would have an end assessed value of $88,000 and the third in the example would be set at $139,000
The actual assessed value of the third house was $ 210,900 after the MAF was applied. Had the MAF of .88, like the neighbours got, been applied, the total assessed value of that home would have been about $133,518. and the taxable value would have been $106, 814 instead of the actual $168,720 their taxes would be calculated on.
In that example, the third property owner would have seen their tax bill reduced by 1/3 had the .88 MAF been applied to their home just as it was to the neighbours.
What this means to you when you are looking at your notice of assessment is how important the MAF is and understand how it affects your property assessment. A factor of one (1) or less is in your favour, but factors exceeding a value of 1 reflect an increase added. It’s not something you might understand, mainly because you would need to see your neighbour’s assessments to know if you are all being factored the same, but it is something you can contact SAMA and question.
Want to know more about property assessment in Saskatchewan?
The SAMA website has extensive information and answers almost any question you might have about how your property is assessed, as well as links and information about appealing your assessment.
- SAMA WEB SITE: http://www.sama.sk.ca/index.html
- The Municipalities Act http://www.publications.gov.sk.ca/freelaw/documents/PIT/Statutes/M/M36-1-2014-11-18.pdf
- Understanding Assessment;The Assessment Process and Its Relation to Taxes – http://www.sama.sk.ca/html/2/understanding.html
- Methods of Assessment http://www.sama.sk.ca/html/2/methods.html
- Appealing an Assessment – Provincial legislation in Saskatchewan provides a three-level appeal process for property owners who question the assessment value of their property. http://www.sama.sk.ca/html/2/appealing.html
- FAQs http://www.sama.sk.ca/html/2/faq.html
SAMAVIEW Online Assessment Information http://www.samaview.ca/sama/
With SAMAView you can:
- Verify your property assessment information;
- Compare your assessment to similar or neighbouring properties; and
- Get a general idea of assessed values in your municipality.
SAMAView is intended to be used by all property owners for non-commercial purposes. There is no cost for this service. Usage for any other reason, including business purposes, requires a user licence be set up with SAMA.
About the author; Joanne Francis is the Editor of Nipawin News and a former Real Estate Agent with a certificate in Urban Land Economics from the University of British Columbia, the prerequisite for licensing in British Columbia as a Realtor, Broker, Property Manager and Property Appraiser.