Update: Tax Subclasses

*UPDATE: City Council debated this item on February 22, 2023. The motion to eliminate the ‘Other Residential’ tax subclass passed in a 7-6 vote. Councillor Rutherford voted NOT in favour. Read on for more information.

I get it, talking about something like tax subclass isn’t the most riveting! Honestly, it's taken a bit to get my head wrapped around this topic.

It's currently getting attention in the media due to a report at the Executive Committee that provides information on the potential to eliminate a current subclass and then adding a new subclass.

So I thought I’d talk about that report, my thoughts on these options, and update on what happened at committee.

Currently the city has one residential subclass called ‘Other Residential’ that has 4 or more housing units on a single title - largely made up of rental properties. It does not include condominiums which have individual titles. This subclass was established in 1974 and properties pay a rate 15% higher than residential properties outside this subclass.

Eliminating this subclass shifts tax rates as follows:

Other residential would decrease by 11.7%

Residential would increase by 1.6%

There are valid reasons to both keep and eliminate the subclass - the biggest reason to eliminate the subclass is to spur rental property development. However, I’ll be clear, I’m very concerned about Council going in this direction at this time.

First, I’m struggling to see the benefit. The report outlines that there will not be reduced rent as a result of this change. In fact, Council attempted to phase this out before and stopped because they were not seeing rents going down as a result.

Additionally, the property owners on rentals have the ability to deduct building operating costs - including property taxes - from their income tax.

Lastly, this shifts the costs onto those residential properties outside this subclass at a time when affordability is top of mind and property taxes are already going up to keep pace with inflation and enhance critical services to Edmontonians. Now is not the time to add on to the real pressures many are facing to get by.

Taking it a step further, there is information in the report to add in another subclass that would see lower tax rates for residential property considered ‘high density’. Though, how the City would end up classifying this is really more complex than seems on the outset. Either way, while more work and analysis would have to be done on this, what is certain is that if this subclass is created, any properties not within that subclass would again see a shift in the tax rates.

Administration is clear in the report that density-based subclassing alone will not be effective to increase density. They do not expect the results of adding this subclass to be significant. So again, I have to ask why would we go in this direction? We have many other ways we can and are supporting The City Plan. Incentives through the taxation system doesn’t need to be one of them.

Administration’s recommendation in the report was to receive information. However, this item was requisitioned to Council so that all Council members could weigh in on this as a whole. This will be debated at the next Council meeting on February 22. While I’d welcome a more comprehensive discussion on rental competitiveness, I can not support either item up for debate at this time.

*UPDATE: City Council debated this item on February 22, 2023. The motion to eliminate the ‘Other Residential’ tax subclass passed in a 7-6 vote. Councillor Rutherford voted NOT in favour.

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