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By-Law Newsletter: New Tax Measures for Residential Development and Affordable Housing

 

New Tax Measures for Residential Development and Affordable Housing

In recent years, rising rents and eroding housing affordability have put a spotlight on municipal taxes levied on affordable housing accommodations.  In tackling the housing affordability crisis, some municipalities have sought to provide tax relief to incentivize the construction of affordable housing, and property owners have sought exemptions from taxation – but these efforts have been stymied by the lack of tools in the Municipal Government Act (“MGA”) and its regulations to address this issue. 

This is about to change.  Under the Municipal Affairs Statutes Amendment Act (“Bill 20”), the Province has responded to these issues by giving municipalities the power to create new tax incentives, to encourage the construction of new residential housing.  They have also created a new, broad and automatic exemption from municipal taxation for affordable housing accommodations, which will take effect in the 2025 taxation year.  

The following is an overview of these new tax incentive and exemption provisions, and how they will impact municipalities going forward.

New Tax Exemptions for Affordable Housing

    Affordable housing accommodations owned by the Alberta Social Housing Corporation have been automatically exempt from municipal taxation since 2017, and in 2022, that exemption was expanded to include any properties that are purchased from the ASHC by an affordable housing provider or management body under the Alberta Housing Act and continue to be operated as affordable housing (see the Social and Affordable Housing Accommodation Exemption Regulation, Alta Reg 12/2022).  These exemptions, however, do not capture other affordable housing projects that are governed by the Alberta Housing Act, but are not currently or previously owned by the ASHC.  

    Prior to Bill 20, neither the MGA nor the Community Organization Property Tax Exemption Regulation, Alta Reg 281/1998(“COPTER”) provided for an automatic and broad exemption from municipal taxation for affordable housing accommodations.  So municipalities either had to pass their own tax exemption bylaw under section 364 of the MGA, or property owners had to meet the eligibility criteria under another exemption, such as the exemption for properties that are owned by a non-profit organization and used for a charitable or benevolent purpose that is for the benefit of the general public (section 362(1)(n)(iii)(B) of the MGA and section 10 of COPTER). 

    Unfortunately, the criteria to qualify for an exemption under section 362(1)(n)(iii)(B) of the MGA are difficult for affordable housing properties to meet, specifically because, under COPTER, fees cannot be charged for using the property (except for minor entrance or service fees), and access to the property cannot be restricted more than 30% of the time.  

    This issue was highlighted in the Court of King’s Bench’s recent decision In McDonald v. Edmonton (City), 2023 ABKB 615, which confirmed that a 42-unit building that provides housing and support services to low-income individuals and families did not qualify for an exemption from municipal taxation under the MGA or COPTER.  While the Court was satisfied that charging below-market rent did not violate the prohibition against charging “fees of any kind, except for minor entrance or service fees” (section 7(1)(c) of COPTER), the Court found that the property’s requirement that at least 50% of residents had to be of Indigenous heritage violated section 7(1)(a) of COPTER (which prevents qualifying properties from restricting access on the basis of “race, culture, ethnic origin or religious belief”).

    The new tax exemption for affordable housing accommodations under Bill 20 will address this gap in the legislation.  Section 363 of the MGA will be amended to automatically exempt “affordable housing accommodation as defined in the Alberta Housing Act that is not exempt under section 361 of this Act” from municipal taxation.   

    Under the Alberta Housing Act, the Minister of Seniors, Community and Social Services can designate a project as “affordable housing accommodations”, and the new exemption from taxation under section 363 will operate to automatically exempt those properties from municipal taxation.  Municipalities will have the power to make affordable housing accommodations taxable by bylaw if they wish to do so. 

    This amendment will come into force on January 1, 2025, and will be applicable for the 2025 taxation year.  This amendment addresses a critical gap in the MGA and its regulations whereby certain affordable housing projects were automatically exempt from municipal taxation (such as properties owned and operated by the ASHC), and others were not.  From 2025 on, so long as the property meets the criteria to qualify as an “affordable housing accommodation” under the Alberta Housing Act, the property will be exempt from municipal taxation and will not have to meet the other eligibility criteria set in COPTER (unless the municipality passes a bylaw making affordable housing accommodations taxable).

    Tax Incentives for Residential Development

    Bill 20 will also amend section 364.2 of the MGA to allow municipalities to create tax incentives “for the purpose of encouraging residential development and the provision of housing … for the general benefit of the municipality.”  This tax incentive will operate similarly to the incentive provisions that already apply to non-residential properties and machinery and equipment. 

    This new tax incentive provision will give municipalities a powerful and flexible tool to create tax incentives to encourage the development of different kinds of residential development.  For example, if a municipality wished to incentivize the construction of new rental apartment complexes, they will now have the ability to pass a tax incentive bylaw which reduces or eliminates property tax on eligible projects for a period of time.  Municipalities have some flexibility in crafting eligibility criteria for these tax incentives, so they can be targeted and tailor-made for each municipality’s unique circumstances. 

    The new tax incentive provision for residential properties will come into force on proclamation, which has not occurred at the time of writing.  We recommend that municipalities consult with legal counsel to confirm when these new tax incentive provisions come into force. 

    Overall, the new tax exemption for affordable housing accommodations and tax incentive provisions for residential properties in Bill 20 give municipalities more tools in their arsenal to attract and incentivize the development of affordable residential housing in their communities.  These amendments address a critical gap in the legislation which previously made it difficult for municipalities to implement tax-based strategies to tackle housing affordability.

    Reynolds Mirth is pleased to partner with the Alberta Assessor’s Association, the Rural Municipalities of Alberta and Alberta Municipalities to offer a more in-depth webinar on assessment and taxation issues related to affordable housing.  Please join us to explore this topic further.

    Stay informed with By-Law Newsletter, an annual newsletter bringing you updates and legal insights on topics that Alberta municipalities are facing today. Watch for new articles over the coming months, or sign up for our mailing list to receive them directly to your inbox.


    This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.

     

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