Understanding Property Taxes in Your Real Estate Transaction
Property taxes play a key role in the closing adjustments between a buyer and seller during a real estate transaction. These adjustments are outlined in the Statement of Adjustments, prepared by your real estate lawyer, and are part of the documents you’ll review and sign when finalizing your purchase.
Key Points to Know:
1. Who Pays What and When?
Your lawyer will ensure all of the seller’s property tax obligations are up to date. If the seller has prepaid taxes beyond the closing date, you will typically reimburse them for the portion that covers your ownership period.
Buying between Jan 1 – June 30: The seller will credit you for the days they occupied the property.
Buying between July 1 – Dec 31: You will credit the seller for any prepaid taxes.
2. Annual Property Tax Due Date in Alberta
In Alberta, property taxes are due on June 30th and cover the full calendar year (January 1 – December 31). If you take possession before taxes are due, be prepared to pay the balance of the year’s taxes—even if your lender will be collecting taxes in addition to your mortgage payment. That’s because your tax account may not yet have enough funds accumulated to cover the bill.
3. Paying Property Taxes: Lender vs. Direct Payment
Discuss your property tax arrangements during your signing appointment with your lawyer.
You’ll need to confirm:
Whether your lender will collect taxes as part of your monthly mortgage payment, or
If you will pay them directly to the tax authority with your municipality.
If you’re responsible for paying taxes directly and your city offers a monthly Tax Instalment Payment Plan (TIPP)—such as in Edmonton—you may be able to assume the seller’s enrollment or set up your own account. This can help you avoid having to pay a lump sum once a year.
4. If Your Lender Collects Taxes
In addition to your mortgage principle and interest payment, you will also pay a property tax component.
Every lender handles tax collection differently. When you receive your welcome package from your mortgage lender, typically a few weeks from when your mortgage funded, they will provide further information on your property tax account with them.
As it is the municipal government who decides the property taxes per year, your lender will need to estimate what the taxes may be.
Most lenders will use an internally calculation to anticipate what the taxes will be, and they use that to set the amount of the tax component you will be paying.
At tax time, you will receive your annual tax notice in the mail from your municipality. It will show the tax amount and in most cases will show that it is due, and the date it is due on. If this is your first year paying taxes through your lender, we recommend contacting your lender to ensure they too have received your tax bill.
On the due date, they will use your property tax account held with them to pay the tax bill. If there is a shortfall, (meaning insufficient amount of funds in your tax account to cover the tax bill):
- Some will pay the full amount taxes on your behalf and adjust your monthly contribution to make up the difference in the shortfall.
- Others may require you to cover the tax shortfall as a lump sum if your contributions haven’t yet built up enough.
- They may have to recalculate their estimations for taxes for the following year.
💬 Final Tip:
Property taxes are ultimately your responsibility as a homeowner, however you understood the set up. We strongly recommend setting up a monthly TIPP program if you are paying directly to your municipality. If you are paying through your lender, we recommend maintaining clear communication with both your lender and municipality, especially after your mortgage funds and leading up to the June 30th due date. Double-check that your mortgage lender is collecting additional funds for your tax account and they have paid them on the due date.