Starting January 1, 2017, carbon dioxide emissions from burning fossil fuels are taxed at a rate of $20 per tonne. That number is set to increase to $30 per tonne in 2018, and Alberta Premier Rachel Notley has said she’ll respect the federal mandate to boost the price to $50 per tonne by 2022.
In Alberta, where most homes are heated by natural gas, this tax will mean a significant increase in bills. By 2018, carbon will be taxed an additional $1. 51 a gigajoule. In October, the price charged to Albertans for natural gas heat was only $2.66 a gigajoule.
What This Tax Means for Real Estate Income Properties
The effect of carbon taxes on income properties and how the tax will affect you as an investor all depends if the rent you charge includes utilities (heat and or electricity). If the rent you charge doesn’t include utilities, the cost of the carbon tax will affect your tenants, which will make their cost of living higher. This tax has the potential to increase Edmonton’s already high vacancy rate due to the fact that some families just won’t be able to afford the increase. To offset the higher costs, twice a year the Alberta government will be giving rebates back to families with low or medium income.
Now, if the rent you charge includes utilities, the increased costs caused by the carbon tax are all yours. You can expect an average of five to 15% increase in your utilities bill depending on the mix of suites in your building, the location of your property, and the demography of your tenants. The carbon tax will cost more for properties that are inefficient and suffer from large amounts of heat loss. If your property wastes a lot of heat, it would be prudent to do some beneficial upgrades such as replacing windows and doors and installing an energy efficient furnace.
Dealing with this tax may drove to be difficult. When dealing with a change such as this, normally investors would pass the cost onto their tenants and increase the rent charged. However, in this down turned economy, which is still observing high vacancy rates, you are on the bottom scale of rent rates that are the lowest we’ve seen in the last ten years if not more. Therefore, planning your 2017 budget is becoming increasingly crucial. You may need to plan for another hit in your income this year, or till the market can afford a rent rate increase.
If you’re especially worried about how this carbon tax will affect your rental property, talk to your property manager. Make time to sit down and discuss how he or she can help you manage your expenses to offset some of these impending costs. If you aren’t already working with a property manager and don’t have the slightest clue as to what you should do, you can hire a professional management company who’ll work with you to rectify the problem and make the best of a bad situation.
Alberta’s new carbon tax will have an effect on everyone. You can expect to open up your wallet a bit more to heat your property. With vacancy rates in Edmonton on the higher side, investors may be taking a larger hit than others.