Municipal finance is concerned with the revenues and expenditures of municipalities. Revenues are secured from local taxes (see TAXATION) and other local revenues and from provincial and federal grants. Property taxes include taxes for both general municipal purposes and schools, which in some provinces are levied directly by SCHOOL BOARDS and in others by the municipalities. Likewise, government grants include grants for education as well as for general municipal purposes. Taxes levied on "real property" (land and buildings) are the traditional and principal source of municipal tax revenue. The accuracy of the assessment of the value of real property is of paramount importance, especially in ensuring the equitable treatment of taxpayers in each municipality and, because many provincial grants are related to assessment, in ensuring equitable treatment of citizens in different municipalities. The principal basis of assessment is market value of property. Because of the importance and difficulty of establishing accurate and uniform assessments, all provinces have in recent years either assumed complete responsibility for assessment or imposed careful supervision over municipal assessment.
Most provinces provide either for a "homestead" provincial rebate to property taxpayers or for a property tax credit linked to provincial personal income tax, the former to reduce the burden, the latter to reduce the regressiveness of the property tax. Property tax exemptions are commonly granted for churches and other charitable organizations and in some provinces partial exemptions are granted for widows and the aged. Special assessment taxes are levied as supplementary charges for local improvements, eg, sidewalks, usually based on frontage of lots. Business taxes, calculated on such bases as rental value, floor space and real property assessment, are levied on occupants of business properties. Provincial and federal grants in lieu of taxes are paid on provincial and federal real property. Local nontax revenue derives from sales of services, eg, water, and from licences and fees, fines and penalties. Taxes on personal property and poll taxes, once quite general, have been abolished in most provinces, although the poll tax is still used in Newfoundland and is authorized in Saskatchewan municipalities but not applied. Ninety percent of the transfers (grants) from provincial and federal governments are special purpose (conditional) grants for such activities as education and social services; the remaining 10% are general purpose (unconditional), although these proportions differ widely from province to province. These transfers are meant principally to ease the property tax burden and to equalize it among municipalities.
Borrowing is typically for capital assets and the debt is amortized approximately over the life of the asset. Municipalities are not generally allowed to run deficits in their operating budgets. Although many municipalities still borrow in their own right, there is a trend towards consolidated borrowing by a provincial agency on their behalf to ensure more favourable interest rates and better debt management. While elementary and secondary education is still the principal local expenditure, provincial governments are increasingly assuming these costs, either by grants or, as in New Brunswick and Prince Edward Island, by accepting complete responsibility for education.
Municipalities have long agitated for access to income and sales tax bases to reduce their dependence on the property tax, but because of the difficulties of administering these other taxes at the local level, the uneven yields per capita they would produce for the municipalities and the reluctance of the provinces to add another layer of such levies, the provinces have preferred to share revenues from these sources by means of grants. Manitoba and BC, however, now earmark a small part of their receipts from personal and corporate income taxes for their municipalities.