As­sess­ment cap­ping needs to end

Cape Breton Post - - Op-ed -

For a fair tax pol­icy, homes as­sessed sim­i­lar mar­ket val­ues should pay the same prop­erty taxes. Un­der the cap­ping as­sess­ment pro­gram (CAP), homes with sim­i­lar mar­ket val­ues, some on the same street, are now pay­ing vastly dif­fer­ent taxes through­out the prov­ince, in­clud­ing Cape Bre­ton.

As­sess­ment cap­ping started in 2005 by freez­ing some res­i­den­tial as­sess­ments retroac­tive to 2001. It was the gov­ern­ment re­sponse to as­sess­ment and tax hikes that fol­lowed a hous­ing mar­ket boom, par­tic­u­larly in coastal re­sort ar­eas and in more af­flu­ent neigh­bour­hoods.

Mu­nic­i­pal coun­cils could have kept tax bills at the same level by de­creas­ing mu­nic­i­pal tax rates, but they did not. Both op­po­si­tion par­ties en­dorsed the CAP.

Ini­tially, the CAP ex­empted from tax­a­tion as­sess­ment value in­creases above 15 per cent. How­ever, in re­sponse to lob­by­ing from other tax­pay­ers, this thresh­old was soon dropped to 10 per cent and then to the rate of in­fla­tion. As a re­sult, most of the el­i­gi­ble hous­ing stock in the prov­ince is now be­ing capped.

Af­ter over a decade of cap­ping, there is clear ev­i­dence that the CAP is deep­en­ing an in­equitable tax sys­tem. Some home­own­ers are sav­ing on taxes while other home­own­ers are pay­ing ex­tra to off­set the tax sav­ings. The pro­gram is shift­ing the tax bur­den from some home­own­ers to other home­own­ers.

Taxes paid vary de­pend­ing on whether a home is in­el­i­gi­ble (not owner-oc­cu­pied, or non­res­i­dent owned), how long it has been capped and whether it was re­cently sold.

When a capped home is sold, the ex­ist­ing cap value is re­set up to mar­ket value which be­comes the new cap value for the home. This is trans­fer­ring a huge tax bur­den on home­buy­ers, in­clud­ing young fam­i­lies buy­ing homes for the first time. New home con­struc­tions, ad­di­tions and ren­o­va­tions are also af­fected, as they too are taxed at full mar­ket value.

To il­lus­trate, sup­pose a home with a cap value of $150,000 and a mar­ket value of $250,000 is sold. For a mu­nic­i­pal tax rate of $1.20 per $100 of as­sess­ment, the tax bill for the pre­vi­ous home­owner would have been $1,800, whereas the bill for the new owner would be $3,000.

An­other prob­lem with the CAP is lack of trans­parency. Its tax im­pact is hid­den. Most home­own­ers see any re­duc­tion in mar­ket value on as­sess­ment no­tices as ev­i­dence of tax sav­ings. This is not nec­es­sar­ily so be­cause tax bills also de­pend on the mu­nic­i­pal­ity’s tax rate. In fact, many end up pay­ing more taxes than they would if the CAP was not in place.

A re­cent re­port com­mis­sioned by the Union of Nova Sco­tia Mu­nic­i­pal­i­ties (UNSM), Prop­erty Valu­a­tion Ser­vices Cor­po­ra­tion, and the As­so­ci­a­tion of Mu­nic­i­pal Ad­min­is­tra­tors of Nova Sco­tia doc­u­mented ev­i­dence of wide­spread un­fair­ness in the tax sys­tem and rec­om­mended end­ing the CAP. The re­port was writ­ten by two of Canada’s lead­ing schol­ars in mu­nic­i­pal fi­nance, Dr. Enid Slack and Dr. Harry Kitchen.

To rec­tify the tax sys­tem, Nova Sco­tia needs to re­turn to mar­ket-value as­sess­ment, which is in­ter­na­tion­ally ac­cepted as the best way to dis­trib­ute prop­erty taxes fairly.

Mar­ket value has its im­per­fec­tions, in­clud­ing pe­ri­odic volatil­ity. Some CAP sup­port­ers point out that the pro­gram shielded low-in­come home­own­ers from los­ing homes when taxes were es­ca­lat­ing. This may well be true. But the pro­gram is an in­ap­pro­pri­ate in­stru­ment for this be­cause it also gives sub­stan­tial tax re­lief to many of Nova Sco­tia’s wealth­i­est home­own­ers.

Ap­peals to end the CAP from the UNSM and oth­ers fa­mil­iar with its short­com­ings have so far been un­suc­cess­ful. To name a few re­ported in the me­dia, those who have ap­pealed in­clude Greg Keefe, for­mer Deputy Min­is­ter of Ser­vice Nova Sco­tia and Mu­nic­i­pal Re­la­tions, CBRM Mayor Ce­cil Clarke, and for­mer Port Hawkes­bury Mayor Billy Joe Ma­cLean.

End­ing the CAP would re­quire a grad­ual phase-in of mar­ket value, per­haps over a decade, to min­i­mize the tax im­pact on home­own­ers with cap ben­e­fits. Also, home­buy­ers could be granted an im­me­di­ate con­ces­sion at the start of the phase-in by end­ing the prac­tice of un­cap­ping sold homes.

Bet­ter ways would be needed to pro­tect tax­pay­ers if the CAP is lifted. A range of op­tions could be im­ple­mented, in­clud­ing stricter ground rules for low-in­come tax re­lief pro­grams, tax de­fer­rals, and pos­si­ble smooth­ing out of spikes in as­sess­ment along with com­men­su­rate re­duc­tions in tax rates. Also, a “truth in tax­a­tion” mea­sure as in some USA ju­ris­dic­tions could be adopted for trans­parency and ac­count­abil­ity in set­ting tax rates.

The hope is the CAP will be lifted at some point. Un­til then, un­equal tax­a­tion of homes with sim­i­lar mar­ket val­ues will worsen with each pass­ing year. Shingai Nya­jeka, Sr. Hal­i­fax

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