Calgary’s tax shift set to squeeze industrial property owners.
Calgary’s tax shift set to squeeze industrial property owners next year
Calgary has made a concerted push to entice companies such as Home Depot and Canadian Tire to set up warehouse and distribution centres in the city in recent years, expanding the transportation and logistics sector.
Good luck, however, bringing in new players in 2021 — not with 25 per cent tax hikes potentially looming for some large industrial landowners.
A new city administration report shows another municipal tax shift is set to unfold next year due to the annual property tax reassessment process.
And this time, the dominoes will topple onto industrial properties, hitting more than 800 with double-digit tax hikes.
“Industrial properties, particularly large-format warehouses, are expected to see a substantial increase in property taxes for 2021,” says the report, which was reviewed by a council committee on Tuesday.
Each year, city hall must embark on a revenue- neutral reassessment process, valuing properties as of July 1 of the previous year. The system doesn’t raise additional money for the city, but does determine where the tax burden falls.
Any decreases in one segment of non-residential properties must be shouldered by other commercial property owners who’ve seen their values go up, or not fall by quite as much.
Since 2015, a steep plunge in the value of downtown office buildings has led to hefty tax increases on businesses outside the core.
For 2021, preliminary city data shows assessments on office buildings are set to fall by 10 per cent.
Due to the effect of the COVID- 19 pandemic, hard- hit retailers — led lower by falling values for hotels — will see their property assessments decrease by nine per cent.
This will help lighten their tax bill next year, particularly as council has already indicated it will pass a budget that freezes or reduces overall taxes.
On the flip side, industrial property assessments will increase by an average of five per cent, meaning they will shoulder more taxes in 2021.
Acting city assessor Eddie Lee told the committee a large-format warehouse would see an overall 14 per cent increase in its property assessment next year, while its tax bill would jump by 25 per cent.
Overall, the average industrial property in the city will see property taxes rise 11 per cent due to reassessment, while the office category falls by 5.3 per cent and retail dips by 4.5 per cent.
( The residential tax base is expected to drop in value by about three per cent next year, although one category — highrise apartment buildings — will see significant property tax increases.)
The document highlights other big increases and decreases coming next year due to reassessment.
For example, an average hotel will see its municipal taxes drop by 28 per cent, while a retail property along 17th Avenue S.W. will receive a 17 per cent increase.
It didn’t take long for councillors to draw a tight bow between the city’s ongoing efforts to attract industry to Calgary, and the effect of a large tax hike on prospective property owners.
“These are major industries that we’re trying to cultivate and attract to come to Calgary,” said Coun. Jeromy Farkas.
“How can we tell them if they do invest and try to serve our diversification goals, that you are going to be first in line for a 15 to 20 per cent increase?”
How indeed?
Calgary Economic Development has previously identified transportation and logistics as an established economic “cluster” for the city. According to the authority’s website, this area employed about 55,000 people in Calgary in 2017.
What has made Calgary attractive to such operations is the city’s location in Western Canada and its relatively inexpensive commercial land compared to large cities like Vancouver, said Todd Throndson, Avison Young’s managing director in Calgary.
Although it faces stiff competition from neighbouring areas such as Rocky View County, “Calgary is doing a very good job of positioning itself to be a distribution hub between Vancouver and Toronto,” he said.
If local taxes suddenly jump on industrial properties, that will increase the tax advantage some nearby communities will have in attracting these developments.
Coun. Jeff Davison, who is also a board member of Calgary Economic Development, said the city has a lot going in its favour, with plenty of serviced industrial land, skilled workers and a strong transit system.
But if industrial taxes climb, “it makes our job incredibly difficult in order to compete,” Davison said.
“Calgary is losing its competitive edge with respect to our industrial land base,” he said.
“As some of these ( taxes) go up ... a significant portion of the businesses within the City of Calgary’s border are going to start looking around at places like Balzac and Taza ( a development on Tsuut’ina Nation) and say, ‘ Is there a better tax jurisdiction for me?’ ’’
Davison noted the city has no ability to change the provincially mandated assessment system to fix structural problems caused by the tax shift.
And what message will tax increases send to industrial businesses that the city is hoping to attract?
“What it says is our assessment and tax system, which is the provincial system, is a very blunt tool,” Mayor Naheed Nenshi told reporters.
In recent years, council has shifted more of the tax burden onto homeowners and off businesses. It has also created shortterm rebate programs to dampen some of the steepest increases facing local companies, but it’s been expensive.
Calgary Chamber of Commerce interim CEO Murray Sigler believes the city should be looking at some up- front relief for businesses next year, but it also needs to adopt longer-term tax reform and develop a plan to deal with spending.
“The property tax implications that we are seeing in these latest documents are really alarming, but they’re not surprising to us,” Sigler said.
“Council has been good at finding one-off, near-term solutions ... but we need to go beyond that.”