Property tax squeeze bad for business
Vancouver’s tax system lets development squeeze life out of small local companies
The property-tax situation squeezing Vancouver’s small businesses was identified by city council last year as urgent, but the local expert they tapped to help create a solution is now asking whether councillors are willing or able to solve the problem.
In Vancouver, where a commercial property’s assessed value can double every couple of years, some of the busiest and best-loved independent businesses are struggling — and, increasingly, failing — due to the corresponding property-tax hikes that are passed down from commercial landlords to the tenant businesses.
Small businesses in Canada’s second-hottest real estate market, Toronto, face a similar property-tax problem, but the situation there only became acute in the last year or two, said Paul Sullivan, senior partner of appraisal firm Burgess Cawley Sullivan & Associates, whereas it’s been hammering Vancouver’s businesses for the better part of a decade.
Now, Toronto politicians are working on new solutions, with the city looking at creating a new property-tax class to “provide relief for small businesses facing soaring assessments and tax bills,” The Globe and Mail reported this week.
Sullivan passed that story on to Vancouver Coun. Raymond Louie — the city’s point man on property-tax reform — city staffers, and local real estate professionals with an eight-word note stating: “Nothing like a little conviction around an issue.”
Sullivan believes there has been a lack of conviction around tackling the property-tax issue in Vancouver, and he should know given he was brought on by the city last year to help find ways to fix it.
In April 2016, Louie and Urban Development Institute president Anne McMullin sent a letter to the province, seeking relief for small businesses dealing with “massive increases in assessed values.”
“With significant increases still to come, we now feel this issue is urgent,” the letter said, and suggested striking an “immediate policy committee on taxation to set out a strategy to achieve this objective for the 2017 assessment roll.”
They struck the committee with Louie, Sullivan and others, but were unable to make changes in time for the 2017 assessment roll.
Now it’s unclear if they’ll be able to do it for 2018, Louie told Postmedia this week.
That’s disappointing, Sullivan said, and it’s “shocking” that September’s Union of B.C. Municipalities convention passed without the property-tax issue on the agenda.
“Vision Vancouver, a majority government, effectively dictates all policy in Vancouver. Their inaction on the small business tax issue confirms to me they are either unwilling or incapable of resolving the problem,” Sullivan said.
“The residents of Vancouver want to keep their local independent business. Once they are lost, they are gone forever.”
Louie said he sees the challenge as creating a solution that supports small businesses, without shifting too much of a burden onto other taxpayers and without providing an unfair benefit for the city’s large commercial landowners, many of whom are Sullivan’s clients.
“The model that I’ve heard (Sullivan) propose is going to support the property owners as well,” Louie said. “At the expense of the other classes, meaning residential … homeowners who already face significant affordability issues.”
Regarding the lack of progress made so far by the tax committee, Louie said: “I share some of (Sullivan’s) frustration.”
Property taxes are based on assessed value, for which B.C. Assessment looks at the most probable use of a property that would return the highest value. Depending on zoning, a property’s highest and best use might be a four-storey mixed-use building with retail on the ground floor with three storeys of condos above, rather than a single-storey bakery, billiard hall or boxing gym, no matter how much intangible value that small business brings the community.
That means commercial landowners pay taxes on those imaginary condo units in the airspace above their heads, regardless of what’s actually there. What’s more, they pay the whole bill at the commercial rate, roughly five times the residential rate, Sullivan said. Not only is that unfair, it’s unsustainable, particularly for independent businesses.
Vancouver’s tax committee, Sullivan said, has been “totally ineffective because the city is not prepared to take a position on a solution.”
The solution floated this week in Toronto could work in Vancouver, Sullivan believes.
And Sullivan has another proposal for a better system, which includes split assessments — a commercial tax rate for the commercial component of the value, and a residential rate on the residential component.
In September, the Property Assessment Appeal Board of B.C. ruled a Kitsilano commercial property was entitled to a split assessment with 40 per cent assessed as residential and 60 per cent at the commercial rate.
The decision, which he described as a “monumental” win for independent Vancouver businesses, came after Sullivan appealed on behalf of the commercial landlords. The deadline for the B.C. Assessment Authority to appeal the decision passed last month.
In practical terms, Sullivan said, this means merchants on a certain stretch of West Fourth Avenue will be able to pay 30 per cent less on their property taxes. But its broader significance, he said, demonstrates split assessments are a practicable solution, now upheld by the assessment appeal board.
Vancouver council appears unwilling to back that solution, Sullivan said.
It may be understandable that councillors like Louie hesitate to shift the tax burden to homeowners in an already expensive city — especially because they account for so many votes. But the current system has the city on a path toward being inhospitable to the local independent businesses — pubs, pizzerias, retailers — that give Vancouver’s neighbourhoods their character.
There’s another reason Sullivan questions council’s eagerness to fix a system he views as broken.
“They don’t want to lower the holding costs of these properties because then people won’t redevelop them,” Sullivan said. “So, it’s ‘tax business to death, so we can get on with development.’ That’s what I’m hearing.”
Commercial landowners pay taxes on imaginary condo units in the airspace above their heads, regardless of what’s actually there.