Sabrina Faas, owner of Bayswater Tea Co., sweeps outside her store in Vancouver on Nov. 8, 2019. Vancouver city councillors have voted unanimously to try out a property-tax-reduction pilot program aimed at giving relief to the city’s small businesses.Rafal Gerszak/The Globe and Mail
Vancouver is going to pilot a new property-tax-reduction program aimed at giving relief to the city’s many small businesses, arts groups and non-profits that have been hit hard by huge increases based on the future development potential of their buildings.
It’s an unusual move to address a problem that has affected many cities in B.C., as well as some in Ontario, where properties that have only a small, often older, building on them are assessed and taxed according to what rezoned and redeveloped properties near them are paying.
The experimental program, possible because of a change in provincial legislation last fall, will reduce Vancouver city taxes for about 1,360 commercial and industrial properties by amounts as high as $12,000. The average reduction will be $1,800.
Councillors voted unanimously to try out the pilot program this year, even though they acknowledged that it’s likely going to need adjustments in the coming year since staff had only weeks to put together a set of rules to determine which businesses would be eligible.
Representatives of the Greater Vancouver Board of Trade and the arts community had asked council to delay putting it in place this year until some of the rules were fine-tuned. But councillors felt some kind of action was needed immediately.
“It’s a way to bring some tangible relief to some,” said Councillor Sarah Kirby-Yung, with the ruling ABC Vancouver party. “Do we want to not help some because we haven’t made this perfect? I don’t think so.”
Vancouver’s deputy city treasurer, Grace Cheng, said the program is intended to mitigate the disproportionate amount of extra tax that properties with small businesses have been paying in recent years because the land is being taxed on its development potential, not what is actually on the site.
As a result, taxes for fully developed commercial properties have stayed relatively stable in Vancouver, while taxes on one- or two-storey buildings that are valued as though they have large condo buildings on them have seen huge increases.
“Over the last couple of years, they have been shouldering an outsize burden,” Ms. Cheng said.
In B.C., about a dozen cities, including Victoria and Kelowna, along with many in the Lower Mainland, have been lobbying the provincial government for almost a decade to find some way to fix what everyone has acknowledged is an unfair tax situation.
The current system, in which properties pay tax according to their estimated market value, not what is actually on the site, has heavily penalized small businesses on Vancouver’s many commercial strips and forced some to close.
The issue arose in the past couple of decades as cities have tried to solve their housing-shortage problems by rezoning for higher densities along many of those commercial streets. That encouraged developers to build much larger new buildings, ranging from four storeys to 30 storeys where allowed, on those arterials. But it has also meant that anyone who doesn’t redevelop is assessed based on the property values of fully built-out sites nearby.
Adding more pain to the situation, those properties are taxed at the commercial rate, which is about four times the residential rate, until they are actually redeveloped as residential.
The change will mean businesses that don’t get the exemption will have to pay another percentage point increase in property tax, on top of the general 10.7 per cent that council passed last week, to cover the missing revenue. All non-residential properties in Vancouver pay 43 per cent of the total $1.06-billion tax bill to the city, while residences pay 57 per cent. If one set of properties pays less, others have to pay more.
That increase, along with other anomalies Vancouver is proposing, prompted board of trade vice-president David van Hemmen to suggest that the city delay the program for a year until it could resolve some of the issues.
The pilot will not apply to the vast majority of the city’s approximately 15,000 properties that are zoned commercial or industrial.
To be eligible, a property has to meet several criteria. Its land value has to account for 95 per cent of its total assessment, it has to have been occupied on Oct. 31 last year and the assessed value can’t be more than $5.4-million. As well, the business on the property cannot be a government agency, a bank, a national or international chain store or restaurant, a big-box store, a hotel, a gas station, a car dealership or an auto-service centre, among many other exclusions.
Mr. van Hemmen argued that it’s unfair for the city to pick and choose among businesses on that criteria, rather than on the single principle of tax fairness.
A representative from the arts community also argued that the city rules were developed so quickly that they are excluding some arts organizations from the tax break.
“This offers relief to fewer than 10 organizations on the east side. Even our warehouse space isn’t eligible, and there’s no clear on-ramp to inclusion,” said Heidi Taylor, an actor and playwright who is on the board of C-Space.
Ms. Cheng and councillors promised that the city would immediately move to make improvements to the pilot program for the next tax year.
Eligible businesses will get a notice with their tax bills saying they are eligible, as long as they sign a declaration saying they meet all the criteria. The city policy says they have to tell their tenants, the business operators who typically pay the property taxes, about the reduction.