Big Changes Coming for Property Taxes in the City of Vancouver
The City of Vancouver has changed how it calculates property taxes. As a result there are a few winners and there are many losers.
Background
Since 1993, all properties in the City of Vancouver have been subject to a 3 year land averaging program. The aim has been to reduce the volatility and uncertainty of property taxes due to changes in land values. It has been applied to all residential, industrial and commercial properties uniformly. Properties with large increases in their land values benefitted the most however, crucially; it also applied to all properties. Overall, it has been a successful taxation policy which has achieved its objectives. However, from 2015 onwards the City of Vancouver has now decided to close the program and replace it with a targeted land averaging program for a small proportion of eligible properties.
Targeted 3 Year Land Averaging Program
From 2015 onwards, only properties which received assessment percentage increases above a threshold of 10% above the average annual change in the same property class will now benefit from the program. This is somewhat complicated exercise however the table below demonstrates the mechanics of the targeted program.
Therefore, say if a residential property assessment total value increased by 12.00% between 2014 and 2015 it does not qualify because it is not above the threshold of 18.35%. If, however, it increased by 20.00% it would apply. For commercial properties, an annual increase of over 25.69% is required in order to qualify for land averaging. Please note that the exact percentages are subject to change slightly and the City of Vancouver will be confirming the exact percentage of the annual average change in each class in the coming weeks.
Impacts
It is forecast that approximately 1,300 (13%) of commercial properties will now qualify for land averaging. For residential properties, it is forecast that approximately 9,900 (5.6%) will qualify for averaging.
The Property Tax Burden
From a property tax burden perspective, according to the City of Vancouver: “The vast majority of properties below the “threshold” will pay slightly higher taxes to subsidize the tax relief for those “hot” properties.” In addition, there will be influences on the calculation of the property tax mill rate now that the assessment roll is no longer based on a special averaged roll but actual assessed values for 90% of properties.
Critical Closing Thoughts
This program raises some interesting points for debate. The very essence and ethos of property tax is that it is a tax based on wealth, not the ability to pay. Moreover, this is enshrined in the assessment law. However this has nothing to do with the assessment theory and law, rather, it is the politics and intentions of the taxing authority, the City of Vancouver, that is the driving force for this change. The former program was equitable because it was applied uniformly across all properties. We foresee that the new targeted program will create some problems. Whilst the minority of taxpayers will receive tax relief, the majority of taxpayers will be worse off as a result. In addition, there will be peculiar situations where two properties, both assessed for the same assessed value, will have different tax liabilities because, in percentage terms, one increased more than the other from the prior year. Many would argue, both taxpayers ought to pay the same amount of tax. Furthermore the difference between benefitting from tax relief and subsidising another taxpayer’s tax relief will come down to a hundredth of a percentage point (0.01%). We may see a consistent spike in assessment appeals seeking to increase the assessed values in order to pay less in property taxes. Overall, the winners will be the property owners that just qualify for the program. The losers will be the property owners that just miss out on qualification. As the largest property tax consultancy in BC and across Canada, Altus Group will be closely monitoring the situation and will continue to assist our clients in minimising their tax liabilities.
For more information please contact:
Ross McDyre, BA (Hons) MA (Hons) (Cantab), MRICS Managing Consultant, Special Projects Realty Tax Consulting
www.altusgroup.com
D: 778.331.8128 T: 604.683.5591 ext 1606 E: ross.mcdyre@altusgroup.com
About Altus Group Limited
Altus Group is a leading provider of independent commercial real estate consulting and advisory services, software and data solutions. We operate five interrelated Business Units, bringing together years of experience and a broad range of expertise into one comprehensive platform: Research, Valuation and Advisory; ARGUS Software; Property Tax Consulting; Cost Consulting and Project Management; and Geomatics. Our suite of services and software enables clients to analyze, gain insight and recognize value on their real estate investments.
Altus Group has over 1,800 employees in multiple offices around the world, including Canada, the United States, the United Kingdom, Australia and Asia Pacific. Altus Group’s clients include financial institutions, private and public investment funds, insurance companies, accounting firms, public real estate organizations, real estate investment trusts, healthcare institutions, industrial companies, foreign and domestic private investors, real estate developers, governmental institutions and firms in the oil and gas sector.
