Tax Realty Consultant

Their disproportionate share of the property tax load compared with homeowners is driving many businesses in Vancouver and Toronto to consider either moving from the city cores or closing up shop, according to business advocacy groups.

In Vancouver, businesses pay five times as much municipal property taxes as homeowners, and Toronto isn’t far behind, according to a study by the Real Property Association of Canada (REALpac), which works on behalf of real estate owners and managers. Vancouver now has the “dubious distinction” of being the most overtaxed business jurisdiction in the country on this basis, the organization said in commenting on the study results.

“Smaller businesses in competitive markets are getting hammered by these taxes. I don’t know how they [the City of Vancouver] can justify having them pay five times the taxes when they don’t use five times the services. In fact, many use fewer services, and even pay for their own garbage collection,” said Laura Jones, vice-president of Western Canada for the Canadian Federation of Independent Business.

“People love their little neighbourhoods with their bakeries and other shops, and many of those businesses are now leaving or threatening to leave. If they do so, then residents will also suffer.”

Municipal spending in Vancouver has risen dramatically, and businesses can’t afford to foot the bill through higher property taxes, Ms. Jones said. At the same time, residential taxes haven’t gone up nearly as much.

“Part of the problem in Vancouver is high house prices,” said Michael Brooks, executive director of REALpac. “They think they can ameliorate the hit by, in essence, keeping property tax increases for residential homeowners low.

“The problem is they’re going to drive away business.”

Of the 19 cities included in the study, Vancouver has had one of the biggest jumps in the amount of municipal property tax shouldered by businesses compared with residences between 2004 and 2006. By contrast, Toronto appears to be narrowing its gap slightly, pushing it down to a ratio of just under five to one, a move in the right direction, Mr. Brooks said.

Moreover, the city has pledged to narrow the gap even further to a ratio of 2.25 to 1 within the next 15 years, a much more balanced ratio given that businesses can afford to shoulder a bit more of the property tax burden because of writeoffs, he said.

However, even if Toronto does follow through on this plan, it will be too little too late, said Sandy McNair, president of Altus InSite Real Estate Information Systems Inc.

Despite Toronto’s commitment to curb urban sprawl by encouraging denser development in its core area, high property taxes have driven businesses to the suburbs in droves over the past 10 years.

In that time, 14 million square feet of office space in 121 new office buildings have been built in the outlying 905 area code district, an increase of 56,000 office workers, he said. By contrast, the 416 area code in Toronto proper has grown by three million square feet. The difference between realty taxes in class A office space in the downtown core compared with the 905 area is about $12 a square foot a year, or the equivalent of $12 per employee per work day.
“Toronto was a world-class city but they’ve squandered that and fallen behind in many areas including investment in transportation infrastructure. Here’s an example: Before worrying about making Union Station pretty, maybe they should concentrate on finally building a high-speed rail link to the station from the airport,” he said.

Much of the problem comes down to politics and the fact that its highly unpopular with voters to raise taxes on homeowners, he said.

“It’s a rare politician who will say that house taxes are too low, and the reason that offices and shopping centres and hotels have ridiculously high taxes is that they don’t vote,” Mr. McNair said.

Vancouver also has been edging toward change, and business groups there are working with city council to try to divide the tax burden more equitably between businesses and homeowners, said Bernie Magnan, chief economist at the Vancouver Board of Trade.

“We can’t ignore it, or it’s going to drive out business and there will end up being no jobs for people to go to,” he said. In the past two years the city has shifted more than $24-million in property taxes from business to residential, he added.

Unlike Toronto, Vancouver business owners appear to have no neighbouring jurisdictions to move to in which property taxes are much friendlier to corporations.

Mr. Brooks said he fears Vancouver could end up losing some of its head offices to friendlier tax jurisdictions in other provinces, such as Calgary and Edmonton, which ranked much better in the REALpac study as the country’s second- and third-friendliest cities in property tax terms behind St. John’s.

Asked to name a tax-friendly city in B.C., Ms. Jones suggested Prince George, known as the province’s northern capital, 780 kilometres north of Vancouver.

Rather than simply shifting property taxes from one category of taxpayer to another, Ms. Jones said city governments also need to be responsible for keeping their budgets in check.

“In Vancouver, from 2000 to 2006, spending was double the rate of population and inflation growth combined. That is simply not sustainable over the long run, and they have to do a lot more to control their spending.”

http://www.theglobeandmail.com/servlet/story/LAC.20071204.PRTAXES04/TPStory/Business