BC Business
If you ask the typical Vancouverite how B.C.’s economy is doing, you’re likely to hear something like, “Great! Couldn’t be better,” or “Fantastic!”
The really zealous ones will quote the media and echo something to the effect that “controlled inflation” and “modest interest rates” are “driving forces behind our robust economy.” Inevitably, someone will allude to the proliferation of towering cranes that are redecorating Vancouver’s skyline with concrete, steel and glass. The truth is, business is good and all sectors of the economy are enjoying strong growth. But don’t break out the champagne just yet. Rapidly increasing property values bring with them swelling property taxes, and if you own a commercial, retail or industrial property, BC Assessment has your number. According to BC Assessment, the total assessed property value for B.C. jumped 13.5 per cent between 2005 and 2006, from $581 billion to $660 billion. During the same period, property taxes jumped from $886 million to $937 million. That’s just for the city of Vancouver, in just one year. Burgeoning real estate prices and property assessments are a double-edged sword. Investors are flipping properties and cashing out, while small-business owners are seeing their profits cut by rising property taxes. The problem is especially acute in Vancouver, where commercial-property tax rates are more than four-and-a-half times residential rates. In other words, businesses are picking up more than half of the tab that’s largely run up by residential property owners. In surrounding municipalities, business property taxes are only three-and-a-half to four times the residential rate. The lower rates, together with lower lease rates and a less competitive business environment, have forced some small businesses to move out of Vancouver and into friendlier tax jurisdictions such as Richmond, where property taxes are a remarkable 20 per cent lower than in Vancouver. Year after year, property owners feel powerless in the face of escalating property taxes. While they can appeal assessments, many owners choose not to for several reasons, including fear that a lower property assessment will lower property value. Many owners only want to challenge the assessment after they get their property tax notice in June, but by then it’s too late. The deadline to appeal assessments is the end of January. Surprisingly, the most common reason owners don’t appeal their assessments is the belief that assessments are non-negotiable. Taxes are non-negotiable, but the assessments that drive those taxes are, in fact, disputable. Every year, only a bold few come forth to challenge their assessments, many of whom are unfamiliar with the tricks of the trade. Assessors often park assessments just below market value to reduce the number of costly appeals they receive each year. Overjoyed, property owners gladly walk away feeling like they got a bargain. Did they? Not always. Under-assessed values may mitigate appeals on value issues, but there’s another angle to consider. In 1991, a new platform on which property assessments are judged was introduced. That platform is equity. Actual value and equitable value are fundamentally different. Actual value is based on market forces, or what a buyer would pay in today’s market. Equitable value is based on the fairness of assessments among similar properties. Here’s an easy example. Take five apples. They are identical and sit in the same basket (same neighbourhood) at the same grocery store (same city). Four of them are assessed at $0.25 and the fifth, our subject, is assessed at $0.50. On the market, these apples sell for $0.75. What’s the correct assessed value for our subject? $0.50, because that’s how the other apples are valued by BC Assessment. It may not be the market value, but it’s a fair assessment compared to other assessments in the local market. Inequities just like the preceding example – except with real properties – occur every year. But it is up to the property owner to bring them to the assessor’s attention. Remember to look beyond just value. To check for equity, compare your assessment against similar properties in your area. If they are very different, then you might have a case of inequity. Hopefully, this knowledge aids you with our province’s growing pains.