Municipalities Shifting Property Tax Burden to Households

A new report from Altus Group sheds some light on property taxation across Canada. The main point being that small businesses are suffering under very high commercial property values and the taxation that comes with those valuations. In other words, it’s hard for a small business to turn a profit when property taxes are ballooning each year. The report begs the question of whether or not some of the commercial tax burdens should be offloaded onto residential property owners. According to Altus Group findings, municipalities are indeed starting to shift the tax burden onto the average homeowner. The average commercial-to-residential tax ratio for all municipalities surveyed in 2019 was 2.84 as compared to 2.90 in 2018. For the first time in at least 20 years, Vancouver’s ratio dropped below 4.0.

What is interesting is that Vancouver actually has the lowest commercial property taxes on a per $1000 of assessment basis. In other words, commercial property taxes are actually low based on the property value, the problem is the property values are so high that the overall tax burden is still hurting small businesses. Indeed there are repercussions to extreme property valuations and Real Estate speculation. These small commercial properties, which not too long ago were valued based on the capitalized value of their net rents, are now valued much higher because of their future development potential (also known as air rights). As a result, their assessed value has risen more dramatically in comparison to other properties making it no longer financially feasible for some businesses to continue operating. Faced with mounting pressure from business groups, the City of Vancouver has recently approved a 2% shift in tax burden from commercial to residential taxpayers. Vancouver homeowners, however, are still enjoying the lowest residential property tax rates in Canada.

However, for every action there is a reaction. By passing along the tax burden to households you could argue there will be less disposable income to spend at these retail businesses. There really is no escaping the negative impact of extremely high property values and the taxation that comes along with it.