Backgrounder: Property Tax Shifting

Property Tax Policy Review Commission Overview

  • In 2006, city council created the property tax policy review commission in order to create recommendations for long term policy on achieving a "fair tax" system.
  • The purpose of this tax redistribution is to correct a perceived imbalance of property tax against non-residential buildings compared to residential property. For example, in 2006 non-residential properties paid 55% of the city's total property tax income while only accounting for 17% of its total value.
  • At the same time non-residential properties were only consuming 24% of all direct municipal services compared to 76% by residential properties.
  • The review commission was also created to recommend to city council how to enhance stability and predictability of property taxes during periods where property value increases sharply.
Should Business and Residential Properties be Taxed Equally?
  • While the commission was able to show that business properties account for an disproportionate amount of property tax dollars and only consume 24% of the municipal services, there are criticisms to the tax redistribution.
  • The main argument would be that business properties not only create income but their property taxes can be deducted from federal income tax.
  • From this point of view, business and residential buildings with the same value could be taxed very differently.
  • City councillors have discussed business properties being taxed at a rate between three to three-and-three-quarters times higher than that of residential buildings.

Property Tax Policy Review Commission Recommendations

The policy review commission made five recommendations to city council. The first three recommendations dealt specifically with changes to non-residential property taxes. The final two recommendations accounted for solutions to the issue of property value volatility.

  1. The tax share paid by non-residential property classes should be reduced from its current level of 53% to 48%.
  2. The city should reduce the tax share borne by business by one percentage point per year in each of the next years until the 48% share is achieved.
  3. Following implementation of the 48% goal, the city should keep the tax share unchanged for a period of five years unless the differential between business taxes in Vancouver and business taxes in neighboring municipalities widens considerably and/or the balance of business investment shifts substantially away from Vancouver to neighboring jurisdictions.
  4. The city should adopt a phase-in mechanism that would replace three-year land averaging for Class 1 (residential), Class 5 (light industry) and Class 6 (business). The phase-in mechanism would apply only to properties that would otherwise experience a tax increase that is 10% or more above the average for the class, exclusive of new construction.
  5. The city of Vancouver should maintain the present three-year land-averaging program for Class 1 (residential), Class 5 (light industry) and Class 6 (business) properties until such time as a phase-in mechanism is developed.

The Phase-In System

  • The new phase-in system for valuing property in Metro Vancouver is very different from the current three-year land averaging system we use today.
  • The system we use now keeps values measured for property tax steady in three-year periods. The phase-in system is designed to deal with "hot properties."
  • These properties increase in value by more than 10% compared to the average of properties which were valued similarly the year before.
  • Increases in value are spread out over multiple years so only a portion of the increased property taxes are paid right away.
Is a Phase-In System the Right Choice?
  • At the moment there is a debate on whether the mentioned phase-in mechanism is better than a system of five-year land averages.
  • The proposed phase-in system does not eliminate the amount of hot properties as well as land averaging.
  • There have been arguments made in city council in favor of a five-year land averaging system which would limit hot properties better than either 3-year land averaging or phase-in mechanisms.