No quick fixes to sky-high property taxes

Vancouver’s commercial businesses — big and small — will soon get a break on their property taxes. City council has passed a motion to shift 2% of property taxes from commercial businesses and onto residential properties over the next three years. It will see a shift of 1% in year one, followed by 0.5% in years two and three.

I have long been opposed to shifting property taxes away from businesses and onto homeowners, including the years I was a city councillor. Businesses can deduct the property tax they pay from their income taxes. Homeowners don’t have this luxury unless they work at home and can deduct a portion of their property taxes as a legitimate expense.

I’m also concerned that, in the long run, a reduction in property taxes for businesses will not result in many of them paying less in total. Let me explain.

Some commercial businesses own their property. But most small businesses rent, and in doing so enter into what’s commonly called a triple net lease. This means a commercial tenant pays a base rent plus the triple-net portion: taxes; insurance; and maintenance, which includes costs like cleaning and BC Hydro. This is calculated on a proportional basis, according to how much space is rented.

Reducing property taxes for commercial businesses doesn’t solve the problem of trying to make the cost of doing business more affordable for everyone. It definitely helps business owners lucky enough to own their own property, but does nothing for those who have to rent. That’s because, over time, a landlord will simply fill the void created by lower property taxes by increasing the base rent since it’s the total rent (base rent plus triple net) that determines the total cost of leasing the space.

A much better solution that would provide real relief to commercial operators who rent, especially the kinds of small businesses we value so much in our neighbourhoods, would be a bylaw that ties the annual rent increase to the rate of inflation.

Another possible solution would be to divide the commercial property class in two: small business owners and large business owners and create a separate policy to deal with each appropriately. In its current form, the proposed 2% tax shift will benefit the head offices of big banks downtown just as much as the small shopkeepers next door.

I was particularly disappointed to see the Vancouver Greens vote in favour of this tax shift. Home owners should not be subsidizing businesses, in particular big business.

The main problem regarding property taxes facing small businesses comes from speculation and sky-rocketing property values. Every property owner, including small businesses, pay property taxes based on what the BC Assessment Authority values the property at, which is not what it is being used for, but what it could potentially be used for. The City of Vancouver has no control over the assessment authority — it’s a provincial body.

Right now, a group of municipal and provincial representatives are working on this sticky issue. But, as all of the above points illustrate, there’s no quick fix or easy solution — not for small business owners, or commercial tenants, or local home owners and renters.

We’re all facing the exorbitant cost of living in and doing business in Vancouver due to speculation and rising property values. Only time will tell how all this gets resolved — and the current falling real estate market might provide the biggest solution.