Split assessment needed to help small business: Coun. Bell

The receipt of annual property assessment values can be good news for those who like to see their property increase in value, but creates concern for what any resulting property tax impact might be.

January is the time when all property owners, including residential and business property owners, receive their annual assessed property values from the BC Assessment Authority. A significant change, particularly a big increase, in assessed values often raises concerns that it means a similar increase in annual property taxes. This is not necessarily the case, as municipal property taxes take into account average total assessment role changes for particular property classes when establishing the annual tax rates of the municipality. If a particular property assessment change, increase or decrease, is the same as the average for that property class, then the tax rate change will largely be dependent on the property tax revenue increase set for the annual municipal budget.

Assessment value changes and the method used by BC Assessment to assign commercial and light industrial property values not only affect property owners, but also those small and medium size business owners who rent and lease their business locations. This is because it is common practice for most leases to contain what is referred to a “triple net clause” that passes the total taxes down to the tenant business operator.

What has become a growing problem for business tenants in recent years due to the large increases in the values of land in general, and business properties in particular, is the method of determining the value of the property. BC Assessment Authority uses what they refer to as “market value” assessments, based on what they determine is the likely fair market value of a property in July of the preceding year.

The BC Assessment Authority states that fair market value takes into account what a property would sell for based not only on the current use of the property, but on the potential uses that would be available based on the zoning of that property. This method, also referred to as “highest and best use value”, can have a significant impact on older business properties that are underdeveloped in relation to what current, modern zoning might allow on that site. An example would be some of the one storey commercial businesses along Lonsdale, home to many small neighbourhood-type businesses, that provide a desired range of services and products, and provide a considerable number of jobs.

If the zoning provides for up to four or even 12 storeys of future development above the existing one storey business then the property is valued based on that potential, resulting in the tenants paying taxes on “empty space” above their business.

This problem has been recognized by BC municipalities, including the City of North Vancouver Council, and the Provincial Government has been asked to grant municipalities the ability to have split assessments, that would allow municipal Councils to consider taxing based on current use, and a different tax rate for the undeveloped “air space”.

The Provincial Government has just announced it is preparing legislation to address this issue in time for the 2020 tax year, but since the details are not yet known and annual municipal budget deadlines for setting tax rates are fast approaching, it unlikely municipalities will have time to consider the complicated implications of such change and consult with the affected business property owners and business tenants to introduce changes this year. It may sound simple, but making changes can have unintended consequences that need to be carefully considered. At least it offers a ray of hope for those business struggling to survive in a changing, competitive economy.