We recognize that some small businesses and other commercial tenants in the arts, culture, and non-profit sector are struggling to pay high property taxes passed on by their commercial landlords.
Causes of the higher property taxes
Property is assessed by BC Assessment at its "highest and best use", meaning development potential—even if it is not yet built—is taxed in BC.
Real estate speculation and other factors, such as zoning changes, have driven up land value significantly in some areas.
Under “highest and best use”, land with a single-storey commercial building on it may be valued as if it were built out as a multi-storey residential tower.
Most commercial property owners are passing on the increased cost of property taxes to their tenants through triple net leases.
We are limited in what we can do under the current provincial legislation.
What is a triple net lease?
A common commercial lease agreement that makes the lessee responsible for property taxes and other variable lease-related expenses with only the basic rent amount confirmed for the term of the lease.
Proposed solutions
We have worked with other Metro Vancouver municipalities to propose a solution called “split assessment”.
In March 2020 the Province of BC enacted legislation to create an interim business property tax relief program for the 2020 tax year.
These two proposals both address issues with taxes being passed on to lease tenants, but are very different (review a comparison).
Under the split assessment proposal, the Province of BC would need to revise legislation to create a new commercial property sub-class allowing BC Assessment to value the actual use and the development potential separately. If this change were made, municipalities would be able to set a lower tax rate for the portion of the land assessment related to unused development potential. This would lower the overall taxes for these types of properties.
Vancouver, along with the other municipalities, prefers and continues to advocate to the Province to consider the split assessment option. The Union of BC Municipalities and the BC Urban Mayors' Caucus have also endorsed this option.
We are also the only municipality in BC to use targeted land assessment averaging, where land assessments (determined by BC Assessment) are averaged over five years to help smooth out the effect of increases on taxes paid.
This proposal would allow municipalities to exempt eligible commercial properties from a portion of or all of their municipal taxes. This would only apply to properties with tenants on triple net leases; independent, owner-operated small businesses would not be eligible for this exemption.
This proposal addresses year-over-year volatility in land assessments, but does not directly address the issue of taxation on unused development potential.
