Property Tax System Enormously Unfair for Small Business

September 22, 2015

BC – As municipal leaders gather in Vancouver for their annual UBCM conference this week, the Canadian Federation of Independent Business (CFIB) today released its ninth annual Property Tax Gap Report. The study takes a decade-long review of the difference between residential and business property tax rates in 161 municipalities across B.C.

The report examines the disparity between what residential and business property owners pay in taxes (based on the same assessed value of property) for each municipality. The ratio between these two rates is known as the property “tax gap” and is an indicator of tax fairness (not tax levels). For instance, a tax gap of 2.5 means a commercial property owner pays two and a half times the taxes of a residential property owner.

This latest analysis shows the overall tax gap for all B.C. municipalities has fluctuated considerably over the past 10 years: growing from 2.54 in 2004 to 2.90 in 2009, then narrowing by a small amount to 2.61 by 2014.

“The good news is some modest progress is being made to narrow the gap and make municipal property taxes more fair for small business. The bad news is a lot of heavy lifting remains to be done, especially by the bigger cities that too often are the biggest offenders,” states Richard Truscott, vice-president for BC and Alberta.

Of the ten most populous cities, Coquitlam once again has the dubious distinction of having the largest tax gap at 4.31, followed by Vancouver (4.27), and Burnaby (3.99). That means, for instance, based on average property values, a resident in Vancouver would pay $5,052 in total property taxes (including the provincial portion), while a business would pay $21,508, over four times more (see Table #2 below).

“Over the past decade, its simply been easier for the politicians to stick more of the property tax bill to pay for ever-expanding municipal governments on local businesses. For smaller firms, many of which operate on razor-thin profit margins and in highly competitive markets, shouldering a high tax burden can mean the difference between success and failure,” says Truscott.

In a recent CFIB survey, 61 per cent of business owners ranked property taxes as the most harmful tax for their operations.

The imbalance is even worse when comparing the taxes paid by residents and local businesses with the level of services they receive. According to a landmark study by the City of Vancouver in 2007, business properties in the city paid approximately $2.42 in property taxes for each dollar of tax-supported services they consumed, while residents only paid 56 cents. 

Rebalancing the system has been done elsewhere in the country, even by larger cities. Toronto has followed a plan since 2005 to drop their property tax gap from 3.75 to 2.5. In 2010, Saskatoon completed a ten-year plan to reduce their tax gap from 2.36 to 1.75. Penticton implemented a four-year plan in 2015 to reduce the tax gap to 1.5.

“Small businesses are sick and tired of being treated like a cash cow. Mayors and councils should commit to creating a deliberate and meaningful plan to make their property tax systems much more fair for entrepreneurs”, concludes Truscott.

– The full CFIB report is available here: B.C. Municipal Property Tax Gaps 2004-14 : A 10-Year Perspective.

– CFIB is Canada’s largest association of small- and medium-sized businesses with 109,000 members across every sector and region.

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