1,360 properties qualify for City of Vancouver's new business tax relief

Restaurants and shops in the West 4th retail village in Vancouver's Kitsilano neighbourhood. (Google Maps)

Small and independent businesses could see a lower property tax burden from the City of Vancouver in 2023, following City Council’s unanimous decision today to reduce the property tax impacts from overinflated assessed land values based on the “highest and best use” of a property.

The Development Potential Relief Program (DPRP) will be implemented as a pilot project that provides a business property tax rate at 50% of the blended light industry/business tax rate.

The program is intended to benefit restaurants, shops, and services that are independently owned, as well as non-profit and arts/culture-based organizations.

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For example, a single-storey commercial building with a family-owned restaurant could be paying the property tax of imaginary floors above the building — perhaps even the volume of an entire tower — based on approved area plans that enable densification, and adjacent rezonings that set precedent for the scale of the potential future redevelopment. This is especially the case when businesses pay triple the net lease, in which they cover all property taxes and fees, insurance, and rent and utilities for the property.

City staff outlined sample examples of the tax burden reduction. A restaurant/cafe in Marpole could see a $12,800 tax reduction from $63,700 to $50,000, while Beaumont Studios in Mount Pleasant could see a drop of $8,800 from $62,400 to $53,600.

Examples of ineligible properties include buildings owned by other levels of government, office and shopping mall complexes, standalone office towers, big box stores, and bank buildings.

“We’ve known about the impact about the highest and best use property tax assessments, and the fees resulting from triple net leases. We know they’ve impacted the viability of small and independent businesses,” said ABC city councillor Mike Klassen during today’s public meeting.

“Finding a solution to this complex challenge has clearly taken a lot of time, and I appreciate the creativity of our staff in striking a balance and narrowing down the properties to be included in this pilot.”

The municipal government estimates about 1,360 properties would benefit from the DPRP, with 5% to 55% of their assessed land value subject to the lower DPRP tax rate — depending on their location and zoning district — up to $5.4 million.

City staff suggests most independent businesses and non-profit organizations tend to be tenants of lower-value properties, so they likely will not be impacted by the cap.

There would also be a tight timeline for property owners to notify their business tenants of the tax relief program in order to qualify. The owner of each eligible property would need to provide a written declaration to the municipal government by March 31, 2023, that the property was occupied as of October 31, 2022, the property does not fall into policy exclusions, and the notice of the tax relief has been provided to the tenants.

For years, since prior to the pandemic, there have been calls for the provincial government to provide relief for businesses — particularly small businesses and non-profit entities — facing escalating triple net leases due in part to rising property values from the “highest and best use” of the property.

In November 2022, the provincial government approved legislation enabling municipalities to provide development potential relief to certain types of light industry and business properties.

While the property tax impact on residents typically gets the most attention, businesses have also been hammered from all sides of cost pressures, with property taxes passed on to them by their landlords as part of their rent. Vancouver has historically had a hostile property tax environment for businesses, but it has improved over the decades by transitioning some of the property tax shares to residents.

In 2022, the City of Vancouver’s property tax share was 57% for residential and 43% for non-residential — a gradual healthier shift for businesses from 53.8% for residential and 46.2% for non-residential in 2016, for example.

With major cost inflation for materials and labour and increases in leases and property taxes, a growing number of businesses in Vancouver are struggling to avoid closure or a relocation to another jurisdiction.

The City of Vancouver’s DPRP only applies to the municipal portion of the property tax and does not provide any relief for the property taxes levied by the provincial government (Provincial School Tax, BC Assessment, and BC Municipal Finance Authority), TransLink, and Metro Vancouver Regional District.

Last week, City Council approved a significant 10.7% average property tax increase for 2023.

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