Vancouver ends trend shifting property taxes from businesses to residents

City of Vancouver ends trend of shifting property taxes from businesses to residents

Vancouver City Hall (City of Vancouver)

A longstanding trend of shifting more of the share of the City of Vancouver’s property tax from businesses to residents will come to a technical halt in 2022.

Vancouver City Council approved the measure on Tuesday evening, which will now decrease the residential share slightly to 57% and increase the non-residential share nominally to 43%.

According to the city, the 0.1% shift from residential to non-residential between 2021 and 2022 is the result of “new construction, class transfers, and other non-market changes.”

This is an outlier shift from the ratios of:

2021: 57.1% for residential and 42.9% for non-residential
2020: 56.8% for residential and 43.2% for non-residential
2019: 54.9% for residential and 45.1% for non-residential
2018: 54.7% for residential and 45.3% for non-residential
2017: 54.2% for residential and 45.8% for non-residential
2016: 53.8% for residential and 46.2% for non-residential

Between 1994 and 2011, the business tax share was lowered from 60% to 48%, while the residential tax share over the same period was increased from 40% to 52%.

The previous trend of shifting more of the property tax burden from residential to non-residential has been a decades-long process to address Vancouver’s once hostile property tax environment for businesses.

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“It is important to note that the business tax rate ratio is impacted by market forces that are beyond Council’s control. Assuming no Council-directed tax shift, if the value of residential property appreciates faster than commercial property, the tax rate ratio will naturally increase even though the business tax share remains the same,” states a City staff report.

“Conversely, if the value of commercial property appreciates faster than residential property, the tax rate ratio will naturally decrease. As such, relying on just the tax rate ratio to gauge tax equity among property classes without considering other complementary metrics could be misleading.”

The City states that as a result of the reductions over the past decade, Vancouver’s business tax rate is now the lowest amongst comparable Metro Vancouver municipalities, and the increase in business taxes per capita is in line with comparable jurisdictions.

But the years-long reset towards a more balanced property tax share regime for businesses is increasingly being neutralized by factors such as skyrocketing property values. Even before the pandemic, a spate of Vancouver’s small business closures — retail and restaurants — were associated with soaring property values pushing up property taxes, which are passed from landlords to commercial tenants, specifically triple-net leases. Property taxes escalated in areas that saw new community plans or major rezonings, which add a non-existent tax burden on businesses based on the developable air space above their buildings.

Businesses have, of course, also faced immense pandemic-time hardships, especially within Vancouver, where public safety and street disorder issues have added to the challenges.

In addition to approving 2022’s property tax ratio on Tuesday day evening, Vancouver City Council also directed the mayor to request the provincial government to pursue a split-tax assessment to reduce the pace of property taxes for businesses, and explore an Empty Stores Tax to reduce storefront vacancies.

Late last year, City Council approved a 6.35% property tax hike in 2022, in advance of much larger budgetary pressures for more significant increases in the years ahead. To cover growing costs, city staff previously warned a 10% property tax increase is possible in 2023, and an annual average of 7% for the five-year period between 2022 and 2026.

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