Property tax hikes suffocating Vancouver small businesses

Griff MacDonald, Hanna Lalonde, Nick Empey, Purvi Sharma / December 6th 2019

Tuesday’s Fine Drycleaning in Kitsilano
(Griff MacDonald)

Small businesses across Vancouver are being pushed to the brink by escalating property taxes. Vancouver is statistically one of the most expensive cities in Canada. Housing prices have skyrocketed over the last decade and it is increasingly difficult to find affordable rental property. Business owners face both the problem of affordable housing and increasing property taxes on their businesses.

The situation that is killing small businesses, such as Beaumont Studios in Mount Pleasant, has to do with how commercial properties are zoned based on their assessed value. Rising prices on residential properties have resulted in the value of commercial land drastically increasing in recent years. Many commercial properties are now being assessed and valued based on their development potential. These assessments are the reason why so many businesses are facing an increasingly extreme tax burden. 

For us specifically, since 2015 our property taxes have gone from $46,000 a year to $111,000 a year.” – Jude Kusnierz, Executive Director of Beaumont Studios

Increased taxes based on property assessments are making the prospect of owning a small business an extremely difficult one. For owners such as Simon Coutts and Sally Traynor, the costs of running a business in Vancouver keep rising.

“Because the way the system is set up, the property values and everything else, your rent may only be, say it’s $3500 but then there’s $2800 in tax. Then there’s the insurance and you have to pay your employees because they’ve got to live in this town, right? And then you’ve got everything from insurance to theft, and all of these things add up.” – Simon Coutts, Owner of Simon’s Bike Shop

Long story short, they’re up so much faster than what is in accordance with what people who have been merchants here for many years can pay. We don’t get subsidies. We don’t get any help. We just get rising costs and that, unfortunately, the tax portion, is an unpredictable cost. – Sally Traynor, Owner of Manifesto Lifestyle Salon

You can listen to Simon here.

Many businesses are being taxed based on what their property could potentially be, or its “best use”, instead of its current use. For example, if there is a flower shop that operates in a one-story building, but is in a zoning district that allows for a five-story condo, that flower shop must pay property taxes as if it were the five-story condo building.

Brian Wener is the co-owner of Tuesdays Fine Drycleaning, which has locations in Kitsilano and Metrotown. He has been an advocate on this topic for a number of years and said that it’s gotten to the point where it’s nearly impossible to own a small business in the region.

“Being taxed on the highest use wasn’t such a big problem until the value of the properties kept exploding. I own a piece of a building near Metrotown and this place got rezoned to a high rise so it tripled in value in one year. This crippled businesses in that area and it’s happening all over Vancouver.” – Brian Wener, Co-owner of Tuesdays Fine Drycleaning

A look at what some businesses are being taxed on
(Nick Empey)

According to Wener, it’s the small, independently owned businesses that really suffer. Many of the higher rent areas in Vancouver no longer allow for a sustainable environment for small businesses to survive. 

Many business owners, who may not own the land on which their business resides, are signed onto “triple net leases” with the landowner. This is a common lease structure used for single tenant properties and often for retail spaces. The idea behind the triple net lease is that the tenant pays almost all of the operating costs associated with maintaining the property that is being rented. These operating costs include the property tax on that land. As a result, it is important to understand that these triple net leases are the reason that many small businesses in Vancouver are being burdened with astronomical property tax rates.

A analysis of the business mixes in all 17 Vancouver Business Improvement Areas

Jude Kusnierz said this lease structure makes no sense for small business owners and that something needs to change.

“The whole triple net lease arrangement is an archaic way of running a business, it’s too volatile, you can never see what’s happening next year so there’s no way to budget for that and plan for contingencies.” – Jude Kusnierz

You can listen listen to Jude here.

The City of Vancouver understands that these leases are one of the main reasons why small businesses end up with such a significant tax strain.

In some areas, real estate speculation, the potential for densification and the pace of change has driven up land value significantly and most commercial property owners are passing on the increased cost of property taxes to their tenants through triple net leases.” – Grace Cheng, Director of Long-Term Financial Strategy & Planning, City of Vancouver

City council has made it part of its mandate to do all it can to support small businesses in the city. According the City of Vancouver, small businesses, arts, culture and non-profit sectors are an important part of the fabric of the community. However the municipality is limited in what it can do to offset the impact of increasing property taxes on these businesses.

Brian Wener thinks that the city can do more to follow through with their mandate.

They throw up so many roadblocks and are so slow, they always say they care about certain things, but they just don’t follow through.” – Brian Wener

In an effort to ease the burden on small businesses, Vancouver City Council passed a motion in April 2019 that saw a 2% tax shift from non-residential properties to residential properties. The tax shift, which totals $15.8 million, is meant to roll out in increments over the next three years. Business owners say while the motion is a step in the right direction, it is not nearly enough to make a real impact on the amount of property taxes that they are forced to pay. Property tax rates on businesses in Vancouver have actually been decreasing over each of the last five years. Despite this, the assessed value of many commercial properties means that businesses continue to pay exorbitant property taxes. According to city hall, there is little more it can do to ease the tax strain on small businesses as long as commercial properties are assessed on their potential best use. 

Vancouver Business Property Tax Rates: last 5 years

For some, the efforts to try and ease the tax strain on Vancouver small businesses has not gone unnoticed.

I think that the city is doing a good job of listening to the constituents and the small business organizations and we’re very pleased with the tax shift that was approved by city council earlier this spring…We are working collaboratively to make changes to current property assessment and taxation policies I think what could be really helpful is ensuring that we keep the momentum going and ensuring that it remains a focus.” – Michelle Barile, West Broadway Business Improvement Association

You can listen listen to Michelle here.

The Provincial Government and the BC Assessment Authority are ultimately the organizations with the ability to make meaningful policy changes. BC Assessment is responsible for valuing properties across the province. According to them, they are bound by the government’s mandate as well as what is outlined in the BC Assessment Act.

Based on analysis from BC Assessment, approximately 3,000 (21%) of commercial properties in Vancouver are considered under-developed. The assessed values of these properties reflect a higher potential use relative to how they’re currently being used.

“It doesn’t really come down to BC Assessment. BC Assessment is following the current legislation and current laws of the land of what we’re required to do…so it has been highlighted to the legislators and there’s not much more I can say as far as BC Assessment. If the legislation were to change or the requirements would be different that’s what we would follow. Currently, we’re bound by the guidance of what’s in the assessment act.” – Kash Kang, Director of Commercial Industrial Properties, BC Assessment Authority

These are just a handful of the small businesses that have been forced to move or close shop.

The City of Vancouver has been working with an intergovernmental group since earlier this year to try and identify other viable options to further address the challenges being faced by small businesses. The group, which is made up of representatives from the provincial government, BC Assessment, and other municipalities, proposed a new solution back in July. Their recommendation would see the introduction of a new commercial property subclass through a form of split assessment. 

This proposed new subclass would mean that municipalities have the option to set a lower tax rate and separate a property’s existing use from its potential use. The potential solution has gained considerable support in recent months, as the provincial Liberal opposition is now showing support for a new property subclass. Any decision to implement this subclass is now in the hands of the provincial government. 

Brian Wener and Jude Kusnierz feel that there might not be an imminent decision coming from the provincial government.

“Will the province do anything about it? I have my doubts, and I don’t think the NDP government is very sympathetic to it.” – Brian Wener

“Some of the challenges that the provincial government faces is that in order to move forward and approve this, they need to do it for the entire province so it’s not just Vancouver but the whole province.” – Jude Kusnierz

Until the government makes a decision to move forward with the proposed resolution, small businesses in Vancouver will continue to feel the strain of rising property taxes. The City of Vancouver has said that they will continue to take steps to try and create a more sustainable environment in which small businesses can operate. As of right now, the situation remains fairly grim for prospective small business owners.

“I can’t even imagine somebody trying to open a small business moving forward…I think there will be very few people encouraged to open businesses in Vancouver.” – Jude Kusnierz