2020 Property Taxation: Targeted Land Assessment Averaging10 Targeted Land Assessment Averaging...

2020 Property Taxation: Targeted Land Assessment Averaging Regular Council - March 10, 2020

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• Property Assessment & Taxation Framework

• Targeted Land Assessment Averaging

• Recommendations

• Development Potential & Taxation Impact on Independent Small Businesses, Arts, Culture & NPO Sectors

• Provincial Interim Solution

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BC Assessment

City Council

Other Taxing Authorities

Market Dynamics

Land Use

Policies

BC Assessment determines: • property value based on highest &

best use & market activities • property class based on actual use

City Council determines: • land use policies (zoning, density, etc.) • total tax levy to be collected • residential/business tax share • tax rate for each property class • use of land assessment averaging

Property Assessment & Taxation Framework

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Step 1: Determine tax levy required to support the budget

Step 2: Determine tax share between residential & non-

residential property classes

Step 3: Set tax rate for each property class

Property Tax Rate = Tax Levy ÷ Taxable Assessment Base

Annual Operating Budget – Non-tax Revenues = Tax Levy

2019: Residential 56% / Non-residential 44%

How Are City Tax Rates Determined?

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Revenue Neutrality

City does NOT get more taxes as property value increases.

Tax rates are adjusted to collect levy set by Council.

Residential Tax Rate

Business Tax Rate

$0.0

$2.0

$4.0

$6.0

$8.0

$10.0

$12.0

$14.0

$16.0

$18.0

Tax

Rat

e (p

er $

1,00

0 as

sess

ed v

alue

)

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Assessment Changes & Taxation Impact

Property #2

Property #4

Property #3

Property #1

Year 1

Property #2

Property #4

Property #3

Property #1

Year 2

City allocates taxes among properties based on assessed values • below avg increase in property value for 1 & 4 lower tax • above avg increase in property value for 2 & 3 higher tax

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Single family homes have had higher tax increases than strata until recent years

Assessment Changes & Taxation Impact Residential

$980

$1,0

44

$1,0

47

$1,0

76

$1,0

54

$1,0

48

$1,0

29

$996

$961

$979

$1,0

71

$1,2

30

$1,7

42

$1,9

45

$2,0

65

$2,1

88

$2,3

54

$2,4

58

$2,5

41

$2,6

86

$2,8

30

$2,9

93

$3,0

27

$3,0

49

-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Average City Property Tax Strata vs Single Family

Strata

Single Family

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Informing the Public

A video at vancouver.ca/property-tax illustrates the relationship between assessment changes and property taxes

Q4 2019 – BCA notified property owners with significant assessment increases

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• Recommendations



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Targeted Land Assessment Averaging

Targeted averaging provides short-term, multi-year relief to “hot” properties to mitigate significant tax increases for residents, businesses, arts, culture & NPO sectors

According to the Property Tax Policy Review Commission (2014), a “hot” property is one that experiences an unanticipated, year-over-year increase in total net assessed value, before land averaging is applied, which exceeds the average assessment increase for the same property class >10%

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What Drives Property Values?

• supply and demand

• market speculation

• major infrastructure investment

• an actual (or perceived) higher & better use relative to existing use

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Targeted Land Assessment Averaging

Only “hot” properties above the threshold are eligible.

Averaging could lower value up to, but not below, the threshold.

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Where are the “Hot” Residential Properties? 2020: ~25,200 (13%) [2019: ~40,900 (21%)]

(8.4

%)

aver

age

ases

smen

t dec

reas

e

1.6%

Thr

esho

ld a

sses

smen

t inc

reas

e

-

5,000

10,000

15,000

20,000

25,000

<(25%) (20%) (15%) (10%) (5%) 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75%+

# of

Pro

perti

es

Taxable value increase (2020 vs 2019)

5 year targeted averaging

Unaveraged

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Targeted Averaging – Residential Threshold: Value Increase >1.6% [2019: 11.7%]

Assessment Impact

7.95

% C

ounc

il di

rect

ed ta

x in

crea

se

-

5,000

10,000

15,000

20,000

25,000

<(25%) (20%) (15%) (10%) (5%) 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75%+

# of

Pro

perti

es

Estimated tax increase (2020 vs 2019)

Unaveraged


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Targeted Averaging – Residential Threshold: Tax Increase >20.6% [2019: 18.9%]

Taxation Impact

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Averaging – Impact on Residential Tax Rate

Tax levy required $ 482M

Assessment base $ 306B

Tax rate $1.574

Pre-averaging Assessment Base

$306B

Averaging reduces assessment base

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Tax levy required $482M $482M

Assessment base $306B $304B

Tax rate $1.574 $1.585

Post-averaging Assessment Base

$304B

Averaging – Impact on Residential Tax Rate

Higher tax rate to achieve “revenue neutrality”

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Provincial Tax Relief Programs Residential – Assessment Act s19(8)

Intent: Protect long-term home owners whose assessed values would rise due to zoning changes How: Land is assessed based on current zoning, not anticipated redevelopment potential Eligibility: Owner/occupier @ principal residence >10 yrs # of Properties: 2020: 1,099 2019: 1,021

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Provincial Tax Relief Programs Residential – Home Owner Grant

Intent: Provincial grant to offset taxes to protect lower value homes & seniors How: Up to $570 grant for lower value homes; additional $275 grant to seniors Eligibility: Owner/occupier @ principal residence valued up to $1.525M (reduced to zero @ $1.639M) # of Claims: 2020: applications in progress 2019: 85,909

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Provincial Tax Relief Programs Residential – Property Tax Deferment

Intent: Tax deferral for seniors & families with children; taxes & low rate interest paid upon sale of property How: Charge against the property on equity released resulting from sale Eligibility: Owner/occupier - >55 yrs old, or - with children <18 yrs old

# of Properties: 2020: applications in progress 2019: 8,414

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How Provincial & City Programs Work Together

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Where are the “Hot” Commercial Properties? 2020: ~3,200 (22%) [2019: ~3,700 (29%)]

4.7%

ave

rage

ase

ssm

ent i

ncre

ase

14.7

% T

hres

hold

ass

essm

ent i

ncre

ase

-

500

1,000

1,500

2,000

2,500

3,000

3,500

<(25%) (20%) (15%) (10%) (5%) 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75%+

# of

Pro

perti

es

Taxable value increase (2020 vs 2019)


Unaveraged

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Targeted Averaging – Light Industrial/Business Threshold: Value Increase >14.7% [2019: 33.6%]

Assessment Impact

5.8%

Cou

ncil

dire

cted

tax

incr

ease

-

500

1,000

1,500

2,000

2,500

3,000

3,500

<(25%) (20%) (15%) (10%) (5%) 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75%+

# of

Pro

perti

es

Estimated tax increase (2020 vs 2019)

Unaveraged


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Taxation Impact

Targeted Averaging – Light Industrial/Business Threshold: Tax Increase >20.3% [2019: 18.0%]

Averaging reduces assessment base

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Tax levy required $352M $352M

Assessment base $ 81B $ 78B

Tax rate $ 4.31 $ 4.48

Post-averaging Assessment Base

$81B

Higher tax rate to achieve “revenue neutrality”

Averaging – Impact on Commercial Tax Rate

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• Apply targeted 5-yr averaging for residential, light industrial & business properties – set threshold at property class average change + 10% – limit averaging up to, but not below, the threshold

• Include properties impacted by Director of Planning initiated amendments to Zoning & Development By-law or ODP

• Exclude properties whose owners sought additional density or a change in use from Council through rezoning, whether enacted or not, or through Council-approved policy changes

Recommendations

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• Recommendations



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• Properties are assessed at “highest & best use” (full market value) in accordance with the Assessment Act, and property taxes are allocated to individual properties based on those values

• For underdeveloped/non-HBU commercial properties, the unrealized development potential could result in significant property tax implications

Highest & Best Use Assessment & Taxation

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Independent small businesses, arts, culture & NPOs operating in underdeveloped/non-HBU properties, particularly those in neighborhoods that are experiencing fast pace of change and dramatic increase in market valuation, are impacted the most

• Through triple net leases, landlords pass the entire tax burden onto tenants – taxes on the space they rent and taxes on the development potential

• Independent owner/operators may also experience significant cashflow challenges until they redevelop/sell their properties

Impact of Development Potential on Independent Small Businesses, Arts, Culture & NPOs

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• One tax rate per property class; cannot lower rate on development potential

• Cannot modify assessed values or change property classes set by BC Assessment

• No guarantee that tax relief goes to tenants; depend on lease terms

Legislative Restrictions for Municipalities

Without appropriate legislative authorities, Council has very limited tools to target tax relief to independent small

businesses, arts, culture & NPOs

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Established in Q4 2018, the IWG is made up of…

Province • Ministry of Municipal Affairs & Housing • Ministry of Finance • BC Assessment

CFO’s (& designates) representing Metro Vancouver • Vancouver, Burnaby, Coquitlam, District of North Vancouver,

Richmond, Surrey & West Vancouver • City of North Vancouver & Delta joined after Provincial

announcement in Jan 2020

Intergovernmental Working Group

Focus: Tackle taxation impact from development potential

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Upon the introduction of Bill 42, Minister Robinson committed to reviewing “Highest & Best Use” valuation impacts on various non-residential property classes, including light industrial and business, in addition to ongoing work on identifying property tax mitigation strategies for small businesses subject to triple net leases.

The Province is seeking to understand what changes could be considered to provide a more fair and efficient assessment system for the affected classes in the context of real estate market pressures, affordability issues and Government’s economic priorities.

Ministry of Municipal Affairs & Housing (Oct 2018)

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IWG Recommendation (May 2019) Split Assessment Thru’ Commercial Sub-class

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Development Potential

Existing Commercial Use

Remains in Class 6 - Business

Current: Class 6 – Business Future: New Commercial

Sub-class

BC Assessment: Splits existing use vs. development potential values

Council: Lowers tax rate on development potential for eligible properties

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• Targets tax relief on development potential

• Enables municipalities to tax “existing use” vs. “development potential” differently without altering HBU assessment

• Offers a common platform for municipalities while allowing for a high degree of flexibility, scalability and customization

• Permissive – up to individual municipalities to adopt, or not

• Highly scalable and significantly less administratively burdensome than permissive exemption

• Does not shift tax from one municipality to another

IWG Recommendation (May 2019) Split Assessment Thru’ Commercial Sub-class

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Sequence of Events…

IWG Recommendation to Province May 2019

Jul 2019

Aug/Sept 2019

CoV Council Briefing & Adoption

IWG Written Clarifications to Province

Mid-Jan 2020

Sept 2019 UBCM Motion Adoption

Provincial Tax Relief Announcement

Mar 2020 Provincial Legislation Adoption

Mid-Apr 2020 Municipal By-law Enactment Required

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• Recommendations



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Permissive exemption • municipalities to exempt a property from taxation, in

whole or in part, to provide tax relief for small business, arts, culture & NPO tenants on triple net lease

Eligible Property • must have experienced cumulative land assessment

increase by more than a set percent (e.g. 80%) over 5 years

• must have at least one tenant on triple net lease

Provincial Interim Solution (2020-2024) Address Volatility, Not Development Potential

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• A tool to address assessment volatility (similar to targeted averaging), NOT development potential

• Significant implementation challenges – small business not defined for assessment & taxation purpose – ownership/tenancy info & lease agreements not available – unrealistic timeline

• Unintended consequences – owner/operator small businesses not eligible – may result in tax shift from big box/chain stores to small

business property owners

• Significant risks & potential for legal challenge

Evaluation of Provincial Interim Solution

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Brighouse Solution for City of Richmond

• BILL 15: 2011 Municipalities Enabling & Validating Act - Brighouse Tax Relief

• Legislation tabled in May 2011 and municipal by-law adopted in Oct 2011 in time for 2012 tax year

• 6-month implementation for policy development, public consultation, application, due diligence, by-law adoption

• 39 properties all within a neighborhood with same characteristics

Implementation Challenges – Case Study

City of Vancouver – over 3,000 “hot” properties

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• Do not support Interim Solution

• Does not address development potential

• Too many unintended consequences

• Arbitrary eligibility criteria with significant tax shift impact

• Not able to consult impacted parties on program criteria

• Not able to do proper due diligence

Feedback from IWG & Key Stakeholders…

Proposed legislation addresses only symptom (assessment/tax volatility), not cause (development potential)

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2020 Approach for Vancouver

• Continue with targeted 5-year assessment averaging

– most of top 5% “hot” properties will receive ~25% reduction in assessed value

– most ineligible properties are stratified hotel units and surface parking lots (development land)

• Continue to work with Metro Vancouver, UBCM & key stakeholders to pursue the Province to implement “Split Assessment thru’ Commercial Sub-class” in 2021

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Next Steps: Property Taxation Cycle

BCA: Property valuation

July October December May February March January April

BCA: Property

classification (actual use)

CoV: Council approval of operating

budget & tax levy

CoV: Council approval of land assessment

averaging

BCA: Assessment

Notices

CoV: Council approval of permissive exemptions

BCA: Revised Roll

BCA: Completed

Roll

BCA: Average Roll

CoV: Council approval of tax

distribution

BCA: Assessment appeals reviewed by Property Assessment

Review Panel

BCA: Property owners submit

assessment appeals

CoV: Council approval of tax rates

May-July

CoV: Tax billing & Collection

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Questions?

2020 Property Taxation: Targeted Land Assessment Averaging10 Targeted Land Assessment Averaging...

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