British Columbia Minister of Finance, Selina Robinson, has instructed staff to find a way to provide temporary relief for one year for what the government says is the small number of property owners who now have to pay the speculation and vacancy tax on unbuilt residential space above their commercial property.
But many small businesses, property owners, and business groups in Vancouver simply want it scrapped.
“This change will help commercial tenants as these costs are typically passed on by the property owner,” said Robinson in a statement.
“Most businesses — more than 99 percent — will not be affected by the speculation and vacancy tax; it impacts a very small number of owners who took steps to reclassify a portion of their commercial property as residential. The split classification makes it subject to the speculation and vacancy tax; a tax that was brought in to encourage property owners to develop their land for residential purposes.
“It is likely some landowners can apply for different exemptions if they intend to develop their property. We will work with eligible landowners with this classification so they understand the exemptions they can apply for.”
The issue became a heated one recently in Vancouver when media reported that some businesses were having to pay thousands of dollars extra in tax on air space — the development potential of their property — above their actual property.
“This is an increasing concern. The rising cost of property taxes continue to be a challenge for many of our members and especially small businesses. For a long time we have been advocating to help these businesses survive by creating a new commercial property subclass, if you will, to enable split assessments, and we continue to work on their behalf and continue to advocate for government to look at options that would bring about greater fairness and certainty to the property tax system,” said Anderson.
“Given it is an expensive city, property taxes are on the rise, and especially in a pandemic, now more than ever, it is a very big concern for some of these small businesses to have extra costs pile on at a time when they’re really just trying to survive. We had the BC budget delivered (recently). That was an opportunity for the government to address this. They did not. It is something that we will continue to advocate for on behalf of our members to see a change to this.
“When you look at that development potential, it’s almost always the residential above a commercial. So for some of these property owners, they’ve actually gone through the course to obtain what is called a split assessment, meaning the potential unbuilt condos — the airspace over the properties — are taxed as a residential rate instead of a higher commercial rate. And that’s what we believe is the fair way to do that. That split assessment. Looking at the two areas separately. One is an area of business and one most likely would be residential. And so that’s what we continue to advocate for and we would hope that in fairness this would be allowed.”
“Because many of the property owners are also small businesses. It’s just non-sensical to apply a vacancy tax to residential zoned properties that can literally not even be occupied. It just goes entirely against the spirit of the legislation. It makes sense to everyone I think that we have a vacancy tax to try to encourage empty properties to be rented out in a housing crisis. None of us are refuting that,” said Robinson.
“It seems like the government is going to make some changes but they’re still going to require the tax to be paid, just instead by the landlords and not by the small businesses. I don’t know how they’re going to do it because if businesses have triple net leases then there’s already an arrangement to pay a portion of the property tax. I’m not sure how they’re going to get around that. Almost every business I know has a triple net lease.”
“It’s not something that’s apparent. You have to sort of be told by your landlord or a property owner that this tax is on their tax bill. But from what I understand I calculated 70. I imagine there’s a few more as well and there’s some that it’s on the building but it’s not applicable because it’s under development or for some other reason,” said McFadden.
“It doesn’t make sense at all. It took us quite a few days just to wrap our heads around what the tax actually meant and what it was for because it doesn’t make any sense. And it’s not designed for commercial businesses to have on their buildings. We’re totally against it and fighting to have it not postponed but completely erased and eliminated. This would never be a good thing for small businesses but right now the challenges that they’re facing with the pandemic makes it the worst time that it could be brought in. I think we would fight it even if there wasn’t a pandemic simply because it doesn’t make sense.”
“This was introduced two years ago by the provincial government and they knew at the time this was going to be a problem so built into the legislation at the time was a two-year deferral of the speculation tax for commercial property,” said Barnes. “This issue was brought forward two years ago and we were informed that it would be taken care of and it would be figured out and of course it never was.
“Many of my property owners in this situation are old Italian families. The property has been in their family for years and years. This was how they were going to leave some kind of inheritance for their children. They’re not the big property developer. They don’t have the funds or the resources to develop these properties. They have maintained the building. They have rented them to small independent businesses at affordable rents.
“And if they are forced to redevelop they will be forced to sell then you will enter into a three to four year process trying to get your permits in place so you can redevelop. The small business will end up being kicked out and will never come back. And our communities are left with big vacant holes. And that hurts all the businesses around and when the development finally does get built because of all the costs that come with redevelopment many small businesses can’t afford to rent those properties.”
McFadden said on average the properties are facing increased costs of between $6,000 to $9,000 annually. Many of those impacted are small property owners who are trying to provide relief to tenants through the pandemic and they don’t have deep pockets. Their cash is tied up in the building.
After giving property owners an exemption from the Speculation and Vacancy Tax for vacant land for the last two years, as of this year, the SVT may apply to property owners of vacant land, said the government in an email.
“In the speculation and vacancy tax areas, there are approximately 65 properties where the property owners have taken steps to have a portion of the airspace above their commercial land rezoned and reclassified as residential land (likely because they intend to redevelop the property as residential) and where they claimed the vacant land exemption last year. Most property owners in this situation are able to use exemptions to waive the speculation and vacancy tax,” it said.
“The tax rate for residential property is generally much lower than for commercial property, so the reclassification of the airspace is a tax saving measure. Once the airspace is reclassified as residential, the SVT, and other residential taxes, may apply. Taxpayers are entitled to arrange their affairs to reduce their tax burdens; however, like any other property owner who has vacant or high-value residential property, they may now be subject to specific residential taxes.
“We encourage property owners who own properties with unbuilt airspace that are classified and zoned as residential to continue in the development process to bring much needed residential housing supply to the market — this is one of the reasons we brought in the speculation and vacancy tax. If the owner is taking active steps to develop the property (including applying for permits or financing), they can claim a development exemption and the commercial tenant will not be responsible for any SVT.”