PROPERTY TAX IN VANCOUVER 4

PART 4

Reasons why the proportionate shares vary

Nowhere in the reports and commentary in the City of Vancouver web page, nor in the literature relating to property taxation do we find any explanation of how the different proportions of class shares came to exist in the first place. In one study, it is set out that in 1944 in Halifax an inquiry was carried out by a judge because people were concerned that American homeowners just across the border were taxed on a quite different basis than those in Canada. In the USA, then as now, a homeowner could deduct his property or 'real estate' tax from his federal income tax. A homeowner in Canada could not do that. A business in Canada however, could deduct their property tax from their corporate income tax just as a business could in the USA.


This position continues to this day. There is and was an obvious unfairness to this since the property tax was already profoundly regressive and there was no good reason to make it even more so. In Vancouver, about 5%of the properties (business) are worth over $5 million and more than 60% of the 12341 business (approximately) properties are worth $500,000 or less. In residential as well we find a similar distribution with over 60% of the 156,000 (approx.) properties having a value of less than $500,000 and only 3% having a value of $1.5 million or greater. With all properties taxable on the basis of the same tax rate (for each $1000 of market value) this is a wealth tax that rides lightly on the wealthy group of property owners but heavily on the majority, and is enough to break the economic endurance of many on fixed incomes. There will be some who have lavish homes long since paid for who are land rich but cash poor, but they will be few since the distribution of wealth is even more skewed than that of income in Canada.

[Letter. Vancouver City Finance response to inquiry. February 28,2006, as to the distribution of property values]


With business properties, the regressive range is even greater. But business will deduct its' property tax as part of the expenses of doing business. It will pay them when due, probably, but account for them as an expense and recover them as part of the price charged to its customers for its goods or services. When tax time comes, the business will be able to deduct that property tax from the taxes that it must pay to the government. For these reasons it seems odd that business would protest a tax that is so small it does not appear to form a significant role in the reasons why a business will locate in this or that city, and probably amounts to a cost of less than 2.5% of the tax burden of a business; In general business does not pay taxes, it passes them on.

Further, business will be able to deduct various other property connected expenses, such as mortgage interest, operating costs, as well as capital costs,and depreciation.

"Businesses ultimately do not bear taxes, they simply pass them on to
others-to customers in the form of higher prices, to suppliers and labor
through lower costs and wages, and to those who supply capital through lower
returns. But because businesses organize so much of our economic activity there
are circumstances that require them to be taxed so that the overall tax system
is more efficient , fairer, and easier to administer. One of the primary roles
of business taxation and particularly of the corporate income tax is to help
insure that all income of individuals is fully taxed, including corporate income
accruing to their benefit."


[Government of Canada, Dept. of Finance, Technical Committee on Business Taxation 1996 (members of the committee included persons from Ogilvy Renault, Ernst Young, Price Waterhouse, and various economists)].



Homeowners also, in the case of property used in part as a business, could make a tax deduction, though only proportionate to use. For instance, if a homeowner in Vancouver should renovate their property to make several basement rooms, which are then rented out to University students, or set aside a room fitted up as an office for their consulting home-based business, then the costs of that renovation based on this, could be charged off as a deduction against tax related to the income obtained based on the proportion of the square footage of the space used compared with the square footage of the house.


If there was a mortgage the mortgage interest could be deducted (proportionately). The expenses for heat and light, even cable TV can also be deducted from the income that is received from such "business". And, as well as the property tax, there is depreciation, renovation, all operating costs. What a person who uses a few hundred square feet of their home can charge off for business use,a business can do to the extent of 100%.

These are important advantages or relief from the property tax based upon the
tax law, and, the unfairness of double taxation in principle, as noted at Halifax.


From these provisions in the Canadian Federal Law [Income Tax Act, Sec.18] one can see that business has a very great advantage and relief from double taxation already built into tax law. There is every reason for Canadians across the country and in Vancouver to require not only that business should pay more of the of the property tax than residential homeowners, but that it should pay a lot more.

If there was any reasonable limit to what business should pay, some standard to use for a taxable limit, there does not appear to have been any effort by business advocates to say what that should be. They just complain about whatever now exists and show no lower limit or possible end to their demands. Perhaps they have been too busy complaining about what is really a big subsidy they do already receive.

We have noted that in the publications of the Board of Trade, there was reference to a 2.5:1 or even a 1:1 standard but even that, the business advocates claim, would still be a case of business providing a subsidy to residential owners. To the contrary we would say they, the businessmen, are the ones receiving a subsidy.

They do not admit or state a lower limit because they do not accept the idea that they should pay a tax. And they do not get specific about how much they can deduct because they could find themselves accused of receiving the subsidy, which is in fact the case. And when they talk about the property tax as "coming out of their profit" that is indeed what they mean. You could say that we have here a sort of Freudian slip. They perhaps are thinking of the profit they take out of the community.

The result of the inquiry in Halifax was that the Council stopped the rise in residential taxes and let the business tax start trending upward for a number of years. The picture we see clear across Canada is the one in Halifax and that is the standard one in Canada today.

So far we see three good reasons for the tax share of property tax to be much greater for business than for residential. There is the fact that business can deduct the tax paid from Federal and Provincial Income Tax, and deduct a variety of other costs on the basis of costs made or incurred in order to produce an income. the ability that business has to pass on the tax to its customers, and the merging of the Vancouver business tax into the property tax.


Part 5 to come