PROPERTY TAX IN VANCOUVER 6

Part 6

Other Arguments Put Forward by Business Advocates


We have mentioned that business seeks to claim that it is somehow unfair that there is any disproportion in the tax shares paid. This seems to be largely an argument put forward by implication since there is no direct commentary on it, but that is what must be inferred from an argument like that set out by the CFIB in its submission to the City of Saskatoon in 2005, where we see the following at Paragraph 2.2:

"2.2 Property Tax Misconceptions-many people believe that business should face
higher property taxes than residents, that the tax gap is, in fact warranted. It
is a commonly held view that business should pay more because they have a
greater ability to pay and are able to deduct property taxes from income taxes.
However, these reasons are misconceptions and it is important to set the record
straight."

[CFIB web page. Submissions to Saskatoon City Council Re Budget; April 11,2005; Para. 2/2]


We would think the first point for the business advocate to explain before complaining about the distribution of shares is to explain why there is any uneven distribution at all, why there are separate classes, and how the existing distribution came to be at all. This they fail to do. Since they say that it is unfair that business should pay more and this is based on a misconception, they are saying by implication businesses should not pay more at all. But the only evidence on this point at all that can be found in the record is the vague impression conveyed to the KPMG accountants in 1995, which confirms that business believed it should be paying more than residential.

In the next paragraph, they set out as follows:

"A lasting but inaccurate justification for imposing higher property taxes on
business has been that they are better sable to afford it. This is simply not
true. Many small firms operate on very tight profit margins and when high
property taxes squeeze these margins further, they have fewer resources to put
back in the business. As a result, firms may have to forgo opportunities for
expansion which means job creation opportunities are also lost."

[CFIB- Brief to Submissions to the Saskatoon City Council; Re: 2005 Bidget; dated
April 11,2005, Page 2.]


Taking these points in order, we see again that the argument is being made that it is simply unfair that there should be any higher property taxes on business than there are on residential owners. The complete failure of the business advocates to explain or comment at all on the fact that the distribution is similar all across Canada as a pattern of the taxes payable by the business class being a multiple of those paid by the residential class, operates as something of an admission that there should be such a distribution. In other words, the only question left is whether the distribution is somehow unreasonable in the case of Vancouver where it is apparently reasonable for just about everyone else in the country. This is perhaps the most outstanding feature of all business propaganda on the different shares of the property tax, a very loud silence on the question of where did it come from and why is it there at all. We have to note that the share paid in Vancouver by business is not much different from that paid in Calgary (tax ratio of 5.33 according to the CFIB at 2004) let alone Toronto where the business share is 64% of taxes paid, that is, the shares division of the two classes alone is that high.

[City of Vancouver, Policy Report; Finance Director; Committee on CS&B, April 28, 2005, Page 12; where Toronto non residential % of total tax LEVY is stated at 64%]


The next argument made has to do with tax deductibility, and here the business advocates say as follows:

"The argument that business benefit from a tax deductibility of property taxes
and therefore they can absorb higher tax rates does not stand up either. It
presumes that all businesses are able to benefit from tax deductions. Business
that are struggling, just breaking even, or losing money don't receive a
deductibility "benefit" ".

[CFIB Submission to City of Saskatoon; April 11, 2005, Page 2; and see also CFIB
Property Tax Inequities in BC; (2003) at Page 6 (which can be obtained on CFIB web page).

The Statement is wrong in a number of ways. First of all, if a property owner cannot pay their house taxes, they cannot phone up the City and say: "Hello fellows, I haven't got it for you this year, had a bad year due to layoff, etc. Phone me in a couple of years and I will let you know if I can afford it then.: If the homeowner does not pay his property tax, he will be assessed a penalty by way of a punishing claim for interest for several years and if he cannot pay it all off by three years, the city will put the property up for sale in order to obtain payment of the taxes and interest. In general there is no ability of the homeowner to throw off his tax obligation and so there is no basis for the business to argue that they should either. There can be delays, or deferments, but these measures do only that,defer what must be paid. They are usually done to favor business as well and mean that all the ratepayers in the class who do not receive them have to pay more since no one can reduce the tax LEVY as the City is not allowed to operate on a deficit. In result such measures just ratchet up the regressive features of the tax.



As to whether or not the business may "benefit" from the deduction we doubt there is a business that will not claim it, or fail to include it proportionately in the price of its good or service. The fact is that from a tax deductibility point of view it is not a matter of it being some kind of a deductible benefit, the simple fact is that a business must either own property or rent it to use as a place to bring its employees to work on material to make a product or a service and sell it.
All of the costs of that productions are what the business is doing, and the property taxes are much the same as an other other expense which must be paid in order to produce a product or service and sell it. Whether the business is doing well or not is beside the point, just as it would be for a homeowner. So this argument is not valid in terms of the equivalence or the payment obligation of the different classes. The home owner has to pay it all; business can deduct it all. Does business expect a deduction greater than 100%?



Another claim put forward by business is that the homeowner is not taxed on the capital gain when the home is passed on to the next generation and this is somehow unfair to business. This is a deferment, not a tax reduction, and even where the gain is taxed at a specially low rate it hardly compares with the fountain of tax favors that go to business. The fact is business is able to benefit from a very large number of subsidies, exemptions, favorable rules, grants, special low interest provisions (like the capital gains exemption for small business) all apparently based on some idea of public policy to aid business. It has also long been public policy in many advanced western countries to favor economic activity and social stability by encouraging home ownership. This leads to a policy of eliminating capital gains on the principal residence where the ratepayer lives as well and refusing to introduce imaginary or "imputed" rent on one's own home.



Ownership of the home is the main and often the only significant property that is owned by the majority of the population which until recently did not have much stock ownership and even now mainly hold institutional claims in the form of tax deferment (Registered Retirement Savings Plans or RRSPs) to support retirement. It is an important influence on the distribution of wealth, and it is clearly vital for the majority of the population to have some stake in the social order for the goal of social stability. House values will not jump to the same beat as volatile stock market changes so that the goal of maintaining social stability is best advanced by broader home ownership, at younger ages, across most of the general population as a valuable social goal. So far as meeting any claim that such a policy is "unfair: to business, the first answer is simply that this is nonsense, but even if someone thinks it is unfair this is an intended unfairness. The community, which in this case is the nation, has decided that social stability and other goals of the nation, including supporting house construction, are usefully advanced by this policy.


Part 7 to follow