TAX NEWS - June 2010

Canada Tax: Municipal taxes hurt small firms, CFIB warns

Municipalities in Canada need to cap the amount they tax small businesses or have the province step in and do it for them if the businesses are to survive, Brian Bonney of the Canadian Federation of Independent Business said yesterday.

Small businesses are so highly taxed by municipal governments that they are at a "breaking point," Bonney said.

And the most highly taxed municipality in the province, when compared to its residential counterpart, is North Saanich.

Municipal taxes are paid by homeowners and businesses, based on a ratio set by each council. The residential rate has historically been much lower than the business rate. As well, residential property values have risen much more quickly than business properties. That combination has seen businesses pay anywhere from two to seven times more than residents on the same valued property.

North Saanich has the province's highest ratio of 7-to-1.

Of 160 municipalities in B.C., businesses in 157 of them pay more municipal property taxes than residents. The average is that businesses pay 3.3 times the amount residents do, according to a study done by the independent business association.

In larger municipalities, the "worst offenders" are Coquitlam (4.98-to-1), Vancouver (4.84-to-1) and North Vancouver (4.09-to-1). An average property in Vancouver worth $944,916 pays $3,950 in residential taxes, while a business pays $18,376, Bonney said.

Saanich charges businesses 3.82 to 1, while Victoria is 3.66 and Langford is 3.16.

Bonney says that small businesses -- 85 per cent of which have fewer than five employees -- can't afford this and are paying the price for politicians who would rather keep taxes lower for residents who vote them in rather than businesses.

"They do it because they can," says Bonney. He said B.C. is the worst province in Canada for the inequity between business and residential municipal taxes.

When it comes budget time in municipalities, staff take the previous year's budget and add a "wish list" for the upcoming year, with an eye to keeping residential taxes as low as possible.

Over the years, Bonney says, that has put more and more of a burden on businesses. For many of those small businesses, the high taxes are the difference between surviving and closing down.

"They don't want to have to lay off employees, or cut their hours or stop giving to their communities but the municipalities are forcing this," Bonney said.

In a poll, small business owners said they should pay twice what residents pay, Bonney said. He wants to see municipalities work toward that and if they can't, to have the province step in and legislate a common ratio for all municipalities.

As communities grow, so will residential tax bases. Over time, that can make up for the business tax decrease, Bonney said.

A cap on business municipal property tax rates was done in Toronto. They have committed to a 2.5-to-1 ratio by 2013. Saskatoon cut its gap to 1.75 this year.

"If the municipalities can't do this by 2012, we need the province to step in," said Bonney.

North Saanich has a limited business tax base, as the vast majority of it is residential. The more businesses a municipality has to tax, the lower the business tax will be.

In Saanich, the Uptown shopping centre is expected to help with overall commercial taxes as the mega retail centre adds to the municipality's limited tax base.

Victoria Mayor Dean Fortin is in favour of the province legislating the ratio.

"It would provide a level playing field throughout the province," Fortin said.