Brendan Neeson is senior director of property tax services with Colliers International in Calgary.
How are non-residential properties taxed in the City of Calgary?
Neeson: In my 13 years in the property tax business, this is the question I get most often. I could read you the exact definition from the City of Calgary assessment department website, or quote the Municipal Government Act (MGA), which outlines how property assessments are to be calculated, but I want to put it in my own words to try and make it so that everyone can understand it.
Essentially, each non-residential property in Calgary is assessed based on what the market value would be for that property had it sold on July 1 of the prior year. For example, the 2019 assessment year is assessed based on the market value as of July 1, 2018.
The part that confuses most people is that unlike a property-specific appraisal, the city is bound by legislation that it must use the mass appraisal system. In order to do this for the thousands of non-residential assessments in tCalgary, the assessment department creates different sub-property uses, quality classes and stratifications to apply similar assessed inputs for properties with similar characteristics. That assessed value, known as the assessment, is then multiplied by the non-residential tax rate or mill rate, to calculate the property taxes owed for that year.
As you can imagine, many issues arise with what properties the city considers to be comparable. That’s where professionals like myself and my team at Colliers come in. We represent property owners and appeal their property assessments to the assessment review board, where we attempt to reduce the assessed value, and therefore lower the tax burden for the property owner and their tenants.
What has been the percentage change in building values and taxes from a year ago for the downtown area and other areas of the city?
Neeson: This is a bit of a tough question. I’ll start with the change in building values and taxes from a year ago for the downtown core. The most recent data from Calgary’s assessment department indicates the assessed value of the downtown core dropped from roughly $16 billion to $12 billion from 2018 to 2019. The office sector, which generated $475 million in property taxes in 2018, is now expected to generate only $383 million in 2019. In 2018, 35 per cent of the non-residential assessment base was comprised of office property value; that number has decreased to 29 per cent in 2019. The majority of this decrease is due to the decline in property values in the downtown core.
However, other areas of the city see dramatically different year-over-year changes, depending on the sub-property use and location. For example, on a citywide basis, office property assessment values are down 31 per cent year over year, compared to retail and vacant land, which have increased one per cent year over year. The assessed values of industrial properties are down three per cent from 2018.
However, the issue with these statistics is referenced in my answer to the first question – the properties that the city considers to be comparable will have a significant impact on the assessed value. This practice results in certain areas and property types seeing drastically different changes than the aggregate changes referenced earlier.
A great example of this in 2019 is retail properties on 17th Avenue and 4th Street in the Beltline. Overall, retail properties have increased one per cent from 2018, however in these areas they are seeing increases by more than 100 per cent in certain cases. This problem is then exacerbated as the non-residential tax rate has to increase dramatically to make up for the lost revenue of the struggling downtown core. The result is a 13.35 per cent increase in the non-residential tax rate, meaning that if your assessment did not change year over year you will still be experiencing a 13.35 per cent increase on your property tax bill.
That’s why it’s imperative to have a property tax professional review your assessment notice as soon as it has been mailed out in January, and file any necessary appeals on your behalf.
The business community keeps bringing up the fact that non-residential taxes are four to four and a half times higher than residential taxes for similarly-valued properties. Is this so? Can you explain why?
Neeson: This is a bit of an interesting question, but in short you’re correct, there is a significant discrepancy between the two rates.
For 2019, the non-residential tax rate in Calgary is 0.0220217, while the residential rate is 0.006654, which results in a non-residential rate that is 3.3 times higher than the residential one. Through my years in the industry there have been a number of theories as to why the spread is so large and is continuing to worsen, but the most common theory as to why this is the case has a lot to do with public support of the current city council.
There are approximately 26,000 non-residential property accounts in Calgary, compared to over 600,000 residential ones. Calgary has one of the largest spreads for a major city in all of Canada. Many people believe this discrepancy is an issue and is part of the problem Calgary is experiencing today.
City council has always seemed reluctant to increase the residential tax rate for whatever reason, as it has only increased 15 per cent since 2015. To compare, the non-residential rate has increased 55 per cent since then. The latest I’ve heard on the topic was at the most recent council meeting on the non-residential phased tax program (PTP rebate). It seems that the aim is to close the gap between the rates in the coming years, because it’s becoming apparent that it is unsustainable for Calgary’s businesses.
What’s the province’s role in all this as the business community and council have pointed out that long-term things need to be changed at that level?
Neeson: This is another good question that typically goes unanswered.
A portion of every property tax dollar collected in Calgary goes to the province, as the province also establishes a tax rate based on the revenues it requires from property tax. Currently for residential properties, the province receives 36.7 per cent of all property tax revenue as the provincial tax rate is 0.0024432, of the 0.006654 total residential rate.
For non-residential, the province receives a little less percentage wise, as they currently get 19.28 per cent of all non-residential property tax revenue as the provincial tax rate is 0.0042467 of the 0.0220217 total non-residential rate.
The provincial tax rate is determined by dividing the total revenue required for the province by the total assessment. Some of the confusion is caused by the fact that property owners don’t see a bill from the province and that’s because the City of Calgary bills and collects this tax amount for the provincial government.
Change at the provincial level will always be suggested by the municipality and vice versa. The question that seems to come up time and time and again when discussing these budgets is, what’s ‘required.’ It’s noted that both the city and the province calculate their respective tax rates based on the total revenue required for the city or province.
For effective change to take place, improved communication and transparency of both the provincial and municipal budget would lead to reduced volatility in the total revenue.
If we’ve had a depressed economy in Calgary for the past four years and property values have plunged in the downtown core, shouldn’t that be reflected on all property values in the city? But we’ve seen values and taxes rise outside of downtown. Can you explain?
Neeson: I would imagine that you, along with thousands of property owners in Calgary, feel the same way right now. The simple answer is that not all property classes act similarly in the Calgary market and we must remember we’re looking back to a July 1, 2018, valuation date, when the market was acting a little differently.
While it’s true that the increasing vacancies downtown has ultimately caused a reduction in rental rates, and property values, the same can’t be said in other property types. Retail, industrial and vacant land markets have remained relatively stable comparatively. None of those markets have been experiencing dramatic shifts in their valuation inputs such as skyrocketing vacancies and plummeting rents. The main reason for this is that properties outside the downtown core tend to be less dependent on the oil and gas industry.
As the Prairie province director of the International Shopping Centres (ICSC), I can tell you that retail is alive and well in Calgary and is showing no signs of slowing down anytime soon. The same can be said for the industrial sector as the market remains relatively stable as Calgary and its surrounding areas are now seen to be a great location for large scale distribution warehouses.
The main issue regarding the large tax increases has more to do with the tax rate increase year over year, rather than the average assessment value increase. The dramatic shifts in taxes occur when an assessment increases substantially, as this gets coupled with an increase in the tax rate which results in double, or triple, digit percentage increases in property taxes year over year.
The general public, for the most part, is unaware that the only way to combat those large increases is with a property tax appeal that needs to be filed by March every year.
That’s why I can’t stress enough to have a property tax professional review your assessment and determine if an appeal is warranted. The goal is to have fair and equitable taxes for all non-residential property owners.