Appendix D: Property Taxation 101 For Information

APPENDIX D: PROPERTY TAX 101 FOR INFORMATION

Property Tax History

BC property taxation is a variable tax rate system. Introduced in 1983, the system categorizes properties into nine (9) different property classes for Councils to set tax rates and levy taxes. A tax rate is defined as an amount for each $1,000 of assessed value. Tax rates may vary between property classes but must be the same for all properties within a class. The system is a wealth-based system (property value) as opposed to income and ability to pay. This provides “vertical equity” within the wealth-based tax application where higher value properties pay proportionately more taxes. It also provides consistent charges across each property class, based on costs of services provided to the entire community, and different usage between different classes.

By considering a unique tax rate for each property class, Council determines the appropriate share of taxes to be borne by each of the classes (tax multiple). Councils determine the amount of tax revenue through the budgeting process, and taxes are distributed based on BC Assessment property values, tax multiples and rate practices or policies. Council also determines the use of Permissive Tax Exemptions at its discretion.

For administrative ease, all property taxation authority levy’s (e.g., Municipal, school, CRD, etc.) are collected by municipalities.

The homeowner grant program (HOG) was introduced in 1957 by the W.A.C. Bennett government. When introduced, the grant was more of a political decision than a principal or factor of property taxation but has not been reconsidered and is still intact. The grant program provides reduction in taxes from $570 to $845 and is phased out of property values between $2,075,000 and $2,284,000. The HOG program is now administered directly to homeowners by the Province, in addition to the tax deferment loan program. The deferment program applies to owners 55 or older, a person with disabilities, and families with children.

Municipalities have considerable legislative discretion to set separate tax rates for each of the nine property classes. Although the Province has authority to apply its own limits on rates and ratios (multiples), the authority is rarely exercised. There are many subtleties within property taxation and determining rates and multiples, although there is no legislated or recommended formulas, rates, or constraints around property tax distribution.1

BC Assessment Property Classes Class

Residential Class
Utilities Class
Supportive Housing Class
Major Industrial Class
Light Industry Class
Business and Other Class
Managed Forest Lands Class
Recreation/Non-Profit Organizations Class
Farm

Property Tax Principals

There are a variety of studies and reports on BC property taxation, but there are no legislated guidelines from the Province or recommended practice from other bodies such as UBCM. This is primarily due to the varied property inventories and services offered from the 161 municipalities in BC. Municipalities vary greatly in size, services provided, and property class make up.

Council Discretion

The main factors under Council discretion are the amount of taxation and how it is distributed equitably across the community through tax rates, property class multiples, and permissive tax exemptions.

Property class multiples are how the District views equity between property classes and comparatively the level of municipal services they require and consume.

Other factors that influence the setting of tax rates and multiples include,

Local economic conditions
Community feedback on services and facilities
Financial requirements of the Municipality
Past taxation levels and practices of the municipality
Need for stability and predictability of taxes
Comparisons to neighbouring municipalities

Legislation

Real property (i.e., land and improvements) is subject to taxation from municipalities. The Community Charter (Sections 165 and 197) and Local Government Act (Part 16) lay out some general principals and requirements for taxation including,

The Financial Plan must set out the objectives and policies of the municipality in relation to the distribution of property value taxes among the property classes and the use of permissive tax exemptions
Taxation must be based on the assessed value of land and improvements
Council must consider tax rates for each property class as well as the relationships between the different property classes (tax rates and multiples).

Permissive Exemptions are governed by the Community Charter, and farm assessment classification is governed through the BC Assessment Act and Provincial Regulations.

Parcel Tax

Parcels taxes are local government taxes levied on the unit, frontage or area of a property. Parcel taxes are distinct and separate from the property value taxes, which are levied on the assessed value of a property. A parcel tax may be imposed on the basis of a single amount for each parcel (unit), the taxable area of a parcel, or the taxable linear frontage of the parcel. Local governments cannot use parcel taxes to recover costs for general administration.

A parcel tax may only be levied on properties that are currently receiving (or have a reasonable opportunity to receive) a specific service. Normally, a parcel tax is levied in conjunction with a user fee. For example, a local government will often recover the fixed capital costs (for infrastructure) through a parcel tax and the operating costs through a user-fee (e.g. water metre charge).

Local Area Services Tax

A municipality has the authority to provide services such as water and sewer or business improvement to specific areas within its community. These local area services are paid for in whole or in part by local property owners in that area through local service taxes. Local area services may be initiated either by owners of property in the proposed local area, or by the municipal council.

Each local area service must be established by bylaw to authorize imposing a type of property tax for the service within the local area. For example, a municipality may choose to establish a local area service bylaw to provide:

Sewer or water to only part of the municipality, with all costs of the service paid by the property owners within the local service area
Downtown revitalization projects that would be paid for in part by the property owners within the local service area
A community hall to serve the residents of a part of the municipality, with some or all of the costs of the facility to be paid for by the property owners within the local service area.

A local service tax is created by the municipal council to pay all or part of the cost of a local area service. The tax may be structured as a property value tax, a parcel tax or a combination of the two. The proceeds of a local service tax may only be spent for the local area service for which it is collected (2).

(2) Province of BC

The Town, like many others, has limited revenues sources. The Town’s property tax revenue accounts for approximately 52% of funding for operations, and transfers to reserves.

Summary

Property tax distribution factors under Council discretion and other issues that could be considered include,

Property class tax multiples
Use of new construction assessment and revenue
Application of Permissive Tax Exemptions
Implementation of a formal Property Taxation Policy
Frequency of these factors being reviewed by Council

In addition is the amount of annual revenue and taxation required to deliver Council approved municipal services and programs.