Vancouver businesses will face tax increases next year for the first time in four years, an early sign that the re-elected Vision Vancouver council may be less business friendly in its second term.
The move comes as a surprise to many business owners who thought the new Vision council had promised during the recent election campaign to shift a significant portion of business taxes to residential for one more year, as part of the city's multiyear push to get Vancouver business taxes more in line with the rest of the region.
But, instead of a one-percentage-point drop in the proportion of taxes that business pays – which would essentially result in businesses getting no tax increase – the Vision council is poised to only put through a quarter-percentage-point drop.
"Our intention was to live up to a previous commitment [to shift taxes for five years]and we've done that," said Vision Councillor Raymond Louie, who chairs the city's finance committee.
Mr. Louie said the city's target had been to shift the tax load so that businesses pay 48 per cent of the total tax bill, and residents 52 per cent – a target that will be achieved with the last quarter-percentage-point shift.
The smaller change will make it easier for council to raise taxes overall for 2012, because it will no longer have to worry about the tax shift amplifying the impact of a tax hike on homeowners.
"It's going to provide a little bit of relief to us," said Mr. Louie. Council is facing a dismaying budget for 2012, with $52-million more in projected expenses than revenues in its $1-billion-plus budget.
Council members will be deciding over the next three months what combination of tax increases and service cuts it will have to put in place to cover that gap.
The council already decided last week to raise utility rates for homeowners by about $80 for the year.
A reduction in the tax shift will mean homeowners have less to fear from the coming budget decisions.
But the news is dismaying for business owners.
"It is a surprise to us," said Leonard Schein, a co-chair of the city's Fair Tax Coalition and the owner of a number of neighbourhood movie theatres. "We were definitely never told about this. Both parties said during the election that they were going to do one per cent for this year."
During the election campaign, Vision Vancouver had promised to continue the promised tax shift for one more year, but never mentioned a change in the rate of shift. That left many with the impression that the shift would be the one per cent it had been in previous years.
Both Mr. Schein and Sharon Townsend, the executive director of the South Granville Business Improvement Association, said the city's move is especially dismaying because businesses are still paying taxes at a far higher rate than they do in surrounding municipalities.
The city should be looking at putting through the full one-percentage-point shift in 2012 and going even beyond that.
Vancouver started shifting taxes from business to residential in 2008, after years of lobbying by the business community that commercial taxes were wildly out of proportion with residential taxes.
They said businesses were being driven out of the city by the high tax rates and pointed to the decline in business licences issued as one piece of evidence.
Back then, businesses were charged more than six times the rate that homeowners were.
The ratio is now 4.3 to 1.
However, Vancouver homeowners still pay among the lowest rates in the country, at $4,180 in 2011 total property taxes for a million-dollar house, compared with the $7,930 a Toronto homeowner would pay on the same house, or the $13,960 a Winnipeg homeowner would pay.
Business taxes in Vancouver are also the highest in comparison to residential. Business here pay taxes at a rate 4.3 times the residential rate, resulting in about an $18,000 bill for a $1-million property. Ratios in Toronto and Montreal are marginally lower.
In other parts of Metro Vancouver, the rate is about 3.5 to 1 – a rate that Vancouver business owners say the city should keep working toward.