Starting in January, cities and towns in Alberta will have more power to offer tax relief to small businesses, many of which are bearing the brunt of shifting tax burdens or still struggling in the aftermath of the economic downturn.
The new rules, introduced in an overhaul of the province's Municipal Government Act, give local governments the ability to tax small businesses at a rate of up to 25 per cent less than other non-residential properties by creating a small-business property-tax subclass.
"This is a little bit of a shift in the tax burden from small businesses to more of the large-business sector," said Al Kemmere president of the Alberta Association of Municipal Districts and Counties, which represents rural municipalities. "It's just a tool to help in the cash flow of those [small] businesses, so they can stand a little bit more on their own merits rather than on the merits of the oil and gas sector that more or less sets the mill rate."
The new small-business tax class is not mandatory, and it remains to be seen how many municipalities will actually introduce one. The legislation does, however, give local governments flexibility in determining what constitutes a small business and in choosing how much relief to give them. It caps the maximum size of an eligible small business at 50 employees, but lets municipalities decide if they want lower employee caps. In other words, Lethbridge could decide that companies must have fewer than 10 employees to qualify for relief under the local small-business tax class.
In the rural municipality of Bonnyville, three hours drive northeast of Edmonton, the new rules have already been adopted with enthusiasm. The Bonnyville municipal district council, in their 2018 budget, opted to lower the non-residential tax rate for small businesses by 10 per cent and pay for lost tax revenues by cutting back on expenditures.
"Our oil and gas is doing okay, but the small businesses are finding that there's no longer the influx of extra workers. The work camps have shut down, so some of the small businesses are finding it quite a bit tougher to make a living," said Chris Cambridge, chief administrative officer for the Bonnyville municipal district. "This is just an opportunity for [the municipal council] to show they've heard what the people had asked for, and with the provincial government making the change, they jumped on it immediately."
The tax relief couldn't come sooner, said Brian Hamilton, co-owner of Hamilton House Bed and Breakfast Inn, just southeast of Cold Lake in the Municipal District of Bonnyville. He expects to save as much as $900 in taxes next year, a much-needed boost to get through a tough economic time.
"In 2014 we were just rolling along … then in 2015 we dropped off about 25 per cent. And then 2016 we went down about 36 per cent. And this past year now, we're at 64 per cent down," said Mr. Hamilton, citing both a drop in tourists and oil patch workers staying in his B&B.
"We've had friends that have closed their shops, people have left the area, a lot of people went back east," he said. "We've all been asking for something to relieve us in the province, and the local municipality doing that is a wonderful relief."
It's still unclear how the new property tax system will work. Mr. Cambridge says his district, like many in Alberta, does not require business licenses and does not collect data on employee numbers. So determining which businesses are eligible for the lower rate may prove difficult. He expects it to work like a rebate program, with individuals applying for relief using federal tax documentation.
Many larger municipalities in the province – Edmonton, Calgary, Lethbridge and Red Deer – are taking a more cautious approach to the new tax tool. Local elections happened in October and councillors are still adjusting to their jobs. In both Edmonton and Calgary, the local chambers of commerce are advising their city councils to be cautious.
"We want to ensure … that the tax burden is not disproportionately shifted to medium– and large-sized industries as this could have a negative impact on Edmonton's competitiveness, employment and economic growth," said chamber president and chief executive officer Janet Riopel, in a statement. "A better way to offer an economic incentive to business would be to simply lower the overall non-residential tax rate for all businesses, large and small."
In Calgary, tax relief based on the size of a business may not be particularly effective, said Zoe Addington, director of policy and government relations with the Calgary chamber. Property tax spikes have hit specific neighbourhoods of Calgary, rather than the whole city, as the economic downturn emptied downtown office buildings.
"I think it was something like $4-billion in [assessed property] value that was lost in the downtown core with all the empty offices," said Ms. Addington. "This [tax] burden has been passed onto businesses outside of the downtown core, and certainly a lot of small businesses have been heavily impacted."
What's needed, she said, is tax relief that can be targeted towards hard-hit neighbourhoods. She praised Calgary Mayor Naheed Nenshi's decision, earlier this year, to pull $45-million from city reserves to cover the cost of capping non-residential tax increases at 5 per cent. But capping is not a long term solution, she said.
"Once you stop, then you have like three years of increases that you've been covering for that are going to show up," she said. Like her Edmonton counterpart, Ms. Addington advocates for a more equitable distribution of property tax between residential and commercial properties. "There are far more residential properties than business properties, and that increase spread out over a larger base would certainly reduce the impact on business."