B.C. homeowners are facing big property tax increases this year in part because BC Assessment undervalues commercial properties, says Derek Holloway, a former BC Assessment official.
Many industrial, commercial and investment, or ICI, properties are assessed at far less than what they are really worth, said Holloway, reducing the owners’ tax bills — and increasing taxes for homeowners, among others.
“It just ticks me off,” said Holloway, who retired in 2015 after 28 years working for the assessment authority.
Municipal taxes are based on a percentage of property values set by BC Assessment, a Crown corporation. A lower assessment reduces the amount of tax an owner pays.
“Local government budgeting processes are thrown for a loop and large ICI unpaid taxes are offloaded to smaller taxpayers,” said Holloway.
Any taxes the owner of a large property avoids thanks to a low assessment have to be absorbed by other property owners who end up unfairly paying more, he said. The effect is even more pronounced in municipalities with fewer ICI properties.
Holloway provided numerous examples in Burnaby, Surrey, Vancouver and other municipalities of properties he said were assessed too low.
One example was 8636 Oak St. at the corner of 70th Avenue in Vancouver, which was assessed at $13.4 million in 2022.
That same year the property was listed for sale with an asking price of $22 million. An ad said it was 2,185 square metres and the official community plan allowed for a six-storey apartment building. It sold for $18.5 million, almost 40 per cent above the assessed value.
Normally assessments are tied to the sale price of comparable properties. While that can be an imprecise process, in a year where a property sells there is a very clear indication of what the market thinks it is worth.
But the next time the Oak Street property was assessed, in 2023, instead of rising to the price it had sold for, the value had instead dropped to $12.4 million.
That means the property owner will pay about two-thirds of the tax they would have if the property had been assessed at the price it actually sold for.
In a year when the City of Vancouver is proposing to increase property taxes by 9.5 per cent, that kind of leakage matters, Holloway said.
“The average single family or condo-owning taxpayer doesn’t know what’s going on with the commercial side of the assessing,” he said. “They don’t know what’s happening behind the scenes.”
There are similar examples in Burnaby where the city council is planning a 3.99-per-cent tax increase this year and seven per cent next year.
For example, a property at 4444 and 4488 Kingsway at the corner of Willingdon Avenue was assessed at $58.4 million in 2022. After it sold to Keltic Development that year for $145 million — almost two and a half times the assessed value — the assessment rose this year to only $68.3 million.
Another example was a property in Surrey at 18697 to 18725 96th Avenue that was assessed at $5.2 million in 2022. That same year it was listed for sale at $11 million and sold for $10.35 million.
But in 2023, the next time it was assessed, instead of coming up to a price close to what it had sold for, the assessed value remained below $6.9 million, about 66 per cent of what Holloway said it should have been worth.
According to the listing, the 1.072 acre property in Port Kells included a 780-square-metre warehouse, as well as “a profitable welding and fabrication business.”
Surrey had proposed a 17.5 per cent property tax increase this year, though it has since said it could use an unexpected infrastructure grant from the province to reduce the hike.
A spokesperson for BC Assessment, Tim Morrison, said the authority every year “completes a comprehensive audit process and consistently meets international standards for assessment accuracy.”
The system it uses is designed to reflect real estate market values as of July 1 each year and to make sure similar properties are given equitable values, he said in an email. When a property sells, its assessment and the assessment of properties like it are all adjusted.
“There could be many reasons why industrial, commercial and investment assessments differ from reported sale prices,” Morrison said. “For example, it may not be a market value sale, there may be considerations other than land and improvements in the sale price, and/or market conditions may have changed since the date of July 1.”
Holloway said BC Assessment should be transparent in each case about how the assessed value is reached.
Another factor suppressing some assessments, he said, is the large number of appeals from owners of ICI properties working with consulting firms that may be flooding the system and making it difficult for BC Assessment to do its work, difficulty that’s compounded when the authority can’t obtain reliable information.
“The results are often inaccurate and inequitable assessments,” he said.
There have been indications municipal politicians share Holloway’s concerns and want the system improved. At the Union of BC Municipalities convention in September 2021 delegates passed a motion asking the provincial government to review the appeal process with an eye to making it faster and more transparent.
The working group the motion led to includes three staff from the Ministry of Finance, two from municipal affairs and five from the UBCM. While it reports to the ministers and the UBCM executive each August, it’s not expected to complete its work until the end of 2024.
“This review is underway, but it’s possible there may be little meaningful change because those at the table may have vested interests in the status quo,” Holloway said, adding that the names of the people conducting the review haven’t been made public. “They’ve kept it all very quiet.”
Many former BC Assessment staff and managers move to jobs with real estate consulting firms, local property assessment review panels and the Property Assessment Appeal Board, he said. “Who better to know how to ‘serve’ the system because of their experience,” he said. “But also, who better to know how to perpetuate it? This closed, reinforcing loop requires a careful provincial review.”
The government should also strengthen the law so that there are serious consequences for not complying with BC Assessment requests for information, he said, adding the law “has absolutely no teeth” and many people who know the system take advantage of that.
ICI properties don’t sell as often as residential properties, making it difficult to have enough information to base assessments on, Holloway said, so the authority needs the tools to get access in a timely manner to critical market information that property owners may have and choose not to share.
BC Assessment is an arm’s length Crown corporation under the province’s Finance Ministry.
Finance Minister Katrine Conroy said March 6 that concerns about under-assessed properties have not come across her desk since Premier David Eby appointed her in early December.
Read more: Local Economy, Housing
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