Vancouver City Council

Financial Planning & Treasury Services
Corporate Services Group
Inter-Office Correspondence

March 18, 2003

TO: Mayor and Councillors

Copy:    Judy Rogers, City Manager
              Estelle Lo, General Manager of Corporate Services
              Syd Baxter, City Clerk

FROM: Ken Bayne, Director of Financial Planning & Treasury

SUBJECT: 2003 Property Tax Options: Three Year Land Averaging

On February 25, 2003, Council approved the following recommendations related to the continuation of the land assessment averaging program for Class 1 Residential and Class 6 Business & Other properties:

A. THAT Council instruct the Director of Legal Services, in consultation with the Director of Finance to prepare a bylaw to authorize continuation of three-year land value averaging as the 2003 property tax calculation methodology for residential (Class 1) and business/other (Class 6) properties as discussed in this report,

AND THAT the bylaw be submitted to Council for approval on March 27, 2003.

B. THAT the Director of Finance be authorized to place advertisements advising the public that Council is considering enacting an averaging bylaw and inviting input at City Services & Budgets Committee on March 27, 2003.

C. THAT, should Council approve the continuation of the land assessment averaging program on March 27, 2003, the Director of Finance be authorized to make appropriate arrangements with the BC Assessment Authority for the production of an averaged 2003 taxation roll, at an approximate cost of $20,000; source of funding to be the 2003 Operating Budget.

Following this approval, the Director of Legal Services prepared the necessary bylaw to give effect to the averaging program for 2003. That bylaw is on the agenda of the Council meeting immediately following City Services & Budget Committee this day.

In addition, the Director of Finance undertook the public notification of the averaging program. The advertisements advised the public that Council would consider the averaging program on March 27 and provided the opportunity to give input to that decision. The purpose of this agenda item is to allow members of the public to make their views known prior to Council consideration of the bylaw. If there are no delegations, this agenda item can be received for information.

During the briefing on assessments and property taxation on March 10, 2003, members of Council raised several issues about the impact of the averaging program on properties in the City. We have done some modelling related to those questions and can offer the following:

1. How do income taxes affect the distribution of the tax levy among classes?

Appendix A contains an analysis requested by Councillor Louis. It compares the actual distribution of the tax levy among Vancouver's seven property classes to what this distribution could look like when income tax effects are taken into consideration.

The idea behind this work is that property owners in the business classes can write off the property taxes they pay as a business expense, thereby lowering the amount these taxes actually cost them, while residential properties cannot do this.

The three illustrations in Appendix A show that when income tax savings of 20%, 30% and 50% on property taxes paid are assumed, business class properties effectively pay less than 54% of the property tax levy, from the taxpayers' point of view. Interpretation of this analysis must be done with caution, since:

- only commercial property owners that are profitable can benefit (e.g., save money) from the income tax write-off of their property taxes,

- the average income tax rate (which in this exercise translates into savings for the property owner) may vary from business to business, and

- there are a significant number of properties in the residential class which also can write off their property taxes, e.g., all rental properties.

2. Does land averaging differentially affect high-valued and low-valued properties?

The chart in Appendix B compares the distribution of residential properties that are advantaged by land averaging to that of residential properties that are disadvantaged by land averaging. The charts show clearly that:

- in two of the last four years, more lower-valued properties were advantaged by land averaging than were higher-valued properties (2000 and 2003), and

- in the other two years, more lower-valued properties were disadvantaged by land averaging than were higher-valued properties (2001 and 2002).

A preliminary analysis of these distributions has shown that while the advantage or disadvantage of averaging when measured in dollar terms grows in direct relation to the value of a property. However, in percentage terms, the impacts of land averaging are quite consistent across properties of varying values. That is to say, in a given year, a home worth $200,000 may experience a $15 savings due to averaging, and a home worth $800,000 may experience a $60 savings, but both taxpayers have saved 3% of the taxes they would have otherwise paid without averaging.

Staff would be pleased to answer any questions related to this information.

Ken Bayne
Director of Financial Planning
& Treasury Services

LINK TO APPENDICES A & B