Increase to $950,000 restores tax break for many

Derrick Penner
Sun

Finance Minister Carole Taylor raised the threshold for provincial homeowners grants to $950,000 on Friday, restoring the tax break to almost 33,000 households at risk of losing it to skyrocketing property assessments.

Taylor made the decision 11 days after the B.C. Assessment Authority sent out 2007 property assessments, which increased an average of 20 per cent and pushed tens of thousands over the old $780,000 threshold for the homeowners grant.

On Monday, Taylor told The Vancouver Sun she would consider raising the threshold. By Wednesday, however, when she saw the numbers from across B.C., it was clear action had to be a taken.

“We had to work really quickly,” Taylor said, because her ministry was flooded with inquiries from taxpayers worried about losing the grant.

She added that the Finance Ministry stuck to its policy of extending the grant to 95 per cent of households, “and to our surprise, that meant lifting the threshold [$170,000] to $950,000.”

The calls to government, she added, were mainly from seniors who were worried they would lose the grant, which for them, adds up to $845 per year.

Some 8,422 homeowners would have lost the basic homeowners grant entirely under the $780,000 threshold, according to figures extracted by Landcor Data Corp. from B.C.’s 2007 assessment rolls.

Another 24,486 would have seen their grant whittled down under the grant formula.

The basic homeowners grant is $570 to each household with an assessed value of less than $950,000. Seniors, veterans and the disabled are given an additional $275 allowance.

For properties assessed at more than $950,000, the grant is reduced by $5 for each additional $1,000 of assessed value.

That means property owners lose the basic grant entirely for properties assessed over $1.06 million. Seniors lose any assistance over $1.12 million.

And seniors greeted Taylor’s Friday announcement warmly.

“We applaud the government for being on top of this,” Rudy Lawrence, president of the Council of Senior Citizens of B.C. said.

“A few years ago, during [the Liberals’] first term, we had to do quite a bit of talking to government to get them to listen.”

Lawrence added that the homeowners grant has become an important tax break for seniors. Where he lives on the North Shore, Lawrence said he knows seniors paying $300 to $400 per month in taxes.

“That’s a fair chunk” out of very limited incomes, he said.

Joyce Jones, co-chairwoman of the B.C. Healthcare Coalition said there are a lot of seniors who are “dollar poor but house wealthy” who will be helped by raising the threshold.

Jones added that seniors on pensions can’t increase their incomes. So when their property assessments rocket up, the cost of staying in their homes makes them more of a liability than an asset.

“[Rising assessments] are a double edge,” Jones said. “Some people want them to go up in case they need that income from their homes.

“On the other hand, if they go up, they lose some of that help for keeping their houses.”

Taylor said she is in an argument with the federal government over how property values should affect calculations of provincial wealth and equalization payments. Some claim high property values indicate a province has more wealth to tap in taxes.

I’m trying to argue . . . that increases in [property] valuation doesn’t mean people have got a whole lot of extra money to pay taxes,” Taylor said.

“What we’re trying to do is help them stay in their homes by giving them tax relief.”

TAX BREAK REGAINED

Skyrocketing property assessments threatened to claw back the provincial homeowners grant from thousands of B.C. residents. Below are the number of households that regained the break when Finance Minister Carole raised its threshold to $950,000 from $780,000.

B.C. 32,908

GREATER VANCOUVER 26,081

FRASER VALLEY 351

Source: Landcor Data Corp.

© The Vancouver Sun 2007

Tab for return of proceeds of unlawful taxation pegged at $1 billion-plus

Michael Kane
Sun

British Columbia taxpayers could be on the hook for more than $1 billion as the result of a Supreme Court of Canada ruling that governments must return the proceeds of unlawful taxation.

Before the ruling, governments could refuse restitution, even when a tax was struck down by the courts, Bruce Cran, Vancouver-based national president of the Consumers Association of Canada, said Friday.

“This is an enormous decision,” Cran said. “It means that governments are now accountable for their actions.”

On Thursday the Supreme Court ruled the New Brunswick government must repay more than $1 million, plus interest, to nightclubs forced to pay an alcohol user tax found to be unlawful because it strayed into a federal area of taxation.

The ruling means prohibitions that prevent citizens and corporations from suing for money paid under unconstitutional legislation will have to be lifted.

It also appears to close a potential escape route for the B.C. government which faces returning an estimated $1.3 billion to lawyers if it loses its appeal against a B.C. Supreme Court ruling that a provincial sales tax on legal services is unconstitutional.

In 2005, the B.C. court ruled that the tax on legal services limited “the fundamental right of access to the court of low-income persons.” Subsequently the court of appeal broadened the ruling to say that the tax “adversely affects all persons requiring legal services.”

Victoria’s appeal is due to be heard by the Supreme Court of Canada on March 21.

On Friday, staff of the B.C. finance ministry were working with Attorney-General Wally Oppal’s staff to look at the implications of the New Brunswick ruling. B.C., along with Alberta and Manitoba, all intervened in the case to side with New Brunswick.

Cran said the ruling draws on the Boston Tea Party and the principle that there can be no taxation without representation.

“To be a lawful tax it has to be approved by the government bodies,” he said. “It can’t be levied by an agency like the Canadian Radio-television and Telecommunications Commission which has no right to tax anybody.

“The big point is that if a government is found to be charging unlawful taxes, they must refund them. In the past governments have said they would keep any money, even if they had to drop a tax because it was unlawful.”

The ruling could potentially reopen cases where taxes have been struck down by the courts but no restitution could be ordered. The Canadian Association of Broadcasters promptly cited it in its attempt to recover more than $790-million in CRTC licence fees that were recently deemed an unlawful tax by the Federal Court of Appeal.

In the New Brunswick ruling, Mr. Justice Michel Bastarache rejected any notion that public authorities can escape paying financial restitution for money collected under invalid legislation.

“The court’s central concern must be to guarantee respect for constitutional principles,” Bastarache wrote.

“One such principle is that the Crown may not levy a tax except with the authority of the Parliament or the legislature. This principle of ‘no taxation without representation’ is central to our conception of democracy and the rule of law.”

© The Vancouver Sun 2007

‘We are paying for all the services we consume plus half of the residential,’ businessman complains

Frances Bula
Sun

Vancouver residents only pay 56 cents for every dollar in services they get, while businesses pay $2.42 for the equivalent.

That’s the conclusion of a new study done for the city, examining whether it needs to alter its tax system to lighten the tax load for the city’s commercial properties.

There is no recommendation yet on how that will be accomplished.

But the report, done by MMK Consultants, paves the way for a case to be made that Vancouver residents have been getting a bargain ride.

And a business group that has been lobbying for a tax-rate reduction said the report proves its case that there has to be a change.

“The commercial class is really subsidizing the residential class in this city,” says Ed DesRoches, the owner of Plum Clothing store and a member of the Fair Tax Coalition. “We are paying for all the services we consume plus half of the residential services.”

The city has appointed a property-tax commission to come up with a system for “fair” taxes. In the past, the city has shifted the over-all proportion of taxes paid by business to residential.

DesRoches said his group isn’t committed to any one solution, but hopes the report’s analysis of who uses which services will help the commission find a mechanism.

“There are ways of more fairly allocating,” said DesRoches. “Maybe residents should pay more for their parks. We know it’s politically charged, but someone’s got to make some tough decisions.”

Besides getting homeowners and visitors to pay more, another solution is to reduce the cost of city hall over-all.

“You have to question some of the things we’re spending money on,” he said.

In 1984, the city was given the right by the province to decide which class of properties would pay which share of taxes. At that point, council decided residential taxpayers would cover 40 per cent of the bill, while businesses would cover 60 per cent and tax rates were set accordingly.

At that point, the business tax rate was about three and a half times the homeowner rate.

But as the number of residences rose and the number of businesses shrank, the proportion didn’t change for years, with the result that the business tax rate is now six times the homeowner tax rate.

The report notes that the value of Vancouver residential properties has risen from 67 per cent of the total land value in 1984 to 83 per cent currently, as a condo boom has added thousands of new units to the city.

City councils over the past 10 years have shifted some of the tax burden, so that residents now cover 45 per cent of the taxes.

The MMK report said the city’s homeowners used 76 per cent, or $388 million, of the city’s tax-supported services in 2006, but they only paid $217 million. Businesses used only $111 million in services, but they paid $292 million.

© The Vancouver Sun 2007

Taking advantage of our new-found wealth

Fiona Anderson
Sun

Jumping property values! British Columbia has done it again with homeowners being 23 per cent richer on average than they were a year ago. So what can we do, and what shouldn’t we do, with that new-found wealth?

Dan Whitney and his wife Kate have already arranged for a loan based on their increased equity to renovate their house in Summerland, two years ahead of schedule. With their property value up more than 60 per cent, “it just seemed to be a no-brainer,” Whitney said.

Feisal Panjwani, a senior mortgage consultant with Invis recommends everyone reassess their mortgage situation when they get their assessment notice each January to see if there is some way they should be using that increased equity.

For example, people with high-cost debt, like credit cards, should definitely considering taking out a loan secured by the property to pay off the debt, Panjwani said.

Also, anyone with RSP room might want to consider taking money out of their homes to put toward their retirement savings, he said.

And there’s always the possibility of taking out some equity to buy a second property. But Panjwani says before doing that, make sure the new place will pay for itself, with enough rental income to cover costs. The return on the real estate should also be greater than the cost of the new mortgage, and that depends on what the real estate market does, which is impossible to predict. But if property values do continue to rise, the rewards can multiply, Panjwani said. For example, with a 25 per cent down payment, a six per cent increase in the value of the property would translate into a 24-per-cent return on the amount put down, he said.

The interest on borrowing money to invest in another property may even be tax deductible if properly structured, says certified financial planner Michael Thorne. But Thorne warns that with the added up side of investing in more property there is added risk.

“Theoretically, if housing prices fall you could be in trouble,” Thorne said.

For greater diversification, the increased equity could be borrowed to invest in mutual funds or other stocks, which again would allow for the interest to be tax deductible if properly structured, Thorne said. Then if the housing market goes down but the stocks go up, the homeowner may be better off than if he hadn’t taken the money out in the first place, he said.

But leveraging — borrowing to invest — not only magnifies the gains, but it also magnifies the losses, warns Keith Hazell, director of financial planning at Vancity. And while the gain in assessments is only a paper gain, using the equity to invest elsewhere could generate real losses, he added.

“In the past, home equity was always a last resort. Now it’s becoming a given that you go in and use that and it can go against you,” Hazell said.

And taking money out of your house to buy a car, or other consumer goods that aren’t adding any long-term wealth or benefits, is not a good idea, Hazell said.

Using the money for luxuries is exactly what many of us do. For every dollar increase in property value, homeowners on average spend an extra five cents, said Benjamin Tal, senior economist with CIBC World Markets. That doesn’t make sense because “it’s not like they got a cheque in the mail,” Tal said.

It’s why the savings rate in B.C. is negative and has been for five years running, the longest streak in the country, Tal said. It’s also what made the US economy so vulnerable to real estate prices, as Americans used their homes as piggy banks to spend on consumer goods like cars, he said.

But Thorne says not using the equity in your home may be wasting money.

“Our parents’ generation thought you’ve got to buy a property, pay it off and then you just sit on it for the rest of your life,” Thorne said. “But that’s not necessarily the most prudent financial decision you can make.”

“If you’ve got an $800,000 house and you’re sitting on that and you’re not using any of the equity, you’re wasting money,” he said.

© The Vancouver Sun 2007

Downtown developers continue to focus on condo market

Derrick Penner
Sun

If the slowing U.S. housing markets spills over to Vancouver in the form of fewer American buyers for downtown condos, that could be still be a good thing.

Developers then might turn their attention to building offices again, Shawna Rogowski, senior research associate at the commercial realtor Colliers International said in her fourth-quarter office leasing report.

Vancouver’s downtown peninsula looks like a forest of construction cranes, but only one tops an office structure, the Bentall 5 building at Burrard and West Pender.

“Cranes mean nothing to us downtown any more,” Rogowski lamented.

Rogowski said in her report that overall office vacancy ticked upward marginally in the fourth quarter to 5.8 per cent from 5.7 per cent in the third quarter. However, that 0.1 per cent is the equivalent of only 64,000 square feet of space.

And Rogowski added that leasing activity slowed down in the fourth quarter simply because there is less space to rent and fewer options for potential tenants.

“We’d love to see new office buildings downtown,” Rogowski said.

The next office development after Bentall 5, however, will be a component of the Jameson House mixed-use tower on West Hastings Street, but that isn’t scheduled to be complete until 2009.

“As of now there are no new developments,” Rogowski said, “so we’re looking past 2010 for new office development.”

In downtown Vancouver, office vacancy ratcheted down further to 3.8 per cent in the fourth quarter from four per cent in the third quarter.

New tenants are coming downtown, Rogowski said, but not big tenants. She added that downtown’s existing big tenants are looking to expand and Colliers says she advises them to take more space than they need now to accommodate future growth.

Among the suburbs, Burnaby saw its office vacancy rate drop to 4.4 per cent from 4.6 per cent in the third quarter and the North Shore’s fell to 4.6 per cent from six per cent.

New Westminster also saw more leasing with its vacancy rate slipping to 16.2 per cent from 17.4 per cent in the previous quarter.

Rogowski said Richmond saw the biggest increase in vacancy, hitting 14.5 per cent in the fourth quarter from 11.8 per cent in the third quarter, for a couple of reasons. Sprint Canada and Raytheon Canada moved out of their Richmond offices, and Worksafe BC consolidated its operations causing the organization to vacate 35,000 square feet of its space on Granville Avenue.

© The Vancouver Sun 2007

Joan Bowles
Sun

Dear new “house millionaires”: Congratulations, you are now eligible to receive little or nothing of the homeowner grant.

Never fear, if you are 65 or older you may defer your property taxes. Which means that, after being the proud owner of a home, possibly for many years, you can now say that you don’t completely own it until those deferred taxes, plus interest, are repaid. A big step backward.

I have written to both the minister of finance and her deputy to ask them a simple question, but cannot get a reply.

Does the government think it fair to give wealthy property owners whose assessments are lower than the threshold (and have not nearly the taxes to pay) the full grant and yet the “house millionaires” now get little or nothing?

What is the reasoning behind a policy that denies five per cent of the property owners in B.C. the homeowner grant? There are many seniors in this group who fought for their country.

In the year 2003 we got the full homeowner grant, but as our assessment has gone up and our taxes have doubled, we only got $80 last year.

This year we will probably get nothing.

The government thinks it is doing us a favour by raising the threshold each year.

What it can’t seem to understand is that it makes little difference to us because the assessment still goes over the new threshold.

Joan Bowles lives in Victoria.

© The Vancouver Sun 2007