Property Tax Assesment Have Minor Impact on Calgary Industrial Market versus Other Commercial Markets

Feb 9, 2013 by

Had opportunity to connect with various consultants on the recent property tax assessments recently sent to Calgary businesses.  It appears that the Calgary Office market will be hardest hit this year as there has been significant increases in rentals rates which ultimately impact assessed values.  However  the Calgary Industrial user should expect and increase in the 15% range.  As I am not an expert in Calgary property taxes I thought it best to ask some simple questions and have each of the groups answer in their own words.   I asked each of them the following questions:

Industrial taxes up, even, or down? Who got hit hardest?  Retail, office, or downtown?  Is the mill rate changing? Why does the city always talk about revenue neutral and then when the real bill comes out its always different and usually higher. What’s the general appeal process?

Here is what they had to say.

Matthew Pierson Tax Manager at DuCharme, McMillen & Associates Canada Ltd.

We can’t speak to taxes yet since the city hasn’t set the rate yet, but council has voted in favor of a 5.5% rate increase. Part of the property tax is school tax which is set by the province. I haven’t seen the 2013 school tax rate yet. If he’s asking about industrial assessment values, I’m seeing increases from 10% to 25% across the city which ties in with the non-res stats above.

Downtown office would have seen some large increases due to the strong office market and low vacancy (A-AA spaces have seen vacancy approaching 0%). A combination of rising lease rates, lower vacancy and lower cap rates would lead to higher values than 2012.  City wide office lease rates have risen and cap rates have declined leading to higher office values in general. 
Retail generally also strengthened but some stand alone and smaller locations remained the same or even declined in value. 

The assessment department always includes the revenue neutral mill rate on the assessment notice. According to the City, revenue neutral is a policy that means whether year to year assessments increase or decrease, due to changes in market values, no new taxes will be collected as a result of the reassessment.  If the City’s budget (and provincial education requisition as well) for 2013 was identical to what it was for 2012, then the property owners’ taxes would be the revenue neutral amount.  However, the City’s (or Province’s for school tax) fiscal needs change annually so the actual tax rate and the actual taxes due will change. 

If a property or business owner is dissatisfied with their assessment, they can pay an appeal fee ($30-$50 for single residential, farmland and business; $30-$650 for non-residential or multi-residential – the amount is indicated on the assessment notice) and file an appeal by March 4th.  The Calgary Assessment Review Board now has a website (http://www.calgaryarb.ca) which contains any information needed on the appeal process from filing a complaint right through to the hearing process.

Josh Weber Senior Director, Realty Tax Consulting, Altus Group

2013 property assessments were mailed out on January 3, 2013 with a final date for filing a complaint of March 4, 2013.  From January 3 to March 4, this period is called the Customer Review Period, whereby property owners/ owner representatives are able to meet with City assessors to discuss how their assessment was developed.  If an owner is not in agreement with the value and inputs the City has used to create the assessment and the City does not agree to alter the value, the taxpayer has the opportunity to file a complaint to the Assessment Review Board.  The appellant is required to exchange their market and/ or comparable assessment data and/ or legislative interpretation in accordance with the evidence disclosure time lines as found on the City of Calgaryweb page.  A hearing is then conducted at the Assessment Review Board in front of three Board members and a decision is mailed within 30 days of the hearing having taken place. 

Overall, assessment values have increased for most sectors of commercial real estate in Calgary.  Downtown office properties will see the highest average boost to their assessments with an average increase of approximately 44%.  The Industrial sector will see an overall average increase of 15% and this is fairly consistent throughout the North East, South East and Central areas.  The City assesses most industrial properties on the “Sales comparison approach” to value.  This approach incorporates the use of all City validated industrial sales into a regression model that in turn spits out a site specific value for your property based on its physical characteristics.  The income that a property generates is NOT a consideration under the sales comparison approach.

 Due to these increased assessed values, the revenue neutral property taxation rate has shown an initial drop of 17%, meaning if your assessment has not increased by 17% your property taxes will remain flat or go down.  Revenue neutral is defined by the City as follows: “Revenue neutral is a policy that means whether year to year assessments increase or decrease, due to changes in market values, no new taxes will be collected as a result of the reassessment.”  The revenue neutral figure is slightly deceptive as the actual property tax rate is not established until March/ April and generally, with a planned increase to the City’s tax revenue budget, the tax rate will increase at that point, increasing your property taxes for the year.

 Christopher Hartley  Vice President Valuation & Advisory Services Colliers International 

We are seeing increases in industrial assessments with final tax increases expected around 5%.

 Hardest hit – Downtown and Beltline office, Particularly older B Class product.

 The revenue neutral mill rate is .0135515. The final mill rate will be roughly 5% higher as Council still needs to finalize its budget increase in May.  The revenue neutral mill rate (and quoted taxes on the assessment notice) represent what the taxes would be IF council decided to not raise taxes for the year. 

Appeal process – After providing us with the assessment notice and some basic information regarding the property the determination to appeal is made.  With a few signatures on some government forms, we provide a complaint to the Assessment Review Board no later than March 4.  Hearings will be scheduled for the summer or early fall. 

We inspected the property and make determinations of appropriate assessment levels by finding appropriate comparables to determine values though the income approach or the direct comparison approach. Through negotiations with the City or through the appeal hearing we look to reduce your assessment and therefore taxes.  Refunds usually arrive within 60 days of the hearing date and rarely do not arrive after the turn of the calendar year. 

For industrial properties, the preferred approach is the direct comparison approach and the main factors that the City and Boards are interested in to determine comparability are

  1. Age
  2. Building Size
  3. Site Coverage
  4. Percentage of office/retail finish
  5. Location