Property taxes are the cost of doing business for property owners across Canada and the US. But, while property tax makes up a major operating expense, owners have the opportunity to reduce risk and derive maximum value from their investments by managing their taxes proactively.
In the recent March/April print edition of Canadian Real Estate Wealth magazine, Terry Bishop, President of Property Tax Canada, discusses the importance of property investors incorporating property tax as an operational expense in order to improve their bottom line.
- Despite real estate taxes being the single largest operating expense, Altus Group found that only 25% of more than 200 C-level and senior CRE property tax and finance executives from Canada and the US said their firms incorporate property tax management directly into their investment strategy and decision-making. This practice could lead to missed savings opportunities and put their portfolio at risk of underperformance.
- The higher the tax load on the property, the lower the property value and net operating income for the investor.
- In the 10 Canadian cities surveyed by Altus Group for our 2017 Canadian Property Tax Rate Benchmark Report, there is a wide and growing variance in the ratio ranges between commercial and residential property tax rates.
- Most assessment authorities use computer-assisted valuation models to value a property, which is a good start, but it doesn’t capture all the property nuances, which can result in under or over-assessed properties.
- A commercial-to-residential property tax ratio is used to compare the commercial tax rate to the residential tax rate. Therefore, it is possible for property owners to influence the tax ratio, since tax ratios are discretionary decisions made annually by municipal, provincial or school board politicians.
- A higher commercial-to-residential tax ratio is indicative of a city placing greater weight on businesses to contribute an increased share of the municipal budgets. While a lower commercial property tax ratio helps make cities more competitive, promotes job growth and investment, and subsequently generates more stable, sustainable revenue.
- A professional property tax consultant can review and challenge property assessments annually.
- Even if a property owner feels the assessment established by the city or municipality is a reasonable reflection of its market value, it doesn’t mean the assessment is fair. Equity or fairness is the overriding principle considered by the assessment review tribunals.
Read the full article here.