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By Altus Group | July 6, 2020

In June, Altus Group partnered with the British Columbia Hotel Association to host a webinar helping hotel owners and managers understand the assessment and property tax system in the province and navigate the impact of the current economic environment. 

The following is a summary of the webinar. If you would like more information, please contact Phil Gertsman or Robert Blouin 

Hotel Assessments in BC & the Challenges of COVID-19 

Property taxes have become one of the top three burdens for hotel owners in BC as the occurrence of tourists, conventions, and cruise ships in our region has dropped to zero. Even as the economy begins to reopen and businesses are able to return to careful levels of operation, hotels remain mostly vacant and there isn’t a clear path towards this changing in the near future.

What does this mean for the upcoming assessment role? With a valuation date of July 1, 2020, we would expect to see the burden of taxation shift from hotels and retail toward office and industrial.

Property Assessment & Taxation Trends

As shown in the chart below, the average value per room was growing slightly from 2007 to 2009, followed by a downturn in 2010. But the last 5 years has really seen a remarkable uptick in the hospitality market. Over this same period of time, the mill rate in Vancouver shifted from almost 25 mils per thousand dollars of assessed value to under 10 in 2019.  This dramatic decline has been a result of the increasing tax base, not just from new construction but from skyrocketing values across all asset classes.

So, overall, there was a decline in taxes from 2007 to 2014 due to the declining mill rate, but then an increase in taxes from 2014 to 2019 due to tremendous growth in assessed values. 2020 shows a significant drop in mill rate, but that’s a bit of an anomaly related to the school tax reduction that was granted this year.

Vancouver Hotel Trends 2007-2020

The Ad valorem System

In an ad valorem system, properties are valued and then assigned a classification according to their use. The majority of BC hospitality properties are Class 6, which is Business – Other, or more simply the commercial catch-all class. However, if a hotel offers longer stays of 30 days or more, a portion of their value could be classified as residential. This is important as we get into the Other Taxes section below. 

Municipalities build their budgets once the assessment value roll is set and then calculate their mill rates to fund their budgets. Property owners and tax payers have the right to appeal their assessment, but mill rates cannot be challenged through this process.

How Hotels are Assessed in BC

Real estate: Must reflect valuation of the real estate only. Separation/removal of business/going concern and chattels value required​.

Methodology: Methodology is consistent across property types (Full service, limited service, motel)​.

Site specific hotel performance: Generally based on site specific hotel performance adjusted to industry averages​.

The equation: Capitalize NI of real estate = revenue – variable and fixed expenses – non-real estate contribution​.

FF&E: Accounted for in two ways –  a deduction in a replacement replacement equal to 4% of gross revenue, or 15% deduction of capitalized value.

Business value: Removed through a management fee reduction of 3% of gross revenue.


BC’s Other Taxes

Speculation & Vacancy Tax: Designed for single family rentals with an exemption written in for strata hotels for 2018 through 2021 tax years. Unless the government changes this, strata hotels will become subject to the very significant tax, which is sometimes as much as the current property tax bill, beginning in 2022.

Property Transfer Tax: Only applies to residential and commercial properties, but for numerous reasons, portions of hotel properties are being classified as residential and so this tax has become relevant to hotel transactions.

Foreign Buyer Tax: Similarly, this has become a substantial consideration as portions of hotel properties are being classified as residential.

City of Vancouver Empty Homes Tax: To date this has not been an issue for hotels.

The Assessment and Complaint Cycle

 

What Relief Measures are Currently Available

After the official beginning of the pandemic, BC swiftly announced a cut to the school tax rate of 70%, however the actual amount varies slightly by property class,

 2020 Budgeted School TaxAfter COVID-19 ReliefReduction
Class 4 – Major Industrial1.490-100%
Class 5 – Light Industrial3.721.0561-72%
Class 6 – Business & Other3.721.107-70%

and the overall impact of the tax reduction varies by municipality.

Municipality

Before

After

Reduction

Vancouver

9.34383

6.73083

-28%

Richmond

9.07356

6.46056

-29%

Burnaby

10.1022

7.4892

-26%

Surrey

9.91062

7.29762

-26%

Coquitlam

12.2889

9.6750

-21%

North Vancouver – Dist.

9.24338

6.63038

-28%

Langley

11.90503

9.29203

-22%

Delta

11.1372

8.5242

-23%

Victoria

16.4368

13.8238

-16%

 

Make sure to check your tax bills because most municipalities are indicating that no late payment penalties will be applied before September 30th.

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