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Managing Property Taxes

Through a Pandemic

As the coronavirus pandemic batters the bottom lines of commercial real estate assets worldwide, developers, investors, owners and managers are scanning every line item for ways to preserve cash flow and protect these assets. One key, yet frequently overlooked opportunity, is property tax.

This white paper includes:

  • Overview of how property taxes work across Canada
  • Pandemic challenges and considerations by asset class
  • Four steps to take control of property tax

A pivotal opportunity to protect asset value

This white paper presents a current picture of the challenges facing nine distinct asset classes in the time of COVID-19,
along with steps to mitigate the impact of this consequential expense.

  • Development land
  • Entertainment, recreation, sports
  • Industrial
  • Lodging
  • Multi-family residential
  • Office
  • Oil and gas
  • Retail
  • Seniors housing

The current conundrum

Municipalities need revenue, property owners and their tenants need tax relief

The personal and working lives of Canadians were upended by COVID-19 this year. The ways we live, work, learn, entertain, travel, shop and eat have changed in entirely unanticipated ways.

Emergency closures, physical distancing requirements and safety protocols altered when and how we occupy buildings. Demand for certain types of spaces plummeted, generating havoc in some sectors of the commercial real estate industry.

Many sectors have been walloped across the value chain. Operators are struggling to mitigate health risks for tenants. Developers are coping with construction delays and diminishing returns. Investors and owners are grappling with lower operating income and tenants struggling to make payments.

While the depth and breadth of the economic impact on real estate assets remains uncertain, how do property taxes fit into this shifting pandemic situation? Two ways.

1. Municipalities need money
2. Property owners and their tenants need tax relief

Municipalities facing massive deficits
As the pandemic gained traction, governments – federally, provincially and municipally – turned on emergency spending taps to keep economies alive.
Coast to coast, this has had a devastating effect on government budgets, particularly municipalities. Under provincial rules, municipalities are prohibited from running budget deficits. Although British Columbia made an unprecedented decision to allow cities to temporarily run deficits, this is still prohibited in most other provinces. Municipalities operate on a break-even basis.

With reduced transit ridership, decreased permit fees and land transfer taxes and property tax deferrals, cities and towns are now experiencing massive debt pressure in the face of evaporating revenues and rising costs. The City of Toronto, for example, projects a possible $1.5 billion loss by the end of the year.

Municipalities rely on property taxes as their leading source of revenue.

Property owners facing tax shock
Canadian commercial property tax rates are already high. Altus has determined the average commercial property tax rate in 2020 is $23.57 per $1,000 of property value.

Because COVID-19 impacts have created dramatic change within a very brief period, even provinces with single-year assessment cycles will have little influence on the challenges many property owners experience in the short term.

Expect more tax rate volatility as taxing authorities try to balance the taxation that supports a wide variety of municipal services with taxpayers’ ability to pay.

Explore the unique tax challenges by asset class

Get deeper insight on the tax challenges facing nine distinct asset classes and strategies to mitigate the impact on your bottom line.

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