Tuesday, July 8, 2014

Putting all your eggs in one bracket: Vancouver Courier July 2, 2014



By obtaining Farm Tax Status, the owner of this Southlands estate can save tens of thousands of dollars in taxes each year. Photo Michael Geller.

July 3 is the deadline by which most Vancouver residents must pay their property taxes. I say most since many residents, me included, have chosen to participate in the provincial government’s low interest Property Tax Deferment Program. If you are aged 55 or over, or living in a household with children, you, too, may be eligible and should investigate the program.

However, this column is not about people who defer their property taxes. It is about people who avoid paying taxes. But before proceeding, as my accountant often tells me, avoiding taxes is legal; evading taxes is not.

One creative way to avoid property taxes is to convince the B.C. Assessment Authority to reclassify a property from “residential” or “business” to “recreational and non-profit” or “farm” categories.
Although the assessed value may not change, the tax rates for both recreational and non-profit and farm classified properties are significantly lower. Properties with a farm classification also receive a 50 per cent reduction in school taxes.

In my Southlands neighbourhood where most of the properties are in the Agricultural Land Reserve, it is no secret that many properties have sought and obtained farm tax status and consequently pay less in property taxes than some smaller, less valuable properties outside the neighbourhood.

When these properties are actively engaged in agricultural activities, such as a garden nursery, the farm classification may be warranted. However, some grand estates of between two and 10 acres have been classified as farms because they generate $2,500 a year in income from incidental agricultural activities. This can be achieved with a few dozen chickens in a corner of the estate.Given the tens of thousands of dollars in tax savings that must be borne by other taxpayers, these are very expensive eggs.

Not all Southlands estate owners have sought farm classification. Many are proud of the fact that while they could easily qualify, they pay their fair share of taxes based on their residential classification.
It is not just Southlands property owners who are playing this game. Earlier this year, Scott Bowden of Colliers, a recognized expert in the field of property taxation, presented a report to the Metro Vancouver Board of Directors.

He noted tax-avoiding landowners are offering free pasture to cows and renting llamas in a bid to achieve farm status. In some instances, the property owners reduced their taxes by up to 90 per cent and more.
Ironically there are some farmers who will not be able to achieve farm status, namely commercial medical marijuana growers. Recently the provincial government created a new business classification for these facilities given the potential loss in taxes.

To appreciate the tax ramifications, if a $2.1-million, 25,000-square-foot warehouse on a one-acre industrial property in Richmond was allowed to get farm tax status for growing marijuana, it would pay just $395 in annual taxes — 99 per cent less than the $33,100 a comparable business would pay.

While commercial marijuana growers will not get a tax break, owners of vacant sites such as the corner of Davie and Burrard will continue to obtain significant tax savings by allowing their properties to be used for agricultural purposes, namely community gardens.That is because under our property tax system, the province has agreed to reclassify these properties from “business” to “recreational and non-profit” as long as they are used for growing vegetables and similar purposes.

Since the tax savings for the owner can be in the hundreds of thousands of dollars each year, property owners are eager to allow their land to be used as a temporary park or community garden. I would add the reason their taxes are so high is that vacant land zoned for commercial uses is often unfairly taxed.

Since I and other taxpayers must make up the loss in taxes, I am not so enthusiastic about community gardens as an interim use in order to change the tax classification. I would prefer revisions to our property tax system to address its many inequities. Until that happens, community gardeners will continue to grow some very expensive tomatoes at the corner of Davie and Burrard.

twitter.com/michaelgeller

© Vancouver Courier
- See more at: http://www.vancourier.com/opinion/columnists/opinion-putting-all-your-eggs-into-one-bracket-1.1187698#sthash.m49nRwjA.dpuf

2 comments:

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Norma Schneider said...

Paying taxes is a responsibility, which means it's not something we can or should avoid. Although, like you mentioned, there are different programs and ways that can help us pay taxes a little more cheaply. If people are willing to investigate that more further, I'm sure it will surely help their pockets get heavier than lighter. Thanks for posting your insight. All the best to you!

Norma Schneider @ Mash Accounting