Property tax increase could hit 7.2%

Posted on February 12, 2012 by admin

Province wants extra $120 million from education tax

A jump in the amount Alberta takes from education property taxes means the levy on a typical Edmonton home could go up at the highest rate in three years.

The province intends to collect an extra $120 million from education taxes this year, including an additional $38 million – or 10.8 per cent – from Edmonton ratepayers, government budget documents say.

When this boost is combined with the municipal increase passed by city councillors last December, it means the total average Edmonton property tax hike could hit 7.2 per cent in 2012.

That’s far more than the 5.4-per-cent rise, or $93 for the typical home, approved for the civic portion of the property tax bill.

“I think they will receive some strong feedback, no doubt like we normally do,” Coun. Don Iveson said Friday.

“I hope it will give the provincial government a moment to reflect on whether property taxes are a good tool for funding public services. I don’t think they are.”

He wants to raise the funding is-sue during discussions promised by Premier Alison Redford on a new deal for cities, but doesn’t intend to fight against the current increase.

“They respect our autonomy to set our tax rates, I respect theirs to set their tax rates,” he said.

“They’re separate taxes. They just arrive on the same bill.”

Coun. Kerry Diotte, the only councillor to vote against the city budget, said Edmontonians are now being hit with even higher taxes than first imagined.

“We have to work a lot harder to find efficiencies in civic government, because this came out of left field,” said Diotte, who vowed to try again to reduce spending when council sets the city’s final mill rate in April.

“When you’re talking some seven per cent, that’s getting pretty scary. It’s an annoyance to people who have money, but it can be a real hardship to people living on the edge.”

Education taxes make up about one-third of Edmonton residential property tax bills sent out in May, with the remaining two-thirds going to the city.

The provincial take rose from taxes on new development in Alberta and on the increased value of existing property, which hasn’t been captured since 2004, Municipal Affairs spokes-man Parker Hogan said Friday.

“It was just looked on as being a fairer, more equitable way to do it and to help fund what is one of Alberta’s priorities,” he said.

“When you look at the total budget for education, education property taxes, even this year with the in-crease, only fund about 30 per cent of the budget.”

The cost for the typical Edmonton house will be about an additional $8 a month, Hogan said.

http://www.edmontonjournal.com/

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Tax rules rarely affect real estate inheritance

Posted on February 12, 2012 by admin

The problem with inheritance taxes is that you can die only once.

Better from the government’s point of view to have capital gains taxes where you can tax the same asset over and over. That being said, an inquisitive reader asked to see us address the situation where someone is willed real estate.

This is a question that comes up often. The good news for the most part is that the beneficiary doesn’t have to worry about the tax implications.

When someone dies, their financial gain on their principal residence is not taxable. This is the same for someone selling their house. Any profits from that sale are tax-free. However, if they have other real estate there can be tax implications.

The only time there isn’t is if there is a surviving spouse and they agree to deal with the gain at the time of their death. This way the tax implication can be deferred until the later passing.

Otherwise, the estate of the person who dies is responsible for making sure the taxes are paid. Some items are easy to calculate. A person buys a duplex as an investment for $100,000. At the time of their death it’s worth $150,000. The executor reports the $50,000 capital gain, of which half is taxable.

The beneficiary inherits the duplex with a cost base of $150,000. They subsequently sell it for $275,000 and their gain is $125,000 of which, once again, half is taxable.

The same thing happens in the case of investments. Someone holds stock in various companies. These securities are deemed to have been disposed of at the time of death and the capital gains or losses are accounted for.

I should mention that sometimes it takes awhile — years even — for an estate to settle. If there are holdings other than cash during this period, when the property is finally disposed of, whether to an heir or sold, the taxes on the gains from the time of death until the time of disposition are reported by the executor on a trust return.

In any event, by the time it reaches the beneficiary, all the taxes should have been paid and the recipient uses the current value that attracted the final tax calculation as their acquisition basis moving forward.

While this appears to be relatively clear, the problem arises when we talk about old family land. Capital gains taxes were established in 1972. The taxable gain is based on the growth since then until time of death.

Complicating things, during the early 1990s there was a period when you could make an election that established a new value for the holdings, while paying any taxes due then.

When there is a death, one should investigate to see if that is the case. Otherwise, you need to try and establish a beginning value for the property. Sometimes a real estate person can be helpful. They might have resources at their disposal that can show just what Uncle Elmer’s lot up north was worth 40 years ago.

On a completely different matter, the Canada Revenue Agency computers are being turned on this weekend for the new filing year. Anyone who has already filed can expect to see something from the government in a couple of weeks.

Next time, we’ll look at the process and volumes that they will be dealing with over the next couple of months.

http://thechronicleherald.ca/

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RRSP can house a mortgage

Posted on February 12, 2012 by admin

3639 Osler in Vancouver is one of the priciest houses in Vancouver. Columnist Jamie Golombek argues that an RRSP can house a mortgage.

Photograph by: Jenelle Schneider, Vancouver Sun

You’ve made your 2011 RRSP contribution a full two weeks ahead of the Feb. 29 deadline. Congratulations! But what did you invest in? GICs? Stocks? Bonds?

While most Canadians sock their funds away in those traditional asset classes, there are other potential uses for your RRSP money, and one of them could include your mortgage.

You can use the funds in your RRSP to invest in a mortgage on Canadian real estate. However, there are strict rules in place if you, or someone related to you, owns the property being mortgaged (i.e. your own home). Such a mortgage, known as a “non-arm’s length mortgage,” must be administered by an approved lender under the National Housing Act. The interest rate and other terms and conditions must reflect normal commercial practices. Finally, there must be private or CMHC mortgage insurance.

Of course, the advantage of investing in a mortgage through your RRSP should be weighed against the costs involved.

In addition to the typical onetime mortgage expenses, most financial institutions charge a mortgage administration fee each year. But by far the biggest upfront cost is the mortgage-insurance premium, which can typically range from 0.5% to 2.9% of the amount of the mortgage.

A recent Canada Revenue Agency technical interpretation, however, highlights a planning opportunity that could make holding a mortgage in your RRSP more palatable.

Consider Donald, who owns a second property, which he rents out to students. He is writing off the interest expense he pays to his financial institution for the money he borrowed to help fund the purchase of the property. We will refer to this as the “original loan.” Donald decides to repay this original loan by taking out a non-arm’s length mortgage funded by money from his RRSP, which we will call the “second loan.”

The CRA was asked whether Donald would be able to deduct the interest paid to his RRSP as an expense on his tax return. Under the Tax Act, you can deduct interest paid on borrowed money for the purpose of earning income from a business or property. In Donald’s case, he is properly deducting interest on the original loan because he used the proceeds from that loan to purchase the rental property from which he is generating income.

The Act says that if you borrow money to repay money that was previously borrowed, the new borrowed money is considered to be used for the same purpose for which the original borrowed money was used.

Since the interest on Donald’s original loan was tax-deductible because it was used for the purpose of earning rental income, the interest on the second loan, paid to Donald’s RRSP, will be tax-deductible as long as he continues to own the rental property for the purpose of earning income.

- Jamie Golombek is the managing director, tax & estate planning at CIBC Private Wealth Management in Toronto.

http://www.montrealgazette.com/

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First half 2011 real estate tax bills mailed; tax bills available online

Posted on February 5, 2012 by admin

First half 2011 real estate tax bills were mailed starting Jan. 17 to Summit County residents, according to Summit County Fiscal Officer Kristen M. Scalise.

The closing date for payment will be Feb. 17, with the exception of military personnel. Property taxes are deferred for military reservists who are on active duty. Applications can be obtained by calling 330-643-2641 or visiting http://
fiscaloffice.summitoh.net.

There are several ways for taxpayers to make payment:

Taxes can be paid at the Fiscal Office treasurer division, on the third floor of the Ohio Building in downtown Akron at 175 S. Main Street from 7:30 a.m. to 4 p.m., Monday through Friday.

Taxes may also be paid through the Regional Tax Collection System. A list of participating banks is included on tax bills. Checks must be made payable to the banking institution.

Tax payments can be mailed. Those payments must be U.S. postmarked by Feb. 17 to avoid the statutory 10 percent penalty for late payment. A private meter is not valid for establishing the date of payment.

Pay a tax bill with MasterCard, Visa, Discover, American Express or electronic check by phone or our secure on-line service.

Payments are processed by Official Payments Corporation, which charges a service fee of up to 3 percent for credit cards and $2 for an electronic check.

To pay by phone call Official Payments Corporation at 1-800-272-9829. Follow the instructions on the recorded message. The jurisdiction code for Summit County is 4596.

Scalise reminds taxpayers that first half 2011 real estate tax bills are available online. Choose the Property Tax & Appraisal link on the office’s home page.

The Tax Installment Program will be available again this year for homeowners. Homeowners who pay their real estate taxes directly to the Fiscal Office, but cannot pay the full first half amount due, can avoid late payment penalties by enrolling in the TIP, Scalise said.

To be eligible all taxes and assessments must be current. The deadline to sign up is Feb. 17.

http://www.hudsonhubtimes.com/

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Tax credits help keep Allstate Insurance Co. in Hudson

Posted on February 5, 2012 by admin

Hudson — Allstate Insurance Co. on Executive Parkway has made a 13-year commitment to stay in the city and invest $20 million in the company, Gov. John Kasich announced Jan. 30.

Hudson Economic Development Director Chuck Wiedie said the city is excited by the news.

“The decision means they’ll retain 1,200 jobs here in Hudson and invest approximately $20 million in new data equipment for their data center where they electronically process all the business transaction on a daily basis,” he said.

Kasich made the announcement while publicizing state job retention tax credits approved Jan. 30 by the Ohio Tax Credit Authority.

Allstate received a 5 percent, 10-year nonrefundable Ohio job retention tax credit for the retention of $61.6 million in existing payroll and maintaining its operations at the data center site in Hudson for at least 13 years, according to the governor’s office.

Allstate’s job retention tax credit annually will not exceed $143,700.

Allstate and Jo-Ann Stores are the city’s two largest employers, with more than 1,000 employees each.

“The two are very valuable employers to the city of Hudson,” Wiedie said. “Allstate is an outstanding stable company.”

Allstate had been studying what to do with its data center for more than a year, said Allstate director of real estate Corey Luecht.

“The incentives were evaluated with other factors and was a key component to keep the data center in Hudson,” he said. “We made the commitment to keep the jobs that are there, there.”

The $20 million investment will be in mechanical systems such as backup generators, cooling systems and electrical capacity in order to replace old equipment and expand some needs, Luecht said.

The tax credit is on premium taxes, since insurance companies do not pay a regular state income tax, Luecht said. The premium tax is based on what people pay for insurance, so it’s a percentage of the company’s revenue and cap of $143,700 annually for the 10-year credit period.

The state will give a credit against the amount Allstate pays to the state, Luecht said. The tax credit begins January 2012 and ends December 2021.

In addition to Allstate Insurance Co., Kasich announced Progressive Group of Insurance Companies will invest $35 million to strengthen its presence in Northeast Ohio.

Ohio is the eighth largest insurance state by premium volume, and the insurance industry is one of the state’s largest employers, according to the governor’s press release.

“The insurance industry employs thousands of Ohioans, and it’s great to see companies like Allstate and Progressive reinvesting in our state and our workers,” Kasich said. “We’re focused on continually improving Ohio’s business environment so companies like these know this is a place where they should stay and grow.”

Progressive has committed to retain 1,500 jobs in Cuyahoga and Lake counties, according to the press release.

http://www.stowsentry.com/

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Investing: Real estate investment trusts risky, but show great returns

Posted on February 5, 2012 by admin

Homeowners have to work hard to sell their houses in this market. New paint? A must. Gold-plated fixtures? Might work. A pilgrimage to Lourdes? Couldn’t hurt.

Peculiarly, the commercial real estate market isn’t quite as depressed.

In fact, funds that invest in real estate investment trusts, or REITs, rose an average 7.5 percent last year, beating the Standard & Poor’s 500-stock index’s 2.1 percent gain.

Real estate funds remain attractive, and not just because they could score further gains this year. Like commodities and bonds, real estate funds can add diversification and income to your portfolio. Mutual funds can’t buy physical property, but they can buy companies that do. REITs are the vehicle of choice. You can invest in REITs that own office buildings, shopping malls, apartment buildings, even storage facilities.

Some REITs invest nationally; others confine themselves to a geographic area, such as New York or Chicago.By law, a REIT passes nearly all of its taxable income to shareholders, which means they often have excellent dividend yields.

The average REIT yielded 4.34 percent last year, vs. an average 1.87 percent for a 10-year Treasury note, according to the National Association of Real Estate Investment Trusts.

Given that the average money market fund yields 0.2 percent, and the average one-year bank CD yields about 0.75 percent, it’s no wonder REITs are popular. (One drawback to REIT dividends: They’re taxed as ordinary income, rather than the 15 percent tax on dividends from long-term stock holdings.)

REITs aren’t exactly undiscovered, and they’re not cheap, either.

“They look expensive using traditional measures for stocks,” says Bob Zenouzi, portfolio manager of the Delaware Global Real Estate Securities fund. But the most important way to value REITs is by looking at the difference between a REIT’s borrowing costs and its income, Zenouzi says. Right now, financing costs are low.

But REITs are still stocks, and real estate funds are still stock funds, so they’re not without risk. As might be expected, real estate funds and REITs got smacked during the bear market of 2007-08, plunging 59 percnet the 12 months ended February 2008. But they bounced back, soaring 104 percent the 12 months ended March 2010.

http://www.news-press.com/

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Real estate market may rebound in second half of 2012: analysts

Posted on January 29, 2012 by admin

Real estate developers are expected to roll out new housing projects amounting to NT$1.2 trillion at three major metropolitan regions in northern, central and southern Taiwan in 2012 to warm up the real estate market in the second half following a big slump in 2011.

Realty analysts generally forecast higher presentation of more new housing projects in Taipei and New Taipei City in the north, Taichung City in central Taiwan, and Kaohsiung on the southern part of the island.

They gave the more optimistic business prediction in spite of negative economic developments, including the impact from the prolonged European debt crisis that will almost certainly affect Taiwan’s export trade.

The new regulations concerning the levying of luxury taxes on purchases of luxury goods and speculative real estate transactions adopted in 2011 will be another market damper.

But analysts pointed out there will also be positive factors for the realty market for 2012, including Taiwan’s continuing and steady economic expansion, the stable and low interest rate, the return of more capital held by Taiwan-based businesspeople from abroad, and possible increasing interest in Taiwan properties by the wealthy in mainland China amid intensified business interchanges between Taiwan and China.

Realty developers and construction companies put on the market NT$821 billion worth of new housing projects throughout Taiwan in 2011, representing a drop of 11.7 percent from NT$930 billion in 2010, according to analysts at the My Housing magazine.

Public Discontent

The government and legislators passed new regulations last year to limit realty speculations that caused soaring housing prices, a major source of public discontent.

Many developers also postponed their new projects in view of falling property prices and transactions at major cities, declining stock prices of construction firms on the financial market, and political factors like the new presidential and legislative elections.

But new development projects will be unveiled after political uncertainties settle down in the wake of the Jan. 14 general elections.

Experts believe that more people in need of their own apartments will return and take part in rational property transactions after realizing the government’s crackdown measures have been targeted primarily toward exceptionally large housing units and speculators who had sought quick and high returns in realty investments while lifting the market prices along the way.

Analysts at the My Housing magazine said new housing projects in northern Taiwan will recover and rise back to the level of more than NT$900 billion plus additional development projects valued at around NT$300 billion in central and southern Taiwan.

Lai Cheng-yi, chairman of the Shining Construction Group, pointed out that the integration of resources and upgrading the administrative status of New Taipei City, Taichung City, Tainan City, and Kaohsiung City will significantly enhance the economic and commercial activities in the major metropolitan areas in Taiwan.

Taoyuan County in northern Taiwan will also see the construction of more new apartments this year due to the increasing number of foreign spouses married into local families and the rising demand from newly formed families.

Surge in H2

Lai expects new apartments and houses receiving construction licenses will go up to 90,000 units in 2012.

Most analysts believe that the number of housing starts and purchases of new apartments will resurge beginning from the second half (H2) of 2012.

Demand from mainland Chinese and overseas Chinese from Hong Kong and Singapore will also rise as more of them have personally visited Taiwan and hold positive views on the local living environment. Further developments of relations across the Taiwan Strait will also contribute to the resurgence.

The return of more property buyers on improved transport networks will help reduce the inventory of housing units accumulated in areas like Tamsui, Linkuo, and Sanxia in New Taipei City and the areas of Chungli and Nankan Interchange in Taoyuan, according to the analysts.

Most residents in Taiwan still generally hold the traditional concept of purchasing apartments for their own use while the interest rate on mortgage loans remains low as an effective way of offsetting the impact from inflation over the long term, the analysts said.

Second-hand apartment transactions will also increase in the metropolitan regions that generally offer better job opportunities, they added.

Other sources of strength for the realty industry include the government’s plan to increase low-cost housing units for low-income families and continuing urban renewal projects for older communities.

http://www.chinapost.com.tw/

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Builders seek tax exemption for affordable housing

Posted on January 29, 2012 by admin

The real estate industry wants tax exemption for affordable housing in the 2012-13 Budget. It is also demanding infrastructure status for the housing sector, promotion of rental housing and raising of the home loan tax bar.

The previous year’s Budget did not propose any significant step for the housing sector. But this time, the National Real Estate Development Council (Naredco), an association for the industry, is pinning its hopes on infrastructure status for housing. Confederation of Real Estate Developers’ Associations of India (Credai), another industry lobby group, is pitching for affordable housing to become tax free.

“Nearly 36 per cent of saleable value goes in taxes, ranging from sales tax, value added tax, excise, stamp duty etc. If at Rs 3,000 per sq ft, Rs 1,000 goes as taxes, how can you expect affordable housing,” asked Lalit Jain, president, Credai.

Without the tax element, the rate can come down by one-third, an industry representative pointed out. If implemented, the housing requirement of 27 million units can be achieved, which will ensure contribution of seven-eight per cent to the gross domestic product (GDP) growth, according to Jain.

R R Singh, director general, Naredco, said World Bank considers housing under the infrastructure category, and so should the Indian government.

The industry also wants the home loan tax bar to be doubled to Rs 300,000, from Rs 150,000 now. “We base this on the grounds that cost inflation index has doubled, the house prices have gone up by 50 per cent on an average since 2002,” he argued.

Royal Institution of Chartered Surveyors (RICS) in its submission to the ministry of finance has recommended a subvention in interest rates for existing home loans in addition to new housing loans.

On affordable housing, RICS has recommended setting up of a dedicated affordable housing fund, similar to infrastructure funds with an initial corpus of Rs 5,000 – 10,000 crore, with the government contributing partial funding through public issuance of bonds and the rest raised through retail investments in lieu of tax benefits.

“These funds should then be made available to developers/NGOs/private intermediates at low interest rates for construction of EWS/LIG housing,” said Sachin Sandhir, MD, RICS, South Asia.

Another major demand from the real estate industry is for promotion of rental housing. “Every one cannot buy a house. Low rental income discourages developers to develop rental housing,” said Singh.

RICS has also suggested lowering the tax rate on rental income from 30 to 20 per cent, along with taxing only 50 per cent of the rental income as compared to the current 70 per cent. Also, income tax exception from rental income (under Section 24) should be increased from the current 30 per cent to 50 per cent.

“The low yields on rental housing remain a bottleneck for promoting a healthy rental market,” said Sandhir.

Narecdco also wants exemption of capital gains tax to be increased to buying two houses from the present one. “Often nuclear families sell ancestral property to buy two houses. This makes a case for capital gains tax exemption,” according to Singh.

RICS has also suggested that first time home buyers should be incentivised with tax credits up to 10 per cent of the value of a residential unit, where the credit can be reclaimed over a period of three financial assessment years.

Credai, which has sought a meeting with finance minister Pranab Mukherjee, is seeking voluntary disclosure schemes, to wipe out black money from the system, and boost liquidity. “High taxes to convert black money into white and stringent punishment such as life imprisonment for those found with black money will increase liquidity in the real estate market,” said Jain.

http://www.business-standard.com/

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Scattered results

Posted on January 29, 2012 by admin

Situation History of thrilling but losing investments

Strategy Save $11,000 a year for next 29 years

Solution easily reach target income for retirement

In Alberta, a couple we’ll call Wilt, 36, and his wife, Susan, 44, are thriving with a total take-home income of $8,000 a month. Both self-employed as consultants – he in management, she in health care – they have come to a point in their lives in which they have a good deal of unencumbered cash flow. Their net worth, about $229,000, is modest, but they are planning far ahead. Their goals – educate their five-year-old daughter and plan a retirement.

Family Finance asked Lenore Davis, a registered financial planner with Dixon, Davis & Co. in Victoria, to work with Wilt and Susan. “They are scattered in terms of where they deploy their money,” Ms. Davis says. “They do indeed need a plan to get them to their retirement goal while looking after their daughter’s educational needs.”

FINANCIAL MANAGEMENT

For now, Susan and Wilt need to reduce their debts and to rationalize their in-vestments. To do that, they have to resist the urge to increase their personal spending parallel to their increased income. Their method has been to run all their income through their personal corporation and pay themselves as needed. Their $8,000 monthly draw leaves $983 a month unspent. They can use it for their child’s RESP – $2,500 a year, which will attract $500 a year from the Canada Educational Savings Grant – and putting $8,000 into lump-sum mortgage reduction on each anniversary due date.

After taking their draws from their corporation and allowing for deductions, there should be $60,000 in their company each year to be invested. The money can be left inside the company or flowed out to Wilt and Susan so that they can invest it personally.

Corporate income tax rates – federal and provincial – on active Alberta small-business income are low at 14%, compared to personal income tax rates in their bracket of 32% on salaries. But investment income from money left in a corporation is taxed at 45%. So the best thing for now is to distribute the income to the couple as dividends, Ms. Davis advises. In time, they should consider adding to salary to boost Canada Pension Plan benefits, she adds. Dividends are not salary or wage income and do not generate CPP credits.

Any payouts of surplus cash can be used for RESPs, mortgage paydowns, TFSA contributions or filling RRSP space. Wilt has $67,000 of unused RRSP space, Susan $86,000 of space.

RETIREMENT PLANNING

In 29 years, when they are ready to retire, if they have built up CPP benefits at the maximum rate, currently $11,840 a year, they can add their entitlement to full Old Age Security benefits, currently $6,480 a year, to build a base of public pensions of $36,640 a year in 2012 dollars. Their present spending net of school tuition, saving and debt repayment, about $4,000 a month, or $48,000 a year after tax, would be approximately $74,000 be-fore 35% average tax.

To achieve that level of income, they would have to add $37,360 of annual investment income. At 65, when Wilt and Susan begin their retirement, they would need capital of $622,700. That would produce the required annual supplement to public pensions, assuming all their income and capital would be used up by the time Wilt is 90. To get to that level of capital, they will have to save $11,220 a year for the next 29 years and achieve a 3.0% real rate of return.

The couple already saves more than $14,000 a year in RRSPs and taxable savings, so reaching the target should be no problem.

Yet Wilt and Susan have shown a knack for investing in risky undertakings with sad outcomes. For example, they have $100,000 in a real-estate venture that has gone into receiver-ship. The couple needs to switch investment methods from the concept of adventure to a steady system for diversifying assets and estimating dependable returns from stocks, bonds and perhaps real-estate mutual funds or exchange-traded funds that have strong and rising payouts. Their al-location to bonds should grow to per-haps 25% of total investments within the next few years and rise to 65% by retirement age, Ms. Davis suggests.

INVESTING IN SECURITY

The final issue in Wilt and Susan’s future is their view of the purpose of in-vestments. When they had little money, they invested for the thrill of it. Now that they have substantial incomes and substantial assets, they must act like good managers for themselves and for their child.

To avoid the risk of buying the wrong stock or bond, commodity or parcel of real estate, the couple can use low-fee exchange-traded funds with diversified assets. Over a period of 29 years, ETFs with fees that would average about 0.50% a year will tend to outperform actively managed mutual funds with fees five times higher. The 2.0% annual saving will translate into a 58% value retention over 29 years. Competent man-agers of higher-fee mutual funds could boost returns and justify their fees, but the odds of finding managers who can beat the market for nearly three decades are poor.

Wilt and Susan could increase their financial security by purchasing disability insurance. Disability coverage prices vary widely. For payments of $5,000 a person a month that begin 90 days after a reported injury or illness, Wilt would pay $125 a month to age 65 and Susan would pay $243 a month to age 65. The premiums could be paid by their company as a taxable benefit to the employees.

“This couple is in a great place to make their financial situation secure,” Ms. Davis says. “By taking concrete money-management measures, they can stop worrying about past losses and focus on a comfortable future lifestyle and a solid retirement plan. A relatively small amount of planning and a move to a sound investment style with reasonable costs should get them to a comfortable retirement.”

http://www.vancouversun.com/

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Canada’s Supreme Court upholds municipal taxing powers

Posted on January 22, 2012 by admin

OTTAWA—In a decision that will no doubt be welcomed by city councils facing tough budgeting decisions, Canada’s high court has rejected a bid by a B.C. paper company to reduce its municipal tax bill.

Municipal councils don’t have “carte blanche” to tax their citizens, but the power of courts to overturn tax rates set by these councils is very narrow, the Supreme Court of Canada says.

Catalyst Paper Corp. had fought to overturn the municipal taxes imposed by North Cowichan council. It is the biggest industry in the Vancouver Island municipality.

In rejecting Catalyst’s appeal, seven high court judges reinforced the broad power of elected officials to balance business and residential taxes as they see fit, according to provincial laws.

“Municipal councils have extensive latitude in what factors they may consider in passing a bylaw,” wrote Chief Justice Beverley McLachlin for the unanimous panel.

She said councillors “may consider objective factors,” such as how much water or other municipal services are consumed by a business. “But they may also consider broader social, economic and political factors that are relevant to the electorate.”

The decision says councillors, not courts, are in the best position to weigh all the competing considerations and they deserve deference by judges.

Catalyst, the largest manufacturer of specialty paper products in western North America, had argued it bears too big a load of the overall municipal tax burden.

According to local news reports, Catalyst’s 2010 tax bill was $5.5 million and its 2011 bill was about $5.4 million. The company is also facing global debt and market losses that puts about 500 local jobs at risk.

As the population on the southeastern shore of Vancouver Island has grown, subdivisions have sprung up, and so has the need for roads, water lines, schools, hospitals and other municipal services.

Residential property values have soared, while the value of the Catalyst property has remained stable.

However, the municipality, not wishing to hit long-term fixed-income residents with massive tax hikes, was for years increasing the relative tax burden on Catalyst to one of the highest in the province.

In court, Catalyst argued it has its own sewer and water systems and its own deep-sea port, and its operation has been losing money.

It says it’s footing a “grossly disproportionate” part of the property tax bill and cannot just pick up operations and move.

“Its choices are to stay and pay or to close the mill,” said a court summary of Catalyst’s arguments.

Since 2003, the town has reduced the rate on Catalyst slightly. In 2007, Catalyst paid 48 per cent of the total municipal tax burden. By the time the case was heard, that was down to 37 per cent, but not as much as Catalyst demanded. It argued taxes should be related to municipal services consumed.

The company’s challenge of a municipality’s right to pass what it called an “unreasonable” bylaw met with defeat B.C’s trial and appellate courts.

In agreeing with those lower rulings, the Supreme Court’s decision distinguished between taxes and “fees” for services.

It said the delivery of services could be “a factor” but it is up to a council to weigh against competing considerations.

The high court said the council, unlike a court, is not obliged to give reasons for taxation decisions.

http://www.thestar.com/

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