Calgary business owners, like their counterparts across the country, have faced unprecedented hardships since the start of the pandemic nearly two years ago. Not only have they endured mandated lockdowns and business closures which directly impact the ability of many businesses to earn income, but there have also been several other issues to contend with, including supply chain disruption, lowered spending by consumers, and a reduction in available workers due to illness.

While these factors have been a challenge for businesses across the board, it has often been small and independent businesses that have faced the biggest fallout. According to projections from the Canadian Federation of Independent Businesses in 2020, Alberta stands to lose over 32,000 businesses due to the pandemic, with nearly 1 in 5 at risk of closure. Given these statistics, any other loss of income or increase in costs could have a catastrophic impact on businesses that have managed to hold on throughout the past two years, which makes the commercial municipal property tax hike for Calgary businesses, approved at the end of 2021, particularly concerning.

City Council Approved Tax Increase as Part of City’s 2022 Budget

On November 24, 2021, Calgary’s city council approved a number of expenditure increases, including an increase in the number of firefighters, expanded snow clearing services, and a $6 million budget increase for Calgary Police Services. In addition, the council approved funding for climate action, a memorial for Indigenous children who died while attending residential schools.

In order to fund these costs, in part, the city council also approved a 3.87% increase in municipal property taxes for 2022. City officials claimed that the increase would amount to a monthly increase of approximately $6.00 for the average homeowner. However, the impact on business owners, particularly those outside the downtown core, could be much larger.

Downtown Calgary Building Vacancy Hits New High, Shifting Tax Burden

The vacancy rate of commercial properties in downtown Calgary has been taking a hit for a number of years, particularly since 2014. A city that was once predominately inhabited by large oil and gas companies has seen many of those businesses leave the downtown area, citing reasons such as reduced oil prices and corporate downsizing. While technology companies are starting to move into the spaces vacated by energy companies, the city is still seeing record vacancy rates in its commercial spaces. According to statistics cited by Global News, the city’s commercial vacancy rate hit 32.9% at the end of 2021.

Due to the ‘tax shift’, the term for the shifting burden of commercial taxes to businesses located outside of the downtown core due to the increased vacancy rate, the bulk of the commercial property tax burden will be felt by properties outside of downtown. This will translate into some businesses paying tax increases of up to 10% or more. For example, retailers located in shopping centres on the outskirts of the city could see an increase of 10.37%, and large-format industrial warehouses could see an increase of 9%. According to municipal data, more than 7% of the increase can be attributed to the tax shift.

Calgary Commercial Property Owners Subjected to Larger Tax Increases than Owners in other Canadian Cities

According to a statement from Deborah Yedlin, CEO of the Calgary Chamber of Commerce, Calgary commercial property owners are being subjected to larger increases than their counterparts in other major Canadian cities, and it will have a negative impact:

Despite early signals of a moderate increase to property taxes on the part of city council, this year’s approved property tax rate will result in double-digit increases for some Calgary businesses…With certainty and stability as key factors for ensuring a sustainable economic recovery, council must turn its attention to creating a property tax system that is predictable and transparent. The higher taxes, coming at a time of inflationary pressures, will put additional pressure on Calgary businesses as they seek to move beyond the challenges presented by the pandemic.

City Councillor Sonya Sharp, who chairs the city’s Business Advisory Committee, said that the increase could trigger a number of businesses in the hardest-hit sectors to relocate to nearby cities where the tax burden would be more advantageous. In previous years, the city of Calgary has set aside funds to provide tax relief to businesses in light of the pandemic, however, this has yet to be discussed for 2022. In 2021, for example, the city council voted to spend $13 million on tax relief for businesses, although only about half of that was distributed.

Some councillors have expressed a willingness to extend programs such as a Phased Tax Payment system, however, they point out that it would not address the root of the issue, in that certain business sectors are bearing the brunt of these tax increases. According to Councillor Gian-Carlo Carra, in order to make lasting and effective changes, the provincial legislation needs to be amended to create new tax classes for commercial businesses and property owners.

A long-term solution is likely to take some time, however. In the interim, some businesses in Calgary may find themselves on the hook for much higher tax bills in 2022 than in previous years.

For Comprehensive Commercial Real Estate Solutions, Contact the Business and Real Property Lawyers at DBH Law in Calgary

Contact the experienced business and real estate lawyers at DBH Law in Calgary to see how we can help you with your business needs, including commercial real estate transactions and leasing. Our lawyers work with our business and corporate clients every step of the way through various transactional matters, negotiating for you and representing your interests in the event of a dispute. Please reach out to us online or by phone at 403.252.9937 to talk today.