As a taxpayer, nothing’s more unsettling than the knowing feeling you’re being treated unfairly. Here’s a prime example: a developer who is in the process of constructing a multifamily apartment building in New Brunswick recently reached out with a situation that is symbolic of a widespread issue in the province’s flawed property tax system.
When comparing his project to a very similar one in the same municipality, he was shocked to see his assessment per unit was 38 per cent higher.
But it didn’t end there.
The divide was further amplified on the tax front, where it really hurts, because of a classification variance. There, his tax burden was a whopping 69 per cent higher per unit. Now, I’m not saying the comparable assessment (and taxes) were low – I’m saying that under any semblance of a fair assessment and taxation system, the concerned developer’s rate was high.
Lack of uniformity is the main cause of pain
That’s where the problem begins.
In N.B., provincial assessment law does not promote appeals based on lack of uniformity. This is a common issue in the province and one that creates a drain on property owners, businesses and residents.
The lack of uniformity — and impediments to appeal — also reduces cost certainty and possibly even chases investment and business away from N.B., while creating disparate tax burdens on owners and occupiers of commercial and residential space.
Simply put, there is absolutely no requirement that a property must be assessed similarly to others.
Addressing the lack of uniformity
In most provinces, you could appeal and argue an assessment as unfair if you had two identical or similar properties in the same region with different assessments and tax burdens. Assessments, and parameters within modelling, should also be benchmarked to promote logical assessment correlations between properties.
A superior property on whatever metric, say assessment per square foot, should have a higher assessment to an inferior one. Under any semblance of fairness, this is just common sense.
N.B. represents a giant departure from most jurisdictions.
Uniformity in assessments is well-recognized as a cornerstone of fair assessment practice across Canada and it’s generally used for assessment modelling and calculations. When disparities arise, and they do, most provinces promote uniformity as a preeminent basis for review and/or appeal. But not here.
Through various organizations and stakeholders, we have been working to fix this problem, and the solution isn’t complicated.
Doing nothing causes disadvantages for CRE and the economy
The biggest problem that emerges on a regular basis due to lack of uniformity is that New Brunswickers are left at a disadvantage compared to their neighbours, other businesses and frankly, most of Canada. The layers of unfairness cascade from there.
Higher tax burdens without fairness put limits on owners' profitability — whether they own industrial, retail, office or residential property.
On the residential front, N.B. cities, like most in Canada, are trying to attract development and build more housing. The risk here is twofold: First, property investors facing unfair tax assessments are dissuaded from investing in multifamily developments in our communities; and second, additional tax burdens result in higher residential rents for already tapped-out tenants.
We also need to be wary of sale-chasing, whereby an assessment spikes in reaction to a transaction.
If this end value is not uniform to other properties (i.e. those absent of sales), of course the impact is higher rents. It’s a tough spot, as landlords need to service their debt and the cost of living for all is already on the rise.
There are no winners in these sale-chasing scenarios — and unfortunately, a common outcome is a trip to a residential tribunal. In many cases, these could be avoided if owners had better recourse to argue lack of uniformity. It all combines to dampen the desirability of the N.B. market.
But this is not just a residential issue; it’s an issue of fairness across all property types. The current system creates uncertainty for business and it snowballs.
Imagine having two coffee shops operating on the same street, but one has more opportunity to earn profit because its landlord is facing a smaller tax bill than the neighbour? How about an owner-occupier whose bottom line and ability to reinvest in their business, or even turn a profit, is hindered by an inequitable assessment?
Instances just like this, or similar, are almost certainly happening in our communities.
In commercial real estate, we need to appreciate that a property value is largely predicated on its income-producing potential. Property taxes represent the highest line item in operating expenses for most and a disproportionate cost is detrimental to value.
On gross leases where landlords don’t recover the taxes, the negative impact on net operating income is plain as day. But on net leases, where tenants are charged back taxes, the impact is prevalent, too. A prudent lessee would certainly be willing to pay less if they knew their taxes were going to be higher in one location versus another.
It may also influence where they lease at all, or if they renew at end of term once they realize a particular property may be inequitably assessed.
There are various layers to this issue and it all stems from a lack of equitable treatment. Fixing this problem will promote more growth and interest in N.B.
What’s the solution?
The fix should be quite simple and it's time for all N.B. residents and stakeholders to demand change.
N.B. provincial lawmakers need to create a uniformity provision in the Assessment Act, much like most of Canada. That would require the property to be assessed uniformly and in lockstep with the valuations of other comparable properties.
You don't have to look far for exemplary legislation. Prince Edward Island and Newfoundland and Labrador are provinces that have strong uniformity requirements in the legislation.
Here in N.B., we could quite simply copy and paste the wording from those provinces, put it on a bill and get it passed. That would address this issue of the lack of law. Of course, it would take time for assessments to follow and disparities will always arise, but importantly, property owners will have recourse.
Updating the tax law would keep taxes in check and would ensure residential and commercial landlords are not transferring unfair tax costs onto their tenants, putting undue pressure on business and housing.
Uniformity requirements would also create more certainty in the tax burden an owner can expect to face, and at a minimum, would ensure a fair shake. At the end of the day this reduces risk in N.B., a key consideration in any investment.
Getting the right support when needed
Despite these issues, property owners don't need to face these challenges alone. There is expert help out there.
Teams like ours provide tax appeal, consulting and advocacy services in Atlantic Canada and across the country. Another focus for our team is advocacy and reform, but we need help from other residents in N.B.
Anybody who owns, or is considering buying property here, or is doing business in N.B. should demand a fair assessment system.
We require legislative change to do this, so we encourage people to talk to their MLAs and the cabinet of N.B. to reinforce the challenges caused by the lack of uniformity requirements in our assessment legislation.
It's a simple problem that requires a basic fix, but that won't happen without raising awareness and promoting change to the Assessment Act.