Penticton city council is considering a new property tax distribution policy. File photo

Penticton city council reviewing tax rate policy

Rising residential property prices causing tax imbalance

If a new property tax distribution policy is approved by council, Penticton will see the business tax multiplier rise to 1.68, up from the current 1.58.

But under the revenue-neutral approach of the new policy, residential and non-residential classes would see an equal 3.44 per cent tax increase.

The tax multiplier determines how much of the tax burden falls on homeowners, versus how much businesses shoulder. The variable tax system was introduced in 1984, giving city councils the authority, and responsibility, for setting a different tax rate for each class of property.

Consultant Gary Jackson said the idea under the new system is that everybody’s taxes are moved at the same percentage.

“It keeps everybody on the same level, he said.

Related: Penticton growth reflected in 2018 budget

Chief financial officer Jim Bauer explained the past method of setting the multiplier and working backwards to calculate the tax rate worked well in a stable property market, but not as well under current market conditions.

“It served the city well in the past but because residential property values are increasing so much quicker than other classes, such as business, the unintended consequence is that it is shifting the tax burden more onto the residents,” said Bauer.

“It becomes very hard for us to explain why, when council approved a 3.44 per cent increase, an individual residence’s increase is higher.”

If the city continued with the status quo 1.58 multiplier, he explained, it would shift about two per cent more of the tax burden to residential.

“We are currently sitting at about 74 per cent of our taxes being collected from residents. If we didn’t make this change, it would actually move it up to about 76 per cent,” said Bauer.

His figures show that the current system would result in residential properties getting a 3.89 per cent increase, while businesses would see a 2.52 per cent reduction.

The new model prevents a further increase of the tax burden being put onto residents.

“This is the most equitable approach for both businesses and residents,” said Bauer. “It is going to result in a little bit of an increase in the multiplier, it is going to move up to 1.68, but when we compare ourselves to other municipalities in the valley and then the provincial average, we’re still very competitive.

“Our business taxes still remain some of the lowest in the valley and provincially.”

According to Bauer’s comparisons, Vernon has the highest business tax multiplier in the valley, and about 3.75 per cent, close to the provincial average. The Canadian Federation of Independent Business recommends no higher than a factor of two times.

Council passed the new policy without opposition.

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