Taxes!!! We all have to pay them in all their various forms - GST, PST, personal taxes, corporate taxes, property taxes, and so on. Although we cannot avoid them, it is obviously financially prudent to reduce them to the lowest level possible.

Although most companies will hire experts to reduce personal or corporate income taxes, most property owners feel that they understand property values, and can realistically review their own assessment notice when it shows up in January. Perhaps they have had a recent appraisal done, or have had some interest from a purchaser, or recently acquired the property, all of which can provide some indication of value. So when the January 31^st appeal deadline rolls around, they decline to send off an appeal.

Value……clearly this is subjective to start with, and the British Columbia Assessment Authority (BCAA) universally use much more conservative value parameters to derive assessments than are typical in the market. Therefore, in most cases, the assessments "seem" quite reasonable. This is a preferable scenario for the Assessment Authority, as it reduces the number of assessment appeals they have to handle every year. For when the property owner asks for a "consultation" on the property in question - if he dares to rock the boat - the Assessor can logically explain that the assessment is actually on the low side, and any appeal "could lead to a higher value". Based on these factors, the thought of appealing an assessment is often fleeting. In fact, when preparing an actual appraisal report for the Property Assessment Appeals Board (PAAB), it is common for the Assessor to come up with a higher "market value" than noted on the roll, although in almost all cases, they note that they are not asking for an increase, only that they want the Board to support the value on the assessment roll.

This sleight of hand has been going on for some time, and the Assessors have fought long and hard to keep equity out of the process, so that they could continue this process. However, they lost this particular fight in the Courts, and equity remains in place and continues to be a cornerstone of the judicial process in Canada.

My view of the assessment system is that it is really a hypothetical marketplace, which the assessors have created, and as such, market data means little in the scheme of things, except to muddy the waters for the property owner. Very simply, if lets say the BCAA is valuing all office buildings in downtown Vancouver based on vacancy and expense allowances of 7% each, and capitalization rates of 8.25%, what does it really matter if the market would use a 3% vacancy rate, 1% for expenses and an 8% capitalization rate. As a property owner, I should get the same conservative treatment on my property as my competitors. This was the thesis put forward in the case of Bramalea Limited (Trizec Equities Limited) and T. Eaton Company v. Assessor Of Area 9 – Vancouver Case 277¹ – continued - on page 1592-4, fourth paragraph, where it is noted that:

The above case involved a downtown hotel, but in essence notes that if all the other competitive downtown hotels are valued based on a lower than market capitalization rate, it would be inequitable to value the hotel that is the subject of the appeal at a lower rate, even if it is demonstrably accepted in the market, as it would be inequitable. In other words, simply looking at the "market value" of your property is only a small part of the assessment equation.

Based on the above, it has long been my contention that it is more applicable to complete a valuation for assessment purposes, not on market criteria, but rather upon the criteria used by the assessors to value other similar properties in the "area". I got the chance to try out my theory before the Board on a neighbourhood shopping center, which had recently sold, for a price of $3,300,000, and was assessed at $3,177,000 for 2000. The owners felt the assessment was clearly fair, at about 4% below the selling price. However, I suggested that we appeal to ensure the assessment was equitable, as in my experience the BCAA has a habit of increasing values when a property sells to just under the selling price, although the assessments of other properties in the area are left unchanged. This obviously creates inequity.

As is often the case, the BCAA appraisal for the Board found that the assessment was in fact conservative, and that the "market value" was $3,525,000, or 11% above the assessed value. This is really not that surprising, as the valuation parameters had now changed to those outlined in the following table:

Any argument based on market value would be fruitless, as the property was clearly assessed at market levels. Therefore, I did not prepare a typical appraisal at all, but rather, prepared an equity brief, and a rebuttal document, which focused on the assessor’s comparables. As is often the case, the value parameters applied to the comparables outlined in the BCAA report for assessment purposes were much more conservative than those applicable in the market transaction, and the assessments of these properties, rather than the actual market sale involved, formed the thrust of the equity argument. In the Board decision,  Einar E. Hilton vs. Assessor off Area #14 – Surrey/White Rock (Appeal No. 20014823), the Chair agreed with this argument, and came to what I would consider to be a ground breaking decision on how assessments should be argued in the future, noting that:

In view of the above, the knowledge an owner may have in regard to a property’s value is really not that germane to the assessment process. To ensure fair treatment, the appellant must go through the process of obtaining and analyzing assessment data on similar, competitive properties in the area, which may have values varying from 5% to 20% below "market value" levels. This is obviously an arduous process, and the assessors will not provide this information without a Board order, maintaining that it is confidential. As such, the Appeal Management Conference process must be undertaken to obtain the required information.

In spite of the fact that the assessment was at 4% below the sale price, and on the surface seemed quite reasonable, the Board decision based on the equity argument, resulted in a decrease in the assessment to $2,961,000, or more than 10% below the sales price.

Although equity is arguably the primary concern in most appeals, further decreases in the assessment of a property may be warranted due to excess vacancies (physical state as of October 31^st.), capital repair requirements, classification, contamination, improper sizes, etc., all of which must also be reviewed. As well, market rents must consider inducements, while buildings under construction might have much lower values than the cost in place, once again depending on equity and possible economic obsolescence if the market has experienced a downturn. Recently, we achieved a reduction through a negotiated settlement in the assessed value of the Glenayre office property in Vancouver, of close to $14 million, resulting in tax savings of just under $400,000, although the assessment did accurately reflect the cost to construct the project. However, the decline in the office market had clearly led to a high level of depreciation (functional obsolescence).

As with most things in life, the assessment process is not as simple as it first appears to be, and for assessments to be successfully appealed takes a high level of research, expertise, time and fortitude. However, the results can be well worthwhile. In fact, over the past several years I have been successful in achieving tax reductions in over 90% of the appeals I have taken to the Board level, with the refunds varying from under a thousand dollars to close to half a million dollars. It must also be stressed that after a successful appeal, the revised lower value typically forms the base for future years, and can provide for long term tax savings.

 -- John G. Parkes