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No tax relief without law change for strata hotel owners

The owner of a local strata-hotel unit, representing a group of more than 1,200 strata owners in Whistler, is fed up by the lack of progress by the provincial government in resolving a taxation issue that stems from 1994 changes to the Property Tax A

The owner of a local strata-hotel unit, representing a group of more than 1,200 strata owners in Whistler, is fed up by the lack of progress by the provincial government in resolving a taxation issue that stems from 1994 changes to the Property Tax Act.

According to Craig East, who owns and rents units in the Whistler Village Inn and Suites, people who own units in strata hotels continue to be overtaxed in comparison to Whistler’s "real" hotel properties, despite the fact that these properties are run as hotels for the majority of the time.

"They look like hotels, they certainly function like hotels, but they’re taxed like commercial properties," says East.

"What we’re trying to do is make sure all the parties know we’re interested in trying to work and find a solution. The middle ground is somewhere."

The government currently taxes real hotels based on income instead of assessed property value, because the hotels don’t change hands often enough to determine what their market value is.

Strata hotels are taxed based on their property values, which are easier to determine as they are bought and sold regularly on the open market.

The problem is that the assessor applies the same mil-rate at $19.53 (dollar value out of $100 assessed value) to both real hotels and strata hotels, while strata rooms are valued higher. As a result, room for room, strata owners are paying higher taxes.

In addition, within the strata hotel class East believes you can break down the value into closely held stratas, where one or more companies own the majority of the units and run them like hotel rooms, and widely held stratas, where there are many owners. The strata hotels with few owners don’t see rooms trade hands as often as strata hotels with several owners, and their rates are also lower as a result.

Furthermore, there are several properties acting as hotels that fall under the Class 1 assessment for residential properties, rather than Class 6 for Commercial properties, and are therefore assessed at a residential mil-rate that is around $7.

As a result Class 1 widely-held stratas, Class 6 closely held stratas and Class 6 real hotels all have lower average per-unit taxes than properties within Class 6 widely-held properties.

East acknowledges that it’s a complex issue, and that the province is wary of changing a law that could result in existing properties and developers changing their status in order to pay lower taxes.

He believes there are two possible solutions to the issue. The first is to create a subclass within Class 6 that applies equally to all strata hotel properties, even those currently listed as Class 1, and apply a separate mil-rate of $12 or $13. East believes this will level the playing field between the different types of strata hotels, and between strata hotels and real hotels.

The second solution is to modify the Tourist Accommodation Act to permit a higher exemption for Whistler strata hotel properties that would be linked to the municipality.

While this would limit any solution to Whistler, the same issue is becoming a problem for investors in other strata hotels that are popping up in Vancouver and other resort destinations.

"While the disaster first appeared in Whistler, strata hotels are becoming more popular in Vancouver. It’s having a big snowball-coming-down-the-mountain effect, so the province should really look for a solution for the whole province," says East.

The Resort Municipality of Whistler has been involved with the issue since the beginning, and according to municipal revenue manager Jennifer Beresford, it’s been an uphill battle.

"There are only so many things we can do to initiate change because the Assessment Act which determines how hotels are valued and classified is in provincial legislation – it’s not something that’s under the municipality’s control.

"The legislation was really written before there was a lot of stratified development, and an adjustment is required to reflect the way developers currently construct and finance stratified business accommodations such as hotels. It creates problems for everybody involved."

The municipality will continue to work with the province toward a solution, but doesn’t see the need for a separate category.

"There are a number of different ways this could be solved," Beresford said. "It could mean allowing the legislation to stay as it is but changing the definition and being more specific in what constitutes a hotel and what constitutes a residential property. The issue is really getting some clarity in the classification of properties and making sure it’s fair and equitable to everyone."

The municipality is also wary of one solution that would result in lower taxes for certain types commercial businesses because the municipality would have to make that revenue up from somewhere else. As a result a solution wouldn’t involve a reduction in taxes, but a harmonization of taxes by applying the legislation equally.

"The question comes down to who pays the rest of the property taxes," says Beresford. "It’s pretty hard to go back to the residents of Whistler that already have an incredible affordability problem that we are struggling to try and find solutions to, a lot of them working for average wages, and say ‘sorry, you have to pay more because commercial hoteliers want their taxes reduced’."