Monday , July 26 2021

Varcoe: $ 10,000 a month – great tax bite faces restaurant Calgary



Ontario businessman Farhan Abbas decided to look west a few years ago and set up a number of Popeyes Louisiana Kitchen restaurants in Calgary.

The recession has contributed to a messy business environment. But the chief executive of PLK Holding Inc. wanted to capitalize on lower construction costs and create a bridgehead in the city.

He opened eight stores in the area, creating about 300 jobs.

Abbas has plans to expand even bigger but high property taxes in Calgary – including more than $ 113,000 a year to just one location on 17th Avenue S.W. – he's wondering what's in the store below.

"It's literally $ 10,000 a month. It's unimaginable. A single place, selling fried chicken, have to pay $ 10,000 in property taxes? ", He said in an interview.

"They're going to drive me out of town and eventually this is going to hurt the city."

Homeowners and businesses in Calgary now receive annual property valuation warnings, providing a market value that is used to calculate municipal property taxes.

Mandated by provincial legislation, the process must be revenue neutral, which means it does not generate additional cash for civic coffers. This helps determine who pays and pays for their participation in municipal taxes.

With more than one in four empty office buildings, the well-documented problems of downtown Calgary are creating turmoil for companies outside the core that need to increase the load.

A bigger change is occurring this year because nearly a third – or $ 7.3 billion – of the total value of the Calgary office buildings disappeared last year.

The fall means that a larger load is falling on other non-residential real estate owners, particularly retail and industrial out-of-core businesses.

If the council does not take action in the coming weeks to limit increases, 8,000 commercial real estate owners – or 64% of all non-residential accounts – will face double digit increases in 2019.

And 1,316 nonresidential homeowners will have increases of 30% or more due to the revaluation.

"That's no surprise. But it's certainly a difficult turning point for Calgary, "said Coun. Druh Farrell, which represents part of the city center.

The city hall is meeting with business groups to seek solutions. The council discussed the introduction of reserve funds to limit tax increases by 10%. (In the previous two years, city councilors have limited increases by five percent).

Farrell said that Calgary has relied on an expanding city center for years to cover a large portion of the global tax bill, but those days are over.

"We have no choice but to dive into our fiscal stability reserves" to limit tax increases this year, Farrell said.

Entrepreneurs like Abbas say they can not see tax rates going up significantly without affecting their future.

"Over the next five years, our plan was to build 21 restaurants in Calgary and out (the city), but at the moment, it depends on how 2019 will happen," he added.

Michael Evans, president of Atlas Development Corp., the owner of the 17th-century building housing Popeyes, said he is seeing similar problems in other parts of the city.

In three years, the value of 17th Avenue property jumped from $ 3.5 million to $ 6.9 million.

Darren Makowichuk / Postmedia

Evans believes that the city must deal with the tax burden instead of simply pushing it all over to other companies.

He notes that the 17th Avenue property, which used to house a Wendy restaurant, had an estimated $ 3.5 million in 2016 and an annual property tax of $ 55,000.

By the time Popeyes opened at the same place last summer, the assessment stood at almost $ 6 million.

The property tax bill last year was over $ 113,000.

For 2019, the assessed value rose to $ 6.9 million. Another tax increase is on the way.

Evans said the city assessed the value of the property based on its highest possible use – as if it contained a skyscraper condo – and tenants are facing a huge tax bite.

"All that's going to do is dig down 17th Avenue to the southwest and empty Fourth Street. They are killing, simply killing businesses, "he said.

"Calgary is a hostile business."

According to a study released last year by real estate research firm Altus Group, commercial property owners in Calgary pay civic taxes about three times more than a similarly-owned residential property.

Evans said the city should be transferring more tax burden to homeowners, something the council will start to do this year and significantly reduce the city's spending.

Kay Gupta, co-owner of Cetus Automotive Repair Centers, expects businesses in northeastern Calgary to see a double-digit increase in property tax this year based on a higher valuation.

Calgary needs to be careful that businesses are not driven out by rising taxes, making the burden even heavier for those who remain.

"If they eliminate the rest of the entrepreneurs or make it harder, ultimately Calgary will not be able to recover," she warned.

Maureen Macdonald, whose company CMS Real Estate owns seven properties in the city, saw the 54% appraisal of the building she relied on last year.

However, the property saw no changes in the tenants nor had any updates.

"I am recommending to all building owners that I know to appeal their property taxes, just to the point of sending a message to the city hall," she said Monday.

"This is not just a downtown problem, it's all over town."

The Board is expected to make a final decision on the ceiling after receiving a management report reviewing its options.

Coun. Shane Keating notes that the city has gradually eliminated the Calgary business tax and has consolidated it into the commercial property tax system, one of the reasons companies are paying higher taxes on property.

But like Farrell, it favors some limit on the maximum increase that companies will see in 2019 due to reevaluation.

"We finished for two years and maybe we could close it for another year," he said. "We can not limit this every year because eventually something has to happen."

For business operators like Abbas and Evans, 2019 may be the year that something gives – your patience with a growing tax burden in Calgary.

Chris Varcoe is a columnist for the Calgary Herald.

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