Several years ago the NDP government introduced a wealth tax whereby residential properties over the value of $3,000,000 were to receive additional municipal taxation. It was leveled under the School Tax Act and thus named “additional school tax”. It applied to “dwelling property” which means the following class 1 property:
(a) land that is outside the agricultural land reserve and that is determined by the assessor to have no present use;
(b) improvements on land that is not class 1 property if the improvements are used or intended to be used as a residence;
(c) land and improvements on the land, if
- any of the improvements are used or intended to be used as a residence for 3 or fewer families, and
- the improvements do not consist of a strata lot;
(d) land and improvements that consist of a strata lot that is used or intended to be used as a residence,
Under this definition, land that is in the development stage but is vacant is subject to this taxation. Property tax agents have been challenging PCA’s interpretation which which comes from
a case known as Intracorp heard by the BC Court of Appeal. (Assessor of Area No. 10 – Burnaby/New Westminster v. Intracorp Developments Ltd., 2000 BCCA 121) A property is considered to have residential use when construction has commenced on the site. Hence they state that any vacant land is liable for AST.under (a) above.
Developers need to prove that the property has a use. By expanding the definition in Intracorp to include land in the development stage, it becomes residential. So now we have residential land but no improvements so how is it classified?
( c ) can be interpreted to mean that a property intended to be an apartment building with more than 3 units is exempt ONCE a residential use is established AND part of an improvement exists.
So if a property under development is not residential land, what does it become? BCA say it is now class 6 as this is the catchall for anything that does not fall within a designated class.
This analysis suggests that it is not worth continuing an appeal unless some physical work has started.
SITES UNDER CONSTRUCTION
BCA is adamant that construction must have commenced on the site itself in order to be exempt from AST. This stems from their conclusion that improvements relate solely to work on the site. In many cases it is necessary to do preconstruction work, which is often required by the municipality before a foundation permit is given.
It is necessary to substantiate that the site has a residential use and that work for the site constitutes improvements. Initially this would mean challenging the Intracorp decision.
As legislation doesn’t strictly define “no present use”, its application can vary — and whether land qualifies may depend on the amount of development activity, commitments, or context of the land.
In the Intracorp case, the decision in paragraph 29 states that the “degree of commitment” may be inferred from a number of factors examined in the context of the development as a whole, including but not limited to
- various legal instruments attached or applicable to the land and/or proposed buildings (zoning requirements restrictive covenants, building permits, purchase and sale agreements etc.);
- relevant features of the actual construction, with the acknowledgement that it may be difficult to discern anything meaningful at early stages of construction.
In dealing with (2) the judge went on to say that although the construction itself may often be the most persuasive indication of commitment it may not be the determining factor in every instance. This is particularly evident in the early stages of construction. For example, there may be something about the site preparation that establishes that the owner has embarked upon a specific residential project. In the absence of any compelling indication to the contrary, the likely conclusion is that the land is being used for residential purpose.
The judge added that the reverse does not necessarily follow: it may be that the site clearing and demolition leave open a number of optional uses. The issue is really one of whether the owner has dedicated the land to a particular use and has actually started construction. This, as stated, is evaluated by reference to the factors that the judge discussed above. The definition of the start of construction is open to debate in our opinion.
In Bosa Development Corporation v. Assessor of Area #12 – Coquitlam (1996) Stated Case 362 BCCA , Justice Lambert said he would put the test as: whether the owner had made a binding commitment to future occupation of a building on the land as living quarters. This sometimes is referred to as “point of no return”.
Assessor of Area #10 – Burnaby/New Westminster v. Reemark XIII Developments Ltd. and Fairmont Dev. Inc. (Ricelda Holdings) (1992) Stated Case 329 BCSC established that actual physical construction must commence before the property’s classification can transition to residential. So is off site work based upon a Municipal agreement physical construction.
That said if a site is zoned residential and some form of construction has started then one should conclude that to be being compelling in regard to commencement of use.Once use is commenced then it should be exempt from AST
An initial challenge to Intracorp was commenced in( 2021 PAAB BC 2021-0032), known as the Musqueam case. The objectives of AST were to:
- Exempt rental properties;
- Encourage owners to develop;
- Discourage land bankers; and
- Bring stability to the market.
The Board concluded that its application on residential property developments, particularly rental housing, is contrary to the intent of the Act. Such developments should NOT be subject to AST.
The Board indicated that its decision was guided by:
- Rental use
- Significant steps taken in the process of development such as:
- development/construction agreements in place;
- rezoning application made;
- financing in place;
- soft costs incurred;
- offsite costs incurred;
- site clearance completed;
- property fenced; and
- development permit application made.
- Phased development.
- Phase I of a development needed to be completed before Phase II started.
So the question could be whether the developer has expended enough time effort and money on a project to reach that stage.
Several of the factors mentioned above are not included in various cases relating to assessment law, specifically rental use. In our opinion, the purpose of the act could be relevant in determining whether a property is “in use”. Hence a signed S 219 Housing agreement commits the owner to residential use.
This case was dropped as the Band was granted exemption.
Please note I am an appraiser and not a lawyer.