The tax pressure stemming from municipal taxes certainly constitutes an irritant for businesses. It was recently described as “unjustified” and “unfair for SMEs” by the Canadian Federation of Independent Business (CFIB), which made the following observation:
[TRANSLATION] “(…) in 2013, for real-estate assets of equal value, Quebec SME owners pay on average 2.22 times the taxes charged to owners of residential properties”1.
In a context where the payment of municipal taxes constitutes a significant expense for SMEs, it seems appropriate to review the means and programs that are available to SMEs and may have a favourable impact on their municipal tax burden.
CONTESTATION OF THE MUNICIPAL ASSESSMENT
The property tax bill which the owner of a property must pay is the result of the following mathematical operation: the assessment of the property multiplied by the tax rate applicable to its category.
Thus, the establishment of the municipal property taxes which a business owes is based on the value of its property as determined by the municipal assessor and entered on the property assessment roll of the municipality.
The value of the property entered on the property assessment roll must be equal to its actual value, that is, “its exchange value in the free and open market”2. What can be done if the commercial or industrial property is overvalued?
Any person having an interest has recourses available for contesting the correctness, existence or absence of an entry on the property assessment roll. This recourse is exercised by filing an application for review with the municipal body which is responsible for the assessment before May 1 following the coming into force of the triennial assessment roll. Failing an agreement with the municipal assessor, the person who made the complaint may exercise a recourse before the immovable property division of the Tribunal administratif du Québec (TAQ) within the time prescribed by law.
When dealing with contestations pertaining to industrial properties, the TAQ must rule on, among other things, the taxability of some items of equipment.
In fact, the Act Respecting Municipal Taxation provides that equipment used or intended to be used for industrial production purposes is not to be entered on the roll3. In another recent decision, the TAQ ruled that silos, robots, palletizers and coating machines used for industrial production purposes must be excluded from the value of the property4. In the same way, only the electrical or mechanical systems or portion thereof which are necessary for lighting, heating, air conditioning, ventilation, drinking water supply or water evacuation for a building must be included in the municipal assessment while any other element must be excluded. Furthermore, a machine, device and their accessories intended to abate or control pollution must be excluded from the property value.
TAX CREDIT AND ASSISTANCE PROGRAMS FOR ENTERPRISES
Non-litigious solutions are also available to business seeking to lighten their municipal tax burden. They may avail themselves of tax credits and assistance to businesses under municipal programs, where available.
Since 2006, municipalities have new powers in respect of support to economic development. A municipality may grant assistance to any person that operates a private-sector enterprise already present on its territory and is the owner or occupant of an immovable other than a residence. It is to be noted that the value of the assistance that may be granted to the beneficiaries as a whole in this way may not exceed $100,000 per fiscal year5.
Municipalities may also grant assistance for relocating on their territories a commercial or industrial enterprise which is already established on their territory, the amount of such assistance being limited to the actual cost of the relocation.
Lastly, municipalities may adopt a tax credit program intended for persons that operate a private-sector enterprise for profit and cooperatives that are the owners or occupants of an industrial immovable or conduct certain types of commercial activities6.
It must be noted however that although such programs constitute an interesting tool for local economic development, not all municipalities have implemented them.
A major obstacle to the growth and development of SMEs, property taxes constitute a recurring expense which is often neglected by businesses. In a highly competitive economy, SMEs would be well-advised to more carefully review solutions for reducing this form of taxation which is unrelated to their economic performance.