Vancouver real estate: Musqueam tax dispute ends with government order

Property developers had hoped Musqueam court case would set a B.C.-wide precedent, now feel NDP has cut a deal with one developer.

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The B.C. government has granted the Musqueam Indian Band millions in tax relief on a major residential development, bringing to a close a years-long dispute that had been closely watched by other major developers because of tax implications for their properties.

But while the Musqueam case appears to have ended quietly earlier this month, it’s still unclear what, if anything, it could mean for other properties.

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With an order-in-council approved earlier this month, the province granted property tax relief on lands owned by Musqueam near the University of B.C. The relief applies both retroactively and through 2027.

The relief applies to what is known as the additional school tax, a surcharge on residential properties valued at more than $3 million. The tax was introduced in 2018 by the B.C. NDP government, and described as a levy on high-value homes intended to raise money to help address B.C.’s housing crisis.

The design of the new tax meant that it applied not only to individual homes valued at more than $3 million, but also to any residential property deemed to have “no present use.” In this case, in the first year of the tax’s implementation in B.C., it applied to a collection of properties near UBC that Musqueam owns and is developing into a multi-phase project with more than 1,000 homes, including rental and affordable housing.

Musqueam paid the regular property tax for the lands, but took issue with the additional school tax, arguing the tax should not apply, because it was developing the property. Musqueam has become a major local player in property development, both with the Nation’s own developments such as this one near UBC and with its massive joint ventures with local First Nations.

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B.C.’s Property Assessment Appeal Board, where the First Nation initially appealed, agreed. In an August 2021 ruling — thought to be the first decision on this kind of application of B.C.’s additional school tax — the board found that applying the tax on residential developments would be “contrary to the stated objective” and “counterproductive.”

The following month, the province appealed the board’s decision to the B.C. Supreme Court, and in 2023, the court ruled in the government’s favour, finding the appeal board erred in its interpretation of the school act.

Then, the First Nation sought to appeal that decision at the B.C. Court of Appeal.

Now, the province says, that application has been withdrawn.

Vancouver-based tax agent Paul Sullivan acted on Musqueam’s initial appeal to the board, along with legal counsel from Vancouver-based firm Farris LLP. But he is also acting as agent for dozens of other property developers who have residential properties under development around B.C. that had similarly been hit by the tax.

Those developers have billions of dollars worth of property under appeal, Sullivan said, and agreed on a collaborative approach with the matter, using the Musqueam appeal as a test case.

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They planned to wait for clarity from the appeal board and, if necessary, the court, he said, on whether the tax should apply to Musqueam lands — and, by extension, those other developers’ properties under development.

The order-in-council does not specify the amount of the total tax relief. But, considering the board’s 2019 decision said the properties were subject to $2.2 million of additional school tax that year, it seems likely the total amount of relief, covering several years, would be several million dollars.

An order-in-council is an order made on the recommendation of cabinet. They become public after they are signed by the lieutenant-governor, but often are not widely reported.

Postmedia News asked the B.C. Ministry of Finance what this order-in-council will mean for other property owners, and whether they could expect similar relief.

In an emailed statement, the ministry responded that the Musqueam-owned corporation that owns the land has “filed to withdraw their appeal of the B.C. Supreme Court decision. As such, the 2023 decision of the B.C. Supreme Court stands and will be available for the Property Assessment Appeal Board to consider on other cases.”

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Sullivan says the order-in-council means those other property owners will not receive the clarity they had hoped for. The 2023 Supreme Court decision found that the appeal board had erred in its interpretation of parts of the School Act, and sent the matter back to the board for reconsideration.

But the Supreme Court never ruled on whether or not the school tax should apply to these properties, Sullivan said.

“This was a collaborative industry approach on a new tax. It was a test case, everybody was behind this case. And then, behind closed doors, the NDP cut a deal,” said Sullivan, a principal at Ryan, a tax services and software provider.

The other landowners with properties under appeal feel that “the approach taken isn’t fair, because it effectively treats one taxpayer differently than another,” Sullivan said. “They want the same treatment.”

Sullivan will write to the province asking for “fairness and equity amongst all taxpayers,” he said, “and failing that, we’ll be advancing the next test case, and anticipate going all the way through to the Court of Appeal again, if necessary.”

Musqueam representatives and their lawyers did not reply to requests for comment.

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