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Social enterprises targeted for tax by City of Victoria
Angela Hudson has been down this stressful road before.
In 2006, she appeared before Victoria city council to argue against cutting tax breaks for charitable thrift stores, like the one she oversees as executive director of the Society of Saint Vincent de Paul.
“This will directly affect the services to the downtown people,” Hudson told elected officials, in a speech memorialized on YouTube.
She won her case back then.
But now, six years later, the same cut has found its way onto council’s agenda.
“Oh no – not again!” Hudson said upon hearing the news through the grapevine.
She is now preparing for another presentation to council – her organization faces a prospective $30,000 tax bill.
“To charge us property taxes means even less food goes to our food bank,” she said.
The City of Victoria is overhauling its property-tax exemption policy. The goal is twofold: cap spending and update eligibility criteria to make it more fair. For years, the city has denied most new applicants, while doing little to ensure groups re-applying for existing exemptions still meet the mandate of the city’s policy.
Up for review are several changes, which include eliminating grandfathered exemptions for older organizations, and restricting new applicants to registered charities only.
Tax breaks for social enterprises are also proposed for the chopping block.
Specifically, council has given initial approval to end tax exemptions on the portion of a property owned by a not-for-profit organization whose principle use is commercial. This likely includes thrift stores, the YM/YWCA, the Cornerstone Cafe run by the Fernwood Energy Resource Group, and church-owned pay parking lots.
The principle is this: ensure municipal support is not used for activities that compete with private business.
So far, Victoria’s manager of revenue, Christopher Paine, has identified five organizations that fall into that category. But more could be discovered, such as non-profits that lease some or all of their property.
“If they are principally using that property to receive rental income, then they would not be exempt,” Paine said.
How to define the ‘principle use’ of a property, however, could prove challenging. In many cases, a social enterprise helps to fund charitable work both on and off site.
Saint Vincent de Paul’s thrift store on Yates Street represents a perfect example of this ambiguity.
“Half of the goods we have on our floor are provided at no cost,” Hudson said.
Clients in need can come in and select clothes and have items put on hold, in exchange for a voucher. It means the store loses money, she said.
The YM/YWCA on Broughton Street could pose a similar conundrum.
“I don’t know how you draw that line (between commercial and charitable work) inside a facility like the Y,” said Bruce Carter, CEO of the Greater Victoria Chamber of Commerce.
Some social enterprises compete with private business, while others likely don’t, he said. “The coffee shop probably does … (and therefore) needs to be taxed as a coffee shop.”
Carter is clear that cuts need to be made to meet the city’s budget pressures. But he qualified his position: “I think you need to be very careful looking at the coffee shop in isolation from the broader activities the not-for-profit does.”
Change, he said, needs to be evolutionary, not revolutionary.
Big changes ahead for non-profits
City council is floating many ideas as it looks to make sweeping changes to its tax-exemption policies. The city will soon begin consultations with affected stakeholders about motions passed last week.
Council made several preliminary decisions about where tax breaks should be reigned in and where they should be preserved. If passed in a final vote come January, here’s how the policy will look, in a nutshell:
• Not-for-profit not enough: The city will only approve new tax breaks for registered charities. This excludes non-profit organizations – a significant change in direction for the city.
Mayor Dean Fortin suggested the change. Measuring whether a non-profit meets the criteria for a tax break eats up a lot of staff time, he said. By restricting applicants to registered charities, the paperwork will be done by the federal government instead, he added.
• Goodbye grandpa: Twenty-one long-running organizations in Victoria will lose their special tax status and start paying the same as all newer applicants in their property class. The end of grandfathering provisions is expected to generate $216,637 for the city.
The extra revenue could be a long time coming, however. While Coun. Ben Isitt urged councillors to implement the change as soon as possible, Coun. Chris Coleman’s amendment to implement a 10-year phase-in period won majority support. The most-affected organizations (exemption listed) are: YM/YWCA of Victoria ($42,607), St. Andrew’s School ($36,345), Gov. Council Salvation Army ($25,331), Victoria Curling Club ( $24,868) and Glenlyon-Norfolk School Society ($18,413).
• Neediness irrelevant: You don’t have to be on the verge on financial ruin to merit a tax break. Officially, the City of Victoria has financial need as a criteria on its books, but in practice, the vague measurement of need is never assessed when offering tax relief.
Isitt again fell into the minority, arguing that organizations that can pay, should pay. Fortin countered by asking where the net benefit is to the city of taxing a non-profit, even if it can afford to pay more without shutting down. That tax money would be cut from the services they offer, he said.
• Eternal sunshine: Despite a policy stating that exempt organizations "must be seen to be working toward self-sufficiency," this day will likely never come. Council was split on the issue of whether tax breaks should have a sunset clause. Coun. Marianne Alto hesitantly floated a "hideously controversial" idea to limit tax exemptions to a 10-year period. It speaks to council's desire to support organizations without encouraging reliance on tax breaks, she said. Again Fortin opposed any new limits to tax breaks. He said, simply: "My goal isn’t self-sufficiency. They do work and we support them." His view won majority support.
• No money trees here: For the first time, tax exemptions will be subject to a firm cap. Tax exemptions will be set at 1.6 per cent of the city's general revenue. The cap is in line with the value of current exemptions, so would not cause any changes in the short term. But it could affect the amount organizations receive over time, especially if the city grows its list of tax-exemption recipients.
At a glance: 2012 Permissive tax exemptions for properties deemed by the city to be commercial activities.
Municipal property tax: $85,252.82
Other property taxes: $59,059.54
Total : $144,312.36
• St. Vincent de Paul thrift store:
Municipal Property Tax: $17,873.85
Other property Taxes $12,389.85
• Cornerstone Cafe
Municipal property tax: $3,739
Other property tax: $2,606