Additional School Tax Exemption for Developers

A property under construction is generally exempt from Additional School Tax (AST), HOWEVER land in the development phase prior to construction is TAXED as BC Assessment state that it has “no use.”

Additional School Tax is paid on “dwelling property” as defined under Section 117.1 (1) of the School Act, amended in 2018 which clause includes land having no present use.

Does land going through the development process have “no use?” This concept was challenged at the Appeal Board (2021 PAAB BC 2021-0032), known as the Musqueam case.

BCA argued that many Court Cases had concluded that for determining “classification,” actual construction must have commenced for use to change. Thus the definition under the School Tax would be the same.

The Board considered that the interpretation in the School Tax Act of “land having no present use” is different, determining that, in principle, development sites were exempt.

The reasoning was as follows:

1. The School Act is a different act than the Assessment Act.
2. It is designed to raise revenue for school boards.
3. It must be interpreted separately as intended by Parliament.
4. Had the Government meant it to be as per the Assessment Act, it would have referenced that Act.
5. The objectives of AST were to:
  • Exempt rental properties.
  • Encourage owners to develop.
  • Discourage land bankers.
  • 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:

1. Rental use.
2. 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.
  • Property fenced.
  • DP application made.
3. Phased development.
4. Phase I of a development needed to be completed before Phase II started.

We await BC Assessment’s interpretation of the ruling and their requirements of what is needed to qualify for exemption.

Please contact us if you have any concerns about how this decision affects your property now and in the future.

Peter Austin, BSc., AACI., C.Arb.

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