Thousands of mostly suburban business owners in Calgary who were facing eye-popping increases on their municipal property tax bills in 2017 will now see assessment-related hikes limited to five per cent.

City council approved the measure Monday, at a cost of $45 million.

That's triple the amount of money the city had initially set aside for small-business tax relief last November.

The additional funds will be drawn from city reserves and many more businesses will now be automatically eligible for the tax rollbacks.

Mayor Naheed Nenshi said the program had to be expanded in order to keep it simple — while also reaching the people for whom it was initially conceived.

"Many, many more businesses are under the umbrella now," he said.

In total, the move will affect some 6,000 properties and 9,000 businesses, said Coun. Evan Woolley, who called the program a "fair and reasonable approach."

Business owners don't have to apply for the program. It will be automatically applied when the city tabulates and sends out property tax bills in May.

Nenshi said it was impossible to target small businesses only through this method, since property tax bills go to property owners, many of whom are relatively large landlords who own numerous strip malls that are home to small businesses who lease the spaces.

Property tax changes are passed along from landlord to tenant as part of most lease agreements, city assessor Nelson Karpa said, but he noted the city has no way to guarantee landlords will actually pass along the savings.

Nenshi said members of city council should use their "bully pulpit" to call out any who don't.

Uneven distribution of tax changes

In Calgary's system of taxation, individual property tax bills increase or decrease based on a how a property's assessment changes relative to the average change.

Non-residential properties, as a whole, saw an average decline of about six per cent in the city's 2017 assessment, but the changes were not evenly distributed.

Retail properties actually saw a slight increase in value, while industrial properties were roughly flat.

The office category was hardest hit, plunging by about 16 per cent — a major swing driven largely by growing vacancy rates in downtown towers.

As a result, about 1,000 businesses, mostly outside the downtown core, had been facing property tax increases of 30 per cent or more.

Earlier in January, Calgary Chamber of Commerce president and CEO Adam Legge said some larger companies could have been facing property tax increases of more than $100,000, which could have far-reaching impacts on an already beleaguered local economy.

"Not many companies have the ability to dig deep and pull that out of thin air," he said at the time. "So it means making difficult decisions like, 'Do I have to lay someone off to be able to make my tax obligations?'"

Legge was quick to praise the five-per-cent cap on Monday.

"Today is an excellent day for businesses in Calgary, because it shows a distinctly Calgarian trait — and that is finding a pragmatic solution to a very serious problem," he said.

Adam Legge Calgary Chamber

Adam Legge, president and CEO of the Calgary Chamber, speaks to reporters about the 5% cap on non-residential property taxes in 2017. (CBC)

"And while we have a solution for 2017, we still need a longer-term fix," Legge added.

"The reality is, we need to see greater tax reform. We need a model that reduces the massive swings that we're seeing this year, and balances the distribution between residential and non-residential."

Todd Schmautz with CBN Commercial Solutions, a local printing company that employs 130 people, said the cap will cut its property tax hike by more than 50 per cent.

"That is welcome news," he said.

"It allows us to contain our operating costs and continue to invest back into the business."

A 'Band-Aid solution'

The tax cap was approved by a 12-2 vote at council, with Coun. Andre Chabot and Coun. Diane Colley-Urquhart casting the "no" votes.

Colley-Urquhart said she's "fundamentally opposed" to the plan, which she described as a short-term fix and one that doesn't address more basic problems with the property tax system.

Coun. Druh Farrell also expressed reservations about the plan, saying it drains the city's reserves down to nearly the minimum recommended level — leaving little left over to address the challenges facing downtown businesses.

"This is a one-time, Band-Aid solution," she said. "It's not going to do anything to solve the root cause of a weak downtown."

"Yes, it's a Band-Aid. I won't deny that," the mayor replied. "But the thing to remember is it's a Band-Aid supporting people outside of the core because the people in the core are already seeing massive reductions in their taxes."

City council also voted in November to make a one-time draw of $22.5 million from reserves in order to effectively freeze property taxes — on the whole, not accounting for changes in individual assessments — in 2017.

City manager Jeff Fielding said it is "not sustainable" to continue drawing on the reserves in the way the city has over the past year.

There is a municipal election this fall.

The fine print

Karpa said the five-per-cent cap for businesses only applies to "market value to market value" changes in property value.

That means if your property assessment went up because of a renovation or an expansion or another non-market value related reason, that won't count toward the cap.

The cap only applies to the municipal portion of property tax bills — not the provincial portion, which pays for education — and Karpa said the five-per-cent limit is "excluding the effect of business tax consolidation."

Since 2014, the city has been phasing out the business tax by consolidating it into the non-residential property tax. It will be completely consolidated in 2019.

Unlike the non-residential property tax, which goes to the owner of a commercial building, the business tax bill goes straight to the business owner. It's determined by the typical annual rent a business in a particular area would pay for the space it occupies.

With files from Alison Dempster