Penticton to increase electrical rates for home business?

[twobits]

So if someone claims electrical costs (or property taxes for that matter) as a business expense does that expense not get deducted from their business income resulting in an income tax savings, is that person not, in essence, getting his electrical power cheaper than Joe Homeowner?

Straw argument Fluff. We all operate under Generally Accepted Accounting Principles and those deductions have always been available to business in recognition that they are an input cost of doing business. Under those same set of standards, CRA will only allow deductions that are directly attributable to business activities. So, a stand alone business will be able to deduct 100% of electricity and taxes, but a home based business will only be able to deduct a portion of those costs based on the percentage of space they use. CRA will not allow these home based businesses to deduct their total bill if part of the residence is used.....well....as a home for living in. So in essence, the City is charging home based businesses a higher rate on their power consumption but the home owner will only legally be able to claim a percentage of that bill for tax deduction purposes with CRA. Think about the fairness of that for someone that uses a basement bedroom or rec room as an office or single chair hair salon or massage room.
And just food for thought following the logic of tax deductions being a subsidy to business......since interest payments on mortgage and loan debt are also tax deductions under Generally Accepted Accounting Principles to business, should interest rates to business also be higher (as the City does with electrical and taxes) just to level the "playing field" with residential?

Think about this folks. What is the rational of charging a shoe store, restaurant, or manufacturer of widgets more for the unit of energy they use or the value of footprint of land they operate on any more that everybody else? The reality might be more akin to the reason for so many business startup failures is because they cannot survive subsidizing the larger residential portion with taxes and power. And if they do survive and make a profit despite the higher discriminatory pricing, do they not then pay income taxes to society on that profit?
Yet every time the mil rate subject about lowering business and industrial rates arises, there are a thousand letters to the editor by residential owners that do not understand they are actually the ones being subsidized by the employers in this economy and cry foul that they might actually have to pay their fair portion of what they consume or taxes on the value of what they own. Somehow, despite the failure rate of businesses because of the hurdles they face, they are some magic golden goose that should pay more to balance the household cheque book.

[seewood]

How is Penticton going to implement this and be fair? Business's are charged more as they pass on the utility cost ( cost of doing business) onto their customers. At tax time utilities are a valid deduction from gross revenues. So really, utilities are paid with before tax income not after tax income like residential utilities.

It sounds in this case if you have a business licence from the city and the address is your personal home, you are going to be charged business rates? Regardless the fact you live there and as previously mentioned, cook and live there.
If the city wants to be really fair about it, separate the power, install a separate electrical panel and meter that will quantify the power used for the said business. That is as daft a thing as this proposition. I can see this opening a whole new can of worms regarding someone deducting the whole electrical bill from their home business revenues.

Has Penticton mentioned any other jurisdiction that does this, no point re-inventing the wheel here.

[fluffy]

Straw argument Fluff.

Maybe I didn't word that quite right. Still, I'm not convinced here. This same issue comes up with a number of different faces, Air B&B's, backyard mechanics and wood shops, pretty much any sort of business that operates in a residential structure without the burden of expense that goes with traditional stand-alone businesses. Call it what you want, if I was paying for a store front downtown or a shop in the industrial area, would I be looking at cut-rate competition favourably? I certainly wouldn't, and somehow I doubt you would either.

[rustled]

How would you address the issue? A person selling Mary Kay or Tupperware from home is competing with Shoppers. Is charging her more for her household electricity really the way to level the playing field?

[fluffy]

Personally, I see it as "business is business". If you want to run your business from home that's fine, but I don't see why it should entitle you to more advantages than your competitors. The simple fact that you're not shelling out for a business property has its own monetary advantages, there's no need to quibble over what, seventeen dollars a month? If these new charges are targeting businesses specifically, then perhaps the city should consider issuing paperwork to reflect that. Call it a home business surcharge or some such that would enable a direct dollar-for-dollar tax deduction.

Some are painting this as a money grab by the city, I can't help but see the resistance to these new charges as businesses with their hands out. Home based businesses offer precious little revenue to the city as it is, most are unlikely to have employees as such, and their benefit to the local economy is only what results from the business owners having thicker wallets.

[pentona]

Home based businesses offer precious little revenue to the city as it is, most are unlikely to have employees as such, and their benefit to the local economy is only what results from the business owners having thicker wallets.

Especially when a lot of home-based businesses in Penticton are not bothering to take out business licenses. Anyone who denies their existence has their head buried in the sand. The proposed increase in rates will only drive more of them underground.

[Jhunter199]

Home based businesses offer precious little revenue to the city as it is, most are unlikely to have employees as such, and their benefit to the local economy is only what results from the business owners having thicker wallets.

A comment like that could be argued for anyone. How much revenue do you provide for the city, how much revenue do retirees provide to the city, how much revenue do low-income families provide to the city?
I think the biggest misconception here is that most assume that small business and home-based business are making huge profits year after year. The average small business relies and plans on 10% net income after everything is said and done. They compete daily against the likes of Walmart, Home Depot, and now the next standard of Amazon and Alibaba. How much does Amazon provide to this city? Small business unfortunately has to fight tooth and nail to keep costs low to continue to provide a competing cost comparable to the likes of Walmart and Amazon... Why do they have to do that? Because us as a society are obsessed with getting the best possible price no matter whom it is from. So why cant small business do the same?

[rustled]

...If these new charges are targeting businesses specifically, then perhaps the city should consider issuing paperwork to reflect that. Call it a home business surcharge or some such that would enable a direct dollar-for-dollar tax deduction.

Some are painting this as a money grab by the city, I can't help but see the resistance to these new charges as businesses with their hands out. Home based businesses offer precious little revenue to the city as it is, most are unlikely to have employees as such, and their benefit to the local economy is only what results from the business owners having thicker wallets.

No need to reinvent the wheel. They already have that paperwork in place with the home business licence, which sensibly has nothing to do with a household electrical bill.

Currently, business licences aren't scaled for part time or full time work from home, for someone making a few dollars to supplement their income or for social reasons versus someone making a good living from it. People with small side businesses already pay more relative to their profit. Changing that system may or may not be worth the paperwork.

I'd suggest, if we're going to boil everything down to dollars and cents and what makes direct revenue for the city, expecting principled people with small home businesses to choose between a legitimate licence that now costs them more than it's worth or closing their doors, we'd have a far less vibrant community.

[JagXKR]

Would not the increase in electrical rate be 100% tax deductible as a business expense as the increase is solely due to the businesses existence.? Would not any business expense be able to be put on the red side of the ledger if said expense was a result of the business? I think any competent accountant could make that case very easily.

Until I hear from an actual accountant that my supposition is actually incorrect I will assume I am correct.

Very interested in this as my retirement years may include a part time small business.

[rustled]

^^I'd think you could write the difference off, and if you gross enough it will matter to your taxes. As I understand it, writing off an expense won't usually recover 100% of expense. It simply reduces your taxable income, so you reduce the taxes you pay by a percentage of what you've paid out.

The bigger question for me is: What is the intent of this policy? (Followed closely by: Is this the best way to achieve that goal? and What are the likely consequences of using this method?)

Initially, the residential-special rate class applied to rentals (units, suites, B&Bs) but it wasn't applied evenly. Landlords being charged the higher rate could set their rental fees accordingly.

The policy suggests all home businesses are responsible for additional strain on the city's residential electrical infrastructure.

While this may be true of a business running an electric kiln, it's hardly likely a Mary Kay or Tupperware rep, or an electrician or plumber working out of a van, is responsible for more residential electrical infrastructure than someone who comes home from the office and throws in a load of laundry, cooks dinner, and spends a couple of hours in front of a screen.

[twobits]

Personally, I see it as "business is business". If you want to run your business from home that's fine, but I don't see why it should entitle you to more advantages than your competitors.

You mean like the street vendors serving food from a truck and compete with the restaurant they are parked in front of? They rent a parking stall or equivalent for the busy season and then park their "business" in their driveway until next season. No investment in the City, no tax bill. Sounds about like one step short of what Amazon is doing to brick and mortar.

As far as I am concerned, if the City wants to encourage business and industrial investment, they should quit comparing themselves to what other communities charge for business and industrial mil rates....and power rates....and set a flat rate for everyone based on assessed value.
In today's paper, was the contemplation of reversing the mil rate reduction to business and industry and bumping it up to 200% of residential! The justification was that this is what other communities were charging. I am sorry but if your goal is to promote growth, investment, and increased local employment.....why would you emulate everyone else's costs to business rather than say "come to Penticton where you pay the same rate as everyone for the power you use and taxes on the assessed value of your real estate"?

[fluffy]

You can load this up with what-if's till the cows come home if you like, I don't see it as quite so complicated. If there's a special electrical rate for businesses then it should apply to all businesses, home-based or not. The real issue here seems to me to be the applying of this higher rate to non-business residential use, which is questionable to be sure. My solution? I believe that a home based business is restricted to one hundred square feet, take the percentage of the whole house that that 100 sq.ft. represents and apply the business rate to that percentage of the power bill. Easy peasy. If you use more or less for business use then you are going to be over charged or undercharged but again, we're not talking about much money here at all. It's either that or separate metering which I doubt either the home/business owner or the city would see as practical so live with it.

[rustled]

You can load this up with what-if's till the cows come home if you like, I don't see it as quite so complicated. If there's a special electrical rate for businesses then it should apply to all businesses, home-based or not. The real issue here seems to me to be the applying of this higher rate to non-business residential use, which is questionable to be sure. My solution? I believe that a home based business is restricted to one hundred square feet, take the percentage of the whole house that that 100 sq.ft. represents and apply the business rate to that percentage of the power bill. Easy peasy. If you use more or less for business use then you are going to be over charged or undercharged but again, we're not talking about much money here at all. It's either that or separate metering which I doubt either the home/business owner or the city would see as practical so live with it.

Do you know what the business rate is? I've been trying to find a definitive answer on that.

I'd not heard of the 100 square foot rule. Perhaps it was used as an example for calculations? Bear in mind, if you're running a kiln or a welder in that 100 square feet, that's a whole different kettle of fish than keeping your Mary Kay in that 100 square feet.

Again, what is this policy trying to accomplish? Is it not more likely to make more of our small businesses, especially the smallest ones, decide against buying a business licence (which has a negative impact on assessment and planning), or against a business (which has a variety of negative impacts on community resiliency, vibrancy and disposable income).

[rustled]

...
As far as I am concerned, if the City wants to encourage business and industrial investment, they should quit comparing themselves to what other communities charge for business and industrial mil rates....and power rates....and set a flat rate for everyone based on assessed value.
In today's paper, was the contemplation of reversing the mil rate reduction to business and industry and bumping it up to 200% of residential! The justification was that this is what other communities were charging. I am sorry but if your goal is to promote growth, investment, and increased local employment.....why would you emulate everyone else's costs to business rather than say "come to Penticton where you pay the same rate as everyone for the power you use and taxes on the assessed value of your real estate"?

twobits, do you know what the business rate is, or what they are currently? I've spent a bit of time looking for a chart of rate classes in Penticton, but nothing says "business" or "industry" so I'm not sure I'm looking at the right thing, and figured you might already have the answer.

[twobits]

[
twobits, do you know what the business rate is, or what they are currently? I've spent a bit of time looking for a chart of rate classes in Penticton, but nothing says "business" or "industry" so I'm not sure I'm looking at the right thing, and figured you might already have the answer.

You can find it here under appendix 7....

http://www.penticton.ca/assets/City~Hal ... 014-07.pdf

It takes some reading to understand but what can be quickly be determined is small business pays more for power until you consume 10,000 kilowatts of power per month. Then you start to get a volume discount. All power consumed before that huge consumption amount is about 2 cents per kw higher and the rate only drops after that threshold.......not on the total. So to be fair, an extremely large user like a foundry would get a cheaper rate for electricty, 98% of Penticton businesses pay about 15% higher rates for the same energy used to just turn the damn lights on than a household does. Why? Cuz they can afford it cuz they are making a fortune trying to exist and not be the next vacant space up for rent?