Property Assessment and Classification Review
Final Report
Fall 2002
Submitted To: The Honourable Janet Ecker Minister of Finance
Submitted By: Marcel Beaubien, MPP Lambton-Kent-Middlesex Special Advisor to the Minister of Finance
LEGISLATIVE ASSEMBLY MARCEL BEAUBIEN, MPP Lambton-Kent-Middlesex Room 115, Legislative Building Queen’s Park Toronto ON M7A 1A8 Phone (416) 325-1209 Fax (416) 325-1198
Fall 2002
The Honourable Janet Ecker Minister of Finance 7th Floor, Frost Building South 7 Queen’s Park Crescent Toronto ON M7A 1Y7
Dear Minister Ecker:
I am pleased to submit, for your review and consideration, my final report on the property assessment and classification system in Ontario.
During the course of this review, I received extensive input from a variety of stakeholders, including individual taxpayers, municipalities, business and industry associations, professional associations, and the Municipal Property Assessment Corporation. I also received feedback from my constituents and from my colleagues in all parties of the Legislature.
I would like to convey my sincere thanks to all of the people who took their time and effort to write letters, prepare submissions, and make presentations to me during the consultations. This review presented me with a challenging task, but it was made much easier by the detailed and thoughtful submissions that were presented by stakeholders.
The views and information that were brought forward during this review provided valuable insights into a broad array of property assessment and taxation issues. In the attached report, I have endeavoured to address all of the issues that were raised during the consultation process. I believe these recommendations support the government’s goal of establishing a property tax system that is fair, understandable, and accountable to both taxpayers and municipalities.
Consultation projects of this nature provide an important opportunity for the government to hear the concerns and ideas of stakeholders first-hand, and to work jointly with taxpayers and municipal partners towards improving provincial programs, policies, and legislative design. It has been a privilege for me to lead the property assessment review project on behalf of the government.
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I would like to thank you in advance for your consideration of the recommendations contained in the attached report. I would be pleased to discuss these issues with you in further detail at your convenience.
Sincerely,
Marcel Beaubien, MPP Lambton-Kent-Middlesex Property Assessment and Classification Review
TABLE OF CONTENTS
Topic Page
Introduction ...... 1
Guiding Principles ...... 3
Issues and Recommendations: Access to Assessment Information ...... 6 Accreditation of Assessors ...... 8 Advisory Committees ...... 8 Appeals ...... 10 < Appeal Following Request for Reconsideration ...... 10 < Upper-Tier Appeal Rights ...... 11 Banks ...... 11 Cables ...... 12 Camps ...... 14 Car Dealerships ...... 15 Conservation Land ...... 16 < Assessment of Mixed-Use Properties ...... 16 < Eligible Property ...... 17 Economic Development Incentive Tools ...... 17 Environmental Protection ...... 18 Exempt Landlords with Taxable Tenants ...... 19 Farms ...... 21 < Application Process ...... 21 < Assessment Methodology ...... 22 < Farm Buildings ...... 23 < Government-Owned Farmland ...... 26 < Mixed-Use Properties ...... 27 < Name of Classes ...... 28 < Tax Rates ...... 29 Float Homes ...... 31 Funeral Services ...... 31 Gravel Pits ...... 32 Hotels ...... 33 < Assessment Methodology ...... 33 < Suite Hotels ...... 34 Industrial Property Class ...... 36 Large Industrial Property Class ...... 39 Life Lease Buildings ...... 39 Managed Forests ...... 40 < Assessment Methodology (Banding) ...... 40 < Assessment of Mixed-Use Properties ...... 41 < Eligible Property ...... 42 < Oversight and Administration ...... 42 Property Assessment and Classification Review
Topic Page
Multi-Residential Property Class ...... 44 < Future Elimination of the Class ...... 44 < Short-Term Recommendations ...... 46 ~ Rooming Houses ...... 46 ~ Retirement Homes ...... 46 ~ Co-Operative Buildings ...... 47 ~ Vacant Multi-Residential Land ...... 48 ~ Land Lease Communities ...... 48 ~ Thresholds ...... 49 Non-Profit Organizations ...... 50 Office Building and Shopping Centre Classes ...... 52 Parking Lot and Vacant Land Class ...... 53 < Rates and Ratios ...... 53 < Sub-Classes ...... 54 Pipelines ...... 55 Race Tracks and Golf Courses ...... 57 Railways ...... 58 < Railway Corridors (Rights-of-Way) ...... 58 < Railyards ...... 60 Recreational Complex ...... 61 Residential Condominiums ...... 62 Schools (For-Profit) ...... 62 Self-Storage Facilities ...... 64 Shopping Malls ...... 65 Small Business Properties ...... 66 Trailers ...... 69 Wells ...... 71
Issues for Future Consideration: Cap on Tax Increases ...... 72 Crown Land ...... 73
Appendices: A: Terms of Reference ...... 74 B: Summary of Recommendations ...... 76 C: List of Stakeholders ...... 89 Property Assessment and Classification Review
INTRODUCTION
On December 12, 2000, the former Minister of Finance, the Honourable Ernie Eves, commissioned a review of the property assessment process. The mandate for this project included a review of the following aspects of the assessment system:
C the operational structure of the Ontario Property Assessment Corporation (OPAC); C the relationship between OPAC and the provincial government; and C the regulation defining property classifications (Ontario Regulation 282/98).
A three-month mandate was provided for this review. During this period of time, it was not possible to address the broad spectrum of assessment and tax policy issues that were raised by stakeholders with respect to O. Reg. 282/98. Therefore, the review concentrated on the operational structure of the assessment corporation and the relationship of that corporation with the provincial government. A report on this review was delivered to the former Minister of Finance, the Honourable James Flaherty, on April 2, 2001.
Upon analysis of the recommendations contained in the report of April 2, 2001, the Government identified a need to enhance the accountability and customer service capacity of OPAC. To meet these objectives, the Government announced the following changes in the 2001 Ontario Budget:
C restructure the Board of Directors of the assessment corporation to include five taxpayer representatives along with eight municipal representatives and two provincial representatives to ensure that the interests of the full spectrum of the corporation’s clients and stakeholders are represented on the board;
C require the appointment of a Quality Service Commissioner to ensure that a consistent level of customer service standards are met by the corporation;
C eliminate the ability of municipalities to opt out of the assessment corporation and conduct their own assessments to ensure that consistent assessment practices continue to be followed province-wide; and
C change the name of the corporation to the Municipal Property Assessment Corporation (MPAC) to better reflect the organization’s status as a municipal corporation.
In addition to the changes that were made to the governance structure of the assessment corporation, the Government has implemented the following measures stemming from the recommendations contained in the report of April 2, 2001:
C The eligibility period of the new multi-residential property class has been extended from eight years to thirty- five years to provide a greater incentive for the development of new affordable rental housing.
C Municipalities have been given the ability to provide property tax reductions to heritage properties.
C Assessment appeal filing fees that are paid to the Assessment Review Board (ARB) are refunded if an appellant settles its dispute through the reconsideration process without proceeding to a hearing at the ARB.
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Recognizing that there was insufficient time during the initial three-month mandate to tackle the broad array of assessment, classification and tax policy issues that were raised by stakeholders, the former Minister of Finance, the Honourable James Flaherty, extended the mandate for this review, as announced on July 18, 2001. This public consultation and review process was extended to provide an opportunity for all of the issues raised by stakeholders to be fully canvassed.
The mandate that was provided for the second phase of this review included the following issues:
C the number, scope and definition of the property classes and sub-classes; C the assessment methodology applied to unique properties; and C the linkages between assessment classifications and related public policy objectives of the Government of Ontario.
The enclosed report contains a discussion and recommendations on the issues that were brought forward by stakeholders during the second phase of the review, and it also includes issues raised during the first phase of the review which were not addressed in the report of the Special Advisor dated April 2, 2001.
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GUIDING PRINCIPLES
As a prelude to the discussion of the issues that were raised by stakeholders during the review, this report commences with a brief reflection upon the overall structure of the property assessment and classification system and it identifies the principles that guided this review.
Goals of Property Tax Reform
When the government undertook to reform the assessment and property tax system in 1998, it sought to achieve the following goals:
C to create a property tax system that is fair, understandable and accountable to taxpayers;
C to establish an assessment base that is consistent province-wide and that is based on up-to-date property values;
C to provide businesses with a level playing field upon which to compete;
C to provide municipalities with more autonomy to make tax policy decisions that affect their communities and more flexibility to respond to local priorities;
C to facilitate a manageable transition from the old system to the new system.
Since 1998, the government has made significant progress towards achieving these objectives.
The property assessment and classification review that was led by this author was conducted with the aim of further advancing the above-noted goals.
Current Value Assessment
Current value assessment (CVA) is the foundation of Ontario’s property tax system.
The government has maintained the position that current market value is the most appropriate basis on which to tax properties. The market value approach is followed in most North American jurisdictions. As well, various studies that were commissioned over the years to examine alternative ways of imposing property taxes concluded that current market value assessment is the fairest approach to property taxation.
It is the opinion of this author that property taxes in Ontario should continue to be based on current value assessment. It is also this author’s opinion that exceptions to CVA are appropriate in limited circumstances; namely, for unique properties where equity or practicality render CVA an inappropriate basis for taxation. (Examples of such exceptions are noted in the attached report.)
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Property Classification System
When CVA was implemented in 1998, a new property classification system was introduced in Ontario. There are seven standard classes, six optional classes, and three sub-classes, as follows:
Standard Classes Optional Classes Sub-Classes residential / farm new multi-residential vacant land multi-residential office building excess land commercial shopping centre farmland awaiting development industrial parking lots & vacant land pipeline large industrial farmlands professional sports facility managed forest
The classes and sub-classes are defined in Ontario Regulation 282/98, a regulation made under the Assessment Act.
The purpose of the property classes is to allow municipalities to set different tax rates for the different categories of properties. As such, the classification system provides municipalities with flexibility to respond to local priorities. The purpose of the sub-classes is to provide tax reductions (property in a sub-class is taxed at a fixed percentage rate below the tax rate of the main class).
While municipalities have the ability to set different tax rates for the different classes, they must do so within parameters defined by the Province. In 1998, when the classes were introduced, the Province established target ranges of tax ratios referred to as “ranges of fairness”. The ranges of fairness represent the ultimate destination point for the municipal tax levels of each property class. The following ranges of fairness have been prescribed by the Province:
Standard Classes Optional Classes Multi-Residential 1.0 to 1.1 New Multi-Residential 1.0 to 1.1 Commercial 0.6 to 1.1 Office Building 0.6 to 1.1 Industrial 0.6 to 1.1 Shopping Centre 0.6 to 1.1 Pipeline 0.6 to 0.7 Parking Lots and Vacant Land 0.6 to 1.1 Professional Sports Facility 0.001 to 1.1 Large Industrial 0.6 to 1.1
The ranges of fairness are expressed as tax ratios in relation to the tax rate of the residential property class. For example, the long-term goal is to bring the municipal tax rate of the commercial property class down to 0.6 to 1.1 times the residential tax rate.
In keeping with the provincial goals of simplifying the property tax system and moving the tax rates of the various property classes closer together, it is the opinion of this author that the government should refrain from creating additional property classes and sub-classes. The creation of new tax classifications would increase the disparities between the tax levels of different properties and it would add further complexity to the system.
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Retroactivity
Municipalities establish tax rates at the beginning of each calendar year by determining their budgetary needs for that year and calculating the tax rate which must be applied to the assessment base in order to yield the required revenue. This calculation is made on the basis of the assessed values and property classifications shown on the assessment roll that is delivered to municipalities in December of the prior year. The assessment appeal deadline is March 31st of the tax year, therefore municipalities can ascertain their potential appeal losses in the first quarter of the year prior to finalizing their tax rates.
If any changes are made to provincial policies, legislation or regulations after the delivery of the assessment roll for the tax year, it is difficult for municipalities to respond. If tax rates have already been set when the policy change is made, municipalities may not be able to recover tax revenue losses that result from the policy change.
Therefore, if the government takes action on any of the recommendations contained in the attached report, it is the recommendation of this author that legislative and regulatory changes should not be made on a retroactive basis, except in the case of amendments that are made to clarify current policy in order to preserve the status quo.
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ISSUES AND RECOMMENDATIONS
The following segment of the report contains recommendations on the issues that were raised during the second phase of the property assessment and classification review as well as issues raised during the first phase of the review which were not addressed in the report of the Special Advisor dated April 2, 2001.
ACCESS TO ASSESSMENT INFORMATION
The Municipal Property Assessment Corporation (MPAC) issued new policy guidelines in April 2002 governing the release of assessment information. The policy guideline document, which is entitled “Guidelines for the Release of Assessment Data (GRAD)”, sets out the type of information that MPAC will release to property owners, tenants, municipalities and other government entities, and it lists the associated charges.
The stated principles underlying the GRAD policies include the following:
C every property owner has the right to obtain access to the factual information about his/her property that is maintained by MPAC, and this information should be provided free of charge; C assessment information should be released to the public in a manner that meets the needs of the client, protects the privacy of personal information, and preserves the proprietary interests of MPAC; C information shall not be released if the release would violate the requirements of provincial legislation.
The type of information that is provided under the GRAD policy includes such items as property specifications (e.g. legal description and square footage), appraisal cards and tally sheets, fair market rent studies, gross rent multipliers, land studies, and maps.
During the consultations, several taxpayers and industry associations expressed a desire for MPAC to be required to provide the public with more comprehensive assessment information than that which is currently made available under the GRAD policy. In particular, taxpayers expressed a keen interest in having access to information about the methodologies, policies and processes that are applied by MPAC in the valuation of properties.
It was suggested that property owners would be more accepting of their property assessments if they understood the basis upon which the assessments were derived. However, in the absence of receiving such an explanation, many owners feel compelled to appeal their assessments in order to obtain information about the methodology and the criteria that were used to value their properties.
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Recommendation:
º It is recommended that MPAC and the Ministry of Finance work together to ensure that there is an open exchange of information between MPAC and the public.
It is recommended that this matter be overseen by the Ministry of Finance / MPAC Joint Committee, which is in the best position to review the gamut of information in MPAC’s possession and to evaluate the legal constraints confronting MPAC with respect to the confidentiality and proprietary nature of the information.
º It is recommended that the Joint Committee review MPAC’s current policies governing the release of assessment information to determine whether the policies sufficiently respond to the needs of municipalities and the public, and that the Joint Committee report to the Minister of Finance within six months to advise whether MPAC should provide expanded access to information about assessment methodologies, policies and procedures.
º It is recommended that the following principles guide the Joint Committee in its deliberations on this matter:
< Property owners should be provided with sufficient information to enable them to understand the basis upon which their property assessments are derived. In order for taxpayers and municipalities to have confidence in the assessment system, they need to have a basic level of understanding about how the system operates.
< It is vital that MPAC safeguard the personal information that it collects as part of its statutory duties. As we move further into the age of electronic information, it is critical to ensure that the privacy rights of our citizens are protected.
Discussion:
It is noted that MPAC has the authority to charge taxpayers and municipalities a fee for assessment products and services that are provided outside the mandatory statutory duties performed by the corporation.
It is recognized that cost recovery and revenue generation are appropriate activities for an organization such as MPAC, provided that the fees and charges are approved by the Board of Directors.
It is important to strike a balance between the need for taxpayers to be provided with open access to information about their own assessments, the right of MPAC to recover its costs and generate revenue, and the right of MPAC to maintain a proprietary interest in its products.
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ACCREDITATION OF ASSESSORS
It was proposed during the consultations that persons who work as property assessors in Ontario should have to meet minimum educational requirements and should have to be accredited through a professional body such as the Institute of Municipal Assessors (IMA) or the Appraisal Institute of Canada.
Recommendation:
º It is recommended that standard education or accreditation requirements not be imposed by the Province upon persons working as property assessors.
Discussion:
It is well recognized that professional associations, such as the IMA, do important work in promoting the continuing education of property assessors and enhancing the respect and profile of this profession. However, it is believed that MPAC is in the best position to determine its requirements in terms of the educational background of its staff. MPAC has demonstrated its commitment to hiring the most qualified personnel to perform the assessment function.
ADVISORY COMMITTEES
Many positive comments were expressed by stakeholders during this review about the satisfaction they felt in having the opportunity to convey their concerns directly to a provincial government representative. Feedback was particularly positive about the multi-party meetings which were convened to facilitate dialogue among stakeholders and to encourage stakeholders to reach a consensus position that satisfies all parties.
The open dialogue that occurred during this review provided a valuable opportunity for taxpayers, municipalities and the province to address issues in a meaningful and productive way.
Many stakeholders requested a permanent forum in which assessment and property tax issues could be discussed on a collaborative basis with representatives of the provincial government, municipalities, taxpayers, and MPAC. Such a forum would enable the provincial and municipal governments to work together with taxpayers to identify emerging issues and to propose solutions.
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Recommendation:
º It is recommended that the Ministry of Finance / MPAC Joint Committee serve as an ongoing venue in which stakeholder groups can bring forward assessment and property tax issues that are causing concern within their particular sectors.
º It is recommended that the Joint Committee take the initiative to inform stakeholders of the opportunity to make submissions and engage in discussion with provincial government and MPAC representatives through this Committee.
Discussion:
It is important to maintain an ongoing dialogue on property assessment and taxation issues among the Province, taxpayers, municipalities and MPAC. As a permanent body, the Ministry of Finance / MPAC Joint Committee is an ideal forum in which to conduct this dialogue. This venue should allow all parties to work together to identify emerging problems and propose solutions.
The Joint Committee was recently restructured to include representation from the office of the Minister of Finance, the MPAC Board of Directors, and senior staff from both organizations.
In order for this process to be meaningful, it will be important for the Committee to be proactive in inviting stakeholders to make presentations to the Committee on a regular basis.
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Notes: ÷ In an interim report to the former Minister of Finance dated December 5, 2001, a recommendation was made to establish a series of advisory committees which would serve as a forum for discussing assessment and property tax issues that affect various sectors. It was proposed that these committees be led by the Ministry of Finance with the participation of MPAC. ÷ In view of the recent restructuring of the Ministry of Finance / MPAC Joint Committee, it is believed that this Committee is an appropriate forum for the discussion of stakeholders’ concerns. It is preferable to maximize the role of this existing body rather than creating new committees.
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APPEALS
Two issues relating to the appeal process were raised by stakeholders during the consultations.
Appeal following Request for Reconsideration
The deadline for submitting assessment appeals to the Assessment Review Board (ARB) is March 31st of each taxation year. This date is legislated under the Assessment Act and it is consistent for all properties province-wide.
As an alternative to appealing an assessment to the ARB (for which there is a charge to help offset the Board’s administrative costs), property owners have the option of following the less formal procedure of requesting a reconsideration of their assessment from MPAC (for which there is no charge). The deadline to submit a request for reconsideration is December 31st of each taxation year.
Quite frequently, property owners will submit a request for reconsideration to MPAC early in the year, and if MPAC is unable to respond to the request before the March 31st appeal deadline, the owners will submit a protective appeal to the ARB to maintain their appeal rights in case they are not satisfied with MPAC’s response to their request for reconsideration. In the event that the reconsideration process does lead to a settlement, the property owner may obtain a refund of their appeal filing fee from the ARB.
It was suggested during the consultations that instead of having a process in place which encourages property owners to file protective appeals (which may turn out to be unnecessary and which impose an administrative burden on the ARB who has to process extra appeals and issue fee refunds), it would be preferable to have a floating appeal deadline. Specifically, it was proposed that where a property owner submits a request for reconsideration to MPAC, the appeal deadline for that property owner should be a certain number of days (e.g. 90 days) following the date that MPAC issues its response to the request for reconsideration.
Recommendation:
º It is recommended that the deadline to appeal assessments to the ARB remain consistent for all property owners at March 31st of the taxation year.
Discussion:
While it is recognized that a floating appeal deadline could reduce the number of protective appeals that are filed each year and may ease the administrative burden of the ARB, it is believed that it is important for municipalities to have the certainty of knowing the number of properties under appeal early in the tax year. The paramount interest is for municipalities to have adequate information during the first quarter of the tax year to enable them to quantify their potential tax exposure prior to finalizing budgets and setting tax rates.
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Upper-Tier Appeal Rights
It was pointed out during the review that lower-tier and single-tier municipalities have the right to appeal property assessments, but upper-tier municipalities do not possess this right.
Although the Assessment Act states that “any person, including a municipality” may appeal the assessment of another person’s property, the Act defines “municipality” as meaning “a city, town, village or township”. This definition excludes upper-tier municipalities.
A request was made during the consultations for appeal rights to be conferred upon upper-tier municipalities.
Recommendation:
º It is recommended that appeal powers not be conferred upon upper-tier municipalities.
Discussion:
Under the present structure of the property tax system, local municipalities (that is, lower-tier and single-tier municipalities) are the administrators of the tax system. They are responsible for billing, collecting, and enforcing the payment of property taxes.
Local municipalities are also given the right to initiate property assessment appeals. This right is complementary to the fact that local municipalities are statutory parties to every assessment appeal which is initiated by other persons in respect of property located within their boundaries. Under section 40 of the Assessment Act, the parties to every assessment appeal are the appellant, the owner of the property whose assessment is being appealed (if this is a someone other than the appellant), MPAC, and the local municipality.
It seems appropriate that only one level of municipal government should be given the responsibility for appealing assessments and for defending appeals in respect of properties located within their borders. Giving appeal rights to upper-tier municipalities would introduce unnecessary duplication into the appeal system.
BANKS
A concern was expressed during the consultations about the assessment methodology applied to stand-alone bank branches. The view was expressed that these properties should be assessed using the same methodology that is applied to other physically-similar properties. A particular concern was expressed about the application of the cost approach to valuing bank branches when other similar properties are generally assessed using the sales or income approaches to value.
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Recommendation:
º It is recommended that the Province not prescribe an assessment methodology to be used in the assessment of stand-alone bank branches.
Discussion:
As a general principle, it is agreed that similar properties should be assessed in a similar manner. However, it is believed that MPAC is in the best position to determine which assessment methodology is the most appropriate to apply in the circumstances of different types of properties.
CABLES
Telecommunication cables are part of a group of properties commonly referred to as linear properties. The term “linear” is used to describe properties that are long and expansive in nature, such as cables, hydro lines, railway corridors, and pipelines. Each of the linear properties will be addressed separately in this report.
Cables and telecommunication lines are not assessable property under the current provisions of the Assessment Act. While the cables themselves are not assessable, questions have been raised about the assessability of the property on which the cables are located. In particular, questions have been raised about the appropriate assessment and tax treatment of railway corridors and pipelines that are leased to telecommunication companies for the running of cables and fibre-optic lines.
Railway corridors (also referred to as “rights-of-way”) are taxed at fixed rates per acre based on prescribed municipal and education tax rates pursuant to section 368.3 of the Municipal Act. (This regime will be discussed in more detail below, under the heading “Railways”.) Portions of railway corridors that have been leased to telecommunication companies for the placement of cables have been treated by MPAC as part of the rail corridor and have not been assessed (they simply form part of the acreage that is subject to the prescribed tax rates for railway rights-of-way).
Pipelines that are used for oil and gas transmission are assessed at rates prescribed by the Minister of Finance. However, pipelines that are abandoned are currently not subject to property assessment or taxation pursuant to section 25(8) of the Assessment Act. MPAC treats pipelines as being abandoned if they are not used for the transmission of oil and gas. When pipelines are used for the placement of telecommunication cable lines, they have been treated as abandoned and have not been assessed by MPAC.
During the consultations, the municipal sector expressed the view that pipelines and railway corridors that are leased out for other uses, such as the placement of cable and telecommunication lines, should be subject to assessment and taxation.
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Recommendation:
º The imposition of property tax on cables and telecommunication lines is not recommended at this time.
However, the following considerations are noted:
< The nature of the telecommunications industry has changed dramatically in recent years. Part of this change is due to the move from wire-based to wireless technology. Any tax that may be considered in the future on the property of telecommunication companies should be applied in such a way as to recognize the evolving technologies and to treat wireless and wire-based operations in an even-handed fashion.
< It is recommended that any discussions about the taxation of the telecommunication industry should involve the federal government, notably the Canadian Radio-Television and Telecommunications Commission (CRTC).
º With respect to railway and pipeline properties that are leased to telecommunication companies for the placement of cables and fibre-optic lines, the following recommendations are being made:
< As a general rule, portions of railway corridors which are leased by the owner to another entity and are used for a purpose other than rail transportation should be subject to assessment and taxation.
< As a general rule, pipelines which are leased by the owner to another entity and are used for a purpose other than the transmission of oil or gas should not be treated as abandoned and should be subject to assessment and taxation.
< It is recommended that railway corridors and pipelines that are leased by the owner to another entity for purposes unrelated to the business of the owner should be assessed on an income basis. It is further recommended that rates of assessment and taxation on pipelines and railway corridors in these situations be developed by the Ministry of Finance in consultation with MPAC and the affected property owners to ensure the rates are fair and appropriate.
Discussion:
The recommendation to make railway corridors and pipelines subject to assessment and taxation when they are leased to other entities is consistent with the policy intent expressed in existing legislation.
(continued on next page)
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In the case of railway corridors, the fixed tax rates per acre were premised on the assumption that the corridors would be used for railway transportation purposes only. In fact, the governing legislation states that the prescribed property tax rates for railway corridors shall be applied to the “right-of-way of a railway company ... not including land leased by the railway company to another person for rent or other valuable consideration” [Municipal Act, section 368.3(1) para. 1]. If the railway company leases out a portion of the right-of-way to another entity, for the placement of telecommunication cables or for any other purpose, it is believed that this property should be assessed and taxed.
In the case of pipelines, the exemption from taxation for abandoned pipelines was intended to apply to pipelines which are not being used for any purpose and which are not generating revenue for the owner. If the owner has granted a right to another entity (through a lease or other form of agreement) to use the pipeline in exchange for rent or other valuable consideration, it is believed that this pipeline property should be assessed and taxed.
These policies are consistent with the treatment accorded to vacant commercial and industrial land. When land is unused, it is taxed at a reduced rate in recognition of the lack of economic activity on the land. When land is used or occupied, it becomes subject to taxation at the full commercial or industrial rate in recognition of the economic activity and revenue generation activity on the property.
CAMPS
Properties which are used for childrens’ summer camps have not been treated consistently across the province. As a general practice, MPAC has included camps owned by non-profit entities in the residential class, while camps owned by for-profit entities have been included in the commercial class.
Ontario Regulation 282/98 does not specify how summer camps should be treated, but it does stipulate that “land used for residential purposes on a seasonal basis, including campgrounds” shall be included in the residential class. The Assessment Review Board recently issued a decision in which it held that a summer camp meets the criteria of being used for residential purposes on a seasonal basis and therefore it belongs in the residential property class.
During the consultations, it was proposed that all childrens’ summer camps, regardless of the nature of the property’s ownership, should be included in the residential class.
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Recommendation:
º It is recommended that children’s recreational camps which are used on a seasonal basis be included in the residential class.
º It is recommended that facilities which operate for business purposes on a year- round basis and offer camp programs on a seasonal basis be included in the commercial class.
º Camp properties which are eligible for exemption from taxation under section 3 of the Assessment Act or under private legislation should retain their exempt status.
CAR DEALERSHIPS
Requests were brought forward during the consultations for changes to the method of assessing car dealerships and for changes to the classification of car dealership lots.
With respect to the assessment methodology, it was suggested that certain aspects of the current methodology for assessing car dealerships are not equitable in relation to properties with similar uses and similar construction. Specifically, it is believed that the depreciation rates and local modifiers that are applied to the cost valuation of car dealership buildings are yielding assessed values that are too high.
With respect to classification, it was proposed that a special property class be created for car dealerships to facilitate the taxation of these properties at a lower rate. It is felt that car dealerships should be taxed at a lower rate because they are unique in that they require a greater expanse of land than most other types of businesses to hold their inventory and conduct their business operations.
Recommendation:
º It is recommended that the Province not prescribe special rules for the assessment of car dealerships, and it is recommended that a special property class not be created for car dealerships. These properties should remain in the commercial class.
Discussion:
Car dealerships, like other business properties, are protected by the annual 5% limit on CVA-related tax increases which the government implemented for the protection of commercial, industrial and multi-residential properties province-wide.
With respect to assessment methodology, it is believed that MPAC is in the best position to determine the factors and modifiers to apply to the valuation of buildings.
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CONSERVATION LAND
To promote the preservation of Ontario’s natural landscape for the benefit of the environment and for the enjoyment of future generations, the Province exempts eligible conservation lands from property taxation. To be eligible for this tax exemption, a property must fall within one of the following categories, as prescribed in Ontario Regulation 282/98:
< provincially significant wetland as identified by the Minister of Natural Resources; < provincially significant area of natural and scientific interest as identified by the Minister of Natural Resources; < habitats of endangered species as identified by the Minister of Natural Resources; < land that is designated as an escarpment natural area in the Niagara Escarpment Plan under the Niagara Escarpment Planning and Development Act.
To remain eligible for this exemption, property owners must submit an annual application and must agree to allow representatives of the Ministry of Natural Resources to inspect their land to ensure that no activities are taking place on the property that are inconsistent with its status as conservation land.
During the consultations, two issues related to conservation land were raised by stakeholders: assessment of conservation land on mixed-use properties, and expansion of eligibility criteria.
Assessment of Mixed-Use Properties
During the consultations, concern was expressed with MPAC’s method of apportioning the assessed value of mixed- use properties into different classes. It is felt that the current apportionment methodology is minimizing the value of conservation land and therefore diminishing the tax benefit for owners of conservation land. It was suggested that a higher value should be assigned to the conservation land portion which is exempt from taxation, and a lower value should be assigned to the non-conservation land portion of the property which is subject to taxation.
Recommendation:
º It is recommended that the Province not prescribe an apportionment methodology to be used in the assessment of conservation land on mixed-use parcels.
Discussion:
It is believed that MPAC is in the best position to determine the appropriate methodology by which to apportion the assessment of a property into different classes based on the different uses of each portion of the property.
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Eligible Property
Prior to these consultations, a proposal was made by the Ministry of Natural Resources (MNR) for the categories of conservation land properties that are eligible for exemption from taxation to be expanded to include twenty-one additional types of properties. This proposal was posted by MNR on the Environmental Bill of Rights web site for comment. Subsequently, the proposal was revised to seven (rather than twenty-one) new categories of exempt conservation land properties. The revised proposal was posted by MNR on the Environmental Bill of Rights web site for comment, with the deadline for interested parties to submit comments to MNR expiring on May 3, 2002.
Recommendation:
º In deference to the consultation process that is being led by the Ministry of Natural Resources in this matter, a recommendation concerning an expansion of the categories of properties that are eligible for exemption from property taxation is not being made at this time.
ECONOMIC DEVELOPMENT INCENTIVE TOOLS
Over the years, numerous requests have been made for the Province to give municipalities the ability to provide tax incentives to business owners to encourage new construction and new business development. These requests were reiterated by stakeholders during this review.
Many jurisdictions, including the United States, have been successful in spurring economic development by offering various tax incentives through programs commonly referred to as “enterprise zones”.
The enterprise zone tool can take on many forms and it can involve a variety of financial incentives and social programs. One feature that consistently plays a prominent role in enterprise zones is the authority for municipalities to provide property tax relief.
Stakeholders indicated an eagerness to see similar initiatives implemented in Ontario.
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Recommendation:
º It is recommended that zones be created in which property tax incentives (reductions or exemptions) could be provided to businesses that construct new buildings or expand existing facilities.
º It is recommended that the Province establish minimum eligibility criteria, and that municipalities be permitted to add additional criteria. The following minimum eligibility criteria are proposed for consideration:
C the tax reduction or exemption should only apply to new assessment created by construction or renovation (ensuring municipalities do not lose existing revenue); C there should be a maximum period of tax relief (e.g. 20 years); C a minimum investment should be required (expressed as a dollar amount or percentage assessment increase, e.g. minimum $50,000 of new assessment); C a minimum number of new jobs should be created with an average wage that is at or above the average wage in the area; C the rate of unemployment in the zone should be at or above the regional rate.
~~~~ Notes: ÷ This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001. ÷ In the Speech from the Throne on May 9, 2002, it was announced that the Government plans to introduce legislation to create tax incentive zones to encourage businesses to locate and invest in rural and northern communities. ÷ In the Ontario Budget Speech on June 17, 2002, the Minister of Finance announced that the Government plans to consult with the private sector and municipalities about the development of legislation to establish tax incentive zones in Ontario.
ENVIRONMENTAL PROTECTION
Many industries are required to install pollution control equipment to ensure that the environment is protected from hazardous substances which are created as a by-product of their ongoing operations. There are also some industries that are required to alter the physical landscape of their property or to install special equipment to provide long-term protection to the environment in respect of inactive operations. For example:
C Mining companies are required to ensure that there is no hazardous run-off from mine tailing sites. (Mine tailings are the rock fragments that remain after minerals have been extracted from the ground during mining operations.) Mine tailing sites are often covered with water and turned into ponds with special underground cleaning equipment to ensure the environment is kept safe after the mining company has left the site.
C Similarly, hazardous waste sites and non-hazardous landfill sites are often surrounded by perimeter sheet piling to maintain the integrity of the area surrounding the site.
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During the consultations, questions arose as to the appropriate assessment and tax treatment of sites, structures and facilities whose sole purpose is to protect the environment. In many cases, the pollution control features constitute machinery and equipment which are already exempt from taxation under section 3 of the Assessment Act. However, the appropriate treatment has been less clear in cases involving the alteration of the physical landscape.
Recommendation:
º It is recommended that features of a property which are designed for environmental protection or pollution control not be subject to additional assessment.
For example, as noted in the report of the Special Advisor to the Minister of Finance dated April 2, 2001, it is recommended that mine tailing sites continue to be treated as vacant land with no added value for things like retaining walls and purification equipment. It is recommended that mine tailing sites continue to be assessed as land and not deemed to be structures or storage facilities.
Discussion:
This recommendation is premised on the belief that businesses should not be penalized for adding features to a property that are designed to safeguard the integrity of surrounding lands and the safety of nearby residents.
~~~~ Notes: ÷ This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001. ÷ A specific recommendation on mine tailing sites was made to the former Minister of Finance in the report of the Special Advisor dated April 2, 2001.
EXEMPT LANDLORDS WITH TAXABLE TENANTS
The Assessment Act contains a list of different categories of properties that are exempt from property taxation. As a precondition to most of these exemptions, a property must be used exclusively by the entity named in the Act or used exclusively for the purpose named in the Act.
Many property owners whose buildings are exempt from taxation have entered into arrangements to allow non-exempt entities to occupy all or part of their premises. For example:
C churches often allow day care centres to operate on their premises (typically, the day care centre will occupy a wing of the building during the week, and that same portion of the building will be used by the Church for religious school instruction on weekends); C hospitals and universities often allow food establishments to operate on their premises (these establishments range from a coffee cart to a full cafeteria).
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As a general rule, if all or part of an exempt property is used by someone other than the exempt entity named in the Assessment Act or is used for a purpose other than the eligible exempt activity named in the Act, that portion of the property will be subject to taxation.
During the consultations, several stakeholders expressed frustration that tenanted portions of exempt buildings are not being assessed.
Recommendation:
º It is recommended that the Province not take action to require MPAC to assess all occupants of exempt properties.
Discussion:
Investigation of this issue revealed that many business entities which are located in exempt buildings are not assessable because they are not considered, by law, to be the occupier of the premises. In order to be assessable as a tenant of exempt property, an entity must have an agreement with the landlord that confers upon the entity certain rights of occupation such as exclusivity and control over the premises.
A lease agreement which creates a traditional landlord/tenant relationship will usually create a legal environment that results in the tenant being assessable and subject to taxation. However, it is quite common for the owners of exempt buildings to grant occupants something less than full tenancy rights. Frequently, businesses will be operating in exempt premises pursuant to a licence agreement or a management agreement, and these types of agreements do not usually convey the degree of control over the premises that is required for the law to view someone as an assessable occupant.
In situations where municipalities believe that MPAC has failed to assess a taxable tenant of an exempt property, it is recommended that the municipality contact the local assessment office to inquire into the reason for the occupier not being assessed. Such direct inquiries would assist MPAC in locating assessable businesses that might have been inadvertently missed in exempt properties (in which case, a correction could be made through the omitted assessment notice process), and it will assist municipalities by enhancing their understanding of the different arrangements which do not create assessable occupancies.
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FARMS
Representatives from the farming community and the municipal sector raised a variety of farm-related issues during this review. To provide a forum in which these issues could be addressed in a comprehensive and inclusive manner, a working group was convened with representatives from five farm associations, the Municipal Property Assessment Corporation, and the Ministry of Agriculture and Food. In addition to the working group format, submissions on farm- related issues were received from municipalities and property owners during one-on-one meetings and through correspondence. The discussion below incorporates the issues that were raised from all sources during this review.
Application Process
In order for a farm property to be included in the farmlands property class, the farmer must submit an application to the Ministry of Agriculture and Food by the prescribed deadline prior to the tax year. The deadlines prescribed in O. Reg. 282/98 range from April 30 to June 30, depending upon the region in which a farm is located.
This application process was put in place for two reasons:
C to establish a provincial review process to ensure that properties which are benefitting from a reduced tax rate are being used for bona fide farming purposes; and
C to identify eligible properties prior to the preparation of the assessment roll to enable the appropriate tax class to be reflected on the final roll.
While it serves an important purpose, the application requirement has generated several operational concerns, including the following:
C When a farmer purchases land and begins farming activity on the property after the application deadline has passed for that year, the farmer is not eligible for inclusion in the farmlands property class and cannot benefit from a reduced tax rate for that year, even if the farmer meets all of the criteria for inclusion in the farmlands property class.
C If a property owner is unaware of the requirement to submit an application for the farm tax classification or forgets to submit the application by the prescribed deadline, the farmer will not be eligible for inclusion in the farmlands property class and cannot benefit from a reduced tax rate for that year, even if the farmer meets all of the criteria for inclusion in the farmlands property class.
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Recommendation:
º It is recommended that a requirement to submit applications for inclusion in the farm property class be maintained.
The application process is an important accountability measure to ensure that persons who are benefitting from the preferential farmland property class tax rate are conducting bona fide farming operations. The Ministry of Agriculture and Food is the most appropriate entity to receive and review these applications to ensure compliance with the prescribed eligibility criteria from an objective perspective.
º With respect to the application deadline, it is recommended that there be a single common date prior to the tax year that applies province-wide rather than the current system of different application deadlines in different municipalities.
º To provide the flexibility to respond to situations where the application deadline is missed due to mitigating circumstances, it is recommended that the Ministry of Agriculture and Food be authorized to accept and process applications that are submitted up to December 31st of the taxation year. (A December 31st deadline would provide some consistency to taxpayers as it coincides with the deadline for submitting Requests for Reconsideration under section 39.1 of the Assessment Act.)
Applications that are submitted and processed prior to the prescribed deadline could be reflected on the assessment roll for the year. For applications that are received after the delivery of the assessment roll, it would be necessary to ensure that MPAC is authorized to issue supplementary notices of assessment to change the classification of eligible properties.
~~~~
Note:These recommendations were made to the Minister of Finance in a letter from the Special Advisor dated June 6, 2002, as part of the pre-budget consultation process.
Assessment Methodology
The Assessment Act stipulates that farm properties must be assessed based on farmer-to-farmer sales, not based on the value of speculative sales to developers or to other non-farmers.
Some members of the farming community came forward during the consultations to express their concern that current assessment practices do not truly exclude sales to non-farmers. This is a particular concern in urban shadow areas (that is, in areas that are in close proximity to major urban centres in which land commands a high sale price).
As an alternative to the current assessment methodology based on farmland sale prices, some members of the farming community advocated the adoption of a productive-use approach to farm valuation based on the output of farms.
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More specifically, it was proposed that crop yields be used to measure the productive capacity of farm lands across the province, and that these measures be used as the basis for assessing farm properties.
Recommendation:
º It is recommended that changes not be made to the method of assessing farm land at this time. It is believed that MPAC’s current assessment methodology - which takes into account such variables as soil quality, drainage, mineral composition, and climate zones - does reflect the productive capacity of farm land.
In making this recommendation, regard is given to the underlying premise of the assessment system which is to establish the value of real estate, not to establish the value of a business activity based on the number of units sold each year.
º It is recommended that MPAC develop a test to isolate farm lands within urban shadows to ensure that their assessed values are not higher than the assessment rate per acre for similar lands outside the urban shadow area.
For example, a 20 km radius around major urban centres could be deemed as the shadow area. The assessed value of farm land within this area should not exceed the assessment rate per acre for similar quality lands within a defined radius outside the area.
º It is recommended that MPAC develop a farm assessment education and training program to address the concerns of the farming community that farmer-to-farmer sale prices do not reflect the productive capacity of farm lands. ~~~~
Note:These recommendations were made to the Minister of Finance in a letter from the Special Advisor dated June 6, 2002, as part of the pre-budget consultation process.
Farm Buildings
A complex series of issues was raised in connection with the assessment and tax treatment of buildings that are used for farm-related activities.
Although many people think of farming as the growing and harvesting of crops or the raising of livestock and poultry, there are many additional activities that occur prior to the delivery of farm products to the consumer.
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The spectrum of activities that occur in conjunction with farming were grouped, for the sake of this discussion, into the following categories:
C “primary agricultural production” - this term is used to refer to the first and most fundamental stage of agricultural production involving such activities as growing and harvesting crops, and breeding and raising livestock and poultry;
C “value-retention activities” - this term is used to refer to activities which move a step beyond primary agricultural production to perform some processing of the farm product without changing the nature of the product and which are necessary to preserve farm products for market (for example, cleaning, sorting, and storage);
C “value-added activities” - this term is used to refer to activities which utilize farm products to create a new product, such as turning apples into apple pies, and this phrase is also used to refer to the retail sale of farm products.
Since 1998, land used for primary agricultural production has generally been assessed and taxed at farm rates, while properties used for value-added activities have generally been assessed and taxed at commercial or industrial rates. Properties used for value-retention activities have been treated inconsistently, depending upon whether the activities are conducted on the same parcel of land as primary agricultural production, depending upon the ownership of the property, and depending upon the assessor’s interpretation of the nature of the activity.
The current lack of consistency in the treatment of farm activities is largely a result of a lack of clarity in the governing legislation. Under the Assessment Act, property that can be characterized as “farm land or buildings used only for farm purposes” is assessed at farm rates. However, the Act does not define “farm purposes”. Therefore, it is left to the discretion of the assessor to decide whether a particular activity is for farm purposes or whether it goes beyond farm purposes to the point of being “producing or processing anything” within the meaning of the definition of the industrial property class.
Prior to the reforms of 1998, properties in most regions were assessed and classified based on their predominant use, even if there was more than one activity on the property. Under the current system, where portions of a property are used for different activities, assessors must apportion the total assessment of the property among the various classes according to the distinct uses on the property. The new approach is more equitable because it taxes properties according to their actual use; however, it has led to the need for assessors to categorize the different activities that take place on farms.
The overriding message that was conveyed during the consultations is that the farming community and municipalities would like to see clarity, consistency and equity brought to the property tax treatment of farm operations. There also appears to be a particular sentiment that family farms are an integral part of our agri-food sector and they must be supported to ensure that Ontario residents continue to receive high quality food at reasonable and affordable prices.
In order to achieve clarity and consistency, it is necessary to establish rules that will have province-wide application. In doing so, it is recognized that some farmers may experience tax changes (increases or decreases). Such changes are inevitable if the ultimate goals of equity and consistency are to be achieved.
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Recommendation:
The following recommendations are made with respect to the classification of farm buildings and related facilities:
Activities conducted ON the farm property
º Activities which can be characterized as “primary agricultural production”, and which are carried out on the farm property, should be included in the farm property class.
The phrase “primary agricultural production” is being used to refer to the first and most fundamental stage of the agricultural process which includes such activities as growing and harvesting crops, and breeding and raising livestock.
The Minister of Finance should define this category of activity in regulation in consultation with the Ministry of Agriculture and Food.
º Activities which can be characterized as “value-retention activities”, and which are carried out on the farm property, should be included in the residential property class.
The phrase “value-retention activities” is being used to refer to activities which move a step beyond primary agricultural production to perform some processing of the farm product without changing the nature of the product, and which are necessary to preserve or prepare farm products for market.
The Minister of Finance should define this category of activity in regulation in consultation with the Ministry of Agriculture and Food.
º Activities which can be characterized as “value-added activities”, which are carried out on the farm property, should be assessed at commercial or industrial rates and included in the commercial or industrial property class (based on the activity).
The phrase “value-added activities” is being used to refer to activities which utilize farm products to create a new product, and this phrase is also used to refer to the retail sale of farm products and equipment.
Such activities could attract commercial or industrial classification. For example, a store located on a farm that sells produce grown on the farm would be included in the commercial class, and a manufacturing facility that produces wine from grapes grown on the farm would be included in the industrial class.
º To maintain the commitment that was made by the Province in the 1997 Ontario Budget, it is recommended that the land underneath value-added buildings on farm properties be assessed at farmland rates (while the buildings would be assessed at commercial or industrial rates). (continued on next page)
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Activities conducted OFF the farm property
º Activities which can be characterized as “value-retention activities” and which are conducted off farm property should be included in the commercial property class.
º Activities which can be characterized as “value-added activities” and which are conducted off farm property should be included in the commercial or industrial property class (based on the activity).
º Grain elevators located off farm property should be included in the commercial property class, not the industrial class.
º Storage facilities which are located off farm property, and which are owned and operated by farmers and are used exclusively for the storage of produce grown on the farmers’ own lands, should be included in the residential property class.
Storage facilities which are located off farm property, and which are owned or operated by persons other than farmers storing their own produce, should be included in the commercial property class.
< Storage is a unique situation because many farmers were encouraged some years ago by the Ministry of Agriculture to jointly purchase off-site storage facilities to take advantage of economies of scale rather than having excess storage capacity on their individual farms (this is particularly prevalent in the case of apple farmers).
Government-Owned Farmland
Prior to 1998, under the former farm tax rebate program, eligible farmers received rebates of 75% of the taxes that were levied on their farm properties.
Government-owned farmlands were not eligible for the farm tax rebate. The rationale for excluding government- owned properties from the farm tax rebate program was rooted in a belief that a government entity should not be providing rebates to another government entity.
In 1998, when the farmlands property class tax reduction program was created to replace the farm tax rebate program, the eligibility criteria from the rebate program were carried forward into the new property class system. Therefore, government-owned farmlands are not presently eligible for inclusion in the farmlands property class.
Recognizing that government-owned farmland is frequently leased to tenants who undertake their own farming operations on the land and who pay the applicable property taxes, it is widely felt that the exclusion of government- owned land from the farmlands property class creates an unjustifiable inequity in the treatment between farmers renting privately-owned land and farmers renting government-owned land.
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Recommendation:
º To provide fair and consistent treatment to all members of the farming community, it is recommended that government-owned farmlands which are occupied by tenant farmers be eligible for inclusion in the farmlands property class.
~~~~ Notes: ÷ This recommendation was made to the Minister of Finance in a letter from the Special Advisor dated June 6, 2002, as part of the pre-budget consultation process . ÷ In the Ontario Budget on June 17, 2002, the Minister of Finance announced that the Government plans to make government-owned farms, which are occupied by tenant farmers, eligible for inclusion in the farmlands property class.
Mixed-Use Properties
As a general rule under the current assessment system, if a property has more than one use (for example, a commercial retail store on the ground floor with a residential unit on the second floor), the assessment of the property will be apportioned into different classes on the assessment roll with the value attributable to each activity being placed in a different property class according to its use.
This rule is stipulated in section 14(5) of the Assessment Act which states:
If portions of a property are in different classes of real property, the assessment corporation shall determine the share of the value attributable to each class and assess the property according to the proportion each share constitutes of the total value and include each proportion on the assessment roll.
Submissions that were made during the consultations indicated that the general apportionment rule for mixed use properties as set out in section 14(5) of the Assessment Act is not always being applied to farm properties. For example, if there is a 200-acre parcel of which five acres in one corner is used for a commercial purpose (e.g. a retail store) and the balance of the parcel is farmed, the prevailing current practice is to include the five-acre commercial portion in the commercial property class, and to include the balance of the property in the commercial excess land sub-class, with none of the property being included in the farmlands class.
It appears that the treatment of mixed-use properties with farming activity in a manner different than the general apportionment rules that are applied to other types of properties is resulting from an ambiguity in Ontario Regulation 282/98.
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Recommendation:
º It is recommended that O. Reg. 282/98 be amended to clarify that the portions of mixed-use properties that are used for bona fide farming activity should not be included in the excess land sub-class, but rather, should be included in the property class which most appropriately reflects the circumstances on the property.
Farming activity could attract different classifications depending on the circumstances of the specific property. The farmed portion of a property may be included in the farmlands class, the residential class, or one of the farmland awaiting development sub-classes.
Discussion:
The requirement that the assessed value of mixed-use properties be apportioned among different tax classes based on their use was premised on the policy objective of promoting fairness for taxpayers. In keeping with that objective, it is recommended that properties with multiple uses, one of which is farming, be treated in the same manner as other properties with multiple uses.
~~~~
Note:This recommendation was made to the Minister of Finance in a letter from the Special Advisor dated June 6, 2002, as part of the pre-budget consultation process.
Name of Classes
Properties with farming activity may be included in a variety of different property classes and sub-classes depending on the nature of their ownership, the type of activity that is being conducted, and the development status of the property.
Farm activities may be included in one or more of the following classes:
C Farmlands Property Class (includes farm properties which meet the criteria prescribed in sections 8 and 8.1 of Ontario Regulation 282/98);
C Residential/Farm Property Class (includes farm properties which do not meet all of the eligibility criteria prescribed in sections 8 and 8.1 of O. Reg. 282/98);
C Farmland Awaiting Development Sub-Class (applies to farmed properties on which a plan of subdivision has been registered);
C Commercial Property Class (applies to commercial operations taking place on a farm property, such as retail stores selling farm produce);
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C Industrial Property Class (applies to manufacturing and processing operations taking place on a farm, such as making and bottling apple juice).
While most of the class names are self-explanatory, confusion has been expressed about the “residential/farm property class” and the “farmlands property class”.
The use of the phrase “residential/farm” class on assessment notices leads many farm property owners to believe that their home will be taxed at the residential rate and the portion of their property that is used for farming will be taxed at the farm rate. However, when their tax bill arrives, owners with the residential/farm classification discover that both their residence and their farm land is being taxed at the residential rate, not the farm tax rate which is 75% lower than the residential rate. By the time they realize the actual tax treatment, it is too late to correct the situation if the classification is incorrect.
The use of the term “farmlands” class has also caused confusion because it appears to create a distinction between the tax treatment of farm land versus farm buildings, even though both land and buildings can be eligible for inclusion in the farmlands property class.
Recommendation:
º The following name changes are recommended: < change the name of the “residential/farm property class” to “residential property class”; and < change the name of the “farmlands property class” to “farm property class”.
~~~~ Notes: ÷ This recommendation was made to the Minister of Finance in a letter from the Special Advisor dated June 6, 2002, as part of the pre-budget consultation process . ÷ In the Ontario Budget on June 17, 2002, the Minister of Finance announced that the Government intends to change the name of the “residential/farm property class” to “residential property class” and to change the name of the “farmlands property class” to “farm property class”.
Tax Rates
The tax rate applicable to the farmlands property class is 25% of the tax rate applicable to the residential property class. The 75% tax rate reduction applies to both the municipal and education portions of the tax.
The tax rate reduction for the farmlands property class was implemented in 1998 as a replacement for the former farm tax rebate program whereby eligible farmers used to receive rebates of 75% of their property tax.
During the consultations, concerns were expressed about the rigidity of the requirement that the farm tax rate must be a fixed percentage of the residential tax rate. This concern was particularly pronounced among communities in southwestern Ontario where the values of farm properties increased at a much faster rate than the values of residential properties upon the last reassessment, and as a result, many farmers faced tax increases that were proportionately higher than those experienced by residential taxpayers.
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Recommendation:
º To give municipalities the flexibility to respond to local conditions and local priorities while still maintaining the protection of a reduced tax rate for farmers, it is recommended that upper-tier and single-tier municipalities be given the ability (on an annual basis) to set a tax ratio for the farm property class that is below 25% of the residential tax rate.
º It is recommended that the authority to apply a reduced tax rate to the farm class should only apply in respect of the municipal portion of the tax.
The education portion of the property tax makes up a very small component of the overall tax on farm properties. There is currently a uniform education tax rate of 0.09325% for farm properties, and it is not recommended that there be deviation from province-wide consistency on the education tax.
Discussion:
It has been proposed that the authority to reduce the municipal tax rate for farm properties be accorded to upper-tier and single-tier municipalities because they are the level of municipal government that is ordinarily responsible for setting tax ratios. Local municipalities would continue to have the option under section 442.6 of the Municipal Act of providing tax reductions to farm properties on an individualized basis in cases where council finds the taxes to be unduly burdensome for the property owner.
Consideration could be given to allowing upper-tier and single-tier municipalities to set a tax rate below 25% of the residential rate for the managed forest property class. Currently, the same rules regarding tax rates and ratios apply to the managed forest property class as to the farmlands property class. However, it should be noted that concerns about the tax rate of the managed forest class were not expressed during the consultations.
~~~~ Notes: ÷ These recommendations were made to the Minister of Finance in a letter from the Special Advisor dated June 6, 2002, as part of the pre-budget consultation process . ÷ In the Ontario Budget on June 17, 2002, the Minister of Finance announced that the Government intends to give upper-tier and single-tier municipalities the ability to reduce the municipal portion of the tax rate on the farm property class below 25% of the residential rate starting in 2003.
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FLOAT HOMES
A trend that seems to be gaining popularity is for people to reside in dwellings that are floating on the water (commonly referred to as float homes).
These properties look like ordinary houses, except that they are located on the waterfront. They are different than recreational houseboats as they have no means of self-propulsion, they occupy a permanent berth, and they are hooked up to utility connections (e.g. hydro). The residents of these homes can take advantage of the same local services (such as the education system) as residents of traditional homes.
Questions have arisen as to the assessability of these floating dwellings. Municipalities believe these homes should be subject to taxation because they are receiving municipal services.
Recommendation:
º It is recommended that residential dwellings located on the water should be subject to property taxation at the residential rate. If there is ambiguity in the definition of assessable property under the Assessment Act, it is recommended that the Act be amended to clarify that permanent dwellings located on water are assessable in the same manner as dwellings located on land.
Motorized vehicles, commonly known as houseboats, which are designed for short- term recreational accommodation would continue to be treated like personal property (i.e. chattels) and would not be assessed.
FUNERAL SERVICES
The legislation governing the bereavement sector in Ontario (the Cemeteries Act and the Funeral Establishments Act) does not permit funeral homes to be located on cemetery sites. However, it was indicated during the consultations that facilities referred to as “visitation centres”, which serve the same essential function as funeral homes, are being operated on cemetery sites.
Visitation centres are providing such services as visitations, memorial services and post-burial receptions. The only functional difference that has been observed between visitation centres and funeral homes is that visitation centres are not offering on-site embalming services.
The emergence of visitation centres on cemetery sites has raised concerns about competitive inequities in the bereavement sector. Under the Assessment Act, cemeteries and burial sites are exempt from property taxation, while funeral homes are subject to taxation at the commercial rate. By virtue of being located on cemetery grounds, visitation centres have been treated by MPAC as exempt from taxation. Funeral home operators feel that they are not able to compete fairly with visitation centres. Both of these facilities are competing for the same business, but funeral homes have higher overhead costs because they are subject to property taxation.
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Recommendation:
º In order to level the playing field, it is recommended that visitation centres and other facilities that provide non-interment services on cemetery sites should be subject to property taxation in the same manner as their off-site counterparts.
The burial ground areas of cemetery sites should retain their exemption from taxation. It is only visitation centres or other non-interment facilities that should be identified on the assessment roll as taxable.
~~~~
Note: This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001.
GRAVEL PITS
Currently, the working face of gravel pits (that is, the area under active excavation) is included in the industrial property class pursuant to O. Reg. 282/98.
Beyond the working face of many quarries and gravel pits, there are unused areas which are licensed for future excavation. These areas are currently included in the residential property class pursuant to O. Reg. 282/98.
A proposal was made during the consultations to include areas licensed for future gravel extraction in the industrial class.
Recommendation:
º It is recommended that changes not be made to the classification of gravel extraction sites.
Discussion:
It is a basic premise of our property classification system that properties should be classified based on their actual use, not based on potential future uses. The assessment of a property will reflect potential uses of the property because the potential use has an impact on market value, but the tax classification should reflect the current use.
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HOTELS
Assessment Methodology
Representatives from the hotel industry made submissions during the consultations to express concerns about the methodology that is used to assess hotels. Specifically, the industry believes that the methodology for assessing hotels incorporates a business value rather than just reflecting the value of the real estate, therefore the industry believes that hotels are over-assessed relative to other commercial properties.
When valuing hotels for assessment purposes, MPAC utilizes the income approach to value based on the uniform system of accounts which is the standard approach used in the valuation of hotels in most North American jurisdictions. A step-by-step process, commonly referred to as the pro-forma approach, utilizes a standardized spreadsheet to facilitate the valuation.
In essence, the valuation approach establishes the income stream of a hotel, deducts operating expenses and charges from the income stream to arrive at a net income, capitalizes the net income, and then deducts the value of chattels (furniture, fixtures and equipment) to arrive at a market value for the hotel property.
While the approach used in Ontario follows the North American standard, there are jurisdictional variations in certain components of the valuation. For example, while the percentage amounts that are deducted for management expenses and chattels fall within a consistent range, some jurisdictions use the high end of the range while others use the low end.
On the specific issue of business value versus real estate value, the assessment authorities and the courts in most North American jurisdictions are satisfied that the current income approach removes business value through the deduction of management fees and other business expenses.
Recommendation:
º Having regard for the assessment methodology that is applied in other jurisdictions, it is proposed that the following standards be used by MPAC in the assessment of hotels in Ontario:
< The standard deduction for management expenses should be 5%, but MPAC should have discretion to apply a higher or lower percentage based on the circumstances demonstrated for each individual property.
< The standard deduction for chattels (furniture, fixtures and equipment) should be 15%, but MPAC should have discretion to apply a higher or lower percentage based on the circumstances demonstrated for each individual property.
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Discussion:
While it is recognized that the assessment approach used by MPAC to value hotels is reflective of the North American standard, a few adjustments to the standard deductions are being recommended with the aim of ensuring that hotel assessments in Ontario remain consistent and competitive with those in other Canadian provinces.
~~~~ Notes:
÷ These recommendations were made to the Minister of Finance in a letter of the Special Advisor dated April 22, 2002, as part of the pre-budget consultation process. ÷ In the Ontario Budget on June 17, 2002, the Minister of Finance announced that the Government plans to prescribe standard deductions to be used by MPAC when assessing hotels. The standards would be 5% for management expenses and 15% chattels, and MPAC would have the discretion to apply different percentages in unique circumstances.
Suite Hotels
It was pointed out during the consultations that there are growing inequities in the property tax treatment of hotel facilities, with some being taxed at the residential rate, some at the multi-residential rate, and some at the commercial rate.
The differential tax treatment of hotels is largely a result of the fact that the definition of “hotel” in O. Reg. 282/98 has not kept pace with the new ownership and operational structures emerging in the tourist accommodation industry.
O. Reg. 282/98 stipulates that hotels shall be included in the commercial property class. Hotels are defined for the purposes of O. Reg. 282/98 as having the same meaning as the following definition of “hotel” in the Hotel Registration of Guests Act:
"Hotel" means a separate building or two or more connected buildings used mainly for the purpose of catering to the needs of the travelling public by the supply of food and also by the furnishing of sleeping accommodation of not fewer than six bedrooms as distinguished from any other building or connected buildings used mainly for the purpose of supplying food and lodging by the week or otherwise commonly known as "boarding houses" or of furnishing living quarters for families and having a dining room or restaurant commonly known as "apartment houses" or "private hotels".
The residential and multi-residential classification of tourist accommodation has become a particular issue in the case of suite hotels. In this type of hotel, guests are provided with amenities beyond the traditional hotel room - the suites usually include a kitchen (equipped with utensils), a dining area, and laundry facilities. Quite significantly, many of these hotels do not provide food or restaurant service to guests - this is significant because the provision of food to guests is a key element of the above-noted definition of “hotel”.
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In situations where the hotel operator does not provide its own food service, the Assessment Review Board has been scrutinizing the other characteristics of the accommodation to determine the appropriate classification of the property. (It is interesting to note that the guests of many hotels will be under the impression that the hotel does offer food service because room service is available or because there may be a restaurant on site. However, the food service is often contracted out to a third party whose facilities may not be located on the hotel’s property, or the restaurant may be located adjacent to the hotel but not owned or operated by the hotel. In these cases, the hotel owner is not considered to be the entity providing food service.)
In cases where hotels do not provide food service and therefore do not meet the definition of “hotel” in section 17 of O. Reg. 282/98, the Assessment Review Board has found that many suite hotels fall within the definition of the multi- residential class in section 10 of O. Reg. 282/98 because the building has more than six “self-contained units” that are used “for residential purposes”. Other suite hotels have been included in the residential property class because the suites in the building have been registered as condominium units under the Condominium Act which brings them within the definition of the residential class in section 3 of O. Reg. 282/98.
The condominium phenomenon is becoming more prevalent in the tourist accommodation industry. In some cases, a condominiumized building will be used in its entirety as a hotel, bearing the flag name of the hotel operator and appearing to the public to be a traditional hotel. In other cases, it is only designated units, or blocks of units or floors within a residential condominium building that are providing transient accommodation to the travelling public.
During the consultations, frustration was expressed with the unlevel playing that is developing between different types of hotel operators. It is felt that suite and condo hotels, which are attracting the residential or multi-residential rate of taxation, are enjoying an unfair advantage over traditionally-structured hotels which are taxed at the commercial rate. Hotel owners are seeking consistency and equity within the tourist accommodation sector.
Concerns were also expressed in the interest of public safety and security. It was noted by the Assessment Review Board in a recent case that several suite hotels did not comply with the Hotel Fire and Safety Act. Concern was expressed that properties which offer accommodation to the travelling public may not be meeting the life safety standards which have been prescribed for hotel establishments.
Recommendation:
º It is recommended that all hotel operations be included in the commercial property class. To achieve this objective, it is recommended that the definition of “hotel” in O. Reg. 282/98 be modified to capture facilities that are in the business of providing transient accommodation to the travelling public, regardless of whether on-site food service is provided and regardless of whether the property is a condominium.
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INDUSTRIAL PROPERTY CLASS
When the property classes were defined as part of assessment reform in 1998, the government attempted to classify different types of properties in a manner similar to the way in which the properties were treated prior to reform. During the consultations for this review, it became apparent that several unintended changes were engendered by the definition of the industrial property in O. Reg. 282/98.
Taxpayers and municipalities expressed their shared concern that the definition of the industrial class has been cast very broadly in O. Reg. 282/98 with the result that many types of properties that were treated as commercial prior to reform have been classified as industrial since 1998. This situation has caused concern because the industrial tax rate tends to be higher than the commercial rate in most municipalities.
The portions of the definition of the industrial property class that are causing the most concern are as follows:
Ontario Regulation 282/98 Section 6 (selected excerpts)
(1) The industrial property class consists of the following:
1. Land used for or in connection with, i. manufacturing, producing or processing anything, ii. research or development in connection with manufacturing, producing or processing anything, iii. storage, by a manufacturer, producer or processor, of anything used or produced in such manufacturing, production or processing if the storage is at the site where the manufacturing, production or processing takes place, or iv. retail sales, by a manufacturer, producer or processor, of anything produced in such manufacturing, production or processing if the retail sales are at the site where the manufacturing, production or processing takes place.
2. Vacant land principally zoned for industrial development.
(2) The following are included in the industrial property class: . . . 4. elevators used to receive, store, clean, treat or transfer feed for livestock or grain.
The opening words of this provision - “land used for or in connection with manufacturing, producing or processing anything” - have resulted in changes to the tax treatment of numerous properties. Businesses such as denturists, artisans, print shops and software developers now find themselves treated as industrial because they are producing or processing something. As well, it has been indicated that the scope of the class may be broadened even further in the future because the phrase “in connection with” may have to be interpreted as extending to off-site activities. Another concern about the industrial class definition is that it expressly includes some business activities which are not industrial in nature, such as research and development, retail sales, and grain storage facilities.
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Requests for a narrower definition of the industrial property class have been made by taxpayers and municipalities alike. While municipalities are usually reluctant to request amendments that would diminish their tax base, they are concerned about the potential demise of businesses which now find themselves in an unsustainable tax position due to unexpected changes that accompanied reform.
Recommendation:
The following changes are recommended to the definition of the industrial property class:
Manufacturing
º It is recommended that the phrases “in connection with” and “producing or processing anything” be removed from the definition of the industrial class, so that the opening portion of the definition would read “land used for manufacturing”.
º If the meaning of the word “manufacturing” is not clear within the context of the body of case law that has interpreted that word over the years, it is recommended that the Minister of Finance prescribe a definition.
º It is recommended that consideration be given to including some processing activities in the industrial class if the processes are industrial in nature, but these activities should be narrowly defined or specifically listed in the regulation (as is currently done for a few activities such as mining and quarrying) to avoid unintended expansion of the class.
Research and Development
º It is recommended that research and development (R&D) be removed from the industrial class, and that R&D facilities be included in the commercial class.
Retail Sales
º It is recommended that retail sales premises be removed from the industrial class and included in the commercial class.
There is a general policy under the Assessment Act that the assessed value of mixed- use properties should be apportioned among different tax classes based on the use of each portion of the property. The same policy ought to apply to different activities that occur within industrial facilities.
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Grain Elevators
º It is recommended that grain elevators be removed from the industrial class.
As noted above under the discussion of farm properties, it is recommended that grain elevators located on farm properties be included in the residential class, and grain elevators located off farm properties be included in the commercial class.
Zoning
º As a failsafe mechanism, to ensure that businesses do not get unintentionally included in the industrial class (for example, in cases where it is unclear whether an activity should be characterized as “manufacturing”), it is recommended that regard be given to the zoning of the property. It is recommended that businesses located in commercially-zoned areas not be included in the industrial property class.
Discussion:
The words “producing or processing anything” appear to be the main cause of the unintended expansion of the industrial class.
R&D is not an industrial process. R&D activity is commercial in nature, involving extensive research by scientists, engineers, and other professionals. While there may be some assembly of prototypes at R&D facilities, this activity should not be mistaken as manufacturing. R&D is a vital activity which should be encouraged and supported. All members of our society benefit from the scientific and medical research that is conducted by private enterprises.
To address the suggestion that was made during the consultations that small (light) industrial facilities should be taxed at a different rate than larger (heavy) industrial facilities, it is noted that municipalities have the option of applying graduated tax rates within the industrial property class. This mechanism allows upper-tier and single-tier municipalities to set lower tax rates for lower-valued properties in the commercial or industrial classes.
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LARGE INDUSTRIAL PROPERTY CLASS
The large industrial class is one of the six optional property classes that municipalities may choose to apply.
The large industrial class includes properties that would otherwise be in the industrial class that have the following features:
C a parcel of land containing one or more buildings with a single occupant and with an exterior area greater than 125,000 square feet; or C grain elevators with a storage capacity of at least one million bushels; or C land that has an assessed value which is greater than the total assessed value of all other land in the municipality.
It was proposed during the consultations that the 125,000 square foot threshold for inclusion in the large industrial property class should be increased to 300,000 square feet. It is felt that 125,000 square feet is too low and captures too many smaller properties.
Recommendation:
º It is recommended that the 125,000 square foot threshold be maintained for the large industrial property class.
Discussion:
Municipalities have the option of applying graduated tax rates to the industrial property class. This mechanism allows upper-tier and single-tier municipalities to establish up to three bands of assessed value for properties within the class and they can apply different tax rates to each band of assessment. This tool offers a suitable alternative for municipalities who do not find the criteria of the large industrial class to be appropriate for their local conditions.
LIFE LEASE BUILDINGS
Life lease buildings are a relatively new structure of residential accommodation. Under this type of arrangement, a person purchases the right to occupy a unit within a residential building on a long-term basis. The duration of the right to occupy the unit is typically for the duration of the occupant’s lifetime.
The main advantage of a life lease interest over other forms of accommodation is that life lease developments are usually operated by community-based organizations which provide special services or support to the occupants.
Prior to 2000, most life lease buildings were included in the multi-residential class, although there were some regional variations where life lease complexes were included in the residential class.
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In 2000, O. Reg. 282/98 was amended to specify that life lease buildings should be included in the residential class. When the Minister of Finance confirmed that the tax classification of life lease buildings was residential, not multi- residential, MPAC ensured that a consistent valuation methodology was used to assess these properties. As life lease properties are in the residential class, MPAC applies the sales comparison methodology that is used to assess condominium units and single-family dwellings.
Representatives from the life lease community came forward during the consultations to request that the Minister of Finance prescribe a methodology to be used by MPAC in the assessment of life lease buildings to ensure that the units in these properties are not assessed at the same rate as the sale prices of condominiums.
Recommendation:
º It is recommended that the Province not prescribe changes to the assessment methodology of life lease properties.
Discussion:
It is believed that MPAC is in the best position to determine which assessment methodology (sales comparison, income, or replacement cost) is the most appropriate to apply in the circumstances of different types of properties.
MANAGED FORESTS
To encourage landowners to preserve and replenish forested areas, the Province provides preferential property tax treatment to eligible managed forest properties by assessing them based on their current use and taxing them at 25% of the residential rate.
During the consultations, issues were raised about the methodology for assessing managed forest properties, the eligibility criteria of the managed forest property class, and the administrative processes involved in overseeing the managed forest property class.
Assessment Methodology (Banding)
The Assessment Act stipulates that managed forest properties shall be assessed “based only on the current use of the land and not other uses to which the land could be put.” This means that the assessed value of managed forest properties should be derived without regard to the development potential of the land or other market forces that would ordinarily be a factor in the valuation of non-forested properties.
During the consultations, several stakeholders expressed concern about the methodology that MPAC applies when valuing managed forest properties. The specific concern relates to managed forest properties that are adjacent to bodies of water.
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When establishing the assessment of a managed forest property, MPAC applies farm land assessment rates to the forested area. However, where a forest is located next to a body of water, MPAC applies an increased value to the portion of the property that is within 208 feet of the body of water. The attribution of a higher value to the portion of properties within a 208 foot band of a body of water is referred to as the “band method”. The theory behind the band method is that waterfront property has a higher market value than inland property.
The use of the band method has been challenged by property owners at the Assessment Review Board with inconsistent results. In one case, the Board held that the band method was not appropriate because it purported to reflect the development potential of the land rather than assessing the property based on its current use as required by section 19(5.2) of the Assessment Act. In another case, the Board held that the use of the band method was acceptable because all similar properties had been assessed in the same manner in accordance with section 44(2) of the Assessment Act which directs that “in determining the value at which any land shall be assessed, reference shall be had to the value at which similar lands in the vicinity are assessed.”
During the consultations, stakeholders indicated that they do not agree with the use of the band method because it tries to capture the potential value of the property rather than focusing on the current use as forested lands.
Recommendation:
º It is recommended that the band method not be applied to the assessment of managed forest properties.
Discussion:
The provincial policy direction regarding the assessment of managed forest properties is clearly set out in the Assessment Act where it states that the current value (i.e. the assessed value) of managed forests “shall be based only on the current use of the land and not other uses to which the land could be put.”
Assessment of Mixed-Use Properties
During the consultations, concern was expressed with MPAC’s method of apportioning the assessed value of mixed- use properties into different classes. It was suggested that a higher value should be assigned to the managed forest portion of the property which is taxed at a reduced rate, and a lower value should be assigned to the occupied portion of the property that is subject to taxation at the full residential rate.
Recommendation:
º It is recommended that the Province not prescribe an apportionment methodology to be used in the assessment of managed forests on mixed-use parcels.
Discussion: It is believed that MPAC is in the best position to determine the appropriate methodology by which to apportion the assessment of a property into different classes based on the different uses of each portion of the property.
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Eligible Property
The Ministry of Natural Resources has proposed that the eligibility criteria for the managed forest property class be revised in the following three respects:
C expand eligibility by removing the Canadian citizenship ownership requirement; C expand eligibility to include natural areas that cannot support trees (e.g. rock facing) as part of eligible forested area; C limit eligibility on golf courses and ski hills by requiring a minimum contiguous forested area that is 40 metres in width and five acres in area.
Recommendation:
º It is recommended that the Canadian citizenship ownership requirement be removed as a prerequisite to eligibility for the managed forest property class. Properties should be assessed based on their use, not based on the nationality of their owners.
It is also recommended that the Canadian citizenship ownership requirement be removed from the farmlands property class.
º It is recommended that eligibility for the managed forest property class be expanded to include portions of the natural landscape that cannot support trees, provided that these areas are surrounded by eligible managed forest.
Oversight and Administration
The Ministry of Natural Resources (MNR) is responsible for overseeing the administration of the managed forest property class. The roles performed by MNR (and its designated agents) in this regard include the following:
C receiving and reviewing applications from property owners who want to be included in the managed forest property class; C reviewing managed forest plans to ensure conformity with prescribed eligibility criteria; C notifying MPAC of the properties which are eligible for inclusion in the managed forest property class each year; C resolving disputes about the classification of managed forest lands.
MNR has requested several changes to the prescribed program administration requirements.
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Recommendation:
º In view of the administrative changes proposed by the Ministry of Natural Resources, the following program administration changes are recommended:
< Change the application deadline from August 31 to July 31.
< Change the application period from annual to every ten years. However, to successfully implement a ten-year application cycle, the following precautions are recommended:
~ ensure that property owners receive adequate advance notice of the application deadline at the end of each ten-year cycle;
~ annual inspections should be conducted prior to the preparation of the assessment roll to ensure that properties are still meeting the eligibility criteria for the managed forest class;
~ ensure that MPAC has the authority to change the classification of managed forest properties during the ten-year cycle if activities are conducted on the property which are inconsistent with the eligibility criteria for the class.
< Provide new owners with 90 days within which to apply for inclusion in the managed forest property class. It will be important for MNR to ensure that new owners are notified of this application requirement.
< Give authority to the Mining and Lands Commissioner to accept late applications where there are mitigating circumstances. Consistent with the recommendation made above with respect to the farm property class, it is recommended that the Commissioner be authorized to accept and approve applications that are submitted up to December 31 st of the taxation year.
< Remove the obligation for property owners to submit entire managed forest plans and only require that relevant portions of the plans, as specified by MNR, be submitted with the application.
< Allow MNR to exclude properties from the managed forest property class, but only in situations where the landowner has violated one or more of the eligibility criteria in section 9 of O. Reg. 282/98 or in its managed forest plan.
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< Permit MNR to inspect properties for up to a year after they leave the managed forest property class. If it is found that activities were conducted on the property which violated the eligibility criteria of the class, MPAC should be notified and authorized to issue a notice of supplementary or omitted assessment to remove the managed forest classification back to the date of the offending activity.
º It is recommended that MNR not be authorized to delegate its obligation to consider requests for reconsideration to an outside agent. The request for reconsideration process was designed to have a neutral government authority deliberating over disputed classifications.
MULTI-RESIDENTIAL CLASS
The multi-residential property class, as defined in O. Reg. 282/98, includes: C property used for residential purposes that has more than six self-contained units; and C vacant land principally zoned for multi-residential development.
Despite this general definition, there are many properties with more than six self-contained residential units that are not included in the multi-residential class. O. Reg. 282/98 sets out several types of multi-unit properties that are included in the residential class instead of the multi-residential class, such as condominiums, co-operatives, timeshares, group homes, campgrounds, mobile home parks, and life lease buildings.
For education tax purposes, the Province has treated all forms of housing in the same manner by prescribing a uniform province-wide education tax rate for the residential and multi-residential property classes. However, the municipal tax rates on the multi-residential class are generally higher than the municipal rates on the residential class, largely as a result of historic differences in the assessment treatment of apartment buildings versus single family dwellings.
Through the ranges of fairness, the Province has indicated that the long-term goal is to have municipal tax rates for the multi-residential property class that are 1.0 to 1.1 times the residential tax rate.
Future Elimination of the Multi-Residential Class
During the consultations, many taxpayers expressed their frustration with the high tax rate on the multi-residential property class. Rental apartment buildings are one of the most affordable forms of accommodation, yet these buildings are subject to a higher tax rate than condominiums and single-family dwellings.
The differential in effective tax rates between multi-residential and residential properties was not easily discerned prior to reform, but these disparities became transparent with the implementation of CVA.
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Governments at the municipal, provincial and federal levels are cognizant of the need to ensure that there is an adequate supply of affordable housing. Various panels and working groups have studied the issue in recent years, and these groups have recognized the detrimental impact that high property taxes can have on the availability of affordable rental housing.
All three levels of government are actively seeking long-term strategies to promote the development and maintenance of an adequate supply of affordable housing. As part of that strategy, it is believed that we should strive to correct the inequitable tax burden that exists between the multi-residential and residential property classes in order to achieve tax fairness for tenants and to encourage the development of more rental housing units.
Recommendation:
º It is recommended that the multi-residential property class be combined with the residential class and that the municipal tax rate on multi-residential properties be reduced to the residential rate.
< In making this recommendation, it is noted that property tax savings would have to be passed along to tenants under the provisions of the Tenant Protection Act.
º It is recommended that municipalities be required to fully implement the elimination of the multi-residential property class as early as January 1, 2006. However, in recognition of the unique circumstances facing the City of Toronto which had an extremely outdated assessment base prior to reform, it is recommended that Toronto be given until at least January 1, 2010 to fully implement the merger of these two classes.
º It is recommended that consideration be given to the appropriate funding and distribution of the cost of reducing the tax rate on multi-residential properties down to the residential rate. In particular, it is proposed that municipalities be permitted to distribute the cost across all classes rather than shifting the cost entirely onto the residential class.
Discussion:
This recommendation is rooted in a belief that all forms of residential accommodation should be subject to the same property tax rate within each municipality.
This recommendation is also made in recognition of the Province’s long-term goal of having multi-residential and residential properties taxed at consistent rates.
~~~~
Note:This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001.
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Short-Term Recommendations
Recognizing that the merger of the multi-residential class with the residential class would not be accomplished overnight, the following recommendations are being made for immediate consideration.
Rooming Houses:
A building used for residential purposes that has more than six “self-contained units” is included in the multi- residential class. The phrase “self-contained unit” is not defined in the regulation, but it is generally interpreted to mean a unit that has in-suite kitchen and bathroom facilities.
The meaning to be ascribed to the phrase “self-contained unit” has come into question in the context of rooming houses because the units in rooming houses tend to be very small and they often have common kitchen and bath facilities that are shared with other units.
Requests have been made by taxpayers and municipalities for the explicit inclusion of licensed rooming houses in the residential property class.
Recommendation:
º It is recommended that O. Reg. 282/98 be amended to specify that licensed rooming houses shall be included in the residential property class.
~~~~
Note:This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001.
Retirement Homes:
The meaning to be ascribed to the phrase “self-contained units”, as described above in the context of rooming houses, also has relevance to retirement homes because the units in retirement complexes tend to be smaller than traditional apartment units and they often have shared dining facilities. It has been questioned whether the lack of in-suite kitchens should lead to the interpretation that these units are not self-contained and therefore do not meet the criteria for inclusion in the multi-residential class.
Stakeholders have requested clarification of the property tax classification of retirement homes.
Recommendation:
º It is recommended that O. Reg. 282/98 be amended to specify that retirement homes shall be included in the residential property class.
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Co-Operative and Co-Ownership Housing:
O. Reg. 282/98 identifies three types of co-operative and co-ownership buildings that shall be included in the residential property class:
C buildings that are owned or leased by a co-operative as defined in the Co-operative Corporations Act; C buildings that are owned by a corporation wherein each shareholder or member of the corporation has a right to occupy a unit; and C buildings that are owned by individuals, each of whom has an undivided percentage interest in the building and a contract conveying a right to occupy a particular unit.
For the latter category of buildings (often referred to as “co-ownerships”), but for none of the other categories of multi- unit dwellings, O. Reg. 282/98 requires that at least 50% of the units be owner-occupied in order for the building to be eligible for inclusion in the residential class, otherwise the building will fall into the multi-residential class. During the consultations, owners of these types of buildings expressed concern about the uncertainty of not knowing how their properties will be taxed from one year to the next.
As well, for the two latter categories of buildings, O. Reg. 282/98 limits eligibility for the residential class to buildings that were in the residential class in 1998. Therefore, any new buildings that are created under the same ownership structure after 1998 would be placed in the multi-residential class.
Recommendation:
º It is recommended that O. Reg. 282/98 be amended to specify that co-operative and co-ownership buildings shall remain in the residential class and shall not be placed in the multi-residential class in the event that less than 50% of the units are owner- occupied.
º It is further recommended that O. Reg. 282/98 be amended to remove the provisions which prevent co-operative and co-ownership buildings from being included in the residential class if they are created after 1998. Buildings with the same ownership structure that are developed after 1998 should be included in the residential class.
Discussion:
It is important to offer a variety of housing options and to recognize that affordable housing comes in many forms. Choice and diversity should be encouraged. Maintaining a low property tax rate is one way to encourage the preservation of these housing choices. ~~~~
Note:This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001.
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Vacant Multi-Residential Land:
Under O. Reg. 282/98, vacant lands that are “principally zoned for multi-residential development” are included in the multi-residential property class.
The phrase “multi-residential” is not a typical zoning concept. The typical zoning category for multi-unit housing is “high-density” which would ordinarily apply to condominiums and rental apartments. Once built, condominiums would be included in the residential class whereas rental apartments would be included in either the multi-residential or the new multi-residential property class.
During the consultations, questions were raised about the appropriateness of charging the multi-residential tax rate on vacant lands that are zoned for high-density residential development when these lands may be slated for development as condominiums which would attract the residential rate or as rental apartments which may attract the ‘new multi-residential’ rate.
Recommendation:
º It is recommended that O. Reg. 282/98 be amended to specify that vacant lands which are zoned for any form of residential development should be included in the residential class, regardless of whether the zoning specifies single family or high- density development. ~~~~
Note:This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001.
Land Lease Communities:
A land lease community is a parcel of land that is owned by one person or entity whereby portions of the parcel are leased to private individuals who build their own homes on their lots. These properties look similar to mobile home parks because the lessees often put mobile homes or park models on their lots.
To be consistent with the treatment of mobile home parks, MPAC has classified these properties as residential. However, based on the literal wording of O. Reg. 282/98, a concern has been expressed that these properties might have to be included in the multi-residential class because they are used for residential purposes and they have more than six self-contained units.
Recommendation:
º It is recommended that O. Reg. 282/98 be amended to clarify that land lease properties should be included in the residential class to be consistent with the treatment of mobile home parks and other similar properties.
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Thresholds:
As previously noted, property is eligible for inclusion in the multi-residential class if it has more than six self-contained residential units.
Many people have questioned the rationale for the six-unit threshold. It is felt that small buildings with two or three storeys should not be taxed at the same rate as large high-rise buildings.
A proposal was made by the municipal sector during the consultations to increase the threshold for the multi- residential property class from six to twenty units. A further suggestion was made for buildings with more than twenty units to have the first twenty units taxed at the residential rate with the balance of the units being taxed at the multi- residential rate.
Recommendation:
º It is recommended that upper-tier and single-tier municipalities be given the option of increasing the number of units (above seven) that will trigger eligibility for inclusion in the multi-residential property class within their boundaries.
To operationalize this recommendation, it would be necessary for municipalities to notify MPAC of their decision to increase the threshold number of units prior to the preparation of the annual assessment roll. It is recommended that the issue of appropriate notification timelines be addressed at the Ministry of Finance / MPAC Joint Committee.
Discussion:
Increasing the unit threshold number would result in the movement of a controlled number of properties from the multi-residential class to the residential class, and this would represent a means by which municipalities could facilitate a gradual transition towards the ultimate elimination of the multi-residential class.
It is proposed that this option be given to municipalities, rather than having the Province prescribe a standardized number, because municipalities are in the best position to know what level of attrition from the multi-residential class is manageable and appropriate for their local circumstances.
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NON-PROFIT ORGANIZATIONS
During the consultations, several stakeholders requested an expansion of existing tax relief programs for non-profit organizations.
Prior to 1998, properties that were occupied by charities and non-profit organizations were, as a general rule, taxed at the residential rate and were not subject to business occupancy tax. There were some exceptions to this general rule; for example, some charitable and philanthropic organizations were exempt from property taxation under private legislation or under section 3 of the Assessment Act.
In 1998, when the business occupancy tax was eliminated and the separate assessment of tenant units was discontinued, the following mechanisms were put in place to facilitate tax relief for charities and non-profit organizations that would be similar to their pre-reform treatment:
˜ Residential Class: Under O. Reg. 282/98, property that is owned and occupied by one of the following entities is included in the residential property class: < non-profit organization which operates a child care facility; < religious organization; < non-profit service organization (which is defined in the regulation as “an organization whose primary function is to provide services to promote the welfare of the community and not only to benefit its members”); < non-profit cultural organization (which is defined in the regulation as “an organization that is established and maintained for cultural activities for Canadians of a specific ethnic origin, including First nations peoples”); < non-profit private club; < non-profit recreational sports club.
˜ Rebates to Charities: Under section 442.1 of the Municipal Act, charitable organizations that have a registration number issued by the Canada Customs and Revenue Agency and that occupy commercial or industrial property (whether they are the property owner or the tenant) are entitled to receive an annual rebate of 40% of their property taxes. < Upper-tier and single-tier municipalities have the discretion to expand this rebate program. They can require that rebates greater than 40% be paid to charities, and they have the option of directing that rebates (in any amount) be paid to charities located in residential or multi-residential property.
˜ Rebates to Non-Profit Organizations: Under section 442.1(4) of the Municipal Act, upper-tier and single- tier municipalities have the option of implementing a program to provide property tax rebates to non-profit organizations that are “similar to eligible charities”. < Each upper-tier and single-tier municipality has the discretion to identify which (if any) organizations will constitute “similar” organizations for the purpose of this rebate program. Municipalities can specify the name of qualifying organizations (e.g. Royal Canadian Legion) or they can identify types of organizations (e.g. organizations dedicated to the protection of the natural environment). < Rebates of up to 100% of the property tax can be provide to qualifying non-profit organizations located in any property class.
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˜ Exemptions: The exemptions from taxation for organizations and properties listed in section 3 of the Assessment Act and in private legislation have been maintained.
The specific requests for expansion of tax relief programs that were received from the non-profit sector and from municipal representatives during the consultations included the following:
C give lower-tier municipalities the option of providing rebates to non-profit organizations; C expand the categories of organizations that are eligible for the mandatory 40% rebate under section 442.1 of the Municipal Act; C expand the categories of non-profit organizations that are eligible for inclusion in the residential property class; C expand the categories of organizations that are eligible for exemption from taxation under section 3 of the Assessment Act.
Recommendation:
º It is recommended that the rebate program under section 442.1 of the Municipal Act be enhanced to give lower-tier municipalities the option of providing property tax rebates to non-profit organizations that have not been made eligible for rebates by the upper-tier level of municipal government. Expanding the rebate program in this manner would enable local municipalities to address local issues.
Where rebates are initiated by a lower-tier municipality, it is recommended that the cost of the rebates be shared in the same manner as tax relief for brownfield sites or heritage properties under sections 442.7 and 442.8 of the Municipal Act whereby the lower-tier municipality decides on a percentage of tax relief to be provided, a matching percentage of the education tax may be provided, and the upper-tier municipality is given the option of providing matching relief in respect of its portion of the tax.
º It is recommended that the definition of “non-profit service organization” be clarified to ensure that non-profit animal shelters, which by their nature provide a service for the welfare of the community, are eligible for inclusion in the residential property class.
º Expansions to the list of statutory exemptions are not recommended at this time. It is believed that the broad tax rebate authority that has been given to municipalities under section 442.1 of the Municipal Act should obviate the need to enact further tax relief measures.
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OFFICE BUILDING AND SHOPPING CENTRE CLASSES
The office building class and the shopping centre class are among the optional property classes which municipalities may choose to adopt for the purpose of applying different tax rates to different types of properties.
The office building class includes the rentable area of an office building that exceeds 25,000 square feet. (“Office building” is defined to mean a building that is used primarily for offices.) The shopping centre class includes the rentable area of a shopping centre that exceeds 25,000 square feet. (“Shopping centre” is defined to mean a structure with at least three units, having different occupants, that primarily provide goods or services to the public.)
Properties that are included in these classes are not actually included in their entirety. It is only the portion of an eligible property that exceeds 25,000 square feet that is included in the office building or shopping centre class. The first 25,000 square feet remain in the commercial class.
The intention behind the 25,000 square foot threshold was to maintain smaller properties predominantly within the commercial class. This design feature was premised on the assumption that municipalities would tend to set higher tax rates for the office building and shopping centre classes than for the commercial class, and in this regard, the 25,000 square foot threshold was designed to protect smaller properties from tax increases.
Two issues relating to these classes were raised during the consultations.
C It was proposed that the 25,000 square foot threshold should be eliminated because it adds needless complexity to the assessment and taxation process. It was suggested that properties should either be in or out of the classes in their entirety.
C If the 25,000 square foot thresholds are maintained, it was pointed out that O. Reg. 282/98 is not clear as to how the thresholds should be applied. Specifically, in the situation where there is more than one eligible building on a property (for example, where there are two stand-alone office towers on a single parcel of land), it is not clear from the regulation whether a single 25,000 square foot threshold should be applied to the entire parcel or whether separate 25,000 square foot thresholds should be applied to each eligible building on the property with the result that more than 25,000 square feet would be in the commercial class for some properties.
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Recommendation:
º It is recommended that the 25,000 square foot thresholds be maintained for the office building and shopping centre classes.
º It is recommended that there be only one 25,000 square foot threshold applied to each parcel of land on which there are one or more buildings that are eligible for inclusion in the office building or shopping centre classes.
Discussion:
Applying multiple 25,000 square foot thresholds to a single property would defeat the intent of the thresholds which was to maintain the commercial classification on smaller properties, not to augment the portion of larger properties that would be included in the commercial class.
PARKING LOTS AND VACANT LAND CLASS
Rates and Ratios
The parking lots and vacant land class is one of the optional property classes that municipalities may choose to adopt.
This class includes properties which would otherwise be in the commercial class and which fall within one of the following categories:
C a parcel of land that is used exclusively for the parking of vehicles; C vacant land; or C land that is a railyard, owned and used exclusively by a railway company, upon which no building or structure other than railway tracks is located.
This class was created in 1998 to give municipalities a vehicle for addressing the tax increases that land-intensive properties were facing upon the reassessment due to the significant increase in the value of these properties relative to built commercial properties. Adoption of this class enables municipalities to apply a reduced tax rate to these properties to offset or neutralize the reassessment-related tax impacts.
Concern was expressed during the consultations in relation to vacant land and railyards. Both of these properties are normally included in the vacant land sub-class which is taxed at 70% of the commercial class tax rate. (This tax rate reduction is provided to reflect the pre-reform treatment whereby these properties did not formerly pay business occupancy tax.) When a municipality adopts the parking lots and vacant land class, vacant land and railyards are removed from the commercial vacant land sub-class and transferred to the parking lots and vacant land class.
It has been observed that in some municipalities, a tax rate is being applied to the parking lots and vacant land class
Page 53 of 93 Property Assessment and Classification Review that is considerably higher than the rate that is levied on the vacant land sub-class. In some cases, a rate is being levied that is almost as high as the commercial class tax rate.
Recommendation:
º It is recommended that restrictions be placed on the tax ratio of the parking lots and vacant land class to ensure that vacant land and railyard properties are not penalized by the application of this class.
The tax rate of this class should be no higher than the rate that would be levied on vacant land and railyard properties in the commercial vacant land sub-class.
Sub-Classes
A proposal was made to create parking lot sub-classes within the parking lots and vacant land class to differentiate between the following categories of parking facilities:
C municipally-owned parking lots; C commuter parking lots; C privately-owned parking lots.
The purpose of this proposal is to allow municipalities to tax the different lots at different rates.
Recommendation:
º It is recommended that Province not create parking lot sub-classes to distinguish between different categories of ownership or different types of parking lots.
Discussion:
A parking lot sub-class system would create added complexity in the property tax system. As well, taxing similar properties with similar uses at different rates based on differences in their ownership would be inconsistent with the general premise of the property tax system to classify properties based on their use.
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PIPELINES
Pipelines that are used for the transmission of oil and gas are assessed at rates prescribed by the Minister of Finance pursuant to section 25 of the Assessment Act. Different rates are prescribed for different sizes of pipe (based on diameter) and for different types of pipe (offshore, plastic, and others).
The assessment rate tables for pipelines have been developed through consultation with the pipeline owners and MPAC. The rates are intended to approximate the value of the pipeline. Updated rates have been established upon each reassessment.
During the consultations for this review, the natural gas sector proposed changes to the property tax treatment of pipelines. Industry representatives expressed concerns about the dramatic fluctuations of assessed values that have been contemplated upon each reassessment. Pipeline owners would like a property tax system that provides stability and predictability from one year to the next. With that objective in mind, the natural gas sector proposed that the method of taxing pipelines be changed from an assessment-based approach to a fixed tax rate approach.
The industry’s proposal can be summarized as follows:
C In respect of existing pipelines, the pipeline owners would continue to provide municipalities with the same amount of money that they currently pay on pipelines in the municipality (annual lump sum payment).
C Any new pipelines that are built would be taxed at a fixed rate per linear foot based on the size of the pipe, with four different rates being prescribed based on the diameter of the pipe.
< The rates would be consistent province-wide. < The rates would be calculated at the outset of the new program by dividing the total tax yield on existing pipelines by the total linear footage of existing pipelines.
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Recommendation:
º It is recommended that the property tax treatment of oil and gas pipelines be changed from an assessment-based system to a prescribed tax rate system.
The following approach to calculating and applying tax rates is recommended.
< For each municipality, calculate the total property tax yield from pipelines (in the year preceding the first year of implementation of the new program) and calculate a tax rate which, when applied to the length of pipes in the municipality, would yield the same amount of tax.
< These tax rates would be prescribed by the Minister of Finance for each municipality, further to discussions with MPAC and the pipeline industry.
< It is recommended that consideration be given to increasing the rates over time to reflect the rate of inflation. It is also recommended that consideration be given to the appropriateness of making downward adjustments to reflect the depreciation of the pipeline assets (recognizing that the assessments currently factor in an annual depreciation amount).
< To make this system operational, it would be necessary for pipeline owners to report on the location and length of their pipelines to the affected municipalities on an annual basis.
º As a long-term goal, it is recommended that the municipal-specific tax rates be gradually phased into consistent province-wide rates.
º It is recommended that the Ministry of Finance participate in an ongoing dialogue with pipeline owners and municipalities to ensure that this proposed new system is responsive to their needs.
º It is also recommended that gate stations, which regulate gas pressure and monitor gas flow and quality, be included in the commercial property class.
Discussion:
It is recognized that the proposed new system would necessitate the creation of numerous municipal tax rates. However, once the initial rates have been set, it is believed that this system would provide predictability and stability in the longer term. Phasing into consistent province-wide rates would facilitate greater equity and stability over time.
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RACE TRACKS AND GOLF COURSES
Race tracks and golf courses are being discussed together in this report because the essence of the issues raised by both stakeholder groups is the same.
Race Tracks:
Concerns were expressed during the consultations about changes that MPAC is proposing to make to the method of assessing race track facilities.
Historically, race tracks have been assessed using the cost approach to value. It was indicated that this approach resulted in relatively stable assessments.
For the 2003 reassessment, MPAC is giving consideration to adopting an income approach to the valuation of race tracks. The proposed income methodology would take into consideration the revenue stream of race tracks, including the revenue from on-site slot machines.
The property owners do not believe that slot machine revenues should be treated as rent or as assessable income. Race track owners believe that the value of their land and buildings should be assessed, but not their gaming revenue.
It was also noted by the industry that a percentage of slot revenues is paid to municipalities, and it would be seen as a form of double taxation if these revenues were used to augment property assessments and increase taxes.
Golf Courses:
For the 2001 reassessment, MPAC applied a new income methodology for valuing the land component of golf courses. Previously, golf course lands were valued using bulk land rates.
The new income approach to golf course assessments has three components: a prime time greens fee, an estimated number of rounds played during the year, and a “greens fee multiplier” which is based on golf course property sales.
This new income methodology resulted in significantly higher assessments for many golf courses. Course owners have voiced dissatisfaction with the new methodology because they do not feel it fairly or accurately reflects the value of their respective courses. In particular, there was a widely held view that the figures which were used in the valuation of individual courses were not appropriate because they were not based on the greens fees or the number of rounds at the actual courses - instead, they were based on model courses. As well, the owners questioned the property sales that were used to develop the greens fee multipliers - it is believed that the sale prices were atypically high.
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Recommendation:
º Provincial intervention in the methodology of assessing race tracks and golf courses is not recommended at this time.
º It is recommended that the owners of race tracks and golf courses continue to engage in a dialogue and exchange of information with MPAC, with a view to reaching a consensus on the assessment methodology issues.
º It is recommended that the Ministry of Finance monitor the progress and the outcome of these discussions through the Joint Committee to ensure that any proposed changes to the assessment methodology are fair and manageable.
RAILWAYS
Railway Corridors (Rights-of-Way)
Context:
Prior to 1998, railway corridors were assessed based on the market value of abutting lands and they were taxed at local mill rates.
In 1998, a new fixed rate tax system was introduced. Railway corridors are no longer assessed; instead, they are taxed at a fixed rate per acre based on prescribed municipal and education tax rates. For this purpose, the province has been divided into nine regions and different tax rates have been prescribed for each region based on the average tax levels that existed on rail corridor properties prior to 1998. The new tax rates are being phased in gradually, with the fully mature rates scheduled to be implemented in 2005.
Although the regional tax rates were based on pre-existing tax levels, they were based on regional averages with the result that some properties are now experiencing tax adjustments as they move from their pre-1998 tax level up or down to the average regional tax level.
The municipal tax rates prescribed for rail corridors in the nine prescribed regions range from a high of $611.33 per acre in the region comprised of Toronto, York, Durham, Halton and Peel, to a low of $35.26 per acre in the region comprised of Kenora, Rainy River and Thunder Bay. In these same regions, the education tax rates range from a high of $822.69 to a low of $15.43.
Short-lines:
A number of short-line rail operators have expressed concern about the tax increases they are facing under the new rate-per-acre approach. Some short-lines are experiencing tax increases because they have been included in the regulation within the boundaries of a higher-taxed region, and others may be experiencing increases because they were previously taxed below the average rate for their area.
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Short-line railways operate on slim margins and they are much less profitable than the main-line railways. As a result, short-line operators have less ability to absorb increased overhead costs.
The Minister of Finance froze the tax rates of the railways whose taxes were increasing for 2001 and 2002 under the new regional tax rate system in recognition of the unforeseen tax consequences and to allow for a review that would address this issue.
Recommendation:
º It is recommended that the current system of prescribed tax rates with nine regions be maintained for main-line rail corridors, but it is recommended that modifications be made to the tax rates of short-line railways.
< It is proposed that “short-line” railways be defined as those operating exclusively within the boundaries of the Province of Ontario.
º It is recommended that short-line railway corridors be taxed at the lower of:
< the prescribed tax rate for the region in which the rail corridor is located; or < the average of the tax rates prescribed for all nine regions.
Discussion:
The proposed change to the tax treatment of short-line railways is intended to help maintain the economic viability of short-lines and to help them remain competitive with one another.
The proposed approach of applying the lower of the current rate or the provincial average rate to short-lines is consistent with the approach that the Province has applied to the education tax rates of commercial and industrial properties. As announced in the 1998 Budget, the Province is reducing education tax rates in municipalities with above-average commercial and industrial rates down to the provincial average by 2005. Commercial and industrial education tax rates that are below the average are being maintained.
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Industry-Wide Tax Levels:
The railway industry as a whole, led by the main-line operators, expressed the belief that the aggregate tax level on railways is too high.
They feel that railways in Ontario are overtaxed relative to those in other provinces and states, and they believe that the railway sector is at a competitive disadvantage to the trucking industry. The railway operators are seeking property tax reductions with a view to improving their competitive position in the marketplace.
Recommendation:
º No changes to the tax burden of railways are recommended at this time.
Discussion:
Current tax levels on main-line rail corridors appear to be competitive with other jurisdictions and with other modes of transportation.
The issues that the railway industry is raising about aggregate tax levels would be more appropriately addressed through a broad-based review of the tax competitiveness of Ontario’s transportation sector. Such a review should encompass all forms of taxation, not just property taxes.
Railyards
For property tax purposes, railyards are treated in the same manner as vacant land, and as such, they are taxed at 70% of the commercial tax rate. (To be more precise, railyards that occupy an entire parcel of land are included in the commercial vacant land sub-class, and railyards that occupy only a portion of a parcel of land are included in the commercial excess land sub-class. Both of these sub-classes benefit from a 30% tax rate reduction.)
Railyards were included in the vacant land and excess land sub-classes in 1998 to replicate the pre-reform treatment whereby railyards and other property used for railway operations was not subject to business occupancy tax.
The term “railyard” is not defined in O. Reg. 282/98. A disagreement has arisen as to the extent of railway property that should be treated as part of a railyard.
It has been requested that clarity be brought to this issue through the definition of railyard in O. Reg. 282/98.
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Recommendation:
º It is recommended that O. Reg. 282/98 be amended to clarify that a railyard includes not only the tracks, but also the marshalling areas, loading and unloading areas, holding areas, intermodal transfer areas, and associated lands.
º To provide equity to competing modes of transportation, it is recommended that trucking terminal lands (but not the buildings), which serve a similar function to railyard lands, be included in the excess land sub-class.
RECREATIONAL COMPLEX
Issues raised by stakeholders that would affect only a single property have generally not been addressed in this report. However, there is one situation that was brought forward during the consultations which merits discussion because of its unique nature.
A large manufacturing company operates a recreation centre for the use of its employees and for community organizations. This facility contains arenas, gymnasiums, baseball diamonds, tennis courts, a running track, a driving range and putting course, a soccer field, and a children’s playground.
The employer funds the net operating costs of the recreation centre, although nominal fees are charged to employees and community organizations for the use of certain facilities.
This property is owned by the same corporate entity that operates the manufacturing business, although the recreation centre is not operated on a for-profit basis.
The recreation centre has been included in the commercial property class, but the property owner has requested that it be included in the residential class because of its not-for-profit nature.
Recommendation:
º An expansion of the residential class to include recreational properties owned by for- profit business entities is not recommended.
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RESIDENTIAL CONDOMINIUMS
Representatives from several condominium corporations have requested that a separate property class be created for residential condominiums. It was submitted that a lower tax rate for high-rise accommodation is justified because multi-unit dwellings pose much less of a drain on municipal services than single-family dwellings.
As noted above under the discussion of the multi-residential property class, condominiums are included in the residential property class. The condominium owners who made a submission during the consultations are seeking to be taxed at a rate below the residential rate.
Recommendation:
º It is recommended that residential condominiums remain in the residential property class.
Discussion:
The fundamental premise of our property tax system is that properties should be taxed on the basis of their market value, not on the basis of the relative use that property owners make of local services.
SCHOOLS
Owners of for-profit private schools contend that they cannot compete fairly with non-profit private schools that are exempt from property taxes. They also feel it is unfair that they are providing the very service (education) for which they and the parents of their students are being taxed (through the education portion of the property tax on the schools and on the parents’ residences).
As such, owners of private schools that operate on a for-profit basis have requested property tax relief to level the playing field with non-profit private schools.
It was indicated during the consultations that the tuition fees of for-profit and non-profit schools are within the same range, and in many cases the fees charged to parents by elite non-profit schools are significantly higher than those charged by for-profit schools. While the for-profit schools are at liberty to increase their fees, they feel an obligation to their students and to the community to offer high quality education at an affordable cost. There is a strong sense of commitment among private school owners to offer educational choices and opportunities to all segments of society and not to have private schooling reserved only for the wealthy.
Public schools and schools that are organized on a not-for-profit basis are exempt from property taxes under the
Page 62 of 93 Property Assessment and Classification Review following legislative provisions:
C Section 3(1) para. 4 of the Assessment Act provides an exemption from taxation to the following public educational institutions:
Land owned, used and occupied solely by a university, college, community college or school as defined in the Education Act or land leased and occupied by any of them if the land would be exempt from taxation if it was occupied by the owner.
(The definition of “school” in the Education Act includes elementary and secondary schools that are part of a school board or that are operated by the province.)
C Section 3(1) para. 5 of the Assessment Act provides an exemption from taxation to the following non-profit schools:
Land owned, used and occupied solely by a non-profit philanthropic, religious or educational seminary of learning or land leased and occupied by any of them if the land would be exempt from taxation if it was occupied by the owner. This paragraph applies only to buildings and up to 50 acres of land.
For-profit schools are subject to property taxes at the commercial tax rate, consistent with the treatment of other for- profit businesses. Owners of these schools are seeking tax relief to put them on an equal footing with their public and non-profit counterparts and to provide tax fairness to the parents of their students.
Recommendation:
º No changes to the tax treatment of for-profit private schools are being recommended at this time.
Discussion:
It is recognized that there is some inequity in the tax treatment of for-profit and non- profit private schools. However, it is hoped that the “equity in education tax credit”, which was announced in the 2001 Ontario Budget, will move towards addressing the concerns of the parents of children enrolled in taxable educational institutions.
SELF-STORAGE FACILITIES
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Owners of self-storage facilities (also known as public storage or mini-warehouse facilities) made submissions during the consultations to express dissatisfaction with the inclusion of their facilities in the commercial property class. They would like to be included in the residential property class to reflect the pre-reform situation whereby units in public storage facilities that were rented to private individuals for storage of personal effects were not subject to business occupancy tax (BOT).
Prior to 1998, tenants and occupants of commercial and industrial properties were subject to BOT pursuant to the provisions of section 7 of the Assessment Act. BOT was charged to every person who was “occupying” land “for the purpose of or in connection with a business.” Over the years, rules were developed by the courts to assist in the determination of who was “occupying” land and who was doing so in connection with a “business” activity.
To determine whether a person was “occupying” property for BOT purposes, several factors were considered, including:
C the nature of the agreement, if any, between the landlord and the occupant (e.g. was there a lease or a license); and
C whether the person had exclusive care and control of the premises (e.g. could the tenant access the premises at any time or was access only possible at the times and in the manner permitted by the landlord).
With respect to the business activity test, a person was considered not to be using land in connection with a business activity if their activity was not conducted with a view to a profit. Profit motive was key to this test, therefore all non- profit entities were exempt from BOT.
In the case of Canadian Mini-Warehouse Properties v. Regional Assessment Commissioner, Region No. 12 and Borough of Etobicoke, the court addressed the issue of whether the tenants of certain self-storage facilities were "in occupation" of the units for the purposes of BOT. In the context of the facts of this particular case, the judge concluded that the tenants of the units had sufficient control and exclusivity over the use and access to their units to be considered the occupants. While these tenants were “in occupation”, they were not occupying the units in connection with a business activity as they were storing personal effects. Therefore the tenants of the property at issue were found not to be subject to BOT.
As part of reforming the property tax system in 1998, the Province eliminated the BOT through the repeal of section 7 of the Assessment Act. Under the current assessment system, assessors no longer assess tenants. It is now the use of premises that determines the classification of property, not the identity of a tenant.
In 1998, when the property classes were created, it was determined that the commercial classification would apply to public storage and mini-warehouse facilities. Public storage facilities have been included in the commercial class because the entire premises are being used for business purposes in that the owner of the property is operating the business of renting storage space. The nature of the goods that are being stored and the identity of the unit occupants is not a relevant consideration under the current rules.
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Recommendation:
º It is recommended that public storage and mini-warehouse facilities continue to be included in the commercial property class.
Discussion:
The commercial classification of public storage facilities correctly reflects the business use that the owners are making of these properties.
~~~~ Note:This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001.
SHOPPING MALLS
Shopping mall owners and tenants have both expressed satisfaction with the method by which MPAC assesses retail shopping complexes. As a general practice when valuing shopping malls, MPAC applies the income approach which establishes a market value for the property by capitalizing the rental income stream.
The issues that were raised by stakeholders during the consultations did not relate to the assessment or classification of these properties, but rather, they related to information that owners and tenants would like to see added to the assessment roll.
Separate Assessment of Anchor Stores:
Anchor tenants are requesting that their stores be assessed and taxed as separate properties rather than being included in the assessment of the shopping malls. Anchors want to be treated as separate properties to extricate themselves from the tenant capping regime. In particular, they want to be removed from the pool of tenants whose tax decreases are being limited or delayed to fund the cap on tax increases of other tenants.
Apportionment of Tenant Units:
It was proposed during the consultations that MPAC be required to apportion the value of tenant units in shopping malls based on a blending of fair market rent valuations and square footage allocations.
The request is not for MPAC to change the way assessors value shopping centre properties (i.e. MPAC should still derive a value for the property using the income approach based on fair market rents). The proposal is that the assessors’ working papers be required to show tenant apportionments that are different than those that are actually established during the property valuation process. The assessors’ working papers are relevant because most shopping centre owners rely on these documents as the basis for apportioning property taxes since there are no longer separate tenant allocations on the assessment roll for business occupancy tax (BOT) purposes.
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The intention behind this proposal is to move towards an equalization of the tax levels between the various tenants in shopping malls.
Recommendation:
º It is recommended that the Province not create separate assessments for anchor tenants and that the Province not introduce new artificial tenant apportionments for shopping malls.
Discussion:
The current disparity in tax levels between anchor tenants and smaller tenants within shopping malls is a result of the structure of the tax allocation clauses in the leases that have been negotiated between landlords and tenants.
The creation of separate assessments or regulated apportionments would circumvent the terms of various lease agreements.
Under the current assessment system, the primary liability for property taxation rests with the property owner. It would not be appropriate for the government to create a scheme which is designed to change the amounts on account of taxes that are paid by tenants to landlords.
While the Province did make legislation affecting tenants in 1998 when it imposed the tenant cap, this was done to protect tenants by mitigating the impact of unexpected and unmanageable reform-related tax shifts. The tenant cap preserved the status quo and it provides for a gradual transition to the current value assessment system.
SMALL BUSINESS
During this review, taxpayers and municipalities brought forward proposals for the creation of a variety of mechanisms aimed at providing tax relief to “small business” or “neighbourhood commercial” properties.
The idea of providing preferential property tax treatment to small businesses is not a new one. Previous panels that were convened to study property tax reform, including the “Who Does What Panel” chaired by David Crombie in 1996, were faced with similar requests.
Specific proposals that were made during the consultations for this current review include the following: C create a separate property class for “small business” properties; C create a separate property class for “neighbourhood commercial” properties; C create a sub-class for “small rural commercial businesses”; C apply “current use” valuation principles to the assessment of small business properties; C impose graduated tax rates to apply lower tax rates to lower-valued business properties.
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Each of these proposed mechanisms would achieve a different goal. In order to determine which mechanism, if any, should be adopted, it is necessary to identify the underlying policy objectives.
The objectives behind the proposals submitted by the various stakeholders are not synonymous. Some stakeholders want to see broad-based tax relief provided to all small businesses, recognizing the importance and fragility of the small business sector in our economy, while others are only seeking to confer a benefit on their particular category of properties.
The objectives identified by stakeholders include the following:
C to support community streetscapes with small neighbourhood shops (the stakeholders who identified this objective are opposed to relief being provided to all small business properties, their goal is to provide relief only to street-front clusters of shops);
C to reduce the tax burden on rural businesses in an effort to sustain and promote economic development in rural communities;
C to provide relief to small business properties that are facing assessment-related tax increases as a result of the assessment-related tax decreases that are being experienced by large business properties (in essence, the goal is to mitigate the tax shift from large office towers onto small properties that occurred upon reassessment in some municipalities);
C to provide tax relief to all small businesses.
One of the significant obstacles to the implementation of the proposed tax relief mechanisms would be the development of a province-wide definition of eligible properties.
C Some business associations have proposed definitions based on physical characteristics of properties (e.g. street frontage with no more than three storeys). However, many businesses that occupy such properties are not small businesses in the traditional sense, but rather, they are part of multi-national chains.
C Some stakeholders have proposed that geographic boundaries be used to determine which properties would be eligible, such as Business Improvement Areas. However, geographic areas would include both large and small businesses.
C Some stakeholders have suggested that all small businesses be eligible for relief, whether they are property owners or tenants. To define “small” businesses, a variety of size tests would be required, such as number of employees. However, it is unclear how relief could be delivered to small business tenants because there is no direct property tax liability against tenants - taxes that are paid by tenants are actually paid to landlords under the terms of their leases.
To avoid the challenges of defining “small” businesses or “neighbourhood commercial” properties, a proposal was made to apply graduated tax rates to all business properties. The graduated tax rate mechanism would achieve the goal of applying lower tax rates to smaller and lower-valued properties and it would avoid most of the definitional issues because it would apply equally to all properties in the class.
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There is currently a graduated tax rate mechanism available to municipalities under section 368.2 of the Municipal Act. This mechanism, which can be applied to the commercial or industrial property classes, allows upper-tier and single-tier municipalities to establish up to three bands of assessment and to set different tax ratios for each band. Municipalities would determine the thresholds of assessed value for each band and they would determine the tax ratios that apply to each band. For example:
Band of Assessment Tax Ratio 0 to 200,000 2 200,001 to 500,000 4 500,001+ 6
Recommendation:
º The creation of a new property class for small business properties is not recommended.
º It is recommended that the graduated tax rate mechanism, which is currently optional, be made mandatory for the commercial property class. This mechanism would require municipalities to apply lower tax rates to smaller and lower-valued properties.
Upper-tier and single-tier municipalities would have the option of establishing two or three bands of assessment, and they would set different tax ratios for each band. Municipalities would determine the thresholds of assessed value for each band and they would determine the tax rates that apply to each band.
It is recommended that the Province impose certain standards to ensure that the intent of this program is met. Specifically, it is recommended that the Province prescribe criteria for a minimum threshold and a maximum tax rate for the first band of assessment.
< With respect to a minimum threshold it is recommended that the Province set a minimum standard. For example, the Province could require that the first band comprise the first 10% of the value of the average commercial property in the upper-tier or single-tier municipality.
(continued on next page)
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Discussion:
It is believed that the graduated tax rate mechanism is the most efficient means of delivering property tax relief to small business properties. This mechanism avoids the need to define eligible properties because all properties in the class are eligible, and it treats all properties fairly and equally as every property in the class would benefit from the reduced tax rate on the same portion of its assessment.
The only apparent definitional challenge with the graduated tax rate mechanism is to define the first band (that is, the band which is intended to capture smaller properties). It is believed that the Province should not prescribe standard bands or thresholds of assessed value because property values differ widely from one community to the next. A property that is considered small or low-valued in a large urban centre may be the highest-priced property in a community in rural or northern Ontario. Therefore, it is believed that municipalities are in the best position to determine the thresholds of assessed value that are reflective of their local marketplace. However, it has been recommended that the Province prescribe criteria for a minimum threshold and a maximum tax rate for the first band to ensure the intent of the program is not defeated by the creation of an artificially low assessment or high tax rate on the first band.
TRAILERS
The assessability of residential trailers and mobile homes has been a debated issue for at least two decades. The essence of the issue is whether these forms of accommodation are real property (which is liable for assessment under the Assessment Act) or if they are chattels (which are not assessable for property tax purposes).
The Assessment Act requires that all real property be assessed. The definition of “real property” in the Act includes: “all buildings ... and all structures, machinery and fixtures erected or placed upon, in, over, under or affixed to land.”
In determining whether something is assessable as real property, the courts have looked to the degree of permanence of the structure. In the case of residential trailers, characteristics of permanency would include such features as sun- rooms or porches that are built out from the unit.
In the late 1980s, after years of disputes about the appropriate tax treatment of trailers, a policy decision was made by the then Minister of Finance to place a moratorium on the assessment of trailers in “seasonal” trailer parks until the issue could be resolved. A stakeholder committee was struck to deliberate on the appropriate tax treatment of these properties and to look at alternatives to property taxes, such as municipal licensing. The committee did not produce a resolution.
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Under the moratorium policy that was imposed more than a decade ago, residences in mobile home parks that are zoned for year-round use have been assessed, but residential units in parks that are zoned or characterized as being for seasonal use have not been assessed. (It should be noted that the land in all trailer parks has been assessed. It is only the residential units on the land whose assessability has come into question.)
The moratorium has continued to this day, with the result that many trailers have not been assessed for the past decade. The moratorium policy was never reflected in legislation. This contradiction between assessment policy and the legislation has led to recent court challenges about the assessability of all residential trailer units.
Respecting the recent court decisions, and recognizing the fact that the moratorium policy is not encoded in the Assessment Act, MPAC is proposing to assess all residential units that exhibit characteristics of permanency in all trailer parks and campgrounds for the 2003 reassessment.
As a result of a recent court judgment confirming the assessability of units within a particular trailer park community, MPAC is faced with the possibility of having to assess this type of accommodation on a retroactive basis because the Assessment Act requires that MPAC add properties to the assessment roll for the current year and two previous years when it is determined that the properties were erroneously omitted from the assessment roll.
Owners and residents of trailer parks, as well as municipalities, are seeking a resolution to this longstanding issue.
Recommendation:
º It is recommended that all residential units located in trailer parks, campgrounds, and land lease communities be assessed and taxed at the residential rate if they meet the test of being assessable real property by exhibiting characteristics of permanency.
The following criteria, which have been proposed by MPAC, appear to be satisfactory tests for determining the assessability of this form of accommodation.
~ unit not licensed for road travel or for towing behind a passenger vehicle; ~ unit can only be moved to another site with a special vehicle and an oversize permit; ~ permanent connections are in place for water, electricity and waste disposal.
º It is recommended that MPAC not be required to issue omitted assessments for residential units that have not been assessed prior to 2003 due to the moratorium policy that was previously in effect. Therefore, it is recommended that the Assessment Act be amended to create a limited exception to the omitted assessment rules to address this particular situation.
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WELLS
The petroleum sector has raised issues with the assessment and taxation of oil and gas wells. The sector believes that oil and gas wells should qualify for an exemption from property taxation under the provision in section 3 of the Assessment Act which accords an exemption to mining equipment.
In the absence of an exemption, the petroleum industry would like wells to be taxed at fixed amounts per well rather than based on current value assessment. It was indicated during the consultations that MPAC has generally applied an assessment of $40,000 to high-producing wells and $20,000 to low-producing wells. The industry takes issue with this methodology because the volume of production from a well is not necessarily indicative of the value of the well.
Recommendation:
º It is recommended that oil wells be subject to fixed assessments. Municipalities would continue to levy a tax on the wells at the local commercial tax rate.
It is recommended that different assessments be prescribed for oil wells of different depths.
< In Ontario, commercial oil and gas production presently occurs in southern Ontario where oil and gas pools have been located at depths ranging from 300 feet to more than 3600 feet, traversing the Devonian, Silurian, Ordovician and Cambrian rock strata.
< It is recommended that the Ministry of Finance work with the Ministry of Natural Resources to identify and categorize the different depths of wells.
< It is recommended that a maximum of four well depth assessment categories be created (to match the four major rock strata in southern Ontario), and that different fixed assessments be prescribed for each category.
< It is recommended that a fifth category be established for “historic” oil wells, and that this category be assessed at a rate below the lowest of the rates applicable to the four aforementioned categories.
< The assessment rates should be developed by the Ministry of Finance in consultation with MPAC based on the value of the wells and associated land.
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ISSUES FOR FUTURE CONSIDERATION
The following segment of the report presents issues that were raised during the consultations which fell outside the parameters of the mandate for this review. These issues are being included in this report because the author believes they are sufficiently important to merit future consideration by the government.
CAP ON TAX INCREASES
In 1998, the Province imposed mandatory limits on property tax increases for commercial, industrial and multi- residential properties to mitigate the impacts of property tax reform.
The mandate for this consultation project did not include a direction to review the merits of the cap on tax increases. However, numerous stakeholders expressed views on the capping mechanism during the consultations. In particular, municipalities voiced concerns about the administrative complexity of the cap, and taxpayers noted their concerns about the limitation of tax decreases through the clawback mechanism.
There is a general recognition that the mandatory 5% cap on tax increases was, and continues to be, an important tool to ensure that the transition to CVA is manageable. However, it is evident from the submissions received during this review that taxpayers and municipalities strongly support the implementation of CVA, and there is a general desire to see mandatory caps terminate by a fixed date in the future so that CVA can be fully implemented.
Recommendation:
º It is recommended that the Province conduct focused consultations with stakeholders on the question of the continuation of the mandatory cap on reassessment-related tax increases.
During these consultations, it is recommended that the Province review the progress that has made in each municipality towards achieving full CVA since 1998, and that quantitative analysis be conducted to study the impact that taxpayers would experience if there were no mandatory caps in place.
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CROWN LAND
Most communities in Ontario are able to access their land base as a source of property tax revenue. However, some municipalities, particularly those in northern and remote parts of Ontario, have large tracts of unpatented Crown lands within their borders. (Unpatented Crown land is land that has never been conveyed or deeded to anyone.)
While the provincial and federal governments generally make payments in lieu of taxes to municipalities in respect of their properties, payments in lieu of taxes are not paid in respect of unpatented Crown land.
Some municipalities have expressed frustration that they are required to provide services in and around these lands (e.g. road maintenance and fire protection) but they receive no revenues from them. Even where the lands are used for certain purposes, such as the placement of hydro transmission lines, no property taxes or payments in lieu of taxes are paid to the municipality.
Recommendation:
º It is recommended that the Province conduct further consultations with municipalities to address their concerns about Crown land.
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APPENDIX A: TERMS OF REFERENCE
Terms of Reference: Review of Ontario Regulation 282/98 (Phase 2) by Marcel Beaubien, MPP, Lambton-Kent-Middlesex
Context
Prior to property tax reform in 1998, municipalities had little flexibility in setting tax rates for different types of properties. In order to provide municipalities with more flexibility to respond to local priorities, the Province implemented a property classification system as part of reform in 1998.
Ontario Regulation 282/98 was filed on June 12, 1998. It defines the property classes and sub-classes and sets out the prerequisites for properties to be included in each class.
It is the responsibility of the Municipal Property Assessment Corporation (MPAC), formerly the Ontario Property Assessment Corporation (OPAC), to assess all properties in Ontario in accordance with policies determined by the Minister of Finance and as set out in O. Reg. 282/98. Review Mandate - Phase 1
When the Minister of Finance announced a review of the property assessment process in Ontario in December 2000, he provided a mandate to Marcel Beaubien, MPP, as Special Advisor, to conduct a review of three key areas:
< the operational structure of OPAC, including the composition of the Board of Directors; < the working relationship between OPAC and the provincial government; and < the regulation which defines property classifications (O. Reg. 282/98).
As a result of the review, Mr. Beaubien submitted a Report on the Review of the Property Assessment Process to the Minister of Finance on April 2, 2001. The report made specific recommendations for immediate implementation in regards to the first two areas of the mandate. The final aspect of the mandate, to review Ontario Regulation 282/98, was identified as warranting further review and consultation.
Review Mandate - Phase 2
As announced on July 18, 2001, the Minister of Finance has extended the appointment of Marcel Beaubien, MPP, as a Special Advisor, to continue a review of issues arising under O. Reg. 282/98.
The issues to be considered by Mr. Beaubien during the second phase of the review include the following: < the number, scope and definition of property classes and sub-classes; < the assessment methodology applied to unique properties such as farms and linear properties; < the linkages between assessment classifications and related public policy objectives of the Government of Ontario; and < any other matters governed by Ontario Regulation 282/98 or matters that may fall outside the purview of the Regulation but within related assessment policy or tax policy jurisdiction. Limitations
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Matters pertaining to limits on tax increases set out in the Continued Protection for Property Taxpayers Act, 2000 (Bill 140) are outside the scope of this review and will not be considered for recommendations.
Structure of Consultations
Consultations may be conducted through any manner of public and or private meetings and through the solicitation of written submissions.
Consultations should include representation from individual taxpayers, businesses and municipalities, as well as taxpayer, industry and municipal associations.
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APPENDIX B: SUMMARY OF RECOMMENDATIONS
Access to Assessment Information
C MPAC and the Ministry of Finance should work together to ensure that there is an open exchange of information between MPAC and the public. It is recommended that this matter be overseen by the Ministry of Finance / MPAC Joint Committee.
C The Joint Committee should review MPAC’s current policies governing the release of assessment information to determine whether the policies sufficiently respond to the needs of municipalities and the public, and the Joint Committee should report to the Minister of Finance within six months to advise whether MPAC should provide expanded access to information about assessment methodologies, policies and procedures.
C The following principles should guide the Joint Committee in its deliberations on this matter:
< Property owners should be provided with sufficient information to enable them to understand the basis upon which their property assessments are derived. In order for taxpayers and municipalities to have confidence in the assessment system, they need to have a basic level of understanding about how the system operates.
< It is vital that MPAC safeguard the personal information that it collects as part of its statutory duties. As we move further and further into the age of electronic information, it is critical to ensure that the privacy rights of our citizens are protected.
Accreditation of Assessors
C The Province of Ontario should not impose standardized education or accreditation requirements on persons working as property assessors.
Advisory Committees
C The Ministry of Finance / MPAC Joint Committee should serve as an ongoing venue in which stakeholder groups can bring forward assessment and property tax issues that are causing concern within their particular sectors. In this venue, parties could work together to identify emerging problems and propose solutions.
C The Joint Committee should take the initiative to inform stakeholders of the opportunity to make submissions and engage in discussion with representatives from the Ministry of Finance and MPAC through the Committee.
Appeals
Requests for Reconsideration:
C The deadline to appeal assessments to the ARB should remain consistent for all property owners at March 31st of the tax year.
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Upper-Tier Appeal Rights:
C Appeal powers should not be conferred upon upper-tier municipalities.
Banks
C The Province should not prescribe an assessment methodology to be used in the assessment of stand-alone bank branches.
Cables
C The imposition of property tax on cables and telecommunication lines is not recommended at this time.
C With respect to properties that are leased to telecommunication companies for the placement of cable lines, the following recommendations are being made:
< As a general rule, portions of railway corridors which are leased by the owner to another entity and are used for a purpose other than rail transportation should be subject to assessment and taxation.
< As a general rule, pipelines which are leased by the owner to another entity and are used for a purpose other than the transmission of oil or gas should be subject to assessment and taxation.
< In these situations, railway corridors and pipelines should be assessed on an income basis, and the rates of assessment and taxation should be developed by the Ministry of Finance in consultation with MPAC and the affected property owners to ensure the rates are fair and appropriate.
Camps
C Children’s recreational camps which are used on a seasonal basis should be included in the residential class.
C Facilities which operate for business purposes on a year-round basis and offer camp programs on a seasonal basis should be included in the commercial class.
C Camp properties which are currently exempt from taxation under the Assessment Act or private legislation should retain their exempt status.
Car Dealerships
C The Province should not prescribe special rules for the assessment of car dealerships.
C The Province should not create a special property class for car dealerships or make any changes to the current commercial classification of these properties.
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Conservation Land
Assessment of Mixed-Use Properties:
C The Province should not prescribe an apportionment methodology to be used in the assessment of conservation land on mixed-use parcels.
Eligible Property:
C In deference to the consultation process that is being led by the Ministry of Natural Resources, no specific recommendation is being made at this time concerning a proposed expansion of the categories of properties that are eligible for exemption from property taxation.
Economic Development Incentive Tools
C Zones should be created in which property tax incentives could be provided to businesses that construct new buildings or expand existing facilities. The Province should establish minimum eligibility criteria, and municipalities should be permitted to add additional criteria.
Environmental Protection
C Features of a property which are designed for environmental protection or pollution control should not be subject to additional assessment.
Exempt Landlords with Taxable Tenants
C The Province should not take action to require MPAC to assess all occupants of exempt properties.
Farms
Application Process:
C A requirement to submit applications for inclusion in the farm property class should be maintained. The Ministry of Agriculture and Food should continue to oversee this process.
C There should be a common application deadline (prior to the tax year) that applies province-wide rather than the current system of different application deadlines in different municipalities.
C To provide flexibility to respond to mitigating circumstances where the application deadline is missed, the Ministry of Agriculture and Food should be authorized to accept and process applications that are submitted up to December 31st of the taxation year.
Assessment Methodology:
C Changes to the method of assessing farm land are not recommended at this time.
C MPAC should develop a test to isolate farm lands within urban shadow areas to ensure that the assessed values of these lands are not higher than the assessment rate per acre for similar lands outside the urban
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shadow area.
C MPAC should develop a farm assessment education and training program to address the concerns of the farming community that farmer-to-farmer sale prices do not reflect the productive capacity of farm lands.
Farm Buildings:
The following rules are recommended to govern the property tax classification of farm buildings and related facilities:
ACTIVITIES CONDUCTED ON THE FARM PROPERTY
C Activities which are characterized as “primary agricultural production” and which are carried out on farm property should be included in the farm property class. The Minister of Finance should define “primary agricultural production” in regulation. This definition should be developed by the Ministry of Finance in conjunction with the Ministry of Agriculture and Food.
C Activities which move a step beyond primary agricultural production to perform some processing of the farm product without changing the nature of the product (“value-retention activities”) and which are carried out on the farm property should be included in the residential property class. This category should be defined in regulation by the Minister of Finance in consultation with the Ministry of Agriculture and Food.
C Activities which utilize farm products to create a new product or which involve retail sales of products (“value-added activities”) and which are carried out on the farm property should be assessed at commercial or industrial rates and included in the commercial or industrial property class (based on the activity).
C To maintain the commitment that was made by the Province in the 1997 Ontario Budget, the land underneath value-added buildings on farm properties should be assessed at farmland rates.
ACTIVITIES CONDUCTED OFF THE FARM PROPERTY
C Activities which are characterized as value-retention activities and which are conducted off farm property should be included in the commercial property class.
C Activities which can be characterized as value-added activities and which are conducted off farm property should be assessed at commercial or industrial rates and included in the commercial or industrial property class (based on the activity).
C Grain elevators located off farm property should be classified as commercial, not industrial.
C Storage facilities which are located off farm property, that are owned and operated by farmers and are used exclusively for the storage of produce grown on the farmers’ own lands, should be included in the residential property class. Storage facilities which are located off farm property, that are owned or operated by persons other than farmers storing their own produce, should be included in the commercial property class.
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Government-Owned Farmland:
C Government-owned farmlands which are occupied by tenant farmers should be eligible for inclusion in the farmlands property class.
Mixed-Use Properties:
C Portions of mixed-use properties that are used for bona fide farming activity should not be included in the excess land sub-class, but rather, should be included in the property class which most appropriately reflects the activity on the property.
Farming activity on mixed-use parcels could attract different classifications depending on the circumstances of the specific property. The farmed portion of a property may be included in the farmlands class, the residential class, or one of the farmland awaiting development sub-classes.
Name of Classes:
C The following name changes are recommended: < change the name of the “residential/farm property class” to “residential property class”; and < change the name of the “farmlands property class” to “farm property class”.
Tax Rates:
C Upper-tier and single-tier municipalities should be given the ability (on an annual basis) to set a tax ratio for the farm property class that is below 25% of the residential tax rate. The authority to apply a reduced tax rate to the farm class should only apply in respect of the municipal portion of the tax.
Float Homes
C Residential dwellings located on the water should be subject to property taxation at the residential rate. If there is ambiguity in the definition of assessable property under the Assessment Act, the Act should be amended to clarify that permanent dwellings located on water are assessable in the same manner as dwellings located on land. Motorized vehicles, commonly known as house boats, which are designed for only short-term recreational accommodation would continue to be treated like personal property (i.e. chattels) and would not be assessed.
Funeral Services
C Visitation centres and other facilities which provide non-interment services on cemetery sites should be subject to property taxation in the same manner as their off-site counterparts. The burial ground areas of cemetery sites should retain their exemption from taxation.
Gravel Pits
C Changes should not be made to the classification of gravel extraction lands.
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Hotels
Assessment Methodology:
C The following standards should be applied by MPAC in the assessment of hotels:
< The standard deduction for management expenses should be 5%, but MPAC should have discretion to apply a higher or lower percentage based on the circumstances demonstrated for each individual property.
< The standard deduction for chattels (furniture, fixtures and equipment) should be 15%, but MPAC should have discretion to apply a higher or lower percentage based on the circumstances demonstrated for each individual property.
Suite Hotels:
C All hotel operations should be included in the commercial property class. To achieve this objective, the definition of “hotel” in O. Reg. 282/98 should be modified to capture facilities that are in the business of providing transient accommodation to the travelling public, regardless of whether on-site food service is provided and regardless of whether the property is a condominium.
Industrial Property Class
The following changes are recommended to the definition of the industrial property class:
C Remove the phrase “in connection with”, and remove the words “producing or processing anything”, so that the opening words of the definition would read “land used for manufacturing”.
C Some processing activities could be included in the industrial class if they are industrial in nature, but these activities should be narrowly defined or specifically listed in the regulation to avoid unintended expansion of the class.
C If the meaning of the word “manufacturing” is not clear within the context of the body of case law that has interpreted that word over the years, the Minister of Finance should prescribe a definition.
C Remove research and development (R&D) from the industrial class and include R&D facilities in the commercial class.
C Remove retail sales premises from the industrial class and include them in the commercial class.
C Remove grain elevators from the industrial class.
C As a failsafe mechanism, to ensure that businesses do not get unintentionally included in the industrial class, regard should be given to the zoning of the property. Businesses located in commercially-zoned areas should not be included in the industrial property class.
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Large Industrial Property Class
C The 125,000 square foot threshold should be maintained for the large industrial property class.
Life Lease Buildings
C Changes should not be prescribed to the assessment methodology that is applied to life lease properties.
Managed Forests
Assessment Methodology (Banding):
C The band method should not be applied to the assessment of managed forest properties.
Assessment of Mixed-Use Properties:
C The Province should not prescribe an apportionment methodology to be used in the assessment of managed forests on mixed-use parcels.
Eligibility Criteria:
C The Canadian citizenship ownership requirement should be removed as a prerequisite to eligibility for the managed forest property class.
C The Canadian citizenship ownership requirement should also be removed from the farmlands property class.
C Eligibility for the managed forest property class should be expanded to include portions of the natural landscape that cannot support trees, provided that these areas are surrounded by eligible managed forest.
Oversight and Administration:
C The following program administration changes are recommended:
< Change the application deadline from August 31 to July 31.
< Change the application period from annual to every ten years. However, to successfully implement a ten-year application cycle, the following precautions are recommended:
~ ensure that property owners receive adequate advance notice of the application deadline at the end of each ten-year cycle;
~ annual inspections should be conducted prior to the preparation of the assessment roll to ensure that properties are still meeting the eligibility criteria for the managed forest class;
~ ensure that MPAC has the authority to change the classification of managed forest properties during the ten-year cycle if activities are conducted on the property which are inconsistent with the eligibility criteria for the class.
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< Provide new owners with 90 days in which to apply for inclusion in the managed forest property class. MNR should ensure that new owners are notified of this application requirement.
< Give authority to Mining and Lands Commissioner to accept late applications where there are mitigating circumstances. Consistent with the recommendation made above with respect to the farm property class, the Commissioner should be authorized to accept and approve applications that are submitted up to December 31st of the taxation year.
< Remove the obligation for property owners to submit entire managed forest plans and only require that relevant portions of the plans, as specified by MNR, be submitted with the application.
< Allow MNR to exclude properties from the managed forest property class, but only in situations where the landowner has violated one or more of the eligibility criteria in section 9 of O. Reg. 282/98 or in its managed forest plan.
~ In such cases, MNR should notify MPAC of the change and MPAC would issue a supplementary notice of assessment to effect the mid-year class change.
< MNR should be permitted to inspect properties for up to a year after they leave the managed forest property class. If it is found that activities were conducted on the property which violated the eligibility criteria of the class, MPAC should be notified and authorized to issue a notice of supplementary or omitted assessment to remove the managed forest classification back to the date of the offending activity.
C MNR should not be authorized to delegate its obligation to consider requests for reconsideration to an outside agent.
Multi-Residential Property Class
Future Elimination of the Class:
C The multi-residential property class should be combined with the residential class and the municipal tax rate on multi-residential properties should be reduced to the residential rate.
C Municipalities should be required to fully implement the elimination of the multi-residential property class as early as January 1, 2006. However, in recognition of the unique circumstances facing the City of Toronto which had an extremely outdated assessment base prior to reform, Toronto should be given until at least January 1, 2010 to fully implement the merger of these two classes.
C Municipalities should be permitted to redistribute the cost of eliminating the multi-residential class across all classes rather than shifting the cost entirely onto the residential class.
Rooming Houses:
C Licensed rooming houses should be included in the residential class.
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Retirement Homes:
C Retirement homes should be included in the residential class.
Co-Operative Buildings:
C Co-operative and co-ownership buildings should remain in the residential class and should not be placed in the multi-residential class in the event that less than 50% of the units are owner-occupied.
C O. Reg. 282/98 should be amended to remove the provisions which prevent co-operative and co-ownership buildings from being included in the residential class if they are created after 1998. Buildings with the same ownership structure that are developed after 1998 should be in the residential class.
Vacant Multi-Residential Land:
C Vacant lands which are zoned for any form of residential development should be in the residential class, regardless of whether the zoning specifies single family or high-density development.
Land Lease Communities:
C Land lease communities should be included in the residential class to be consistent with the treatment of mobile home parks and other similar properties.
Thresholds:
C Upper-tier and single-tier municipalities should be given the option of increasing the number of units (above seven) that will trigger eligibility for the multi-residential property class within their boundaries.
Non-Profit Organizations
C The rebate program under section 442.1 of the Municipal Act should be enhanced to give lower-tier municipalities the option of providing property tax rebates to non-profit organizations that have not been made eligible for rebates by the upper-tier level of government.
C The cost of rebates that are initiated by lower-tier municipalities should be shared in the same manner as tax relief for brownfield sites or heritage properties under sections 442.7 and 442.8 of the Municipal Act whereby the lower-tier municipality decides on a percentage of tax relief to be provided, a matching percentage of the education tax may be provided, and the upper-tier municipality is given the option of providing matching relief in respect of its portion of the tax.
C The definition of “non-profit service organization” should be clarified to ensure that non-profit animal shelters, which by their very nature provide a service for the welfare of the community, are eligible for inclusion in the residential property class.
C Expansions to the list of statutory exemptions are not recommended at this time.
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Office Building and Shopping Centre Classes
C The 25,000 square foot threshold should be maintained for the office building and shopping centre classes.
C There should be only one 25,000 square foot threshold applied to each parcel of land on which there are one or more buildings that are eligible for inclusion in the office building or shopping centre classes.
Parking Lots and Vacant Land Class
Rates and Ratios:
C Restrictions should be placed on the tax ratio of the parking lots and vacant land class to ensure that vacant land and railyard properties are not penalized by the application of this class. The tax rate of this class should be no higher than the rate that would be levied on vacant land and railyard properties in the commercial vacant land sub-class.
Sub-Classes:
C The Province should not create parking lot sub-classes that would distinguish between different categories of ownership or different types of parking lots.
Pipelines
C The property tax treatment of oil and gas pipelines should be changed from an assessment-based system to a prescribed tax rate system.
The following approach is recommended to calculating and applying tax rates:
< For each municipality, calculate the total property tax yield from pipelines (in the year preceding the first year of implementation of the new program) and calculate a tax rate which, when applied to the length of pipes in the municipality, would yield the same amount of tax.
< These tax rates would be prescribed by the Minister of Finance for each municipality, further to discussions with MPAC and the industry.
< Consideration should be given to increasing the rates over time to reflect the rate of inflation. It is also recommended that consideration be given to the appropriateness of making downward adjustments to reflect the depreciation of the pipeline assets (recognizing that the assessments currently factor in an annual depreciation amount).
< To make this system operational, it would be necessary for pipeline owners to report on the location and length of their pipelines to the affected municipalities.
C As a long-term goal, the municipal-specific tax rates should gradually be phased into consistent province- wide rates.
C Ongoing dialogue should be conducted with pipeline owners and municipalities to ensure that this proposed new system is responsive to their needs.
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C Gate stations, which regulate gas pressure and monitor gas flow and quality, should be included in the commercial property class.
Race Tracks and Golf Courses
C Provincial intervention in the methodology of assessing race tracks and golf courses is not recommended at this time.
C The property owners should continue to engage in a dialogue and exchange of information with MPAC with a view to reaching a consensus on these issues. The Ministry of Finance should monitor the progress and outcome of these discussions through the Joint Committee.
Railways
Railway Corridors (Rights-of-Way):
C The current system of prescribed tax rates for nine regions should be maintained for main-line rail corridors. However, modifications should be made to the tax rates of short-line railway corridors.
C It is recommended that short-line railway corridors be taxed at the lower of: < the prescribed tax rate for the region in which the rail corridor is located; or < the average of the tax rates prescribed for all nine regions.
Railyards:
C O. Reg. 282/98 should be amended to clarify that a railyard includes not only the tracks, but also the marshalling areas, loading and unloading areas, holding areas, intermodal transfer areas, and associated lands.
C To provide equity to competing modes of transportation, it is recommended that trucking terminal lands (but not the buildings), which serve a similar function to railyard lands, be included in the excess land sub-class.
Recreational Complex for Employees
C An expansion of the residential class to include recreational properties owned by for-profit business entities is not recommended.
Residential Condominiums
C Residential condominiums should remain in the residential property class.
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Schools (For-Profit)
C Changes should not be made to the tax treatment of for-profit private schools.
Self-Storage Facilities
C The commercial classification should be maintained for public storage and mini-warehouse facilities.
Shopping Malls
C The Province should not create separate assessments for anchor tenants.
C The Province should not introduce artificial tenant apportionments for shopping malls.
Small Business Properties
C The graduated tax rate mechanism, which is currently optional, should be made mandatory for the commercial property class. This mechanism would require municipalities to apply lower tax rates to smaller and lower- valued properties.
The Province should prescribe minimum standards for the assessed value threshold and the tax rate of the first band.
Trailers
C All residential units located in trailer parks, campgrounds, and land lease communities should be assessed and taxed at the residential rate if they meet the test of being assessable real property by exhibiting characteristics of permanency.
C MPAC should not be required to issue omitted assessments for residential units that have not been assessed prior to 2003 due to the moratorium policy that was previously in effect. Therefore, it is recommended that the Assessment Act be amended to create a limited exception to the omitted assessment rules to address this particular situation.
Wells
C Oil wells should be subject to fixed assessments. Municipalities would continue to levy a tax on wells at the local commercial tax rate.
C Different assessment rates should be prescribed for oil wells of different depths.
< It is recommended that a maximum of four well depth assessment categories be created (to match the four major rock strata in southern Ontario), and that different fixed assessments be prescribed for each category.
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< It is recommended that a fifth category be established for “historic” oil wells, and this category should be assessed at a rate below the lowest of the rates applicable to the four aforementioned categories.
Issues for Future Consideration
Cap on Tax Increases:
C The Province should conduct consultations with stakeholders on the question of the continuation of the mandatory cap on reassessment-related tax increases.
Crown Land:
C The Province should conduct further consultations with municipalities to address their concerns about Crown land.
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APPENDIX C: LIST OF STAKEHOLDERS
The stakeholders listed below are among those who made submissions during this review.
Appraisal Institute of Canada Armel Corporation Association of Municipal Managers, Clerks and Treasurers of Ontario Association of Municipal Tax Collectors of Ontario Association of Municipalities of Ontario Barrie Land Developers Association Bell Canada Bloor-Yorkville Business Improvement Area Bluewater Country Homeowners Association Brenlin Educational Services Building Owners and Managers Association Cadillac Fairview Canadian Bankers Association Canadian Blood Services Canadian Federation of Independent Business Canadian Institute of Public and Private Real Estate Companies Canadian Montessori Academy Canadian Property Tax Association Canadian Society of Association Executives City of Burlington City of Cornwall City of Elliot Lake City of Mississauga City of Ottawa City of St. Catharines City of Toronto Communitech Council of Commodores County of Bruce County of Essex County of Middlesex Cribit Seeds DaimlerChrysler D. Bottero & Associates Limited De Pauw Elevators Denison Mines Denturist Association of Ontario Dofasco Domtar Inc. Downtown Oshawa Business Improvement Area Earth Rangers Eastern Ontario Landlord Organization Educarium Escarpment Biosphere Conservancy Fair Rental Policy Organization Friends of Freedom
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Funeral Directors for Open Dialogue General Motors of Canada Glenbrook Homes Greater Toronto Hotel Association Haliburton Forest and Wildlife Reserve Halton Federation of Agriculture Holiday Inns of Canada Ltd. Hudson’s Bay Company Institute of Municipal Assessors Ivanhoe Cambridge Jordan Frozen Foods Kanata Academy Kanata Research Park Learning Enrichment Foundation Mallory Insurance Brokers Ltd. Markham Association of Residential Condominium Owners McMahon & Associates Limited Minto Developments Inc. Municipal Finance Officers Association Municipal Property Assessment Corporation Municipal Tax Equity Municipality of Clarington Municipality of Greenstone Municipality of Southwest Middlesex Muskoka Lakes Association National Capital Commission Tenants Association National Golf Course Owners Association Network Ontario Northern Ontario Tourist Outfitters Ontario Accommodation Association Ontario Agri-Business Association Ontario Agricultural Commodity Council Ontario Community Newspaper Association Ontario Federation of Agriculture Ontario Federation of School Athletic Associations Ontario Forestry Association Ontario Fruit and Vegetable Growers Association Ontario Funeral Service Association Ontario Hatcheries Association Ontario Horse Racing Industry Association Ontario Mining Association Ontario Natural Gas Association Ontario Petroleum Institute Ontario Private Campground Association Ontario Real Estate Association Ontario Seed Growers Association Ontario Self Storage Association Ontario Tender Fruit Board Ontario / Toronto Automobile Dealers Association Ontario Trucking Association Oshawa Chamber of Commerce Parkview Cluster Homes for Seniors Railway Association of Canada
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RDR Investments Regional Municipality of Durham Regional Municipality of Halton Regional Municipality of Niagara Richmond Hill Association of Residential Condominium Owners Richmond Hill Montessori School Rideau Chamber of Commerce Seguin Fair Tax Coalition Toronto Association of Business Improvement Areas Toronto Board of Trade Toronto Office Coalition Toronto Wildlife Centre Town of Blind River Town of Bracebridge Town of Fort Erie Town of Iroquois Falls Town of Markham Town of Niagara-on-the-Lake Town of Oakville Town of Orangeville Town of Richmond Hill Township of Central Manitoulin Township of Lanark Highlands Township of Carlow/Mayo Township of Muskoka Lakes Township of St. Clair Township of Strathroy-Caradoc Township of Uxbridge Township of Wellesley TransCanada Pipelines Limited Turnbull School Urban Development Institute Valiant Property Management Vaughan Association of Residential Condominium Owners Victoriaville Centre Board of Management Yonge-Bloor-Bay Business Improvement Area
... and Numerous Individual Taxpayers.
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Property Assessment And Classification Review
FEEDBACK FORM
The Minister of Finance invites feedback on the recommendations contained in the report of Marcel Beaubien, MPP, Fall 2002.
Comments may be submitted by mail, fax or e-mail to the address noted below. This feedback form is provided for your convenience, but you may use a different document or attach additional pages onto this form if you require additional space for your comments.
Thank you for taking the time to share your views.
Comments Submitted By: Name: ______Municipality / Organization: ______Address: ______Phone Number / E-mail: ______
Submit Comments To: Property Classification Review Ministry of Finance 777 Bay Street, 10th Floor Toronto ON M5G 2C8 Fax: (416) 314-7670 E-mail: [email protected]
Copies of Mr. Beaubien’s report may be obtained from the Ministry of Finance web site at www.gov.on.ca/FIN.