The Ontario government has halted promised property tax relief for commercial and industrial ratepayers in Toronto, Hamilton and several other municipalities with a higher than average business education tax (BET) rate.
A freeze in the phased seven-year BET reduction plan is one of several austerity measures in the newly released 2012 Ontario budget, which aims to reduce program spending by $17.7 billion over the next three years.
The BET reduction plan was introduced in 2007, as something of a solution to the patchwork of rates across Ontario that resulted in some taxpayers carrying a disproportionate share of the education tax burden up to 50 times greater than that for counterparts located in municipalities with the lowest rates. Yearly reductions were intended to incrementally reduce the BET rate to a maximum threshold by 2014, which would ultimately deliver a projected 19 per cent education tax cut for overburdened commercial ratepayers in Toronto, a 12 per cent cut in Ottawa and a 10 per cent cut in Hamilton.
Even so, the BET reduction plan was not a province-wide harmonization of the tax rate since there was no corollary upward adjustment of rates sitting below the designated threshold. In contrast, all residential and multi-residential property taxpayers in Ontario are levied at a uniform 0.231 per cent education tax rate.
The 2012 Ontario budget now puts a hold on the final installments of the BET rate reductions until at least 2018.
“As of 2011, our BET for commercial is 1.443 per cent, while the target for 2014 is 1.33 per cent. Now we will be stuck at a higher rate,” says Roberto Rossini, general manager of finance and corporate services for the City of Hamilton. “The BET rates in our neighbouring municipalities (in the Greater Toronto Area) are 1.25 per cent in Peel, 1.2 per cent in York and 1.08 per cent in Halton.”
The discrepancy is even more marked in Toronto, where the commercial BET rate was 1.54 per cent in 2011.
Meanwhile, newly constructed commercial and industrial buildings will automatically be taxed at the targeted lower rate as has all new construction since the BET reduction plan was first introduced.
“Efforts to reduce property taxes on businesses in Toronto and make them more competitive with other regions are again postponed, with the resulting economic consequences,” says Jeff Orlans, chair of the Toronto Office Coalition, which represents owners, managers and tenants of approximately 55 million square feet of commercial office space. “Further, the discrimination against the existing taxpayers in favour of new construction is reinforced, creating an unequal playing field.”
Advocates like the Toronto Office Coalition had more cause for optimism earlier in the winter with the release of the Report of the Commission on the Reform of Ontario’s Public Services (commonly called the Drummond Commission after its chair, Don Drummond), which urged the provincial government to move to a harmonized BET rate.
“In 2007, the highest BET rate was more than 50 times greater than the lowest BET rate. By 2012, this will be reduced to 15 times greater,” the Drummond Commission’s report states. “Despite the progress, a considerable gap still exists. By not addressing low rates, the province will have difficulties addressing distortions and inequities in the education property tax rate. These could be addressed by moving towards a policy of a single province-wide BET rate, while also limiting the cost of the BET reductions.”
Barbara Carss is editor-in-chief of Canadian Property Management magazine.