CVA-related tax increases

CVA-related tax increases still levied unevenly

Monday, April 24, 2017

More than 9,200 commercial, industrial and multi-residential properties in Toronto are still officially overtaxed nearly 20 years after interim measures were introduced to ease tax shifts related to Ontario’s 1998 adoption of current value assessment (CVA). Under the rules of the intervention program, CVA-related tax increases for benefiting properties have been limited to capped annual increments, while prospective tax decreases are clawed back from other properties to make up for that loss of revenue.

“After all this time, I think owners see it as just another issue they have to deal with,” observes Stephen Longo, a property tax specialist and partner with Walker West Longo LLP. “It’s one of those crazy transitional things that continues.”

However, later this week Toronto Council will consider mechanisms to pick up the pace of the program that is otherwise projected to take another 19 years to run its course. A city staff report outlines how caps and clawbacks could be phased out 10 years earlier than previously foreseen if Council takes advantage of the extra manoeuvring room the provincial government now offers. Several other Ontario municipalities already adopted these measures for the 2016 tax year when Toronto kept allowable CVA-related tax increases capped at 5 per cent of the previous year’s CVA-level taxes.

Last year, 4,955 or 15 per cent of Toronto’s commercial properties were still under the cap, which 7,107 or 22 per cent of commercial properties funded via clawbacks. In the multi-residential class, only 55 or 2 per cent of properties were beneficiaries of the cap, while 850 or 24 per cent of properties paid toward it.

The staff report recommends lifting the cap to 10 per cent of the previous year’s CVA taxes and simply removing the cap and requiring full payment from any property that is within $500 of its CVA taxes. If implemented for the 2017 tax year, this could cut the number of capped properties by 57 per cent by 2020.

“If no other options are subsequently applied, the implementation of a 10 per cent cap and a $500 threshold will allow for industrial properties to be out of the capping and clawback system by 2025 and commercial and multi-residential properties by 2026, barring adjustments resulting from the 2020 and 2024 assessment cycle,” the report notes.

Last year, the Ministry of Finance projected that all but 14 Ontario municipalities should be able to phase out caps and clawbacks by 2020, but even property tax experts express surprise at the number of Toronto properties still enmeshed. “After 19 years, I would have guessed there would be about half that many,” says David Gibson, a director with Yeoman and Company Paralegal Professional Corporation.

“Most of the properties I have been looking at do not have a lot of capping left on them,” Longo concurs.

Yet, the lengthy timeline makes mathematical sense given the phase-in of sometimes multi-million-dollar impacts in relatively modest increments. “The 1998 assessment was the first reassessment since 1954, updating from a 1940 base, so the swings in value were tremendous throughout most of the province,” Gibson recalls.

Caps and clawbacks were a provincially instituted counterbalance that municipal governments have subsequently had to administer. Toronto Council is expected to pass the annual by-law fixing the 2017 clawback rate later this week.

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