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Ontario’s vacant unit tax rebate under review

Wednesday, March 2, 2016

The rules for Ontario’s unique property tax rebate on vacant commercial and industrial units could be changing. Last week’s 2016 provincial budget announced that legislation is coming to “facilitate potential changes” to the program, which dates back to the 1998 abolition of business occupancy taxes charged directly to tenants.

At that time, the rebates — a 30 per cent refund of the property tax on commercial units vacant for 90 or more days during the designated annual tax period, and a 35 per cent rebate for industrial vacancies — were seen as something of a trade-off for landlords’ expanded property tax liability. Meanwhile, municipalities gained efficiencies from a drastically reduced number of tax accounts.

Now, municipal prompting is the generally acknowledged inspiration for the Ontario government’s scrutiny of the program. Property tax subclasses for vacant/excess land are also under review, although municipalities have always had the freedom to choose whether they will invoke these classes.

“The review responds to municipal and business stakeholder concerns regarding the appropriateness of the lower tax level provided through these programs and any unintended implications this has for local economies,” the budget document states. “The Vacant Unit Rebate and Vacant/Excess Land Subclasses review continues in 2016 with stakeholder consultations on potential provision of additional municipal flexibility to reflect local needs.”

Real estate industry representatives confirm they participated in discussions last year, but have no further details of the government’s plans. The budget document states “the Province is introducing a legislative framework”, but doesn’t indicate the timing.

“We haven’t seen any legislative framework yet,” reports Brooks Barnett, manager of government relations with the Real Property Association of Canada (REALpac). “Obviously, we are interested in continuing the program and we believe it has enormous value for landlords.”

As the budget document notes, Ontario is the only Canadian province where commercial and industrial ratepayers are eligible for a vacant unit tax rebate. However, property tax experts argue it’s needed to ease the value swings that can occur over a four-year assessment cycle. In contrast, vacancies are more effectively factored into building values and property tax bills in provinces like British Columbia with annual reassessment.

“A four-year [assessment] roll for Ontario is impractical. It should be an annual roll or, at maximum, every two years,” maintains David Gibson of Yeoman & Company Paralegal Professional Corporation.

The Ontario government’s recent regulatory amendment to the Land Transfer Tax Act also causes some wariness. Real estate industry advocates express dismay at the retroactive reinstatement of previously exempted tax obligations for trusts and limited partnerships, particularly because the decision was made without consultation. This time, REALpac is reiterating its stakeholder status.

“We understand that municipalities are trying to look at all kinds of revenue generating mechanisms, but these conversations need to occur with full consultation with the community and we hope to continue that with the Province,” Barnett says.

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