optional property tax class

Optional property tax class set to be mandatory

Monday, April 24, 2017

Ontario municipalities appear to be losing an optional property tax class and gaining a mandatory one. Though expressed somewhat vaguely, the provincial government’s newly announced plan to boost housing supply and affordability forewarns that all municipalities will be required to adopt the new multi-residential property class and align it with the tax rate applied to residential properties.

An April 20 release from the Ministry of Finance affirms the Ontario government’s legislative and regulatory agenda will include: “Ensuring that property tax for new multi-residential apartment buildings is charged at a similar rate as other residential properties. This will encourage developers to build more new purpose-built rental and will apply to the entire province.”

Currently under Ontario’s Assessment Act, municipalities can voluntarily pass an enabling by-law to establish the property class. Qualifying properties — whether newly constructed or created from the conversion of non-residential buildings — would then be taxed at a distinct rate, set at the municipal council’s discretion, for a maximum of 35 years. Participating municipalities can also pass a by-law at any time to discontinue use of the property class.

This flexibility has created a patchwork of scenarios across the province. Toronto was among the first municipalities to take advantage of the new multi-residential class when the provincial government of the day open up the possibility. At the time, a handful of discretionary property classes — including options for distinct classes for office buildings, shopping centres and parking lots/vacant land — were introduced largely to deal with the fallout from the 1998 province-wide reassessment and associated assessment reforms, but the new multi-residential class was also envisioned as a mechanism municipalities could use to support the development of purpose-built rental housing.

In Toronto, the new multi-residential tax rate mirrors the residential rate, while older rental apartment buildings, built prior to the city’s 2002 formal adoption of the class, are taxed at a rate approximately 2.5 times greater. Some other municipalities peg the new multi-residential tax rate somewhere between the residential and multi-residential rates, and some municipalities offer no property tax breaks for new rental apartment development.

“For example, Brantford has a program, but it’s not aligned with the single-family tax rate in that municipality. Oakville just doesn’t have a property class for new multi-res,” explains David Gibson, a property tax consultant with Yeoman & Company Paralegal Professional Corporation. “Now municipalities will be forced to adopt the class, which they should be.”

He also advocates a broader definition of “new” to cover significant capital upgrades to the vast share of Ontario’s existing rental housing stock that’s now in the range of 50 years old. With a coalition of industry and municipal support, and drawing on his own experience proposing and steering regulatory tweaks through Ministerial processes, Gibson foresees the provincial government could be convinced to allow substantially renovated existing rental apartment buildings to qualify for the preferable property tax rate — perhaps by making the new property class status conditional on achieving LEED or some other comparable certification.

“Right now, there’s no incentive for landlords to inject the amount of cash that’s often needed into these buildings,” Gibson maintains. Beyond improving the quality of their living conditions, he suggests rewarding renovated properties with a lower property tax rate could also benefit tenants by mitigating above-guideline rent increases for capital improvements.

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