Taxing debate awaits Toronto commercial parking

Taxing debate awaits Toronto commercial parking

Decision on proposed new surcharge deferred until 2025 budget discussions
Thursday, March 7, 2024

Debate about a proposed surcharge on Toronto commercial parking spaces has been deferred until City Council begins to consider 2025 budget measures, giving potentially affected ratepayers more time to prepare a strategy before the discussion resumes. Last week, Council’s executive committee instructed City staff to consult further and prepare more background information, while the Retail Council of Canada is conferring with the Ontario government to explore whether the proposed levy could contravene the allowed ratio of commercial to residential property taxes.

The levy on commercial parking spaces was first raised as a possibility in the City’s updated long-term financial plan last summer, as Council grappled for ways to tackle a mounting operational and capital deficit. The recent staff report to the executive committee follows up on instructions Council made at that time, and sets out a package of recommendations for imposing the special levy.

Those recommendations call for a two-zone rate structure that would exact a 100 per cent higher charge downtown and in the central waterfront area (categorized as Zone A) than elsewhere in the city (Zone B). That’s suggested at $6 per square metre in Zone A versus $3 per metre, but with no charge on the first 300 square metres, or roughly 10 parking spaces, in both scenarios.

It is estimated those rates will garner annual revenue of roughly $180 per space in Zone A and $90 per space in Zone B, and could raise $100 to $150 million from 1.009 million commercial parking spaces scattered across about 23,000 commercial properties. The impact on commercial landlords is calculated at about $0.49 per space per day in Zone A and $0.25 per space per day in Zone B.

“Staff feel that these rates will not have an overly negative impact on businesses,” the report states.

One-time costs to develop and implement the levy are pegged at $7.2 to $12.2 million, while ongoing administrative costs are estimated at $1.3 million annually. Staff has now been instructed to conduct a thorough inventory of spaces and proceed with stakeholder consultation.

For their part, stakeholders in the commercial real estate sector are disputing the City’s interpretation of the numbers. In a submission on behalf of several notable industry organizations, Michael Brooks, chief executive officer of the Real Property Association of Canada (REALPAC) urges Council to weigh the potential dampening effect on economic activity as the levy filters down to vehicle owners. As well, he suggests the levy could play into the narrative that other municipalities in the Greater Toronto Area are more amenable to business with lower taxes and fewer operating risks.

“The parking levy is effectively a tax on those who live, work, shop and do business in Toronto,” Brooks observes. “A new burden will be added to Toronto businesses but not to any others in the region, presenting an obvious economic disadvantage to Toronto businesses and residents.”

Retail hardest hit with declining assessed value projected to ripple through to City revenue

An Altus Group study, commissioned by REALPAC, the Building Owners and Managers Association (BOMA) of Greater Toronto and the Financial District Business Improvement Area (BIA), notes that every 1 per cent increment of increase in non-residential property taxes typically reduces assessed values by 0.9 per cent. On that premise, the levy could trigger a $4.3 billion to $6.6 billion decline in assessed value across the property class.

“Accounting for a reduction in non-residential property values and resulting lower property taxes payable, the net gain in municipal revenues will only be $10 to $15 million per year,” the study concludes.

Altus analysts project the commercial parking surcharge would result in an average property tax increase of 3.6 per cent to 5.4 per cent, depending on whether the City opted for its low-end (collecting $100 million) or high-end (to garner $150 million) scenario. However, that hides a much greater divergence between various types and locations of properties.

Based on anonymized examples of property taxes paid in 2022, retail properties would be hardest hit. For example, a neighbourhood mall that paid $50,000 in property tax in 2022 would see an extra $27,000 of added charges on 150 parking spaces in Zone A or an extra $13,500 in Zone B — equating to respective tax increases of 54 per cent and 27 per cent. A large shopping centre that paid $4.4 million in property tax in 2022 would have to dish out another $862,200 to cover the levy on 4,790 parking spaces in Zone A or an additional $431,100 in Zone B — increases of 19.6 per cent and 9.8 per cent.

The blow would be more muted for downtown office buildings. Based on the example of one that paid $20 million in property tax in 2022, the $6/m2 levy on 1,410 parking spaces would equate to $253,800 for a 1.3 per cent tax increase.

In a recent posting on its website, the Retail Council of Canada characterizes the levy as “a new property tax increase, which would unfairly target retailers”. It cites Ontario regulations that should limit the City’s ability to increase the commercial property tax rate to no more than 50 per cent of the residential rate increase. At the same time, a City bylaw dictates required parking spaces based on the square footage of the stores they serve.

“Retail Council of Canada views this as a tax on retail square footage, and as a method by the City of Toronto to try and circumvent the protections put in place by Ontario in O. Reg 121/07,” it asserts.

In deferring the debate until later this year, Council’s executive committee hints it is waiting to see what might happen in its negotiations with the provincial and federal governments to secure other “revenue tools” that could be more effective. Toronto staff also alludes to that possibility in its report to the committee.

“Should the City identify possible alternative sources of revenue or be granted access to new revenue tools that that are able to grow with the economy and do not exist currently, the City can review whether a commercial parking levy continues to be appropriate,” it advises.

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