Toronto council to vote on Researching options for Real Estate tax relief for small business

Back in August, Toronto furniture store owner John Anderson was shocked to learn that his taxes, maintenance and insurance costs were set to jump by $35,000 over the next year. As with a number of other little companies along Yonge Street, the land housing Mr. Anderson’s shop, Morningstar Trading, had seen its assessed value skyrocket, with nearby condominium growth driving up property costs.

During the next several weeks, a self-styled “tax revolt” by Yonge Street companies convinced the Municipal Property Assessment Corp. to reassess 84 possessions along the downtown strip in light of the region’s heritage designation. The $23-million evaluation for the building that houses Morningstar was scaled back to $10-million up from a $5-million evaluation in 2012), and Mr. Anderson now anticipates his costs for taxes, upkeep and insurance to increase by a more manageable $15,000. However, he worries that the reassessment success is only temporary repair.

“It is like a large cloud over your head,” said Mr. Anderson, who’s also the president of the Yonge Street Small Business Association. “The significant problem is the sudden major increase. With a slow growth, everybody can adjust.”

He is throwing his support behind a new attempt in the city hall to find more permanent solutions for small companies facing sticker shocks in quickly developing neighbourhoods.

On Tuesday, city councillor Kristyn Wong-Tam, who helped lead the drive for Yonge Street reassessment, is expected to present a motion asking city Hall to take a good look at its property tax policies. The motion asks city staff to research four possible tax policy tools: a small company tax course, a capping system which would target properties with reassessments much higher than average, new tax groups within different property classes based on evaluation value, and much more frequent evaluations by MPAC.

If the motion passes, city staff will have until February to think of a cost benefit analysis for each proposition, and report their findings to city hall’s executive committee.

Discussions about tax policy changes have been happening behind the scenes in the city hall because the summer, said Ms. Wong-Tam. City staff have indicated they are prepared to check into revamping Toronto’s obsolete tax-increase capping program for industrial and commercial properties.

“My movement is asking staff to become a lot more creative than they had been planning to be,” Ms. Wong-Tam stated. “Do not even think outside the box. Smash the box.” In spite of city staff keen to re-examine taxation policy, however, it will not be smooth sailing for any of Ms. Wong-Tam’s proposals.

The notion of creating a small business tax course has been explored earlier, said Enid Slack, director of the Institute on Municipal Finance and Governance in the University of Toronto.

“Back in 1996, before the 1998 property tax reform, we looked at this question of small business, and we all had a sense of who it was we were trying to help, but we could never specify it in a very objective way,” Prof. Slack said. “Is [a small company] measured by the size of the property, square footage? Can it be measured by the property’s assessment value? Can it be measured by income?”

Ms. Wong-Tam suggests defining small businesses as independently owned, non-franchise companies operating in low-rise buildings. But even with this specific wording, it might be tricky to work out who should benefit, said Brian Kelcey, creator of the public policy company State of the City Inc., and former budget advisor to the mayor of Winnipeg.

“The more concentrated it is, the more bickering there’ll be over definitions,” Mr. Kelcey stated. Additionally, not all small businesses in Toronto are visiting property assessment spikes, ” he said. It is mainly an issue for companies in areas facing condominium development pressures.

“Let us say malls abruptly recover in value; all that worth is shifting to them even though you’ve spent all this time to make a new tax class around the former goal,” Mr. Kelcey stated. “It’s like working with a huge blob of Jell-O. If you push some Jell-O from the way, it always goes someplace else. And it does so in a completely unpredictable way because values are changing across the board.”

Mr. Kelcey is more optimistic about the prospect of capping. The town already has the capability to limit tax increases for commercial and industrial buildings, and has experience doing this. In 1998, when Ontario shifted to the current value assessment (CVA) system, the state allowed municipalities to cap tax increases for commercial and industrial properties at 5 percent annually, allowing companies a range of years to adapt to their new, much greater tests.

The majority of the businesses who profited from the tax capping system have since abandoned the program, after finally reaching a tax level in accord with their CVA. The program could, however, be restored to readmit properties hardest hit by the current assessment.

“The joy of capping in a property tax system like ours, relative to creating new courses, is you are handling the shifts in value as opposed to trying to wipe them out,” Mr. Kelcey stated. He did warn, however, that earnings lost from restricted properties will be composed by “clawing-back” cash from properties which have seen their valuations drop. To put it differently, properties which need to be paying less tax following a reassessment wind up paying the same as before in order to finance the caps.

“It is a zero sum game. You are collecting the same amount of tax revenue, if a person is getting a benefit, someone is paying for it,” Prof. Slack said.

Ms. Wong-Tam suggests limiting the demand for clawbacks by focusing on the caps only on properties undergoing CVA-related spikes “considerably greater than average.” If her movement moves on Tuesday, details like this will form the heart of an extremely technical argument, and one which will probably tread familiar territory: the relative fairness of reduced residential versus greater commercial tax rates, the truth of MPAC’s current value assessment model and the function of the state versus Toronto.

“Many of these tenants on Yonge Street do not care how they do it, they simply need it done,” Mr. Anderson said.

Courtesy: The Globe And Mail

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