Vacancy Tax Rebates (VTR), the Facts
Some views and opinions on this subject are based on misinformation or misunderstanding. This includes politicians who are eagerly seeking to remove VTR whilst willing to forego due diligence in the never-ending pursuit of tax revenue.
Let’s begin with a little history. Prior to 1998, Toronto taxed business properties on two levels. One level was the actual property which was assessed and taxed at a commercial tax rate (the only other alternative was a residential rate). This assessed tax (Realty Tax) was charged to the property owner.
The second level of taxation was determined by assessing the square footage of the commercial or industrial area rented out to the tenant of the same property – a business operation which was taxed separately. The second level was named the ‘Business Occupancy Tax’ (BOT) and was charged to the tenant.
For discussion purposes, let’s look at a building wherein the property is owned by one individual and the business operation (a coffee shop, for our discussion) is owned by a tenant with a 5-year lease from the landlord.
Prior to 1998 (approximate), this commercial property would pay two separate taxes to Toronto, the Realty Tax by the owner and the Business Occupancy Tax (BOT) by the tenant coffee shop.
“Additionally, prior to the introduction of CVA in 1998, business owners or tenants were also levied a business occupancy tax as a fixed percentage of their total tax levy. This BOT was eliminated in 1998 and rolled into the tax rates for the commercial and industrial property classes, and billed directly to property owners.”
City of Toronto, Staff Report, April 14, 2010. P:\2010\Internal Services\rev\cc10010rev (AFS 11957)
In 1998, Toronto rolled both taxes into one; discontinuing the BOT to the coffee shop and adding the BOT amount to the Realty Tax. Effectively, this removed the coffee shop from the tax rolls and left only the property owner as the sole payee. This arrangement has continued to the present.
There were several reasons for making this change – none of them for the benefit of the taxpayer; simply to increase and improve tax collection for the benefit of the tax collectors.
One benefit was the elimination of a separate tax database (the coffee shop merchant-retailer). This reduced the extra administrative costs of additional mail-outs of taxes.
A second, more beneficial reason was that by concentrating all taxes unto the property owner, any tax losses that had previously been sustained were now 100% eliminated. Under the previous system, the BOT charged separately to the coffee shop, was sometimes lost.
These losses usually came about when the business operator ran into financial difficulties; unable to continue operating and defaulted. When merchants close, unpaid bills, rent, utilities and taxes would often be left owing. The tax collector would be unable to collect unpaid BOT taxes because the merchant retailer would close down, leaving few, if any assets to be seized. This resulted in a ‘tax loss’.
However, under the new arrangement, such a business shut-down does not hurt the tax collector because the landlord is on the hook, regardless. The property owner cannot dodge a tax assessment; doing so will result in the loss of the property. So, no more 'tax losses'.
As a trade-off to this new arrangement, the province introduced the Vacancy Tax Rebate (VTR) in order to ameliorate commercial property owners who were now getting the pickle.
In order to receive this Vacancy Tax Rebate (VTR), the property owner must file an application providing;
- proof of vacancy,
- proof of efforts made to rent the premises
- a copy of the property assessment rolls
- an affidavit.
Additionally, the application must exceed 90 consecutive days minimum vacancy. For terms less than 90 days, no VTR is given.
Thereafter, the tax rebate is calculated on a pro-rated basis of how many days a vacancy existed. That calculation is based on the difference between the residential tax rate and the commercial tax rate.
In other words, the rebate is not the full tax. It is simply reduced from the Commercial Tax Rate (which is higher) to the residential tax rate (lower). Some people think that all the taxes are refunded – not so. A lower (residential) rate is still applied.
And this makes some sense, in that when a property is unoccupied, and has no need for city services, why should taxes be collected? If you enter a coffee shop and leave without ordering anything, there is no charge, right?
This presumes everyone understands that taxes are charged for services rendered. Otherwise, taking money without giving anything in return is considered to be theft, no?
Therefore, no commercial occupancy, no commercial tax assessment. It sounds reasonable.
This history and reasoning is lost on City Council. In its never-ending need to waste money, Council is seeking more revenue; reason be damned.
BIAs in Absentia
Let’s discuss BIAs and their lack of leadership.
BIAs are known as Business Improvement Areas. They are created by Toronto City Council to (supposedly) help merchants and property owners to improve the local business environment conditions and increase prosperity.
Of course, that’s all bunk. They are created by City Council to provide an additional tax base which is assessed as a separate levy and is charged to the same commercial property owners previously mentioned. Supposedly, this extra levy will be used by the BIAs (whose members are commercial property owners and merchant retailers) to ‘improve’ the neighbourhood by use of these extra funds (the levy).
That’s just spin for building, repairing and renovating the Public Realm (City property) by using these BIA funds instead of City funds, thereby reducing City Council’s expenses. This BIA arrangement is dressed up to appear as if the local members of the BIA, through its Board of Directors, will spend these funds wisely for the benefit of the BIA members.
More bunk. The Board of Directors which manages these funds is closely supervised (an euphemism for ‘controlled’) by the City’s Office of Economic Development (OED). This OED is comprised of city staff and the city staff invariably ‘advise’ the BIA Boards how best to spend their funds. BIAs rarely exercise self-determination.
Under the ‘advice’ of the OED, BIAs are encouraged to install banners, flowers and other cosmetic tripe. Some open an office and hire staff. Almost all BIAs establish a web site and engage in social media and other self-promoting expenditures. In other words, once created, BIAs embark on spending funds to brand and promote their self-existence. This does nothing for the merchants – it simply creates the appearance of promoting businesses. But more examples of waste at a later time. Let’s return to the Vacancy Tax Rebate.
TABIA – Toronto Association of Business Improvement Areas
These Toronto BIAs have a combined membership of property owners and retail merchants. Of all members, about 55% are commercial property owners. You would think that the BIAs would protect the interests of these members by advocating against the removal of the Vacancy Tax Rebate.
Quite the opposite.
Lacking any direction, these BIAs trot behind the uninspired leadership of TABIA. This TABIA purports to represent 82 Toronto BIAs (and 45,000 businesses).
Colossal bunk. Firstly, several (thoughtful) BIAs have withdrawn from this (TABIA) association, having realized how worthless it is. It’s staffed by dinosaurs and governed by a Board which has been controlled by the staff. Instead of providing help or support to the BIAs, this, and previous Boards, lend legitimacy to the astronomical wages paid to uninspired, directionless staff. It’s a paper Executive doing nothing.
TABIA has two employees. An Executive Director and a Secretary (who spends most of her working hours on social media). Their wages and expense accounts use up almost 90% of TABIA’s budget. The Executive Director has a pathological need to suck up to various politicians (on City Council), as well as the staff at the (OED) Office of Economic Development, which is a city department.
You’ll remember that OED staff are city employees. They serve the interests of City Hall. So, instead of protecting the interests of the BIAs and their members (which it purports to represent), TABIA clones itself to the OED and City Hall interests, pimping their cause.
Instead of speaking out against the removal of the Vacancy Tax Rebate, TABIA features (on its web site), an article actually endorsing the removal of the VTR!
A classic example of backstabbing its own membership! The article being endorsed can be found at;
The writer of this article (Matt Elliot) blathers some idiocies about landlords intentionally keeping their properties empty to gain on their taxes. This ‘cheats’ the system and these miscreants should not be allowed to ‘game’ the system, etc… what a pile of horse manure.
Elliot argues that landlords purchase these properties and then sit on them while they appreciate. And keep them empty to minimize taxation!
Elliot foolishly ignores that a vacant income-producing property does not generate any revenue for its owner. And no owner buys income property to keep it vacant. That’s brainlessness on a cosmic scale. (The only exemption may occur when a purchaser is preparing to build on properties accumulated for development. In such cases, the developer may refrain from renting these properties for some months or even a year; until all the permits have been acquired and building can begin.) Otherwise any owner holding property for appreciation of value can reap the added benefit of collecting revenue while its value increases.
The article contains even more rubbish, including a complaint that the author cannot enjoy his wings with a beer from a nearby closed restaurant. Tsk, tsk. Maybe he should try some horse manure with his beer; displaying such an affinity for it in his fulmination?
But let’s not dwell on nonsense. Let’s look at reality. Here we have TABIA purporting to represent businesses and commercial property owners while it’s promoting views intended to harm its own members.
And that, dear Reader, is why TABIA will be losing additional members.
As to City Council and Mayor Tory, removal of the Vacancy Tax Rebate is in their cross-hairs. If it is removed, hopefully those voting for its removal will find themselves in the same cross-hairs come election time.
This article was emailed to the listed email addresses of all Toronto BIAs July 3 - 5 2017. If your Board did not read it, the email was deleted by your gatekeeper.