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About Toronto Business Improvement Areas
Tax Killings
OPEN LETTER TO ALL BIAs – Forget the Flowers and the Banners… Speak OUT
This is a matter that affects all your members – merchants and property owners.
The background is – the commercial property values (as calculated by MPAC) were increased outrageously, especially for Yonge Street properties. Naturally, the property owners will pass these increases unto their tenants.
This problem was addressed by the Yonge Street BIA because of taxpayers’ response. A meeting with MPAC bureaucrats resulted in some vague promises to ‘reconsider’ the matter and ‘reduce’ the increase. (Change it from ‘Painful Beheading’ to a ‘Painless Scalping’).
Unless this is fought collectively, the commercial taxpayers will get reamed (includes tenants and owners).
Facts on TAX Assessments
Some extra depth… when MPAC reveals the new assessments, it’s up to the landlord to appeal. Appealing increased assessment costs considerable money and time – unless you hire an expert. In which case, the expert needs to be paid.
If the appeal is successful, the lower rate determined will be in effect for 3 years – until the next re-assessment, (where the process repeats and MPAC proceeds to scalp you again). So, the victory lasts for 3 years. Then you have to do it again.
However, the success for appeals is less than 12%. In other words, the system is stacked against you. The message is “don’t bother to appeal”. (Just like traffic court – pay or lose to the system: it’s a fix)
Another important irony is that if the landlord is successful, he/she saves money for the tenant after the risk.
If he/she loses, he/she’s out a lot of money and time.
By doing nothing, the extra cost is passed on to the merchant tenants through the lease (increase of taxes clause).
Therefore, why bother? That’s the way it works…
The ONLY exception is when a merchant retailer also owns the property. Then it may be more reasonable to risk the money to appeal.
This is very important. If you want to be a knowledgeable BIA player, closely watching the developments on this matter is a must. Take notes. Learn. Report back to your BIA.
Editor’s Note: The following article provides a personal perspective and background by Styli Papatheodosiou.
Outrageous Commercial Tax Assessments
In 1998, Current Value Assessment (CVA) was introduced to correct the inequitable differences in Toronto’s tax rates that had been applied over previous years. The ratios between residences and commercial properties were excessive. This approach was intended to phase-in reductions until an acceptable goal was achieved (target to be a ratio of 2:5 to 1, businesses to residences).
Although this was the intent, City Council manipulated CVA in a manner that resulted in an accelerated tax increase on commercial properties. Not to be confused with MPAC assessments, Council itself increased the mill rate to be applied to commercial properties.
Increases in tax revenue were always the goal; increasing taxes on commercial properties was a lower overall vote loss (fewer businesses than residences) and taxpayers’ resentment would be diffused, because most business owners do not live in the same ward where they operate a business – they live in another ward and that reduces the heat against their Councillor (where they vote, not where they generate their income).
However, to avoid insurrection in the streets, City Council placed a cap of 5% per year of whatever increase was to be applied. For instance, my commercial building at that time was paying $5,400 annually for city realty tax.
City Council’s new assessment approach increased my tax base to $14,200. However, this increase to $14,200 was not applied at one fell swoop – it was increased gradually over several years at a 5% capped limit. Eventually, the full amount of $14,200 became the total amount payable (that’s my current tax).
This approach was insidious, in that it was implemented by City Council only once… thereby avoiding yearly incremental increases which would maintain voter angst and feed resentment (loss of votes) against the Councillors. After a year or two, subsequent Councils would distance themselves from the issue knowing the universe was unfolding as planned; the increased taxes being collected and the scalping of businesses no longer in the public eye.
This resulted in many businesses (which could afford to do so logistically with minimum economic loss), relocating outside Toronto. Many businesses went to Vaughan, Richmond Hill, Mississauga, Oakville, Burlington and Markham.*
Why not? The taxes were less than half, the roads better and their clients still close, thanks to highway access. Those who could not relocate (small retail businesses – mom and pop stores especially) had to survive the scalping.
More and more commercial property owners began to adopt a new approach to their leasing agreements. They introduced the ‘extra rent’ known as TMI (Taxes, Maintenance and Insurance). This TMI is included as part of the rent on commercial properties BUT is separate of the base rent (the amount the owner kept for itself). The base rent is fixed at an annual rate. But the TMI is adjusted yearly to reflect increases in the commercial tax component.
This was done to protect the commercial property owner from the resulting resentment of annual tax increases being collected by the city. In other words, their commercial tenants would distinguish that the increase in the TMI was directly due to City Council’s tax increase and NOT going to the owner of the building. The landlord was not the bad guy – it was the city which was doing the scalping.
Accordingly, almost all commercial leases now have a TMI component designed to automatically pass any annual municipal increase to the tenant.
This created an unintended consequence which, once again, sticks it to the small businesses.
When the annual MPAC assessments are mailed out, there is a provision for the property owners to appeal the assessment. The first level is to ask MPAC ‘to reconsider’ the amount assessed. This “Request to Reconsider” is actually squirrel poop dressed up as ‘benevolent’ consideration.
It never succeeds in a lower assessment – it’s only for appearances.
The next step (once the “reconsideration” has failed) is to file a formal appeal.
However, filing a formal appeal on a commercial property costs the appellant $300. And it has to be filed by the owner of the property (or the owner’s agent) (an extra cost for the service). It’s important to remember that the grounds for an appeal are limited to matters where a ‘mistake’ can be shown. ‘Mistakes’ such as wrong address, lot size, number of floors, etc., are rare.
AND… if an appeal is successful, it will only apply in reduced taxes until the next assessment (which will come in three years or less). At which time, that subsequent assessment will again revert to the previous formulae for calculations – in other words, to avoid another increase (hah!), another appeal must be filed.
Rhetoric Question;
Which commercial landlord will file an appeal at his/her cost ($300) to lower the annual commercial taxes that the TENANT will be paying? Why bother?
This additional cost and effort MAY result in a lower tax to the tenant – highly unlikely… however, no matter what happens, the benefit is to the tenant – not the owner.
Therefore, it makes sense to the property owner not to bother with appeals since the TMI protects them and simply passes the increase to the tenant. The tenant, just like during the feudal age, is at the bottom of the food chain.
Unless the merchant business operator also owns his/her commercial property, there is no incentive to appeal. Merchant tenants who do not own the property cannot appeal an assessment. Nor is there any satisfaction in voting against the City Councillor where the business is located because the merchant usually lives (and votes) in another ward.
These are the circumstances that have been created by City Council with the help of MPAC kapos.
And now, Council (and the Mayor) will “ask” the provincial government (which created MPAC and controls it) for MPAC to “reconsider” the assessments with a little tweaking. (Do you smell an election approaching… as in when these outrageous amounts are collected, 2018; it is an election year? Horrors!)
Of course, this is all smoke and mirrors. MPAC “will undertake to reconsider” a new “tax base” which will review the ‘current use’ of a property for assessment and come up with… scented squirrel poop (doused in political perfume to show how Council is ‘fighting’ for the taxpayer because they care!)
The Councillors will point out they ‘tried’ but that that awful MPAC is to blame! This is intended to confuse the voters into blaming MPAC and the provincial government instead of pointing at City Council during an election year.
Question: what’s to stop City Council from simply lowering the mill rate which falls under their complete control?
Nothing.
* Editor’s Note: Interestingly enough, there was an attempt to correct taxation inequities which were addressed in a Report submitted to Council in 2005. The Report was written by the Deputy City Manager and Chief Financial Officer. It advised Council that businesses and jobs were being lost and new operations were choosing municipalities outside Toronto.
In an effort to mitigate this trend, the Report suggested new tax policies be considered. The advice was essentially ignored. Although the problem of losing businesses and jobs was readily perceived, City Council chose not to implement any suggested changes – preferring to keep tax revenues high.
To read this excellent report: Enhancing Toronto’s Business Climate, July 2005. Click here.
