May 4, 1998

 To:Strategic Policies and Priorities Committee

Budget Committee

 From:City Clerk

 Subject:Property Tax Rebates for Charitable and Similar Organizations

  Recommendations:

 The Assessment and Tax Policy Task Force on April 20, 1998, recommended to the Strategic Policies and Priorities Committee and Council that Recommendation No. 1 of the report (April 16, 1998) from the Chief Financial Officer and Treasurer be amended by inserting the words Aand industrial@ between the words Acommercial tenants@ and as so amended, the recommendations now reading as follows, be adopted:

 (1)That the Province be requested in their drafting of the capping legislation to provide for the re-opening of all leases to ensure that commercial and industrial tenant formerly residentially rated pay their proportionate share of residential taxes under the capping option, the enactment of which would render any rebate program unnecessary during the course of the capping provision;

 (2)That the Province be requested to continue to collect and maintain tenant information in the commercial and industrial property classes and to make this information available to the City in 1998 and subsequent assessment rolls;

 (3)That in the interests of administrative efficiencies for the City, and to ensure that the appropriate taxes are billed, the Province be requested to enact new legislation providing for the separate assessment of charitable and similar organizations that are tenants in commercial or industrial properties and authorizing the City to issue tax bills directly to charitable and similar organizations, with ultimate responsibility for payment in the event of default on the owner of the property, the enactment of which would also render the rebate program unnecessary.

 The Task Force reports, for the information of the Strategic Policies and Priorities Committee and Council, having taken the following action:

 (A)confirmed the action taken at its informal meeting held on April 6, 1998;

(B)urged the Budget Committee to continue to hold the $3.7 million for the rebate program in reserve particularly to address the unfolding situation for Categories 1 and 2;

 (C)requested the Chief Financial Officer and Treasurer to undertake an investigation of Categories 1 and 2 organizations in residential and multi-residential areas to assess the impact on them; and

(D)requested the Chief Financial Officer and Treasurer to report on the circumstances as they affect the legions and veterans clubhouses in the new City of Toronto.

 Comment:

 The Assessment and Tax Policy Task Force had before it a communication (April 8, 1998) from

Councillor Adams, Chair, Assessment and Tax Policy Task Force, referring motions, on behalf of the members of the Assessment and Tax Policy Task Force who were present at the informal meeting on April 6, 1998, to the Chief Financial Officer and Treasurer for report to the Task Force.

 The Task Force also had before it a report (April 16,1 998) from the Chief Financial Officer and Treasurer respecting tax rebates for Charitable and Similar Organizations.

 The Task Force also had before it communications from the following:

 (a)(March 23, 1998) from Ms. Annie Teremi, Board Member, Corbrook;

 (b)(undated) from Mr. James O=Reilly, Karma Co-operative

 (c)(March 19, 1998) from Ms. Barb Matthews, Community Development Coordinator, Kensington Market Action Committee

 (d)(April 20, 1998) from the Budget Committee

 (Report dated April 16, 1998, addressed

to the Assessment and Tax Policy Task Force, from

the Chief Financial Officer and Treasurer)

 Purpose:

 To provide further information respecting property tax rebates for charitable and similar organizations.

 Funding Source, Financial Implications and Impact Statement:

 There is no direct funding implication associated with this report.

 Recommendation:

It is recommended that:

 1.the Province be requested in their drafting of the capping legislation to provide for the re-opening of all leases to ensure that commercial tenants formerly residentially rated pay their proportionate share of residential taxes under the capping option, the enactment of which would render any rebate program unnecessary during the course of the capping provision;

 2.the Province be requested to continue to collect and maintain tenant information in the commercial and industrial property classes and to make this information available to the City in the 1998 and subsequent assessment rolls;

 3.in the interests of administrative efficiencies for the City, and to ensure that the appropriate taxes are billed, the Province be requested to enact new legislation providing for the separate assessment of charitable and similar organizations that are tenants in commercial or industrial properties and authorizing the City to issue tax bills directly to charitable and similar organizations, with ultimate responsibility for payment in the event of default on the owner of the property, the enactment of which would also render the rebate program unnecessary.

 Reference/Background:

 The report APreliminary Report B Property Tax Rebates for Charitable and Similar Organizations@, April 2, 1998, from the Chief Financial Officer and Treasurer was presented to the Assessment and Tax Policy Task Force at its meeting held on April 6, 1998.

 The aforementioned report stated that City of Toronto officials were consulting with the Province on the potential impact of the capping provisions introduced in the March 27, 1998, provincial announcement, which may either render the tax rebate program for charitable and similar organizations unnecessary or significantly alter its application.

 This report provides further information respecting the capping provision and its potential effect on taxes payable by charitable and similar organizations.

 The motion respecting the effects of the elimination of the BOT on agencies, boards and commissions of the City, and the motion respecting property tax rebates for lawn bowling clubs are to be addressed in subsequent reports.

 Discussion:

 Over the past two weeks, staff have been consulting with Provincial Officials and representatives of various charitable and non-profit organizations (NPO=s) respecting property tax rebates and the potential impact that the recently announced capping option may have on such a program. The capping provision is being considered in a concurrent report.

 Capping Announcement:

 On March 27, 1998, Finance Minister Ernie Eves introduced a new option for municipalities to limit, to no more than 2.5 percent annually for the next three years, municipal and education property tax increases resulting from the new tax system for commercial and industrial properties, and commercial-residential properties with 7 or more units. This announcement was made in response to the concerns of businesses, and in particular, small businesses, which could have faced large increases in property taxes. The province also announced that it would make technical changes to support this initiative, such as making provisions for landlords with gross leases (under a gross lease, the tenants rent is all inclusive, including property taxes).

 At this time, no legislation has been released in any form respecting this capping option, and as such, any discussion remains preliminary.

 Concerns of Charitable and Non-Profit Organizations:

 The Fair Municipal Finance Act eliminated the Business Occupancy Tax (BOT). This was a tax paid directly by occupants deemed to be carrying on a business. The BOT was calculated as a percentage of the realty assessment, and ranged anywhere from 30 percent (for any business not specially mentioned in the Assessment Act) to 75 percent (banks, insurance companies, etc.). Over and above this was the taxes payable on the realty portion of the property, which was paid directly by the owner of the building, and indirectly by the occupants as part of their rent.

 Although the BOT has been eliminated, the legislation provides for the sums previously collected under the BOT to be collected as part of the property realty taxes. Prior to the capping option, this meant that, through averaging, commercial realty taxes would have increased by approximately 42 percent, although as a property class, the total taxes collected would remain the same.

 Since the property owner is responsible for paying the realty tax, this increase would be passed on to the occupants through their rent. Since occupants are no longer paying BOT, those who were assessed at a BOT greater than the 42 percent average would be in a net favourable position, while those who assessed at a lower BOT would end up paying higher taxes through their rent.

 Charitable, non-profit, and similar organizations, which were never assessed the BOT under the previous assessment system, would find themselves in a position where the property owner is passing on this increase through their rent, and notwithstanding the effects of CVA, see their rent increase by approximately 40 percent or more. CVA could have made it more or less.

 In recognition of this negative impact on charities, the Fair Municipal Finance Act provided municipalities the authority to rebate up to 40 percent of the property taxes for charitable and similar organizations. The report dated April 2, 1998, provides an initial context for the City to develop such a rebate program.

 It should be noted, however, that since charitable and similar organizations were never taxed and billed directly by the City, it cannot be stated definitively that they were paying, through their rent, their fair share of realty taxes based on the residential tax rate. Although individual leases may vary, a typical net lease provides for the property owner to apportion realty taxes based on proportionate use, which may be calculated using total rentable area or assessment or on some other basis. In some cases, charitable organizations may have been paying a greater share of taxes than that warranted using the residential rate on their portion of assessment. The table on the following page provides an illustration of this.

  Impact of Capping Option on Charitable and Similar Organizations:

 Charitable and Similar Organization Perspective:

 With the capping option, the 1998 tax bill will be based on each buildings total 1997 property taxes (realty plus BOT) adjusted to reflect a 2.5 percent increase (if CVA indicated an increase was due). In this way, any BOT averaging will be contained within the building. If all the tenants were previously assessed at the same BOT rate, then there would be no differential tax treatment. However, if tenants were previously assessed at different BOT rates, some shifts would occur in individual taxes payable as the property owner passes through property=s realty tax (which contains the former BOT). The tenant=s liability for this tax increase is most apparent with net leases, but even gross-lease tenants may be liable under the provincial legislation that is now being drafted. This impact may be more clearly understood by way of example:

 Example of Capping Option B Charitable Organization Perspective

Impact on Individual Tenants

 * previously, the landlord apportioned the realty tax based on estimated proportionate use; the BOT is paid by the tenant

** a charitable organization for the purposes of this example

*** as would be calculated by City and assuming a commercial mill rate of 500.0 and a residential mill rate of 425.0

  The representatives of the charitable and similar organizations that have met with staff indicate that most of the organizations they represent are involved with net-leases with covenants that require them to pay realty taxes based on proportionate use, where the realty taxes is calculated on the basis of the total rentable area of the building being assessed as fully leased and operational.

 There is a continued concern by these groups that, in spite of the capping option for the property, they will incur a significant tax increase for 1998. The example above highlights their concern.

 City=s Perspective:

 Notwithstanding the final legislation respecting the capping option, from the City=s perspective, the taxes payable by properties will now, as a result of capping, continue to be calculated in the usual manner with an adjustment made to reflect a 2.5 percent increase where indicated by CVA.

 That is, the taxes for commercial tenants will continue to be calculated using the commercial mill rate applied to the realty and BOT components, and the taxes for charitable tenants and vacant spaces will continue to be calculated at the residential rate. The only difference is that, since the BOT has been repealed, the property owner will be billed for the total amount of taxes payable as realty taxes. The following example illustrates the City=s calculation of taxes under the capping option:

 Example of Capping Option B City=s Perspective

Impact on Individual Tenants

 * City=s calculation of taxes, assuming a commercial mill rate of 500.0 and a residential mill rate of 425.0 applied to assessment

 During the term of the capping provision, there is no need for the property owner to pass through the former BOT in the form of a realty tax increase to the tenants that were residentially rated during 1997. To do otherwise may result in some commercial tenants getting a decrease, even though CVA indicates it should be getting an increase, and the property owner would be expecting this decrease to be funded by the charitable organization. Should the City provide a rebate under these circumstances, then the City would be funding the decrease for some commercial tenants, who under CVA are due an increase, in order to keep the charitable organizations tax at the 1997 level.

 The property owner must have some leeway in apportioning the taxes. Failing this, the Province should be requested, during their drafting of their capping legislation, to ensure that all leases may be reopened to ensure tenants that were residentially rated pay their proportionate share of residential taxes, and therefore, any rebate policy would be unnecessary during the course of the capping provision.

 Therefore, under the capping option, the preferred mechanism for assisting charitable and similar organizations would be to request the Province in their drafting of the capping legislation to provide for the re-opening of all leases to ensure that commercial tenants formerly residentially rated pay their fair share of taxes based on the residential tax rate.

 Should the capping provision not be adopted, then the preferred mechanism that would be administratively efficient from the City=s perspective would be to request the Province to enact new legislation new legislation providing for separate assessment of charitable and similar organizations and authorizing the City to issue tax bills directly to charitable and similar organizations, with ultimate responsibility for payment in the event of default on the owner of the property. This would be similar to existing practice used for water billing, whereby the owner becomes responsible for the tenants obligation should the tenant default on payments. The enactment of such legislation would also render any rebate program as unnecessary.

 It should be noted, however, that under the new assessment system, the Provincial Assessment Office will no longer be collecting tenant information for the 1998 and subsequent assessment rolls. Notwithstanding its value for planning and economic development purposes, the loss of this information may present some problems for the City if it is to be placed in a position of instituting a program for charitable and similar tenants. For this reason, the Province should be requested to continue to collect and maintain commercial and industrial tenant information on the 1998 and subsequent assessment rolls.

 Conclusion:

 Under the recently announced capping option, the City will calculate 1998 taxes based on the realty assessment and business assessment of individual occupancies, with an adjustment to reflect a 2.5 percent increase where indicated by CVA. For tenants residentially rated in 1997, the taxes will be calculated using the residential mill rate. Because the BOT has been repealed, the property owner will be billed for the total amount of taxes payable as realty taxes. There is no need for the property owner to pass through the former BOT in to form of a realty tax increase to tenants that were residentially rated during 1997. To do otherwise may result in some commercial tenants getting a decrease, even though CVA indicates it should be getting an increase, and the property owner would be expecting this decrease to be funded by the charitable organization. Should the City provide a rebate under these circumstances, then the City would be funding the decrease for some commercial tenants, who under CVA are due an increase, in order to keep the charitable organizations tax at the 1997 level. Thus it is recommended that the Province be requested, during their drafting of their capping legislation, to ensure that all leases may be reopened to ensure tenants that were residentially rated pay their proportionate share of residential taxes, and therefore, any rebate policy would be unnecessary during the course of the capping provision. Failing this, the Province should be requested to enact new legislation providing for the separate assessment of charitable and similar organizations and authorizing the City to issue tax bills directly to charitable and similar organizations, which would also render the rebate program unnecessary. The Province should also be requested to continue to collect and maintain commercial and industrial tenant information on the 1998 and subsequent assessment rolls.

 Contact Name:

 Adir Gupta, 392-8071

Bill Wong, 392-9148

 (Transmittal letter dated April 8, 1998, addressed

to the Chief Financial Officer from

the Chair of the Assessment and Tax Policy Task Force)

 At an informal meeting of the Assessment and Tax Policy Task Force on April 6, 1998, the members who were present had before them a report (April 2, 1998) from the Chief Financial Officer and Treasurer respecting property tax rebates for charitable and similar organizations

and providing an initial context in which to develop a policy respecting property tax rebates for charitable and similar organizations, pursuant to the Fair Municipal Finance Act.

 The members of the Task Force also had before them the following communications respecting the abovementioned matter:

 (a)(March 27, 1998) from Anne Bermonte, Associate Director, Toronto Arts Council;

(b)(April 3, 1998) fromCouncillor Miller;

(c)(April 3, 1998) from Patrick Johnston, President & CEO, Canadian Centre for Philanthropy;

 (d)(March 18, 1998) from Peter Clutterbuck, Community Social Planning Council;

 (e)(April 6, 1998) from Pat McKendry, President, Kensington Market Working Group.

 The members of the Assessment and Tax Policy Task Force who were present referred the following motions to the Chief Financial Officer and Treasurer for report:

 1.By Councillor Nunziata, as amended by Councillor Flint

 (i)That the Chief Financial Officer and Treasurer report on the feasibility of replacing the burden placed on non-profit community and arts organizations that flow from the re-alignment of the business occupancy tax (BOT) with a Aflow through@ re-alignment program, or some other process that would result in a 40% rebate not having to be paid in the first place;

 (ii)That the City consider a Taxation Adjustment Fund for short term assistance to deal with anomalies which may occur in re-alignment;

 (iii)That the Chief Financial Officer and Treasurer report on the effects of the elimination of the BOT on agencies, boards and commissions and mechanisms for dealing with these effects.

 2.By Councillor Walker

 That the Chief Financial Officer and Treasurer report on property tax rebates for lawn bowling clubs which are located on privately-owned lands.

 3.By Councillor Adams

 (i)That the Province be requested to legislate better definitions of Asimilar organizations@ and that commercial/industrial landlords not be permitted to pass through the BOT to organizations that were previously exempt from the BOT.

 (ii)That the Provincial Assessment Office and its successor organization be required to maintain, at no extra cost, as in previous years, the detailed assessment information on Aeligible charities and similar organizations@ and create a sub-class for non-profit organizations and similar organizations.

(Report dated April 2, 1998, addressed

to the Assessment and Tax Policy Task Force from

the Chief Financial Officer and Treasurer)

 Purpose:

 To provide an initial context in which to develop a policy respecting property tax rebates for charitable and similar organizations, pursuant to the Fair Municipal Finance Act.

 City of Toronto officials are consulting with the Province on the potential impact of the capping provisions introduced in the March 27, 1998, provincial announcement, which may either render the tax rebate program for charitable and similar organizations unnecessary or significantly alter its application.

 Funding Source, Financial Implication and Impact Statement:

 Preliminary analysis suggests that the tax rebate program would require Council to provide in the order of $3.7 to $9.4 million for 1998 within the tax deficiencies budget to be paid to eligible charities and similar organizations in the commercial and industrial property classes. The rebate program has yet to be approved and outlined by by-law.

 The estimates presented in this report exclude the impact arising out of the March 27, 1998, announcement by the Minister of Finance, which introduced new tools including caps on tax increases for the commercial, industrial and multi-residential property classes. Details of the outcome of the discussions with Provincial Officials will be reported later.

Recommendation:

 Subject to Council not adopting the capping option on tax increases, as recently announced by the Province, it is recommended that:

 (1)for the purposes of the tax rebate program for eligible charities and similar organizations pursuant to the Fair Municipal Finance Act, the preliminary eligibility criteria for similar organizations, as outlined in this report, be endorsed in principle;

 (2)a tax rebate program in the amount of $3.7 million be endorsed on a preliminary basis for the organizations described under Category 1 of Table 1 of this report; and,

 (3)further direction be provided respecting the application of the preliminary eligibility criteria to the Category 2 type organizations listed under Table 3.

 Council Reference:

 The Fair Municipal Finance Act, 1997 (the Act) provides for the Municipality to pass by-laws providing for property tax rebates to eligible charities, and to any similar organizations specified in the by-law, as a means of tax relief. The cost of such rebates is shared by the municipality and school board in proportion to their revenues from the taxes otherwise payable on these properties. The Act further prescribes that:

 -the rebate shall not exceed 40 percent of the taxes that would otherwise be levied in respect of land occupied by the charity or similar organization; and

 -the amount of the rebate to each eligible charity and similar organization shall be the same, when expressed as a percentage of the taxes payable; and

 -the rebates apply only to land in the commercial property class or the industrial property class; and

 -Aeligible charity@ means a registered charity as defined by subsection 248(1) of the Income Tax Act (Canada) that has a registration number issued by the Department of National Revenue.

 Background:

 This section provides a background of the intent of the tax rebate provision of the Act.

 Section 3 of the Assessment Act, R.S.O. 1990, exempts from assessment and taxation properties owned and occupied by certain organizations prescribed in the legislation. Such organizations include churches and religious organizations, educational institutions, seminaries of learning maintained for philanthropic purposes, houses of refuge or for the care of children, incorporated charitable institutions organized for the relief of the poor or similar incorporated institutions conducted on philanthropic purposes and not for the purposes of profit or gain. In circumstances where the organization does not own the property, it would be subject to property taxation.

 Prior to the Fair Municipal Finance Act, in cases where the organizations occupied properties in the commercial or industrial property class, charitable organizations, certain not-for-profit organizations and other Anon-business use@ entities, as determined by the Province, were exempted from paying the Business Occupancy Tax (BOT) and were assessed at the residential property tax rate rather than the commercial tax rate.

 Whereas prior to 1998, the Province was responsible for establishing the tax class of these entities, enactment of the Fair Municipal Finance Act discontinues the Province=s role in this practice. Thus, those affected entities in the commercial and industrial property classes are no longer classified for treatment at the preferential rate and now find themselves taxable at the commercial or industrial rate as the case may be. In its place, the Act allows municipalities to provide similar preferential tax treatment to eligible charities and Asimilar@ organizations through a rebate program. The maximum 40 percent rebate is designed to offset the move to the commercial/industrial rate and the accompanying transfer of the burden of the former BOT amongst that class.

 Discussion:

 Registered Charities:

 Should the City pass a by-law providing for a tax rebate program, the Fair Municipal Finance Act mandates that all eligible charities be granted a tax rebate as prescribed in the by-law. AEligible charity@ means a registered charity as defined by subsection 248(1) of the Income Tax Act (Canada) that has a registration number issued by the Department of National Revenue. The rebate, if any, applies only to the properties occupied in either the commercial or industrial property class, and the rebate, if any, would apply to taxes paid by the charity.

 To qualify for registration under the Income Tax Act, an organization must be established and operated for charitable purposes, and it must devote its resources to charitable activities. The charity must be resident in Canada, and cannot have any income payable to benefit its members.

 Under the Federal Income Tax Act standards, a charity has to meet a public benefit test. To qualify under this test, an organization must show that:

 -its activities and purposes provide a tangible benefit to the public; and

 -those people who are eligible for benefits are either the public as a whole or a significant section of it in that they are not a restricted group or one where members share a private connection, such as social clubs or professional associations with specific membership; and

 -the charity=s activities must be legal and must not be contrary to public policy; and

-the organization has to be either incorporated or governed by a trust or constitution.

 Based on 1994 Revenue Canada data, there are currently more than 75,000 registered charities in Canada, of which approximately 6,072 registered charities are located in Toronto. A request has been made to obtain this data in order to provide a better estimate of how many registered charities may be located in the affected commercial or industrial property class, and the results are to be included in a subsequent report.

 ASimilar Organizations@:

 The Fair Municipal Finance Act further provides that the rebate may be extended to Aany similar organizations specified in the by-law@. This section provides a context in which to develop criteria to determine the eligibility of organizations for the tax rebate program.

 The Ontario Law Reform Commission has released a working paper entitled AReport on the Law of Charities@ (1996). Among other things the report reviews three types of organizations (charities, non-profit corporations, and unincorporated non-profit organizations). The report discusses the difficulties with the current common-law definition of Acharity@, sets out the rudiments of a reformed definition, and identifies policy implications of that definition. The report acknowledges that there is no universally accepted definition of what constitutes activities similar in nature to charities, and the interpretation of various definitions is largely philosophical in nature.

 i)The Commission recommends against the adoption of a statutory definition of charity, and instead recommends a more liberal interpretation of the common-law definition. The Commission recognizes that the range of charitable activities is so diverse that a specific definition would be problematic. The Commission also emphasizes that these improvements to the common-law definition should be implemented by courts and public policy administrators, not by legislators. The Commission presents, as a rudimentary definition:

 Aa truly charitable act is that act whose form, actual effect, and motive are the provision of the means of pursing a common or universal good to persons who are remote in affection and to whom no moral or legal obligation is owed.@

 ii)The second type of organization reviewed by the Commission was Non-Profit Organizations (NPO=s). A NPO is not a registered charity. The key distinction is that a registered charity can issue charitable receipts for tax purposes, whereas NPO=s cannot issue tax receipts for donations or membership fees contributed. Organizations can be incorporated as NPO either federally or provincially. A NPO described in paragraph 149(1)(1) of the Income Tax Act is a club, society, or association that is organized and operated solely for:

 -social welfare; or

-civic improvement; or

-pleasure or recreation; or

-any purpose other than profit.

 Also, no part of the income of these organizations can be payable to, or otherwise available for the personal benefit of any proprietor, member, or shareholder, unless the proprietor, member or shareholder was a club, society, or association whose primary purpose was to promote amateur athletics in Canada. The provincial requirements for NPO=s essentially mirrors that of the federal requirements.

 Revenue Canada uses several indicators in assessing whether or not an organization is operated exclusively for non-profit purposes or is carrying on a trade or business. Revenue Canada looks to the activities of the organization and how it is operated in order to determine whether the organization is operated on a profit basis rather than a cost recovery basis.

 The Commission concludes that the current statutory provisions governing NPO=s in Ontario is in serious need of reform. First, they note that it provides for only one class of nonprofit corporation, and that class is identified by an open-ended list of non-profit purposes. Second, it is unclear whether non-profit corporations are permitted to carry on ancillary or incidental commercial activities. Thus, incorporation as an NPO is in itself not a definitive indicator of an organization meeting the Apubic benefit@ test.

 iii)The third type of organization reviewed by the Commission was unincorporated NPO=s and Associations. Of the three forms of organization available to nonprofit entities today, the unincorporated organization requires the minimum in the way of legal sophistication to create and maintain. The diverse range of activities include social clubs, debating societies, political interest groups and interest group coalitions, alumni associations, religious organizations and churches, home and school associations, sports associations, and trade associations.

 Preliminary Eligibility Criteria for ASimilar@ Organizations:

 Based on a review of the literature, including recent works, and from the foregoing discussion, it appears that there are a number of criteria have been highlighted which could constitute a definition or framework to determine the eligibility of an organization for a tax rebate, pursuant to the Fair Municipal Finance Act. The criteria, on a preliminary basis, includes:

 (i)the organization must demonstrate a concern for the relief of poverty, or for people in emotional, physical or spiritual distress; or,

 (ii)the organization must provide a clear service or benefit to the community, in that it concerns itself with the advancement of science, education, philosophy, religion, art, sports and other causes beneficial to the community (human services, culture and heritage, public health, recreation, human rights and equity); and,

 (iii)the organization must be operated on a not-for-profit basis (that is no share capital) and be accountable to the community; and,

 (iv)the services and activities must be accessible to the community as a whole or for and appreciable portion of it.

 These criteria, which arise from a liberal interpretation of the common-law definition of charity, provides a basis from which to evaluate the eligibility of the three types of organizations: charities, incorporated non-profit organizations, and unincorporated non-profit organizations, for the purpose of the tax rebate.

 The by-law outlining the details of the tax rebate could define Asimilar organizations@ by listing all the organizations deemed by Council to be eligible for the rebate. This would eliminate the administration required to determine which organizations are eligible for rebates as defined by the by-law. Alternatively, the by-law could contain clear criteria for defining a Asimilar organization@ so that the criteria can be applied effectively by staff in the Municipal Grants Committee.

 Analysis of Potential Applicants:

 As previously discussed, the Province has discontinued its role of classifying units assessed for the BOT as well as identifying those units in either commercial or industrial properties to be taxed at the preferential residential rate. In conjunction with this, the Fair Municipal Finance Act now requires that the assessment be based on property portions, whereas previously, individual units were individually assessed. As such, the phase-in tape received in February provides no information that may be used to identify units which were previously or might now be in a position to be a potential applicant for a tax rebate. Furthermore, in the case of multi-use properties, it is now the landlord=s responsibility to apportion taxes amongst tenants.

 Notwithstanding the above limitations, an analysis was performed utilizing the returned roll was used for 1997 taxation and by matching it to the 1998 phase-in tape. The 1997 tape provides information respecting all occupancies in the industrial and commercial property class that were taxed preferentially (i.e., no BOT and taxed at the residential rate). The 1998 taxes payable, at the commercial rate, were estimated assuming any tax increase or decrease was passed on proportionately to each tenant within the tax class. It is noted these are only estimates and are intended to provide an order of magnitude. The tax impact estimates presented in this report were prepared based on the CVA base case (with one tax rate for all commercial properties) Other factors, such as the number of vacant units in the property or whether the tenant is on a gross lease or a net-net lease, may also affect this estimate.

 The estimates presented in this report exclude the impact arising out of the recent announcement by the Minister of Finance, which introduced new tools including caps on tax increases, which may significantly effect the estimates presented. Revised estimates are to be presented in a subsequent report.

 The analysis revealed 3,521 locations receiving preferential treatment in 1997. This smaller file was further joined with the Planning Department=s employment survey, as well as the Community Information Centre=s ABlue Book@ listing of community service organizations within Toronto. Further examination of the occupant name, legal text, location comments, employment activity, and community service description, if any, was performed in order to better understand the nature of the occupant=s activity.

 The occupants were aggregated according to standard activity categories. For the purposes of presentation and discussion, these were further categorized whether or not they fell into a potentially eligible applicant (i.e., registered charity, non-profit incorporated community based organization, or other community based organization) according to the previously outlined eligibility criteria for Asimilar@ organizations, and other organizations. It should be noted that the number of registered charities is based on markers on the assessment roll, and is likely an understatement. Many registered charities may have been marked as Anon-profit@. On a preliminary basis, they are likely presented in the non-profit community group. A request has been made for property specific information respecting registered charities in Toronto, which is to be included in a subsequent report. A summary of the results is presented in Table 1, and issues specific to the other organizations is presented in the following section.

 Table 1

Summary of Activity Types

 Notes: Estimate based on 1997 roll and assuming landlord passes on tax increase/decrease proportionately* Further investigation suggests that a significant number of locations marked as non-profit by the Province are likely (non-profit) registered charities

** Further investigation suggests that an appreciable number of these organizations are likely incorporate

 Analysis of Category Types:

 Category 1 Organizations:

 The first category included those organizations that appear to be similar to charitable in nature, based on the limited information available, and according to the suggested eligibility criteria outlined previously. This category includes:

 - Registered Charitable Organizations,

- Non-Profit Community-Related Organizations (incorporated), and

- Other Community Related Organizations (unincorporated non-profit).

 This category includes organizations concerned with human and community services (such as family, health, immigration, seniors, women, legal, daycare, etc.), arts and culture, recreation, and religion. Again, based on the limited information, these organizations would appear to meet the public benefit test in that they provide what appears to be a concern for the relief of poverty, or for people in emotional, physical or spiritual distress, there appears to be a clear service or benefit to the community in the areas of science, education, philosophy, religion, arts, sports or other causes beneficial to the community (human services, health, recreation, human rights and equity), the services appear to be accessible to the community, and, probably, many of these are non-profit in nature (incorporated or unincorporated). Table 2 provides a distribution of charitable activities in the first category referred to in Table 1.

 Table 2 - Category 1 Organizations

Potential Applicants B Charitable, Non-Profit, and Other Community Related Organizations

  Notes: * Non-profit consists of charitable organizations and non-profit community related organizations from Table 2

** Other Community Related consists of Other Community Related from Table 2

 Category 2 Organizations:

 The second category (AOther Organizations@) consists of those organizations, which after reviewing the limited information, do not appear to meet the suggested eligibility criteria for similar organizations, in that the activity does not appear to be charitable in nature or that the organization would appear to provide benefits to a narrow segment of the community. It should be noted that the bulk of these, some 1,400 locations are clearly outside of the scope of the tax rebate program. These include not-specified properties, consisting of properties in commercial space occupied by individuals, parking spaces, storage lockers, basements, garages, property rental offices and utility rooms, all of which the Province has previously coded as non-business use. Table 3 provides a distribution of the activities covered by these other organizations. Specific issues are discussed in the following section.

 Table 3 - Category 2 Organizations

Potential Applicants - Other Organizations *

 Note: * Other Organizations from Table 1

** Consists mainly of individuals= names

*** Consists of occupancies such as rental offices, utility rooms, etc.

 Other Organizations B Specific Issues

 The preliminary eligibility criteria, as previously outlined, would exclude the organizations within the second category (AOther Organizations@). These organizations benefitted from the tax reduction for non-business activities under the old tax system. Council can identify which, if any, of these types of organizations might also be considered for the tax rebate. The preliminary criteria would then be amended to allow the desired organization(s) to become eligible.

The following organizations have voiced concerns to data:

 Artists Studios (223 organizations, municipal rebate $157.0 thousand):

 Consists of private studios occupied by individuals or collectives (groups of artists working together under a group name) for artistic purposes. Activities include the creation of works in the area of visual arts, film and video, choreography, writing, music. Purpose may include some commercial activities, which may be incidental and subordinate in purpose to the production process.

 It is noted that the City has a grants program to assist artists. Rather than modifying the definition of Asimilar@ organizations to include activities of a limited membership or for which incidental and subordinate commercial activities may be engaged in, an alternative approach my be to modify the existing grants program in order to provide additional financial assistance. However, grants would be funded by the municipality and there would no sharing on the education side.

 Legion and Veterans Clubhouses (23 organizations, municipal rebate $113.0 thousand):

 Consists of clubhouses and halls occupied by those who served in the armed forces of Her Majesty or Her Majesty=s allies in any war.

 It should be noted that property tax relief for Veterans= Clubhouses may be provided through exemptions from general purpose rates through the Municipal Act or by a municipality=s general power to make grants.

 During 1997, the former City of Toronto provided grants to offset property taxes in the amount of $250.0 thousand to 21 Clubhouses. Prior to 1997, the former cities of York and Etobicoke provided grants to offset a portion of the taxes payable, however, these grants have since been phased out.

 Finally, it should noted that the tax rebate program under the Fair Municipal Finance Act does not affect treatment of those properties that currently enjoy either a tax exemption or a tax cancellation under a Private Members Bill.

 Amount of Rebate:

 The Fair Municipal Finance Act states that the rebate shall not exceed 40 percent of the taxes that would otherwise be levied in respect of the land occupied by the charity or similar organization. The Act further prescribes that the rebate to each eligible charity and similar organization shall be the same, when expressed as a percentage of the taxes payable. The 40 percent maximum rebate was primarily designed to offset, on average, increases arising from the distribution of the BOT amongst the commercial and industrial property class.

 Administrative Issues:

 The administrative details for the implementation of the tax rebate program have yet to be worked out. A further report on the administrative procedures relating to the tax rebate, including a process and the timing of the tax rebates will be forthcoming. The details may involve a transition process for 1998, which may be different than that proposed for future years.

Conclusion:

 Under the Fair Municipal Finance Act, municipalities have been provided with the authority to pass by-laws granting preferential tax treatment in the form of a tax rebate to eligible charities and Asimilar@ organizations which occupy commercial or industrial buildings and previously were not levied the BOT.

 City Council may adopt a policy respecting the criteria for eligibility, and the amount of the tax rebate. Registered charities are eligible for the tax rebate. The definition of Asimilar@ organizations, however, is not specified. It is clear from the review that there is no universally accepted definition of what constitutes activities that are similar in nature to charities.

 A review of the 1997 assessment roll suggested 1,287 potential applicants that would appear to fall within the preliminary criteria (Category 1 organizations). On average, if the maximum allowable rebate of 40 percent is applied, the 1998 budgetary estimate of the rebate program would be in the order of $3.7 million to the City, and $4.8 million to the Toronto District School Board.

 A further 2,234 entities were identified, that had previously benefited from preferential tax treatment by the Province (i.e., taxed at the residential rate), but would not appear to fit within the preliminary criteria (Category 2 organizations). A further report on these organizations will be forthcoming.

 The estimates presented in this report exclude the impact arising out of the March 27, 1998, announcement by the Minister of Finance. City of Toronto Officials are consulting with the Province respecting the potential impact of the capping provisions announced, which may either render the tax rebate program for charitable and similar organizations unnecessary or significantly alter its application.

 Contact Names:

Mr. Adir Gupta, 392-8071

Mr. Ed Zamparo, 392-8641

Mr. Joe Farag, 395-6706