April 7, 1999

To:Budget Committee

From:City Clerk

Subject:Policy on Interest Paid on Assessment Appeal Refunds.

The Strategic Policies and Priorities Committee on April 7, 1999, referred the communication (April 6, 1999) from the City Clerk, entitled "Policy on Interest Paid on Assessment Appeal Refunds", to the Budget Committee for consideration; and requested the Chief Financial Officer and Treasurer to submit a report to the Budget Committee on the financial implications in regard thereto.

Background:

The Strategic Policies and Priorities Committee on April 7, 1999, had before it a communication (April 6, 1999) from the City Clerk, advising that the Assessment and Tax Policy Task Force on April 1, 1999, recommended to the Strategic Policies and Priorities Committee that:

(1)the City of Toronto pay interest of 1 percent on assessment appeal refunds, retroactive from January 1, 1998 until the date the new by-law is enacted;

(2)the rate of interest to be paid on assessment appeal refunds be set at the average of the prime rate of interest by the six major Canadian chartered banks, at the beginning of the calendar year for which the rate applies;

(3)By-law No. 29097 of the former City of North York which allows for the payment of interest on assessment appeal refunds for properties in the former City of North York, be repealed;

(4)the former City of Toronto's Municipal Code be amended to provide that any overpayments made on or after the date of the by-law being enacted by Council, which are eligible for assessment appeal refunds, shall have the interest applied from the day the overpayment is made;

(5)the City Solicitor be requested to submit the necessary by-law to give effect to these recommendations; and

(6)the former City of Toronto continue to pay interest on assessment appeals that relate to tax years 1997 and prior based on the rates as adopted by the former City of Toronto.

City Clerk

P. Morris/in

Item No. 18

Att.

Sent to:Chief Administrative Officer

(Report dated April 6, 1999, addressed to the

Strategic Policies and Priorities Committee from the City Clerk)

Recommendation:

The Assessment and Tax Policy Task Force recommends that:

(1)the City of Toronto pay interest of 1% on assessment appeal refunds, retroactive from January 1, 1998 until the date the new by-law is enacted;

(2)the rate of interest to be paid on assessment appeal refunds be set at the average of the prime rate of interest by the six major Canadian chartered banks, at the beginning of the calendar year for which the rate applies;

(3)By-law No. 29097 of the former City of North York which allows for the payment of interest on assessment appeal refunds for properties in the former City of North York, be repealed;

(4)the former City of Toronto's Municipal Code be amended to provide that any overpayments made on or after the date of the by-law being enacted by Council, which are eligible for assessment appeal refunds, shall have the interest applied from the day the overpayment is made;

(5)the City Solicitor be requested to submit the necessary by-law to give effect to these recommendations; and

(6)the former City of Toronto continue to pay interest on assessment appeals that relate to tax years 1997 and prior based on the rates as adopted by the former City of Toronto.

The Assessment and Tax Policy Task Force reports, for the information of the Strategic Policies and Priorities Committee, having requested the Chief Financial Officer and Treasurer to report to the Strategic Policies and Priorities Committee, or directly to Council, as necessary on the financial implications of various assessment appeal refunds based on a range of percentages between 1.5% and the prime rate.

Background:

The Assessment and Tax Policy Task Force, on April 1, 1999, had before it a report (April 1, 1999) from the Chief Financial Officer and Treasurer regarding Policy on Interest Paid on Assessment Appeal Refunds, and recommending:

1.That the City of Toronto pay interest on assessment appeal refunds retroactive to 1998;

2.That the rate of interest to be paid on assessment appeal refunds be set at the average rate paid by the six major Canadian chartered banks on saving account balances (or a minimum of 1%), as determined by Chief Financial Officer and Treasurer, from time to time;

3.That By-law Number 29097 of the former City of North York which allows for the payment of interest on assessment appeal refunds for properties in the former City of North York, be repealed;

4.That the former City of Toronto's Municipal code be amended to provide that any overpayments made on or after January 1, 1998, which are eligible for assessment appeal refunds, shall have the interest applied from the day the overpayment is made;

5.That the City Solicitor be requested to submit the necessary by-law to give effect to these recommendations; and

6.That the former City of Toronto continue to pay interest on assessment appeals that relate to tax years 1997 and prior based on the rates as adopted by the former City of Toronto.

The Task Force also had before it a communication (April 1, 1999) from Mr. Howard Colt, Colt Property Tax Group.

Mr. Howard M. Colt, Colt Property Tax Group, appeared before the Assessment and Tax Policy Task Force in connection with the foregoing matter.

The Task Force's recommendations are noted above.

(Report dated April 1, 1999, addressed to the

Assessment and Tax Policy Task Force from the

Chief Financial Officer and Treasurer)

Purpose:

This report is to establish a standard policy for the new City of Toronto regarding the payment of interest on assessment appeal refunds. Prior to 1998, only the former cities of North York and Toronto had by-laws in place that allowed for the payment of interest on assessment refunds.

Financial Implications:

It is estimated that the City share for the provision of interest for assessment appeals for 1998 and 1999 is $7 million. Funding is provided in Non-Program Expenditures.

Recommendations:

It is recommended:

1.That the City of Toronto pay interest on assessment appeal refunds retroactive to 1998;

2. That the rate of interest to be paid on assessment appeal refunds be set at the average rate paid by the six major Canadian chartered banks on saving account balances (or a minimum of 1%), as determined by Chief Financial Officer and Treasurer, from time to time;

3. That By-law Number 29097 of the former City of North York which allows for the payment of interest on assessment appeal refunds for properties in the former City of North York, be repealed;

4That the former City of Toronto's Municipal Code be amended to provide that any overpayments made on or after January 1, 1998, which are eligible for assessment appeal refunds, shall have the interest applied from the day the overpayment is made;

5.That the City Solicitor be requested to submit the necessary by-law to give effect to these recommendations; and

6.That the former City of Toronto continue to pay interest on assessment appeals that relate to tax years 1997 and prior based on the rates as adopted by the former City of Toronto.

Background:

At its meeting of February 5, 1999 the Assessment and Tax Policy Task Force requested the Chief Financial Officer and Treasurer to report on a harmonized policy on interest lost as a result of overpayment of taxes related to appeal refunds.

Comments:

Prior to amalgamation, only the former municipalities of Toronto and North York provided for the payment of interest for assessment appeals.

The following table outlines the positions of the former area municipalities concerning interest payments on assessment appeal refunds.

*Original by-law passed in 1983

*Subsequent by-laws have been passed for changes in interest rates

*Included in City of Toronto Municipal Code

The implementation of a policy for the City to provide for the payment of interest on assessment appeals provides good customer service to taxpayers in the City, especially those whose appeals has been delayed in their processing and refunding. It would also harmonize the practices of the former municipalities.

Subsection 6(2) of the Municipal Interest and Discount Act allows a municipality to charge back the portion of the interest that is attributable to Metro (until amalgamation and now included in the City portion) and the School Boards. The following chart outlines the 1997 budget for the former cities of North York and Toronto for interest paid on assessment appeal refunds:

Although the municipalities charged back $3,318,000 from Metro and the School Boards ($1,094,400 plus $2,223,600) in 1997, they absorbed $784,400 of the interest paid out. If all the former cities were to pay interest on assessment refunds at a 1% interest rate in 1998, it is estimated that the cost to the new City of Toronto would be $3,500,000 taking into account the increase of 1998 appeals. For 1999, a similar figure is estimated although, the number of appeals filed in 1999 is expected to be less than in 1998.

Subsection 6 (4) of the Municipal Interest and Discount Act allows Council to pass a by-law to provide for payments of interest on municipal taxes that are refunded pursuant to Subsection 37 (6) of the Assessment Act. Subsection 37 (6) of the Assessment Act states:

"No assessment shall be increased, reduced or otherwise altered until all complaints, appeals or proceedings concerning the assessment have been finally determined and disposed of, and where the results of the final determination and disposition of the complaints, appeals and proceedings increases, reduces or otherwise alters the assessment, the taxes levied and payable with respect to the assessment shall be adjusted accordingly and any overpayment resulting from the adjustment shall be refunded by the municipality."

Therefore, interest would only be paid on assessment appeals that have been finally determined. Interest is not payable for applications pursuant to Section 442 and 443 of the Municipal Act where taxes have been reduced or cancelled for reasons other than a complaint or appeal concerning the assessment.

Toronto's Municipal Code provides that interest shall be paid at the rate fixed by by-law from time to time, and an annual by-law was passed setting the rate for the year (See Appendix A). The Municipal Code of the former City of Toronto also provided that for the purposes of calculating interest on refund overpayments made after January 1, 1992, payments were deemed to have been made on December 31st of the previous year in which they were made. North York adopted a by-law in 1983 that permitted the Treasurer to set the rate of interest paid by Canadian chartered banks on savings account balances.

It is recommended that Council, through a by-law, set the rate of interest as the average rate paid by the six major Canadian chartered banks on saving account balances from time to time as determined by the the Chief Financial Officer and Treasurer. Currently, the rates among chartered banks average less than 1% but it is recommended that the minimum rate paid will be 1%. For 1999, savings rates are not expected to exceed 1%. The rate in effect at the time of the refund will be the rate applied to the refund.

Conclusion:

The payment of interest on successful assessment appeals for taxpayers who may have waited for the final processing of appeals would improve the level of customer service to taxpayers. Although only two of the former municipalities did provide interest on appeals, it is recommended that the City adopt a by-law to provide interest for appeals effective January 1, 1998 at a rate equal to the average rate paid by the six major Canadian chartered banks on daily savings accounts. It is estimated that the cost to the City for 1998 and 1999 at an interest rate of 1% is $7 million.

Contact Name:

Paul Wealleans, 397-4208

_______

Appendix A

Tax Refund Interest Rate Table

in former City of Toronto

Tax YearRate (%)

19786.00

19799.00

1980 10.00

1981 10.00

1982 12.00

19837.00

19846.00

19857.00

19865.50

19875.00

19884.50

19896.25

19908.00

19918.00

19923.25

19932.50

19942.00

19952.00

19962.00

19971.00

_________

(A copy of a communication dated April 1, 1999, from the President, Colt Property Taxi Group, referred to in the foregoing report was forwarded to each Member of Council with the agenda of the Assessment and Tax Policy Task Force meeting of April 1, 1999, and a copy thereof is also on file in the Office of the City Clerk.)