Commercial Establishments in Hospitals

The Policy and Finance Committee recommends the adoption of the recommendation of the Assessment and Tax Policy Task Force embodied in the following communication (June 28, 1999) from the City Clerk:

Recommendation:

The Assessment and Tax Policy Task Force recommends the adoption of the report (June 24, 1999) from the Chief Financial Officer and Treasurer.

Background:

The Assessment and Tax Policy Task Force, on June 28, 1999, had before it a report (June 24, 1999) from the Chief Financial Officer and Treasurer, respecting Commercial Establishments in Hospitals and recommending that:

"(1)OPAC be requested to review the assessment files of all public hospitals to ensure that any ratable business operating on the property of these public institutions is being assessed for taxation; and

(2)the Province be requested to amend paragraph 6 of subsection 3(1) of the Assessment Act to clarify that all businesses, regardless of ownership, carried on within a public hospital which has no connection to patient care, are assessed as taxable."

The Task Force's recommendation is noted above.

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(Report dated June 24, 1999, addressed to the

Assessment and Tax Policy Task Force from

the Chief Financial Officer and Treasurer)

Purpose:

To provide information to the Task Force regarding the tax liabilities of commercial establishments operating in hospitals.

Financial Implications:

There are no financial implications as long as these establishments are assessed by the Ontario Property Assessment Corporation (OPAC) as taxable commercial operations rather than as part of a hospital that pays a "heads and beds" levy instead of a property tax.

 Recommendations:

It is recommended:

(1)That OPAC be requested to review the assessment files of all public hospitals to ensure that any ratable business operating on the property of these public institutions is being assessed for taxation; and

(2)That the Province be requested to amend paragraph 6 of subsection 3 (1) of the Assessment Act to clarify that all businesses, regardless of ownership, carried on within a public hospital which have no connection to patient care, are assessed as taxable.

Background:

At its meeting of May 3, 1999, the Assessment and Tax Policy Task Force adopted the request contained in the April 6, 1999 communication from Councillor Rae regarding commercial establishments in hospitals. The communication further stated that the City may be losing money in property taxes on these businesses.

Comments:

Paragraph 6 of subsection 3 (1) of the Assessment Act exempts land used and occupied by a public hospital that receives provincial aid under the Public Hospital Act but not any portion of the land occupied by a tenant of the hospital. The council of a municipality may levy an annual amount upon public hospitals not exceeding the amount of $75 for each provincially rated bed in the public hospitals as determined by the Minister of Health. The $75 rate is set by Ontario Regulation 384/98. Under the above paragraph, stores owned by the hospital and operated by a woman's auxiliary would also be exempted from taxation.

According to OPAC and within the interpretation of this subsection, commercial establishments such as Star City, Starbucks, Shoppers Drug Mart, etc. who are tenants of a hospital would not be exempted. They would be classified and assessed as commercial with tax bills being issued to the hospitals where these establishments are located and there would be no loss in property taxes.

A review of the assessment file for Sick Children's Hospital, as described in the communication from Councillor Rae, does show that the retail facilities in the hospital are taxable, and therefore, there is tax revenue generated.

Appendix A lists all public hospitals in the City including those containing ratable businesses. As shown by the highlighted entries, currently there are three institutions which have businesses operating on their property that are on the assessment roll. There may be other hospitals that have taxable commercial operations functioning from within their premises that are not on the assessment roll. As it is the responsibility of OPAC to ensure that such retail facilities in hospitals are assessed and liable for taxation, it is recommended that OPAC review each public hospital to ensure that any businesses that should be liable for taxation are included on the assessment roll.

The area of contention would be those franchises wholly owned and managed by the hospital. Within the meaning of the above subsection, these wholly owned and operated franchises by a public hospital may qualify to be exempted as land used and occupied by a public hospital. This would grant a tax advantage to the hospital franchises that would be in direct competition with similar franchises located in a taxable environment or similar franchises located as tenants of a public hospital. It is unlikely that when this paragraph was amended, the Provincial policy makers had envisioned such a business arrangement that would handicap franchise businesses not owned and operated by a public hospital.

Conclusion:

There are businesses operating in a public hospital that are assessed as taxable entities. To ensure that franchises owned and operated by a public hospital do not qualify for tax exemption, the Province should be requested to amend paragraph 6 of subsection 3(1) of the Assessment Act to ensure that any businesses being carried on within a public hospital, not necessary in the provision of health care, be taxable no matter of the ownership or operations.

OPAC should be requested to review the assessment files of these institutions to ensure that all ratable businesses are being appropriately taxed.

Contact:

P. Wealleans397-4208

B. Wong392-9148