January 31, 2000

To: Policy and Finance Committee

From: City Clerk, Assessment and Tax Policy Task Force

Subject: Bill 14 - More Tax Cuts for Jobs, Growth and Prosperity Act, 1999

Recommendation:

The Assessment and Tax Policy Task Force recommends that the Province of Ontario be requested to address how the tax rebate program for new construction and improvements for 1998 and 1999 that were subject to the cap after January 1, 1998 but before January 1, 2000 are to be funded especially in a "revenue neutral" taxation system.

The Assessment and Tax Policy Task Force reports, for the information of the Policy and Finance Committee, having requested the Chief Financial Officer and Treasurer to report directly to the Policy and Finance Committee on the estimates on the financial implications contained in the report (January 10, 2000) from the Chief Financial Officer and Treasurer.

Background:

The Assessment and Tax Policy Task Force, on January 25, 2000, had before it a report (January 10, 2000) from the Chief Financial Officer and Treasurer respecting Bill 14 - More Tax Cuts for Jobs, Growth and Prosperity Act, 1999, and recommending that the Province be requested to address how the tax rebate program for new construction and improvements for 1998 and 1999 that were subject to the cap after January 1, 1998 but before January 1, 2000 are to be funded especially in a "revenue neutral" taxation system.

The recommendation of the Task Force is noted above.

City Clerk,

Assessment and Tax Policy Task Force

Frances M. Pritchard 392-7033

Attachment

20000125.3

c. Chief Financial Officer and Treasurer

January 10, 2000

TO: Assessment and Tax Policy Task Force

FROM: Chief Financial Officer and Treasurer

SUBJECT: Bill 14 - More Tax Cuts for Jobs, Growth and Prosperity Act, 1999

Purpose:

To provide information to the Task Force on property assessment and taxation legislation amendments contained in Bill 14 - More Tax Cuts for Jobs, Growth and Prosperity Act, 1999.

A copy of the Bill has been submitted to the City Clerk.

Financial Implications:

Bill 14 amends sections of various Provincial legislation, including the Assessment and Municipal Acts. The City of Toronto is impacted mostly by two amendments which include the amendment on tax treatment on newly constructed properties and the amendment on recouping deficits from and sharing surpluses with municipalities and school boards relating to phase-in and capping programs. The estimates on financial impacts by these amendments are preliminary.

In 1999, the total increase in tax revenue due to new construction was $19.2 million (City share was $8.6 million). If the amendment by Bill 14 changed the legislated formula for calculating new construction to reflect pre-CVA methodology, the loss in tax revenue would be $4.3 million in total, $1.94 million in City share. Therefore the cost of rebating new construction in 1999 would be in the range of $2 million (City share).

The estimated loss due to phase-in adjustments due to implementation of Current Value Assessment (CVA) for the year 1999 was $50 million (all property classes). The amendment in Bill 14 allows the City to share such deficiencies and/or surpluses associated with phase-in adjustments with Province/school board. The amount the City could charge back to the Province/school board is estimated at $19 million.

Recommendation:

It is recommended:

1. That the Province be requested to address how the tax rebate program for new construction and improvements for 1998 and 1999 that were subject to the cap after January 1, 1998 but before January 1, 2000 are to be funded especially in a "revenue neutral" taxation system.

Background:

Bill 14, an Act to implement the 1999 Budget and to make amendments to various acts in order to foster an environment for jobs, growth and prosperity in Ontario, received Royal Assent on December 14, 1999.

Bill 14 amends numerous Acts. This report provides information on amendments affecting property assessment and taxation legislation that relate to the tax treatment for new construction and the ability for the City to share a deficit and surplus with the Province/school boards.

At its meeting held on July 27, 28, 29, and 30, 1999, City Council adopted the recommendation that the Province be requested to amend provincial legislation so that the property taxes for the new construction on vacant or excess land are calculated based on frozen assessments determined using the methodology used under Provincial assessment policy prior to the introduction of Current Value Assessment (Policy and Finance Committee Report No 4, Clause 19). Section 159 of Bill 14 ensures that new properties (i.e. new construction) are taxed in 2000 at a level of assessment that is no higher than that of comparable properties. Section 150 of Bill 14 requires municipalities to have a tax rebate program for 1998 and 1999 for new properties and improvements that were subject to the cap after January 1, 1998 but before January 1, 2000.

Comments:

Bill 14 amends various Provincial Acts. A list of the Acts amended by Bill 14 is contained in Appendix A of this report.

A detailed appendix to this report will be available for the Task Force meeting on January 25, 2000 that will provide information on amendments affecting property assessment and taxation legislation, and preliminary estimates of any financial implications associated with the amendments.

However, there are two amendments that impact the property tax of the City directly. These are: (1) tax treatment of newly constructed properties; and, (2) recouping deficits from and sharing surpluses with municipalities and school boards due to capping and phase-in programs. Other amendments in the Bill are mostly relevant to the municipalities that are subject to the 10-5-5% capping.

Rebates to Newly Constructed Properties (Section 150):

Section 150 of the Bill requires municipalities to have a rebate program for new construction and improvements for 1998 and 1999 which were taxed, essentially at full CVA. The method of calculating the rebate is included in O. Reg. 600/99 which was signed by the Minister of Finance on December 15, 1999. This regulation provides for rebates to be paid by local municipalities under section 447.4 of the Act. However the Bill does not address how these rebates would be funded especially in a "revenue neutral" taxation system.

It is not possible to estimate the cost of rebates for 1998 and 1999 without the six comparable properties that have to be determined by OPAC for each of the newly constructed property. In 1999 the total increase in tax revenue due to new construction was $19.2 million (City share is $8.6 million). If the legislated formula for tax calculation for new construction was changed or equated to reflect pre-CVA methodology, the loss in tax revenue would be $4.3 million in total, of which $1.94 million is the City share. Therefore it is reasonable to assume that the cost of rebating new construction in 1999 would be in the range of $2 million (City share).

Tax Treatment for New Construction (Section 159):

Bill 14 introduces a new provision to the Municipal Act, in the form of section 447.34.1, which ensures that eligible new business properties are taxed in 2000 at a level of assessment that is no higher than that of comparable properties. Under this new provision, the Ontario Property Assessment Corporation (OPAC) shall provide a list of the comparable properties identified with respect to an eligible property to the local municipality. The local municipality must mail to the owner of each eligible property the list of comparable properties within 60 days after the list is received from OPAC

If OPAC determines that there are no comparable properties with respect to an eligible property, the local municipality must still notify the property owner within 60 days and include the total assessment determined for the year or part of the year.

The owner of an eligible property may, within 90 days of the mailing of information, complain in writing to the Assessment Review Board concerning the properties on the list and request that up to six alternative properties be used as comparable properties. The Assessment Review Board shall determine up to six comparable properties from among the comparable properties proposed by the complainant, by OPAC, or by both. The local municipality shall determine the total assessment of the eligible property in accordance with the decision of the Assessment Review Board or the court.

Share Deficiencies (Section 148):

This amendment allows municipalities to share deficiencies and/or surpluses associated with phase-in adjustments with the Province/school boards. This is retroactive to 1998.

The total estimated loss due to Phase-in adjustments (re: appeals, equity changes, etc.) for the year 1999 was $50 million (all property classes). The amendment in Bill 14 allows the City to charge the education/school portion of $19 million to the Province/school board.

The inclusion of this amendment by the Province benefits municipalities in that they are now able to share the deficits and allows the City to recoup a $19 million loss due to phase-in adjustments.

Other Amendments:

Assessment Methodology (Section 11):

Section 19 of the Assessment Act, as amended by Section 11 of the Bill authorizes the Minister of Finance to pass regulations to specify the manner in which current value assessments should be determined for specific property types. The regulation may be general or specific and may apply to specific properties in a municipality or a portion of a municipality. The regulations are very powerful tool for the Minister depending on what types of regulations are issued. Further, the regulations are not debated in the Legislature but are signed by the Minister for implementation.

Estimates on financial impact are not available at this time.

Reconsiderations (Section 13):

This section amends Section 39.1 of the Assessment Act by allowing property owners to submit requests for reconsideration up until December 31 of the tax year. Currently, if OPAC receives and agrees on request for reconsideration after the appeal deadline of March 31, the appeals are processed effective January 1 of the following year. This amendment will allow OPAC to process reconsideration in the year of taxation.

Conclusion:

Provincial Bill - 14 (More Tax Cuts for Jobs, Growth and Prosperity Act, 1999), which received Royal Assent on December 14, 1999, made amendments to various sections of the Assessment and Municipal Acts.

The amendments that impact the City the most are (1) the amendment relating to tax treatment on newly constructed buildings; and, (2) the amendment on recouping deficits from and sharing surpluses with municipalities and school boards due to phase-in and capping programs.

The first amendment relates to tax treatment for newly constructed buildings. In 1999 the total increase in revenue due to new construction was $19.2 million and the City share was $8.6 million. If the City changes the legislated formula for tax calculation for new construction there would be a loss in tax revenue of $4.3 million in total of which the City share is $1.94 million.

The second amendment allows municipalities to recoup deficits with school boards due to capping and phase-in adjustments. The total estimated deficit due to Phase-in adjustments for the year 1999 was $50 million. The amendment in Bill 14 that allows municipalities to share deficiencies and/or surpluses associated with phase-in adjustments with the Province/school boards allows the City to charge the education/school portion of $19 million to the province/school board.

Contact Names:

Giuliana Carbone, 392-8065

Paul Wealleans, 395-4208

Raj Mathavan, 395-6738

Wanda Liczyk

Chief Financial Officer and Treasurer

Attachment

N:\workgrp\fin\metrofin\carbone\reports\

Bill14Report.doc

Appendix A

Contents of Bill 14 (1999)

An Act to implement the 1999 Budget and to make other amendments to various Acts in order to foster an environment for jobs, growth and prosperity in Ontario

CONTENTS

Part I Ambulance Act

Part II Assessment Act

Part III Capital Investment Plan Act, 1993

Part IV Commodity Futures Act

Part V Community Small Business Investment Funds Act

Part VI Corporations Tax Act

Part VII Education Act

Part VIII Electricity Act, 1998

Part IX Employer Health Tax Act

Part X Fair Municipal Finance Act, 1997

Part XI Financial Administration Act

Part XII Income Tax Act

Part XIII Land Transfer Tax Act

Part XIV Local Roads Boards Act

Part XV Ministry of Government Services Act

Part XVI Municipal Act

Part XVII Northern Services Board Act

Part XVIII Ontario Guaranteed Annual Income Act

Part XIX Provincial Land Tax Act

Part XX Retail Sales Tax Act and complementary amendments

Part XXI Securities Act

Part XXII Toronto Stock Exchange Act and complementary amendments

Part XXIII Commencement and Short Title