(Report dated  June 10, 1998, addressed to the Assessment and Tax Policy Task Force, from the Chief Financial Officer and Treasurer)

Subject:Amendments to Bill 16 - Small Business and Charities Protection Act, 1998

Purpose:

This report provides information regarding the adopted motions to amend Bill 16, the Small Business and Charities Protection Act, 1998, which received second reading on June 2, 1998 and had committee hearings on June 3, 1998. The hearings were held by the Standing Committee on Finance and Economic Affairs.

Recommendation:

It is recommended:

1.That the Minister of Finance be requested to issue an order for the City of Toronto extending the deadline for the adoption of capping and any optional new classes from 30 to 60 days after the return of the assessment roll.

2.That this report be received for information.

Background:

The "Small Business and Charities Protection Act, 1998" received Second Reading on June 2, 1998. It was then forwarded to the Standing Committee on Finance and Economic Affairs (SCFEA) for hearings. On June 3, 1998, SCFEA adopted motions to amend Bill 16. The Chair of the Assessment and Tax Policy Tax Force and the Chief Financial Officer attended the hearing to present the City's concerns regarding Bill 16 and other reassessment issues to the SCFEA. A copy of the Chief Financial Officer's briefing material is attached (Appendix 1).

Comments:

Bill 16 amends the Assessment Act, the Municipal Act, the Education Act and other statues relating to local government financing. Most of the adopted motions provide technical measures to ensure smooth application of legislation in Bill 16.

The following are the significant motions to amend Bill 16:

(1) Extending the Deadline for Adopting Optional Classes

The motions amending clause 2 (3.2) (a) and subsection 2 (3.3) of the Assessment Act allow municipalities to request the Minister of Finance to extend the deadline from 30 days after the roll return to 60 days for the adoption of new classes.

Impact:The Minister of Finance will need to be requested to extend the deadline for the City of Toronto for the adoption of new classes due to the change in the dates of the Council meeting to July 21rd and 23rd for the adoption of tax policies and the passing of the levying by-law for 1998.

(2) Fixed Assessment on Golf Courses

This amending motion amends subsection 23 (9) of the Assessment Act to ensure that golf courses with fixed assessments do not receive tax reductions and that fixed assessments will be adjusted so that municipalities will the same amount of tax from these golf courses after reassessment. The tax is subject to annual changes in the tax rate.

Impact:The City will receive an equivalent amount of taxes from golf courses with fixed assessments.

(3) Phase-in of Assessment-Related Increases and Decreases

Amending motions clarify subsections 372.1 (4), (5), (6) and (7) of the Municipal Act so that the technical formulae for determining assessment-related changes for local and education taxes includes amalgamation-related changes in the calculation.

Impact:None. This was assumed in the preliminary tax impact calculations.

(4) Phase-in of Assessment-Related Changes for Specific Property Classes

Subsection 372.1 (9) of the Municipal Act will be amended by motions that clarify the calculation of phase-ins for properties in the farmlands and managed forest property classes.

Impact:None. This was assumed in the preliminary tax impact calculations.

(5) Phase-in of Assessment-Related Changes for Subclasses

The motions add paragraphs 6 and 7 to subsection 372.1 (9) of the Municipal Act. The amendments clarify that for a subclass, where a tax reduction applies, the assessment for 1998 shall be reduced for the determination of assessment-related changes.

Impact:None. This was assumed in the preliminary tax impact calculations.

(6) Rebates for Charities in Other Classes

This amendment adds the new paragraph 2.1 to subsection 442.1 of the Municipal Act, which now permits municipalities to rebate taxes to charities or similar organizations located in residential or multi-residential property class. Rebates to charities in these classes were not included in the original provisions of the Bill.

Impact:Organizations occupying residential and multi-residential properties are not affected by the elimination of the Business Occupancy Tax, as is the case with organizations occupying commercial properties. A tax rebate would provide such organizations with a financial benefit they did not previously enjoy, with direct funding consequences to the City.

(7) Payment of Rebates for Charities in Instalments

The amendments to subsection 442.1 (4) of the Municipal Act allow municipalities, starting in 2000, to match the payment of rebates to charities and similar organizations with tax instalment dates. The municipality may pay the rebate instalment to the charity at least 21 days before the tax instalment is due, and each rebate instalment must be the same percentage of each tax instalment. Charities will receive the same amount of rebate under the instalment method as they would under the existing provisions in the Bill.

Impact:The original provisions of Bill 16 required municipalities to make interim rebates to charities by January 15, prior to tax collection. The option of paying of rebates to charities in instalments 21 days before the due date still requires municipalities to issue rebates prior to tax collection and will be administratively more expensive. Payment by instalments will result in a reduced cash flow impact in comparison to paying rebates semi-annually. However, any cash flow savings resulting from paying by instalments may be offset by increased administrative costs.

(8) Extending the Deadline to Choose Capping

This motion amends subsections 447.3 (5) and (6) of the Municipal Act to permit the Minister of Finance, at the request of the municipality, to extend the time for another 30 days beyond the first 30 days after the return of the assessment roll for deciding on the usage of capping on multi-residential, commercial and/or industrial property classes

Impact:Same as Item (1) above.

(9) Complementary Amendment

This motion adds the words "Municipal Act" at the end paragraph 1 of subsection 257.2.1 (3) of the Education Act to signify that the sections mentioned in this paragraph belong to the Municipal Act.

Impact:None.

(11) Setting Education Tax Rates for Subclasses

This complementary amendment to subsection 257.12.1 (9.1) of the Education Act requires municipalities to set education tax rates for subclasses.

Impact:None. This was assumed in the preliminary tax impact calculations.

(12) Extending Appeal Deadline for Ontario Hydro

This motion amends subsection 52 (15) of the Power Corporation Act to extend deadline for Ontario Hydro's appeals from 21 days to 90 days. This is consistent with appeal time frame for other taxpayers.

Impact:None.

Conclusion:

The Small Business and Charities Protection Act, 1998 received second reading on June 2, 1998. The amendments contained in the adopted motions will be included in Bill 16 when it is debated during third reading. Once Bill 16 receives Royal Assent, assessment rolls will be returned to municipalities.

The further delay in the return of the assessment roll has required a change in the dates of the Council meeting to July 21st and 23rd for the adoption of tax policies and the passing of the levying by-law for 1998. As a result, it is recommended that Council request the Minister of Finance to extend the deadline for the City of Toronto from 30 days to 60 days after the roll return for the adoption of capping and/or new classes.

Contact Name:

Bill Wong392-9148

Lynne Ashton397-4203

Appendix 1

Small Business and Charities Protection Act, 1998 (Bill 16)

Limiting Budgetary Increases to Uncapped Classes:

-This was not originally contemplated during the announcement of capping commercial, industrial and multi-residential property classes. Section 447.19(3) limits tax increase phase-ins to 2.5% of the 1997-level taxes and effectively handcuffs municipalities by requiring budgetary increases to be funded by the uncapped classes. This is too restrictive and would not address increases due to unforeseen circumstances.

 -A common theme in many new pieces of legislation refers to enhancing municipal decision making and autonomy. Yet by not providing municipalities with the ability to determine how budgetary tax increases can be funded pre-empts municipal autonomy on the matter.

 -If this type of restriction is still desirable on the part of the Province, it is suggested that budgetary increases be shared by all classes, based on the proportion of CVA for that class, to the total CVA for the municipality.

Cost Related to the Delayed Return of the Assessment Roll

-Due to further delay in the return of the assessment roll, the Province should provide assurance that there shall be funding to offset the loss in interest revenue and or the cost of borrowing.

Optional Classes - Commercial/Industrial:

-Section 1 amends Section 2 of the Assessment Act which provides for optional classes to be prescribed by regulation. The regulations should include in the optional classes a separate class for small/strip retail class.

 -A new approach to providing tax relief to charities and similar organizations may be beyond the immediate scope of the review of Bill 16. However, there is clearly a need to amend the way in which charities and similar organizations are to receive tax relief. We would want to work with the Province to put in place a new system to be available no later than by the next reassessment.

 -As an alternative, a subclass for charities and similar organizations, including provincially-determined definitions and/or criteria, should be created within the existing commercial property class. Municipalities should be given flexibility with respect to the percentage reduction to be applied to the tax rate.

Assessment Administration:

-Municipalities using the capping mechanism, in spite of paying for the function of property assessment, must now maintain and update the old 1997 assessment roll. Municipalities will be forced to perform part of the assessment function by keeping tabs on vacancies, location of charities and similar organizations, recalculation of "frozen" assessment values for additions, renovations and increases and decreases in tenancy in commercial and industrial properties. Municipalities opting for the capping provision should not be expected to take on the responsibility for such roll maintenance and updating, particularly when this function has been a provincial responsibility.

 -We recommend that the Province continue to maintain and update assessment records pertaining to the identification of tenants in commercial and industrial properties.

 -Section 447.24(15) requires municipalities to give the owner of a property a listing showing the business taxes levied for 1997. The Bill should be amended so that a listing should be made available to property owners, upon request.

Rebates to Charities - Timing of Payments:

-Rebates should be paid to charities in the month following the last instalment date for each tax bill (interim and final).

 -Municipalities should not have to fund rebate payments prior to receiving the tax payments relating to the rebates. This is problematic especially in the 1999 and subsequent years when municipalities would have to finance this rebate before collecting property taxes.

Other Concerns

Ontario Property Assessment Corporation:

-There has been much concern expressed about the quality and accuracy of the new assessments. One of the first orders of business for the new corporation should be conducting an audit and review of the 1996 values and methodology across the province.

 -The City of Toronto will pay an estimated $25 M for the operation and function of the Ontario Property Assessment Corporation (OPAC). For this amount or approximately 1/5 of the OPAC's budget, the City does not have a representative on the board. For this level of support, the City should have representation on the board.

Assessment Averaging:

-Prior to the three year averaging the Province should review the need for a longer period in which to average assessment values, particularly for commercial and industrial properties. Market cycles for these types of properties tend to be greater than the proposed three-year period.

Tenant Protection Act:

-A number of recommendations pertaining to the Tenant Protection Act and the proposed regulations will be forwarded to the Province. Including among the recommendations are:

-reduce the tax decrease threshold for automatic rent reductions to 2.5%,

-ensure that automatic rent reductions are applied to the actual and maximum rents,

-expand the options for serving notices to tenants of automatic rent reductions.

Heads and Beds:

-The Province should change legislation for the taxation of public hospitals, universities and colleges, and correctional institutions so that these properties pay their fair share of property taxes according to their assessed values.

Assistance to Seniors and Disabled:

-A tax deferral program should be expanded to provide relief to a level greater than assessment-related tax increases. All tax relief programs for seniors and disabled should be administered by the Province.