August 6, 1998
ASSESSMENT AND TAX POLICY TASK FORCE:
City Council, at its meeting on July 29, 30 and 31, 1998, referred the following Motion to the
Assessment and Tax Policy Task Force:
Moved by:Councillor Miller
Seconded by:Councillor Feldman
"WHEREAS more than half of the future housing need in the City will be for rental housing;
and
WHEREAS the interim report of the Golden Task Force said that at least 4,000 new
affordable rental units must be built every year; and
WHEREAS at the last Council meeting Council struck out Recommendation No. (2) of the
Strategic Policies and Priorities Committee on the Tax Policy Options of the
Multi-Residential Property class without consideration of the ramifications of the motion on
the building of new housing;
WHEREAS the former Metro Council, and many others, supported the objective set out in
that recommendation as it will help to promote the construction of rental housing;
NOW THEREFORE BE IT RESOLVED THAT such recommendation be reopened and
that Council pass a by-law to create a property class for newly constructed rental apartment
buildings of seven units or more at the residential/farm tax rate and that the Province be
requested to make this a permanent tax policy tool."
Disposition:The foregoing Motion was referred to the Assessment and Tax Policy Task
Force.
Commissioner's Office
Community &
Neighbourhood
Services
55 John St., Stn. 1111
Toronto, ON M5V 3C6
Tel. (416) 392-8302
Fax (416) 392-8492
September 22, 1998
To:Assessment and Tax Policy Task Force
From:Commissioner of Community and Neighbourhood Services
Chief Financial Officer and Treasurer
Subject:The Optional New Multi-Residential Property Class
Purpose:
To report to the Assessment and Tax Policy Task Force on the process and benefits of
adoption of the new multi-residential property class in the City of Toronto.
Financial Implications:
None.
Recommendations:
It is recommended that Council:
- Pass a by-law prior to October 31, 1998, opting to have the new multi-residential property
class apply to the City of Toronto beginning with the 1999 taxation year;
2.Request that the Province permit the municipality to extend the maximum period for
applying the new multi-residential property class beyond eight years; and
3.Request that the Chief Financial Officer and Treasurer report back to Council on the tax
rate which would be applied to the new multi-residential property class.
Background:
The Assessment Act allows the Minister of Finance to prescribe property classes, some of
which may provide a municipality the option of opting to have the property class apply within
that municipality. Ontario Regulation No. 282/98 creates the new multi-residential property
class and allows City Council to opt to have the new multi-residential property class apply
within the City of Toronto by passing a by-law.
The new multi-residential property class consists of property that would otherwise have been
in the multi-residential property class (i.e. residential buildings with seven or more units) but
which units have been built or converted from a non-residential use pursuant to a building
permit issued after the by-law was passed and which units were ready for occupation on or
before the day as of which the land is classified for the taxation year.
If City Council opts to have the new multi-residential property class apply within Toronto,
Council can set a separate tax rate for that class. This rate will continue to apply to a property
for up to eight years after construction, but would revert to the multi-residential tax rate
thereafter.
For the new multi-residential property class to be in effect beginning with the 1999 taxation
year, Council must approve a by-law before October 31, 1998 opting to have the class apply
in the City of Toronto.
At its July 21 and 23rd special meeting, City Council struck out Recommendation No. (2) of
Report No. 13, Clause 2 of the Strategic Policies and Priorities Committee which
recommended that Council pass a by-law to opt-in to the new multi-residential property class.
At its meeting of July 29, 30 and 31st, Council reopened the opting-in to this property class
and referred the matter back to the Assessment and Tax Policy Task Force.
This report has also been forwarded to the Council Strategy Committee for People without
Homes. This Committee is involved in work on an affordable housing supply strategy for the
City of Toronto. The new multi-residential property class recommended by this report is one
of the mechanisms previously identified by the Committee.
What follows is additional background material about the need for the adoption of the new
multi-residential property class, which is set out under the following headings:
1. Why the New Multi-Residential Property Class is important for encouraging additional
rental housing development
2.Potential Impact of New Multi-residential Property Class on future supply
3.Tenant Protection Act, 1997 (TPA) and new rental construction
4. Impact of New Multi-residential Property Class on Creation of "Affordable" units
5.Tax Rate for the New Multi-Residential Property Tax Class and income taxes
6.Tax Shifts
1.Why the New Multi-Residential Property Class is important for encouraging
additional rental housing development
The need for the City to play a role in supporting the development of affordable housing, and
rental housing in particular, has been described in a previous report received by Council at its
meeting July 29, 30 and 31st, 1998 entitled Toward a Municipal Strategy to Encourage the
Creation of Affordable Housing, (Clause No.7 of Report No.7 of the Community and
Neighbourhood Services Committee). The impact property taxes have had in discouraging the
development of rental housing in the City was documented as part of the work by the Metro
Toronto Stakeholder Panel on Housing, 1997 (Prospects for Rental Housing Production in
Metro, Lampert, Pomeroy and Helyar and Associates, March 1997).
After modelling a number of financial proformas and with input from the development
industry and other stakeholders, the Stakeholder Panel concluded that the "economic rent" of
a rental unit was far in excess of the "market rent" a landlord could reasonably hope to charge
a tenant. Lampert's studies have shown that the gap between the rent a landlord can charge for
a rental unit is about $3,000/year (1995 dollars) lower than the rent the landlord would have to
charge to cover construction and operating costs (economic rent).
To bring the economic rent closer to market rent will require a number of initiatives and the
cooperation of the municipal, provincial and federal levels of government. The most
significant initiative is reducing property taxes paid by multi-residential properties to the
residential rate. By creating the new multi-residential property class, and taxing it at the
residential class rate, the City can reduce the gap between economic rent and market rent by
about 40% (based on financial proformas from The Challenge of Encouraging Investment in
New Rental Housing in Ontario, Greg Lampert Economic Consultant, Nov. 1995).
What is perhaps even more important is that by introducing the new multi-residential property
class, the City would make a very strong statement to the provincial and federal government
that the City is committed to doing its share to improve the supply of affordable housing; and
that we expect the other levels of government to contribute their share as well.
As for the other initiatives required to bridge the gap, over the next few months Council will
be receiving reports around actions the City may take to encourage rental housing
development, as outlined in Towards a Municipal Strategy to Encourage the Creation of
Affordable Housing"(Commissioner of Community and Neighbourhood Services, June 29,
1998).
2.Potential Impact of New Class on future supply
The Task Force has been previously advised that in the absence of this new multi-residential
property class, developers would simply register the buildings as condominiums. Although
developers have responded that they can achieve the lower rate without a special class by
constructing condominiums, and renting the units out, this is not the preferred option for the
City. Rental housing tends to be more stable than condominium, and there is greater security
of tenure for tenants. Supply of rental housing in the city is greatly outstripped by demand
(vacancy rate is now .8%; a healthy rate is generally in the rate of 3 to 5%). Finally,
condominium units tend to be of higher value than rental, and this may translate into higher
rents.
Given the lack of affordable and market rental units in the City, it is in the City's best interests
to support rental housing construction. The potential impact of the creation of a new
multi-residential class is difficult to quantify. However, interest has been expressed by a
number of parties regarding new apartment development. City staff will monitor the
developments in this class should it be created by Council.
Although the new multi-residential property class may be applied for up to eight years after
construction, background work undertaken by the Stakeholder Panel noted that the jump in
costs after year eight would still be a problem for investors, and a permanent lower rate should
be established. The Stakeholder Panel recommended that the City phase-in equalization of
property taxation for multi-residential and residential for both new construction and existing
construction. This report recommends that the Council request that the province permit the
municipality to extend the maximum period for applying the new multi-residential property
class beyond eight years.
As mentioned earlier, the creation of a new class for apartment buildings is one tool that the
City can use to encourage construction of rental units. The eight year period in which the
reduced residential tax rate would apply for properties in this class should allow for a
reasonable length of time to initiate some development; but is more likely to be successful if
applied for longer than eight years. Other future initiatives, either by the City or in partnership
with other levels of government and the private sector may augment this initiative.
3.Tenant Protection Act, 1997 (TPA) and new rental construction
Rent-setting rules under the TPA do not apply to new rental units - those first occupied after
June 16, 1998 (s.4(2)). What this means is that tenants of new units would not be subject to
the same level of rent protection as tenants of older units. The landlord can increase rents by
more than the guideline without approval from the Ontario Rental Housing Tribunal.
Tenants of new units would also not be eligible for rent decreases resulting from municipal
tax decreases. For "older" units (units occupied by the current tenant prior to June 17, 1998),
the TPA requires that where the municipal property taxes decrease by more than 2.49%, the
tenant is entitled to an automatic rent reduction equal to 20% of the tax decrease percentage.
This reduction only applies to sitting tenants (new rents are established when a new tenant
moves in) and may be offset if there is a higher maximum rent for the unit. For more detail,
see City Response to Proposed Regulations under the Tenant Protection Act to Reduce Rents
resulting from Tax Reductions (Commissioner of Community and Neighbourhood Services
report to Assessment and Tax Policy Task Force, May 28, 1998).
If the new multi-residential property class is not established, tenants of new units would likely
not receive any benefit from any future efforts the City may make to equalize tax rates
between residential and multi-residential uses, as the landlord would not be required to pass
the savings on to the tenant. Tenants of existing multi-residential complexes (unit occupied by
the sitting tenant before June 1998) may receive some limited benefit from equalization (see
section 6. Tax Shifts below).
The City should, however, continue requesting that the province introduce rent control rules
which would ensure the benefit of any tax reductions is passed into tenant rents, over the long
term. Such a strategy may contribute to improving the affordability of existing units.
- Impact of New Multi-residential Property Class on Creation of "Affordable" units
The new multi-residential property class, on its own, will not contribute to the creation of
"affordable" units (this assumes that an affordable unit is one where the rent is below the
market level). At best, it narrows the gap between the market and economic rents, and its
value is that it may stimulate additional rental construction. As mentioned above, the vacancy
rate currently stands at .8%. It is possible that additional supply of newer units may put
downward pressure on the market rents of older rental stock, however, this is hard to predict
with any degree of certainty.
The Assessment Act does not include any mechanisms which would permit the City to apply
the new multi-residential property class apply only in situations where the developer/landlord
agrees to provide a number of units at below market rents. Once the new class has been
created, all properties in the class must be treated the same for property tax purposes. The new
tax rate is applied to all properties in the class.
5.Tax Rate for the New Multi-Residential Property Tax Class and income taxes
This report has recommended that the Chief Financial Officer and Treasurer report back to
Council on the tax rate which would be applied to the new multi-residential property class.
Based on Lampert's financial pro-formas, the tax rate should be set at the residential/farm rate
to generate the greatest benefit. However, further analysis of the rate needs to be undertaken
within the context of establishing rates for all other classes.
One impact which requires further consideration is the relationship between property tax
savings and income taxes paid by the landlord. As a business operator, the landlord is
permitted to claim tax reductions based on municipal property taxes paid. Reducing the tax
rate from the current multi-residential level to residential/farm level, may actually serve to
transfer costs from the federal/provincial governments to the municipality.
For example, assume that without a reduced tax rate, the landlord pays $100,000 in property
taxes to the City. The landlord claims an income tax reduction based on this expenditure of
$30,000 (assumes a 30% tax rate). Therefore, the City has "earned" $100,000 and the
federal/provincial governments have "paid" $30,000. Assume the tax rate is reduced so that
the landlord now pays $25,000 in municipal property taxes. The income tax reduction
becomes $7,500. In effect, the City "earns" $75,000 less ($100,000 - $25,000), and the
federal/provincial governments have "saved" $22,500.
However, this model assumes that new rental construction is occuring in the City and
generating tax dollars. The reality is that the gap between the market rent and economic rent is
so large, rental housing construction has virtually stopped.
6.Tax Shifts
One impact of introducing a new multi-residential class with a lower tax rate than the existing
rate for multi-residential properties, is that new construction will receive a benefit not
currently available to existing stock. This is reasonable from two perspectives: (1) that the
City is choosing to support additional rental housing construction in view of the limited
supply currently available, and (2) equalizing the current multi-residential and residential/farm
tax rates may ultimately only serve to increase landlord profits at the expense of
home-owners. As mentioned earlier, reducing property taxes on existing residential units
would have only limited impact on tenant rents. A previous report to the Assessment and Tax
Policy Task force entitled Multi-residential Property Tax, Tax Policy Options, Report No.13,
Clause 2, June 29, 1998 (see appendix 9) outlined how equalization would shift
approximately $376 M from the multi-residential class to the residential class.
Conclusion:
If adopted, the new multi-residential property class can reduce the gap between the economic
rent and market rent of new rental construction, and may positively impact on additional
rental housing supply. Although having the new multi-residential property class in effect for
eight years can improve the economics of rental housing construction somewhat, a permanent
reduction is required to effectively stimulate construction. Therefore, this report also
recommends requesting that the province permit the municipality to extend the deadline
beyond eight years.
This report does not specifically address what the tax rate for this new class should be. It is
intended that the tax rate may be set as near as possible to the tax rate for residential/farm
class, although further analysis is required. It is recommended that the Chief Financial Officer
and Treasurer report back to Council by year end on the tax rate which would be applied to
the new multi-residential property class.
Contact Name:
Joanne CampbellPaul Wealleans
Phone: 392-7885Phone: 397-4208
Fax: 392-0548Fax: 392-3649
Shirley HoyWanda Liczyk
Commissioner, Community Chief Financial Officer
& Neighbourhood Servicesand Treasurer
Commissioner's Office
Community &
Neighbourhood
Services
55 John St., Stn. 1111
Toronto, ON M5V 3C6
Tel. (416) 392-8302
Fax (416) 392-8492
October 19, 1998
To:Assessment and Tax Policy Task Force
From:Commissioner of Community and Neighbourhood Services
Chief Financial Officer and Treasurer
Subject:The Optional New Multi-Residential Property Class
Response to Referral requesting Additional Information
Purpose:
To report back to the Assessment and Tax Policy Task Force in response to questions raised
about legal, financial and income tax issues related to adoption of the new multi-residential
property class in the City of Toronto.
Financial Implications:
None.
Recommendations:
It is recommended that Council:
1.Receive this report for information.
Background:
As outlined in the previous report to the Tax Policy and Assessment Task Force, The Optional
New Multi-residential Property Class, September 22, 1998, the Assessment Act allows the
Minister of Finance to prescribe property classes, some of which may provide a municipality
the option of opting to have the property class apply within that municipality by passing a
by-law. For the new multi-residential property class to be in effect beginning with the 1999
taxation year, Council must approve a by-law before October 31, 1998 opting to have the
class apply in the City of Toronto.
The new multi-residential property class consists of property that would otherwise have been
in the multi-residential property class (i.e. residential buildings with seven or more units) but
which units have been built or converted from a non-residential use pursuant to a building
permit issued after the by-law was passed and which units were ready for occupation on or
before the day as of which the land is classified for the taxation year. If City Council opts to
have the new multi-residential property class apply within Toronto, Council can set a separate
tax rate for that class. This rate will continue to apply to a property for up to eight years after
construction, but would revert to the multi-residential tax rate thereafter. Rental residential
buildings with fewer than seven units are within the residential/farm tax class and taxed at that
rate.
At its July 21 and 23rd special meeting, City Council struck out Recommendation No. (2) of
Report No. 13, Clause 2 of the Strategic Policies and Priorities Committee which
recommended that Council pass a by-law to opt-in to the new multi-residential property class.
At its meeting of July 29, 30 and 31st, Council reopened the opting-in to this property class
and referred the matter back to the Assessment and Tax Policy Task Force.
At its September 24, 1998 meeting, the Council Strategy Committee for People without
Homes endorsed the staff recommendation that Council establish the optional class. This
Committee is involved in work on an affordable housing supply strategy for the City of
Toronto, and has recognized that reducing property taxes can be an important mechanism in
making new rental housing construction economically possible.
At its September 28, 1998 meeting, the Assessment and Tax Policy Task Force requested
additional information about the inter-relationships between reduced property taxes and
income taxes paid by the landlord. Staff from the City's Housing and Finance divisions met
with Councillor Balkissoon on October 8, 1998 to clarify concerns. At that meeting,
Councillor Balkissoon requested a legal opinion about the risk to the City should it adopt the
new class, preferably by outside council, an assessment of the potential financial risk in a
worst case scenerio, and information about the potential impact on tenant income taxes. The
purpose of this report is to provide the information requested.
- Legal Opinion
In response to an issue raised by Councillor Balkissoon concerning the risk of a legal
challenge to the adoption of the new multi-residential property class on the grounds of
discrimination, the Solicitor advises that the risk of a successful challenge on such grounds is
low.
As a creature of statute, a municipality may only exercise those powers expressly or impliedly
conferred upon it by statute. Thus, it is only where expressly or impliedly authorized by
statute, that a municipality may enact by-laws which discriminate between classes.
The Municipal Act provides express authority for municipalities to apply different tax rates to
the different property classes as prescribed by the Minister of Finance pursuant to the
Assessment Act. Subsection 368(2) of the Municipal Act provides that, for the purposes of
raising the general local municipality levy, the council of a local municipality is each year
required to pass a by-law levying a separate tax rate, as specified in the by-law, on the
assessment in each property class in the local municipality rateable for local municipality
purposes. The rates on the different classes of property must be in the same proportion to one
another as the tax ratios established for the property classes are to each other (subsection
368(4) of the Municipal Act).
Section 7 of the Assessment Act provides that the Minister shall prescribe classes of real
property for the purposes of that Act. Pursuant to Ontario Regulation No. 282/98 ("O.Reg.
282/98"), twelve property classes, including the new multi-residential property class, have
been prescribed.
Subsection 10(1) of O.Reg. 282/98 provides that the new multi-residential property class
applies within a municipality, the council of which is required to pass a by-law establishing
tax ratios under section 363 of the Municipal Act, only if the council of the municipality
passes a by-law opting to have the class apply within the municipality. The council of a
municipality that passed a by-law opting to have the class apply, may also pass a by-law
opting to have the class cease to apply, but such a by-law will not affect the classification of
land for which a building permit has already been issued (subsection 10(4) of O.Reg. 282/98).
O.Reg. 282/98 details the land which is included in the new multi-residential property class.
The class consists of land that would otherwise have been in the multi-residential property
class but which satisfies the following two conditions:
1.the units on the land have been built or converted from a non-residential use pursuant to a
building permit issued after the by-law adopting the new multi-residential property class was
passed; and
2.the units on the land were ready for occupation on or before the day as of which land is
classified for the taxation year. (subsection 10(2) of O.Reg. 282/98)
The property will cease to be classified in the new multi-residential property class after it has
been so classified for eight taxation years, after which it will revert to the multi-residential
property class (subsection 10(3) of O.Reg. 282/98).
In order to have the new multi-residential property class apply within a municipality for a year
after 1998, and for each year afterwards when the by-law is required, the council of the
municipality must opt to have the class apply prior to October 31 of the previous year (section
3.2 of the Assessment Act). However, as the general local levy must be an amount sufficient
for payment of the estimated expenditures adopted for the year, a tax rate for 1999 cannot be
set for the new multi-residential class until after the estimates for 1999 have been adopted
(section 367 and 368 of the Municipal Act).
Thus, pursuant to the Municipal Act and the Assessment Act, a municipality has express
statutory authority to opt to have the new multi-residential property class apply in that
municipality, and to levy a different tax rate on that class, provided that the tax rate levied on
the new multi-residential property class is in the same proportion to other property classes as
the established tax ratios. Accordingly, a by-law levying a different tax rate on that class
would not be found to be outside of the municipality's jurisdiction as provincial legislation
expressly authorized this different treatment of property classes.
Furthermore, with respect to the equality provisions of the Charter of Rights and Freedoms
(the "Charter"), section 15 of the Charter states that:
Every individual is equal before and under the law and has the right to the equal protection
and equal benefit of the law without discrimination and, in particular, without discrimination
based on race, national or ethnic origin, colour, religion, sex, age or mental or physical
disability.
Section 15 does not guarantee that the law must treat everyone equally. Rather it merely
prohibits those violations of equality that amount to discrimination on the grounds listed in
section 15 or on analogous ground. The courts have held that in order for a ground of
discrimination to be prohibited by section 15 it must be analogous to those listed in section
15, and that such analogous grounds must relate to immutable personal characteristics.
Furthermore, in order to find a violation of the Charter a court must find that the legislation
does not constitute a "reasonable and demonstrably justified limit" on the right to equality
without discrimination.
The classification of property is unlikely to be found to be an immutable personal
characteristic upon which a discrimination claim under section 15 could successfully be
based. The nature of property which one owns is not analogous to one's gender, age, or race.
Rather, it is based on a choice to own a certain kind of property.
Councillor Balkissoon has expressed an interest in retaining outside counsel to provide a legal
opinion on the issue addressed above by the City Solicitor. It should be noted that only very
limited funds remain available in the Legal Department's budget for retaining outside counsel.
Furthermore, any delay in opting-into the property class pending such an outside opinion,
should one be requested, would result in Council being unable to meet the October 31, 1998
deadline for opting to have the new multi-residential property class apply in the City of
Toronto for the 1999 taxation year.
- Financial Risk
As stated above, the City Solicitor is of the opinion that the risk of a successful challenge on
the grounds that adoption of the new multi-residential property class is discriminatory is low.
Based on this opinion, the risk of financial loss to the City if such a challenge were made and
upheld by the Courts is very minimal and, in any event, is highly dependant on the particulars
of the challenge itself. As a result, it is difficult to make any realistic assessment of financial
risk. For example:
-The challenge would need to be successful, meaning that the Court would set aside all or
part of any enabling provincial legislation which permits separate tax classes to be
established. Would the province successfully appeal such a ruling? Would alternate legislation
be passed? Would compensation be provided to municipalities? Would the ruling be limited
to just residential and multi-residential classes, or extended to cover all classes of property
which have different tax rates (commercial, industrial, etc.)?
- If successful, would the Court then rule that the tax rate for a single rental property be
reduced, or all rental properties in the City and/or the province? Would the rate be reduced
to the residential/farm rate or some other uniform amount?
- If successful, would the Court require the rate change to come into effect immediately or
over a period of time?
Each of these assumptions, alone or in combination, would result in a large range of potential
financial outcomes for the City. If a Court challenge resulted in the City being required to
immediately equalize the residential and multi-residential tax rates of all properties, then the
tax rate for the residential class would increase from 1.25% to 1.58%, and the rate for the
multi-residential class would decrease from 4.64% to 1.58%. Based on final 1998 tax figures,
there would be a 65.94% decrease in taxes for multi-residential properties ($380.8 million)
and a corresponding increase of 25.65% ($380.8 million) for the residential class. If instead
the Court ordered that the multi-residential tax rate be decreased to the residential rate
(1.25%), without an offsetting increase in the residential rate, there would be a tax revenue
loss of $420 million. However, based on the opinion of the City Solicitor, the risk is minimal.
3. Inter-relationships between reduced property taxes and income taxes
Councillor Balkissoon has expressed a concern that, since property taxes are deductable
business income for landlords (i.e. they reduce income taxes) it does not matter whether or not
property taxes are high, and reducing municipal earnings from property taxes only benefits
other levels of government in that income tax deductions are reduced (so more income tax is
paid by the landlord to the federal and provincial governments, and less property tax is paid to
the City). The impact is not that straight forward. Certainly income taxes payable on the
project would increase; but only part of the "savings" due to lower property taxes flows on to
the federal and provincial governments through higher income taxes. Most of the savings stay
with the investor to help make rental investment more attractive.
The same is true for tenants. Concern has been expressed that reduced property taxes will
reduce rents, and lower rents paid means that the Ontario Income Tax Credit will be reduced.
If the property tax reduction actually did contribute to lowering rents, tenants would likely be
better off with a reduction to their rents rather than from claiming a partial credit on their
income taxes. For example, assuming a rent of $1,000 per month (approximately the current
average rent for a three bedroom unit), the Ontario Tax Credit for a family of four (2 adults, 2
children) earning $40,000 per year (after RRSP and Childcare deductions) would be about
$70 for both rent and sales tax credits. Assuming that half the credit is due to rent payments,
this would be roughly equivalent to a rent reduction of about $3 per month.
In reality, however, the new class would likely not have any impact on Ontario Tax Credits.
As mentioned in the September 22, 1998 report, the advantage of establishing the new class
(assuming that the tax rate is set at the residential/farm rate) is that the economic cost of
building the rental unit is reduced -- it is still not reduced enough to make construction
feasible with just market level rents but it is a start. In a report prepared for the Province in
1995 (The Challenge of Encouraging Investment in New Rental Housing in Ontario) it was
concluded that the rent the market will bear for a unit (market rent) is about $3,000 per year
lower than the rent the landlord would have to charge to cover the costs of that unit (economic
rent). By reducing property taxes, the gap between the economic rent and market rent is
reduced by about $1,200 annually. Therefore, we can expect that any new rental development
which may occur will have rents set at the higher end of the market. Given the rules around
claiming a tax credit, is doubtful that any new rental housing created in response to adopting
the new class and establishing a lower tax rate would be targeted households with income
levels so low as to be eligible for Ontario Income Tax Credits.
The exception is non-profit rental housing. The City has embarked upon a program approved
by Council in July 1998 to undertake a variety of affordable housing demonstration projects.
It is highly likely that many of these projects will be developed and operated by non-profit
organizations. These groups are typically not permitted to register units as condominium and,
therefore, without the adoption of the optional class and setting of a reduced tax rate, would
pay the higher multi-residential rate. There is little difference between the cost of producing a
non-profit rental unit versus the cost of producing a private rental unit -- non-profits are faced
with the same difficulties in "making the numbers work" for development to be feasible.
Asking the Province to change its assessment methodology so as to reflect a reduced market
value for non-profits may make sense in the long term (further research is required and the
timing may be more appropriate for 2001 when market values are re-assessed), as does a
request to permit the City to establish a new class specifically for non-profit housing;
however, a more effective and immediate response by the City would be to establish the
optional class.
Conclusion:
The Solicitor advises that the risk of a successful legal challenge to the adoption of the new
multi-residential property class on the grounds of discrimination is low. Finance advises that
in a worst-case scenario, the financial risk to the City may be a tax revenue loss of $420
million (assumes that every multi-residential property automatically has its property taxes
reduced to the current residential/farm rate with no off-setting increase to existing properties
in that class). If, instead, the tax rates for existing multi-residential and residential/farm
classes were immediately equalized, the City would not lose tax revenues although there
would be a property tax shift of $380.8 million from the existing multi-residential properties
to properties in the residential/farm class. Reducing property taxes for new residential
construction to the residential/farm rate will have some minor impacts on income taxes paid
by the landlord and by tenants.
O.Reg. 282/98 of the Fair Municipal Finance Act requires that all buildings registered as
condominiums be assessed and taxed at the residential/farm rate. Therefore, developers can
already access the lower taxes simply by registering buildings as condominiums -- whether
the units are subsequently rented or not.
Contact Names:
Joanne CampbellPaul Wealleans
Phone: 392-7885Phone: 397-4208
Fax: 392-0548Fax: 392-3649
Shirley HoyWanda Liczyk
Commissioner, Community Chief Financial Officer
& Neighbourhood Servicesand Treasurer