Have you noticed a huge reduction in your property tax bill recently?  Over the past five years, three tax relief programs were introduced.  Two were implemented by the City and one by the Province.  Two of them are being phased in over a lengthy period of time.  One is fully in effect now.  If you haven't noticed any relief on the bottom line of your tax bill, this article will explain why. The City initiated a program to reduce the ratio of tax rates between commercial and residential property. The goal is a ratio of 2.5:1 which, if achieved, would be a huge improvement over the previous ratios of four or five to one.  The target ratio is to be achieved by 2020 (theoretically 2015 for "small business", a term which has never been defined) by raising taxes, not lowering them. If you increase everyone's taxes, but increase the residential rate more quickly than the commercial rate, sooner or later, the goal is reached.

The second City program, which instituted a graduated tax, started in 2008. The first one million dollars of assessed value on commercial property is now taxed at a lower rate, while that portion of the assessed value over one million is taxed at the regular rate. The crux to this program is the differential between the two tax rates. Both rates are set by City Council each year. So far the differentials have been modest, but any reduction is significant to our members.

Some properties might see some real benefit from the graduated tax. The saving depends on the value of the building and how its tax burden is spread across its occupants. The enormous disparities in the benefit are well illustrated in the example appended to this report, which is an example which TABIA provided to Mayor Miller when the idea of a graduated tax was first mooted. A Shoppers Drug Mart in a stand-alone store will reap the entire benefit, while a small business tenant in a multimillion-dollar plaza will see almost none. The result lends credence to those who say that the entire CVA (Current Value Assessment) system, from assessment to the applicable rate, is more like a lottery than a tax.

The Provincial program is to provide a uniform rate for business education tax across the province by the year 2014. The Government introduced this program in its 2007 Budget with great fanfare, announcing that it would save commercial property owners hundreds of millions of dollars in tax. It attracted a lot of excellent media attention with that provision. Toronto just began to see some benefit from it this year. If the program continues to completion, there could be a significant reduction in the tax burden.

The "kicker" to all of these measures is the "cap and claw back" regime. (See page three of Property Tax Explained. It continues in effect, vitiating most of the prospective benefits.

Ever since Current Value Assessment was introduced in 1996, TABIA has had to educate and explain. Very few understood its true effects on business and property owners, hence on the very fabric of the City and its citizenry. Even fewer understood its unintended consequences. TABIA has expended much of its energy and resources in informing its 25,000 members, City councillors, members of the provincial legislature, civil servants, the media and the public. Recently TABIA has been much hampered by the reluctance of the civil service to share the information within its control, thereby making it difficult to understand what input TABIA could contribute to future decision making on these issues.

What is it TABIA needs to know? Here are sample queries to which it has not been able to obtain answers.{mospagebreak}

In representative BIA's:

* the full assessed value of each property as disclosed by the 2008 assessment and, for comparison purposes, the full assessed value of each property immediately prior to the 2008 assessment.

* the actual property tax payable by each property in 2009, and, for comparison purposes, the actual property tax payable by each property in 2008.

* the aggregate figures in each BIA for the results of "a" & "b".

* the number of properties in each BIA which have reached their cap

* the number of properties in each BIA still subject to claw back.

* the cost to the City, based on 2009 data, of waiving property taxes in Sheppard East BIA (where extensive street construction was slated) for one year.

All of that information could have been made available with appropriate deletions to comply with privacy laws. Inasmuch as a new property assessment will be done next year, this data is of greater significance than ever, and it is data which should well be within the public domain.{mospagebreak}

Example of Graduated Tax

Assumptions

first level of graduated value is 500,000
tax on first level is 2%
tax on value over 500,000 is 5%

 
 Example One    
     

- 1,500 square foot building assessed at 500,000

 

 

Single tenant occupies whole building (1,500 sf)

 

 

Tax is: 2% of 500,000

=

10,000

Total tax without graduation:5% of 500,000

=

25,000

Tenant gets 100% of the benefit of the graduated rate

 

 

 

Saving for tenant is

 

15,000

     
Example Two    
     

- 15,000 square foot building assessed at 5,000,000

 

 

Ten tenants, each occupying 1,500 sf

 

 

Total Tax on building is: 2% of first 500,000

=

10,000

5% on $4,500,000

=

225,000

Total tax: 10,000 + 225,000

=

235,000

Share of tax borne by each tenant 235,000/10

=

23,500

Total tax without graduation - 5% of 5,000,000

=

250,000

Share of tax borne by each tenant 250,000/10

=

25,000

Saving for each tenant is 25,000-23,500

=

1500

Each Tenant gets only 10% of the benefit of the graduated rate

 

 

Saving for each tenant is 1/10 of 15,000

 1500