HomeMy WebLinkAboutCS 38/01
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REPORT TO COUNCIL
FROM:
Gillis A. Paterson
Director, Corporate Services & Treasurer
DATE: November 19, 2001
REPORT NUMBER: CS 38-01
SUBJECT: Beaubien Commission
RECOMMENDATION:
1. It is recommended that Report CS 38-01 of the Director, Corporate Services & Treasurer
be received for information.
ORIGIN:
Director, Corporate Services & Treasurer
AUTHORITY:
Not applicable
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FINANCIAL IMPLICATIONS:
Not applicable
EXECUTIVE SUMMARY:
Not applicable
BACKGROUND:
On October 11, 2001 the Director, Corporate Services & Treasurer, as Chair of the Municipal
Finance Officers Association of Ontario made a submission to the Marcel Beaubien, M.P.P. for
Lambton-Kent-Middlesex. Attached for your information is a copy ofthat submission.
As we were provided more time than was typically made available, I took the opportunity to
expand upon the presentation to cover those additional items of particular interest to Pickering.
These subjects included assessment of Ontario Power Generation properties (Mr. Beaubien was
aware of our appeal of certain assessments); the legislated rate of assessment for power
generation facilities of approximately $86 per square metre which has remained unchanged for
many years; the Large Industrial class; and, the assessment of mobile homes and watercraft used
as permanent or seasonal residences.
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Report to Council 38-01
Date: November 19,2001
Subject: Beaubien Commission
Page 2
The attachment is self explanatory and is presented here for the information of the Committee
and Council. Many of the suggestions are an effort to streamline the assessment process and
minimize disruptions to municipalities and taxpayers.
ATTACHMENTS:
1. Presentation to Mr. Marcel Beaubien, M.P.P.
Prepared / Approved / Endorsed By:
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Gillis A. Paterson
Director, Corporate Services & Treasurer
GAP:vw
Attachment
Recommended for the consideration of Pickering
City Council
Thomas J. uinn, Chief Administrative Officer
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ATTACHMENT # -!.-TO REPORT # CS_ 3'8', 0 i
PRESENTATION TO MRo MARCEL BEAUBIEN, MoP.Po
In the Final Report submitted by Mr. Beaubien to the Honourable James Flaherty, Minister of Finance, on April 2, 2001,
a number of issues were identified for further review. On July 18,2001 the Finance Minister announced an extension
of the appointment of Mr. Beaubien as a special advisor to continue a review of the regulation that defines property
classes under the assessment system. To assist in this work, Mr. Beaubien invited MFOA, -and other interested parties,
to submit proposals and recommendations.
Although many of the issues identified for further review are technical in nature, we nevertheless feel that there are
general principles or observations that should guide the review of these issues. We identify these in Part 1. Part 2
consists of a brief discussion on the specific issues identified in the original report as needing further review. Part 3
identifies a number of issues that have come to our attention but were not explicitly identified in the original Beaubien
Report.
PART 1:
Principles or Observations
1.
Understand the Tax Shifts Produced by Any New Recommendations
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Changes to assessment practices or property class definitions will result in tax shifts among property classes.
Tax shifts associated with proposals must be clearly understood by the Province before they become
recommendations. Recommendations should be accompanied by a tax impact analysis that identifies affected
municipalities and the degree of inter-class and/or inter-municipal tax shifting resulting from the
recommendations.
2.
Implement Change on a "Go Forward" Basis Only
Any recommendations put forward that affect assessment or tax policy should be implemented for the 2003
tax year. In the past, too many tax changes have been made part way through the year. This leads to delays
in billing and confusion for ratepayers and municipal councils and staff. The Province should state, as a
fundamental principle, that it will no longer permit retroactive changes to the property tax system.
3. Avoid Changing Tax Policy Through the Assessment System
The Province should be cautious about recommendations that assist narrowly defined groups of ratepayers.
Special tax treatment for special interest groups will only encourage fragmentation of the Ontario Fair
Assessment System. Band aid approaches might bring tax relief to some groups but at the expense of
encouraging others to seek special treatment and ultimately undermining the tax system altogether. Tax
reductions should take place through policy tools available to municipalities. The Province should avoid the
temptation to provide tax relief to special groups by altering assessment definitions or valuation techniques
unless a very sound case can be made that existing definitions and/or valuation techniques are inadequate.
4.
Maintain Local Accountability for Tax Policy
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Nothing should be done to reduce the level oflocal responsibility for local tax policy. Proposals that call for
the elimination of local control, such as mandatory tax ratio reductions, are inconsistent with he principles
captured in current property tax legislation and should be rejected.
5.
Promote Consistent Application of Policies Province-Wide
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Every effort should be made to encourage consistent application of valuation techniques and practices among
the field offices of the Municipal Property Assessment Corporation.
6. Do Not Provide Tax Relief Based on a ('Benefits Received" Test
Tax relief should not be considered simply because ratepayers feel that they do not receive services
commensurate with the taxes paid. The property tax is a general purpose tax for financing the full range of
municipal services and is not a user charge. While MFOA supports reductions in taxation for business classes
in many municipalities, it does not support reductions for property owners simply on the basis that their taxes
are high relative to the services they consume.
PART 2:
Issues Identified in the Original Beaubien Report
1. Industrial Property Class
· We understand that some property owners have questioned why their property is in the industrial class
when it used to be assessed as commercial. These include groups such as denturists and software
developers. (paragraph 6(1)1 ii ofO. Reg. 282/98 states that industrial properties include lands used
for '}-esearch or development in connection with manufacturing... j.
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It is our understanding that the definition of industrial property is broader than it once was and there
may be a case for revisiting the definition in light of what was originally intended to be captured.
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· We also understand that there is a "scale" issues in the industrial class. Home hobby shops, for
example, can be classified as industrial where something is being produced (e.g. crafts such as bird
feeders, pottery). Prior to tax reform, these types of properties were assigned to a tax class based on
the predominant use of the property. For example, a residential property with a garage that is
equipped with a kiln for making pottery would have been classified as fully residential and subject
to a residential tax rate because the predominant use was residential. Under tax reform, properties
with multiple uses have their various uses assigned to the appropriate tax class. Under this approach,
the pottery shop in the garage would be classified as industrial (manufacture of pottery items) and the
rest of the house classed as residential. The industrial CV A would generally attract a higher tax rate
such that the overall taxation on the property would be higher, all other things being equal. Generally,
this approach produces greater equity in that properties with similar uses pay the same tax rates rather
than the tax rate associated with the predominant use.
Position/Concern:
Any change that removes small scale properties from the industrial class has the
potential to adversely affect the tax base of municipalities. Such a change should
only be adopted if a detailed tax impact analysis suggests that tax shifting would
have minor impacts on other property classes.
2. Small Business Property Class
For a variety of reasons, many municipal councils would have liked to be able to offer tax relief to
truly small scale commercial enterprises. None of the current tax tools allows municipalities to target
small business for special tax treatment. Efforts have been made to define a small business class to
permit targeting of tax relief, but definitional problems have been significant Definitions of small
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business that rely on square footage, for example, have the problem that some small properties might
actually be part of a very large business (e.g. local branch of a bank).
MFOA is supportive of efforts to give municipalities greater options related to the taxation of small
business. However, we are also aware that, to date, efforts on this issues have not resulted in
consensus positions. In addition, with four possible commercial property classes now (i.e.
commercial, shopping, office, parking), MFOA is concerned about further fragmenting the class. It
is useful to remember that prior to tax reform, all commercial properties were subject to the same tax
rate. Overly fragmenting the commercial class into more subclasses will take us further from a
keystone principle of taxation that all properties in the same class pay the same tax. Furthermore, the
willingness to fragment the class will doubtless lead to further requests to create additional classes
for special properties (e.g. golf course class, heritage class, etc.).
· Finally, it should be recognized that lowering taxes for one commercial sub-class results in higher
taxes for the other commercial sub-classes or for properties in other classes. Such reductions merely
redistribute the tax burden, they do not reduce the municipality's overall levy requirements.
Position/Concern:
MFOA feels that caution is needed when considering the creation of new classes.
We could not fully endorse the creation of a small business class without knowing
how such a class would be defined.
3. Farm Lands and Buildings
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It is our understanding that the main issue being raised with Mr. Beaubien on this matter deals with
the tax treatment of ancilIary buildings on a farm. If a farmer has an apple orchard, and has a building
to store apples, this is integral to the operation of the farm and all elements of the property are
classified as farm property. Assessors refer to this as value retention. However, if a building is being
used to process what is grown into a sellable product (e.g. produce cider, pies, wine, etc.), then this
is what assessors call value added, and such buildings will be assessed as industrial.
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Position/Concern:
In cases where there is a "value added" activity, it is appropriate to classify affected
buildings as industrial and tax them accordingly.
· If a farmer leases storage to other framers, such facilities are classed as commercial since they are not
integral to the farm operation of the owner. This raises problems for farm co-ops where storage
facilities are being provided by the co-op and classified as commercial. If own site storage would be
taxed as farmland, then the assessment system should not discriminate against cooperative ventures
by taxing co-op storage facilities as commercial enterprises.
Pos ition/Concern:
Farm co-ops that provide storage space for legitimate farm purposes should be
classified as farmland.
4. Managed Forests
· We understand that there are a number of administrative issues with the Ministry of Natural Resources
regarding the identification and administration oflands designated as managed forests. In addition,
there are issues related to the way that these lands are assessed when forests are near bodies of water.
Forests near bodies of water tend to have higher valuations.
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To our knowledge, no suggestion has been made that managed forests be exempt in the same way that
conservation lands are.
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Position/Concern:
MFOA would strongly oppose any attempt to exempt managed forests from
taxation.
5. Linear Properties
a. Pipeline
· In the case of pipelines, the CV A is established by applying a fixed value to each section of pipe
according to the size of the pipe. The tax rate for the class is determined in the same fashion that all
other class tax rates are determined, by using the municipality's overall levy requirements, its total
weighted CV A and its class tax ratios.
· In 2000, there was confusion among field offices about the appropriate rates to apply to pipelines to
determine their CV A. In some cases, pipeline CV As changed quite dramatically. We understand that
the industry is seeking clarification on the proper approach and greater predictability for their tax
burdens in the future.
Position/Concern:
Generally, the AMO/MFOA supports the objective of consistent assessment
practices and predictability of tax burdens. However, any changes to current
assessment practices for pipelines should be the focus of further consultation with
affected parties and should be accompanied by a tax impact report.
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b. Railroad and Hydro Rights of Way
Under tax reform, railroad and hydro rights of way are to be taxed by applying standardized rates in
nine geographic areas to the area of the right of way. The standardized tax rates were calculated to
yield the same tax that the fragmented system of rates previously produced. Across a broad
geographic area, some municipalities are experiencing tax revenue losses (they had high rates that are
moving to a lower average rate for their area) and some are experienCing tax revenue gains (they had
low rates that are moving to a higher average rate for their area). All municipalities were moving
toward the standardized rate over time. All municipalities are supposed to be at the standard rate by
2005.
· In 2001, the Province has frozen rates for municipalities where rates were increasing but allowed rates
to fall for those moving down to the average rate. The Province has undertaken to compensate
municipalities that were moving to higher rates for any tax losses. It is not clear what impact this
change will have on achieving the prescribed 2005 standardized rates.
Position/Concern:
MFOA supports the move to standardized rates and opposes any move to reduce
taxes paid by railroads in the nine geographic areas.
c. Cable
. Abandoned pipelines are not subject to taxation. In some cases, cable lines are being run through
abandoned pipelines and no tax is being paid.
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Position/Concern:
If cable or Internet infrastructure is run through pipelines, these pipes should be
assessed and taxed. Consultation is required to determine the appropriate value to
be attached to the pipelines in this case.
6. Hotels
o Hotel owners have raised issues related to the income approach used by the assessment corporation
in determining values for hotels. Precise details of the issues involved are not known at this time.
Obviously, assessment methodologies favoured by hotel owners would lead to lower hotel
assessments. MFOA will not comment on the appropriateness of current assessment methodologies
in accurately assessing hotels. However, MFOA is concerned about the potential impacts of any
change to the way that hotels are assessed.
Position/Concern:
No changes should be made to hotel assessments, or to the assessments of other
properties in the service sector, without detailed tax impact analysis.
7. Rooming Houses, Co-operative and Co-ownership Buildings
· The regulation currently uses the term "self contained units" in numerous points in section 3 which
sets out the definition of residential/farm property. This reference to self-contained units has created
a degree of confusion with regard to some types of specialized residential buildings such as rooming
houses and co-operatives and co-ownership buildings. This issues is mainly a concern in Toronto.
Position/Concern:
MFOA supports any necessary change to the definition of the residential/farm
property class to ensure that the full range of living arrangements is captured as
residential, including rooming housings and co-operative buildings.
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8. Vacant Lands with High-Density Residential Zoning
o Vacant land that is zoned as high-density residential is often coded on the roll as multi-residential,
which carries a higher tax rate than the residential class. Developers argue that in most municipalities,
high-density residential can include condominiums and townhouses, both of which are included in
the residential/farm class and not the multi-residential class. -
· In many cases, the exact nature of the future buildings is not known. The argument from developers
is that these lands should be taxed at the lower residential rate since condominiums and townhouses
are much more commonly developed than multi-residential rental units. At the very least, developers
say, the lower "new multi-residential" rate should apply in municipalities that have adopted it.
Position/Concern:
MFOA supports current approaches with respect to the coding of vacant lands with
high density residential uses.
9. Multi-residential Property Class
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Owners of multi-residential units have been asking the government for mandatory reductions in tax
ratios for the multi-residential class. A key principle of tax reform was that municipalities were to
have authority over tax ratio adjustments. We continue to support the notion that tax ration reductions
for multi-residential properties should continue to be a matter of local discretion.
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Tax Relief for the multi-residential class to date:
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The education tax rate for the multi-residential class is equal to the rate for the residential
class. This led to a reduction in education taxation for multi-residential properties.
Some municipalities have created a "new multi-residential" class with lower tax ratios for
new multi-residential buildings for up to 25 years. This is often coupled with a phased
approach to lowering ratios for existing multi-residential buildings so that the ratios for new
and old buildings are the same at the end of the 25 year phase-in period.
The application of the "levy restriction" in the capping legislation means that a municipality
cannot pass on a tax increase to the multi-residential class if the tax ratio for that class is
greater than 2.7400. If a municipality has a tax increase, and the multi-residential class tax
ratio is greater than 2.7400, this is equivalent to a mandatory reduction in the ratio for that
class under existing legislation.
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Position/Concern:
MFOA strongly supports the notion of municipal control over the movement of tax
ratios for all classes, including the multi-residential class.
10. Lands Being Farmed Pending Development
· Mr. Beaubien will "evaluate the effectiveness of the current structure of the sub-classes of farmland
pending development." The precise nature of the issues related to farmland pending development are
not clear.
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Currently, there are two sub-classes, which are taxed at lower rates, for farmland pending
development in each offour property classes: residentiaVfarmland; multi-residential; commercial; and
industrial. The lower tax rates apply to farmland in the early stages of development. The property
is not taxed at the full class rate until it is developed and occupied. This confers an advantage on the
developer who does not have to pay the full class tax rate while the lands are being developed or
while approvals are being obtained.
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· At the moment, as property passes from one stage of development to another, the taxes on the
property increase as a result of a higher CV A as well as the application of a higher tax rate. The
higher CV A represents the greater value attached to the property as a result of its more advanced state
of development.
· The current approach to farmland pending development confers significant benefits on developers
who do not face the full class tax rate nor the full CV A on the property until it is developed.
Position/Concern:
The current treatment of farmland pending development be continued.
11. Environmental Protection
Mr. Beaubien will review the tax treatment of lands designed to protect and rehabilitate the
environment.
· Generally, municipalities are cautious about proposals to reduce taxes for specialized properties since
the general erosion of the base that this can create can be quite significant. Such erosion merely
causes other classes to absorb more of the tax burden. However, in the case of lands that require
environmental rehabilitation, tax concessions may well contribute to the restoration of significant
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tracts of urban land that can result in increased tax revenues and possibly the elimination of urban
blight and stimulation of local employment. These are laudable goals.
Bill 56, the Brownsfields Statute Law Amendment Act, received second reading on June 28, 200!.
The bill gives powers to municipalities to pass by-laws providing for municipal tax assistance to assist
with the environmental rehabilitation of properties that do not meet the standards prescribed for filing
a record of site condition in the Environmental Site Registry in accordance with the amendments
made to the Environmental Protection Act by Part II of the Bill. With the approval of the Minister
of Finance, these by-laws may also apply to education taxes.
Position/Concern:
Municipalities should have discretion to provide tax assistance to properties that
require environmental rehabilitation.
· With respect to environmentally sensitive lands, the tax treatment depends on the situation.
Conservation authority lands are exempt from taxation. However, no one would suggest that all the
lands embraced by the Oak Ridges Moraine should be exempt or taxed at a lower rate. Most,
however, would agree to more stringent development controls for such lands. There are many policy
levers available to protect environmentally sensitive lands and any attempt to alter the property tax
system in this regard should be subjected to further consultation and economic impact analysis before
being enshrined in law.
Position/Concern:
Any changes to the tax treatment of environmentally sensiti ve lands should be the
subject of separate consultation process and economic impact studies.
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13.
Technical and Procedural Issues
· Mr. Beaubien proposes to continue to review O. Reg. 282/98 to ensure that:
a. all provincial policy objectives are being met;
b. ambiguities are clarified; and,
c. inconsistencies are rectified.
Position/Concern:
The Province should ensure that O. Reg 282/98 meets objectives a, band c above.
Part 3:
ISSUES NOT IDENTIFIED IN THE BEAUBIEN REPORT
1. Mobile Homes
· Some seasonal campgrounds in Ontario contain mobile homes that serve as full time residential units
but are not currently assessed. Mobile homes in one jurisdiction might be assessed while those in
another are not.
Position/Concern:
Mobile homes used as full time residential units should be assessed and taxed at the
residential/farm rate. The Municipal Property Assessment Corporation should
ensure that rules for assessing mobile homes should be applied consistently across
the Province.
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2.
Boats
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A float house is a house-like structure built on a floating foundation that is not generally intended for
use in navigation. It is essentially a floating version of the mobile home issue identified above.
Currently, marinas pay taxes for the overall site as a commercial enterprise. Where a boat or float
house is used as a residential home for people on a year round basis, there is a case for having a
separate assessment as a residential unit.
Position/Concern:
The assessment and taxation of boats and float houses should be reviewed with a
view to taxing such properties as residential units where there is evidence that they
are occupied on a year round basis.
3. Commercial Uses on School Board Lands
· In some cases, School Board have permitted commercial activity to take place on property owned by
a Local Board of Education. In Vaughan, for profit daycare facilities located on School Board
property have not been assessed. Another municipality has identified a fast food outlet on exempt
School Board lands that is also not assessed and not taxed.
· In the OPAC quarterly Newsletter of April 2000, OPAC identified the issue of "the assessment of day
care centres attached to schools" as a matter requiring legislative/regulatory change.
Position/Concern:
For profit activities taking place on exempt School Board lands should be assessed
as commercial and taxed appropriately.
4.
Mine Tailings
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· Mining companies obtain the right to mine lands from all levels of government. One of the conditions
attached to the right to mine is that the company must develop a rehabilitation plan to dispose of any
waste materials. In many cases mining companies have built large containment structures to store
mine tailings costing millions of dollars. Under the Assessment Act, these structures are assessable
and taxable. The assessing authority has historically treated mine tailing sites as vacant land with
little or no assessment. In some cases, the mining operations have ceased and the mine tailing
structures are all that remain of the mine operation and municipalities in this situation face financial
hardship from lost tax revenues.
Position/Concerns:
The assessment of structures built for the storage of mine tailings should be
reviewed. Nominal assessments on structures costing millions of dollars seems
inappropriate and unduly penalizes municipalities where mining operations have
ceased.
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