Consultations: Provincial Land Tax Reform

Overview
   Consultations
   Assessment Base
   Issues Reviewed
   Property Class
   Definition of Remote Properties
   Exemptions
   Assessment Cycle
   Tax Rate
   Administration
   Appeal System
   Enumeration
   Concluding Comments
   Consultation Feedback
Contact Information

OVERVIEW

The 2004 Budget committed the Ministry of Finance (MOF) to consult on potential reform of the Provincial Land Tax (PLT).PLTis the tax system used in the "unincorporated territory" that exists outside of municipal boundaries in northern Ontario¹. The purpose of the consultations was to gather input on reformingPLTfrom those directly affected by it, and to discuss whether the Province should adopt a consistent approach to property taxation across the entire province.

Provincial Land Tax Reform Consultations held in 11 Northern Cities

The Ministry of Finance held 11 workshops throughout Northern Ontario from September 30 to October 28, 2004. The dates and locations for these sessions were as follows:

• Sault Ste. Marie (September 30)
• Sudbury (October 1)
• Fort Frances (October 6)
• Kenora (October 7)
• Dryden (October 8)
• Wawa (October 13)
• Timmins (October 14)
• Kirkland Lake (October 15)
• Parry Sound (October 21)
• North Bay (October 22)
• Thunder Bay (October 28)

Staff from the ministry attended each of the consultations and provided a background presentation on the history ofPLTand the currentPLTsystem. Ministry staff also prepared a Facilitator's Guide that included discussion points and policy questions, which included the following broad topics: assessment base, assessment cycle, tax rate, administration, appeal system and enumeration. This document served as a structured agenda for each of the sessions. Participants' comments on eachPLTreform issue addressed in the document are included in this report.

Consultations

Each session started with an opportunity for participants to introduce themselves and provide opening comments regardingPLTreform.

Throughout the consultations there was a consensus that any reform to the currentPLTregime had to be fair, equitable and simple. In general, participants had the following concerns:

• the government should ensure that the reform is done properly the first time;
• the PLT legislation should be updated and modified;
• another layer of bureaucracy was not needed;
• the government should take immediate action; and
• the government should develop a system that reflects the unique circumstances of the North.

Municipal participants said:

• there should be a level playing field and everyone should pay their fair share of taxes;
• the annexation of unincorporated areas around their boundaries is a possible option towards reaching an equitable solution;
• there is frustration since the "downloading" of responsibilities and the additional burden of providing services to the unincorporated areas;
• their tax base was shrinking due to individuals moving to the unincorporated areas; and
• there are concerns about those living in the unincorporated areas paying their fair share.

By comparison, participants in the unincorporated areas said:

• they do pay their fair share of taxes, and that there should be no further tax increases;
• there should be a clear connection between the amount of taxes paid and the number of services received; and
• unincorporated areas do not receive the same number of services as those in the municipalities and as a result, their tax bill should not be equal to municipal levels.

Some participants said they would be willing to pay more taxes if they received more services. They expressed concern that the government does not understand the true costs of living in an unincorporated territory, and if taxes were to be increased then they had to be phased in, or mitigation provided, as there are many people in the unincorporated areas living on fixed incomes. They also said that they choose to live in the those areas and do not see annexation as a solution to this issue. Concerns about the number of tax bills they receive and the confusion of the purpose of each bill were also raised.

Assessment Base

All properties in Ontario and other jurisdictions in North America are assessed on the basis of their current value. ForPLTpurposes, properties in the "unincorporated territory", outside of municipal boundaries in the North, have not been assessed since the 1940s. At the same time, properties subject to interimPLTand education taxes are subject to an up-to-date assessment creating further confusion and inequities. There are seven standard classes in municipalities (residential, multi-residential, commercial, industrial, pipelines, farmlands and managed forests), however in the unincorporated areas there is only one class of property. Also, exemptions under thePLTAct differ from exemptions under the Assessment Act (e.g. farms, land held in trust for a band or body of Indians are in thePLTAct and not in the Assessment Act).

Issues Reviewed

• Should a single assessment base apply uniformly across the province, and if so what are the considerations for implementing current value assessment (CVA) in the unincorporated?
• What is the applicability of the standard property classes used by municipalities in the unincorporated areas and should there be consideration of a remote class for properties in the unincorporated areas? If so, what are the possible definitions of remote?
• What level of consistency should apply between the exemptions contained in the Assessment Act and those in thePLTAct?

The consensus was to move toward aCVAsystem. Some participants preferred a flat fee similar to Manitoba's system. Manitoba annually collects a "chief place of residence fee" of $400 from all unincorporated properties.

However, participants expressed a number of concerns over the implementation ofCVAin the unincorporated areas:

• the North is not the same as Southern Ontario and therefore theMPAC(Municipal Property Assessment Corporation) model of assessment is not appropriate for assessing their properties;
• theMPACmodel does not take into consideration that real estate sales activity does not fluctuate to the same degree in the North as it does in southern Ontario;
• there is a potentialMPACstaffing shortage when it comes to conducting physical reassessments (some properties have never been assessed);
• reassessments are costly; and
• there may not be sufficient flexibility inMPAC's model.

Some said thatMPACshould to take into consideration, when determining assessments, how the property is used (i.e. waterfront, seasonal properties and trailer parks) and the services received. Some said that out-of-province purchasers of property tend to inflate property values, leading to higher assessments. The suggestion was to implement caps on property value increases to help ensure fairness. Some concerns were raised over the difficulty of placing an assessment on remote properties. Some participants suggested that the costs of living in remote areas should be taken into account and that a reassessment could have a negative impact.

Property Class

Discussion also included whether there should be one property class for the unincorporated areas, or several as in the rest of the province. People felt that there should be more than one property class in the unincorporated areas. Some said that categories should be based on services received, others suggested that core principles regarding remoteness and living in the unincorporated areas had to be decided prior to the development of classes. Some suggested that there should be a separate class for tourist camps, remote properties and remote commercial establishments.

Definition of Remote Properties

When it came to defining what a "remote" property is, there was little consensus. Some participants suggested that a property should be considered remote if it has no water, no hydro and no road access. Others suggested properties with road access could be defined as remote depending on the distance from the nearest local municipality, the distance from adjacent properties, and the level of services received.

Some participants said there is a need to distinguish between remote and rural properties. Others suggested that aCVAapproach would, by its nature, reflect the remoteness of the property.

Exemptions

Suggestions about exemptions were that:

• they should be considered as part of those in the Assessment Act;
• the exemption criteria should remain unique to unincorporated areas; and
• Crown land assessment and taxation should be reviewed.

Some participants questioned whether the Ministry of Natural Resources (MNR) should be assessing these properties. Municipalities, in particular, noted that Crown land does not contribute taxes to the municipal base. There were also requests for a government review of issues surrounding the taxing of leased Crown land.

Assessment Cycle

MPACconducts reassessments of properties in municipalities annually. Questions regarding this practice were:

• Should annual reassessments undertaken in unincorporated areas?
• What are the appropriate time periods for conducting reassessments?
  
• How frequently should reassessments occur given the North's vast area?

Some felt that an annual reassessment of properties in the unincorporated areas is not feasible due to the remoteness of the area. These participants suggested that 2-to-5 years would be a more realistic assessment cycle.

Reasons for longer time periods between assessments included:

• there is less fluctuation of property values in the unincorporated areas;
• it makes financial sense;
• MPACwould not be able to assess on a more regular basis since it lacks sufficient staff;
• it provides the opportunity to conduct more physical assessments; and
• it alleviates the currentMPACbacklog of property assessments.

Others said that annual assessments could better reflect District Social Services Administration Board (DSSAB) weighed assessment apportionment methodologies. An annual reassessment would help ensure thatPLTis more consistent with the approach taken to property tax in the rest of the province.

Suggestions were made about howMPACperforms assessments:

• there is a need to develop a building permit program in the unincorporated areas;
• when hydro or septic tank inspections are made, this should be an indication toMPACto assess the property; and
• the implementation of Geographic Information System (GIS) technology would assistMPACassessing properties.

Tax Rate

Municipalities in Ontario are entitled to set property tax rates based on budgetary needs. In the unincorporated territory, thePLTAct has set the tax rate at 1.5 per cent of the assessed value on properties. If the government decided to proceed with assessment reform, the tax rate structure would have to be revisited. Participants discussed what service delivery and economic realities should be considered when revisiting the tax rate structure for the unincorporated territory?

Responses to this issue were:

• after a reassessment at current value, a 1.5 per cent tax rate would be too high particularly for residential properties;
  
• the rate should reflect services received in the unincorporated areas, and this could be done through area rating²;
  
• the money collected by the Province would not flow back to the unincorporated areas;
  
• the new tax rate should be revenue neutral, and any subsequent increases should be phased-in;
  
• it is not fair that only municipalities receive Community Reinvestment Funds (CRF), and a similar formula should be put in place to support unincorporated areas;
• the Province has to be clear about the amount of revenue it wants to collect and for what purposes;
• a comparison between municipalities and the unincorporated areas regarding the amount of taxes paid relative to services received, and nearby municipal tax rates, would assist in developing a new tax rate;
• an apportionment methodology should be developed that takes into consideration the distance of a community to the local municipality so that a broader base will be paying for a percentage of the services delivered;
• there is an inequity within the unincorporated areas as some pay interimPLT³ while others do not;
• the Province should review current school board boundaries; and
• any tax increase would stifle economic development in the unincorporated areas.

Administration

It is possible for those living in the unincorporated areas to receive up to four separate tax bills, including:PLT, interimPLTand education taxes, Local Services Board (LSB) and Local Roads Board (LRB), as well as waste disposal fromMNR. Participants discussed whether there is an opportunity for billing administrative efficiencies to be implemented in unincorporated areas?

Additional points of discussion included:

• local billing considerations;
• the role of the Province in the collection of taxes;
• collection of tax arrears; and
• the role of the school board in the collection of taxes.

Though a number of participants stressed the importance of moving to a provincial tax billing and collection system, many participants, specifically from theLRBs, expressed the desire to continue to set the budget and collect taxes locally. Collecting taxes locally ensured the money stayed there and also provided them with more billing flexibility. Like theLSBs, manyLRBs wanted the option of being able to opt into the provincial billing and collection system. There was concern that if the Province collected the money it would not return to the North.

Participants suggested:

• the Province was best suited to collect thePLTand education taxes;
  
  
• consolidation of the various tax bills would lead to greater efficiencies and less taxpayer confusion;
• line items for Public Health andDSSABcosts associated with servicing the unincorporated areas could be specifically identified on the tax bill;
• a provincially led tax collection system would potentially alleviate the frustration in collecting tax arrears inLSBs andLRBs;
• there are privacy concerns when taxes are collected by volunteers versus "official" tax collectors; and
• levying school boards preferred that education taxes be collected by the Province.

Appeal System

Rarely used, the current appeal system allows for unresolved complaints to be appealed to a judge, whose sittings every three years rotate on a geographic basis. Participants discussed if the government moves forward withPLTreform, what appeal system should be put in place?

Appeal system comments included:

• the appeal process for unincorporated areas should mirror the Assessment Review Board (ARB) in the municipalities to ensure consistency;
• a localMPACrepresentative should be available to address concerns;
  
  
• theMPACcall centre is unable to adequately address northern issues;
  
  
• theARBis not user friendly, the appeal fees are too high and there should be northern representation on the board;
• accessibility toARBhearings is an important issue - specifically the costs involved in attending anMPACorARBreview; and
• the current system, with the judge sitting every three years, works well but it is difficult to work withMPACin the appeal process.

Enumeration

There is a limited amount of information collected from residents of the unincorporated territory, which could present assessment challenges. Participants discussed what the limitations arising from the limited information currently collected are and what, if any, additional information should be collected?

Responses to the issue of enumeration were:

• it is important to include enumeration data on the roll;
  
  
• there are many inconsistencies between the various rolls that tax administrators employ, which has resulted in confusion and inaccurate billing;
• it is important to identify the number of people in the unincorporated areas, particularly for health units andDSSABs in determining their budgets; and
• enumeration in the unincorporated areas should include using local volunteers, placing questionnaires inPLTbills and conducting a census during the summer to capture seasonal residents.

Most participants agreed that enumeration would improve accountability. Both unincorporated area and municipal participants agreed that births, deaths, tenants, owners, name, citizenship, etc. should be included in the enumeration data to ensure accuracy.

Concluding Comments

Throughout the consultations, participants emphasized the need for a simple and fair approach toPLTreform: There was support for:

• the Province's commitment to building strong communities;
  
  
• emphasizing the unique character of Northern Ontario;
  
  
• a provincial review of the relationship between municipalities and surrounding unincorporated territories;
• the Province pursuing a tailored approach to taxation that accounted for instances in which services were being provided to areas outside of a municipality; and
• recognition of the fact that unincorporated areas are an important part of the economic base of municipalities.

There were additional concerns that:

• residents in the unincorporated territories could not absorb new taxes;
• the viability of Northern municipalities suffers as people migrated towards unincorporated areas;
• the Province should institute a more radical county-oriented structure involving pay-for-services taxation and an opportunity to elect representation;
• there is a general misunderstanding about how individuals are taxed in both the municipalities and in the unincorporated areas; and
• the Province's notion of tax fairness needs to be clarified.

There was interest in having follow-up meetings in the spring, with the possible formation of a committee involving ministry staff and residents from the unincorporated areas. Support forPLTreform was strong, and while acknowledging the complexity of the issue, participants urged the Province to move forward with its best efforts.

Consultation Feedback

The ministry's open discussion onPLTreform was welcome and participants appreciated ministry staff traveling to the North. They said that the discussions were appropriate to the issue and were well-facilitated. Through the sessions, they felt that they were provided with a better understanding of the complications of the current system.

CONTACT INFORMATION

Questions or comments can be sent to:
Provincial Land Tax Reform
Provincial Local Initiatives Branch, Ministry of Finance
10^th Floor, 777 Bay St.,
Toronto, ON M5G 2C8
Fax: 416-314-3853

1   All unincorporated areas are within the northern region of the province.
2   Special area rates are for ratepayers who benefit from certain services that are not provided to every ratepayer in the community. In this situation, while all ratepayers are levied one tax rate for general purposes, those ratepayers within a special service area are levied an additional tax rate or special area rate to cover the additional services which only they are receiving.
3    InterimPLTwas introduced where the former education effective tax rate in a school board exceeded the 1998 uniform education rate (.46 per cent) so the same amount of gross revenue would be raised in these boards. InterimPLTis billed and collected by the levying school boards in the unincorporated areas, and is remitted toMOF.