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Tax Bulletin: Business Education Tax Rate For New Construction

Business Education Tax Rate For New Construction

Property Tax Bulletin, September 2008

This Bulletin provides municipalities and business property owners with details on the 1.60% maximum Business Education Tax (BET) rate for new construction, which was announced in the 2007 Ontario Budget.

NEW CONSTRUCTION OVERVIEW

  • The Province plans to implement a 1.60% maximum BET rate for all new construction initiated after March 22, 2007.  
  • It would immediately establish a more level playing field for businesses when determining where to build new manufacturing facilities or other business complexes.
  • Businesses in municipalities with BET rates that are currently below 1.60% would be taxed at the existing lower rate.
  • BET rates for each municipality are regulated under the Education Act through O. Reg. 400/98, and are available at http://www.e-laws.gov.on.ca/

NEW CONSTRUCTION PROPERTY CLASSES

In order to set lower tax rates for new construction, the Ministry of Finance plans to create new property classes.  These new construction property classes would reflect existing definitions for commercial and industrial property classes, including most optional property classes, but would only apply to new construction.  The new construction property classes would be:

  • new construction commercial
  • new construction shopping centre
  • new construction office building
  • new construction industrial
  • new construction large industrial

ELIGIBILITY REQUIREMENTS

New construction eligible for the 1.60% maximum BET rate would be required to meet the following requirements:

  • Application for the building permit must be received by the municipality after March 22, 2007
    • Applications are made to the local municipality where the property is located and must be accompanied by the applicable fees
    • Municipalities must submit building permit information to the Municipal Property Assessment Corporation (MPAC), including the date of the application
  • The application must be for the first building permit
  • Application must be in either the commercial or industrial property class as defined in the Assessment Act

SINGLE USE PROPERTIES

  • For single use properties, the new construction would be required to increase the current value assessment (CVA) of the entire property by a minimum of 50% over a period of 5 taxation years
    • Renovations to existing structures may be eligible if they meet the minimum 50% increase in CVA

EXAMPLE 1 - Single Use Property

Property Class CVA Prior to New
Construction		 CVA After New
Construction		 Increase in
Business Property
Values		  
Commercial 200,000 300,000 50% Eligible

MIXED USE PROPERTIES

  • For mixed-use properties with portions in the business classes, the new construction would be required to have a combined CVA in the business portions of a minimum of 50% over a period of 5 taxation years
    • Increases in value related to non-business classes are not included in the calculation

EXAMPLE 2 - Mixed Use Property, Business Property Classes Only

Property Class CVA Prior to New
Construction		 CVA After New
Construction		 Increase in
Business Property
Values		  
Industrial 100,000 75,000 -25% Eligible
Commercial 100,000 450,000 350% Eligible
Total Property 200,000 525,000 163% Eligible


Property Class CVA Prior to New Construction CVA After New Construction Increase in Business Property
Values		  
Industrial 200,000 320,000 60% Not Eligible
Commercial 450,000 450,000 0% Not Eligible
Total Property 650,000 770,000 18% Not Eligible

EXAMPLE 3 - Mixed Use Property, Business and Residential Property Classes

Property Class CVA Prior to New Construction CVA After New Construction Increase in Business Property
Values		  
Commercial 100,000 400,000 300% Eligible
Residential 450,000 450,000 0% Not Eligible


Property Class CVA Prior to New Construction CVA After New Construction Increase in Business Property
Values		  
Commercial 100,000 125,000 25% Not Eligible
Residential 450,000 1,500,000 0% Not Eligible

COMMENCEMENT OF 1.60% BET RATE

  • The 1.60% BET rate would take effect once construction is complete, eligibility requirements are met and the new construction commences to be used
    • The Municipal Property Assessment Corporation (MPAC) would value the property according to the Assessment Act

PROCESS

  • Building permit application is made to the municipality
  • Municipality would approve building permit and forward building permit information, including date of application,  to MPAC
  • MPAC would monitor property during the construction stage, values property according to the Assessment Act, determines if current value assessment increased by greater than 50% and confirms date property commences to be used
  • When the property commences to be used, MPAC would add the eligible property into one of the following new construction property classes:
    • new construction commercial
    • new construction shopping centre
    • new construction office building
    • new construction industrial
    • new construction large industrial
  • Property would become eligible for the 1.60% maximum BET rate when the property is added into a new construction property class and commences to be used

Note: The 1.60% maximum BET rate may need to be recalculated to adjust for the impact of reassessment-related changes. 

FURTHER INFORMATION

For additional information about the process for submitting building permit applications, requirements and applicable fees, please contact your local municipality.

For further information about the Business Education Tax Rate for new construction, please contact the Ministry of Finance.

Phone: Allan Doheny, 416-327-9592; Chris Broughton, 416-314-3801
E-mail: allan.doheny@ontario.ca; chris.broughton@ontario.ca
Web Site: English http://www.fin.gov.on.ca/en/publications/bulletins
French: http://www.fin.gov.on.ca/fr/publications/bulletins
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