Property Assessment and Classification Review -Large Industrial Property Class

ISSUES AND RECOMMENDATIONS

LARGE INDUSTRIAL PROPERTY CLASS

The large industrial class is one of the six optional property classes that municipalities may choose to apply.

The large industrial class includes properties that would otherwise be in the industrial class that have the following features:

  • a parcel of land containing one or more buildings with a single occupant and with an exterior area greater than 125,000 square feet; or
  • grain elevators with a storage capacity of at least one million bushels; or
  • land that has an assessed value which is greater than the total assessed value of all other land in the municipality.

It was proposed during the consultations that the 125,000 square foot threshold for inclusion in the large industrial property class should be increased to 300,000 square feet. It is felt that 125,000 square feet is too low and captures too many smaller properties.


Recommendation:

  • It is recommended that the 125,000 square foot threshold be maintained for the large industrial property class.

Discussion:

Municipalities have the option of applying graduated tax rates to the industrial property class. This mechanism allows upper-tier and single-tier municipalities to establish up to three bands of assessed value for properties within the class and they can apply different tax rates to each band of assessment. This tool offers a suitable alternative for municipalities who do not find the criteria of the large industrial class to be appropriate for their local conditions.


LIFE LEASE BUILDINGS

Life lease buildings are a relatively new structure of residential accommodation. Under this type of arrangement, a person purchases the right to occupy a unit within a residential building on a long-term basis. The duration of the right to occupy the unit is typically for the duration of the occupant's lifetime.

The main advantage of a life lease interest over other forms of accommodation is that life lease developments are usually operated by community-based organizations which provide special services or support to the occupants.

Prior to 2000, most life lease buildings were included in the multi-residential class, although there were some regional variations where life lease complexes were included in the residential class.

In 2000, O. Reg. 282/98 was amended to specify that life lease buildings should be included in the residential class. When the Minister of Finance confirmed that the tax classification of life lease buildings was residential, not multi-residential, MPAC ensured that a consistent valuation methodology was used to assess these properties. As life lease properties are in the residential class, MPAC applies the sales comparison methodology that is used to assess condominium units and single-family dwellings.

Representatives from the life lease community came forward during the consultations to request that the Minister of Finance prescribe a methodology to be used by MPAC in the assessment of life lease buildings to ensure that the units in these properties are not assessed at the same rate as the sale prices of condominiums.


Recommendation:

  • It is recommended that the Province not prescribe changes to the assessment methodology of life lease properties.

Discussion:

It is believed that MPAC is in the best position to determine which assessment methodology (sales comparison, income, or replacement cost) is the most appropriate to apply in the circumstances of different types of properties.


MANAGED FORESTS

To encourage landowners to preserve and replenish forested areas, the Province provides preferential property tax treatment to eligible managed forest properties by assessing them based on their current use and taxing them at 25% of the residential rate.

During the consultations, issues were raised about the methodology for assessing managed forest properties, the eligibility criteria of the managed forest property class, and the administrative processes involved in overseeing the managed forest property class.

Assessment Methodology (Banding)

The Assessment Act stipulates that managed forest properties shall be assessed "based only on the current use of the land and not other uses to which the land could be put." This means that the assessed value of managed forest properties should be derived without regard to the development potential of the land or other market forces that would ordinarily be a factor in the valuation of non-forested properties.

During the consultations, several stakeholders expressed concern about the methodology that MPAC applies when valuing managed forest properties. The specific concern relates to managed forest properties that are adjacent to bodies of water.

When establishing the assessment of a managed forest property, MPAC applies farm land assessment rates to the forested area. However, where a forest is located next to a body of water, MPAC applies an increased value to the portion of the property that is within 208 feet of the body of water. The attribution of a higher value to the portion of properties within a 208 foot band of a body of water is referred to as the "band method". The theory behind the band method is that waterfront property has a higher market value than inland property.

The use of the band method has been challenged by property owners at the Assessment Review Board with inconsistent results. In one case, the Board held that the band method was not appropriate because it purported to reflect the development potential of the land rather than assessing the property based on its current use as required by section 19(5.2) of the Assessment Act. In another case, the Board held that the use of the band method was acceptable because all similar properties had been assessed in the same manner in accordance with section 44(2) of the Assessment Act which directs that "in determining the value at which any land shall be assessed, reference shall be had to the value at which similar lands in the vicinity are assessed."

During the consultations, stakeholders indicated that they do not agree with the use of the band method because it tries to capture the potential value of the property rather than focusing on the current use as forested lands.


Recommendation:

  • It is recommended that the band method not be applied to the assessment of managed forest properties.

Discussion:

The provincial policy direction regarding the assessment of managed forest properties is clearly set out in the Assessment Act where it states that the current value (i.e. the assessed value) of managed forests "shall be based only on the current use of the land and not other uses to which the land could be put."


Assessment of Mixed-Use Properties

During the consultations, concern was expressed with MPAC's method of apportioning the assessed value of mixed-use properties into different classes. It was suggested that a higher value should be assigned to the managed forest portion of the property which is taxed at a reduced rate, and a lower value should be assigned to the occupied portion of the property that is subject to taxation at the full residential rate.


Recommendation:

  • It is recommended that the Province not prescribe an apportionment methodology to be used in the assessment of managed forests on mixed-use parcels.

Discussion:

It is believed that MPAC is in the best position to determine the appropriate methodology by which to apportion the assessment of a property into different classes based on the different uses of each portion of the property.


Eligible Property

The Ministry of Natural Resources has proposed that the eligibility criteria for the managed forest property class be revised in the following three respects:

  • expand eligibility by removing the Canadian citizenship ownership requirement;
  • expand eligibility to include natural areas that cannot support trees (e.g. rock facing) as part of eligible forested area;
  • limit eligibility on golf courses and ski hills by requiring a minimum contiguous forested area that is 40 metres in width and five acres in area.

Recommendation:

  • It is recommended that the Canadian citizenship ownership requirement be removed as a prerequisite to eligibility for the managed forest property class. Properties should be assessed based on their use, not based on the nationality of their owners.

    It is also recommended that the Canadian citizenship ownership requirement be removed from the farmlands property class.
  • It is recommended that eligibility for the managed forest property class be expanded to include portions of the natural landscape that cannot support trees, provided that these areas are surrounded by eligible managed forest.

Oversight and Administration

The Ministry of Natural Resources (MNR) is responsible for overseeing the administration of the managed forest property class. The roles performed by MNR (and its designated agents) in this regard include the following:

  • receiving and reviewing applications from property owners who want to be included in the managed forest property class;
  • reviewing managed forest plans to ensure conformity with prescribed eligibility criteria;
  • notifying MPAC of the properties which are eligible for inclusion in the managed forest property class each year;
  • resolving disputes about the classification of managed forest lands.

MNR has requested several changes to the prescribed program administration requirements.


Recommendation:

  • In view of the administrative changes proposed by the Ministry of Natural Resources, the following program administration changes are recommended:
    • Change the application deadline from August 31 to July 31.

    • Change the application period from annual to every ten years. However, to successfully implement a ten-year application cycle, the following precautions are recommended:

      • ensure that property owners receive adequate advance notice of the application deadline at the end of each ten-year cycle;

      • annual inspections should be conducted prior to the preparation of the assessment roll to ensure that properties are still meeting the eligibility criteria for the managed forest class;

      • ensure that MPAC has the authority to change the classification of managed forest properties during the ten-year cycle if activities are conducted on the property which are inconsistent with the eligibility criteria for the class.

    • Provide new owners with 90 days within which to apply for inclusion in the managed forest property class. It will be important for MNR to ensure that new owners are notified of this application requirement.

    • Give authority to the Mining and Lands Commissioner to accept late applications where there are mitigating circumstances. Consistent with the recommendation made above with respect to the farm property class, it is recommended that the Commissioner be authorized to accept and approve applications that are submitted up to December 31st of the taxation year.

    • Remove the obligation for property owners to submit entire managed forest plans and only require that relevant portions of the plans, as specified by MNR, be submitted with the application.

    • Allow MNR to exclude properties from the managed forest property class, but only in situations where the landowner has violated one or more of the eligibility criteria in section 9 of O. Reg. 282/98 or in its managed forest plan.

    • Permit MNR to inspect properties for up to a year after they leave the managed forest property class. If it is found that activities were conducted on the property which violated the eligibility criteria of the class, MPAC should be notified and authorized to issue a notice of supplementary or omitted assessment to remove the managed forest classification back to the date of the offending activity.

  • It is recommended that MNR not be authorized to delegate its obligation to consider requests for reconsideration to an outside agent. The request for reconsideration process was designed to have a neutral government authority deliberating over disputed classifications.



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