Property Assessment and Classification Review -Recreational Complex



Issues raised by stakeholders that would affect only a single property have generally not been addressed in this report. However, there is one situation that was brought forward during the consultations which merits discussion because of its unique nature.

A large manufacturing company operates a recreation centre for the use of its employees and for community organizations. This facility contains arenas, gymnasiums, baseball diamonds, tennis courts, a running track, a driving range and putting course, a soccer field, and a children's playground.

The employer funds the net operating costs of the recreation centre, although nominal fees are charged to employees and community organizations for the use of certain facilities.

This property is owned by the same corporate entity that operates the manufacturing business, although the recreation centre is not operated on a for-profit basis.

The recreation centre has been included in the commercial property class, but the property owner has requested that it be included in the residential class because of its not-for-profit nature.


  • An expansion of the residential class to include recreational properties owned by for-profit business entities is not recommended.


Representatives from several condominium corporations have requested that a separate property class be created for residential condominiums. It was submitted that a lower tax rate for high-rise accommodation is justified because multi-unit dwellings pose much less of a drain on municipal services than single-family dwellings.

As noted above under the discussion of the multi-residential property class, condominiums are included in the residential property class. The condominium owners who made a submission during the consultations are seeking to be taxed at a rate below the residential rate.


  • It is recommended that residential condominiums remain in the residential property class.


The fundamental premise of our property tax system is that properties should be taxed on the basis of their market value, not on the basis of the relative use that property owners make of local services.


Owners of for-profit private schools contend that they cannot compete fairly with non-profit private schools that are exempt from property taxes. They also feel it is unfair that they are providing the very service (education) for which they and the parents of their students are being taxed (through the education portion of the property tax on the schools and on the parents' residences).

As such, owners of private schools that operate on a for-profit basis have requested property tax relief to level the playing field with non-profit private schools.

It was indicated during the consultations that the tuition fees of for-profit and non-profit schools are within the same range, and in many cases the fees charged to parents by elite non-profit schools are significantly higher than those charged by for-profit schools. While the for-profit schools are at liberty to increase their fees, they feel an obligation to their students and to the community to offer high quality education at an affordable cost. There is a strong sense of commitment among private school owners to offer educational choices and opportunities to all segments of society and not to have private schooling reserved only for the wealthy.

Public schools and schools that are organized on a not-for-profit basis are exempt from property taxes under the following legislative provisions:

  • Section 3(1) para. 4 of the Assessment Act provides an exemption from taxation to the following public educational institutions:

    Land owned, used and occupied solely by a university, college, community college or school as defined in the Education Act or land leased and occupied by any of them if the land would be exempt from taxation if it was occupied by the owner.

    (The definition of "school" in the Education Act includes elementary and secondary schools that are part of a school board or that are operated by the province.)
  • Section 3(1) para. 5 of the Assessment Act provides an exemption from taxation to the following non-profit schools:

    Land owned, used and occupied solely by a non-profit philanthropic, religious or educational seminary of learning or land leased and occupied by any of them if the land would be exempt from taxation if it was occupied by the owner. This paragraph applies only to buildings and up to 50 acres of land.

For-profit schools are subject to property taxes at the commercial tax rate, consistent with the treatment of other for-profit businesses. Owners of these schools are seeking tax relief to put them on an equal footing with their public and non-profit counterparts and to provide tax fairness to the parents of their students.


  • No changes to the tax treatment of for-profit private schools are being recommended at this time.


It is recognized that there is some inequity in the tax treatment of for-profit and non-profit private schools. However, it is hoped that the "equity in education tax credit", which was announced in the 2001 Ontario Budget, will move towards addressing the concerns of the parents of children enrolled in taxable educational institutions.


Owners of self-storage facilities (also known as public storage or mini-warehouse facilities) made submissions during the consultations to express dissatisfaction with the inclusion of their facilities in the commercial property class. They would like to be included in the residential property class to reflect the pre-reform situation whereby units in public storage facilities that were rented to private individuals for storage of personal effects were not subject to business occupancy tax (BOT).

Prior to 1998, tenants and occupants of commercial and industrial properties were subject to BOT pursuant to the provisions of section 7 of the Assessment Act. BOT was charged to every person who was "occupying" land "for the purpose of or in connection with a business." Over the years, rules were developed by the courts to assist in the determination of who was "occupying" land and who was doing so in connection with a "business" activity.

To determine whether a person was "occupying" property for BOT purposes, several factors were considered, including:

  • the nature of the agreement, if any, between the landlord and the occupant (e.g. was there a lease or a license); and

  • whether the person had exclusive care and control of the premises (e.g. could the tenant access the premises at any time or was access only possible at the times and in the manner permitted by the landlord).

With respect to the business activity test, a person was considered not to be using land in connection with a business activity if their activity was not conducted with a view to a profit. Profit motive was key to this test, therefore all non-profit entities were exempt from BOT.

In the case of Canadian Mini-Warehouse Properties v. Regional Assessment Commissioner, Region No. 12 and Borough of Etobicoke, the court addressed the issue of whether the tenants of certain self-storage facilities were "in occupation" of the units for the purposes of BOT. In the context of the facts of this particular case, the judge concluded that the tenants of the units had sufficient control and exclusivity over the use and access to their units to be considered the occupants. While these tenants were "in occupation", they were not occupying the units in connection with a business activity as they were storing personal effects. Therefore the tenants of the property at issue were found not to be subject to BOT.

As part of reforming the property tax system in 1998, the Province eliminated the BOT through the repeal of section 7 of the Assessment Act. Under the current assessment system, assessors no longer assess tenants. It is now the use of premises that determines the classification of property, not the identity of a tenant.

In 1998, when the property classes were created, it was determined that the commercial classification would apply to public storage and mini-warehouse facilities. Public storage facilities have been included in the commercial class because the entire premises are being used for business purposes in that the owner of the property is operating the business of renting storage space. The nature of the goods that are being stored and the identity of the unit occupants is not a relevant consideration under the current rules.


  • It is recommended that public storage and mini-warehouse facilities continue to be included in the commercial property class.


The commercial classification of public storage facilities correctly reflects the business use that the owners are making of these properties.



This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001.


Shopping mall owners and tenants have both expressed satisfaction with the method by which MPAC assesses retail shopping complexes. As a general practice when valuing shopping malls, MPAC applies the income approach which establishes a market value for the property by capitalizing the rental income stream.

The issues that were raised by stakeholders during the consultations did not relate to the assessment or classification of these properties, but rather, they related to information that owners and tenants would like to see added to the assessment roll.

Separate Assessment of Anchor Stores:

Anchor tenants are requesting that their stores be assessed and taxed as separate properties rather than being included in the assessment of the shopping malls. Anchors want to be treated as separate properties to extricate themselves from the tenant capping regime. In particular, they want to be removed from the pool of tenants whose tax decreases are being limited or delayed to fund the cap on tax increases of other tenants.

Apportionment of Tenant Units:

It was proposed during the consultations that MPAC be required to apportion the value of tenant units in shopping malls based on a blending of fair market rent valuations and square footage allocations.

The request is not for MPAC to change the way assessors value shopping centre properties (i.e. MPAC should still derive a value for the property using the income approach based on fair market rents). The proposal is that the assessors' working papers be required to show tenant apportionments that are different than those that are actually established during the property valuation process.
The assessors' working papers are relevant because most shopping centre owners rely on these documents as the basis for apportioning property taxes since there are no longer separate tenant allocations on the assessment roll for business occupancy tax (BOT) purposes.

The intention behind this proposal is to move towards an equalization of the tax levels between the various tenants in shopping malls.


  • It is recommended that the Province not create separate assessments for anchor tenants and that the Province not introduce new artificial tenant apportionments for shopping malls.


The current disparity in tax levels between anchor tenants and smaller tenants within shopping malls is a result of the structure of the tax allocation clauses in the leases that have been negotiated between landlords and tenants.

The creation of separate assessments or regulated apportionments would circumvent the terms of various lease agreements.

Under the current assessment system, the primary liability for property taxation rests with the property owner. It would not be appropriate for the government to create a scheme which is designed to change the amounts on account of taxes that are paid by tenants to landlords.

While the Province did make legislation affecting tenants in 1998 when it imposed the tenant cap, this was done to protect tenants by mitigating the impact of unexpected and unmanageable reform-related tax shifts. The tenant cap preserved the status quo and it provides for a gradual transition to the current value assessment system.


During this review, taxpayers and municipalities brought forward proposals for the creation of a variety of mechanisms aimed at providing tax relief to "small business" or "neighbourhood commercial" properties.

The idea of providing preferential property tax treatment to small businesses is not a new one. Previous panels that were convened to study property tax reform, including the "Who Does What Panel" chaired by David Crombie in 1996, were faced with similar requests.

Specific proposals that were made during the consultations for this current review include the following:

  • create a separate property class for "small business" properties;
  • create a separate property class for "neighbourhood commercial" properties;
  • create a sub-class for "small rural commercial businesses";
  • apply "current use" valuation principles to the assessment of small business properties;
  • impose graduated tax rates to apply lower tax rates to lower-valued business properties.

Each of these proposed mechanisms would achieve a different goal. In order to determine which mechanism, if any, should be adopted, it is necessary to identify the underlying policy objectives.

The objectives behind the proposals submitted by the various stakeholders are not synonymous. Some stakeholders want to see broad-based tax relief provided to all small businesses, recognizing the importance and fragility of the small business sector in our economy, while others are only seeking to confer a benefit on their particular category of properties.

The objectives identified by stakeholders include the following:

  • to support community streetscapes with small neighbourhood shops (the stakeholders who identified this objective are opposed to relief being provided to all small business properties, their goal is to provide relief only to street-front clusters of shops);

  • to reduce the tax burden on rural businesses in an effort to sustain and promote economic development in rural communities;

  • to provide relief to small business properties that are facing assessment-related tax increases as a result of the assessment-related tax decreases that are being experienced by large business properties (in essence, the goal is to mitigate the tax shift from large office towers onto small properties that occurred upon reassessment in some municipalities);

  • to provide tax relief to all small businesses.

One of the significant obstacles to the implementation of the proposed tax relief mechanisms would be the development of a province-wide definition of eligible properties.

  • Some business associations have proposed definitions based on physical characteristics of properties (e.g. street frontage with no more than three storeys). However, many businesses that occupy such properties are not small businesses in the traditional sense, but rather, they are part of multi-national chains.

  • Some stakeholders have proposed that geographic boundaries be used to determine which properties would be eligible, such as Business Improvement Areas. However, geographic areas would include both large and small businesses.

  • Some stakeholders have suggested that all small businesses be eligible for relief, whether they are property owners or tenants. To define "small" businesses, a variety of size tests would be required, such as number of employees. However, it is unclear how relief could be delivered to small business tenants because there is no direct property tax liability against tenants - taxes that are paid by tenants are actually paid to landlords under the terms of their leases.

To avoid the challenges of defining "small" businesses or "neighbourhood commercial" properties, a proposal was made to apply graduated tax rates to all business properties. The graduated tax rate mechanism would achieve the goal of applying lower tax rates to smaller and lower-valued properties and it would avoid most of the definitional issues because it would apply equally to all properties in the class.

There is currently a graduated tax rate mechanism available to municipalities under section 368.2 of the Municipal Act. This mechanism, which can be applied to the commercial or industrial property classes, allows upper-tier and single-tier municipalities to establish up to three bands of assessment and to set different tax ratios for each band. Municipalities would determine the thresholds of assessed value for each band and they would determine the tax ratios that apply to each band. For example:

Band of Assessment Tax Ratio
0 to 200,000 2
200,001 to 500,000 4
500,001+ 6


  • The creation of a new property class for small business properties is not recommended.

  • It is recommended that the graduated tax rate mechanism, which is currently optional, be made mandatory for the commercial property class. This mechanism would require municipalities to apply lower tax rates to smaller and lower-valued properties.

    Upper-tier and single-tier municipalities would have the option of establishing two or three bands of assessment, and they would set different tax ratios for each band. Municipalities would determine the thresholds of assessed value for each band and they would determine the tax rates that apply to each band.

    It is recommended that the Province impose certain standards to ensure that the intent of this program is met. Specifically, it is recommended that the Province prescribe criteria for a minimum threshold and a maximum tax rate for the first band of assessment.

    • With respect to a minimum threshold it is recommended that the Province set a minimum standard. For example, the Province could require that the first band comprise the first 10% of the value of the average commercial property in the upper-tier or single-tier municipality.


It is believed that the graduated tax rate mechanism is the most efficient means of delivering property tax relief to small business properties. This mechanism avoids the need to define eligible properties because all properties in the class are eligible, and it treats all properties fairly and equally as every property in the class would benefit from the reduced tax rate on the same portion of its assessment.

The only apparent definitional challenge with the graduated tax rate mechanism is to define the first band (that is, the band which is intended to capture smaller properties). It is believed that the Province should not prescribe standard bands or thresholds of assessed value because property values differ widely from one community to the next. A property that is considered small or low-valued in a large urban centre may be the highest-priced property in a community in rural or northern Ontario. Therefore, it is believed that municipalities are in the best position to determine the thresholds of assessed value that are reflective of their local marketplace. However, it has been recommended that the Province prescribe criteria for a minimum threshold and a maximum tax rate for the first band to ensure the intent of the program is not defeated by the creation of an artificially low assessment or high tax rate on the first band.


The assessability of residential trailers and mobile homes has been a debated issue for at least two decades. The essence of the issue is whether these forms of accommodation are real property (which is liable for assessment under the Assessment Act) or if they are chattels (which are not assessable for property tax purposes).

The Assessment Act requires that all real property be assessed. The definition of "real property" in the Act includes: "all buildings ... and all structures, machinery and fixtures erected or placed upon, in, over, under or affixed to land."

In determining whether something is assessable as real property, the courts have looked to the degree of permanence of the structure. In the case of residential trailers, characteristics of permanency would include such features as sun-rooms or porches that are built out from the unit.

In the late 1980s, after years of disputes about the appropriate tax treatment of trailers, a policy decision was made by the then Minister of Finance to place a moratorium on the assessment of trailers in "seasonal" trailer parks until the issue could be resolved. A stakeholder committee was struck to deliberate on the appropriate tax treatment of these properties and to look at alternatives to property taxes, such as municipal licensing. The committee did not produce a resolution.

Under the moratorium policy that was imposed more than a decade ago, residences in mobile home parks that are zoned for year-round use have been assessed, but residential units in parks that are zoned or characterized as being for seasonal use have not been assessed. (It should be noted that the land in all trailer parks has been assessed. It is only the residential units on the land whose assessability has come into question.)

The moratorium has continued to this day, with the result that many trailers have not been assessed for the past decade. The moratorium policy was never reflected in legislation. This contradiction between assessment policy and the legislation has led to recent court challenges about the assessability of all residential trailer units.

Respecting the recent court decisions, and recognizing the fact that the moratorium policy is not encoded in the Assessment Act, MPAC is proposing to assess all residential units that exhibit characteristics of permanency in all trailer parks and campgrounds for the 2003 reassessment.

As a result of a recent court judgment confirming the assessability of units within a particular trailer park community, MPAC is faced with the possibility of having to assess this type of accommodation on a retroactive basis because the Assessment Act requires that MPAC add properties to the assessment roll for the current year and two previous years when it is determined that the properties were erroneously omitted from the assessment roll.

Owners and residents of trailer parks, as well as municipalities, are seeking a resolution to this longstanding issue.


  • It is recommended that all residential units located in trailer parks, campgrounds, and land lease communities be assessed and taxed at the residential rate if they meet the test of being assessable real property by exhibiting characteristics of permanency.

    The following criteria, which have been proposed by MPAC, appear to be satisfactory tests for determining the assessability of this form of accommodation.
    • unit not licensed for road travel or for towing behind a passenger vehicle;
    • unit can only be moved to another site with a special vehicle and an oversize permit;
    • permanent connections are in place for water, electricity and waste disposal.

  • It is recommended that MPAC not be required to issue omitted assessments for residential units that have not been assessed prior to 2003 due to the moratorium policy that was previously in effect. Therefore, it is recommended that the Assessment Act be amended to create a limited exception to the omitted assessment rules to address this particular situation.


The petroleum sector has raised issues with the assessment and taxation of oil and gas wells. The sector believes that oil and gas wells should qualify for an exemption from property taxation under the provision in section 3 of the Assessment Act which accords an exemption to mining equipment.

In the absence of an exemption, the petroleum industry would like wells to be taxed at fixed amounts per well rather than based on current value assessment. It was indicated during the consultations that MPAC has generally applied an assessment of $40,000 to high-producing wells and $20,000 to low-producing wells. The industry takes issue with this methodology because the volume of production from a well is not necessarily indicative of the value of the well.


  • It is recommended that oil wells be subject to fixed assessments. Municipalities would continue to levy a tax on the wells at the local commercial tax rate.

    It is recommended that different assessments be prescribed for oil wells of different depths.

    • In Ontario, commercial oil and gas production presently occurs in southern Ontario where oil and gas pools have been located at depths ranging from 300 feet to more than 3600 feet, traversing the Devonian, Silurian, Ordovician and Cambrian rock strata.

    • It is recommended that the Ministry of Finance work with the Ministry of Natural Resources to identify and categorize the different depths of wells.

    • It is recommended that a maximum of four well depth assessment categories be created (to match the four major rock strata in southern Ontario), and that different fixed assessments be prescribed for each category.

    • It is recommended that a fifth category be established for "historic" oil wells, and that this category be assessed at a rate below the lowest of the rates applicable to the four aforementioned categories.

    • The assessment rates should be developed by the Ministry of Finance in consultation with MPAC based on the value of the wells and associated land.

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