Property Assessment and Classification Review - Banks

ISSUES AND RECOMMENDATIONS

Banks

A concern was expressed during the consultations about the assessment methodology applied to stand-alone bank branches. The view was expressed that these properties should be assessed using the same methodology that is applied to other physically-similar properties. A particular concern was expressed about the application of the cost approach to valuing bank branches when other similar properties are generally assessed using the sales or income approaches to value.

Recommendation:

  • It is recommended that the Province not prescribe an assessment methodology to be used in the assessment of stand-alone bank branches.

Discussion:

As a general principle, it is agreed that similar properties should be assessed in a similar manner. However, it is believed that MPAC is in the best position to determine which assessment methodology is the most appropriate to apply in the circumstances of different types of properties.

Cables

Telecommunication cables are part of a group of properties commonly referred to as linear properties. The term "linear" is used to describe properties that are long and expansive in nature, such as cables, hydro lines, railway corridors, and pipelines. Each of the linear properties will be addressed separately in this report.

Cables and telecommunication lines are not assessable property under the current provisions of the Assessment Act. While the cables themselves are not assessable, questions have been raised about the assessability of the property on which the cables are located. In particular, questions have been raised about the appropriate assessment and tax treatment of railway corridors and pipelines that are leased to telecommunication companies for the running of cables and fibre-optic lines.

Railway corridors (also referred to as "rights-of-way") are taxed at fixed rates per acre based on prescribed municipal and education tax rates pursuant to section 368.3 of the Municipal Act. (This regime will be discussed in more detail below, under the heading "Railways".) Portions of railway corridors that have been leased to telecommunication companies for the placement of cables have been treated by MPAC as part of the rail corridor and have not been assessed (they simply form part of the acreage that is subject to the prescribed tax rates for railway rights-of-way).

Pipelines that are used for oil and gas transmission are assessed at rates prescribed by the Minister of Finance. However, pipelines that are abandoned are currently not subject to property assessment or taxation pursuant to section 25(8) of the Assessment Act. MPAC treats pipelines as being abandoned if they are not used for the transmission of oil and gas. When pipelines are used for the placement of telecommunication cable lines, they have been treated as abandoned and have not been assessed by MPAC.

During the consultations, the municipal sector expressed the view that pipelines and railway corridors that are leased out for other uses, such as the placement of cable and telecommunication lines, should be subject to assessment and taxation.

Recommendation:

  • The imposition of property tax on cables and telecommunication lines is not recommended at this time.

    However, the following considerations are noted:
    • The nature of the telecommunications industry has changed dramatically in recent years. Part of this change is due to the move from wire-based to wireless technology. Any tax that may be considered in the future on the property of telecommunication companies should be applied in such a way as to recognize the evolving technologies and to treat wireless and wire-based operations in an even-handed fashion.
    • It is recommended that any discussions about the taxation of the telecommunication industry should involve the federal government, notably the Canadian Radio-Television and Telecommunications Commission (CRTC).
  • With respect to railway and pipeline properties that are leased to telecommunication companies for the placement of cables and fibre-optic lines, the following recommendations are being made:
    • As a general rule, portions of railway corridors which are leased by the owner to another entity and are used for a purpose other than rail transportation should be subject to assessment and taxation.
    • As a general rule, pipelines which are leased by the owner to another entity and are used for a purpose other than the transmission of oil or gas should not be treated as abandoned and should be subject to assessment and taxation.
    • It is recommended that railway corridors and pipelines that are leased by the owner to another entity for purposes unrelated to the business of the owner should be assessed on an income basis. It is further recommended that rates of assessment and taxation on pipelines and railway corridors in these situations be developed by the Ministry of Finance in consultation with MPAC and the affected property owners to ensure the rates are fair and appropriate.

Discussion:

The recommendation to make railway corridors and pipelines subject to assessment and taxation when they are leased to other entities is consistent with the policy intent expressed in existing legislation.

In the case of railway corridors, the fixed tax rates per acre were premised on the assumption that the corridors would be used for railway transportation purposes only. In fact, the governing legislation states that the prescribed property tax rates for railway corridors shall be applied to the "right-of-way of a railway company ... not including land leased by the railway company to another person for rent or other valuable consideration" [Municipal Act, section 368.3(1) para. 1]. If the railway company leases out a portion of the right-of-way to another entity, for the placement of telecommunication cables or for any other purpose, it is believed that this property should be assessed and taxed.

In the case of pipelines, the exemption from taxation for abandoned pipelines was intended to apply to pipelines which are not being used for any purpose and which are not generating revenue for the owner. If the owner has granted a right to another entity (through a lease or other form of agreement) to use the pipeline in exchange for rent or other valuable consideration, it is believed that this pipeline property should be assessed and taxed.

These policies are consistent with the treatment accorded to vacant commercial and industrial land. When land is unused, it is taxed at a reduced rate in recognition of the lack of economic activity on the land. When land is used or occupied, it becomes subject to taxation at the full commercial or industrial rate in recognition of the economic activity and revenue generation activity on the property.


CAMPS

Properties which are used for childrens' summer camps have not been treated consistently across the province. As a general practice, MPAC has included camps owned by non-profit entities in the residential class, while camps owned by for-profit entities have been included in the commercial class.

Ontario Regulation 282/98 does not specify how summer camps should be treated, but it does stipulate that "land used for residential purposes on a seasonal basis, including campgrounds" shall be included in the residential class. The Assessment Review Board recently issued a decision in which it held that a summer camp meets the criteria of being used for residential purposes on a seasonal basis and therefore it belongs in the residential property class.

During the consultations, it was proposed that all childrens' summer camps, regardless of the nature of the property's ownership, should be included in the residential class.


Recommendation:

  • It is recommended that children's recreational camps which are used on a seasonal basis be included in the residential class.
  • It is recommended that facilities which operate for business purposes on a year-round basis and offer camp programs on a seasonal basis be included in the commercial class.
  • Camp properties which are eligible for exemption from taxation under section 3 of the Assessment Act or under private legislation should retain their exempt status.

CAR DEALERSHIPS

Requests were brought forward during the consultations for changes to the method of assessing car dealerships and for changes to the classification of car dealership lots.

With respect to the assessment methodology, it was suggested that certain aspects of the current methodology for assessing car dealerships are not equitable in relation to properties with similar uses and similar construction. Specifically, it is believed that the depreciation rates and local modifiers that are applied to the cost valuation of car dealership buildings are yielding assessed values that are too high.

With respect to classification, it was proposed that a special property class be created for car dealerships to facilitate the taxation of these properties at a lower rate. It is felt that car dealerships should be taxed at a lower rate because they are unique in that they require a greater expanse of land than most other types of businesses to hold their inventory and conduct their business operations.


Recommendation:

  • It is recommended that the Province not prescribe special rules for the assessment of car dealerships, and it is recommended that a special property class not be created for car dealerships. These properties should remain in the commercial class.

Discussion:

Car dealerships, like other business properties, are protected by the annual 5% limit on CVA-related tax increases which the government implemented for the protection of commercial, industrial and multi-residential properties province-wide.

With respect to assessment methodology, it is believed that MPAC is in the best position to determine the factors and modifiers to apply to the valuation of buildings.



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