Property Assessment and Classification Review - Economic Development Incentive Tools

ISSUES AND RECOMMENDATIONS

ECONOMIC DEVELOPMENT INCENTIVE TOOLS

Over the years, numerous requests have been made for the Province to give municipalities the ability to provide tax incentives to business owners to encourage new construction and new business development. These requests were reiterated by stakeholders during this review.

Many jurisdictions, including the United States, have been successful in spurring economic development by offering various tax incentives through programs commonly referred to as "enterprise zones".

The enterprise zone tool can take on many forms and it can involve a variety of financial incentives and social programs. One feature that consistently plays a prominent role in enterprise zones is the authority for municipalities to provide property tax relief.

Stakeholders indicated an eagerness to see similar initiatives implemented in Ontario.

Recommendation:

  • It is recommended that zones be created in which property tax incentives (reductions or exemptions) could be provided to businesses that construct new buildings or expand existing facilities.
  • It is recommended that the Province establish minimum eligibility criteria, and that municipalities be permitted to add additional criteria. The following minimum eligibility criteria are proposed for consideration:
    • the tax reduction or exemption should only apply to new assessment created by construction or renovation (ensuring municipalities do not lose existing revenue);
    • there should be a maximum period of tax relief (e.g. 20 years);
    • a minimum investment should be required (expressed as a dollar amount or percentage assessment increase, e.g. minimum $50,000 of new assessment);
    • a minimum number of new jobs should be created with an average wage that is at or above the average wage in the area;
    • the rate of unemployment in the zone should be at or above the regional rate.

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Notes:

  • This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001.
  • In the Speech from the Throne on May 9, 2002, it was announced that the Government plans to introduce legislation to create tax incentive zones to encourage businesses to locate and invest in rural and northern communities.
  • In the Ontario Budget Speech on June 17, 2002, the Minister of Finance announced that the Government plans to consult with the private sector and municipalities about the development of legislation to establish tax incentive zones in Ontario.


ENVIRONMENTAL PROTECTION

Many industries are required to install pollution control equipment to ensure that the environment is protected from hazardous substances which are created as a by-product of their ongoing operations. There are also some industries that are required to alter the physical landscape of their property or to install special equipment to provide long-term protection to the environment in respect of inactive operations. For example:

  • Mining companies are required to ensure that there is no hazardous run-off from mine tailing sites. (Mine tailings are the rock fragments that remain after minerals have been extracted from the ground during mining operations.) Mine tailing sites are often covered with water and turned into ponds with special underground cleaning equipment to ensure the environment is kept safe after the mining company has left the site.
  • Similarly, hazardous waste sites and non-hazardous landfill sites are often surrounded by perimeter sheet piling to maintain the integrity of the area surrounding the site.

During the consultations, questions arose as to the appropriate assessment and tax treatment of sites, structures and facilities whose sole purpose is to protect the environment. In many cases, the pollution control features constitute machinery and equipment which are already exempt from taxation under section 3 of the Assessment Act. However, the appropriate treatment has been less clear in cases involving the alteration of the physical landscape.

Recommendation:

  • It is recommended that features of a property which are designed for environmental protection or pollution control not be subject to additional assessment.
    For example, as noted in the report of the Special Advisor to the Minister of Finance dated April 2, 2001, it is recommended that mine tailing sites continue to be treated as vacant land with no added value for things like retaining walls and purification equipment. It is recommended that mine tailing sites continue to be assessed as land and not deemed to be structures or storage facilities.

Discussion:

This recommendation is premised on the belief that businesses should not be penalized for adding features to a property that are designed to safeguard the integrity of surrounding lands and the safety of nearby residents.


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Notes:

  • This recommendation was made to the former Minister of Finance in an interim report dated December 5, 2001.
  • A specific recommendation on mine tailing sites was made to the former Minister of Finance in the report of the Special Advisor dated April 2, 2001.


EXEMPT LANDLORDS WITH TAXABLE TENANTS

The Assessment Act contains a list of different categories of properties that are exempt from property taxation. As a precondition to most of these exemptions, a property must be used exclusively by the entity named in the Act or used exclusively for the purpose named in the Act.

Many property owners whose buildings are exempt from taxation have entered into arrangements to allow non-exempt entities to occupy all or part of their premises. For example:

  • churches often allow day care centres to operate on their premises (typically, the day care centre will occupy a wing of the building during the week, and that same portion of the building will be used by the Church for religious school instruction on weekends);
  • hospitals and universities often allow food establishments to operate on their premises (these establishments range from a coffee cart to a full cafeteria).

As a general rule, if all or part of an exempt property is used by someone other than the exempt entity named in the Assessment Act or is used for a purpose other than the eligible exempt activity named in the Act, that portion of the property will be subject to taxation.

During the consultations, several stakeholders expressed frustration that tenanted portions of exempt buildings are not being assessed.


Recommendation:

  • It is recommended that the Province not take action to require MPAC to assess all occupants of exempt properties.

Discussion:

Investigation of this issue revealed that many business entities which are located in exempt buildings are not assessable because they are not considered, by law, to be the occupier of the premises. In order to be assessable as a tenant of exempt property, an entity must have an agreement with the landlord that confers upon the entity certain rights of occupation such as exclusivity and control over the premises.

A lease agreement which creates a traditional landlord/tenant relationship will usually create a legal environment that results in the tenant being assessable and subject to taxation. However, it is quite common for the owners of exempt buildings to grant occupants something less than full tenancy rights. Frequently, businesses will be operating in exempt premises pursuant to a licence agreement or a management agreement, and these types of agreements do not usually convey the degree of control over the premises that is required for the law to view someone as an assessable occupant.

In situations where municipalities believe that MPAC has failed to assess a taxable tenant of an exempt property, it is recommended that the municipality contact the local assessment office to inquire into the reason for the occupier not being assessed. Such direct inquiries would assist MPAC in locating assessable businesses that might have been inadvertently missed in exempt properties (in which case, a correction could be made through the omitted assessment notice process), and it will assist municipalities by enhancing their understanding of the different arrangements which do not create assessable occupancies.



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