With soaring property taxes and lease rates putting intense pressure on small business, the City of Toronto is proposing a 10-per-cent cap on all commercial, industrial and multi-residential tax increases for a second year in a row.
The measure, which council will consider on March 7 as part of Mayor John Tory’s proposed budget, is meant to relieve mom-and-pop shops in high-density areas such as Yonge Street and Danforth Avenue, where skyrocketing property values have slammed businesses with tax bills that were set to increase as much as 400 per cent by 2020 in the last round of provincial property assessments.
The Municipal Property Assessment Corp. (MPAC) reassesses Ontario property values every four years, over which tax increases are staggered. The last cycle began in 2016.
Toronto isn’t the only city struggling to address rapidly rising tax bills for businesses. Industrial and commercial land prices in Vancouver have also soared in areas with high development potential, contributing to the closing of some retailers. In Calgary, businesses outside the city core are facing tax hikes to make up for lost revenue from declining commercial property values downtown. While the city dipped into savings to cap tax increases at 5 per cent last year, it hasn’t announced its plan for the future.
For Toronto, the tax cap is also a stopgap. City council will likely approve its extension for 2019, according to Ward 13 Councillor Kristyn Wong-Tam; but in the meantime, city staff are working on robust tax reform recommendations to present to council later this spring.
Small businesses are urging the city to find a long-term fix soon. Without permanent measures in place, they say it’s hard to plan for the future, and even annual property tax increases of 10 per cent add up quickly for owners and tenants, who typically pay the cost of property tax directly.
Christopher Sheedy opened a used bookstore, Re: Reading, on the Danforth in 2009 and a second location in the Beaches in 2016. His five-year lease on the Beaches store promised no increases in base rent, but because of rising property taxes, his overall monthly rent has jumped to $5,900 from $5,100 in 2016.
He said the tax cap is a start, but it’s not enough.
“My rent goes up significantly, but because I’m a used bookstore, I can’t change my prices very much. Even if we hike prices by 10 per cent, that’s the difference between a $5 book and $5.50.”
Mr. Sheedy said there are dozens of empty storefronts in the Beaches between Woodbine Avenue and Fallingbrook Avenue, in part because of rising lease rates.
Local business groups have been campaigning hard for tax reform. The Yonge Street Small Business Association organized events and met with politicians, including Ms. Wong-Tam, last year, opposing the tax jumps. The Toronto Association of Business Improvement Areas (TABIA) says rising property taxes are the top concern among its membership of more than 40,000 businesses, according to vice-president Lionel Miskin.
“Taxes are one of the highest numbers in terms of business overhead, especially small businesses. When one of your biggest expenses is increasing at a rate of 10 per cent annually, how do you continue?” Mr. Miskin said.
Part of the reason Toronto’s small businesses are facing surging, unpredictable tax hikes is because of how MPAC determines commercial property taxes. A tax bill is the result of a city’s tax rate multiplied by a property’s value. In Ontario, MPAC can assess commercial property values based on a site’s “highest and best” use, as opposed to its actual use.
This means that in areas with heavy development, a two-storey corner store can be valued as if it were a high-rise condominium, causing property taxes to skyrocket.
Terry Bishop, a property tax consultant with Altus Group, also points to MPAC’s four-year assessment cycle. While other provinces, such as British Columbia and Alberta, evaluate properties annually, Mr. Bishop says Ontario’s model leads to sharp hikes.
“If you had more frequent reassessments with smaller increases, it wouldn’t be as drastic an increase in taxes to push people out of business,” he said. “More frequent assessments would take some of that volatility out of the whole assessment system.”
The city is under pressure to find a long-term solution before businesses face the next round of tax assessments in 2021. City staff have previously floated proposals such as a deferral program or rebate, even a separate tax classification for small business. Last year, TABIA presented a report to council that suggested capping property-value assessments instead of tax increases.
Ms. Wong-Tam said MPAC could assess more commercial properties based on an income approach, where an income-producing property’s ability to earn revenue is directly tied to its market value.
But no matter what the solution is, the provincial government will need to be at the table. MPAC carries out assessments as directed by Ontario legislation and is accountable to the province, not the city. Councillor Wong-Tam said it’s crucial that the city, province and MPAC work together.
“A lot of people recognize what the problems are – surging unpredictable tax hikes – but nobody seems to agree on a solution,” she said. “We have some time to fix this, but that window is going to close very quickly.”
The Globe and Mail Small Business Summit is a can’t-miss day of panels, workshops and keynote presentations by some of Canada’s most successful and inspiring entrepreneurs. It takes place May 14 at The Globe and Mail Centre in Toronto. Details at www.globeandmailevents.com.