As 2016 draws to a close, there are a number of property tax questions that landowners and tenants in Ontario should consider to ensure you do not miss a tax saving opportunity. Do you wonder if some or all of your property should be exempt from property taxation? Were there vacancies in your building during 2016? Is there some way you can pay less tax? Were you surprised by the increase in the value of your property when you received your new 2016 Notice of Assessment this fall?
The goal is of course to determine whether there is an opportunity to get some of those 2016 taxes back or to reduce them in 2017. It is however crucial to make sure the deadlines for property tax appeals are strictly adhered to, as both the Assessment Review Board and the courts are very strict in applying those deadlines.
2016 is a particularly important year in Ontario’s property tax scheme because Notices of Assessment were sent out this year to establish the value of your property for the next four-year property taxation cycle (2017 to 2020).
2016 Tax Exemptions
The first deadline is December 31, 2016. A property seeking a tax exemption for the 2016 tax year must make a court application for a declaration that it is exempt and for a refund of any taxes paid in 2016 no later than the end of this year. Practically, that means that the court application must be prepared very soon and filed.
Lands owned by various not-for-profit, charitable and public organizations are the primary beneficiaries of the exemptions that subsection 3(1) of the Assessment Act provides, although there are exemptions available to businesses, including equipment producing electric power, machinery used for manufacturing farming or metal refinery, forestry lands, and lands mineral and mineral extraction. There are also some exemptions of less general application available for amusement park rides, small theatres and larger non-profit theatres. In addition to the lands that are typically thought of as being exempt, such as those owned by schools, universities, churches, government and cemeteries, the Assessment Act applies to lands which are owned, used and occupied by philanthropic, religious or educational seminaries or learning, children’s treatment centres receiving provincial aid, certain care homes initially established and offered under the Charitable Institutions Act, non-profit hospices providing end of life care, by the Boy Scouts or Canadian Girl Guides, houses of refuge, care of children, Children’s Aid Societies and more generally, charitable non-profit philanthropic corporations organized for the relief of the poor, provided the organization is supported by public funds. This article cannot describe or analyze all of the exemptions available so consultation is recommended.
Failure to bring an application for the exemption of 2016 taxes levied and paid by December 31, 2016 will prevent recovery of the 2016 taxes.
Vacancy and Charitable Rebates
The next deadline is February 28, 2017 when applications for the rebate of 2016 taxes paid on portions of a building which were vacant are due. In general terms, the vacancy rebate only applies to commercial and industrial buildings, the vacant area must be clearly divided from the balance of the building and the vacancy must have lasted longer than three months.
Rebates for registered charities must similarly be made no later than February 28, 2017. This rebate, worth at least 40% of the 2016 taxes paid, applies not only to lands which are owned by the charity, but also to premises which are rented by a registered charity.
2016 Taxes and the New Four-Year Cycle
In Ontario, municipalities will set their new tax rates in the middle of 2017. Those taxes were calculated upon assessments carried out in 2016 by MPAC, which were based on the land’s market value as of January 1, 2016. That January 1, 2016 value, commonly referred to the 2016 Current Value Assessment (“2016 CVA”) is the basis for property taxes levied in each of the 2017 to 2020 tax years. If a property qualifies for the property tax phase-in program (which many properties in Ontario do), the taxes will increase by one-quarter of the difference between the 2012 CVA and the 2016 CVA.
Most landowners and tenants will look first to the change in the value of the land (in the absence of an expansion or construction), because this will have the most obvious impact on the taxes which will become payable in 2017. However, value is not the only factor in determining what taxes will be payable next year. In addition to the change in value, the assessment returned by the Municipal Property Assessment Corporation (“MPAC”) may also have changed the classification of portions or all of the land, bumping it up to a higher tax class.
The Assessment Act provides that a complaint to the Assessment Review Board for commercial and industrial properties must be made no later than March 31, 2017 for the 2017 taxes. Failure to appeal by that date is fatal, and a property owner or tenant will have no opportunity to revisit their 2017 property taxes if no appeal (technically a “complaint”) is brought by that date. It is now too late to appeal the 2016 taxes unless there were special circumstances, such as a supplementary or omitted assessment issued by MPAC. Any special assessments will be accompanied by a notice which will set out the applicable appeal deadline.
The next several months are the time when property owners should consider whether an appeal of the 2016 CVA for the 2017-2020 tax years makes sense in their circumstances. An appeal in the first year of the cycle means greater benefit because any reduction in the 2016 CVA applies to the balance of the 4 year assessment and tax cycle (ending December 31, 2020).
It is important to recognize that residential or managed forest properties may not be directly appealed to the Assessment Review Board. Instead, a Request for Reconsideration to MPAC must be made by March 31, 2017. It is only after MPAC has provided notice of its decision later in 2017 that an appeal to the Assessment Review Board can be filed for these residential or managed forest lands.
While commercial and industrial properties can be appealed directly to the Assessment Review Board, it is also possible to request MPAC to carry out a reconsideration. Depending on the circumstances, a Request for Reconsideration (RfR) may yield more immediate results and can be more economical. Typically, technical or obvious errors and minor corrections are processed by MPAC through an RfR faster than the time that it takes an appeal/complaint to make its way through the Assessment Review Board’s process. A correction of the municipalities’ tax records following an RfR could possibly even occur prior to the tax bills being issued in 2017. While you may eventually be entitled to a refund of taxes paid in 2017 in the event of a successful appeal to the Assessment Review Board, it is almost certainly more desirable not to have to pay them in the first place.
If you receive an Omitted or Supplementary Assessment for new construction or because a portion of your building that was not assessed in 2016 or previous years, an appeal must be made within 90 days of that notice or March 31, 2017, depending on applicable date to which that Notice applies.
Landlords and Tenants – Impacts on Additional Rent
Tenants should consider whether their lease permits them to file complaints with the Assessment Review Board. Most landlords who have passed on the cost of property taxes to their tenants will have little incentive to challenge an incorrect or too high assessment.
Tenants who pay their proportionate share of some or all common expenses, some fixed portion of the common expenses or all of the property taxes notionally attributable to their leased property, should consider whether or not the 2016 taxes were reduced at some point because their landlord sought a refund of taxes. Landlords may have obtained rebates for vacant areas within the building or obtained a reduction in the assessment. A tenant may, pursuant to the lease provisions, be entitled to a refund of some portion of their payments. If a tenant knows that there were vacancies in the building, enquiry should be made of their landlord as to whether vacancy refunds were obtained and prompt them to seek those refunds if they have not already done so.
Landlords should consider whether the nature and status of their tenants entitle them to an exemption or partial exemption from property taxes. To the extent that a tenant’s occupancy costs can be reduced through a reduction of property taxes, the tenancy is rendered more attractive and secure.
Both landlords and tenants should, if the end of 2016 or 2017 represents the end of a lease term, even if the lease is to be extended, renewed or renegotiated, consider whether the lease’s provisions dealing with property taxation are current and adequate. We have seen many leases which predate not only the most recent changes in assessment and taxation practices, but even the 1998 change to a combined business and property tax and the current value assessment system. Leases that predate that date typically use completely different concepts than are applicable today when dealing with the allocation of property taxes between the landlord and the tenant and between the tenants themselves in a multi-tenanted property. While one party may have an advantage as a result of a particular wording, if there is to be a dispute, the uncertainty and costs associated with that dispute may mean even the advantaged party is not well-served by antiquated language. Coordination between leasing lawyers and property tax lawyers is thus crucial in maximizing both a landlord and a tenant’s interest in a lease.