Friday, April 25, 2008

Death by fire, then death by taxes.

Small Business facing $75,000 increase in taxes

Dukes Cycle, long a fixture on Queen St. West, after being destroyed by fire is now threatened with destruction by taxes. Because the building has been in the Dukes family's ownership for a long time, its taxes were based on old assessment. According to the Globe and Mail, they were currently paying $15,000 per year. If that property was was to be rebuilt it would have to pay the new rates. $90,000 per year!

Anyone who has been to Duke's would shake their head and wonder how they, or any other small business can afford to operate in Toronto.

While the city talks about helping small businesses, fifteen year, now seven year plans, it is still to little.

Even at the end of the tax reduction plan they still face a tax bill huge tax bill. It is funny how Toronto wants to stop Walmart from building in the city while at the same time having a tax climate that only such large stores can afford. I would even go so far as to say that the high tax burden has some benefits for such large stores. By helping kill off small businesses and limiting competition they have the market to themselves.

While local councillor Adam Vaughan, is working on an abatement for Duke's what about all the rest of the city?

10 comments:

Mitch K. said...

This is a fire, an extreme case, and the city just so happens to be unable to afford free demolition and clean up for its citizens. Perhaps it's not fair, but this hardly amounts to evidence that the city makes it difficult for businesses to operate in the city.

Glen M said...

mitch,

I agree that the city should not be responsible for the demolition expense. My point was that the bill for demolition was insignificant compared to the increased taxes that they are going to have to face.

A one time $40,000 bill pales in comparison to a yearly $75,000 increase in taxes.

Darwin O'Connor said...

The things in the article don't really make sense to me.

This would have been one of the properties that would have been dramatically undertaxed under the old property tax system. With the new system the taxes would have been based on the current value assessment (CVA) of the property, however under capping the taxes would only rise from the original tax by 5% a year.

This property probably would have been paying, say, 40%, of their full CVA Taxes.

I believe the rule is, if the value of the property goes down as the result of a demolition, the property supposed to pay 40% of the new CVA Taxes. The article says the taxes when up.

When the property is rebuilt, a few comparable properties will by identified by MPAC, which should be neighboring properties. The percentage of the CVA Taxes will be based on the average percentage of these neighboring properties. Because all these properties have a similar history the percentage should be close to what it was before, so the taxes should be similar to what they where before, save for the fact that the building is newer, therefore more valuable.

Any problems would be the Province's fault, not the City of Toronto's. It is the Province that sets the rules.

Glen M said...

Hi Darwin,

The rule is that if a property is vacant it pays a set fraction of the non-vacant rate.

As far as a new assessment, once rebuilt, MPAC only concerns itself with values. It is legally bound to ignore the CVA graduated cap rates of comparison properties. So the new property will be paying the full, uncapped rate, regardless if its neighbours are paying far less.

If Dukes was to rebuild and duplicate the intact building next door, it would pay way more in taxes. This despite no difference in values or services.

Get ready for more condos with ground floor retail here. With the only reason for GFR being that developers a forced to maintain the same sq. ft. of commercial space.

Darwin O'Connor said...

"It is legally bound to ignore the CVA graduated cap rates of comparison properties."

What, exactly, do you think MPAC does with the new construction comparables?

Glen M said...

Darwin,

you said "The percentage of the CVA Taxes will be based on the average percentage of these neighboring properties"

This is not true. MPAC will not look at where the comparables are on the capping schedule. They will look at the assessments only. Horizontal inequities in tax burdens are not accounted for.

A new building will be taxed at the uncapped rate. It does not matter that the comparison properties might be taxed 50% less.

So if Dukes rebuild, they will pay the uncapped rates. Despite being surrounded by numerous older properties that will continue to, until being uncapped, pay much less tax.

Darwin O'Connor said...

Bill 140, section 447.70 talks about the comparables that are found so that the capping is at a similar level as neighboring buildings.

However it looks like the city established a minimum tax level of 100% of CVA taxes in 2008. It's on page 5 of this report.

Glen M said...

Darwin,

This is a technicality. When a commercial property gets its tax bill, it is for the uncapped amount. The only thing that changes is the amount due, because of capping. Every non-residential property is taxed fully, as if there was no cap. What differs is the rebate.

Insofar as the the that city bylaw goes, I believe that this was/is related to certain properties that received favorable considerations before (like hotels)........

In the 2004 Budget (Bill 83) the provincial government introduced changes to the legislation by allowing municipalities the option of phasing out the favourable treatment afforded to eligible new construction properties. In 2005 Regional Council adopted the phase out of the “new construction treatment” by creating floors and establishing a minimum percentage of CVA tax responsibility, such that eligible properties would be taxed at:

Darwin O'Connor said...

"This is a technicality. When a commercial property gets its tax bill, it is for the uncapped amount. The only thing that changes is the amount due, because of capping. Every non-residential property is taxed fully, as if there was no cap. What differs is the rebate."

In the end they only have the pay the capped amount. Isn't that the important number.

Was there more to your previous comment that got cut off?

Glen M said...

"In the end they only have the pay the capped amount. Isn't that the important number."

That is only true for those who are capped. New construction, with some exceptions, is not capped so will pay the full amount. In the case of Dukes, the old building was capped. Any new one built to replace it will not be subject to capping and therefore pay the full amount.