2. 2006 TAX RATIOS AND OTHER TAX POLICIES

COEFFICIENTS FISCAUX ET AUTRES POLITIQUES D'IMPOSITION DE 2006

COMMITTEE RECOMMENDATIONS

That Council approve:

1. The adoption of the following optional property classes to provide maximum flexibility for tax policy decisions:

· Shopping Centre Commercial Property Class;

· Parking Lots and Vacant Lands Commercial Property Class;

· Office Building Commercial Property Class;

· Large Industrial Property Class;

· New Multi-residential Property Class; and

· Professional Sports Facility Class.

2. (a) That a request be made to the Minister of Finance to issue a regulation establishing the 2006 ratios at their tax neutral levels as detailed below:

Tax Class	Neutral Revenue Ratios**
Residential	1.000
Multi-residential	1.8449
New Multi-residential	1.000
Farm	0.2000
Managed forest	0.2500
Pipeline	1.5438
Commercial Broad Class	2.2887
Commercial	2.1741
Office building	2.6265
Parking lots and vacant land-- commercial	1.4245
Shopping centre	1.8084
Professional sports facility	N/A
Industrial Broad Class	2.5814
Industrial	2.7569
Large industrial	2.3675

** subject to final minor revisions upon OPTA close-off

(b) That the tax ratios for 2006 taxation purposes be adopted as detailed above with the exception of the Multi-residential property tax class which will be set at 1.8000;

(c) That the $2.5 million cost of reducing the Multi-residential tax ratio from 1.8449 to 1.8000 be funded from the Tax Stabilization Reserve; and

(d) The Province be asked to investigate methods of reaching more comparable assessments between Multi-residential and residential property tax classes.

3. The adoption of the following tax ratios and by-laws for the mandatory property subclasses and the tax rate percentage reduction for farmland awaiting development:

· Commercial excess land (i.e. commercial, office and shopping centre tax classes) - 70% of the applicable commercial property class tax ratio;

· Vacant industrial land, industrial and large industrial excess land - 65% of the applicable industrial property class tax ratio;

· Farm lands awaiting development subclass I - 60.0% of the residential property class tax ratio and the corresponding tax rate percentage reduction for the awaiting residential, commercial and industrial property classes; and

· Farm lands awaiting development subclass II - no tax rate reduction.

4. That the tax rates for 2006 be established based on the ratios adopted herein.

5. That the tax ratio for the Professional Sports Facility class be set at 1.1000; and:

(a) That the owners of Scotiabank Place be sent a notice of a change to the agreement of tax relief as per the terms of the agreement; and

(b) That the Minister of Finance be requested to prepare a regulation exempting the Scotiabank Place from any provisions of the capping program.

6. (a) That the 2006 capping parameters be approved at 10% of the previous year’s annualized tax and 5% of the 2005 CVA tax;

(b) That for 2006 capped/clawback properties whose recalculated annualized taxes fall within $250 of their CVA taxation be moved to their CVA tax for the year; and

(c) That staff be directed to pursue an exit strategy for capping with the Province.

7. That the tax level for “new construction” properties be set at a minimum level of 80% of their CVA taxes for 2006, 90% for 2007 and 100% for 2008 and future taxation years.

8. (a) That the definition of charitable organizations for purposes of the Charitable Rebate Program, as outlined in this report, be endorsed and that the Province be requested to amend the definition for this program.

(b) That the property tax mitigation programs currently in place and detailed in this report be continued for 2006.

9. That the additional tax revenue of $5 million from assessment growth be used to reduce the Payment In Lieu of Taxation budget to reflect losses in that area.

10. That the due date for all classes be changed to June 22, 2006 and that the amended due date by-law hereby submitted be approved by Council.

11. That staff continue to provide a breakdown of taxes by service on an average household basis in the tax insert.

12. That staff request the Minister of Finance to pursue permanent changes to property tax policies that would give the municipality greater flexibility and options in dealing with re-assessment changes, tax shifts, capping requirements and mitigation methods for 2007 and future years.

RECOMMENDATIONS DU COMITÉ

Que le Conseil approuve :

1. Ll’adoptionutilisation des catégories optionnelles de biens fonciers suivantes afin d’offrir le maximum de souplesse en matière deaux décisions touchant auxles politiques d’imposition :

· centres commerciaux;

· terrains de stationnement et terrains vacants commerciaux;

· immeubles de bureaux commerciaux;

· grandes propriétés industrielles;

· nouveaux immeubles à logements multiples;

· installations sportives professionnelles.

2. (a). Qu’une demande soit présentée au ministre des Finances afin d’émettre un règlement établissant les coefficients pour 2006 à leurs niveaux fiscaux neutres, tel que détaillé ci-dessous :

Catégorie fiscale	Coefficients de recettes neutres **
Résidentielle	1,0000
Logements multiples	1,8449
Nouveaux logements multiples	1,0000
Ferme	0,2000
Forêt aménagée	0,2500
Pipeline	1,5438
Catégorie commerciale générale	2,2887
- Commerciale	2,1741
- Immeubles de bureaux	2,6265
- Terrains de stationnement et terrains vacants – commerciaux	1,4245
- Centres commerciaux	1,8084
-Installations sportives professionnelles	S/O
Catégorie industrielle générale	2,5814
- Industrielle	2,7569
- Grande propriété industrielle	2,3675

** Sujet à de petites révisions finales lors de la fermeture d’OPTA

(b) Que les coefficients fiscaux soient adoptés pour 2006 à des fins d’imposition, tels que détaillés ci-dessus, à l’exception de lasauf pour la catégorie fiscale des logements multiples, qui sera établie à 1,8000 ;

(c) Que les 2,5 millions de dollars découlant de la réduction duservant à réduire le coefficient fiscal des logements multiples, pour le faire passer de 1,8449 à 1,8000, soient financés à même la réserve de stabilisation du taux d’imposition;

(d) Qu’on demande à la province d’enquêter sur les méthodes permettant d’obtenir des évaluations plus comparables entre les catégories fiscales des logements multiples et résidentielles.

3. L’adoption des coefficients fiscaux et des règlements suivants concernantsur les sous-catégories obligatoires de biens fonciers et le pourcentage de réduction du taux d’imposition des terres agricoles en attente de développement :

· Terrain commercial excédentaire (c.‑à‑d. catégorie fiscale commerciale, bureaux et centres commerciaux) ‑ 70 p. 100 du coefficient fiscal applicable à la catégorie des biens fonciers commerciaux;

· Terrain industriel vacant, terrain industriel et grande propriété industrielle excédentaire ‑ 65 p. 100 du coefficient fiscal applicable à la catégorie des biens fonciers industriels;

· Sous‑catégorie I des terres agricoles en attente de développement ‑ 60 p. 100 du coefficient fiscal applicable à la catégorie des immeubles résidentiels et réduction correspondante du taux d’imposition des immeubles résidentiels, commerciaux et industriels en attente;

· Sous-catégorie II des terres agricoles en attente de développement, sous‑catégorie II – pas de réduction du taux d’imposition.

54. Que l’on fixe le taux d’imposition de 2006 en fonction des coefficients adoptés dans le aux présentes document.

56. Que le coefficient fiscal pour la catégorie des installations de sportives professionnelles soit établi à 1,1000 et :

(a) Que les propriétaires de la Place Banque Scotia reçoivent un avisertissement du changement apporté à l’accord d’allégement fiscal, conformément aux modalités de l’accord;

(b) Qu’on demande au ministre des Finances de préparer un règlement pour exempter la Place Banque Scotia de toutes les dispositions du programme de plafonnement.

76. (a) Que les paramètres du plafonnement pour 2006 soient approuvés, au maximum, à 10 p. 100 de la taxe annualisée de l’année précédente ou à 5 p. 100 de la valeur actuelle (VA) de 2005;

(b) En 2006, que l’on impose selon la VA de l’année les immeubles frappés de plafonnement/récupération dont les taxes annualisées recalculées correspondent à 250 $ près à la VA;

(c) Que l’on demande au personnel d’appliquer la stratégie de sortie du plafonnement avec , tel que souligné dans le présent rapport, soit approuvée afin d’être présentée à la province.

87. Que le niveau d’imposition des « constructions nouvelles » soit fixé au minimum de 80 p. 100 du niveau d’imposition sur la VA pour 2006, de 90 p. 100 pour 2007 et de 100 p. 100 pour 2008 et les années d’imposition subséquentes.

89. (a) Que la définition des organismes de bienfaisance aux fins du programme de remise – bienfaisance, telle que décritesouligné dans le présent rapport, soit approuvée et qu’on demande à la province de modifier la définition de ce programme;

(b) Que l’on maintienne, en 20056, les programmes d’atténuation de la taxe foncière en vigueur actuellement et décrits dans cle présent rapport.

109. Que les recettes fiscales supplémentaires de 5 M$ provieneant de la a croissancecroissance de l’évaluation soient utilisées pour réduire le budget du paiement en remplacement d’impôt pour refléter les pertes dans ce domaine.

110. Que la date finale d’échéance pour toutes les catégories soit modifiée au 22 juin 2006 et que le règlement de la date d’échéance modifiée soumis par la présente soit approuvé par le Conseil.

121. Que le personnel continue à présenter une répartition des taxes par service, en fonction d’un ménage moyen, dans l’encadré sur les taxes.

132. Que le personnel demande au ministre des Finances d’envisager une modification permanente des politiques relatives à l’impôt foncier afin que les municipalités aient plus de souplesse et davantage d’options dans le domaine des changements de l’évaluationa cotisation et des catégories, des modifications fiscales, des exigences en matière de plafonnement et des méthodes d’atténuation pour 2007 et les années suivantes.

DOCUMENTATION

1. Chief Corporate Services Officer’s report dated 13 April 2006
(ACS2006-CRS-FIN-0015).

2. Extract of Draft Minute, 18 April 2006.

Report to/Rapport au :

Corporate Services and Economic Development Committee

Comité des services organisationnels et du développement économique

and Council / et au Conseil

13 April 2006 / le 13 avril 2006

Submitted by/Soumis par : Greg Geddes, Chief Corporate Services Officer/Chef des Services généraux

Contact Person/Personne ressource : Ken Hughes, Manager of Revenue

Financial Services/Services financiers

(613) 580-2424 x13485, ken.hughes@ottawa.ca

City Wide

Ref N°: ACS2006-CRS-FIN-0015

SUBJECT:	2006 TAX RATIOS AND OTHER TAX POLICIES
OBJET :	COEFFICIENTS FISCAUX ET AUTRES POLITIQUES D'IMPOSITION DE 2006

REPORT RECOMMENDATIONS

That the Corporate Services and Economic Development Committee recommend Council approve:

1. The adoption of the following optional property classes to provide maximum flexibility for tax policy decisions:

· Shopping Centre Commercial Property Class;

· Parking Lots and Vacant Lands Commercial Property Class;

· Office Building Commercial Property Class;

· Large Industrial Property Class;

· New Multi-residential Property Class; and

· Professional Sports Facility Class.

2. (a) That a request be made to the Minister of Finance to issue a regulation establishing the 2006 ratios at their tax neutral levels as detailed below:

Tax Class	Neutral Revenue Ratios**
Residential	1.000
Multi-residential	1.8449
New Multi-residential	1.000
Farm	0.2000
Managed forest	0.2500
Pipeline	1.5438
Commercial Broad Class	2.2887
Commercial	2.1741
Office building	2.6265
Parking lots and vacant land-- commercial	1.4245
Shopping centre	1.8084
Professional sports facility	N/A
Industrial Broad Class	2.5814
Industrial	2.7569
Large industrial	2.3675

** subject to final minor revisions upon OPTA close-off

(b) That the tax ratios for 2006 taxation purposes be adopted as detailed above with the exception of the Multi-residential property tax class which will be set at 1.8000;

(c) That the $2.5 million cost of reducing the Multi-residential tax ratio from 1.8449 to 1.8000 be funded from the Tax Stabilization Reserve; and

(d) The Province be asked to investigate methods of reaching more comparable assessments between Multi-residential and residential property tax classes.

3. The adoption of the following tax ratios and by-laws for the mandatory property subclasses and the tax rate percentage reduction for farmland awaiting development:

· Commercial excess land (i.e. commercial, office and shopping centre tax classes) - 70% of the applicable commercial property class tax ratio;

· Vacant industrial land, industrial and large industrial excess land - 65% of the applicable industrial property class tax ratio;

· Farm lands awaiting development subclass I - 60.0% of the residential property class tax ratio and the corresponding tax rate percentage reduction for the awaiting residential, commercial and industrial property classes; and

· Farm lands awaiting development subclass II - no tax rate reduction.

4. That the tax rates for 2006 be established based on the ratios adopted herein.

5. That the tax ratio for the Professional Sports Facility class be set at 1.1000; and:

(a) That the owners of Scotiabank Place be sent a notice of a change to the agreement of tax relief as per the terms of the agreement; and

(b) That the Minister of Finance be requested to prepare a regulation exempting the Scotiabank Place from any provisions of the capping program.

6. (a) That the 2006 capping parameters be approved at 10% of the previous year’s annualized tax and 5% of the 2005 CVA tax;

(b) That for 2006 capped/clawback properties whose recalculated annualized taxes fall within $250 of their CVA taxation be moved to their CVA tax for the year; and

(c) That staff be directed to pursue an exit strategy for capping with the Province.

7. That the tax level for “new construction” properties be set at a minimum level of 80% of their CVA taxes for 2006, 90% for 2007 and 100% for 2008 and future taxation years.

8. (a) That the definition of charitable organizations for purposes of the Charitable Rebate Program, as outlined in this report, be endorsed and that the Province be requested to amend the definition for this program.

(b) That the property tax mitigation programs currently in place and detailed in this report be continued for 2006.

9. That the additional tax revenue of $5 million from assessment growth be used to reduce the Payment In Lieu of Taxation budget to reflect losses in that area.

10. That the due date for all classes be changed to June 22, 2006 and that the amended due date by-law hereby submitted be approved by Council.

11. That staff continue to provide a breakdown of taxes by service on an average household basis in the tax insert.

12. That staff request the Minister of Finance to pursue permanent changes to property tax policies that would give the municipality greater flexibility and options in dealing with re-assessment changes, tax shifts, capping requirements and mitigation methods for 2007 and future years.

RECOMMANDATIONS DU RAPPORT

Que le Comité des services organisationnels et du développement économique recommande au Conseil d’approuver :

1. Ll’adoptionutilisation des catégories optionnelles de biens fonciers suivantes afin d’offrir le maximum de souplesse en matière deaux décisions touchant auxles politiques d’imposition :

· centres commerciaux;

· terrains de stationnement et terrains vacants commerciaux;

· immeubles de bureaux commerciaux;

· grandes propriétés industrielles;

· nouveaux immeubles à logements multiples;

· installations sportives professionnelles.

2. (a). Qu’une demande soit présentée au ministre des Finances afin d’émettre un règlement établissant les coefficients pour 2006 à leurs niveaux fiscaux neutres, tel que détaillé ci-dessous :

Catégorie fiscale	Coefficients de recettes neutres **
Résidentielle	1,0000
Logements multiples	1,8449
Nouveaux logements multiples	1,0000
Ferme	0,2000
Forêt aménagée	0,2500
Pipeline	1,5438
Catégorie commerciale générale	2,2887
- Commerciale	2,1741
- Immeubles de bureaux	2,6265
- Terrains de stationnement et terrains vacants – commerciaux	1,4245
- Centres commerciaux	1,8084
-Installations sportives professionnelles	S/O
Catégorie industrielle générale	2,5814
- Industrielle	2,7569
- Grande propriété industrielle	2,3675

** Sujet à de petites révisions finales lors de la fermeture d’OPTA

(b) Que les coefficients fiscaux soient adoptés pour 2006 à des fins d’imposition, tels que détaillés ci-dessus, à l’exception de lasauf pour la catégorie fiscale des logements multiples, qui sera établie à 1,8000 ;

(c) Que les 2,5 millions de dollars découlant de la réduction duservant à réduire le coefficient fiscal des logements multiples, pour le faire passer de 1,8449 à 1,8000, soient financés à même la réserve de stabilisation du taux d’imposition;

(d) Qu’on demande à la province d’enquêter sur les méthodes permettant d’obtenir des évaluations plus comparables entre les catégories fiscales des logements multiples et résidentielles.

3. L’adoption des coefficients fiscaux et des règlements suivants concernantsur les sous-catégories obligatoires de biens fonciers et le pourcentage de réduction du taux d’imposition des terres agricoles en attente de développement :

· Terrain commercial excédentaire (c.‑à‑d. catégorie fiscale commerciale, bureaux et centres commerciaux) ‑ 70 p. 100 du coefficient fiscal applicable à la catégorie des biens fonciers commerciaux;

· Terrain industriel vacant, terrain industriel et grande propriété industrielle excédentaire ‑ 65 p. 100 du coefficient fiscal applicable à la catégorie des biens fonciers industriels;

· Sous‑catégorie I des terres agricoles en attente de développement ‑ 60 p. 100 du coefficient fiscal applicable à la catégorie des immeubles résidentiels et réduction correspondante du taux d’imposition des immeubles résidentiels, commerciaux et industriels en attente;

· Sous-catégorie II des terres agricoles en attente de développement, sous‑catégorie II – pas de réduction du taux d’imposition.

54. Que l’on fixe le taux d’imposition de 2006 en fonction des coefficients adoptés dans le aux présentes document.

56. Que le coefficient fiscal pour la catégorie des installations de sportives professionnelles soit établi à 1,1000 et :

(a) Que les propriétaires de la Place Banque Scotia reçoivent un avisertissement du changement apporté à l’accord d’allégement fiscal, conformément aux modalités de l’accord;

(b) Qu’on demande au ministre des Finances de préparer un règlement pour exempter la Place Banque Scotia de toutes les dispositions du programme de plafonnement.

76. (a) Que les paramètres du plafonnement pour 2006 soient approuvés, au maximum, à 10 p. 100 de la taxe annualisée de l’année précédente ou à 5 p. 100 de la valeur actuelle (VA) de 2005;

(b) En 2006, que l’on impose selon la VA de l’année les immeubles frappés de plafonnement/récupération dont les taxes annualisées recalculées correspondent à 250 $ près à la VA;

(c) Que l’on demande au personnel d’appliquer la stratégie de sortie du plafonnement avec , tel que souligné dans le présent rapport, soit approuvée afin d’être présentée à la province.

87. Que le niveau d’imposition des « constructions nouvelles » soit fixé au minimum de 80 p. 100 du niveau d’imposition sur la VA pour 2006, de 90 p. 100 pour 2007 et de 100 p. 100 pour 2008 et les années d’imposition subséquentes.

89. (a) Que la définition des organismes de bienfaisance aux fins du programme de remise – bienfaisance, telle que décritesouligné dans le présent rapport, soit approuvée et qu’on demande à la province de modifier la définition de ce programme;

(b) Que l’on maintienne, en 20056, les programmes d’atténuation de la taxe foncière en vigueur actuellement et décrits dans cle présent rapport.

109. Que les recettes fiscales supplémentaires de 5 M$ provieneant de la a croissancecroissance de l’évaluation soient utilisées pour réduire le budget du paiement en remplacement d’impôt pour refléter les pertes dans ce domaine.

110. Que la date finale d’échéance pour toutes les catégories soit modifiée au 22 juin 2006 et que le règlement de la date d’échéance modifiée soumis par la présente soit approuvé par le Conseil.

121. Que le personnel continue à présenter une répartition des taxes par service, en fonction d’un ménage moyen, dans l’encadré sur les taxes.

132. Que le personnel demande au ministre des Finances d’envisager une modification permanente des politiques relatives à l’impôt foncier afin que les municipalités aient plus de souplesse et davantage d’options dans le domaine des changements de l’évaluationa cotisation et des catégories, des modifications fiscales, des exigences en matière de plafonnement et des méthodes d’atténuation pour 2007 et les années suivantes.

EXECUTIVE SUMMARY ** 2b re-visited when balance of report is complete****

The purpose of this report is to present recommendations regarding 2006 property tax policy issues that the Municipal Act requires Council to deal with prior to April 30 of each year. These decisions determine the tax burdens on the various tax classes for the 2006 taxation year.

The first tax policy that requires Council approval is the adoption of optional tax classes. In the past, Council has elected to employ all of the optional property classes including:

· Shopping Centres,

· Office Buildings,

· Parking Lots and Vacant Lands,

· New Multi-residential,

· Large Industrial, and

· Professional Sports Facility.

The use of optional tax classes allows for different levels of taxation within a class. Eliminating any of the optional tax classes would likely shift the tax burden among properties within the broad tax class.

The second policy that must be adopted by Council each year is the determination of tax ratios for various tax classes. Tax ratios are the tools that allow different tax burdens between the different property classes. Staff is recommending that the use of neutral revenue ratios be requested from the Ministry of Finance to mitigate the tax shifts resulting from the assessment performed by the Municipal Property Assessment Corporation in 2005.

In 2004, Council directed staff to adjust the Multi-residential tax class ratio in order to achieve an equivalent property tax burden compared to similar residential properties by 2006. The vVarious studies have been undertaken performed by the City and by the Multi-residential property owners which collectively are not are not conclusive as to the extent of the perceived inequity between the Multi-residential and condominium property classes.

In keeping with the Council recommendation from 2004 the Multi-residential ratio is recommended to be moved to 1.8000 and the cost of providing that tax reduction is recommended to be funded from the Tax Stabilization Reserve. A majority of landlords within the City have committed to flow this tax decrease to their tenants in the form of

The report also recommends the continuation of the various tax mitigation programs including the rebates to: charitable organizations; owners of , vacant properties, and the deferral of taxes for and low-income seniors and the disabled. Staff are recommending a revised definition of charitable organizations to ensure that groups such as professional associations, lobbying associations and national organizations with no local focus, be ineligible for the rebates. and are seekingStaff is seeking Council endorsement before asking the Province for changes to the legislation.

The provincially mandated capping program, which limits the tax increases from re-assessment in the commercial, industrial and Multi-residential tax classes saw some changes in legislation in 2005. Council approved changes to the capping levels in 2005 for 2006. These changes are were accepted by Council last year and are still being recommended for 2006. and recommended for 2007. These changes will accelerate the movement of capped properties to their actual (CVA) taxes (based on CVA). Staff are is also asking for direction to pursue, through discussions with the Province, an end to the current capping and clawback program within the business classes.through discussions with the Province.

The tax due date is beingStaff is recommending an recommended for adjustment in the tax due date from June 15, 2006 to June 22, 2006.

Council has asked staff to examine the current property tax relief provided to Scotiabank Place and to consult the Province in order to determine what changes could be made to their property taxes. Staff is recommending that the tax ratio for the class be changed and that the Minister of Finance be requested to declare by regulation that the property is not affected by capping.

There will be another re-assessment for the 2007 taxation year, with assessment notices being delivered to City property owners in the fall of this year. Staff ais re not expecting to see the significant increases that occurred in prior years, a. Although there will be some minor tax shifts among the property tax classes they should not be significant. The process of lobbyingStaff recommends that Council continue to lobby the Provincial government to ensure that the City has the tools to mitigate the tax shifts on a permanent basis and to ensure that the property tax system reflects the needs of municipalities should be continued.

RÉSUMÉ

Le but du présent rapport est de présenter des recommandations surconcernant les questions entourant la politique sur l’impôt foncier pour 2006, qui, en vertu de la Loi sur les municipalités, doivent être traitées paravec le Conseil avant la fin du mois d’avril. La Loi sur les municipalités exige que le Conseil approuve un certain nombre de décisions stratégiques en matière de fiscalité avant le 30 avril de chaque année. Ces décisions déterminent le fardeau fiscal des diverses catégories fiscales pour l’année d’imposition 2006.

La première politique fiscale qui requiert l’approbation du Conseil est l’adoption de catégories de propriétés optionnelles. Dans le passé, le Conseil a choisi de recourir à toutes les catégories de propriétés optionnelles, notamment :

· les centres commerciaux,

· les immeublesédifices à de bureaux,

· les terrains de stationnement et les terrains biens-fonds vacants,

· les nouveaux logements multiples,

· les grandes propriétés industriellesusines,

· les installations sportives professionnellesdestinées à la pratique des sports professionnels.

L’utilisation des catégories de propriétés optionnelles permet différents taux d’imposition dans une même catégorie. L’élimination de toute catégorie fiscale optionnelle entraînerait probablement un changement e modification du fardeau fiscal parmi les propriétés au sein de la vaste catégorie fiscale.

La deuxième politique qui doit être adoptée par le Conseil chaque année est la détermination des coefficients fiscaux des diverses catégories de propriétés. Les coefficients fiscaux sont les outils qui permettent dl’établirssement des fardeaux fiscaux différents pour les diverses catégories de propriétés. Le personnel recommande que l’utilisation de coefficients de recettes neutres soit demandée au ministre des Finances afin d’atténuer les changements de catégoriesmodifications foncières provenant de l’évaluation effectuée par le MPAC en 2005.

En 2004, Lle Conseil avait demandé au personnel de redresser le coefficient fiscal de la catégorie multirésidentielle afin d’atteindre d’ici 2006 un fardeau fiscald'impôt foncier équivalent par comparaison à des immeubles résidentiels similaires. Les dDifférentes études effectuées par la Ville et les propriétaires d’immeubles multirésidentiels ne sont pas, dans leur ensemble, concluantes en ce qui concerneant la portée de l’injustice perçue entre les catégories de propriétés multirésidentielles et en copropriété.

Conformément à la recommandation du Conseil de 2004, on préconiserecommande de faire passer à 1,8000 le coefficient multirésidentiel et que les coûts encourus pour offrir cette réduction fiscale soient financés à même la réserve de stabilisation du taux d’imposition. Une majorité de propriétaires se sont engagés à transmettre cette réduction fiscale à leurs locataires sous forme de diminution du loyer.

Le rapport recommande également le maintien des divers programmes d’allégements fiscaux, y compris ceux dont bénéficient les organisations caritatives, les propriétaires de terrainsbiens-fonds vacants ainsi que les personnes âgées et handicapées à faible revenu. Le personnel a présenté une définition révisée des organisations caritatives afin de pour s’assurer que les groupes comme les associations professionnelles, les associations exerçant des pressions politiques et les organismes nationaux ne se concentrant pas sur les intérêts locaux ne soient pas admissibles à l’allègement. Le personnel et ne cherchent pas à obtenir l’approbation du Conseil avant de demander à la province d’apporter des changements à la loi.

Pour 2005, il y a eu une légère modification législative du programme de plafonnement provincial, qui limite les hausses de taxes liées aux réévaluations des catégories commerciale, industrielle et logements multiples. Le Conseil a approuvé les changements apportés aux niveaux de plafonnement en 2005, pour 2006. Ces changements ont étésont acceptés par le Conseil l’année dernière et sont toujourset recommandés pour 20076. Ils accéléreront l’atteinte, par les propriétés plafonnées, de leur taux d’imposition actuel (fondé sur la VA).. Le personnel demande également des directives en vue de trouver, grâce à des discussions avec la province, une solution au programme de plafonnement et de récupération en ce qui concerne les catégories commerciales.

Le personnel On recommande de modifier la date limite du paiement de l’impôt foncier, pour qu’elle passe du 15 juin 2006 au 22 juin 2006.

Le Conseil a demandé au personnel d’examiner l’allègement actuel des impôts fonciers consenti à la Place Banque Scotia et de consulter la province afin de pour déterminer quels changements devraient être apportés à leur impôt foncier. Le personnel recommande que le coefficient fiscal soit changé et qu’on demande au ministre des Finances de déclarer, par un règlement, que le propriété n’est pas touchée par le plafond.

Il y aura une autre réévaluation pour l’année d’imposition 2007, et les avis d’e réévaluation seront envoyés aux propriétaires de la Ville à l’automne de l’année en cours. Le personnel ne s’attend pas à des hausses aussi importantes que celles des années précédentes, . Bmême si ien qu’il y aura quelques changements sont prévus entre différentesdes modifications fiscales parmi les catégories fiscales, elles ne devraient pas être considérables. Le personnel recommande au Conseil de continuer à Le processus qui consiste à exercer des pressions politiques auprès du gouvernement provincial afin de s’assurer que la Ville dispose des outils pour atténuer les répercussions fiscales de façon permanente et de s’assurer que le système d’impôt foncier reflète les besoins des municipalités.

BACKGROUND

Due to the technical content of this report a Glossary of Terms is attached as Appendix A.

The Municipal Act requires that Council approve a number of tax policy decisions before April 30 of each year. This report details each of the required tax policies.

The property tax system is primarily driven from the assessed values determined by the Municipal Property Assessment Corporation (MPAC) based on provincial legislation. The City uses these individual valuations to determine the taxes for all properties. During 2005, MPAC conducted an assessment of all properties with a valuation date of January 1, 2005. The previous valuation date was June 30, 2003. Over this eighteen-month period almost all properties in the City saw a change in value. Table 1 shows the changes in values for each class from June 30, 2003 to January 1, 2005.

The new assessment values will apply for the 2006 taxation year. Values change because of the market issues that drive the assessment formulae for each property class. In the case of residential properties the driver is market value changes; in the case of Multi-residential properties it is the change in rental rates and expenses; and for most commercial properties it is the change in income that is generated from the property. The drivers for each of these different types of assessment seldom remain the same and as a result the valuation changes within each class are noticeably different.

Table 1 - Change in Assessment by Property Class

Taxable Class	# of Properties	2005 Updated Roll	2006 New Total CVA	Assessment Change (%)
Commercial	9,028	6,024,221,147	6,457,512,519	7.19
Office Buildings	371	3,326,371,570	3,686,191,708	10.82
Farmlands	3,916	387,201,535	489,936,715	26.53
Parking lots	115	65,079,995	71,063,320	9.19
Industrial	1,580	770,510,159	864,561,415	12.21
Large industrial	37	654,797,890	666,170,595	1.74
Multi-residential	1,340	4,179,762,590	5,448,239,295	30.35
New Multi-residential	15	117,335,410	143,047,320	21.91
Pipeline	23	180,379,895	181,241,770	0.48
Sports facility	12	118,965,000	119,738,000	0.65
Residential	249,109	57,718,190,008	64,552,673,877	11.84
Shopping Centre	301	1,651,498,904	1,695,940,170	2.69
Managed forest	152	10,718,560	12,135,835	13.22
Totals	265,999	75,205,032,663	84,388,452,539	12.21

As is the case after every re-assessment, the City adjusts the tax rates downward so that in total the City will generate the same amount of taxes as the previous year. This adjustment ensures that the City remains revenue neutral in the re-assessment process, however the individual impact on each property across the City will vary depending on the actual assessment value change.

Under existing legislation, the impact of re-assessments is such that taxation burdens can shift not only among properties inside each property class but across property classes as well. These additional shifts are most noticeable when values in different classes are changing at dramatically different rates, as has been the case in Ottawa for the last several years. Table 1 shows from the last assessment an average change of 12.21% for all property tax classes with a range of changes from a low of .48% for Pipeline to a high of 30.35% for the Multi-residential tax class. These varying rates of change in value by tax class will cause tax burdens to shift again in 2006.

The City has pursued the issue of inter-class tax shifting with the Minister of Finance. On February 23, 2006 the Minister approved a regulation that would extend Regulation 73/03 for 2006 which allows the City to adopt revenue neutral tax ratios that eliminate the shifts among property classes, leaving only shifts among properties within the same class. A municipality must make a formal request to the Minister of Finance for the use of revenue neutral ratios to mitigate these shifts.

DISCUSSION

1. OPTIONAL PROPERTY TAX CLASSES

To provide maximum flexibility to Council for tax policy decisions, the City of Ottawa has, in previous years, adopted all the optional tax classes. These optional tax classes, if adopted by a municipality, represent subsets within the broad commercial and industrial tax classes and through the use of different tax ratios impose different tax burdens within the broad tax class.

Staff recommends that Council continue to adopt all of the following optional classes:

i) New Multi-residential – an optional class within the Multi-residential class;

ii) Shopping Centres, Office and Parking Lots and Vacant Land – Commercial - optional classes within the Commercial broad class;

iii) Large Industrial - an optional class within the Industrial broad class; and

iv) Professional Sports Facility – an optional class.

2. TAX RATIOS

The setting of tax ratios allows a municipality to distribute the property tax burden among the various tax classes. Until 2004 the legislative framework in place provided little flexibility to Council in changing the distribution of burdens that were affected by re-assessment. Table 2 shows the impact of holding the 2006 tax ratios at the existing (2005) values and the resultant tax shifts that would be experienced among the various property classes.

Table 2 - Analysis of changes in property taxation by property class

Property Tax Class	2005 Tax Levy* $ 000’s	% Of Total	Tax Shift
			Tax Levy $ 000’s	%
Residential	566,734	60.05%	(3,3,49)	(0.59%)
Farm	739	0.08%	83	11.23%
Managed Forest	11	0.00%	(14)	(134.54%)
Pipeline	1,965	0.21%	(214)	(10.89%)
New Multi-residential	1,378	.15%	166	12.05%
Multi-residential	105,798	11.21%	14,213	13.43%
Commercial	122,208	12.95%	(5,946)	(4.87%)
Shopping Centre	27,857	2.95%	(1,840)	(6.60%)
Office Building	85,469	9.06%	(1,274)	(1.49%)
Industrial	17,461	1.85%	(5,961)	(3.41%)
Large Industrial	13,242	1.40%	(1,192)	(9.00%)
Parking Lot	826	0.09%	(37)	(4.48%)
Total Taxable Properties	943,688	100.00%	0
* includes supplementary billing

However, for the 2004, and now 2006 taxation years, the Minister of Finance, through regulation, has allowed the following two flexibility adjustments:

· Municipalities, in addressing tax shifts due to re-assessment, are permitted to increase the tax ratio of one or more business property classes to the extent necessary to maintain the previous year’s relative municipal tax burdens between the residential and business classes (applicable to 2004 and 2006 only); and

· Municipalities with property classes that are subject to limits on their levy increases (because the tax ratio was above the provincial threshold) can apply a municipal tax increase to those classes, but only by an amount that is no more than half of any tax rate increase applied to the residential class. This modification to the levy restriction policy provides the flexibility to share some of the burden of any municipal tax increase across all property classes, while continuing to reduce the gap between business and residential property taxes.

In order to effect the change, Council must request a calculation of new tax ratios from the Minister. Council utilized this legislative framework in 2004 and 2006 to eliminate inter-class tax shifts. Table 3 shows the ratios that are required to eliminate all inter-class shifts and maintain tax neutrality within each property class. The result is that each class would pay the same taxes as that class paid in 2005.

Table 3 -Tax Ratios required to maintain existing tax burdens within each Class

Property Tax Class	Provincial Threshold	2006 Neutral Revenue Ratio	2005 Ratios
Residential		1.0000	1.0000
Multi-residential	2.7400	1.8449	2.1520
New Multi-residential		1.0000	1.0000
Farm		0.2000	0.2000
Managed Forest		0.2500	0.2500
Pipeline		1.5438	1.3934
Commercial Broad Class	1.9800	2.2887	2.2241
Commercial-Residual		2.1741	2.1572
Office Building		2.6265	2.6062
Parking Lots and Vacant Land – Commercial		1.4245	1.4135
Shopping Centre		1.8084	1.7944
Professional Sports Facility		N/A	N/A
Industrial Broad Class	2.6300	2.5814	2.3994
Industrial – Residual		2.7569	2.5705
Large Industrial		2.3675	2.2074

Table 3 shows that the tax ratios for the multi-residential and industrial classes are below the Provincial thresholds which means these tax classes and the residential tax class can bear all of the levy increase approved by Council. The commercial property class however may bear only one-half of any budgetary tax increase that is approved by Council. Only when the Commercial tax ratio is below the provincial threshold will the tax class bear the full Council approved budgetary tax increase.

Impact of Neutral Ratios on Budgetary Tax Increases

When setting the 2006 budget the impact of tax policies were explicitly excluded in any impact analysis as the Province had yet to announce any measures to mitigate against the impacts of re-assessment. A section in the budget document outlined the three tax policy scenarios that were possible at that time including no mitigation measures, neutral ratios with a 50% budgetary tax increase into commercial and neutral ratios with an ability to pass a full budgetary tax increase into commercial.

The 3.9% combined utility and tax bill increase that was approved when setting the 2006 budget did not recognize that the impact of the decisions made are not the same on all classes of property. The decision to collect for the garbage fee from the users of the service, residential and multi-residential, instead of having it paid by all taxpayers impacts the overall cost to the class but not to the City as a whole. Table 4, shows the increases and decreases approved during the budget on a city-wide basis and then on a class basis.

Table 4 – Tax Impact of Budget Decision

		Approved at Budget City Wide Impact	Impact by Property Class
			Non-commercial	Commercial
TAX BILL	Taxation	2.10%	2.10%	2.10%
	Fire Supply	(1.30%)	(1.30%)	(1.30%)
	TOTAL	0.80%	0.80%	0.80%
UTILITY BILL	Fire Supply	0.80%	0.80%	0.80%
	Garbage Fee	2.30%	2.90%	0
	TOTAL	3.10%	3.70%	0.80%
TOTAL		3.90%	4.50%	1.60%

The neutral ratio legislation limits the amount of budgetary tax increase that can be passed on to the commercial tax class as the ratio for this class is above the Provincial Threshold. As the commercial class cannot pay the full budgetary increase the taxes are passed onto the other tax classes. The impact of this is that the taxes increase for the non-commercial classes.

Table 5 – Tax Impact of Neutral Ratio

		Approved at Budget City Wide Impact	Impact of Neutral Ratios
			Non-commercial	Commercial
TAX BILL	Taxation	2.10%	2.60%	1.05%
	Fire Supply	(1.30%)	(1.30%)	(1.30%)
	TOTAL	0.80%	1.30%	(0.25%)
UTILITY BILL	Fire Supply	0.80%	0.80%	0.80%
	Garbage Fee	2.30%	2.90%	0
	TOTAL	3.10%	3.70%	0.80%
TOTAL		3.90%	5.00%	0.55%

Not adopting neutral ratios would result in no budgetary tax increase being allowed within the commercial class, and the other tax classes would have to absorb the difference. This would result in the following tax increases.

Table 6 – Tax Impact with no Neutral Ratio

		Approved at Budget City Wide Impact	Not Adopting Neutral Ratios
			Non-commercial	Commercial
TAX BILL	Taxation	2.10%	3.10%	0
	Fire Supply	(1.30%)	(1.30%)	(1.30%)
	TOTAL	0.80%	1.80%	(1.30%)
UTILITY BILL	Fire Supply	0.80%	0.80%	0.80%
	Garbage Fee	2.30%	2.90%	0
	TOTAL	3.10%	3.70%	0.80%
TOTAL		3.90%	5.50%	(0.50%)

If neutral revenue ratios were not used and the same ratios as 2005 were applied, the Multi-residential property tax class would see an increase in tax burden of about $14.2 million as shown in Table 2. Since the Multi-residential property tax class is capped at 10% and most properties are paying taxes at the CVA level, $7.5 million of this tax shift could not be absorbed within the class, which would result in a capping shortfall. This shortfall would have to be recovered from the other property classes through a budgetary tax increase of approximately 0.8%.

Staff recommends that the Minister of Finance be asked to issue a regulation establishing the 2006 ratios at their tax neutral levels as detailed above.

In order to comply with direction already given by Council, the tax ratio for the Multi-residential property tax class is recommended to be set at 1.8000. A Council motion in 2004 directed staff to “develop a two-year phase-in to achieve a Multi-residential class ratio of 1.8000 (representing an equivalent property tax burden compared to similar residential properties) by 2006.”

During 2006, staff continued to work with the Eastern Ontario Landlords Association (EOLO) to try and reach agreement on the taxation relationship between the Multi-residential and condominium classes (deemed to be the similar residential comparator). The work undertaken by EOLO and by the City did not reach the same conclusions with respect to taxation inequity.

There has been no agreement as to what an acceptable methodology is to analyze the taxation relationship because of the fundamental difficulty in analysing the results of two different assessment methodologies. If residential and multi-residential properties could be assessed on a basis that was more truly comparable, an averaging of the tax burdens might be more feasible and achievable. To do so requires action on the part of the Province to investigate methods of reaching more comparable assessments and implementing province-wide changes.

What both parties have been able to agree on is that taxation ratios are only valid in terms of comparing taxation burdens within the taxation year, as re-assessments distort their impact. For example the 2006 neutral Multi-residential ratio of 1.8449 generates the same taxation as the 2.1520 ratio did in 2005. This questions whether the 1.8000 ratio target is appropriate as it was determined in 2002 and given that three re-assessments have taken place in the interim.

Staff has always cautioned Council to make small incremental changes in moving taxation ratios, as they can only move in a downward direction except when setting neutral ratios to eliminate tax shifts. Council had previously committed to adjusting the Multi-residential ratio down to 1.8000. The change from a neutral tax ratio to 1.8000 is a reduction of only 0.0449 in the ratio. Therefore staff is recommending that Council move the Multi-residential tax ratio to 1.8000 for 2006.

The tax reduction to this class is achieved by moving this ratio down by .0449 totals $2.5 million. Council can reduce the Multi-residential tax burden while limiting the impact to other properties by using one-time revenues of $2.5 million. Staff is recommending that Council utilize the funds in the Tax Stabilization Reserve to offset this cost in 2006. If Council does not want to fund this tax reduction from a one-time source, the cost can be passed on to the other tax classes. The impact is detailed below.

Table 7 - Impact of Reducing the Multi-residential Tax Burden

Class	2006 Tax Levy Revenue Neutral Ratios $ 000’s	Levy with adjusted MR Ratio $ 000’s	Shift related to MR $ 000’s	Tax Increase (Decrease) %
Residential/Farm /Managed Forest/New Multi-residential	$571,975	$573,635	$1,660	0.29
Commercial	$245,459	$246,171	$712	0.29
Industrial	$32,491	$32,585	$94	0.29
Pipeline	$2,179	$2,185	$6	0.29
Multi-residential	$91,584	$89,112	($2,472)	(2.70)
Total Taxable	$943,688	$943,688	0

Under the Tenant Protection Act, landlords are only required to pass on any decrease beyond 2.49%. This raises concerns that the tax reduction being provided to the multi-residential tenants would not flow to tenants. However, the majority of landlords in the City have provided a letter to the City (Appendix B) indicating that they will pass the full tax reduction onto their tenants. It should be noted that, the $2.5 million reduction will be more than offset by the municipal budgetary increase equal to $2.3 million, as well as the education tax shift of $2.2 million. A small number of buildings may see an automatic rent reduction due to lower than average assessment increases.

Staff recommends that Council approve the revenue neutral ratios for all property classes except Multi-residential which is recommended at a ratio of 1.8000 and that the cost of funding the reduction within the class be offset by a transfer from the Tax Stabilization Reserve.

The Province be asked to investigate methods of reaching more comparable assessments between the Residential and Multi-residential classes and implement province-wide changes.

3. RATIOS – MANDATORY SUBCLASSES

There are two subclasses of farm land awaiting development. The first, farm lands awaiting development subclass I, is defined as farmland currently used solely for farming but there exists an approved and registered subdivision plan on the lands yet no actual development has taken place. Ontario regulation 383/98 provides direction on the calculation of the tax rate for these types of farmlands while permitting a move of 10% in either direction. In practice, this type of property is held as speculative land and is seldom registered as a subdivision for extended periods of time prior to development.

The second category of farm land awaiting development, subclass II, currently receives no tax rate reduction and that practice is recommended to continue.

Staff recommends that the ratios and discounts for all mandatory subclasses remain at the same values established by Council in 2005 with the exception of one class – farm land awaiting development (subclass Type I).

For 2006 the tax ratio for the farm land subclass Type I is recommended at 60% of the residential tax rate regardless of the zoning associated with the subdivision plan and the corresponding tax rate percentage reduction for the awaiting residential, commercial and industrial property classes.

4. TAX RATES

Tax rates are determined through calculations which involve the budgetary tax levy requirement approved in the 2006 budget setting exercise, the total current value assessment by class and the effects of the setting of tax ratios within this report. The resultant tax rates as calculated by staff will be submitted to Council for approval with applicable By-Laws at the May 10, 2006 meeting of Council.

Staff recommends that the tax rates by-laws hereby submitted with this report be approved by Council.

5. TAXATION AT SCOTIABANK PLACE (FORMERLY THE COREL CENTRE)

The agreement with Capital Sports Properties (the owners of Scotiabank Place) allows the City, with 60 days notice, to terminate or change the agreement providing municipal property tax relief to the property. Council reviews this agreement each year. Generally, the property has been billed about $700,000 each year while the tax, if based on CVA, would be about $5 million each year. There is only one property made up of 12 roll numbers in the Professional Sports Facility tax class. The tax ratio was set each year to provide the tax relief specified in the agreement with the owners of the property.

In the 2005 budget deliberations Council directed staff to review the taxes payable for the Scotiabank Place lands as part of the tax ratio setting policy for 2005. When presenting the 2005 tax policy submission staff indicated that the issues needed to be pursued with Provincial staff as certain issues needed clarification and interpretation.

Staff has now had an opportunity to review with Provincial staff the effect of various scenarios on the overall tax situation for the City. There are two options: terminating the option for the Professional Sports Facility tax class and changing the tax ratio for the Professional Sports Facility tax class. The discussions with Provincial staff confirmed that both options are available to the City.

Under either option the major concern has always been the effect on the other property tax classes if the Scotiabank properties were deemed to be eligible for capping. Staff is now of the opinion that the properties are not affected by the capping regulations as the relief provided to these properties has never affected the other properties in the new City or the former Region of Ottawa Carleton. In addition, the properties within this class are not accounted for in the provincially administered OPTA (Online Property Tax and Assessment) database that is used to manage the capping program for most of the municipalities in the province.

If Council wished to terminate the Professional Sports Facility property tax class the properties would become part of the commercial property tax class. If the capping program did apply to the Scotiabank Place properties, terminating the property tax class would require about $3.6 million in additional clawback from the other properties in the commercial property tax class. This means that those commercial property owners who are entitled to a property tax decrease would have a further 8.3% of their reduction clawed back to accommodate the cap on the Scotiabank Place.

The second option is to increase the tax ratio within the Professional Sports Facility property tax class. The tax ratio that can be selected by Council ranges from the 2005 tax ratio of 0.4215 through to the maximum tax ratio of 1.1000 (the top of the range of fairness for the property class). Moving to a ratio of 1.1000 would generate an additional $1 million in taxation. As this class is within the range of fairness it can absorb the full levy increase approved by Council. Staff recommend that the tax ratio of the Professional Sports Facility property tax class be increased to 1.1000.

As a precaution, staff would recommend that the Minster of Finance be requested by regulation to exempt the Scotiabank properties from the capping program. This is not without precedent as on two prior occasions the Ministry has passed a regulation of this nature. In both cases it was passed to avoid a significant hardship on the commercial property owners from an increased clawback. Staff recommend that the Minister of Finance be asked to provide a regulation exempting the Scotiabank Place from the capping program.

Upon agreement of this report, the current owners of the Scotiabank Place will be notified, as per the terms of the existing agreement, which Council intends to terminate the existing taxation reduction agreement.

Staff recommends that:

a) The owners of Scotiabank Place be provided with a 60 day notice of a change to the agreement of tax relief;

b) That the tax ratio for the Scotiabank Place be set at 1.1000; and

c) The Minister of Finance be requested to prepare a regulation exempting the Scotiabank Place from any provisions of the capping program.

6. CHANGES TO THE CAPPING REGULATIONS

Subsequent to the change to the current value assessment process in 1998, the Province imposed mandatory limits on assessment-related property tax increases over 1997 taxation levels for commercial, industrial and multi-residential properties. In December 2000, the Continued Protection for Property Taxpayers Act, 2000 was enacted which legislated that for 2001 and subsequent years, all municipalities are required to limit the assessment-related property tax increases on commercial, industrial and multi-residential properties to 5% of the previous year’s annualized taxes.

This limit is generally referred to as the “tax cap” and is calculated each year based on the previous year’s taxes. The “tax cap” will remain in place until properties reach a property tax bill based on its current value assessment (known as CVA tax). Municipal levy changes (essentially changes to the tax rate as a result of budget decisions) are then applied in addition to the limit.

The limit applies to all property in the commercial, industrial and multi-residential classes, subject to the following exclusions:

· Farm lands awaiting development;

· Provincial and municipal property that is subject to payments in lieu of taxes (PILTs). (However, commercial tenants in provincial or municipal owned properties would be protected by the limits); and

· Certain power generation and transformer facilities.

The limit does not apply to properties in the residential, farmland, managed forest, new multi-residential, professional sports facility and pipeline property classes.

The individual properties that are protected by the tax cap generate a “foregone revenue or taxation shortfall”. This “taxation shortfall” is the difference between the amount of taxes that the current value assessment would generate and the cap over the previous year’s taxes. This uncollected amount has to be recovered from other taxpayers. A mechanism that is available, and which has been chosen by Council each year since 1998, is to “clawback” some of the decreases from those individual properties within the property class that are experiencing a decrease in taxes. In other words, taxpayers who would be entitled to a reduction in their taxes pay the tax not being paid by a taxpayer because of the capping limit.

In order to address some of the limitations associated with the capping regime and to reduce the number of properties not paying full CVA taxes, and taking into account the prolonged period required for some properties to reach full CVA taxes, the Minister introduced new capping options in Bill 83, the Budget Measures Act, 2004. Although these new options will not address all inequities inherent in a program that limits some properties from paying their full share of taxes, they will nonetheless accelerate the move towards more properties attaining full CVA taxes more quickly.

The capping options for 2006 are summarized as follows:

Capping parameter was increased from 5% up to 10% of Annualized tax - One of the major disadvantage of the capping program and a continuous cycle of re-assessments is that many of the capped properties within the City and the Province of Ontario will never fully reach their full CVA taxes. In order to rectify this situation, the Ministry has provided flexibility to Council to increase the 5% parameter up to 10%. Council provided notification in the 2005 tax policy submission of that this important change would be implemented for 2006. Failure to implement this option each year would mean the capping parameter would revert to 5%.

Staff recommends that the capping parameter be 10% of the annualized tax in 2006.

Capping parameter increase to 5% of CVA tax – With the annual restriction applying the capping parameter to the previous year’s annualized taxes only, any property that has a significant disparity between their annualized and CVA taxes have been capped for an extensive period. In order to alleviate this situation, a new capping option was provided for these properties to have their taxes increased by up to 5% of their previous year’s CVA tax (prior to levy change). Only a small number of properties that pay a fraction of their CVA taxes (less than 50% of their CVA taxes) would be affected. This would reduce by half the length of time required to reach their full CVA taxes.

Staff recommends that the capping parameter of 5% of the CVA taxes be implemented for the 2006 taxation year.

$250 Threshold Option - Administratively, several of the small businesses and Multi-residential properties were being capped or clawed back by very small amounts due to the fact that there was no minimum threshold established. A new option was provided allowing municipalities to pass a by-law to move capped properties whose recalculated annualized taxes fall within $250 of the current year’s CVA tax to their CVA tax for the year. This means that if the differential between the CVA taxes and the tax limit is between $0 and $250 (higher or lower) the taxpayer is automatically moved to their CVA tax.

Staff recommends that for 2006 capped/clawback properties whose recalculated annualized taxes fall within $250 of their CVA taxation be moved to their CVA tax for the year.

In order to determine how much taxation has to be “clawed back” from those taxpayers in the class whose taxes were decreasing a percentage is calculated which when added to their taxes generates the “taxation shortfall”. This percentage is known as the clawback percentage and it must be approved by Council. In 2006, assuming Council asks for neutral revenue tax ratios, the clawback percentages are estimated to be approximately 53% for commercial (for a total of $22.8 Million), 81% for industrial (for a total of $4.9 Million) and 67% for Multi-residential (for a total of $1.5 Million). In total, just over $29 million of tax reductions are clawed back from some taxpayers to cover the taxes not paid by properties who are not required to pay their full CVA taxes because of the limit. A recovery by-law to approve the final clawback percentages will be submitted for Council approval on May 10, 2006.

The Capping and Clawback situation in Ottawa 

In Ottawa the statistics show that generally, the business properties that are overtaxed (clawed back) are of smaller size than the business properties that are under taxed (capped). Table 8 shows an analysis of capping and clawback in the commercial property tax class as an example of the distribution.

Table 8 – Analysis of Capping and Clawback in the Commercial Property Tax Class

Taxes Paid ($)	Clawback		No adjustment	Capped		^Result
	(More than CVA)		(At full CVA)	(Less than CVA)
	# Accounts	Total Clawback ($)	# Accounts	# Accounts	Total Capped ($)	Net Benefit
0 – 200,000	4014	15,696,669	3183	1853	5,356,322	(10,340,347)
200,000 – 500,000	112	3,550,131	48	52	2,680,749	(869,382)
500,000 – 1,000,000	7	1,042,781	2	4	2,273,315	1,230,534
1,000,000 – 1,500,000	9	471,815	8	6	630,781	158,966
1,500,000 – 2,000,000	1	219,993	1	3	351,000	131,007
2,000,000 – 3,000,000	1	280,008	1	4	1,297,170	1,017,162
3,000,000 – 5,000,000	1	384,034	2	7	5,293,268	4,909,234
5,000,000 – 10,000,000	3	1,180,140	0	6	4,943,866	3,763,726
Total	4148	22,825,571	3245	1935	22,825,571

There are a number of small business issues that have been discussed at Council over the last few years. The Province spoke of the creation of a small business class in the 2004/5 budget to provide some tax mitigation for the small business owner. However there has been no further information since that time. The City has requested such a tool and supports any movement in this regard.

An alternative to the small business class would be the use of banding (different tax rates for properties in different bands where the bands are based on value ranges). Banding can be implemented with the current legislation but the impact is indeterminable given capping and yearly assessment. There are various scenarios that could be implemented that would move the business classes out of the current capping and clawback situation. Staff has discussed two scenarios with the Business Advisory Committee. These scenarios can be found in Appendix C “Alternatives to the Current Commercial Tax Policy”. The Business Advisory Committee has endorsed the staff suggestion of seeking an end to the current capping and clawback program through consultation with the Province.

In addition to engaging in discussions with the Province, staff will continue to consult with the Business Advisory Committee to seek opportunities to better the tax situation of the small business community.

That staff be directed to pursue an exit strategy for capping with the Province

7. TAX TREATMENT FOR NEW CONSTRUCTION PROPERTIES

Previously, the tax responsibility for eligible “new construction” properties was established by comparing average tax level of comparable properties (up to six) to the CVA taxes of the eligible property. Under this regime, the maximum tax level for the new property can only be at the CVA tax level (i.e. current assessment value times applicable tax rate). However, no floor had been set as a minimum tax level, occasionally resulting in abnormally low taxes for a new property. This would only serve to continue the distortion caused by the capping program. Last year legislation was introduced for 2005 and subsequent years to create floors establishing a minimum tax level (%) of the CVA tax liability for the eligible new construction properties. This would phase out the new construction tax calculation. This phase out would be accomplished with the use of the following minimum tax levels approved by Council in 2005:

2006 – 80% of CVA taxes

2007 – 90% of CVA taxes

2008 – 100% of CVA taxes

This option accelerates the progress towards the CVA taxes, which initially was the ultimate goal of the capping program. It is however important to note that for the properties reaching their CVA tax level, they would still continue to receive tax capping protection from ongoing re-assessment fluctuations.

Staff recommends that the tax level for “new construction” properties be set at a minimum level of 80% of their CVA taxes for 2006, 90% for 2007 and 100% for 2008 and future taxation years.

8. TAX MITIGATION PROGRAMS

A number of other mitigation programs have been established in prior years. It is recommended that these mitigation programs be continued. These programs include:

1) The provision of a 40% tax rebate to charitable organizations as defined and required in the legislation;

2) Tax rebate of:

(a) 100% to any religious organization leasing space to houses of refuge and registered charities;

(b) 40% to Registered Canadian Amateur Athletic Associations; and

(c) 100% for non-profit, non-home based licensed child care centres for space occupied for child care purposes;

3) The provision of a vacancy tax rebate program with the rebate rate set at 30% of the tax attributable to the vacant space in commercial buildings, and 35% of the tax attributable to the vacant space in industrial buildings.

4) The provision of a tax relief (deferral) program for low-income seniors and disabled.

The amount for the above-mentioned rebates have grown from approx. $5.7 million for 2001 taxation year to approximately $7 million for 2004 and could reach $9 million in 2006 with charitable rebates being the fastest growing class of rebates. The Revenue Division is now receiving applications for charitable rebates from federal agencies, lobbying and professional associations with a national focus. In addition to the extra workload provided by these new organizations, it is doubtful whether the general public would think of many of these organizations as charities. These questionable charities are now 50% of the rebate program and all indications are that it will increase.

Examples from the applications for the 2005 program are:

A large federal international agency $522,000

A large federal artistic development agency $239,000

A large medical professional association $144,505

A large national education association $ 76,192

A large legal professional association $ 39,398

A large national health association $ 41,243

A large national medical association $ 44,406

The problem for the City of Ottawa is that as the capital of Canada there is a high concentration of federal agencies and national offices of associations located here. As a percentage of taxation, Ottawa rebates more to charities than any other major City in Ontario. Many of these federal agencies and national associations, although authorized to issue tax deductible donation receipts, receive little or no charitable donations. Many Federal Crown Agencies or institutions are now organized with charitable status and are thus eligible, by the definition in the Municipal Act, for a tax rebate. Revenue staff expect the number of organizations applying for rebates to increase dramatically.

The cause of this situation is the very broad eligibility criteria within the Municipal Act. Staff have discussed this issue with the Province and would like Council to endorse a more limited definition of charitable organizations for purposes of the Charitable Rebate Program and that the Province be requested to amend the definition for this program.

The more limited definition would require organizations to;

a) have a focus in the City of Ottawa (provide a benefit to local residents); or

b) have a larger proportion of funding from donations.

This would exclude:

a) organizations with only a national or international focus; or

b) organizations which receive a bulk of their funding from the Federal Government and receive little or none by tax receipted donations.

Staff recommends that Council endorse the limited definition of charitable organizations for purposes of the Charitable Rebate Program as outlined in this report and that the Province be requested to amend the definition for this program.

9. ADDITIONAL REVENUE FROM GROWTH

After reviewing the Municipal Change Profile from MPAC and performing the necessary analysis in preparation for the 2006 tax billing, the actual growth from assessment in 2006 was determined to be $ 5 million higher than was included in the budget last fall. At the same time, a review of the effect of capping changes on the capped properties indicates that the reduced clawback, will reduce the Payment in Lieu of Taxation (PILT) properties by approximately $ 7 million. Without adjustment this would mean the PILT revenue will be $7 million under budget. For this reason staff recommends that the additional revenue from growth be used to reduce the projected loss in PILT revenue as a result of the capping changes. This still leaves an anticipated deficit of $2 million in the PILT accounts that will be addressed in 2007.

That the additional tax revenue of $5 million from growth be used to reduce the PILT budget to reflect losses in that area.

10. TAX BILLING DUE DATES

Council has originally established the final due dates for 2006 as June 15. Given the additional work due to re-assessment that was required to prepare for this tax billing, it will not be possible to complete the tax billing process and provide the required notice period to taxpayers with this due date. Staff are recommending June 22 as the final due date. This delay is unavoidable and will result in lost interest revenue of approximately $150,000. Any further change to the ratios being recommended in this report will delay the billing process further and a new due date will need to be determined.

Staff recommends that the due date for all classes be changed to June 22, 2006 and that the amended due date by-law hereby submitted be approved by Council.

11. BREAKDOWN OF TAXES ON TAX BILLS

During budget deliberations the following motion was passed:

Moved by Councillor R. Chiarelli
Seconded by Councillor G. Brooks

WHEREAS the City of Ottawa is an efficiently run City;

AND WHEREAS the citizens of Ottawa receive great service for their tax dollars;

AND WHEREAS it is the responsibility of Government to be open and transparent especially when accounting for where and how tax dollars are being spent;

THEREFORE BE IT RESOLVED that a second page be added to the 2006 property tax bill which details the amount paid by the individual taxpayer and that it be broken down by function.

A tax insert is included in the final tax bill the provides a % breakdown of the taxes that are paid by service area or function. This breakdown is done based on the average urban residential tax bill.

In its current format there is no room on the tax bill for additional information as there is legislated information printed on the reverse side of the final tax bill. The first page includes all the property information and the billing and account detail. The back of the tax bill is known as schedule 2 and explains the tax changes for the particular property. Schedule 2 is mandated by Regulations under the Municipal Act and must be sent with the final tax bill.

There are three options to deliver what the Council motion intends to provide taxpayers. The first option is the printing of an additional unique page (a second sheet of paper) for each bill. The cost of an additional page would include postage and printing costs totalling about $140,000 as more than 262,000 additional pages would need to be printed.

Although feasible, this is not recommended by staff as the second page is unique to each bill and has to be collated with the first page so there is a risk that a page for one property would be sent to the owner of another property. This would be in violation of MFIPPA and could lead to complaints from affected property owners and would defeat the purpose of the motion – delivering a personalized breakdown of their property tax bill.

The second option is the printing of a larger tax bill (11”x17” versus 8 ½” x 14”). There is no risk of information from one person being sent to another person. Additional postage and printing costs are about $140,000.

The third option is to reduce the size of the font on page 2. The personalized tax breakdown could be shown below the mandatory information (schedule 2). There is no additional cost associated with this option. Staff do not recommend this option, as the font would be far too small for those with any vision problems to read easily. For example this is an example of a font size 8.

Example of font size eight

The font would have to be even smaller than this to fit all of the information for the mandatory Schedule 2 and the personalized tax breakdown on one page.

Staff believes that all of the above options would increase calls to the tax line. Staff who perform maintenance functions on the water and tax databases also handle calls from tax and ratepayers. In order to handle the calls this maintenance would need to be displaced and would have to be performed in overtime. The additional staff costs associated with the provision of this information will be about $30,000 to $40,000.

Given the cost, logistical problems with each of these options staff do not recommend that any of the above options be considered. Any of these options could potentially delay the mailing of the final tax bill. Staff recommends that a tax brochure, which shows the % breakdown of taxes by function for an average household be included in the mailing of the 2007 interim tax bill.

That staff continue to provide a breakdown of taxes by service on an average household basis in the tax insert.

12. 2007 TAXATION

On March 28, 2006, the Ontario Ombudsman released his report from the investigation into the transparency of the property assessment system. The Minister of Finance announced on March 30, 2006 the passage of legislation that extends the assessment appeal deadline for the 2006 tax year from March 31 to June 30, 2006 for all property classes. It is not clear what affect these two announcements will have on the 2006 assessment. Staff at MPAC had previously indicated that assessment notices would be issued to the public between September and November of 2006. City staff will receive the assessment information in the late summer to allow analysis to be undertaken and will provide Council with summary results at that time.

It is anticipated that assessed values for residential properties will increase slightly but at a higher rate than for commercial, industrial and multi-residential properties. This will result in the same type of tax shifts experienced in 2003, 2004 and 2005 but not at the same level.

After the problems associated with the assessment for 2003 and facing another assessment for the 2004 taxation year, the City demanded that the Province make legislative changes to avoid these shifts in tax burden from re-assessment. After the assessment for the 2006 taxation year the City again asked for legislative changes to avoid these shifts. Once again similar temporary tools were provided to allow municipalities to mitigate these shifts.

Council has taken advantage of the legislative framework allowing for the elimination of the inter-class tax shifts, such as those experienced in 2004 and again in 2006. As assessments are now to be on a yearly basis the tax burden will be re-allocated every year.

In the past, the City of Ottawa has experienced large increases in assessment across all property classes from re-assessments shifting tax burden to the residential property class. In the 2003 re-assessment Ottawa was virtually alone in experiencing shifts of these magnitudes. Other municipalities started to see larger shifts in the 2004 assessment. In 2006, more municipalities experienced these types and magnitudes of tax burden shifts. These other municipalities are demanding the same permanent tools to mitigate these shifts. Many are passing Council resolutions asking the Province for legislative changes that address frequency of re-assessments, valuation differences between classes and the need for permanent tools to avoid shifts. Municipalities must be allowed to set neutral starting tax ratios to make municipal property taxes more predictable for all property classes.

A report on the assessment shifts will come forward as soon as the assessment notices are released to the property owners. As usual tax impact calculators will be available on the city’s website for the public to see the impact of the re-assessment.

Staff recommends that the Minister of Finance be requested to pursue permanent changes to property tax policies that would give the municipality greater flexibility and options in dealing with re-assessment changes, tax shifts, capping requirements and mitigation methods for 2007 and future years.

CONSULTATION

The staff of Financial Services has consulted with Legal Services, the Ministry of Finance, the Ministry of Municipal Affairs & Housing, the Municipal Property Assessment Corporation and The Eastern Ontario Landlords Organisation and the Business Advisory Committee in preparing this report.

FINANCIAL IMPLICATIONS

The financial implications are identified in the body of this report.

ATTACHMENTS

Appendix A – Glossary of Terms

Appendix B – Letter from the Eastern Ontario Landlords Organization 

Appendix C – Alternatives to the Current Commercial Tax Policy – a paper presented to the BAC by staff.

DISPOSITION

Finance will use the tax ratios and rates to calculate and issue the 2006 final tax bills.

Legal services will prepare all applicable by-laws, provide notice to the owners of the Scotiabank Place and assist Finance staff while they liaise with Ministry of Finance staff.

Appendix A

GLOSSARY OF TERMS

Assessment Base: The total current value assessments of all property within a municipality.

Assessment Update/Re-assessment: The process of updating current value assessments on all the properties in a municipality to their value as of a date specified by the Province. There was no re-assessment in 2005 but there will be one in 2006.

Capped Tax Increase Parameter: The percentage that the taxes can increase each year for properties in the commercial, industrial or Multi-residential classes. The percentage is established under provincial legislation and is applied before the levy change (budget increase) for the year is added to the taxes.

Commercial Broad Class Ratio: The broad class ratio is the average ratio for commercial properties if the municipality elects to use any optional classes.

Current Use: The actual current use of the property, excluding any consideration of a potential or future use.

Current Value Assessment (CVA): Represents the value assigned to all properties by the Municipal Assessment Corporation (MPAC). For residential properties, the value represents the price a property might reasonably be expected to sell for if sold by a willing seller to a willing buyer after appropriate time and exposure on an open market. For commercial, industrial and multi-residential properties, the value is derived based on the income approach.

Current Value Assessment Taxation (CVA Taxes): The taxes derived from multiplying the current value assessment of a property and the applicable tax rate for the tax class, for any given year.

Education Tax: A tax collected on the property, which goes to the Province/school boards for the provision of education services. The Province sets the tax rates that generate the education taxes.

Farm Land Awaiting Development: A sub-class that is defined as farmland used solely for farming but where there exists an approved and registered subdivision plan on the lands and development has yet to take place.

Income Approach: One of the approaches used to value property. The income approach is based on the theory that income-producing properties are bought and sold based on their income-earning potential.

Industrial Broad Class Ratio: The broad class ratio represents the average ratio for industrial properties if the municipality elects to use any optional classes.

Inter Class Tax Shift: When a portion of the total tax burden of a property class is transferred to other property classes. This type of transfer happens when:

a) the tax ratio is moved in one or more classes, or

b) the property classes do not all increase at the same rate as a result of re-assessment.

Multi-residential Property Class: Property that contains seven or more self-contained residential units (e.g. low rise and high rise apartment buildings, townhouses etc.). This property class also includes vacant land zoned for Multi-residential development. An optional class within Multi-residential is New Multi-residential which are units built since 2000.

Municipal Property Assessment Corporation (MPAC): MPAC is a non-share capital, not-for-profit corporation. Every municipality in Ontario is a member of the Corporation. It is governed by a Board that is appointed by the Minister of Finance. Its mandate is to administer and deliver a province-wide assessment system that is based on current values, in accordance to the legislation and regulations set by the Provincial Government.

Neutral Tax Ratios: Updated tax ratios during a re-assessment year applicable to each property class (excepting residential, new Multi-residential, farmland and managed forest property classes) which maintains the previous year’s relative tax burden between property classes to eliminate any inter-class shifts.

Optional Tax Classes: In order to have greater tax flexibility municipalities can opt to have optional classes in the commercial, industrial and Multi-residential property classes. The current optional classes available are the office building, the shopping centre, the parking lots and vacant commercial land, the professional sports facility, the large industrial and the new-multi residential property class.

Property Assessment Notice: A notification from MPAC, to all property owners to advise them of their property’s current value assessment. The Notice also contains the property’s classification and school support designation.

Property Classes: Defined classes in the Assessment Act are

· Residential,

· Multi-residential, (seven or more self-contained residential units)

· Commercial, (The default class for all real property and vacant land that is not specially included in any other property class.)

· Industrial, (Property used for manufacturing, producing or processing anything. It also includes the research and development, the on-site storage and the on-site retail sales associated with manufacturing. Vacant land zoned for industrial development and other industrial type of activities like mining, quarrying, oil and gas or anything extracted from the earth are also included in this property class.)

· Pipeline, and

· Farm; and

· Managed forests property classes.

Property Classification/Tax Class: A categorization of a property or a portion of a property according to its use, each category representing a different tax class (e.g. residential, farm, commercial, industrial).

Provincial Threshold: Threshold established by the Province in 2000 for the ratios of the commercial, industrial and multi-residential property classes. Any municipality with ratios above the threshold is prevented from passing on any budgetary tax increase to the property class (a budgetary increase of 50% of the total tax increase was allowed for 2004 and 2005).

Range of Fairness: A range of tax ratios for each property class as determined by the Province. Any municipality that is above the range of fairness can only adopt ratios that are no higher than the previous year or move toward the range of fairness (unless authorized by provincial regulation).

Rural Fire Service Area: Geographically defined area outside of the urban/suburban area that receives a volunteer firefighter as a first response.

Rural Levy: Municipal and education property taxes levied in the rural area to fund citywide and special area services applicable to the area and the property.

Sales Comparison Approach: One of the approaches used to value property. This approach is based on the theory that the current value of a property is directly related to the sale price of similar properties.

Subclasses of Property Classes: For the purpose of providing tax reductions, three subclasses of real property classes are defined:

· farm land awaiting development,

· commercial and industrial vacant land, and

· commercial and industrial excess land subclass.

Tax Burden: The amount of property taxation, in any year, that a class of properties is billed. The total property taxes billed to all classes, in any year, represents the taxation required for municipal purposes (as determined through the budget setting process) and for education purposes (as determined by the Province).

Tax Ratios: Tax ratios express the relationship that the municipal tax rate for each property class bears to the tax rate for the residential property class. In doing so, tax ratios determine the relative tax burden of each property class in relation to the residential property class.

Council has the ability, on an annual basis, to adjust tax ratios and consequently the relative burdens of property taxation for municipal purposes between classes.

Urban Levy: Municipal and education property taxes levied in the urban/suburban area to fund citywide and special area services applicable to the area and the property.

Valuation Date: A date established by the Province that represents the point in time at which a property’s assessment value was based. Starting in 2006, the valuation date in Ontario will be January 1^st of the previous year.

APPENDIX B

April 12, 2006

City of Ottawa

110 Laurier Avenue West

Ottawa, Ontario K1P 1J1

Dear Mayor Chiarelli and City Council:

Re: RENT REDUCTION COMMITMENT 2006

At the Eastern Ontario Landlord Organization we understand that for 2006 the

neutral tax ratio will be 1.844, and that the City of Ottawa is considering moving

toward tax fairness for tenants by reducing the multi-residential tax ratio in 2006 by a step beyond tax neutrality, to 1.8 for example.

We understand the City’s concern that all the tax decreases be passed on the

tenants. Therefore, if the City takes the step beyond tax neutrality, the major

landlords in Ottawa, listed below, will support the City’s move toward tax fairness for tenants by going beyond the requirements of the Tenant Protection Act (TPA), and passing through all tax decreases as residential rent reductions, including those tax decreases below the threshold set by the TPA.

The landlords giving you and their tenants this commitment are:

• Minto • Commvesco/Levinson-Viner

• Osgoode • Paramount

• OTNIM • Homestead

• District • Urbandale

• Taggart • Glenview

• Regional • Empire Holdings

• Triole Investments

We look forward to continuing to work with the City to bring tax fairness to the

residential tenants of the City of Ottawa.

Yours very truly,

John Dickie

Chair,

Eastern Ontario Landlord Organization

APPENDIX C

Exit Strategy for Capping

The Province introduced mandatory capping in 1998 for the “business” classes of property i.e. commercial, industrial and multi-residential. The capping legislation was implemented in response to the significant changes in taxation that were occurring as a result of the move to Current Value Assessment and the termination of Business Tax. The Province also felt that municipalities were not using the tools available in order to help smooth the change for business.

The initial capping program was meant to be temporary. Tax increases were capped at 10% of 1997 taxes for 1998, 15% for 1999 and 20% for 2000. After that all properties were to pay their full CVA taxes. The foregone revenue between taxes at CVA and the capped amount would be clawed back from properties in the same class that were to receive a tax decrease. With the new re-assessment for the 2001 tax year, capping was to disappear. The Province extended the capping of tax increases at 5% indefinitely in 2001 and now permits a municipality to increase it to 10%.

With yearly re-assessments there is no hope that capping will ever end and as a result the tax system has built in a perpetual inequity where some businesses are overtaxed in order to allow some businesses to be under taxed. In Ottawa the statistics show that generally, the business properties that are overtaxed (clawed back) are of smaller size than the business properties that are under taxed (capped).

Annual Taxes ($)	Clawback		No adjustment	Capped		^Result
	(More than CVA)		(At full CVA)	(Less than CVA)
	# Accounts	Total Clawback ($)	# Accounts	# Accounts	Total Capped ($)	Net Benefit
0 – 200,000	4014	15,696,669	3183	1853	5,356,322	(10,340,347)
200,000 – 500,000	112	3,550,131	48	52	2,680,749	(869,382)
500,000 – 1,000,000	7	1,042,781	2	4	2,273,315	1,230,534
1,000,000 – 1,500,000	9	471,815	8	6	630,781	158,966
1,500,000 – 2,000,000	1	219,993	1	3	351,000	131,007
2,000,000 – 3,000,000	1	280,008	1	4	1,297,170	1,017,162
3,000,000 – 5,000,000	1	384,034	2	7	5,293,268	4,909,234
5,000,000 – 10,000,000	3	1,180,140	0	6	4,943,866	3,763,726
Total	4148	22,825,571	3245	1935	22,825,571

In order to reduce the impact the capping program has on business taxation, changes are needed that will allow properties to get to full CVA taxation. Once properties are at full CVA taxation Councils could make changes to the current tax policies knowing that they would have the immediate desired effect. There would also be future certainty thereby allowing Council to make longer-term decisions. Two scenarios are presented below for consideration.

1. Change the requirement for yearly re-assessments to one where municipalities would be required to implement a re-assessment at least once every five years. MPAC would continue to reassess values and provide the data to the municipalities every year but Council could elect to implement the new values, or not, knowing that it would be required once in every five year period. For municipalities where the assessment shifts are not significant they could elect to use the new values every year with minimal impact to the taxpayer. For municipalities with significant shifts, such as Ottawa has seen, electing to implement new assessment values once every five years would allow two things. First the City could implement a phase-in program to smooth the changes within the residential classes and secondly this would allow the full implementation of a CVA capping program similar to that proposed when CVA was introduced. The five-year window is long enough to create taxation stability within the business classes to allow the City to change its current tax policies (number of optional classes) or introduce new tax policy (banding, changing tax ratios), knowing that the policy change will have the desired effect immediately and predictable short-term effect.

Further, in order to see some movement towards the Provincial objective of reducing business taxation, where the tax ratio for the class is above the Provincial threshold, the municipality would only be able to pass a budgetary tax increase for that class at a tax ratio of 1.0. The effect of limiting budgetary tax increases by this method is that the tax ratio for the class will decrease every year and move the ratio towards the threshold.

2. If the Province wants to continue with the current yearly re-assessment requirement then an exit strategy with respect to the capping program needs to be implemented.

Yearly re-assessments result in all of the capping and claw back calculations changing so that there is no guaranteed progress towards all properties paying taxes at full CVA. The Province gave municipalities the option to increase the cap to 10% last year, which without continual re-assessments, should see progress towards paying taxes at full CVA. The Province could continue to increase the maximum cap over time which would eventually reduce the amount of the claw back to the point where the City could tax for it, as opposed to having to take it from other taxpayers in the same class.

2006 TAX RATIOS and other tax policies

COEFFICIENTS FISCAUX ET AUTRES POLITIQUES D’IMPOSITION DE 2006

ACS2006-CRS-FIN-0015

As the staff report was not distributed with the Agenda, the Committee considered and approved the following procedural motion.

Moved by Councillor J. Stavinga

That the Corporate Services and Economic Development Committee approve the addition of this item for consideration by the Committee at today’s meeting, pursuant to Section 81(3) of the Procedure By-Law (being By-Law No. 2005-431).

CARRIED

Greg Geddes, Chief Corporate Services Officer; Marian Simulik, Acting City Treasurer; and, Ken Hughes, Manager, Revenue, appeared before the Committee on this item. Mr. Geddes provided an overview of the staff report and a copy of the PowerPoint presentation is held on file with the City Clerk.

The Committee then heard from the following public delegations:

Roger Greenberg, President, Minto Developments noted that Minto is the largest private sector residential landlord in the City, managing over 10,000 rental units. He expressed his support for the staff recommendations, which he felt was another measured step in equalizing the tax burden on residents who rent as opposed to own their homes. He also committed to passing along to the tenants, all realty tax decreases regardless of whether they are above or below the threshold mandated under the Tenant Protection Act. Mr. Greenberg indicated there is still much work to do to refine the tax ratio to achieve the ultimate goal of achieving an equivalent tax burden on similar properties. He expressed Minto’s willingness to work with City staff in doing further data analysis needed for 2007.

John Dickie, Eastern Ontario Landlords Association (EOLO) provided a written submission, which is held on file with the City Clerk. Mr. Dickie expressed EOLO’s support for the staff recommendations with respect to the multi-residential ratio. Namely, to move a small step beyond the revenue neutral tax ratio in keeping with the City’s policy of moving towards an equal tax burden for similar properties by measured steps. He pointed out that comparisons carried out by EOLO found that for 2006 an equal tax burden required a tax ratio of 1.36 to 1.48 and a KPMG study found it to be 1.4 to 1.55. Mr. Dickie indicated therefore that Council should be satisfied that the tax ratio of 1.8 is appropriate (i.e. there is no risk of overshooting the goal).

Councillor Cullen then asked if staff were aware of the KPMG study referenced by the delegation. Mr. Geddes confirmed staff had reviewed the KPMG report, as well as a number of other studies that EOLO had provided. He went on to say that while staff are committed to working towards tax fairness between these two classes, it would be beneficial to have Council lobby the Province to work with the Municipal Property Assessment Corporation (MPAC) with a view to determining what the relationship should be between the two classes. He said the problem with using the survey methodologies is that it is very difficult to establish the exact relationship between the two classes.

Councillor Cullen asked if staff would agree that this is just another example of the overly complex Provincial assessment system and what is really needed is a fundamental review of how assessment is determined and what property taxes are used for. Mr. Geddes expressed his agreement with this statement. He said it is very frustrating for staff to have to explain to residents how their property tax bill is constructed each year, especially given that most of the analysis is done by a completely different organization.

Luigi Caparelli, Tenants and Landlords for Fair Taxation, indicated he was in favour of the staff recommendation and said reducing the ratio to 1.8 is a step in the right direction. If City Council were to not reduce the tax ratio, tenants would be facing a 2% rent increase over and above the guideline increase. Landlords raise the rent when there are tax increases and when there is a tax decrease, landlords are required to reduce the rent accordingly. Mr. Caparelli reiterated the earlier delegations’ comments that the major landlords in the City have given a commitment to pass on any decreases as a result of the tax decrease and not just the amount mandated by the Province. In concluding his remarks, Mr. Caparelli advised that tenants are currently paying twice as much property tax as homeowners, and have been for many years. He expressed his group’s appreciation for the steps Council has taken towards fairness and encouraged them to continue in this direction until fairness is reached.

Having heard from all delegations, the matter returned to Committee. The following is a summary of the main points raised during questions of staff.

· If the $2.5 million from the tax stabilization fund were used, it would not become a budget pressure in 2007; rather it would become part of the regular taxation and shift to all of the tax classes (two-thirds of which is residential) in 2007;

· By using neutral ratios, this eliminates additional tax on farm land (i.e. they are in the same position they were in 2005);

· Staff to provide Councillor Jellett with a breakdown of Farm Class 1 lands in his ward (prior to Council consideration);

· Most of the Payment in Lieu of Tax (PILT) properties are clawed back (i.e. they are paying more taxation than their Current Value Assessment Taxes because they are basically subsidizing another property outside of the PILT class that is capped). With the move to 10% of the previous year’s taxes, the amount of clawback has been reduced by approximately $10 million in the commercial class. As these are clawed back, the PILT properties will be paying less tax as a result;

· Staff anticipate the Province will be receptive to the recommendations contained in the report regarding charitable organizations;

· With respect to the first strategy proposed by staff for capping, it was noted the Province requires every municipality to adopt one reassessment in a five-year cycle. If a municipality had a relatively stable taxation situation, it could update yearly but every municipality within a five year cycle would have to adopt one reassessment. If there was a four or five year window where assessments did not change, a municipality could go back to the original concept the Province started with when they brought in capping and clawback (i.e. 10% of the previous years taxes, 10%, 5%, full Current Value Assessment (CVA). Over the course of four years, one would get to where everyone is paying full CVA and there would be no capping and clawback. The appeal of this type of approach is that at that point in time, Council could start looking at whether it would like to change its other tax policies to help smaller assessed properties (e.g. by collapsing of classes, banding, etc.). As well, this approach would allow the City to implement a phase-in program for the residential sector (i.e. for those properties facing huge increases in their assessments);

· Staff are recommending the existing process for including an insert in the tax bill regarding the percentage breakdown of taxes by service on an average household basis. It would be very costly and complex to include a breakdown for the individual household;

· The intent of the staff recommendation dealing with charitable organizations was to exclude national or international associations (as opposed to charitable organizations). Therefore on page 24 of the staff report, the wording in subsection a) should have an “and/or” after it (i.e. instead of just an “or”). Staff confirmed the policy documents would be much more specific in terms of definitions of national and international associations (e.g. organizations such as Oxfam would not be affected by this policy);

· As long as the “Professional Sports Facility Class” is maintained (i.e. for Scotiabank Place), there will be no impact on the rest of the commercial class if the Province does not grant the capping exemption;

· If Council were to approve the 1.1 ratio for Scotiabank Place, no other classes would benefit in 2006. The additional revenue the City will gain will be used to offset the loss in PILT revenue expected this year. In 2007, if the ratio moves to 1.1 and the Province approves the capping exemption, the Professional Sports Facility Class could be collapsed, the facility moved into commercial class and all of the other commercial taxpayers would benefit;

· Staff to provide (prior to Council consideration) information to Councillor Chiarelli on what Scotiabank Place is paying in comparison to other NHL cities (e.g. Toronto, Montreal, Vancouver, Calgary and Edmonton);

· Staff to provide to Councillor Bellemare (prior to Council consideration) information on the analysis of a tax shift in the commercial tax class of 0.2441 (i.e. to a ratio of 1.98), which would bring it down to the Provincial threshold and make it possible for the commercial class to pay the same tax increase as the residential class. Staff also to advise if this would change the tax burden on the other classes;

· With the neutral ratios, the average increase for residential taxes is $127 per household (5%). For commercial, the average increase is $30 (.5%).

The Committee completed their questioning of staff and considered the recommendations contained in the staff report.

Councillor Cullen spoke of the four years of hard work since the City’s Task Force on Fair Taxation came forward with its recommendations to Council. One of the issues that has been ongoing is that of tax fairness – equivalent tax burdens for equivalent size residences. Over time, Council had set the target at 1.8 and he was pleased to see the recommendation for this ratio in the staff report. The Councillor indicated he was pleased that the thirteen largest landlords in the City have made a commitment to go beyond their legal obligations and pass on any reductions to their tenants. Further he commended the Mayor and members of Council for supporting over the years, this move to equalization. Councillor Cullen went on to speak of the complexity of the property tax system, the failure of market value assessment as a legitimate taxation process and the need for fundamental reform.

That the Corporate Services and Economic Development Committee recommend Council approve:

1. The adoption of the following optional property classes to provide maximum flexibility for tax policy decisions:

· Shopping Centre Commercial Property Class;

· Parking Lots and Vacant Lands Commercial Property Class;

· Office Building Commercial Property Class;

· Large Industrial Property Class;

· New Multi-residential Property Class; and

· Professional Sports Facility Class.

2. (a) That a request be made to the Minister of Finance to issue a regulation establishing the 2006 ratios at their tax neutral levels as detailed below:

Tax Class	Neutral Revenue Ratios**
Residential	1.000
Multi-residential	1.8449
New Multi-residential	1.000
Farm	0.2000
Managed forest	0.2500
Pipeline	1.5438
Commercial Broad Class	2.2887
Commercial	2.1741
Office building	2.6265
Parking lots and vacant land-- commercial	1.4245
Shopping centre	1.8084
Professional sports facility	N/A
Industrial Broad Class	2.5814
Industrial	2.7569
Large industrial	2.3675

** subject to final minor revisions upon OPTA close-off

(b) That the tax ratios for 2006 taxation purposes be adopted as detailed above with the exception of the Multi-residential property tax class which will be set at 1.8000;

(c) That the $2.5 million cost of reducing the Multi-residential tax ratio from 1.8449 to 1.8000 be funded from the Tax Stabilization Reserve; and

(d) The Province be asked to investigate methods of reaching more comparable assessments between Multi-residential and residential property tax classes.

3. The adoption of the following tax ratios and by-laws for the mandatory property subclasses and the tax rate percentage reduction for farmland awaiting development:

· Commercial excess land (i.e. commercial, office and shopping centre tax classes) - 70% of the applicable commercial property class tax ratio;

· Vacant industrial land, industrial and large industrial excess land - 65% of the applicable industrial property class tax ratio;

· Farm lands awaiting development subclass I - 60.0% of the residential property class tax ratio and the corresponding tax rate percentage reduction for the awaiting residential, commercial and industrial property classes; and

· Farm lands awaiting development subclass II - no tax rate reduction.

4. That the tax rates for 2006 be established based on the ratios adopted herein.

5. That the tax ratio for the Professional Sports Facility class be set at 1.1000; and:

(a) That the owners of Scotiabank Place be sent a notice of a change to the agreement of tax relief as per the terms of the agreement; and

(b) That the Minister of Finance be requested to prepare a regulation exempting the Scotiabank Place from any provisions of the capping program.

6. (a) That the 2006 capping parameters be approved at 10% of the previous year’s annualized tax and 5% of the 2005 CVA tax;

(b) That for 2006 capped/clawback properties whose recalculated annualized taxes fall within $250 of their CVA taxation be moved to their CVA tax for the year; and

(c) That staff be directed to pursue an exit strategy for capping with the Province.

7. That the tax level for “new construction” properties be set at a minimum level of 80% of their CVA taxes for 2006, 90% for 2007 and 100% for 2008 and future taxation years.

8. (a) That the definition of charitable organizations for purposes of the Charitable Rebate Program, as outlined in this report, be endorsed and that the Province be requested to amend the definition for this program.

(b) That the property tax mitigation programs currently in place and detailed in this report be continued for 2006.

9. That the additional tax revenue of $5 million from assessment growth be used to reduce the Payment In Lieu of Taxation budget to reflect losses in that area.

10. That the due date for all classes be changed to June 22, 2006 and that the amended due date by-law hereby submitted be approved by Council.

11. That staff continue to provide a breakdown of taxes by service on an average household basis in the tax insert.

12. That staff request the Minister of Finance to pursue permanent changes to property tax policies that would give the municipality greater flexibility and options in dealing with re-assessment changes, tax shifts, capping requirements and mitigation methods for 2007 and future years.

CARRIED with Councillor Jellett dissenting on Recommendations 2 b) and c)

Subsequent to the Committee approving this item, Councillor Chiarelli indicated his desire to reopen discussion on the matter of Scotiabank Place. In this regard, he put forward a motion to waive the rules of procedure to revisit this matter and permit consideration of a motion to table recommendations 5 a) and b) to the next Committee meeting so that consultation could occur with the Senator’s representatives. Speaking to his motion, Councillor Chiarelli noted staff had indicated there had been no consultation with representatives of the Senators prior to coming forward with this recommendation to increase the tax ratio for the Scotiabank Place to 1.1 – the equivalent of a 300% tax increase. He said when the recommendations (above) were approved, he was not aware that there had not been consultation. The Councillor noted this team contributes in a significant way to the City and he felt that this was not an appropriate way to treat them.

Mayor Chiarelli felt it was very unfair to treat the one taxpayer in this tax class in this manner – raising their taxes by 300% without the courtesy of consulting them.

Councillor Cullen pointed out the recommendations approved by Committee provides for 60 days notice of the change to the agreement of tax relief, to the owners of Scotiabank Place and they would have recourse within those 60 days to come back to the City to talk about it.

Kent Kirkpatrick, City Manager, felt the issue being raised was not how much notice the owners of Scotiabank Place would be given of a decision already taken by Council but rather that they were not consulted prior to matter coming before Committee and Council. Due to the timing of the release of this report (i.e. Thursday before the long weekend) and the fact that staff did not contact them to make them aware of this recommendation, the owners of Scotiabank Place were put at a disadvantage in terms of being able to make a presentation to the Committee. If the Committee decides to go forward with this recommendation to Council, staff will have to contact the owners of Scotiabank Place and inform them of this issue and the avenues available to them to provide input to members of Council.

Councillor Stavinga indicated she had not supported the special treatment of this property since she was first elected to City Council. She noted this issue is discussed every year and felt the owners of Scotiabank Place would be aware of this. The Councillor asked staff what the impact would be of tabling the recommendations to the next Committee meeting. Mr. Hughes advised that the bulk of the tax policies have to be approved by April 30^th. However, there would be no impact in tabling the portion of the report dealing with Scotiabank Place.

Moved by Councillor R. Chiarelli

That the Rules of Procedure be waived to revisit this matter.

CARRIED

YEAS (6): Councillors R. Bloess, R. Chiarelli, P. Hume, R. Jellett, J. Stavinga and Mayor R. Chiarelli

NAYS (2): Councillors A. Cullen and M. Bellemare

Moved by Councillor R. Chiarelli

That the Scotiabank Place tax ratio item (Recommendations 5 a) and b) be tabled to the next meeting of the Committee.

LOST

YEAS (6): Councillors R. Bloess, R. Chiarelli, R. Jellett, and Mayor R. Chiarelli

NAYS (2): Councillors A. Cullen, M. Bellemare, P. Hume, and J. Stavinga