GENERAL COMMITTEE
	TO:	Mayor and Members of Council
	FROM:	Barb Cribbett, Treasurer
	PREPARED BY:	Paul Wealleans, Director, Taxation
	DATE OF MEETING:	2005-Feb-14
	SUBJECT:	2005 Property Tax Options

RECOMMENDATION:

THAT the report dated February 14, 2005 entitled “2005 Property Tax Options” be received.

PURPOSE:

This report provides information relating to property tax options that are available to municipalities in 2005.

EXECUTIVE SUMMARY:

In its 2004 budget, the Ontario Government provided additional property tax options for municipalities to implement in the 2005 tax year. These options included tools to move properties more quickly to full Current Value Assessment (CVA) taxation. The options are:

· Increase the 5% annual cap to 10% for properties experiencing tax increases under CVA;

· Alternatively, the cap could be increased by 5% of the property’s prior year’s full CVA taxes;

· Properties that are capped or clawed-back but are within $250 of their full CVA taxes could be moved to their full CVA taxes in 2005;

· For properties that are eligible for the New Construction tax treatment, municipalities have the option to establish a minimum percentage of CVA taxes. For 2005, this is 70% which could increase by 10% annually so that by 2008, these properties are taxed at 100% (or full) CVA taxes.

Analysis is currently ongoing by staff of the Region and lower tier municipalities – including staff of Markham. This report provides a general description of the options available and once the analysis is complete, a further report illustrating the tax impacts will be prepared. The deadline for York Region to pass a bylaw to implement any of these tax options is April 30, 2005.

BACKGROUND:

At its meeting of June 1, 2004 Council adopted a report entitled “2004 Ontario Budget – Property Tax Measures” that summarized the proposals in the Provincial Government’s budget to permit additional tax policy options for municipalities effective for the 2005 tax year. These options were subsequently incorporated into the Municipal Act, 2001 through the implementation of Bill 83 – Budget Measures Act, 2004.

The responsibility for the determination and implementation of these tax options rest with either a single tier or the upper tier municipal government. For Markham, these tax policy options rest with the Region of York. Although, all lower tier level of governments have input, the decision is the responsibility of York Regional Council.

OPTIONS/DISCUSSIONS:

The new tax options implemented by the Provincial Government are intended to provide municipalities with additional flexibility in determining local tax policy as well as accelerating the movement of properties to full CVA taxation. Full CVA taxation is simply assessment multiplied by the tax rate.

Currently, residential properties are taxed at full CVA. The non-residential classes – commercial, industrial and multi-residential – are subject to the capping provisions under Provincial legislation. There is a 5% cap on tax increases due to reassessment for these classes although any budgetary increases are flowed through. The 5% cap is funded by withholding decreases to other properties within the same property class. This is referred to as clawback, and each year clawback rates are determined across York Region for each of the protected classes. For example, in York Region, the clawback rate in 2004 for the commercial class was 84%, which means that 84% of the expected tax decrease for each property was retained to fund the 5% cap for protected properties.

The new options have been introduced to provide for municipal flexibility as well as a means to move properties more quickly to full CVA taxes. A municipality may use the new options provided either individually or in combination and the options may be individually tailored to each of the capped classes.

The options are:

1. Municipalities can implement the greater of,

i) An increase to the annual capped taxes from 5% to a maximum of 10%, or

ii) An annual increase to the annual capped taxes of up to 5% of CVA taxes (the actual tax payable if capping was not in place).

Prior to the amendments, municipalities were limited to a maximum increase of 5% of the previous year’s capped taxes.

2. Municipalities can move capped properties (“increasers”) directly to their CVA taxes if capped taxes are within $250 of the CVA taxes. The dollar value is discretionary from $0 to $250. This option is calculated subsequent to the prior options and may be applied singularly or in addition to other options.

3. Municipalities can move clawed-back properties (those properties in each class that are currently paying more than their CVA level taxes or “decreasers”) directly to their CVA taxes if taxes are within $250 of the CVA taxes. Again, the value is discretionary from $0 to $250 and may be applied singularly or in addition to other options.

4. Municipalities can establish the minimum percentage of CVA taxes that would be paid by “new construction/new-to-class” properties. For 2005 the minimum percentage that can be established is up to 70% of their CVA taxes, rising by 10% each year, at the option of the municipality, to a maximum of 100% in 2008 and beyond. This applies only to new properties in 2005 and not to properties already capped in prior years. The option may be applied singularly or in combination with other options.

There are potential impacts for properties in the protected classes. The increase of the cap to 10% from 5% will still provide protection but will result in less funding required for capping, thereby reducing the clawback rates. The option of using the alternate 5% of CVA taxes has the potential to more quickly move properties to CVA, but could possibly result in large tax increases for some of these properties. Analysis is ongoing to ensure the impact of this option is known.

The $250 threshold options relate to properties that are within $250 of full CVA either as an increase or decrease. This option would move these properties to full CVA even if the cap would not otherwise do it.

There is special tax treatment in Provincial legislation relating to newly constructed properties. These types of properties are currently taxed at a level comparable to similar properties in the vicinity, rather than their full CVA tax. For example, if comparable office towers are currently taxed at 50% of CVA, a new office tower would be taxed at that rate and subject to capping thereafter. The new options provide for municipalities to tax new construction properties at 70% of CVA for 2005, 80% of CVA for 2006, 90% of CVA for 2007 and 100% of CVA by 2008. At that time, all new construction properties would be taxed at full CVA.

There are two issues that affect our analysis. Firstly, the data used for our analysis is from the Ministry of Municipal Affairs and Housing database known as the Online Property Tax Analysis (OPTA) database. OPTA was set up by the Province and is used by municipalities to deal with the complicated tax regime currently in place. Final 2005 data for York Region is not yet complete in OPTA, and until it is, complete analysis may be premature, and could result in incorrect conclusions. It is hoped that the data will be finalized this month.

The second issue affecting our analysis is that there is no provision in provincial legislation that requires a property to remain at full CVA once it has been achieved. After a subsequent reassessment, a property that had achieved full CVA tax levels could again be capped or clawed back, and would again be gradually moved towards the full CVA taxation target over a period of years. A change to legislation would be required to make the achievement of full CVA tax levels a permanent state.

The deadline for York Region to pass a bylaw to implement any of these tax options is April 30, 2005. Markham staff will be providing Markham Council with an analysis of the impact of the options to Markham properties prior to York Region Council making a decision on the options for 2005.

FINANCIAL CONSIDERATIONS:

None

ATTACHMENTS:

None

Barb Cribbett, Treasurer

Andy Taylor, Commissioner, Corporate Services

Paul Wealleans, Director, Taxation

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