Multi-Residential Taxation

Article by Corey Yeoman

In 1998, the city of Toronto adopted Market Value Assessment and Taxation for all properties. It was determined at that time the basis for determining the value would be set at a base year of June 30, 1996. This reassessment also incorporated the introduction of property tax classes. The classes introduced were Residential, Multi-Residential, Commercial, Industrial, and Farm, each class having different tax rates associated with the valuation class. The valuation was carried out by the Municipal Property Tax Assessment Corporation (MPAC).

The Province of Ontario also introduced legislation at that time to mitigate any substantial swing in tax charges against each property. Today, they are referred to as capping and clawbacks. Each municipality was given certain parameters to cap any major increase in taxes occurred. Over the past 9 years, the average increase has varied between 5 and 10%. This is consistent with the application employed by other municipalities in the province. Any loss in taxes incurred by the municipality was offset by incorporating the clawback. Essentially, properties that should have received the benefit of substantive tax reductions were denied those benefits in proportion to those ratios set by the municipality.

Historically, those reductions were limited to 30% of what they should have received in some years. In 2001, no reduction was allowed. This clearly placed a significant burden on those properties as they were paying substantially more taxes than similar apartments in the city, with absolutely no opportunity for relief. For example, in 2005 reductions of only 2.5% of the full reduced amount were granted. For greater clarity, potential reductions of $50,000 only realized $1,250. In addition, we saw the average value per unit in apartments rise form $40,000 to $90,000 in the past 9 years.

The reduction in tax rates have not followed suit in proportion to the valuation increases placing a further unanticipated burden on apartment owners and their respective tenants. To reflect the unfair burden place upon multi-unit residential properties in Toronto, we also draw comparison to similar unit of size and utility that are registered as condominium. In 2005, a 1,000 sq. ft. condominium sold on average for $200/sq. ft. The annual taxes on this unit would be approximately $1,800. For a similar rental apartment of size, quality and character, the taxes would be approx. $2,300 or 27% higher. In Mississauga the difference in tax is minimal. However, clearly tax rates on Multi Residential in the Province of Ontario typically range 2 to 3 times higher than residential.

To exacerbate the tax burden, MPAC uses an unconventional Gross Rent Multiplier to value rental properties. Consequently, any anomalies in operating costs are not taken into consideration when value is established, and many valuations are overstated and place in unfair tax positions. As a result, appeals are filed every year and millions of tax savings are achieved on behalf of apartment building owners. Typical errors range from overstated rental streams, parking and laundry rentals, abnormal operating costs, and the application of wrong gross rent multipliers.

The 2006 tax year implemented new assessment values based upon a January 1, 2005 base year. Further shifts will occur. We recommend that you your review your valuation, and if deemed inappropriate, file an appeal.

For More Information:

Altus Derbyshire
Ph. (905) 953-9948
www.thealtusgroup.com

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