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Section 3 - Property Assessment and Tax Reform 1998-2011

The following table outlines the legislation enacted by the provincial government to implement property assessment and tax reform:

The following sections describe the significant changes to both the assessment and property taxation systems that represent important components of the new systems.

3.1 Elimination of the Business Occupancy Tax (BOT)

The Business Occupancy Tax (BOT) was eliminated effective with the 1998 taxation year. It was a tax levied on businesses and not property owners. The BOT was the source of a large portion of municipalities' tax arrears. The foregone BOT revenue is recovered within the tax rates established for each of the commercial and industrial classes and does not impact taxpayers in the other property classes.

3.2 Property Reassessment

Property reassessment refers to the updating of all property values across the province using the same base year of comparison to reflect their value. All properties are assessed on the basis of their current value at a specific point in time. When tax reform was initiated in 1997, assessments on all properties in Ontario were updated to reflect their value as of June 30, 1996. These 1996 assessment values were used as the basis for taxation in 1998, 1999 and 2000. The next reassessment date was June 30, 1999. The 1999 assessment values were used as the basis for taxation in 2001 and 2002. Taxation for 2003 was based on June 30, 2001 assessment values. Taxation for 2004 and 2005 was based on June 30, 2003 assessment values.

In the 2004 Ontario budget, the provincial government cancelled the reassessment planned for 2005. Instead, it adopted a new reassessment schedule starting with the 2006 taxation year based on assessment values as of January 1 of the year preceding the taxation year (e.g. for the 2006 taxation year, assessments would be based on the property values as of January 1, 2005). This change moved the valuation up six months from the June 30th date. Also, assessment averaging, which was to begin in 2005, was cancelled.

On March 28, 2006 the Provincial Ombudsman submitted his report entitled “Getting it Right”. The report was the result of an investigation into whether the MPAC process of valuing properties was fair and transparent. The investigation was launched as a result of the large number of complaints received from taxpayers focusing on two areas:

• A lack of transparency in the property assessment system; and
• The integrity and efficiency of the decision making process.

The report contained twenty two recommendations that addressed these two concerns. In its response to the report, MPAC agreed that twenty of the recommendations were its responsibility. MPAC committed to implement seventeen of these as soon as possible and that the remaining three would require further review before they could be implemented due to significant resource, technology and cost implications. Recommendations eight and twenty one were identified as being the responsibility of the provincial government. The Minister of Finance responded that the government intended to engage in consultations with stakeholders and interested parties on these two recommendations.

On June 29, 2006 the Minister of Finance announced that the scheduled property reassessments for the next two years would be cancelled in order to allow for the implementation of the Ombudsman's recommendations to Ontario's property assessment system. The announcement further stated that MPAC had committed to implement all of the recommendations directed to it by 2009 and that this timetable will allow MPAC to address and consult with municipalities on the cost and resources required to implement the recommendations. The Ministry of Finance would consult with stakeholders on the Ombudsman's two recommendations that were specific to the government.

In the 2007 Ontario budget, the provincial government introduced additional changes to the assessment system to enhance the fairness and predictability of assessments for property owners. A new four-year reassessment cycle was introduced and implemented for the 2009 taxation year, using a valuation date of January 1, 2008. This valuation would apply for the 2009–2012 taxation years. Subsequent reassessments will be conducted every four years using a valuation date of January 1st of the preceding year. A mandatory four year phase-in of residential, farm and managed forest assessment increases has been implemented with the 2009 reassessment. In the 2008 Ontario Budget, the four year phase-in was expanded to include the commercial, industrial and multi-residential property classes by the provincial government. The following table shows the date on which properties have been and will be assessed over the next few years for taxation purposes.

3.3 Property Classes

The reform of the property taxation system implemented by the provincial government with the passing of the Fair Municipal Finance Act, 1997, included the division of properties into seven mandatory classes and five optional classes. Classes are defined by a Realty Tax Class (RTC) designation. In addition, property classes are split into mandatory subclasses of properties. These were established in order to allow for the application of discounted tax rates due to the special nature of some properties. Subclasses are defined by a Realty Tax Qualifier (RTQ) designation. The Region of Peel has chosen not to adopt any of the optional property classes during the 1998–2011 period. This remains as an option for the Region of Peel to consider in future years. Other municipalities that have adopted optional property classes have done so primarily to contain significant tax impacts on properties within these classes.

Mandatory Property Classes

1. Residential (RTC = R)
   
2. Multi-residential (RTC = M)
   
3. Commercial (RTC = C)
   
4. Industrial (RTC = I)
   
5. Pipelines (RTC = P)
   
6. Farm (RTC = F)
   
7. Managed Forests (RTC = T)

Mandatory Subclasses

1. Taxable at the Full Rate (RTQ = T)
   
2. Taxable no Education Taxes (RTQ = M)
   
3. Farmland Awaiting Development I (RTQ = 1)
   
4. Farmland Awaiting Development II (RTQ = 4)
   
5. Excess Land (RTQ = U)
   
6. Vacant Land (RTQ = X)

Optional Property Classes (subsets of the mandatory classes)

1. New Multi-residential (RTC = N)
   
2. Office Building (RTC = D)
   
3. Shopping Centre (RTC = S)
   
4. Parking Lot (RTC = G)
   
5. Large Industrial (RTC = L)
6. Residual Commercial (RTC = K)

3.4 Tax Ratios and Ranges of Fairness

Properties in different classes are taxed at different tax rates as a result of historical differences in tax burdens that were present prior to the 1998 reform of the property tax system. Typically, commercial, industrial and multi-residential properties pay higher taxes than residential properties. The different relative tax burdens among property classes are based on the tax ratios set by municipalities. Changing the tax ratios will result in a shift of the tax burden among classes.

Based on provincial rules, the tax ratio for the residential class is always set at 1.00. The farm and managed forest property classes are set at 0.25 and municipalities have the authority to lower the ratio starting with the 2003 tax year. Municipalities can also change the tax ratios for the commercial, industrial, multi-residential and pipeline classes of property. As these classes typically pay relatively higher property taxes, the province only permits municipalities to change tax ratios towards established “ranges of fairness”. These ranges ensure that taxes are not shifted onto properties that are already subject to relatively high tax rates. However, any reduction in the tax ratios for commercial, industrial, multi-residential or pipeline classes would directly impact the residential and related classes. Municipalities can maintain their tax ratios at existing levels or elect to move towards the range of fairness.

At the Region of Peel, the authority to set tax ratios has been delegated to the lower-tier municipalities for each of the 1998–2011 taxation years. In 2003, the lower-tier municipalities unanimously chose to change the tax ratios for the industrial and multi-residential property classes from the prescribed levels provided by the province. For the 2004 taxation year, the City of Brampton and the Town of Caledon did not choose to change their ratios while the City of Mississauga decided to change the ratios in the commercial, industrial, multi-residential and pipeline classes in order to eliminate the impact of reassessment related tax shifts between classes.

The Ontario government provided the authority to change the tax ratios in order to achieve a revenue neutral tax position between property classes from 2003 to 2004 and 2005 to 2006 thereby eliminating the impact of any reassessment related tax shifts that normally occur at the time of each reassessment cycle. This option was not available in prior reassessment years. For the 2006 taxation year, Brampton and Caledon chose to leave the tax ratios at the 2005 levels while Mississauga chose to change the tax ratios in order to eliminate the tax shifts resulting from reassessment. The following chart outlines the 1998-2011 Region of Peel tax ratios and the ranges of fairness.

3.5 Threshold Ratios

As part of Bill 140 - the Continued Protection for Property Taxpayers Act, 2000, the province created a new restriction prohibiting municipalities from levying municipal tax increases on commercial, industrial and multi-residential property classes if their respective tax burdens are above the provincial class average. The province has set these “Threshold Ratios” for each of the three classes of properties so that municipalities will know whether they are subject to the levy restrictions. The Region of Peel and its lower-tier municipalities are currently below the Threshold Ratios for all three classes as follows:

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Revised: Friday July 29 2011

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