Canada: Review Your Property Tax Situation As 2013 Ends

Last Updated: December 4 2013
Article by David C.K. Tang

Did you pay too much in property taxes in 2013? Were your 2013 property taxes higher than you expected or wanted? Did your 2013 taxes increase by more than the percentage increase in the municipality's budget? Were there vacancies in your building during 2013? Do you wonder if maybe some or all of your property should be exempt from property taxation?

Those are all good questions to ask as 2013 draws to a close. Some thought should go towards whether there is an opportunity to get some of those taxes back or to reduce them in 2014. It is crucial to make sure the deadlines for property tax appeals are strictly adhered to as both the Assessment Review Board and the courts are very strict in applying those deadlines.

2013 has been a particularly important year in Ontario's property tax scheme, because it is the first and establishing year of the four-year property assessment and taxation cycle.

2013 tax exemptions

The first deadline to pay attention to is December 31, 2012. A property seeking a tax exemption must make a court application for a declaration that it is exempt and for a refund of any taxes paid in 2013 no later than the end of this year. Practically, that means that the court application must be prepared very soon and filed.

Lands owned by various not-for-profit and public organizations are the primary beneficiaries of the exemptions that subsection 3(1) of the Assessment Act provides, although there are exemptions available to businesses, including equipment producing electric power, machinery used for manufacturing farming or metal refinery, forestry lands, and lands mineral and mineral extraction. There are also some exemptions of less general application available for amusement park rides, small theatres and larger non-profit theatres. In addition to the lands that are typically thought of being exempt, such as those owned by schools, universities, churches, government and cemeteries, the Assessment Act provides to lands which are owned, used and occupied by philanthropic, religious or educational seminaries or learning, children's treatment centres receiving provincial aid, certain care homes initially established and offered under the Charitable Institutions Act, non-profit hospices providing end of life care, by the Boy Scouts or Canadian Girl Guides, houses of refuge, care of children, Children's Aid Societies and more generally, charitable non-profit philanthropic corporation organized for the relief of the poor, provided the organization is supported by public funds. This article cannot describe or analyze all of the exemptions available so consultation with a lawyer is recommended.

Failure to bring an application for the exemption of 2013 taxes levied and paid by December 31, 2013 will prevent recovery of the 2013 taxes.

Vacancy and charitable rebates

The next deadline arrives in early 2014 when applications for the rebate of 2013 taxes paid on portions of a building which were vacant become due. That deadline falls on February 28, 2014. In general terms, the vacancy rebate only applies to commercial and industrial buildings, the vacant area must be clearly divided from the balance of the building and the vacancy must have lasted longer than three months.

Rebates for registered charities must similarly be made no later than February 28, 2014. This rebate, worth at least 40% of the 2013 taxes paid, applies not only to lands which are owned by the charity, but also to premises which are rented by a registered charity.

2013 taxes and the new four-year cycle

In Ontario, municipalities set their new tax rates in the middle of 2013. Those taxes were calculated upon assessments carried out in 2012 by MPAC, which were based on the land's market value as of January 1, 2012. That January 1, 2012 value, commonly referred to the 2012 Current Value Assessment ("2012 CVA") is the basis for property taxes levied in each of the 2013 to 2016 tax years. If a property qualifies for the property tax phase-in program (which many properties in Ontario do), the taxes will increase by one-quarter of the difference between the 2008 CVA and the 2012 CVA.

If a landowner has found that its taxes increased significantly in 2013 in the absence of an expansion or construction, the cause is almost certainly the change in the 2012 CVA from the 2008 CVA. In addition to the change in value, the assessment returned by the Municipal Property Assessment Corporation ("MPAC") may also have changed the classification of portions or all of the land, bumping it up to a higher tax class.

The Assessment Act provides that a complaint to the Assessment Review Board for commercial and industrial properties must be made no later than March 31, 2014 for the 2014 taxes. Failure to appeal by that date is completely fatal, and a property owner or tenant will have no opportunity to revisit to 2014 property taxes if no appeal (technically a "complaint") is brought by that date. It is now too late to appeal the 2013 taxes unless there were special circumstances, such as a supplementary or omitted assessment issued by MPAC. Any special assessments will be accompanied by a notice which will set out the applicable appeal deadline.

The next several months are the time when property owners should consider whether an appeal of the 2012 CVA for the 2014-2016 tax years makes sense in their circumstances. An appeal earlier in the cycle means greater benefit as any reduction in the 2012 CVA applies to the balance of the 4 year assessment and tax cycle (ending December 31, 2016). Conversely, failure to file the complaint means the property owner will continue to pay taxes based upon the 2012 CVA based upon the 2012 CVA at least for the 2014 taxation year. There will be another opportunity to appeal the assessment in 2015 for the 2015 taxes.

It is important to recognize that residential or managed forest properties may not be directly appealed to the Assessment Review Board. Instead, a Request for Reconsideration to MPAC must be made by March 31, 2014. It is only after MPAC has provided notice of its decision later in 2014 that an appeal to the Assessment Review Board can be filed for these residential or managed forest lands.

While commercial and industrial properties can be appealed directly to the Assessment Review Board, it is also possible to request MPAC to carry out a reconsideration. Depending on the circumstances, a Request for Reconsideration may yield more immediate results and can be more economical. Typically, technical or obvious errors and minor corrections are processed by MPAC through a Request for Reconsideration faster than an appeal/complaint can make its way through the Assessment Review Board's process. The municipalities' tax records would be corrected faster, possibly even prior to tax bills being issued in 2014. While you may be entitled to a refund of taxes paid in 2014 eventually in the event of a successful appeal to the Assessment Review Board, it is almost certainly more desirable not to have to pay them in the first place.

If you receive an Omitted or Supplementary for new construction or because a portion of your building that was not assessed in 2013 or previous years, an appeal must be made within 90 days of that notice or March 31, 2014, depending on applicable date to which that Notice applies.

Landlords and tenants - impacts additional rent

Tenants should consider whether their lease permits them to file complaints with the Assessment Review Board. Most landlords who have passed on the cost of property taxes to their tenants will have little incentive to challenge an incorrect or too high assessment.

Tenants who pay their proportionate share some or all common expenses, some fixed portion of the common expenses or all of the property taxes notionally attributable to their leased property, should consider whether or not the 2013 taxes were reduced at some point because their landlord sought and seek a refund of taxes. Landlords may have obtained rebates for vacant areas within the building or obtained a reduction in the assessment. A tenant may, pursuant to the lease provisions, be entitled to a refund of some portion of their payments. If a tenant knows that there were vacancies in the building, enquiry should be made of their landlord as to whether vacancy refunds were obtained and prompt them to seek those refunds if they have not already done so.

Landlords should consider whether the nature and status of their tenants entitle them to an exemption or partial exemption from property taxes. To the extent that a tenant's occupancy costs can be reduced through a reduction of property taxes, the tenancy is rendered more attractive and secure.

Both landlords and tenants should, if the end of 2013 or 2014 represents the end of a lease term, even if the lease is to be extended, renewed or renegotiated, consider whether the lease's provisions dealing with property taxation are current and adequate. We have seen many leases which predate not only the most recent changes in assessment and taxation practices, but even the 1998 change to a combined business and property tax and the current value assessment system. Leases that predate that date typically use completely different concepts than are applicable today when dealing with the allocation of property taxes between the landlord and the tenant and between the tenants themselves in a multi-tenanted property. While one party may have an advantage as a result of a particular wording, if there is to be a dispute, the uncertainty and costs associated with that dispute may mean even the advantaged party is not well-served by antiquated language. Coordination between leasing lawyers and property tax lawyers is thus crucial in maximizing both a landlord and a tenant's interest in a lease.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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