In the challenges facing landlords in the current economic and
market conditions, the municipal tax treatment of vacant space is
not to be forgotten as some relief available for the carrying costs
of vacant space. The Municipal Act, 2001 and the City
of Toronto Act, 2006 both require vacancy rebates to be
provided for eligible commercial and industrial premises. Provided
eligibility requirements are met, rebates of 30% of commercial
class taxes, and 35% of industrial class taxes, are available upon
application for a period of vacancy that exceeds 90 days. For a
property to be eligible, the premises must not be used (except for
heating, cooling, lighting or cleaning, or construction, repairs or
renovation) for at least 90 days, and in the case of commercial
premises, be capable of being leased (except for immediate
occupation in the event of renovations) or unfit for occupation.
For industrial properties, the vacant portions of the premises must
be clearly delineated or separated by physical barriers from the
rest of the premises, but need not be capable of being leased.
Despite meeting these requirements, premises are not eligible for
rebate if they are used for commercial or industrial activity on a
seasonal basis; if they are leased to a tenant who is in possession
of the leasehold interest throughout the period of time; or if the
property is included in a subclass for vacant land.
Interim applications to the municipality can be filed for the
first six months of the taxation year, and a final application must
be filed by the last day of February of the next taxation year.
Applications must be accompanied by prescribed information, and
most municipalities require proof of lease termination, leases and
any occupancy dates, as well as proof that premises are being
offered to lease. The Municipal Property Assessment Corporation
(MPAC) then supplies the municipality with the assessed value of
the premises for purposes of calculating the rebates. If the
property is the subject of an assessment appeal and the assessment
on which the rebate was calculated is subsequently reduced, the
municipality may recover any overpayment. The legislation
encourages prompt processing by requiring interest on unpaid
rebates to be paid by the later of November 30 of the taxation year
for interim applications made prior to July 31, and June 30 of the
next taxation year for final applications, or 120 days after the
required information is supplied to the municipality, whichever is
greater. The applicant may appeal the amount of the rebate, or the
failure to process the application, to the Assessment Review Board
within 120 days of the municipality's determination or
submission of a complete application.
One issue that arises in vacancy applications is the treatment
of fixturing periods for new tenants. Some municipalities, such as
Toronto and Ottawa, treat this period as eligible for vacancy
rebate, while others do not, on the theory that the property is not
capable of being leased or the new tenant is in possession of the
leasehold interest. Ironically, municipal legislation permits
application for a full refund of taxes if repairs or renovations to
the land prevented the normal use of the land for a period of at
least three months during the year, except if the premises qualify
for a vacancy rebate. Thus, if a period of time including a
fixturing period lasts greater than 90 days, and the municipality
takes the position that the property does not qualify for the
vacancy period, an application under section 357 of the
Municipal Act, 2001 or s. 323 of the City of Toronto
Act, 2006 may result in a greater rebate than a vacancy rebate
application. These applications also must be filed no later than
the last day of February of the next taxation year. The Ministry of
Finance is currently considering proposals to clarify this
Care should therefore be taken to ensure that appropriate
applications for the 2015 taxation year are made to the
municipality no later than February 29, 2016.
Finally, chronic or unusual vacancy that exceeds MPAC's
standardized vacancy allowances, usually 3-5%, may be a ground for
appealing assessments that are based on an income capitalization
valuation. In the case of former Target Canada premises, MPAC has
already agreed to reductions resulting from Target's demise.
The last date for appealing 2016 taxation year assessments is March
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.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
Russell v. Township of Georgian Bay provides a useful reminder of the fact that while municipal officials sometimes appear to hold all of the cards in disputes with home owners, that is not always the case.
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).