Ontario Tax

Critical Changes to Ontario's Vacancy Rebate Program

Ontario Municipalities are eliminating Vacancy Tax Rebate Programs

Effective 2018, Ontario introduced new legislation which gives Municipalities ultimate control over their own Vacancy Refund programs for Industrial and Commercial properties.  Due to this change, many prominent jurisdictions are choosing to reduce their vacancy rebates significantly lower than the default legislated 30-35%, while others are phasing-out vacancy rebates altogether. Click here for the latest update from The Ministry of Finance outlining all municipalities who are eliminating their vacancy rebate program.

What does this mean for landlords and managers?

Landlords and property managers are well advised to consult a property tax expert to ensure they capitalize on the rebate while it’s still available. Budgeting and forecasting should also be revised to account for jurisdiction phasing-out, or eliminating, the vacancy programs.

Property owners and managers have two opportunities to file for vacancy rebates;

  • Interim 2018 rebates can be filed after June 30th for the first half of the year plus any vacancy commencing within the last 89 days of 2017;
  • Final 2018 applications can be filed after December 31st and before Feb 28th of the following year.  Final applications can be filed without having filed an Interim.
The table below lists municipalities which have released intent to reduce or eliminate vacancy refunds effective 2018.  Taxpayers and property managers should carefully review to ensure they are only filing applications in municipalities which still offering a vacancy rebate program.

History of the Vacancy Refund – Impact Elimination on Landlords/Investors

The vacancy rebate program was created after the inception of Current Value Assessment (CVA) in 1998.  CVA effectively rolled all taxable assessment into the Realty Value of a property by eliminating Business Assessment and no longer identifying vacant or unused portions of buildings.  Property owners called for the Province to implement a program to provide tax relief for vacant buildings and units.  The Province responded with legislated 30-35% tax relief for commercial and industrial properties. 

Municipalities have long contended vacancy rebates were unfair and created tax loss for taxpayers. This sentiment only grew stronger following economic recovery post-2009.  In reality, municipalities can easily budget for vacancy rebates by establishing a benchmark then adjusting year to year based on reported vacancy rate forecasts.  They simply will not do so as this would mean increasing the commercial and industrial tax rates in the first place.  

Example, Mayor John Tory of City of Toronto has publicly stated the vacancy rebate program was intended to assist property owners during periods of high vacancy rate, and they are no longer necessary now that the economy is booming, and vacancies are at an all-time low.  Perhaps John Tory and other municipalities should have consulted the investment and property tax community before making such statements and eliminating the vacancy rebate program.

His viewpoint neglects to recognize rising property values do not offset fiscal revenue loss resulting from vacancies.  In fact, Landlords and Investors must absorb the tax loss which increases costs – effectively driving down property values.   Consider this, if all affected property owners successfully appealed their property assessments to account for this additional expense, the taxable assessment base would decrease, and the city would have to increase its tax rates the following year anyway. So why eliminate the program?  Administrative costs are the only meaningful explanation – but do the gains justify the loss to the landlord/investment community?

Municipalities such as Toronto have abruptly eliminated the program altogether effective the second half of 2018, while others are phasing them out by year end 2019. 

Vacancy Rebate Eligibility Criteria 

Please note the eligibility difference between the Commercial and Industrial Tax Classes detailed below:

COMMERCIAL TAX CLASS (i.e. Commercially used space including warehouses) 
  • Area must be vacant for 90 consecutive days. 
  • Vacant area can be all or a part of the building/unit. 
  • Areas under or in need of repairs or renovation are also eligible. 
  • May not be eligible if the vacant space was subject to a fixturing period. 

INDUSTRIAL TAX CLASS (i.e. Manufacturing /Processing) 

  • Any areas used for dead storage, mothballed files or equipment, or shut down production areas with equipment remaining in place. 
  • Eligible area must be vacant for 90 consecutive days. 
  • Areas under or in need of repairs or renovation are also eligible.
  • Eligible area does not have to be available for lease.
Consult your Colliers Realty Tax advisor to discuss for alternate methods of securing tax reductions.

Colliers Valuation and Advisory

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