Browsing the blog archives for September, 2010.

Tax Holiday for Developers in the South March Highlands?

South March Highlands

Fair Value?

City Hall will be voting on October 6, 2010 on whether to expropriate a part of the South March Highlands known to Kanata residents as the Beaver Pond Forest.  Council recently passed a resolution to determine what this land is worth but for some reason didn’t think to consult their own tax records.

In Ontario the Municipal Property Tax Assessment Corporation (MPAC) is a Crown corporation that is mandated to maintain close-to-market property assessments so that assessed value is never far off of market.  This is used to determine municipal taxes for all property tax classes (residential, commercial, farmland, woodland) both within and outside of the urban boundary.

According to city records, the assessed value of the Urbandale property for tax purposes is only $54 K/acre!!  This is much lower than the $200 K/acre that City staff think is fair market value and significantly lower than the $800 K an acre that Urbandale says the land is worth.    

If Urbandale’s land is worth so much why are they not paying tax on it?

If the City valuation ends up being more than the assessed value for tax purposes, the long-suffering taxpayers of Ottawa need to ensure that Urbandale’s property assessment is increased accordingly!! 

Urbandale didn’t pay a cent on the 40% of land that cannot be developed when they purchased the property from Genstar (who bought it from Campeau).  Some may argue that the value of the land being expropriated should be computed on only the 60% that they can develop (since the rest is free).  Even so, this still only results in an estimate of $6 M / (110 x 0.6) = $91 K/acre.

Urbandale isn’t the only developer getting a tax break in the South March Highlands (as is described in a previous blog article).  But if  the City valuation ends up being more than the assessed value for tax purposes, the long-suffering taxpayers of Ottawa need to ensure that Urbandale’s property assessment is increased accordingly.

Farming Loophole

Isn’t it strange that farmland owned by developers within the urban boundary has a lower farm tax rate than the farmland owned by real farmers in the rural area?  (previous blog article). 

Note that all the greenbelt farms are designated as within the rural area, so we really are talking about the so-called farms owned by developers.

The preferential tax rate for farmland is supposed to be available only to qualifying farmers who make at least $7,000 in revenue from farming. 

But the most common way to get around the “working farm” requirement is to simply lease the land for $1 to a real farmer who cuts hay on the land. 

That is a huge loophole that is easily discouraged if the tax rate is raised or if the property is reclassed. 

In the rural area the loophole is of little concern and may be beneficial to farmers who otherwise need to compensate for the small farm sizes that arise from severing lands over the years.

Property Tax Rules

In 2007, the Rotman School of Business prepared a 45-page study on the propety tax system in Ontario.  Unless you’re interested in the fascinating history of property taxes in Ontario, I suggest you skim down to page 15.

According to the Ontario Assessment Act, every property is to be assessed at their current value, based on a 3-year average.  This clearly does not occur in Ottawa when a developer gets land rezoned within the urban boundary causing their land value to soar.   Otherwise how can the assessed values be so out-of-date for developers in the SMH who benefited from soaring land values when the urban boundary officially moved in 2006?

Municipalities are free to set their own tax rates and are allowed to levy different rates for each of residential, multi-residential, commercial, industrial, farms, and managed forests.  In addition to these standard fixed property classes, municipalities are permitted to use additional classes with different rates (e.g. for professional sports facilities, shopping centers, etc). 

The Assessment Act requires the tax rate on farms and managed forests to be no more than 25% of the residential tax rate.  Although this creates a ceiling on how much the farm rate can be increased without increasing residential rates, farmland rates are allowed to be lower than the 25% ratio.  So there is no reason why rural farmland cannot have a lower rate than urban farmland – even if residential rates are held the same in the urban and rural areas of the City.

The Act also specifies that farmland is to be assessed at its value in current use and provides that tax rates on farmland pending development can be phased in over stages.  This is accomplished by using more designations (up to 36 separate property classes are available) and progressively bumping the property into a new designation when a triggering event occurs (e.g. a building permit being issued, draft approval of subdivision, etc.).

So why doesn’t Ottawa have a phased system of progressive taxes for lands pending development?

Fixing The Problem

There is certainly nothing in the Act that allows the city to grant a tax holiday by indemnifying developers against a tax increase as they did for Richardson Ridge and Uniform. 

The principle of treating all landowners with in a class the same is violated by such a deal.  One would think that the city would be open to a class action suit by other members of the same property class – were it not for the likelihood that this type of tax abuse occurs so much that other developers have benefited from sweet deals of their own.

In summary, the City can and should be doing more to collect the fair share of tax from developers. 

  • Residential, farmland, and forest rates in rural areas should be less than within the urban boundary. 
  • Farmland and managed forest property classes should only be used for land not zoned or approved for development. 
  • Additional property classes can and should be defined so that land can be “bumped up” into higher tax rates as the development cycle progresses (draft plan, approved plan, tree clearing or any site preparation, building permit).

Is it possible that the reason why this problem hasn’t been fixed is that ½ of the current city council had over ½ of their campaign contributions paid for by developers? 

Alex Cullen did an in-depth analysis of developer funding of city council in the last election.  In 2006, 11 of 21 members of City Council had over half of their election expenses paid for by developers. 

Would the current City Council have found it easier to balance the city budget if they didn’t have a conflict of interest keeping them from getting developers to pay their fair share of taxes?

In the current election, Clive Doucett is the only mayoral candidate that refuses to accept campaign contributions from developers.  Larry O’Brien is responsible for the problem and Jim Watson doesn’t appear to think there is a problem.  Be careful who you vote for.

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Taxpayers Pay For Free Rides On Terry Fox Drive

South March Highlands

Did you know that major developers in the South March Highlands are paying proportially less in property tax than you are on your residential city lot?

Ever wonder how developers can afford to hold large blocks of land for years in order to speculate on possible land development opportunities?

All this is done throught the magic of preferential rates for agricultural property taxes!  Click on each of the tabs below to read the details.

Property Tax Rates

You can see this for yourself by comparing the tax classes for property on the City’s property tax website.  If you look up the Urban tax rate for Farmland, you’ll see that the rate is 0.230158% which for some inexplicable reason is actually lower than the Rural tax rate for Farmland (which is 0.244291%).

You will also see a low-cost entry for forest land that is only taxed at 0.230158%.

Most residential property owners are paying based on a rate that is over 4x more (1.090539%).

The purpose of a lower tax rate for farmers is to encourage vital agricultural production.  A lower property tax rate recognizes that many acres of forest and farmland are integral parts of working farms that cannot be taxed at the same rate as a suburban lot without bankrupting farmers.  Legitimate farmers need this tax break – however land speculators and developers clearly don’t!

However, to assist developers who have to re-zone lands from rural to urban in order to develop them, the City of Ottawa has for years gratiously allowed agricultural property taxes to be paid on lands zoned for urban development. 

This allows a developer to buy-out a legitimate farm, survey it for a subdivision, apply for a draft plan of subdivision, clear-cut and change the grading of the land, build and sell houses, etc. without ever changing the tax rate until you or I buy a house from them.

2 Examples in the SMH

At least two classic examples of this can be found in the SouthMarch Highlands.  According to the Consent to Enter Agreements executed by the City between Richardson Ridge (owned in part I believe by Regional Group) and Uniform Developments (according to their web site partially owned by John MacDougall who also appears to have an interest in Richarson Ridge since he signed both these agreements) which both state:

The City of Ottawa agrees that should use of the Land … result in a change to the current assessment of the Land, which is currently based on a rural farmland use, the City of Ottawa agrees to make appropriate representation to assist Richardson Ridge/Uniform in its appeal to any change in the assessment to the land which is claimed to be a result of [constructing Terry Fox Drive].

Should Richardson Ridge/Uniform fail in such appeal, the City of Ottawa agrees to pay Richardson Ridge any increase in taxes that result from the foregoing.”

What a sweet deal for these developers!  Even though these lands were rezoned in 2004 and upheld in a 2006 OMB ruling as urban, these developers have been paying preferential property taxes as if they were the same struggling farmer that they bought the land from.

Not only that, the City of Ottawa will ensure that they never pay a dime more – no matter how much these lands are developed in future.  Heck we’ll even refund them if anything slips through the cracks in the deal.

There is no Consent to Enter agreement for Urbandale since the conditions of subdevelopment approval require them to convey land for TFD to the City at no cost (since all these developers benefit from and in fact require this road to make their subdivisions viable).  So we can’t easily determine whether or not Urbandale is benefiting from preferred taxes for farmland and forests, but it would seem unlikely that they would not also want to take advantage of the City’s largess with our tax base if they could too.

What You Can Do About It

Most of us would expect that the tax break for farmland is available for only lands that are zoned rural (RR, RU), regardless of whether they are within the urban boundary or not. 

Part 13 of the current Ottawa Zoning By-Law only provides for rural zoning in the Greenbelt and Rural Area.  What city allows for farms within its Urban Boundary?   This makes sense since what city-dweller wants to live next to cows and pigs?  The farms that are already within the Greenbelt are already designated as being outside of the Urban Boundary, so the current By-Law already protects legitimate farmers.

The loophole can be plugged by removing  farm and forest preferential tax rates from the Urban property tax ratings since they are not required (by legitimate farmers) within the Urban Boundary.  If there are any freak cases of where an individual farmer, who is not a commerical organization, actually has a producing farm within the Urban Boundary, then the By-Law can be amended to allow for a rural zoning of that land.  However, if that land is ever re-zoned as urban (a precondition for development approval), then the full tax rate should apply.

The time has come to plug the loophole that allows developers to avoid paying their fair share of property taxes! Perhaps we wouldn’t be hearing excuses from Larry O’Brien for not meeting  his previous campaign promise of not raising taxes if everyone were paying their fair share.

Why don’t you write an email to Larry O’Brien and ask him if he wouldn’t have found it easier to balance the City’s Budget during the past 4 years if everyone were paying their fair share of taxes?  And ask him why we should believe him that he can manage our tax base if re-elected when he has let millions of tax dollars slip through this loophole in the past?

You can also email to Jim Watson and Clive Doucet who are running for mayor and ask them if they will plug this loop hole if elected.    While you’re at it, you might want to ask Jim Watson if he is still accepting campaign donations from Urbandale.  (Clive Doucet is the only mayoralty candidate who doesn’t accept donations from developers.)

It’s time to send the message that the average taxpayer will no longer tolerate free rides for developers in the South March Highlands or anywhere else in Ottawa!

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