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.
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.
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?
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.