Ontario commercial real estate facing higher property taxes, even without reassessment
Key highlights
Although Ontario properties are still assessed based on values as of January 1, 2016, commercial real estate analysis is increasing – as MPAC assesses improvements based on building permits.
Owners of commercial or industrial properties that were damaged or under renovation in 2023 are eligible to apply for tax rebates before February 29, 2024.
Property tax assessments can be appealed every year. If your assessment isn’t currently under appeal, the deadline is March 31, 2024.
Taxpayers continue to pursue appeals seeking reductions due to losses in value that occurred following the January 1, 2016 valuation date. Appeals will be proceeding to the Divisional Court of Ontario this Spring.
Ontario could potentially be reassessed in 2025 based on values as of January 1, 2023. Property owners need to be prepared for the impact this will have on their tax liability, dictated by the category of property and the rise or fall in value since the previous assessment.
Despite reassessment delay, commercial property taxes keep rising
Ontario property owners who received assessment notices in November 2023 may not have given them much thought in the absence of a scheduled reassessment. However, receiving a notice during an assessment cycle is a signal that your assessment has changed. A changed assessment could be the result of a successful appeal, a change in ownership – or an increase in your assessed value.
Although property tax in Ontario continues to be based on assessments as of January 1, 2016, the assessed values of many properties have in fact increased. Altus Group compared the 2024 and 2023 assessed values of more than 24,000 business properties – including multi-family, commercial and industrial –and found that assessments for 57% of those properties increased for this year. Of those, 70% - more than 9,800 properties – had assessment increases of 5% or more. In some cases, higher values are a result of new buildings or capital improvements. In others, it may be a result of MPAC revising building areas or occupancy types based on owners’ information submissions, or adding value based on building permits. We recommend that all assessments be reviewed to identify and verify the appropriateness of any changes
Finding ways to reduce your tax liability in 2024
Ontario taxpayers continue to await notice of when the province will reassess, and while property taxes may not align with today’s market values, tax rates are continuing to increase. Opportunities to reduce property tax include municipal tax rebate applications for properties under renovation, as well as reconsideration requests or appeals. Now is the time to make the most of opportunities to reduce taxes, as well as to prepare for changes that may be coming. Properties in the commercial or industrial tax class which have experienced certain eligible change events during the previous taxation year are eligible for a rebate of a portion of last year’s taxes. Some common eligible changes include:
Full or partial demolition, damage, or unusable due to renovation for at least 90 consecutive days
A change in zoning or use those results in the property being eligible for a tax class at a lower rate (e.g., commercial to multi-residential zoning, or manufacturing to warehousing use)
Land that ceases to be used for commercial purposes
Eligible properties may qualify for a rebate of up to 30% of the taxes levied on that portion of the property for the unusable period. The deadline to apply for 2023 tax rebates is February 29, 2024. Each municipality has its own stipulations regarding application forms and supporting documents. You may be required to supply such items as dated photos showing the condition of the property, letters from contractors, demolition or occupancy permits. Ideally you will want to compare your information with the assessor’s valuation record to avoid discrepancies and undue delays.
Altus Group can help manage the entire process, from identifying rebate opportunities and coordinating the application to document submission and refund verification, to ensure our clients receive the maximum entitled rebate.
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The deadline to appeal 2024 property assessments is March 31, 2024
Many properties, particularly office and retail in downtown areas, have experienced increasing vacancies and operating costs due to ongoing work from home and hybrid work arrangements. With changes in occupancy, the assessed value of your property may no longer reflect its current condition, tenant mix or tax classification.
Although assessments are still based on January 1, 2016, taxpayers have the right to file an appeal each year if the circumstances of a property have changed. (If you have an open appeal for any prior year in the cycle, a new complaint will be created automatically with no need to file). The deadline to file an appeal or reconsideration request is March 31, 2024.
Some reasons you may want to consider appealing your property assessment in 2024 are:
To bring the property assessment to the lowest possible starting point should a 2025 reassessment occur with phased-in increases
If the value of your property declined since your last review of the assessment
If the assessed value of your property is not equitable with similar properties
If the tenant mix changed in a way that impacts the assessment
If the use of all or part your property changed, (e.g. from manufacturing to warehousing), which may result in lower tax rates within your municipality
If the property was recently acquired
The last reassessment in 2017 updated values from January 1, 2012 to a January 1, 2016 effective date. Many property owners filed appeals in 2017 and agreed to revised assessments before the pandemic hit.
Despite Ontario’s assessment legislation providing an annual right of appeal, the assessment authorities, municipalities and appeal tribunal have blocked attempts to further reduce assessments based on evidence from the recent downturn. Altus Group has coordinated efforts of major shopping centres and others to challenge this position, and our property tax consultants have been retained as experts in these trailblazing appeal initiatives. Some of these cases will now be proceeding to Divisional Court. The Court decision won’t be known after this year’s appeal deadline has passed. If you don’t have an appeal open when the decision is rendered, you will be unable to take advantage of the outcome.
If a reassessment is on the horizon, what are the implications for properties?
The most recent update from Ontario’s finance minister stated that the government was reviewing the assessment system and would not announce a date until that review is complete. We understand that the minister’s office is currently reviewing the impact of a potentially updating assessed values from January 1, 2016 to January 1, 2023 for the 2025 taxation year. If this reassessment proceeds, we expect an announcement to come this Spring.
Generally, reassessments are meant to be revenue neutral. The tax rate is determined based on municipal revenue requirements, divided by the assessment base. When the overall assessed value of properties in a class increases, the tax rate is dropped to raise the equivalent amount of tax. If a property’s value increases at the average rate, the owner is likely to see no tax change. Properties with values increasing by more than the average tend to see tax increases, while properties with below average increases tend to see taxes drop.
Preliminary analysis of sales for properties in the commercial class indicates some substantial shifts in value would result from an update from January 1, 2016 to January 1, 2023 values. For example, a review of sales in Mississauga suggested that a reassessment to 2023 values could result in the following assessment shifts:
Warehouses and distribution centres could see a rise in value of 200-400%
Values of office buildings could increase 50-70%
Assessments of most retail properties could rise 40-50%
Enclosed malls, particularly in smaller markets, could see values declining 50% or more
Based on these observations, we would expect the reassessment would have a limited impact on stable office and retail properties which increase in value at the same rate as the commercial class overall. Warehouse and distribution centres would, however see significant increases, and struggling office and retail properties should see decreases.
Industrial, multi-family and residential properties are each in separate tax classes. These market sectors are more homogeneous than the commercial sector and we do not expect dramatic redistribution of values, meaning any tax shifts are likely to be less dramatic. Generally, we would expect declining taxes for older properties or less desirable locations and increases for well-located properties and new construction.
Based on current legislation, assessments that increase due to a reassessment will be phased in over the four-year assessment cycle, with a quarter of the increase phased in each year. Cities still have the option of introducing tax capping and claw back, as well as using optional tax classes such as shopping centre and office to offset the impact of declining values.
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Author
Sandi Prendergast
Senior Director
Author
Sandi Prendergast
Senior Director
