New Small Business tax class see property taxes drop by 15%

By Carly Penrose

The benches outside Emily Rose Café at Palmerston Square and Follis Avenue were filled with patrons. Mothers and daughters, friends coming together over food. Although it was late November and the café had yet to introduce indoor seating, patrons were undeterred by the cold late-fall air as they waited patiently for their coffees and baked goods.

The toasty smell of coffee greeted customers at Emily Rose at almost the same time owner Alessia Peluso did. Interrupted by a beeping oven, she removed a tray of blueberry white chocolate scones between hellos. 

The success of Emily Rose comes after delays in getting city permissions that rescheduled the café’s opening from summer 2019 to January 2021, amid the COVID-19 pandemic.

“Support local” has been a COVID rallying cry, but business groups say owners like Peluso faced bureaucratic and financial challenges before the pandemic. And they are saying the city’s new 15-per-cent property tax reduction goes some way toward addressing barriers for small businesses and repairing a strained relationship with the city—but it’s only a start.

“This is good news. This is progress, and I hope it’s the beginning of redress, where we’re not going to overtax businesses,” said Brian Burchell, chair of the Bloor Annex BIA (and publisher of this newspaper), which represents 250 small businesses in University-Rosedale. 

John Kiru, executive director of the Toronto Association of Business Improvement Areas (TABIA) says small businesses’ challenges date back to 1998, when changes to Toronto tax laws disproportionately affected the commercial class. After 23 years advocating for small business tax reform, in November 2020, the province opened the door for municipalities to offer property tax relief to local businesses. 

Kiru said TABIA worked alongside the city, quickly creating a policy to benefit small businesses, though it wasn’t easy. “Trying to define a small business is like herding cats, just when you think you’ve got everybody in there, you’ll find one or two outliers,” he said.

In the end, geography and property size were used. The city predicts approximately 25,000 small businesses in Toronto will receive the benefit in 2022. 

In the Bloor Annex area, the most recent property value assessment says the average commercial property is valued at $2.4 million, with property taxes of roughly $49,000. A 15 per cent reduction would mean $7,300 in savings per year. “That’s not a drop in the bucket,” said Burchell.

The tricky part, Burchell says, is whether any of the savings will be passed on to tenants. While city staff say most commercial leases display property tax costs in tenants’ rent, others don’t. “The key here is to ensure the landlords communicate the savings,” said Burchell, who says some members have told him they’ve never seen a tax bill for the property they rent.

The city promises to release a list of properties eligible for relief so owners can address inconsistencies with their landlord. 

But Burchell says the relationship between tenants and landlords is complex and this isn’t necessarily a solution. “There’s all kinds of reasons why they may not want to have a confrontational conversation with the property owner,” he said. 

The owners of commercial properties will automatically qualify for the new tax break so neither applications nor overwhelming amounts of paperwork are required, which Burchell said was true for previous municipal programs.

Kiru acknowledges the policy is imperfect, but it and a concurrent bylaw in Ottawa are the first of their kind in Canada. 

“Any new policy is going to have some flaws in it,” Kiru said, adding that he didn’t want to sacrifice 25,000 small businesses by drawing out the process in Toronto.

Kiru says there are ways to improve upon the tax measure. 

He says that an appeals process should be put in place so businesses that do not currently qualify for relief, like stores in strip malls, can apply to be considered. 

This tax cut is being funded within the commercial class, meaning larger businesses will see tax increases to pay for it. Kiru recommended increasing residential taxes to provide support, though acknowledged it would be a politically unpopular move.

“The average home would pay 26 dollars more per year to fund the benefit being given to small businesses,” said Kiru. “I would suggest for many of those people that live next to iconic main streets like the Danforth, Little Italy…$26 is not too much to pay.” 

Business owners, meanwhile, are less concerned with the ins and outs of city policy and more focused on their daily operations.

Rebecca Daniels, co-owner of First Kiss Vintage and Tattoo on Bloor Street, said she’s had challenges receiving municipal relief in the past. “When COVID hit, the only commercial rent relief was the responsibility of the landlord to apply for it. Ours did not. From what I understand most other commercial landlords also didn’t.” 

A business owner and mother of one, Daniels says she doesn’t have time to closely monitor city initiatives. “I haven’t done a ton of research to find out what’s available. If there are resources, they have not been made clear to me at all.” 

Daniels’ complaints about the challenges involved with city bureaucracy aren’t unique.

Peluso, for instance, said her problems began before the COVID-19 pandemic when she found the location for Emily Rose Café.  

She had to apply for a “minor variance” to rezone the property for interior alterations and an outdoor patio. The application, approved 14 months after she found the property, was long and costly, she said, adding she had to hire a lawyer and architect to navigate municipal policies. “You get the feeling no one is on your side,” said Peluso.    

Burchell, for his part, said an announcement the city made prior to the most recent COVID-19 outbreak, calling itself a “model” for bringing all municipal employees back to physical workspaces in January was eye-opening. “It struck me the city might be a bit [out of touch] on the subject for the rest of us who have been coming in to work every day, for 18 months,” he said.

Burchell says business owners’ frustrations with the city are real. “People have their hearts and souls sunk into their businesses… They are deeply financially, emotionally intertwined with them.” 

This bylaw reducing costs for small businesses may begin to repair the relationship.