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EDITORIAL: A small business tax break in name only (Oct. 2022)

October 19th, 2022 · No Comments

In November of last year Mayor John Tory announced a new small business tax that was meant to reduce the property tax burden that small businesses must pay to the city. In theory, this meant an across the board decrease of 15 per cent for properties that met two criteria: lot size and value. It turns out however, that the methodology chosen by the city is so flawed that it appears that as many as 20 per cent of properties will not get the break even though they meet the requirements.

Apparently, the scheme has nothing to do with whether the business occupying the property is big or small. The “small business” adjective is just spin; for example, the Bank of Nova Scotia at the corner of Bloor/Spadina, an organization whose revenue last year was $7.8 billion, got the tax break. Whereas By the Way Café, located at Bloor and Brunswick, who should qualify, does not. They have been at that corner for 45 years and are independently owned. 

Why should the bank get the break and not By the Way Cafe? The answer lies in the methodology chosen by the city. The city chose Municipal Property Assessment Corporation (MPAC) rolls to determine who gets the break. MPAC is the arm of the province that sets values for individual properties and reports on lot sizes. The problem is those rolls tend to notionally merge properties under common ownership. So, if a small business has a landlord that also owns the property next door, or down the block, or across the street, then all those properties will get denied the tax benefit. The reason is that the cumulative lot size of those addresses and their total value exceeds the thresholds that would otherwise apply to those individual properties.

In our section of Toronto, properties eligible for the tax break are those whose lot sizes are 7500 sq. feet or less AND whose MPAC valuation is less than $7 million. Tenant businesses pay the property owner’s tax in most commercial leases.

Side by side sushi shops may find themselves in the following predicament: shop “A” has a landlord who has no properties with a common MPAC roll number so the owner will get the approximately $7500 tax break and communicate this to the tenant; shop “B” has a property owner who owns something across the street with a common MPAC roll number and is denied the break. “A” now has a competitive advantage over “B.” This gets worse: The city is not actually reducing its revenue because the tax break is funded by the ineligible commercial taxpayers. So not only does sushi shop “B” not get the break, they are also burdened with a one per cent tax increase!

The province gave Ontario municipalities wide-ranging powers to select a fair means of applying the small business tax break. Toronto chose a crude method and failed to avail itself of the power to make exceptions; by all accounts, it’s not granting appeals. 

The tax reduction is not pocket change. The average assessed value of a property on Bloor Street between Bathurst and Madison is $3 million. The tax savings for the average property is $7500 per annum at that value. That’s make or break for some businesses. The total net loss of tax savings on this strip alone on Bloor Street is estimated to be $175,000 for 2022. Do the math for the rest of the city and one can see the numbers are enormous.

That is money that businesses will have to pay through property owners that they should not have to.

The city is just being lazy by using a crude yard stick to measure which properties are eligible and appears to be unmotivated to fix the inequities their approach has created. 


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