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NEWS: Small business tax break scheme not available to everyone (Nov. 2022)

November 22nd, 2022 · No Comments

No mechanism to force landlords to transmit the savings

Just some of the businesses who have been deemed ineligible for the small business property tax subclass.

By Carly Penrose

Since council passed the small business tax break one year ago, 29,020 commercial properties across Toronto (just over 80 properties in the Bloor Annex area) have been deemed eligible for this tax credit which reduces property taxes for commercial properties housing small businesses by up to 15 per cent. John Tory was re-elected mayor of Toronto using the policy as one of his talking points, even promising to increase the rebate to 20 per cent. 

While the break in taxes for small businesses is a welcome change for those who received it, for the 36 per cent of commercial properties that didn’t qualify, there are questions about how the legislation defines a “small business” and how to ensure small businesses—and not their landlords—are receiving the savings. 

“The pandemic delivered a knockout blow to many of our small businesses,” NDP MPP Jessica Bell said in an email. “The city’s small business tax credit program is good in principle, but flawed in practice,” she wrote. 

To qualify for the tax relief, a property must be on a main street, must be 7,500 square feet or less, and must have an assessed value of $7 million or less according to the Municipal Property Assessment Corporation (MPAC).

The way the legislation was crafted means that the tax reduction applies to certain commercial properties, not the small businesses themselves. The benefit is delivered via property tax reductions, with no action required on the part of the property owner, if they qualify.

Casey Brendon, director of revenue services at The City of Toronto, says the emphasis with this legislation was speed. “Because of the pandemic, businesses were suffering so there was some urgency to do it.”

In the push for getting relief to businesses quickly, “we knew where we weren’t going to get everybody. But we felt the criteria we had was easily understood, easy to administrate from the city’s perspective, so it could happen sooner than later,” Brendon says. 

But, Brian Burchell, general manager of the Bloor Annex Business Improvement Area (BABIA) (and publisher of the Gleaner), is an outspoken critic of how the legislation has been implemented.

He says the city’s use of MPAC property value assessments is a “blunt instrument,” that “unfairly excludes” small businesses in the Annex which should be eligible for the benefit. 

Burchell says the eligibility criteria unfairly excluded 23 properties in the Bloor Annex BIA and prevented business owners from receiving tax savings of between $1,800 and $20,000.

In an editorial in the Gleaner, Burchell wrote that using the MPAC assessment as part of the criteria means businesses like By The Way Cafe, on Bloor Street, do not qualify. The restaurant’s landlord owns multiple properties that were assessed as one parcel, putting the total MPAC value above the $7 million threshold to qualify as a “small business.” Meanwhile, the Scotiabank at Bloor and Spadina received the tax benefit. 

“The city should change the program to ensure the tax break reaches all eligible little businesses—not a national bank or international fast food outlet,” said Bell.

Brendon says that 34 properties took the opportunity to appeal their exclusion from the benefit before the deadline of July 4, and of those, only four were then added to the list of 29,020 eligible properties. He added that none of the other 30 who were rejected in the first round pursued their appeals any further. 

“Those numbers are pretty compelling,” said Brendon. “People were generally satisfied. Nobody felt they needed to go and complain that they weren’t included.” Brendon attributes the small number of appeals to the factual, clear, and objective definition used in the policy. 

But, Burchell notes that many properties were not told if they didn’t qualify for the rebate, so wouldn’t know to appeal. He also says the criteria are too limited, which makes the appeal process futile. 

“The city doesn’t care that these specific properties should qualify because they’ve chosen a yardstick that says they don’t qualify,” said Burchell. 

Once a property qualifies for the benefit, there’s the next challenge—ensuring the savings actually go to the small business. 

Most small business owners rent and don’t own their commercial property. “What we’ve heard is that some landlords have chosen not to pass the savings on down to their tenants,” said John Kiru, president of the Toronto Association of BIAs. “The program was never meant to be landlord support. This program was always meant to be a small business support program.”

In Toronto, an estimated 85 per cent of commercial tenants have a net lease which itemizes taxes, maintenance, and insurance costs. The others are on a gross lease and agree to a set dollar amount to be paid monthly without indication of the landlord’s costs. Tenants on a gross lease may never see those savings and may not know they qualified for the rebate.

Brendon says the city is trying to understand its authority to intervene in the contractual relationship to compel the landlords to communicate the benefit to their tenants. In a memo from late May, they recommended “education initiatives” for landlords and tenants to inform both parties about the tax.

Brendon maintains that despite imperfections, overall, the program has been successful. “People have received tax relief. They’re happy with the tax relief they received and they didn’t have to do anything to receive that tax relief,” said Brendon.

“I wish I could have made everybody qualify,” Kiru said. But, due to time sensitivity and budgetary constraints, “there are people that were in and there are people that were out.” 

“The idea was, let’s give this this year. Let’s see how it works, and then we can revisit it,” said Kiru.

Burchell, though, doesn’t feel that the program was so successful. “If it was 2 per cent on the fringe, I get it,” Burchell said. “But this is just needlessly flawed, and it could be fixed.”

There are many ideas for how the legislation might be fixed, and when passed in 2021, council committed to reassessing the tax benefit and adjust the program after one year. 

Kiru says he hopes to expand the definition for the program in future years. “I think that geography should be removed,” said Kiru. “Any business in Toronto should be able to qualify, not just those on avenues or in the downtown core.”

He also says increasing the maximum property size could provide benefits to more businesses. 

Brendon says it might be possible to create a special class of eligibility for “industrial malls” that would benefit businesses within strip malls or under the same property roll. 

Bell says it is imperative that the city change the policy to mandate landlords to pass down the savings and change the policy to support more businesses.

“A thriving small business sector is good for jobs, good for our local economy, and good for making Toronto one of the most liveable and interesting cities in the world,” she wrote.


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