How to fix provincial property-tax systems — and how not to

The ways provinces assess property values create a whole lot of complaints. A new paper offers a few suggestions for how to reform the process
By John Michael McGrath - Published on Nov 26, 2019
Le Sélect Bistro, in downtown Toronto, says that its property taxes have increased by more than 500 per cent since 2005. (



Le Sélect Bistro, in downtown Toronto, has a problem, and — as so many others late in this decade have done — it’s turned to the internet for assistance, launching a petition asking people to help protect Toronto’s small restaurants and cafés from a force that, it says, is relentlessly eating away at the city’s urban fabric and character.

The force in question? Property taxes. Le Sélect says that its have increased by more than 500 per cent since 2005.

The province’s municipal-property-assessment corporation, MPAC, assesses plots of land according to their “highest and best use,” not the structures that are currently standing on them. The value of the land that’s home to Le Sélect, a modest two-storey restaurant, is implicitly determined by a consideration of what could be built there — a multi-storey condo tower, for example.

This presents an obvious problem for small businesses operating in the city’s downtown core. But, according to Enid Slack, of the University of Toronto’s Institute on Municipal Finance and Governance, the system is more or less operating as it should when it comes to assessments.

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“We have a market-value assessment system. All MPAC is trying to do is assess the market value of that piece of land. If it went on the market for sale today, what would it get?” Slack says, adding, “I think we get caught up too much on ‘condo vs. restaurants,’ and so on, when it’s really just a question of what it would sell for.”

(This is hardly the only complaint municipalities have about the current assessment system. While small businesses struggle with sky-high assessments in downtown Toronto, has reported in the past that, when major employers win appeals and reduce their tax bills, smaller and rural towns across Ontario are often hit with major budget shortfalls.)

Along with co-authors Harry Kitchen and Tomas Hachard, Slack last week released a paper looking at potential ways for provincial governments to reform their property-tax system — and warning against the potential harms of some proposals.

Notwithstanding situations such as the one Le Sélect is facing, the paper argues against capping assessment increases or averaging them over several years: such approaches, it says, introduce to the tax system distortions and potential unfairness — the very issues market-value assessment was introduced to solve.

The province introduced the current system in 1997 when it forced all Ontario municipalities to adopt a single method of property assessment. Prior to 1997, similar buildings in different municipalities could be assessed at wildly different values, which led to different tax burdens depending on which side of a boundary they happened to be on. But, while the current system was designed to solve the problems of the pre-1997 status quo, the case of Le Sélect and others in Ontario’s faster-growing cities shows that the current system has its downsides, too.

If municipalities want to shelter some classes of property owner from the downsides of higher tax bills, Slack says, they shouldn’t do so through the assessment system.

“If you have other objectives, like keeping that restaurant in business, then isn’t there another way to do it?” Slack says. Other authors cited in the IMFG paper refer to assessment constraints as “phantom tax relief” because they appear to deliver property-tax relief but can just as easily foist the tax burden onto other property owners.

When Toronto, driven by assessment complaints similar to those of Le Sélect, was trying to preserve the cultural hub at 401 Richmond, its eventual solution was to keep the property’s market-value assessment but create a new tax class for properties that offer artists below-market rents.

“In this paper, we point out that’s one way of addressing this problem through policy instead of through the assessment base,” says Hachard. “It’s not necessarily the ideal way, but it’s better than working through the assessment base — the fairness of it.” The paper also notes that the market-assessment system forces municipalities to be clear about their choices, while capping or averaging assessment increases can serve to obscure them.

One of the paper’s other major recommendations involves forcing the province to take some fiscal pain. Slack argues that Ontario should get rid of its own property taxes: Ontario expected more than $6 billion in property-tax revenue for the 2019-20 fiscal year (while it’s nominally earmarked for education spending, in reality, it simply forms part of the province’s general revenues). The major items in the province’s budget, such as health care and education, Slack says, are essentially redistributive and are best funded through such things as the income and sales taxes that make up half of the government’s total revenues.

“We don’t think the province should be in the property-tax business,” Slack says. “The property tax is good for municipalities — it’s one of the only ones available to them, but it’s also a better local tax.”

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