politics Why Toronto Should Repeal the Tax Break for Vacant Stores

The policy that gives an incentive to empty storefronts has outlived its usefulness.

Toronto needs money. That isn’t news, but it is news when ideas come up that can either raise or save the City some cash that it needs for its $33 billion of approved, but still unfunded, projects. Our roads need fixing, our transit system needs expanding, and our affordable housing units need building. Where is all the money going to come from?

Turning the Gardiner and DVP into toll roads is a bold move that will generate some revenue, but there is something else Mayor Tory is intent on doing that hasn’t garnered as much attention. The mayor wants to repeal the provincially mandated commercial property vacancy tax rebate, a move which could save Toronto up to $22 million per year. It’s hardly a king’s ransom in the context of a $10.4 billion budget, but every bit counts; the savings would be equivalent to a 0.9 per cent residential property tax increase.

Unless you’re a landlord with commercial real estate, there’s a good chance you haven’t heard of this tax rebate before. Basically, if you own a commercial property and it’s vacant for a full year, you can apply for a tax rebate that refunds 25 per cent of your property taxes, and, of course, a number of conditions have to be met to qualify for the refund. For starters, the building has to be in a state of good repair, and you have to be willing and able to rent it out to someone.

The rebate was introduced in 1998 as a way to subsidize property owners in tough times. But now in 2016, Toronto is a booming city, and the rebate has been deemed by many as unnecessary. In Mayor Tory’s revenue pitch to the Toronto Board of Trade on November 24, he didn’t forget to mention it. “I will be calling for an end to our city’s vacant commercial and industrial property tax rebate, which subsidizes property owners for empty office space or boarded up stores across our city. When it was first created this idea made some sense—it was a promise to help our businesses through recessionary times,” he said.

He also added that from 2001 to 2013, the rebate cost the City $367 million. Half of those payments went to property owners in the downtown core where property values are skyrocketing.

The mayor isn’t the only one at City Hall who supports this move. Councillor Mike Layton (Ward 19, Trinity-Spadina) has been vocal about the issue since 2011, although his idea of what to do with it was a little different. He wanted to use the rebates to support local small business and not-for-profits.

“It’s actually something they do in cities around the world, most notably in Melbourne, Australia, where they use this tax rebate as a way of enticing landlord to keep the commercial property active as a commercial entity, because the last thing you want is empty storefront,” said Layton.

Ask Councillor Layton about how he feels about it today, and he has changed his tune a little bit. He sees the logic in the mayor’s proposal to repeal the rebate law. “I would like to see it used as an enticement to help small businesses and not-for-profits deliver their services, but I see the value in us reclaiming it as part of our tax revenue,” he says.

But there is a one last hurdle to overcome. The rebate law is mandated by the province, but the good news is that it should be possible for the City to charge it in 2017.

Scott Blodgett, senior media relations advisor from the Ontario Ministry of Finance, writes in an email, “In response to municipal requests, the 2016 Ontario Economic Outlook and Fiscal Review announced the Province is moving forward with changes that enable municipalities to better tailor the Vacant Unit Rebate and Vacant/Excess Land Subclasses programs to reflect community needs and circumstances for 2017, while considering the interests of local businesses.”

In Toronto’s 2017 budget proposal, launched yesterday, City staff anticipate that the vacant property tax rebate could be repealed within six months or so. That would net the City $11 million in 2017.

So, it’s completely within the mayor’s ability to make good on his proposal to repeal the commercial property vacancy tax rebate; $22 million a year might not be a lot when we’re talking about needing billions to move forward with approved projects, but it’s just one more thing we can do to save money.