The City of Toronto is exploring the idea of creating a new property-tax class that could provide relief for small businesses facing soaring assessments and tax bills. This follows moves to create a similar plan to help cultural hubs in the city.

Rapid redevelopment coupled with an assessment model that values properties with smaller buildings the same as ones with larger developments are causing challenges for small business owners.

"I'm being asked to pay on the building's hypothetical value, which has not been realized," says Frédéric Geisweiller, owner of Le Sélect Bistro in downtown Toronto.

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Read also: Rising commercial property taxes put small-business owners in a bind

Mr. Geisweiller says nearby construction in the neighbourhood has led to both a drop in customers and a jump in his building's assessed value. He's facing a 55 per cent increase in his non-residential property tax bill this year over last year, to $93,667 from $60,131. By 2020, if the tax rate stays the same, he expects to pay $203,710, which is 239 per cent more than last year's bill.

"It's unsustainable," Mr. Geisweiller says, adding this is the toughest issue he's faced in his 40 years of owning the restaurant.

Owners and tenants of arts and cultural facilities have voiced similar concerns, leading Ward 20 city councillor Joe Cressy to bring forward a motion to city council to formally begin the process of developing a culture and creative property tax subclass. He hopes to see the new policy approved in time for the 2018 tax season.

With support from the province, which must approve the city's request for a new tax class, Mr. Cressy says the city is in the final stages of developing the details on what would constitute a creative hub. If the current working definition is accepted, at least 17 buildings in Toronto are expected to qualify.

Introducing a new tax class could have wider reach than just those buildings.

"It is the first step in us looking to develop a suite of changes to the tax regime to also support small and independent businesses," Mr. Cressy says.

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"The creative-hubs tax class has opened the door to a whole new conversation about how we create a more nuanced tax policy, not one which is a one-size-fits-all approach."

Councillor Kristyn Wong-Tam, who represents Ward 27, Toronto Centre-Rosedale, is leading that conversation. Ms. Wong-Tam says she is working with city staff and the province on a strategy that could lead to a new property tax category for small businesses.

"What I have at the moment is everyone willing to explore options," she says.

A spokesperson for Jeff Leal, the Ontario cabinet minister responsible for small business, confirmed staff from the minister's office have met with Ms. Wong-Tam and conversations are ongoing.

Additionally, Jessica Martin, a spokesperson for Ontario Finance Minister Charles Sousa, said in an e-mail that ministry staff "continue to have discussions with municipal staff as to how the City can effectively use the range of property tax tools to create a competitive tax environment for small businesses in the city."

The province says the city has various tax policy tools available, including graduated tax rates, rebate programs, the option to implement optional property classes or work with the province to create additional property classes, and reinstating a property tax capping program.

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Ms. Wong-Tam says creating a new property class would not lead to less revenue for the city, as the amount would be covered by taxes from others within the same class.

"Everyone would just be classified with a lot more nuance," she says. "Right now, a commercial building, if it's a skyscraper or bank tower or small business, they're all stuck with the same assessment methodology."

Ms. Wong-Tam's work follows challenges within her ward on Yonge Street, where property tax hikes prompted some small businesses to consider closing. The Municipal Property Assessment Corporation conducted a review of assessments, and, after recognizing the area's heritage designation and more recent property sales data, assessed values were reduced.

Ms. Wong-Tam says property tax hikes are not just a Yonge Street dilemma.

"Many of those small businesses are very iconic Toronto businesses, and if we were to lose them, one by one, we're going to literally lose the soul and character of some of these neighbourhoods, so it's pretty important that we get this right," she says.

Councillor Michael Thompson, who chairs the city's economic development committee, says addressing the complex and difficult issue will require collaboration.

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"We want to figure out ways we can assure businesses there's a sense of fairness. I think that's what people are looking for," he says.

John Kiru, the executive director of the Toronto Association of Business Improvement Areas, which represents more than 40,000 local businesses, says Ms. Wong-Tam's work on introducing a new tax class is a great first step. "It's a foundation that we can build on," he says.

But the definition of a small business could be more difficult to determine than a cultural hub.

"The biggest challenge is going to be: How do you define small business? Who is going to get it and who is not going to get it?" Mr. Kiru asks.

Mr. Kiru hopes the issue is resolved soon.

"The longer it takes to play out, the more businesses that are going to go out of business," he says.

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Mr. Geisweiller of Le Sélect Bistro worries he could be next.

"Unless we get a break on the tax, we have no other option but to sell to a developer," he says.