Local landlords get a tax break for vacant units
For the owners of some commercial and industrial buildings in the city, it pays not to have a tenant. This year, the City of Peterborough has budgeted $300,000 to pay for property tax rebates to the owners of qualifying buildings, simply because they have useable space available with no tenant. Last year, 8 per cent the city’s commercial and industrial buildings received this tax rebate. Since 2011, city taxpayers have paid a total of $1.85 million in rebates to the owners of commercial and industrial buildings with vacancies.
The largesse comes from the Ontario Vacancy Rebate Program. It was first introduced in 1998 as compensation to building owners whose property tax costs had increased as a result of the elimination of the business occupancy tax that was previously paid by tenants. It was a trade engineered by the Mike Harris government: building owners will pay a bit more, so we’ll have local taxpayers give them a bit of a tax break on their property and education taxes. Eligible commercial and industrial properties that are vacant or partially vacant can receive a 30 to 35 per cent tax rebate attributable to their vacant space.
For many years, big cities have been clamoring for the elimination of this mandatory provincial program. This week, on the basis of a recent provincial decision to permit municipalities to adjust the tax break to suit their local needs, city council agreed to have staff consult with the business community and recommend a course of action. For some cities such as Ottawa, the rebates have become very expensive, amounting to more than $11 million last year. Communities such as the Town of Port Hope and the City of Kawartha Lakes have decided to eliminate or phase out the tax break. Other communities have decided to keep it in place. Peterborough has until the end of June to decide.
This is a very challenging issue that affects the entire city. Commercial and industrial property owners support the rebate because they already pay higher rates of property tax than residential properties and it is viewed as a small compensation for that disparity. Vacancies can sometimes arise quickly or catastrophically, through no fault of the owner, and the rebate helps with instability in business revenues. Building vacancies can also result from the city’s own actions such as road or bridge closures and the rebate can be a partial compensation for the loss of business. Most importantly, the city’s rebate is seen as a show of support for the local economy and a willingness to help local businesses when economic times are tough.
Nonetheless, the case for elimination of the tax rebate is compelling. The primary objection is that property taxpayers are subsidizing and rewarding building owners for maintaining vacant space rather than renting it – creating an incentive to vacancy and a disincentive to economic growth. In some communities, owners have been receiving the rebate for more than a decade. In addition, the rebate is a benefit that is not provided to residential property owners or landlords, the group whose property taxes pay the lion’s share for it. It is seen to encourage “buy and hold” property investors, some of whom may be foreign, and discourage short term rentals. Rewarding vacancies can result in buildings that fall into disrepair, contributing to unattractive and unsafe neighbourhoods. Without doubt, the rebate money could be much better spent on more pressing community needs.
If council wishes to support business, a vacancy rebate is too blunt and selective an instrument. The rebate should be eliminated, with a year’s notice to ease the impact.