Commercial landlords blast city over possible tax rebate elimination

Commercial landlords who have enjoyed millions in property tax breaks to offset lost revenue from empty units are bashing the City of Ottawa for planning to eliminate the juicy rebates.

“To suddenly throw a program out when you’ve got a period of time when you want to encourage economic development, you want to encourage growth and you don’t want to impose new taxes on people, that’s not the time to do it,” said Bernie Myers, Morguard Investment’s vice-president of office and industrial in Eastern Canada.

Morguard is the largest commercial landlord in downtown Ottawa, but Myers said “this is a very serious issue” for landlords of every size.

The city has offered annual tax rebates – 30 per cent for commercial and 35 per cent for industrial – if parts of those buildings are vacant for 90 consecutive days. The province mandates the rebate but now it’s open to making changes, prompting the city to pursue closing the program.

Mayor Jim Watson has been calling for the province to shut down the commercial tax “loophole.”

The tax rebate is costing the city big money.

The 2016 city budget ended in an operational surplus, but handing out vacancy tax breaks, in combination with remissions from property assessment appeals, officially put the budget in a deficit position.

Landlords say the city would be ignoring history. In 1998, commercial landlords took responsibility to collect the former business occupancy tax from tenants and the city, in turn, collected the amount through property taxes. The vacancy rebate was developed in recognition of those unoccupied units.

Dean Karakasis, executive director of the Building Owners and Managers Association of Ottawa (BOMA), said the city saved millions of dollars from not having to administer the business occupancy tax system.

“You could argue whether 17 years later is so far ago that we should forget this,” Karakasis said. “We haven’t forgotten it. We know where it is.”

According to the city, there were about $59.2 million worth of municipal tax breaks spread across nearly 6,000 vacancy rebate applications between 2009 and 2015. The total impact increases to $85.3 million when rebates on education taxes, costs to administer the program and interest are also added. Annual program costs doubled in 2015 compared to 2009.

“The reality is, people who have empty buildings right now have absolutely no incentive or very little incentive to fill the buildings,” Watson said. “As a result, we have buildings that have been vacant in some instances for years and they’re getting a substantial break in taxes, which means every other property owner is subsidizing these big stores or corporations or, in fact, the Government of Canada.”

The feds are a significant landlord and their downsizing in office space is also driving the commercial vacancies.

Watson also bemoaned “slumlords” who don’t fix up commercial buildings for occupancy and enjoy paying fewer property taxes to the city.

On the other hand, Myers of Morguard said almost all landlords would rather have a tenant paying rent than collect a small tax rebate.

BOMA, which has published a position paper on the city’s plan, complains about a “lack of transparency” in developing options on the future of the rebate.

The city is going through consultations and has come up with three proposals: erase the rebate now, erase the rebate in phases or erase the rebate gradually for each property.

In other words, the city wants to stop the tax rebate, sooner or later. Landlords have been told the city wants to present recommendations to council’s finance and economic development committee in April.

“When a consultation already has three proposals that are basically the same, it’s not really a consultation as it is an imposition,” Myers said.

BOMA could put forward other options for the city to consider.

Watson doesn’t want to hear arguments from the industry that simply call for the status quo.

“I’ll listen to their feedback,” Watson said, “but they can’t simply come and say, ‘We’re not going to pay’.”

Responded Karakasis: “We understand that. We would like to sit down and get all of these issues identified clearly, the goals we want to accomplish, and then develop a solution.”