What’s happening to West Queen West?
The lockdown is one thing. But small business owners say taxes were already gutting them
As small businesses in Toronto continue to close for good, advocates are renewing their call for an overhaul of how the province assesses commercial property taxes.
In the area covered by the West Queen West BIA — from Gladstone Avenue to Bathurst Street — nearly half of the businesses have permanently closed, said Djanka Gajdel, the area’s Business Improvement Association treasurer. Another 20 per cent aren’t sure they’ll be able to hold on much longer.
COVID-19 has a lot to do with that, of course. But Gajdel said years of skyrocketing property taxes that don’t reflect buildings’ current use have resulted in financial fragility for the area’s small businesses, making them more vulnerable to a crisis like COVID-19.
City councillor Brad Bradford, who represents Beaches-East York, says the model assesses properties for their potential use, not their current use. So an older building in downtown Toronto may be assessed as if it were a condominium tower, he said.
Gajdel said this has resulted in businesses that are less resilient.
“It wasn’t the pandemic that killed our small businesses. It was the commercial taxes.”
Rob Sysak, executive director of the West Queen West BIA, said he believes many more businesses will close when the commercial eviction freeze lifts.
“It’s a bloodbath,” he said. Toronto’s property taxes are assessed by the Municipal Property Assessment Corporation (MPAC), a Crown corporation.
Gajdel said MPAC’s assessment model results in “arbitrary” tax bills that don’t reflect buildings’ current usage.
In an emailed statement, an MPAC spokesperson said the corporation “does not speculate on the future use of a property” but uses sales of similar properties nearby and permitted uses of the land to make its assessments.
Joe Cressy, city councillor for Ward10, Spadina-Fort York, has been a vocal advocate for the assessment model to be overhauled.
He said property taxes have become an issue for small businesses right across the city, and that city council has made several calls for the province to address the problem.
In 2017, Toronto Mayor John Tory wrote to then-finance minister Charles Sousa, calling MPAC’s assessment model “often distorted.” He pointed to news of rising tax bills that were forcing some businesses to shut their doors.
“We require a fairer model of assessing property taxes for our small businesses, and I would encourage you to review options,” Tory wrote.
Two years later, the conversation was still ongoing. The owner of a Wellington Street West restaurant said his taxes had been hiked more than 500 per cent since 2007: to $203,710 in 2019 from $31,276.
Sysak said the skyrocketing vacancies caused by business closures will also cause many smaller landlords to sell their properties instead of facing the property taxes.
As part of their rent, businesses pay what’s known as “TMI”: taxes, maintenance and insurance.
In West Queen West, Gajdel said property taxes account for 50 to 70 per cent of many businesses’ monthly costs. And she doesn’t blame the landlords, many of whom are small businesses themselves passing down the cost to the tenant, she said.
Gajdel said it would be “insanity” to continue under this system post-COVID-19, and that changing the system now could really help more small businesses emerge intact from the pandemic. She said it’s time the city found a more diverse set of ways to gather revenue. Bradford agrees. “Reforming the commercial tax system is something we’ve needed prior to the pandemic. But it’s become more important, more acute and more urgent now.”
Bradford said one source of untapped revenue for the city is online commerce. As businesses have increasingly moved online, with many closing their brick-and-mortar locations during COVID-19, the provincial and federal governments are gathering tax on these businesses while municipalities are not.
“We don’t see a dime, and yet we’re the ones that are left with the burden of vacant storefronts and small businesses that are failing.”
In an emailed statement, Rocco Rossi, president and CEO of the Ontario Chamber of Commerce, said many small businesses that had their property tax up for renewal were offered grace periods or extended renewal periods by their municipalities. He said the OCC is researching municipal revenue opportunities for an upcoming report “that will help both cities and businesses thrive.”
Bradford said there are four key components to easing the tax burden on small businesses, most of which involve the province — adjusting tax bands, rate capping, overhauling the assessment model and creating a vacant-storefront tax.
Some of these changes are already underway, said Cressy, but the one that would have the biggest impact — the assessment model overhaul — has not been addressed.
“Businesses require tax fairness, and tinkering around the edges is not going to solve it. Rather, this broken tax assessment model is the piece that needs to be fixed,” he said.
Cressy doesn’t think overhauling MPAC’s tax assessment model would necessarily create a lack of revenue — shifting some of the burden onto large buildings would make up for it, he said.
Bradford believes MPAC understands the challenges faced by small businesses due to the current assessment model, but that its hands are tied by government policy.
“It’s a fundamentally flawed tax model that was urgently needed to be fixed by the province prior to this. And if they don’t fix it soon, far too many businesses are at risk of closing because of it.”
Scott Blodgett, a spokesperson for Ontario’s Ministry of Finance, said in an email that properties in Ontario are assessed “based on their current value” and that “MPAC has regard for the current permitted uses of properties, not speculative or hypothetical uses.”
He said in 2019, the province announced a review of the property assessment and taxation system, and added that municipalities have tools to mitigate property taxes such as adjusting tax ratios and a business property tax capping program, which Toronto is using.
With regards to COVID-19, Blodgett said the government has postponed the 2020 tax assessment until 2021, and that some municipalities are allowing property tax payments to be deferred.
Sysak has hope the government’s assessment could lead to change, but in the interim, businesses will continue to suffer. He’d like to see a reassessment taking the pandemic into account, but doesn’t think that will happen.
He said it will be up to the city to help mitigate the damage until businesses can get back on their feet.
Although businesses needed to have their property taxes drop years ago, it’s “better late than never,” Sysak said.
Cressy agrees. “The right time was five years ago. The right time was two years ago. The right time was yesterday.”