TABLE OF CONTENTS Jan 2010 - 0 comments

Property Taxes

Editorial

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By: Bonnie Prior
2010-01-01

Brownfield redevelopment typically involves the transformation of idle industrial property, often with vacant buildings, into new higher order land uses resulting in a host of benefits to the surrounding community, including increased property taxes. The transformation requires applications for planning approvals to be made, processed and approved; the demolition of buildings; active site remediation; the preparation and approval of risk assessments; and, the filing of Records of Site Condition.

Contrast this to the typical greenfield redevelopment process where the existing land use is often agricultural lands that remain farmed while planning applications are made, processed and approved.

The current property tax regime results in very different pro­perty tax implications under these two scenarios and puts the brownfield redevelopment at a distinct disadvantage where two similar sites are competing for a developer's attention.

To use Ontario as example, there are three determining factors in establishing the property taxes for an individual property:

The Assessed Property Value (as determined by MPAC in Ontario) based on the current value of the land including improvements; and

The Property Classification is identified by MPAC and is assigned to all property according to its use. The Property Classification determines the Tax Rate that will be applied to each property by the municipality.

This is generally the same in British Columbia, where BC Assessment establishes the assessed property value and property tax classification.

Using Ontario and British Columbia as examples, agricultural lands are of consistently lower assessed value than lands that are developed or readily developable. The tax rate for agricultural land is also among the lowest, resulting in property taxes that are significantly lower than for any other class of land. The property taxes remain low throughout the planning approval process, including rezoning, and a slight increase in property taxes is typically incurred only when the plan of subdivision is registered due to a tax class change. Only when the developer breaks ground to begin servicing the site do the property taxes at the new higher order land use come into effect.

Brownfield properties are typically older industrial uses with assessed values based upon the values of other industrial properties in the area and an industrial tax class, resulting in property taxes that are often significantly higher than any other tax class. The brownfield property owner can achieve some tax relief upon demolition of the buildings on the site but the tax class and tax rate remain unchanged. In Ontario, the property owner can apply for a reduction in property assessment due to contamination on a site but the process can be lengthy and is uncertain and there's still no method to amend the tax class to which the property is subject.

A recent study analyzed property tax implications in the development/redevelopment of a 15 acre site. A three-year timeframe was applied to compare a greenfield versus brownfield site from acquisition through to rezoned and serviceable lands in four Ontario municipalities. The results clearly demonstrated a brownfield redevelopment paying between $200,000 and $500,000 in additional property taxes over the three-year development horizon. This is obviously detrimental to any brownfield site being analyzed for redevelopment potential.

Again, to use the Ontario example, the province sets the tax policy related to property assessment. The creation of a new tax class for properties "under remediation" would allow municipalities some latitude in recognizing the benefits overall of site remediation and redevelopment. It's important that the benefits accrue to only the sites that are being actively remediated, as there are many sites functioning at full capacity in spite of onsite contamination and they should continue to be taxed in accordance with comparable properties.

The creation of policies that would disallow property assessment reductions for contamination on fully functioning sites would be another tool to encourage site remediation. This would also discourage property owners from ignoring their site contamination issues; currently they can receive tax benefits by acknowledging onsite contamination and applying for a reduced assessment. Municipalities would still receive full property tax revenues on these sites affording them the ability to offset the property taxes on the properties that are actively undergoing remediation.

It's imperative that we continue to "level the playing field" between greenfield and brownfield developments. Levelling property tax implications is one step to allowing the brownfield site to compete for the developer's attention. This direction is supportive of existing provincial legislation in Ontario that supports intensification and the protection of greenfields. This would also improve the performance of existing municipal and provincial incentives provided in Community Improvement Plans (CIPs) and ultimately expedite redevelopment of brownfield properties.

Bonnie Prior, BA, CAE is Executive Director of the Canadian Brownfields Network in Burling­ton, Ontario. Contact Bonnie at bprior@crea.ca

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