Already burdened by the rising costs of rent, wages and inventory in Toronto, small and independent businesses are struggling to survive after years under a tax system they are calling unfair and perverse.
“It’s killing the heart of Toronto,” said Frédéric Geisweiller, owner of Le Sélect, a French bistro on Wellington Street West.
Geisweiller has seen his property taxes spike enormously. In 2006, the owner of the popular restaurant was paying $31,000 annually. That number has since jumped to $204,000.
“There’s no relief in sight, it keeps going up,” said Geisweiller.
If nothing changes, he predicts he will paying $310,000 in the next four years – which will be completely unsustainable, he says, even for a successful business like his that has been a staple in the community for decades.
“That’s the unintended effect of these assessment values, literally killing small businesses.”
It’s called the “highest and best use” assessment that is completed by the Municipal Property Assessment Corporation (MPAC), an agency of the province.
MPAC assesses a property based on its most likely market value, taking into account its maximum possible density and height.
Sometimes, like in Le Sélect’s case, that means a property’s value may be influenced as properties around it are sold and re-zoned as condos. It doesn’t matter that Geisweiller doesn’t want to sell.
“It’s unfair that I am paying for all that space that is above me, that I don’t use, that someone could theoretically use,” said Geisweiller. “We cannot pay taxes on a building that does not exist.”
Le Sélect has been fighting the increases for four years, since the last tax assessment in 2016. It was imposed on an estimated 1,100 businesses across the city.
“I think this is a side effect of a law that was not well thought out when it was first implemented,” he said.
He is spearheading the movement against the “highest and best use” assessment. His online petition has more than 22,000 signatures – and he’s even got city councillors on his side.
“The way that the assessments are being carried out by MPAC is oftentimes about projected inflationary values that have nothing to do with the current and realistic income that’s being produced in those properties,” said City Councillor Kristyn Wong-Tam.
The next assessment will come in 2020.
City of Toronto implements 10 per cent cap on property tax increases
After MPAC sets a value for the property, the City of Toronto then determines the business tax rate.
To help fight the skyrocketing prices, city council approved a 10 per cent cap on property tax increases last year, after outcry from the community.
“We all recognize that that is not a permanent fix,” said Wong-Tam. “The City of Toronto has to forgo revenues in order for that cap to take place. But at the same time, without that 10 per cent tax cap, there’s a very good chance that hundreds of businesses would collapse.”
Wong-Tam has suggested creating a separate tax group for small businesses, a solution the City has so far shied away from.
Claire Nelischer, a researcher with Ryerson City Building Institute, helped conduct the school’s Taxed Out study that is looking into the issue.
“What we’re hearing from property owners is that while that it is overall much-needed relief, the 10 per cent is not sufficient to meet their needs and to really protect against the threat of rising property taxes over the long run,” said Nelischer.
“What we’d like to see from the city and from the province through MPAC is a more comprehensive look at how to address this problem in the long run and also some kind of broader policy objectives to meet the needs of small business owners and independent businesses on the streets of Toronto.”
Ontario and MPAC working on long-term solution
The office of the Minister of Finance Rod Phillips told CityNews the province “will be conducting a review and seeking input from business property owners and municipalities on measures to enhance the accuracy and stability of property assessments and support a competitive business environment.”
The province said it instructed MPAC in December 2018 to assess business properties based on permitted land uses, not on speculative uses.
“MPAC has confirmed that it is conforming with this direction,” the minister’s office told CityNews. “Specifically, in determining the current value assessment of properties, MPAC has regard for the current permitted uses of properties, not speculative or hypothetical uses.”
In a statement, MPAC told CityNews: “In establishing assessments, MPAC does not speculate on the future use of a property. Instead, MPAC is informed by actual sales of properties with similar characteristics and permitted uses as determined by land use policy set by the province and municipalities. “
A simple solution
A senior member of the Toronto Board of Trade said he’s hopeful change will come.
“We’re kind of in a limbo and I think the provincial government is paying attention,” said Brian Kelcey, Toronto Board of Trade VP of Policy.
He said the current property assessment regime was created as the provincial government attempted to accommodate the fact that the real estate market in Toronto was on fire; by finding ways to assign higher values to some properties. But, the current system does not benefit or bring in more money for the city, province or independent businesses, creating a lose-lose situation.
“You’re going to have hundreds of business put at risk of closure, in a situation where the city will make no more money as a result of this,” said Kelcey. “This is just about tax shift, if we don’t actually solve this problem before the 2020 assessment gets locked in.”
He’s hopeful the province is listening to the plea of businesses and said the simple and fair solution would be to assess all businesses on their current use.
A city in need of independent businesses – by the numbers
According to the City Of Toronto’s Main Streets Survey:
- Independent businesses account for 74% of establishments and 32% of total employment in Toronto retail stores;
- Independent businesses in the retail and consumer services sector employ 647,843 people – 42% of total jobs in Toronto;
- Over 90% of Toronto residents prefer independent businesses for specialty food, personal services, restaurants and bars;
- Main streets are key locations for independent businesses;
- The last few years (2013-2019) have seen some changes to the availability of affordable locations for small business;
- 23% of the business survey respondents who rent space indicated that securing affordable space was a significant challenge impacting their business success.
Four businesses struggling to survive in Toronto
Ryerson City Building Institute’s “Taxed Out” study highlighted several businesses that have either been closed or a struggling to survive in Toronto due to property taxes. Here are some of them:
Location: Yonge Street near Wellesley Street
Type of business: women’s fashion boutique
Years in business: 98
The owners of Cat’s Cradle, Richard and Mark, recently closed their family-run business after 98 years due to a 117 per cent increase to their Current Value Assessment over four years. Their property value had increased from $1.178 million to $2.071 million.
Location: Wellington Street West
Type of business: French bistro
Years in business: 41
Le Sélect’s property value assessment has gone from $1.2 million when the business bought the building in 2006, to $6.7 million this year, an increase of more than 500 per cent. Its property taxes have gone from $31,000 to $204,000 in that time.
Location: Richmond Street, near Spadina Avenue
Type of business: warehouse building that houses over 100 artist-run centres, studios, galleries, and non-profit groups.
Opened in: 1994
Status: Under new tax regime
401 Richmond fought for a solution against a massive tax increase in 2017 and were provided with a 50 per cent tax reduction when City Council approved a new Creative Co-Location Property Tax sub-class. Less than 20 properties are able to take advantage of this tax relief.
Location: Distillery District
Type of business: Not-for-profit urban development organization that provides space for artists
Opened in: 2003
Status: Under new tax regime
Artscape provides affordable and sustainable space to over 300 artists, but property taxes in the Distillery District have increased 106 per cent over the last five years as the neighborhood continues to grow. The tax hike could push Artscape and it’s tenants out of the community. Artscape will also be able to take advantage of the Creative Co-Location Property Tax sub-class.