Landlords of about 4,300 Toronto properties are on the honour system to pass the benefits of a 15 per cent property tax discount through to tenants with gross leases. A report prepared for Toronto Council’s executive committee confirms there is no legal or practical mechanism to compel unwilling landlords to share the largess of the city’s small business tax subclass.
Citywide, approximately 29,000 properties qualify for the subclass, which was invoked for the first time for the 2022 tax year. It’s estimated that commercial tenants in about 85 per cent of the applicable properties have net leases, thus directly enjoying a 15 per cent reduction on their property tax bills.
Following Council’s instructions, City staff explored if tenants with gross leases covering all property costs in a monthly lump payment could be assured of an equivalent reduction. The report concludes there is no feasible way to do so. While the enabling provincial legislation allows municipalities to set conditions of eligibility, the report advises it would be impractical to try to monitor and enforce provisions related to passing through savings to tenants with gross leases.
“The City has no authority or means to compel property owners or tenants to disclose the details of their lease or financial details, including monthly rental amounts, which would make it impossible to verify or substantiate claims from tenants whether they did or did not receive a reduction in rent, or whether the reduction in rent was equivalent to the tax reduction for the property,” the report states.
All commercial properties with a current assessed value (CVA) no greater than $1 million qualify for the small business subclass. Commercial properties in the downtown, waterfront districts, on an arterial strip designated as one of the “Avenues” in Toronto’s Official Plan or in designated commercial “centres” can also be eligible, provided that: either the lot size is no greater than 7,500 square feet or the commercial condominium unit has no more than 2,500 square feet of gross floor area; and the CVA does not exceed $7 million.
