Kingston Council to explore options related to vacant property subclass reduction program and vacant home tax

On Tuesday, Aug. 8, 2023, Kingston City Council will debate a motion which could see the City eliminate a discounted tax rate which is currently available to vacant and excess commercial and industrial properties. In a report circulating in advance of Tuesday’s meeting, staff are recommending councillors approve an option (Option 3 in the report) to remove the commercial and industrial vacant and excess land subclass discounts, beginning next year. 

According to the report, the Subclass Reduction Program currently includes 344 properties in the City of Kingston, with discounts totalling $1.4 million. The program, first established in 1998, created a subclass for commercial and industrial vacant and excess land to ensure such lands were not taxed at the same rates as occupied properties. 

The idea of eliminating the vacant property tax rate was first raised in 2016 when the provincial government brought forward new legislation giving municipalities added control over the application of the rebates and excess land property tax subclass. According to the report, during a meeting on July 9, 2019, councillors voted to “direct staff to review the subclass discounts for vacant and excess land property tax subclasses.” 

More than three years later, on August 9, 2022, councillors voted to explore options to eliminate the discounted property tax rates for vacant and excess lands “as a way to encourage the development of vacant, privately-owned lands to help offset the City’s declining supply of vacant serviced lots in City-owned employment parks,” the report states. 

Currently, the City of Kingston provides a 30 per cent property tax discount for commercial vacant and excess lands, while industrial properties receive a 35 per cent discount. Staff note that the Subclass Reduction Program does not apply to residential or multi-residential properties. 

The option to eliminate the vacant and excess land property subclasses also includes a provision for the City to lower the commercial and industrial tax ratios, in order to keep the overall tax burden between property classes “at current levels.” The report states, “This option could still encourage the development of privately-owned vacant commercial and industrial lands through increases in taxes on these under-utilized properties of approximately 41 per cent and 46 per cent respectively.” According to staff, Kingston’s commercial and industrial tax ratios are “at the higher end” of rates charged across the province. 

Staff add, “Taking this opportunity to lower these ratios without passing on a tax increase to other tax classes could further encourage developer investment of vacant land properties in Kingston. There would be minimal impact to other property classes with the removal of the subclass discounts under this option.” 

While staff are recommending the option which would see the City eliminate the program beginning in the 2024 taxation year, the report also includes two other options for councillors to consider. The first of those, Option 1, would see the City eliminate the program in 2024 without lowering the tax ratios, which would essentially lead to a tax increase on the current vacant and excess land portions of commercial and industrial properties. 

Option 2, also discussed in the report, would see the City gradually phase out the program over a two-year period.

Staff are recommending councillors approve Option 3 within the report, which would end the program in 2024 while lowering the respective tax ratios. 

Should Council approve the option to eliminate the vacant and excess land property subclasses, staff do not expect to see any drop in the overall revenue raised through municipal taxation. Instead, approximately $1.1 million would shift from other property classes onto the commercial and industrial vacant properties. 

In addition to the plan to eliminate the Subclass Reduction Program, staff are also recommending the City explore options to establish a Vacant Homes Tax program (VHT). According to the report, Ontario’s Fair Housing Plan allows municipalities to establish a VHT “in order to encourage property owners to either sell unoccupied housing units or begin renting them, in order to increase the supply and affordability of housing.” 

The rules and parameters of the program are not yet clear, but if Council were eventually to approve such a program, a VHT would be charged as an additional levy against vacant homes in Kingston. During a meeting on February 7, 2023, Council moved to direct staff to explore options regarding a potential tax on vacant residential units, with more information still needed. 

During Tuesday’s meeting, Council will be asked to direct staff to further investigate a potential VHT program for the City. If the motion is approved, staff would continue to explore the viability of such a program, while getting a better picture of the number of units that would be subject to the proposed tax, as well as the program’s overall affordability. To support the review, councillors are being asked to approve up to $100,000 from the working fund reserve. 

Both items will be presented to councillors on Tuesday night as part of a report from staff. The Tuesday, Aug. 8, 2023 meeting of City Council begins at 7 p.m. in the Council Chambers of Kingston City Hall. Meetings are open to the public and can also be streamed live (or viewed after) on the Kingston City Council YouTube page.