New tax policy changes debated by Napanee Council

Napanee Town Hall, seen here on Tuesday, Jun. 25, 2024, as it undergoes renovations. Photo by Michelle Dorey Forestell/Kingstonist.

The provincial government has some big-city ideas about how to create more housing, but those ideas may not work for lower-tier municipalities like Napanee.

Town Treasurer Ellen Hamel presented a report to the Greater Napanee Town Council at its regular meeting on Tuesday, Jun. 25, 2024, detailing tax policy changes in the 2024 provincial budget that the town may need to implement.

The report noted that announcements relating to the Ontario 2024 budget reference tax policy changes, including a new optional “Multi-Residential Rental property tax subclass” and a “Vacant Home Tax authority,” which are now available to all Ontario municipalities.

Only single- and upper-tier municipalities can adopt these optional tax policies, so if the County approves them, Greater Napanee will be required to implement them. 

The report notes that at its meeting on May 22, 2024, Lennox and Addington County Council passed a resolution which deferred decisions regarding the options available to municipalities for the taxation of new multi-residential rental properties and the municipal vacant home tax, asking that County staff prepare a report for the councils’ consideration outlining the administration and implementation implications of the proposed tax options. 

Multi-Residential Rental Subclass

According to Hamel’s report, the new Multi-Residential Rental Subclass allows municipalities to offer a reduced municipal property tax ratio on new multi-residential rental properties. The optional policy intends to incentivize the development of such properties. 

The property would then benefit from a reduced tax rate for 35 years, after which the rate would revert to the existing multi-residential tax class. For new developments, the total tax revenue generated would be reduced by the discount applied to the tax class.

However, Hamel points out, there is no indication that these savings in property taxes would be directly passed on to renters. 

Further, only new multi-residential developments would qualify for a reduced property tax rate; existing multi-residential properties would not benefit. Ultimately, “this discount would be subsidized by all remaining tax classes as that burden of taxation is not eliminated; it merely shifts to the remaining tax base,” according to the report.

The report states that the Town already has two tiers of “Multi-Res” (multi-residential) tax classes. The Multi-Res class has a tax ratio of 2, and the New Multi-Res tax class has a tax ratio of 1, meaning a tax rate equal to that of regular residential. Adding a third tax class for multi-residential would further the gap between existing and new multi-residential rental properties.

Hamel provides an example:

A 40-year-old multi-residential property (rental or non-rental) would have a tax ratio of 2 and pay $13,138 per $1,000,000 of assessment. 

A five-year-old multi-residential property (rental or non-rental) would have a tax ratio of 1 and would pay $6,569 per $1,000,000 of assessment. 

Adding this new discount, a new multi-residential property (rental, assessed after the implementation of this bylaw) would have a tax ratio of 0.65 and would pay only $4,270 per $1,000,000 of assessment. 

Hamel further notes that the Town can currently encourage the development of multi-residential units through development charge deferrals. Larger municipalities have development charge deferral policies in place. However, the Town does not yet have a formalized policy; all requests for deferral are considered individually on their own merits. 

Hamel and Town staff believe that deferring development charges helps free up working capital during a development project’s high cash-flow needs. By providing this flexibility, the Town can facilitate the development of multi-residential developments more effectively, as this provides developers with more cash flow to see the project begin construction sooner and ultimately be completed and available for use sooner. 

Ultimately, the Town will still receive the development charge payment at a later date.

Municipal Vacant Home Tax

The authority to impose a “Municipal Vacant Home Tax” is now available to all single and upper tier Ontario municipalities. Hamel stresses that an overabundance of vacant homes is not a problem in the local community or contributing to a housing shortage. The purpose of this tax is to incentivize owners of vacant homes to allow people to occupy them.

The report notes that administration and enforcement of this kind of tax could be burdensome, outweighing the revenue and benefit generated.

Discussion

Council first discussed the new subclass for multi-residential incentive tax changes.

Councillor Angela Hicks used her question to confirm that the savings to developers would likely not be passed on to renters in the form of lower rents. Hamel agreed, saying, “There’s nothing in the legislation that points out that those savings must be passed on to the renters. We believe that the legislation intends to incentivize the development in the first place.”

Further, the decision on whether to implement the subclass and the incentives is not Napanee’s to make; that falls to the County. Hamel said, “Prior to County Council doing that, they wanted us to be able to discuss around this table and get our input on what we wanted or how it would impact our municipality specifically. So we’re just trying to give some information to take back to the County Council.”

Newly appointed Chief Administrative Officer (CAO) Matthew Grant said, “We discussed this at a senior leadership level. The general manager of finance and I discussed this as well.” He said they believe this is a move by the provincial government to create more rental housing, in principle, but that “shifting the tax burden, in this instance to a municipality which may not lead to affordable rentals, necessarily means that we as a municipality might not be able to do some other things [financially].”

“We’re concerned about the financial viability” of shifting the tax burden, Grant said candidly.

Next, Council discussed the Vacant Home Tax.

Hamel reiterated that it didn’t seem to be much of an issue in Napanee. “The vacant home tax is another option that the province has provided to municipalities to choose to implement. It is essentially putting a tax on homes that sit vacant and are not rented or occupied. Staff believe this is not particularly worrisome for our municipality.”

Councillors expressed concerns over different types of vacancies, including short-term accommodation rentals, abandoned homes, and seasonal homes.

Grant explained that there were certainly different definitions of vacancy: “I have had some experience with the vacant home tax. We looked at this in my former place of employment, the City of Hamilton, and to my recollection… short-term rentals did not qualify as vacant.” He explained that problematic vacancy issues arise when people purchase several homes due to real estate speculation; they want to flip the property for a profit, not become a landlord, so they might leave the property vacant. 

Further, he said, “I recollect that this does lead to some administrative burden to the municipality, and reasonable amounts of public education [are] required to get people to self-report.”

Council, led by Mayor Terry Richardson, noted and received the report and directed staff to return later with some research on the implications of the two tax policy options.

Meetings of the Council of the Town of Greater Napanee can be viewed virtually (or watched afterward) on the Napanee Town Council YouTube channel or attended in person in Council Chambers at Napanee Town Hall, 124 John Street. Further information about Council meetings, including agendas and reports, is available on the Town’s CivicWeb portal.

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