Property Taxes and Brownfields

Issue
The current property tax regime in Ontario has created two very different property tax systems for brownfields and greenfields (often agricultural land), putting brownfield redevelopment at a distinct disadvantage where two similar sites are competing for a developer’s attention.

In short, developers of brownfield properties pay significantly more property taxes in comparison to those who develop greenfields. This acts as a barrier to brownfield remediation, slows urban intensification and encourages urban sprawl.

Background
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 that begins with existing land use that is often agricultural land that is farmed while planning applications are made, processed and approved.

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

There are three determining factors in establishing the property taxes for an individual property:

• Assessed Property Value: determined by MPAC, based on the current value of the land including improvements
• Property Classification: determined by MPAC according to the property use
• Tax Rate: the property classification determines the tax rate that will be applied to each property by the municipality.

The assessed value of agricultural lands is consistently lower than lands are developed or readily developable. In addition, the tax rate for agricultural land is also among the lowest in the province compared to other classes of property (see Table 1).

Brownfield properties are typically older industrial uses with assessed values based upon 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. In Ontario, a brownfield property owner can apply for a reduction in property assessment if a property is vacant, which is about 30 per cent less than if occupied. However, there is still no method to amend the tax class that the brownfield is subject to.

A recent study by the Canadian Brownfield Network (CBN) found that developers of brownfields in Ontario pay between significantly more in property taxes over a three year redevelopment project. Specifically, the CBN study compared a 15 acre greenfield property against a 15 acre brownfield property with a recently demolished 200,000 square foot building on site. The comparative analysis looked at the amount of property taxes each owner would pay from acquisition through approvals of the new land use up until groundbreaking for site services in four Ontario municipalities (see Table 2).

OREA Position
OREA encourages the Government of Ontario to create a new tax class for brownfield properties that are “under remediation” and develop a policy for contaminated properties that are not “under remediation.” Brownfields that are classified for property tax purposes as “under remediation” should pay tax rates at the same level as agricultural land or greenfields.

To avoid the potential for manipulation of the new tax class, OREA recommends that brownfields be classified as “under remediation” if a Phase 1 and Phase 2 Environmental Site Assessment (ESA) has been conducted and the owner of the property can provide proof via a Qualified Person validation (as defined by ON Reg 153/04) that they are implementing a remedial strategy.

Developing a policy for contaminated properties that are not “under remediation” would stop appeals from landowners arguing for a decreased assessment.

OREA asserts that it is essential that the provincial government “level the playing field” between greenfield and brownfield redevelopments. Equalizing property tax treatment is one step towards allowing brownfield sites to compete for developer’s attention. By doing more to encourage brownfield development through the reduction of property taxes, the province can promote urban intensification, revitalize communities and curb urban sprawl.

Updated: February 11, 2010