Change Municipal Act to Stop Rewarding Vacancy With Tax Rebates

A better solution would be to allow a time-limited discount to allow owners to find new tenants, after which the tax returns to the normal rate.

By Nicholas Kevlahan
Published June 09, 2015

The Ontario Government is currently undertaking a review of the Municipal Act and is soliciting suggestions and feedback from Ontarians.

The single most important change the Government could make would be change Section 364 of the Act to allow cities to decide how much, if any, property tax discount to give to property owners who leave their buildings vacant.

18-28 King Street East, vacant since 2012 (RTH file photo)
18-28 King Street East, vacant since 2012 (RTH file photo)

The current rebate of 30 percent (35 percent for industrial property) has no time limit and is an incentive for owners to leave property vacant indefinitely instead of using their properties in economically and socially productive ways.

Vacant buildings harm the economy, reduce the social capital of neighbourhoods and make it more difficult for Ontarians to start businesses and find places to live. Vacant buildings also lower property values - and hence property taxes - in a vicious cycle.

Even worse, in Hamilton we have seen that the steep discount for shuttering a building (without a time limit) is often used by property speculators as the first step in demolishing a building, which decreases the taxes further almost to zero.

Often, in the case of heritage buildings, this amounts to demolition by neglect.

A better solution would be to allow a time-limited (say, one year) discount to allow owners to find new tenants. After that, the tax goes back to the normal rate. If the property owner is unhappy, they can sell the property to another more dynamic owner.

This sort of arrangement is what many municipal officials have told me they would like to be able to implement. Please allow them the freedom to do it!

Nicholas Kevlahan was born and raised in Vancouver, and then spent eight years in England and France before returning to Canada in 1998. He has been a Hamiltonian since then, and is a strong believer in the potential of this city. Although he spends most of his time as a mathematician, he is also a passionate amateur urbanist and a fan of good design. You can often spot him strolling the streets of the downtown, shopping at the Market. Nicholas is the spokesperson for Hamilton Light Rail.


View Comments: Nested | Flat

Read Comments

[ - ]

By BigC (anonymous) | Posted June 09, 2015 at 11:53:18

Comments with a score below -5 are hidden by default.

You can change or disable this comment score threshold by registering an RTH user account.

Permalink | Context

By MattM (registered) | Posted June 10, 2015 at 14:23:57 in reply to Comment 112126

"breakdown of family and social values"

would ya stifle that, archie?

Permalink | Context

[ - ]

By Pxtl (registered) - website | Posted June 09, 2015 at 12:20:24

Can anything similar be done to prevent the "knock down and build parking lot" problem? Or for creating development charges and taxation that actually reflects the cost of servicing exurb properties instead of just assuming that the mill rate will properly cover the cost?

Permalink | Context

[ - ]

By ergopepsi (registered) | Posted June 09, 2015 at 12:31:30

Perhaps the rebate could be removed completely and replaced with financial assistance for remediation.

Permalink | Context

By kevlahan (registered) | Posted June 09, 2015 at 13:42:15 in reply to Comment 112128

In fact, the city already offers all sorts of very generous tax incentives and grants for repairing and renovating buildings downtown. The owners of the building in the photo were in fact offered $1 million in city money towards retaining heritage features in addition to the various tax incentives the city provides for renovating or construction downtown.

These incentives have led other property owners to invest millions downtown in last decade


And we have examples of other property owners within a few blocks of Gore Park spending their own money to renovate and expand older buildings, especially on James N and King William.

Comment edited by kevlahan on 2015-06-09 13:42:34

Permalink | Context

By ergopepsi (registered) | Posted June 09, 2015 at 14:21:59 in reply to Comment 112129

So I would assume the owners feel that they would get a better return by selling the empty lot after demolishing the existing building? And, they need time for the property to increase in value due to the efforts of everyone else around them. In that case I would support taxing the property on its assessed value (reassess annually) if it remains vacant or unimproved after a period of time - perhaps one year. Even better, tax the property based on the asking price.

Permalink | Context

By CharlesBall (registered) | Posted June 09, 2015 at 14:58:49 in reply to Comment 112130

That's the problem. The property value declines when the building is torn down. It is then re-assessed and the owner pays the lower rate. You need to encourage the owner not to tear down the building.

Permalink | Context

By ergopepsi (registered) | Posted June 09, 2015 at 15:58:21 in reply to Comment 112132

I think many property owners would argue that the value of their land would increase if the building was torn down. If it is a heritage property or a building that needs serious repair potential buyers would be wary as they won't want to take on someone else's problem. The seller would be forced to reduce asking in order to offload the property. However, if the building is neglected to the point where it has to be torn down the 'problem' is removed. The land suddenly becomes more attractive to buyers and thus commands a higher price. So, if municipal assessments don't take into account that reality then I would say tax them based on an independent assessment that a bank would require for financing for example or on the asking price once the property hits the market.

Personally I'm not entirely convinced that preserving heritage properties helps a city that much. I've always been a fan of the natural progression of growth and I think that provided new buildings have a style that enhances the landscape it is a fair trade off to tear down old buildings to bring in something new. http://www.spiked-online.com/newsite/art...

Permalink | Context

By fmurray (registered) | Posted June 10, 2015 at 13:30:36 in reply to Comment 112135

One of the problems with that philosophy is that it's incredibly wasteful. There is a huge amount of landfill waste involved when a building is demolished. Something like 30% of our landfill volume is construction waste (read: mostly demolished materials).

Also, I disagree with you about heritage buildings. A cityscape is only interesting if it includes old buildings, but that's just my opinion on that point. (I have no interest in visiting Dubai.)

Permalink | Context

By Banker (anonymous) | Posted June 09, 2015 at 17:11:51 in reply to Comment 112135

As a general rule, Banks will not finance vacant property.

Permalink | Context

By ergopepsi (registered) | Posted June 09, 2015 at 17:47:52 in reply to Comment 112143

I just meant that the tax rate should be based on a real world market value rather than the municipal rate which is customarily low. And, only after the property has laid vacant for a certain grace period.

Permalink | Context

[ - ]

By Hear Hear (anonymous) | Posted June 09, 2015 at 14:27:16

Thanks for spreading the word on this. Changes to the way(s) vacant properties are taxed really need to happen! Haldimand is even facing a major tax hit because US Steel has had their plant deemed vacant while they locked their workers out. Crazy.

Permalink | Context

[ - ]

By beancounter (registered) | Posted June 09, 2015 at 15:04:36

Perhaps this would be the time to take another look at taxing the value of the land only.

See the exhaustive discussion in the following link:


Please note that the mayor of Harrisburg, PA claims that their system of land value tax is responsible for reducing the number of vacant structures in their downtown from around 4,200 to 500 since 1982.

The article also states that many urban planners claim that a land value tax is an effective method to promote transit-oriented development.

Furthermore, it is an efficient tax from a collection perspective because of its immobility. Unlike labour and capital, land cannot move to escape tax.

Permalink | Context

[ - ]

By CharlesBall (registered) | Posted June 09, 2015 at 15:42:09

Lots of strange things can happen because of tax rates.

The mill rate for vacant commercial land used for parking is 3.6455570 % (as opposed to residential which is about 1.387)

You can own a residential property worth $170,000.00 and be taxed about 2300 per year. If you decide you need the property for parking, you can tear it down but it will be reassessed as a commercial parking lot and, low and behold, it will be re-assessed at $170,000.00 per year actually increasing the taxes to just under 6000 per year. A boon for the City. If you tear it down and leave it vacant, it's value will decrease to about $60,000.00 and taxes will drop to $832.00. If a dilapidated building is bought for speculation, the speculator would rather pay the lowest tax. You lose the building and you gain some weeds.

People are ingenious about working around rules. My advice is to be very careful about how the rules are changed.

(BTW Keep in mind that Municipalities are in competition with each other. Hamilton's residential mill rate is very high (I think only Windsor's is higher) Mississauga is .886, Toronto is .705, Oakville is .84, Halton/Burlington is .757.)

Permalink | Context

By kevlahan (registered) | Posted June 09, 2015 at 16:01:05 in reply to Comment 112134

The mill rate is relatively high, but property values are relatively low. For a business, property tax is a relatively small portion of costs compared to renting or buying, which are both much cheaper in Hamilton than Toronto (for example). And if property values increased and more land was developed in the urban core the mill rate would decrease proportionally.

Niagara region compares its taxes to other areas in terms of actual dollars for properties of the same assessed value. You'll see that Hamilton, although high for "bungalows" is within 15% of the cheapest municipality for bungalows and right in the middle for executive houses.


The $800 difference from most expensive (Oshawa) to cheapest (Niagara) might sound like a lot, but it is a tiny fraction of the overall taxes paid by a family (about $15000). And, again, it is fairer to compare taxes on similar houses if you are concerned about standard of living and housing prices vary a lot (inversely to mill rate).

A parking lot generates (quite a lot) of income to the owner for minimal investment and operating costs. A vacant lot generates nothing, but is a cheap way of holding land until property prices rise (because of investments made by others).

The tax codes are used all the time to try to reward desirable behaviour and discourage undesirable behaviour. They are also used to reward certain groups for less clear reasons (e.g. the much higher taxes on income from labour than on income from capital in Canada).

Comment edited by kevlahan on 2015-06-09 16:02:54

Permalink | Context

By CharlesBall (registered) | Posted June 09, 2015 at 16:17:27 in reply to Comment 112136

"For a business, property tax is a relatively small portion of costs compared to renting or buying, which are both much cheaper in Hamilton than Toronto (for example)."

This is not necessarily true. A $500,000.00 store front business must generate about $18,000.00 in taxes in Hamilton. Throw insurance, water and sewer etc. on top and you can see how a small store, barbershop, clothing store etc. will struggle with the taxes.

Permalink | Context

By kevlahan (registered) | Posted June 09, 2015 at 16:33:36 in reply to Comment 112138

I'm not sure how you got those figures. According to this listing a shopfront in Stoney Creek that they want $447,000 for pays only $9110 in property taxes.


Maybe the assessed value is actually only half want they want ... but the actual taxes paid by the storefront of the type you describe is still only $9k per year in the downtown core of Stoney Creek. That's only $750 per month.

And compare with this Toronto property:


That is asking $790k and pays $11910 in taxes.

The total costs (purchase plus taxes) does not seem hugely more in Hamilton.

Comment edited by kevlahan on 2015-06-09 16:34:39

Permalink | Context

By CharlesBall (registered) | Posted June 10, 2015 at 10:22:45 in reply to Comment 112140

You cannot go by a listing. Taxes are based on the assessed value. On sale, the assessed value will likely rise during the next assessment to at least the sale price. The current taxation rate for commercial shopping is 3.64% or $18,200 on a 500,000 assessment. You can get this information on the City of Hamilton website or Google mill rate City of Hamilton Ontario.

Permalink | Context

By TAXaccountant (anonymous) | Posted June 09, 2015 at 17:38:09 in reply to Comment 112140

Ball boy is correct. tried to post but accused of spam. will try later.

Permalink | Context

By Pxtl (registered) - website | Posted June 09, 2015 at 16:09:59 in reply to Comment 112136

They are also used to reward certain groups for less clear reasons (e.g. the much higher taxes on income from labour than on income from capital in Canada).

But omg the economy will collapse if we stop treating capital gains as some kind of magical superior income that shouldn't be taxed the same as income somebody actually worked for!

Permalink | Context

By CharlesBall (registered) | Posted June 09, 2015 at 16:27:38 in reply to Comment 112137

Capital gains taxes were implemented in the late 1960's early 1970's in Canada. Before that they did not exist. One reason they were created to stop people from failing to declare income by "over investing" in their business. The flip side is that if you tax the gain without considering the need to tie up capital over a long period of time, people will not invest in their business at all. It is a balancing used recognizing human (business) nature.

Say I buy a building to run my shoe store, and I pay 100 dollars for it. Inflation may drive the price up to 200 when I sell it. That is a gain. I pay on 50% of the gain. So I pay tax on 50. If my marginal rate is 50% I pay 25 in tax. However, keep in mind that my 200 (of which I now have 175 is now worth 1/2 of what is was when I bought the building. I have lost money by buying the building.

Arguably the government should not tax that at all (which is why it was never taxed before 1970.) But people were taking advantage of the rule by pumping their income into capital and thereby avoiding taxes.

If you taxed capital gains exactly the same way that you taxed income, the economy would collapse. No one could invest in any capital projects because over time they would all lose money.

Comment edited by CharlesBall on 2015-06-09 16:27:56

Permalink | Context

By Pxtl (registered) - website | Posted June 09, 2015 at 20:28:50 in reply to Comment 112139

It's 2015, we have the technology to adjust for inflation.

I don't see why capital gains above inflation aren't just "income".

If I make and sell things, its income. If I buy and sell capital, it's magic non-income. Why?

Permalink | Context

By kevlahan (registered) | Posted June 09, 2015 at 16:46:14 in reply to Comment 112139

When I said tax on capital, I didn't mean just capital gains tax, I meant all taxes on income derived from capital (e.g. dividends, rental income, etc.).

Your example treats only speculative windfall capital gains (where the value of your capital rises through no effort on your part).

And, of course, in most cases we're talking about investors investing money and paying tax on the income they derive from their investment. It is investors investing in someone else's business.

And it is simply not true that the "economy would collapse" if you taxed income at the same rate as labour. In France, capital gains are taxed at total rate of 34.5% and income taxes are only 30% for incomes up to 71,000 euros (with income splitting allowed for spouses and with children). And France has a GDP per capita similar to the UK and one of the biggest economies in the world. Germany (no slouch economically) has a similar tax structure.


compares capital gains and income tax rates for European countries. Many countries have capital gains rates in the 20%-35% range, similar to typical income tax rates.

Comment edited by kevlahan on 2015-06-09 16:51:10

Permalink | Context

By What (anonymous) | Posted June 09, 2015 at 17:05:57 in reply to Comment 112141

The top dividend federal tax rate in Canada is 21.22% on non-eligible Canadian Dividends. On top of that is the provincial tax which is taxed at the full marginal rate but then you get a dividend tax credit. It is complicated but overall the top marginal dividend tax is about 38.6% On top of that, corporations pay income tax on income earned that is not sent out as a dividend at 11 to 18% so arguably the top tax rates on business derived income whether it be dividend or not is between 49 and 56%.

For an individual, rental income is taxed as income. There is no break given so it is taxed at whatever marginal rate the earner pays.

I think you are confused.

Permalink | Context

By kevlahan (registered) | Posted June 09, 2015 at 18:32:51 in reply to Comment 112142

Sorry, I should have been clearer. I meant that, overall, income from capital is taxed at lower rates than income from labour. And I was also thinking of the fact that paying (high earners) in stock options also attracts less tax than compensation in the form of salary. Note that rental income can be treated as either personal income or business income depending on the circumstances.

If you want to think of the whole tax picture, you would also need to include payroll taxes paid by businesses and workers as part of the total tax burden on labour.

And don't forget that the wealthier you are the more of your income comes in low-tax rate capital income form (which is why Mitt Romney ended up paying only 15% overall). Warren Buffett has made the same point: he pays a lower federal tax rate (17.6%) than his secretary (36%).

Because capital is more mobile than labour internationally, there has been competition to lower corporate and capital gains taxes and the trend will probably drive capital gains and corporate taxes close to zero over the next 30 years or so. As Charles Ball rightly pointed out, capital and inheritance was either not taxed or taxed at just a few percent until the mid 20th century. And they are headed to those levels again.

I thought that dividends were taxed at only 50% of your ordinary income tax rate and the top rate for capital gains is 14.5%? Those are both far lower than the equivalent marginal income tax rates. And the capital gains tax on your principal residence is a whopping 0%, which is a definite reward to the middle and upper classes who generally own their own houses.


"The marginal tax rate on dividends depends on your income level and province, but it’s always lower than the marginal rate on interest or employment income."


Comment edited by kevlahan on 2015-06-09 18:53:14

Permalink | Context

By ergopepsi (registered) | Posted June 09, 2015 at 18:27:54 in reply to Comment 112142

I know I am...

Permalink | Context

[ - ]

By mdrejhon (registered) - website | Posted June 09, 2015 at 18:29:56

It should be cheaper to rent to a business than to keep it vacant.

I believe this is also a factor on why there's still so many shuttered storefronts on Barton, and parts of King St outside of downtown (e.g. between Sherman Ave and Ottawa St)

It doesn't sound right that keeping a building vacant is more profitable than renting a storefront out.

Comment edited by mdrejhon on 2015-06-09 18:30:28

Permalink | Context

View Comments: Nested | Flat

Post a Comment

You must be logged in to comment.

Events Calendar

There are no upcoming events right now.
Why not post one?

Recent Articles

Article Archives

Blog Archives

Site Tools