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Governance &
Structure Division
 

Permissive Tax Exemptions

 

Part 7, Division 7 of the Community Charter provides municipalities with authority to exempt certain lands and/or improvements from municipal property taxation. The authority provided under this division should be considered in conjunction with the list of statutory exemptions in Division 6, over which municipalities have no discretion.
 

Types of Permissive Exemptions

 

Section 224 provides the general authority for permissive exemptions. Under this section, council may offer exemptions for periods up to ten years to a wide range of properties including:

  • property owned by a not-for-profit corporation;
  • property owned by a local authority; and
  • property owned by a public authority and occupied by another authority or not-for-profit.

Section 225 provides authority to exempt eligible partnering, heritage, riparian, cemetery or golf course property for any period set out in the exempting bylaw. Key to these exemptions is the ability to make agreements with property owners respecting the extent of the exemption and the conditions under which it will be offered. These agreements may require owners to satisfy conditions, such as placing a restrictive covenant on the property or repaying the exemption amount under specified circumstances.
 

While most municipal tax exemptions automatically create an exemption from all other property taxes (e.g. school taxes), cemetery, golf course and partnering do not; for these specific types of exemptions, school tax exemptions may be requested from the provincial government, and when offered, are provided in accordance with a School Act regulation.
 

Section 226 provides authority to exempt land or improvements or both, from the municipal portion of property value taxes for the purposes of encouraging various types of economic, social or environmental revitalization within a community. Revitalization tax exemption programs may apply to a small area or areas, a certain type of property or properties, a particular activity or circumstance related to a property or properties, or an entire municipality. Revitalization tax exemptions also do not qualify for exemptions from school and other provincial property taxes. See “Revitalization Tax Exemptions: A Primer on the Provisions in the Community Charter (74 KB) for more information on these types of exemptions.
 

When to Consider

 

The authority to grant permissive exemptions is a policy tool available to municipalities to promote or achieve specific goals. Consider the following examples:

  • A council may wish to encourage certain developments that are deemed to benefit the community. For example, a policy that extended permissive exemptions to athletic clubs may encourage the clubs to make available their fields and facilities to the general public.
  • A municipality may choose to grant permissive exemptions to non-profit groups that provide important local services to disadvantaged segments of the community. For example, a not-for-profit organization that offers programs for at-risk youth may benefit from tax relief and meet council’s objectives for the community.
  • Heritage properties may be granted tax exemptions by a council, which views heritage conservation as being important to the community's character, and/or as an economic development tool to attract new residents and businesses.
  • A municipality interested in delivering services through partnerships may wish to provide exemptions to its private or non-profit partners. The exemptions granted would be intended to help reduce municipal servicing costs.
  • Exemptions for riparian properties may meet municipal conservation and environmental goals.
  • Council may view the services provided on properties that receive statutory tax exemptions as deserving of additional exemptions to ancillary lands surrounding the exempted properties.
  • Council may consider revitalization tax exemptions as a way of promoting environmental revitalization by exempting properties that install solar panels to conserve energy.

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What to Consider

 

Overall exemption policies (financial plan objectives and policies)
All municipalities are required to develop objectives and policies within their 5-year financial plans in relation to the use of permissive tax exemptions (see section 165(3.1)(c) of the Community Charter).
 

Councils are encouraged to consider the exemptions provided under sections 224 and 225, in conjunction with their overall permissive exemption objectives and policies as set out within their financial plan. Exemptions provided under section 226, on the other hand, must be considered in conjunction with the objectives and policies set out in the financial plan.
 

Specific Permissive Exemption Policy
Section 226 requires municipalities to develop a detailed program bylaw outlining the criteria and requirements for a revitalization tax exemption program (see sections 226(4) and (5) of the Community Charter). Council may also want to consider adopting a specific policy for making decisions regarding exemptions under sections 224 and 225, to promote clarity, consistency and certainty to the municipality, the public and prospective applicants. Such a policy should build on the overall permissive exemption objectives and policies as outlined in the municipality’s financial plan (under section 165(3.1)(c) of the Community Charter).
 

Council may want to consider the following in developing a specific permissive exemption policy for exemptions under section 224 and 225:

  • What are the community's goals, values and needs?
  • What are the immediate and long-term implications of exemptions for the properties under consideration, other properties of similar uses and municipal taxpayers in general?
  • Is the proposed exemption for a business? Council has limited authority to grant an exemption to business, but sections 225 and 226 are exceptions to the prohibition on assistance to business provision (section 25 of the Community Charter).
  • How would property tax exemptions help to accomplish community goals, such as social development, economic development, servicing?
  • Are property tax exemptions in keeping with the community’s values? This can be particularly relevant when considering exemptions that can be made to individuals and/or corporations or when considering long-term exemptions.
  • Are there alternatives to tax exemptions that would be more effective in accomplishing these goals, or that would be more in keeping with established values?
  • What types/uses of property benefit the community?
  • Should exemptions be limited to uses that have a broad benefit to the community?
  • Are there types of uses where an exemption would be appropriate even if the community benefit is more narrowly focussed?
  • Should particular benefits or particular services be specifically targeted for exemptions?
  • How should not-for-profits in “competition” with for-profit-corporations be treated?
  • Should exemptions take into consideration exemptions provided in neighbouring municipalities?
  • Should exemptions take cost savings to the municipality into consideration?

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Degree of Exemption
Permissive exemption authority provides for exemptions for all or part of the land or improvements or both. All exemptions may be offered for a single year, or for multiple years as specified in the bylaw, subject to some maximums in the Community Charter.
 

In addition, exemption bylaws may specify conditions under which the exemption will be granted. These provisions give council considerable flexibility in designing exemptions to meet particular circumstances. Council may consider the following issues.

  • Should the exemption be for all of the land and improvements, or some part of land or improvements?
  • Should facilities provided with statutory exemptions for a building and the land under the building be eligible for further exemptions for the land surrounding the exempt building, or for ancillary buildings, such as a place of worship hall?
  • Are parts of the land or improvements used more directly to benefit the community than others? (e.g., should exemptions for service clubs extend to the part of a building used by members for socializing, or just to administration or service facilities?)
  • Should time that a facility is open to the public be a trigger to a partial exemption (e.g., should a sports club that offers public access for two hours per week qualify for the same exemption as another that offers public access for 30 hours a week?)
  • Are there any legislated purposes for the exemption? (e.g., exemptions under s. 226 must be provided to encourage some type or revitalization in the municipality, such as, for example, economic, environmental, or social revitalization).
  • How easy will partial exemptions be to administer? (Where only partial exemptions are offered, the municipality is responsible for describing the part to the satisfaction of the assessment commissioner – advice from the Area Assessor may be useful to determine appropriate descriptions and ease of administration of the various options).

Duration of Exemption

  • How can the property owner's desire for certainty be balanced against the community's need for revenue stability?
  • Should those property owners who need to make significant investments in order to qualify for an exemption be eligible for longer term exemption than those who do not need to make such an investment?
  • What is the legislated maximum term for the exemption? (i.e., section 224 and 226 exemptions must be ten years or less, and section 225 does not have any predetermined time restriction).

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Conditions of the Exemption

  • Should certain types of exemptions trigger particular conditions or restrictions?
  • Should the property be subject to a restrictive covenant?
  • Should there be a penalty to owners who do not comply with conditions in the bylaw or agreement?
  • Should penalties include repayment provisions?
  • If inability to pay property taxes is one criterion for exemption, should recipients be required to periodically report on their finances to council?
  • Should the exemption be tied to a particular quality or quantity of public benefit? (i.e., if an athletic club qualities for an exemption because it offers its facilities to the public for 20 hours a week, should the exemption require public access for 20 hours, or can the athletic club decide to reduce public access to ten hours and still receive the exemption?)

Financial Implications
Once criteria have been established for exemptions under sections 224 and 225 (criteria for section 226 exemptions would be established under each specific revitalization tax exemption program bylaw), a municipality may want to project the number and magnitude of exemptions that could be granted. This may help council determine that a broad application of the criteria would put too much pressure on the municipality's revenues. The council may choose to "weed out" certain types of applications by ranking the criteria in order of priority, or establish additional criteria for applicants to meet. Council could also decide to cap the total amount of tax revenue the municipality will forego in any one year through permissive exemptions.
 

Potential Recipients/Applicants
If council intends to have property owners apply for exemptions under section 224 or 225, a specific exemption policy could include instructions on how, when and what is required for an application. Council may want to take a more proactive approach and identify exempt properties for consideration in the exemption policy. A proactive approach to exemptions may help the municipality to meet specific community goals. For revitalization tax exemptions under section 226, instructions on how, when and what is required could be covered under each specific revitalization tax exemption program bylaw.
 

Transition to the New Exemption Policy
As a municipality moves from ad hoc exemptions under sections 224 and 225, to a specific exemption policy, it will need to consider reviewing existing exemptions against the new specific exemption policy. If the exemptions were granted on a year-to-year basis, transition to the new policy will not be an issue. Longer exemptions that do not conform to council’s new exemption policy will need to be reviewed. Consultation with the affected parties may be useful to determine whether to repeal the exemption bylaw, or allow the exemption to continue. If the original bylaw is repealed, council may wish to provide a grace period (e.g., one year) to mitigate the impact on the property owners. Phasing-out the exemption is a useful option particularly for long-standing exemptions that may be considered a right of the property owner.
 

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How to Proceed

 

Exemption bylaws must be adopted prior to October 31 in order to have effect for the following year.
 

Municipalities must begin developing their overall permissive tax exemption objectives and policies that are required for the municipality’s financial plan (under section 165(3.1)(c)) well in advance of May 15th (the date by which a financial plan bylaw must be adopted). [See Circular No. 07:14 for more information on the requirements for overall permissive exemption objectives and policies within municipal 5-year financial plans].
 

If council is considering a specific permissive exemption policy for exemptions under sections 224 and 225, that process should be initiated well in advance of the October 31 deadline for exemption bylaws. Development of the specific exemption policy is likely to take some time, as will an application process if the specific exemption policy provides for this type of process.
 

Once the overall and specific exemption policies have been developed, the following procedures are required.

  • All exemptions require adoption of a bylaw, which can be adopted at any time. However, if the bylaw is adopted after October 31 in a year, then it does not have effect for the next taxation year. In addition to identifying the properties subject to the exemption, bylaws must describe the extent of the exemption, the period (term) of the exemption and, if applicable, any conditions to which the exemption is subject.
  • Prior to the adoption on an exemption bylaw, council must give public notice of the proposed bylaw, which includes the property subject to the bylaw, a description of the proposed exemption, the number of years the exemption will be provided and an estimate of the amount of taxes that would be imposed on the property if it were not exempt, for the year in which the exemption is intended to take effect and the following two years (the notice requirements for revitalization tax exemptions vary somewhat from this list; they are outlined under section 227(1)(3)).
  • In the case of exemptions under section 225 or 226, council may make an agreement with the property owner which sets out the extent of the exemption and the conditions on which it is made.
  • Bylaws for section 225 exemptions must be adopted by 2/3 of all council members.
  • The amount of property taxes that would have been imposed on each exempt property if the property were not exempt must be included in the annual municipal report under section 98.

Revitalization tax exemptions under s. 226 have some additional requirements.

  • Council must establish a revitalization tax exemption program, by bylaw, which must include a description of the reasons for and objectives of the program, a description of how the program is intended to accomplish the objectives, the kinds of property, or activities or circumstances related to the property that create eligibility for exemptions, and the extent, amounts and maximum term of the exemptions available.
  • Prior to adoption, revitalization tax exemption program bylaws must be considered in conjunction with the municipality’s overall objectives and policies regarding permissive tax exemptions as set out under s. 165(3.1)(c) of the Community Charter.
  • Public notice must be given of the proposed bylaw in accordance with the requirements listed under section 227(1)(3) of the Community Charter.
  • Once the conditions established in the bylaw and the agreement have been met, a revitalization tax exemption certificate must be issued.

For more information on revitalization tax exemptions, please see:

Please contact the financial analyst responsible for your area if you have questions or comments.
 

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