Creating a competitive auto manufacturing property tax regime in Ontario

As the federal and Ontario governments work to secure generational investments in automotive manufacturing capacity, the challenge of accurately estimating and planning for the eventual property taxes remains a sticking point to bringing certainty to potential investors and their host municipalities.

In Ontario, the province establishes the property assessment and taxation regime. The Municipal Property Assessment Corporation (MPAC) then implements these rules to determine property assessments for all properties in Ontario. Municipalities fund MPAC to deliver these property assessments.

Municipalities are responsible for determining their revenue requirements to deliver services, and they set their tax rates against the property assessment values provided by MPAC. Property owners then pay these property taxes based on their assessed values — or appeal the assessed values to reduce their property taxes.

Ultimately, any change to the assessment rules starts with the Province of Ontario. Thus, it is in the driver’s seat when it comes to creating a competitive auto manufacturing property tax regime.

MPAC’s Approaches to Value

MPAC uses one of three approaches to establish an assessed property value: direct comparison, income, or cost. The approach depends on the property type and how frequently similar properties are bought and sold on the market.

For instance, the most common method — direct comparison — is used for residential and some commercial properties. It uses recent sales of comparable properties to determine the property’s value. On the other hand, the income approach is used for properties that earn revenue, such as shopping centres, multi-residential buildings, or office buildings.

The cost approach is used for unique properties rarely sold on the market, such as industrial properties, warehouses, mines, and grain elevators. For these unique properties, MPAC relies on the cost approach to set their value. This involves calculating the cost of replacing buildings, structures, and other components; applying a depreciation deduction; and then determining the land value to set an overall value for the property.

In Ontario, automotive assembly and parts manufacturing facilities are classified as “Large and Special Purpose Properties” by MPAC. For these properties, MPAC uses the cost approach. There are over 500 properties in this inventory, with around 80 being automotive assembly or parts manufacturing facilities and the remaining being mines, mills, and other complicated and hard-to-value properties.

Municipal Revenue Uncertainty

The assessments generated by this process can greatly affect the communities where these automotive facilities are located. In many smaller municipalities or those without a diverse tax base, the property taxes collected from these facilities comprise a large proportion of the municipal budget, meaning any changes can result in large shifts to other property owners.

Generally, property owners appeal these assessments and, more often than not, the resulting values are significantly lower than the original assessments. Given their complexity, these appeals often take years. For instance, in Ingersoll, Ont., the appeal of the local CAMI plant’s property assessment has been dragging on for almost eight years, with a resolution still to come. Then, once the appeal is settled, there are often large property tax refunds owed to the property owners.

For example, after a decade-long appeal, Toyota’s plant in Woodstock, Ont., went from being assessed at about $222.4 million to $169 million. This resulted in a property tax refund of just under $13.6 million, with the City of Woodstock refunding $5.3 million, the Township of Blandford-Blenheim returning $1.68 million, and Oxford County owing $2.76 million.

Another example is the Stelco case in the City of Hamilton. MPAC had reconsidered its 2016 values for the land, reducing them from $100,000 per acre to $100 per acre for about 411 acres of residual land. The City of Hamilton appealed these values, but the Ontario Assessment Review Board confirmed MPAC’s values, costing the municipality $2 million a year in revenue. Stelco then sold a portion of the property for $518 million, representing a value of $630,000 an acre, to a private industrial developer.

The current assessment and appeal process for automotive facilities means municipalities and property owners do not have the tax certainty they need to manage their finances and investments. This can negatively impact investments from large employers as they cannot adequately estimate their property taxes.

Bringing Investment and Revenue Certainty

If Ontario wants to continue to build its automotive sector while bringing stability to municipal finances, it is necessary to change the assessment process for automotive manufacturing facilities.

One solution could be moving to regulated rates. Ontario already uses these for other hard-to-value properties — such as power-generating facilities, managed forests, or linear properties like railways and gas pipelines. This could be a per-square-foot property tax amount, with a certain dollar amount for each square foot of property, with different values per square foot of building or unbuilt space.

Developing such a rate would require determining what that dollar per square foot value should be at a provincial level, including how it might increase over time, and applying it to the impacted properties to inform their annual property tax payments. A range of benefits could be realized from a regulated rate, including:

• Revenue and expenditure certainty — A regulated rate would provide municipalities with a clear view of what to expect in the form of property taxes; in contrast, property owners themselves would have clarity on their expected contribution to local property taxes.
• Eliminate appeals — The appeals process could be eliminated, resulting in reduced costs for municipalities, MPAC, and property owners when hiring experts and legal representation for appeals.
• Reduced MPAC fees — The portfolio of Large and Special Purpose Properties MPAC manages accounts for a large portion of its annual legal budget. If MPAC’s legal budget is reduced, the annual fee municipalities need to pay MPAC would be reduced, keeping much-needed revenues in their communities.
• Investment certainty — Given Ontario’s push for new automotive investments, manufacturers would have certainty in how much they need to allocate to property taxes from their planned investments.

The automotive sector is a key driver of employment and innovation across Canada, but it requires constant attention and nurturing to encourage its growth and evolution. Updating an outdated property assessment and taxation regime is another way Ontario can remain competitive in securing generational investments in this important global economic sector.