Finances

November 26, 2024 Published by Toronto and Area Chapter - By Chris Jaglowitz

Reduce Budget Drain of Corporation-Owned Units

From the Fall 2024 issue of CCI Toronto Condovoice Magazine.

Cost-saving strategies for condominium managers whose properties have corporation-owned units that currently may be subject to municipal tax

“The only certainties in life are death and taxes.” It is possible, however, that some municipal taxes currently paid by condo corporations on units held in their name can be reclassified to reduce or eliminate the drain on their already tight budgets. Here are some cost-saving strategies for condominium managers whose properties have corporation-owned units that currently may be subject to municipal tax.

Corporation-owned units, which include superintendent suites, guest suites, gatehouses, recreation spaces, parking spaces and lockers, can be a drag on a condominium corporation’s finances. Managers may be unaware whether their corporation-owned units – common amenities held by it on behalf of all unit owners – are subject to municipal taxation. Yes, if corporation-owned units are classified by the Municipal Property Assessment Corporation (MPAC) incorrectly as residential taxable units, condo managers should explore the possibility of having those units re-assessed and classified as common amenity units, which are non-taxable.

Investing a little time, persistence and some legal cost up front can often help condo managers eliminate the annual cost of municipal taxes and avoid unexpected hefty tax bills resulting from the wonky new federal and municipal taxes for vacant and underused housing. Let’s look at how we got here historically.

Common amenity units and MPAC since the 2000s

The good fight for appropriate classification of common amenity units is not new. In fact, the successful appeals resulting in MPAC re-assessments date back to 2005. Importantly, in 2011 and 2013, a small team of GTA condo lawyers led by Bob Gardiner appealed successfully against MPAC and won precedent-setting cases that overturned MPAC’s classifications of guest suites, super’s suites and an on-site recreation centre and reduced the tax burden for more than 200 condo corporations at that time. What these decisions meant for condo corporations was no municipal tax on super’s units, guest units, gatehouses and other corporationowned units that had previously been assessed as taxable by MPAC.

Due to this success, many condo corporations have since taken action to eliminate taxes on their units but, surprisingly, many have not. Corporations created or having acquired units since then may be classified incorrectly, in which case they are paying municipal tax needlessly.

Municipal tax rates and MPAC

Now is an excellent time to check whether your common amenity units are assessed by MPAC correctly. Municipal tax rates are increasing (by almost 10% in the City of Toronto for 2024) and may sharply increase even further in 2025 when the new assessment cycle is expected to begin after taking a COVID-19 hiatus. That is to say: Municipal taxes for 2025 will be based on January 2022 market valuations, whereas they’re currently based on January 2016 market values, which were far lower. For this reason, condo boards and managers are wise to proactively check for any corporation-owned units currently subject to tax and ask their legal team to help them get those units reclassified as non-taxable.

Other taxes

Beyond regular municipal property tax, there a re other new taxes that deserve urgent attention. The federal Underused Housing Tax Act (the UHT Act) came into effect on January 1, 2022. This Act, administered by Canada Revenue Agency, imposes a federal 1% tax on residential properties that are vacant and underused. Non-resident residential owners are mostly impacted. Since condominium corporations are considered owners of residential properties such as a super’s suite or guest suite, the UHT Act imposes additional reporting responsibilities for corporations, including the requirement to file a yearly UHT return form. Non-compliance comes with a hefty $10,000 fine for corporations.

That’s not all. Toronto and other municipalities have also introduced (or are looking to introduce) their own forms of underused or vacant home taxes. These all require extra paperwork and proactive filings to avoid large tax bills. Get accounting and legal help to assist with these taxes, and some of the tips below may help.

Handy Tips

For municipal property taxes, there is hope. Condo managers can be the corporation’s hero by identifying and acting on cost-saving opportunities and discovering ways to streamline administration of corporation-owned units.

Here is a checklist of tax management tips that can be cost effective for your condo corporation:

Financials
1) Begin with the basics. Budget preparation is an opportune time to check for municipal tax line items on budgets and financial statements. Make it a point to investigate these items. Ask your lawyers or auditors for help. You’ll thank yourself.

2) Avoid the urge to procrastinate - gather and file municipal tax bills and notices of assessment to identify potential tax savings.

3) If taxes are truly payable, pay them on time. There’s no reason to be hit with fines for late payments.

4) Closely watch for municipal tax mailings about vacant properties or underused housing and respond by making required filings or declarations within deadlines.

Corporation’s Records
5) Make sure you know the legal description (i.e., Unit # and Level #) for any corporation-owned units. Reference the condo declaration and its description drawings to identify such units and ensure your unit list is accurate.

Municipalities and MPAC
6) Ensure the corporation’s address for service is updated with your municipality and MPAC and give your site management offce address (if applicable) rather than head offce. This way you receive the applicable notices, despite periodic management firm changes.

7) Record the Assessment roll numbers, these are 19-digit numbers that identify your property, for the various parcels/units owned by the corporation. A common amenity unit such as a super’s unit or a guest suite will not have a tax roll number if it is part of the common elements, but probably will have a roll number if the amenity is a legal unit.

8) Use MPAC’s website for reference and to gather information. Connect with MPAC regularly. Email them with information changes to your corporation or questions that your board or you as condominium manager may have.

9) Ensure that amenities are transferred to the corporation as noted above. Developers sometimes neglect to do so in the early years, or at all.

10) Finally, remember that s.15(2) of the Condo Act confirms that common elements are not subject to municipal taxes!

Municipal taxes on corporation-owned units can be complex. When in doubt, ask your lawyers and accountants for guidance and advice.

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Chris Jaglowitz has practiced condo law for 20 years. He owns Common Ground Condo Law.