Taxation system unfair, group claims: part two of a three-part series examining the issue of property taxation.

The provincial assessment system and the method of property evaluation are in dire need of reform, says an Espanola accountant.

Ron Heale, who represents about 30 commercial and multi-residential clients on Manitoulin Island and Sudbury, is fed up with a complicated evaluation process that he says cannot be justified.

"The problem is the system just doesn't work," says Heale. "It's horribly complicated."

Heale, who has dedicated about 400 hours of work on this issue in the last five years with the assistance of the Espanola Chamber of Commerce, has volunteered his time in many cases to help clients understand the process.

"I couldn't allow the whole community to be over-assessed; it was going to play havoc with property values."

He claims assessments are deliberately skewed to understate the assessment of large commercial properties and overstate the assessment of small commercial properties. Heale has worked with a number of small businesses in Espanola to deal with tax assessments, and frequently battles bureaucrats from the Municipal Property Assessment Corp. (MPAC) in cases of overvalued assessments of commercial properties.

The Ontario Fair Assessment System was introduced in 1998 to eliminate assessment inequities across the province. According to information on MPAC's Web site, all properties in Ontario were assessed as to their estimated value on June 30, 2001. These values took effect for the 2003 taxation year and are to be updated annually.

The responsibility for property assessment was transferred to a new non-profit municipal corporation called the Municipal Property Assessment Corporation (MPAC). They determine the value and tax class for all properties in Ontario.

Heale blames bad training among MPAC field staff, poor guidelines from head office in Pickering and little local knowledge of the properties being assessed, for ruining the market value system.

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"Every property in Ontario is entitled to be assessed at fair market value ... MPAC is not doing that, they're not even attempting to do that."

Heale says the policy is deliberately starting with assessment for the June 1999 period and it has not hit home to many commercial property owners yet because the capping rules prevent excessive increases in taxation.

The properties, which are over-assessed are currently protected from large tax hikes by five percent capping rules. Heale says most property owners do not understand how their taxes will increase over the years.

The complex five-per-cent capping rules have "created all kinds of distortions" that are hard to understand and confound landowners and municipalities.

Heale says the major problem in MPAC staff at head office in Pickering "drastically over-inflate" values on commercial properties, and he has yet to see any studies from MPAC in any cases he has examined that pinpoint the value of a property.

He estimates highway commercial, light industrial and straight commercial properties of his clients were over-valued between 50 percent and 300 per cent.

In Espanola, Heale found many cases of assessment inequities between large and small parcels of property. The local Canadian Tire's six-acre lot, which cost $588,000 in 1994, was found to be assessed at $373,000, and Giant Tiger store's two-acre lot, which cost $427,500 in 2000, was assessed at $331,000. However he finds smaller commercial lots over-assessed by as much as five times current market value.

MPAC's costing formulas are way out of line, says Heale, and only big businesses and corporations have the consultants and tax experts to challenge their assessment figures.

Heale maintains MPAC's policy is forcing small property owners who cannot afford the cost of an appeal (usually about $825 plus professional fees and payment to the board) and the time required to go before the Assessment Review Board to accept an over-assessment of their properties.

Heale, who set up a property tax assessment committee through the Espanola Chamber of Commerce, is working on a report for the chamber for this fall detailing the inequities in the system.

Judith Andrew, Ontario vice-president for the Canadian Federation of Independent Business, says if municipalities want to raise money for some extra spending for local projects they should raise residential rates, not place the burden on the backs of business.

Andrew, who also serves as an MPAC director, says assessors should be using a methodology for commercial properties that combines replacement building costs, revenue streams and comparable sales.

"I'm doing my very best to press them to get accurate property values and give good service to clients.

"The big problem is there are fewer business properties (than residential) and they're not often sold," says Andrew. "With business properties in small communities, there aren't that many that change hands and people suspect computer models aren't going to serve them well."

She was not aware if people are either upset by huge assessment increases or if MPAC staff in the field offices is not adept at explaining their calculations. But she believes MPAC staff are "endeavouring" to do a good job, but "it could be that properties don't have the proper value on them.

"Some people are just mad about their property taxes and are not sure where to lay the blame. Property assessment is just one part of the equation."

However, Andrews says feedback on MPAC's performance is valued.

"We're getting similar feedback from (CFIB) members through a survey on assessment value. We've found in past surveys, MPAC had a greater tendency to over-assess than under-assess."

But municipalities and politicians who set the commercial tax rate are equally responsible to business owners, she says.

"I've heard of instances where people get shuffled between council and MPAC in their inquiries and can't get anybody to answer them straight about where the problem lies ... But our study with tax rate comparisons tend to show just how distorted the tax rates side of it is. But at least our members can look at that and make their case with their local leaders."

By IAN ROSS 

Northern Ontario Business