City of St. John’s Proposal for Tax Reform
Elimination of Business Occupancy tax
23 April 2010
Prepared by Altus Group & Ottenheimer Baker
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History of Progress to Date
Tax Reform
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City Proposals –
Elimination of Business Occupancy Tax
 “Discussion paper on tax reform”, April 7, 1992.
(public document requesting feedback)
Proposal was dropped due to opposition
 ‘Joint task force on amalgamation and taxation’ (St. John’s BoT and
City) March 2001. City submitted draft proposal for tax ‘integration’.
Made known to major property owners in June 2002.
Proposal was shelved due to opposition
 Paper entitled “Integrating the Business Realty and Business
Occupancy Taxes” submitted to BoT in early 2006. Meeting with
major property owners on March 21 2006.
Ongoing discussion
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Current 2006 City Proposal
 Calls for the integration of Business Realty and Business Occupancy
taxes (in practical terms, elimination of the BO tax)
 Recommends that there be a phase-out of BO tax (with phase-in of
realty tax increase)
 Residential Realty tax is not affected by the proposed tax reform
 Agrees that any change should only be carried out with the full cooperation and support of the business community
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City Proposal – Suggested Pros & Cons
The City will derive a number of benefits by combining the taxes.
These would include:
– Simplifying administration in the Assessment department
– Simplifying administration in the tax billing and computer
departments
– Reduce tax arrears due to the ability of being able to place a lien
on the property
– Federal and Provincial government departments which occupy
private property will pay a greater share of the tax burden
– Non-profit and fraternal organizations (not charitable) occupying
private property will pay a greater share of the tax burden
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Altus Group Mandate
 In previous years (1992 and 2002) Altus had represented major
taxpayers (together representing over $300m assessed values) in
opposing the City’s proposed tax reform on specific grounds
 Representing the same taxpayers in 2006, the taxpayers requested
Altus Group undertake a study to review the latest proposal and look
at how problems relating to a possible tax change may be mitigated.
On request from the taxpayer group, the City of St. John’s agreed to
fund the study.
 A contract was concluded between the City and Altus Group in 2006.
The contract required there to be an ‘Advisory Committee’ that
would assist in the Altus Group research and study
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The Study Group
 Altus Group Ltd
Neil Hardy, BSc., MRICS, AACI
Joanne Hayes, B.Comm., B.A., AACI
 Ottenheimer & Baker
Bob Andrews, QC
Beth McGrath, BBA, LLB
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Purpose and Scope of Study
 Review legislation across the country where BO has been phased out
 Review success of similar tax reform in other jurisdictions in Canada
 Research problems / issues that BO elimination will cause
 Relate these issues to the City’s proposal
 Address concerns raised by taxpayers in the City
 Suggest methods and policies that can be built into enabling
legislation and City protocol that would eradicate or largely mitigate
problems arising from BO elimination
 Summarize findings and recommendations in an independent report
that would be available to all parties
NOTE: the report will not make recommendations relating to whether
or not BO elimination should take place. This is a political decision.
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Advisory Committee
Major taxpayers represented
– Martek Inc (Charlie Oliver acting as chair of Advisory
Committee)
– Empire Group / Crombie REIT
– Fort William Properties
– Perennial Management
– Fortis Properties
City of St. John’s representatives
– Neil Martin / Bob Bishop
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Issues Resulting from BO Elimination
Critical issues that need to be addressed to mitigate shift in tax
burden:
 Change in tax liability for landlords
 Change in weighting of tax burden across commercial taxpayers
 Vacancy in rented commercial buildings
 Vacant commercial land
 Gross leases (allow increase in tax to flow through to tenants)
 Lease administration
 Taxes on charities and other exempt properties / occupiers
 Tax payment periods
 Fairness ratio introduction
 Phase-out decision (phasing or simply overnight change)
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Interaction with Focus Groups
 Several Focus Group meetings were held where issues resulting
from our research were discussed and feedback received.
 Focus Group sessions were held with companies and associations
such as:
– Board of Trade municipal affairs committee
– Fortis Properties
– Fort William Properties
– Other leading property owners in the City
– Hotel owners / managers
– Advisory Committee
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Delivery of Consultants Report
 Altus Group and Ottenheimer Baker completed their consultant
report on 1 May 2009 and delivered the report to:
– Neil Martin and Bob Bishop of the City of St. John’s, and
– Charlie Oliver, chair of the Advisory Committee
 At the same time, the consultants provided an overview of their
findings to City Council and senior bureaucrats, and also to the
Advisory Group committee
 The consultants also provided the City and Advisory Group with a
suggested ‘roll-out’ plan
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Phases Completed as of 30 June 2009
 Research into issues relating to tax blending and elimination of
business occupancy tax
 Review of legislation and issues arising in other jurisdictions where
business occupancy tax has been eliminated / phased-out
 Focus Group meetings with stakeholder groups
 Completion of comprehensive consultant report
 Creation of a tax ‘model’ for estimating changes in tax payable and
weighting between tax groups
 The City Council has determined that they wish to move forward
toward implementation of the tax reform and have authorized the
City Manager to proceed to the next phase of the project
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Action Plan
Tax Reform
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Future Action Plan
1. Meetings with taxpayer focus groups to inform them of
research and recommendations to date, discuss major issues
and obtain feed-back on what will need to be done to
achieve buy-in (currently on going)
2. Draft legislation that would allow for the proposed tax
changes to be implemented
3. Bring all issues and final plan to the public’s attention
through media releases, general meetings, etc
4. Obtain legislative changes that will authorize the City to
make tax changes as planned
5. Prepare taxpayers and City administration for
implementation for the 2013 tax year
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Taxpayer Focus Groups / Meetings
There are several issues that will give rise to disparities in tax
burden from ‘prior’ to ‘after’ the proposed elimination of business
occupancy tax, as well as other related operational issues. These
have been outlined in the consultant report.
With this in mind, the City, in conjunction with the Advisory
Committee, will be meeting with relevant stakeholder groups to
discuss and resolve to the best level possible each of the issues
identified. In some instances, the meetings may be more
information sessions.
Providing the stakeholders with full disclosure, an explanation of the
issue, background research and possible solutions for mitigation, will
provide for maximum understanding and feedback for negotiating
solutions.
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Meetings Protocol
 The meetings will be arranged through the Advisory Committee
 The date for meetings will give sufficient time for stakeholders to
prepare for the discussion. Difficult topics will be arranged well in
advance, whereas ‘information’ discussions can have shorter leadup time
 The Advisory Committee will select and invite individuals to
represent the particular stakeholder group. Meetings will be of
whatever size of group the Advisory Committee feels appropriate to
achieve solution to each issue
 All relevant information on the issue will be provided to those
attending the focus group meeting.
 Attendees will include member(s) of the consultant team, the City,
Advisory Committee and relevant stakeholders
 At each meeting, the consultant team will offer a preview of the
issue, result of research and possible solutions. They will also
provide independent advice during each session
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Scope and Goals of Taxpayer Meetings
Tax Reform
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Vacancy in Rented Commercial Buildings + Tax
Payment Periods
 Recommend 1 day be set aside
 Although two separate topics, the stakeholder group for each will be
the same, hence our recommendation to combine the topics to a
single meeting
 Goal #1 will be to agree to vacancy formula whereby landlords who
have vacancy in buildings will be in a roughly equivalent position
after the tax reform to prior whereby uncollected tax from business
occupancy would be recognized as an allowance in the new tax
payable
 Goal #2 will be to determine tax payment periods and decide on
details regarding payment in arrears and tying in tax rebates /
concessions with the billing / payment schedule
 Keep in mind simplicity of calculations so as not to spawn
complicated administration
 Possible tie in between tax payments in arrears and previous period
vacancy
 An audit and potential penalty feature will be necessary
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Vacant Commercial Land
 Recommend ½ day be set aside
 Goal will be to agree to reimbursement to the taxpayer of the
previous business occupancy portion of the increased realty tax
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Property Tax Clauses in Leases + Lease
Administration (once-only cost)
 Recommend ½ day be set aside
 Although two separate topics, the stakeholder group for each will be
the same, hence our recommendation to combine the topics to a
single meeting
 Property tax clauses will be an information session lead by Bob
Andrews / Beth McGrath, with discussion and Q&A
 ‘Lease administration’ goal will be to try and determine and offset
likely potential costs to landlords for administration of the tax
change, likely in the form of a one time cost allowance
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Charities
 Recommend ½ day be set aside
 Goal will be to explain the taxation issues involved to Charities and
for the City to demonstrate their desire not to increase the burden
on charities through the tax change
 Landlord representatives may want to be present as the solution
may involve rebate to landlords and not directly to charities
 Largely an information session, although details of the rebate
system should be forthcoming
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Tax Exempted Parties
 Recommend ½ day be set aside
 Attendees should be representatives from tax exempted groups such
as the Federal Government, Provincial Government, Edge Status
companies, etc
 The goal will be to provide information, but also to allow the City to
explain their intentions regarding tax changes to each group. If
rebates or tax concessions are to be awarded to any of these
taxpayer groups, the goal of the sessions will be to conclude how
the concessions will operate
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Utility / Communications Companies
 Recommend 2 hours be set aside
 This is a specialized taxpayer group who presently pay realty tax
and are exempt from business occupancy tax as a result of them
paying a percentage of gross revenue as a ‘utility’ tax
 The goal will be to inform the group of the possible tax changes and
how this will affect them. The City will need to decide if they wish to
rebate the taxpayer group for increased realty tax, or reduce the
utility tax, or neither. If a rebate is considered necessary, the goal
will be to reach a formula for rebate.
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Fairness Ratio + Phase-out or Overnight
Elimination of Business Occupancy Tax
 Recommend ½ day be set aside
 Suggest representatives from all taxpayer groups attend, as these
topics are both general interest to all
 Goal #1 will be to see if the taxpayer group as a whole would like to
see the implementation of a ‘fairness ratio’ and goal #2 would be to
set the fairness ratio
 Goal #3 would be to obtain feedback and recommendation regarding
whether the taxpayer stakeholders would want to see a phase-out of
business occupancy tax or simply an overnight elimination
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Taxpayer Education
 Recommend 2 or 3 ½ day sessions be set aside
 Suggest tenant groups and smaller landlords be invited, possibly
Board of Trade and Federation of Independent Business, lawyers,
accountants, etc
 Goal will be for information and Q&A
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Draft Legislation
Tax Reform
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Draft Legislation Required
 The City would require amendments be made to legislation as
follows:
– City of St. John’s Act
– City of St. John’s Municipal Taxation Act
– Assessment Act
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Readiness for Implementation (if proceeds
to this stage)
Tax Reform
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Information Releases
 The main aim of the media / taxpayer releases will be to educate
taxpayers in the purpose and effects of the tax reform. Specific
attention will be paid to:
– Describing the assessment and taxation process ‘prior to’ and
‘after’ the change
– Showing the differences that will occur in taxation
– Explain the ways the ‘issues’ have been mitigated
– Advise landlords and tenants how the tax reform will affect them
(op. cost recoveries, billing periods, vacancy allowance, etc)
– Provide specific information on critical dates for implementation,
billing and for payment
– Provide ‘hot line’ for Q & A
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City Preparation
 The City will make up-front preparation for the tax reform,
including:
– Liaising with the Provincial Government in preparation for the
tax reform
– Ensure legislative reform takes place on a timely basis
– Educating all relevant internal staff on the tax reform
– Making relevant changes to property-based tax revenue
administrative functions and protocol
– Make relevant changes to the Assessment Department to ensure
proper protocol in maintaining the assessment roll
– Making sure there is an efficient taxing system to minimize the
need for bureaucracy and minimize taxpayer administration
– Prepare a revenue neutral 2013 budget with transparency of
differences between tax system in 2012 and after tax reform in
2013
– Have a dedicated interim team available for Q & A
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Implementation Date (1 January 2013)
 The tax reform is presently planned to become effective on 1st
January 2013
 To date, the overwhelming vote of the focus group members ‘strawpolled’ is to have an ‘overnight’ implementation as opposed to a
phase-in
 The 2013 assessment roll will have no business occupancy tax
 The 2013 property tax rates will be for property tax only
 Legislation to protect the right of added property tax recoveries for
landlords will be effective as of the date of tax reform
implementation
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Question and Answer Period
The City representatives and consultants will be please to answer any
questions you may have
Thank you for attending this information session
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