Ontario Property Tax Exemption for Charities Not a Fait Accompli

 By Joel Secter

In addition to being tax exempt under subsection 149.1(l) of the Income Tax Act (Canada), non-profit organizations and charities may be exempt from property taxes in Ontario as well. Under subsection 3(1) of the Assessment Act (the "Act"), exemptions are made for "Philanthropic organizations" and "Charitable institutions" among others. Notwithstanding, these exemptions have been construed quite narrowly so organizations should review each particular subsection of the Act carefully to ensure that they understand the criteria for exemption and are not subject to an unexpected assessment.

 In Ontario, property is assessed and classified by the Municipal Property Assessment Corporation (MPAC), itself a non-share capital corporation to which every municipality in the Province is a member. MPAC assigns each property a classification, which, combined with the municipally set tax rate, determines the amount of property tax owing. According to the Act, all real property in Ontario is liable to assessment and taxation, subject to a number of exemptions. The exemptions for "Philanthropic organizations" and "Charitable Institutions" state: 

 Philanthropic organizations, etc.

Land owned, used and occupied solely by a non-profit philanthropic, religious or educational seminary of learning or land leased and occupied by any of them if the land would be exempt from taxation if it was occupied by the owner. This paragraph applies only to buildings and up to 50 acres of land.

 Charitable institutions

 Land owned, used and occupied by,

i. The Canadian Red Cross Society,

ii. The St. John Ambulance Association, or

iii. any charitable, non-profit philanthropic corporation organized for the relief of the poor if the corporation is supported in part by public funds.

Despite the differences between these provisions, the Act is clear that land will be assessed against the owner, regardless of whether they occupy and use it. The Act does not define "owner"; however, according to the Ontario Property Tax Assessment Handbook, "it has repeatedly been taken to refer to the legal owner." (This is as opposed to the beneficial owner - on which the Handbook is silent).

 A reading of the provisions above highlights that simply owing land is not enough to qualify for exemption; the legislation requires that non-profits and charities own, occupy and use the land for one of the designated purposes. In situations where an otherwise tax exempt owner has non-qualifying tenants, MPAC will assess only those portions of the property that are being used for a purpose other than the eligible exempt activity named in the Act. For example, where a hospital rents space to a fast food outlet, only the portion of the property occupied and used by the restaurant will be assessed. In cases such as these, the courts will apply a primary purpose or predominant use test.

 It is noteworthy that under section 3(1)5, a non-profit philanthropic, religious or educational seminary of learning does not need to own property in order to qualify for the exemption providing that they lease and occupy land that would be exempt from taxation if it was occupied by the owner. In other words, certain non-profit organizations and charities may still qualify for the exemption if they are the sole occupants in buildings that they lease from another exempt entity.

In the event that your organization happens to receive a Property Assessment Notice, it is likely because:

 The assessed value of your property has changed,

• The classification of your property has changed, or
• The property, or a portion of it, has changed from exempt to taxable.

Should you disagree with the Notice, you may ask for a Request for Reconsideration (RFR), which is important because you can only file an appeal to the Assessment Review Board (ARB) - an independent adjudicator whose main function is to hear appeals from people who believe that their properties were incorrectly assessed or classified - if you have submitted an RFR. If, however, the Notice relates to an exemption, the ARB does not have jurisdiction; appeals dealing with exemptions must be made to the Superior Court of Justice.

On a final note, where an organization does not qualify for exemption from tax under the Act, the Municipal Act also requires municipalities, other than lower-tier municipalities, to provide registered charities with rebates of at least 40 per cent on account of taxes on eligible property they occupy. A property is eligible if it is commercial or industrial within the meaning of subsection 309(1) of the Municipal Act. Questions regarding this program can be addressed to the Revenue Branch of each municipality.

The long and the short of it is that merely being a non-profit organization or charity is not sufficient to ensure exemption from property taxation. Each exemption under the Act is slightly different and requires careful review to ensure the criteria are met.