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Toronto : Moving on out - to 905

Crazy' property taxes have forced the hand of hundreds of T.O. businesses in recent years

 

By BRYN WEESE, SUN MEDIA

 

Three years ago, Les Liversidge packed up his successful law office and moved out of Toronto.

 

He didn't go far.

 

Liversidge took his practice, his law books and his taxes across Steeles Ave. into Markham.

 

It wasn't a move he wanted to make, rather a "simple business decision" to escape Toronto's "crazy" taxes.

 

He's far from alone.

 

Hundreds, if not thousands of Toronto's businesses over the past several years have packed up their shops, factories and offices and moved to the 905.

 

In the iconic Danforth area, for example, 30% of retailers there now won't be around next year, according to a neighbourhood business survey.

 

Toronto's high commercial property taxes are making rents uncompetitive and unaffordable, city business groups say.

 

'MOM AND POP BAKERY'

 

"If you're paying $10,000 in taxes for your little mom and pop bakery, you'd have to bake a lot of buns just to pay your tax bill," said Judith Andrew, vice-president of the Canadian Federation of Independent Business in Ontario, which has more than 4,000 members in Toronto.

 

"I could see for many people, unless you absolutely had to be in the city, you'd want to run your business somewhere else."

 

Liversidge sold his Willowdale office (a house he "loved" that had been converted into a commercial space) at Yonge St. and Steeles Ave. when it no longer "made sense" to keep it because of burdensome taxes.

 

"I don't remember what my taxes were when I bought (the building) in 1992, which to me means they were not significant," Liversidge said.

 

He recalls paying somewhere in the neighbourhood of $6,000 and $8,000 in taxes annually.

 

But a dozen years later, thanks to property tax changes, provincial downloading, double digit spending and tax increases by city council, Liversidge's tax bill, like those of every business in Toronto, went through the roof.

 

His taxes hit $27,000 a year by 2005.

 

"More significant, I think, was a lack of predictability," Liversidge said. "I had no confidence that commercial real estate taxes would be controlled in any reasonable way," he said.

 

He now rents about the same amount of space in a new, modest-sized three-storey office building.

 

His rent is less than what his taxes were in 2004 in Toronto, even though the two buildings are only about five minutes apart.

JOB GROWTH STAGNANT

 

"I would much prefer to be in Toronto, but it makes no sense," Liversidge said. "If this building was located 300 yards south (on the other side of Steeles in Toronto), I don't think I could afford it."

 

In 2005, the property taxes on a 250,000-square-foot office in the 905 were roughly $800,000 less than in Toronto. These numbers come from a study the City of Toronto conducted and are the most recent available.

 

Business groups, however, maintain the numbers are still reasonably accurate and applicable today.

 

As a consequence, employment growth in the 905 skyrocketed while job growth in the city has been stagnant and even suffered erosion.

 

Between 2000 and 2006, the 905 region added more than 300,000 jobs while Toronto lost 23,700 jobs.

 

Looking further back, over the past two decades, the 905 has added 800,000 jobs while employment in Toronto is still about 20,000 below its peak in 1989.

 

Back in 2002, a city report optimistically projected 1.84 million new jobs would be created by 2031, a number officials now suggest is less a "goal" and more a "target."

 

The falloff is in part attributable to migration of business, particularly small and medium-sized companies, in everything from manufacturing, and accommodation to administrative support and transportation.

 

Toronto's commercial and industrial taxes are higher than its neighbours for several reasons.

 

In part, relatively lower residential property taxes have put more of a burden on businesses operating in the city.

 

"It's all well and good to cushion residents ... however, at a certain point, people don't have to be here and they do leave," Andrew said.

 

Also in part, Toronto's business education tax rates are higher than those paid in the 905.

 

That's supposed to change, but not until 2014.

 

The bottom line, for business, is a tax disparity they can't afford to ignore.

 

Cindy Anisman, a spokesman for Kingsdown Sleep Systems, credits moving from the intersection of Hwys. 401 and 400 to Vaughan two years ago with their company's growing success.

 

Their facility in Vaughan is 120,000 square feet and employs more than 100 people.

 

"We needed to expand our business, and the only place that you could actually find an area big enough was north in Vaughan," she said.

 

"Taxes are lower, and utilities in a brand new building are a lot cheaper, too."

 

'NO-BRAINER TO MOVE'

 

"It was a no-brainer to move," she added. "We're just sorry we didn't make this move earlier."

 

Toronto officials are fully aware of the taxation problem, and council has passed several new measures to try to stop the bleeding.

 

Three months ago, the city started a new program that allows manufacturers to improve their buildings or create a new building and get a "tax holiday" from higher taxes for a decade on the upgrade.

 

"It's the first of its kind anywhere, I believe," Christine Raissis, director of the city's strategic growth and sector services, told the Sunday Sun.

 

For the past few years, the city has also waived development charges on new commercial and industrial buildings, which it collects to pay for infrastructure such as roads and sewers.

 

"We forgo those, partly on the basis that our business and commercial property taxes are higher, so we're trying to do what we can in the short term to balance that (tax) differential," said Randy McLean, the city's economic policy manager. "We're forgiving the front end development charges because we want the jobs."

 

It makes a difference.

 

For a 100,000-square-foot industrial or small office development, those charges would amount to $827,000.

 

Toronto has also implemented a three-year-old plan to lower its commercial to residential property tax ratio to 2.5 to 1 within 10 years from its current 4-1 ratio -- to narrow the gap between what homeowners pay relative to business owners.

 

It's still dramatically higher than ratios in 905 communities but Andrew from the CFIB said at least Toronto is "heading in the right direction."

 

Other critics are less understanding.

 

"The city's proposal to bring the tax ratio in line ... is worthless because, at a minimum you're looking at 10 years before they achieve that level," said Lionel Miskin, v-p of the Toronto Association of Business Improvement Areas.

 

"And each year your taxes still go up, but the residential tax rate is going up faster than the commercial rate."

 

"Maybe people will be happy about it in 10 years, if there is anyone working in the city anymore," he added. "I would say it is a crisis situation."

 

But Toronto council isn't the only level of government responsible for this city's jobs and businesses relocating to the 905.

 

Provincial education taxes are also a sore point.

 

In 2007, the Ontario government unveiled plans to equalize business education taxes across the province.

 

'VITALITY IN THE CITY'

 

Historically, Toronto's Business Education Taxes were significantly higher than those paid in the GTA and will remain higher until the province completes its equalization plan in 2014.

 

Steven Sorensen, who chairs the Toronto Office Coalition, argues city and provincial measures need to be put in place sooner if the city is serious about retaining businesses and creating jobs.

 

"I think the benefits of introducing these measures in a more prompt fashion would pay off many times over in terms of the economic growth and vitality in the city," he said.

 

The city counters the cost of lowering the commercial tax ratio sooner would cost $600 million to $700 million.

 

However, the argument of when to lower taxes may be moot.

 

For the Toronto Association of Business Improvement Areas, the only real solution to the city's high business taxation woes is to develop a new taxation system.

 

The BIA association believes Ontario's property tax assessment system, which regularly updates the tax value of properties, is flawed and unfair.

 

The CFIB also thinks the city needs to focus on its core duties -- roads, public health, welfare and parks -- and curtail its spending habits to make Toronto more tax competitive.

 

In fact, a recent survey of its Toronto members -- all of them small and medium-sized businesses -- found 86% think the city needs to eliminate wasteful spending.

 

Among other things, the CFIB wants the city to contract out more services for competitive bidding, and do away with its fair wage policy, which requires private non-union companies doing work for the city to pay their employees city rates.

 

But the city, for its part, rejects the notion Toronto's taxes are posing a crisis for the business community.

 

In fact, the city argues, there are currently three new skyscrapers being built in the downtown core for a total estimated investment of about $1 billion.

 

BANKS, STOCK EXCHANGE

 

The city is still the financial capital of Canada, home to the headquarters of five of the country's six national banks, 90% of Canada's foreign banks and the nation's largest stock exchange.

 

There is also growth in several important industries, namely computer systems, finance, health and education, which Raissis argues creates a synergy with the outlying areas of Toronto, whose specialty is mainly manufacturing.

 

"The performance of 905 is important to Toronto, and the performance of Toronto is important to 905," she said. "It's one economic region, but it's not homogeneous."

 

"We are not here to compete against the 905, we're all here as a region to present Toronto as an international market place," she said.

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