Toronto, Victoria University at odds over tax-free land

theglobeandmail.com
By Jeff Gray
Feb. 17, 2017

A 26-storey luxury rental-apartment complex, under construction just steps from Toronto’s so-called Mink Mile of high-end shops along Bloor Street West, will offer residents a 24/7 concierge, a professionally designed fitness studio and an “in-house pet spa.”

But city officials say that, despite sitting in one of the city’s wealthiest neighbourhoods, it is also set to receive a massive discount on its property taxes thanks to a 66-year-old legislative loophole.

The project at 2 St. Thomas St., by prominent developer KingSett Capital, is on leased land owned by Victoria University, which is affiliated with the University of Toronto. Most universities in the city are exempt from property tax on land they own and use themselves, but not on land leased out for commercial purposes.

However, under the province’s 1951 Victoria University Act, all of Victoria’s land is tax exempt. Private-sector tenants leasing land from the university still pay property tax on the value of their buildings, but not on the value of the land. As a result, city officials say, Toronto has been shortchanged millions of dollars in property taxes on land the university leases out for residential buildings, a mall that features luxury watchmaker and jeweller Cartier, and the sleek on-campus offices of global consulting firm McKinsey & Co.

According to city documents, the arrangement has cost the city at least $7.7-million in taxes on five buildings on University of Victoria land between 2013 and 2015. For example, on 131 Bloor West, known as the Colonnade, the city would have collected another $12.2-million in property taxes between 2009 and 2015 alone.

It is money that could have eased this week’s bruising budget debate, which saw city council balance its budget by raiding reserve funds and cutting $1-million from homeless shelters.

“It has created an inequitable and unfair and archaic result that the city can’t put up with any longer,” Mayor John Tory said in an interview, saying the arrangement is “ripping off the Toronto taxpayers” and unfairly benefiting the tenants involved.

The city appears to have been alerted to the problem after some of Victoria’s tenants challenged their property assessments last year, and has met with Victoria University about making a deal. So far, however, the university and the city have yet to agree on a settlement. City finance officials have advised that city council should ask Queen’s Park to simply rewrite Victoria University’s legislation if a deal cannot be reached by Sept. 30. The Ontario government is urging both sides to work it out themselves.

So far, Mr. Tory says, Victoria has offered to pay not the millions it would owe, but as little as $100,000 a year – a number the mayor then said he “had heard” but could not confirm, as he was not involved in the talks.

“The offer they made is a nice try,” Mr. Tory said. “And I guess I don’t blame them for trying a low-ball offer. Anybody would try to do that. But it’s a low-ball offer compared to what it should be.”

The local city councillor, Kristyn Wong-Tam, called the offer “very modest” but would not disclose any details. “Right now, I don’t think we are close to a resolution.”

She said the city hopes Victoria will agree to a “fair” deal similar to the one the city has with UofT, which voluntarily hands over payments in lieu of property taxes even though it too once enjoyed the same broader tax exemption.

A spokeswoman for Victoria University, Jennifer Little, said in an e-mail that the institution “has been working closely and productively with the City of Toronto for several months” on the issue. She said the tax arrangement was deliberately created by the Ontario government to allow the university to develop then-struggling Yorkville in the 1960s.

“As a university committed to the public good, Victoria University holds that any change to the tax treatment of its property should not have an adverse effect on students or public education,” she said.

Ms. Little would not say what amount of money the university had offered to pay the city.