Understanding the New Small Business Tax Subclass and Its Impact on Commercial Property Taxes in the City of Ottawa

The creation of a new Small Business Tax Subclass was approved by the City of Ottawa in October of 2021. The new policy will significantly change property taxes for commercial properties in the Ottawa area – a region that encompasses the communities of Gloucester, Nepean, Vanier, Kanata, and Orleans, among others.

Background: Commercial Property Taxes

Property taxation is the primary method through which municipalities raise funds. Different properties have different tax rates. This is because property tax classes are assigned to properties based on their uses and municipalities are empowered to apply differential taxation rates to different properties through tax class ratios. Tax class ratios identify the proportion by which a class tax rate compares to the residential tax rate (which is assigned the base ratio of 1.0). The municipality can also use subclasses to further define and distinguish properties for tax purposes.

To learn more about the City of Ottawa’s tax policy, visit this link.

Eligibility

Subject to the property size and use requirements, the property classes to which the Small Business Tax Subclass will apply are:

• Commercial property tax class (CT)

• New Commercial property tax class (XT)

• Industrial property tax class (IT)

• New Industrial property tax class (JT)

Qualifying properties will be determined using property tax class, property size, and property code. Consideration for the small business subclass happens without application, and qualified property owners will receive a Property Assessment Notice towards the end of 2021 advising them of the change in the property’s classification. A list of eligible properties will also be posted on the City of Ottawa’s website by January 31, 2022.

If your property is not on the list posted by the City of Ottawa and you believe that your property is eligible for the new subclass, you can file a request for reconsideration with the Program Administrator of the City of Ottawa.

Impact of New Small Business Subclass Tax

The new Small Business tax subclass will provide eligible properties with a 15% reduction in property taxes over the course of two years. This means that property taxes will be reduced by 7.5% in 2022 and by another 7.5% in 2023.

According to the City of Ottawa’s Finance and Economic Development Committee report on the small business tax subclass, approximately 5,800 properties (or an estimated 10,000 small businesses) will benefit from the discount based on the proposed definition of “small business.” The new policy will result in a total discount of approximately $9.9 million annually to small business properties. The financial impact of the policy will be offset by the elimination of the Excess Land subclass and a small increase to the residual commercial and industrial class properties that will not receive the discount.

The City of Ottawa’s Finance and Economic Development Committee report on the small business tax subclass makes it clear that the intent is for property owners to pass the discount on to their tenants, where applicable. It is unclear how this will be enforced as no mechanism for doing so is provided in the by-law.

The above provides information of a general nature only and does not constitute legal advice. All transactions and circumstances vary and specific legal advice is usually required to meet your particular needs. Please consult with a lawyer if you have a legal question.