Imagine two properties side by side, each valued at $500,000. One of the properties was purchased last year by a middle-aged couple with a combined annual income of $200,000. The other has been owned for 50 years by an 80-year-old couple who bought it in 1973 for $50,000: They earned at most $75,000/per year. Now, both couples are retired and living on their pension. Is it fair for each of them to pay the exact property tax?
The raw reality is that cities, municipalities, and townships (From now “cities”) do not have the power to charge more tax to the couple with revenues of $ 200,000; that most revenues made available to cities come from property taxes; and finally, that there is an inconsistency, indeed a paradox, between a city’s fiscal mode and its economic development.
In an open letter dated 13/04/2022, the mayor of the city of Nicolet, Mrs. Genevieve Dubois, exposes, with full force, this inconsistency:
« […] We must work together and act quickly to change how cities are funded. Our tax system is completely obsolete. In the township of Nicolet, 87% of our revenues come from property taxes. Oppose, again and again, the preservation of the environment to economic development […].»
Knowing all this, to help cities, the Quebec legislature granted the first regulatory royalty fee (From now “RRF”) in 2008. Unfortunately, RRFs aren’t fully utilized and still need to be discovered in Quebec. Nevertheless, Ontario has always been a significant user of RRFs: This has allowed their cities to increase and diversify their tax revenues; and has provided a toolbox that gives rise to the imagination, creativity, and opportunity for new RRFs.
In short, the RRF structure is a jurisprudential concept derived from a statute, from a municipal by-law, which allows us to directly impose a tax on a specific behavior (From now “TOB”) that we consider harmful, behavior that we want to modify, influence, or deter for the benefit of our city. For example, some cities charge a tax for using and consuming water.
Moreover, as you know, there is a housing crisis, and citizens are asking for concrete solutions. At the same time, cities want to increase their constituent’s quality of life by creating durable and long-lasting ecosystems; infrastructure assets, which will be emblematic of their city’s cultural vision. This cultural vision is often in line with the development and ecological preservation of its territory because it increases the satisfaction of its citizens. In this spirit, generally speaking, real estate growth, or growth at any cost, is opposed to citizens’ quality of life.
To bridge the gap between its cultural vision; its lack of diversification and various sources of income; and its citizens’ needs, TOBs undeniably find their advantages. TOBs allow cities to establish/execute their strategic plans while maintaining some environmental control.
Therefore, to help alleviate the housing crisis, one of the ideas put forward by several Canadian cities is that of a vacant land tax (From now “VLT”).
The principle of the tax is as follows: there is a partnership between the city and real estate developers. This association’s purpose is to develop sustainable and ecological living environments. When it sells land, the city wants cash flow quickly. Real estate developers, in some cases, are not ready to start their projects. The VLT makes it possible to obtain, in the immediate future, cash flows through a tax on the non-construction of a real estate project.
Let us be frank: cities are the ones who ultimately will need to alleviate this crisis. Cities must take the bull by the horns and find innovative and creative solutions. But, of course, all of this can be done with targeted assistance from the provincial government. Now, with the deployment of TOBs, they have an exciting toolbox that can significantly begin to bridge the individual needs of the leading players in our community.