This would be the 2016 Property Income and Expense Return, for MPAC, Ontario’s Municipal Property Assessment Corp.
(And if you’re not a landlord in Ontario, there are points here that still apply to you, since your assessment may be based on income and you should keep clear records of your actual net income.)
Online submission form
MPAC has done away with the old paper system in favour of an online submission form, which you can find at www.aboutmyproperty.ca
With the Property Income and Expense Return, owners of commercial, industrial and multi-residential properties submit their property rental income and expense information directly to MPAC.
That seems simple enough. The process is fairly straightforward and has multiple fields for data, but simple the analysis is not. This return has a direct impact on your property’s assessed value, what you could ultimately pay in property taxes, and a potential impact on the capital value of your assets.
Trust this to someone who understands the fine print
For apartment buildings, reporting this data is usually pretty straightforward, but when it comes to commercial, industrial and institutional buildings, lease terms between tenants in the same building can vary widely.
Various inducements offered by a landlord, all of which are completely above board, may mean the actual net-effective rental income generated by the property is lower than it appears at first glance.
If you leave the job of filing this return to a junior person who may not be savvy with reading lease agreements, or the complexities of lease negotiations, you may find yourself reporting more income from your property than it actually generates.
You could pay too much
This puts you at risk of paying more property tax than you should.
Take two leases that both state a headline rental rate of $20 a square foot.
With the first lease, the landlord does not recover $2 per square foot of related operating expenses. This makes for a net lease rate of only $18.
With the other lease, the landlord does recover all related expenses from the tenant, but offered a period of free rent. Over a five-year term, this may mean the net rent on that lease is, again, only $18 per square foot.
The new MPAC form does contain many fields for, among other things, tenant inducements. But these fields don’t necessarily match up, item by item, with a landlord’s financial statements. Whoever is filing the return must make some estimations, or decide how to group some expenses together. This could easily result in honest mistakes.
What can you do? Don’t dismiss this as an easy bit of (digital) paperwork. Trust it to an experienced individual in your office who is well-acquainted with the variances between your leases. Providing good information upfront is how you avoid having to pay someone like me later.
Appeals cost time and money
Why would you have to pay me? Because that incorrectly completed income and expense return may lead MPAC to give your property an inflated value, which in turn can result in an unfairly high property tax bill from your municipality. You need my help to mount an appeal.
We’re not talking nickels and dimes here. I’ve worked on cases where mistakes in an assessment were costing the property owner hundreds of thousands of dollars.
At this point, if your assessment is too high, your only recourse will be to file an assessment appeal. Appeals are costly – and sometimes, the expense of an appeal outweighs the potential gain. They can on occasion take years to reach an outcome.
If the appeal is in your favour, you could receive a retroactive rebate cheque to recoup those extra taxes you paid, but in the meantime, you are spending money on lawyers and experts such as myself, all of which impacts your cash flow and profitability.
To discuss this or any other valuation topic in the context of your property, please contact me at [email protected]. I am also interested in your feedback and suggestions for future articles.