DIVISIONAL COURT FILE NO.: 482/23 DATE: 20240621
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
Backhouse, Coats, and Leiper JJ.
BETWEEN:
TORONTO STANDARD CONDOMINIUM CORPORATION 2279
Appellant
– and –
MUNICIPAL PROPERTY ASSESSMENT CORPORATION and CITY OF TORONTO
Respondents
R. Uukkivi, for the Appellant
D. Mitchell, for the Respondent, MPAC
HEARD at Toronto: June 18, 2024
Leiper, J.
[1] This appeal is from a decision of the Assessment Review Board and its findings concerning the treatment of 16 units within the “St. Regis” condominium hotel and residential condominium in Toronto.
[2] For written reasons dated April 26, 2023, the Board confirmed the treatment of the units by the respondent Municipal Property Assessment Corporation for property tax purposes. In doing so, the Board interpreted the Assessment Act, R.S.O. 1990, c. A.31 and s. 45.3.1 of Ontario Regulation O. Reg 282/98.
[3] The appellant is Toronto Standard Condominium Corporation 2279, the minority owner of the 16 subject units. TSCC 2279 argues that the Board erred in law in its interpretation of the Regulation and erred by upholding an assessment which results in double taxation on the 16 units, leading to an improper benefit to the respondent City of Toronto. It seeks to set aside the Board decision and an order that the assessed value of the 16 units be fixed at a nominal amount.
[4] MPAC submits that TSCC 2279’s appeal raises no errors in law. Alternatively, if the Board’s decision does engage issues of law on appeal, MPAC submits that it made no error and correctly interpreted s. 45.3.1 of the Regulation.
[5] Finally, MPAC submits that the assessment and the evidence tendered before the Board raises no issue of double taxation on the subject units.
[6] I dismiss TSCC 2279’s appeal for the reasons that follow.
Standard of Review
[7] An appeal from the Board is available only on a question of law. Leave to appeal was granted on January 5, 2024: Toronto Standard Condominium Corporation 2279 v. Municipal Property Assessment Corporation, 2024 ONSC 12,
[8] Appellate standards of review apply. Questions of law are determined on a standard of correctness. Where an appeal involves a question of mixed fact and law, an extricable error of law will similarly attract a standard of correctness: Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 at para. 8.
Background
[9] The St. Regis hotel is a 65-storey building which functions as both a condominium hotel and as a residential condominium within that building. TSCC 2279 is the condominium corporation for the residential units. TSCC 2267 is the condominium corporation for the condominium hotel.
[10] The issue on appeal involves the tax treatment of 16 units which serve the hotel and the residences. These 16 units include mechanical units, communications control units, loading docks and garbage rooms.
[11] The starting point for the issues on appeal is the declaration by the former owner concerning the 16 units. On June 29, 2010, the prior owner of the St. Regis, Talon International Inc. o/a Trump International Hotel & Tower, filed a statutory declaration with MPAC stating that the 16 units would be “a hotel unit as defined in section 45.3.1 of Ontario Regulation 282/98 as amended.” The declaration was for the 2011 tax year and subsequent tax years.
[12] Section 45.3.1 permits an owner of a condominium hotel to designate as “hotel units”, units that are “used as part of the hotel operations”. Section 45.3.1(2) and (3) specify how condominium hotels are to be valued. This is a legislative measure that was put in place to avoid unfairness to condominium hotels in assessing value for municipal taxation as compared to non-condominium hotels.
[13] The relevant portions of s. 45.3.1 read as follows:
CONDOMINIUM HOTEL VALUATION
S.45.3.1(1) In this section,
“condominium hotel” means a building complex,
(a) that contains at least 20 hotel units, and
(b) that is not located within the boundaries of a resort; (“condominium hôtelier”)
“hotel unit” means land,
(a) that is a unit or proposed unit as defined in the Condominium Act, 1998,
(b) that is furnished and operated or managed in a manner to provide transient accommodation for a fee or charge for a minimum period of less than 30 days, or that is used as part of the hotel operations, and
(c) in respect of which, for the 2008 and subsequent taxation years, the owner or his or her authorized agent has made a declaration under subsection (5) or clause (6) (a); (“partie privative”)
“resort” means a building complex that is occupied primarily for recreational purposes, including golfing, skiing, swimming and hiking. (“lieu de villégiature”) O. Reg. 538/07, s. 1.
(2) For the purposes of subsection 19 (2.1) of the Act, the current value of a hotel unit that is contained in a condominium hotel for the purposes of assessment for 2006 and subsequent taxation years shall be determined by using the pro forma income capitalization approach to valuation to determine assessments that are comparable to the assessments of hotels of similar size and quality in the vicinity of the condominium hotel. O. Reg. 538/07, s. 1.
(3) For the purposes of subsection (2), all hotel units shall be deemed to be a single parcel of land for valuation purposes and the value determined shall be apportioned among the hotel units in the proportion that the square footage of each unit is of the total square footage of all hotel units contained in the condominium hotel. O. Reg. 538/07, s. 1.
(6)For the purposes of assessment for 2009 and subsequent taxation years, the owner of a hotel unit that is part of a condominium hotel or his or her authorized agent shall make a declaration on or before June 30 of the previous taxation year to the assessment corporation stating that,
(a) the unit will be a hotel unit for the following and subsequent years; or
(b) the unit will cease to be a hotel unit for the following and subsequent years. O. Reg. 538/07, s. 1.
(7) Despite subsection (6), no declaration is required where,
(a) a declaration was previously made under subsection (5) or (6); and
(b) there has been no change in the status of the unit since the declaration was made. O. Reg. 538/07, s. 1.
(8) The assessment corporation may determine the manner in which a declaration under subsection (5) or (6) is made. O. Reg. 538/07, s. 1.
[14] After Talon made its declaration that the 16 units were “hotel units”, it transferred the hotel units to the hotel condominium and other units to the residential condominium. In relation to the 16 units which serve the entire building, Talon transferred its ownership of those 16 units to TSCC 2279 and TSCC 2267 as tenants in common, with 30% and 70% ownership interests in the 16 units between the two condominium corporations, respectively. TSCC 2279 and TSCC 2267 signed a reciprocal agreement which provided for sharing of costs over shared “facilities” including municipal taxes.
[15] During oral argument, counsel for TSCC 2279 acknowledged that the impact of the reciprocal agreement is that TSCC 2279 pays its proportionate share of the assessed value of the 16 units involved in this litigation. If those units are valued at a nominal value this would remove a significant tax liability on the part of TSCC 2279 by virtue of the operation of the reciprocal agreement, and shift that tax burden to TSCC 2267
[16] Neither condominium corporation has filed any further declarations relative to the 16 units since Talon filed the declaration in 2011.
[17] The assessment value of the hotel units in the St. Regis, which is not in dispute, is $75,899,000. The hotel value is calculated in accordance with s. 45.3.1 based on the pro forma income capitalization method, which uses the net operating income generated by the hotel, divided by a capitalization rate (in this case, 8.6%).
[18] Although only one tax bill is delivered for the hotel units, each of the 16 units that were the subject of the declaration have their own roll number and are “allocated” a share of the assessment value based on square footage as a notional amount of tax that is assigned to each unit. For example, the truck access room, property code 190406301000348, is shown as having a value of $1,451,000 out of the total assessed value of the hotel of $75,899,000 based on its proportional square footage.
[19] In contrast to the formula used to value condominium hotels found in s. 45.3.1, residential condominium owners pay residential tax rates on their units which are assessed individually, based on a current value assessment as provided in s. 19(1) of the Assessment Act R.S.O. 1990, c A.31.
The Issues on Appeal
[20] The first issue arises from the Board’s treatment of TSCC 2279’s overarching submission that the 16 units were no longer “hotel units” as declared by Talon and after Talon divested the hotel to the two condominium corporations. Thus the first issue is whether the Board erred in its interpretation and application of s. 45.3.1 in any of these three ways:
a. In finding there was no “change of status” of the 16 units as found in s. 45.3.1 (7) of the Regulation?
b. By concluding that the declaration made by an “owner” as required by s. 45.3.1 (6) of the Regulation?
c. And, by finding that the 16 units were “used as part of hotel operations” as defined in s. 45.3.1(1)?
[21] TSCC submits that any one of these errors would necessarily mean that the 16 units are not “hotel units” as previously declared by Talon. Thus they should not receive an apportioned value but should be assessed as having nominal value.
[22] The second issue is whether the Board’s decision overall yields an inappropriate result, that is double taxation on the residential condominium located in the same building as the condominium hotel.
Analysis of the Issues
1a: Did the Board err in its interpretation of “change of status” found in s. 45.3.1 (7) of the Regulation?
[23] TSCC 2279 argued that the declaration made by Talon ceased to be effective because when the 16 units were transferred to the two condominium corporations this amounted to a “change in status” under s. 45.3.1 (7) of the Regulation. It submitted that the transfer of the property thus revoked the prior declarations because this changed the “status” of the 16 units.
[24] The Board prefaced its interpretation of the Regulation by correctly referring to the rule of statutory interpretation from Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2006] 1 SCR 715 at para. 26, that “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.”
[25] The Board found that a change in ownership was not a “change in status of the unit” reasoning as follows:
Second, the Appellant’s proposed interpretation, which would automatically cause a property to cease to be a hotel unit following a change in ownership whether or not MPAC is aware of that change, is inconsistent with the clear wording of the Regulation read in its entire context, particularly (6)(b) which creates a requirement to actively “optout” of the s. 45.3.1 valuation regime once the owner has told MPAC that its units are hotel units for the applicable and subsequent taxation years. Taken in context, the reference to “change in status of the unit since the declaration was made” in (7)(b) refers to any change in the status of the unit as a hotel unit since the declaration was made pursuant to 6(a) that the unit will be a hotel unit for the following and subsequent years, not a change in ownership. This is the most reasonable interpretation in light of the plain and ordinary meaning of the words, taken in the entire context.
[26] I agree. There is no provision for any revocation of a prior declaration on transfer of the property. A unit’s “status” fits harmoniously with the definition of “hotel unit” within s. 45.1.3(1) and aligns with the purposes of applying the assessment methodology to condominium hotels:
“hotel unit” means land,
(a) that is a unit or proposed unit as defined in the Condominium Act, 1998,
(b) that is furnished and operated or managed in a manner to provide transient accommodation for a fee or charge for a minimum period of less than 30 days, or that is used as part of the hotel operations, and
(c) in respect of which, for the 2008 and subsequent taxation years, the owner or his or her authorized agent has made a declaration under subsection (5) or clause (6) (a); (“partie privative”)
[27] Thus, it is logical in this case for the 16 units’ “status” to be related to the definition of what constitutes a hotel unit for these purposes: that being condominium units for providing transient accommodation for a fee or that is used as part of the hotel operations and in respect of which the owner has made the required declaration for 2008 and subsequent tax years.
[28] This is consistent with the Board’s findings in Murphy v. Municipal Property Assessment Corp. Region No. 09, [2011] O.A.R.B.D. No. 230 at para 55 which held that where new owners acquire a declared hotel unit for personal use or seek to remove their declared unit from the regulation, a new owner must follow the Regulation’s opt-out procedure and deliver a declaration before June 30th for the following tax year.
[29] Further, as MPAC points out, the objectives of the provision which is to remove non-competitive tax treatment for condominium hotels would be frustrated if a sale of a hotel automatically revoked prior declarations and required a new owner to make a subsequent declaration because the tax treatment would not come into effect immediately by application of, s. 45.3.1 (6). A unit purchased after June 30th would need to file a new declaration to opt-in yet not get the benefit of the Regulation until the year after the declaration is filed. I agree that this outcome would disrupt the legislative objectives of the methodology in s. 45.3.1.
[30] I conclude that the Board’s interpretation of the issue of “change of status” was correct and accorded with principles of statutory interpretation.
1b: Did the Board err in its interpretation of “owner” under s. 45.3.1 (6) of the Regulation?
[31] TSCC 2279 submits that the Board erred in law by failing to find that only the current owner of the property can file a declaration under s. 45.3.1(6) due to what it describes as “language of limitation.”
[32] I disagree. The logic of the appellant’s submission depends on a finding that a change of status in the hotel units arises from a change in ownership. It argues that the intention of the definition is to require the current owner to file a declaration because the previous owner is only an owner until the point of transfer. This submission rests on the assumption that a prior declaration becomes void on transfer, which the Board did not find to be the case based on a plain reading of s. 45.1.3.
[33] Here neither of the successor condominium corporations filed any declaration after assuming ownership of the 16 units. The Board found that at the time that Talon was the owner, it filed the declaration which stated that the 16 units “will be” a hotel unit, “during the 2011 tax year and subsequent years.” It did so prior to June 30 of 2010, which had the effect of designating the 16 units as “hotel units” for 2011 and subsequent years.
[34] The Board’s findings are supported by the evidence. The Board found that a declaration was filed by the “owner” as to the 16 units in question, and in applying s. 45.3.1(6) it did not fall into error.
1c: Did the Board err in finding that the 16 units were “part of the hotel operations” as defined in s. 45.3.1(1)?
[35] TSCC 2297 submits that the Board’s interpretation of s. 45.3.1(1) and finding that the 16 units were “part of the hotel operations” was insufficiently nuanced because these units were not used to operate the hotel but were pieces of necessary infrastructure to allow the building to be approved for occupancy for any use. The 16 units do not make the building a “hotel.”
[36] TSCC 2297 further submits that because the 16 units served both the hotel and the residential units, they did not fall within the definition as being “part of the hotel operations.”
[37] The Board correctly found that “hotel operations” is not defined in either the Condominium Act or in the Regulation. It also found that the 16 units were used “for the maintenance and operation of all mechanical, electrical, utility, site servicing and/or ancillary systems serving all or various parts” of the St. Regis, which included the hotel units and the residential units. The material filed includes descriptions of the units which include “Mechanical/Electrical Room”, “Garbage Room”, “Communication Control Unit”, “Truck and Access and Turnaround Unit”, “Fire Control Unit” and “Loading Area Unit.”
[38] The Board concluded that the words of the Regulation were clear and unambiguous. The Board found that the units fall within the definition because they operate the mechanical and ancillary systems that make the hotel functional.
[39] The Board rejected the submission that because these units serve both residential and hotel operations, that they cannot be said to be “part of the hotel operations.” The Board found that there is no wording suggesting that the use of the units be exclusive to the hotel operations and declined to read this requirement into the Regulation.
[40] I find that the Board’s interpretation does not reveal any extricable legal error or error in applying the principles of statutory interpretation to the evidence before the Board. The nuance urged by TSCC 2279 is not required by the plain language of s. 45.3.1(1)(b).
[41] The Board did not err in finding that the 16 units were “part of the hotel operations” and were thus properly treated as “hotel units” under the Regulation.
Issue 2. Did the Board’s decision lead to double taxation on the residential condominiums?
[42] TSCC 2279 raised the issue of double taxation before the Board based on the opinion of its expert that this is the case and its submission that a residential condominium is taxed twice where it is in the same building as a condominium hotel. While the Board’s reasons acknowledge these submissions, the Board did not discuss double taxation in its analysis of the issues.
[43] However, the Board’s summary makes it clear that double taxation would only arise if the 16 elements were treated as “common elements” rather than “hotel units”. The Board did not make that finding and as discussed above, interpreted the Regulation to apply to the 16 units. Thus, in the end, double taxation was not a live issue.
[44] It would have been preferable for the Board to explain why it did not need to deal with double taxation due to its interpretation and application of s. 45.3.1 of the Regulation. However, having made the findings that it did, I agree that double taxation does not arise, and the Board did not err in its conclusion. I will briefly explain why that is the case.
[45] The individual residential condominium owners pay property tax based on the value of their units, as assessed under s. 19(1) of the Assessment Act. The value of each unit includes a pro rata share of the shared elements and amenities: Metropolitan Toronto Condominium Corporation no. 1172 v. Municipal Property Assessment Corp, et al (7 July 2006), (Ont. S.C.J) at para. 11.
[46] As discussed above, as a result of the reciprocal agreement between the two condominium corporations, they share the costs of the 16 units in accordance with their 30% and 70% ownership shares. This includes municipal taxes.
[47] The 16 units are not assessed or valued separately from the rest of the hotel. The assessment of the hotel condominium is done under s. 45.3.1 by calculating hotel net income divided by a capitalization factor to yield the assessed value of the hotel. This is the pro forma income method provided for in the Regulation. That number: $75,899,000 is not subject to dispute or change.
[48] The “tax burden” allocated to each of the 16 units arises by way of straightforward arithmetic as set out in the Regulation: the total assessed value of the hotel is divided by the square footage of all the hotel units to create a cost per square foot. This amount is then multiplied by each unit’s square footage to yield a figure that represents its tax allocation among all of the hotel units.
[49] The parties acknowledge that even if the 16 units are no longer deemed to be “hotel units”, this would not affect the value of the hotel using the pro forma income method. The assessed value would remain the same and there is no impact on the tax base. The only impact would be on how the tax burden notionally applied to the 16 units would be treated as between the two condominium corporations as a result of their agreement.
[50] TSCC 2279’s contribution to municipal taxes arises not from the assessment of the hotel’s value, and not from the designation of the 16 units as “hotel units”. It arises from the agreement between the condominium corporations to share the municipal taxes, according to the allocated value and the proportionate ownership interests in the 16 units.
[51] This outcome does not amount to double taxation of individual residential condominium owners because of any step taken by MPAC. Nor does it amount to double taxation on TSCC 2279, which must pay a share of the municipal taxes arising from the apportioned values for the 16 units because TSCC 2279 but not, on the evidence, to the owners of the individual residential condominium units. Rather, these payments are a consequence of a contractual choice made by TSCC 2279 to share in the costs, including tax costs, of the shared ownership in the 16 units that operate the building for the benefit of both the hotel and the residential condominiums.
[52] I find no error in the Board’s overall conclusions that the valuation of the 16 units as hotel units is properly confirmed using the methodology in s. 45.3.1 of the Regulation. Implicit in the Board’s finding is that its conclusion does not give rise to double taxation.
Conclusion
[53] The appeal is dismissed. By agreement of the parties, costs are awarded in favour of MPAC in the amount of $10,000 all inclusive.
___________________________ Leiper J.
I agree
Backhouse J.
I agree
Coats J.
Date: 21 June 2024
DIVISIONAL COURT FILE NO.: 482/23 DATE: 20240621
ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT
Backhouse, Coats and Leiper
BETWEEN:
TORONTO STANDARD CONDOMINIUM CORPORATION 2279 Appellant
-and-
MUNICIPAL PROPERTY ASSESSMENT CORPORATION and CITY OF TORONTO Respondents
REASONS FOR DECISION
Leiper, J.
Date: June 21, 2024