Tax Increment Equivalent Rebates (T.I.E.R)

Tax Increment Equivalent Rebates (TIER) are a municipal development incentive used in Community Improvement Plans that refund a property owner a portion of their property taxes equal to the increase resulting from the appreciation of their property value created by redevelopment/improvements – such as the addition of a rental suite – for a period of time. TIER programs are often application-based and can be defined by:

• Percentage of the tax increase refunded (eg. 100%)
• Period of time the discount lasts (eg. 10 years)

The municipality does not pay any money to the property owner or developer, but simply foregoes a portion of their property taxes, reducing municipal revenues. This allow the costs of the program funding to be recouped over time using the municipal tax revenue earned from the redevelopment or development of the property.

At the end of the defined period, the improved property’s taxes will increase – increasing municipal revenues – and the residential unit will enter the supply of market housing.

Examples

Additions and improvements to a property increase its assessed value, which increases the owner’s property taxes. The “Tax increment” is the difference in property tax owed over the established “base” tax level when the value of a property increases.

• Up to 50% of the municipal portion of the incremental tax increase or total remediation costs, whichever is less.
• Municipal portion of tax increases which occur as a result of the development of affordable rental unit(s) for 10 years.

Brownfield remediation

The annual municipal tax bill for an undeveloped, contaminated Brownfield property was $13,974, but after remediation and construction, the estimated taxes are $402,257. The total eligible costs to remediate of the property were $473,521.

Using the current tax increment equivalent grant program to fund the eligible costs and incentivize the applicant to remediate and redevelop the property, the City will gain an annual municipal tax increment of approximately $388,283.

There is an expense to recommit part of the initial tax revenue for the property back to the applicant to cover the eligible costs for the project, the increased taxes achieved here may not have been realized without the incentive.

Affordable housing units

For example, the cost to add 20 affordable units is $400,000. The current annual municipal tax bill for this property is approximately $14,000, but after adding 10 additional, affordable units, the estimated taxes are $25,000.

Using the current tax increment equivalent grant program to fund the eligible costs and incentivize the applicant to remediate and redevelop the property, the City will gain an annual municipal tax increment of approximately $11,000.

There is an expense to recommit part of the initial tax revenue for the property back to the applicant to cover the eligible costs for the project, the increased taxes achieved here may not have been realized without the incentive. The increased taxes achieved here may not have been realized without the incentive.

Benefits

• Recognized municipal tool (legislative framework under the Ontario Planning Act).
• Long-term stability (embedded in Official Plan/renewed over time).
• Supports physical improvement projects such as façades, accessibility and redevelopment that enhance community aesthetics and tourism appeal.
• Public accountability/decisions made through Council processes with open reporting.
• Aligns with planning and downtown revitalization goals.

Drawbacks

• Less flexibility to making changes to funding program
• Administrative complexity (requires bylaw adoption, public consultation and ongoing City administration).
• Slow to implement or amend (changes require formal Council approval and notice periods).
• Funding tied to municipal levy or reserves, not self-sustaining revenue sources.