2011 has been a year of discovery and exploration for the CSSA Ontario Property Tax Committee. The largest issue we have faced has been MPAC exploring a switch from the Cost Approach to the Income Approach when assessing self storage properties. This change would affect the value assigned to your property for taxation years 2013 to 2016. We have also been dealing with the issue of Vacancy Rebates and how municipalities have responded to our applications.

As we have stated in several emails and mail outs to self storage owners in Ontario, if the Income Approach is implemented incorrectly, we could be facing unfair increases to our property tax expense…in some cases, as much as 40%!

The goal of the Canadian Self Storage Association Ontario Property Tax Committee is to arm you with information that will provide you with a clear understanding of what the Canadian Self Storage Association and our industry will be facing in the coming year.

The Canadian Self Storage Association Ontario Property Tax Committee

Action in Review

The C.S.S.A. Ontario Property Tax Committee (O.P.T.C.) has had several meetings and negotiations with MPAC over the past year. Here are some of the major updates and progress:

Mid 2010

After C.S.S.A. inquiries, MPAC confirms that they are planning to alter how they assess self storage properties; moving from the traditional Cost Approach to an Income Approach.

Mid 2010

Upon investigation, this proposed change, if implemented in its proposed form would result in large increases to property tax expense for Ontario’s self storage business owners – as much as 40% in some cases. The C.S.S.A. Ontario Property Tax Committee is officially formed and empowered by the C.S.S.A. Board of Directors to review and educate fellow self storage owners and MPAC on whether a Cost or Income Approach should be followed.

September 2010

The C.S.S.A. meets with MPAC representatives. This initial meeting introduced the C.S.S.A. O.P.T.C. members to the key decision makers at MPAC.

November 2010

First contact is made with self storage owners thourghout Ontario at the 2010 Canadian Self Storage Association Conference. Information about potential changes to property tax assessment is delivered.

March 2011

Sharing of information amongst self storage operators in Ontario becomes the key strategy for the success of the C.S.S.A. Ontario Property Tax Project.

Some examples have been received but we need many more. Finding real examples of self storage businesses operating out of leased premises is vital. It will help us show MPAC that the actual rents we charge can be partially apportioned to real estate, with the balance to our business enterprise value due to the services we provide.

Information packages, outlining the issues we are facing in this industry in Ontario is sent out to self storage owners in Ontario.

May 2011

As expected, MPAC sends out a Rental Data Request Form signifying the first step towards a potential change to the Income Approach.

The C.S.S.A. O.P.T.C. provides guidance on how to complete forms and how to communicate with MPAC.

August 2011

MPAC sends out letters to self storage owners regarding perceived withheld information. These were sent to owners who did not fill out the forms or who did not provide MPAC with all of the requested information.

October 18, 2011

Meeting with International Property Tax Institute (IPTI) to discuss the challenges facing our industry. IPTI is a not-for-profit and unbiased organization with a goal to advance and foster property taxation and assessment ideals on an international level.

October 24, 2011

IPTI puts forth a proposal for the development of an appropriate assessment valuation methodology for self storage businesses. This proposal is currently under review by the CSSA.

November 2, 2011

C.S.S.A. meets with MPAC representatives, producing the following results:

Committed to work towards a cooperative resolution with MPAC prior to implementation of the new valuations,
MPAC has agreed to work with us closely.

November 3, 2011

C.S.S.A. Ontario Property Tax Committee meets with IPTI members in Washington D.C. with the following results:

The Income Approach has proven to be a complex option which affects many jurisdictions and industries and must be handled cautiously.
There remains much room for discussion and research in the market place on the issue of the Income Approach and the Business Enterprise for valuations.
There is very little precedent for the self storage industry. Based on our findings at the conference, the Cost Approach is the Committee’s primary option as it is the most straightforward and simplest method to determine the taxable assessment value for self storage properties.
If the Income Approach is going to move forward, we would need to educate MPAC and make substantial changes to the taxation program and work towards this for 2017.

The Canadian Self Storage Association –

Where Are We Now With This Important Project?

We have faced the first wave from MPAC…information gathering. Now we must continue educating MPAC about our industry to ensure that we provide clarity around our reasoning for maintaining the Cost Approach or educating MPAC on how to effectively implement an Income Approach that recognizes the various assets that constitute a self storage business. To achieve this we need to do the following:

We need to educate self storage owners on the proper methods of reporting purchases and sales of self storage businesses.

MPAC cannot be seen as the only one to blame for the issues regarding self storage assessment and their push to the Income Approach.

On numerous occasions, sales of self storage businesses were recorded as one indivisible price and this has led to confusion at MPAC. The tangible (taxable) and intangible (non-taxable) facets of the business were not separated in the transaction.
Sales of self storage businesses in the last five years have shown a large difference between assessed values (prepared on the Cost Approach) and sales values. Once again this is purely due to the purchase price not being allocated correctly.
This large difference has prompted Municipalities to direct MPAC to conduct a review of the valuation method for self storage properties.

Because self storage is so unique, we must define our industry in order to fairly deal with MPAC and other government agencies regarding taxation and other similar matters.

We are preparing for and endeavouring to help shape MPAC’s next move. We need your continued support to present a united front when dealing with MPAC.

Gathering raw data is essential for this C.S.S.A. Project. You, as owners of self storage businesses in Ontario, possess the information that will strengthen our position making it easier to educate MPAC on our industry. We specifically need examples regarding:

  1. Leases of buildings, where the storage operator leases the building from an arms-length landlord (we require details of these transactions)
  2. Sale of book of business (i.e. customer lists) separate and distinct from the real property
  3. Purchases of just the self storage business – where the real estate is not purchased
  4. Moving a storage operation to a new facility (re-location)
  5. Mixed-use properties where there are normal commercial tenants in a portion of the property and self storage uses in other parts of the same building

This information will help clarify and strengthen our position to MPAC. THIS DATA IS OF CRITICAL IMPORTANCE!

What is Next for the Canadian Self Storage Association Ontario Property Tax Project?

Build bridges with the decision makers at MPAC. Offer ongoing support and education as MPAC decides  which approach to move forward with in midyear 2012.

Specifically analyze sales of self storage businesses for MPAC.
MPAC must be reminded that the tangible and intangible areas of the total value of our business must be separated and only real property should be assessed for property tax.
Provide convincing data to MPAC which supports the above.
Present alternatives to the Income Approach that can be implemented fairly for all sides.

Educate self storage business owners on how to record a purchase transaction. See addendum below, for a detailed analysis of how a sales trasaction should be properly structured.

In early 2012 the C.S.S.A. through the Ontario Property Tax Committee will attempt to develop an Income Approach valuation model that fairly values the taxable real property (land and building) that self storage businesses operate from.

Collect more examples of self storage property sales and transactions to help identify the intangible value of the business versus the land and buildings. Gathering raw data and specific examples of:

  1. Self storage sales where the business value/other intangibles was separated from the real property
  2. Where a self storage business is operating from a leased building
  3. Continue to establish ourselves as the most important Ontario self storage owners group to deal with MPAC. MPAC must know that we are united.
  4. Continue to educate ourselves and our membership by attending conferences, communicating internally, working with policy-shaping experts (ex. IPTI), etc.

We will continue to contact and work with industry and valuation experts to define business enterprise value and taxable asset value. As we continue this fight, we may find it necessary and beneficial to engage other experts, such as lobbyists, valuatqrs, lawyers, etc.

Addendum: Valuation of Self Storage: What Does the Market Evidence Tell Us?

The C.S.S.A. Property Tax Committee has been meeting regularly with MPAC over the past year to address the notion or concept of MPAC changing their valuation approach for self storage businesses.

MPAC’s mandate is to determine the Current Value Assessment (CVA) for real property, for purposes of preparing an assessment value which forms the basis for taxation and collection of taxes for municipal, regional and provincial purposes. The valuation mandate (not taxation mandate) is to use one or more approaches to value – Cost Approach, Income Approach or Direct Comparison – to ensure that values are prepared and returned fairly and equitably, accurately and is indicative of market value.

The bundle of rights (collection of assets) being valued is by legal definition, the fee simple interest of the property. This is a confusing and often misunderstood valuation caveat, particularly where the line between business income and rental income from real property is not clear and succinct.

The conflict in understanding and applying the fee simple definition of market value is that self storage properties, historically, do not trade and/or do not have the trades recognized in the context of the bundle of rights. The majority of operating self storage businesses trade, whether recognized or not, with a number of conditions including:

i. Land

ii. Building

iii. Fixtures, furnishings, equipment, inventory, supplies, etc.

iv. Existing customers that are paying 4-weekly or monthly for the use of their storage unit(s)

v. A reputation and/or recognition in the local community or market of the service that is being

offered (i.e. brand)

vi. An existing roster of current and /or previous customers that use or have used the facility for

their storage requirements

vii. Existing staff, policies and procedures that allow the operation to retain and/or attract

customers and to operate efficiently

For graphical depiction of the above please email us at info@cssa.ca for your own copy of the Valuation Flowchart


What Does MPAC See Happening In The Market?

MPAC’s job is to collect, interpret and ultimately apply market data in arriving at its estimate of Current Value Assessment (CVA).

When industry participants transact in the market, they have two options in terms of how the purchase price is allocated in the land transfer process. Historical practice has been to:

1. Allocate 100% of purchase price to land and building

2. Pay Land Transfer Tax on the entire purchase price; and

3. Make no distinction or recognition for value of leaseholds in place and/or make any allocation for the business enterprise or other intangible value associated with the business.

This has traditionally been the information provided to MPAC from which they make their determination of value. The most common outcome of this exercise is that the recorded purchase price(s) exceed MPAC’s CVA by 20% to 50%!

The vendor and purchaser are basing the price upon the cash flow (current and potential) from the business and assigning it to the real estate.

What Options Does A Buyer Have?

The second option is to think and plan more critically about exactly what it is that you are buying, understand the purchase price allocation process and understand the implications and opportunities arising from depreciation practices and financing. Some things to think about are:

1. The entire purchase price should not be allocated to land and building.

2. The sworn value assigned through the land transfer process is not the benchmark for supporting financing. Industry lenders should understand this – if they understand your business.

3. Your tax advisor should make it clear what options are available for assigning different parts of the asset to various parts of the balance sheet (i.e. land and building, leaseholds, goodwill, etc.) and the depreciation implications.

4. Industry participants should also be aware from a disposition perspective of the capital gains treatment for real property versus other intangible assets.

What is The Cost Approach?

The Cost Approach can be simply defined as:

Market Value of Land plus the Current replacement Cost of Improvements less All Forms of Depreciation equals Market Value via the Cost Approach.


Why does the industry pay more for a self storage business than it costs to build and thereby ignore the principal of substitution? According to the principal of substitution, a prudent buyer would not pay more than the cost to build a like property. In other words one would not spend $2,000,000 to purchase a new apartment complex if they could build it for $1,500,000.


It does not! The self storage industry is simply not consistent in how it records and recognizes the purchase price, calling it an apple when really it is an orange plus banana.

The Canadian Self Storage Association’s Ontario Property Tax Committee is made up of Mr. Scott Allan, CA – Apple Self Storage – Toronto, Ontario, Mr. Bob Langlois – AEC International and is Chaired by Mr. Iqbal Khan, CA – Access Storage, Toronto, Ontario