In Canada you also can be taxed on illegal income.
So illegal suites might be subject to fees that does not also legitimize them.
Probably not the same thing though - it's not like you can pay taxes on drugs sold and the government is like, "Thanks for the taxes, we're not going to bother investigating the actual drug selling thing."
So if the city wanted to tax an illegal suite it would probably also be obligated to pursue a bylaw infraction against the property. Or maybe not - is the city required to pursue bylaw infractions that are not complaint-driven?