Payments in Lieu of Taxes

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Charlotte Perry
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Real Property Institute of Canada November 6, 2013 Why are there? Under Section 125 of the Constitution Act, 1867, the property of the Government of Canada is exempt from taxation.

1 Real Property Institute of Canada November 6, 2013 Why are there? Under Section 125 of the Constitution Act, 1867, the property of the Government of Canada is exempt from taxation. Since 1950, the Government has voluntarily accepted a responsibility to share equitably in the cost of local government with other property owners. The program has often been updated and expanded to make it more like the regime that applies to taxable property. 2 1

2 Some Highlights in Program Evolution Jan. 1, 1950 Municipal Grants Program initiated 1980 Transferred from Finance to Public Works 1980 Municipal Grants Act, 1980 (program expansion) 1981 Crown Corporations Grants Regulations 1983 Program administration decentralized to PWGSC Regions 1985 First Dispute Resolution Process Established Freeze on Grants and Contributions, including Grants in Lieu of Taxes 1995 Joint Technical Committee (FCM, PWGSC, TBS) TB devolves funding to custodian departments 1998 Minister s cross-country consultations; major property tax reform in Ontario 2000 Act 2005 PILT Dispute Advisory Panel Implemented 3 The Minister s Legal Authority Under the Act, 2000, the Minister may make, from the Consolidated Revenue Fund, payments in lieu of: Real property taxes Frontage and area taxes (local improvements) Unpaid tenant taxes The Minister may also supplement payments which, in his opinion, have been unreasonably delayed (comparable to a late payment penalty). Values and rates used in the calculation of payments are those which, in the opinion of the Minister, would apply to the property if it were taxable. 4 2

3 Program Principles Guiding principles: Fairness Fairness to taxing authorities and federal taxpayers (and federal custodian departments) Equity Equity with taxable property owners Predictability Predictability to all stakeholders PILT Act, Section 2.1 The purpose of this Act is to provide for fair and equitable administration of payments in lieu of taxes. 5 Program Principles The Government intends its payments to be comparable to those made by taxable persons on property of a similar value, equitably assessed and using appropriate tax rates. Payments are calculated in a similar manner to real property taxes levied against private land owners. The Government expects equitable access to all of the services provided to taxable property in a host municipality. 6 3

4 Program Scope Definition of federal property Includes almost all property held by federal departments (office buildings, defence establishments, national parks, research stations, residences, etc.). Excludes property leased to taxable persons, structures that are not buildings designed to provide shelter, large capital works (wharfs, penitentury walls) and a number of minor categories of property. 7 Program Scope Top Custodians 2012/2013 Payments in millions PWGSC $169.1 Museum of Civilization $9.3 DND NRC 8.1 Aéroports de Montréal 39.2 Agriculture 8.1 Correctional Services 28.8 Transport Canada 6.3 RCMP 16.3 NRCan 6.9 Parks 13.5 CSIS 6.1 Fisheries & Oceans 10.2 National Gallery

5 Program Scope Number of Taxing Authorities 1,250 Number of Properties 22,500 Total PILT Paid By PWGSC Region, 2012/2013 fiscal year: Atlantic $ 63,452,133 Quebec 115,544,623 National Capital 162,243,852 Ontario 65,718,790 Western 57,670,782 Pacific 50,281,536 Total 514,911, Program Scope PILT Paid by Province - Tax Year 2012 Newfoundland and Labrador $ 3,223, Nova Scotia 29,725, Prince Edward Island 3,397, New Brunswick 23,765, Quebec 149,229, Nunavut 859, Ontario 185,248, Manitoba 20,309, Saskatchewan 12,083, Alberta 22,540, Northwest Territories 3,006, British Columbia 48,916, Yukon 1,139,

6 Program Top Payment Recipients Tax Year 2012 (millions) Ottawa ON $121.0 Vancouver BC $7.4 Gatineau QC 32.3 Petawawa ON 7.2 Dorval QC 31.9 Quinte West ON 5.9 Halifax NS 19.7 Saguenay QC 5.1 Montréal QC 17.8 Regina SK 4.3 Esquimalt BC 13.6 St-Jean-sur-Richelieu 3.9 Winnipeg MB 11.7 Cold Lake 3.9 Québec QC 11.5 Ste-Anne-de-Bellevue 3.8 Toronto ON 11.2 Sturgeon AB 3.7 Kingston ON 9.8 Surrey BC PILT Payment Process Application for PILT by taxing authority Verification of Application by PWGSC Confirmation of Eligibility of Property by PWGSC Valuation Audits and Reviews by PILT Valuation Staff Confirmation of Tax Class and Applicable Tax Rates Payment made to Taxing Authority by PWGSC Payment recovered by PWGSC from Custodial Department If taxing authority disagrees with the payment made by PWGSC, it may request a review by the PILT Dispute Advisory Panel 12 6

7 Role of Custodian Departments and Agencies The Minister of PWGSC determines payment amounts, makes the payments, and is accountable for the program. Since , each department has been financially responsible for payments on its property, and reimburses PWGSC according to the terms of the department s MOU (s) with PWGSC. There are about 35 MOUs in place, some Regional, some National. Departments are not billed for program administration costs. PWGSC receives an annual appropriation from Treasury Board for this ($5.162 million). After 15 years of experience, both PWGSC and custodians are pleased with the relationship. 13 Role of Custodian Departments and Agencies Contents of a Typical MOU Roles and Responsibilities Financial Arrangements Service Levels Dispute Resolution Annexes (Updated Annually) 14 7

8 Custodian Departments and Agencies Issues of Interest Budgets and Estimates Unbudgeted payments Unpaid tenant taxes Late payments Payments resulting from DAP decisions Services not provided by municipalities Accuracy of inventory Payments on individual properties 15 - Inventory Requirements 1. Inventory changes a. Acquisitions - land or buildings (purchase, transfer, exchange or any other means) b. Disposals - of land or demolitions of buildings or other structures c. Leases/licences to third parties d. New construction e. Additions f. Renovations 2. Significant changes to building use, particularly if the nature of the use changes from, for example, residential to commercial or vice versa. 3. Significant changes to building occupancy, including buildings and large portions thereof that are vacant. 16 8

9 - Inventory Impacts 4. Other property characteristics that may impact valuation for PILT purposes, such as: Contamination and use restrictions. 5. Changes in servicing (water, sewer, roads, etc.) arrangements 6. Provincial or municipal land use control or zoning changes. 7. Planned or actual major capital investments or rehabilitation projects. 8. Any other factor that may impact property valuation for PILT purposes. 17 Program Other Stakeholders & Partners Crown Corporations Independent of Minister of PWGS's authority - each is fully responsible for its own PILT Program. Heads of individual Crown Corporations exercise similar discretion to the Minister of PWGS with respect to their payments. Federation of Canadian Municipalities 1700 member voluntary association representing municipal interests at the federal level. 18 9

10 Program Other Stakeholders & Partners Taxing Authorities Provinces, Municipalities, School Boards, Indian Reserves Assessment Authorities Provincial Directors of Assessment 19 Dispute Resolution Process PILT Dispute Advisory Panel (PILT DAP) Composition and term set in Section 11.1 of the PILT Act. At least two members from each province and territory Term not exceeding 3 years, renewable Governor in Council (GIC) appointments GIC to name one of members as Chairperson Dispute Advisory Panel gives advice to the Minister in the event that a taxing authority disagrees with the property value, property dimension, effective rate or claims for a payment supplement. Manages own administration and is independent from PWGSC. Plays the same role for Crown corporations. First members appointed in May 2005 by Governor in Council

11 QUESTIONS 21 11

Federal and Provincial/Territorial Tax Rates for Income Earned

Federal and Provincial/Territorial Tax Rates for Income Earned by a CCPC Effective January 1, 2015 and 2016 by a CCPC Effective January 1, 2015 1 Federal rates General corporate rate 38.0% 38.0% 38.0% Federal abatement (10.0) (10.0) (10.0) 28.0 28.0 28.0 business