The Supreme Court of Canada has recently released its judgment in the case of Halifax (Regional Municipality) v. Canada (Public Works and Government Services), the second in a line of cases decided by the Supreme Court of Canada with respect to the application of the Federal Payments in Lieu of Taxes Act (the “Act”). This decision follows on the 2010 judgment of the Supreme Court of Canada in Montreal (City) v. Montreal Port Authority, which was the subject of an article in the Summer 2010 edition of LoGo Notebook. Please see that Article for further background on the Montreal Port Authority case, as well as the payment in lieu of taxes scheme.
Briefly, the Act gives the Minister of Public Works and Government Services the authority to make payments to municipalities in lieu of the property taxes that would otherwise be paid to the municipality if not for the fact that federal property is constitutionally exempt. When determining the amount of such payments, the Minister is required to take into account the “effective rate”, which is defined in the Act to mean the rate of real property tax that, in the opinion of the Minister, would be applicable to federal property if it were taxable. The Minister must also take into account the “property value”, which is defined to mean the value that, in the opinion of the Minister, would be attributable by an assessment authority to federal property as the basis for computing the amount of real property tax. As noted by the Court in this case, as well as the Montreal Port Authority case, while the phrase “in the opinion of the Minister” signals that the Minister has some discretion in determining the amount of payments in lieu of taxes, nonetheless, that discretion must be exercised reasonably.
In this case, the issue before the Court was the opinion of “property value” relied upon by the Minister. The land in question is approximately 42 acres of grassy area forming part of the Halifax Citadel National Historic Site located in the heart of the City of Halifax. In apparent reliance on an appraisal report prepared for the Minister that stated the land had no economic value by virtue of its designation as a national historic site, and strict limitations on its development under local bylaws, the Minister assigned a nominal value of $10.00 to the area. This was in stark contract to the valuation opinion of the local assessment authority, which valued the land at several million dollars.
The Supreme Court of Canada held that the Minister’s determination was unreasonable and struck it down for two main reasons. The first reason is that the Minister did not base his opinion of value on an approach that would be applied by any assessment authority in Canada. The Minister was not obligated to accept the valuation provided by the local assessment authority, but that valuation should have been taken into account as a reference point. The local assessment authority’s approach was consistent with that taken in several other jurisdictions across Canada, and there was no evidence that any assessment authority would take the approach that the Minister did. Referring to the Montreal Port Authority case, the Court emphasized that “the Minister cannot base his valuation on a fictitious tax system that he himself has created”.
The other main reason for the Court determining that the Minister’s approach was unreasonable, was that it undermines the basic purpose of the Act. The purpose of the Act is to provide for payments in lieu of taxes where property is exempt from taxation by virtue of being owned by the Federal Crown. What the Minister did, in effect, was to make a categorical assumption that the very designation (national historic site) that exempts land from property taxes renders it valueless for purposes of calculating payments in lieu of taxes. The Court stated that “it cannot accord with the statutory purpose to accept that the Minister can undercut this inclusion by adopting a method of valuation that renders it meaningless. The Minister’s approach had the effect of frustrating the very legislative scheme under which the power is conferred”.
The Court went on to point out that the position taken by the Minister was also at odds with the broader policy of the Act, which is to treat municipalities fairly. As noted by the Court, “it can hardly be thought either fair or equitable to conclude that 42 acres in the middle of a major metropolitan centre has no value for assessment purposes”.