Halifax Regional Municipality v. Canada (Public Works and Government Services), 2012 SCC 29 - Case Comment (Payment in Lieu of Taxes on Federal Properties)

By: Daniel M. Campbell, Q.C. and Andrea Isabelle, Articled Clerk, Cox & Palmer

This decision from the Supreme Court of Canada is an important one for municipalities with federal historic properties, who will not now be denied the full amount of payments in lieu of taxes (PILTs) based on the value of those properties. The Court unanimously and unequivocally held that, for the purposes of PILT calculations, national historic sites must be given full land value and cannot be presumed to be without value because of the lack of commercial development potential.

Federal property is constitutionally exempt from taxation, but the Federal Government makes payments in lieu of taxes based on the value of federal property and the applicable tax rate under the Payments in Lieu of Taxes Act. The property value and tax rate are to be determined by the Minister in accordance with the Act. (Similar provisions apply with respect to federal crown corporations.) The Minister of Public Works and Government Services had deemed the land under the historic structures on Citadel Hill – essentially the whole property – to be without value because, as a national historic site, it cannot be developed for commercial purposes. The evidence was that the approach taken with respect to this site was unique – other national historic sites across the country are given land value for PILT purposes which is equal or close to the value assigned by the local assessment authority, and this land value is equal or close to the value of adjacent private properties.

The Court held that the approach taken by the Minister was incorrect in that, rather than determining what value an assessment authority would give to the property, he substituted his own idea of value. Further, the Court held that this approach was contrary to parliament’s clear intention that national historic sites should be subject to PILTs. Finally, the Court held that it was simply not within the range of reasonable determinations to hold that 48 acres of land in the heart of a major city are without value. For these reasons, the Court decided that the Minister’s decision was unreasonable, and the matter was referred back to the Minister for re-determination.

The Court ruled that the valuation given by the local assessment authority is an important benchmark in the Minister’s determination. However, it stopped short of directing that the Minister is bound to accept that valuation. The Court pointed out that the Minister must have the power to protect federal interests against “over-zealous assessment authorities”. There may be legitimate disagreements about how assessment principles apply in any case. However, the Court appears to have precluded any major departure from the assessment standards in the local area, saying that the Minister cannot base his valuation on a “fictitious tax system” that he himself has created, which was “exactly what happened in this case”.

The significance of this case is not that municipalities can expect significant increases in valuations and thus PILTs for national historic sites. However, they can take comfort that they should not expect significant reductions on the basis that those properties are without value. Municipalities should examine the valuation of the land for PILT purposes made by the relevant federal authority and compare it to the value assessed by the provincial assessment authority. (It is necessary to make adjustments for structures or improvements on the federal property which may be excluded under the PILT Act.) If there is a material discrepancy, this should be followed-up with the federal authority. If necessary, the matter can be referred to a disputed advisory panel under the PILT Act.