Canada: Property Taxes And Equality

Last Updated: February 5 2016
Article by Olga Rivkin

It is commonly accepted that property owners are entitled to assume that they will be equally taxed, unless expressly provided otherwise by legislature. The application of this principle was recently considered by the British Columbia Court of Appeal in TimberWest Forest Corp. v. Campbell River (City), 2016 BCCA 49. 

Narrowly, the decision in TimberWest deals with property taxes in instances of municipal boundary adjustments.  In particular, it confirms that a newly annexed area can be taxed differently from other lands of the same property class.  Broadly, the decision in TimberWest reminds us that courts are likely to interpret municipal taxation powers broadly and with deference to municipalities.

The facts illustrate the significance of this ruling.  TimberWest owns property in the City of Campbell River (the "City").  The majority of this property is classified (for the purpose of property taxes) as managed forest lands.  In 2003, the City expanded its boundary to annex certain properties owned by Merrill & Ring Canadian Properties Inc. (the "M&R Lands"), also classified as managed forest lands.

The Province approved the annexation of the M&R Lands to the City on the basis that these lands would continue to be subject to rural taxation rates (being the rates prescribed for managed forest lands under  British Columbia's Taxation (Rural Area) Act – typically lower than municipal tax rates).  This term was included in the letters patent issued for the annexation.

For a number of years the tax rate for all managed forest lands in the City was within the limit of the rural taxation rate.  However, in 2014, the City set two different rates for managed forest lands: a rate of roughly 2.72 for the M&R Lands, and a rate of roughly 6.42 for all other managed forest lands, including TimberWest's.  The City intended to further increase the managed forest lands rate over a three-year period, such that in 2016 TimberWest's rate would be more than five times the rate applicable to the M&R Lands. 

TimberWest challenged the City's authority to set two different rates for managed forest lands.   The narrow legal issue came down to the interpretation of section 14 of the Local Government Act (the "LGA").  As of January 1, 2016, section 14 of the LGA has been re-numbered as section 29 of the LGA.  For consistency with the decision, we will refer to it as section 14. 

Relevant portions of section 14 (currently, section 29) of the LGA reads as follows:

14(1) Letters patent incorporating a municipality or extending the area of a municipality may do the following: ... (b) establish a limit on the tax rate under section 197 (1)(a) of the Community Charter [which section enables a municipality to set tax rates] that may be established for a property class by an annual property tax bylaw and imposed on land and improvements in the area designated [as the extension of the municipality].

14(4) Section 197(3) of the Community Charter [which section requires equal taxation for each property class] does not apply in relation to the tax rate: (a) applicable to an area designated [as the extension of the municipality], and (b) established for a property class in accordance with a limit established under subsection 1(b).

TimberWest argued that section 14 of the LGA meant that the limit on tax rates established in the letters patent applied to the property class in question, as a whole (i.e., all managed forest lands in the City).  The language of this section did not expressly enable the City to discriminate between properties of the same class. The City contended that the limit should only apply to the newly annexed M&R Lands. In the City's view, section 14, taken in the context of the LGA, was meant to provide an incentive for boundary adjustments, which it would not if TimberWest's interpretation was applied.

Both the chambers judge and the Court of Appeal agreed with the City's interpretation of section 14 for the following reasons:

(1)        The LGA must be read consistently with its purposes, which include providing local governments with the flexibility to respond to changing circumstances;

(2)        Section 14 falls within Part 2 of the LGA, which deals with the establishment, extension, reduction and dissolution of municipalities. In other words, section 14 addresses newly acquired lands, and not general powers of taxation. To quote the Court of Appeal: "the purpose of section 14 is to incentivize municipal expansion through the preservation of preferable rural tax rates to designated areas of land";

(3)        Principles of equal taxation may be abrogated by clear statutory language, such as section 14 of the LGA;

(4)        The requirement that a tax rate limit under section 14 be applied to all lands of a certain class would disincentivize municipal expansion and would result in the loss of municipal revenue.

The ruling in TimberWest is the most recent in a set of decisions dealing with municipal taxation of industry.  It confirms that courts are likely to award a certain amount of deference and flexibility to municipalities in establishing tax rates, even when such deference may have the effect of abrogating tax equality.

On a related topic, see our commentary on the 2012 decision of the Supreme Court of Canada in Catalyst Paper Corporation v. Corporation of the District of North Cowichan, 2012 SCC 2 which dealt with the reasonableness of industrial tax rates:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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