Bill C-10: An Act to Amend the Municipal Grants Act (LS-350E)

This document was prepared by the staff of the Parliamentary Research Branch to provide Canadian Parliamentarians with plain language background and analysis of proposed government legislation. Legislative summaries are not government documents. They have no official legal status and do not constitute legal advice or opinion. Please note, the Legislative Summary describes the bill as of the date shown at the beginning of the document. For the latest published version of the bill, please consult the parliamentary internet site at www.parl.gc.ca.

Bill C-10, the Municipal Grants Act, was introduced by the Minister of Public Works and Government Services and received first reading in the House of Commons on 27 October 1999. The bill is a result of the work of a joint technical committee composed of representatives from the Federation of Canadian Municipalities, the Treasury Board Secretariat, and Public Works and Government Services. In addition, the Minister held extensive cross-country consultations. The aim of Bill C-10, according to the Minister, is to modernize the Municipal Grants Act to improve the fairness, equity and predictability of federal payments made in lieu of taxes.

The constitutional position that federal departments, agencies and Crown corporations are not to be subject to local taxation is very clear from section 125 of the Constitution Act, 1867:

In spite of the soundness of the principle that different levels of government should not be able to interfere through taxation with the use of property by other levels of government, the heavy reliance of municipalities on property taxes has put a moral obligation on the federal government to make a contribution for the local services it uses. In recent years, Canadian municipalities have obtained over half of their revenues from property tax sources as the following table shows.

Municipal Sources of Revenue (%), 1994 - 1998.
	1994	1995	1996	1997	1998
Property and Related Taxes	49%	47%	50%	51%	57%
Sales of goods and services	19%	19%	20%	21%	21%
Investment Income	5%	7%	5%	5%	5%
Transfers	25%	26%	22%	20%	15%
Other	2%	2%	2%	2%	2%

The policy history of federal payments to municipalities shows a movement towards federal properties being treated more and more like commercial properties, along with the removal of limitations and restrictions. The 1939 Rowell-Sirois Royal Commission on Dominion-Provincial Relations recommended that the federal government pay property tax on Crown-owned properties. In 1949, the Municipal Grants Act was passed. Although that Act provided for the payment of a federal grant, in lieu of taxes, to municipalities, only those local authorities whose federal property exceeded four percent of total property assessment were compensated. Only about 70 municipalities had a sufficient concentration of federal property to qualify. Moreover, the federal government was liable under the Act for only three-quarters of the tax liability. In 1955, however, the cutoff was lowered to two percent of total property assessment, and grants increased to equal the full municipal tax. In 1980, the range of federal property covered by the Municipal Grants Act was extended to cover most categories of federal property. In 1992, a freeze on payments made in lieu of taxes was announced as part of general federal financial restraint. As might be expected, this measure was unpopular with the municipalities, leading to the process culminating in Bill C-10. During debate on amendments to the Canada Marine Act, which were introduced in the 35th and 36th parliaments, the taxable status of the national ports was a contentious issue; eventually, it was agreed that they would be treated in the same way as other federal properties.

These clauses would change the long title of the Act to "An Act respecting payments in lieu of taxes to municipalities, provinces and other bodies exercising functions of local government that levy real property taxes" and the short title to "The Payments in Lieu of Taxes Act." The word "grant" would be replaced by "payment" to reflect the federal commitment to pay for the local services it receives.

This clause would make changes to the definitions used in the Act, in particular to add "immovables" to "real property." This wording change would not affect the amounts to be paid by the federal government. The definitions used to establish the tax liability are those of the assessment authority, not of the federal government. Each province has its own assessment base, as have some of the municipalities. All use land and buildings but some include machinery and equipment, while others include only machinery and equipment that provide services to the land and buildings on the land. This clause would also make stylistic changes such as replacing "immeuble fédéral" in the French version with "propriété fédérale," meaning federal property, and by substituting "emphyteutic" in the English version for "held under emphyteusis," a term referring to a lease of 9 to 99 years with an annual rent and in which the lessee has an obligation to make improvements.

In clause 3(6), Bill C-10 would extend the listing of federal properties subject to local taxation under present section 2(3) of the Act to include:

The principle followed is that such federal improvements are for the benefit of the public sector employees in the building and should be taxed in the same way as those a commercial firm might furnish to its workers. Federal real property in urban parks is not subject to local taxation (subsection (3)(c)) because the federal provision benefits the local public directly at no cost to the local taxpayer.

Clause 3(6) would amend present section 2(3)(d) of the Act by extending a provision of the current Municipal Grants Act to the Cree-Naskapi and Sechelt Indian Band and to the Yukon First Nations. This provision treats the on-reserve residences of federal employees as federal property for the purposes of making grants.

Clause 3(6) would add section 2(4) to the present Act to cover the payments in lieu of taxes for experimental farms and research stations. In setting the effective tax rate, the Minister of Public Works would have to take commercial farming tax rates into account. It should be noted that the current Municipal Grants Act uses the following definition:

Thus proposed section 2(4) would seem to be asking no more of the Minister than does the current Act.

This is a "goodwill" clause included to underline the fair and equitable administration of payments in lieu of taxes.

This clause deals with the authority of the Minister of Public Works to make payments under proposed sections 3(1.1) and 3(1.2) of the Act. The Minister of Public Works could make a supplementary payment to compensate for unreasonable delays of federal payments in lieu of taxes, provided the Minister was of the opinion that the delay had been unreasonable. The supplement payable would be the product of the amount delayed, multiplied by a standard rate of interest over the period of the delay. New section 3.1 would allow the Minister to make payments to the local authority for a non-departmental tenant who was in default, if the local authority had made all reasonable efforts to collect the debt. The legal mechanism used would be to deem a property not considered a federal property under 2(3)(h), to be such in the year the debt was incurred. It is not clear whether the Minister would treat the outstanding debt simply as an account to be settled in full or as any other amount under the Act either with a duty to gauge the appropriate effective tax rate and so on, or with an opportunity to compensate for late payment.

These clauses would continue the changes made in clauses 1, 2 and 3, whereby "payment" would replace "grant" in the English version and "propriété" would replace "immeuble" in the French version.

Clause 9 would amend sections 7 and 8 of the Act, which deal with the deductions that might be taken from federal payments made in lieu of taxes when the local authority could not provide a full range of services to the federal property. If an arrangement was in effect (section 7(a) and 7(b)) then the reductions are known, but if not (section 7(c) and 7(d) and section 8) the Minister would be restricted to considering the costs of replacing the services not provided and estimating the property tax reduction that would be forthcoming to a municipal taxpayer.

These clauses would add the word of "immovables" and substitute the word "payment" for "grant" in various parts of the Act. A new Advisory Council proposed in clause 14 would deal with local taxation disputes for Crown corporations listed in Schedules III and IV of the Act. Clause 10 would add section 9(1)(g.1) to the Act to provide that the powers of the Governor in Council to make regulations under section 9 would extend to such corporations. It should be pointed out that the power to make such regulations would be "with any modifications that the circumstances require."

A new Advisory Panel would be established to give advice to the Minister of Public Works when any local taxing authority disagreed with the federal assessment of property value, property dimension or effective tax rate or when a tax payment has been unreasonably delayed and interest should be paid. Clause 14 would add new section 11.1(2) to require that there would have to be a disagreement, but would not explicitly limit the Panel to receiving complaints only from municipalities; thus, the federal departments and agencies could complain about the payments they were required to pay.

The Advisory Panel would have to consist of at least two members from each province and territory. Members, who would be required to have relevant knowledge or experience, would have a term of appointment not exceeding three years but that term could be renewed indefinitely. The Minister would select the Chairperson, who would have the power to establish divisions of the Advisory Panel. Members would be paid and reimbursed expenses and would serve at the Minister’s pleasure.

These clauses would amend both the Act and the Schedules by the addition of the word "immovables" and the substitution of "payment" for "grant." Clause 18 would remove open air swimming pools from Schedule II, thereby making such structures taxable, as has been proposed by clause 3.

In Bill C-10, the government attempts to address municipal concerns about federal payments made to municipalities in lieu of taxes. Bill C-10 does not propose to go all the way to making the federal government just another local taxpayer, who must rely on the provincial appeal mechanisms in place, should an assessment seem unfair. Indeed, there are constitutional reasons why this should not be the case, though these reasons are much less convincing for Crown corporations. Why should the CBC be taxed differently from the local private broadcaster, or the Business Development Bank differently from a local bank?

Bill C-10 would introduce an Advisory Panel, to serve at the pleasure of the Minister of Public Works. The Minister, rather than the Panel itself, would appoint the Chair, who would have wide powers. The Panel would not be an independent dispute-resolution mechanism. Although sometimes, for example in the case of Crown corporations, the Minister would be reviewing decisions made by others, at other times the Panel would be reviewing the Minster’s own decision and perhaps asking the Minister to reconsider this. In the case of claims that payments were unreasonably late, the Minister would already have made a direct decision to deny compensation or to pay less compensation than the local authority thought reasonable. Making the new Act work would take a strong Panel, willing to override the person who had appointed it, and Ministers willing to look again at their decisions.

Bill C-10 does not present any precise mechanisms for parliamentary accountability for the new system. Would the Advisory Panel be obliged to publish? How would changes in spending appear in the various Estimate documents? Nor is it clear how the public would be able to judge whether the new system was better than the old. Would the measure of success be whether municipalities complained less about the federal government as a source of local revenue? Or would the measure be how often the Minister agreed with the Panel’s advice? Or might success be judged by whether the claim rejection rates for the Advisory Panel and the Minister were the same as those for the provincial dispute resolution mechanisms?