Understanding payments in lieu of taxes

Under Section 125 of the Constitution Act, 1867, we are exempt from paying any taxes levied by local and provincial levels of government such as property taxes. However, we do make payments in lieu of property taxes to local governments.

We make payments in lieu of taxes to recognize the services we receive from municipal governments and to pay our share of the costs to municipalities where our property is located. However, in light of our constitutional exemption from taxation, these payments are made at the discretion of the Minister of Public Services and Procurement or the heads of Crown corporations.

There are five kinds of charges against real property for which payments in lieu of taxes are made:

• Payments in lieu of real property taxes are the product of the federal property value multiplied by the effective tax rate plus any mitigation measures and is paid on an annual basis
• Payments in lieu of frontage or area charges are similar to improvements and betterment charges, for instance, the installation or repair of sanitary and storm sewers or street lighting. PILT is calculated by multiplying an applicable rate by a dimension of the property, such as the frontage or area. The total eligible cost for the improvement is calculated and then billed either as a one-time payment, or debentured and billed in annual installments
• Payments in lieu of service charges can be made for municipal services not included in the tax rate, like unmetered water or garbage collection. To be eligible, the fee must be set as annual flat rate charge and the service must be provided to all property in a particular class, billed to the property owner and not dependent on consumption
• Late payment supplements can be made to compensate taxing authorities when payments in lieu of real property taxes, frontage or area charges and service charges are unreasonably delayed. They are calculated by applying the lesser of either the taxing authority's late payment rate or the rate set by the Financial Administration Act, to the amount of the payment that is late, over the period for which it is late, plus 15 days for processing and mailing
• Payments in lieu of business occupancy tax (where applicable) can be paid by Crown corporations listed in Schedule IV of the PILT Act against their property held as an agent of the Crown. Business occupancy taxes are usually calculated as a percentage of the real property tax, depending on the type of business

Canadian taxing authorities that host federal property in their jurisdiction may apply. Taxing authorities include municipalities, school boards, provincial governments, services boards, First Nations bands and any other bodies authorized to levy and collect property taxes in Canada.

Canadian taxing authorities hosting a federal property can apply for PILT online or print applications forms and submit them by email, mail or fax. For further details, please refer to Applying for payments in lieu of taxes.

For all federal departmental property, the payments are made by Public Services and Procurement Canada, as it is the common service provider for all aspects of the PILT Program and the Minister of Public Services and Procurement is responsible to administer the PILT Act.

However, each federal department is responsible for PILT on its properties as they receive PILT funding as part of their annual departmental budgets provided by Treasury Board.

In Canada, the setting of property assessed values for property tax purposes is typically the responsibility of the provincial or municipal levels of government. However, under the PILT Act, the class and value to be applied to federal property for the calculation of PILT is the value that, in the opinion of the Minister of Public Services and Procurement, would be attributable if the property was taxable. In addition, the act does establish slight differences between private taxable property improvements and federal improvements that are subject to PILT. For example, the runway surfaces at federal airports are improvements that are specifically excluded under the act, but are assessable and taxable at privately owned airports. Therefore the eligibility, class and value used to calculate the PILT on federal property is established by the PILT Program within the context of both provincial assessment legislation and procedures, and the act and its regulations.

No, the tax rates are set by the taxing authorities, according to municipal and provincial legislation. Once the PILT Program determines the property or tax class that would apply to the federal property, if it was taxable, the tax rates consistent for that class are used to calculate the PILT.

Under the PILT Act, federal property, either occupied or vacant, is only eligible for PILT when it is under the administration and control of a Minister of the Crown. Therefore, when the Crown grants an interest in its real property, such as a lease, to a third party occupant, it ceases to be federal property under the act and no PILT would be paid.

Yes, agreements with third party tenants or other occupants of less than one year would be considered federal property and thus PILT eligible. Another situation where PILT may be paid on property leased to a third party tenant is when the federal government acquires property from the private sector that has existing leases. The federal government would respect the fact that under those existing leases the landlord would pay the property taxes to the taxing authority and collect the tenant's share of the taxes as part of the rent. Therefore, PILT would be paid on those leases until they expire and, once renegotiated, that tenant would be responsible for the taxes and that space would no longer be PILT eligible.

Under the Constitution Act, federal property is always exempt from taxation. However, if occupied by a third party, the property is not eligible for PILT unless the period of the tenancy is for less than one year or if it was a lease that existed when the property was acquired by the federal government. Under prevailing assessment legislation, assessors are generally required to assess tenant-occupied Crown property as if it were owned by the tenant. Furthermore, the legislation governing realty taxing authorities gives them the right to tax the tenant's interest and the billing and collecting of the tenant's taxes must be a direct interaction between the taxing authority and the tenant.

When the owners of private property do not pay their property taxes, eventually the taxing authority has the right to register a property for sale to recover unpaid taxes. However, since federal property is exempt from taxation, it cannot be registered for tax sale under any circumstance. Therefore, if third party tenants in Crown property do not pay their taxes, the taxing authority must take other means to recover the taxes. Generally, this involves going to court and obtaining judgment against the tenant. In many instances, taxing authorities have never been able to recoup the loss.

The PILT Act includes a provision for the taxing authority to request a payment in lieu of taxes on that portion of the federal property that was occupied by the defaulted tenant, after it demonstrates that every reasonable attempt has been made to collect the taxes from the tenant without success.

The federal government pays rent to landlords for property or space leased on behalf of federal departments but the landlords, alone, are responsible for paying all property taxes on their property. The federal government cannot pay property taxes directly, as it is constitutionally exempt from taxation. Therefore, the landlord must contract for sufficient rent and recoveries to cover any costs associated with real property taxes on federally occupied property.

Property leased from a province is PILT eligible. However, PILT cannot be paid on property leased from a municipality, other exempt bodies or private concerns. Also, if the federal government owns a building which is located on land leased from a province, PILT is payable on both the land and the building. However, if a federal building is located on land owned by a municipality or another exempt body, only the federally owned building would be PILT eligible, the land would not.