Frequently Asked Questions – PILT

1. Why doesn't the Government of Canada pay property taxes on the property it owns?
2. Why does the Government of Canada make payments in lieu of property taxes?
3. How many kinds of PILT are there? How is each calculated?
4. Where do the funds to pay the PILT come from?
5. Why was the name of the payment changed from grant to PILT?
6. How are the values used for calculating PILT set for federal property?
7. Does the federal government set the tax rates?
8. Why is PILT not paid for third party tenants in Crown properties?
9. Are there any exceptions where PILT may be paid for third party tenants in Crown properties?
10. Do third party tenants in Crown properties have to pay property taxes on the space they occupy?
11. What happens if third party tenants in Crown properties default on their property taxes?
12. Does the federal government pay property taxes or PILT on property leased from the private sector?
13. Does the federal government pay PILT on property leased from other tax exempt bodies, like a provincial government?
14. What can a federal department do to ensure the PILT are correct on its properties?

1. Why doesn't the Government of Canada pay property taxes on the property it owns?

A. Under Section 125 of the Constitution Act, 1867, the Government of Canada is exempt from paying any taxes levied by local and provincial levels of government of which property taxes are an example. However, the Government of Canada does make payments in lieu of property taxes to local governments.

2. Why does the Government of Canada make payments in lieu of property taxes?

A. The Government of Canada makes payments in lieu of taxes to recognize the services it receives from municipal governments and to pay its share of the costs to municipalities where federal property is located. However, in light of the federal government's constitutional exemption from taxation, these payments are made at the discretion of the Minister of Public Works and Government Services or the Heads of Crown corporations and agencies.

3. How many kinds of PILT are there? How is each calculated?

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

1. 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.
2. 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. The 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 instalments.
3. 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.
4. 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.
5. 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.

4. Where do the funds to pay the PILT come from?

A. For all federal departmental property, the payments are made by Public Works and Government Services Canada (PWGSC), as it is the common service provider for all aspects of the PILT Program and the Minister of PWGS is responsible to administer the PILT Act. However, each federal department is responsible for the PILT liability on its properties as they receive PILT funding as part of their annual departmental budgets provided by Treasury Board. A memorandum of understanding (MOU) is signed between PWGSC (PILT Program) and each federal department. The MOU details the roles and responsibilities as well as the financial arrangements regarding the payment and reimbursement of funds expended as payments in lieu of taxes.

5. Why was the name of the payment changed from grant to PILT?

A. PILT is the acronym for "payment in lieu of taxes." It is a relatively new term used to describe what was previously known as a "grant in lieu of taxes" or GILT, which had been authorized under the Municipal Grants Act, 1980. As part of the Minister's modernization initiative of the Municipal Grants program, which begun in the late 1990s, the name of the Act was changed to the Payments in Lieu of Taxes Act and the acronym became PILT. These changes were originally suggested by the Federation of Canadian Municipalities (FCM)  whose members believed that using the term "grant" for the payments made in lieu of property taxes did not reflect the value of the services provided by municipal levels of government to federal properties. Using "payments" rather than "grants" put the emphasis on the government's responsibility as a property owner to share in the cost of local government, rather than its generosity in making a payment which they are not legally obliged to make.

6. How are the values used for calculating PILT set for federal property?

A. 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 Payments in Lieu of Taxes 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 Works and Government Services, would be attributable if the property were taxable property. In addition, the PILT 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 PILT 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 PILT Act and its regulations.

7. Does the federal government set the tax rates?

A. 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.

8. Why is PILT not paid for third party tenants in Crown properties?

A. Under the Payments in Lieu of Taxes 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 PILT Act therefore, no PILT can be paid.

9. Are there any exceptions where PILT may be paid for third party tenants in Crown properties?

A. 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 a 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.

10. Do third party tenants in Crown properties have to pay property taxes on the space they occupy?

A. Under the Constitution Act, federal property is always exempt from taxation. However, if occupied by a third party, the property is not eligible for a payment in lieu of taxes 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.

11. What happens if third party tenants in Crown properties default on their property taxes?

A. 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.

This situation changed beginning with the 2000 tax year, as 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 occupied by the defaulted tenant, after it demonstrates that every reasonable attempt has been made to collect the taxes from the tenant without success.

12. Does the federal government pay property taxes or PILT on property leased from the private sector?

A. 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.

13. Does the federal government pay PILT on property leased from other tax exempt bodies, like a province?

A. 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.

14. What can a federal department do to ensure PILT are correct on its properties?

A. There are several areas where federal departments can assist the PILT Program directly:

• Provide the PILT Program by January 31^st of each year, with any realty asset capital plans or multi-year plans, detailing planned changes to the portfolio that could influence value or PILT amounts.
• Inform them as soon as possible when property changes, either planned or unplanned, are implemented. Relevant changes would include:
  • major renovations or additions
  • changes to the areas and dates of tenants in third party occupancies in federal property
  • long-term vacancies
  • construction of new buildings
  • demolitions
  • acquisition of property
  • pending or completed property disposals or transfers between departments
  • land severance
  • significant change of use
• With reasonable notice, provide access for PILT staff to conduct physical inspections of any property so that the nature and quality of improvements affecting value can be confirmed.
• Advise members of the PILT Program of all servicing issues that may have an impact on PILT amounts. For example, when a municipality cannot or will not provide the same level of services that they normally provide to similar taxable property.
• Ensure that the relevant taxing and assessment authorities are informed of all third-party occupancies that will exceed one year, then monitor and confirm that these tenants pay any real property taxes levied in respect to their occupancies.