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Federal Tax - Payments in Lieu of Taxes Act. City of Ottawa v. Canada
In City of Ottawa v. Canada (Fed CA, 2026) the Federal Court of Appeal dismissed an appeal of a JR, this regarding "payments in lieu of taxes (PILTs) to be made to the City of Ottawa in 2021 and 2022".
Here the court considers the constitutional principle that federal and provincial governments are immune from taxation, and the rarely-litigated federal Payments in Lieu of Taxes Act:[2] Property owned by the federal government, provincial government and Crown corporations enjoys constitutional immunity from taxation, including municipal taxation. PILTs [SS: 'payments in lieu of taxes'] are voluntary payments made by the federal government to municipalities for the provision of public services "“in lieu of”" municipal taxes: Montréal (City) v. Montreal Port Authority, 2010 SCC 14 at para. 14 [Montreal Port Authority]; Halifax (Regional Municipality) v. Canada (Public Works and Government Services), 2012 SCC 29 at para. 10 [Halifax]. The Crown has decision-making power over PILTs in respect of departmental property and Crown corporations have that power in respect of the property they manage: Montreal Port Authority at para. 34.
[3] The first step in calculating a PILT is to multiply the "“effective rate”" of tax by the "“property value”": subsection 4(1) of the Payments in Lieu of Taxes Act, R.S.C. 1985, c. M-13 (the Act) and subsection 7(1) of the Crown Corporation Payments Regulations, S.O.R./81-1030 (the Regulations). The central issue in the underlying decisions was the effective rate used for calculating PILTs to be made to the City of Ottawa. The "“effective rate”" is defined in the Act as the rate that "“in the opinion of the Minister”" would apply if the property were "“taxable property”" in the hands of a private owner or occupant: Act, s. 2(1); see also Regulations, s. 2; Montreal Port Authority at paras. 32, 42; Chelsea (Municipality) v. Canada (Attorney General), 2024 FCA 89 at para. 44 [Chelsea].
[4] The City of Ottawa sets its municipal tax rates, except for the Ontario Business Education Tax (BET) rate, which is set by Ontario under the Education Act, R.S.O. 1990, c. E.2, s. 257.7 and Ontario Regulation 400/98. Responding to the COVID-19 pandemic, Ontario reduced the BET rate levied on private properties to a single rate of 0.880% of the assessed value, starting in 2021 (Revised BET Rate). Ontario did not reduce the BET rate for properties owned by the federal or provincial governments or Crown corporations. At the time, BET rates applicable to government-owned property in Ottawa (Standard BET Rate) ranged from 0.980% to 1.250% of the assessed value: Ontario Regulation 46/21; Decision at paras. 10-11.
[5] In determining the PILTs to be paid to the City of Ottawa, the respondents concluded that the only BET rate applicable to "“taxable property”" was the Revised BET Rate: see Appeal Book, Tab 6, Exhibits N, EE, HH. They calculated and paid PILTs to the City of Ottawa on this basis. The City of Ottawa sought judicial review of these decisions, and the Federal Court dismissed the application.
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[8] The appellant submits that it was unreasonable for the respondents to apply the Revised BET Rate when Ontario did not intend the pandemic relief measures to apply to government properties. In the appellant’s view, applying the Revised BET Rate violates the "“fair and equitable”" administration of PILTs mandated by section 2.1 of the Act and resulted in a budget shortfall for the City of Ottawa. The appellant submits that the decisions were fatally flawed because they indicated that the respondents lacked discretion in setting the effective rate when the relevant provisions of the Act and Regulations are discretionary. In oral argument, the appellant’s position was that the respondents ought to have considered and applied the rate for "“taxable property”" in effect prior to Ontario’s amendments, i.e., the Standard BET Rate. They say that applying the Standard BET Rate would be consistent with the intention under the Act and the Regulations that the City of Ottawa be fairly compensated for the municipal services that it continued to provide. The appellant argued that the Federal Court erred in concluding that the Revised BET Rate was the only available effective rate and, therefore, finding the underlying decisions reasonable.
[9] We cannot agree. As the Federal Court observed, while the Minister and Crown corporations have discretion to select an effective rate, that discretion is constrained by the scheme and objects of the Act and the Regulations. The discretion is limited to selecting the tax rate that, in their opinion, would apply if the property were "“taxable property”": Act, s. 2(1); see also Regulations, s. 2; Decision at para. 36, citing Halifax at para. 42 and Trois-Rivières (City) v. Trois-Rivières Port Authority, 2015 FC 106 at para. 63; see also Chelsea at para. 44. Here, the respondents concluded that the only such rate was the Revised BET Rate levied on private property. This conclusion was reasonable—it was justified in relation to the facts and the law that constrained the decision maker: Vavilov at para 85. After all, the Standard BET Rate did not apply to "“taxable property”" during the relevant periods, but to property exempt from taxation: Decision at paras. 38-40. Ontario’s intention in enacting the amendments is of no moment to the interpretation of the Act and the Regulations. . Cold Lake (City) v. Canada (Attorney General)
In Cold Lake (City) v. Canada (Attorney General) (Fed CA, 2025) the Federal Court of Appeal allowed a municipality's appeal of a denied JR, this from "a decision of the Minister of Public Services and Procurement Canada (Minister)" which "concerns the annual land values of 4 Wing Cold Lake Military Base (4 Wing) for the years 2013 to 2021 (Minister's Decision)".
Here the court considers a rare (federal) Payments in Lieu of Taxes Act issue:[2] The land values determined by the Minister were to be used as the basis for calculating payments "in lieu of taxes (PILT)" to be provided to the City under the Payments in Lieu of Taxes Act, R.S.C. 1985, c. M-13 (Act). PILT are similar to municipal taxes which the Crown is constitutionally immune from paying. The range of values determined by the Minister is from $42,600,000 to $59,800,000.
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Statutory scheme
[7] The general scheme of the Act is to provide a framework for voluntary payments to be made by the federal government to municipalities "“in lieu of”" municipal taxes. The leading cases that describe this framework are Halifax (Regional Municipality) v. Canada (Public Works and Government Services), 2012 SCC 29 [Halifax] and Montréal (City) v. Montreal Port Authority, 2010 SCC 14. The scheme was also canvassed extensively in the FC Decision (see paras. 28-39). Accordingly, it is not necessary to describe the legislation in detail in these reasons. I will, however, highlight some pertinent features.
[8] The Act explicitly provides that it does not confer any right to a payment. It also states that the purpose of the legislation is to "“provide for the fair and equitable administration of payments in lieu of taxes.”" The Supreme Court in Halifax elaborated on this statement: "“[The statutory purpose] is accomplished by reconciling the objective of tax fairness for municipalities with the preservation of constitutional immunity from taxation ... . The Act requires that property value and tax rates be calculated as if the federal property were taxable property belonging to a private owner ... . Moreover, the Act and its schedules contain detailed lists of various types of property that are included in or excluded from this scheme”" (at para. 51).
[9] When it comes to calculating PILT, the amount is determined annually, generally by multiplying the relevant municipal mill rate by the "“property value”" of "“federal property”", as those terms are defined in the Act.
[10] The term "“federal property”" broadly includes real property and immovables owned by the Crown. Notably, the definition of "“federal property”" does not include certain specified property. This appeal relates to an exclusion for water and sewer mains (the "“statutory exclusion”"), which is listed in Schedule II of the Act.
[11] The definition of "“property value”" requires that local assessment authority principles be applied to federal property. In particular, "“property value”" is "“the value that, in the opinion of the Minister, would be attributable by an assessment authority to federal property … as the basis for computing … real property tax that would be applicable to that property if it were taxable property.”" Although the Minister has some discretion in determining property value, the determination must be "“consistent with the principles governing the application of the Act and with the Act’s purposes”" (Halifax at para. 43).
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