FNTC: Proposed Standards for First Nation Property Taxation Laws

Press Release

2nd Nov 2015

Standards established by the First Nations Tax Commission (FNTC) reflect best practices in property taxation, and are designed to support First Nation economic growth, First Nation jurisdiction, harmonization, and the interests of all stakeholders in the First Nation property tax system.

Under the First Nations Fiscal Management Act (the “Act”), the FNTC reviews and approves laws. Section 35(1)(a) of the Act gives the FNTC the authority to establish standards, not inconsistent with the regulations, respecting the form and content of local revenue laws. The standards established by the FNTC are additional requirements and, together with the Act and its associated regulations, form the regulatory framework governing First Nation taxation under the Act.

As a matter of policy, the FNTC seeks public input prior to introducing or significantly amending its standards. This input is critical in developing standards that are acceptable and effective for participating First Nations and their taxpayers.

Paragraph 5(1)(a) of the Act provides authority to establish property taxation laws. The proposed Standards for First Nation Property Taxation Laws would replace the existing Standards that were first approved in 2007.

The proposed Standards build on the existing Standards, with additional provisions concerning establishing property tax in jurisdictions that use a fee for service structure for existing property holders, the use of tax districts, the use of reference jurisdictions, and granting and abatement programs.

Property Tax Transition Periods for Certain Jurisdictions

New First Nation property tax jurisdictions are required, in the first year of taxation, to use the tax rates of the previous tax jurisdiction, or the reference jurisdiction where no tax jurisdiction previously existed. These requirements are based on an objective of promoting harmonization such that taxpayers on reserve can expect to have a similar level of taxation as those taxpayers on similar properties off the reserve. In all provinces except British Columbia and Quebec, occupiers on First Nation lands are not subject to provincial property tax for the property interests they have on reserve. For certain types of these on-reserve property holders (e.g., residential leaseholders and commercial leaseholders), a system of service fees has evolved to pay for basic services (e.g., road maintenance, garbage collection, etc.).

In most instances, these fee for service arrangements are a flat fee levied on a per unit basis. While the introduction of property value taxation is intended to replace the service-fee structure with a more progressive structure to help pay for improved services for the community, applying property valuation taxation based on reference jurisdiction rates may lead to a significant difference between the service fee and a property tax bill.

FNTC is proposing changes to the Standards in a new section 4. The changes advance an incremental introduction of property taxation, and would require affected First Nations (i.e., those First Nations whose lands were not subject to provincial property tax and have interest-holders who pay a fee for services) to establish a transition period of up to 5 years in the property tax law. During the 5-year period, rates in each year would be based either on local service budget requirements, or an incremental movement towards rates equal to the reference jurisdiction rates.

If a First Nation opts to use local service budget requirements to establish rates, the Standards would further require the property tax law to provide:

• a list of services to be provided,
• an estimate of the cost of services, and
• the anticipated property tax rates for each applicable property class in each year of the transition period.

If a First Nation opts to use an incremental movement towards rates equal to reference jurisdiction rates, the Standards would further require the property tax law to provide:

• a list of services to be provided, and
• the anticipated property tax rates for each applicable property class in each year of the transition period.

Corresponding changes to the Standards for First Nation Tax Rates Laws would accommodate the transition period provisions in the Standards.

Tax Districts

Tax districts are used by some First Nations to treat different parts of their tax base differently to reflect varying levels of service or to allow for greater harmonization with adjacent jurisdictions. In this way, districts help align rates with services, respect previous jurisdictional boundaries, or ensure rates are similar to those off-reserve. The proposed changes (section 3) would clarify that districts must be established in the property taxation law, and include a description, or map, for each district. The Standards would limit tax districts (section 3.2) to two scenarios: First Nations with multiple reserves with differing service requirements or reference jurisdictions, or within a First Nation’s single reserve that has differing service requirements or reference jurisdictions.

Use of Reference Jurisdictions

Reference jurisdictions are used in various FNTC policy instruments, notably in the review of First Nation tax rates. Proposed changes (Part V, Definitions) adds a definition for “reference jurisdiction”. This definition is replicated in the proposed changes to the Standards for First Nation Tax Rates Laws.

Grants and Abatements

First Nation property tax laws typically provide for the use of grants and abatements. In practice, the application is limited to grants (e.g., HOG, unique granting programs to promote Aboriginal employment.). In this way grants assist taxpayers in meeting their tax obligations, in comparison to abatement which typically reduces the liability. The proposed changes (section 6) would clarify the distinction between grants and abatements, and enable tax abatement where it is used in the province in which the First Nation is situated.

Other Proposed Changes

Section 1.2 requires the tax law to provide that the tax administrator is responsible for the day to day management of the local revenue account. This reflects the First Nations Financial Management Board’s Financial Administration Law Standards, and reinforces that the local revenue account is separate from other accounts of the First Nation.

Sections 2.2 and 2.3 clarify that a property tax law must provide that taxes are levied by applying a tax rate against the assessed value of the taxable property, except where the First Nation has provided in its property tax law for the use of a minimum tax. This clarifies that a minimum tax must be authorized in the First Nation’s property taxation law.

Other changes are intended to improve clarity by merging the Tax Roll provisions (formerly section 6) with the Tax Notice provisions (now section 9), and merging Penalty provisions (formerly section 7) with the Collection and Enforcement provisions (now section 11).

An additional change (section 11.3) to the Collection and Enforcement provisions reflects the FMA amendment (slated to be in effect in 2016) which clarifies that First Nations can collect costs associated with enforcement.

Finally, a proposed change (paragraph 12(d)) to the Confidentiality section would add greater flexibility by allowing a First Nation to enable the tax administrator to disclose property tax records for research purposes, provided the records do not contain individually identifiable information. This will facilitate the collection of taxation data to support research initiatives that can benefit First Nations across Canada.

The FNTC is seeking public input in respect of these proposed Standards. If you wish to learn more about the proposed changes, please contact the FNTC at mail@fntc.ca or by telephone at (250) 828-9857. Click button below to view electronic version of the proposed Standards (changes are highlighted in red):

Proposed Standards for First Nation Property Taxation Laws

Please direct your written comments on or before December 2, 2015 to:
First Nations Tax Commission
321-345 Chief Alex Thomas Way
Kamloops BC V2H 1H1
Telephone: (250) 828-9857
Fax: (250) 828-9858
Email: mail@fntc.ca

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