Valuation Advisor | Vol. 7, No. 1 | Spring 2009

Word from the Director

Welcome to our new annual edition of Valuation Adviser. Through this revised format we bring news from both sides of the Valuation and Payments in Lieu of Taxes Programs Directorate (VPILT). We report on highlights of the past year as well as on trends in our business environment and planned initiatives for 2009.

The past 12 months were busy ones for the Payments in Lieu of Taxes (PILT) and Valuation programs. In addition to our day-to-day duties, we have been working on the PILT procedures, and launched an online version of the Book Value Calculator. We also participated in national conferences which allowed for knowledge and information sharing.

Looking forward, PILT staff will be hard at work as many reassessments are underway across Canada. A key activity for the Valuation Program will be to review the assessed values of buildings in which the federal government is a major tenant. Our goal, as always, is to provide the best possible service to our clients and ensure fair and equitable payments in lieu of taxes across the country.

PILT forecasts from coast to coast

The following provides broad forecasts of anticipated changes in federal payments in lieu of tax (PILT) amounts for 2009-2010. We also offer summaries of factors that may impact on PILT and property taxes next year across Canada. These synopses are based on the best information currently available and are intended as general guidance only.

British Columbia

Forecast

Total PILT amounts for British Columbia are expected to increase by approximately 3% in the 2009 taxation year.

Other developments

• No single large federal initiatives are underway to impact the 2009 PILT as a whole. However, a $300 million project to build a new RCMP division headquarters in Surrey is due to start in mid-2009. If this property turns out to be PILT-eligible, the region's total PILT in future years (2010 or 2011) could rise by 8% to 10%, relative to 2008.
• Doug Rundell, the longtime CEO of BC Assessment, retired in the spring of 2008. He was replaced by Connie Fair, a 15-year employee of BC Assessment, whose most recent position was executive director of business and customer services.
• Some 1.8 million properties were valued for the 2008 assessment roll, an increase of 1.9% from 2007. The total value was about $940 billion, a 16% increase. New construction for 2008 was estimated at $21.6 billion, 15% higher than in 2007.

For information on BC's assessment and taxation system, visit the British Columbia Property Assessment and Government of British Columbia Web sites.

Yukon

Forecast

In Yukon Territory, any significant PILT changes should be inventory-related. First Nations' claims settlements leading to transfers of federal property to First Nations jurisdiction continue to reduce the number of federal properties subject to PILT.

For information on Yukon's assessment and taxation systems, visit the Government of Yukon Web site and its Property Assessment and Taxation Web page.

Alberta

Forecast

PILT amounts are expected to increase by 3% to 6% for the 2009 taxation year.

Other developments

• For the 2008 calendar year, the provincial education property tax rates were reduced by about 10.6% from 4.52 to 4.04 mills for residential and farmland property, and from 6.64 to 5.94 mills for non-residential property.
• Together with municipal and industry stakeholders, Alberta Municipal Affairs is reviewing the definition of farming operations.
• The Assessment Services Branch of Alberta Municipal Affairs has replaced the 1994 Residential Cost Manual with one updated to 2001. The ministry will continue to provide modifiers and cost indices for this new manual and for the 2001 Metal Buildings Manual, but not for the 1984 Alberta Commercial Assessment Manual.

For information on Alberta's assessment and taxation system, visit the Alberta Municipal Affairs Web site.

Saskatchewan

Forecast

Total PILT amounts are expected to increase by 3% to 6% for the 2009 taxation year.

Other developments

• The latest reassessment in Saskatchewan was completed in 2005, with June 30, 2002, as the base date.
• The 2009 reassessment, which will have a base date of June 30, 2006, will use a market value standard for residential and commercial properties, as is done in other jurisdictions in Canada.
• Agricultural properties will continue to be assessed using the current regulated system based on productive value.
• Heavy industry property, linear property (railways, pipelines) and resource production equipment will continue to be assessed according to a regulated system.
• The education rebate credit will still be applied in 2009.

For information on Saskatchewan's assessment and taxation system, visit the Government of Saskatchewan Web site.

Manitoba

Forecast

Total PILT amounts are expected to increase by 3% to 6% for the 2009 taxation year.

Other developments

• The 2009 tax year will conclude the current four-year assessment cycle. All properties across Manitoba were reassessed in 2006, with 2003 as the base year.
• The 2010 tax year will be the initial year of the next assessment cycle, with April 1, 2008, as the base date.
• We expect that Manitoba will move to a regulated system of reassessing properties every two years, starting with the 2010 cycle.

For information on Manitoba's assessment and taxation system, visit the Government of Manitoba Web site.

Northwest Territories

Forecast

PILT amounts are expected to increase by 3% to 5% for the 2009 taxation year.

Other developments

• In 2008, the town of Hay River reassessed all land parcels as part of its general reassessment. The process will be completed in 2009 with the reassessment of all improvements to property.
• The General Taxation Area, which consists of hamlets, settlements and villages in the NWT, has implemented a general reassessment for 2008.
• With the help of new technology, the NWT's assessment authority plans to shorten assessment cycles for many taxing authorities from 10-year cycles to 5-to-8-year cycles.

For information on the NWT's assessment and taxation system, visit the Government of the Northwest Territories - Municipal and Community Affairs Web site.

Ontario

Forecast

PILT and property taxes for 2009 will be based on reassessed values, with 2008 as the base year. The coming year, 2009, is the start of a four-year reassessment cycle. We expect Ontario's PILT to rise by 5% in 2009.

High unemployment and a slump in the manufacturing sector – particularly in the auto industry – will likely cool down Ontario's real estate market in the near future. The real estate downturn could lead to lower market values.

Other developments

• Various new construction projects are underway at CFB Trenton, Canada's largest military airport, and at CFB Petawawa. VPILT staff will be working hard to stay abreast of these major undertakings to provide DND with reliable PILT estimates.
• Another major project is the new border crossing at Windsor-Detroit. This initiative, which will involve all levels of government in Canada and the United States, will take a number of years to complete. It is too early to say how the project will impact on the PILT.
• The Ontario Assessment Review Board recently made a landmark decision that may affect how office buildings are valued in the province. The case involved some flagship properties of major financial institutions in downtown Toronto. The appellants successfully convinced the Board to ignore existing leases when placing a value on a property for assessment purposes. The decision confirms several similar cases:
  • Gander International Airport Authority v. Town of Gander
  • Labatt Brewing v. City of St. John's
  • Southam v. BC Assessment Authority # 14

  It is not yet known whether the City of Toronto or the Municipal Property Assessment Corporation will appeal this decision to a higher court.

• In 2008 the province set annual ceilings on education tax rates for commercial and industrial properties. This program should reduce the PILT paid on non-residential properties, assuming all else remains equal.

For information on Ontario's assessment and taxation system, visit the Government of Ontario Web site.

Quebec

Forecast

The Quebec real estate market grew steadily between 2004 and 2007. We can therefore expect a rise in property values of about 15% for the municipalities that will have a new role in 2009. The overall impact on the PILT should be an increase that is slightly higher than inflation. We anticipate an inflation rate in 2009 of 1.4% and a rise in PILT of about 2% to 2.5%.

Other developments

Improvements to the Montreal merger

• On June 20, 2008, the Quebec government passed legislation to improve how the amalgamated City of Montreal functions. The legislation is based on an agreement between the Government of Quebec, the City of Montreal and the merged municipalities.
• Effective January 1, 2009, amalgamation costs will be shared by the associated municipalities according to their relative fiscal capacity. Residents will therefore receive a single municipal tax statement, which will include amalgamation expenditures. The effect of these changes will be to reduce the management costs of collecting the property tax.
• The associated municipalities will be able to determine the property tax-rate ceiling that applies to non-residential properties within their territory.
• It is too early to predict how this statute will impact on the PILT in 2009.

For information on Quebec's assessment and taxation system, visit the Government of Québec Web site.

Nunavut

Forecast

We expect minimal PILT increases in taxation year 2009.

Nunavut's assessment cycle is every 10 years, and the latest general reassessment was completed in 2005. Over the next few years, the only changes to assessment values will occur because of physical changes to a property made through renovation, demolition or additions. Mill rates are the same as in 2006; no change is foreseen for 2009.

Prince Edward Island

Forecast

Because P.E.I. is on an annual reassessment cycle and market values are stable, we anticipate only modest increases in assessment values for residential and commercial properties in 2009. As a result, we expect PILT amounts to increase by about 2% for the 2009 taxation year.

For information on P.E.I.'s assessment and taxation system, consult the Government of Prince Edward Island's Real Property Assessment Act (PDF 135.6 KB) (Help with Alternative Formats).

Nova Scotia

Forecast

Because Nova Scotia is on an annual reassessment cycle and market values are stable, we anticipate only modest increases in assessment values for residential and commercial properties in 2009. PILT amounts are forecast to rise by about 3% for taxation year 2009, mainly because of tax rate changes, property value increases and the phase-out of the business occupancy tax.

Other developments

• On April 1, 2008, all staff, assets and responsibilities of Service Nova Scotia and the Municipal Relations Assessment Services Division transferred to the Property Valuation Services Corporation (PVSC).
• The PVSC is a municipally controlled not-for-profit corporation that determines the market value of properties in Nova Scotia annually under the terms of the Property Valuation Services Corporation Act.
• The corporation is managed by a board of directors and has about 165 employees in seven locations across Nova Scotia.

For information on Nova Scotia's assessment and taxation system, visit the Government of Nova Scotia Web site.

New Brunswick

Forecast

We expect PILT amounts to increase by about 3% for 2009, in addition to any marginal increase because of new inventory acquisitions and construction. There are no legislative or policy changes on the horizon to affect PILT-eligible federal property in 2009.

For information about New Brunswick's assessment and taxation system, visit the Service New Brunswick Web site.

Newfoundland and Labrador

Forecast

Newfoundland introduced new assessment values in 2007, the first year of its three-year assessment cycle. No increases in assessment values are foreseen for 2009, the third year of the cycle. We do expect a 3% rise in the total PILT in 2009 because of tax rate changes.

Other developments

Bill C-31, an Act to Amend the Assessment Act and the St. John's Assessment Act, was passed on May 26, 2006, establishing a "special-purpose property" category for assessment purposes. A property that is designated as special purpose by the assessor must be valued according to its reproduction cost, and only physical depreciation can be considered. The application of this legislation to the assessments of several large special-purpose properties in the province is being challenged before the courts.

For information about Newfoundland's assessment and taxation system, visit the Municipal Assessment Agency Web site.

Book Value Calculator goes online

Municipalities across Canada now have access to an advanced online tool – the Book Value Calculator (BVC) – to help them modernize their accounting systems.

The BVC was developed by the staff of the Valuation Program of Public Works and Government Services Canada and its main purpose was to assist federal departments switch to accrual accounting in 2001. Now, local governments throughout the country are undergoing a similar exercise to comply with a nationwide standard that calls for accrual accounting practices by January 1, 2009.

How the BVC works

In the conversion to accrual-based accounting, one tries to establish an accurate value for assets such as land, buildings and infrastructure. This, in turn, requires determining the book value, or starting point, of the asset and tracking costs and improvements over time. And this can be tricky with older properties. In many cases, the original purchase price and subsequent betterment costs are unknown.

That's where the BVC comes in. A sophisticated computer modeling application, the BVC allows users to estimate opening book values quickly and with minimal effort. The tool is based on meticulously researched benchmarks such as land values and construction costs in each part of Canada over time.

Thus, even if the user has only limited information on the history of the asset and its current condition, the BVC can calculate original costs and deemed improvements with reasonable accuracy.

The word spreads

The BVC became known during the federal government's accrual accounting exercise of 2001, and the word of its utility spread.

Soon other organizations – notably, the Province of Ontario (through the Ontario Realty Corporation), the Ontario Ministry of Education (comprised of all the Province's school boards) and the Government of Bermuda – were asking to have it made available to them.

In response, Valuation Program staff members customized the tool to take into account the specific needs of each client organization. They supplied the program and regular updates on CD and also supplied training and customer support.

But when interest began to grow among municipalities, it became clear that the Valuation Program soon would be swamped. After all, there are about 4,000 municipalities in Canada, some with only a few assets, others with inventories numbering in the tens of thousands of real property assets. A more efficient way of making the BVC accessible to eager users was imperative.

For the past year, the BVC team converted the BVC into a Web-based application and to tailor it to the needs of local governments. This involved adding asset types commonly owned by municipalities – everything from waste water systems to cemeteries – to the asset mix covered in the program. The BVC team also had to update construction cost indices and land values across Canada from 2001 data (when the indices were last revised) to current values.

Online product launched

In June 2008, a demonstration of the online BVC was launched. The demo allows users to calculate the book values of up to 10 assets free. Full use of the tool is available at a charge based on the municipality's population (from $250 for the smallest hamlets to $50,000 for the largest cities.) The fee is designed to recover costs only and includes provision of regular updates, bulletins and answers to questions which are available on the Web site.

Meanwhile, news of the BVC is spreading internationally. The Government of Barbados has expressed strong interest in the BVC for its upcoming modernization initiative, there have been feelers from the city of Beijing, and hits have been registered on the Web site from about 20 countries.

The BVC team is excited about the prospect of offering this Valuation Program product to users around the world.

To find out more about the Book Value Calculator, visit the Book Value Calculator Web site.

Quebec appraisers hold first "green" conference

Some 370 participants gathered in Gatineau, Quebec, October 16-18, 2008, for the best-attended conference ever held by the Ordre des évaluateurs agréés du Québec. The OEAQ is Quebec's professional association of appraisers.

A major drawing card was the emphasis on ecological issues, says the Chief Appraiser of Canada, VPILT, PWGSC, and one of the organizers of the conference.

"Green" was the theme of a number of the sessions, but also of the conference logistics. Every aspect of the event, from food and drink to the distribution of presentation material, was planned with green practices in mind. Washable thermoses and mugs replaced the usual plastic water bottles and disposable cups. Delegates received conference material on portable memory sticks instead of on paper. Everyone was encouraged to keep energy use to a minimum. Although delegates sometimes found it hard to break old habits, they embraced the ecological goal with enthusiasm.

One of the most popular sessions was a panel on the challenge of valuing and certifying "green" buildings. Participants discussed the difficulty of measuring the benefits of environmentally friendly construction. For example, everyone agrees that reducing greenhouse gas emissions is a worthwhile goal, but how much should lower emissions add to the value of a building? How does one put a price tag on eco-sensitive practices aimed at securing a broad, general good (saving the planet), rather than delivering an immediate payback?

This is a new field. Canada does not yet have any specialists in green appraisals. A first-time course on the subject has been developed this year at the Sauder School of Business University of British Columbia.

OEAQ delegates' opinions varied on the best ways to take environmental factors into account in valuations. They also discussed the need for meaningful certification standards. Currently, certification is piecemeal; there is no universal standard for attesting to the "greenness" of a building. Debate on these issues was lively, the one point of strong agreement being the need to continue the discussion at future meetings.

Another highlight of the conference was a presentation on International Financial Reporting Standards (IFRS). These are new, more stringent accounting standards developed to respond to a globalized business environment and adopted by many countries. Canada will require publicly traded companies to use IFRS by 2011. Appraisal specialists will be in demand to help with this change.

The OEAQ conference also featured a well-received PWGSC session on how valuation specialists can find business opportunities with the Government of Canada.

The next OEAQ conference takes place in Trois-Rivières in 2010.

Other News
PILT procedures standardized

VPILT is streamlining its payments in lieu of taxes operations through a new set of standardized procedures that will be available online to staff and stakeholders across the country.

The new procedures detail steps to be taken in the following areas:

• PILT applications (how forms must be completed and processed)
• Payments
• Late-payment supplements
• Unpaid tenant taxes

Procedures for other aspects of PILT operations will be drafted by the end of the fiscal year. The new procedures are based on the principles laid out in the PILT Act, 2000, and provide guidance to ensure fair and equitable PILT payments to municipalities throughout Canada.

"We now have a 'live' document," says the acting national manager of VPILT's Policy and Strategic Initiatives. The procedures can be updated, as needed, to address new developments such as changes in provincial legislation or technological innovations.