Understanding payments in lieu of taxes
From: Public Services and Procurement Canada
Learn about the Payments in Lieu of Taxes Program and find answers to the most frequently asked questions about the payments for federal properties.
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About the Payments in Lieu of Taxes Program
Public Services and Procurement Canada administers the Payments in Lieu of Taxes Program.
Every year, the department distributes approximately $560 million on about 14,000 federal properties under the responsibility of over 1,100 taxing authorities across the country. View payments made to taxing authorities across the country by taxation year.
Each Crown corporation is fully responsible for its own payments in lieu of taxes program.
Key program features
- Payments are based on the principle of fairness respecting both the taxing authorities and the federal government. They are equitable in comparison to those made by other property owners
- Payments are calculated on the basis of values and rates which would apply to federal property if it were taxable
- Payments respect the property tax due dates established by taxing authorities and supplemental amounts reflecting interest charges may be made if payments are late
- The Government of Canada receives equal access to services provided to other property owners by the host municipality
Frequently asked questions
Find the answers to frequently asked questions about payments in lieu of taxes (PILT) on federal properties.
Why doesn’t the Government of Canada pay property taxes on the property it owns?
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 such as property taxes. However, we do make payments in lieu of property taxes to local governments.
Why does the Government of Canada make payments in lieu of property taxes?
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.
How many kinds of payments in lieu of taxes are there? How is each calculated?
There are 5 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; they are 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. We calculate the payment amount 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. We calculate them 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 Payments in Lieu of Taxes 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
Who can apply for payments in lieu of taxes?
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.
How can Canadian taxing authorities apply for payments in lieu of taxes?
Canadian taxing authorities hosting a federal property can apply for payments in lieu of taxes online or print application forms and submit them by email, mail or fax. For further details, please refer to Applying for payments in lieu of taxes.
Where do the funds to pay the payments in lieu of taxes come from?
Public Services and Procurement Canada distributes payments in lieu of taxes (PILT) for all federal departmental properties, as it is the common service provider for the Government of Canada for all aspects of the PILT Program and the Minister of Public Services and Procurement is responsible to administer the Payments in Lieu of Taxes Act.
Each federal custodian department is responsible to reimburse Public Services and Procurement Canada for the payments in lieu of taxes made on their behalf as they receive PILT funding as part of their annual budget provided by Treasury Board.
How does the Payments in Lieu of Taxes Program work?
When it receives an application for payments in lieu of taxes from a Canadian taxing authority hosting a federal property, the Program verifies the application, confirms the eligibility of the property, performs a valuation review, and confirms the tax classes and rates. If applicable, the Program issues the payment to the taxing authority and gets reimbursed for payments made on behalf of the federal custodian departments.
How are the values for calculating payments in lieu of taxes set for federal properties?
In Canada, provincial and municipal levels of government are typically responsible for setting assessed values for tax purposes. However, under the Payments in Lieu of Taxes Act, the tax class and value to be applied to federal property for the calculation of payments in lieu of taxes 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, tax 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 Payments in Lieu of Taxes Act and its regulations.
Does the Government of Canada set the tax rates?
No. The tax rates are set by the taxing authorities, according to municipal and provincial legislation. Once the 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 payments.
Why do the payments in lieu of taxes claimed by a taxing authority and the payments made by Public Services and Procurement Canada sometimes differ?
- The property for which payments in lieu of taxes (PILT) are being claimed do not belong to the federal government
- Part of the property for which PILT are being claimed is listed in Schedule II of the Payments in Lieu of Taxes Act and is not eligible for PILT
- Differences in property values between the assessment authority and the Program valuators, especially for large and complex properties
- The Program applies market adjustment factors or mitigation measures that exist in some provinces, such as Ontario, to lower taxes while the assessment authorities or taxing authorities do not apply them
- Tax classes assigned by the assessment authorities are inconsistent with the tax class assigned by the Program
- Information on a property for which PILT are being claim is incorrect (for example land area)
- Payments are being claimed for property leased to a third-party tenant
- The property was not eligible for PILT for any part of the taxation year during which it was acquired by the federal government
- Calculation errors in the claim
What can a Canadian taxing authority do if it disagrees with a payment it has received?
The taxing authority should contact the Payments in Lieu of Taxes Program. An expert will provide details on how the payment was calculated. If the taxing authority remains dissatisfied after discussions, it may request a review by the Payments in lieu of taxes Dispute Advisory Panel.
Why are payments in lieu of taxes not paid for third-party tenants in federal properties?
Under the Payments in Lieu of Taxes Act, federal property, either occupied or vacant, is only eligible for payments in lieu of taxes (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 is paid.
Are there any exceptions where payments in lieu of taxes may be paid for third-party tenants in federal properties?
Yes. Agreements with third-party tenants or other occupants of less than one year would be considered federal property and eligible for payments in lieu of taxes (PILT). Another situation where payments may be made on property leased to a third-party tenant is when the Government of Canada acquires property from the private sector that has existing leases. We 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 property taxes and that space would no longer be eligible for PILT.
Do third-party tenants in federal properties default on their property taxes?
Under the Constitution Act, federal property is always exempt from taxation. However, if occupied by a third-party, the property is not eligible for payments in lieu of taxes unless the period of the tenancy is for less than one year or if the lease existed when the Government of Canada acquired the property. Under prevailing assessment legislation, assessors are generally required to assess tenant-occupied federal property as if it were owned by the tenant. Furthermore, the legislation governing taxing authorities gives them the right to tax the tenant’s interest, and the collecting of the tenant’s taxes is a direct interaction between the taxing authority and the tenant.
What happens if third-party tenants in federal properties default on their property taxes?
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.
The Payments in lieu of taxes Act includes a provision for the taxing authority to request a payment in lieu of taxes on the 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.
Does the Government of Canada pay property taxes or make payments in lieu of taxes on property leased from the private sector?
The Government of Canada 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. We cannot pay property taxes directly as we are 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.
Does the Government of Canada make payments in lieu of taxes on property leased from other tax-exempt bodies such as a province?
Property leased from a province is eligible for payments in lieu of taxes (PILT). However, PILT cannot be made on property leased from a municipality, other tax-exempt bodies or private owners. Also, if we own a building that is located on land leased from a province, PILT are payable on both the land and the building. However, if a federal building is located on land owned by a municipality or another tax-exempt body, only the building would be eligible for PILT.
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