City of Ottawa loses court challenge on federal tax payments for buildings

Ottawa City Hall (CTV News Ottawa)

The Federal Court of Appeal has dismissed the City of Ottawa’s appeal in the multi-million-dollar battle with the federal government over payments in lieu of taxes (PILTS) on federal buildings in the capital.

The City had appealed a Federal Court ruling that rejected the city’s legal challenge that Public Services and Procurement Canada (PSPC) and Canada Post shortchanged the city $22 million in 2021 and 2022 on federal payments for tax-exempt buildings.

In a memo to Council Thursday morning, City Solicitor Stuart Huxley said the Federal Court of Appeal dismissed the City’s appeal and ordered the city to pay $5,000 each to the federal government and Canada Post to cover costs.

• Federal court dismisses City of Ottawa’s challenge of federal tax payments for buildings

The battle surrounds the reduction in the Business Education Tax (BET) rate on property taxes by the Ontario government during the COVID pandemic in 2020. The BET rate reduction was intended to provide relief to businesses and was not meant to apply to the payments in lieu of taxes paid by governments.

While the City of Ottawa wanted to charge the federal government the standard BET rate, Public Service and Procurement Canada (PSPC) said it would pay the revised Business Education Tax rate due to the federal regulations for PILTs, “as well as the need to ensure fair and equitable treatment across the country for all PILTs recipients.”

The Federal Court ruled in March that it was unreasonable for the city to expect Public Services and Procurement Canada and Canada Post to pay the standard tax rate while private businesses received a lower tax rate.

In a decision released on Monday, the Federal Court of Appeal supported the Federal Court ruling last March, and dismissed the city’s appeal.

“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 Federal Court of Appeal said.

“The discretion is limited to selecting the tax rate that, in their opinion, would apply if the property were ‘taxable property.’”

Justice Monica Biringer said the Federal Court’s ruling was “compelling and complete,”

According to Huxley and Chief Financial Officer Cyril Rogers, the interpretation has resulted in a reduction to PILT revenues of approximately $11.5 million a year beginning in 2021.

“Over the five-year period from 2021 to 2025, the total revenue reduction associated with this issue is approximately $58 million, of which $35 million has been offset through Provincial one-time funding,” Huxley and Rogers said in the memo on Thursday.

“The remaining amount of $23 million to date represents foregone revenues for the City. Beginning in 2024, and for subsequent years, the City’s base budgets have been adjusted to reflect the reduced PILT revenues; as a result, there is no impact to existing approved base budgets.”

The federal government paid the City of Ottawa $124 million in 2023, $119.6 million in 2022, $114.6 million in 2021, $124.4 million in 2020 and $122.7 million in 2019.

With files from CTV News Ottawa’s Ted Raymond