Law Times

Law Times • June 28, 2010 An online resource 1.800.263.3269 Focus On MUNICIPAL & PLANNING LAW PILT ruling gives cities 'greater certainty' Lawyer predicts SCC decision will assist in Pearson airport dispute BY GLENN KAUTH Law Times two federal Crown agencies helps clarify the relationship between municipalities and the national government, says a leading municipal and planning lawyer. Th e case, Montreal (City) v. Montreal Port A Authority, dealt with municipalities' authority to collect payments in lieu of property taxes from the federal government for land it owns. Th e issues dated back to 2003, when the city, following amalgamation on the island of Mon- treal, abolished its occupancy tax in favour of a variable-rate property tax. As the CBC and port authority hadn't been paying the occupan- cy levy under the previous arrangement, they deducted that amount from their property tax increase. In doing so, they cited their discretion under the federal Payments in Lieu of Taxes (PILT) Act. John Mascarin, a partner with Aird & Berlis LLP in Toronto, notes the dispute originated in s. 125 of the Constitution Act, which grants the federal government immunity from taxation by other levels of government. As a result, acknowledging that not paying for the ser- vices it uses would be unfair, it has done so anyway under the PILT framework. But while the legislation grants the government discretion over the payments, the top court's ruling in April restricted its scope. "You can't just make decisions that are purely, completely dis- cretionary," says Mascarin. "I think it adds a lot of clar- ity and it gives a much more clear road map as to the rules to be applied." Th e case essentially involved a judicial review of the federal government's decisions, which the Federal Court fi rst allowed and the Federal Court of Appeal later overturned. In allowing the appeal, Supreme Court Justice Louis LeBel noted the constitutional dilemma at the heart of the case. "Th us, the PILT Act is designed to reconcile diff erent objectives — tax fairness for municipalities and the preservation of constitutional immunity from taxation — that can be obtained only by retaining a structured adminis- trative discretion where the setting of the amounts in lieu is concerned," LeBel wrote. So how much authority do municipalities have to 'I think the case is of great assistance to Mississauga's position,' says John Mascarin. collect? Can federal agencies arbitrarily set their PILT payments — minus the equivalent of Montreal's for- mer occupancy tax, for example — against a munici- pality's wishes? As it turns out, they don't have much scope to do so, according to LeBel, who wrote that "in a country founded on the rule of law and in a society governed by principles of legality, discretion cannot be equated with arbitrariness. While this discretion does, of course, exist, it must be exercised within a specifi c legal framework." As a result, LeBel granted that federal agencies should have some leeway to deal with disputes with municipal- ities in cases where, for example, the lower level of gov- ernment has shown bad faith, there are technical issues related to property assessment or there is some question about how to classify a piece of land. Despite that discretion, LeBel said the CBC and port authority's positions contained a "fundamental fl aw" given PILT regulations requiring that federal levies "be calculated as if the federal property were taxable prop- erty belonging to a private owner." LeBel also noted that "they cannot base their calcu- lations on a fi ctitious tax system they themselves have created arbitrarily." For Mascarin, the decision is important given its fo- cus on setting out the degree to which the federal gov- ernment has discretion over PILT payments. "I think July web specials recent Supreme Court of Canada deci- sion that upheld the City of Montreal's authority to collect payments from before there was at least some doubt [about] whether they have to exercise their discretion with the utmost reasonableness," he says. Mascarin, in fact, notes the ruling may be helpful in a case he's dealing with involving the City of Mississauga, which is seeking a review of development charges payable by the federal gov- ernment over the massive redevelopment at To- ronto's Pearson International Airport. "I think the case is of great assistance to Mississauga's position," he says, adding the dispute centres on the amount Public Works and Government Ser- vices Canada must pay rather than on whether it is responsible for development charges in the fi rst place. In that case, the city is seeking about $26 million, whereas the federal government has off ered up $890,000. Th e diff erence, Mascarin points out, centres on whether improvements made to the land count as credits against the development charges payable. "Th ey've built roads, they've built storm-management facilities that aren't creditable," he maintains. To be eligible for credit, a road, for example, must be part of the municipal infrastructure, something Mascarin says doesn't apply in the Mississauga case. "We're really surprised that the federal government hasn't acceded to making some sort of settlement," he adds. Th e Toronto area does, of course, have other disputes over similar issues. A long-running one, for example, involves PILTs payable by the Toronto Port Authority to the City of Toronto. Th e parties reached a so-called macro settlement on the matter in December. For its part, the port authority said in April that the Supreme Court ruling on the Montreal case involved issues unre- lated to its own matter. For Jeff Cowan, a partner at WeirFoulds LLP, the re- cent top court decision is "good law" that should give municipalities "greater certainty to collect" levies from federal agencies. "It's a sound reading of the legislation," he says, not- ing the ruling goes some way to circumscribing the dis- cretion the federal government has. "I think it's important that it doesn't give Public Works an open-ended discretion to pay what they want to pay," he adds. For Cowan, the ruling essentially means the federal government has to live by the constraints set out in the PILT legislation. "If they want more [discretion], then they'll have to change the regulations," he says. LT PAGE 9 O'Brien's Encyclopedia of Forms, Eleventh Edition — Municipal Corporations, Division IX Ontario Property Tax Assessment Handbook, Second Edition Thomson Rogers on Municipal Liability For a 30-day, no-risk evaluation call: 1.800.565.6967 CA082 CA082 (LT 1-4x5).indd 1 Canada Law Book is a Division of The Cartwright Group Ltd. Prices subject to change without notice, to applicable taxes and shipping & handling. www.lawtimesnews.com 6/23/10 11:21:41 AM Editor -in-Chief: Hillel David Jack A. W alker , Q.C., and Jerr y Grad Editor: Ir vin M. Shachter

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