FNTC: Proposed Rates By-law Policy
Press Release
2nd Nov 2015
Rates By-laws made under section 83 of the Indian Act are subject to Ministerial approval. A Memorandum of Understanding (MOU) between the FNTC and the Minister of Aboriginal Affairs and Northern Development provides for the FNTC to review and recommend section 83 by-laws for ministerial approval.
Policies established by the Commission further the policy objectives expressed in the MOU, including to ensure the integrity of the First Nations property taxation system and to promote a common approach to real property taxation nationwide.
The Rates By-law Policy sets out the requirements that should be met for First Nation Rates By-laws enacted under section 83, and is to be used by the Commission in its review and recommendation of First Nations’ by-laws.
To the extent possible, section 83 policies are consistent with FNTC standards.
A series of proposed changes to the Standards for First Nation Tax Rates Laws are being recommended for Commission review and approval for the purposes of seeking public input. The proposed Standards would replace the existing Standards in their entirety.
A series of parallel changes to the Rates By-law Policy are presented to ensure that the section 83 rates by-law policy reflects FNTC rates law standards to the extent possible.
The proposed changes are intended to respond to several emerging issues, including; establishing property tax in certain jurisdictions, tax districts, reference jurisdictions, minimum tax, determining the average tax bill, and the use of justification for additional rate increases.
Property Tax Transition Periods for Certain Jurisdictions
Under the proposed changes to the Property Taxation By-laws Policy, a transition period is advanced to enable First Nations to incrementally introduce property taxation in certain jurisdictions that use a fee for service structure to meet the cost of local services provision. As a result, changes to the Rates By-laws Policy are proposed to accommodate these transition provisions by providing for exceptions to the:
– minimum tax requirements (section 5.2) – Transitioning jurisdictions would establish a minimum tax during the transition period that is equal to the service fee charged in the year prior to taxation; and
– first year of taxation and subsequent year requirements (sections 6.2 and 7.2) – Transitioning jurisdictions would establish first year and subsequent year tax rates consistent with their transition provisions.
Further proposed changes to the Policy would enable First Nations to vary from the tax rates established in the transition plan only if they have evidence of taxpayer support in the affected class (section 8.2, see discussion below).
Use of Tax Districts and Rates for Separate Reserves
A new section 3 has been added to reflect First Nation practice and existing policy with regard to rates setting for districts and separate reserves. The proposed changes (section 3.1) requires rates to be established for each district and provide for the rate-setting requirements in the Policy to apply to each district separately. Section 3.2 would enable First Nations to establish separate rates for separate reserves where there are multiple reference jurisdictions, without necessarily establishing districts for separate reserves.
Average Tax Bill Calculation
FNTC has adopted the use of the “average tax bill” as a means to determine the general financial impact on taxpayers given a proposed tax rate. Many local governments use a similar “average tax bill” when communicating how proposed tax rates affect property classes (especially residential and commercial classes).
Under the Rates Policy, rates will meet the requirements in the Policy if the average tax bill does not increase beyond the annual rate of inflation or beyond the average tax bill in the reference jurisdiction’s respective class.
Currently, average tax bills are be determined by using the mean (sum of folios/number of folios) or the median (midpoint in the number of folios). The proposed changes to the Policy (section 7.3) would clarify the use of a median representative taxpayer whose tax bill can be compared from year to year. This change will simplify the average tax bill calculation for tax administrators, TAS, and FNTC reviewers. It also provides a better tool to track real changes in the average tax bill.
Other changes to the average tax bill calculation (paragraph 7.2(b) and paragraph 7.3(b)) would exclude results from assessment appeals where the result leads to increases/decreases in value. This will ensure that the average tax bills are not skewed by changes in assessed values attributable to appeals.
Additional changes to the average tax bill calculation concern certain properties whose assessments are governed by regulated rates. For example, assessment of railways in BC can vary year to year by the amount of tonnage hauled. The changes would exclude these types of property from the average tax bill calculation within the class, or exclude any changes to their assessed value from the previous year. This will ensure that First Nations can set rates using either CPI or average tax bill comparison in a way that achieves fairness.
Justification for Additional Rate Increases
The ability for First Nations to impose rates that exceed rates requirements is currently found in section 7 of the Policy. These provisions are intended to address several rationale as to why First Nations would need to exceed normal requirements. These include special projects, incremental growth, local inflation growth, and changes in assessment methods.
The proposed changes (section 8) would limit the justification rationale to three areas:
- – significant increases to the cost of local services;
- – rate consistent with the First Nation’s reference jurisdiction transition plan, or
- – taxpayer support with the affected class.
Under section 8.3, First Nations citing significant increases in the cost of services as a justification would have to provide evidence to the Commission in the form of a signed service agreement showing cost increases, or written evidence provided by the First Nation’s chief financial officer.
Under section 8.4, the threshold for taxpayer support would be 50% of the taxpayers in the property class, representing at least 50% of the total assessed value.
Section 8.2 provides that First Nations who have a transition plan for rate setting in their property tax law can only use taxpayer support (paragraph 8.1(c)) to justify variations with the transition plan rates.
Transition to Reference Jurisdiction Rate-Setting
Several First Nations have sought the ability to establish tax rates consistent with the rates of their reference jurisdiction. The current definition used in the Policy regarding reference jurisdiction rate-setting requires current and previous year’s tax rates, thereby precluding the ability of First Nations to move away from CPI rate-setting or average tax bill comparison rate-setting.
There is a potential that some property classes may experience a significant tax bill increase if a First Nation adopts the reference jurisdiction rate-setting method. In some instances, the margin between First Nation rates and rates of the reference jurisdiction is as high as 30 mills. To mitigate this risk and lessen tax shock, sufficient notice, taxpayer engagement and an incremental approach are necessary.
The proposed changes (section 8.1(b) and section 9) would enable First Nations to move to reference jurisdiction rate-setting provided that in the previous year there was:
- – written notice to taxpayers,
- – a transition plan developed, and
- – sharing of the plan with taxpayers at a public meeting.
The transition plan would include a description of how increased revenues will lead to improved services or improved local infrastructure. The plan would require that the transition be completed within 5 years.
First Nations seeking to justify their law under section 8.1(b) would be required to submit to the Commission:
- – their reference jurisdiction transition plan;
- – confirmation that the First Nation, in the previous year, delivered written notice to taxpayers of the First Nation’s intention to develop a transition plan and intention to move to reference jurisdiction rate-setting; and
- – confirmation that the First Nation, in the previous year, gave notice of a transition plan and a meeting to discuss the plan; and
- – confirmation that the First Nation, in the previous year, delivered notice of meeting with taxpayers to any taxpayer associations, and posted notice of the meeting on the First Nation’s website, the First Nations Gazette, the First Nation’s administrative office, and two other on-reserve locations, at least 14 days in advance.
Other Changes
Reference jurisdictions are used in various FNTC policy instruments, notably in the review of First Nation tax rates. Proposed changes (Part VI, Definitions) reflects current practice of how reference jurisdictions are selected (typically First Nations rely on the FNTC to identify the most appropriate reference jurisdiction) and how they are in fact used (i.e., for tax rate comparison). This definition is replicated in proposed changes to the Property Taxation By-law Policy.
The FNTC is seeking public input in respect of this proposed Policy. 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 Policy (changes are highlighted in red):
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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