Municipal Property Taxation: Not All Tax Tools are Created Equal

Ratepayers are generally familiar with paying property taxes based on a percentage of the assessed value of the property: this is known as an ad valorem tax. However, in addition to an ad valorem tax, Saskatchewan municipalities have other ways to tax property – referred to as “tax tools” in municipal legislation (specifically The Municipalities Act and The Cities Act).

Tax tools are unique in that they should not increase the amount of tax revenue raised by a municipality. Rather, the tax tools provide ways for municipalities to redistribute the tax burden within their tax base.

Municipalities should be aware of the distinct purpose and effect of each individual tax tool as they are often misunderstood. What are the tax tools?

There are three distinct tax tools:

  1. Mill Rate Factor: mill rate factors essentially adjust the mill rate, or the tax rate, resulting in a different effective tax rate for a specific class of property.
  2. Base Tax: a base tax is in addition to the ad valorem tax and may be applied to any class of property. For example, residential properties subject to a $100 base tax would pay that tax in addition to the ad valorem tax calculated on the assessed value of each property.
  3. Minimum Tax: a minimum tax applies only if the ad valorem tax on a property amounts to less than the minimum tax. A residential property subject to a $300 minimum tax would only pay that tax if the ad valorem tax did not amount to at least $300.

The main purpose of tax tools is to redistribute the tax burden within a municipality’s tax base. The redistribution of taxes can take place between the different classes of property, such as residential, commercial or agricultural properties, but it can also take place between higher and lower assessed properties within the same class.

A mill rate factor will shift the tax burden between the different classes of properties. For example, a mill rate factor of 1.20 on the residential class of properties will increase the mill rate (or the tax rate) by 20%, whereas a mill rate factor of 0.80 would decrease it by 20%.

By assigning different mill rates to different classes of property, a municipality can shift the tax burden and have different classes take on more or less of the municipality’s tax burden relative to other classes.

Conversely, a base tax and a minimum tax redistribute the tax burden within the same class of property. Both a base tax and a minimum tax will increase the amount of tax revenue generated from lower assessed properties.

Municipalities can implement their tax policies by applying the various tax tools to the different classes of property within the municipality. Generally, the guiding principle when deciding on a tax policy is equity and fairness.

A municipality should follow three predominant schools of thought concerning taxation:

  1. Higher assessed properties should pay more because they have a higher ability to pay.
  2. If a class of property receives a higher level of service than others, it should pay more.
  3. Everyone should pay something to cover the cost of basic services to which all properties have equal access.

Due to an absence of guidance in the municipal legislation, first-time users of tax tools may encounter difficulties when deciding whether tax tools can be used to further the aims of their tax policy. Fortunately, the Saskatchewan Government has provided guidance to municipalities by way of a Municipal Tax Policy manual that can be obtained by contacting Municipal Advisory Services.

Moreover, courts have given additional guidance and have quashed tax bylaws that, in the opinion of the court, were not used for their intended purpose. Court analyses are often nuanced and tailored to the facts of the particular case at hand.

We will address certain court decisions that shed additional light on the proper use of tax tools in the next article of this series.

If you are a ratepayer or involved on a municipal council and would like to learn more about tax tools or municipal taxation, contact Len Andrychuk.

Authors: Aziz Aboudheir, Len Andrychuk, K.C.

Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice of opinion. Readers should consult a legal professional for specific advice in any particular situation.