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Preamble:
WHEREAS the Municipal Government Act (MGA) requires municipalities to collect an Education Property Tax from property owners on behalf of the Government of Alberta and submit that amount regardless of whether the municipality is able to collect these taxes from property owners; and
WHEREAS this requirement has resulted in financial challenges for many municipalities throughout the province; and
WHEREAS across rural Alberta, a significant amount of unpaid requisitions are owed by several taxpayers that were in insolvency or receivership in respect to outstanding taxes including linear taxes; and
WHEREAS in a recent case, a court considered the municipality as an unsecured creditor when a court application was made to determine how the court-appointed receiver should distribute the proceeds from the sale of the taxpayer’s assets; and
WHEREAS Section 348 of the MGA stipulates that property taxes, local improvement taxes, business taxes or community revitalization levies take priority over the claims of every person except the Crown; and
WHEREAS the Court’s directive it very unlikely that a municipality will receive any payment in respect to the outstanding taxes under the current order as the proceeds of the sale are less than the total amount of all the secured claims; and
WHEREAS the issue of whether taxes including linear property taxes constitute a secured claim, in priority to other secured claims such as banks’ claims, has not been fully resolved; and
WHEREAS even if an appeal of the Court’s earlier decision in this matter is unsuccessful, such a negative result would provide a significant basis to lobby the Government of Alberta to make necessary legislative amendments to re-assert the secured status of taxes owed to the municipality;
Operative Clause:
THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta partner with Alberta Urban Municipalities Association to advocate to the Government of Alberta to amend section 348 and other relevant sections of the Municipal Government Act to ensure that municipal property taxes are legally assured a status as a secured claim in the event that the property owner enters bankruptcy or receivership.
Member Background:
Over the years, the MD of Opportunity has experienced that a number of commercial and industrial taxpayers have become insolvent and the MD has been unable to recover the significant amount of taxes and other levies from them. As a result, the MD suffered financial losses. The municipality made mandatory remittances of various levies such as school and seniors’ housing levies out of the MD’s operating budgets, even though the MD was unable to collect all such taxes from a number of delinquent taxpayers. This has caused a financial shortfall and challenge to meet the local community service expectations. The exposure for the MD stood in millions of dollars in recent years.
In case of bankruptcy, courts have considered the municipality as an unsecured creditor in determining how the court-appointed receiver should distribute the proceeds from the sale of the taxpayer’s assets. As the property taxes do not constitute a secured claim, the courts take the view that the property taxes should therefore be paid out only after all other secured claims (such as banks’) have been paid in their entirety. As the proceeds of the sale are less than the total amount of all the secured claims, it is very unlikely that a municipality like the MD will receive any payment in respect to the outstanding taxes.
The MD of Opportunity is currently involved in an appeal to see whether a court’s earlier decision in this matter is overturned. Even if an appeal is unsuccessful, a negative result might benefit the municipalities in that it would provide a significant basis to lobby the Province to make necessary legislative amendments to reassert the secured status of taxes owed to the municipality.
Section 348 of the Municipal Government Act (MGA) stipulates that property taxes, local improvement taxes, business taxes or community revitalization levies take priority over the claims of every person except the Crown. However, the courts have not upheld this section as intended in the MGA.
Other municipalities, including Lamont County, Vulcan County and Northern Sunrise County together with the MD of Opportunity are challenging the earlier court decision in Calgary Court of Appeal to reverse the lower court decision.
RMA Background:
4-17S: Collection of Outstanding Taxes for Education Requisitions from the Province of Alberta
THEREFORE, BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties request that the Government of Alberta develop new tools or utilize existing mechanisms to ensure that municipalities that are unable to collect education property taxes through the tax recovery process be exempted from forwarding those uncollectible tax amounts to Alberta Education, or have the uncollectible amount refunded.
DEVELOPMENT: In fall 2017, the Government of Alberta announced the Provincial Education Requisition Credit (PERC) program, under which municipalities who have no choice but to remit requisitions to the Government of Alberta for unpaid education property taxes on linear oil and gas properties may apply to receive a credit equivalent to the amount of the requisition. PERC is funded through the Alberta School Foundation Fund’s net asset fund.
At this point, PERC extends to the 2019 tax year, and is capped at $10 million per year. As of March 2018, 37 applications had been processed and approximately $3 million of credits had been issued.
This resolution is assigned a status of Accepted, and the RMA will continue to work with the Government of Alberta to support the long-term viability of the PERC program and develop other mechanisms to address unpaid linear property taxes.
3-16S: Recovery of Linear Property, Commercial Property, and Education Requisition Tax Arrears
THEREFORE, BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties (AAMDC) request the Government of Alberta to amend the Municipal Government Act (MGA), and other provincial legislation to broaden the tax recovery power of municipalities to collect linear property taxes by granting a lien in favour of the municipality as follows:
A lien equivalent to that granted to the Alberta Energy Regulator (AER) by s. 103 of the Oil and Gas Conservation Act (OGCA) that being: “on the debtor’s interest in any well, facilities, and pipelines, land or interests in land, including mines and minerals, equipment and petroleum substances” and the power to garnish funds owed to the debtor;
A lien which ranks in priority (or equivalent) to the lien granted in favour of the AER by s. 103(2) of the OGCA;
FURTHER BE IT RESOLVED that the AAMDC requests the Government of Canada to amend the federal Bankruptcy and Insolvency Act to recognize municipal linear property taxes and other municipal non-property taxes as a secured interest in priority to other unsecured interests;
FURTHER BE IT RESOLVED that the AAMDC request the Government of Alberta to provide a credit reimbursement to compensate for the education property taxes that become uncollectable due to linear and commercial property bankruptcy.
DEVELOPMENT: In 2016, Alberta Municipal Affairs had convened an inter-ministry working group consisting of representatives from Municipal Affairs, Energy, Treasury Board and Finance, Education, and the AER. The purpose of this working group was to address the concerns identified in resolution 3-16S and resolution 5-15F. More specifically, the working group explored how the suite of tools available to municipalities to recover unpaid linear property taxes could be expanded, as well as possible legislative or regulatory solutions to relieve or exempt municipalities from paying provincial education property tax requisitions on linear properties in which the municipality has not been able to gather tax revenues from the property owner.
Early in 2017, the working group completed their research and Government of Alberta staff internally developed options for the Minister of Municipal Affairs based on the working group’s findings. In fall 2017, the Government of Alberta announced the Provincial Education Requisition Credit (PERC) program, under which municipalities who have no choice but to remit requisitions to the Government of Alberta for unpaid education property taxes on linear oil and gas properties, may apply to receive a credit equivalent to the amount of the requisition. PERC is funded through the Alberta School Foundation Fund’s net asset fund.
At this point, PERC extends to the 2019 tax year, and is capped at $10 million per year. As of March 2018, 37 applications had been processed and approximately $3 million of credits had been issued. The creation of PERC meets the request in the third operative clause of this resolution.
5-15F: Recovery of Linear Property Tax Arrears
THEREFORE, BE IT RESOLVED that the Alberta Association of Municipal Districts and Counties (AAMDC) requests the Government of Alberta to amend the Municipal Government Act (MGA), and other provincial legislation to broaden the tax recovery power of municipalities to collect linear property taxes by granting a lien in favour of the municipality as follows:
FURTHER BE IT RESOLVED that the AAMDC requests the Federation of Canadian Municipalities to request the Government of Canada to amend the federal Bankruptcy and Insolvency Act to recognize municipal linear property taxes and other municipal non-property taxes as a secured interest in priority to other unsecured interests;
FURTHER BE IT RESOLVED that the AAMDC request the Province of Alberta to provide a credit reimbursement to compensate for the Education Property Taxes that becomes uncollectable due to linear property bankruptcy.
DEVELOPMENT: In 2016, Alberta Municipal Affairs had convened an inter-ministry working group consisting of representatives from Municipal Affairs, Energy, Treasury Board and Finance, Education, and the AER. The purpose of this working group was to address the concerns identified in resolution 3-16S and resolution 5-15F. More specifically, the working group explored how the suite of tools available to municipalities to recover unpaid linear property taxes could be expanded, as well as possible legislative or regulatory solutions to relieve or exempt municipalities from paying provincial education property tax requisitions on linear properties in which the municipality has not been able to gather tax revenues from the property owner.
Early in 2017, the working group completed their research and Government of Alberta staff internally developed options for the Minister of Municipal Affairs based on the working group’s findings. In fall 2017, the Government of Alberta announced the Provincial Education Requisition Credit (PERC) program, under which municipalities who have no choice but to remit requisitions to the Government of Alberta for unpaid education property taxes on linear oil and gas properties, may apply to receive a credit equivalent to the amount of the requisition. PERC is funded through the Alberta School Foundation Fund’s net asset fund.
At this point, PERC extends to the 2019 tax year, and is capped at $10 million per year. As of March 2018, 37 applications had been processed and approximately $3 million of credits had been issued. The creation of PERC meets the request in the third operative clause of this resolution.
The Government of Alberta has not amended the Municipal Government Act (MGA) to broaden the tax recovery powers of municipalities, and municipal powers to seize assets to account for unpaid linear property taxes continues to rank lower in priority than that of the AER and other organizations.
Similarly, RMA has received no indication from the Government of Canada of a willingness to amend the federal Bankruptcy and Insolvency Act to place municipal interests above other non-secured interests.
RMA assigns this resolution a status of Accepted in Part and will continue to advocate on all aspects of this resolution.
Alberta Municipal Affairs
The Municipal Government Act (MGA) provides the framework within which taxes may be collected. With regard to the collection of taxes not related to land, including linear property tax arrears, the Act enables a municipality to recover arrears through a seizure process. The amount that can be seized by a municipality in order to recover linear property tax arrears; however, is limited. Under the MGA, Part 10, Division 9, Tax Recovery Not Related to Land provides a municipality the authority to seize property in order to collect property taxes that are in arrears. Alberta Municipal Affairs will review and consider options to address issues related to linear property tax collection in the event of bankruptcy or insolvency, particularly in light of recent legal rulings.
The province has taken several additional measures to help alleviate some of the burden on municipalities. This includes the Provincial Education Requisition Credit (PERC) Program for uncollectable education property taxes on oil and gas properties was introduced in 2017. This program provides municipalities with an education property tax credit equal to the uncollectable education property taxes on delinquent oil and gas properties, upon approval of a qualifying application. Applicants may claim delinquent taxes back to the 2015 tax year. The deadline for this year’s intake was January 15, 2019, with the final PERC application deadline for consideration of uncollectable education taxes for the 2015-19 tax years being January 15, 2020. In 2018, $3 million in education tax credits were provided to 37 municipalities. While PERC provides relief for the education tax portion of uncollectable taxes, municipalities still need to absorb the loss from uncollectable municipal taxes on delinquent oil and gas properties.
The province has also changed the Alberta Linear Property Assessment Minister’s Guidelines to allow the assessment of linear property owned by defunct companies to be reduced to $0. This eliminates the requirement for municipalities to tax and collect property tax, including the provincial education tax, on these types of properties.
Alberta Energy
Alberta Energy looks forward to hearing from the RMA and the Alberta Urban Municipalities Association on this issue, once the proposed partnership between the two organizations is solidified.
Alberta Energy Regulator
Please see the input provided by the Alberta Energy Regulator for Resolution 5-18F.
Development:
The Government of Alberta has taken some action in recent years to lessen the impacts of unpaid taxes (such as the Provincial Education Requisition Credit [PERC] and allowing municipalities to place a $0 assessment on linear properties owned by defunct companies). Unfortunately, these measures provided limited support and come nowhere close to addressing the fundamental issue of a lack of tools for municipalities to address tax recovery from bankrupt companies. According to a January 2021 RMA member survey, rural municipalities are facing approximately $245 million in unpaid property taxes from oil and gas companies, many of which are bankrupt.
In September 2019, the Supreme Court of Canada denied the application brought forward by three Alberta rural municipalities related to the Albeta Court of Appeal decision in Northern Sunrise County v Virginia Hills Oil Corp, 2019 ABCA 61. The denial confirms that the Municipal Government Act does not grant a municipality a special lien for unpaid linear property taxes. The decision confirms that municipalities cannot use s. 348 to seize linear property for unpaid taxes, severely limiting their tax recovery tools. The decision heightens the urgency for action on amending the MGA to ensure municipalities have tax enforcement and recovery powers.
In September 2020, the Government of Alberta introduced the Municipal Operating Support Transfer Program (MOST), which provides financial support for municipalities to offset increased expenses or lost revenue linked to the COVID-19 pandemic. Included among eligible MOST expenses are any unpaid property taxes from the 2020 tax year. There is no need for taxes to be written off to apply the unpaid taxes to MOST, and taxes can still be collected at a later date. Although this is a helpful tool for rural municipalities continuing to struggle with unpaid taxes, it does not address the legislative gaps causing the problem.
In June 2021, Alberta Municipal Affairs and Alberta Energy reached out to RMA for legislative suggestions to address this issue. RMA’s submission included recommendations contained in this resolution, as well as others. At this point, RMA has not received a response from the Government of Alberta or an indication of possible next steps.
As the Government of Alberta has not amended section 348 this resolution is assigned a status of Intent Not Met, and RMA will continue to advocate on this issue moving forward.
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