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

A judge sided with the federal government over the City of Ottawa about how much money the feds pay in lieu of municipal taxes. CTV’s Kimberley Fowler reports.

The City of Ottawa has lost a multi-million-dollar court battle with the federal government over payments in lieu of taxes (PILTS) on federal buildings in the capital.

Federal Court Justice Panagiotis Pamel dismissed 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.

The case surrounded a reduction in the Business Education Tax (BET) rate on property taxes by the Ontario government during the COVID-19 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.

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While the City of Ottawa wanted to charge the federal government the standard BET rate, 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 City of Ottawa said PSPC’s decision to pay the revised rate resulted in an “underpayment” of $22 million for 2021 and 2022. Last September, city staff said the reduction in the Business Education Rate would result in a shortfall of $110 million to $140 million over 10 years.

In a decision released this week, Justice Pamel dismissed the city’s challenge, saying it would be unreasonable to expect Public Services and Procurement Canada or Canada Post to pay the standard tax rate while private businesses received an exemption and a lower tax rate.

“Ottawa seems to be trying to fit a square peg into a round hole on the coattails of statutory intent and purpose.” Pamel said. “The starting point of the analysis should be the text of the PILT Act itself, and the Program it has created.”

The judge added they saw “nothing unreasonable” with PSPC and Canada Post’s opinion that the revised BET rate was an “effective rate” consistent with the PILT Act.

Pamel says that while the city said PSPC and Canada Post’s approach to paying the revised tax rate was “overly technical” under the PILT Act, the judge writes, “Ottawa’s urging is misguided, as the city is asking me to read into the legislation something that is not there.”

“Ottawa is understandably unhappy with the outcome. I have not been convinced by Ottawa that the respondents somehow unreasonably exercised their discretion in choosing the Revised BET rate in determining their PILTs for school purposes.”

The Federal Court also ordered the city to pay $5,000 each to Public Services and Procurement Canada and Canada Post.

Chief Financial Officer Cyril Rogers told Council Thursday evening that the city is reviewing the decision “in detail,” and discussing with external counsel to determine the next steps.

The more than 600 federal government and Crown corporation properties in the City of Ottawa are exempt from provincial and municipal taxes. The federal government established the PILT Act to provide payments in lieu of taxes to municipalities to cover the cost of municipal services.

The Ontario government provided the City of Ottawa $35 million to cover BET payments over three years.

Mayor Mark Sutcliffe defends his ‘Fairness for Ottawa’ campaign

Last August, Mayor Mark Sutcliffe launched his “Fairness for Ottawa” campaign, seeking $100 million from the federal government to cover payments in lieu of taxes over the past five years and a commitment for funding over the next 10 years.

Council was told that city staff have held meetings with the federal government to discuss the tax issue.

Staff told councillors that the city is estimating a funding shortfall of $252 million to $445 million over the next 10 years unless the federal government changes the PILT formula.

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.