First Nations contract with qualified, independent assessors to assess the leases, licenses and other occupations of their lands (generally referred to as “interests in land”). Over the past 30 years, a national approach to assessment of these interests in land has developed. To understand the approach and the reasons for the approach, it is important to understand the key elements of First Nation taxation systems.
How are First Nations Lands different from other land in Canada?
First Nation lands are “reserve” lands, the title to which is held by the Government of Canada for the use and benefit of the First Nation. This means that reserve lands do not have titles that are registered in the provincial land title office, and that no one can own a fee simple interest in the reserve lands. Even the First Nation itself does not have a fee simple interest in the land.
What types of interests in land exist on reserve lands?
There are different ways that non-members of the First Nation may occupy reserve lands. The most common way is through a lease either with a member of the First Nation or with the First Nation itself. Leases can range from short term, such as 10 years, to long term, usually up to 99 years. Leases can be pre-paid for the term or have annual payments with periodic rent reviews. It is common for different types of leases with varying terms to exist on a single reserve at any given time.
There may also be short or long-term licenses of occupation, permits to occupy, or rental agreements, and there may also be simple occupations of reserve lands without any legal documentation.
What interests in land are taxable on reserve lands?
Provincial property tax systems generally levy taxes on the fee simple interest of a property, and it is the owner of the fee simple interest who is liable for the taxes. Because there are no fee simple interests in reserve lands, a different approach is necessary.
First Nation property tax systems levy taxes on occupiers of reserve lands, regardless of the nature of the occupation. This means that occupiers of reserve lands, whether they hold a lease, license, permit or simply occupy the land, can be liable for taxes. In this sense, the taxation is on the occupation of the land, and not related to the specific way that the person occupies the reserve lands.
Occupations can be for a range of uses, including residential, commercial, industrial, agricultural or utility. The full range of occupations can be taxable, just as they are off reserve.
How are occupations of reserve lands assessed?
Where provincial property tax is levied on the fee simple interest, the province assesses the value of the fee simple interest. Although the specific rules and approach vary among the provinces, generally the objective is to determine the market value of the property.
A common approach to determine market value is the sale price of the property on the open market. Some provincial systems also have rules for assessing non-fee simple interests that are taxable, including leases, licenses and other occupations. Where a person is occupying Crown land (whether by lease, license or otherwise), that person’s occupation is taxable, and the provincial assessment legislation directs the assessor to assess the occupation based on the full market value of the property as though it were held in fee simple by the occupier.
First Nations across Canada have adopted this approach to assessment of occupational interests in their reserve lands. On reserve lands, it is the First Nation’s property assessment law which governs how the assessor must assess each interest in land, as provincial assessment legislation does not apply. The approach is reflected in each First Nation’s property assessment law, which generally direct the assessor to assess each interest in land as though it is held in fee simple off reserve. It is “off reserve” because there is no fee simple interest in reserve land, there tends to be a lack of comparable data on reserve lands, it avoids issues of reserve land valuation, and it provides for a similar tax burden to off reserve properties.
Why is this approach the best assessment approach for First Nation property tax systems?
There are several reasons why this approach is used and why it makes sense for First Nation property taxation systems.
- The approach is used provincially for occupational interests and is familiar to taxpayers.
- The approach enables assessors to use the same rules for assessment that are used provincially, which are based on fee simple assessments. This means the assessment process does not require new and different rules, has comparable properties, and is cost effective to implement.
- The approach ensures that tax revenues do not depend on whether the occupation is under a lease, license or other arrangement or on the time remaining on the occupation. The assessed value and proportional share of taxes for a class of property will be the same as off reserve lands, whether a property is held under a lease or a license or whether that tenure is short or long term. This ensures a similar distribution of tax liability as is achieved on non-reserve lands.
- Using an approach that is similar to the system used off reserve enables First Nations and their taxpayers to compare their annual tax rates to adjacent non-reserve jurisdictions.
How are taxes determined on reserve lands?
The method for determining taxes on reserve lands is the same as for properties on non-reserve lands. The First Nation sets annual tax rates for each property class (e.g. residential, commercial etc.). The applicable tax rate is multiplied by the assessed value of the property to create a tax bill. First Nation tax rates are similar, and in many cases identical, to those of adjacent governments. Using a similar assessment method means that taxpayers pay similar amounts to amounts paid off reserve.