Executive Summary: Key Legal and Evidentiary Issues

• Central dispute involved determining the appropriate "effective rate" for calculating Payments in Lieu of Taxes (PILTs) to be made to the City of Ottawa in 2021 and 2022.

• Ontario's COVID-19 pandemic relief reduced the Business Education Tax (BET) rate for private properties to 0.880%, while government-owned properties remained subject to rates ranging from 0.980% to 1.250%.

• The City argued that applying the Revised BET Rate violated the "fair and equitable" administration of PILTs mandated by section 2.1 of the Act.

• Respondents concluded that the only BET rate applicable to "taxable property" was the Revised BET Rate levied on private property.

• Standard of review applied was reasonableness under the Vavilov framework.

• Ministerial discretion in selecting effective rates was found to be constrained by the scheme and objects of the Act and the Regulations.

Background and parties involved

The City of Ottawa appealed from a judgment of the Federal Court dismissing an application for judicial review. The respondents included His Majesty the King in Right of Canada (represented by the Minister of Public Services and Procurement Canada), Canada Post Corporation, and the National Capital Commission. Proceedings against the National Capital Commission were held in abeyance pending the outcome of the proceedings against the Minister.

The nature of payments in lieu of taxes

Property owned by the federal government, provincial government, and Crown corporations enjoys constitutional immunity from taxation, including municipal taxation. PILTs are voluntary payments made by the federal government to municipalities for the provision of public services "in lieu of" municipal taxes. The Crown has decision-making power over PILTs in respect of departmental property, and Crown corporations have that power in respect of the property they manage. The first step in calculating a PILT is to multiply the "effective rate" of tax by the "property value," as prescribed under the Payments in Lieu of Taxes Act and the Crown Corporation Payments Regulations.

The tax rate dispute

The City of Ottawa sets its municipal tax rates, except for the Ontario Business Education Tax (BET) rate, which is set by Ontario under the Education Act. Responding to the COVID-19 pandemic, Ontario reduced the BET rate levied on private properties to a single rate of 0.880% of the assessed value, starting in 2021. Ontario did not reduce the BET rate for properties owned by the federal or provincial governments or Crown corporations. At the time, BET rates applicable to government-owned property in Ottawa ranged from 0.980% to 1.250% of the assessed value. In determining PILTs to be paid to the City of Ottawa, the respondents concluded that the only BET rate applicable to "taxable property" was the Revised BET Rate and calculated and paid PILTs on this basis.

The City's arguments on appeal

The City of Ottawa submitted that it was unreasonable for the respondents to apply the Revised BET Rate when Ontario did not intend the pandemic relief measures to apply to government properties. In the appellant's view, applying the Revised BET Rate violated the "fair and equitable" administration of PILTs mandated by section 2.1 of the Act and resulted in a budget shortfall for the City of Ottawa. The appellant also submitted that the decisions were fatally flawed because they indicated that the respondents lacked discretion in setting the effective rate when the relevant provisions of the Act and Regulations are discretionary. The appellant's position was that the respondents ought to have considered and applied the rate for "taxable property" in effect prior to Ontario's amendments, which would be consistent with the intention under the Act and the Regulations that the City of Ottawa be fairly compensated for the municipal services that it continued to provide.

The Court's analysis and ruling

The Federal Court of Appeal applied the reasonableness standard of review and agreed with the result reached by the Federal Court, substantially for the reasons it gave. The Court held that while the Minister and Crown corporations have discretion to select an effective rate, that discretion is constrained by the scheme and objects of the Act and the Regulations. The discretion is limited to selecting the tax rate that, in their opinion, would apply if the property were "taxable property." The respondents' conclusion that the only such rate was the Revised BET Rate levied on private property was found to be reasonable—it was justified in relation to the facts and the law that constrained the decision maker. The Court noted that the Standard BET Rate did not apply to "taxable property" during the relevant periods, but to property exempt from taxation, and that Ontario's intention in enacting the amendments is of no moment to the interpretation of the Act and the Regulations. The Court also rejected the argument that the decisions lacked justification, agreeing with the Federal Court that although the reasons are brief, considering the nature of the issue raised and prior exchanges between the parties, they adequately convey the basis for the decisions. The appeal was dismissed with costs in the agreed-upon amounts of $5,000 all-inclusive, payable to each of the Minister and Canada Post Corporation.