Bulletin - Annual Laws - FSMA Requirements - April 4, 2011
Important Changes to the 2011 Annual Expenditure Law Standards
Use of Reserve Funds
First Nations who have established reserve funds may not have adequate reserve fund usage provisions in their property tax laws to govern the use and management of reserve funds. These provisions establish rules concerning the borrowing from reserve funds, transfers from one reserve fund to another, and expenditures from the reserve fund. The change to the FNTC Standards for Annual Expenditure laws is directed at those First Nations who have established or wish to establish reserve funds, but do not have reserve fund usage provisions in their property tax laws. The change (see section 8 of the FNTC Standards for Annual Expenditure laws) establishes the same reserve fund usage requirements that are set out in the FNTC Standards for Property Tax laws.
Important Changes to the 2011 Annual Rates Law Standards
Accounting for New Construction in the Average Tax Bill Calculation
An amendment to the Annual Rates Law Standards responds to the issue of new construction skewing the current year's average tax bill in the analysis undertaken with the previous year's average tax bill. Accounting for new construction in the calculation will ensure that the comparison only examines tax bill changes as a result of changes in real estate market value and not because the property is substantially different than the previous year.
Timing for the making of rates and expenditure laws
FSMA Timing Regulations require First Nations to enact their rates and expenditure laws 14 days after the date established for setting of rates by the reference jurisdiction. First Nations can comply with these regulations by ensuring that the “in force” date of their rates and expenditure law is set 14 days after the reference jurisdiction establishes rates. (e.g., reference jurisdictions in BC set their rates before May 15th and therefore laws should be in force before May 28). If you require assistance in determining the “in force” date please contact the FSMA Registrar.
Setting tax rates in the first year of taxation (Section 6 of the FNTC Standards)
First Nations entering into their first year of taxation must establish tax rates that are identical to rates established by the former taxing authority in the current year; or where there was no former taxing authority, the same rates as the reference jurisdiction in the current year. (The reference jurisdiction should be contiguous with the First Nation and have similar service obligations).
Setting tax rates in subsequent years (Section 7 of the Standards)
In the second and all subsequent years that a First Nation exercises property taxation, tax rate
setting must meet the requirements of section 7 of the Standards. First Nations must ensure that in instances where proposed tax rates will lead to a tax bill increase, the average tax bill for each property class will not increase by more than the national rate of inflation from the previous year.
For the 2011 tax year, the annual rate of inflation or consumer price index is 2.4%.
In determining the average tax bill, tax administrators can use one of two methods:
- Mean Tax Bill: divide the total number of folios (i.e., taxable interests) into the total revenues collected from that property class. For example, if $100,000 in taxes were collected from 100 residential properties, the average tax bill would be $1,000 per residential property; or
- Median Tax Bill: the tax bill in the middle of each property class. In order to find the median tax bill, you have to put EVERY tax bill in order from lowest to highest by property class, and then find the tax bill that is exactly in the middle. For example the median of the following string of numbers is 45; (2, 32, 33, 45, 60, 62, 70). If there is no "middle" tax bill, because there is an even number of folios, the median is the mean (the usual average) of the middle two values. (The FNTC can provide a spreadsheet application to assist in these calculations).
First Nations can express tax rates in $1, $100, or $1000 of assessed value depending on local practice.
Justification for increased tax bills not meeting Section 7 of the Standards
In situations where First Nations establish tax rates that may result in average tax bills not meeting the criteria stated above, the FNTC may approve these laws provided that there is justification on the one of the following grounds:
- special projects
- incremental growth
- increases in local inflation above the national average
- taxpayer support, or
- a fundamental change to the assessment methods for that property class.
Also, the FNTC may approve rates laws that exceed the section 7 requirements if the proposed First Nation’s rates are identical to the previous and current year’s rates set by the reference jurisdiction. In either scenario, First Nations must give prior notice to taxpayers of the tax bill increase and the reasons for the increase. This ensures that First Nation tax authorities can set appropriate tax rates to meet specific local economic circumstances.
First Nations may wish to set a minimum tax to be applied to properties within a property class. A minimum tax means that a property may be levied a minimum amount of tax even though its assessed value would result in a lower amount of tax. The minimum tax, if any, must be set each year within the First Nation’s rates law. The Rates Law Standards provide that a minimum tax must not exceed one hundred dollars ($100) except where required to create a fair taxation regime because of one or more of the following circumstances:
a) the First Nation had established a higher minimum tax amount in its taxation regime existing at the time of being scheduled under the FSMA;
b) to harmonize with minimum tax amounts established in the relevant province or the reference jurisdiction; and
c) the First Nation’s cost of providing services to properties with lower assessed values exceeds one hundred dollars ($100).
Establishing of contingency funds and reserve funds
With respect to the annual expenditure law, FNTC standards require FSMA participating First Nations to establish in their expenditure laws contingency funds of 1% to 10% of the property tax revenue. For First Nations establishing reserve funds for the first time, reserve funds must be established in an annual expenditure law and must comply with requirements in the First Nation’s taxation law. Reserve funds must also meet the criteria set out section 6 of the Expenditure Law Standards including the requirement for capital plans.
Amendments to the Budget during the Tax Year
First Nations wishing to amend their local revenue projected budgets are reminded that any changes to the budget must be made with an amendment to the Annual Expenditure Law.
FNTC information requirements
FNTC requires sufficient information to review and approve laws. The FNTC may request some or all of the following information to accompany the First Nation’s annual laws:
- the summary assessment roll for the two previous years and current taxation year;
- the number of property occurrences within each property class (this usually appears on the summary assessment rolls provided by the First Nation’s assessor);
- the tax rates from the previous two years;
- the amount of new construction reflected in the current assessment roll, as
- determined by comparing the folio counts in this year to last year; and
- the nearest or adjacent jurisdiction to be considered as a tax reference along with that
- jurisdiction’s tax rates for the previous and current taxation year.
This information supports proper decisions and ensures the First Nation property tax system remains transparent and maintains taxpayer confidence.
Tax notices must only be issued once laws have been approved by the First Nations Tax Commission and you have received notice of the approved law from the Registrar, FSMA.
In preparation for your tax rates and expenditure laws, please confirm the date when tax notices are to be provided and ensure that the signed laws and all supporting materials are filed with the Registrar, FSMA as soon as practicable. To allow sufficient time for the review and approval of your First Nation’s annual laws and to ensure compliance with the timelines established in your First Nation’s taxation law, the FNTC recommends that First Nations submit their annual laws at least 15 days in advance of the date tax notices are to be issued.
Technical Comments on Draft Laws
Although not required, First Nations are encouraged to submit their draft laws as early as possible to FNTC representatives for the purpose of providing technical commentary. Each year a number of common errors in the form of laws are found. By providing technical comments on draft laws, the FNTC can help minimize the amount of errors before the laws are sent to Chief and Council.
For more information, please contact us at:
First Nations Tax Commission
321 – 345 Yellowhead Highway
Telephone: (250) 828-9857 or (613) 789-5000