Before discussing the steps necessary to establish a property taxation system, the following introduction provides an overview of the nature of property taxation and the legislative authorities for First Nation tax jurisdiction.
As one of the oldest forms of taxation, property tax is a major source of revenue for local and provincial governments. In Canada, nearly $40 billion is raised annually. Currently, there are 125 First Nations exercising property tax powers. First Nation property tax revenues range from a few thousand dollars a year to millions of dollars a year. In total, First Nations are raising $70 million annually. Revenue generated by property tax is used for the provision of local services for a public purpose. These services include fire protection, police protection, water, sewer, roads, governance, and other community services.
Property tax is a tax on real property, and should not be confused with other forms of taxation such as GST and income taxes. Real property consists of land and the improvements on the land (i.e., buildings, towers, pipelines, etc.). On reserve, taxable properties include residential leases, buildings, commercial leases, farming permits, pipelines, transmission lines, production facilities, towers, and railways. Property owned by the federal government and federal crown corporations is immune from property taxation but the government pays a grant in lieu of taxation to the First Nation. Owners or occupiers of the real property are the taxpayers. The amount they owe is determined by the value of their property, the classification of the property, applicable exemptions, and the rate of tax set by the First Nation.
Property tax requires legal authority. The source of First Nation authority is either a First Nation by-law enacted under section 83 of the Indian Act, or a First Nation law enacted under the First Nations Fiscal and Statistical Management Act (FSMA). The First Nations Tax Commission (FNTC) reviews and recommends by-laws for the approval of the Minister of Indian Affairs, and reviews and approves laws made under the FSMA.
The First Nation Property Taxation Law/By-law establishes which real properties situated on reserve are taxable. Taxable properties are assessed by a First Nation-appointed assessor who determines the market value of each property. Once values are established for all taxable properties, the assessor prepares an assessment roll and sends an assessment notice to the owners or occupiers of the properties. The assessment can be appealed to a First Nation-appointed Assessment Review Board (ARB). Decisions of the ARB can be further appealed to a court of competent jurisdiction. Assessment and assessment appeals are conducted in accordance with the First Nation Property Assessment Law/By-law.
After the assessment process is completed, First Nations prepare their property tax budget, annual rates law/by-law, and annual expenditure law/by-law. The budget must be balanced and contain only eligible expenditures. The rates law/by-law establishes the rate of tax that will be applied to each class of property. The annual expenditure law/by-law contains the budget and sets out how the First Nation intends to spend the property tax it will collect. After the annual laws/by-laws are approved by the FNTC, the First Nation can send out tax notices to all of its taxpayers and begin to collect.