Timing for the making of rates and expenditure laws
FSMA Timing Regulations require participating First Nations to enact their rates and expenditure laws fourteen days after the date established for setting of rates by the adjacent jurisdiction. First Nations can comply with these regulations by ensuring that the “in force” date of their rates and expenditure law is set fourteen days after the adjacent jurisdiction establishes their rates. (e.g., adjacent jurisdictions in BC set their rates before May 15th and therefore laws should be in force before May 28). Should you require assistance in determining the “in force” date please contact the Registrar, FSMA.
Setting rates for each class of property
Prior to 2009, First Nations were required to set rates for each property classification regardless of whether taxable property actually existed in the class. While the FNTC still advocates this practice, it is no longer a requirement. First Nations are now required to set a rate of tax for each property classification in which taxable property exists. This change reflects the current practice of a majority of First Nation tax authorities.
Setting tax rates in the first year of taxation (Section 6 of the FNTC Standards)
In the past, First Nations entering into their first year of taxation had to ensure that their rates were consistent with the tax rates used by the former taxing authority in the current or preceding year; or where there was no former taxing authority, had to establish the same tax rates as the reference jurisdiction in the current or preceding year. As a result of changes to the Annual Rates Law Standards in 2008, First Nations entering into their first year of taxation must establish rates that are consistent with the rates established by the former taxing authority in the current year; or where there was no former taxing authority, the same tax rates as the referencejurisdiction in the current year.
The reference jurisdiction should be nearby or contiguous with the First Nation and possess 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, (1) the average tax bill increase for each property class will not exceed the average tax bill increase for each property class in the reference jurisdiction or; (2) the average tax bill for each property class will not increase by more than the national rate of inflation from the previous year. For 2009, the annual rate of inflation or consumer price index is 1.2%.
In determining the average tax bill, tax administrators can use one of two methods:
1. 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
2. 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.
Upon request, the FNTC can provide a spreadsheet application to assist in these calculations. For the 2009 tax year, 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.
New for the 2009 Taxation Year, 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 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 costs of providing services to properties with lower assessed values exceeds one hundred dollars ($100).
The minimum tax, if any, must be set each year within the First Nation’s rates law.
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.
First Nations establishing reserve funds must establish these funds in an annual expenditure law and comply with requirements in the First Nation’s taxation law.
Contingency and reserve funds will be included in the annual budget. Changes in reporting requirements for reserve funds are reflected in the amendment to the sample expenditure law Schedule. The Schedule has been modified to track reserve fund balances.
FNTC information requirements
It is important that the FNTC has 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:
(1) the summary assessment roll for the two previous years and current taxation year;
(2) the number of property occurrences within each property class (this usually appears on the summary assessment rolls provided by the First Nation’s assessor);
(3) the tax rates from the previous two years;
(4) 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
(5) 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 your signed laws and all supporting materials are filed with the Registrar, FSMA as soon as practicable, and no later than thirty (30) days prior to the issuance of the notice. This will allow sufficient time for the review and approval of your laws and ensure compliance with the timelines established in your taxation law.
For more information, please contact us at:
First Nations Tax Commission
321 – 345 Yellowhead Highway
Telephone: (250) 828-9857 or (613) 789-5000