Frequently Asked Questions

1. Why doesn't the Government of Canada pay property taxes on the property it owns?
2. Why does the Government of Canada make payments in lieu of property taxes?
3. How many kinds of PILT are there? How is each calculated?
4. Where do the funds to pay the PILT come from?
5. Why was the name of the payment changed from Grant to PILT?
6. How are the values used for calculating PILT set for federal property?
7. Does the federal government set the tax rates?
8. Why is PILT not paid for third party tenants in Crown properties?
9. Is there any exception where PILT may be paid for third party tenants in Crown properties?
10. Do third party tenants in Crown properties have to pay realty taxes on the space they occupy?
11. What happens if third party tenants in Crown properties default on their realty taxes?
12. What can a custodian department do to ensure the PILT is correct on its properties?
13. Does the federal government pay property taxes or PILT on property leased from the private sector?
14. Does the federal government pay PILT on property leased from other tax exempt bodies, like the Provincial Government?

1. Why doesn't the Government of Canada pay property taxes on the property it owns?

A. Under Section 125 of the Constitution Act, 1867, the Government of Canada is exempt from paying any taxes levied by local and provincial levels of government of which property taxes are an example. However the Government of Canada does make payments in lieu of property taxes to local governments.

2. If it is exempt, why does the Government of Canada make payments in lieu of property taxes?

A. The federal government recognizes the valuable benefits received from both provincial and municipal levels of government in Canada and feels it has a moral obligation to contribute to the cost of local government where federal property is located. However, in light of the federal government's constitutional exemption from taxation, these payments are made at the discretion of the Minister of Public Works and Government Services Canada, or the heads of Crown corporations/agencies.

3. How many kinds of PILT are there? How is each calculated?

A. There are five kinds of charges against real property for which payments in lieu are made:

1. Payments in lieu of real property taxes - The PILT is the product of the federal property value multiplied by the effective tax rate plus any mitigation measures and is paid on an annual basis.
2. Payments in lieu of frontage or area charges - These are similar to improvements/betterment charges, for instance, for installation or repair of sanitary and storm sewers, or street lighting. The PILT is calculated by multiplying an applicable rate by a dimension of the property, such as the frontage or area. The total eligible cost for the improvement is calculated and then billed either as a one-time payment, or debentured and billed in annual installments.
3. Payments in lieu of service charges, for municipal services not included in the tax rate, for example, unmetered water or garbage collection. To be eligible, these must be set as annual flat rate charges for a service provided to all property in a particular class, billed to the property owner, and not dependent on consumption.
4. Late Payment Supplements - These supplements are made to compensate taxing authorities when payments in lieu of real property taxes, frontage or area charges or service charges are unreasonably delayed. They are calculated by applying the lesser of either the taxing authority's late payment rate, or the rate set by the Financial Administration Act, to the amount of the payment that is late, over the period for which it is late, plus 15 days for processing and mailing after the cheque requisition date.
5. Payments in lieu of business occupancy tax (where applicable) paid by Crown corporations listed in Schedule IV of the Act against their property held as an agent of the Crown. Business occupancy taxes are usually calculated as a percentage of the real property tax, depending on the type of business.

4. Where do the funds to pay the PILT come from?

A. For all departmental property, the actual payments are made by Public Works and Government Services Canada (PWGSC), as it is the common service provider for all aspects of the PILT to all government departments and the Minister of PWGSC is responsible to administer the PILT Act. However, each custodian is responsible for the PILT liability on its properties as they receive PILT funding as part of their annual departmental budgets received from Treasury Board. A memorandum of understanding (MOU) is signed between PWGSC (PILT Program) and each custodian department which details the services being provided, and the manner, timing and source of reimbursement for the funds expended as payments in lieu of taxes.

For Crown corporations, such as Canada Ports Authorities or the Seaway Bridge Corporation, that contract to use the services of the PILT program, the MOU includes a full range of valuation services. However the amount of PILT determined to be paid is recommended to the corporation and payments are issued by the corporation itself.

5. Why was the name of the payment changed from Grant to PILT?

A. PILT is the acronym for "payment in lieu of taxes." It is a relatively new term used to describe what was previously known as "grant in lieu of taxes" or GILT, which had been authorized under the Municipal Grants Act, 1980. As part of the Minister's modernization initiative of the Municipal Grants program, which begun in the late 1990s, the name of the Act was changed to the Payments in Lieu of Taxes Act and the acronym became PILT. These changes were originally suggested by the Federation of Canadian Municipalities (FCM) whose members believed that using the term "grant" for the payments made in lieu of property taxes did not reflect the value of the services provided by municipal levels of government to federal properties. Using "payments" rather than "grants" puts the emphasis on the Government's responsibility as a property owner to share in defraying the cost of local government, rather than its generosity in making a payment which it is not legally obliged to make.

6. How are the values used for calculating PILT set for federal property?

A. In Canada, assessment of real property and the setting of property class is typically the responsibility of the provincial or municipal levels of government. However under the Payments in Lieu of Taxes Act, the class and value to be applied to federal property for calculating the PILT is that class and value which, in the opinion of the Minister of Public Works and Government Services Canada, would be applied if the property were privately owned. Due to the unique nature of many of the federal facilities, it can take considerable expertise to establish an appropriate class and value. In addition, the PILT Act does establish slight differences between private taxable property improvements and federal improvements that are subject to PILT. For example; the runway surfaces at federal airports are improvements that are specifically excluded under the PILT Act, but are assessable and taxable at privately owned airports. Therefore the eligibility, class and value used to calculate the PILT on federal property is established by the PILT Program valuation staff within the context of both local assessment legislation and procedures, and the PILT Act and its regulations.

7. Does the federal government set the tax rates?

A. No... The tax rates and tax classes are set by local municipal taxing authorities, according to municipal and provincial legislation. Once the PILT valuation staff is satisfied that, in the opinion of the Minister, a particular property and/or tax class would apply if the property were privately owned, the tax rates consistent for that class are used to calculate the PILT.

8. Why is PILT not paid for third party tenants in Crown properties?

A. Under the Payments in Lieu of Taxes Act, federal property - either occupied or vacant - is only eligible for PILT when it is under the administration and control of a Minister of the Crown. Therefore, when the Crown grants an interest in its real property, such as a lease, to a third party occupant, it ceases to be federal property under the Act, therefore no PILT is paid.

9. Is there any exception where PILT may be paid for third party tenants in Crown properties?

A. Yes... One of the changes to the PILT Act is that for tenancies or other occupancies of less than one year, the space under short-term occupancy should be considered federal property and thus PILT eligible. Another situation where a PILT may be paid on property leased to a third party tenant is when the federal government acquires property from the private sector that has existing leases. The federal government would respect the fact that under those existing leases the landlord would pay the property taxes to the taxing authority and collect the tenants share of the taxes as part of the rent. Therefore, PILT would be paid on those leases until they expire and once renegotiated that tenant would be responsible for the taxes and that space would no longer be PILT eligible.

10. Do third party tenants in Crown properties have to pay realty taxes on the space they occupy?

A. Under the Constitution Act, federal property is always exempt from taxation. However, if occupied by a third party, the property is not eligible for a payment in lieu of taxes, unless the period of the tenancy is for less than one year or if it was a lease that existed when the property was acquired by the federal government. Under prevailing assessment legislation, assessors are generally required to assess tenant occupied Crown property as if it were owned by the tenant. Furthermore, the legislation governing realty taxing authorities gives them the right to tax the tenant's interest and the billing and collecting of the tenant's taxes must be a direct interaction between the taxing authority and the tenant.

11. What happens if third party tenants in Crown properties default on their realty taxes?

A. When the owners of private property do not pay their realty taxes, eventually the taxing authority has the right to register a property for sale to recover unpaid taxes. However, since federal property is exempt from taxation, it cannot be registered for tax sale under any circumstances. Therefore, if third party tenants in Crown property do not pay their taxes, the taxing authority must take other means to recover the taxes. Generally, this has involved going to court and obtaining judgment against the tenant. In many instances, taxing authorities have never been able to recoup the loss.

This situation changed beginning with the 2000 tax year, as the PILT Act includes a provision for the taxing authority to request a payment in lieu of taxes on that portion of the federal property occupied by the defaulted tenant, after it demonstrates that every reasonable attempt has been made to collect the taxes from the tenant without success.

12. What can a custodian department do to ensure the PILT is correct on its properties?

A. There are several areas where custodian departments can assist the PILT Program directly:

• Provide the PILT Program by January 31st of each year, with any realty asset capital plans or multi-year plans, detailing planned changes to the portfolio that could influence value and/or PILT amounts.
• Inform them as soon as possible when property changes, either planned or unplanned, are implemented. Relevant changes would include:
  • major renovations or additions
  • changes to the areas, dates, of tenants in third party occupancies in federal property
  • long-term vacancies
  • construction of new buildings
  • demolitions
  • Acquisition of property
  • pending or completed property disposals or transfers between
  • departments
  • land severance
  • significant change of use
• With reasonable notice, provide access for PILT staff to conduct physical inspections of any property so that the nature and quality of improvements affecting value can be confirmed.
• Advise PILT of all servicing issues that may have an impact on PILT amounts. For example, when a municipality cannot or will not provide the same level of services that they normally provide to similar taxable property.
• Ensure that the relevant taxing and assessment authorities are informed of all third-party occupancies that will exceed one year, then monitor and confirm that these tenants meet their obligations to pay any real property taxes levied in respect to their occupancies.

13. Does the federal government pay property taxes or PILT on property leased from the private sector?

A. The federal government pays rent to landlords for property or space leased on behalf of federal departments but the landlords, alone, are responsible for paying any real property taxes on their property. The federal government cannot pay property taxes directly, as it is constitutionally exempt from taxation. Therefore, the landlord must contract for sufficient rent and recoveries to cover any costs associated with real property taxes on federally occupied property.

14. Does the federal government pay PILT on property leased from other tax exempt bodies, like a province?

A. Property leased from a province is PILT eligible. However, PILT can not be paid on property leased from a municipality, other exempt bodies, or private concerns. Also if the federal government owns a building which is located on land leased from the Province, PILT is payable on both the land and the building. However, if a federal building is located on land owned by a municipality or other exempt body, only the federally owned building would be PILT eligible, the land would not.