Date: 20100721
Docket: A-348-09
Citation: 2010 FCA 196
CORAM: BLAIS
C.J.
EVANS
J.A.
SHARLOW
J.A.
BETWEEN:
HER MAJESTY THE QUEEN,
IN RIGHT OF CANADA, as represented
by the MINISTER OF PUBLIC WORKS
AND GOVERNMENT SERVICES
Appellant
and
HALIFAX REGIONAL MUNICIPALITY
Respondent
REASONS FOR JUDGMENT
EVANS J.A.
A. INTRODUCTION
[1]
Lands and
property owned by the federal Crown are exempt from provincial and municipal
taxation by virtue of section 125 of the Constitution Act, 1867. In
order to compensate municipalities for the resulting loss of revenue, the Payments
in Lieu of Taxes Act, R.S.C. 1985, c. M-13 (PILT Act or Act), authorizes
the Minister of Public Works and Government Services Canada (Minister) to make payments
in lieu of the taxes (PILT) that would have been paid to the municipality if
the federal property in question had been taxable.
[2]
The amount
of PILT for a federal property is a function of two factors: the value of the
federal property, and the effective rate of tax applicable to it. A taxing
authority, generally a municipality, may make an application for judicial
review to the Federal Court on the ground that the Minister’s calculation of
the amount of PILT is not in accordance with the Act. However, consistent with the
constitutional immunity of federal property from tax, the Act does not create a
legal right to PILT. Payments under the Act are thus ex gratia.
[3]
This is an
appeal by Her Majesty the Queen in Right of Canada, as represented by the
Minister, from a decision of the Federal Court (2009 FC 670). In that decision,
Justice Phelan (Applications Judge) granted an application for judicial review
by Halifax Regional Municipality (Halifax), the taxing
authority, and set aside the Minister’s calculation of PILT in respect of the
Halifax Citadel, a national historic site of Canada. He concluded that the Minister’s
decision was unreasonable because the reasons given for it were inadequate.
[4]
Subject to
a minor modification, the Minister had adopted the assessment of the value of
the Citadel contained in the Report of a Dispute Advisory Panel appointed under
section 11.1 of the Act when a taxing authority disagrees with the Minister’s
assessment of the value of federal property for the purpose of the Act.
[5]
On the
basis of the assessed total value of the Citadel, Halifax requested more than $15.5 million in
PILT for the years 1997-2007. In this period, the Minister paid just over $2.2
million. After considering the Panel’s Report, the Minister concedes that
there was a PILT shortfall in respect of the Citadel in these years, but only
of $324,441.
[6]
I agree
with the Applications Judge that unreasonableness is the standard of review applicable
to the Minister’s calculation of PILT in this case. In my respectful view, the Minister’s
reasons are sufficient to satisfy the requirements of transparency and cogency
with respect to the Citadel land, and that the outcome of the valuation process
is within the range of options rationally open to the Minister on the facts and
the law. However, I agree that the Minister’s reasons for the valuation of the structures
on the Citadel site in dispute are inadequate, and I would set aside that
aspect of his decision. Accordingly, I would allow the Minister’s appeal with
respect to the valuation of the land.
B. FACTUAL BACKGROUND
[7]
The essential
facts are not in dispute. The Halifax Citadel, Canada’s most frequently visited national
historic site, sits on a hill overlooking the city and occupies a total of 48.5
acres of land in the city centre. Approximately six acres of the site comprise
the nineteenth century military fortification structures -- ramparts, casemates
(bomb-proof structures built into the ramparts used originally for storage), a
three storey house (the first two storeys of which comprise demi-casemates),
and other smaller buildings.
[8]
The elevated
land sloping down from the ramparts to the roads below is covered with grass
and comprises approximately 42 acres, or nearly 90% of all the Citadel land.
The historical term for this part of a fortification is a glacis. Its original
purpose was to provide an open field of fire to enable troops in the Citadel to
repel attackers. Nowadays, it is also a pleasant place for visitors to the
Citadel, and others, to sit and admire the view, picnic, fly kites, and
otherwise enjoy this peaceful, green oasis in the urban core of Halifax.
[9]
Halifax has for some time complained
that PILT in respect of the Citadel were inadequate because the Minister’s
valuation of it was too low. For example, for the taxation year 2005, the
Assessment Services Division of Service Nova Scotia and Municipal Relations,
the property assessment authority for the Province, assessed the value of the entire
Citadel site at more than $38 million. On the basis of this valuation, Halifax claimed that it should have
received PILT in that year of more than $1.3 million. The Minister, however, valued
the site at only $5.3 million and made PILT of almost $191,000. As a result of
negotiations, the parties agreed the value of some parts of the Citadel.
[10]
Others,
however, remain in dispute: the land under the glacis, and the casemates and
demi-casemates, together with the land under them. At Halifax’s request, the Minister appointed a
Dispute Advisory Panel to advise him on the valuation of these components of
the Citadel.
[11]
The most important
difference between the parties concerns the valuation of the approximately
forty two acres of land under the glacis, which the Minister has assessed at
the nominal amount of $10. However, he assessed the value of a much smaller
area of land (60,542 square feet) under the casemates and demi-casemates in the
Citadel at $1.55 million. On the other hand, relying on a report by Kathy
Barss, a property appraiser employed by the assessment authority, Halifax claims
that the total value of the land occupied by the Citadel is $19 million, a
figure close to that at which it had been assessed previously by the provincial
assessment authority.
[12]
The
valuation of the land was for the 2005 taxation year. The valuation “base date”
was January 1, 2003, as prescribed by the Director of Assessment under the Nova Scotia Assessment Act, R.S.N.S.
1989, chap. 23. The date for the valuation of the casemates and demi-casemates
was 1997; they (and the land under them) were excluded by the Minister in 2001
from the calculation of PILT by an amendment (SOR/2001-494, section 23) to
Schedule II of the PILT Act.
[13]
The
parties agree that the highest and best use of the Citadel is as a national
historic site since this its present and likely future use. It is maintained
and operated by Parks Canada at an annual revenue loss that has ranged from
less than $1.5 million to nearly $2 million. The Citadel is currently zoned by Halifax as a regional park.
[14]
It is
improbable, to say the least, that Parliament will revoke the Citadel’s
national historic site designation under the National Historic Sites of
Canada Order, C.R.C. c. 1112, Sched., section 1, and authorize its sale to
the highest bidder for whatever development purposes Halifax’s zoning bylaws
might allow. The Minister says that, unlike the assessed value on which Halifax relies, his assessment
reflects the reality of the restricted use of the land resulting from both the
Citadel’s status as a national historic site and existing municipal land use
zoning.
[15]
Halifax also disputes the Minister’s
valuation of the casemates and demi-casemates. While they no longer qualify as eligible
improvements, and are thus now excluded from an assessment of the value of the
Citadel, the parties do not agree on their value in the years 1997-2000 when
they constituted eligible improvements to the land for PILT purposes.
[16]
The Minister
is of the opinion that the value attributed to the casemates and demi-casemates
should be reduced by an amount that recognizes not only their physical
depreciation, but also the functional obsolescence resulting from their
underutilization: many are empty or used only for casual storage. Hence, the
Minister has assessed their value at just over $2.5 million, as opposed to Halifax’s figure of just over $7.3
million.
C. THE ADVISORY PANEL’S REPORT
[17]
This
application for judicial review has proceeded on the basis that the Advisory
Panel’s Report, which was not binding on the Minister, constitutes the reasons
of the Minister when he accepted it, with a minor modification, as the basis
for his assessment of the value of the Citadel for the purpose of the PILT Act.
[18]
The Panel made
its recommendations to the Minister on the basis of the parties’ submissions, the
oral evidence of witnesses, and the documents that they adduced. The principal
witness called on behalf of Halifax was Ms Barss. In a lengthy valuation
report prepared for the proceeding before the Panel, she explained that land
takes its value from the surrounding land and that she had therefore approached
the valuation of the Citadel land by examining the sale price of comparable
land in Halifax.
[19]
On the
basis of a review of other sites in Canada,
and local properties with heritage designations, she was of the view that the
value of the Citadel land should not be discounted because it is a national
historic site. She also testified that her analysis did not recognize that
differences in zoning might result in differences in land values. After making
size adjustments, she assessed the value of the Citadel land at $19 million. Her
valuation of the land and buildings at the Citadel, a little more than $39
million, was about one million dollars more than the value attributed to it by
the assessment authority for the taxation year 2005. However, Ms Barss’
valuation included $11 million for components of the Citadel that are not
eligible for PILT.
[20]
She stated
that she had valued the Citadel land on the same basis that the assessment
authority for Nova
Scotia would
value it pursuant to subsection 42(1) of the Assessment Act. This
provides that all property must be assessed at market value, that is, the
amount that, in the opinion of an appraiser, a willing buyer would pay for it
to a willing seller.
[21]
However,
in forming that opinion, an appraiser must have regard to the assessment of
other properties in the municipality, so as to ensure that taxation falls in a
uniform manner on property in the three categories of property for tax
purposes, namely, residential, resource, and commercial: subsection 2(1). It
was agreed at the hearing that the “uniformity principle” requires that the
ratio of assessed value to actual market value for all property in the
different categories should be the same.
[22]
The
Citadel falls within the category of commercial property under the Assessment
Act because it is neither a residential nor a resource property. In appraising
the value of the Citadel, Ms Barss examined the price at which other Halifax
land in the commercial category had been sold, even though: the use of that land
was not subject to the kinds of restrictions imposed on the use of the Citadel
because it is a national historic site; it had different highest and best uses;
and was zoned differently.
[23]
John
Sparling, a quantity surveyor and certified building inspector employed by the
assessment authority, testified on the valuation of the casemates and
demi-casemates. His assessment of their value did not allow for any functional obsolescence,
on the ground that, if they were underused, this was because they were part of
a living museum and their original usage had to be retained.
[24]
Charles
Hardy, a property appraiser and Executive Vice-President of the Altus Group
Limited, prepared a report for the Minister appraising the value of the Citadel.
Unlike Ms Barss, he regarded the restrictions on the use of the Citadel
inherent in its status as a national historic site and its zoning as fundamental
to the appraisal of the value of the Citadel land.
[25]
Mr Hardy testified
that he was guided in his assessment by the most recent draft of “Best Practices”
on the valuation of historic sites, a document that he had written. Public Works
and Government Services Canada had also been involved in its development.
[26]
This document
is clearly controversial. It was still in draft and had not been adopted by the
Appraisal Institute of Canada, nor by Canadian municipalities. Indeed, the
Federation of Canadian Municipalities withdrew from the project in 2006, and Ms
Barss stated that the approach outlined in “Best Practices” was not accepted by
either Halifax or the assessment authority.
Nonetheless, in my opinion, nothing turns on Mr Hardy’s use of “Best Practices”
because he said that it did not affect his application of more traditional
valuation methodology, and this evidence was not challenged.
[27]
The Panel concluded
that a determination of the market value of land must take into account factors
that would influence the price that a prudent purchaser would be prepared to
pay for it, including restrictions imposed by statute and zoning. Accordingly,
it rejected all but one of Ms Barss’ sales as comparable because the highest
and best uses of the land were different from the restricted use that can be
made of the Citadel land by virtue of its designation as a national historic
site and zoning.
[28]
However,
the Panel treated one parcel of land with a building on it (sale # 8) as comparable,
and thus as a basis for arriving at a value for the Citadel land, because it
had the same zoning as the Citadel. But the Panel declined to base its
valuation of all the Citadel land on the price paid for the land in sale # 8 because
of the presence of the glacis, which covers most of the land at the Citadel.
The Panel noted that the glacis was essential to a fortification of the period
represented by the Citadel. After making Ms Barss’ size adjustments, the Panel
used sale # 8 for assessing the value of the 60,542 sq. ft. of the land under
the casemates and demi-casemates at $1.55 million.
[29]
In its
Report, the Panel recommended that the whole of the Citadel land should be
valued at $1.55 million. However, in a subsequent rectification, the Panel,
among other things, added $10 to the value of the land. Although the Panel did
not say so, it must have made this addition to reflect the nominal value that
Mr Hardy attributed to the land under the glacis.
[30]
As for the
valuation of the casemates for the years when they were eligible improvements,
the Panel accepted Mr Sparling’s cost assessment methodology, but preferred Mr
Hardy’s evidence on the calculation of their depreciation. Its resulting
assessment of their value was $2,556,200.00.
[31]
The Panel
thus valued the items in dispute (land, and the casemates and demi-casemates)
at $4,106, 210.00. The Minister’s final valuation of the Citadel land and all
eligible improvements, including items not in dispute, is $9,330,583. The
equivalent figure in Ms Barss’ appraisal is approximately $28 million, after $11
million of ineligible improvements are excluded from her appraisal of the entire
Citadel at more than $39 million.
D. DECISION OF THE FEDERAL COURT
[32]
The
Applications Judge applied the reasonableness standard of review to the Minister’s
valuation and concluded that the supporting reasons fell short in a number of
respects. First, the Panel did not explain why a market value approach would
distinguish Citadel land with eligible improvements on it from the land under
the glacis, which was not an eligible improvement. Second, the Panel rejected sale
# 8 as comparable for the purpose of valuing the land under the glacis but,
without explanation, used it for valuing land under the eligible improvements.
Third, it valued the land comprising the glacis at $10, but did not adequately explain
why the land under the eligible improvements had a much higher value. These
issues are closely related.
[33]
Fourth,
the Panel did not justify discounting the value of the casemates and demi-casemates
for functional obsolesce when, as parts of a national historic site and living
museum, they must be maintained as they were when they were built. Further,
there was no evidential support for the Panel’s assessment of the amount of the
discount as 50%.
[34]
Accordingly,
the Applications Judge quashed the Minister’s decision and remitted the matter for
a new determination, with a direction that, if the Minister sought the advice
of an Advisory Panel, it must be differently constituted.
E. LEGISLATIVE FRAMEWORK
[35]
The
immunity from taxation of federal property is established by section 125 of the
Constitution Act, 1867.
|
125. No Lands or Property belonging to
Canada or any Province shall be liable to Taxation.
|
125. Nulle terre ou propriété
appartenant au Canada ou à aucune province en particulier ne sera sujette à
la taxation.
|
[36]
The
decision of the Minister under review in this application was made pursuant to
the Payments in Lieu of Taxes Act, the purpose of which is set out in
section 2.1
|
2.1 The purpose of this Act is
to provide for the fair and equitable administration of payments in lieu of
taxes.
|
2.1 La présente loi a pour
objet l’administration juste et équitable des paiements versés en
remplacement d’impôts.
|
[37]
When a
dispute arises between the Minister and a municipality, the Minister may appoint
a Dispute Advisory Panel to advise on its resolution. Subsection 11.1(2) specifies
the role played in this process by an advisory panel appointed by the Governor
in Council under subsection 11.1(1) when a dispute arises.
|
11.1 (2) The advisory panel
shall give advice to the Minister in the event that a taxing authority
disagrees with the property value, property dimension or effective rate
applicable to any federal property, or claims that a payment should be
supplemented under subsection 3(1.1).
|
11.1 (2) Le comité a pour
mandat de donner des avis au ministre relativement à une propriété fédérale
en cas de désaccord avec une autorité taxatrice sur la valeur effective, la
dimension effective ou le taux effectif ou sur l’augmentation ou non d’un
paiement au titre du paragraphe 3(1.1).
|
[38]
“Property
value” is defined in subsection 2(1).
|
“property value” means the
value that, in the opinion of the Minister, would be attributable by an
assessment authority to federal property, without regard to any
mineral rights or any ornamental, decorative or non-functional features
thereof, as the basis for computing the amount of any real property tax
that would be applicable to that property if it were taxable property;
|
« valeur effective » Valeur que,
selon le ministre, une autorité évaluatrice déterminerait, compte non
tenu des droits miniers et des éléments décoratifs ou non fonctionnels, comme
base du calcul de l’impôt foncier qui serait applicable à une propriété
fédérale si celle-ci était une propriété imposable.
|
[39]
The definition
of “federal property” includes national historic sites of Canada.
|
2 (3) For the purposes
of the definition “federal property” in subsection (1), federal property does
not include
…
(c) any real property or immovable developed and used as a park and
situated within an area defined as “urban” by Statistics Canada, as of the
most recent census of the population of Canada taken by Statistics Canada,
other than … national historic sites of Canada, …;
|
2 (3) Sont exclus de la
définition de « propriété fédérale » au paragraphe (1) :
[…]
c) les immeubles et
les biens réels aménagés en parc et utilisés comme tels dans une zone classée
comme « urbaine » par Statistique Canada lors de son dernier
recensement de la population canadienne, sauf … les lieux historiques
nationaux, …;
|
[40]
Subsection
3(1) authorizes the Minister to make payments in lieu of real property taxes to
the taxing authorities where federal property is located. However, because of
the constitutional exemption of federal property from provincial and municipal
taxes, section 15 provides that the Act does not create a legal right to PILT.
|
3. (1) The
Minister may, on receipt of an application in a form provided or approved by
the Minister, make a payment out of the Consolidated Revenue Fund to a taxing
authority applying for it
(a) in lieu of a
real property tax for a taxation year,
…
15. No right to a payment is
conferred by this Act.
|
3. (1) Le
ministre peut, pour toute propriété fédérale située sur le territoire où une
autorité taxatrice est habilitée à lever et à percevoir l’un ou l’autre des
impôts mentionnés aux alinéas a) et b), et sur réception d’une
demande à cet effet établie en la forme qu’il a fixée ou approuvée, verser
sur le Trésor un paiement à l’autorité taxatrice :
a)
en remplacement de l’impôt foncier pour une année d’imposition donnée;
[…]
15. La présente loi ne confère
aucun droit à un paiement.
|
[41]
Since the
definition of “property value” in subsection 2(1) refers to the value that an
assessment authority would attribute to the federal property if it were taxable,
provisions of the Nova
Scotia Assessment
Act are relevant for determining the value of the Citadel. For present
purposes, it suffices to set out subsection 42(1).
42 (1) All property shall be
assessed at its market value, such value being the amount which in the opinion
of the assessor would be paid if it were sold on a date prescribed by the
Director in the open market by a willing seller to a willing buyer, but in
forming his opinion the assessor shall have regard to the assessment of other
properties in the municipality so as to ensure that, subject to Section 45A,
taxation falls in a uniform manner upon all residential and resource property
and in a uniform manner upon all commercial property in the municipality.
F. ISSUES AND ANALYSIS
(i) Standards of review
[42]
The
question to be decided in this appeal is whether the Minister’s valuation of
the Citadel land and certain buildings at the site for PILT purposes was authorized
by the Act. In Montréal (City) v. Montreal Port Authority, 2010 SCC 14 (Montreal
Port Authority), a decision released after the Applications Judge’s decision
presently under appeal, the Supreme Court of Canada held (at para. 22) that determining
the value of a federal property for the purposes of the PILT Act involves the
exercise of discretion because “property value” is defined by subsection 2(1)
of the Act as
… a value
that in the opinion of the Minister would be attributable by an
assessment authority to federal property … as the basis for computing the
amount of real property tax that would be applicable to that property if it were
taxable. (Emphasis added)
[43]
The
question in that case was whether two federal Crown corporations to which the
PILT Act applied had, for the purpose of calculating the amount of PILT,
selected the appropriate effective rate of tax applicable to properties that
they owned in Montréal. The Court (at para. 36) applied the standard of
reasonableness to the Crown corporations’ decision because the effective rate of
tax is a matter of their opinion, and thus involves the exercise of discretion.
[44]
Since the definition
of property value in subsection 2(1) of the Act also involves the opinion of
the Minister, the determination of the value of the Citadel is a discretionary
decision and is subject to the reasonableness standard of review. Justice
Phelan reached the same conclusion in a very recent decision: Toronto (City) v. Toronto Port Authority, 2010 FC 687 at paras. 42-45 (Toronto Port Authority).
[45]
The
parties also made submissions on the standard of review applicable on judicial
review to the scope of the Minister’s statutory discretion to determine the
“property value” of federal properties. Halifax says that it is correctness, while the
Minister submits that his discretion also extends to this question of statutory
interpretation, and that the unreasonableness standard is therefore applicable
to his determination of its scope.
[46]
The
Supreme Court in Montreal Port Authority seems to have applied a
standard of correctness to the scope of the corporations’ discretion. For
example, it stated (at para. 33):
The statute
and regulations define the scope of the discretion and the principles governing
the exercise of the discretion, and they make it possible to determine whether
it has in fact been exercised reasonably.
There are no indications in the Court’s reasons that it gave
any deference to the Crown corporations’ interpretation of the scope of their
statutory discretion.
[47]
Despite
the absence of any analysis, the Court’s opinion is sufficiently clear as to be
conclusive in the present case. Hence, the Minister’s interpretation of the
scope of discretion in the valuation of federal property for the purposes of
the Act must be correct if it is to be upheld on judicial review.
[48]
Halifax also submitted that the Minister’s
discretion in valuing federal property is limited, in that he may only reject
an appraisal by an assessment authority if it was unreasonable. I do not agree.
The Minister is not reviewing the assessment authority’s assessment of the
value that it attributed to a federal property. The Minister’s function under
the PILT Act is to form an opinion with respect to the value that the
assessment authority would attribute to federal property if it was taxable. In
forming this opinion, the Minister is entitled to make an independent
determination of the value of federal property in the light of the statutory
scheme and the material before him.
(ii) Scope of the Minister’s discretion to
determine “property value”
[49]
The statutory
definition of “property value” in subsection 2(1) of the PILT Act limits the
Minister’s discretion by requiring him to form an opinion on “the value that
would be attributable by an assessment authority to federal property” as a
basis for computing the amount of property tax that would be applicable if the
federal property were taxable.
[50]
The
reference to “an assessment authority” should be taken as recognition by
Parliament that the “fiscal and legal environment …varies from one province or
municipality where federal property is located to another”: Montreal Port
Authority at para. 34. Hence, the relevant assessment authority in any
given case is the authority that would assess the value of the particular
federal property if it were taxable. In this case, that was the Assessment Services
Division, Service Nova Scotia and Municipal Relations.
[51]
This
conclusion follows by analogy from Montreal Port Authority where, writing
for the Court, Justice LeBel stated (at para. 40) that, in determining the
“effective rate” of tax, the Crown corporations could not
… base their
calculations on a fictitious tax system they themselves have created
arbitrarily. On the contrary, those calculations must be based on the tax
system that actually exists at the place where the property in question is
located. (Emphasis added)
Underlining the basic principle of the PILT Act, he said (at
apra. 42):
Parliament
intended Crown corporations and managers of federal property to make payments
in lieu of taxes on the basis of the existing tax system in each municipality
to the extent possible as if they were required to pay tax as owners or
occupiers.
[52]
In
addition, the Court held that the scope of the discretion exercisable with
respect to the calculation of PILT is limited by the purposes of the Act. Thus,
Crown corporations and the managers of federal Crown property must ensure that
… the
calculation of such payments would be consistent with the objective of equity
and fairness in dealing with Canadian municipalities (at para. 43).
[53]
Nonetheless,
despite these limitations, the Minister has some discretion to exercise in
forming an opinion under the PILT Act on the value that the relevant assessment
authority would attribute to the federal property in question were it taxable: Montreal
Port Authority at para. 22. The following example (at para. 35) is particularly
relevant to the present appeal:
As we know,
federal properties are very diverse, and can even be quite distinctive, if not
unique or almost unique in Canada. The assessment exercise can accordingly
give rise to significant technical problems related to the application of the
principles of property assessment and can sometimes lead to inevitable,
although legitimate, disagreements with municipalities.
Justice LeBel also said that the statutory discretion is necessary
to enable property managers to
… react to
protect federal government interests should municipalities use their taxing
powers in bad faith to specifically target federal Crown property.
I hasten to add that no imputation of bad faith on the part
of either Halifax or the assessment authority is
being made in the present case.
[54]
To echo the
above observation by Justice LeBel, the Citadel is a unique property, for which
there is no market. Assessing its value on the basis of what a notional willing
purchaser would pay to a willing vendor for a national historic site is a
hypothetical exercise that “raises significant technical problems” which have
led to “legitimate disagreements” between the Minister and Halifax.
[55]
Although
the Nova Scotia Assessment Act states that all property vested in Her
Majesty is exempt from taxation under the Act (paragraph 5(1)(a)), the
definitions of “assessable property” in subparagraphs 2(1)(aa)(i) and
(v) are broad enough to include the Citadel land and buildings. Pursuant to
section 52 of the Assessment Act, the Director of Assessment entered the
Citadel’s assessed value on the annual assessment roll as $38,046,900. However,
since this figure included the value of improvements that are not eligible for
PILT calculations, Halifax agrees that this figure is
not accurate for present purposes. The appraisal of the Citadel that Ms Barss
prepared for the Panel hearing put its value at $39,606,000. However, this
should be reduced to $28 million because Ms Barss’ valuation also included $11
million of ineligible components.
[56]
In these
circumstances, in forming an opinion on the value that “would be attributable
by an assessment authority to federal property” for computing the tax that
would be applicable to it if it were taxable, the Minister is not bound by
either an actual assessment made by the authority, or a valuation made for the
purpose of the Panel hearing by an appraiser employed by the assessment
authority. In my view, the Minister is entitled to reject Halifax’s valuation in this case if
satisfied that the assessment authority’s approach was contrary to generally
accepted principles of property valuation.
[57]
Halifax
argues that the Panel failed to confine itself to determining the value that the
Nova
Scotia
assessment authority would attribute to the Halifax Citadel for property tax purposes if it were
taxable. Instead, counsel for Halifax submitted, the Panel asked itself what
value should be attributed to the Citadel land in the exercise of the
Minister’s statutory discretion. I do not agree.
[58]
True, the
Report does not get off to an auspicious start when the Panel frames the issues
(Appeal Book, p. 67) in terms of the value that should be attributed to
the federal property in dispute, without mentioning the value that would
be attributable to it by the assessment authority for Nova Scotia. However, it is clear from other parts
of the Report that the Panel correctly understood the scope of its statutory
mandate.
[59]
First, the
Panel stated (Appeal Book, p. 68) that the Nova Scotia Assessment Act is
relevant since the Citadel is situated in Nova Scotia, and set out the text of
subsection 42(1) (Appeal Book, p. 73). Second, it noted (Appeal Book, p. 77)
the existence of the principle of uniformity in subsection 42(1) of the Assessment
Act, on which Ms Barrs relied, but stated that it was overridden by the statutory
restrictions imposed on the use of the Citadel land. Third, the Panel relied
(Appeal Book, pp. 77-78) on jurisprudence from Nova Scotia, and elsewhere in
Canada, to support the proposition that, for assessment purposes, the value of
property on the open market is the test of value, and that valuation must be
based on conditions at the date of assessment, not at some undefined time in
the future.
[60]
In any
event, counsel for Halifax stated at the hearing that Nova Scotia law governing the assessment of the
value of property for tax purposes is not significantly different from that of
other provinces
(iii) Was the Minister’s exercise of
discretion unreasonable?
(a) Citadel land
[61]
In the
present case, the Panel concluded on the basis of the authorities that it
cited, as well as the evidence of Mr Hardy, that the assessment authority’s
approach was fatally flawed because it ignored the restrictions placed on the
use of the Citadel by both its status as a national historic site (its highest
and best use) and its zoning. The Panel also rejected all but one of the sales
of land in Halifax relied on by Ms Barss as comparable, because these
commercial properties were zoned differently, had different highest and best
uses, and were not subject to the same use restrictions as the Citadel.
[62]
I see
nothing unreasonable in these conclusions, which are adequately explained by
the Panel: see also Toronto Port Authority at paras. 47-49. It is
immaterial that the Minister may have accepted for PILT purposes the assessment
authority’s valuation of other national historic sites. The Minister may choose
either to revisit those valuations or to let them stand, if, for example, much
smaller amounts are at stake than in the present case.
[63]
The
Applications Judge was more concerned with the quality of the Minister’s
reasons respecting the differences in the valuation of the land under the
glacis and the much smaller area of land under the casemates and demi-casemates.
It will be recalled that the Panel used the sale price of one of Ms Barss’
comparables (sale #8) as the basis for valuing the land under the casemates and
demi-casemates, but rejected it when valuing the land under the glacis, to
which it attributed only a nominal value.
[64]
In Dunsmuir
v. New
Brunswick,
2008 SCC 9, [2008] 1 S.C.R. 190 at para. 48, the Court approved the statement that
a reasonableness standard of review requires a court to pay respectful attention
to the reasons given by a specialized tribunal and to the reasons “which
could be offered in support of a decision”. In Canada (Minister of Citizenship and
Immigration) v. Khosa,
2009 SCC 12, [2009] 1 S.C.R. 339 at para. 63, however, the Court warned that
these underlined words should not be taken by tribunals as a dilution of the
importance of proper reasons.
[65]
The
Panel’s reasons in this case on the differences in the value that they
attributed to the land under the glacis and that under the casemates and the
demi-casemates are not a model of clarity. Indeed, the Panel’s conclusions do
not mention the land under the glacis at all. However, in my opinion, the basis
of the Panel’s decision is sufficiently clear when its Report is read as a
whole, together with Mr Hardy’s explanation for valuing the land under the
casemates and demi-casemates differently from the land under the glacis which,
I infer, the Panel accepted.
[66]
Mr Hardy’s
valuation of the land under the casemates and demi-casemates was based on the
use being made of it. The buildings on this land were used primarily for offices
and storage: Mr Hardy concluded that their predominant use was as offices.
Since, consistently with the Citadel’s status as a national historic site, a
hypothetical purchaser would be able to use them for the same purposes, the land
under them had value to a potential purchaser. However, a purchaser’s inability
to modify the existing buildings because they are part of a national historic
site would decrease the value of the land.
[67]
The Panel based
the valuation of the land under the casemates and demi-casemates on the price
paid in sale # 8, which also comprised land with a building on it and was zoned
for park and institutional purposes. While the Panel describes this part of the
Citadel land as supporting “eligible improvements”, the more important
consideration is that a purchaser could use the land for office and storage
purposes, consistently with the fact that it is part of a national historic
site. Indeed, the casemates and demi-casemates had ceased to be eligible
improvements for PILT before January 1, 2003, the base date for valuing the
Citadel land for the 2005 taxation year.
[68]
Unlike the
land under the buildings, Mr Hardy treated the land under the glacis as undeveloped
land. He approached its valuation by considering its development value, which
he concluded was nil. Any development would be inconsistent with the
restrictions on the use of the land under the glacis emanating from the fact
that it is a part of the fortification, a designated national historic site. In
order for visitors to be able to see how the glacis functioned to protect the
Citadel from attack, it must be retained in its present condition. On this
basis, sale # 8 was not comparable; the land in question already had a building
on it and, despite its zoning, had been purchased for development.
[69]
Mr Hardy’s
evidence that the land under the glacis had no development value was not
contradicted. Ms Barss’ analysis proceeded on the basis that the statutory and
zoning restrictions on the use of the Citadel were irrelevant to its valuation,
an approach that the Panel rejected.
[70]
Accordingly,
on reading the Panel’s reasons as a whole and the material before it, I have
concluded that the basis of the Panel’s valuation of the Citadel land is sufficiently
clear to enable the parties to know why the Minister decided as he did and the
court to perform its judicial review function.
[71]
I must now
consider whether the outcome (the Minister’s valuation of all the Citadel land
at $2,038,833, as opposed to the $19 million claimed by Halifax) falls outside the range of possible
outcomes reasonably open to the Minister in view of the facts before him and
the provisions of the PILT Act.
[72]
The
valuation of land is a technical subject in which the Court has little, if any,
expertise. In contrast, subsection 11.1(1) of the PILT Act provides that the
Governor in Council shall appoint members to the PILT Dispute Advisory Panel
who have “relevant knowledge or experience”. The non-statutory, knowledge
prerequisites specify that appointees have knowledge of, among other things, property
appraisal, the Canadian property taxation system, and provincial models of
assessment and taxation: Appeal Book, p. 61. The statutory context in which the
standard of review must be applied in this case also includes the fact that the
Act neither confers legal rights on municipalities, nor abrogates their
existing rights. Consequently, a reviewing court should be particularly
cautious before concluding that, in adopting the Panel’s recommendations on the
valuation of the Citadel, the Minister made an unreasonable decision.
[73]
The most
plausible basis for attacking the reasonableness of the Minister’s valuation of
all the land at $2,038,833 is that he attributed no substantial value to most
of the Citadel land, namely that under the glacis. However, I am satisfied that
the explanation provided by Mr Hardy, and accepted by the Panel, provides a
reasonable explanation of this apparent anomaly. That is, consistently with its
highest and best use, the land under the casemates and demi-casemates buildings
can be used to support an office building and storage, while the land under the
glacis can be used for nothing other than its use as part of the fortification.
It is, of course, also a pleasant place to which members of the public have
access for recreation. I turn now to the valuation of the casemates.
(b) casemates and
demi-casemates
[74]
The
question here is whether it was unreasonable for the Minister to depreciate
their value because not all were currently fully used. While the
underutilization of a building may be a reason for reducing its valuation, Halifax argues that to do so in this
case is unreasonable because the casemates and demi-casemates are part of a living
museum, and their utilization must therefore be consistent with the purposes
for which they were used in the historical period being represented at the
Citadel. Further, Halifax argues, there was no basis in
the evidence to support the Panel’s choice of 50% as the amount of the
reduction.
[75]
The
Panel’s reasons are silent on why it rejected Mr Sparling’s opinion that
underutilization was irrelevant in view of the casemates’ representational
function in the Citadel. Nor does the Panel refer to the reasoning of Mr Hardy
on this point; indeed the extract from his report in the record seems not to
explain why he disagrees with Mr Sparling on the functional obsolescence issue.
[76]
On the
basis of the record, I am unable to determine whether the Minister’s decision
on the valuation of the casemates and demi-casemates satisfies the
reasonableness standard of review.
[77]
Accordingly,
I agree with the Applications Judge that the Panel’s reasons do not adequately
explain the basis of the Minister’s valuation of the casemates and
demi-casemates. Therefore, like the Applications Judge, I would set aside this
aspect of the decision under review, remit it to the Minister for re-determination,
and direct that any Dispute Advisory Panel appointed by the Minister to make
recommendations on this issue be differently constituted.
G. CONCLUSIONS
[78]
For these
reasons, I would allow the Minister’s appeal with respect to the valuation of
the land at the Citadel. To that extent I would set aside the Applications
Judge’s decision and dismiss Halifax’s application for judicial
review. I would dismiss the Minister’s appeal with respect to the valuation of
the casemates. I would also set aside the order of costs below and order that
the parties bear their own costs below and in this Court.
“John M. Evans”
“I
agree
Pierre
Blais C.J.”
SHARLOW J.A. (Dissenting reasons)
[79]
I have
read in draft the reasons of my colleague Justice Evans. I agree with his
interpretation of the relevant provisions of the PILT Act. I also agree with
his conclusions as to the scope of the Minister’s discretion, the appropriate
standard of review, and the inadequacy of the Panel’s reasons in relation to
the Minister’s valuation of the casemates and demi-casemates.
[80]
In my
view, however, the Panel’s report does not adequately explain why the land
under the glacis, comprising some 42 acres of land in downtown Halifax, is valued at $10. Without
that explanation, I am unable to conclude that the overall valuation of the
land is reasonable.
[81]
I would
dismiss this appeal with costs, substantially for the reasons given by the
Applications Judge.
“K. Sharlow”
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