OTTAWA – Manny Jules, Chief Commissioner, FNTC says, “In Canada, over 30% of First Nations have property tax powers and are responding to community needs and providing local services to thousands of property taxpayers. The First Nations Tax Commission (FNTC) is a shared-governance First Nation public institution that supports First Nation taxation under the First Nations Fiscal Management Act and under section 83 of the Indian Act.
“The purpose of the FNTC goes far beyond property tax and local revenues. The FNTC is also about creating the legal, administrative and infrastructural framework necessary for markets to work on First Nation lands, creating a competitive First Nation investment climate, and using economic growth as the catalyst for greater First Nation self-reliance.
“The FNTC ensures the First Nations tax system is operating efficiently, is well-coordinated, improves economic growth for First Nations, and is responsive to on-reserve taxpayers. We assist First Nations in creating laws and by-laws, as well as provide training and dispute resolution services.”
The FNTC has worked with First Nation taxation under the FMA for over 10 years. Through this work, a number of challenges have been identified with the processes set out in the First Nations Taxation Enforcement Regulations (the Regulations). These challenges arise out of the limited scope of certain of the enforcement mechanisms, the lengthy timelines for using the mechanisms, and the administrative complexity of implementing those mechanisms. A review of enforcement mechanisms available to other property taxing governments reveals that First Nation enforcement is more limited and requires additional and lengthy notification. The FNTC has identified and advanced the following specific amendments, which are aimed at addressing these barriers to effective enforcement while aligning processes to practices seen in other taxing governments.
- PENALTIES – Section 4
Subsection 4(3) limits FMA First Nations to a one-time, 10% penalty on unpaid taxes. This limitation means that when taxes remain unpaid for additional months or years, no further penalties are assessable. First Nations should have the ability to collect additional penalties in subsequent years where taxes remain unpaid. This approach is enabled in the majority of adjacent jurisdictions across the country.
The FNTC proposes an amendment to s. 4(3) that retains the 10% maximum in the year that taxes are levied, and enables additional monthly penalties in subsequent years until taxes are paid. The FNTC proposes a maximum penalty of 2% per month after the first year.
- TAX ARREARS CERTIFICATE – Section 5
Section 5 requires First Nations to send a tax arrears certificate (TAC) containing the content prescribed by s.6, before undertaking the three specific enforcement measures set out in the Regulations, namely the assignment of taxable property, the seizure and sale of personal property and the discontinuance of services. A First Nation must wait 6 months from the time taxes are not paid before sending the TAC. The TAC is in addition to the specific notice requirements for each of the three enforcement mechanisms.
The TAC imposes an additional administrative burden on First Nations, and also delays tax collection by a further 6 months. Research on parallel provisions in other Canadian jurisdictions indicates that a notice equivalent to a TAC is only required as a pre-condition to a “tax sale” which is equivalent to the assignment of taxable property under the FMA. This type of notice is not required for the seizure of personal property or the discontinue a service. The TAC requirement for the seizure and sale of personal property and the discontinuance of services creates an additional administrative burden and imposes a 6-month delay on use of important tax enforcement mechanisms.
The proposed amendment to s. 5(1) would limit the TAC requirement to the assignment of taxable property mechanism.
- SEIZURE AND SALE OF PERSONAL PROPERTY – Sections 17 AND 18
The processes set out in the Regulations for the seizure and sale of personal property impose procedural and timing requirements that render this mechanism ineffectual. The FNTC has identified a number of amendments required to ensure that this mechanism is useful and efficient going forward while requiring procedures and notices that are consistent with requirements in other jurisdictions.
The FNTC proposes amendments to address three issues:
a) Reduce the time period for seizure to 30 days after taxes are due and unpaid.
Currently, this enforcement mechanism is available if taxes remain unpaid 30 days after the TAC is delivered, for a total timeline of 7 months from the date taxes were due and not paid. With the removal of the TAC requirement for this mechanism, the proposed timeline is 30 days after the date taxes were due and not paid. A review of other jurisdictions indicates that this mechanism is generally available immediately after taxes are due and not paid, with no waiting period.
b) The notice of seizure and sale of personal property should not be delivered at the time of the seizure and should not specify the specific personal property to be seized.
Subsection 17(1) requires the First Nation to deliver an initial notice that includes the information in subsection (3), prior to seizing the debtor’s personal property. The notice states that if the taxes aren’t paid within 7 days, the debtor’s property described in the notice may be seized. The effect of this initial notice is to:
- Give the debtor sufficient warning to remove their personal property from the reserve (as only property on the reserve may be seized), which then frustrates the seizure attempts by the First Nation.
- Require a First Nation to identify, in advance, the specific items of property that will be seized. Other jurisdictions enable seizure of any personal property within broadly stated categories of property and do not require an indication of the specific property that will be seized.
The proposed amendments would eliminate the advance notice and instead provide for a notice to be given at the time of seizure. The content of the notice would not include the specific property that may be seized; however, the person who seizes the property would provide a receipt describing the property that is actually seized.
c) Reduce the 60-day advance notice requirement of the sale of seized property to a 30-day notice period.
The 60-day advance notice requirement for sale of seized property is not consistent with provincial practices and imposes an unnecessarily long period of seizure on the First Nation. The FNTC proposes an amendment to reduce this timeframe to 30 days.
- DISCONTINUANCE OF SERVICES – Section 21
The notice requirements and the limitations on the ability to discontinue services for non-payment create administrative burdens and preclude the effective use of this enforcement mechanism. A review of other jurisdictions indicates that the power to discontinue services for non-payment is broadly available with no waiting period, no seasonal limitations and no limitations respecting residential dwellings.
Two amendments are proposed for s. 21, as follows:
- The FNTC proposes that this enforcement mechanism be available after taxes were due and remain unpaid, with a 30-day notice requirement.
- The limitations in s. 21(2) which preclude the discontinuance of water or garbage collection provided to a residential dwelling, and electrical or natural gas to a residential dwelling between November 1 and March 31, should be removed. These limitations effectively make the power of limited use with respect to the listed services.
- PROPOSED NEW ENFORCEMENT MECHANISM – DEDUCTIONS FROM RENT
A number of First Nations have sought to include an additional enforcement mechanism in their property taxation laws that would enable the First Nation to recover unpaid taxes from tenants of a debtor. This mechanism is available in some other jurisdictions and enables the taxing government to require the debtor’s tenants to pay rents owing to the debtor/landlord to the government instead.
Although some First Nations have included this mechanism in their taxation laws, ideally it would be included in the Regulations in order to provide clarity for First Nations, and to provide protection to the tenant, as the tenant will be paying the First Nation government and not the landlord.
The FNTC proposes that the following new provision be added to the Regulations:
Demand to tenant
x.(1) If a property taxation law provides for unpaid taxes, interest or penalties to be recovered from the tenant of a debtor, and taxes, interest or penalties remain unpaid more than 30 days after the taxes were due, the tax administrator may, by delivery of a written notice to the debtor’s tenant, require the tenant to pay his or her rent, as it becomes due, to the First Nation until the unpaid taxes, interest or penalties are paid, and the tenant must comply with the notice.
(2) The First Nation shall provide a copy of each notice under subsection (1) to the debtor by regular mail.
(3) The payment by a tenant to a First Nation of an amount demanded under subsection (1) discharges the tenant’s liability for the payment of rent to the debtor to the extent of the payment.
- NOTICE TO MINISTER – Sections 13 & 14
The Regulations set out required procedures where a First Nation law provides for the seizure and assignment of taxable property for unpaid taxes. Sections 13 and 14(2)(b) create an obligation for First Nations to notify the Minister where there has been a sale of a right to an assignment of taxation property, and to notify the Minister where there has been a subsequent redemption of the interest.
The FNTC proposes that this requirement does not apply to First Nations operating under the First Nations Land Management Act, as they are responsible for their own land management and the Minister is not involved in leasing or otherwise approving the occupation or use of reserve lands. In these cases, there is no rationale for requiring the First Nation to notify the Minister.