TheDMAWay
The DMA Way

Tax Pulse by DMA Canada - Issue 2

by DMA Staff | Apr 25, 2016
Banner - April 19

Welcome!

We would like to thank those who took the time to provide us with your feedback. With
that in hand, we have expanded the topics and sources available to you as the reader.

In this edition, you will be introduced to DMA’s Asset Verification Service (AVS), Western Canada Property Tax, Commodity Tax GST/HST update, as well as Legal Corner on recent property tax decisions among other features.

We have launched a series of “Roundtable” events, which began on March 17, 2016. MPAC presented their update and discussed elements of the “special purpose” initiative. This series of events is intended to create a very personable environment where information can be shared in very small settings. For a recent update regarding “special purpose”, click here.

In addition, we have our Tax Event on April 28, 2016 at One King West. Seating is limited so if you are interested in attending, please register soon!

Have a good read and thank you.


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Commodity Tax

Investment Funds Institute of Canada Refuses to Yield in GST/HST Battle
In the 25-year history of the GST, the application of the GST to investment fees has been the subject of a series of battles between the investment funds industry and the federal government. The industry has successfully won at least two court battles striking down GST on investment fees, first in 1999 and subsequently in 2009, only to see the government quickly impose retroactive legislation aimed at both ensuring that GST/HST continues to be payable on investment fees and keeping tax already collected.

The industry though, like Rocky Balboa, refuses to give up.  The Investment Fund Institute of Canada (IFIC) made a submission to the House of Commons Standing Committee on Finance during the 2016 Pre-Budget Consultations requesting 100 per cent rebates of GST/HST to make taxation investment funds consistent with the GST/HST treatment of other financial products and services or, failing that, a 33 per cent rebate consistent with the pension entity rebate available to registered pension plan trusts.

The federal government’s policy position is that the management and administration of investment funds, including funds that may be embedded into other exempt financial products and services, are not financial services. This policy has been consistently espoused administratively by the Canada Revenue Agency since the genesis of the GST in 1991. To the extent that legislation has been determined by the courts to be inadequate to this administrative position, the legislation has been amended to correct such inadequacies to preserve the tax policy goal.

Statistics published by IFIC show that the blended GST/HST tax rate on fund investment fees is 0.18 per cent of fund assets that currently are in the magnitude of $1.2 trillion, excluding pension funds.  This amounts to total current annual tax revenue of $2.16 billion of GST/HST for the federal government and HST provinces, or $1.2 billion for the federal government alone. IFIC argues that the average Canadian investor will benefit from removal of the tax on investment fees, but such a significant loss of tax revenue would no doubt have to be replaced by a tax increase elsewhere making any net benefit unlikely.

On reflection, I was wrong to liken the industry to Rocky Balboa. Perhaps, like the Black Knight in Monty Python and the Holy Grail, it is simply time for them to say, “All right, we'll call it a draw.”

Proposed New Brunswick HST rate increase
On February 2, 2016, the government of New Brunswick announced its intention to increase the provincial component of the HST by 2 per cent to 10 per cent effective July 1, 2016. This will result in a combined HST rate of 15 per cent. 

See attached Transitional Rules for the New Brunswick HST rate increase for further details.

Government Grants and Incentives
Is your company looking to expand, invest capital, or hire new people? Before you finalize your plans, you should consider some of the funding opportunities available from the Ontario government.

The government has established a Jobs and Prosperity Fund to provide significant dollars to assist companies that are investing in Ontario. 

The government also has three regional economic development programs dedicated to specific areas of Ontario. They are: Southwestern Ontario Development Fund, Eastern Ontario Development Fund, and the Ontario Heritage Fund Corporation. Your company may qualify for significant government incentives if you have plants or locations in these communities.


Need more information on government grants and incentives and how they may apply to your business?

 

DMA Canada’s expert commodity tax team is ready to help!

Contact Darryl Rankin for more information:

Darryl Rankin
drankin@dmainc.ca
800-309-2110 ext.1530

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Western Update

British Columbia

Appeals filed at the first level in BC (Property Assessment Review Panel) by February 1st this year have had decisions rendered and mailed to ratepayers. The appeal deadline to the second level (Property Assessment Appeal Board), should a ratepayer not be in agreement with the decision from the PARP, is May 2nd this year. The attached link from BC Assessment shows changes in market value by location in the Province from 2014 to 2015, and 2015 to 2016.

Alberta
Alberta’s major cities of Calgary and Edmonton have seen their appeal deadlines pass in early March. Each municipality mails their assessments at individual times with at least a 60 day appeal deadline. Check your assessment notices carefully as they arrive to ensure your deadlines are not missed. Some major Alberta municipalities have deadlines upcoming in April, including:

 Medicine Hat:
  April 27 
 Wood Buffalo:
  April 28
 City of Grande Prairie:
  April 29


Alberta MGA Review

The review of Alberta’s Municipal Government Act continues. The NDP Government has committed to completing this review, and they are suggesting the first changes may be introduced as early as this spring and fall, and possible changes to take effect for 2018 taxation. Many committees and organizations have provided input into this process over the last number of years, and suggestions on potential changes vary widely. For example, Alberta is one of the few jurisdictions in Canada that assess and tax manufacturing and processing machinery & equipment although some believe this property type does not pay its fair share due to concessions in the assessment process. There are many, including DMA, that do not share that opinion. The Alberta Municipal Affairs website is dedicated to the MGA review as it relates to assessment and taxation.


Alberta Crown Royalties

Deadlines are approaching quickly for 2015 royalty filings in Alberta:

AC1 (cost centre setup and changes):
April 30
AC2 (capital and operating cost allowances): April 30
AC3 (cost allowances reallocations):
April 30
AC5 (custom processing fees):
May 15
Prior years changes:
Dec. 31 (for the four (4) years to the filing date)



The Province of Alberta NDP Government recently announced minimal changes to the royalty framework. An article by CBC, provides further information about the report which was released by the Province. There are still some unknowns within the report to know exactly how it will impact royalty payers, as the report is only the framework, and doesn’t include how calculations will actually be implemented.


Saskatchewan

Similar to Alberta, the major cities of Regina and Saskatoon have appeal deadlines that have come and gone for 2016. The rural municipalities are sending their notices based on their own time frames, with 30-day appeal deadlines. Please check your notices to ensure you do not miss the individual appeal deadlines. The Saskatchewan Gazette is published weekly and contains all the newly released assessments and appeal deadlines. Click here and scroll to the latest version of the Gazette (you will be directed to a different page). Click the "free download" button and search by the word appeal to get the latest weekly updates.

2016 is year four of the Saskatchewan four year assessment cycle. Ratepayers are allowed to challenge their assessments each year based on the current 2011 assessment values. In 2017, year one of the 2017-2020 assessment cycle will occur, with values based on January 2015 values. As rates typically increase considerably from one cycle to the next, ratepayers are encouraged to be proactive with their assessment jurisdictions and the Province to ensure fair & equitable assessments prior to the assessments being released.
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Large & Special Purpose Business Properties - UPDATE

Background

Special Purpose Business Property Assessment Review (SPBPAR) initiative is a result of an April 18, 2015 Ministry of Finance’s direction guiding the Municipal Property Assessment Corporation (MPAC) to reach out to industry stakeholders and engage in consultation in advance of the delivery of the next assessment roll in December 2016.

The original SPBPAR encompassed approximately a half dozen industries and sectors. This was subsequently expanded to double the original scope. Advance disclosures sessions were conducted in 2015 in an attempt to provide information and data of the findings in order to produce preliminary values by the first quarter of 2016.

Monthly graph - minus january

Now

As of March 30, the preliminary values have not been released to the public.  They are in the process of being reviewed by the Minister of Finance in joint sessions with MPAC.

The joint review is expected to be completed by early April with the notices being mailed soon thereafter. Your preliminary value notices will include:

  • The assessed value with a breakdown of the valuation components including:

    • Reproduction or replacement cost new

    • Physical depreciation

    • Functional obsolescence

    • Any external obsolescence

  • A full cost analysis in the form of detailed cost records for each assessment.

Be mindful, this information will be provided to both you as property owners and the municipalities and is subject to legal restraints.

Summer
Once received, it is expected that you will have until August 31, 2016 to request a review & consultation session where, through dialogue, there could be a sharing of any data, evidence, and analysis with MPAC in order to fine tune the assessment.

A municipality will have the right to request a similar session for any location in its jurisdiction, or ask to be party to your review and consultation sessions. If that is the case, joint session may take place following individual sessions with the owner.

The objective is for MPAC to explain how the proposed assessment was arrived at and to consider any new information introduced by interested parties. If information is presented that will alter the assessment, then MPAC intends to modify and update the preliminary value in time for the return of the roll sometime in October.

MPAC has the legislative authority, under Section 10 and 11 to collect all property data and have right of access to all land and buildings so that a proper assessment is made. If a proactive approach is taken, it is conceivable that MPAC will issue a reduced notice of assessment by the time the mailing date arrives in November.

Winter
This starts the new 4-year assessment cycle on January 1, 2017 with the legislated return of the roll in December 2016. From that point on, the provision of the Assessment Act are in play, which will mean that any assessment adjustments not achieved during the review and consultation session can be addressed through the traditional processes of “Request for Reconsideration” (RfR), and regular appeal under the provision of Section 40 of the Act. 

Why DMA
Contact us once you have received your notice of preliminary value. We will prepare and coordinate the request for review with MPAC, and where there is municipal involvement, the respective municipality. We will prepare a strategy to ensure your position, attend the consultation sessions with MPAC and the municipalities, and represent your interests to ensure your future appeal rights are not prejudiced.

Need more information?

 

DMA Canada’s expert property tax team is ready to help!

Contact Zahir Badsha for more information:

Zahir Badsha
Regional Office Supervisor
zbadsha@dmainc.com
800-309-2100 ext.1527

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Asset Verification Services

What is Asset Verification Services; how can it help you?

Asset Verification is the process of reconciling a capitalized fixed asset record, to ensure the highest return on investment, while standardizing those records for future inventory control.

DMA’s Asset Verification Services (AVS) division is designed to provide all clients better control, organization and accounting of their capitalized fixed assets. Recognizing the unique challenges facing each client, DMA’s AVS team provides a customized approach to asset verification and reconciliation.

The AVS team’s sole mission is to reconcile a client’s capitalized accounting fixed asset ledger to what is physically existing as property of that company. This includes, but is not limited to:

  • Identifying “Ghost” fixed assets

  • Componentization or “breaking out” of lump sum fixed asset costs into individual components

  • Identifying parent/child relationships within fixed assets

  • Identifying the proper Useful Life of a fixed asset


The Proof is in the Pudding:

A DMA AVS client, a US chemical manufacturer, required assistance with the change over from Canadian GAAP to IFRS in their Niagara Falls, Ontario facility. Our client wanted to take advantage of the revaluation opportunities that IFRS offered.

The AVS team completed a 100 per cent wall-to-wall reconciliation of the Niagara Falls facility. The team identified “Ghost” fixed assets, which not only provided property tax savings, but also reduced the company’s overall insurance liabilities. In addition, Parent/Child relationships were identified between fixed assets to allow future reconciliations to be accomplished more easily.

The AVS team also identified that approximately 10 percent of the facility consisted of a Sulfuric Acid Process system that had been capitalized under one fixed asset record for a sum of $9 million being depreciated over a 15-year Useful Life. After research, the team was able to componentize the fixed asset record into 200 individual fixed asset records. Once this step was completed, the team identified that 35 per cent of the original fixed assets had been replaced with new equipment, but no portion of the original fixed asset record was ever disposed. In addition, the Useful Life of 65 per cent of the fixed assets should have been depreciating over a 3-, 5-, 7- or 10-year Useful Life, not a 15-year Useful Life.

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Property Tax - Quebec

As communicated in our last issue of Tax Pulse, there is a re-assessment every year in the province of Quebec. 

Background
Unlike all the other provinces, Quebec is partitioned into three geographic zones and each zone is subject to each corresponding to a specific cycle. In 2016, Cycle 2 is to be reassessed.

Cycle 2 consists of most major Quebec cities, such as Laval, Longueil and Quebec City with the exception of the Island of Montreal. That re-assessment is due in 2017 as Cycle 3. Please click here for a complete list of all municipalities subject to upcoming Cycle 2 reassessment.

Deadline
As a reminder, the appeal deadline is April 30, 2016. Timing is critical as the deadline fast approaches. 

 

Furthermore, you can ONLY file your appeal for all three (3) years before the deadline as there are no annual appeal provisions in Quebec assessment legislation, and failing to meet this April’s deadline, you will be without recourse in regards to your property taxes for the next three (3) years as your next opportunity will be 2019.

If you are unsure when your Quebec locations have a re-assessment scheduled, please contact your DMA tax manager to discuss and receive our brief provincial property tax summary and overview.

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Legal Corner - Ontario

Ontario’s 2016 Budget Impacts Tax Assessment System

The Ontario Liberal government’s 2016 Budget aims to strengthen Ontario’s property tax and assessment system. The province will review or change various aspects, including tax capping, vacancy rebates, vacant/excess land subclasses, property tax rate calculations, and provincial land tax. Further consultations will be conducted with key stakeholders on various topics.

DMA and Nixon Fleet & Poole are participating in consultations and monitoring the changes and their impacts on individual taxpayers. This article references major changes of the assessment system addressed in the Budget. Please contact us for information on how these changes will impact specific property types and municipalities.

MPAC Advance Disclosure Process

MPAC’s new advance disclosure process aims to provide taxpayers and municipalities with details of their assessed values before the roll is finalized. The resulting dialogue between MPAC and stakeholders offers the opportunity for greater transparency and predictability of tax outcomes. Throughout 2016, the Province hopes to refine this process with a view to early resolution of disputed assessments and increased accuracy of assessed values.

Business Property Tax Capping

Tax capping applies in specific locations in Ontario and limits the extent to which taxes on a property can increase as a result of a reassessment. Municipalities sought changes to the tax capping system in response to what they saw as inequitable circumstances.

New capping and clawback provisions arise from a 2015 province-wide review and the government’s 2015 Ontario Economic Outlook and Fiscal Review. Municipalities will be given the option to adjust capping to accommodate local circumstances. Consultations with municipalities and industry stakeholders on the subject of tax capping will continue in 2016.

Vacant Unit Rebate and Vacant/Excess Land Subclasses

Vacant/excess land subclasses are eligible for a vacant unit tax rebate or reduction payable to owners of certain commercial and industrial properties that are vacant or unused. Municipal stakeholders sought changes to these programs on the basis of their impact on local economies.

A provincial review of these programs will continue in 2016 considering greater municipal flexibility, and potentially a new legislative framework with changes to the programs.

Property Tax Rate Calculation Changes

The Province of Ontario prescribes the manner in which municipalities calculate tax rates. The outcomes of assessment appeals sometimes result in a considerable impact on municipal revenues. The government intends to adjust the manner in which tax rates are calculated to make it possible for municipalities to address effects of revenue fluctuations caused by assessment changes, including assessment appeals.

Provincial Land Tax Rate Increases

Prior to 2015, Provincial Land Tax rates had not been increased in more than 60 years. While the 2015 Budget introduced increases to PLT rates, the Province intends to continue consultations prior to a further PLT rate adjustment in 2017.

To view Chapter V, Section B of the 2016 Ontario Budget, click here.

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Did you Know?

The Municipal Property Assessment Corporation (MPAC) completes a province-wide assessment update based on the legislated valuation date, every four years. In 2016, MPAC will update the assessed value of every property (more than 5 million!) in Ontario with a January 1, 2016 valuation date. This assessment update will be for the 2017–2020 taxation years.

Beginning this month, MPAC will be mailing out Property Assessment Notices for all Residential property types, staggering the release throughout the year by Municipality. Property Assessment Notices for all Business property types will be released this October. Find out when you can expect to receive your Notice: MPAC’s Notice Release Schedule.

To find out more about the 2016 Assessment Update, please click here to visit MPAC’s information page. 

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Upcoming Assessment Deadlines

April 30: QUEBEC – Appeal deadline (year 1 of 3-year cycle)

June TBD: Winnipeg, Manitoba – Appeal deadline (year 2 of 2-year cycle)

Hold the Date

April 28: TORONTO, ON – DMA Property Tax & Commodity Tax Seminar, register here.

May 11: MISSISSAUGA, ON – Food Processing Roundtable discussion. Please call us for details.

May 17: MISSISSAUGA, ON – Sales & Use Tax 101, National Sales & Use Tax Update Roundtable discussion. Please call us for details.

May 18: MISSISSAUGA, ON – Pharmaceutical Manufacturing Plants Roundtable discussion. Please call us for details

June 7: GTA, ON – DMA Canada Golf Day. Details to follow. Contact: Pierre Azzi - 800-309-2110 ext.1526, for more information. 

July 12: MISSISSAUGA, ON – Credits & Incentives Roundtable. More information to follow

Please do not hesitate to contact your local DMA office should you have specific questions or requests.