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Wednesday, 24 February 2016
   

Finance

Taxation


The authority for First Nation governments to collect monies from taxpayers is through an approved rates bylaw. The revenue that can be generated from property taxation depends directly on the two main components of a property tax: the tax base (assessed value of real property interests on reserve) and the tax rate. The rate of taxation is applied to the assessed value of real property to arrive at the amount of tax levied. The rates bylaw determines the rate at which each class of interests on reserve is to be taxed. In order for a First Nation property taxation regime to be valid, enforceable and recognized by the courts, a rates bylaw must be enacted annually.

The Board's policy with respect to the establishment of rates is based on the need to recognize a balance between First Nations' and taxpayers' rights. The challenge facing the Board is to ensure that taxpayers are treated with fairness, justice and equity, while First Nation governments, as taxing authorities, are free to assert their jurisdiction.


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The Indian Taxation Advisory Board's Rates Policy specifies:

17. Notwithstanding the budget, written justification and evidence of notification of tax payers is required to allow a rate increase of more than 5% over the previous year for any class of property. The criteria for justification includes identification of special projects, incremental growth, and increases in the consumer price index and any fundamental change to the system of assessment for any class of property. The level of taxation acceptable to the tax payer must also be considered.

The tax rate evaluation guidelines are the criteria adopted by the Board as the basis for the evaluation of tax rates. Applied within the context of the Rates Policy, these guidelines set out the circumstances under which the Board would accept year-over-year increases in tax rates greater than 5%.

Purpose

The purpose of the tax rate evaluation guidelines is to establish criteria to protect the integrity of the First Nation taxation system by ensuring that tax rate increases greater than 5% are:
Accordingly, these guidelines provide information or explanations regarding:

Definitions
Evaluation Criteria

The evaluation of tax rates increases greater than 5% will based on the consideration of the following factors:

A. Special Projects
B. Incremental Growth
C. Extraordinary Increases in the Costs of Local Services
D. Changes in Assessment Methods


A. Special Projects

Special Projects are any expenditure for local purposes than can be attributable to a distinct project to be completed within a fixed time frame. These special projects could include:

Tax rate increases greater than 5% attributable to special projects will be evaluated on the basis of their fiscal feasibility.

A special project will be considered fiscally feasible if the proportion of the total cost secured from property tax revenues does not exceed 15% of the average assessed taxable value for the last three years plus the value of any revenue generating utilities.

The Board will consider the composition of the tax base with respect to the concentration of residential as opposed to non-residential properties.

Projects must be foreseen in a multi-year expenditure planning program which would comprise the current year and four planning years. The project time line must be sufficiently long to permit a fiscally feasible increase in the tax burden. A First Nation's ability to finance and complete the project must be demonstrated.

Reporting Requirements

The reporting and data requirements to support a First Nation's submission of increased tax rates include:


B. Incremental Growth:

Incremental growth is the effect on tax rates from increases in the population base in or around the First Nation's jurisdiction leading to increased demand, by tax payers, for local services.

Tax rate increases greater than 5% attributable to incremental growth will be evaluated on whether increases are justifiable and acceptable.

In order to clearly demonstrate the effect of population increases on the demand for local services and the resulting requirements for increased tax revenue and tax rates, the First Nation must show that tax rates are acceptable and justifiable. The First Nation must provide evidence of significant growth, within the past taxation year, in at least one of the following:

Reporting Requirement:

The First Nation must submit assessment roll summaries for the past four years.

The Board will evaluate the best available public population statistics along with any past, current, and forecasted population figures that the First Nation may wish to submit.



C. Extraordinary Increases in the Costs of Local Services:

Extraordinary increases in the cost of local services can be attributable to the effects of general inflation and changes to property tax policy or legislation in other jurisdictions.

Tax rate increases greater than 5% attributable to extraordinary cost increases will be evaluated on whether tax increases are justifiable.

The First Nation must provide evidence of significant increase in financial pressures due to inflation and detail increases in the cost of contracted local services. Furthermore, the First Nation must demonstrate that these increased costs cannot be met by increased tax revenue generated by a commensurate increase in assessed values.

Reporting Requirements: The reporting and data requirements to support a First Nation's submission of increased tax rates include:

The Board will evaluate the best available price index applicable to the First Nation.



D. Changes in Assessment Methods

Changes in assessment practices resulting in lower assessed values can legitimately lead to significant tax rate increases provided that the First Nation is bound to adopt these different assessment methods in order to maintain a fair and equitable taxation regime vis--vis adjacent taxation jurisdictions.

Tax rate increases greater than 5% will be evaluated on the basis of justified changes in assessment methods.

In order to justify an appropriate tax rate increase First Nations must provide evidence of decreases in assessed values with a maintenance of service delivery standards. These costs would include debt servicing and contracted local services.

Reporting Requirements

The reporting and data requirements to support a First Nation's submission of increased tax rates include:

The Board may require other information such as the number of folios in default in its evaluation of submitted tax rates.

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