the city of Ottawa is taking the federal government and Canada Post to court over a $22 million shortfall in taxes to be collected for 2021 and 2022.
Ottawa Mayor Mark Sutcliffe told reporters on Wednesday that not having the money “hits our budget significantly”.
The Payment in Lieu of Tax Act establishes a system to compensate municipalities for federal properties located within city limits.
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The city said in a Federal Court filing that Ottawa is home to a “substantial number” of federal properties that are exempt from local taxes.
The city collects more than $170 million annually in lieu of taxes on federal property based on the provincial vocational education tax rate.
But after the province of Ontario lowered that tax rate to help businesses affected by the COVID-19 shutdown, the federal government used the lower rate to calculate what it owed.
In court filings, the city argues that the federal government’s decision to include itself in the tax break should be invalid.
“It was not intended to provide such special reduced rates for federal and provincial properties that pay in lieu of taxes,” the court filing said.
Sutcliffe echoed that argument on Wednesday, saying the tax break was not meant to benefit the federal government, but was intended to “give small business owners a holiday in Ontario.”
“And it affects not only us, but other municipalities,” he said. “So we hope the federal government will recognize that and make changes.”
Sutcliffe said the city is “talking it through” with the federal government, but it met a court filing deadline so “we can move forward with legal action if necessary.”
The documents say the city is seeking an additional $21.3 million from Public Services and Procurement Canada, more than $100,000 from the National Capital Commission and just shy of $975,000 from the Canada Post Corp.
Those amounts would generally differ based on the standard tax rate used to calculate the payment that the city was expecting to receive.
“The city relies on these payments to pay for municipal services that benefit these properties,” the city said in the documents.
A dispute-resolution panel declined to issue a verdict, saying it did not have jurisdiction over the matter.
The procurement department did not respond to a request for comment on the court filing.
Ottawa is now asking the court to declare that the federal government is required to pay. Failing that, it is asking the court to grant an extension to allow the city to apply for judicial review or send the case back to a dispute advisory panel for a decision.
According to court filings, the federal government argued to the panel that it does not have discretion to set the rate used to calculate these payments.
“In addition, there is a need to ensure fair and uniform treatment across the country for all payments in return to tax recipients,” the government wrote in a letter to the city in August.
Ottawa’s City Council is scheduled to hold a special meeting on February 1 on its draft operating and capital budget.
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