City of Ottawa takes feds to court over $22M in alleged underpayments

The City of Ottawa is taking the federal government and Canada Post to court over a $22-million shortfall in what it expected to collect in lieu of taxes for 2021 and 2022.

Nearly 40 years ago, the Payments in Lieu of Taxes Act established a system to compensate municipalities for lost taxes on federal properties located within city boundaries, which are immune from local taxation.

The city said in a Federal Court filing that Ottawa is home to "a vast number" of such properties.

It typically collects more than $170 million each year in lieu of taxes on federal property, based on the provincial business education tax rate.

But after the province of Ontario reduced that tax rate to help businesses affected by COVID-19 shutdowns, the federal government used the lower rate to calculate what it owed.

In the court filing, the city argues 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 make Payments in Lieu of Taxes," said the court filing.

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 Canada Post Corp.

Those amounts would make up the difference in what the city was expecting to receive, based on the standard tax rate normally used to calculate the payments.

"The city relies upon these payments to pay for municipal services that these properties benefit from," the city said in the documents.

A dispute-resolution panel declined to make a ruling, saying the matter is not within its jurisdiction.

Ottawa is now asking the court to declare that the federal government needs to make the payments. Failing that, it's asking the court to grant an extension to allow the city to apply for a judicial review or to refer the case back to the dispute advisory panel for a ruling.

According to the court filing, the federal government argued to the panel that it does not have discretion to determine the rate used to calculate these payments.

"In addition, there is a need to ensure fair and equitable treatment across the country for all payment in lieu of taxes recipients," the government wrote in a letter to the city back in August.

Ottawa city council is scheduled to hold a special meeting Feb. 1 on its draft operating and capital budget.

This story was produced with the financial assistance of the Meta-Canadian Press News Fellowship, which is not involved in the editorial process.