For municipal tax purposes land is classified based on how it is used. The determination of what is farm land versus what is another class can lead to substantial variations in property tax because (i) farm land may be assessed at a lower value and (ii) the tax rates applied to farm land in the farm class are substantially lower.
Some properties are used in more than one way and can be in more than one property class. MPAC has used some discretion in deciding how to divide and assess mixed-use property into various classes. For example, on their website MPAC states that for farms including a residence, “If the farmer lives in the residence, typically one acre of land surrounding the house is valued as farmland and placed in the residential tax class. If a tenant who is not a farmer lives in the residence, any land that is used by the tenant is valued as residential and placed in the residential tax class.”
Is there a legal basis for classifying farm land in the residential tax class?
Subsection 8(2) of the General Regulation under the Assessment Act sets out the requirements that must be met for land to be in the farm property class. Those requirements include that subsection 19(5) of the Assessment Act applies to the land.
Subsection 19(5) under the Assessment Act provides the authority and framework for determining the current value of farm lands used only for farm purposes:
Farm lands and buildings
(5) For the purposes of determining the current value of farm lands used only for farm purposes by the owner or used only for farm purposes by a tenant of the owner and buildings thereon used solely for farm purposes, including the residence of the owner or tenant and of the owner’s or tenant’s employees and their families on the farm lands,
(a) consideration shall be given to the current value of the lands and buildings for farm purposes only;
(b) consideration shall not be given to sales of lands and buildings to persons whose principal occupation is other than farming; and
(c) the Minister may, by regulation, define “farm lands” and “farm purposes”. 2000, c. 25, s. 5 (1).
Land and buildings to be valued as farms
(5.0.1) Land or buildings or both, as prescribed by the Minister, shall be valued as described under subsection (5). 2000, c. 25, s. 5 (2).
This article does not consider the test to be met under subsection 19(5) of the Assessment Act nor does it explore the other requirements under subsection 8(2) of the General Regulation. That will come in a later post. This post focuses on whether, once all of the requirements of subsection 8(2) are met, MPAC’s policy of designating part of the farm land in the residential class is supportable. The classification of buildings on the farm land will be dealt with in a future post. This post only addresses the proper classification of the land.
Classification is generally based on the use that a property is put to. Nothing in the scheme of the Assessment Act supports an automatic assignment of one acre of land to the residential class despite a finding that the land satisfies the requirements of farm lands used only for farm purposes.
The Assessment Review Board considered MPAC’s one-acre rule of thumb in Finn v Municipal Property Assessment Corporation, Region 16, 2019 CanLII 120219 (ON ARB). The Board expressly rejected the contention that the rule is supported by the Assessment Act, stating at paragraph 45:
Designating 1 acre under the residence as residential land may have been a convention accepted and applied over time. In my view however it is not supported on a plain reading of the legislation. There is no such exception in the legislation. Had the legislators intended differently they would have so provided.
The Board also rejected the one-acre rule and MPAC’s discretionary decision to classify “non-farmable” land in the residential class in Lortie v Municipal Property Assessment Corporation, Region 01, 2019 CanLII 34541 (ON ARB).
In Lortie, MPAC initially determined in its 2016 assessment that 34.28 acres of land were in the farm class and 1.0 acre of land were in the residential class.
The taxpayers requested a reconsideration. MPAC then issued a second assessment with 16.0 acres of land in the farm class and 19.28 acres of land in the residential class.
The taxpayers appealed to the Assessment Review Board. At the hearing, the parties agreed that 19.0 acres of the land was farmable while 16.28 acres was non-farmable. MPAC took the position that because 16.28 acres was non-farmable that land should be in the residential class.
When considering the non-farmable land and whether they should be in the residential class, the Board relied mainly on reasoning from its previous decision in Delta Bingo Inc. v Municipal Property Assessment Corporation, Region No. 18, 2013 CanLII 104841 (ON ARB), concerning lands that were not cultivated. The Board concluded at paragraph 41:
…the Non-Farmable Land should not be carved off for assessment purposes. The entire 35 acres is leased to the tenant farmer who has exclusive use of these lands. The Non-Farmable Land is not used for any other purpose. We do not interpret subsection 19(5) to require that 100% of the farm lands be used only for farm purposes. This is especially the case where, as here, the land is not put to any other use and is in the tenant farmer’s control. Further, farm lands are not generally 100% farmable or used for farm purposes. There are ancillary lands that are not used at all or that support the farming activity. These lands are caught within the parameters of subsection 19(5).
If land qualifies as farms lands used for farm purposes under subsection 19(5) and the other requirements of subsection 8(2) are met, the land belongs in the farm property class. There does not appear to be a basis for carving out one or more acres of that land as being in the residential property class.
Contact NextGenLaw LLP today if you want to challenge the assessment of your property.