Municipalities granted new tax powersBy Axel Fournier Lawyer
On January 1, 2018, the new sections of the Act mainly to recognize that municipalities are local governments and to increase their autonomy and powers will come into effect, granting new tax powers to municipalities. Cryptically drafted, these new provisions merit clarification.
Principle: a municipality may impose any direct tax
According to the Constitution, municipalities fall within provincial legislative jurisdiction and may therefore only impose a tax in areas under provincial jurisdiction. As a result, their power is limited to direct taxes.
A direct tax is charged to the person who bears the burden, as opposed to an indirect tax, which may be passed on to the subsequent purchaser in the price of a good or service (e.g. duties).
In principle, the new sections 500.1 of the Cities and Towns Act and 1000.1 of the Municipal Powers Act allow municipalities to impose any direct tax.
Exception: no tax on anything that we've already thought of
The legislator restricted the power by excluding practically every tax field that is already occupied. The Act nearly entirely excludes the three main types of taxation: income taxes, expenditures and capital.
With regard to income, the new provisions prohibit a municipality from imposing a tax on "income, revenue, profits or receipts, or in respect of similar amounts."
With regard to expenditures, taxes in relation to the provision of goods and services (equivalent to GST/QST) and those on total payroll are also prohibited.
In terms of capital taxes, the Act does not authorize municipalities to impose a tax on "paid-up capital, reserves, retained earnings, contributed surplus or indebtedness, or in respect of similar amounts" or on machinery and equipment, including computer hardware. A tax on wealth, including an inheritance tax, is also prohibited.
So as to cover all the other tax fields that the provincial government seeks to preserve, the legislator specifically excludes taxation on alcoholic beverages, tobacco, natural resources, energy, fuel, the use of public highways and the presence or residence of an individual on a municipal territory.
So what's left?
The legislator is forcing municipalities to get creative and find new tax fields.
Here, for illustrative purposes only, we attempted to outline some that may be considered part of these powers.
Tax on parking: This example was mentioned by the minister before the parliamentary committee. Taxing street-level commercial parking may enable a municipality to make underground parking more competitive and foster new uses for the streets.
Tax on billboards: The Act does not prohibit municipalities from taxing billboards. They could therefore tax signage based on size in order to foster the installation of smaller signs on arteries that are overrun by visual pollution.
Tax on vehicle registration: The Act does prohibit municipalities from taxing vehicle registration. Before the adoption of the Act, the power was already specifically granted under section 96.1 of the Act respecting the Communauté métropolitaine de Montréal. Everything indicates that the new powers would enable a municipality to tax vehicle registration. However, in practice, liability for this type of tax would require municipalities to enter into an agreement with the Société de l'assurance automobile du Québec.
Ecological tax: When the bill was still being studied, the minister proposed an eco tax. In practice, nothing prevents municipalities from taxing greenhouse gas emissions or waste generation.
We encourage you to consult us before adopting regulations to create new taxes. Indeed, there are many considerations and case-by-case analysis is required to avoid lengthy and costly proceedings to cancel new regulations. We will be very pleased to provide you with all the information you require.