Supreme Court of Canada Decides Indian Bands Assessing Leased Reserve Lands for Property Tax Purposes Can’t Have it Both Ways in Musqueam Indian Band v. Musqueam Indian Band (Board of Review)

On September 9, 2016, the Supreme Court of Canada decided in Musqueam Indian Band v. Musqueam Indian Band (Board of Review) that an Indian band assessing the value of leased reserve lands for property tax purposes under its authority to tax reserve lands pursuant to a band by-law is still subject to the “highest and best use” (or HABU) principle, a basic principle of Canadian assessment law. And the use restriction in the lease was still placed “by the band” even though the Indian Act necessitated that the Band could only place it through the Crown’s intervention. Though the decision is a relatively specific exercise in interpreting the particular wording of a band by-law, the Court’s confirmation that the Highest and Best [legally permitted] Use (or HABU) is a basic principle of Canadian assessment law is of some interest beyond BC.

In 1957, the Musqueam Indian Band surrendered a portion of its reserve lands for lease to the Shaughnessy Golf and Country Club. Technically, however, the Indian Act mandated that the Band could only surrender the reserve lands to the federal Crown, which then entered into the lease to the Club on the Band’s behalf. Beginning in 1991, the Band exercises its right to tax, including to assess for tax purposes, its reserve lands under the Musqueam Indian Band Property Assessment Bylaw. In 1996, the Band amended the Bylaw to permit a property tax assessor to consider “any restriction placed on the use of the land and improvements by the band” instead of restrictions imposed by “an interest holder” when determining the property value for taxation purposes. Since then, the Band’s assessor consistently assessed the value based on use of the property as a golf and country club because the lease restricts the use to this purpose. But in 2011 the Band challenged this assessment before a review board, claiming the lands should be valued as residential and the lease’s use restriction wasn’t placed “by the band” because the lease was between the Crown and the Club. The Supreme Court of Canada, in a particularly short decision, disagreed:

The “highest and best use” principle applies. In a 1996 BC case, the BC Supreme Court decided the assessment of leasehold interests in Crown lands must be based on the actual value of the lands and improvements as if the occupier owned, rather than merely leased, them. But this led to an unfair result: a tenant of Crown land could be required to pay municipal property tax based on a use that the lease didn’t allow. BC legislation subsequently corrected this unfairness. In this case, the Band argued that the property used as a golf club should be assessed based on a possible, higher value use for residential purposes – a use that the lease, binding on the property, didn’t permit. This would result in a similar unfairness. The Court applied established legal principles and concluded that the Band’s position was incorrect, and the assessor was entitled to assess the golf club property based on its current use as a golf club – and not some potential future use as a residential property.

There was a restriction placed “by the band” when the Crown limited the use of the leased reserve land to that of a golf club. The legal mechanism the Indian Act necessitated to enable a lease to the Club (first a surrender of the land to the Crown for the purpose of leasing followed by a lease by the Crown to the Club) supported the conclusion that the Band itself placed the use restriction on the land because “the only way” the Band could have placed the use restriction in the lease was “through the Crown’s intervention.”

Though the decision is a relatively specific exercise in interpreting the particular wording of a band by-law, the Court’s comments about assessment law are of some interest beyond BC. The Court confirmed that Highest and Best [legally permitted] Use (or HABU) is a basic principle of Canadian assessment law. HABU is a basic first step in all property assessments in Atlantic Canada. Assessment based on current use rather than speculative potential use (unless the alternative use is a better than 50% probability) is the approach to property tax assessment in Atlantic Canada. For example, property used as a golf club is generally assessed based on use as a golf club and not on some alternative residential or commercial use. In Atlantic Canada, restrictions concerning the use of real property, which restrictions are binding upon that property’s title, are considered when a property is being assessed for property tax purposes.

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