By-Law Newsletter: Tax Collection


Tax Collection: Legal Challenges and Solutions for Alberta Municipalities

Due to the limited means that municipalities have to raise the funds necessary for their operations, the collection of taxes has always been of the utmost importance to municipalities. This reality is reflected in the tax collection scheme set out in the Municipal Government Act, RSA 2000, c. M-26 (“MGA”), as amended. 

Arrears related to Parcels of Land

In addition to being able to pursue unpaid taxes in the same manner any creditor can recover unpaid debts, the MGA provides for a number of additional ways that municipalities may utilize to collect unpaid tax arrears. For example, where there are tax arrears on parcels of land, the MGA provides that a municipality may, subject to the process set out in the MGA, foreclose on the property and collect the unpaid arrears and the costs to collect such arrears. 

This process was recently reviewed by the Court in Warner (County) v Waddell, 2023 ABKB 142. This case reinforced a number of points about the tax sale process:

  • Where a notice is required as a result of tax arrears, send a notice to the address as noted on the title as shown in the office of Land Titles. Therefore, if notice has been sent to the address noted on title, that is sufficient. It is not necessary that the municipality “track down” the property owner if letters are returned. 
  • If a person or entity has registered a Certificate of Lis Pendens on the title, this is not an interest in land – and therefore, notice does not need to be provided to this person or entity. 
  • The municipality had used the assessed value as the reserve price – which the Court found was acceptable. The Court found that the reserve bid did not need to be the “best” price possible.

Another case dealing with the tax sale process for real property is Rock River Developments Ltd. v Village of Nampa, 2022 ABKB 751. In that case, an injunction was sought by property owners to prevent the municipality from proceeding with the tax sale of properties that had significant arrears. The property owners argued that the tax sale process should not proceed because a tax agreement was in place, and the NSF cheque for one of the payments should not have been treated by the municipality as a breach of the tax payment agreement. Further, the property owners argued that the assessed value of the properties was significantly higher than the value the municipality proposed for a reserve bid based on market value appraisals. The property owners had never appealed their assessments.

The Court denied the request for an injunction on any of these bases.

These cases reinforce the effectiveness of the tax sale process as a way of collecting unpaid property taxes against parcels of land.

Arrears related to Linear Property and Machinery and Equipment   

In recent years, the collection of arrears for linear and machinery and equipment has become a significant issue for many municipalities. Collecting these arrears has been challenging for a number of reasons. In 2019, the Alberta Court of Appeal found that linear taxes were not secured by a special lien on any property which made these debts unsecured. When most of the arrears were owed by insolvent corporations in bankruptcy, receivership or other re-organization proceedings, this effectively meant no recovery of those amounts.

Due to the advocacy of the Rural Municipalities Association and others, the Province of Alberta responded to municipalities’ concerns. At the end of 2021, the Province of Alberta passed the Municipal Government (Restoring Tax Accountability) Amendment Act, 2021. This came into effect on December 8, 2021. This amendment restored the priority special lien for property tax arrears linear and machinery and equipment taxes and provided that the lien was on all assessed property of the assessed tax payer. It also provided that the owner of such property was also liable for such arrears (as opposed to just the operator). 

However, recovery of these amounts has remained a challenge – in great part as a result of the Supreme Court of Canada’s decision in Orphan Well Association v Grant Thornton Limited, 2019 SCC 5, otherwise known as the Redwater decision. 

The Redwater decision has had a profound impact on the rights of all creditors against corporations that have unfunded environmental liabilities. 

The Redwater decision dealt with an insolvent oil and gas company. The trustee in bankruptcy had sought to transfer and sell certain oil and gas assets that had value, and generate funds that would be available for distribution for the creditors of the bankrupt. The AER refused the transfer and challenged the Trustee’s ability to generate funds from some assets but disclaim any responsibility (and therefore application of funds) for the remaining assets that had significant end of life remediation obligations associated with them. The AER ordered the Trustee to reclaim and abandon the disclaimed assets. This would mean any amounts generated by the Trustee in any sales would have to be used to undertake the reclamation and abandonment work ordered by the AER. Essentially, these obligations would take priority over any secured creditors. The Supreme Court of Canada found for the Orphan Well Association, meaning that the Trustee could be ordered to satisfy these obligations before any funds were available to secured (or any) creditors. This decision has had significant ramifications for all creditors in Alberta, including municipalities.

Principally, courts in Alberta have since found that the Redwater decision means that environmental regulatory obligations may take priority over the rights of secured creditors and must be satisfied before other creditors receive recovery. This includes municipalities because the priority of municipalities’ special lien is subject only to the Crown as that term is defined in the MGA. Both the AER and the Orphan Well Association fall within this definition.

One result has been a number of insolvency proceedings that have been initiated, not by secured creditors, but by the Orphan Well Association. The purpose of these proceedings has been to transfer assets held by the Orphan Well Association (because of the significant end of life obligations), to new operators who will agree to take on the liability of the end of life obligations. So very little, if any, funds are actually generated in these insolvency proceedings, but all liens or other financial obligations associated with these assets are cleared off, including municipal taxes. 

Even when some funds have been generated in these sales, municipalities have been unable to recover any amounts, even those accruing during the insolvency proceedings. This was the result in Orphan Well Association v. Trident Exploration Corp., 2022 ABKB 839. In that case, even though some funds were generated by the Orphan Well Association, the Court found that the remaining liabilities the Orphan Well Association was still left with exceeded any amounts owing to municipalities and, therefore, no recovery was available. 

The Province of Alberta has taken a further step by issuing Ministerial Order 043/2023 under the Responsible Energy Development Act, SA 2012, c-R.17.3. This requires the AER to consider unpaid municipal property taxes of an applicant, transferor and transferee above a certain threshold. That threshold has now been set at $20,000. This requirement is resulting in applicants actually taking steps to address unpaid tax arrears. The collection of unpaid linear and machinery and equipment arrears remains challenging but the steps taken by the Province of Alberta have reinforced the tools available to municipalities and confirmed the central importance of property taxes to the operation of Alberta municipalities.

Stay informed with By-Law Newsletter, an annual newsletter bringing you updates and legal insights on topics that Alberta municipalities are facing today. Watch for new articles over the coming months or sign up for our mailing list to receive them directly to your inbox.

This post is meant to provide information only and is not intended to provide legal advice. Although every effort has been made to provide current and accurate information, changes to the law may cause the information in this post to be outdated.


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