First Reference company logo

Inside Internal Controls

News and discussion on implementing risk management

machine cogs image

Separate but together: A property tax lesson

propertytaxNext to the ability to issue charitable donation tax receipts a break in property taxes is likely the next most popular reason for seeking registered status. Of course, the considerations on this issue vary from province to province as the exemption from property tax is a matter of provincial jurisdiction. But the commonalities both of charity operations and of the various property tax regimes make decisions relating to the property tax of a charity in one province germane to those operating in another.

The St. George and St. Rueiss Coptic Orthodox Church[1] in North York, Ontario operated as many other religious organizations. It had one incorporated entity to run its church operations and another separately incorporated entity to run a related school. Both were registered charities. The two entities operated in the same building (although at different times of the day) and with minor exceptions had mutual access to the entire structure.

The difficulty arose because the exemptions for a church and a school are worded somewhat differently:

Section 3(1) of the Assessment Act provides that all real property in Ontario is liable to assessment and taxation subject to the listed exemptions, of which two are at issue in this case:

3. Land that is owned by a church or religious organization or leased to it by another church or religious organization and that is,

a place of worship and the land used in connection with it,

and:

5. Land owned, used and occupied solely by a non-profit philanthropic, religious or educational seminary of learning or land leased and occupied by any of them if the land would be exempt from taxation if it was occupied by the owner. This paragraph applies only to buildings and up to 50 acres of land.”

It seems that the issue arises because on the one hand the taxing authority took the position that the building was not entirely used as a church, and on the other hand that the school had no formal lease agreement with the Church. In these circumstances both organizations fell through the cracks and the parts of the building primarily used by the school did not qualify for an exemption.

To this the Court had two responses. The first more technical response was that taxing statutes, including those dealing with property tax, are not to be so narrowly construed. Typically, providing a broad interpretation helps the government and it cannot now argue against applying it even if it gives an undesirable result (at least to them).

The second piece of reasoning from the case may be of greater interest. The Court reviewed the particular circumstances of the Church, the reasons why it had a school and some of the historical aspects of the Coptic language[2] . After doing this the Court concluded that the two organizations share the same patrimony. Essentially, the idea is that notwithstanding the separate incorporation of the school it is effectively a branch of the Church and no punishment should be exacted just because the Church aimed to limit liability through the use of a separate incorporation.

Apparently this is a doctrine often applied to branches of quasi – governmental entities to extend the property tax exemption, and for the second time in this case the taxing authority attempted to argue against a principle which in the past was not applied for the benefit of a private taxpayer.

While ultimately the charity did win the case one has to imagine that the costs of litigation and the anxiety which undoubtedly ensued from the beginning of the process may have been avoided with greater forethought given to the property tax issue. Nevertheless, charities operating separately incorporated entities may want to speak to their local lawyer about the implications of this case in their jurisdiction.

[1] St. George and St. Rueiss Coptic Orthodox Church v. Municipal Property Assessment Corp, 2016 ONSC 1723

[2] Apparently it aided in the deciphering of the Rosetta Stone

Follow me

Drache Aptowitzer LLP

Tax and Charity Lawyers at Drache Aptowitzer LLP
Drache Aptowitzer LLPis one of Canada’s foremost experts in the law related to charities and non-profit organizations. Their team of bloggers is led by Adam Aptowitzer LLB. He is a lawyer practicing in the areas of charity and tax law. He is a member of both the bars of Alberta and Ontario. He has been speaking and writing on the topic of charity law for several years and been published in numerous publications including the Canadian Taxpayer, the Canadian Fundraiser and the Not-for-Profit News and has been cited as an expert in many publications including the National Post.Read more here
Follow me

Latest posts by Drache Aptowitzer LLP (see all)

Send to Kindle

, , , , , , , , ,

Comments are currently closed.