Posted on: November 4, 2014 | General News
Unraveling the Mystery:
Assessment, Taxation, Park Service Fees, and Crown Land Rent
There are two cottage worlds in Manitoba. Cottagers who lease lots in provincial parks and cottagers who own titled land within a municipality (or in a very few cases, within a provincial park). The provincial government has raised the issue of fairness when they have compared occupancy costs between these two worlds.
The Municipal World
The cottage lot in a municipality is taxed under the authority of the Municipal Assessment Act (MAA). The municipality and the local school division have the authority to levy property taxes. The amounts levied must be based on a cash requirement determined by annual budgets which are public documents revealing all planned expenditures and all expected revenues by source.
The level at which individuals pay these taxes is determined by an evidence based property assessment using a market value (MV) established by the comparison of sales records of similar property over the period between re-assessments.
Property taxes are calculated on a portioned value of the property assessment. The provincial Assessment Act regulates portioning of market value with residential class property taxed on 45% of market value assessment. Hence, a market value assessment of $150,000 would pay taxes on a portioned value assessment of $67,500.
Assessment data is revised every two years using a computer model of all sales. The data is public and available without cost on the websites of the Provincial Municipal Assessor and the City of Winnipeg Assessor.
In addition to the care with which the assessments are performed, there also exists a well-developed appeals process if an owner feels the assessment is incorrect. First, an informal discussion with an assessor is available. The owner is not required to employ an accredited real estate appraiser. If no agreement is reached the formal process of appeal to the Board of Revision is available. A final appeal can subsequently be made to the Municipal Board. The formal processes provide an accessible, impartial, quasi-judicial forum. Throughout these processes, information is freely available, shared, and without cost to the appellant.
The Provincial Parks World
Cottagers on leased land pay two rates. The Park District Service Fee (PDSF) is supposed to cover the annual costs of capital, administration, and municipal type services specific to an individual lot. The rate is calculated based upon the actual costs of the previous year’s services adjusted by a shares formula.
The park lessee is also subject to crown land rent. There is no stated cash requirement for the rent as all service costs are supposed to have been paid by the PDSF. Crown land rent is a direct contribution to the general revenue of Manitoba and is not dedicated for use in parks. The amount of this contribution is determined arbitrarily by government and is calculated by the application of a percentage rate on an equivalent market value for crown land in a similar region. Equivalent crown land market value is not rated on individual properties, but is assessed on a categorical basis by park district and lot type.
Cottagers will have noted a change in their land value assessment this year. The data and analytic process used to re-assess Crown land values from the former values derived in the 1980’s have not been available to the public. Nor was the rationale for the increase of the percentage rate which occurred incrementally from the 1980’s to 2000 ( a doubling, from 2% to 4%) been shared with public. This is a significant contrast to the open and cost free nature of municipal assessment information.
Cottagers are advised that this year they can appeal lot land value to Crown Lands and Property Agency (CLPA) if they have a report from an accredited appraiser with a different valuation. This process is in significant contrast to an appeal of a municipal assessment. Since CLPA has itself determined the Crown land equivalent market value and levies the rent and PDSF, it cannot provide the impartial appeal process available to municipal ratepayers through the Board of Revision or the Municipal Board.
Crown land market values were left unadjusted since the 1980’s until this year, when they have been substantially increased. Yet the pre-existing rental rate (4%) has been held constant. This has produced a massive increase in rent, starting in 2014 and according to the Ministry plan, destined to be phased in over ten years. A simultaneous PDSF increase will be phased in over five years. A promised maximum occupancy cost of $3000 will apparently be in force for four years ending with the 2017 invoice, although the official regulation showing the full 10-year phase in remains unamended.
It is interesting to note that if the PDSF in any year did not cover service costs then a draw could be made on provincial general revenue to balance the account. Crown land rent contributes significantly to general revenue and is available to offset any shortfall in PDSF. Unfortunately, government interpretations of the revenues received from cottagers do not recognize the contributions made by Crown land rent.
Let’s look at an example for a typical lakefront, road access cottage at West Hawk Lake:
The 2014 share of services cost for this site (PDSF) is $871.64. After the phase in rebate, the lessee cost for 2014 is $455.93
2014 Invoice Revenue
- Boat house/dock lease $20.00
- Rent (lease) after rebate $1320.00
- PDSF after rebate $455.93
- Total net of GST $1795.93
If we calculate the total revenue derived from this leasee and subtract the PDSF cost share ($1795.93 – $871.64= $924.29 gross surplus,;$924.29 less PDSF rebate of $415.71= $508.58), we find that the total revenue collected on this invoice pays all service costs and contributes a net surplus of $508.58 to provincial general revenue. With about 900 cottages at West Hawk (most with comparable tax and service contributions), a net annual contribution to provincial general revenue of nearly $500,000 is generated from just this lake.
When the contribution of land rent is considered there does not appear to be any subsidy of cottager costs from the income and consumption taxes of Manitoba.
Continuing our example at West Hawk, we can expect PDSF to experience 3% inflation per year over ten years. PDSF in this example would be $1140 per year ten years from now. Land rents are forecast to change as values are reassessed, buildings are evaluated, and rental rates adjusted. Current land rent (un-rebated) is $6000. In ten years it is reasonable to assume that all caps, rebates, and phase-ins will have ended and that total annual occupancy cost for this example will be $7500 or more. In other words, lessees will experience increases on the order of 750% in the South Whiteshell. Rental revenue will begin to run well ahead of a PDSF which, presumably, will continue to pay all costs. Rental revenue will then contribute hugely to provincial general revenue.
The recent policy changes in PDSF and land rent are the result of a seven-year development process in Parks Branch. They advise that the process will continue a further five years to develop a valuation program for cottage buildings on leased land to be used in rent calculation. This kind of individual value based assessment of buildings has the potential to significantly increase the administrative cost component in PDSF.
Any further consideration of cottage lease revenues and the amount and calculation of Crown land rent, which by the way, the current government has promised, will only be acceptable if a joint process including meaningful direct stakeholder involvement is employed to develop new policy. Establishment of a process of this kind will need political direction, and cottagers should protect their interests by monitoring and helping to shape the directions proposed. Cottage lessees are strongly encouraged to contact their local MLA to arrange a personal meeting to discuss the policy development process and to encourage the establishment of a joint process to engage stakeholders in meaningful policy development.