Posted on: June 3 2016
Written by: Ned Brown
Sometimes, when farmland is situated close to new or growing property developments, the value of the farm property will increase - often dramatically - due to the anticipated development of the farm property itself. But for certain provisions contained in The Manitoba Municipal Assessment Act (the "Act"), such increased value will be subject to higher and higher property taxation by the local taxing authority. This is manifestly unfair to the farm operator who uses and continues to use its property for farming purposes. The Act provides some relief. A farm owner/operator can apply for a designation of its farm property for farming purposes, and thus (starting in the year immediately following submission and acceptance of the application) be taxed on the basis of farm use, not future anticipated development use (or uses).
However, the Act makes it clear that the right to be taxed at the lower value will disappear where the property ceases to be used for "farming". Upon such a change in use, not only will the property be taxed at a higher value (based on the changed and current use or current anticipated use), but also, the tax authority is entitled to require that the difference between what the property would have been taxed at if it didn't enjoy the farming use exemption, and, what it has been taxed at (based on farming use), be paid back to the authority, for up to a maximum of five prior years.
"Farming" is defined in the Act to mean "commercial crop production" but does not include "the purchase and resale of agricultural products, or the commercial processing of agricultural products". Thus farmland held and operated by a "gentleman farmer" or held and used as a "hobby farm", would not be able to get the benefit of the exemption. Nor would an owner who uses farmland to commercially process agricultural products (eg, a canola seed crushing plant).
When anticipating (or having counsel review) a possible purchase of farmland, or a possible loan against the security of farmland, the buyer or mortgagee, as the case may be, must be alert to the possibility that what the purchaser contemplates with respect to future land use, may trigger the above-mentioned property tax repayment obligation. This should be fairly simple to determine BECAUSE THE ACT REQUIRES ANY LOCAL GOVERNMENT ISSUING A TAX CERTIFICATE FOR PROPERTY FOR WHICH THE EXEMPTION APPLIES, TO INDICATE SAME ON THE TAX CERTIFICATE IT ISSUES.
The reason for the need to determine the "status" of farmland under the Act is because the Act provides for a lien against the farmland to secure the required property tax payback, and such lien (just like "ordinary" property taxes) will follow the farmland into the hands of successive owners.
Edward (Ned) D. Brown is a Partner at Pitblado Law, whose practice areas include Aboriginal Law, Financial Services, and Commercial Real Estate. For a second opinion on any of these matters, please contact Ned.