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Tax Incentive Amendments to the Municipal Government Act

New revisions to the Municipal Government Act (the MGA) aim to grant municipalities the ability to offer tax incentives to encourage business investment. Bill 7 the Municipal Government (Property Tax Incentives) Amendment Act (Bill 7) received Royal Assent and came into force on June 28, 2019.

At its core, Bill 7 aims to help local governments attract more non-residential investment by allowing them to defer or cancel taxes for specific "classes" of businesses, giving the flexibility to tailor tax incentives to local conditions.

The previous MGA allowed municipalities to offer similar tax incentives only in circumstances of financial hardship or to encourage the development of brownfield properties (previously developed land that is not currently in use). This was previously done retroactively through cancelling, deferring or refunding property taxes in a specific year.

At a high level, the new changes to the MGA include:

  • enabling council, through bylaws, to give full or partial exemptions from taxation to certain industries for a maximum of 15 consecutive taxation years. If considered appropriate, council could provide for subsequent exemption or deferrals of an additional 15 years or less;
  • providing discretion to municipal councils regarding the criteria for the type/size of businesses eligible in order to tailor tax exemptions and deferrals to fit local needs;
  • providing municipalities the power to establish a process for the submission and consideration of exemption applications; and
  • providing a mechanism for judicial review of a decision made under a bylaw in respect of an exemption or deferral.

Bill 7 enables the creation of property tax breaks for businesses ranging from small deductions to the annual property tax rate to entirely waiving municipal taxes for a period of time up to 15 years.

Each municipal council is now able to pass its own bylaws to set the procedure for how the new tax breaks will be allocated, determine the criteria for the type and size of the businesses eligible to apply for the tax breaks, and set restrictions on how long tax breaks provided will in effect. One of the stated goals of Bill 7, if it achieves its desired effects, is to give flexibility to municipalities to determine how to best attract businesses and investment to their local communities based on their unique priorities and needs.

The tabling of Bill 7 has sparked discussion and debate on the potential benefits it may bring to local economies. For example, some commentators have noted that Bill 7 may help the City of Calgary and the City of Edmonton rebound from the current downtown vacancy problem occurring in Edmonton and Calgary.

According to the commercial real estate firm CBRE, Calgary’s downtown vacancy rate sits at 26.5 per cent as of the first quarter of 2019, while Edmonton’s sits at 18.4 per cent. The tax deferrals and breaks offered under Bill 7 may help with this ongoing issue by removing financial obstacles associated with occupying downtown real-estate.

In addition, other commentators have noted that the ability for municipalities to offer property tax incentives may encourage large corporations, such as Amazon, to continue to expand their presence in the province. Alberta is set to house two of Amazon’s fulfillment centres located in Leduc and Balzac. It is estimated that the Leduc location will create more than 600 full time jobs in its scheduled 2020 opening in addition to the approximately 1500 full-time jobs created by the opening of the Balzac location. Increased tax incentives are likely to attract corporations to local municipalities aiding in both regional and local economic growth.

Despite the goals of Bill 7, there is some potential concern for unintended effects. The ability for each individual municipality to create their own bylaws combined with differences in municipal fiscal capacities could create an issue of unequal economic advantage and competition. Municipalities with larger fiscal capacities could out-compete surroundings municipalities through offering more aggressive property tax incentives. Ultimately, legislation that had the intended effect of helping all municipalities attract more economic investment could result in a "race to the bottom" that would negatively impact the fiscal positions of Alberta municipalities.

Resources for Businesses and Employers

At Field Law our commercial real-estate group has experience advising developers on all aspects of large scale real estate development. We are also available to assist developers with applications lease negotiations and helping to raise capital in private and public markets.