On January 22, 2019, Altus Group hosted a breakfast update catered to the energy and industrial sector. Below is a summary of the presentation and the questions and discussion that followed.
Alberta Assessment Year Modifiers
- AB Assessment Year Modifiers (AYM) for regulated property assessment were released in December 2018 to impact the assessment for 2019 taxation. A list of the AYM by category and their year over year change can be reviewed here.
- New AYM can be viewed as positive since they are significantly lower than originally proposed by government
- Industry had lobbied for a decreased well AYM and for pipelines and machinery & equipment to remain unchanged; however, the government opted for increases to wells and pipelines and a minimal reduction to the machinery & equipment AYM
- While the AYM percentage changes at first appear low, they have significant impact when viewed as a sum of your entire portfolio:
- Wells 2.13% increase
- Pipeline 4.94% increase
- Electric Power 2.44% increase
- Railway 2.92% increase
Wellsite Land Assessment
A controversial component of the wellsite assessment over the past several years was the land due to an inconsistent and inequitable approach throughout the province.
Municipal Affairs has applied a new province-wide assessment guideline which includes an assessed value for the leased land at wellsites. The new value is applied to every assessed well license and is added to the assessment calculation after applicable depreciation; the land component does not depreciate along with the well asset.
Rural municipalities have been categorized into five zones throughout the province with the wellsite land rate varying for each zone. Consideration has been given to wells that are on large facility lease sites (gas plants, batteries) as well as multiple wells surfacing on a single lease.
The largest and most significant impact of this change relates to shut in wells where assessments and taxes are anticipated to increase in excess of 50% over 2018 tax levies.
Saskatchewan Tax Tools & Tax Rates
In 2015, Municipal Tax Policy in SK was updated including the requirement that the highest mill factor used by a municipality cannot be more than nine times the lowest mill rate factor applied.
A Mill Rate Factor (MRF) is one of three Tax Tools that municipalities may choose to use. The other two are:
- Minimum Tax; a minimum levy applied if an assessment does not meet the minimum threshold set by municipal council for the property class: Commercial, Residential or Agriculture. Minimum Tax Rates can differ by class.
- Base Tax; a specific levy applied to all tax accounts within a specific class or all property classes in a municipality.
While the 9:1 mill rate ratio between highest and lowest property class was well intentioned, it increased the use of the Minimum Tax and Base Tax tools, thereby escalating the overall ratio well beyond 9:1 in many municipalities.
Additional concern has been raised by industry related to the many additional municipal levies and fees, such as Road Maintenance Agreements.
A survey has recently been released by CAPP and is actively soliciting information on municipal levies, outside of property taxes, to allow for a fulsome study of fees levied and revenue collected by municipalities. The survey is in an effort to seek tax relief in the short term; pre-election in SK as there is no appetite by the provincial government to make significant policy changes between now and the 2020 election.
If you have not received this survey and wish to participate, please contact us for a copy. If you have received the survey directly from CAPP, we encourage you to complete it at your first opportunity.
From the Floor – questions and comments from our attendees
- Confirmed that changes to wellsite land rates and AYM (AB) cannot be challenged through the appeal process; these are approved, regulated rates. The best recourse is to advocate directly with your major municipalities to discuss the impact to your business and lobby for municipal mill rates that are as low as possible. Seek fiscal responsibility from all stakeholders.
- Discussed municipalities’ lack of understanding and empathy for the energy sector at this time in our economy. Most often, municipal councils are made up of smart, well meaning Albertan’s which does not always translate to an understanding of how municipal tax burdens can impact a company’s profitability or, potentially, its survival.
- Confirmed that currently a review of all rates and levies is not being undertaken in AB like the one being done in SK by CAPP. At this time, Altus’ work with CAPP in AB is focused on highlighting priority assessment and tax matters as we approach a spring election and plan for government meetings and input.
We will be hosting a follow-up Webinar in the Spring, after most assessments are received in AB. Should you have questions or comments prior to the Webinar invitation, please be in touch.