On February 15th 2011, the Minister of Finance introduced Bill 2 – the Budget Measures Implementation Act (the “Bill”) which may impact the tax liability of on-campus commercial businesses.
A university’s interest in land is generally exempt from local property taxes pursuant to section 54(1) of the University Act, which provides that “unless otherwise provided in an Act, the property vested in a university and held or used for university purposes is exempt from taxation under the Community Charter, the Local Government Act, the School Act, the Vancouver Charter and the Taxation (Rural Area) Act.” Land that is held by colleges and institutes is also generally exempt from property tax pursuant to section 58 of the College and Institute Act, which provides that “an institution, as agent of the government, is not liable to taxation, except to the extent the government is liable”.
The modern campus offers much more than just lecture halls and libraries, and includes a wide range of commercial businesses such as coffee shops, drycleaners, travel agencies and other services. In the case of businesses located on the campuses of colleges and institutes, the Assessment Act allows the occupier of the land to be assessed directly for tax. For universities, the question of whether on-campus commercial enterprises are liable to pay property tax depends on whether they fit within the exemption in section 54(1) of the University Act.
The BC Supreme Court Decision
In our August 2010 issue of Campus Counsel, we reported on a recent decision that considered whether commercial retail businesses located on the campuses of Simon Fraser University and the University of Victoria1 were being “held or used for university purposes” such that they qualified for the property tax exemption found in section 54(1) of the University Act. In the decision, Madam Justice Ballance concluded that “university purposes” should be interpreted broadly to include not only the educational, academic and degree-granting objectives of universities, but the services that are ancillary to those primary objectives, important and convenient to students and beneficial to the quality of student life. As a result, on-campus for-profit businesses could fit within the section 54(1) property tax exemption.
While this decision may have been a relief to universities and for-profit service providers operating on campus property, that relief may be short-lived in light of the Bill.
The Proposed Amendments to the University Act
One of the changes proposed by the Bill is to amend section 54(1) of the University Act to add the following wording (in bold):
54 (1) Unless otherwise provided in an Act, the property vested in a university and held or used by or on behalf of the university for university purposes is exempt from taxation under the Community Charter, the Local Government Act, the School Act, the Vancouver Charter and the Taxation (Rural Area) Act.
Based on calls to the office of the Ministry of Finance, the purpose of the proposed amendment is to clarify the property tax exemption in section 54(1) so that it more accurately reflects the intention of the government – which is to tax all commercial enterprises that are operating on their own behalf, whether or not they are located on university lands. The Bill, of course, is still subject to subsequent readings and further amendments. But if passed as is, the words “held or used by or on behalf of the university” will reverse the decision of Justice Ballance in many cases.
The Bill also proposes to add the following subsections to section 54 of the University Act:
(3) If property vested in a university is held or used by or on behalf of a student society affiliated with the university, so long as it is held or used for university purposes, the property continues to be entitled to the exemption from taxation provided in this section.
(4) Subsections (1), (2) and (3) do not apply to property used for a prescribed purpose.
Subsection 54(3) ensures that the property tax exemption will continue to apply to property held by a student society that is used for university purposes, and would likely protect businesses operated by student societies, such as pubs and stores, as long as their focus is a “university purpose”.
Subsection 54(4) provides that the exemption in section 54 of the University Act does not apply where the property is used for certain purposes prescribed in the regulations. At this stage, there is no indication of what these prescribed purposes might be. It is possible that section 54(4) was added as a precaution in order to give the government the option to specifically exclude certain commercial businesses from the property tax exemption if the amendments to section 54(1) fail to accomplish their goal.
The Bill also includes transitional provisions and provides that if a business was already operating on university lands and exempt from tax in 2010, the same business will continue to be exempt for a period of five years.
At this stage, the Bill has only had its first reading. It is difficult to predict how quickly the Bill will pass through the legislature and whether it will undergo any significant changes before it does. In the meantime, universities will want to ensure that when leasing property to commercial tenants, the terms of the lease expressly state that if the tenant is assessed for property tax, the tenant will be liable to pay the tax. In particular, if universities enter into “gross” leases, where the landlord university accepts responsibility for all operating costs and other expenses associated with the premises, property tax liability should be expressly excluded from the “gross” lease principle.
- Assessors of Areas #1 and #10 v. University of Victoria, 2010 BCSC 133.