Tax Loss Compensation

Res #: 30-10A
Number: 30
Year: 2010
Midterm: No
Expired: Yes
Responses Received: No
Departments: Indian and Northern Affairs Canada

WHEREAS the Rural Municipal Tax Loss Compensation Trust Fund has had a dramatic loss of investment income due to very low investment returns;


WHEREAS many RMs that receive tax compensation are in a deficit position from year to year with the burden being transferred to the other ratepayers within the RMs; and


WHEREAS costs to RMs continue to rise to provide services and improvements;


BE IT RESOLVED that SARM ask the Federal Government to compensate RMs for the shortfall in funding until investment rates improve; and


FURTHER BE IT RESOLVED that the level of funding provided by the Federal Government for tax loss compensation be indexed to keep up with the increasing service costs of municipalities.

Response from Honourable Chuck Strahl, P.C., M.P., Minister of Indian Affairs and Northern Development:

As you are no doubt aware, two funds have been established to pay tax loss compensation to rural municipalities in Saskatchewan.

The first fund was included as a negotiated provision, and appears as Article 12, in the 1992 Treaty Land Entitlement Framework Agreement entered into by the Government of Canada, the Province of Saskatchewan and the Entitlement First Nations. At the time, the parties considered the funding formula to be generous enough that the one­time payment could be prudently invested to provide for tax loss compensation through the implementation period of the agreement.

Further, Article 12.10 in the Framework Agreement states that “It is hereby agreed by Saskatchewan that no compensation shall be payable by an Entitlement Band to any Rural Municipality or School Division to compensate any such Rural Municipality or School Division for the loss of Municipal Taxes or School Taxes on Taxable Land, respectively, in respect of either the Purchase of Entitlement Land or the setting apart by Canada of such Entitlement Land as an Entitlement Reserve.”

The second fund was established in a 2000 Memorandum of Agreement between Canada and Saskatchewan to facilitate implementation of Specific Claims Settlements. Section II of Schedule A to the Memorandum of Agreement states that “the Province agrees to resolve with the major provincial associations representing rural authorities any tax loss compensation issues arising from the setting apart of up to 300,000 acres of additional reserve lands within Saskatchewan rural municipalities pursuant to Specific Claims Settlements”. I am informed that, to date, less than 55,000 acres of reserve have been set apart pursuant to Specific Claims Settlement Agreements since 2000. Therefore, it would appear that your Association should discuss this matter further with the Province of Saskatchewan.

With respect to the indexing issue, the tax loss compensation formula provides for compensation to be calculated on the basis of the annual tax levied on the subject lands for the year prior to reserve creation. Therefore, tax loss compensation is indexed in so far as the annual tax levy is indexed. By calculating compensation in this manner, it was assumed that best efforts were being employed to address actual tax loss at the time of reserve creation.

Notwithstanding the foregoing, should your Association have concrete suggestions on how the issues you raised can be addressed in future agreements on a go forward basis, Indian and Northern Affairs Canada would be pleased to consider them.