The province of Ontario has added greater clarity to the property-tax treatment of renewable energy generation facilities by amending Ontario Regulation 282/98 under Ontario's Primary Property tax statute: the Assessment Act.
The objective of the amendments made to Regulation 282/98, which take effect retroactively as of Jan. 1, 2011, were to clarify the property-tax treatment of renewable energy installations for property owners, project developers, municipalities and the Municipal Property Assessment Corp., in addition to ensuring that property tax does not act as a disincentive to renewable energy generation, particularly in situations where small-scale generation facilities are owned by persons who are not normally in the business of generation.
For a number of years, the property-tax treatment of renewable energy installations has been a matter of some uncertainty in Ontario.
In understanding the changes, it is useful to remember that property taxes are based on at least two separate elements: the assessment value and the tax classification (which determine the tax rate).
Rooftop renewable energy installations will not result in a change in the assessment if they are ancillary to the original building and its use.
The value for assessment purposes for ground installations will depend on the size and location of the facility. It will also depend on the entity involved in the electricity generation, as described below:
The ancillary activity/non-commercial carve-out: In instances where the
landowner's primary business is not electricity generation or transmission, or if it meets certain farming business requirements, there are now three rules outlined by the regulations:
- Small-size ground installations (up to 10 kW) will not see an increase in
- assessed value or a change in the tax classification/rate.
- For medium-size ground installations (10 kW to 500 kW), the tax class/rate will not be changed but will be based on the original surrounding land use, whether that be residential, commercial or farm, etc.; however, the value of the land can be increased.
- Large-size ground installations (over 500 kW) will be reclassified, in part, to the industrial tax class/rate, and the lands will remain in the original tax class to the percentage that 500 kW bears to the total generation capacity. Similarly to medium-size installations, the assessed value of the land can be increased. Depending on the original classification, the change in taxes levied can be very large.
Wind turbine towers: Consistent with current treatment, wind turbine towers will
be assessed at a rate of $40,000 per megawatt of installed capacity, with the exception of rooftop and ground-based installations of up to 10 kW, where the property-tax assessment will be unaffected.
There will continue to be some situations, however, in which it is unclear how the test as to whether power generation is "ancilliary" to the main activity on the property will be implemented or applied. Further, if there is a change in the classification of the property, the impact of this change will need to be considered.
Finally, the manner in that the value will be increased – and whether that is based upon the costs of the installation, the value to the landowner in terms of income from rent or a sharing of income from the electricity generated – will almost certainly be an important consideration and possible conflict with the Municipal Property Assessment Corp.
With more complex arrangements and larger installations, project-specific attention still needs to be given to what the property-tax implications of the amendments will be, and careful structuring of the arrangement between the parties may be useful to minimize property-tax consequences.
It is also important to recognize that a landowner or a electricity generator's right to appeal a change in the assessment is time limited and should be secured by contract and made on time, as failure to meet the short appeal deadlines is usually permanently fatal.
Thomas J. Timmins and David Tang are partners at law firm Gowlings, and Neeta Sahadev is a student who contributed to this report.