“Farm land used only for farm purposes” or just a “hobby farm”?

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

According to the Assessment Act (the “Act”), the legislation that governs property taxation in Ontario, the Assessment Review Board (the “ARB”) has authority to determine whether lands are “farm lands used only for farm purposes by the owner” for purposes of valuing property.  Section 19(5) of the Act provides that in valuing “farm lands used only for farm purposes by the owner”, consideration must be given to the current value of lands and buildings for farm purposes only (i.e. not their value for any other purpose) and consideration must not be given to any sales of lands and buildings to “persons whose principal occupation is other than farming”.  Generally, lands valued as “farm lands” will be assessed a lower value for property tax purposes than lands valued as residential, commercial or industrial lands because of the restrictions in Section 19(5).

The ARB has previously identified several factors to be considered in determining whether lands are “farm lands”, including: physical characteristics of the land, including soil quality and its capacity to support crops if the activity is raising crops; use of surrounding lands, to the extent that activities in the immediate vicinity suggest that the land on the property will support a farming activity; the history of the use of the property, including whether the land has previously been farmed; whether activities on the land are undertaken with a legitimate intention to “farm”, as opposed to activities intended to create the appearance of “farming” for purposes of obtaining favourable tax treatment; the scale of the farming activity in the sense that the activity must not be too limited to indicate that farming is taking place; permitted use of the land, including zoning; the general nature of the locality; whether the lands have physical characteristics of a farm; and, whether the lands involve a bona fide farmer.  The ARB’s focus is on the use of the land – a factual issue to be decided on a case-by-case basis.

The ARB recently considered an appeal by a landowner in the Kingston, Ontario area who claimed a reduction in the assessed value of his property because it should be considered “farm lands used only for farm purposes”.   The subject property was assessed at $428,000, with $121,500 apportioned to “Conservation Lands” and $306,500 apportioned to lands in the “Residential” property class.  The appellant landowner also contended that the property should be classified in the “Farm property class”.  In response to the appeal, the Municipal Property Assessment Corporation (“MPAC”) took the position that the subject property was properly classified as a combination of “Conservation Lands” and “Residential” lands, but offered that the proper value to be assessed was $368,000.  The appellant landowner agreed with this proposed value.

It should be noted that while the ARB has authority to determine whether lands are “farm lands” for purposes of assessing the value of the lands, it does not have authority to classify lands as “farm lands”.  The General Regulation made under the Act says that, where the ARB has determined the value of “farm lands used only for farm purposes” but there is still a question as to whether the lands should be included in the “Farm property class”, the ARB must refer the question to the Agriculture, Food and Rural Affairs Appeal Tribunal.  So, in this particular appeal proceeding before the ARB, there was the odd circumstance of two parties who agreed on the number to be decided (the practical issue that the ARB did have authority to determine) but disagreed on how to get to the number.  

Although the ARB could not determine the property classification issue, it did proceed to determine that the appellant’s lands were “farm lands used only for farm purposes by the owner”.  The subject property was over 90 acres in size, with a one-storey single family detached residence built in 1981 and outbuildings including a barn and goat pen.  The appellant landowner testified that he used roughly 80 acres for farm activity, including some of the lands classified as “Conservation Lands”.  He cited activities such as: renting part of the property for horse grazing and boarding; gathering and processing maple sap from trees on the property; keeping laying hens and selling their eggs for cash; raising and harvesting goats; raising and harvesting cattle; clearing pasture land; adding new fences and gates; etc.

MPAC’s assessor testified that he saw four cattle, two goats and 40 chickens onsite when he visited the farm.  MPAC submitted that the appellant’s activities did not constitute a bona fide farm operation but only a small hobby farm.  However, the appellant’s evidence about his activities on the property was uncontested and the ARB accepted that, while the appellant’s operation was small, it was still farming: growing hay, using pasture to raise livestock; harvesting livestock; and, selling eggs.  The ARB rejected MPAC’s argument that the subject property was a “hobby farm” and could not qualify as “farm land used only for farm purposes”.  The ARB concluded:

“The Board finds that the term “hobby farm” is imprecise in this instance, and the exact parameters of what constitutes a “hobby farm” as compared to “farm land used only for farm purposes” is unclear in the evidence and submissions before the Board.  No single factor is determinative of whether a property is, or is not, farm lands used only for farm purposes.  Taking a purposive approach to interpreting s. 19(5), considering the entirety of the evidence, and weighing the factors … above, the Board finds that a portion of the Subject Property is farm lands used only for farm purposes within the meaning of s. 19(5) of the Act.”

Read the decision at: 2023 CanLII 39089 (ON ARB)

Assessing farmland value for property taxation - estimates alone aren't enough

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

The Municipal Property Assessment Corporation (“MPAC”) is tasked with assessing the value of land in Ontario for the purpose of municipal property taxation.  The Assessment Act, the legislation that governs the process, provides that the assessment of land is to be based on its current value.  Current value means, in relation to land, “the amount of money the fee simple, if unencumbered, would sell for in an arm’s length transaction between a willing seller and a willing buyer.”  Where an assessed owner disputes the valuation made by MPAC, the owner may appeal the assessment to the Assessment Review Board (“ARB”) and request that the assessed value be adjusted.  In an appeal to the ARB, MPAC has the burden to prove the correctness of its assessment of current value.

The ARB recently issued three appeal decisions involving three separate rural properties owned by the same owner.  One property was roughly 165 acres in size, classified as farmland without any buildings, and comprising about 129 acres of Class 6 farmland (rocky bush land and swamp/marsh land) and 36 acres of “Class 4 overgrown ‘pasture’ land”.  The second property was a 160-farm with outbuildings, comprising about 141 acres of Class 6 farmland (rocky bush land and swamp/marsh land), just under 8 acres of Class 4 “pasture”, and 11 acres of Class 2 farmland.  The third property measured just over 7 acres and was classified as a farm residence with farm outbuildings.  MPAC had assessed the value of the 165-acre parcel at $31,500 for the 2017 taxation year and $47,000 for the 2018 taxation year.  MPAC assessed the value of the 160-acre farm at $32,000 for 2017 and $54,000 for 2018.  The smaller farm residential parcel was valued at $148,000 for 2017 and $175,000 for 2018.

The owner of the three properties appealed the MPAC assessments in all three cases on the basis that the values were not representative of the “true, significantly lower, value that would be more appropriate”.  And, in all three cases, it appears that the owner did not put forward his own proposed current value for the lands; rather, he challenged the correctness of the MPAC valuations, which had resulted in significant increases in the assessed values over a span of only three years.  The owner did not believe the increased assessments were fair or supported by evidence.

In each appeal, evidence was given on behalf of MPAC by the Property Valuation Analyst who had reviewed the properties and determined the assessed value for MPAC.  In valuing farmland, MPAC uses the “cost approach”, which assesses the value of any improvements to the land, and then adds that value to the bare land value that is derived by comparing the land in question with other farms in the neighbourhood.  For the 165-acre and 160-acre parcels, MPAC had assigned specific per acre values to the Class 6 land, the Class 4 land, and the Class 2 land.  MPAC then checked those values by comparing the two parcels with other vacant and improved lands sold in the vicinity between 2008 and 2016 (parcels ranging in size from about 62 acres to 157 acres).  Historical sale prices were adjusted based on trends to provide current 2016 values for the comparison.

For the smaller farm residential parcel, MPAC also used the cost approach.  MPAC valued buildings on the property (a house and some outbuildings) at replacement cost, and then reduced those values for depreciation.  MPAC then added in values for bare land based again on specific per acre values for Class 4 and Class 6 farmland.  The resulting value for the property was checked for accuracy against the sales of four comparable properties in the neighbourhood – the same four comparables used in the assessment of the larger 165-acre and 160-acre parcels. 

Where MPAC’s assessment of current value is appealed, MPAC “must not only estimate a current value but must present evidence clarifying how that value was arrived at and why it is right.”  In all three appeals, the ARB came to the same conclusion about MPAC’s valuation – “there is no clear path from the four selected comparable farm properties and the value given the Subject Property.”  The ARB noted that: “There were different values given for different types of farmland, which is to be expected, but not when those values are inconsistent within the same soil classification without explanation.”  The ARB also noted, in connection with the farm residential parcel, that the comparable sales involved much larger properties.  MPAC had failed to prove on a balance of probabilities that its assessments of current value of the three properties were correct.

Where MPAC has failed to provide adequate evidence, the ARB is then to analyze the evidence provided by the owner to see whether it is capable of providing a particular current value.  However, as noted above, the appellant owner didn’t provide evidence that could support a specific value for any of his three properties.  Where neither party in an assessment appeal provides adequate evidence of current value, the ARB fixes the assessment at the last uncontested assessed value.  In these recent cases, the ARB applied the 2016 assessed values to taxation years 2017 and 2018.

Read the decisions at: Case 1, Case 2, Case 3.