“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)

Beekeeping and Property Taxes – How many hives are enough?

AS PREVIOUSLY PUBLISHED IN THE RURAL VOICE:

Beekeeping, not bookkeeping.  The Assessment Review Board (“ARB”) recently issued a decision in which the number of beehives kept by a property owner was the deciding factor in denying him farm classification for his property.  The ARB agreed with the position taken by the Municipal Property Assessment Corporation (“MPAC”), the not-for-profit corporation mandated to classify and assess the value of land in Ontario for property tax purposes, that a property must have no fewer than 50 beehives to be assessed as “farm land” where beekeeping is relied upon as the relevant farming activity.

Land in Ontario can be used for farming purposes without being classified as farm land for property tax purposes.  The default classification for property is residential.  In the beekeeping case before the ARB, the property at issue consisted of 73 acres of land.  The owner contended that 1 acre, on which his residence was situated, should be left in the residential property class.  The remaining 72 acres, he argued, should be placed in the farm property class because he carried on a commercial beekeeping operation on the property.  In 2019, the tax year under appeal, the owner had kept 20 beehives.

The requirements for classification in the farm property class are set out in the General Regulation made under the Assessment Act (the “Act”), the legislation that governs property taxation in Ontario.  The Act does not define “farm land”, but one of the prescribed requirements is that Section 19(5) of the Act applies to the land.  Section 19(5) provides special rules for valuing “farm lands used only for farm purposes”.  The ARB has previously identified several factors to be considered in determining whether a property is “farm land” including: whether the land has physical characteristics of a farm; whether there is a farming operation being carried out by a bona fide farmer; the surrounding uses of the land; and the history of uses of the land. 

This was not the first time the ARB had been asked to find that beekeeping supported a classification of property as farm land.  In fact, as recently as 2020, the ARB had denied an appeal where the owner argued that the presence of two beehives made a one-hectare area on the property at issue “farm land”.  In that case, an expert witness testifying for MPAC explained that:

… land has to have “50 or more hives” before MPAC will assess it as a commercial bee keeping operation.  Keeping less than 50 hives is not considered a bona fide farming operation and is considered to be recreational or hobby farming.  He advised that the 50 bee hive limit is not arbitrary as it is consistent with the bee keeping industry, which includes the Ontario Beekeepers’ Association, the Canadian Association of Professional Apiculturists, the Canadian Honey Council and Ontario’s Ministry of Agriculture, Food and Rural Affairs and Agricorp.

The ARB acknowledged that keeping two beehives may well be a farming activity or purpose, but concluded that it only rises to the level of a “recreational or hobby farm”. 

In the more recent case, the appellant owner argued that both the ARB, in its 2020 decision, and MPAC, in its policy, focused on the wrong factor.  The relevant factor should not be the number of beehives kept, the owner argued, but gross farming income.  He submitted that the provincial laws governing the classification of farm land and regulation of farm businesses “state they are determined by meeting gross farming income requirements.”  In order to qualify as a farming business within the meaning of the Farm Registration and Farm Organizations Funding Act, a farm operation must have gross farming income of at least $7,000.  As the appellant owner’s beekeeping operation had grossed $7,500 in 2019, he argued that his operation was a bona fide farm operation that made his property “farm land”.

The ARB rejected this argument.  While gross farming income may be an essential factor in eligibility for registration of a farm business in Ontario, farm income alone is not the relevant measure of a farming operation for property tax classification purposes.  The ARB came back to the 50-beehive threshold, which it agreed was a rational and not an arbitrary dividing line for the purposes of property classification between a bona fide farming operation and farming activity only to the level of recreation or hobby farming.  The ARB referred to a 2017 decision of the Federal Court citing evidence that at least 50 beehives (colonies) are required to augment a person’s income significantly, elevating an operation beyond a hobby to a commercial enterprise. 

All was not lost for the appellant owner, though.  While he had only 20 beehives in the period relevant for the 2019 tax year, he had increased his hive count to at least 50 in the time period relevant for the 2020 tax year.  As such, MPAC agreed that a portion of the property was “farm land” in 2020, resulting in a reduction in the assessed value of the property by $46,000.  

Read the ARB decision at:  2021 CanLII 26724

 

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.

Farm Property Class for legal owners, not beneficial owners

The Ontario Divisional Court heard a "stated case" from the Agriculture, Food and Rural Affairs Appeal Tribunal (the "Tribunal") concerning the appeal of property tax assessments of various properties.  The applicants had appealed on the basis that they should have been assessed in the farm property class under Section 8(2) of Regulation 282/98.  The questions on the stated case to the Divisional Court boiled down to whether lands that are beneficially, but not legally, owned by Canadians, qualify for farm property class.  In general, a property is legally owned by the named registered owners of the property; other individuals or entities may hold unregistered equitable ownership interests in the property.  The Divisional Court concluded that the favourable tax treatment applies only to lands legally owned by Canadians.

The properties at issue in this case were purchased for commercial investment purposes by Walton International Group Inc.  They are currently being used for farming, but the long-term plan is to develop them for non-farming purposes. 

Read the decision at: Walton International v. Farm Property Class Tax Rate Program.

Alberta farm land tax assessment case sent back for re-hearing

Madam Justice J.M. Ross of the Alberta Court of Queen's Bench in Edmonton has allowed an appeal of a property tax assessment decision involving farm land.  She granted leave to appeal to the Applicant, Associated Developers (AD), from a 2010 decision of the Composite Assessment Review Board (CARB) assessing AD's land as industrial property rather than as farm land.  Justice Ross then heard the appeal, overturned the decision of the CARB and sent the case back to the Board for re-determination.

The Property in question, located in Edmonton, was assessed as industrial property at a value of $6,723,500 in the 2010 assessment year for the 2009 taxation year.  The relevant valuation period for the 2010 assessment was therefore 2009.  Had the Property been assessed as farm land, the assessed value would have been $863,000.   The Applicant complained to the CARB, asserting that the property should have been assessed as farm land.  The Applicant had filed with the CARB annual leases between AD and a farmer for the years 1999-2010.  The leases included terms that the lands would be used solely for agricultural purposes. 

The City of Edmonton (arguing for the industrial land assessment) argued that the crop of hay on the property had not been harvested in 2009.  The City's position was that if the crop was not cut, it could not be said to have been produced and, therefore, was not used for farming operations and could not be classified as farm land.  AD argued in response that the land could still be farm land even if not hayed in 2009, as there are many circumstances in which people leave land idle for a year for a variety of sound agricultural reasons.

Justice Ross allowed the appeal because the CARB failed to provide adequate reasons for its decision and failed to identify the appropriate legal tests in its reasons.  These were breaches of the principles of natural justice and the duty to be fair.  She cancelled the decision and sent the matter back to the CARB to be re-heard.

Read the decision at: Associated Developers Ltd. v. Edmonton (City).