Can municipal property taxes be vested out?
In January 2019, the Receiver was appointed in relation to a property located in the Township of Augusta, which was then owned by 190 Ontario. The property consists of 27 acres, including event space, apartment townhouses, a boutique, storage space, meeting space, a chapel, etc. The Township received notice of the Receivership Application and did not oppose it.
The Township is a municipal corporation and has a duty to collect property taxes from property owners in its municipality. The Municipal Property Assessment Corporation has exclusive jurisdiction in Ontario to assess property for the purpose of realty tax. In September 2019, the property was sold to 121 BC by way of a sale conducted by the Receiver in accordance with an Approval and Vesting Order. Prior to closing the sale, the Receiver obtained a Tax Certificate from the Township. The Tax Certificate disclosed that taxes of $5,464.24 were due and owing on September 30, 2019. The Receiver paid the adjusted and outstanding taxes on closing.
On November 25, 2019, the Township issued a Supplemental Tax Notice to 121 BC in, which it purported to impose $159,568.76 in Supplemental Taxes on the property retroactive to January 1, 2017. In September 2020, the Township sent a further Tax Notice to 121 BC seeking $312,079.76 in tax arrears, which included the Supplemental Taxes. On December 15, 2021, the Township filed a proof of claim against 190 Ontario in the receivership, claiming the sum of $216,899.78 plus interests and costs.
The Receiver sought advice and directions with respect to a proof of claim filed by the Township. 190 Ontario argued that it did not owe any of the taxes, as it settled all issues related to the classification and value for the 2017, 2018 and 2019 tax years by way of Minutes of Settlement, which were binding on MPAC and the Township. 121 BC argued that any Supplemental Taxes claimed by the Township were vested out as a result of the terms of the Vesting Order, specifically those provisions in the AVO which vested the Property in 121 BC as purchasers “free and clear of all levies and charges”.
The Court found that MPAC and 190 settled the issue of both classification and assessed value by way of signed Minutes of Settlement. This resulted in an Amended Assessment Notice for 2017, 2018 and 2019. The Township took no steps to appeal either the Settlement or the Amended Notice of Assessment despite being aware of both. 190 Ontario paid its taxes in accordance with the Amended Notice of Assessment post-settlement and no further Notice of Assessment was issued to 190 while it was the owner of the property.
The Vesting Order provided that claims by creditors are “vested out”, including government creditors. While the Vesting Order did not expressly use the term “taxes”, the Court held that it was not necessary to do so. First, taxes were adjusted on closing such that there were no taxes owing once the sale transaction took place. Second, the word “levies” is used by MPAC and the Township to describe different types of taxes, i.e. “municipal” levies and “education” levies.
The necessity for a vesting order in the receivership context is apparent. A receiver selling assets does not hold title to the assets and a receivership does not effect a transfer or vesting of title in the receiver. The vesting order is a document to show to third parties as evidence that the purported conveyance of title by the receiver is legally valid and effective. It provides for the conveyance of title and also serves to extinguish encumbrances on title in order to facilitate the sale of assets. Purchasers in the context of receiverships must be able to rely on vesting orders, or the modern insolvency regime would crumble.
Tax Certificates issued by the Township were binding and may be relied upon. Accordingly, the Township could not pursue a claim against 121 BC as the taxes were either vested out on the purchase of the property, or 121 BC was entitled to rely on the Tax Certificate issued to it in September 2020 by the Township.
Judge: Justice Gilmore
Counsel: Philip Cho, Jeff Cowan and Agatha Wong of WeirFoulds for the Township of Augusta; Catherine Francis of Minden Gross for the Respondent 1902408 Ontario Ltd.; and Ryan Flewelling of DS Avocats for 1217858 B.C. Ltd.
By Matilda Lici