Supreme Court dismissal confirms unpaid linear property tax claims in Alberta will remain unsecured

The Supreme Court of Canada (SCC) has dismissed the application of three Alberta municipalities seeking leave to appeal the decision of the Alberta Court of Appeal (Court of Appeal) in Northern Sunrise County v Virginia Hills Oil Corp, 2019 ABCA 61. The dismissal confirms that no special lien attaches to claims for unpaid linear property taxes¹ under Alberta’s Municipal Government Act (MGA).² As such, claims for linear property taxes remain unsecured claims under the Bankruptcy and Insolvency Act (BIA).³

What you need to know

• The SCC refused to reconsider the Court of Appeal’s decision that section 348(d)(i) of the MGA does not provide for a special lien on land for unpaid linear property taxes. The provincial legislature must clearly redraft this section to remove ambiguity if it is the legislature’s intention for a special lien to attach to claims for unpaid linear property taxes.
• The dismissal indicates that the issue of Albertan municipalities’ inability to collect unpaid linear property taxes is not an issue of national importance warranting the SCC’s intervention. Lost revenue arising from a municipality’s inability to take priority over secured claims for unpaid linear property taxes in insolvency proceedings appears to be a uniquely Albertan problem arising from Alberta’s municipal taxation scheme. By denying leave, the SCC has confirmed that the Court of Appeal’s interpretation of the MGA does not have obvious repercussions on the linear property taxation schemes of other provinces.
• Absent statutory reform, the SCC’s refusal to grant leave provides a definitive answer to secured lenders in Alberta that linear property tax arrears will not affect net-recovery of a secured claim in an insolvency proceeding.
• Inversely, this refusal confirms that municipalities’ claims for unpaid linear property taxes remain unsecured under the BIA. This will continue to greatly affect the income of municipalities that rely on linear property taxation for their tax assessment base.

Implications and what’s next

The burden is now shifted to the provincial legislature to grapple with the public policy repercussions of Albertan municipalities’ inability to take priority over secured claims in insolvency proceedings for unpaid linear property taxes. The SCC’s refusal to grant leave confirms that no court will intervene to grant a special lien on property in Alberta for unpaid linear property taxes unless legislation expressly and unambiguously provides for such a lien.

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¹ Linear property is defined under the MGA to include, among other things, electric power systems, street lighting systems, telecommunications systems and pipelines that do not include land of buildings.

² See Torys’ bulletin “Linear property tax claims are unsecured in Alberta”.

³ See Torys’ bulletin “Alberta clarifies status of linear property tax claims under Bankruptcy and Insolvency Act”.