Alberta clarifies status of linear property tax claims under Bankruptcy and Insolvency Act

In an Application before the Alberta Court of Queen's Bench (the Court) on June 20, 2017, the Court provided clarity on the priority and status under the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA) of claims for taxes in respect of linear property (linear property taxes) from certain municipalities in Alberta, agreeing with the applicant that these claims are unsecured.1

What you need to know

  • The Court of Queen's Bench held that the Municipal Government Act, RSA 2000, c M-26 (MGA), which grants municipalities the power to levy linear property taxes in Alberta, may provide a special lien for tax arrears for taxes relating to a parcel of land. However, the MGA does not provide the same lien or any security for unpaid linear property taxes that would readily grant municipalities secured status under the BIA.
  • The Court declared that the claims did not form secured claims against the property of the debtors or property that the Receiver had sold to a purchaser under an E&P contract. The Court also declared that the municipalities had no further claims or remedies against the property sold to the purchaser, the purchaser itself, or the funds held by the Receiver from the sale of the debtor's property.
  • This has negative implications for municipalities and positive implications for future purchasers of oil and gas assets in Alberta.

Linear property taxes in Alberta

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 or buildings. Linear property taxes are levied on a specific "assessed person" and are based on an "assessed value" of the property being taxed. However, since linear property often crosses municipal boundaries, the Province designates an assessor and sends out assessment notices to each assessed person, who is, as defined under the MGA, an operator of the linear property. The municipalities then levy linear property taxes as tax on "non-residential" property in its tax roll.

Recovery scheme under MGA

The MGA provides that a municipality may recover taxes not related to land through (i) the seizure process prescribed in sections 440 and 441 of the MGA, or (ii) a civil action against the debtor. The seizure process is limited to the seizure of "sufficient goods" of the operator and does not provide a recovery process where a notification can be registered against land, or where land can be seized and sold to collect the arrears - a process available to municipalities to recover taxes related to land.

The MGA provides a general provision in section 348(d)(i) relating to taxes due to a municipality that affords a special lien "on land and any improvements to the land, if the tax is a property tax, a community revitalization levy, a special tax, a local improvement tax or a community aggregate payment levy." Until now, the courts in Alberta have not addressed whether this section creates a special lien for linear property tax arrears.

The application on June 20, 2017

The court-appointed Receiver and Manager (the Receiver, in this case, was Alvarez & Marsal Canada Inc.) of the assets, undertakings and property of two oil and gas companies in Alberta, Virginia Hills Oil Corp. and Dolomite Energy Inc. (the Debtors), brought an Application, heard by Justice Yamauchi, seeking clarity on the priority and status of claims made by certain Alberta municipalities for linear property tax arrears.

In the main, the Receiver argued that there is a clear delineation in the MGA between taxes related to land (e.g., property taxes) and those not related to land (e.g., linear property taxes) which informs the interpretation of section 348(d)(i) of the MGA. While this provision may provide a special lien for property tax arrears, the Receiver argued it does not provide the same lien or any security for unpaid linear property taxes when the MGA is considered as a whole.

If the Court had found that the MGA did provide a special lien against the linear property, the Receiver argued in the alternative that the municipalities were agents of the Crown by virtue of the municipalities performing mandatory duties for the Province under the MGA related to levying linear property taxes. This would then make the special lien under the MGA a "statutory Crown security" and be rendered invalid under section 87 of the BIA, unless this security was "registered under a prescribed system of registration before the date of the initial bankruptcy event." The municipalities owed linear property taxes from the Debtors provided no evidence that such registration had taken place.

The Receiver provided a further alternative argument in the event its first two arguments failed. It argued that any security provided under the MGA could not be enforced and was of no value. While the MGA provides that municipalities can seize and sell the property of the operator of the linear property pursuant to a distress warrant process, the Receiver argued that section 73(4) of the BIA prevented such a process once a debtor had been assigned into bankruptcy. Therefore, the municipalities would have been unable to enforce their special lien once bankruptcy had commenced and therefore would have no secured claims or security to value under the BIA.

Justice Yamauchi accepted the Receiver's arguments and granted the Receiver's proposed order declaring that the claims of the municipalities were unsecured under the BIA, that the claims did not form secured claims against the Debtors' property or property that the Receiver had sold to a purchaser. The Court also declared that the municipalities had no further claims or remedies against the property sold to the purchaser or the funds held by the Receiver from the sale of the Debtors' property.


Justice Yamauchi's order provides clarity that municipalities are unsecured creditors under bankruptcy proceedings when it comes to claims for linear property taxes. He also declared that the municipalities could not go after a purchaser of the Debtors' oil and gas assets, which provided a good precedent for potential purchasers of such assets in Alberta.

Given Justice Yamauchi's order, the municipalities' only recourse is to lobby for legislative amendments to the MGA and/or BIA to include a broader recovery process and/or provide a security that gives the municipalities secured status for these claims. In this regard, the Alberta Association of Municipal Districts and Counties (AAMDC) filed a resolution with the Government of Alberta in Spring of 2016 requesting the government to amend the MGA to broaden the tax recovery power of municipalities to collect linear property taxes.2 In the same resolution, the AAMDC also requested that the Government of Canada amend the federal BIA to recognize linear property taxes and other municipal non-property taxes as a secured interest in priority to other unsecured interests.

In response to this resolution filed by the AAMDC, Alberta Municipal Affairs has convened an inter-ministry working group consisting of representatives from Municipal Affairs, Energy, Treasury Board and Finance, Education and the Alberta Energy Regulator. The working group is exploring how the suite of tools available to municipalities to recover unpaid linear property taxes could be expanded, as well as possible legislative or regulatory solutions to exempt municipalities from paying provincial education property tax requisitions that form part of the linear property tax levied. Currently, the resolution is assigned a status of "Accepted in Principle" and is to be revisited as the working group progresses.


1 A copy of the Order from the Court can be accessed online at:

2 A copy of the AAMDC resolution can be accessed online at:

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This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

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