An inconvenient truth about woodlot taxes
by David Palmer
I always figured it was just a matter of time before the tax man knocked on the woodlot owner’s door. A CBC investigation into special tax deals and breaks – who gets them and why –was precipitated by a caller to a phone-in back in September who asked New Brunswick Premier Brian Gallant what he was going to do about those special property tax deals. Gallant’s response was that if there are inequitable arrangements, people should tell him about them, and the government will look into it.
No doubt the caller was thinking about the Canaport LNG tax deal, or some other sweet corporate tax arrangement. Surprisingly, it turns out that some of the biggest beneficiaries of tax breaks are farmers and woodlot owners. Since 1978, under a program known as FLIP (Farm Land Identification Program), farmers have had the opportunity to defer all farm property taxes for up to 15 years. If the farm is still operating after that time, the back taxes are forgiven for the first year the farm was registered in the program. The following year, if the farm is still in business, the taxes are forgiven for the second year, and so on.
In 2016, $7.1 million in tax revenue was deferred and an additional $4 million (from 2001) was forgiven. Of course, it’s not just regular farmers that have taken advantage of this tax avoidance scheme; giants like McCain’s have millions of dollars of farmland and buildings sheltered under this tax haven.
As for timberland, instead of the assessed value being based on market value, as it is with all other properties in the province, the value is established by legislation. Originally set at $25/acre in 1966, it crept up to $40/acre ($100/hectare) by 1993 and has been frozen ever since. According to the CBC report, because of the assessment freezes over the last 23 years, taxes on woodland are now less than half of what they were in 1966.
So if you’re a woodlot owner and you feel like you’ve been getting a great deal on your woodlot tax, you have. It’s not very often that the “little guy” gets a tax break, so you should remember to celebrate when tax time rolls around. But the big guys have benefitted as well. CBC estimated that Acadian Timber, whose 305,000 hectares of timberland is valued at $228 million, was assessed at $31 million – a tax saving of $600,000. J.D. Irving, Limited, with 728,000 hectares, would have saved more than twice that amount.
CBC talked to Doug Munn, the mayor of Upper Miramichi, who is also a woodlot owner. Property tax from timberland is the single largest source of revenue for that community, and in recent years there has been a funding shortfall, which had to be made up by transfers from the province. But Munn doesn’t think assessments or taxes should go up. “If you have a family that’s kept that piece of ground for 200 years and paid taxes on it – they heat their house, they sell a little stove wood, or whatever – it’s not really fair to tax them too much more,” he said. Well, maybe not, but if somebody is not paying their share, then somebody else is paying more than their share to cover it. How fair is that?
So who’s paying more than their share? All other property owners are paying more, but commercial business owners like restaurants are paying the most. Not far down the road from Upper Miramichi is the B&L Restaurant & Convenience in Doaktown. Owner Lottie Storey’s annual tax bill is $15,053, a total that she says is hard to come up with every year. Her tax bill works out to $4,238 per $100,000 market value. Compare that with the $2,985 an apartment owner in Bathurst is billed, the $1,595 a residential owner in Dieppe forks over, the $385 a farmer in Simonds ponies up, and the $164 a woodland owner in Blissfield pays. Where is the fairness or rationale in any of this? Commercial, apartment, residential, farm, and woodlot tax rates are all dramatically different.
Let me add a few of my own numbers. When we and our partners purchased the old M.L. Wilkins sawmill, a commercial property in Fredericton, for $2.2 million in 2008, it came with a land base of 143 acres and a tax bill of $142,000, based on an assessment of $4.1 million. That’s about $1,000/acre, compared to the $.40/acre that Acadian Timber pays. The assessment was later reduced to the purchase price of $2.2 million, which lowered the tax bill to about $85,000 a year. Still, it was a huge amount of money that we struggled to pay every year, and a significant factor in choking off the cash flow we needed to operate. Had the sawmill business been charged at the local residential rate, the bill would have been $31,700.
This issue of Atlantic Forestry features a group of woodlot owners who are being recognized for the great work they do. Some make a bit of money, but most do it out of love for their land. They stand in marked contrast to the woodlot owner who allows his land to remain fallow or unproductive. For the inactive woodlot owner, the tax bill is so inconsequential that there is little incentive to generate any revenue from the property to help offset the annual bill. No wood gets harvested, no trees get planted, no carbon storage gets accounted for, no management plan gets undertaken. So not only does the province lose the direct property tax revenue, but it also gives up any income on future activities that might be undertaken were the tax bill more realistic.
I used to sit around the table of the New Brunswick Federation of Woodlot Owners, and we would often discuss what measures could be taken to encourage woodlot owners to manage their woodlots. When anyone proposed a two-tier tax rate with lower rates for managed woodlots, as is the case in other jurisdictions like Maine or Ontario, the conversation would quickly fizzle as people were reminded of how low current tax rates are. In order to create an effective tax break for those who are managing their woodlots, the general rate would have to be jacked up significantly. Since the Federation represented all woodlot owners, taking such a position would have been suicidal for the organization.
Just for the sake of discussion, let’s speculate on what a more reasonable rate might be. Since rates are now half of what they were 50 years ago, a one-time doubling could easily be justified, but would that be enough to get people stirring, other than in the voting booth? Probably not – double again might do the trick. At $340/year for a 100-acre woodlot instead of the paltry $70, a person is going to at least want to know what they’ve got on their woodlot and how it can be put to work. Cutting as little as two or three cords of firewood a year would cover the taxes. Cutting a whole load of wood once a year in December, as so many woodlot owners used to do, buys Christmas presents for the family. Of course, the province would have to create the winning market conditions needed for the owner to sell that load of wood. Adopting the carbon management model being promoted by the smart young people who run Community Forests International could generate even more revenue. A hundred acres of growing woodland can salt away 50 tonnes of carbon a year. At $10/tonne – presto – the taxes are paid, with money left over to buy half a new chain saw. Already the economy is picking up.
(Disclosure: Writer David Palmer and his wife own a woodlot, a house in Fredericton, and a two-unit apartment.)