Forest landowners pay a fraction of their property taxes and here's why

In 1983, the New Brunswick government decided it was time to move forest property assessments closer to market values after years of watching inflation eat away at revenue from forest properties.

A bill increasing assessments 67 per cent made it through the legislature and became law — for about a month.  

The reaction in the forestry community was intense, and five weeks later, Labour Minister Joe Mombourquette introduced a second bill to cut the month-old increase in half.

"It was an oversight by the printer, or somebody else," Mombourquette said of the 67 per cent increase as he introduced the measure to undo it.

"I hope that is a satisfactory answer."  

It was the last serious attempt by a New Brunswick government to move the assessed value of forestry properties anywhere near what they are really worth.

Commands a high price

On a winding highway through central New Brunswick between Fredericton and Miramichi, there is a sign on the side of the road just before Blackville announcing local property for sale.

By New Brunswick standards the land isn't cheap. 

But the property taxes on it are.

One parcel — a 101-hectare lot just north of Sunny Corner has been listed for $198,000. The property comes with 1,100 metres of water frontage on the Northwest Miramichi and Little Sevogle rivers.  

It also comes with a tax bill of just $167.  

"It's a beautiful spot," said Carl Faulkner, one of the owners of the property.

"You could have your own wildlife sanctuary."

Forestland treated differently

Timberland is one of the property categories that have received special tax treatment from the New Brunswick government for years, a CBC News investigation into special tax deals found.

Commercial properties in New Brunswick worth $198,000 often come with tax bills well over $9,000, but the land for sale near Sunny Corner is taxed at less than $200 because it isn't commercial property — it's classified as forest.

There is an enormous amount of wealth tied up in privately-owned timberland in New Brunswick — between $2 billion and $3 billion worth and most of that is sheltered from taxation.

A savings of $7M this year

The province has special property tax assessments on timberland that are designed to artificially lower the value of the land before taxes are applied.

And it's had a big effect.

Adjusted for inflation property tax bills on forest properties in New Brunswick are now less than half what they were in 1974, a discount that saved owners of timberland more than $7 million this year in local and provincial property taxes.  

Judged against commercial property taxes, however, the savings are much greater.

Faulkner is co owner of the Gray Rapids Timber Company, which has put a number of its forest properties up for sale. 

The tax bill is always featured as a selling point. In fact, Faulkner said it is one of the reasons he chose to invest in forest property in the first place.

• Property tax concessions have cost N.B. nearly $380M over 40 years
• New Brunswick tax breaks: Who gets what 
• Irving Oil's tank farm and the tax break that keeps on giving 

In New Brunswick, timberland is not subject to market value assessments like commercial, residential or agricultural properties. Instead, it is assigned an assessed value by legislation of $100 per hectare.

The $100 amount is pure fiction. It was established in 1993 and has been frozen at that level for 23 years even though forest properties in New Brunswick routinely sell for 10 times as much.

Last December, Gray Rapids Timber partly sold and partly donated 853 hectares along the Bartholomew River near Blackville to the Nature Conservancy of Canada.  

Low bills for JDI, Acadian Timber

The province assessed the land as being worth $85,300. The independent appraisal done for the Nature Conservancy before the purchase put its worth at $950,000.

Low assessments have only one effect — they produce low tax bills.

In 2006, J.D. Irving, Ltd. bought 90,000 hectares of New Brunswick forest and a Lac Baker sawmill from Bowater Mersey for $70 million.  

But because of the $100 assessment rule, the province valued and taxed the property before and after the sale as being worth $11 million.

Recent large forestland purchases show the gap between assessed value and market value 

Vancouver's Acadian Timber, the second-largest private landowner in New Brunswick after JDI, owns 308,000 hectares of forest, a mass that would cover 60 per cent of Prince Edward Island.  

In 2014, the investment firm Raymond James valued Acadian New Brunswick land to be worth $228 million. But for tax purposes the province assesses it for $31 million, or about $100 per hectare.

That assessment generates a significantly reduced annual property tax bill for Acadian Timber of about $600,000.

Tracey Steele, an Acadian Timber spokeswoman in Vancouver, said the company has nothing to say about its New Brunswick property taxes.

"We issue our financial statements and you are welcome to look in there," she said.

"Otherwise we don't have any comment further to that."

Helps landowners large and small

The low assessments produce huge tax discounts and not just for large landowners. Every privately-owned forest property in the province is assessed at the same legislated rate of $100 a hectare.

And that has given low timberland assessments and taxes significant political support.

Douglas Munn is one of thousands of people who own smaller tracts of forest property in New Brunswick. He's also the mayor of Upper Miramichi.

Property tax on timberland is the single largest source of revenue for Upper Miramichi and artificially low assessments on timberland mean the community requires significant equalization funding from the province, in addition to its own tax revenues, to finance its annual budget.

Worries about local residents

Property tax concessions: What you need to know

8 years ago

Duration 2:30

CBC New Brunswick's Robert Jones walks you through a CBC investigation that showed some $3.5 billion worth of property in New Brunswick enjoying some kind of special tax treatment and a tradition of concessions that cost the province an estimated $380 million, plus interest, over nearly four decades.But Munn is not in favour of increasing assessments or taxes on forest property because of the effect it would have on local residents who own timberland.

"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," Munn said.

It's a sensitive political issue as Momborquette found out in 1983.

• Hunting for tax bargains: How we answered the premier's call  

In the 33 years since, forest property assessments have only been raised once — to their current $100-per-hectare level — and that was by the politically secure government of Frank McKenna in 1993.

No one else has dared go near the issue.

The Lord, Graham and Alward governments all raised a number of taxes in their time, but each chose to leave forest assessments alone, frozen at where they were set in 1993.

So far, the Brian Gallant government has chosen to do the same.

Even though it did raise commercial property tax rates shortly after its 2014 election, it has avoided any increases in the forest.

Edited and packaged by Connie Camp

Video by Paul Hantiuk and Earl Cabuhat