ground rent for provincial forest land in ontario

Ground Rent for Provincial Forest Land in OntarioAuthor(s): George C. WilkesSource: The Canadian Journal of Economics and Political Science / Revue canadienned'Economique et de Science politique, Vol. 22, No. 1 (Feb., 1956), pp. 63-72Published by: Wiley on behalf of Canadian Economics AssociationStable URL: http://www.jstor.org/stable/138269 .

Accessed: 15/06/2014 23:35

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

Wiley and Canadian Economics Association are collaborating with JSTOR to digitize, preserve and extendaccess to The Canadian Journal of Economics and Political Science / Revue canadienne d'Economique et deScience politique.

http://www.jstor.org

This content downloaded from 62.122.73.86 on Sun, 15 Jun 2014 23:35:15 PMAll use subject to JSTOR Terms and Conditions

http://www.jstor.org/action/showPublisher?publisherCode=black

http://www.jstor.org/action/showPublisher?publisherCode=cea

http://www.jstor.org/stable/138269?origin=JSTOR-pdf

http://www.jstor.org/page/info/about/policies/terms.jsp


GROUND RENT FOR PROVINCIAL FOREST LAND IN ONTARIO*

GEORGE C. WILKES Ottawa

GROUND rent for provincial forest land in Ontario, dating back as it does to the mid-nineteenth century, is among the earliest means whereby the provincial government has sought and obtained revenues from the forest. As this

charge on licensees of Crown timber-lands has been established for so long, it is pertinent to review its history and to record its place in the annual revenues

yielded by the province's forests over the past century. These annual forest revenues have in the past come chiefly from stumpage-

the price paid for timber cut on Crown lands. Forest revenues have also included, besides ground rent, bonuses paid by licensees in order to acquire their limits at auction from the iCrown, tolls for the use of certain timber slides built by the government, and small sums collected as penalties for

trespass and other infractions of the law. Slide tolls ceased to form a part of

provincial revenues after Confederation as they were then collected by the Dominion government. Today the province's revenue from the Department of Lands and Forests comes from a variety of sources. For comparison with the forest revenue of early days, forest revenue in this study is equated with the revenue of the Department's Division of Timber Management. This includes

stumpage-the chief component and now comprising Crown dues and the Crown evaluation and bonus payments-ground rent, fire tax, mill licence fees, certain payments for scalers, and sundry other small items. Provincial forest revenues do not include corporation taxes or taxes on logging income which a timber operator may have to pay.

I

History Prior to 1867 In the period preceding Confederation, the forests of both Upper and Lower

Canada were administered by the Commissioner of Crown Lands for the united Province of Canada. Questions and evidence before a Select Com- mittee of the Legislature of the Province of Canada appointed in 18491 provide the first indication that the government had considered charging ground rent in the licensing of timber-lands. This Select Committee was set up to investigate the state of the lumber trade and the cause of the depression then prevailing, the protection of the forests, and all other matters related to the lumber trade of the province. The evidence shows that the Committee members were

*The author wishes to acknowledge his indebtedness to the Ontario Department of Lands and Forests for helpful comments and suggestions. The views expressed in the article, however, are those of the author and do not necessarily reflect the views of either the Federal Forestry Branch with which he was connected when the article was written or the Ontario Department of Lands and Forests.

1Canada, Journals of the Legislative Assembly of the Province of Canada, 2nd Session, 3rd Provincial Parliament, vol. 8, App. 3, P.P.P.P. 1849.

63

Vol. XXII, no. 1, Feb., 1956



64 The Canadian Journal of Economics and Political Science

anxious about the existence of "monopoly"2 in licences on Crown lands. Wit- nesses suggested that monopoly, although certainly not extensive at that time

along the Ottawa River, could be readily avoided if the government were to

impose a ground rent to be paid annually by the licensee when he took out his licence or renewed it. It was also suggested that, in the event that a licensed area was not "occupied," the rental in the following year should be doubled and it should continue to be doubled each year that the timber limit remained "unoccupied."3 Witnesses believed that in addition to preventing local monopoly of limits this measure would also clarify occupancy requirements for licence renewals. Furthermore, if levied, it could provide an alter- native to the existing system whereby a licensee on taking out a licence had to make a deposit of one-quarter of the stumpage charge on the timber required to be cut under the licence. This deposit was considered to cause hardship which the substitution of ground rent would presumably alleviate. Ground rents proposed ranged from two shillings sixpence to five shillings per square mile.

The Select Committee did not take up the problem of revising the existing methods of disposing of timber licences until it made its second report, when it advised the government to adopt some of the revisions suggested by witnesses. These recommendations included levying a ground rent to be paid annually by the licensee and the abandonment of the system of deposits on account of stumpage.

One outcome of the Committee's reports was Parliament's adoption of "An Act for the Sale and Better Management of Timber upon the Public Lands" in 1849,4 an act which became the forerunner of Ontario's present Crown Timber Act. Although this early statute set forth for the first time in law the

procedures to be followed by the provincial authorities when licensing Crown timber-lands, it made no provision for charging a ground rent or for dis-

continuing the stumpage deposits. These steps were not taken until new timber

regulations were issued in August, 1851. Sections 7 and 8 of these new

regulations read as follows:

7th. Hereafter, on the issue of License to cut timber on Public Lands, a Ground Rent of Two Shillings and Sixpence for every superficial mile licensed, shall be exacted in addition to the established duties; and the deposit on account hitherto levied shall be discontinued. The Ground Rent shall be computed on the nearest approximation to the real areas of timber berths, but on no license shall it be less than One Pound currency; and no claim for reimbursement of ground rent over calculated shall be entertained after the issue of license.

8th. The ground rent to be exacted on the renewal of License shall be double

2Monopoly is here understood to occur in a local sense only. Apparently in this early period it was possible for an individual to acquire numerous timber licences in an area. This would reduce competition and permitted the speculative withholding of timber from current exploitation.

3Occupied limits were those from which sufficient timber had been cut and extracted to comply with the timber regulations. Unoccupied limits were those on which the minimum logging operations had not been carried on.

412 Vict., c. 30 (Can.)



that of the previous year if the berth has not been duly worked upon-increasing annually in that proportion while unoccupied, (excepting the year succeeding that in which the license has been first issued, if not in a surveyed township); reverting to the original rate on the berth being duly occupied; and the making of 500 feet of square timber or 100 saw logs per square mile shall be considered as due occupation.

A licensee failing to pay stumpage dues or ground rent as required forfeited his licence. However, no licence would be forfeited for non-occupancy alone if the licensee paid ground rent in accordance with the regulations. Mr. Thomas Southworth, in his history of Crown timber regulations in Ontario,5 points out that this measure had the support of the lumbermen, who believed that it was the best means of preventing any monopolization of unworked limits.

It is of interest to note that in 1852, the first year in which ground rents were charged, government receipts from ground rent amounted to ?7,656, more than 14 per cent of the total timber revenue of ?53,013.6

In 1855 an amendment to the regulations placed a maximum limit on the amount of ground rent which would be payable as a penalty: this limit was set at an amount equal to the minimum amount that the timber berth would produce in stumpage dues on square timber if the berth were duly occupied according to the regulations. The limitation did not imply, however, that the government could not raise rents or increase stumpage dues if future economic conditions respecting the lumber industry should warrant such action. This amendment also specifically guarded against a licensee's assuming that the payment of ground rent conveyed to him a vested right in the timber-lands, a right which would preclude the government from imposing new conditions of operation, or new rates of stumpage dues or ground rent.

The ensuing years saw ground rent become firmly established as a feature of the administration of Crown forests. The timber regulations of 1866 continued the policy established fifteen years earlier. Rental rates were not altered but were quoted in dollars and not in sterling: 50 cents per square mile with a minimum rent of $4 for any licence. The procedure of doubling the rent, if during the previous year the licensee had not occupied his limit, was continued. The maximum limit on rentals set forth in the 1855 amendment also remained. No timber berth was to be forfeited so long as the full ground rent with interest added was duly paid.

Table I shows the ground rents and total timber revenues of the government for the years 1856-67 (accounts of revenues from Crown lands were not published prior to 1856). No detailed information on ground rents actually collected is given in the annual reports of the Commissioner of Crown Lands for the Province of Canada: these reports only record the ground rent due or accruing to the province. Data on these accruals have been used as it was usually found that the amounts collected were close to the amounts due.

5Ontario, Annual Report of the Clerk of Forestry for the Province of Ontario, 1899 (Toronto, 1899), 29-139.

6Equivalent values were $30,624 for ground rent and $212,052 for total timber revenue at $4=?1, the conversion rate apparently used at that period.

Ground Rent 65




TABLE I TIMBER REVENUES FOR THE PROVINCE OF CANADA, 1856-67

Total Ground rent accruedt Total timber revenuef Percentage

Date* collected Dollars timber revenues

1856 $246,802 $45,895 18.6 1857 244,923 48,000? 19.6 1858 308,830 34,816 11.3 1859 309,486 45,063 14.6 1860 371,842 61,316 16.5 1861 299,804 43,838 14.6 1862 353,757 37,210 10.5 1863 468,463 62,787 13.4 1864 281,411 43,714 15.6 1865 409,003 34,765 8.5 1866 401,786 80,728 20.1 18671 115,721 21,821'* 18.8

*Fiscal year ending Dec. 31. Includes timber dues, bonuses, ground rents, and revenue from slides.

tCollections on ground rent account usually closely approximated accruals. ?Estimate only; by Commissioner of Crown Lands, 1857.

**Collections, not accruals. 1For six months.

History from 1867 to 1953

In this section ground rents pertaining to saw timber licences are discussed

separately from those pertaining to pulpwood leases because significant differ- ences developed in the administration of these two forms of tenure.

Saw timber licences. The British North America Act specifically states7 that all statutes and laws in force in the Province of Canada were to continue in force in Ontario and Quebec after Confederation unless altered or repealed by the federal government or by the provincial legislatures, depending upon which government was responsible for the matter in question. Ontario thus took over the administration of the province's timber-lands as established under the early forestry legislation passed in 1849, and the timber regulations sub-

sequently issued under it. The saw timber licences granted in 1849 gave the licensee the right to cut timber on the licensed area at such stumpage rates and subject to such conditions and regulations as were determined by the Governor in Council. Licences were for a period of one year only, but were renewable for a further term if the licensee had complied fully with the licence

regulations and had paid all charges for stumpage and ground rent. Licences could be cancelled for a licensee's failure to comply with the regulations. By virtue of his licence, a licensee obtained possession of the area in the timber limit as well as all rights of property in the timber which might be cut and for which he paid Crown dues.

The principal type of timber licence granted under the Crown Timber Act, 1952, is essentially the same as its predecessor one hundred years earlier. The

730 Vict., c. 3, s. 129.



licensee obtains possession of the limit area for the purpose of extracting timber covered by the licence; this may be one or more species only, or all species. He also obtains all property rights in the timber for which the Crown charges have been paid. The period of the licence is not specified under the present Act: it remains a matter of negotiation with the provincial authorities and is influenced by the forest management provisions now required of the licensee. Nevertheless, as a licence may be cancelled if payments of annual Crown

charges fall in arrears, there is, in effect, a yearly review of all licences. One may safely say that developments in the timber licence lie largely in the conditions and requirements which have been laid upon the licensee in order to

protect the public interest in the forests. Furthermore, the provincial Forest Service has become an effective force in promoting sound forestry practices and in ensuring that the licensee adheres to licence requirements.

Since ground rent was one of the Crown charges incorporated in licensing procedures at the time of Confederation, Ontario continued to levy it. At the same time, the provincial authorities proceeded to amend the regulations con-

cerning the charge. In April, 1869, new timber regulations were issued whereby the annual ground rent was raised to $2 per square mile, payable in advance before the issue or renewal of a licence. In addition, the regulations effected a reduction in the severity of the penalty provisions attached to ground rent. As pointed out above, ground rent had been doubled each year a timber berth was unoccupied, and a timber licence was forfeited if the licensee failed to

pay his ground rent. The new regulations dropped the procedure for doubling the rent, but retained the forfeiture provision. However, the latter was included

only as part of the general penalty imposed when a licensee defaulted on

payment of timber dues, survey costs, or ground rent. These changes in the regulations, it would seem, recognized that the original

"anti-monopoly" purpose for levying ground rent was no longer of importance and that the charge had become a sort of licensing fee whereby the government gained additional revenue from the timber operators. This was a period of intensive lumbering activity, and competition for timber limits was keen. As auctions were now the usual means of disposing of timber berths, lumbermen often had to pay the Crown considerable sums as a "bonus" over and above

stumpage dues in order to acquire a licence. These additional payments and the auction system served to encourage the active exploitation of the timber limits and reduced the significance of ground rent as a measure to prevent local monopoly.

The rate of $2 per square mile was maintained for 18 years, until 1887, when the government increased it to $3. This new rate in turn remained in force for 23 years, until 1910, when the authorities raised the rate to $5 per square mile.8 The practice pf keeping ground rent at a stable rate seems to have proven satisfactory, for the $5 rate remained effective for saw timber licences and timber agreements until April, 1953, a period of 43 years. At this time the new rate of $1 per square mile under the Crown Timber Act, 1952, came into force.

8st is reported that when certain limits north of Sudbury were licensed in 1903 ground rent was set at $5 per square mile, but this appears to have been an isolated occurrence.

Ground Rent 67




It has been suggested9 that the introduction of the provincial fire tax of $6.40 per square mile on saw timber licences in 1917 eliminated any necessity to increase ground rent as a source of additional revenue. The fire tax was extended to pulp concessions in 1936 and subsequently increased to $12.80 per square mile in 1948. It was levied in order that part of the costs incurred

by the province in protecting Crown forests would be defrayed by the timber operators. Although levied on the same basis of area as ground rent, this charge has always been recognized as a tax distinct from ground rent.

Pulpwood agreements. In Ontario the pulp and paper industry had become well established before the end of the nineteenth century. In order to en-

courage further development of this industry by assuring it sufficient supplies of timber, the government amended the Crown Timber Act in 1896 to

permit, by means of pulpwood agreements, the leasing of pulpwood concessions for a period of 21 years, an agreement being renewable for a further

period of the same duration.

By these agreements, pulpwood operators obtained rights, similar to those of the timber licensee, to possession of the lands in the pulpwood concession and to property rights in the pulpwood on the area. In addition to paying Crown charges for the pulpwood, the operator, as his part of the agreement, usually undertook to construct within a given period of time a pulp mill in

conjunction with the concession area. Pulpwood agreements under the Crown Timber Act, 1952, are granted in accordance with the same general provisions which now govern the issue of saw timber licences. Distinctions between the two types of lease have been eliminated. Continuance of a pulpwood agreement depends upon the lessee's complying with all conditions and requirements and on payment of Crown charges.

Although it was regular practice to charge timber operators ground rent in 1896 when pulpwood agreements were introduced, pulpwood lessees were

generally exempt from this levy where the pulpwood from the concession was cut for use in Canada. This policy was followed until around 1945, after which

many of the new pulpwood leases contained clauses requiring payment of

ground rent at $5 per square mile on one-tenth of the concession area, or at the rate of 50 cents per square mile for the whole area.

The export of pulpwood from the province came under the government's general prohibition on the export of unprocessed wood, passed in 1898. Never-

theless, in 1929 this regulation was relaxed to permit the export of poplar pulpwood, because extensive poplar stands existed for which there was little market in Canada. In 1935 the provincial authorities again amended the timber regulations to permit the export of pulpwood in considerably greater volume than before in order to ease the urgent unemployment situation which

persisted at the time. These new regulations required all lessees to pay ground rent at the prevailing rate of $5 per square mile if they exported pulpwood cut from their pulpwood concessions. This ground rent charge was thus, in effect, a form of export tax.

The export regulations were amended in 1945 to provide that the terms, conditions, rates, export charges, and period of export of pulpwood for each

9In correspondence with the Ontario Department of Lands and Forests.



operation would be determined by the Minister of Lands and Forests subject to the approval of the Lieutenant-Governor in Council. In 1948 export quotas for spruce, balsam, and jack pine were established so that exports could be

progressively reduced over periods of 5 or 10 years, and, on expiration of the quotas, exports would cease. Ground rent was charged on account of export pulpwood at a rate of $5 per square mile on a proportion of the area of the limit equal to the proportion which export pulpwood bore to the total amount cut from the limit in any given year.

Probably the best summary of the situation with respect to pulpwood agreements is found in the report of the Ontario Royal Commission on

Forestry in 1947 in which the iCommissioner describes the then current procedures as follows:

Ground rent on areas covered by agreements is levied at widely varying rates. It may be said, however, that the basic formula for fixing rates is that pulpwood con- sumed in Canada incurs no charge for ground rent, while pulpwood exported incurs a charge equivalent to $5.00 per square mile on that proportion of the limit area which the amount of wood exported bears to the total amount taken from the limit in any given year. There are many exceptions to this general rule, however, the most important one being the charging of ground rent at approximately 50 cents per square mile per year to those Canadian manufacturers of pulp and paper who have the right to cut all classes of timber on their limit.10

This policy appears to have prevailed until the Crown Timber Act, 1952, was

passed and came into force.

History for 1953 and Subsequent Years

On April 1, 1953, the Crown Timber Act, 1952, came into force, supple- mented by new timber regulations. Although timber licences and agreements made under the former Crown Timber Acts remained valid, they were subject to the new Act and its regulations. Accordingly, some former distinctions between the different tenures were done away with. Holders of all forms of licence or agreement pay ground rent under the new Act. However, the Act now states that ground rent shall not be payable in respect of unproductive areas within the timber limits. The amount of ground rent under the new

regulations has been set at $1 annually for each square mile of all the pro- ductive lands in the licensed area. This charge is payable in advance before a licence is issued and subsequently on May 1 of each year. Outstanding obligations bear interest at 6 per cent per annum after June 1 of each year. Where an account for ground rent remains unpaid on March 31, a year following the date when it became payable, the licence concerned is forfeited.

It is interesting to note the changes in the legislation dealing with the

rights of a licensee. Under former Crown Timber Acts, the licensee's rights to the soil were limited to the use of the ground for extraction of existing stands of timber. He could not use the soil to produce successive stands of timber for his own benefit. Thus, as a tenant paying a ground rent, he appears to have been in a class quite apart from other tenants of land, such as tenant

10Ontario, Report of the Ontario Royal Commission of Forestry, 1947 (Toronto, 1947), 52. (Author's italics.)

Ground Rent 69




farmers, who usually may utilize all the products which they can produce from rented land.

Under the new Act of 1952, a licensee still does not obtain any right to the soil or freehold of the licensed area.11 However, he obtains possession to the extent necessary for the cutting and removal of the timber on the land, and for the "management" of the area. As "management" of a forest area in accordance with the Act usually envisages the long-term production of timber in keeping with good forestry principles, this last phrase seems to be rather

ambiguous as to what right or possession it does confer. Just how much wider the licensee's rights may be under this new legislation than under the old will

probably be determined having regard for other sections in the Act12 and the administrative procedures developed under them.

II

Ground Rent in Provincial Timber Revenues Prior to 1867 ground rent was a factor of some significance in provincial

timber revenues. Rental revenues averaged around 15 per cent of the province's

FIGURE 1

GROUND RENT REVENUES OF ONTARIO

PROVINCE OF CANADA (INC. UPPER AND LOWER CANADA)

160 _ PROVINCE OF ONTARIO 10 YEAR MOVING AVERAGE

NOTE - DATA BEFORE 1881 GROUND RENT ACCRUALS.

DATA FOR 1881 AND SUCCEEDING YEARS, 140 - GROUND RENT COLLECTIONS.

L 1

.J 0 120

La_

0 0

80

20

20'

1856 1866 1876 1886 1896 1906 1916

YEAR

I1l Eliz. II, c. 15, s. 8. 12Ibid., ss. 22 to 29, particularly ss. 22, 23, and 24.

1926 1936 1946 1956



annual income from the forests. Since Confederation, receipts from stumpage have increased in importance while ground rent returns have declined as a

percentage of timber revenues although actual returns have also risen over the

years. Figure 1 illustrates the progress of ground rent revenues from 1856, when statistics were first published, to 1953. The period 1856 to 1866 shows annual accruals for the Province of Canada, and the period 1868 to 1880 shows similar data for the Province of Ontario. Ground rents actually collected are not shown for these years because such data were not published until 1881.

Figure 2 illustrates the declining trend of ground rent as a percentage of timber revenues.

These data indicate that, although considerable significance was attached to ground rent by our early legislators and timber operators, this charge has never played a major role in provincial revenues. And the change in its character since its inception in 1851 as a deterrent to the growth of local

monopolies and the holding of timber stands in anticipation of favourable timber price changes suggests that today it has become little more than a token tax. Certainly the ground rent revenues collected, which averaged $117

22

12 w

ItI 0.10

YEAR

Ground Rent 71




thousand annually in the ten years 1944-53, can have had little significance in provincial finance in a period when ordinary revenues of the province annually averaged almost $206 million. Ordinary revenues for the year 1952-3 reached the record value of $349,500 thousand; ground rents amounted to $123 thousand. The use of ground rent in effect as an export tax on exported pulpwood prior to 1953 also lends strength to the argument that the charge is

today regarded as a tax and not as a "rent."

Unfortunately ground rent returns have not yet been published for the year 1953-4 so that there is no indication yet what effect the new rental charge under the Crown Timber Act, 1952, will have on revenues from this source. However, as the new charge is of but a nominal amount, one may conclude that, for the present, ground rent will continue to be a levy insignificant in government revenues.

This review of the history of ground rent in Ontario indicates that the charge can hardly be called a "rent" in the true meaning of the word, that is, an amount which is paid for the use of land and which to a greater or less degree represents the return to the land as a factor in the production process. The term "ground rent" is a misnomer and it is interesting that this mistaken nomenclature for a ground tax has persisted so long.



ground rent for provincial forest land in ontario

Documents