It may sound complicated, but there’s no need to panic. The expression "in lieu" is actually French for the word "instead." So a payment in lieu of taxes, or PILT, is a payment you make instead of paying taxes.
In Canada, the federal government is the principal maker of PILTs. Essentially, the federal government is constitutionally exempt from paying property taxes on the various buildings it owns in municipalities across the country. This rule goes all the way back to when Canada was part of the British empire and the King, or Queen, was exempt from paying any kind of taxes.
However, nowadays, the government recognizes that its buildings benefit from municipal services such as water, roads and garbage removal even though they do not pay taxes. PILTs are a means for the government to compensate the municipalities for these services without changing the constitution or giving up its overall exemption. PILTs are meant to help municipalities but also local businesses who would have to pay extra if the government didn’t shoulder its fair part of the load.
In practice, it is the municipality’s job to apply for a PILT, directly to the Crown corporation (Canada Post, VIA Rail, etc,) that occupies its territory to receive the payment. The taxes that can be replaced by PILTs include real property taxes, frontage or area taxes, business occupancy taxes and service charges.
For cities, counties, villages and other local authorities that host federal buildings, PILTS can be a significant source of income. If you are involved with any of these administrations, look into how PILTs are being treated, and make sure to maximize your return.