Supreme Court of Canada
Regional Assessment Commisioner v. Caisse Populaire de Hearst, [1983] 1 S.C.R. 57
Date: 1983-02-08
The Regional Assessment Commissioner and the Municipal Clerk of the Corporation of the Town of Hearst (Plaintiffs) Appellants;
and
Caisse populaire de Hearst Limitée (Defendant) Respondent.
File No.: 16335.
1982: March 29; 1983: February 8.
Present: Laskin C.J. and Ritchie, McIntyre, Chouinard and Lamer JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.
Assessment—Business tax—Credit unions—Whether respondent carrying on business—“Preponderant purpose” test—Necessity to intent to make a profit—Whether respondent liable for business assessment—The Assessment Act, R.S.O. 1970, c. 32, s. 7(1)(b).
Respondent, a credit union, was assessed for business taxation under s. 7(1)(b) of The Assessment Act in respect of its use of the real property it occupies in connection with its operations. The assessment notice described the respondent as a banker. The assessment was confirmed by the Assessment Review Court but set aside by the District Court. Appellants’ appeals to the Divisional Court and the Court of Appeal failed. Hence this appeal.
Held: The appeal should be dismissed.
Respondent’s activities, which have many characteristics similar to those of banks and financial institutions, did not amount to carrying on business. Its preponderant purpose was to provide loans to its members for provident and productive purposes at low cost and not to make a profit. Consequently, respondent was not liable to be assessed under s. 7 of the Act.
Rideau Club v. City of Ottawa (1907), 15 O.L.R. 118; Re Clark and Town of Leamington (1917), 38 O.L.R. 405; Regina Elementary Flying School Ltd. v. Regina, [1944] 4 D.L.R. 589; Northern Saskatchewan Flying Training School v. Buckland, [1944] 1 D.L.R. 285; Re Psion, [1946] O.R. 229; City of London v. London Club Ltd., [1952] O.R. 177; Vancouver School Teachers Medical Services Association v. City of Vancouver and McQueen (1959), 21 D.L.R. (2d) 355; Ontario Motor League v. Metropolitan Toronto, [1961]
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O.R. 78; Physicians’ Services Inc. v. City of Sudbury, [1961] O.R. 683; Maple Leaf Services v. Townships of Essa and Petawawa, [1963] 1 O.R. 475; Re St. Mary’s Parish (Kitchener) Credit Union Ltd. and City of Kitchener, [1968] 2 O.R. 820; Smith v. Anderson (1880), 15 Ch. D. 247, applied; Re Windsor-Essex County Real Estate Board and City of Windsor (1974), 6 O.R. (2d) 21, overruled.
APPEAL from a judgment of the Court of Appeal for Ontario (1980), 29 O.R. (2d) 666, 116 D.L.R. (3d) 192, affirming a judgment of the Divisional Court (1979), 24 O.R. (2d) 636, 99 D.L.R. (3d) 540, affirming a decision of the District Court which declared respondent exempt from assessment. Appeal dismissed.
Bernard Chernos, Q.C., and J.P. Conway, for the appellants.
Pierre Genest, Q.C., and Robert J. Clayton, for the respondent.
The judgment of the Court was delivered by
MCINTYRE J.—This appeal involves the liability of the respondent, a credit union, for assessment under The Assessment Act of Ontario of land it occupies and uses in connection with its operations.
The respondent was incorporated under The Credit Union Act, 1940 (Ont.), c. 7, on March 17, 1944 under the name of Hearst Parish Credit Union Limited. Its name was changed on November 14, 1963 to Caisse Populaire de Hearst Limitée. Until May of 1971 membership in the respondent was limited by its By-laws to “Parishioners of the Parish of Hearst and of adjacent parishes where there exists no Caisse Populaire or Credit Union”. Since about 1962 it had treated the term ‘parish’ as defining an area roughly corresponding with the area it now serves and the word ‘parishioners’ as defining residents of that area. In May of 1971 its By‑laws were amended and membership was limited to:
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(a) persons who reside or are employed within the boundaries of the Town of Hearst, Town of Coppell, Town of Jogues and the adjoining Townships of Kendall, Way, Lowther, Hanlan, Casgrain, Devitt, Nassau, Stoddart, Studholme, and
(b) for deposit purposes only any unincorporated organizations and associations of such persons who become members of the Caisse Populaire.
The object of incorporation of the respondent is stated in para. 3 of the Memorandum of Association, executed on February 15, 1944, in these terms:
3. The subscribers hereto severally covenant and agree each with the other to become incorporated for the object or purpose of receiving moneys on deposit from members and as payment for shares and the making of loans to members with or without security for provident and productive purposes.
This is consistent with s. 4(1) of The Credit Unions Act, R.S.O. 1970, c. 96, which deems the objects of all credit unions to be:
(a) the receiving of moneys on deposit from members and as payment for shares;
(b) the making of loans to members with or without security for provident and productive purposes.
Membership in the respondent is obtained upon application and by the purchase of a share at a price of $5 and payment of an admission fee of 25¢. Applications for membership must be approved by the respondent’s directors and, according to the evidence of Lucien Piette, manager of the respondent, most applicants are known to the directors. Members have only one vote each regardless of their interest in the respondent. After a six-month’s waiting period they may apply for loans, which are all subject to approval by the credit committee both as to amount and purpose. The purpose of each loan is considered by the credit committee with respect to its moral and beneficial value to the community.
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The respondent operates essentially a savings and loans service for its membership. It receives deposits of funds from its members and maintains in respect thereof ‘ordinary deposit’ accounts against which cheques may be drawn, ‘true deposit’ accounts which have no chequing privileges, and ‘fixed term’ deposits. The interest rates paid on deposits vary but are, in general, comparable to rates obtainable from other financial concerns since it is, of course, the aim of the respondent to encourage deposits. The loans made to members have generally fallen into the category of consumer loans or mortgage loans. The evidence of Piette, however, was that the policy has been adopted to provide smaller loans to a greater number of members rather than larger loans to fewer members. To this end, mortgage loans have been stopped at some times in favour of personal loans. They are all repayable with interest. About 50 per cent of the respondent’s total assets and two-thirds of its monies on loan are in mortgage loans. The respondent endeavours to follow the interest rates charged in the market place in order to remain in a competitive position. All loans made by the respondent are life-insured to the extent of $2,000 at no cost to the borrower. Advertising by the respondent is limited to publication of a weekly notice in a church bulletin, a listing in the yellow pages of the telephone directory, and the printing of its name and the exhibiting of notices of its rates in the window of its premises.
The respondent appears to have operated successfully over the years. From 1970 to 1974 the population of the area served by the respondent grew from 6,433 to 6,840. In the same period the respondent’s membership rose from 1,990 to 3,044. Its annual growth rate was about 30 per cent; in the fiscal year of 1974 it was 34.19 per cent. In 1970 there were 529 borrowers. The number rose to 670 by 1974, having been as high as 737 in 1973. In 1974 the aggregate loans outstanding came to $3,086,075.47 and the respondent also had cash on hand of $161,783.25 and investments of $516,948.46. Other assets, including lands and
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buildings, amounted to $115,771.34. Deposits amounted to $3,056,587.55, and paid-up capital came to $438,165. Undivided earnings in 1974 before payment of dividends and interest rebates came to $132,907.96.
The net profits resulting from the respondent’s operations are applied as dividends to shareholders, rebates on outstanding loans regarded as patronage returns, purchase of assets, and creation of reserves and contributions to working capital. Between 1971 and 1974 dividends paid to shareholders varied between 7 and 10 per cent and rebates or patronage returns paid to borrowers reduced the cost of borrowing to members by from 0.5 to 2.0 per cent. The object of patronage returns paid to borrowers from the respondent is to reduce the interest rate payable in respect of loans where the interest rate charged by the respondent was higher than that charged during the year of payment. Patronage returns are payable only to borrowers who had paid a higher rate of interest than that charged by the respondent for the current year.
In December of 1974 the respondent was assessed for business taxation under s. 7(1)(b)of The Assessment Act, R.S.O. 1970, c. 32, as amended, in respect of its use of the real property known as parcel 7309 in the Register for the centre of Cochrane. Upon this land, which it owns, the respondent maintains its office and carries out its operations which have been described above. Section 7(1)(b) provides:
7.—(1) Irrespective of any assessment of land under this Act, every person occupying or using land for the purpose of, or in connection with, any business mentioned or described in this section, shall be assessed for a sum to be called “business assessment” to be computed by reference to the assessed value of the land so occupied or used by him as follows:
(a) …
(b) Every person carrying on the business of a wholesale merchant, brewer, insurance company, loan company, trust company, express company carrying on business on or in connection with a railway or steam-
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boats or other vessels, land company, loaning land corporation, bank, banker or any other financial business for a sum equal to 75 per cent of the assessed value.
The assessment notice described the respondent as a banker and fixed the business assessment at 75 per cent of the real property assessment. An appeal from the assessment was taken and was heard by the Assessment Review Court. The assessment was confirmed. The respondent then applied by Originating Notice under s. 66 of The Assessment Act for a declaration that the respondent is not liable to be so assessed under s. 7 of the Act on the grounds that it is not a business and, particularly, not a bank, and further, for a declaration that the Regional Assessment Commissioner did not have the power under the Act to change the assessment of the respondent’s property from residential to commercial in order to add the business assessment. The respondent succeeded in the District Court of Cochrane before Dupont Co. Ct. J. An appeal was taken to the Divisional Court which was dismissed, as was a further appeal to the Court of Appeal. The matter comes to this Court by leave granted December 15, 1980.
There are two questions raised in this appeal. The first and most significant is whether the respondent is carrying on a business as a “banker or any other financial business”. This question largely resolves itself into an inquiry as to whether the activities of the respondent, which admittedly have many characteristics similar to those of banks and financial institutions, amount to carrying on business. The second question, which requires no answer if the respondent succeeds on the first one, is whether the Assessment Commissioner had the right to change the assessment of the respondent’s land from ‘residential’ to ‘commercial’.
In the District Court it was held that the respondent was not, by virtue of its activities, carrying on a business. Dupont Co. Ct. J. said:
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Upon consideration of all evidence, bearing in mind the strictness with which taxing statutes are to be interpreted, I conclude that the main, dominant or preponderant purpose of the applicant credit union is to provide loans to members for provident and productive purposes, at a low cost, thus not a “business” or “financial business” within the meaning of the Assessment Act.
An appeal to the Divisional Court (1979), 24 O.R. (2d) 636 (Reid, Robins, Montgomery JJ.) was dismissed. Montgomery J., speaking for the court, said [at pp. 642-43]:
Notwithstanding the able argument of Mr. Chernos that the respondent has all the indicia of a successful business, I am not convinced that this Court should vary the conclusion of the trial Judge that the predominant purpose was to provide loans to its members at the lowest possible rate. It is true that some of the evidence disclosed that the manager was not aware of interest rates of local banks. His evidence, however, stood unchallenged that he relied on market rates. I am of the view, therefore, that there is evidence to support the learned trial Judge’s conclusion.
A further appeal to the Court of Appeal (1980), 29 O.R. (2d) 666 (Brooke, Lacourciere and Goodman JJ.A.) was dismissed with short oral reasons. The court considered that the trial judge had correctly appreciated the evidence in making his findings of fact, which were confirmed in the Divisional Court, and that he had correctly applied the proper principles in reaching a conclusion that the respondent was not at the material time carrying on a business, financial or otherwise, within the meaning of The Assessment Act.
Dupont Co. Ct. J., in dealing with this matter at trial, found as a fact that the main, dominant or preponderant purpose of the respondent was to provide loans to its members for provident and productive purposes at low cost, and not to make a profit. I agree with the Divisional Court and the Court of Appeal that this finding, having been based on evidence, should not be disturbed in this Court. Having made this finding of fact, Dupont
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Co. Ct. J. decided as a result that the respondent was not carrying on a business. In so doing he was applying what I will refer to as the ‘preponderant purpose’ test, and this course was approved in both appellate courts. If the preponderant purpose test is the correct one the appeal must fail. This is the position taken by the respondent. The appellant, however, contends that the test of preponderant purpose is not the correct test in law and, therefore, even in the face of findings of fact made at trial and supported in both appellate courts, the appeal must succeed.
The preponderant purpose test is based upon a determination of the purpose for which an activity is carried on. If the preponderant purpose is the making of a profit, then the activity may be classified as a business. However, if there is another preponderant purpose to which any profit earned is merely incidental, then it will not be classified as a business. This test seems to have its roots in the words of Jessel M.R. in Smith v. Anderson (1880), 15 Ch. D. 247. At page 258, in considering what meaning should be attributed to the word ‘business’ and after discussing various dictionary definitions, he said:
Then taking the last edition of the Imperial Dictionary, which is a very good dictionary, we find it a little more definite, but with a remark which is worth reading: ‘Business, employment; that which occupies the time and attention and labour of men for the purpose of profit or improvement.’ That is to say, anything which occupies the time and attention and labour of a man for the purpose of profit is business.
This test has been followed in Ontario and applied in cases where the incidence of assessment or taxation depended on the question of whether a certain activity was or was not a business. In Rideau Club v. City of Ottawa (1907), 15 O.L.R. 118 (C.A.), a social club which provided meals, liquor, and other services to its members, was held not to be carrying on the business of a club, as contemplated by the then Assessment Act of the Province of Ontario, by reason of the fact that its purpose was not the making of profit. A long line of authorities has spoken to the same effect: see Re Clark and Town of Leamington (1917), 38 O.L.R.
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405 (C.A.), unlicensed hotel held to be a business because carried on for profit; Regina Elementary Flying School Ltd. v. Regina, [1944] 4 D.L.R. 589 (Sask. C.A.), flying school operated for wartime training held not to be carrying on a business since under agreement precluding the making of profit; Northern Saskatchewan Flying Training School v. Buckland, [1944] 1 D.L.R. 285 (Sask. C.A.), flying school engaged in wartime training for the purpose of making a profit held to be carrying on a business (Smith v. Anderson and the Rideau Club case cited with approval); Re Pszon, [1946] O.R. 229 (C.A.), rental of house held not to be a business because not for the purpose of profit; City of London v. London Club Ltd., [1952] O.R. 177 (C.A.), social club held not to be a business because no intent to make a profit (the Rideau Club case followed); Vancouver School Teachers’ Medical Services Association v. City of Vancouver and McQueen (1959), 21 D.L.R. (2d) 355 (B.C.C.A.), non-profit society providing medical services and insurance benefits at cost held not to be a business because its activity was not carried on for profit (Smith v. Anderson applied); Ontario Motor League v. Metropolitan Toronto, [1961] O.R. 78 (H.C.), Ontario Motor League not a business because its operations were not carried on for profit (the Rideau Club and other cases cited above applied); Physicians’ Services Inc. v. City of Sudbury, [1961] O.R. 683 (H.C.), corporation not a business since operated on a non-profit basis (Ontario Motor League case applied).
There are other authorities which give effect to the preponderant purpose test, among which is Maple Leaf Services v. Townships of Essa and Petawawa, [1963] 1 O.R. 475 (C.A.). This case dealt with unusual facts which, in the words of Schroeder J.A., at p. 498: “...have no precise parallel in any authority to which we have been
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referred or which my own research has disclosed”. The respondent corporation, Maple Leaf Services, had been incorporated to provide various services, including the provision of stores, groceterias and other shopping services (including gasoline filling stations) to members of the armed services of Canada and their families and certain other associated groups upon Canadian military bases. It was specifically authorized to sell goods to those persons entitled to buy, both at wholesale or retail, thus it was clear that some degree of profit was contemplated. However, all profits were allocated, by agreement with the Chief of General Staff under whose general control the Maple Leaf Services operated, to the furnishing of welfare services to the members of the Canadian army and their families, and it was not within the power of the corporation to appropriate the profits for its own purposes. Schroeder J.A. pointed out, at p. 496:
The plaintiff corporation is not in business to make a profit. The reasons for its incorporation and the nature and character of its activities have been fully discussed earlier and I need not repeat them. It has, both by agreement and by by-law, divested itself of the power of disposal of the surplus of its receipts over disbursements.
At page 499, he went on to say:
The making of a profit on sales is therefore an incident which is subordinate to the dominant purpose for which the plaintiff company was created and has not, in my view, the effect of subjecting it to assessment and taxation under the provisions of s. 9. The authorization to sell goods at a profit to the members of the plaintiff corporation and others who can qualify to purchase the same is, in that view, not incompatible with the condition that the business shall be carried on without pecuniary gain to its members, since the use of profits or other accretions has been restricted in the manner hereinbefore stated in compliance with the stipulations of the charter. It is of more than passing interest to note that the Federal authorities have made no attempt to collect income tax from the plaintiff.
He had previously referred to the Rideau Club case, supra, as the basic authority as to the scope and application of s. 9 of The Assessment Act (which, for our purpose, is not materially different
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from the present s. 7) and reviewed the authorities on the subject, many of which are cited above.
The Maple Leaf case is indeed different on its facts and in many respects is a clearer case against a business assessment than the one at bar. Nevertheless, it provides strong authority for the proposition that even an openly conducted commercial venture in which the earning of a profit is clearly contemplated will not, by that fact alone, be classified as a business for assessment purposes where the intent to make a profit is not the preponderant purpose but merely incidental. It is strong authority for the application of the preponderant purpose test in answering the question before the Court.
Until 1963 when the Maple Leaf case was decided, the overwhelming weight of authority in the Province of Ontario followed the preponderant purpose test. It follows that, if that line of authority is still considered to be governing, this appeal must be dismissed in view of the findings of fact made in the other courts. Counsel for the appellants, however, resists that conclusion and argues that the Court should reject that approach and follow the reasoning of Evans J.A. (as he then was), writing for the Ontario Court of Appeal (Gale, C.J.O., Evans and Martin JJ.A.) in Re Windsor-Essex County Real Estate Board and City of Windsor (1974), 6 O.R. (2d) 21. In that case the real estate board was incorporated as a non-share capital corporation whose letters patent provided that the corporation was to be carried on “without the purpose of gain to its members”. The Board dealt with the arbitration of disputes between member real estate agents, arranged educational programs, considered and reported on legislation affecting the real estate business, and operated a multiple listing service which, in fact, made a profit and which no doubt was instrumental in making profit for the individual board members. The Board appealed an assessment under s. 7 of The Assessment Act for the year 1971 and succeeded in having it set aside on the basis that there was no intention on the part of the Board to
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make a profit. The fact that individual board members may have made a profit was considered to be irrelevant. The assessor’s appeal to the Divisional Court failed. On appeal to the Court of Appeal the issue was clearly stated by Evans J.A., at p. 23:
There is no dispute on the facts and the issue in the appeal is simply whether or not the Windsor-Essex County Real Estate Board is a person “occupying or using land for the purpose of or in connection with, any business…” within the meaning of the Assessment Act, R.S.O. 1970, c. 32, and therefore liable to be assessed for “a sum to be called ‘business assessment’ to be computed by reference to the assessed value of the land so occupied or used” by the board.
In addressing this question, Evans J.A. ruled that, while the Board had various objects which, if pursued by themselves, would not characterize the undertaking as a business in any commercial sense, the multiple listing service could by itself give the Board that character. At page 26, he said:
It therefore appears that a corporation can be assessed under the Assessment Act on the basis of one activity even though a number of activities are carried on. In determining what is the preponderating purpose it is necessary to look at all the activities of the corporation in the light of its purposes and if any activity is of a significant nature its very existence may of course affect the preponderating purpose gleaned from all of the activities.
At page 27, he said:
I think that one can therefore regard this service [the multiple listing operation] carried on by the board quite apart from the other activities which really do not materially influence the operation. Having concluded that the carrying on of the Multiple Listing operation, if a business within the meaning of the Assessment Act, will colour the whole character of the board’s operation, it is necessary to consider the criteria established in order to determine whether such an activity constitutes “carrying on business” under s. 7 of the Assessment Act for the purposes of business assessment.
I might observe here that thus far Evans J.A. seems to be applying the preponderant purpose
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test. If he is saying in the above-quoted passage that one activity of several may indicate the main or preponderant purpose or activity of the operation, I agree with him. However, he went on to say at p. 32:
In my view, the mere intention to make a profit or lack thereof should not be the sole test in determining whether a corporation or other person is liable for assessment under the Assessment Act. Although the cases following the decision of Maple Leaf Services have emphasized this factor, in my opinion the view expressed by Laidlaw, J.A., in the Maple Leaf Services case is one more appropriate to the facts of this case. [It may be noted here, however, that Laidlaw J.A. in the Maple Leaf case opened his judgment by expressing his full approval and concurrence with the reasons and conclusions of Schroeder J.A] He was of the view that “the mere fact that a corporate or other person does not intend to make a pecuniary profit from an undertaking does not necessarily determine the liability of such person to business assessment or tax”. It is quite possible for a business to be liable to assessment and taxation without any intention of making a profit and in my opinion the true test is whether in the light of all the circumstances surrounding the activity, such activity is a truly commercial activity. There is no doubt that an intention to make a profit will be a very important factor in determining whether an activity is a commercial activity but the lack of it does not automatically prevent it from being so characterized.
He thus promulgated a new test which, for want of a better description, I will describe as the ‘commercial activity’ test. He concluded, on the basis of this test, that the real estate board was carrying on a business and was accordingly liable to assessment for business tax under The Assessment Act.
The commercial activity test, as expressed by Evans J.A., requires a consideration and an evaluation of all factors in order to determine whether in reality the corporation is of a true commercial nature. He has also expressed the view that one activity of a commercial nature may colour the whole of the corporation’s operations and be sufficient, as in the Windsor‑Essex case, to classify it as a business. It would seem to me that on this last point he is really applying the preponderant purpose test, finding that one purpose may
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be sufficiently important to colour the whole. As I have indicated earlier, I do not reject such a suggestion but, if it is applied to determine whether an enterprise is of a commercial nature, difficulties will arise. Many community and charitable organizations, relying from time to time on what would be termed commercial activity to raise funds for the fulfilment of their objectives, could be classed as businesses by such a test. To attach primary importance to the commercial aspect of an operation in question will offer, in my opinion, no sure or helpful guide. In my view, the commercial activity test is too indefinite to allow consistent application. I agree that, in deciding whether or not any activity may be classed as a business under the provisions of s. 7(1)(b) of The Assessment Act, all relevant factors regarding an operation must be considered and weighed. However, they must be considered and weighed in order to determine not whether in some general sense the operation is of a commercial nature or has certain commercial attributes, but whether it has as its preponderant purpose the making of a profit. If it has, it is a business; if it has not, it is not a business.
It should be noted as well that in concluding his judgment in the Windsor-Essex case Evans J.A. suggested that credit unions might fall into a different category than other institutions in distinguishing the Ontario Court of Appeal decision in Re St. Mary’s Parish (Kitchener) Credit Union Ltd. and City of Kitchener, [1968] 2 O.R. 820. At page 33, he said:
This Court has held that a credit union, particularly the kind described in the St. Mary’s Parish case, is not a business within the meaning of the Act and I am unable to distinguish it other than to say that credit unions fall within the provisions of the Credit Unions Act, R.S.O. 1970, c. 96, and it may be that the objects of such a credit union outweigh or make the business that they are carrying on an incident secondary to the preponderant purpose.
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In my opinion, there is no need to make such a distinction. The test of whether or not an enterprise is carrying on a business is the same.
The preponderant purpose test has had wide—in fact almost complete—acceptance in Ontario and certain other provinces since the decision in the Rideau Club case. Essentially it has been based upon a consideration of whether the activity concerned is carried on for the purpose of earning a profit or for some other preponderant purpose. If the preponderant purpose was other than to make a profit, then even if there were other characteristics of the organization, including an intent in some cases to make a profit (see Maple Leaf case), it would not be classed as a business.
The Legislature must be presumed to have long been aware of the state of the law as declared in the line of authorities referred to above. As it has made no move to change it, I do not think the Court should. I would accept and apply the preponderant purpose test. In view of the findings of fact in the case at bar earlier mentioned that the preponderant purpose of the respondent is not to make a profit, I would dismiss the appeal with costs.
Appeal dismissed with costs.
Solicitors for the appellants: Feigman & Chernos, Toronto.
Solicitors for the respondent: Cassels, Brock, Toronto.
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