Laval Technopole v. Agence du revenu du Québec, 2018 QCCQ 6352

The various appellants were companies that promoted commercial development, or cultural, sporting or tourist activities, in their respective municipalities. They were subject to a lower rate of Quebec health tax premiums if they constituted an employer with an establishment in Quebec provided that they were not an agent (“organisme mandataire”) of a Canadian municipality. They were not specifically designated in their letters patent as agents of their respective municipalities.

In finding that the appellants were such agents, Quenneville JCQ first referred to the common law function and control tests for determining crown agency (referencing “the nature and degree of control that the Crown exercises over the entity” (para. 58) ), and then stated (at paras. 165-168, TaxInterpretations translation):

To begin with, the municipalities themselves, with the exception of Longueil pour Sogerive et Agapac, confirmed that they controlled the entities.

In all cases, with the exception of CLLS, the majority of the members of their boards were named by the municipality or chosen from among a list proposed by the latter. In the case of CLLS, only two members of six of the board were named by the municipality, but it was it that named the president and vice-president.

It is important to emphasize that it is not actual control which must be considered, but rather the potential for the municipality to exercise such control. ...

The Councils of all the municipalities approved the financial statements, the budgets and the expenses of the entities. It was also the municipalities that financed a very large portion of the appellants’ activities. Furthermore, in all instances, their activities were integrated with those of the municipalities.

Various companies in Quebec whose function it was to promote commercial development, or cultural, sporting or tourist activities, in their respective municipalities, were found to be subject to a higher rate of employer health tax because they were an agent (“organisme mandataire”) of a Canadian municipality.

Notwithstanding that this was a Quebec case, Quenneville JCQ determined this question by essentially applying the common law function and control tests for determining crown agency (referencing “the nature and degree of control that the Crown exercises over the entity” (para. 58)). She noted that the municipalities themselves considered that they controlled the companies, in most cases a majority of the company’s board was named by the municipality or chosen from among a list proposed by the municipality, their budgets were approved by the municipal Councils, they received much of their financing from the municipalities and their activities were integrated with those of the municipalities. Quenneville JCQ stated (at para. 167, TaxInterpretations translation):

It is important to emphasize that it is not actual control which must be considered, but rather the potential for the municipality to exercise such control.

Various companies in Quebec whose function it was to promote commercial development, or cultural, sporting or tourist activities, in their respective municipalities, were found to be subject to a higher rate of employer health tax because they were an agent (“organisme mandataire”) of a Canadian municipality in light of the application to them of the common law function and control tests for determining crown agency (referencing “the nature and degree of control that the Crown exercises over the entity” (para. 58).