1037618 Ontario Inc. v. Thunder Bay (City), [1998] 3 CTC 103

Kozak O.C.J.:

This is an application brought on behalf of 1037618 Ontario Inc., pursuant to Section 6 of the Municipal Tax Sales Act, R.S.O. 1990 c. M.60, for an accounting by this Court so as to ascertain the proper calculation of interest and penalties, to be added and collected as taxes owing to the respondent with respect to the property described as Pool 6, in the City of Thunder Bay.

On February 5, 1998, this Court assumed the jurisidction to hear this application, and in delivering its Reasons for so doing, the Court set out the terms and conditions that the applicant was required to meet in order to satisfy the jurisdictional requirements of Section 6(1) of the Municipal Tax Sales Act. The order of the Court was settled by the parties on February 19, 1998, as a result of a consent order on that date. Accordingly, the jurisdictional issue has been resolved.

Factual Background

The facts are not in dispute and are as follows:

The applicant is the owner of property in the City of Thunder Bay, which is referred to as Pool 6. It can be noted that this is a significant piece of waterfront property which was formerly owned by the Saskatchewan Wheat Pool.

Since its acquisition of the property in 1994, the applicant has paid no municipal taxes whatsoever to the respondent corporation for the years 1994, 1995, 1996 and 1997. Instead, the applicant pursued tax assessment appeals which resulted in a reduction of the taxes assessed, by a factor of six, by an order of the Ontario Municipal Board.

As a result of the revised assessment of taxes by the Ontario Municipal Board, and there being no further appeals pending by the respondent, the clerk of the respondent revised the rolls with respect to the principal amount of taxes assessed, but did not amend the amount claimed on account of penalties and interest, and continued to calculate interest and penalties based upon the unreduced assessment amounts.

There is no dispute between the applicant and the respondent with respect to the principal amount of taxes properly due and owing for the relevant period of assessment.

In its calculation of the cancellation fee, the respondent utilized the revised assessment as determined by the Assessment Review Board, and the Ontario Municipal Board, but applied the interest and penalty provisions to the unrevised assessment of taxes and, in so doing, arrived at a cancellation fee of $667,050.63. The applicant, in applying the interest and penalty provisions to the revised assessment of taxes, calculates the cancellation fee to be $445,141.31.

The Position of the Parties

Counsel for the applicant contends that following a revision of the original assessment by the Ontario Municipal Board, that the clerk of the respondent municipal corporation is required to amend the tax rolls in accordance with the final decision on assessment, and that this revised assessment stands in place of the original assessment. Accordingly, it is submitted that the interest and penalty provisions should only be applied on taxes that have been found to be properly owing. In this regard, counsel for the applicant rely upon the combined effect of Section 37(6) of the Assessment Act, R.S.O. 1990 c. A.31, and Section 390 of the Municipal Act, R.S.O. 1990, c. M.45.

Counsel for the respondent takes the position that the Municipal Act, the Assessment Act, the Municipal Tax Sales Act, the Municipal Interest and Discount Rates Act, Interim and Final Tax Bylaws of the City, and penalty, interest and overpayment bylaws of the City constitute a complete code, and contain a comprehensive scheme for the assessment, payment and collection of taxes, including interest and penalties. In essence, it is submitted that this code or scheme is time limit driven, from the date that an assessor makes an assessment to the date that a property is sold for non-payment of municipal taxes and that prompt payment is mandated on specific due dates, with the imposition of penalties and interest should the payments not be made when due. Penalties are sanctions for failure to comply to a lawful due date, and interest is compensation for the retention of monies due to another person (1.e. the respondent). Accordingly, it is submitted on behalf of the respondent that the imposition of the penalty and interest provisions of the City’s bylaws need not be equated to the revised assessment, but in fact, stand independent of the revised assessment and represent sanctions for non-payment of specific amounts of taxes on specific due dates.

Decision

Section 37(6) of the Assessment Act reads:

(6)

No assessment shall be increased, reduced or otherwise altered until all complaints, appeals or proceedings concerning the assessment have been finally determined and disposed of, and where the results of the final determination and disposition of the complaints, appeals or proceedings increases, reduces or otherwise alters the assessment, the taxes levied and payable with respect to the assessment shall be adjusted accordingly and any overpayment resulting from the adjustment shall be refunded from the adjustment shall be refunded by the municipality.

Section 390 of the Municipal Act reads:

390

If alterations are made in the assessment roll, in accordance with the Assessment Act, after the collectors roll or rolls for the municipality for the year for which such assessment has been made have been prepared, the clerk of the municipality shall alter or amend the collectors roll or rolls to corresponde with such alternations and insert the proper rates therefore, and the rates or taxes shall be collectable in accordance with such corrected rolls in the same manner and with the like remedies, as if they had been in the rolls when first prepared and certified by the clerk of the municipality. (emphasis mine)

It is recognized that the matter of uncollected taxes is of prime concern to municipal officials who are involved in the financing of essential public services. In particular, the non-payment of taxes by property owners during that period of time when their assessments are under appeal, might very well result in cash flow problems and thereby compel the municipality to borrow money at increased cost, to cover essential services. On the other hand, a requirement that a property owner be called upon to pay on a due date, a grossly overvalued assessment and then, in default, to have to pay a penalty and interest upon such an assessment, could cause severe financial hardhsip, if not the prossibility of financial ruin, especially if the municipality does not see fit to pass a bylaw to pay interest on overpayments. (See Zaidan Group Ltd. v. London (City) (1991), 5 O.R. (3d) 384 (S.C.C.) There is the potential for financial abuse at both ends.

There is no need for this Court in the circumstances of this case to make a specific determination as to whether the legislation and bylaws constitute a complete statutory code, which may expempt principles of equity and the common law. However, it should be noted that the general rule of interpretation requires that a taxing statute be strictly construed, and unless the statute clearly and unambiguously intends to do so, it should not be construed so as to make any alternations in the common law. In such cases where questions of interpreation arise, there is a likelihood that they will be resolved in favour of the taxpayer.

Both the Assessment Act and the Municipal Act are silent on the subject of interest. As well, this Court was not provided with any case that falls squarely along side the case at bar. The issue of refunds on interest for overpayments made by a taxpayer, did arise in Zaiden where it was held that in the absence of a bylaw requiring a municipality to do so, it is not obligated to make a payment with respect to interest on a refund for overpayment. The Ontario Court of Appeal decision in Zaiden held that neither a constructive trust, statutory imposition of unfairness or unjust enrichment, operate at this level.

In Zaiden, the plaintiff sought interest on the overpayment from the City of London. In the case at bar, the applicant did not pay any money up front and waited for a final resolution at the O.M.B., which resulted in a substantial revision of the assessment. When the O.M.B. held the unrevised or original assessment to be too high, and reduced it accordingly, then it follows, pursuant to Section 37(6) of the Assessment Act and 390 of the Municipal Act, that the amount on which the City could legally collect interest was also reduced. To allow the City to collect interest on the original amount would, in effect, entitle them to monies over which they did not acquire a legal interest.

In conclusion, I cannot find any statutory authority that allows the City of Thunder Bay to collect interest and penalties on the unrevised amount. The Court in Zaiden supra distinguished between legal and illegal collections. Judicial intervention is premised on illegal or ultra vires collections of this nature.

It is therefore the finding of this Court that the respondent has not established a valid legal claim to the interest or penalties. based on the unrevised figure, and accordingly, it is hereby declared that the proper calculation of the cancellation fee is to be arrived at by applying the interest and penalty provisions to the revised taxes, which the parties agree was the sum of $449,342.64.

Order to issue accordingly. Counsel may speak to the matter of costs.

Application granted.