Date: 20110623
Docket: T-1389-10
Citation: 2011 FC 760
Ottawa, Ontario,
June 23, 2011
PRESENT: The
Honourable Mr. Justice Barnes
BETWEEN:
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WELLESLEY
CENTRAL RESIDENCES INC.
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Applicant
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and
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MINISTER
OF NATIONAL REVENUE
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Respondent
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REASONS FOR JUDGMENT AND JUDGMENT
[1]
This is an application for the judicial review
of a decision by the Minister of National Revenue (Minister) by which the
Applicant’s request to be designated as a “municipality” under ss 259(1)
of the Excise Tax Act, RSC 1985, chapter E-15 as amended, was denied.
The Applicant seeks an Order quashing the Minister’s decision and returning the
matter for reconsideration.
Background
[2]
Wellesley Central Residences Inc. (Wellesley) was
incorporated in 2004. It is a non-profit housing corporation and a registered
charity.
[3]
In September 2008 Wellesley completed construction of a residential building at 490 Sherboume Street, Toronto, Ontario, containing 112 housing units (the
“Residential Facility”).
[4]
The Residential Facility was built for the
purpose of providing accommodation, on a rent-geared-to-income basis, to
persons living with HIV/AIDS and to frail seniors (residents).
[5]
Under the terms of a Rent Supplement Agreement
signed with the City of Toronto
on July 28, 2008, Wellesley agreed to make available each of the 112
housing units to residents on a rent-geared-to-income basis and, in turn, the
City of Toronto agreed to pay subsidized
funding to Wellesley. In that
agreement Wellesley committed itself to the rental of all of the units “to such
persons as shall be referred to it” by the City of Toronto. Wellesley also
agreed to enter into written leases with each resident.
[6]
In recognition of the municipal services
provided by Wellesley through
the provision of long-term permanent affordable housing the City of Toronto, for municipal taxation purposes,
designated the Residential Facility as a municipal capital facility. This
designation exempted all of the housing units in the Residential Facility from
municipal taxation.
[7]
Under the terms of the agreement with the City
of Toronto, each of the residents
living in the Residential Facility is required to enter into either a standard
form tenancy agreement or an occupancy agreement (rental agreement). The
rental agreements created by Wellesley stipulate that residents must enter into
a standard form services agreement with designated third-party service
providers who will provide support to the residents in the form of, inter
alia, personal care, homemaking, life-skills training, on-going assessment,
advocacy and assistance with the activities of daily living (personal care
services). Under the terms of the rental agreements, the residents acknowledge
that they may be required to vacate their rental units if Wellesley determines that they no longer
require third-party support or if their needs exceed the level of service that
can be provided by the designated service providers. It is undisputed that Wellesley receives income only for the
supply of housing and does not benefit financially from the provision of
personal case services by the third-party service providers.
[8]
On September 30, 2008 Wellesley asked the Minister for a municipal designation under ss 259(1)
of the Excise Tax Act. The effect of such a designation would have been
to provide Wellesley with the
full municipal rebate of Goods and Services Tax and Harmonized Sales Tax (GST/HST)
in connection with its supply of housing.
[9]
On July 15, 2009, Philippe Nault, acting on
behalf of the Minister, wrote to Wellesley declining to make the requested designation. His letter provided
the following justification for the decision:
For purposes of
municipal designation, a supply that includes accommodation as one element but
also includes other elements such as meals, or personal care services, or
laundry, or housecleaning may not be considered an eligible supply of long-term
accommodation.
Based on the
information provided by you, Wellesley has not demonstrated that it meets the criteria for municipal
designation as set out in the second paragraph above. Accordingly, we are
unable to designate Wellesley
as a municipality pursuant to subsection 259(1) of the Act. We offer the
following comments for your reference, based on our understanding of Wellesley’s relevant activities.
Wellesley operates a 112-unit rental housing complex located at 490 Sherbourne Street, Toronto, Ontario (the “Residences”).
In July 2008
Wellesley entered into two agreements with the City of Toronto in connection with the Residences.
Under its June
2008 Referral Agreement with WoodGreen Community Services (“WoodGreen”),
Wellesley agrees to offer certain units to clients of WoodGreen and to consult
with WoodGreen in any eviction of such clients. WoodGreen and Wellesley will
meet to review the prospective resident’s eligibility. In June 2008 Wellesley entered into a virtually
identical Referral Agreement with Fife House.
The Fife House
website advises that 56 of the units at the Residences will be available for
persons living with HIV/AJDS, and that Fife House staff and volunteers will
provide 24-hour a day support services such as personal care and homemaking and
coordination with other service providers.
The WoodGreen website
advises that WoodGreen will provide 24-hour a day personal support, homemaking
and coordination services to seniors who require ongoing assistance with
activities of daily living. These services are to be provided to residents of
the other 56 units of the Residences.
The above is
consistent with a November 25, 2006 news release which advised that the federal
government of Canada, the
Province of Ontario and the
City of Toronto were working
with Fife House, WoodGreen and the Wellesley Institute to build and operate a
supportive housing project (the Residences). The news release refers to federal
and provincial government funding for WoodGreen and Fife House supportive
housing services to be provided to residents.
Based on the
information provided, the range of services provided to residents is outside
the scope of the self-reliant living and qualifying activities contemplated by
the subject municipal designation process. The degree of interconnectedness
between Wellesley and WoodGreen and Fife House in respect of the residents
indicates that the program within which Wellesley’s activities take place is broader than a program to provide
housing to low to moderate-income households. Accordingly, Wellesley’s activities in connection with
the Residences are not qualifying activities for purposes of municipal
designation.
[Footnotes
omitted]
[10]
Wellesley asked the
Minister to reconsider and provided additional supporting information,
including a favourable legal opinion. By letter dated August 3, 2010,
Mr. Nault again declined to grant a municipal designation to Wellesley for the following reasons:
Wellesley has entered into Referral Agreements with Fife House and WoodGreen
under which it offers available units to clients of these organizations. Under
the terms of the Referral Agreements, Fife House and WoodGreen meet with
Wellesley to review the eligibility of their clients for residency and will
discuss with Wellesley any
evictions of their clients.
While Wellesley provides accommodation to its
residents on a rent-geared-to-income basis, for purposes of municipal designation
it is also necessary to consider the context in which these supplies are made.
It is the CRA’s policy to designate organizations as municipalities that
provide long-term accommodation to residents on an RGI basis under a program to
provide housing to low to moderate-income households. However, where residents
are provided with a variety of services in addition to the supply of
accommodation, either by the housing provider itself or by a third party, then,
this supply is no longer considered an eligible activity under the
administrative policy and eligibility criteria for municipal designation.
In Wellesley’s circumstances, the supply of
accommodation and the support services provided by Fife House and WoodGreen are
inextricably linked and as a result, the program under which Wellesley’s activities are provided takes
place in a context that is broader than the provision of housing on a
rent-geared-to-income basis for low to moderate income households. Therefore, Wellesley does not meet the administrative
policy and eligible criteria for designation as a municipality for purposes of
the Act.
[11]
It is from the above decision that this
application for judicial review arises.
Issues
[12]
Was the Minister’s exercise of discretion reasonable?
[13]
Did the Minister fetter his discretion in the
application of the applicable Excise Tax Act policy on municipal
designations?
Analysis
[14]
The parties agree that this application for
judicial review concerns the exercise of a ministerial discretion for which the
appropriate standard of review is reasonableness: see Dunsmuir v New Brunswick, 2008 SCC 9, [2008] 1 SCR
190 at para 53. Wellesley’s argument about a fettering of discretion raises an
issue of procedural fairness for which the appropriate standard of review is
correctness: see Dorothea Knitting Mills Ltd. v Canada (Minister of National
Revenue), 2005 FC 318, 295 FTR 314 at para 13.
[15]
The Excise Tax Act provides neither a
definition of the term “municipal service” nor a set of legislative criteria
for making a municipal designation under ss 259(1). The parties agree that
such designation involves the exercise of a ministerial discretion which is
informed by an administrative policy developed in 1993 and revised in 2007.
The 2007 Guideline (Ministerial Guideline) entitled “Administrative Policy and
Eligibility Criteria for Municipal Designation” outlines the basis for granting
municipal designation in connection with the supply of residential rent-geared-to-income
accommodation:
A charity or a
non-profit organization that receives government funding to supply long- term
residential accommodation to tenants on an RGI basis may apply for municipal
designation for purposes of subsection 259(1). We consider the supply of
long-term residential accommodation to mean the rental of self-contained
housing units (private living quarters which include cooking facilities and a
bathroom) for periods of one month or more. The government funding must be
payable to subsidize the cost of those housing units that are supplied on a RGI
basis. Note that the government funding in these situations includes funding
provided by a municipality. The activities described above must be undertaken
within a program to provide housing to low to moderate-income households.
Municipal designation
does not apply to any other activities of the charity or non-profit
organization such as the supply of residential units that are not on an RGI
basis or for which no government subsidy is payable (sometimes referred to as
market rent) or for the supply of commercial space. In addition, a supply
that includes accommodation as one element but also includes other elements
such as meals, personal care services, laundry or housecleaning may not be
considered an eligible supply of long-term accommodation. Accordingly, the
activities engaged in by operators of personal care homes and nursing homes
that involve these mixed or composite supplies are not eligible activities under
the administrative policy and eligibility criteria for municipal designation
for purposes of subsection 259(1).
[Emphasis added]
[16]
The Minister refused Wellesley’s request for a municipal designation on the basis that its supply
of residential accommodation was “inextricably linked” to the personal care
services that the residents were obliged to receive from the designated
third-party service providers under their rental agreements. According to the
Minister, an eligible municipal activity is one that does not make the
provision of rent-geared-to-income housing dependent upon a resident’s
eligibility for personal care services, whether provided by the owner or by
third parties.
[17]
Wellesley argues that the personal care services
associated with the Residential Facility constitute a separate taxable supply
by other parties and that it was unreasonable for the Minister to refuse to
recognize that separation of activity for purposes of a ss 259(1) Municipal
Designation. It says, in effect, that the Minister ignored the separation of
functions that was part and parcel of its business model in favour of an unduly
rigid and restrictive approach.
[18]
The Minister, on the other hand, characterized
this business model as a single activity in the nature of the operation of a
personal care facility. Given the composite nature of all of the services
provided to the residents, the model, according to the Minister, goes beyond
the simple provision of subsidized public housing which would have justified a
municipal designation. The Minister also relied on certain provisions of the
rental agreements which directly linked Wellesley to the provision of personal care services, including Article 1.02
of the Tenancy Agreement:
1.02 You
understand and agree that the Unit forms part of a “care home” within the
meaning of the Residential Tenancies Act. The Unit is provided as a part of a
program for people sixteen (16) years of age or over who are living with
HIV/AIDS and who require services offered by Fife House. You agree that the
reason you have chosen to live in the Unit is for the purpose of receiving
services agreed upon between you and us in accordance to the Service Agreement
you signed with Fife House (the “Service Provider”), and us, before you signed
this Agreement (which services are collectively referred to as the “Services”
in this Agreement). As of the date of this Agreement, the Services include;
(i)
ongoing assessment, planning, implementation and
evaluation of your Plan of Service developed in accordance with the Service
Agreement;
(ii) hands
on support and active listening;
(iii) personal
care support and homemaking;
(iv) life skills teaching including daily coping skills,
social skills, activities of daily living;
(v)
linkage with desired services and resources;
(vi) advocacy;
and
(vii) assistance with the activities of daily living when
required because of symptoms experienced by the tenant arising from an HW/AIDS
related illness.
A copy of your
Service Agreement is attached to this Agreement as Schedule “E” The
Service Provider has, in accordance with the referral agreement we have signed
with it (the “Referral Agreement”) nominated you as the tenant of the
Unit, subject to our approval, as you must qua1ify for the Services provided by
the Service Provider and for the social housing we provide. However, the
Service Provider is not your landlord, as we are responsible to provide you
with the Unit, to perform all of the obligations of a landlord and to provide
you with the Services (even though we are providing the Services to you through
the Service Provider, based upon the Referral Agreement).
[Emphasis added]
[19]
Other provisions in the Occupancy Agreement similarly
tie Wellesley to the delivery
of personal services to the residents, including Articles 2, 4, 17 and 22.
[20]
Essentially, Wellesley takes issue with the wisdom of the Minister’s decision on social
policy grounds. It says, with some justification, that the decision creates a
barrier to the provision of affordable housing for vulnerable members of the
community. Wellesley also
characterizes the rebate provisions of the Excise Tax Act as social
welfare legislation to be interpreted liberally and in keeping with Charter
values.
[21]
The problem with Wellesley’s argument is that there is a valid taxation rationale for the
Minister’s decision which was obviously considered to be paramount. That
rationale is expressed in the Department of Finance Goods and Services
Technical Paper of August 1989, which speaks about the need to preserve
competitive taxation equity within the private and public sectors by excluding
commercial activities conducted by the public sector from more favourable tax
treatment. This point was addressed in the following way in the Respondent’s
Memorandum of Fact and Law:
40. Granting
municipal designation to the applicant based on its legal structure would also
result in unequal tax treatment between facilities where accommodation and
services are provided by a single entity and facilities where the accommodation
and services are provided by different entities. It would result in pressure
from similar facilities that provide accommodation and services through a
single legal entity to also be entitled to the municipal rebate. It would
create inequities relative to other charitable and non-profit organizations
that operate care facilities involving an element of accommodation, such as
hospitals, nursing homes and group homes, which do not recover the GST and the
federal portion of the HST at the municipal rate.
[22]
It is apparent from the 2007 Departmental
Guideline that the supply of municipally subsidized residential care
accommodation in the nature of a nursing home or a personal care home which
involves the provision of meals, personal care services, housekeeping services
or the like will not qualify for a municipal designation because it represents
a form of competing commercial activity. However, there is nothing in the 2007
Departmental Guideline that specifically addresses the situation here involving
a contractually-linked supply of housing and personal care service. In the
absence of a specific policy, the Minister was required to adopt a principled
position and he did so. Although there may be a business model available for
operating the Residential Facility that will satisfy the Minister’s concerns,
it is apparent that the degree of contractual commingling between the provision
of housing and the provision of personal care services was such that the
Minister was unwilling to treat those functions as separate taxable supplies
for the purposes of a municipal designation.
[23]
However appealing Wellesley’s counter argument may be, it is not the role of the Court on
judicial review to substitute its views on policy matters for those of the
Minister. This decision is transparent, intelligible, and rationally supported
by the reasons given. Deference requires that it be respected on judicial
review.
[24]
On the issue of whether or not the Minister
fettered his discretion, there is nothing about the Minister’s decision which
would suggest that the departmental taxation guidelines on municipal designations
were elevated to a set of immutable legal principles to the exclusion of other
relevant considerations. The fact that the Minister exercised his discretion
in a particular way does not mean that relevant matters were overlooked.
Indeed, the impugned decision reflects a clear appreciation of the particulars
of the business model employed by the parties. I would add that the
willingness of the City of Toronto to exempt the Residential Facility from municipal taxation has
little, if any, relevance to the exercise of a discretion under the Excise
Tax Act and no reviewable error arises from the failure by the Minister to
mention that fact in his decision.
[25]
The Minister is seeking costs against Wellesley. Notwithstanding the outcome of
this application, I am satisfied that there was a compelling public interest
component to this proceeding and that Wellesley is providing a laudable public
service in its management of the Residential Facility. In the result, each
party will bear its own costs.
Conclusion
[26]
In the result, this application for judicial
review is dismissed without costs to either party.
JUDGMENT
THIS COURT’S JUDGMENT is that this application is dismissed without costs.
"R.L. Barnes"
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