Assessor for Port Alberni v. MacMillan Bloedel et al., [1974] SCR 83

Supreme Court of Canada

Assessor for Port Alberni v. MacMillan Bloedel et al., [1974] S.C.R. 83

Date: 1973-05-28

The Assessor for the Corporation of the City of Port Alberni Appellant;

and

MacMillan Bloedel Limited, MacMillan Bloedel (Alberni) Ltd., MacMillan Bloedel Industries Limited Respondents.

1973: March 16; 1973: May 28.

Present: Martland, Judson, Spence, Pigeon and Laskin JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA

Taxation—Assessment—Business tax—Whether real estate taxes to be included in ascertaining “annual rental value”—Municipal Act, R.S.B.C. 1960, c. 255, s. 427 [am. 1971, c. 38, s. 35].

On appeal to this Court from a judgment of the Court of Appeal for British Columbia allowing an appeal from a judgment of Munroe J., the sole question was whether in the assessment of business tax under the provisions of s. 427 of the Municipal Act, R.S.B.C. 1960, c. 255, as amended, the assessor, in ascertaining the annual rental value of the respondents’ real property, should include therein real estate taxes paid on the said property. In reversing the judgment of Munroe J., the Court of Appeal held that the words “annual rental value” meant the actual net worth to the landlord of the income received by him for the property in question, and that the assessor should not include in annual rental value the real property taxes payable in respect of the lands and improvements.

Held (Judson J. dissenting): The appeal should be dismissed.

Per Martland, Spence, Pigeon and Laskin JJ.: “Value” is a word appropriate to the position of owner. It is the worth of the property to the owner thereof. Value is what remains after deductions have been made from the gross receipts because value is what the landlord is counting on as the income to provide a return upon his investment. Accordingly, “annual rental value” would not include a payment made upon property taxes because that could be no part of the return upon the landlord’s investment.

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Per Judson J., dissenting: “Annual rental value” meant the amount of money which a willing and prudent landlord would accept and a willing and prudent tenant would pay under a rental agreement which would be sufficient to provide for the landlord a return on his invested capital, together with real property taxes payable in respect of the lands and improvements.

[Sheffield Waterworks Co. v. Bennett (1872), L.R. 7 Ex. 409; Dobbs v. Grand Junction Waterworks Co., (1883), 9 App. Cas. 49; Rose v. Watson, [1894] 2 Q.B. 90, followed; Butcher et al. v. City of Vancouver, [1950] 1 W.W.R. 961; National Trust Co. v. City of Winnipeg, [1937] 2 W.W.R. 90; Newton & Co. v. City of Winnipeg, [1937] 2 W.W.R. 351; Re Jessome and Minister of Municipal Affairs for New Brunswick (1969), 1 N.B.R. (2d) 488, distinguished.]

APPEAL from a judgment of the Court of Appeal for British Columbia[1], allowing an appeal from a judgment of Munroe J. Appeal dismissed, Judson J. dissenting.

Robert R. Dodd and Donald J. Sorochan, for the appellant.

A.C. Robertson, for the respondents.

The judgment of Martland, Spence, Pigeon and Laskin JJ. was delivered by

SPENCE J.—This is an appeal from the judgment of the Court of Appeal for British Columbia pronounced on June 22, 1972. By that judgment, the Court of Appeal allowed an appeal from the judgment pronounced on March 30, 1972. Although another issue was dealt with in the Courts below, in this Court the only question is whether in the assessment of business tax under the provisions of s. 427 of the Municipal Act of the Province of British Columbia, R.S.B.C. 1960, c. 255, as amended, the Assessor, in ascertaining the annual rental value of the real property, should include therein real estate taxes paid on the said property.

I quote hereafter s. 427, subss. (1), (2) and (4) of the said Municipal Act:

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427. (1) The Council may by by-law, adopted prior to the thirtieth day of November in any year, provide for the imposition of an annual tax (hereinafter referred to as a “business tax”) in succeeding years on every person carrying on a resident business within a municipality in an amount equal to a designated percentage, not exceeding ten per centum, of the annual rental value of the real property, or part thereof, occupied or used for the purpose of the business, or a designated percentage, not exceeding one per centum, of the taxable value of personal property used by him in or on the real property for the purpose of the business, whichever produces the greater amount of tax, and in such by-law may

(a) [Repealed. 1968, c. 33, s. 118.]

(b) [Repealed. 1968, c. 33, s. 118.]

(c) [Repealed. 1968, c. 33, s. 118.]

(d) make such regulations pertaining to the administration of assessment, appeal from assessment, collection, and all other matters as may be necessary for the proper administration of the tax, and shall provide therein that the Local Court of Revision has jurisdiction to review the assessment of rental values;

(e) fix dates for payment and impose penalties not exceeding ten per centum of the amount of the business tax remaining unpaid after the date fixed for payment.

(2) The annual rental value of real property for the purposes of this section, whether or not the real property is actually being rented, is the value determined by the Assessor and may be in any case the same as or higher or lower than the actual annual rental being paid for the occupancy of the real property, and in making such determination the Assessor may give consideration to the factors mentioned in section 330, and such other factors as to him may seem appropriate.

(4) An occupant of property or part thereof, or a user of personal property, is not freed from taxation under this section by reason only of the fact that he is or is not the owner of such property.

The respondents appealed from the Court of Revision to Munroe J. and placed before Munroe J. a statement of facts which reads as follows:

For the purposes of this Appeal the Appellants and the Respondent agree that:

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1. Attached hereto is By-Law No. 3036 passed by the Respondent pursuant to Section 427 of the Municipal Act and which by Section 2(2) levies a Business Tax in respect of the calendar year ending December 31, 1972, of

…either an amount equal to seven (7%) per centum of the annual rental value of the real property occupied or used for the purpose of carrying on such business, or an amount equal to seven tenths (7/10) of one per centum of the taxable value of personal property used by him in or on the real property for the purpose of the said business, whichever produces the greater amount of tax.

2. The Respondent issued to the Appellants 1972 Business Tax Assessment Notices with respect to four businesses in the City of Port Alberni owned and occupied by the Appellants, particulars of which assessments are as follows:

		ASSESSMENTS
Business	Roll No.	Annual Rental Value	Taxable Personal Property
Alberni Plywood Division	200	275,000	1,875,911
Alberni Pacific Division	201	247,000	1,285,683
Somass Division	202	672,500	2,920,718
Alberni Pulp & Paper Division	203	4,576,500	25,765,425

3. The Respondent assessed the Annual Rental Value of each of the said businesses by:

(a) Doubling the assessed values of the lands and improvements for the 1972 General Assessment Roll in order to arrive at the actual value of the said lands and improvements,

(b) Applying a capitalization rate of Six Percent (6%) to the actual value of the lands and a capitalization rate of Eight Percent (8%) to the actual value of the improvements in order to arrive at the return which a prudent investor might expect to receive on such an investment,

(c) Adding to such return the amount of the 1972 real property taxes payable in respect of such lands and improvements.

4. For the purposes of the General Assessment Roll, there was deducted from the assessed values of the lands and improvements, the assessed values of those portions thereof used exclusively for pollution abate-

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ment within the meaning of Section 327(1) (p) of the Municipal Act, which deductions for 1972 were as follows:

	ASSESSED VALUE OF DEDUTIONS UNDER SECTION 327 (1) (p)
Business	Lands	Improvements
Alberni Plywood Division	Nil	Nil
Alberni Pacific Division	Nil	18,500
Somass Division	Nil	38,740
Alberni Pulp & Paper Division	4,620	986,217

No such deductions were made from the assessed values of the lands and improvements for determining Annual Rental Value under paragraph 3 hereof.

5. The issues for determination on this Appeal are whether in assessing Annual Rental Value for the purpose of Section 427 of the Municipal Act:

(a) The assessor was correct in taking into consideration the real property taxes payable in respect of the lands and improvements in arriving at the annual rental value of the lands and improvements.

(b) The Assessor was correct in not deducting from the actual value of the properties an amount equal to the actual value of land and improvements used solely for pollution control, within the meaning of section 327 (i) (p) of the “Municipal Act”.

6. The Appellants appealed their 1972 assessments for Business Tax purposes on the said businesses to the Court of Revision sitting in the City of Port Alberni which appeals were dismissed on March 9, 1972. The Appellants served Notice of intention to appeal the assessments upon the Municipal Clerk of the Respondent and have brought this Appeal in conformity with and within the times limited by Section 362 of the Municipal Act.

The issue now before the Court is that set out in paragraph 5(a) of the agreed statement of facts which I have quoted above.

Munroe J. dismissed the respondents’ appeal from the Court of Revision. The Court of

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Appeal for British Columbia were unanimous in allowing the appeal upon this topic, the reasons being given by Robertson J.A. The Assessor appeals to this Court.

As pointed out in para. 3 of the agreed statement of facts, the Assessor calculated the annual rental value by the use of a formula which consisted of doubling the assessed values of the land and improvements and then taking a factor of 6 per cent of the actual value of the land and 8 per cent of the actual value of the improvements in order to arrive at the return which a prudent investor might expect to receive on such investment and adding thereto the real property taxes. The Assessor proceeded in this fashion rather than seeking the annual rental value from a survey of the market because the particular properties were not rented but were owner-occupied and no such properties ever would be, in ordinary business experience, rented. In so far as paras. (a) and (b) of para. 3 are concerned, the parties are in agreement that the formula was a proper formula but the appellant, here respondent, submitted that the Assessor should not have added real property taxes as is provided in para. (c) of the formula.

Robertson J.A. first turned to the only other decision upon the topic in the Court of Appeal for British Columbia, that in Butcher et al. v. City of Vancouver[2]. As Robertson J.A. pointed out, Sloan C.J.B.C. gave very short reasons which read as follows:

For reasons which I will hand down later in extended form, I would allow the appeal.

In my view the business tax by-law is valid but, in my opinion, the evidence establishes that the assessments are excessive and are not in accordance with the by-law and its enabling statute. In consequence I would set aside the assessments of the appellants herein.

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Sloan C.J.B.C. never did give the extended reasons to which he referred and, since his reasons deal with the excessive nature of the assessment as well as the effect of the by-law on the statute, I am in agreement, with respect, with Robertson J.A. when he finds the decision of no assistance in deciding the present appeal. I am similarly in agreement with Robertson J.A. who found little assistance in the various decisions of single court judges in British Columbia some reported and some unreported. Robertson J.A. then turned to certain English authorities with which I shall deal hereafter. I desire first, however, to refer to decisions in other provinces in Canada to which reference is made in the factum of the appellants. Firstly, there are two decisions of Dysart J. in the Queen’s Bench in Manitoba reported as National Trust Co. v. City of Winnipeg[3], and Newton & Co. v. City of Winnipeg[4]. Both of these decisions are in reference to a similar clause in the Manitoba legislation and what the Assessor was directed to ascertain was the “annual rental value”, the exact words of the statute here under consideration. However, in both of those cases, the Assessor proceeded to find that annual rental value by use of comparable properties and only turned to what he termed the “economic rental value” as a check. In both cases, Dysart J. made it perfectly plain that the test was the market value. In the present case, the market value is not considered and cannot be considered because it cannot be ascertained. The cases are of little value in testing the validity of the formula which was applied by the Assessor.

In Re Jessome and Minister of Municipal Affairs for New Brunswick[5], the Assessment Act in s. 6(3) defined “net rental value” as follows:

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“Net rental value” means the normal or going annual rent which would be payable under a lease for a term or years in which the lessee covenanted to bear the cost of all repairs, pay the fire, public liability and other insurance premiums, and to pay the real property tax and any other expenses in respect of the property, or its use, which are required in order to maintain the rental value.

(The italicizing is my own.)

Therefore, it must be apparent that the decision is of no assistance in the interpretation of the statute in the present appeal which contained no such provision.

Robertson J.A. then turned to interpret the words “annual rental value” and to obtain assistance from certain English authorities. With respect, I am in agreement with the view of Robertson J.A. that the word “value” is the important word in that phrase and that the words “annual” and “rental” are merely adjectives modifying the word “value”. “Value” is a word appropriate to the position of owner. It is the worth of the property to the owner thereof. If one considers the viewpoint of the tenant, he is not interested in value but is interested in the cost of the property to him and I am, therefore, of the opinion that the use of the word “value” requires one to consider the meaning of the words from the point of view of a landlord. When this is realized, then it becomes apparent that value is what remains after deductions have been made from the gross receipts because value is what the landlord is counting on as the income to provide a return upon his investment. Considered from this viewpoint, it would seem quite apparent that the “annual rental value” would not include a payment made upon property taxes because that could be no part of the return upon the landlord’s investment.

In Sheffield Waterworks Co. v. Bennett[6], Bramwell B., considered an action for water rates under the provisions of a statute which

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required the company to suply water at rates fixed according to the rent of the premises supplied. At p. 421, the learned Baron said:

The word “rent” may, I think, be read to mean what the landlord gets as rent under the usual conditions, though technically this is not its meaning; and if the landlord is obliged to pay the water-rate, all that he gets as rent, and all that ought to be taxed as rent, is the whole payment after deducting what he is obliged to pay.

(The italicizing is my own.) And he concluded his judgment:

For the reasons above given I think that, in determining the class to which the houses belong, the actual rent paid by the tenant is not to be taken, but the sum which comes into landlord’s pocket as rent after the deductions for water-rates, poor-rates, and district-rates, wherever he pays them.

A case much closer to the wording of the present statute is Dobbs v. Grand Junction Waterworks Company[7]. There the rate was set:

according to the actual amount of the rent where the same can be ascertained, and where the same cannot be ascertained according to the actual amount or annual value upon which the assessment to the poor’s-rate is computed in the parish or district where the house is situated.

Lord Bramwell, concerning himself with the meaning of the term “annual value” said, at p. 54:

Now, without undertaking an all-sufficient definition, it seems to me that we may safely adopt that in 6 & 7 Wm. 4 c. 96 viz., “the rent at which they might reasonably be expected to let from year to year free of all usual tenant’s rates and taxes and tithe commutation rent-charge, if any, and deducting therefrom the probable average annual cost of the repairs, insurance, and other expenses, if any, necessary to maintain them in a state to command such rent.” This is their value. If a rent exceeding this cost could not be got, they would be valueless. It is as impossible to say that the annual rent without such deduction is the

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annual value as it is to say that the daily hire of a horse is its daily value without deduction for its keep, &c. This is the value, the net, the only value. The Solicitor‑General said that this was to interpolate the word “net”. That is not so. Value means net value; net value means value. He did propose to interpolate a word, “gross”. Now gross value is different from value. It is, though a convenient, an inaccurate expression, like “gross profits.” The difference between what a thing costs and the larger sum it sells for is not profit if the buying and selling are attended with expense to the trader. Value is net value, and involves those deductions from rent which the appellant claims.

Lord Blackburn said at p. 58:

After considering the case, and considering what has been said and the cases which have been cited, I cannot bring myself to doubt that that is the ordinary and proper meaning of the word “value” when it is used, unless there be something to shew that the Legislature intended it in a different sense, which of course there might.

Lord Watson said at p. 59:

My Lords, I concur. I agree with the process of reasoning by which my noble and learned friend on my right (Lord Bramwell) has shewn that the words “annual value,” as they occur in the statutes which we have to construe, signify annual net value, which I take to be the primary meaning of the words.

In Rose v. Watson[8], Charles J., with whom Collins J. concurred, considered a case where the statute used the words “full annual rent or value”. At p. 94, Charles J. said:

That, then, is as much as to say that the words “rent and annual value” are synonymous; and if the words “rent or annual value” in s. 8 of the Act now under consideration stood alone, we should be bound by that decision to say that they meant the net rent or net annual value of the premises as defined by 6 & 7

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Wm.4 c.96. But does the insertion of the word “full” into the section make any difference?

Charles J. did not require that the gross rental be considered and was of the opinion that “Value” still meant the net value.

I agree, with respect, with Robertson J.A. when he takes these cases and others which I have examined, and which were cited by counsel for either the appellant or the respondents to establish the view that the word “Value” implies that only the net amount coming to the landlord must be considered. Therefore the Assessor was not correct in the application of para. (c) of the formula by adding the land property taxes which were paid by the respondents.

I therefore would dismiss the appeal. The respondents are entitled to their costs throughout.

JUDSON J. (dissenting)—MacMillan Bloedel Limited own and occupy four business premises in the City of Alberni—a plywood mill, two sawmills and a pulp mill. The problem in this litigation is the mode of assessment of business taxes. Section 427 of the Municipal Act authorizes municipalities to pass by-laws for the levying of a business tax. Port Alberni’s by‑law is in accordance with this section and provides for a levy of an amount “equal to seven (7%) per centum of the annual rental value of the real property occupied or used for the purpose of carrying on such business. …”

In this particular case, the assessor adopted the following method of assessment:

(a) He doubled the assessed values of the lands and improvements for the 1972 General Assessment Roll in order to arrive at the actual value of the lands and improvements.

(b) He applied a capitalization rate of six per cent (6%) to the actual value of the lands and a capitalization rate of eight per cent (8%) to the actual value of the improvements in order to arrive at the return which a prudent investor might expect to receive on such an investment.

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(c) He added to such return the amount of the 1972 real property taxes payable in respect of such lands and improvements.

The first two steps are not questioned in this litigation. Only item 3, the addition of the real property taxes, is disputed. This admission removes some of the difficulties which have arisen in cases where there has been an actual letting and it has been contended that the rent reserved in the lease does not reflect the annual rental value. The test in these cases is market value. The same test has been applied where the owner is in occupation and there is an ascertainable market.

But here there is no market. The mills in question have never been rented and it is unlikely that they ever will be. There is no evidence of any actual rental experience with such properties in British Columbia or elsewhere but the admissions of the company on the first two steps of the assessor confine us to the narrow question of what part real property taxes, which in British Columbia are imposed on the owner, should play in the ascertainment of annual rental value.

Annual rental value is defined by s. 427 of the Municipal Act in these terms:

427. (2) The annual rental value of real property for the purposes of this section, whether or not the real property is actually being rented, is the value determined by the Assessor and may be in any case the same as or higher or lower than the actual annual rental being paid for the occupancy of the real property, and in making such determination the Assessor may give consideration to the factors mentioned in section 330, and such other factors as to him may seem appropriate.

The construction put upon this section by the judge of first instance was that “annual rental value” meant the amount of money which a willing and prudent landlord would accept and a willing and prudent tenant would pay under a rental agreement which would be sufficient to provide for the landlord a return on his invested

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capital, together with real property taxes payable in respect of the lands and improvements.

The Court of Appeal held that the words meant the actual net worth to the landlord of the income received by him for the property in question, and that the assessor should not include in annual rental value the real property taxes payable in respect of the lands and improvements. Accordingly, the judgment of Munroe J. was reversed. In my opinion, this judgment should be restored.

In reaching its conclusion, the Court of Appeal was strongly influenced by two English cases, Dobbs v. Grand Junction Waterworks Co.[9], and Sheffield Waterworks v. Bennett[10]. In both, the legislation under consideration provided for the imposition of water rates which were calculated as a percentage of annual value. In both, it was held that whatever was paid for water rates, whether the burden fell on the landlord or on the tenant, was not to be included in annual value. They arrived at annual value by adopting the definition in the Parochial Assessments Act, 1836 (U.K.), c. 96, s. 1. This was not a definition of annual value but “net annual value”, and was in the following terms:

…the rent at which they might reasonably be expected to be let from year to year free of all usual tenant’s rates and taxes and tithe commutation rent-charge, if any, and deducting therefrom the probable average annual cost of the repairs, insurance, and other expenses, if any, necessary to maintain them in a state to command such rent.

There is no distinction between the Dobbs case and the Sheffield Waterworks case. In the one case the tenant paid the water rates, in the other, the landlord. Annual value was the same in both cases and it meant “net annual value”.

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The principle of the Dobbs case and of the Sheffield Waterworks case is stated in 39 Hals., 3rd ed., p. 408, in the following terms:

The expression “annual value,” in the absence of other provision in the special Act, means the net annual value, that is to say, the gross value after deducting the burdens the premises have to bear, and it is the net annual value of the premises as they stand, and are occupied. In some special Acts other terms are used, such as “rent” or “annual rent”, but these, in the absence of qualifying provisions, mean net annual value.

This is a concept which does not appear in any Canadian cases with which I am familiar. We are concerned here with a system where real estate taxes are payable by the owner, and in this particular case the assessor has to determine what a hypothetical rent would be under a hypothetical tenancy. With such a system and such a necessary determination, real estate taxes must be taken into account. I would adopt the ratio of Munroe J. stated in the following terms:

In my opinion the words “annual rental value” in s. 427 mean the amount of money which a willing and prudent landlord would accept and a willing and prudent tenant would pay during a period of one year under a rental agreement whereby the tenant paid to the landlord a sum sufficient to provide for the landlord a return on and recapture of his capital over the economic life of the buildings together with the real property taxes payable in respect of such lands and improvements. Accordingly, I hold that the assessor of the respondent was correct in taking into consideration the said taxes in arriving at the annual rental value of the lands and improvements.

My opinion is that English decisions based upon rating legislation which goes back to the Poor Relief Act of 1601, and which equate annual value with net annual value or profit from rent, can afford no assistance in dealing with the British Columbia statute.

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I would allow the appeal with costs and restore the order of Munroe J.

Appeal dismissed with costs, JUDSON J. dissenting.

Solicitors for the appellant: Andrews & Swinton, Vancouver.

Solicitors for the respondents: Davis, Hossie, Campbell, Brazier & McLorg, Vancouver.