Present: La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin and Iacobucci JJ.
on appeal from the court of appeal for quebec
Municipal law ‑‑ Real estate valuation ‑‑ Tax‑exempt immovables ‑‑ Public establishments ‑‑ Whether appellants can be assimilated to public establishments they serve and benefit from tax exemption ‑‑ Interpretation of tax legislation ‑‑ Alter ego theory ‑‑ Act respecting Municipal Taxation, R.S.Q., c. F‑2.1, ss. 204(14), 236(1.1).
Municipal law ‑‑ Taxation ‑‑ Action to set aside entries on real estate valuation roll ‑‑ Prescription ‑‑ Act respecting Municipal Taxation, R.S.Q., c. F‑2.1, s. 172.
Taxation ‑‑ Legislation ‑‑ Rules for interpreting tax legislation.
In 1973, in an effort to rationalize operations and reduce costs, the hospital establishments, in conjunction with the Ministère des Affaires sociales and the Conseil de la santé et des services sociaux de la région de Montréal métropolitain ("CSSSRMM"), decided to combine their laundry services into a single community laundry, the Buanderie centrale de Montréal Inc. ("BCM"). To carry out this plan, the land needed to construct the building to house this laundry was conveyed by emphyteutic lease to the CSSSRMM. The BCM, a non‑profit corporation, began official operations in 1979 as the lessee of the immovable owned by the CSSSRMM within the meaning of s. 1 of the Act respecting Municipal Taxation ("A.M.T."). The member establishments of the BCM are exclusively public hospital centres or reception centres within the meaning of ss. 10 and 11 of the Act respecting Health Services and Social Services ("A.H.S.S.S."), and the services provided are limited to washing the linen of member establishments. The BCM's budget is determined solely by operating costs and provides no profit. The entire cost is divided among the establishments served, which pay a share proportionate to the services received. Additionally, each member of the BCM also acts as a director. In the event of dissolution of the BCM and distribution of its assets, only the property acquired in whole or in part by means of a grant by the Ministère des Affaires sociales would belong to the CSSSRMM. Apart from this aspect, the CSSSRMM is not financially or commercially involved in providing laundry services. Rather, it acts as an administrative committee responsible for overseeing the achievement of the legislative purposes set out in s. 18 A.H.S.S.S. Until December 1985, the CSSSRMM and the BCM had been exempt from real estate and business tax respectively as public establishments pursuant to ss. 204(14) and 236(1.1) A.M.T. The immovable occupied by the BCM was subsequently entered on the real estate valuation roll for 1984 to 1988 inclusive and on the roll of rental values for 1986, 1987 and 1988. The appellants challenged these entries in the Superior Court by actions to set aside. The CSSSRMM maintained that it is a public establishment within the meaning of s. 204(14), in the same way as the health establishments of which it said it is merely an extension, and that it should accordingly benefit from the same real estate tax exemptions. The BCM submitted, for its part, that it is the alter ego of its member establishments and that accordingly no business tax can be imposed on it since its activities are those of a hospital centre or reception centre within the meaning of s. 236(1.1). The Superior Court dismissed their actions and the Court of Appeal affirmed that judgment.
Held: The appeal should be allowed in part.
In light of the rules for the interpretation of tax legislation developed in the related appeal Québec (Communauté urbaine) v. Corp. Notre‑Dame de Bon‑Secours, [1994] 3 S.C.R. 3, and summarized in this case, it may be concluded that the alter ego concept does not apply directly to the appellants' situation. The element of control is of overriding importance in applying this concept. It is clear that the appellants are independent organizations which are not controlled by the establishments for whose benefit they operate. The element of control was developed in the context of the activities of commercial corporations, however, and to the extent that this factor is different in nature when it concerns the activities of non‑profit corporations, its absence does not necessarily imply rejection of the concept for such corporations. The alter ego concept thus does not in itself resolve the issue. The intrinsic nature of the appellants for tax purposes must be determined and the search for the legislative intent reveals a fundamental purpose, namely efficiency in the operation of hospital laundries: first, for administrative purposes a sector of hospital activity was allocated by the legislature to an independent third party which incurred no risk in the undertaking; second, from the standpoint of patrimony there is an almost complete identity between the appellants and the establishments for whose benefit they operate. They form a single "conduit" to the establishments they serve and this situation is not affected by the fact that administrative functions or the titular ownership of property have been conferred on them. In pursuing its objective the legislature thus made no essential change to the substance of the patrimony of the establishments as a whole, whether in terms of financial responsibility or ownership of property. Taxation relates solely to patrimony. In view of the almost complete identity of patrimony between the appellants and their member establishments, the former should not be treated differently from the latter for tax purposes. Accordingly, the BCM can use s. 236(1.1) A.M.T. in order to benefit from the exemption from business tax for 1986, 1987 and 1988. The same conclusion applies to the CSSSRMM in respect of real estate tax for 1984, 1985, 1986 and 1988 pursuant to s. 204(14) A.M.T. However, the amendment to the conclusions of the CSSSRMM's action to set aside so as to include 1987, which was submitted in November 1988, was out of time. In municipal taxation, an action to set aside cannot be brought after the one‑year period provided for in s. 172 A.M.T. has expired.
Cases Cited
Followed: Québec (Communauté urbaine) v. Corp. Notre‑Dame de Bon-Secours, [1994] 3 S.C.R. 3, rev'g (1992), 47 Q.A.C. 47; considered: City of Halifax v. Halifax Harbour Commissioners, [1935] S.C.R. 215; referred to: Ville de Montréal v. Association des chirurgiens dentistes du Québec, [1990] R.J.Q. 2155; Bronfman Trust v. The Queen, [1987] 1 S.C.R. 32; Corporation municipale de Shannon v. Maple Leaf Services, [1971] C.A. 433; Maple Leaf Services v. Townships of Essa and Petawawa (1963), 37 D.L.R. (2d) 657; Montreal v. Montreal Locomotive Works Ltd., [1947] 1 D.L.R. 161; Regina Industries Ltd. v. City of Regina, [1947] S.C.R. 345; Lennard's Carrying Co. v. Asiatic Petroleum Co., [1915] A.C. 705; Clarkson Co. v. Zhelka (1967), 64 D.L.R. (2d) 457; Smith, Stone & Knight, Ltd. v. Birmingham Corp., [1939] 4 All E.R. 116; Aluminum Company of Canada Ltd. v. City of Toronto, [1944] S.C.R. 267; Abel Skiver Farm Corp. v. Town of Sainte‑Foy, [1983] 1 S.C.R. 403; Immeubles Port Louis Ltée v. Lafontaine (Village), [1991] 1 S.C.R. 326.
Statutes and Regulations Cited
Act respecting an immoveable of La Communauté des S{oe}urs de Charité de la Providence, S.Q. 1976, c. 75.
Act respecting Health Services and Social Services, R.S.Q., c. S‑5, ss. 1(a) [am. 1981, c. 22, s. 40], (b), 10 [am. idem, s. 41], 11, 18(c), (e) [repl. idem, s. 42], (e.1) [ad. idem].
Act respecting Municipal Taxation, R.S.Q., c. F‑2.1, ss. 1 "owner", 172, 182, 203 [am. 1986, c. 34, s. 11], 204(1) [repl. 1983, c. 40, s. 72; am. 1986, c. 34, s. 12], (1.1) [ad. 1980, c. 34, s. 27], (2) [ad. 1982, c. 2, s. 93; am. idem, c. 9, s. 38], (2.1) [ad. 1982, c. 2, s. 93; am. idem, c. 9, s. 38], (5), (14) [repl. 1980, c. 34, s. 27; am. 1986, c. 34, s. 12], 232 [am. idem, s. 18], 236(1) [repl. 1980, c. 34, s. 40; repl. 1982, c. 63, s. 216; repl. 1987, c. 42, s. 12], (1.1) [ad. 1982, c. 63, s. 216; am. 1986, c. 34, s. 19], 248, 249, 255 [am. 1979, c. 80, s. 54; repl. 1980, c. 34, s. 44; am. 1982, c. 2, s. 96; am. idem, c. 63, s. 219; am. 1983, c. 40, s. 73; am. 1986, c. 34, s. 21], 488.
Code of Civil Procedure, R.S.Q., c. C‑25, art. 33.
Companies Act, R.S.Q. 1964, c. 271.
Constitution Act, 1867 , s. 125 .
APPEAL from judgments of the Quebec Court of Appeal, [1993] R.J.Q. 1051, 54 Q.A.C. 210, affirming judgments of the Superior Court, [1990] R.J.Q. 408, dismissing the appellants' actions in nullity and in reimbursement of taxes. Appeal allowed in part.
Pierre Boyer, for the appellants.
Serge Barrière, for the respondent the City of Montreal.
Gérard Beaupré, Q.C., Réjean Rioux and George Kovac, for the respondent the Communauté urbaine de Montréal.
English version of the judgment of the Court delivered by
Gonthier J. ‑‑ This case raises the question of whether the appellants, the Conseil de la santé et des services sociaux de la région de Montréal métropolitain ("Regional Council") and the Buanderie centrale de Montréal Inc. ("Buanderie"), may respectively benefit from the tax exemptions provided for in ss. 204(14) and 236(1.1) of the Act respecting Municipal Taxation, R.S.Q., c. F‑2.1 ("A.M.T."), regarding real estate and business tax. The appeal raises two main questions: (1) What are the principles that should guide the courts in interpreting tax legislation? (2) In light of these principles, can the Regional Council and the Buanderie be regarded as the alter egos of the public establishments served by them, or be assimilated to them in any way, so as to come within the scope of ss. 10 and 11 of An Act respecting Health Services and Social Services, R.S.Q., c. S‑5 ("A.H.S.S.S."), indirectly referred to in ss. 204(14) and 236(1.1) A.M.T.?
I ‑ Facts
The Buanderie is a non‑profit corporation created by letters patent issued on March 6, 1979 pursuant to Part III of the Companies Act, R.S.Q. 1964, c. 271, the purpose of which is to provide establishments in the regional social affairs network with the laundry and linen services they require. Until its creation the hospital establishments had their own laundry services. In 1973, however, it was realized that the equipment had reached a level of obsolescence or saturation that would require a sizable investment. In an obvious effort to rationalize operations and reduce costs, the hospital establishments, in conjunction with the Ministère des Affaires sociales and the Regional Council, therefore decided to combine their laundry services into a single community laundry. Not only did this decision entail a transfer of laundry operations to the new entity, but it also meant a commitment by the hospitals to participate in its management.
On June 30, 1976 the legislature specifically authorized the Communauté des S{oe}urs de la Charité de la Providence and the Hôpital Louis‑Hippolyte Lafontaine to convey the necessary land to the Regional Council by an emphyteutic lease, on the express condition that a building be constructed on it to house a community laundry (S.Q. 1976, c. 75). The conveyance was made on June 27, 1977 and construction of the Buanderie was completed in 1979. Under an agreement between the latter and the Regional Council, which was made on June 14, 1979, the Buanderie began official operations as the lessee of the immovable owned by the Regional Council within the meaning of s. 1 A.M.T.
The Buanderie staff was initially taken from employees of the hospital centres; it is still subject to the hospital employees' collective agreement and still contributes to the same pension fund as they do. On November 27, 1985, under order‑in‑council 2507‑85, (1985) 117 G.O. II 6900, the Buanderie was treated as a public hospital centre for the purposes of negotiating collective agreements in the public and semi‑public sectors.
Its member establishments are exclusively public hospital centres or reception centres, within the meaning of ss. 10 and 11 A.H.S.S.S. In the same way the Buanderie is the exclusive supplier of laundry services to these establishments, as since 1983 the Ministère des Affaires sociales has no longer provided any grants for establishing this kind of service within hospitals and has instead required the latter to become members of the Buanderie. The services provided by it are limited to washing the linen of member establishments, which once again is exclusively owned by them.
In addition to the question of services, the Buanderie's method of operation is also very instructive. It may be noted that the corporation's budget is determined solely by operating costs and provides no profit. In fact the entire cost is divided among the establishments served, which pay a share proportionate to the services received. Additionally, each member of the corporation also acts as a director. Under the Buanderie's supplementary letters patent, issued on February 26, 1985, the number of members of the corporation was increased to nine, three being appointed by the Regional Council, two by the Minister of Social Affairs and four by the user establishments, with the further condition that the latter must be accepted by the corporation's board of directors. Finally, a provision of the original letters patent states that in the event of dissolution of the corporation and distribution of its assets, property acquired in whole or in part by means of a grant by the Ministère des Affaires sociales would belong to the Regional Council. Apart from this aspect, the Regional Council is not financially or commercially involved in providing laundry services but acts as another administrative committee, responsible in this case for overseeing the achievement of the legislative purposes set out in s. 18 A.H.S.S.S.
From the beginning of their existence until December 1985, the Regional Council and the Buanderie had been exempt from real estate and business tax respectively as public establishments pursuant to ss. 204(14) and 236(1.1) A.M.T. During that period the City of Montreal and the Communauté urbaine de Montréal received grants from the provincial government proportionate to the taxes they might otherwise have collected from these establishments. This compensation was paid pursuant to s. 255 of the same Act.
On October 18, 1985, however, the Ministère des Affaires municipales informed the City of Montreal that the grants were being terminated, the reason being that the Buanderie and the Regional Council would no longer benefit from the tax exemption they had enjoyed until that time. Following this notice the Communauté urbaine de Montréal in December 1985 issued certificates of amendment for 1984 and 1985 making the immovable occupied by the Buanderie subject to real estate tax. On March 25, 1986 the City of Montreal sent the Regional Council a notice of amendment to the valuation roll retroactive to January 1, 1984 as well as its invoices for municipal, school and olympic taxes. Accordingly the immovable was subsequently entered on the roll from 1984 to 1988. These amendments initially affected the Regional Council since it was the owner of the immovable within the meaning of s. 1 A.M.T. On June 8, 1987 the City of Montreal also altered the roll of rental values and entered the immovable on the roll for 1987 and 1988, thereby depriving the Buanderie of the business tax exemption it had enjoyed. On the following July 17 the City sent the Buanderie a further notice of amendment to the roll of rental values and this time entered the immovable on the roll for 1986.
The Regional Council and the Buanderie challenged these entries in the Superior Court by an action to set aside which also sought repayment of taxes paid under protest. Their actions were joined for hearing. The Regional Council then sought to amend the conclusions of its action to claim reimbursement of the amounts paid for 1987 and 1988. In support of its arguments it maintained that it is a public establishment within the meaning of s. 204(14) A.M.T., in the same way as the health establishments of which it said it is merely an extension, and that it should accordingly benefit from the same real estate tax exemptions. The Buanderie submitted, for its part, that it is the alter ego of its member establishments and that accordingly no business tax can be imposed on it since its activities are those of a hospital centre or reception centre within the meaning of s. 236(1.1) of the said Act.
II ‑ The Courts Below
Superior Court, [1990] R.J.Q. 408
According to Lemieux J., it is clear that the Regional Council is not a public establishment within the meaning of s. 10 A.H.S.S.S. She also dismissed the Council's argument that it was the mandatary, agent or extension of the member establishments of the Buanderie. After reviewing the cases submitted in support of this argument, which I shall also have occasion to consider, she concluded, at p. 414:
[translation] With respect, this line of authority does not apply in the present case. In all those cases the Crown was the owner or lessee of the taxed land. Under very specific legislation the Crown was exempt from real estate tax. The situation is different here.
Lemieux J. noted that the Regional Council is a mandatary of the Crown subject to the A.M.T. pursuant to s. 488. In its capacity as emphyteutic lessee it is an owner within the meaning of s. 1 of the Act and its immovable is therefore taxable under s. 203 unless it falls within the exemptions set out in s. 204. Lemieux J. found no exemption that could cover the Council. At page 414 she said the following:
[translation] Paragraph 14 of that section refers to a public establishment within the meaning of the [A.H.S.S.S.], a term explained in ss. 10 and 11 of that Act. The [Regional Council] is not a public establishment according to the definition contained in those sections. Since the exemptions must be interpreted restrictively, it follows that the legislature did not intend to exempt a mandatary of the Crown from the payment of real estate tax.
Finally, after concluding that the municipal by‑laws adopted pursuant to s. 232 A.M.T. were valid, the latter purporting to be the enabling provision for collection of the business tax, Lemieux J. held that the Buanderie could not benefit from the exemption provided for in s. 236 A.M.T. She cited [translation] "[t]he reasoning underlying the real estate tax [which] applies mutatis mutandis to the business tax" (p. 423).
The actions of the Regional Council and the Buanderie were dismissed.
Court of Appeal, [1993] R.J.Q. 1051
In the opinion of Brossard J.A., the legislative definition of the status of the Regional Council is sufficient in itself to dispose of the appeal. At page 1055 he said:
[translation] I am of the view that we should adopt forthwith the language used by the [A.H.S.S.S.] which, in s. 18(e.1), defines the function of the [Regional Council] in respect of the establishments as being that of a representative and agent. Accordingly, it was in the capacity of mandatary and/or agent of the member establishments of [the] Buanderie . . . that the [Regional Council] by an emphyteutic lease entered into an agreement with the Hôpital Louis‑Hippolyte Lafontaine and constructed the immovable which is now the subject of the taxable entries.
Brossard J.A. further noted that it is clear from reading ss. 10, 11 and 18 A.H.S.S.S. together that the legislature has made a formal distinction within the Act itself between a public establishment and the Regional Council. He concurred in the conclusion of the trial judge that the Regional Council is not a public establishment within the meaning of ss. 10 and 11 A.H.S.S.S. and clearly does not fall within the exemptions set out in s. 204(14) A.M.T. In this connection he approved at p. 1056 the reasoning by which the Superior Court judge arrived at the latter conclusion, namely:
[translation] . . . under the rules of interpretation, tax legislation must be interpreted so as to achieve its purpose, general taxation being the rule and exemption, the exception: any tax exemption, like any exception, must therefore be interpreted restrictively.
Similarly, he relied on the comments made by Bisson C.J.Q. in Québec (Communauté urbaine) v. Corp. Notre‑Dame de Bon‑Secours (1992), 47 Q.A.C. 47, now before this Court, to the effect that [translation] "[when interpreting] an exemption from the principle of real estate taxation a restrictive interpretation should be adopted" (p. 1056). In conclusion Brossard J.A. adopted the argument of the City of Montreal that when the legislature exempts an immovable it does so specifically, whether on the basis of the status of mandatary of the person who owns it (s. 204(1), (1.1) and (5) A.M.T.) or the actual identity of its owner (s. 204(2) and (2.1) A.M.T.). In light of this reasoning the judge concluded that the Regional Council could not, in se, benefit from the exemption provided for in s. 204(14) A.M.T. in respect of real estate tax.
Additionally, Brossard J.A. held that the reasoning developed earlier applied mutatis mutandis to the question of the business tax imposed on the Buanderie. He noted that in carrying on an economic activity involving services, the latter is prima facie covered by s. 232 A.M.T. unless it can take advantage of the exemptions provided for in s. 236(1) and (1.1) A.M.T., the only two which could apply here. Brossard J.A. could not subscribe to the conclusion that laundry and linen services are the usual activities of a hospital centre or reception centre. On this basis, therefore, he held that the Buanderie was subject to the business tax.
Brossard J.A. nevertheless considered the appellants' argument that they were the alter egos of the public establishments for whose benefit they act and that, as such, they should therefore be able to claim the same tax exemptions as the latter. After reviewing the decisions submitted in support of this argument he concluded, at p. 1059, that they could be distinguished from the case at bar since the appellants [translation] "carry on their activities and provide their services in an immovable which could not be said in any way to belong to a public establishment within the meaning of the Act". In his opinion the only exception was the judgment of this Court in City of Halifax v. Halifax Harbour Commissioners, [1935] S.C.R. 215, in so far as it might suggest recognition of the concept of an alter ego in real estate taxation matters. At page 1059, however, Brossard J.A. refused to apply this decision for the following reasons:
[translation] In my opinion, for there to be a similarity between the facts of that case . . . and those of the case at bar, [the Buanderie] would have to be a mere manager and administrator of laundry and linen services provided within each public establishment on behalf of and under the direct authority of the individual administration of each of those establishments, which is not the case. [Emphasis in original.]
Brossard J.A. also disposed of an alternative and supplementary argument raised by the Buanderie on appeal regarding an amendment made to s. 232 A.M.T. in 1986 and discussed by the Court of Appeal in Ville de Montréal v. Association des chirurgiens dentistes du Québec, [1990] R.J.Q. 2155. In view of the conclusion we have reached on the principal argument it will not be necessary to deal with it here.
The Court of Appeal unanimously dismissed both appeals.
III ‑ Issues
To determine whether the Regional Council and the Buanderie may respectively benefit from the tax exemptions provided for in ss. 204(14) and 236(1.1) A.M.T. with respect to real estate tax and business tax the following two questions must be considered:
(1) What are the principles that should guide the courts in interpreting tax legislation?
(2) In light of these principles, can the Regional Council and the Buanderie be regarded as the alter egos of the public establishments served by them, or be assimilated to them in any way, so as to come within the scope of ss. 10 and 11 A.H.S.S.S., indirectly referred to in ss. 204(14) and 236(1.1) A.M.T.?
IV ‑ Relevant Legislation
At the relevant times the A.H.S.S.S. read as follows:
1. In this Act and the regulations, unless the context indicates a different meaning, the following expressions and words mean:
(a) "establishment": a local community service centre, a hospital centre, a social service centre or a reception centre;
(b) "public establishment": an establishment contemplated in sections 10 and 11;
10. The following are public establishments:
(a) every establishment constituted under this Act or resulting from an amalgamation or conversion made under this Act;
(b) every hospital centre or social service centre maintained by a non‑profit corporation;
(c) every establishment using for its object immovable assets which are the property of a non‑profit corporation other than a corporation incorporated under this Act.
11. Every reception centre maintained by a non‑profit corporation other than a corporation contemplated in section 10 is also a public establishment, subject to section 12.
18. The principal functions of a regional council shall be:
. . .
(c) to receive and hear the complaints of persons for whom an establishment situated in the region for which the regional council is established has not furnished the health services and the social services that this Act entitles them to receive, and make the recommendations it considers appropriate in this regard to the establishment concerned and the Minister;
. . .
(e) to promote the exchange, the elimination of duplication and the better distribution of services in the region and the setting up of common services for several establishments;
(e.1) to act as exclusive representative of the establishments or a category of establishments in the whole or part of its region
i. for the supply in common of such goods as it determines, except the classes of goods indicated by the Minister;
ii. for the supply of common services in the cases and on the conditions determined by the Minister;
The A.M.T. provided the following:
1. In this act, unless the context indicates otherwise,
. . .
"owner" means
. . .
(3) the person who possesses an immovable as usufructuary, institute of a substitution or emphyteutic lessee, or, where the immovable is Crown land, the person who occupies it under a promise of sale, occupation licence or location ticket;
203. An immoveable entered on the roll is taxable and its taxable value is that entered on the roll under sections 42 to 48, unless the law provides that only a part of that value is taxable.
204. The following are exempt from all municipal or school real estate taxes:
(1) an immoveable belonging to the Crown in right of Québec or to the Société immobilière du Québec;
(1.1) an immoveable belonging to the Crown in right of Canada or to a mandatary thereof;
. . .
(14) an immoveable belonging to a public establishment within the meaning of the Act respecting health services and social services (chapter S‑5), including a reception centre contemplated in section 12 of that act, and an immoveable belonging to the holder of a day care centre permit or nursery school permit contemplated in paragraph 1 or 2 of section 4 or 5 of the Act respecting child day care (chapter S‑4.1);
232. A municipal corporation may impose and levy a business tax on any person entered on the roll of rental values carrying on, in the territory of the municipal corporation, an economic or administrative activity in matters of finance, trade, industry or services, a calling, an art, a profession or any other activity constituting a means of profit, gain or livelihood, whether or not the activity is carried on for lucrative purposes, except an employment or charge.
236. No business tax may be imposed with respect to
(1) an activity mentioned in section 204 . . . carried on anywhere by the Crown, a body, an institution or a person contemplated in that section;
(1.1) an ordinary activity carried on anywhere by the Crown, a body, an institution or a person contemplated in any paragraph of section 204 that does not mention any particular activity, except for the activity of a person operating a system contemplated in section 66, 67 or 68;
Section 19 of c. 34 of the 1986 Statutes had the effect of deleting the word "ordinary".
Section 12 of c. 42 of the 1987 Statutes amended s. 236 as follows:
236. No business tax may be imposed with respect to
(1) an activity carried on by the Crown in right of Québec or the Crown in right of Canada, a mandatary of the Crown in right of Canada, the Société immobilière du Québec, the Corporation d'hébergement du Québec, the Régie des installations olympiques, the Société de la Place des Arts de Montréal . . .
488. This act binds the Crown and its mandataries.
V ‑ Analysis
A.Rules for interpreting tax legislation
In this Court the appellants argued that the tax exemptions consistent with the purpose and objective of the legislation at issue should be recognized and implemented. My analysis of the issue in Québec (Communauté urbaine) v. Corp. Notre‑Dame de Bon‑Secours, [1994] 3 S.C.R. 3, decided concurrently herewith, applies to the case at bar. There is accordingly no need to reproduce it in its entirety. It is worth restating the key points, however, which may be summarized as follows:
‑ The interpretation of tax legislation should follow the ordinary rules of interpretation;
‑ A legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent: this is the teleological approach;
‑ The teleological approach will favour the taxpayer or the tax department depending solely on the legislative provision in question, and not on the existence of predetermined presumptions;
‑ Substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute;
‑ Only a reasonable doubt, not resolved by the ordinary rules of interpretation, will be settled by recourse to the residual presumption in favour of the taxpayer.
I would also note the importance of no longer concluding that the rule that any tax exemption should be given a strict interpretation automatically applies, as was done in the lower courts in the case at bar. With respect, as explained in Corp. Notre‑Dame de Bon‑Secours, supra, the notions of exemption and exception should not be indissolubly linked.
That having been said, this Court must select from the principles set out above the one which is most likely to aid it in disposing of the case before it. I refer to the recognition by the courts of the true commercial nature of the taxpayer's transactions when doing so in appropriate cases makes it possible to attain the purposes of the legislation in question. This rule was developed by Dickson C.J. in Bronfman Trust v. The Queen, [1987] 1 S.C.R. 32, at pp. 52‑53. I reproduce the following passage for the sake of convenience:
I acknowledge, however, that just as there has been a recent trend away from strict construction of taxation statutes . . . so too has the recent trend in tax cases been towards attempting to ascertain the true commercial and practical nature of the taxpayer's transactions. There has been, in this country and elsewhere, a movement away from tests based on the form of transactions and towards tests based on what Lord Pearce has referred to as a "common sense appreciation of all the guiding features" of the events in question. . . .
This is, I believe, a laudable trend provided it is consistent with the text and purposes of the taxation statute. [Emphasis added.]
I note at the outset that the Chief Justice was discussing the application of this principle to the transactions undertaken by a taxpayer, whereas in the case at bar the point for consideration is really the true nature of a corporate organization. This Court's intention is not to prompt an automatic quest for substance in tax matters. The risk that this will occur is in any case quite small if the key elements of the interpretation as set out above are kept in mind. I note in this regard that in Bronfman Trust, the legislative context prevented this Court from accepting the taxpayer's arguments that substance should take precedence over form. In short, the courts should recognize the existence of a fundamental rule which, when judiciously applied, will have the effect of focusing attention on the real nature of a situation, when in many cases considering only the formal structure would lead to a different interpretation of a given situation. It should, however, be borne in mind that this rule only has real meaning if it is consistent with the analysis of legislative intent.
B.The Regional Council and the Buanderie as alter egos of the member establishments served by them
The Superior Court and the Court of Appeal both dismissed this argument of the appellants. This conclusion was arrived at following an analysis of a number of decisions put forward by the latter in support of their theory. I refer to Corporation municipale de Shannon v. Maple Leaf Services, [1971] C.A. 433; Maple Leaf Services v. Townships of Essa and Petawawa (1963), 37 D.L.R. (2d) 657 (Ont. C.A.); Montreal v. Montreal Locomotive Works Ltd., [1947] 1 D.L.R. 161 (P.C.); and Regina Industries Ltd. v. City of Regina, [1947] S.C.R. 345.
With respect, these decisions were all made in the very special context of the division of powers and the focus of their analysis lies in a province's lack of authority to tax a federal government undertaking. With this in mind we have to recognize that the alter ego theory proceeds directly here from what a court must do in analysing a factual situation when a breach of s. 125 of the Constitution Act, 1867 is alleged. Nevertheless, I reserve comment on another decision submitted by the appellants, namely Halifax Harbour Commissioners, supra, which, although decided in the same context, applies the alter ego concept on the basis of factors having more to do with the actual nature of the corporate organization in question. I shall have occasion to return to this point.
Other decisions have dealt with the issue more directly. My intention is not to review them but to determine what is essential and identify the areas in which the concept has been used. In Lennard's Carrying Co. v. Asiatic Petroleum Co., [1915] A.C. 705 (H.L.), and Clarkson Co. v. Zhelka (1967), 64 D.L.R. (2d) 457 (Ont. H.C.), the alter ego concept proved useful in dealing with the civil or criminal liability of a corporation or its management. In my opinion, the concept has been mainly used to describe the situation where a corporate entity can only act through its directing mind and so to illustrate the control which one may exercise over the other.
Additionally, in Smith, Stone & Knight, Ltd. v. Birmingham Corp., [1939] 4 All E.R. 116 (K.B.), Atkinson J. came to the conclusion that a parent company could sue the persons responsible for damage caused to one of its subsidiaries. For the case at bar, and regardless of this latter conclusion, most relevant is the way in which the judge arrived at the finding that the subsidiary was not operating on its own account but solely as an integral part of the parent company's activities. To this end he consulted a number of decisions, all of which involved tax law, which needless to say is not without relevance to the case now before the Court. Using these decisions, he identified, at p. 121, six factors that could justify treating two corporations as one for tax purposes. I set them out below:
(1) Were the profits treated as the profits of the [parent] company?
(2) [W]ere the persons conducting the business appointed by the parent company?
(3) [W]as the [parent] company the head and the brain of the trading venture?
(4) [D]id the [parent] company govern the adventure, decide what should be done and what capital should be embarked on the venture?
(5) [D]id the [parent] company make the profits by its skill and direction?
(6) [W]as the [parent] company in effectual and constant control?
Finally, I note Aluminum Company of Canada Ltd. v. City of Toronto, [1944] S.C.R. 267, which this time clearly dealt with tax law, and the following passage from Rand J., at p. 271, which illustrates the special relationship sought by the courts in order to justify treating two corporations as one for tax purposes:
By the decision of this Court in the case of City of Toronto v. Famous Players' Canadian Corporation Ltd., it is now settled that the business of one company can embrace the apparent or nominal business of another company where the conditions are such that it can be said that the second company is in fact the puppet of the first; when the directing mind and will of the former reaches into and through the corporate facade of the latter and becomes, itself, the manifesting agency. In such a case, it is not accurate to describe the business as being carried on by the puppet for the benefit of the dominant company. The business is in fact that of the latter. This does not mean, however, that for other purposes the subsidiary may not be the legal entity to be dealt with.
The question, then, in each case, apart from formal agency which is not present here, is whether or not the parent company is in fact in such an intimate and immediate domination of the motions of the subordinate company that it can be said that the latter has, in the true sense of the expression, no independent functioning of its own.
In light of the foregoing cases, a corporation may be regarded as the alter ego of another corporation when there is such a close relationship between them that what apparently concerns one actually pertains to the activities of the other. Undoubtedly a large number of factors can be identified to determine the existence of such a relationship: in my opinion, however, the one that is most explicit and most likely to cover all aspects of the concept is control.
It is clear, however, in the present case that the Buanderie is not under the "immediate domination" or even under the control of the establishments it serves. As I noted earlier, it is run by a board of directors a majority of whom are representatives of the Regional Council and the Ministère des Affaires sociales. The Buanderie's client establishments are certainly represented on the board of directors, but they do not have effective control of the board. It also appears that the Regional Council is independent within the meaning of the A.H.S.S.S. of the institutions it is responsible for supervising. An indication of this is to be found in s. 18(c) A.H.S.S.S., which provides that the function of the Conseil is inter alia "to receive and hear the complaints of persons for whom an establishment . . . has not furnished the . . . services that this Act entitles them to receive. . .". It necessarily follows that those controlling the Buanderie are independent of the institutions the latter serves. I should note, however, that the aforementioned decisions in which the alter ego concept is developed were rendered in the context of the activities of commercial corporations, where the element of control is of overriding importance. In this sense, and to the extent that this factor is different in nature when it concerns the activities of non‑profit corporations, those decisions do not directly answer the question that arises in the present case. We thus cannot conclude that the absence of control necessarily implies rejection of the alter ego theory for non‑profit corporations like the Buanderie.
The fact remains that in the present case the alter ego concept does not in itself provide a solution to the appellants' problem. At the most elementary level, however, the alter ego concept and the cases discussed above all relate to the appropriateness of giving substance precedence over form and considering two separate corporate entities as one and the same person when this is consistent with the wording and purpose of the statute in question. This is essentially in keeping with one of the principles formulated by this Court for the interpretation of tax legislation in Corp. Notre‑Dame de Bon‑Secours, supra, decided concurrently herewith. It will be pointed out that this principle should not be extended unduly by being applied as soon as it is developed to questions involving the nature of a corporate organization. I would note that in the present case the precise issue is the intrinsic nature of a corporate organization for tax purposes. That being so, the legislation concerned must be interpreted in light of the general principles formulated by this Court.
In this case the search for the legislative intent reveals a fundamental purpose, namely efficiency in the operation of hospital laundries. This purpose is in turn illustrated by two specific manifestations, namely the merger and the pooling of resources, and the introduction of a single, independent administrator a majority of the members of which are appointed by the Regional Council and the Ministère des Affaires sociales. I note that this change in legal structure does not alter the fact that the same hospital activities continued on behalf of the same institutions. In view of this it could be argued forthwith that it would go against common sense for the legislature to have intended to penalize public establishments for their decision to combine into a more efficient and less costly form of organization. That is quite true. The fact remains, however, that the Regional Council and the Buanderie are independent organizations which are not controlled by the establishments for whose benefit they operate.
With this in mind, should the appellants be treated like the establishments they serve for tax purposes? Halifax Harbour Commissioners, supra, is worthy of closer consideration. That case, which at first glance is no different from those submitted by the appellants in support of the alter ego theory, was nevertheless the subject of an interesting comment by Brossard J.A. in the Court of Appeal. I reproduce it again for the sake of convenience:
[translation] In my opinion, for there to be a similarity between the facts of that case . . . and those of the case at bar, [the Buanderie] would have to be a mere manager and administrator of laundry and linen services provided within each public establishment on behalf of and under the direct authority of the individual administration of each of those establishments, which is not the case. [Emphasis in original.]
The two differentiating points noted by Brossard J.A., namely operation in common by several establishments, all of which enjoy an exemption, rather than under the direct authority of each of them, and operation somewhere other than within each establishment, do not seem to me to be conclusive. We must accordingly look more closely at the corporate nature of the Halifax Harbour Commissioners ("the corporation"). In that case Duff C.J. undertook a very detailed analysis of the rights and powers conferred on the corporation by the statute creating it (S.C. 1927, c. 58). Before examining their substance, however, it is worth noting the purposes for which the corporation was created. These were twofold: first, the responsibility of managing and administering the Port of Halifax; second, regulation of the way in which navigation was carried on within the port. It appears from Duff C.J.'s analysis that the corporation in fact held vast powers of acquisition, alienation, expropriation and regulation in order to carry out the purposes for which it had been created. The broad latitude which it appeared to enjoy a priori was nonetheless limited by the obligation which it had to submit each of these activities to the approval of the Governor General in Council. This Court, per Duff C.J., saw this situation as demonstrating the element of control essential for the alter ego concept to apply. I would mention again that this aspect is not in itself of any assistance in solving the problem now before this Court.
I note, however, the importance attached to the patrimonial aspect in that decision. The real property on which the corporation was operating was owned exclusively by the Crown. The same was true for any subsequent acquisition of real property, which was to be acquired for and on behalf of His Majesty. Further, again under the Act incorporating it, the corporation could also borrow money without being subject to a requirement that it come from the Government of Canada or another source. The facts nevertheless indicated that the government had assumed some financial responsibility for the corporation by undertaking to supply capital in the subsequent years.
In analysing legislative intent, the courts are entitled to give precedence to substance over form in implementing tax legislation. A common factor, namely the patrimonial aspect, emerges from Halifax Harbour Commissioners, supra, and the case at bar.
In this connection, as I noted earlier, the legislation at issue makes it clear that the intent of the legislature was to promote efficiency in the operation of hospital laundries. In its concrete effects this objective took the following form: first, for administrative purposes a sector of hospital activity was allocated by the legislature to an independent third party which incurred no risk in the undertaking; second, from the standpoint of patrimony there was an almost complete identity between the appellants and the establishments for whose benefit they operated.
The evidence revealed that none of the parties concerned make a profit, as the Buanderie's budget was based entirely on the operating costs assumed by the hospital establishments and the reception centres. I also note that ownership of the assets needed to provide laundry services remains, beyond the legal form, with the member establishments; clearly, in the event of a dissolution of the Buanderie and distribution of its assets, those establishments would see any assets covered in whole or in part by a grant from the Ministère des Affaires sociales revert to the Regional Council. In my opinion that does not lead to disregarding the fact that whatever was not provided by the government would become the property of the hospitals and reception centres. Finally, it is the latter, and not the administrator imposed on them, namely the Regional Council, that continue to have full financial responsibility for the operation by assuming inter alia all its operating costs.
It seems to me that the Regional Council and the Buanderie form a single "conduit" to the establishments they serve and that this situation is not affected by the fact that administrative functions or the titular ownership of property have been conferred on them. In pursuing its objective the legislature made no essential change to the substance of the patrimony of the establishments as a whole, whether in terms of financial responsibility or ownership of property. Taxation relates solely to patrimony. It may therefore be concluded that, in requiring the creation of a community laundry, the legislature did not intend to affect the exempt status which had always applied to the public establishments before they were merged. No indication is given to the contrary. Such a conclusion would run counter to the legislature's aim of reducing costs. Moreover, as a concluding note, the change of policy of the Ministère des Affaires municipales has never been reflected in the legislation.
VI ‑ Conclusions
In light of the rules of interpretation developed in Corp. Notre‑Dame de Bon‑Secours, supra, and set out in the first part of my analysis, I conclude that the alter ego concept does not apply directly to the situation of the Regional Council and the Buanderie in the case at bar. Nonetheless, in determining the legislative intent it seems to me that the identity of patrimony between the appellants and their member institutions is such that the former should not be treated differently from the latter for tax purposes. In my view, this is consistent with the specific realities of the links between the institutions in general. Accordingly, I am of the view that the Buanderie can use s. 236(1.1) A.M.T. in order to benefit from the exemption from business tax for 1986, 1987 and 1988.
The same conclusion applies to the Regional Council in respect of real estate tax for 1984, 1985, 1986 and 1988 pursuant to s. 204(14) A.M.T. The position is not the same, however, for 1987. When the Regional Council sought to amend the conclusions of its action to set aside so as to include 1987 and 1988, it was met by the one‑year prescription of s. 172 A.M.T. for the 1987 fiscal year. For each year in question, the Regional Council had nevertheless duly filed a complaint with the Bureau de révision de l'évaluation foncière du Québec ("BREF"). In Abel Skiver Farm Corp. v. Town of Sainte‑Foy, [1983] 1 S.C.R. 403, at p. 435 et seq., this Court held per Beetz J. that the various remedies open to the taxpayer were complementary. It was noted, however, that the BREF remained subject to the superintending and reforming power of the Superior Court and that the response of its members on questions of law did not have the final nature of res judicata (at p. 437):
It is . . . why the courts have not required the taxpayer to proceed before the administrative tribunals: they have concluded that in this matter of taxation and exemption a taxpayer retains the right to go directly to a judicial forum like the Superior Court, which has the power to decide the matter with the force of res judicata.
What is the position if, instead of deciding the matter on the merits, the Superior Court merely finds that the action brought before it is extinguished? Does the BREF which duly has a complaint before it lose its jurisdiction? Two points must be considered in order to answer these questions.
First, the direct action in nullity brought pursuant to art. 33 of the Code of Civil Procedure, R.S.Q., c. C‑25, and authorized by s. 172 A.M.T., derives from an essentially discretionary power (see Immeubles Port Louis Ltée v. Lafontaine (Village), [1991] 1 S.C.R. 326). The somewhat unusual but entirely valid legal provision which must be taken into account in municipal taxation is the limitation of the exercise of the remedy to one year pursuant to s. 172 A.M.T. This must be seen as a desire by the legislature to introduce a measure of certainty and coherence into the application of tax legislation. It would be contrary to this objective for a taxpayer to be able to go back to some other forum and to raise the same questions he had put to the Superior Court, when he himself initially chose to go before that court.
Furthermore, in this regard the purpose of the action in nullity in the Superior Court is to determine the validity of an action or regulation adopted under the law. A taxpayer who chooses to go directly to this forum, which is called superior on account of its inherent superintending and reforming powers, agrees at the outset that if his action is dismissed the matter will be res judicata so far as an administrative tribunal like the BREF is concerned. There is no basis here for making a distinction between a decision of the court on the merits of the case and a mere finding that the action before it is prescribed. This superintending and reforming remedy must be exercised in accordance with the rules applicable to it. If it is dismissed because the latter were not observed, the effect is nevertheless to make the disputed action valid and beyond challenge between the parties.
Finally, it is not this Court's function to order reimbursement of the taxes paid by the appellants under the aforementioned entries, since ss. 182, 248 and 249 A.M.T. govern how this will be done, pursuant to the judgment of a court setting aside the entries in question. Under s. 182 A.M.T., it is the clerk of the municipal corporation who has the duty of amending the roll to make it comply inter alia with a final decision rendered on an action to set aside the roll. That amendment must be made within 30 days of the final judgment. Additionally, under s. 249 A.M.T. a refund of taxes is not due as the result of a circumstance contemplated in s. 248 (including an amendment of the roll made pursuant to s. 182) until 30 days after the roll has been amended.
VII ‑ Disposition
The appeal is allowed in part. The judgments of the Superior Court and the Court of Appeal are set aside and the actions are allowed as follows:
For the Regional Council, file No. 500‑05‑011061‑866 (Sup. Ct.) and No. 500‑09‑001519‑891 (C.A.), the Court:
Declares null and void certificates of amendment Nos. 816001 for 1984 and 816002 for 1985 issued by the Communauté urbaine de Montréal;
Declares null and void both for the real estate valuation roll and for the collection roll the taxable entry for 1984, 1985, 1986 and 1988 inclusive referred to in account No. 38774250;
Declares null and void the notice of amendment to the roll for 1984, 1985 and 1986, as well as the invoices for municipal, school and olympic taxes for 1984, 1985, 1986 and 1988 in respect of the immovable referred to in invoice 38774250;
The whole with costs throughout.
For the Buanderie, file No. 500‑05‑009889‑872 (Sup. Ct.) and No. 500‑09‑001518‑893 (C.A.), the Court:
Declares null and void certificates of amendment to the roll of rental values Nos. 033764 for 1986 and 012819 for 1987 issued by the Communauté urbaine de Montréal;
Declares null and void for the roll of rental values the taxable entry for 1986, 1987, 1988 referred to in account No. 38725295;
Declares null and void the notices of amendment to the roll for 1986 and 1987 and the water, services and business taxes referred to in account 38725295, as well as the tax invoices sent pursuant thereto;
Declares null and void for the roll of rental values the taxable entry for 1988 referred to in No. 38725295;
The whole with costs throughout.
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