Constitution Act, 1867

The taxpayer implemented an estate freeze, subscribed for common shares of the company at a low value and contributed those shares to his TFSA at a low value. CRA assessed him advantage tax under s. 207.05 equalling 100% of the appreciation of the shares within his TFSA before the shares’ sale – and, following taxpayer submissions, proposed to waive a portion of the tax pursuant to s. 207.06 so as to reduce the effective rate of advantage tax to his marginal federal and provincial tax rate.

The question posed to the Tax Court under Rule 58(1) was whether s. 207.05 offends s. 53 of the Constitution Act, 1867 and is unconstitutional, with the taxpayer arguing that under ss. 207.05 and 207.06 “the Minister sets the rate of tax, not Parliament, and this offends section 53” (para. 4).

Stratas JA noted that the question as posed clearly should be answered in the negative, as s. 207.05 itself clearly imposed a tax and delegated nothing to the Minister.

He considered, as did the Tax Court below, that the Court could exercise its discretion to go beyond the limits of the question posed and determine the broader issue as to whether ss. 207.05 and 207.06, separately or in their combined effect, constituted an invalid delegation of taxation power to the Minister. However, he found that the Court should not so exercise its discretion, stating (at para. 18):

[W]here the foundation supporting a ruling on a constitutional question is missing or faulty and we do not have to decide the question, we should not do so … . [H]ere: we lack adequate submissions and fully developed reasons from the Tax Court.

In outlining the issues on which the Court needed, and had not received, adequate assistance, he stated (at paras. 13-15):

[A]fter a full examination of the text in light of its context and purpose, the Court might conclude that Parliament’s provision, in its authentic meaning, satisfactorily constrains the Minister’s discretion and defines what she can do and how she should do it. …

But in other cases, the Court might conclude that Parliament’s provision, in its authentic meaning, gives the Minister an unconstrained, undefined discretion without criteria. The Minister, not Parliament, would be creating and imposing the tax or coming up with the tax rate on her own. She would be a law unto herself.

Under that scenario, any measure adopted by the Canada Revenue Agency to guide the improperly wide discretion Parliament has given the Minister, such as policies, practices or interpretation bulletins, would be irrelevant. They would not fix the fatal problem: Parliament’s over-delegation of taxation power in the first place contrary to section 53 … .

Strathy, CJO rejected the submissions of Ontario that the fuel charge and excess emissions charges imposed under the Greenhouse Gas Pollution Pricing Act, Part 5 of the Budget Implementation Act, 2018, No. 1 are unconstitutional because they cannot be supported under any federal head of power. He stated (at paras. 76-77):

The purpose of the Act … is to reduce GHG [green-house gas] emissions on a nation-wide basis. It does so by establishing national minimum prices for GHG emissions, through both the fuel charge and the [Output-Based Pricing System (the “OBPS”) excess emissions charge. Its effect is to put a price on carbon pollution, thereby limiting access to a scarce resource: the atmosphere’s capacity to absorb GHGs. The pricing mechanisms also incentivize behavioural changes.

The Act’s purpose and effects demonstrate that the pith and substance of the Act can be distilled as: “establishing minimum national standards to reduce greenhouse gas emissions.”

After noting (at para. 80) that “there is today a greater appreciation that environmental pollution can transcend national and international boundaries and it is no longer thought of as a purely local concern,” and in finding that the charges were within the national concerns branch of the federal peace, order and good government (POGG) power, he stated (at paras. 113-114, 133):

Counsel for the Attorney General of British Columbia proposes a useful summary of the “singleness, distinctiveness and indivisibility” requirements: (1) singleness requires that the matter be characterized as specifically and narrowly as possible, at the lowest level of abstraction consistent with the fundamental purpose and effect of the statute; (2) distinctiveness requires that the matter be one beyond the practical or legal capacity of the provinces because of the constitutional limitation on their jurisdiction to matters “in the Province”; and (3) indivisibility means that the matter must not be an aggregate of matters within provincial competence, but must have its own integrity – this normally occurs where the failure of one province to take action primarily affects extra-provincial interests, including the interests of other provinces, other countries and Indigenous and treaty rights. This summary is a helpful guide.

Establishing minimum national standards to reduce GHG emissions meets these requirements. …

Confining Canada’s jurisdiction to the establishment of minimum national standards to reduce GHG emissions does not result in a massive transfer of broad swaths of provincial jurisdiction to Canada, as Ontario claims.

Although it was unnecessary to address any other bases for finding the charges to be intra vires he briefly noted (at para. 148);

I agree with Ontario that, given its pith and substance, the Act does not fall under the federal taxation power enumerated in s. 91(3). As noted, the Act falls under the national concern branch of the POGG power.

The ARQ, which was seeking to determine whether a supposed Alberta trust was resident in Quebec, issued a requirement to a Calgary branch of the National Bank of Canada for various bank records respecting the trust under the Quebec equivalent of ITA s. 231.2(1). The requirement was sent directly to the branch rather than to the bank’s head office in Quebec because this was required under s. 462(2) of the Bank Act. Before concluding that the ARQ had not exceeded its territorial competence in making this requirement, Rowe J found that the sending of the requirement to the Calgary branch (which was deemed to be a separate entity only for the limited purposes of s. 462)) did not detract from the fact that it was sent to a person (the bank) that operated in Quebec, stating (at para. 88):

It would be absurd if the procedural requirements imposed by s. 462(2) … were understood to affect the ARQ’s authority to issue a formal demand to a bank that operates within its territorial jurisdiction.

He added (at para. 90):

[I]f a corporate entity had no operations in Quebec, it is not clear whether the ARQ would have the authority to issue a formal demand to that entity.

The Nisga'a Tribal Council negotiated a treaty which was ratified by Parliament and the BC Legislature. The treaty authorized the Nisga'a government to "make laws in respect of direct taxation of Nisga'a citizens on Nisga'a Lands in order to raise revenue for Nisga'a Nation or Nisga'a Village purposes." In rejecting arguments that these powers were inconsistent with ss. 53, 54 and 90 and the exclusive allocation of taxing authority under ss. 91 and 92 of the Constitution Act. 1867, Harris JA stated (at para. 127):

[O]nly Parliament (or the Legislature) may impose a tax ab initio, but that taxing authority may be delegated if Parliament or the Legislature does so clearly and unambiguously. Once that condition is met, the delegate may establish the details and mechanisms of the taxation. All that has occurred here.

Provisions of the Taxation Act (Quebec) which subjected the taxpayer to Quebec income tax on retiring allowances received by him from a professional partnership of which he had been a member and which carried on business in Quebec were intra vires given that the partnership agreement itself established that the amounts received by him represented a share of profits of the partnership. Accordingly, the assessment was not based on a legal fiction and the deeming provisions operated to determine the portion of the taxpayer's income that could be allocated to the partnership's Quebec activities.

Probate fees imposed by Ontario constituted taxes rather than fees given that they were enforceable by law (there being a practical and legal necessity for executors in most instances to obtain letters of probate), levied by a public body (the Ontario Court (General Division)), intended for public purposes (the defraying of costs of court administration in general, and not simply the costs of granting probate) and no nexus existed between the amount of the levy (which was calculated on an ad valorem basis) and the cost of the service for granting letters probate. Moreover, a probate fee was a direct tax because payment of the tax by executors was only made in their representative capacity with the intention that the estate would bear in the burden of the tax. However, the fees were ultra vires under s. 53 of the Constitution Act given that they were not imposed pursuant to a bill that originated in the Ontario legislator and, instead, had only been authorized by the Lieutenant Governor in Council.

The appellant, which was an Ontario resident corporation with an Ontario head office and an Ontario permanent establishment and no permanent establishment in the United States paid the remuneration of U.S. employees who provided services to it exclusively in the United States. LaForme J. found that the position of employee health tax on the remuneration paid to the U.S. employees qualified as a tax imposed within the province given that the tax was assessed against an employer "found" in the province as measured by the total amount of remuneration paid to its employees (i.e., the economic activity of an employment contract), and that it was irrelevant that the work was not carried out within the province because that was not the subject matter of the tax. The subject matter was the contract of employment and the obligations that flowed from it, including the payment of remuneration.

The main object of the Income Tax Act is not to raise money by direct taxation for provincial purposes, but to raise money by taxation, and Parliament is not prohibited from raising money in order to make payments to the provinces for provincial purposes.

The Gasoline Tax Act (B.C.), which levied a per-gallon tax on "any person who, within the Province, purchases or receives delivery of gasoline for his own use or consumption" was intra vires, and it was irrelevant that the purchasing airlines consumed 99% of the fuel during interprovincial or international flights. "Since the tax is imposed in the province in respect of the purchase of gasoline, it does not matter where the gasoline is consumed, whether it is in the airspace or in another province."

An amendment to the Gasoline (Coloured) Tax Act (B.C.), which subjected to tax net bunker fuel which was imported into B.C. from the U.S. by the petitioner as agent for the operators of foreign ships, then delivered by it by barge to the ships in Vancouver, was held to be intra vires. The tax imposed by this amendment was direct because it was intended to be borne by the ship operator taking delivery of the fuel (notwithstanding that the ship operators would pay the world market price for the fuel regardless of the level of the tax). Furthermore the subject matter of the tax - bunker fuel taken by barge to the Port of Vancouver - was "within the Province."

In finding that a tax on the net royalty income from the grant of rights to engage in mining operations was an income tax, Martland J. stated (p. 591):

"[T]he tax ... is demanded from the very person who is intended should pay it. It was not imposed in the expectation or with the intention that it should be passed on to another."

In finding that New Brunswick legislation imposing retail sales tax on a retail merchandising company with respect to the value of catalogues distributed by it free to customers and potential customers was intra vires, Laskin C.J. stated (p. 399):

"Where, as in the present case, the tax imposed in respect of the free distribution of catalogues takes no account of what ultimately happens to the catalogues, whether they are used or discarded, and is unrelated to any purchases made from the catalogues, it is manifest to me that the tax is so diffused in its impact that it cannot be said that there is any clearly traceable way in which the tax can be passed on. Moreover ... the tax in the present case is not 'related or relateable' to any unit of a commodity or its price, indeed, no commodity is involved."

S.6A of the Succession Duty Act (BC), which provided that "where property of a deceased was situated outside the Province at the time of the death of the deceased, and the beneficiary of any of the property of the deceased was a resident at the time of the death of the deceased, duty under this Act shall be paid by the beneficiary in respect of that property of which he is the beneficiary", was intra vires the Province in that it imposed a tax on persons within the Province (i.e., resident beneficiaries), rather than being a tax on property or on the transmission of property (notwithstanding that s. 6A did not expressly state that the beneficiary is "subject to duty"). Dickson J. stated (at p. 352):

"I read the wording 'duty under this Act shall be paid by the beneficiary' in s. 6A as designating the beneficiary as the subject-matter, as well as the payer, of the tax, and the words 'in respect of that property' in the sense of 'as related to', or 'on the basis of', the property of which he is the beneficiary."

The taxpayer, which had offices and maintenance and service facilities in Manitoba and whose aircraft landed and took off from Manitoba, was assessed under The Retail Sales Tax Act (Manitoba) in respect of depreciation on its aircraft, the use of parts and in respect of liquor service to passengers on through-flights in the air space over Manitoba, and also in respect of flights that landed in Manitoba.

Merely going through the air space over Manitoba did not give the aircraft a situs that would support a tax which constitutionally must be "within the Province", nor did temporarily landing in Manitoba. A substantial, or at least more than a nominal, presence in the Province was required to provide a basis for imposing tax in respect of the entry of aircraft into the Province. Respecting an argument that a tax on Air Canada in respect of its airplanes, parts and services on over flights was validated by regarding these facilities as merely the means of measuring a tax in personam, Laskin C.J. first noted that this was not the way the tax was imposed (it was exacted upon the bringing of tangible personal property to the Province, and this had not been shown to occur), and second, the principle expressed in Bank of Toronto v. Lamb could not be extended to make inter provincial and trans national aircraft operations as measuring standards to determine the amount of tax imposed upon an air carrier which had a business office in the taxing province.

In order to divert to itself the increase in the price of oil that occurred after 1973, the Legislature of Saskatchewan enacted a "mineral income tax" approximately equal to 100% of the difference between the price received at the well-head and the price formerly received by the producers. Virtually all the oil produced in Saskatchewan was exported to other parts of Canada or the United States.

Martland J. found (p. 461) that "the tax under consideration is essentially an export tax imposed upon oil production" and therefore was in substance an indirect tax which was beyond the competence of the Saskatchewan Legislature.

The taxpayers, who were trustees (principally foreign trustees) of foreign trusts, submirrws that the Logging Tax Act (BC), which levied a tax on income derived from logging operations carried on within the province, was a tax on persons, so that the appellants, who were not within the province could not be subject to tax under that Act. In rejecting this submission, Laskin C.J. found (at p. 101) that "it is the income derived from those operations, which themselves are limited to the Province, that, in my view, carries the burden of the tax", so that the tax was intra vires

The taxpayer submitted that the tax imposed by the Income Tax Act (Alberta) was a tax on income rather than a tax on persons, so that the Province was precluded from imposing tax on the taxpayer's foreign source income. Kerwin J. stated (at p. 444) that he was of the opinion "that the Act, taken as a whole, imposes a tax on a person such as the appellant who was found in the province with respect to his income, including that derived from sources outside the province".

Bonds of two Canadian railway companies that were guaranteed by the government of Canada were specialties. Furthermore, the situs of intangible property, for purposes of the constitutional requirement that the province of Quebec could only impose a tax upon property transmitted owing to death in respect of subjects having a situs within the province, was to be determined on common law principles. Accordingly, a provision of the Quebec Succession Duties Act that purported to impose succession duties in respect of the bonds on the basis that the debtors were domiciled within Quebec were, to that extent, ultra vires the Province given that the instruments constituting those specialities were, at the time of the testator's death in New York City, physically situate in Toronto. Duff C.J. noted (at p. 673) that:

"A provincial legislator is not competent to prescribe the conditions fixing the situs of intangible property for the purpose of defining the subjects [of taxation] in respect of which its powers of taxation under s. 92(2) may be put into effect."

The Succession Duties Act (Alberta) made the executors of the respondent estate of an Alberta domiciled executor personally liable for the duties, with the consequence that the tax was ultra vires as an indirect tax. In addition, respecting the question whether the tax was "within the province" with respect to property of the testator which was situate outside the province of Alberta, the Court, in applying the principle (stated at p. 718) that:

"the Province, on the death of a person domiciled within the Province, is not entitled to impose taxation in respect of personal property locally situate outside the Province but ... is entitled to impose taxation on persons domiciled or resident within the Province in respect of the transmission to them under the Provincial law of personal property locally situate outside the Province"

found that under the terms of the statute "the subject-matter of the taxation is the property and not the transmission of the property", with the result that the "within the Province" requirement was not satisfied.

At the time of the death of the testator, who was domiciled in Nova Scotia, he held in Nova Scotia shares of the Royal Bank of Canada whose constating statute provided that the Bank could maintain in any province in which it had branches a share registry office at which shares could be validly transferred. There was such an office in Nova Scotia. In finding that those shares were situate within Nova Scotia rather than Quebec, so that they were not subject to Quebec succession duty, the Court stated that the true test was "where could the shares be effectively dealt with?" and went on (at p. 376) to say that "the answer in the case of these shares is in Nova Scotia only, and that answer solves the question."

The deceased, before his death while domiciled in Ontario, transferred in New York securities including U.S. municipal debentures to his sons. His estate was assessed for succession duty, apparently on the basis that the transfers had occurred with intent that they take effect after his death. The Court held (at p. 513) that "any attempt to levy a tax on property locally situate outside the province is beyond their competence."

A capital tax imposed by Quebec on the appellant bank, which was incorporated in Canada, had its principal place of business in Toronto but had an agency in Montreal, was intra vires given that the tax was a direct tax under the definition of that term by John Stuart Mill and given that the appellant was found within the province (it carried on business there).

The fact that the Natural Gas and Liquids Tax and the Petroleum and Gas Revenue Tax may have inhibited the City of Medicine Hat to some extent in exercising the powers granted to it did not support the conclusion that those taxes were aimed at that result, i.e., the impairment of an instrumentality of the Province.

The Federal Court had no jurisdiction to entertain a claim against Department officials for collecting taxes in a fashion not authorized by the Income Tax Act, because such an action was in tort, which was a matter of provincial law, rather than being an action for damages provided for by federal law. On the other hand, an action against the Crown for vicarious liability in tort for the acts of its servants is founded on federal law, namely, s. 3(a) of the Crown Liability Act, and thus can be entertained.

BCI was a B.C. Crown agent which was formed to manage and hold investments for the provincial pension plans. The governing B.C. Act (the “PSPSA”) and Regulation created a statutory trust under which each pension plan only had an entitlement to units in the investment pools managed by BCI and did not have ownership in any investment pool assets. CRA took the view (and ultimately assessed BCI for $40M in uncollected GST on the basis) that ETA s. 267.1(5)(a) deemed the statutory trust to be a person separate from BCI as agent for the provincial Crown, so that the investment services of BCI were supplied to that separate person.

In finding that such assessments would contravene s. 125 of the Constitution Act, 1867 but for the effect of Intergovernmental Agreements between B.C. and the federal government, Karakatsanis J first noted that such a contravention would require that “the subject matter of the tax must be property belonging to the federal Crown in the case of a tax imposed by the provincial legislature and to the provincial Crown in the case of a tax imposed by Parliament” (para. 68), before stating (at para. 76):

BCI, as trustee, legally owns the assets held in the Portfolios. In this case, the ETA places the burden of the tax on the Portfolio assets to which BCI holds legal title. BCI, a Crown agent, has thus successfully shown that it has an ownership interest in the property which bears the federal tax. I recognize that the beneficiaries of the trust may also be seen as bearing the burden of the tax. However, the key point is that the provincial Crown’s interest is being taxed under federal law, which is not permitted by s. 125.

The petitioner (“bcIMC”) was created as a provincial Crown corporation by special Act (the “PSPPA”) to manage and hold investments for B.C.’s public sector pension plans as Crown agent. A Regulation made under the PSPA provided that bcIMC was to hold various investment assets in its pooled investment portfolios, the (pension plan) investors in a pooled portfolio were to be issued units of the portfolio in proportion to their interests, that "All the assets of a portfolio are held in trust by the [bcIMC]” and that “ownership in any asset in a portfolio must not be attributed to a participating fund.” The PSPPA stated that bcIMC “is not liable for taxation except as the government is liable for taxation.” The Province and Canada signed a reciprocal taxation agreement (“RTA”) which provided that the Province and its agents would pay any tax imposed under Part IX of the ETA. Following a GST audit, bcIMC brought an application for a declaration that it was not subject to tax under the ETA. CRA subsequently assessed bcIMC for HST on fees which bcIMC took out of the funds under its administration, on the basis inter alia that ETA s. 267.1(5)(a) deemed the statutory trust impressed on bcIMC’s investments to be a separate (non-Crown) person who thus was not exempt from federal tax – and also on the basis that the investment funds did not belong to bcIMC or the province but, rather, to the pension fund members.

The Court below found that bcIMC as a provincial Crown agent was immune from taxation under s. 125 of the Constitution Act, 1867, but found that the RTA together with a second agreement between Canada and the Province (the “CITCA”) was legislatively binding on bcIMC.

Willcock JA found (at para. 113) that ETA s. 267.1(5)(a) and related rules effected “a change in the identity of the recipient of the services from the trustee, here the exempt Province, to the trust, a third party” and thereby “had the effect of separating the Crown from its assets” and that instead “bcIMC is immune from Canada’s taxation” (para. 114).

However, in also affirming the finding below as to the binding effect of the RTA and the CITCA on the Province’ agent (bcIMC), he stated (at para. 142):

[T]here is no doubt that agreements between the federal and provincial governments may be mere political agreements or legally enforceable. As noted in South Australia [(1962), 108 C.L.R. 130], where any particular agreement falls on this spectrum will depend on the circumstances of the case and whether the parties intended to be legally bound. In my opinion, the RTA and the CITCA bear the hallmarks of agreements that were intended to create legally binding obligations.

He further stated (at paras. 148-150) that “enforcement of the [Agreement] is possible” pursuant to s. 19 of the Federal Courts Act (Canada) and s. 1(1)(a) of the Federal Courts Jurisdiction Act (B.C.).

The petitioner (“bcIMC”) was created as a provincial Crown corporation by special Act (the “PSPPA”) to manage, and hold investments in trust for, B.C.’s public sector pension plans as Crown agent. The PSPPA stated that bcIMC “is not liable for taxation except as the government is liable for taxation.” The Province and Canada signed a reciprocal taxation agreement (“RTA”), effective July 1, 2010, in which the Province committed itself and its agents to pay any tax imposed under Part IX of the ETA. On November 30, 2009, Canada and the Province entered into the Comprehensive Integrated Tax Coordination Agreement (“CITCA,” and with the RTA, the “Agreements”), where the Province agreed to implement the Harmonized Sales Tax. Well after bcIMC brought this application for a declaration that it was not subject to tax under the ETA, CRA assessed bcIMC for HST on fees which bcIMC took out of the funds under its administration, on the basis inter alia that ETA s. 267.1(5) deemed the statutory trust impressed on bcIMC’s investments to be a separate (non-Crown) person who thus was not exempt from federal tax – and also on the basis that the investment funds did not belong to bcIMC or the province but, rather, to the pension fund members.

In agreeing that bcIMC as a provincial Crown agent was immune from taxation under s. 125 of the Constitution Act, 1867 and s. 17 of the Interpretation Act, Weatherill J stated (at paras 131-132):

… Canada cannot, under the guise of the deemed trust provisions of the ETA or otherwise, defeat the Province’s immunity from taxation. Because bcIMC is statutorily mandated by the Province to provide investment management services to the Portfolios, bcIMC constitutionally enjoys the same tax immunity as the Province….

Canada…says that the Province and bcIMC do not own the Portfolios because the ultimate destination of the assets within the Portfolios is those individuals entitled to pension benefits. However, the PSPPA states that bcIMC holds the Portfolios as a statutory trustee and as such is the Portfolio’s legal owner.

However, Weatherill J found that the Agreements were legislatively binding on bcIMC, stating (at para 166):

… [I]n my view there is specific legislation that creates the obligation on bcIMC to pay the Tax. Section 16 of the PSPPA states that bcIMC “…is not liable for taxation except as the government is liable for taxation”. That language, in my view, is the specific legislative authority required to bind bcIMC to the Agreements and should be interpreted accordingly. Expressed another way, this section means that if the Province is liable for taxation (as it is because it signed the Agreements), so too is bcIMC. It is specific statutory language that cannot be ignored.

Accordingly, Weatherill J declared (at para 173) that notwithstanding bcIMC’s Crown immunity, it was bound by the provisions of the RTA and CITCA respecting the managed assets.

In producing and distributing natural gas the City of Medicine Hat was acting at its own discretion rather than carrying out duties imposed by the Provincial Crown, and the revenues which it earned accrued to it rather than the Province. The City in acting as it did accordingly was not acting as an agent of the Provincial Crown and the Natural Gas and Liquids Tax and the Petroleum and Gas Revenue Tax were not ultra vires in their application to the City.

A laid-off “independent contractor” (Mazraani) appealed to the Tax Court on the basis that he had instead been employed in insurable employment for EI purposes. At the hearing, his alleged employer (Industrial) was an intervenor and called witnesses whose testimony in French would not have been understood by Mazraani. Rather than providing Mazraani with an interpreter, the Tax Court Judge exerted pressure on Industrial's witnesses to testify in English, which counsel for Industrial communicated was problematic. The Judge also required Industrial’s counsel to make his legal arguments in English, even though this was difficult for him.

Before affirming the decision of the Federal Court of Appeal ordering a new hearing before a different judge in response to these violations of the witness’s and counsel’s language rights under s. 133 of the Constitution Act, 1867, s. 19 of the Charter and ss. 14 and 15 of the Official Languages Act, Gascon and Côté JJ stated (at paras. 46, 48, 64 and 78):

[E]ven if there was no error in the decision on the merits, the language rights in question would be compromised if no remedy was granted

… [A] new hearing will generally be an appropriate remedy for most language rights violations. …

The judge’s insistence that [Industrial’s counsel] speak English during most of his argument constitutes a flagrant violation of the lawyer’s language rights.

… [T]he order for a new hearing was fully justified. … The violations were numerous and, in some cases, serious and repeated, and they brought the administration of justice into disrepute.