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Administrative - Regulatory Charges and Administrative Fines

. Reference re Greenhouse Gas Pollution Pricing Act

In Reference re Greenhouse Gas Pollution Pricing Act (SCC, 2021) the Supreme Court of Canada considers the constitutional difference between 'regulatory charges' and taxes:
[212] Finally, I must address Ontario’s argument that the fuel and excess emission charges imposed by the GGPPA do not have a sufficient nexus with the regulatory scheme to be considered constitutionally valid regulatory charges.

[213] To be a regulatory charge, as opposed to a tax, a governmental levy with the characteristics of a tax must be connected to a regulatory scheme: Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 CanLII 655 (SCC), [1999] 3 S.C.R. 134, at para. 43; 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7, [2008] 1 S.C.R. 131, at para. 24. In Westbank, Gonthier J. set out a two-step approach for determining whether a governmental levy is connected to a regulatory scheme. The first step is to identify the existence of a relevant regulatory scheme. If such a scheme is found to exist, the second step is to establish a relationship between the charge and the scheme itself: Westbank, at para. 44; 620 Connaught, at paras. 25-27.

[214] Ontario does not dispute that the GGPPA creates a regulatory scheme. Its argument instead focuses on the second step of the Westbank analysis: determining whether the levy has a sufficient nexus with the regulatory scheme. The GGPPA does not require that revenues collected under Parts 1 and 2 be expended in a manner connected to the regulatory purpose of the GGPPA. Ontario argues that this undermines the levies’ characterization as regulatory charges; in its view, the nexus requirement cannot be met solely by showing that the regulatory purpose of a charge is to influence behaviour. It submits that, for there to be a nexus with the regulatory scheme, the revenues that are collected must be used to recover the cost of the scheme or be spent in a manner connected to a particular regulatory purpose, and that a conclusion to the contrary would undermine the “no taxation without representation” principle that underlies s. 53 of the Constitution: A.F., at para. 97.

[215] It is well-established that influencing behaviour is a valid purpose for a regulatory charge. As Rothstein J. put it in 620 Connaught, a regulatory charge may be intended to “alter individual behaviour”, in which case “the fee may be set at a level designed to proscribe, prohibit or lend preference to a behaviour”: para. 20. Two examples Gonthier J. mentioned in Westbank were that “[a] per-tonne charge on landfill waste may be levied to discourage the production of waste [and that a] deposit-refund charge on bottles may encourage recycling of glass or plastic bottles”: para. 29. However, the case law on the required nexus in the Westbank framework for a behaviour-modifying charge is not settled. In 620 Connaught, the Court explicitly left the question “[w]hether the costs of the regulatory scheme are a limit on the fee revenue generated, where the purpose of the regulatory charge is to proscribe, prohibit or lend preference to certain conduct,” for another day: para. 48.

[216] I agree with Strathy C.J.O. that regulatory charges need not reflect the cost of the scheme: paras. 159-60; see also Canadian Assn. of Broadcasters v. Canada (F.C.A.), 2008 FCA 157, [2009] 1 F.C.R. 3. As contemplated in 620 Connaught, the amount of a regulatory charge whose purpose is to alter behaviour is set at a level designed to proscribe, prohibit, or lend preference to a behaviour. Canada rightly observes that limiting such a charge to the recovery of costs would be incompatible with the design of a scheme of this nature: R.F., at para. 138. Nor must the revenues that are collected be used to further the purposes of the regulatory scheme. Rather, as Gonthier J. suggested in Westbank, the required nexus with the scheme will exist “where the charges themselves have a regulatory purpose”: para. 44. Where, as in the instant case, the charge itself is a regulatory mechanism that promotes compliance with the scheme or furthers its objective, the nexus between the scheme and the levy inheres in the charge itself.

[217] This Court’s decision in Allard Contractors Ltd. v. Coquitlam (District), 1993 CanLII 45 (SCC), [1993] 4 S.C.R. 371, is of no assistance to Ontario. Ontario seizes on an aspect of Allard that Iacobucci J. specifically framed as an effort “to determine the scope of s. 92(9) rather than to define ‘taxation’ as such”: p. 398. The provincial licensing power under s. 92(9) raised specific questions about its interplay with the s. 92(2) limitation on provincial taxation to direct, as opposed to indirect, taxation, as well as about its relationship to other provincial heads of power. It had been argued that to give s. 92(9) a meaning independent of the other provincial heads of power, it ought not to be limited to raising money to support a regulatory scheme. In that context, very different from the one in the case at bar, Iacobucci J. remarked in obiter that a finding that there was “a power of indirect taxation in s. 92(9) extending substantially beyond regulatory costs could have the more serious consequence of rendering s. 92(2) meaningless”: pp. 404-5 (emphasis in original). It was unnecessary to decide the point, however, because the levy in Allard was intended only to cover the costs of the regulatory scheme: p. 412.

[218] It does not follow from Allard that a finding that there is a nexus with the regulatory scheme where the levy is a regulatory mechanism would, as Ontario asserts, “render s. 53 meaningless”: A.F., at para. 100. Section 53 codifies the principle of no taxation without representation by requiring any bill that imposes a tax to originate with the legislature: Eurig Estate (Re), 1998 CanLII 801 (SCC), [1998] 2 S.C.R. 565, at para. 30. Section 53 applies expressly to taxation. The Westbank approach remains adequate for the purpose of distinguishing between taxes and regulatory charges in order to determine whether s. 53 applies. Holding that the required nexus can be found to exist by establishing that the charge itself is a regulatory mechanism does not open the door to disguised taxation. Instead, in every case, the court must scrutinize the scheme in order to identify the primary purpose of the levy on the basis of Westbank. An attempt to circumvent s. 53 by disguising a tax as a regulatory charge without a sufficient nexus to a regulatory scheme would be colourable.

[219] In the instant case, there is ample evidence that the fuel and excess emission charges imposed by Parts 1 and 2 of the GGPPA have a regulatory purpose. Ontario does not assert, nor would such an assertion be supportable, that the levies in this case amount to disguised taxation. The GGPPA as a whole is directed to establishing minimum national standards of GHG price stringency to reduce GHG emissions, not to the generation of revenue. As Richards C.J.S. aptly observed, the GGPPA “could fully accomplish its objectives . . . without raising a cent”: para. 87. This is true of both Part 1 and Part 2. The levies imposed by Parts 1 and 2 of the GGPPA cannot be characterized as taxes; rather, they are regulatory charges whose purpose is to advance the GGPPA’s regulatory purpose by altering behaviour. The levies are constitutionally valid regulatory charges.


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