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Constitution (Non-Charter) - Taxation. Hunt v. Canada
In Hunt v. Canada (Fed CA, 2026) the Federal Court of Appeal dismissed an appeal, here brought against the Tax Court's dismissal of an appeal that challenged the constitutionality of the liability imposed by section 207.01 ['Taxes in Respect of Registered Plans' - Definitions'], 207.05 ['Taxes in Respect of Registered Plans - Tax payable in respect of advantage'] and 207.06 ['Taxes in Respect of Registered Plans - Waiver of tax payable'].
The court considers a challenge to ITA s.207.01, 207.05 and 207.06 regarding TFSAs, and the 'advantage' exception - here on a Constitution Act, 1867 s.53 ['Money Votes; Royal Assent - Appropriation and Tax Bills'] 'no taxation without representation' basis:[8] Second, the appellant says that under this statutory scheme, the Minister — not Parliament — determines the rate of the tax, which, in the end, can be anything from 0% to 100%. But the Minister is part of the executive branch of government. The appellant says that, as a constitutional matter, only our elected representatives in the House of Commons, not the executive branch of government, may impose a tax and determine the rate. This smacks of the classic "“no taxation without representation”" principle. As we shall see, this principle is enshrined in section 53 of the Constitution Act, 1867, 30 & 31 Vict., c. 3 (U.K.), as am. by Canada Act 1982, 1982, c. 11 (U.K.).
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D. Do the provisions violate section 53 of the Constitution Act, 1867?
[31] In many law schools these days, the Charter of Rights is the focus of instruction, almost as if the rest of the Constitution is silent on the subject of fundamental rights, freedoms and democratic protection. Of course, this is not true.
[32] Section 53 of the Constitution Act, 1867 enshrines one of the most fundamental democratic principles in our Constitution, a bulwark against tyranny and oppression: no taxation without representation. See Re Eurig Estate, 1998 CanLII 801 (SCC), [1998] 2 S.C.R. 565 at para. 30; Westbank First Nation v. British Columbia Hydro and Power Authority, 1999 CanLII 655 (SCC), [1999] 3 S.C.R. 134 at para. 19; Ontario English Catholic Teachers’ Assn. v. Ontario (Attorney General), 2001 SCC 15, [2001] 1 S.C.R. 470 at paras. 70-71. To put it another way, the obligation to pay taxes, ultimately punishable in some cases through the criminal law, can only be imposed by those we elect or, as we shall see, through their delegates who are adequately constrained by laws passed by those we elect.
[33] Section 53 provides that any bill "“appropriating…[r]evenue”" or "“imposing any [t]ax or [i]mpost”" must originate in the House of Commons, the body of those we elect. While section 53 expressly applies to the federal House of Commons, it also applies to provincial Legislatures under section 90 of the Constitution Act, 1867.
[34] Section 53 did not spring out of the blue in 1867. Rather, section 53 reflects many experiences over many centuries, such as Runnymede (1215), Ghent (1539), Boston (1773) and Shanghai (1853). In each, the populace reacted against unelected authorities trying to impose taxes upon the citizenry. In our democracy, the obligation to pay taxes to government—if not fulfilled, one subject to charge, conviction and incarceration—can only be imposed by those we elect.
[35] E. A. Driedger, in "“Money Bills and the Senate”" (1968), 3 Ottawa L. Rev. 25 once put it this way (at p. 41):Through the centuries, the principle was maintained that taxation required representation and consent. The only body in Canada that meets this test is the Commons. The elected representatives of the people sit in the Commons, and not in the Senate, and, consistently with history and tradition, they may well insist that they alone have the right to decide to the last cent what money is to be granted and what taxes are to be imposed. [36] In these more complex times, our elected representatives have found it necessary to delegate some aspects of taxation to subordinate officials. For example, in this case, it is the Minister who determines under section 207.06 whether the 100% tax should be waived all or in part.
[37] As explained in Ontario English Catholic Teachers’ Assn. at para. 74, such a delegation can comply with section 53:[I]f the legislature expressly and clearly authorizes the imposition of a tax by a delegated body or individual, then the requirements of the principle of “no taxation without representation” will be met. In such a situation, the delegated authority is not being used to impose a completely new tax, but only to impose a tax that has been approved by the legislature. The democratic principle is thereby preserved in two ways. First, the legislation expressly delegating the imposition of a tax must be approved by the legislature. Second, the government enacting the delegating legislation remains ultimately accountable to the electorate at the next general election. [38] As well, the delegated power must be limited to setting the "“details and mechanism”" of the tax: Confédération des syndicats nationaux v. Canada (Attorney General), 2008 SCC 68, [2008] 3 S.C.R. 511 at para. 92.
[39] The appellant says that section 207.05 establishes a tax base equal to the tax-free savings account advantage received (see section 207.01) while section 207.06 delegates the authority to set the tax rate to the Minister. The appellant says that this is a delegation of rate-setting to the Minister, and in effect makes the Minister, and not Parliament, the practical architect of the tax including its rate and, thus, is contrary to section 53 of the Constitution Act, 1867.
[40] The respondent says that the tax-free savings account charge under section 207.05 establishes all the necessary features of a tax — a charging provision in subsection 207.05(1) and the rate payable in subsection 207.05(2). When section 207.05 is read with the definition of "“advantage”" in subsection 207.01(1), the rate of tax is 100% of the fair market value of the advantage. So, the respondent says, Parliament has set the tax, its rate and on whom it can be levied. All that section 207.06 does is provide the Minister with the power to grant relief where (under subsection 207.06(2)) it is "“just and equitable”" having regard to all the circumstances. The tax is set by Parliament in section 207.05 and all that section 207.06 does is relieve against the tax or waive the tax in certain circumstances, similar to other taxpayer fairness provisions, like section 220(3.1) of the Act, which permits the Minister to waive or cancel interest or penalties.
[41] In examining this problem in Hunt v. Canada, 2020 FCA 118, this Court held that a key question is whether the Minister’s discretion "“is so undefined…that the Minister…is really setting the tax rate or imposing the tax”": at para. 10. This Court put the question another way in Hunt (at paras. 10 and 15): is the Minister’s discretion "“effectively a standardless sweep”"? If so, "“any measures 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”".
[42] The respondent’s view is correct. Properly construed, section 207.06 does not give the Minister a discretion so untrammelled that it can be considered a "“standardless sweep”". It would be strange to construe the section as doing that; the Court must strive to avoid that sort of interpretation of section 207.06. After all,... there is no such thing as absolute and untrammelled “discretion”, that is that action can be taken on any ground or for any reason that can be suggested to the mind of the administrator; no legislative Act can, without express language, be taken to contemplate an unlimited arbitrary power exercisable for any purpose, however capricious or irrelevant, regardless of the nature or purpose of the statute. (Roncarelli v. Duplessis, 1959 CanLII 50 (SCC), [1959] S.C.R. 121 at 140.)
[43] In fact, properly interpreted, sections 207.01, 207.05 and 207.06 are nothing close to a standardless sweep, nor do they bestow an unguided discretion to set a tax rate or impose a tax. The text, context and purpose of subsection 207.06(2) shows that the grant of a waiver under that section is not up to the whim or idle say-so of the Minister.
[44] First, the criterion of "“just and equitable”" in section 207.06 must be interpreted in light of the purposes of the tax-free savings account regime and its aim to prevent misuse and abuse of the regime. It is best characterized not as a tax-imposition provision but rather as an anti-abuse provision, similar to so many under the Act.
[45] As well, subsection 207.06(2) sets out three circumstances for the Minister to consider while assessing whether relief is "“just and equitable”" in the circumstances:. whether the tax arose as a consequence of reasonable error;
. the extent to which the transaction or series of transactions also gave rise to another tax; and
. the extent to which payments have been made from the person’s registered plan. [46] The broad phrase, "“just and equitable”", takes its colour from these three circumstances, guided by the need to curb abuse of the tax-free savings account regime bearing in mind the purposes of that regime.
[47] Finally, it must be recalled that the Minister’s decision is subject to judicial review and an assessment of its substantive reasonableness, procedural fairness, and adequacy of reasons. It is not the sort of wide-open policy decision of the sort unamenable to review: see, e.g., Cardinal v. Director of Kent Institution, 1985 CanLII 23 (SCC), [1985] 2 S.C.R. 643. It is a reviewable decision subject to legal constraints set by Parliament in section 207.06, not a purely policy-based guess by the Minister about what a number should be: Alexion Pharmaceuticals Inc. v. Canada (A.G.), 2021 FCA 157, [2022] 1 F.C.R. 153 at paras. 26 and 40.
[48] Parliament could have drafted subsection 207.06(2) in a different way. Rather than using "“just and equitable”" and three illustrations of it, it could have tried to implement complex, tangible and unwieldy rules and exceptions to try to prohibit transactions that frustrate the purposes of the tax-free savings account regime.
[49] But that way is fraught with peril. Skilled and tricky tax planners—through cunningly drafted documents and truly ingenious structures—can navigate around those shoals. Then Parliament must amend the legislation to block that navigation and preserve the integrity of the regime, which leads to further navigation around the shoals, which leads to more amendments and more navigating, and perhaps still more after that. Along the way, unless Parliament uses the heavy hand of retrospective or retroactive legislation, some get benefits inconsistent with the intended purposes of the tax-free savings account regime.
[50] Parliament chose not to get into that game. Instead, it went a different, more practical way. It granted the Minister discretion to provide relief on a case-by-case basis, considering the specific circumstances of the individual, the particular transactions and circumstances, and the purposes of the tax-free savings account regime.
[51] That is not a standardless sweep for the Minister. The Minister does not have carte blanche to decide how much tax should be paid. Instead, it is a legitimate exercise in prudent law-making by Parliament to keep the integrity of an important regime established for important public purposes. . National Steel Car Limited v. Independent Electricity System Operator
In National Steel Car Limited v. Independent Electricity System Operator (Ont CA, 2024) the Ontario Court of Appeal dismissed a 'taxation' constitutional challenge to the 'FIT Program', a renewable electricity program under the Green Energy and Green Economy Act, 2009.
Here the court considers the appellant's argument that "the FIT Program was designed to provide for a general economic purpose, not a regulatory purpose", and was thus "a colourable attempt to tax through regulation contrary to the Constitution Act, 1867":Appellant’s Applications
[29] The appellant challenged the constitutionality of the FIT Program. It submitted that the FIT Program was a colourable attempt to tax through regulation contrary to the Constitution Act, 1867. More precisely, it submitted that the FIT Program was designed to provide for a general economic purpose, not a regulatory purpose. The FIT Program, it argued, was intended to create: (a) general economic stimulus; and (b) specific economic assistance to rural municipalities, co-operatives, and Indigenous communities that had been adversely affected by the 2008 economic monetary crisis. The appellant labels this generation of allegedly unlawful tax revenue the “Stimulus Goals” of the FIT Program.
[30] Regulatory charges must be ancillary to the costs of regulation. The appellant submits that, given the FIT Program’s Stimulus Goals, the FIT Program’s cost was not ancillary to the regulatory scheme. Rather, it was a tax. Being a tax, it was unconstitutional because it was enacted through regulation rather than legislation, contrary to ss. 53 and 54 of the Constitution Act, 1867.
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Application Judge’s Decision
[34] The application judge identified the key issues before him, his conclusions, and how he arrived at those conclusions. In very lengthy reasons, the application judge addressed the appellant’s primary argument that the FIT Program component of the Global Adjustment was a colourable tax because its purpose was to achieve economic stimulus, a purpose unrelated to the regulation of electricity. At para. 43, he addressed the pith and substance of a government levy. He wrote:The pith and substance of a government levy is its dominant, primary and most important characteristic as distinguished from its incidental features. When determining the pith and substance of a levy, it is important to keep in mind, the context within which the charge is made and the purpose of the charge. If the pith and substance of the levy is the raising of revenue for general government purposes then the levy is a tax, but if the levy is a user charge or a charge for regulatory purposes or necessarily incidental to a regulatory scheme, then the levy is not in pith and substance taxation. [Footnotes omitted.] [35] Then at para. 49, he stated:There is a two-step process to determine if a levy is connected to a regulatory charge. The first step is to identify the existence of a regulatory scheme and if there is a regulatory scheme, the second step is to determine whether there is a relationship between the scheme and the charge. [36] The appellant does not take issue with the application judge’s description of the law in this regard.
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[42] The application judge noted that the generators provided renewable energy and were paid for their contribution to the energy grid. The costs of the FIT Program related to the procurement of renewable energy. Even if it could be established that the Stimulus Goals were extraneous to the electricity system (which he found not to be the case), the application judge found that the pith and substance of the FIT Program would still be an intra vires regulatory charge. The application judge also found that some of the extraneousness argued by the appellant was trivial in nature. For example, the “adders” represented only 0.4 percent of the Global Adjustment.
[43] The application judge reasoned that Ontario “did not incur expenses that were recouped as a part of the Global Adjustment that were unrelated to the costs of the regulation of energy” and that “any economic stimulus of the FIT Programs [was] reasonably related to the regulatory scheme of the Electricity Act, 1998.” Thus, the appellant’s colourability argument failed.
[44] The appellant conceded that economic stimulus could be pursued as an objective within a regulatory scheme, provided that it was reasonably related to the regulatory scheme. At para. 171, the application judge wrote:The evidence in the immediate case showed that the economic stimulus of the FIT Programs was objectively reasonably related to electricity regulation. There is no surplus in the Global Adjustment, which is expressly limited to the costs of the regulatory scheme. Raising revenue for general purposes is not the dominant characteristic of the FIT Programs part of the Global Adjustment and that part of the Global Adjustment is not a different type of charge from the other costs included in the Global Adjustment that have not been impugned as the raising of revenue of general purposes. [45] In comparing this case with the revenue raising measure described in Re: Exported Natural Gas Tax, the application judge wrote at para. 173:In contrast, in the immediate case, the FIT Programs did have a regulatory purpose associated with Ontario’s electricity scheme. The FIT Programs had the regulatory purposes of: (a) eliminating coal-fired generation of electricity; (b) improving air quality and reducing healthcare costs; (c) planning for an impending supply shortage; (d) increasing renewable energy sources; and (e) encouraging Indigenous communities to participate in Ontario’s electrical system. [46] The application judge reasoned that this was sufficient to dismiss the appellant’s applications, but he went on to find that the FIT Program levy, as part of the Global Adjustment, was not a tax but a valid regulatory charge. It was: (a) in relation to the rights and privileges associated with a regulatory scheme; (b) used to finance the regulatory scheme; and (c) used to alter individual behaviour in relation to the regulatory scheme. He determined that the FIT Program part of the Global Adjustment was a regulatory charge to advance the purposes of the Electricity Act, 1998 and defray the expenses of the Provincial Government’s regulatory scheme to supply electricity to its citizens.
[47] There was little dispute that there was a regulatory scheme. The Global Adjustment was tied to and limited to the costs of that regulatory scheme. Applying Allard Contractors Ltd. v. Coquitlam (District), 1993 CanLII 45 (SCC), [1993] 4 S.C.R. 371, the application judge recognized that a levy connected to a regulatory scheme is not a form of taxation. As such, the applications also failed on the appellant’s argument that the FIT Program was a tax that should have been enacted by statute and not by regulation.
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[93] Lastly, a charge that is limited by the regulatory scheme to the recoupment of actual costs, as it is here, amounts to a regulatory charge and not a tax: Ontario Home Builders' Association v. York Region Board of Education, 1996 CanLII 164 (SCC), [1996] 2 S.C.R. 929, at para. 85; 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7, [2008] 1 S.C.R. 131, at paras. 38-40, and 45. In all the circumstances, the application judge was not required to embark on any further inquiry.
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(3) The Stimulus Goals
[101] The appellant’s third argument raises two related issues, parts of which have already been touched upon. First, the appellant submits that the application judge erred in finding that the pith and substance of the FIT Program was other than the pursuit of the Stimulus Goals. Second, the appellant argues that the application judge erred in finding that goals of economic stimulus were valid regulatory objectives for the FIT Program on the basis that energy procurement is a “vital component of any economy and any business.” The appellant submits that the application judge erred in finding that goals of “general or specific economic development” were not extraneous to Ontario’s electricity system. The appellant argues that if these goals are not “extraneous to Ontario’s electricity system to achieve general or specific economic development”, then governments are free to pursue general economic policies through any conceivable regulatory regime. The appellant states that it is not arguing that economic considerations are impermissible when making regulatory policy; rather, a charge that is imposed within a regulatory regime for the paramount or principal purpose of achieving an economic stimulus is contrary to the constitutional protections of s. 53 of the Constitution Act, 1867.
(i) General Principles
[102] In addressing these issues, a good starting point is Gonthier J.’s statement in Westbank, at para. 30:Although in today's regulatory environment, many charges will have elements of taxation and elements of regulation, the central task for the court is to determine whether the levy's primary purpose is, in pith and substance: (1) to tax, i.e., to raise revenue for general purposes; (2) to finance or constitute a regulatory scheme, i.e., to be a regulatory charge or to be ancillary or adhesive to a regulatory scheme; or (3) to charge for services directly rendered, i.e., to be a user fee. [103] Rothstein J. provided further guidance on this issue in 620 Connacht, at para. 24:[A] government levy would be in pith and substance a tax if it was ‘unconnected to any form of a regulatory scheme’. This fifth consideration provides that even if the levy has all the other indicia of a tax, it will be a regulatory charge if it is connected to a regulatory scheme. [Citations omitted.] [104] To determine the characterization of the government charge, it is necessary to determine its “pith and substance.” The pith and substance of the government levy is its primary and most important characteristic as distinguished from its incidental features: 620 Connaught Ltd, at paras. 16-17; Westbank at para. 30. A determination of the pith and substance of a levy must include the context within which the charge is made and the purpose of the charge: Ontario Home Builders’, at para. 43.
[105] Rothstein J. went on to describe the two-step test to determine whether a governmental levy is connected to a regulatory scheme at paras. 25-27 of 620 Connaught. The first step is to identify the existence of a relevant regulatory scheme. The second step is to determine whether there is a relationship between the levy or charge and the scheme in the sense that the revenues are tied to the costs of the regulatory scheme or the levies or charges themselves have a regulatory purpose, such as the regulation of behaviour or the conferral of benefits: 620 Connaught, at paras. 25-28; Westbank, at para. 44.
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(iii) The FIT Program component of the Global Adjustment is a valid regulatory charge
[118] Here, there is a clear regulatory scheme in place; this is not controversial. The more pertinent question concerns the second step in the analysis: was there a relationship between the levy or charge and the scheme. Here, “it is the primary purpose of the law that is determinative”: 620 Connaught, at para. 17.
[119] The record revealed a Provincial Government working towards the regulatory purpose of increasing and incentivizing renewable electricity generation in Ontario. The application judge clearly found that the costs of the FIT Program related to the procurement of renewable energy. The electricity suppliers who were recruited to incur the expense of building renewable energy generations were paid for their investment in, and contribution to, Ontario’s electricity grid. Unlike the situation of the Federal Government’s tax in Re: Exported Natural Gas Tax, the FIT Program was not in pith and substance a revenue-raising mechanism.
[120] The application judge found that any economic stimulus from the FIT Program was objectively reasonably related to electricity regulation. There was no surplus in the Global Adjustment and raising revenue for general purposes was not the dominant characteristic of the FIT Program part of the Global Adjustment. The Global Adjustment was a price adjustment that adjusts the amounts to be paid by consumers in light of the amounts to be paid to generators. The adjustment could be favourable or unfavourable for consumers. Significantly, the Global Adjustment limits recovery to actual costs. It provides for payment of the actual costs that IESO has incurred to generate electricity. The funds do not go into general revenues but are used to meet the contractual procurement obligations agreed to with the generators. The levy was used to finance the regulatory scheme.
[121] The appellant submits that it was an error of law to hold that the Stimulus Goals or goals of specific or general economic development constituted a proper regulatory purpose for the regulation of electricity. However, it should be noted that economic, social, and environmental factors are legitimate considerations when making electricity generation investment decisions. The incentivization of participation in the ownership of renewable projects by Indigenous communities, and the promotion of job creation are related to an electricity regime and are among the purposes authorized by the Electricity Act, 1998. Choices regarding generation technologies will necessarily have economic, environmental, and social impacts. The central and significant role electricity has in the economic and social fabric of Ontario belies the appellant’s notion that the pith and substance of intra vires legislation regulating electricity must be about procuring cheap or the cheapest source of energy. Indeed, as mentioned, Professor McKitrick, who was called by the appellant, acknowledged that a government would be expected to take economic, environmental, and social considerations into account when making electricity generation investment decisions.
[122] In conclusion, I would reject the appellant’s third ground of appeal.
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