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The first judgment released by the Supreme Court in 2007, on January 11, was Kingstreet Investments v. New Brunswick (Finance), 2007 SCC 1 [Kingstreet]. The only issue raised in Kingstreet was whether the provincial revenue agency should be obligated to return to a taxpayer funds collected that constituted an illegal tax.
The taxpayer in this case, Kingstreet Investments, was a company operating several nightclubs in Fredricton and Moncton. From 1998 to 2004, they purchased their alcohol from the New Brunswick Liquor Corporation. In addition to paying the retail price, they also paid a surcharge ranging from 5 to 11 per cent. The total amount of taxes paid was over $1 million. Kingstreet variously characterized these charges as indirect taxes (which they argued were ultra vires the provincial government) and direct taxes (which they argued had been illegally imposed by regulation rather than by an act of the Legislature). The New Brunswick Court of Appeal held that the charge was an unconstitutional indirect tax. The Supreme Court of Canada ("SCC") accepted this finding and proceeded to examine only the issue of relief.
The SCC held that the government was obligated to return the money collected. Although it had been argued that the government should be obligated to return the taxes based on the private law remedy of unjust enrichment, the SCC rejected this view and held that it was better to view the obligation as arising from constitutional law principles and the rule of law (citing the old battle cry of the American Revolution, "No taxation without representation!").
However, in rejecting the New Brunswick government’s argument that this obligation could lead to fiscal crisis, Justice Bastarache noted that
"this Court's decision in Air Canada demonstrates that it will be open to Parliament and to the legislatures to enact valid taxes and apply them retroactively, so as to limit or deny recovery of ultra vires taxes."
That line, of course, hints at the fact that – unlike in many cases – the story does not end with the release of the judgment. Although the tax had been held to have been levied "without representation," those representatives were waiting in the wings. Needless to say, the government of New Brunswick was unlikely to cut a cheque for $12 million (their estimate of the total collected through these levies) to the province's night club proprietors. Within a month of the decision, they had introduced retroactive legislation to charge a tax equal to the fees that had been collected (though it appears that Kingstreet gets to keep their $1 million).
"After a thorough review of the decision, government has decided that it is in the best interest of New Brunswick to pass legislation to retroactively establish a tax between 1998 and 2004 in line with the Supreme Court decision in the appeal of Kingstreet Investments for repayment," Public Safety Minister John Foran said. "We believe that New Brunswickers would sooner have that money spent on things like education and health care."
Who says there's no dialogue between the courts and the legislatures?
6 Comments
So how exactly is the new tax valid when the old one wasn't if they're recovering the same amount in the same fashion?
Steven, the fee as levied by the New Brunswick Liquor Licensing Board was held to be an "indirect tax" (because the true cost is passed on to the bar's customers). Neither the province nor its regulatory body is constitutionally permitted to levy such a tax.
The province is, however, constitutionally permitted to levy direct taxes. They merely had to prepare legislation that would levy a direct tax in the same amount, and make it retroactively effective.
If you're interested in the technicalities of the legislation, you can read the (very short) text of the Bill here.
What a bunch of baloney. So the government can violate the constitution by collecting an illegal tax, then, when they're caught, create the fiction that the bar was actually an agent collecting a direct tax that was paid by consumers (unaware that they were paying a tax) all along.
Isn't there something about retroactive laws that violate the rule of law?
Virtually all taxes are implemented retroactively. The government makes the announcement of a tax it intends to collect, and begins doing so while the legislation is prepared and passed, typically taking effect retroactive to the day of the announcement. The deeming provision is also a well-worn tool. Both are completely constitutional.
The court established the constitutionality of this practice in a 1989 case, Air Canada v. BC. You are in very good company, though, as Justice Wilson agreed with you fully: "I do not doubt for a moment that the province was free in 1981 to impose a retroactive tax covering the period 1974 to 1976. I do not believe, however, that it can do so as a mechanism for the confiscation of payments made under the earlier unconstitutional legislation."
Hello;
How does the 'Kingstreet' ruling (generally) affect the unjust enrichment policy in Canada? Does the ruling affect the legal principals or framework of unjust enrichment decided in 'Garland'? Aside from perhaps leading one to believe that restitution in unjust enrichment cases are only a cause of an action in private, but not public-law.
The NB government overlooked it's own Taxpayer Protection Act. BC, although the first province to introduce a Taxpayer Protection Act, did not have one in place when it dealt with the Air Canada fuel surcharges. NB did. In Ontario, they too had a taxpayer protection Act, but properly introduced the Health Tax by way of Bill 88.
Do you feel Bastarache created another Charter allowance for corporations that are similarly hormonally situated to receive the same protection and benefit of his decision?
Are you aware of any courts upholding his rulings?
I believe the wording of Bill 3 created a further tax if it is thoroughly and criticvally examined. Thus creating an ultravires tax.