Taxes and Charges: Administrative Law Matter (No. 3) in the References re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11
Many months ago I promised a third post on the Supreme Court of Canada’s decision in References re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11. I would like to say I am saving the best for last but really I am saving the easiest for last: having tackled the separation of powers and judicial review of regulations, I turn on this occasion to the test for distinguishing taxes from regulatory charges.
The distinction between a tax and a regulatory charge might seem, at first sight, to be a distinction without a difference. In either context, the person subject a statutory provision imposing an obligation to pay money to the government has to comply (as long as there is clear legal authority). The difference, however, is that special principles apply to taxes. In the common law tradition, no taxation without representation has long been a settled principle (whatever our friends south of the border might say about its being honoured occasionally in the breach rather than the observance).
In Canada, this constitutional fundamental is memorialized in s. 53 of the Constitution Act, 1867:
53. Bills for appropriating any Part of the Public Revenue, or for imposing any Tax or Impost, shall originate in the House of Commons.
Section 53 “gives effect to the basic democratic principle that the Crown may levy taxes only with the consent of elected representatives” (Reference re Greenhouse Gas Pollution Pricing Act, 2019 SKCA 40, at para. 99). Indeed, “[t]he provision codifies the principle of no taxation without representation, by requiring any bill that imposes a tax to originate with the legislature” (Re Eurig Estate,  2 SCR 565 , at para. 30). As Professor Driedger observed, in a passage quoted with approval by the Supreme Court of Canada:
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.
“Money Bills and the Senate” (1968), 3 Ottawa L. Rev. 25, at p. 41, quoted in Re Eurig Estate at para. 32.
In a similar vein, Gonthier J commented, for the Court, in Westbank First Nation v. British Columbia Hydro and Power Authority,  3 S.C.R. 134 at para. 19, that: “individuals being taxed in a democracy have the right to have their elected representatives debate whether their money should be appropriated, and determine how it should be spent”. (At issue there was a separate constitutional provision, s. 125 of the Constitution Act, 1867, which prevents the taxation of public lands.)
By contrast, a regulatory charge — a requirement to pay money for purposes connected to a statutory scheme — need not comply with the principles flowing from s. 53 (and is not subject to the s. 125 limitation). The question, then, is what the test is for distinguishing a tax, which is subject to s. 53 and s. 125, from a regulatory charge, which is not.
The basic idea has long been that there must be, first, a regulatory scheme and, second, a nexus between the scheme and the obligation to pay money.
Ontario argued that the required nexus was absent in this case, because the monies collected in respect of carbon emissions went to the consolidated fund, therefrom to be distributed — potentially, at least — for general government purposes and not to reduce or mitigate the effects of climate change:
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 (at para. 214).
In particular, although behaviour modification is a valid purpose for a regulatory charge, the Supreme Court had previously left open the question whether the costs of the regulatory scheme impose a ceiling on the funds which might thereby be generated (620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7,  1 SCR 131, at para. 48).
Wagner CJ rejected the proposition that the costs of a regulatory scheme impose a ceiling and any suggestion that the monies collected under a regulatory scheme must be put to the same purposes for which they were collected:
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 (at para. 216).
What matters, for something to be a regulatory charge, is its nexus to a regulatory scheme. Where there is no nexus, this will be a colourable attempt to impose taxation and subject to the rigours of s. 53 (and s. 125) (at para. 218). In this case, Wagner CJ held, the required nexus was easily established:
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 (at para. 219).
Of course, the point that there must be clear statutory authority to impose a requirement to pay monies remains fundamental. But as long as that statutory authority exists, in the context of a regulatory scheme and the imposition of a requirement to pay monies with a sufficient nexus to that regulatory scheme, the requirement is a regulatory charge, not a tax. As such, the constitutional limitations on taxation do not apply. Quite what constitutes a “sufficient nexus” is for another day, though one wonders which intrepid plaintiff would pay to litigate the point.
This content has been updated on October 29, 2021 at 21:33.