Ottawa Salus Corporation v. Municipal Property Assessment Corporation et al.

[Indexed as: Ottawa Salus Corp. v. Municipal Property Assessment Corp.]

69 O.R. (3d) 417

[2004] O.J. No. 213

Docket No. C39787

Court of Appeal for Ontario

Rosenberg, MacPherson and Sharpe JJ.A.

January 29, 2004

Assessment -- Exemptions -- Charitable institutions -- Exemption for land owned, used and occupied by any charitable, non-profit philanthropic corporation for relief of poor if corporation is supported in part by public funds -- Charitable institution providing housing and support services for mentally ill and unemployed -- Charitable institution renting units to clients who had exclusive possession of units -- Physical occupation by each tenant of given rental unit not detracting from fact that land as an entirety was "occupied" by charitable corporation in carrying on of its charitable activity -- Charitable institution entitled to exemption -- Assessment Act, R.S.O. 1990, c. A.31, s. 3(1)12(iii).

The respondent Ottawa Salus Corporation ("Salus") was a charitable organization that provided housing and support services in Ottawa for people who were mentally ill and unemployed. In two of its properties, Salus rented out units to residents under the provisions of the Tenant Protection Act, 1997, S.O. 1997, c. 24. Until 1998, the two rental properties had been exempt from property tax under s. 3(1)12 of the Assessment Act, which had an exemption "when the land is owned by the institution and occupied and used for the purposes of the institution". In 1998, this provision was amended to "land owned, used and occupied by" the charitable organization. In 2001, relying on the 1998 amendment, the Municipal Assessment Corporation ("MPAC") assessed many of Salus's properties as taxable. MPAC argued that the exemption required that the charitable institution must itself occupy the subject premises.

Salus brought an application seeking exemptions for the two properties. The applications judge granted a partial exemption for the part of the buildings used by Salus. This judgment was overturned by the Divisional Court, which stated that the word "occupy" was not limited to physical occupation and that there was a sufficient link between the residents of the properties and Salus' charitable objectives to permit Salus to receive the exemption. MPAC appealed.

Held, the appeal should be dismissed.

The Divisional Court did not err in its approach to interpretation nor in interpreting the word "occupied" in para. 12 of the Assessment Act. The Divisional Court's interpretation was a balanced and just interpretation. While the Divisional Court rejected a definition of the exemption that would require Salus itself to occupy the residential units in order to receive the exemption, the court linked the exemption to the limiting factor that the exemption applies only to land that is used directly by a charity in carrying out its charitable work. Further, other exemptions were framed in terms of land "occupied solely by". If the legislature had intended to limit the exemption for a charitable institution to land exclusively by the charity itself, the language "occupied solely by" could have been employed. [page418]

APPEAL from an order of the Divisional Court (Then, Cusinato and Cumming JJ.) (2002), 2002 62448 (ON SCDC), 62 O.R. (3d) 709 (Div. Ct.) granting an application for an order that lands are exempt from property tax under s. 3(1)12 of the Assessment Act, R.S.O. 1990, c. A.31 as amended.

Cases referred to Canadian Mental Health Assn. v. Ontario Property Assessment Corp. (2002), 31 M.P.L.R. (3d) 79, [2002] O.J. No. 2199 (QL) (S.C.J.); First Place, Hamilton v. Hamilton (City) (1979), 9 M.P.L.R. 119, 12 R.P.R. 121 (Ont. H.C.J.); Maple Leaf Services v. Townships of Essa and Petawawa, 1963 206 (ON CA), [1963] 1 O.R. 475, 37 D.L.R. (2d) 657 (C.A.); Québec (Communauté urbaine) v. Corp. Notre- Dame de Bon-Secours, 1994 58 (SCC), [1994] 3 S.C.R. 3, 63 Q.A.C. 161, 171 N.R. 161, 95 D.T.C. 5017; R. v. Golden, 1986 50 (SCC), [1986] 1 S.C.R. 209, 25 D.L.R. (4th) 490, 65 N.R. 135, [1986] 3 W.W.R. 1, 86 D.T.C. 6138, 39 R.P.R. 297; Religious Hospitallers of St. Joseph of Cornwall, Ontario v. Regional Assessment Commissioner, Region 1 (1998), 1998 2277 (ON CA), 42 O.R. (3d) 539, 168 D.L.R. (4th) 140, 49 M.P.L.R. (2d) 287 (C.A.), supp. reasons (1998), 42 O.R. (3d) 547, 168 D.L.R. (4th) 149 (C.A.); Stubart Investments Ltd. v. R., 1984 20 (SCC), [1984] 1 S.C.R. 536, 10 D.L.R. (4th) 1, 53 N.R. 241, 84 D.T.C. 6305; Vancouver (City) v. Coast Foundation Society (1974) (1991), 1991 1568 (BC CA), 6 M.P.L.R. (2d) 311 (B.C.C.A.), affg (1990), 2 M.P.L.R. (2d) 148 (B.C.S.C.) Statutes referred to Assessment Act, R.S.O. 1990, c. A.31, ss. 3(1), 46 Tenant Protection Act, 1997, S.O. 1997, c. 24

Janet E. Bradley, for respondent. James M. Canapini, for appellant.

The judgment of the court was delivered by

MACPHERSON J.A.: --

A. Introduction

1This is an important appeal for government taxing authorities and non-profit charitable organizations in Ontario. The appeal relates to a statutory exemption from property tax for charitable institutions. The exemption, in para. 12 of s. 3(1) of the Assessment Act, R.S.O. 1990, c. A.31, is for:

12. Land owned, used and occupied by,

iii. any charitable, non-profit philanthropic corporation organized for the relief of the poor if the corporation is supported in part by public funds.

The appeal concerns the interpretation of the word "occupied" in this provision. [page419]

B. Facts

(1) The parties and events

2The respondent Ottawa Salus Corporation ("Salus") is a charitable corporation which provides housing and support services for people in Ottawa who are mentally ill and unemployed. Salus owns eight buildings in Ottawa which it uses to house such people. Some of the buildings function as group homes, others as apartment buildings.

3This appeal relates to two of Salus' properties -- the apartment building at 214 Flora Street and the apartment building at 225 Lebreton Street. The Flora Street property has six living units; the Lebreton Street property has 14. The residents of these buildings do not share bedrooms. The Lebreton Street property has a staff office, a common room and a common kitchen. The smaller Flora Street property has only a staff office, but since it is in close proximity to the Lebreton Street property, its residents share the common room and common kitchen located there.

4In 1995, the Ontario Ministry of Health issued a directive that required Salus and other organizations which provide special needs housing to deliver the housing under the provisions of the Tenant Protection Act, 1997, S.O. 1997, c. 24, in order to provide security of tenure to the disabled. As a result of this requirement, every resident of the Flora Street and Lebreton Street buildings signs a lease with Salus for his or her unit.

5For many years, all of the buildings that Salus used for housing were exempt from property tax. The relevant provision in those years was the former para. 12 of s. 3 of the Assessment Act (now para. 12 of s. 3(1) of that Act) which framed an exemption for charitable organizations in terms of "when the land is owned by the institution and occupied and used for the purposes of the institution". In 1998, this provision was amended to "land owned, used and occupied by" the charitable organization.

6In 2001, the appellant Municipal Property Assessment Corporation ("MPAC") assessed many of Salus' properties as taxable. The basis for the assessment was MPAC's view that the 1998 amendment had narrowed the exemption in para. 12 by requiring that the charitable institution must itself occupy the subject premises; occupation by others, albeit for the purposes of the charitable institution, was no longer sufficient to trigger the exemption.

(2) The litigation

7Pursuant to s. 46 of the Assessment Act, Salus brought an application seeking exemptions for three of its Ottawa properties, [page420] including the Flora Street and Lebreton Street properties. On June 25, 2002, Polowin J. rendered her judgment: reported at (2002), 2002 62439 (ON SC), 61 O.R. (3d) 597, [2002] O.J. No. 2682 (S.C.J.). She held that one of the properties was exempt due to a "grandfathered" exemption. With respect to the Flora Street and Lebreton Street properties, the application judge held that the parts of the buildings used by Salus -- the office in the Flora Street property and the office, common room and common kitchen in the Lebreton Street property -- were exempt. However, the residential units used by the disabled and unemployed persons were not exempt.

8Under para. 12 of s. 3 of the previous version of the Assessment Act, the residential units in the two buildings had been exempt because, while they were not occupied by Salus, they were occupied "for the purposes" of Salus in that Salus' very purpose was to provide housing for the types of residents who lived in its buildings.

9The application judge held that the 1998 amendment to the exemption changed this picture. The amendment required Salus itself to occupy the buildings in order to benefit from the exemption: this Salus did not do. Indeed, pursuant to the terms of Salus' leases with the residents of the buildings, it was the residents who had exclusive occupation rights to their units. Accordingly, the application judge concluded that Salus did not occupy the buildings and that as a result they were not exempt from property taxation.

10Salus appealed. On December 23, 2002, the Divisional Court (Then, Cusinato and Cumming JJ.) allowed the appeal: reported at (2002), 2002 62448 (ON SCDC), 62 O.R. (3d) 709, [2002] O.J. No. 4958 (Div. Ct.). The court stated that the word "occupy" is not limited in its ordinary meaning to physical occupation, and concluded that there was a sufficient link between the residents of the properties (disabled and unemployed homeless people) and Salus' charitable objectives to permit Salus to receive the exemption.

11MPAC appeals the Divisional Court's decision.

C. Issue

12The sole issue on appeal is: did the Divisional Court err in its interpretation of the word "occupied" in para. 12 of s. 3(1) of the Assessment Act?

D. Analysis

13The appellant advances three main arguments in support of its position that the Divisional Court erred in its interpretation of the word "occupied" in para. 12 of s. 3(1) of the Assessment Act: [page421]

(1) at a general level, the Divisional Court erred by not recognizing that exemptions in taxation statutes must be strictly interpreted so as not to undercut the central purpose of revenue laws, the obtaining of revenue for use by governments for public purposes;

(2) more specifically, the Divisional Court erred by concluding that the 1998 amendment to the provision did not narrow the scope of the exemption; and

(3) the Divisional Court erred by not following decisions of this court.

I will deal with these submissions in turn.

(1) The interpretation of taxation statutes

14MPAC contends that exemptions in taxation statutes must be strictly interpreted and that the Divisional Court "misinterpret[ed] the legislation by stating that exemption, rather than assessment and taxation, was the overall intent and purpose of the Assessment Act" (factum, para. 21).

15I disagree. The leading case dealing with the interpretation of taxation laws in the context of exemptions from property tax for charitable organizations is Québec (Communauté urbaine) v. Corp. Notre-Dame de Bon-Secours, 1994 58 (SCC), [1994] 3 S.C.R. 3, 171 N.R. 161 ("Notre-Dame de Bon- Secours"). In that case, Gonthier J., speaking for a unanimous court, and relying on earlier decisions of the court in Stubart Investments Ltd. v. R., 1984 20 (SCC), [1984] 1 S.C.R. 536, 10 D.L.R. (4th) 1 and R. v. Golden, 1986 50 (SCC), [1986] 1 S.C.R. 209, 25 D.L.R. (4th) 490, specifically rejected the proposition that taxation laws, including provisions creating exemptions, should be strictly construed. He observed, at p. 18 S.C.R.:

. . . I should like to stress that it is no longer possible to apply automatically the rule that any tax exemption should be strictly construed. It is not incorrect to say that when the legislature makes a general rule and lists certain exceptions, the latter must be regarded as exhaustive and so strictly construed. That does not mean, however, that this rule should be transposed to tax matters so as to make an absolute parallel between the concepts of exemption and exception. With respect, adhering to the principle that taxation is clearly the rule and exemption the exception no longer corresponds to the reality of present-day tax law. Such a way of looking at things was undoubtedly tenable at a time when the purpose of tax legislation was limited to raising funds to cover government expenses. In our time it has been recognized that such legislation serves other purposes and functions as a tool of economic and social policy. By submitting tax legislation to a teleological interpretation it can be seen that there is nothing to prevent a general policy of raising funds from being subject to a secondary policy of exempting social works. Both are legitimate purposes which equally [page422] embody the legislative intent and it is thus hard to see why one should take precedence over the other.

16In my view, the reasons of the Divisional Court are consistent with this approach. The court acknowledged [at para. 12] that "Salus must affirmatively establish that its property falls within the four corners of the exempting provision", but noted as well [at para. 13] that "the legislative intent and purpose of the exemption must also be kept in mind."

(2) The 1998 amendment - did it narrow the exemption?

17MPAC's principal submission is that the 1998 amendment significantly narrowed the exemption from taxation for charitable institutions. It contends that the application judge correctly interpreted the new exemption provision when she said [at para. 47]:

The amendments made to section 3, paragraph 12 were significant and made the test for the exemption more restrictive. . . . [T]he applicant must own, use and occupy the premises. It is no longer sufficient for an applicant to simply own the land and ensure that the property is occupied and used according to its stated purposes.

(Emphasis in original)

18In contrast, the appellant submits, the Divisional Court erred when it concluded [at para. 19]:

The real property of Salus that is the subject of the assessment is "occupied" by Salus in the sense that it is controlled, held and employed by Salus as the necessary prerequisite and means to fulfil its charitable mandate. The land is used solely for the charitable purposes of Salus; without the land, it would be impossible for Salus to fulfil its charitable purposes. The fact of physical occupation by each tenant of a given rental unit does not detract from the fact that the land as an entirety is "occupied by" Salus in the carrying on of its charitable business or activity. Indeed, the only way that Salus can carry out the very core purpose of its charitable mandate is to have the rental units in its building.

(Emphasis in original)

19I think it useful to set out the full language of the former para. 12 of s. 3 and the current para. 12 of s. 3(1) of the Assessment Act.

20The pre-1998 version of the exemption read:

12. Land of an incorporated charitable institution organized for the relief of the poor, The Canadian Red Cross Society, St. John Ambulance Association, or any similar incorporated institution conducted on philanthropic principles and not for the purpose of profit or gain, that is supported, in part at least, by public funds, but only when the land is owned by the institution and occupied and used for the purposes of the institution.

(Emphasis added) [page423]

21The current version of the exemption reads:

12. Land owned, used and occupied by,

i. The Canadian Red Cross Society,

ii. The St. John Ambulance Association, or

iii. any charitable, non-profit philanthropic corporation organized for the relief of the poor if the corporation is supported in part by public funds.

(Emphasis added)

22Although the structure and wording of the two provisions are quite different, it would appear that the 1998 amendment changed the substance of the paragraph in two respects: (1) it removed the exemption for institutions that are "similar" to charitable institutions organized for the relief of the poor; and (2) it replaced the wording "land . . . owned by the institution and occupied and used for the purposes of the institution" with "land owned, used and occupied". The parties agree that there is nothing in the legislative record, including the debates in the legislature or proceedings in committees, nor in any other source, such as an external report or study, to indicate why the provision was amended in 1998.

23The general principles regarding the interpretation of tax legislation were summarized by Gonthier J. in Notre-Dame de Bon-Secours, supra, at p. 20 S.C.R.:

-- The interpretation of tax legislation should follow the ordinary rules of interpretation;

-- A legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent: this is the teleological approach;

-- The teleological approach will favour the taxpayer or the tax department depending solely on the legislative provision in question, and not on the existence of predetermined presumptions;

-- Substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute;

-- Only a reasonable doubt, not resolved by the ordinary rules of interpretation, will be settled by recourse to the residual presumption in favour of the taxpayer. [page424]

24Applying these principles, the starting point is an examination of (1) the general purpose of the Assessment Act and (2) the purpose of the specific exemption claimed by the respondent.

25The general purpose of the Assessment Act is obvious. It is expressed in s. 3(1) of the Act: "All real property in Ontario is liable to assessment and taxation . . .". In Canadian Mental Health Ass'n v. Ontario Property Assessment Corp., [2002] O.J. No. 2199 (QL), 31 M.P.L.R. (3d) 79 (S.C.J.) at para. 42, Kozak J. described the purpose of s. 3(1) as follows: "to impose upon all real property in Ontario a general obligation to pay a property tax so that the government can meet its expenditures".

26However, this purpose is not an absolute one. Section 3(1) expressly provides that the general purpose is "subject to the following exemptions from taxation". Twenty-nine exemptions follow, including exemptions for churches, public education institutions, public hospitals, houses of refuge, charitable institutions, small theatres and large non-profit theatres. Many of the organizations listed in the exemption paragraphs perform activities which are of great benefit to either discrete groups of disadvantaged persons or to society as a whole. Exemption from property tax allows these organizations to spend more of their limited resources on those activities. The clear implication of these exemptions is that while there is a substantial public interest in the generation of revenue through the taxation of real property, in the context of the real property covered by these exemptions, that public interest is outweighed by the public interest in giving relief from property taxation to certain organizations.

27The specific purpose of subparagraph 12(iii) of s. 3(1) of the Act is to grant relief from property taxation to non- profit corporations "organized for the relief of the poor" because the public interest in granting these organizations additional resources to relieve poverty outweighs the public interest in generating revenue through the taxation of property.

28Against the backdrop of this purpose, I am of the view that the Divisional Court's interpretation of the word "occupied" in para. 12 is correct, and is to be preferred over the application judge's narrower interpretation. There are two features of the Divisional Court's interpretation which, taken together, create a balanced and just interpretation of the exemption. The expansive feature of the interpretation is the court's rejection of a definition that would require Salus itself to occupy the residential units in order to receive an exemption. However, that feature is linked to an important limiting feature. The exemption applies only to land that is used directly by a charity in carrying out its charitable work. As explained by the court [at para. 14]: [page425]

The statutory pre-conditions of the land having to be "owned, used and occupied" by the charity serve the purpose of ensuring that the exemption is limited to land being used directly by the charity in carrying out its charitable activity. The tax expenditure subsidy, extended in the public interest, must be circumscribed such as to be directed only at the charitable activity recognized and approved by the legislature.

See also: Vancouver (City) v. Coast Foundation Society (1974) (1990), 2 M.P.L.R. (2d) 148 (B.C.S.C.), at p. 154, per Callaghan J. defining occupation in terms of "providing services to that site within the purposes and mandate of the organizational structure"), affd (1991) 1991 1568 (BC CA), 6 M.P.L.R. (2d) 311 (B.C.C.A.).

29Finally, I note that two exemptions in s. 3(1) of the Assessment Act are framed in terms of land "occupied solely by" (para. 4 -- public educational institutions, and para. 5 -- philanthropic organizations). If the legislature had intended to limit the exemption for a charitable institution (para. 12) to land occupied exclusively by the charity itself, the language of "occupied solely by" could have been employed.

(3) Case authorities

30MPAC contends that the Divisional Court's decision is inconsistent with a line of decisions which enunciates the proposition that the establishment by a charity of a tenancy relationship ousts the charity as an "occupant" of the land being used by the tenant: see Maple Leaf Services v. Townships of Essa and Petawawa, 1963 206 (ON CA), [1963] 1 O.R. 475, 37 D.L.R. (2d) 657 (C.A.) ("Maple Leaf Services"); First Place, Hamilton v. Hamilton (City) (1979), 9 M.P.L.R. 119, 12 R.P.R. 121 (Ont. H.C.J.) ("First Place, Hamilton"); and Religious Hospitallers of St. Joseph of Cornwall, Ontario v. Regional Assessment Commissioner, Region 1 (1998), 1998 2277 (ON CA), 42 O.R. (3d) 539, 168 D.L.R. (4th) 140 (C.A.) ("Religious Hospitallers").

31I do not agree with MPAC's submission. In Maple Leaf Services, the relevant relationship was licensor and licensee, not landlord and tenant. In First Place, Hamilton, Goodman J. held that the exemption in the former para. 12 of s. 3 of the Assessment Act did not apply to a church which leased land to tenants for office and retail commercial uses. Similarly, in Religious Hospitallers, this court held that land leased by a charitable institution to other charitable institutions was not eligible for an exemption. McKinlay J.A. said, at p. 543 O.R.: "To qualify for an exemption, it would be necessary for Cornwall to show that the rented premises were used for its charitable purposes, not the charitable purposes of some other institution" (emphasis in original).

32The Divisional Court distinguished these cases in this fashion [at para. 10]: [page426]

[I]n each case the tenants were third parties who had no connection with the charity. In contrast, in the instant case the "tenants" are the very persons for which the charity exists. The residents in the units, owned and used by the appellants, are at the very core of the charitable purposes of the appellants which is the provision of low cost housing for the poor and the mentally ill.

I agree with this reasoning, although with the caveat that its application to Maple Leaf Services is somewhat tangential.

(4) Conclusion

33Section 3(1) of the Assessment Act grants an exemption from property tax to:

12. Land owned, used and occupied by:

iii. any charitable, non-profit philanthropic corporation organized for the relief of the poor if the corporation is supported in part by public funds.

34MPAC properly acknowledges that Salus owns the subject properties, is a charitable non-profit philanthropic corporation, and is supported in part by public funds. The Divisional Court found [at para. 19] that the two properties are "used solely for the charitable purposes of Salus". The appellant does not contest this finding.

35Salus properly acknowledges that its tenants "occupy" their residential units at the two properties pursuant to their leases and the Tenant Protection Act.

36The remaining question is whether, for the purposes of the exemption, Salus also occupies the residential units in its buildings. For the reasons set out in the previous section, I would answer this question in the affirmative. Occupation for purposes of the exemption does not require actual or exclusive occupation by the charitable institution. If the subject property is being used directly by the charity in furtherance of its objective of relieving the poor, that constitutes occupation within the meaning of para. 12 of s. 3(1) of the Assessment Act. In my view, this interpretation is consistent with the principles of interpretation for taxation statutes enunciated by the Supreme Court of Canada in Notre-Dame de Bon- Secours.

E. Disposition

37I would dismiss the appeal. The respondent is entitled to its costs of the appeal, on a partial indemnity basis, which I would fix at $5,000 inclusive of disbursements and GST.

Order accordingly. [page427]