COURT OF APPEAL FOR ONTARIO
DOHERTY, SHARPE and ARMSTRONG JJ.A.
B E T W E E N :
YONGE STREET HOTELS LTD.
Peter A. Milligan and David G. Fleet for the appellant
Applicant
(Appellant)
- and -
MUNICIPAL PROPERTY ASSESSMENT CORPORATION, REGION NO. 9 and THE CITY OF TORONTO
Frank X. Shea and Donald G. Mitchell for the respondents
Respondents
(Respondents in Appeal)
Heard: March 24, 2005
On appeal from the judgment of Justice Romain W.M. Pitt of the Superior Court of Justice dated July 2, 2004.
SHARPE J.A.:
1This appeal concerns the real property tax assessment of a downtown Toronto hotel. The appellant acquired an existing hotel on the subject property in 1997 and paid more than $39 million to redevelop it. The building was gutted, but not razed. Its structural elements were left standing. Overhauled from top to bottom, it nonetheless had essentially the same number of rooms and the same overall square footage.
2In 1998, the province established a new scheme for municipal real property taxes based on current value assessments. The new scheme included complex formulae designed to moderate dramatic increases in real property taxes and to maintain equity as between owners of similar commercial properties.
3Because the property tax scheme in certain respects treats newly-erected buildings differently from renovated ones, the issue on this appeal is whether the increase in the value of the hotel was “as a result of the alteration, enlargement or improvement” of the old hotel or “as a result of the erection … of a building”. If, as the appellant contends, the increase in value was the result of the erection of a building, the appellant will pay significantly less in property taxes than it would pay if the increase in value were as a result of alteration or improvement. The difference in taxes would be approximately $500,000 for 2000 and $460,000 for 2001. As the base for calculating annual taxes is typically the taxes levied the previous year, the 2000 assessment will have an ongoing effect on the property taxes payable by the appellant in succeeding years.
4The application judge rejected the appellant’s argument and maintained the respondent’s assessment on the basis of “the alteration, enlargement or improvement” of the old hotel. For the following reasons, I would dismiss the appeal.
FACTS
5The old Westbury Hotel, located at 475 Yonge Street, opened in 1963. By 1997 (at which point it had become the Howard Johnson Plaza Hotel), it had fallen into a dilapidated state. The appellant bought it and proceeded to redevelop it as a “Courtyard by Marriott” hotel, which reopened in March 2000. Everything other than the structural elements of the building – i.e., the concrete shear walls, columns, and slabs – was removed. The exterior cladding and windows were stripped away. Roofing, interior walls, flooring, doors and doorways, electrical systems, boilers, ducts, plumbing, elevators: all of it, gone. The redevelopment also included the excavation and construction of additional underground parking, the re-orientation of the entrance, and construction of vehicular access to the new entrance.
6After the retrofit, the property remained a hotel with essentially the same number of rooms and gross floor area. There was no change to the structural integrity of the building or to its foundations. As a result of the redevelopment and reconstruction undertaken, the respondent Municipal Property Assessment Corporation increased the 1993 current value assessment of the property for the 2000 taxation year from $12,773,000 to $37,375,000.
7The cost of redevelopment of the existing structure was approximately $39 million, whereas the cost of a complete demolition and rebuild would have been $36.8 million. However, by not demolishing the existing structure, the appellant was able to complete the project five months sooner and to maintain the hotel’s status as a non-conforming use, allowing it to keep existing set-backs and to exceed the maximum gross floor area under the otherwise applicable municipal zoning by-law. Had the hotel been demolished and rebuilt, the property would have lost its non-conforming status, and it is not clear that the City of Toronto’s committee of adjustments would have approved the variances that would have been required.
8The appellant described the redevelopment in its May 28, 1998 building permit application in the following terms: “Make interior alterations and alter fascades [sic] on north and south towers, make repairs in parking garage, additions at first floor level and build new underground parking garage under surface parking lot.”
THE LEGISLATION
9In 1998, amendments to the Municipal Act, R.S.O. 1990, c. M.45 (the “Act”), changed the municipal tax regime in Ontario to a system based on current value of properties. To alleviate sudden and drastic shifts in taxation for properties in the commercial, industrial, and multi-residential tax classes, Part XXII.1 of the Act established a complex scheme of caps and claw-backs, the effect of which was to preserve certain historical inequities from the old regime.
10I set out here the key statutory provisions relevant to this appeal.
447.10 (1) Increases in assessment—This section sets out the changes to be made to the frozen assessment listing for 1999 or 2000 if the assessment of a property to which this Part applies, as set out in the assessment roll for that year, as most recently revised, increases from the assessment set out in the assessment roll for the previous year as a result of,
(a) an assessment made during the previous year under subsection 33(1) of the Assessment Act; or
(b) an adjustment made on the assessment roll for the year as a result of the erection, alteration, enlargement or improvement of a building, a structure, machinery, equipment or a fixture that occurred during a previous year. 1998, c. 3, s. 30, part; 1999, c. 9, s. 156 (1).
(2) Changes to frozen assessments.—The assessments, referred to in subsection 447.5(4), in the frozen assessment listing for the year shall be changed as follows:
The total assessment shall be increased so that it equals the assessment set out in the assessment roll for the year multiplied by a factor prescribed in the regulations unless subsection (3) applies, in which case the total assessment shall be increased by the amount determined under that subsection.
The commercial assessment shall be increased by the same amount the total assessment was increased by under paragraph 1.
The business assessment shall be increased by the increase in the commercial assessment multiplied by the average business rate determined under section 447.13.
(3) Special rule for alterations, etc.—If the assessment of the property is increased as a result of the alteration, enlargement or improvement of any building, structure, machinery, equipment or fixture or any portion thereof, the total assessment shall be increased under paragraph 1 of subsection (2) by an amount determined in accordance with the following:
Amount = Increase in assessment x Frozen assessment
Old assessment
Where,
“Increase in assessment” means the increase in the assessment on the assessment roll;
“Old assessment” means the assessment on the assessment roll before the increase;
“Frozen assessment” means the total assessment on the frozen assessment listing.
447.34.1 (1) Cap for new properties.—The purpose of this section is to ensure that eligible properties are taxed in 2000 under this Part at a level of assessment that is no higher than that of comparable properties.
(2) Total assessment of eligible property for 2000.—Despite any other requirement of this Part, the total assessment on the frozen assessment listing of an eligible property for 2000 under this Part shall be the lesser of,
(a) the amount determined for the year or part of the year under this section; and
(b) the amount determined for the year or part of the year under this Part, but for the application of this section.
(16) Definitions.—In this section,
“eligible property” means a property to which subsection 447.10(2),
(a) first applied for 1998 and 1999 and continues to apply for 2000, or
(b) applies for 2000 and did not apply for 1999.
11The Act requires municipalities to maintain a “frozen assessment listing” for each property subject to Part XXII.1. The frozen assessment listing was equal to the total tax liability of a property as at December 31, 1997 and formed the base upon which property taxes were to be calculated. As taxes were essentially frozen, a mechanism was required to capture increased taxes resulting from physical changes to a property.
12In 2000, s. 447.34.1 was enacted to ensure that certain eligible properties were taxed at a level of assessment no higher than that of comparable properties. “Eligible property” is defined in s. 447.34.1 as property to which s. 447.10(2) applies for certain specified years. Section 447.10 provides for adjustments to assessment arising “as a result of the erection, alteration, enlargement or improvement of a building”. Section 447.10(3) provides a special rule for increases resulting from the alteration, enlargement, or improvement of a building but specifically not to the “erection” of a building, leaving increases resulting from the “erection” of a building to be dealt with under s. 447.10(2). Therefore, s. 447.10(3), but not s. 447.10(2), applies to buildings that have been altered, enlarged, or improved. Accordingly, under the definition in s. 447.34.1(16), which is contingent on the applicability of s. 447.10(2), buildings that have been altered, enlarged, or improved would not count as “eligible property” and do not get the benefit of the 2000 amendments.
13It was common ground both here and before the application judge that the net effect of these provisions is that under s. 447.34.1, the subject property would fall within the class of eligible properties and thereby benefit from the 2000 amendment allowing for an assessment reduction to that of comparable properties as if the hotel retrofit were considered the erection of a building and not the alteration, enlargement or improvement of a building.
ANALYSIS
14The legislation at issue here is admittedly complex, but in the end, we are confronted with a relatively straightforward issue of statutory interpretation: did the retrofit of the subject property amount to the “erection” of a building or the “alteration, enlargement or improvement” of a building? In Québec (Communauté urbaine) v. Corp. Notre-Dame de Bon-Secours, 1994 58 (SCC), [1994] 3 S.C.R. 3 at 20, the Supreme Court of Canada summarized the rules applicable to the interpretation of tax legislation: (1) The interpretation of tax legislation should follow the ordinary rules of interpretation; (2) 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; (3) 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; (4) substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute; and (5) 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.
15In that case, as in many other cases, the Supreme Court adopted and applied the basic principle stated by Driedger, Construction of Statutes, 2nd ed. (Toronto: Butterworths, 1983) at p. 87: “… the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”.
16Giving the language of this legislation its grammatical and ordinary sense, I fail to see how the retrofit of the subject property could be considered to be the erection of a building as opposed to its alteration, enlargement, or improvement. The appellant stripped the existing building to its barest structural core, but that structural core remained. No new structure was put up. Rather, the structural core of the existing building was refilled with a new interior and sheathed with a new exterior. To describe this process as the “erection” of a building would, in my opinion, give the word “erection” an unusual if not distorted meaning.
17While by no means on all fours with the present case, the decision of this court in Re Trivest Developments et al. and City of Toronto (1986), 1986 2734 (ON CA), 57 O.R. (2d) 799, aff’g (1986) 1986 2754 (ON SC), 54 O.R. (2d) 728 (H.C.J.) supports this “ordinary meaning” interpretation. The issue there was whether the corporate owner of two older apartment buildings had to get demolition permits for renovation work that would gut the buildings’ interiors but leave their external walls and foundations intact. This court, affirming Smith J.’s decision that no demolition permit was required, stated at p. 800: “The discretion given to it in this regard [in relation to demolition permits] was limited to situations where a new building is to be erected in place of the building to be demolished, which was not this case.”
18The appellant argues that after the old Westbury Hotel had been stripped to its core in 1999, but before the new interior and exterior work was done, there was a “structure” (which the appellant likens to an “enclosed silo”), but not a “building”, on the subject property. Completion of the retrofit converted that barren “structure” into a “building”. That conversion from structure to building, argues the appellant, should be interpreted to amount to the erection of a building.
19I am unable to accept this submission. It suggests that we should decide the case by considering the status of the property at a point in time isolated from both the future and the past. In my view, that approach would not be consistent with the object and purpose of s. 447.34.1. That section deals with changes to the value of property, and changes can only be understood in terms of what came before and what followed. The teleological approach requires us to consider the entire history of this property with a view to determining whether it was erected and therefore an eligible property under the 2000 amendments to the Act.
20The appellant cannot, through what I consider to be a strained interpretation of the language of the Act, escape the awkward facts of the case. The old hotel was not completely dismantled. The appellant maintained throughout the retrofit the character and use of the property as a hotel for all purposes, including municipal by-laws. The retrofitted hotel was not built from the ground up but by rebuilding the non-structural elements of the old hotel.
21If there were any doubt on the question, it would surely be appropriate to take into account the manner in which the appellant itself characterized the retrofit. When asked by the municipality for a description of the project for building permit purposes, the appellant described the work as making interior alterations and altering the facades. As I have already noted, by not demolishing the existing building and erecting a new one, the appellant secured the benefit of maintaining the non-conforming use status of the building under the applicable municipal zoning by-laws. The appellant chose to characterize the retrofit in terms inconsistent with the position it now advances to gain that legal advantage from the municipality. While not determinative of the property tax assessment issue, the appellant’s own description of the work is surely a factor that this court may consider. The appellant has offered no plausible reason why it should be allowed to describe the retrofit as interior renovations to gain an advantage under the applicable municipal by-laws, but as the erection of a new building to gain an assessment advantage.
22In the end, the appellant’s plea essentially rests on the argument that unless the court interprets “erection” to include the retrofit, the appellant will suffer an unfair and inequitable property tax assessment. The appellant asserts that its assessment is dramatically higher than those pertaining to comparable properties in the same area and that the court should interpret the Act in a manner consistent with the fundamental principle of real property assessment and taxation that comparable properties should bear comparable tax burdens.
23I accept that to the extent permitted by its language, legislation dealing with real property assessment and taxation should be interpreted in a manner that achieves equity and fairness as between property owners. I also agree that through the complex weave of caps and exemptions, the legislature did have as its objective the creation of an equitable scheme of property tax assessment. Indeed, the legislature specifically stated in s. 447.34.1(1) that the purpose of the 2000 “eligible property” amendments was “to ensure that eligible properties are taxed in 2000 … at a level of assessment that is no higher than that of comparable properties.”
24On the other hand, it is our job to interpret the legislation that the legislature has enacted. We are not at liberty to overcome or ignore legislative distinctions by applying some free-standing principle of fairness. The fairness and equity of the 2000 amendments is extended only to “eligible properties”. Any unfairness is created by the very language of the legislation, which draws a distinction between the erection of buildings on the one hand and the alteration, enlargement, or improvement of buildings on the other. While the application of that distinction to the facts of this case certainly disfavours the appellant, as a court of law we cannot ignore, obliterate, or refuse to apply the language chosen by the legislature. The legislature decided to give the benefit of an assessment on the basis of comparable properties to some properties and to withhold that benefit from others. Absent constitutional infirmity in the legislation according a benefit to one class and withholding the same benefit from another, there is nothing a court can do to alleviate any unfairness.
CONCLUSION
25Accordingly, I would dismiss the appeal with costs to the respondent fixed at the amount agreed to by the parties, $5,000 inclusive of disbursements and G.S.T.
“Robert J. Sharpe J.A.”
“I agree D.H. Doherty J.A.”
“I agree R.P. Armstrong J.A.”
