The Hospital for Sick Children v. The Municipal Property Assessment Corporation, 2012 ONSC 6112
DIVISIONAL COURT FILE NO.: 219/12
DATE: 2012-11-09
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
ASTON, LAX AND SWINTON JJ.
B E T W E E N:
THE HOSPITAL FOR SICK CHILDREN AND THE HOSPITAL FOR SICK CHILDREN FOUNDATION
Appellants
- and -
THE MUNICIPAL PROPERTY ASSESSMENT CORPORATION AND THE CITY OF TORONTO
Respondents
Counsel:
Stephen Longo, for the Appellants
Donald G. Mitchell, for the Respondent Municipal Property Assessment Corporation
HEARD at TORONTO: October 25, 2012
Swinton J.:
Overview
[1] The Hospital for Sick Children (“the Hospital”) and the Hospital for Sick Children Foundation (“the Foundation”) appeal from the decision of McEwen J. (“the application judge”) dated March 30, 2012, in which he held that premises occupied by the Foundation were not exempt from municipal taxation.
[2] For the reasons that follow, I would dismiss the appeal.
Factual Background
[3] The Assessment Act, R.S.O. 1990, c. A.31 (“the Act”) sets out a detailed list of exemptions from municipal assessment and taxation. At issue in this appeal is s. 3(1)6, which exempts:
land used and occupied by a public hospital that receives provincial aid under the Public Hospitals Act but not any portion of the land occupied by a tenant of the hospital.
[4] A “hospital” is defined in the Public Hospitals Act, R.S.O. 1990, c. P.40 to mean “any institution, building or other premises or place that is established for the purposes of the treatment of patients and that is approved under this Act as a public hospital.” There is no question that the Hospital for Sick Children is a public hospital that is funded under the Public Hospitals Act, and any land “used and occupied” by it is exempt from taxation.
[5] The Hospital leases a building at 525 University Avenue. The Foundation uses part of three floors of that building for its business office. These are the premises in issue in this proceeding.
[6] The application judge succinctly described the operations and relationship of the Foundation and the Hospital at paras. 10 through 14 of his reasons (2012 ONSC 1351):
[10] HSC and the Foundation, while separate legal entities, share certain governing structures. The Governance Model adopted by the Foundation’s Board of Directors and HSC’s Board of Trustees states that the Foundation and HSC “share common strength of purpose and common profound commitment to SickKids.” The model provides for five cross appointments between the Boards of HSC and the Foundation as well as cross reporting between the Boards of HSC and the Foundation not less than quarterly. The names “SickKids Foundation” and “SickKids” are trademarked and the Foundation uses these marks with the consent of HSC.
[11] The Foundation is HSC’s largest source of non-government revenue. It is responsible for all fundraising activities carried out on behalf of HSC. For the last three years grants to HSC have averaged 95% of all grants made by the Foundation. Since its creation, the Foundation has raised approximately $750 million for HSC. In the year ending March 31, 2010, the Foundation provided $47.9 million to HSC. HSC and the Foundation have two ongoing, specific funding agreements that provide that the Foundation’s funding commitment to HSC will be in excess of $225 million over the next five years. Approximately 80% of the funds that HSC receives from the Foundation go towards medical research. A smaller percentage goes towards patient care.
[12] Although the Foundation raises considerable amounts of money for HSC, the monies raised by the Foundation and given to HSC only constitute approximately 7% of the overall financing of the operations of HSC. The vast majority of HSC’s funding comes from the provincial government pursuant to the provisions of the Public Hospitals Act.
[13] The Foundation, pursuant to its Letters Patent, can also raise funds for the benefit of any other hospital, university or medical association or any other association, foundation or person in respect of activities related to the health of children. In fact, the Foundation does raise monies for other organizations and approximately 10% of the monies raised by the Foundation are provided to organizations other than HSC. These organizations have included The University of Western Ontario, The Canadian Association of Paediatric Health Centres, Capital Health Edmonton, University of British Columbia, University of Toronto, British Columbia’s Children’s Hospital, McMaster University, Chuq-Hopital-St-François d-Assise and University of Alberta.
[14] Upon dissolution of the Foundation, its property would not become the property of HSC. Its Letters Patent dictate that the Foundation’s remaining property after payment of all debts and liabilities “shall be distributed or disposed of to charitable organizations that carry out their work solely in Canada.”
[7] The application judge concluded that the premises used by the Foundation were not exempt from municipal taxation for two reasons: first, the premises were occupied by a tenant of the Hospital, not by the Hospital itself; and second, the Hospital and Foundation did not share a patrimony such that they should be treated as the same entity for purposes of the exemption.
The Standard of Review
[8] On an appeal of a judicial decision, the standard of review on a question of law is correctness (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 at para. 8). The standard of review with respect to findings of fact is “palpable and overriding error” (Kerr v. Danier Leather Inc. (2005), 2005 46630 (ON CA), 77 O.R. (3d) 321 (C.A.) at para. 171). Questions of mixed fact and law lie on a spectrum (Housen at para. 36). If the issue is more a matter of legal principle, then the standard is correctness, but where the facts and legal principle are inseparably intertwined, the appeal court must give deference (The Plan Group v. Bell Canada, 2009 ONCA 548 at para. 27).
Did the application judge err in finding that the Foundation was a tenant?
[9] “Tenant” is defined in s. 1 of the Act to include “an occupant and the person in possession other than the owner.”
[10] Whether an entity is an occupant is a question of fact. Determination of occupancy depends on an entity’s right of regulation and control of premises and requires consideration of actual occupation, exclusivity for the particular purposes of the possessor, value or benefit to the possessor, and permanence (Mount Sinai Hospital v. Municipal Property Assessment Corp., [2003] O.J. No. 4295 (S.C.J.) at paras. 8-9).
[11] The appellants argue that the application judge erred in finding the Foundation was a tenant because the Foundation has no lease for the premises. While it has used the premises since 2004, the appellants argue that it is, at most, a tenant at will. There is no permanency to its possession, and it pays no rent.
[12] In my view, the application judge made no error in finding that the Foundation was a tenant within the meaning of the Act. He found that the Foundation was in occupation and possession of the premises because of its continuous use of the premises and its payment of the common expenses attributed to the space ($300,000 in 2010 and $1.3 million in 2009). This evidence supports his conclusion, as does the evidence that the Foundation has its own sign on the premises and controls access through a pass system. Passes are only available to its employees and not those of the Hospital.
[13] Therefore, I would not give effect to this ground of appeal.
Did the application judge err in failing to find a shared patrimony?
[14] Alternatively, the appellants argue that the application judge erred in failing to find that the Hospital and the Foundation share a patrimony and, therefore, the use and occupation of the premises by the Foundation is the use and occupation by the Hospital.
[15] The concept of a shared patrimony emerged in two 1994 decisions of the Supreme Court of Canada: Buanderie centrale de Montréal Inc. v. Montreal (City), 1994 59 (SCC), [1994] 3 S.C.R. 29 and Partagec Inc. v. Québec (Communauté urbaine), 1994 60 (SCC), [1994] 3 S.C.R. 57. The principles from those cases have since been applied in Ontario in University Health Network v. Municipal Property Assessment Corp., [2006] O.J. No. 3565 (S.C.J.) (“UHN”) and Wheatley Harbour Authority Corporation v. Municipal Property Assessment Corporation, 2010 ONSC 2499 (Div. Ct.).
[16] The Buanderie centrale de Montréal was a non-profit corporation created to provide public establishments in the regional social affairs network of Montreal with laundry and linen services. It replaced the laundry services that hospitals had operated to meet their own needs, and was set up by the hospitals in conjunction with Conseil de la santé et des services sociaux de la région de Montréal métropolitain (“the Regional Council”) and the provincial Ministère des Affaires sociales. Land was transferred to the Regional Council by a religious community and a hospital, with legislative authorization, for the purposes of constructing a community laundry. The laundry operated on a non-profit basis for member establishments and was exclusively owned by them. However, the laundry was not controlled by the establishments for whose benefit it had been set up.
[17] The Supreme Court ruled that the laundry and the Regional Council were exempt from municipal taxation because of a shared patrimony with the hospitals, which were exempt as public establishments. The Court took note that the laundry carried on the same hospital activities as the hospitals had carried on (at p. 25). It concluded that the Legislature of Quebec had acted to promote efficiency in the operation of hospital laundries (p.27), and “there was almost complete identity between the appellants and the establishments for whose benefit they operated” (p. 28). In particular, the ownership of the assets needed to provide the laundry service remained with the member establishments.
[18] The Court concluded (at p. 28):
It seems to me that the Regional Council and the Buanderie form a single “conduit” to the establishments they serve and that this situation is not affected by the fact that administrative functions or the titular ownership of property have been conferred on them. In pursuing its objective the legislature made no essential change to the substance of the patrimony of the establishments as a whole, whether in terms of financial responsibility or ownership of property. Taxation relates solely to patrimony. It may therefore be concluded that, in requiring the creation of a community laundry, the legislature did not intend to affect the exempt status which had always applied to the public establishments before they were merged. No indication is given to the contrary. Such a conclusion would run counter to the legislature's aim of reducing costs. Moreover, as a concluding note, the change of policy of the Ministère des Affaires municipales has never been reflected in the legislation.
[19] Similarly, in Partagec, the Court concluded that a company providing laundry service and other services to hospitals in the Quebec City region should be exempt from municipal taxation, given “the virtual identity of patrimony between Partagec and its member establishments.”
[20] Perell J. subsequently applied the patrimony principle in the UHN case, where a hospital subsidiary corporation, Shared Healthcare Supply Services Ltd. (“SSHS”), had been created by several Toronto hospitals to provide laundry services that had previously been provided by those hospitals. A “hospital subsidiary” was defined in the regulations under the Public Hospitals Act as “a corporation that is controlled directly or indirectly in any manner by one or more hospitals” (s. 35 of Reg. 965, R.R.O. 1990), a fact of which Perell J. took note (at para. 56). SSHS occupied space leased by a public hospital.
[21] Subsequently, another hospital subsidiary corporation purchased SHSS with the purpose of providing integrated back office services to its members, eleven public hospitals.
[22] Perell J. concluded (at para. 53):
[the hospital subsidiary corporations] share a patrimony (indeed, as great if not a greater patromony than manifested in the Buanderie case) and, accordingly, and consistent with the purpose of the Public Hospitals Act, the legislature must have intended that the hospital subsidiary corporations in this case be treated in the same fashion as public hospitals for the purposes of the exemption for public hospitals in the Assessment Act.
[23] Finally, in Wheatley, the Divisional Court held that properties owned by the Crown but leased to a harbour authority for $1.00 annual rent were exempt from taxation. The Court held that the harbour authorities had an identity of patrimony with the Crown and so they could claim the same exemption as the Crown. The Court noted that the harbour authorities carried on the same activities as the Crown did before their formation; they were strictly supervised by the Crown (including the requirement for final approval of the annual operating budget); the Crown determined the charges they levied and provided financing; in the event of dissolution, their assets would revert to the Crown; and they were non-profit organizations.
[24] Each of the cases discussed above turned on an interpretation of the legislation by the court to determine the intent of the Legislature. Similarly, in the present case, the question the application judge had to determine was whether there was a legislative intent to give the Foundation, the charitable arm of the Hospital, the same exemption as that provided to a public hospital by the Assessment Act. More precisely, was there such an identity of patrimony that one could conclude the Legislature intended to provide the same exemption to the property used and occupied by the Foundation as it did to property used and occupied by the Hospital?
[25] The application judge carefully considered the relationship of the Foundation and Hospital and concluded that there was not a sufficient identity or patrimony to allow the Foundation to benefit from the public hospital exemption. First, he noted the Foundation and Hospital were separate corporate organizations, and the Foundation operated as an independent corporation, with its own Board of Directors and source of funding. He was aware that the Hospital is involved in respect of the Foundation’s distribution of funds, but those funds are deliberately treated as the Foundation’s own funds. Second, he distinguished the Buanderie and UHN cases, where entities had been created “to rationalize and reduce the costs of the hospital establishments” (at para. 32), and those entities were paid out of operating budgets (at para 35). Third, he distinguished Wheatley, on the basis that the Foundation was not simply carrying out activities of the Hospital, nor is it sufficiently controlled by it as to create an identity of patrimony. Moreover, on dissolution the Foundation’s assets do not revert to the Hospital.
[26] The appellants argue that the application judge erred in stating that the Foundation does not carry out the fundraising that was previously carried on by the Hospital. Even if that is true, the other facts mentioned by the application judge clearly support his finding that there is not a sufficient identity between the Hospital and the Foundation so as to conclude that the Foundation can claim the exemption in the Act for land used and occupied by a public hospital.
[27] This is not a case like Ottawa Salus Corporation v. Municipal Property Assessment Corporation (2004), 2004 14620 (ON CA), 69 O.R. (3d) 417 (C.A.). In that case, the Court of Appeal held that a charitable corporation which leased residential units to low income tenants could still claim the exemption in s. 3(1)12 of the Act, the exemption for land owned, used and occupied by charitable corporations organized for the relief of the poor. I note that this provision, unlike s. 3(1)6, does not exclude “any portion of the land occupied by a tenant...”, and the case can be distinguished on this basis.
[28] Moreover, the Court of Appeal found that Salus was using and occupying the land directly in furtherance of its objective of relieving the poor – that is, in carrying out its core charitable mandate (at para. 36). That is not the case here. The Foundation occupies the premises for the purpose of fundraising. The Hospital’s fulfillment of its main purpose, the provision of patient care and research, is not dependent on the Foundation’s occupancy of the subject premises. Therefore, the application judge did not err in his treatment of the Ottawa Salus case.
Conclusion
[29] Accordingly, the appeal is dismissed. Costs to the respondent are fixed at $5,000, an amount agreed upon by the parties.
Swinton J.
Aston J.
Lax J.
Released: November 9, 2012
CITATION: The Hospital for Sick Children v. The Municipal Property Assessment Corporation, 2012 ONSC 6112
DIVISIONAL COURT FILE NO.: 219/12
DATE: 20121109
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
aston, lax and swinton jj.
B E T W E E N:
THE HOSPITAL FOR SICK CHILDREN AND THE HOSPITAL FOR SICK CHILDREN FOUNDATION
Appellants
- and -
THE MUNICIPAL PROPERTY ASSESSMENT CORPORATION AND THE CITY OF TORONTO
Respondents
REASONS FOR JUDGMENT
Swinton J.
Released: November 9, 2012