DATE: 20040129
DOCKET: C40674
COURT OF APPEAL FOR ONTARIO
ROSENBERG, MACPHERSON and SHARPE JJ.A.
B E T W E E N :
CAUSEWAY FOUNDATION
Francis K. Peddle for the appellant
Applicant (Appellant)
- and -
ONTARIO PROPERTY ASSESSMENT CORPORATION and THE CITY OF OTTAWA
James M. Canapini for the respondent
Respondents (Respondent)
Heard: November 21, 2003
On appeal from the order of the Divisional Court (Justice R.T. Patrick Gravely, Justice John A.B. Macdonald and Justice David Aston) dated April 28, 2003, reported at [2003] O.J. No. 1640.
MACPHERSON J.A.:
A. INTRODUCTION
[1] This is a companion appeal to Ottawa Salus Corporation v. Municipal Property Assessment Corporation and the City of Ottawa (“Salus”). Both appeals relate to the exemption from property tax for charitable institutions found in paragraph 12 of s. 3(1) of the Assessment Act, R.S.O. 1990, c. A.31:
- 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.
[2] As in Salus, one issue in this appeal is the interpretation of the word “occupied” in this provision. The second issue in this appeal relates to the “supported in part by public funds” component of the exemption.
B. FACTS
(1) The parties and events
[3] The Causeway Foundation (“the Foundation”) is a charitable organization. It owns a building in Ottawa at 22 O’Meara Street. It leases part of this building to another charitable organization, the Causeway Work Centre (“the Work Centre”). The Work Centre provides a program of living skills, occupational, work and recreational activities, and counselling services to its members, who are psychiatrically disabled adults. Ninety-seven per cent of the Work Centre’s members are estimated to live at or below the poverty line.
[4] The Foundation and the Work Centre share a somewhat complex history. In 1995, the building at 22 O’Meara Street was owned by a private company, 134688 Canada Inc. On December 15, 1995, the Work Centre entered into a lease with 134688 Canada Inc. for the building. The Work Centre wanted to purchase the building, but the Ministry of Health, which provides 40 per cent of the Work Centre’s funding, refused to allow the use of operating funds for capital expenditures. In order to circumvent this obstacle, a new organization, the Foundation, was incorporated; the Foundation purchased the building from 134688 Canada Inc. in 1998. 134688 Canada Inc.’s lease with the Work Centre was assigned to the Foundation. Commercial subtenants occupy a small portion of the building.
[5] The Work Centre and the Foundation have a close relationship. There are eight directors on the Foundation’s board of directors; five of those directors also sit on the Work Centre’s board. The Foundation is exclusively restricted in its corporate objects to assisting, promoting, and maintaining the Work Centre, which carries out the charitable purposes of the Foundation. The Foundation has assumed payment of the building’s property taxes (which were previously paid by the Work Centre), its insurance premiums, and its utilities payments. The Foundation uses the rental payments it receives from the Work Centre to cover these expenses, as well as the mortgage and repair and maintenance costs. After all these payments are made, the Foundation gives whatever money is left back to the Work Centre.
[6] In 2000, the Foundation applied for an order exempting the portion of the building used by the Work Centre from property tax pursuant to s. 3(1), sub-paragraph 12(iii) of the Assessment Act. On June 20, 2002, Polowin J. dismissed the application: [2002] O.J. No. 2482. As in Salus, which was released only a few days later, Polowin J. found that the amended version of paragraph 12 required that the legal entity which owned the subject property must itself occupy it. The lease between the Foundation and the Work Centre granted exclusive possession of the building to the Work Centre. The application judge rejected the Foundation’s contention that the two organizations are, in essence, one organization, noting that they are separate legal entities by design. She concluded that the Foundation did not “occupy” the portion of the building used by the Work Centre. In addition, the application judge held that the Foundation was not supported by public funds.
[7] The Foundation appealed. On April 28, 2003, the Divisional Court (Gravely, Macdonald and Aston JJ.) dismissed the appeal: [2003] O.J. No. 1640. The court said:
In dismissing the claim for exemption, Polowin J. found on the facts that while the appellant foundation is a charitable non‑profit philanthropic corporation organized for the relief of the poor, it failed to establish that it occupies the land or that it is supported in part by public funds.
We are not satisfied that Polowin J. was clearly wrong in those findings.
[8] The Foundation appeals the Divisional Court’s decision.
C. ISSUE
[9] There are two issues on appeal:
(1) Did the Divisional Court and the application judge err in their interpretation of the word “occupied” in paragraph 12 of s. 3(1) of the Assessment Act?
(2) Did the Divisional Court err by affirming the application judge’s conclusion that the appellant was not “supported in part by public funds”?
D. ANALYSIS
(1) The occupation issue
[10] I adopt and incorporate my analysis of this issue in Salus.
[11] The Divisional Court rendered its decision in Salus on December 23, 2002. The panel of the Divisional Court in the present case was aware of that decision. It distinguished Salus in this fashion:
The facts which permitted the Divisional Court in Salus to distinguish the tenancy cases do not exist here. Leasing to Causeway Work Centre is not the charitable purpose of the appellant. Unlike the arrangement in Salus the appellant did not control the land. Causeway Work Centre had total control over the property pursuant to the lease. These two organizations were intended to be separate entities. The applications judge found on the facts here that the appellant had no occupancy rights and therefore no occupancy. In our view, it was open to her to so find on this evidence.
[12] In this passage, the Divisional Court mentions four grounds for distinguishing Salus. With respect, I do not think any of these grounds is convincing. I will consider them in turn.
Leasing to the Work Centre is not the charitable purpose of the Foundation
[13] The Foundation listed its objects in Part III of its application for incorporation. The application judge cited these objects:
The objects of the Corporation are:
“The establishment and operation of a charitable foundation which shall raise funds and obtain donations for the purposes of:
(a) purchasing capital assets (“assets”);
(b) funding research and/or special projects (“projects”); and
(c) funding specific and general education programs for the general community with respect to mental illness and promoting the needs of persons with mental illness (“programs”),
all of which assets, projects, and/or programs shall be used exclusively in assisting, promoting and maintaining a group work program for persons who are emotionally and/or mentally disordered and who are unable to undertake regular employment and who are members from time to time of Causeway Work Centre, a charitable not-for-profit corporation created pursuant to the Corporations Act [R.S.O. 1990, c. C.38] or any successor corporation thereto.”
[14] The subject property is an asset of the Foundation. The Foundation leases this asset to the Work Centre in order to assist, promote and maintain the group work program for members of the Work Centre. The Foundation does not lease this asset for the purpose of profit; indeed, any money left over from the lease payments after expenses have been paid is returned to the Work Centre. I conclude, therefore, that the Foundation’s leasing of the subject property to the Work Centre does serve its charitable purposes.
Unlike the arrangement in Salus, the Foundation does not control the land
[15] Salus does have control over part of its properties – the offices and the common rooms – but it has no right to regulate or control the tenants’ units. In Salus, the Divisional Court held that even though Salus had no right to regulate or control the individual units, Salus nevertheless “occupied” those units within the meaning of paragraph 12. Salus has no more control over the residential units in its properties than the Foundation has over the O’Meara Street building. I see no meaningful distinction between the cases on this ground.
The Foundation and the Work Centre were intended to be separate entities
[16] In Salus, prior to the 1995 Ministry of Health directive, Salus retained the right to regulate and control the residential units in its buildings. In the wake of the 1995 directive, Salus chose to lease those units to its tenants, thereby ceding the right to regulate and control those units to separate legal entities – the tenants themselves. Again, I do not see any meaningful distinction between the two cases on this ground.
The application judge found on the facts here that the appellant had no occupancy rights and therefore no occupancy
[17] In both Salus and the present case, the application judge held that the charitable organization in question did not “occupy” the subject property because the organization did not have the right to regulate and control that property. In Salus, the Divisional Court held that the application judge erred in her interpretation of the word “occupied” in paragraph 12. The Divisional Court concluded that Salus “occupied” its subject properties within the meaning of the paragraph because those properties were used and occupied for the purpose of relieving the poor. The Foundation’s building on O’Meara Street is used and occupied for the purpose of relieving the poor. Again, there is no meaningful distinction between the cases.
Conclusion
[18] I conclude that the interpretation of the word “occupied” in paragraph 12 of s. 3(1) of the Assessment Act must be the same in Salus and in this appeal. Accordingly, the Foundation’s first ground of appeal succeeds.
(2) The public funding issue
[19] Pursuant to sub‑paragraph 12(iii) of s. 3(1) of the Assessment Act, in order for a charitable institution to receive an exemption from property tax it must be “supported in part by public funds”. The application judge held that the Foundation did not meet this requirement of the exemption:
I turn finally to the issue of whether the Causeway Foundation is supported in part by public funds. Counsel for the Applicant submitted that the Causeway Foundation received its public funds indirectly from the Causeway Work Centre in the form of rents received. Counsel relied in this regard on the case of Re Cambridge Rehabilitation Homes [and City of Cambridge (1985), 1985 2089 (ON SC), 49 O.R. (2d) 694 (Dist. Ct.)].
With the greatest respect, I do not agree with the interpretation given by Justice Mossop that the exemption is satisfied if the public funds are paid indirectly to the institution. Her comments with respect to this issue were brief and do not appear to have been followed in any subsequent cases. As noted above, one of the principles of statutory interpretation is that words must be given their ordinary meaning. Section 3, paragraph 12 requires that the entity be supported in part by public funds (counsel agree that this refers to funds from government). Justice Mossop’s interpretation, in essence, reads words into the legislation that are not there, those words being “directly or indirectly”. I can see no legal justification for doing so. In my view, section 3, paragraph 12 requires that the Applicant receive funds from the government and not from another organization or entity.
[20] The Divisional Court agreed with this analysis. In addition, the Divisional Court rejected the Foundation’s argument that the application judge failed to deal with uncontradicted evidence that the Foundation received direct funding from the federal government.
[21] The Foundation renews both of its submissions on this appeal. I will deal with them in turn.
Indirect funding
[22] The case law is clear that the term “public funds” in sub‑paragraph 12(iii) of s. 3(1) of the Assessment Act means funds received from a government source, not from members of the public: see Ontario (Assessment Commissioner Stouffville ) v. Mennonite Home Assn. of York (County), 1972 9 (SCC), [1973] S.C.R. 189, and Religious Hospitallers of St. Joseph Housing Corp. v. Regional Assessment Commissioner, Region 1 (1998), 1998 2943 (ON CA), 42 O.R. (3d) 532 (C.A.).
[23] The Foundation submits that the Work Centre receives a considerable portion of its funds from various government sources and that because it then pays rent to the Foundation, it can be said that the Foundation receives, indirectly, these government funds.
[24] I disagree. In my view, the application judge’s reasoning on this issue is sound. The natural and ordinary meaning of the words “supported…by public funds” is that the charitable institution must receive the funds directly from a government source.
Direct funding
[25] The application judge, in exceptionally comprehensive reasons, said nothing about this issue. She recorded submissions from both counsel on the indirect funding issue, and rendered a decision on that issue.
[26] Before the Divisional Court, the Foundation contended that the application judge failed to deal with uncontradicted evidence that it received funding directly from Human Resources Development Canada (“HRDC”). The Divisional Court rejected this submission: “We are satisfied that the evidence before Polowin J. was not clear that there was any direct funding. Polowin J. was entitled to conclude therefore that the appellant had not established it was supported in part by public funds.”
[27] The Foundation concedes that the test on this issue is whether the Divisional Court erred by not concluding that the application judge made a palpable and overriding error by failing to hold that the Foundation received funds directly from a government source: see Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.
[28] The initial application record contained nothing about direct government funding to the Foundation. In the affidavit of Donald Palmer, a director of the Foundation and the Executive Director of the Work Centre, sworn on March 16, 2001, there is no reference to the Foundation’s revenues. The only reference is to the Work Centre’s funding:
- The Causeway Work Centre receives funding from Human Resources and Development Canada, from the provincial Ministries of Health and Community and Social Services and from the Regional Municipality of Ottawa‑Carleton, now the City of Ottawa.
[29] Mr. Palmer signed a supplementary affidavit on June 7, 2001. Again, he said nothing about the Foundation’s revenues. The only reference to funding was his statement, in paragraph 6, that the deficits arising from the operation of the Work Centre’s kitchen “are covered by subsidies from the provincial and municipal governments.”
[30] On August 9, 2001, Mr. Palmer was cross‑examined on his two affidavits. In the 57 page transcript of the cross‑examination, there are only two general questions about the Foundation’s sources of revenue.
[31] On the cross‑examination, the Foundation filed as exhibits the financial statements of the Foundation from 1999 to 2001 and the financial statements of the Work Centre from 1998 to 2000. These statements show that in all of these years the Foundation received no government funding whereas the Work Centre received almost all of its revenue from government sources.
[32] In light of these features of Mr. Palmer’s affidavits, the cross‑examination on the affidavits, and the financial statements of the Foundation and the Work Centre, it is not surprising that the application judge did not record any submissions by counsel about direct government funding to the Foundation or consider this issue in her reasons.
[33] Before the Divisional Court, and in this appeal, the Foundation sets against this record a single response by Mr. Palmer during his cross‑examination. The response was to Question 145 of the 147 questions asked:
- Q. Now, you referred earlier to another website that recently was up and running. That's the Foundation's website?
A. Yes. One of the things that we did, as you know from what we submitted, the Foundation has never had any staff. It's run by the eight voluntary Board members. I end up doing most of the work for the Foundation, as I'm sure I will in this case, because I'm in the unfortunate position of being Executive Director of the Work Centre.
However, we did get a grant from HRDC in June of this year to hire a staff person for the Foundation to start to get them organized, because they haven't been in that position lately. She's working at 22 O'Meara. That's where her office is [emphasis added].
[34] The Foundation contends that this is the uncontradicted evidence that it receives funding directly from the federal government and that the application judge and the Divisional Court erred by not relying on it.
[35] I disagree. In my view, the “we” in “we did get a grant from HRDC” is equivocal. Mr. Palmer was both a director of the Foundation and the Executive Director of the Work Centre. His two affidavits deal with both institutions, as does the cross‑examination on those affidavits. Indeed, a fair reading of the affidavits and the cross‑examination leads to the conclusion that Mr. Palmer provided considerable information about government funding for the Work Centre, including funding from HRDC. In contrast, he made only a single and glancing reference to government funding for the Foundation. Accordingly, in my view, it is as likely that Mr. Palmer was referring to new government funding received by the Work Centre as to new funds for the Foundation in his answer set out above.
[36] In addition, I do not think that Mr. Palmer’s single answer stands as “uncontradicted”. The record before the application judge, including Mr. Palmer’s affidavits and the financial statements of both institutions, contained significant material to support a conclusion that the Foundation had not established that it received direct funding from a government source.
[37] Finally, I note again that the application judge’s reasons were exceptionally comprehensive. She recorded in detail the submissions made by counsel and considered all of them. The absence of any reference in her reasons to the direct funding issue leaves me with a real doubt that this was a live issue before the application judge.
[38] For these reasons, I do not agree with the Foundation’s submission on this issue. The application judge’s decision is far removed from being a palpable and overriding error, and the Divisional Court was correct to uphold her decision on this issue.
[39] I make a final observation. Obviously, if the Foundation can establish that it has received direct government funding in years subsequent to 2001, it would be entitled to an exemption, all other factors being the same.
E. DISPOSITION
[40] I would dismiss the appeal with costs, on a partial indemnity basis, fixed at $5000 inclusive of disbursements and GST, if demanded.
RELEASED: January 29, 2004 (“MR”)
“J. C. MacPherson J.A.”
“I agree M. Rosenberg J.A.”
“I agree Robert J. Sharpe J.A.”