Court of Appeal for Ontario

Date: September 5, 2017

Docket: C62599

Judges: Strathy C.J.O., Cronk and Pepall JJ.A.

Between

Grand River Enterprises Six Nations Ltd. Applicant (Appellant)

and

The Minister of Finance for Ontario Respondent (Respondent)

Counsel

For the Appellant: Brian Duxbury and Ben A. Jetten

For the Respondent: Lise G. Favreau, Michael S. Dunn and Padraic Ryan

Heard: May 9, 2017

On Appeal

On appeal from the order of the Divisional Court (Justices Sidney N. Lederman, David L. Corbett, and Charles T. Hackland), dated March 31, 2016, with reasons reported at 2016 ONSC 2061, 347 O.A.C. 240, dismissing the application for judicial review.

Strathy C.J.O.:

A. OVERVIEW

[1] This appeal concerns s. 12(2)(f.1) of the Tobacco Tax Act, R.S.O. 1990, c. T.10 ("TTA"), which requires the Minister of Finance (the "Minister") to demand security from parties, like the appellant, who manufacture and sell tobacco intended for export or for sale on First Nations reserves. The appellant claims that the Minister erred in his interpretation and application of the provision when he demanded that it provide security. Alternatively, the appellant claims that the provision is unconstitutional because it is an indirect tax on exported goods.

[2] For the reasons that follow, I would dismiss the appeal. I agree with the Divisional Court that the Minister's interpretation of the provision was reasonable and is entitled to deference. Section 12(2)(f.1) is constitutionally valid because it is incidental to a scheme of direct taxation within the province.

B. BACKGROUND

[3] The appellant is the largest Canadian exporter of tobacco. It manufactures tobacco on the Six Nations of the Grand River Reserve Territory in Ontario. In addition to producing tobacco for export, the appellant produces tobacco products for sale to "Indians" and "bands" located on "reserves", within the meaning of the Indian Act, R.S.C. 1985, c. I-5. It does not sell tobacco to retailers outside reserves and does not sell to consumers who are required to pay taxes under the TTA.

[4] The appellant's tobacco produced for export is partially processed and then packaged in large boxes. It is further refined and packaged by the foreign purchaser for sale and consumption in the export market.

[5] In order to manufacture tobacco products in Ontario, the appellant, like all participants in the industry, must hold a permit. It has held permits since 1998 and in that year it was required to post $550,000 as security. In January 2014, as a result of legislative amendments to the TTA, persons distributing and selling unmarked fine cut tobacco ("UFCT"), as defined in the TTA, were required to hold a permit. Prior to that time, the only permit the appellant required under the TTA for its unmarked tobacco products was for the purchase and sale of unmarked cigarettes.

[6] In December 2013, the Minister issued two permits to the appellant. One authorized the possession, storage and sale of UFCT for export. The other authorized the sale of UFCT to First Nations retailers. The Minister informed the appellant that he would be seeking security in relation to those permits and in September 2014, demanded security in the amount of $3,209,000. Ministry staff calculated the amount of security based on the monthly returns filed by the appellant. In particular, Ministry staff used the amount of tobacco listed as "Other Tobacco" on the monthly returns.

[7] After this proceeding was commenced, the amount of the demand was reduced to $1,397,000 when Ministry staff determined that some of the tobacco used in the original calculation was not UFCT.

[8] The appellant took the position that the Minister's demand for security was unlawful, because no tax was payable on tobacco produced for export or for sale on reserves. When the issue was not resolved, the appellant brought an application for judicial review. On March 31, 2016, the Divisional Court dismissed the application. This court granted the appellant leave to appeal.

[9] Before turning to the reasons of the Divisional Court, I will explain and summarize the relevant provisions of the TTA.

C. THE TTA

[10] The TTA imposes a tax on consumers of tobacco products. As the Divisional Court noted, all consumers in Ontario are required to pay the tax on tobacco products they purchase, with one exception: tobacco products sold to "Indians" on a "reserve" for use by "Indians" are not subject to the tax. This exemption exists by virtue of ss. 87(1)(b) and 87(2) of the Indian Act, which provide that "the personal property of an Indian or a band situated on a reserve" is exempt from tax and no "Indian" is subject to tax in respect of the possession or use thereof.

[11] Although the tax is paid by the consumer at the time of purchase from the retailer, the tax is actually collected from manufacturers, who remit the tax on their products, collecting it as part of the price charged to wholesalers, who in turn charge the cost as part of the price they charge to retailers. The retailer, in turn, charges the tax as part of the price charged to the consumer.

[12] The TTA regulates the manufacture, distribution and retail sale of tobacco products in order to collect the tax. As the Divisional Court noted, at para. 14 of its reasons, "[t]he TTA regulates the entire tobacco industry in Ontario with a view to ensuring that the taxes payable under the TTA are collected and remitted to the Minister."

[13] As part of the regulatory system established by the TTA, each party in the distribution chain – manufacturers, wholesalers and retail dealers – is required to obtain a permit or registration certificate and to account for its tobacco supplies. This includes entities, like the appellant, whose tobacco is not subject to taxable sale in Ontario because it is intended for export or sale on reserves. The system also includes an elaborate marking and labelling regime for tobacco products to identify whether tax on a product has been pre-paid.

[14] As with many regulatory regimes, there are provisions for penalties and fines for breaches of the statute. Participants in the system are required to provide security as a condition of receiving a permit. The Minister is entitled to assess penalties and taxes owed by a participant and to satisfy them from the security provided. These provisions protect the integrity of the tax system by ensuring that the tax is paid, collected and remitted to the Minister.

[15] With this background, I turn to the specific statutory provisions.

[16] Section 2 imposes a tax, to be paid by every "consumer", at the rate of 16.475 cents on every cigarette and on every gram or part gram of a tobacco product other than cigarettes and cigars purchased by the consumer.[1] A "tobacco product" is defined in s. 1(1) as tobacco in any form in which it is used or consumed and includes snuff.

[17] The Minister's demand for security in this case is related to UFCT. This is defined by s. 1(1) as "fine cut tobacco that is not marked fine cut tobacco". This definition, and the definition of "marked fine cut tobacco", are key to the appellant's statutory interpretation argument.

[18] "Marked fine cut tobacco" is defined under s. 1(1) as "fine cut tobacco in a package that is marked or stamped with an indicium as required under the regulations". This refers to fine cut tobacco that has a mark or stamp on its packing to indicate that taxes have been paid.

[19] The term "fine cut tobacco" is not defined in the TTA, but it is defined in a regulation made under the TTA, namely R.R.O. 1990, Reg. 1034 (the "Regulation"). Section 1(1) of the Regulation defines "fine cut tobacco" as "loose tobacco product that has been refined to the point where it could be formed into a cigarette".

[20] The Minister's demand for security was made pursuant to the provision at issue in this appeal, s. 12(2)(f.1):

(2) The Minister shall demand security in a form acceptable to the Minister from,

(f.1) every person who applies for or is the holder of a permit to purchase or sell unmarked fine cut tobacco in an amount equal to the greater of $500,000 or the average three months' tax that would be collectable or payable by the person calculated on the basis of the 12-month period preceding the Minister's demand, if the person's acquisition of unmarked fine cut tobacco were marked fine cut tobacco that was sold to consumers in Ontario during the 12-month period. [Emphasis added.]

[21] Other provisions of the TTA are designed to ensure that the tobacco tax is properly collected. For example, s. 9.0.1(1) provides that no person shall possess, store or sell UFCT in Ontario unless the person has applied for and been issued a permit to purchase and sell UFCT under the regulations. This describes the permits issued to the appellant by the Minister in December 2013.

[22] Section 9.0.1 also provides for penalties and fines in the event the tobacco is sold in circumstances where tax is required to be paid. For example, s. 9.0.1(4) provides that a UFCT permit holder who sells UFCT to a person who is liable to collect or pay the tobacco tax is liable to pay a penalty, equal to the tax avoided. Section 9.0.1(5) provides for a fine in respect of the same conduct. Similarly, s. 9.2 provides for a penalty and fine to be paid by a person who delivers UFCT to a person in Ontario who is not authorized to purchase, possess, sell or store UFCT or to deliver UFCT for sale to consumers.

[23] Sections 19(1)(b) and 19(2) of the TTA give the Minister authority to assess any tax, interest or penalty payable by a person under the statute and to assess a penalty against any person who fails to collect tax that the person is responsible for collecting. Section 12(5) provides that where the Minister has assessed a person who has provided security, all or part of the security may be paid into the Consolidated Revenue Fund in satisfaction of the person's assessed liability.

D. THE REASONS OF THE DIVISIONAL COURT

[24] The Minister concluded that by virtue of s. 12(2)(f.1), the appellant was required to provide security, even though the tobacco was not intended to be sold in taxable transactions. The appellant argued that this interpretation was erroneous, and that s. 12(2)(f.1) does not require treating non-taxable UFCT as if it were destined for taxable sale. The Divisional Court found that the Minister's interpretation of s. 12(2)(f.1) was reasonable and entitled to deference. It rejected the appellant's interpretation.

[25] The Divisional Court also found that the Minister's calculation of the amount of security was reasonable and entitled to deference.

[26] The Divisional Court did not address the constitutional validity of s. 12(2)(f.1), because it was of the view that the appellant had not asserted this challenge in its application.

E. THE ISSUES

[27] There are two issues raised by this appeal. The first is whether the Minister's demand for security was unreasonable and arbitrary. The answer to that question largely depends on whether the appellant's tobacco was UFCT.

[28] The second issue is whether s. 12(2)(f.1) is constitutionally valid or applicable to tobacco destined for export or for sale on a reserve.

F. OVERVIEW OF THE PARTIES' SUBMISSIONS

[29] Dealing first with the interpretation and application of s. 12(2)(f.1), the appellant says that the Minister's demand for security was unreasonable and arbitrary because the Minister simply assumed that all the tobacco listed as "Other Tobacco" in the appellant's monthly returns was UFCT. According to the appellant, over 95% of the product in question (the exported tobacco) was not UFCT, either as a matter of statutory interpretation or as a matter of fact.

[30] Instead, it says that the exported tobacco was "partially manufactured tobacco", a term that is found nowhere in the TTA or Regulation, but is used in the Excise Act, 2001, S.C. 2002, c. 22. This, says the appellant, is because its exported tobacco is not packaged in such a way that it could be sold at retail. Its exported tobacco requires further refining before it can be sold in a form where it would be used or consumed by a consumer and, as such, does not constitute "fine cut tobacco" under the TTA.

[31] While the appellant acknowledges that it holds permits for two types of UFCT (including the exported tobacco), it submits that the Minister cannot improperly issue permits and then demand security in respect of those permits.

[32] The Minister makes several responses to these submissions. First, he says that having applied for and received permits to sell UFCT, it is too late for the appellant to argue that its product is something else. Second, he says that the exported product falls within the statutory definition of UFCT. Third, the appellant's witness acknowledged that the product possessed the characteristics of UFCT. Fourth, and finally, the Minister's calculation of the security demand was reasonable and is entitled to deference, as is the Minister's interpretation of s. 12(2)(f.1). The Minister was entitled to assume that the "Other Tobacco" was UFCT because the appellant only had permits to export cigarettes and fine cut tobacco, and cigarettes were listed separately.

[33] The appellant's second submission is that the Divisional Court failed to address the constitutional validity of s. 12(2)(f.1) and that this court should consider its constitutionality as a matter of first instance. It argues s. 12(2)(f.1) is unconstitutional if it applies to tobacco sold for export because the province may only impose direct taxes within Ontario and has no jurisdiction to tax goods destined for export. It submits the provision must be read down to apply only to sales to consumers in Ontario.

[34] The appellant submits that the purpose of the security requirement in the TTA is to protect the revenue against taxes owing in respect of the sale of the product in its intended market. Since the province can only impose direct taxation within the province, it cannot tax goods sold for export. Moreover, sale of tobacco on a reserve is exempt from taxation pursuant to ss. 87(1) and (2) of the Indian Act. Because the tobacco in question is exempt from taxation, whether exported or sold on a reserve, the Minister is not entitled to demand security in respect of that tobacco. Section 12(2)(f.1) should be read down to apply only to persons who sell UFCT to consumers in Ontario.

[35] The Minister, on the other hand, submits that the TTA is a valid exercise of provincial legislative jurisdiction because its purpose and effect are to impose direct taxation within the province. While the overall purpose of the statute is to collect taxes from consumers through a system of wholesale dealers, not every provision of the TTA is itself a tax – taxing statutes may provide for administrative and enforcement mechanisms, including penalties, fines, withholding or remitting requirements, and security, which are not themselves taxes.

[36] Thus, says the Minister, the requirement for security in s. 12(2) falls within provincial legislative competence because its purpose and effect is in furtherance of a constitutionally valid direct taxation scheme.

G. ANALYSIS

(1) Standard of Review

[37] The Minister's interpretation and application of s. 12(2)(f.1) is entitled to deference and is subject to a standard of review of reasonableness: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190.

[38] The Divisional Court did not address the constitutional validity of s. 12(2)(f.1), apparently concluding that the issue was being addressed in other proceedings. This assumption appears to have been erroneous. A notice of constitutional question was served in these proceedings. The parties invited us to address the issue. In the circumstances, as this court has a complete record and has received written and oral submissions from both parties on the issue, it is my view that the constitutional issue should be addressed.

(2) Unreasonable and Arbitrary Demand for Security

[39] The interpretation of s. 12(2)(f.1) advanced by the appellant in the Divisional Court, and rejected by that court, was not pursued before us. Instead, the appellant argues that s. 12(2)(f.1) only applies to tobacco packaged for retail and that, in any case, as a matter of fact, its product was not UFCT. Thus, the appellant says, it was improper for the Minister to rely on the "Other Tobacco" category in the appellant's monthly returns when most of this tobacco was allegedly not UFCT.

[40] I agree with the Minister that there are several answers to this argument. It was reasonable for the Minister to calculate the amount of security with reference to the exported tobacco that was included in the "Other Tobacco" category.

[41] First, and in my view, foremost, the appellant's interpretation of the statute is illogical. It submits that the definition of UFCT, when read with the definition of "marked fine cut tobacco", means that UFCT must be in a "box, tin or other container" used for retail sale. The appellant argues that since its export tobacco is not packaged in this manner, it is not UFCT.

[42] As expressed in the appellant's factum, the argument is:

"Unmarked fine cut tobacco" is defined in the TTA as "fine cut tobacco that is not marked fine cut tobacco". "Marked fine cut tobacco" is defined as "fine cut tobacco in a package that is marked or stamped with an indicium as required under the regulations". A "package" is defined as "a box, tin or other container in which a tobacco product is sold at retail". Therefore, "unmarked fine cut tobacco" is fine cut tobacco in a box, tin or other container in which a tobacco product is sold at retail that is not marked or stamped with an indicium as required under the regulations. [Emphasis in original.]

[43] In my view, this interpretation distorts the language of the statute and is plainly wrong. The modern approach to statutory interpretation requires that "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": Rizzo & Rizzo Shoes Ltd. (Re), [1998] 1 S.C.R. 27, at para. 21, quoting Elmer Driedger, Construction of Statutes, 2d ed. (Toronto: Butterworths, 1983), at p. 87.

[44] UFCT is defined as "fine cut tobacco" that is not tobacco falling within the definition of "marked fine cut tobacco". "Fine cut tobacco" is not defined in the TTA. It is, however, defined in the Regulation as "loose tobacco product that has been refined to the point where it could be formed into a cigarette". The appellant's affiant acknowledged that, in theory, any of its exported tobacco could be used in a roll-your-own cigarette. Since the appellant's tobacco is "fine cut tobacco" and is not "marked fine cut tobacco", it clearly falls within the definition of UFCT.

[45] Put another way, "marked fine cut tobacco" is defined as being fine cut tobacco that is in a "marked" package. Marked fine cut tobacco must be in a package. UFCT need not be. Thus, UFCT is fine cut tobacco that is not in a package that is marked or stamped as required by the Regulation.

[46] Second, the appellant acknowledges that it was required to have a permit in respect of its UFCT. It received two permits from the Minister for this purpose. One permit authorized the appellant "to possess and store and sell [UFCT] for export out of Ontario." The other authorized the appellant "to purchase, possess and store [UFCT] for sales of [UFCT] only to authorized First Nations retailers." The appellant acknowledged that it held no other applicable permit. It filed returns with respect to its inventory and exports of unmarked tobacco. As the Divisional Court found, the requirement for security applies to every person who holds a permit to purchase and sell UFCT. The appellant held two such permits. It never objected to the issuance of the permits. The words of s. 12(2) ("shall demand") are mandatory. Therefore, the Minister was required to demand security.

[47] Finally, the appellant's submission that its product is "partially manufactured tobacco" and not "fine cut tobacco" is contradicted by the evidence of its own witness, referred to above.

[48] For these reasons, I would reject the first ground of appeal.

(3) The Constitutional Issue

[49] The appellant acknowledges that the TTA is within the constitutional competence of the provincial legislature because it imposes a direct tax, within the province, for the raising of a revenue for provincial purposes: see Bank of Toronto v. Lambe (1887), 12 App. Cas. 575 (P.C.), at pp. 584-85.

[50] It submits, however, that the purpose and scheme of the TTA dictates that a demand for security under s. 12(2) must be intended as security for taxes that are payable on the consumption of the tobacco in question. Since 95% of the tobacco produced by the appellant is for export, and since a manufacturer is not required to collect taxes on exported tobacco, it cannot be required to provide security in relation to tobacco intended for export. The appellant says that interpreting the legislation as applicable to tobacco manufactured for export has the effect of imposing an unconstitutional indirect tax on a manufacturer and is ultra vires the province.

[51] The Minister, on the other hand, argues that the demand for security is not itself a tax. Rather, as the Divisional Court found, the legislature intended that security would be provided to secure against loss to the public purse as a result of the diversion of tobacco from non-taxable markets into the domestic (taxable) market. In addition, it provides security for taxes, penalties or interest payable in the event of the appellant's breach of its obligations under the TTA.

[52] In order to address these submissions, I will begin with a review of the applicable constitutional framework, as well as the pertinent constitutional principles.

(1) The Constitutional Framework

[53] Parliament's exclusive legislative jurisdiction, defined in s. 91 of the Constitution Act, 1867, includes: (2) the regulation of trade and commerce; (3) the raising of money by any mode or system of taxation; and (24) Indians, and lands reserved for the Indians.

[54] Section 92 gives the provinces exclusive jurisdiction to make laws in relation to matters coming within specified classes of subjects, including: (2) direct taxation within the province in order to the raising of a revenue for provincial purposes; and (15) the imposition of punishment by fine, penalty, or imprisonment for enforcing any law of the province made in relation to any matter coming within any of the classes of subjects enumerated in s. 92.

(2) Applicable Constitutional Principles

[55] The parties refer to three principles of constitutional law: (a) the search for the "pith and substance" of the legislation; (b) the double aspect doctrine; and (c) the "incidental effects" principle.

(a) The "Pith and Substance" of Legislation

[56] As this court observed in Canada Post Corp. v. Hamilton (City), 2016 ONCA 767, 134 O.R. (3d) 502, at para. 32, the first step in a division of powers analysis is to determine the "pith and substance" of the impugned legislation to determine the "matter" to which the law relates. This, in turn, requires a consideration of the purpose and effect of the law. See Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3, at paras. 25-32.

[57] Where, as here, the statutory provision is part of a larger scheme, "the pith and substance analysis begins with the challenged provision", but "the 'matter' of the provision must be considered in the context of the larger scheme, as its relationship to that scheme may be an important consideration in determining its pith and substance": Quebec (Attorney General) v. Canada (Attorney General), 2015 SCC 14, [2015] 1 S.C.R. 693, at para. 30.

(b) The "Double Aspect" Doctrine

[58] This principle holds that "subjects which in one aspect and for one purpose fall within sect. 92, may in another aspect and for another purpose, fall within sect. 91": Hodge v. The Queen (1883), 9 App. Cas. 117 (P.C.), at p. 130; Canada Post, at para. 43; and Canadian Western Bank, at para. 30. Where there is a conflict, in the sense that the provincial law makes it impossible to comply with the federal law, or the operation of the provincial law frustrates Parliament's purpose, the conflict must be resolved in favour of the federal legislation: Canada Post, at para. 45.

(c) The "Incidental Effects" Principle

[59] A corollary of these principles is that the "incidental effects" of a law whose pith and substance is within the jurisdiction of the enacting legislature may intrude into the jurisdiction of the other legislature without impairing its constitutionality: Canadian Western Bank, at paras. 28-32.

(3) Application of the Principles

[60] The pith and substance analysis supports the constitutionality of s. 12(2)(f.1).

[61] Recognizing that the focus is on the constitutionality of the provision itself and not the statute, the provision cannot be divorced from its context. The appellant acknowledges that the direct tax imposed by the TTA is constitutionally valid: see Bomberry v. Ontario (Minister of Revenue) (1989), 70 O.R. (2d) 662 (Div. Ct.), at pp. 665-66 and Atlantic Smoke Shops Ltd. v. Conlon, [1943] 4 D.L.R. 81 (P.C.). The collection of the tax from wholesalers rather than retailers does not transform it into an ultra vires indirect tax: Bomberry, at pp. 665-66. Nor does the enforcement process for the collection of the tax have the effect of taxing parties who are part of the collection process: Hill v. Ontario (Minister of Revenue) (1985), 50 O.R. (2d) 765 (H.C.).

[62] The pith and substance of the TTA is plainly the imposition of a tax on the consumption of tobacco. This is direct taxation within the province and falls squarely within provincial jurisdiction under s. 92(2). The elaborate marking regime, the registration and permitting system and the collection machinery are all designed to serve that end. This is the purpose and effect of the legislation.

[63] What, then, is the pith and substance of the impugned s. 12(2)(f.1)?

[64] Section 12(1) provides that the Minister may demand information from any person for the purpose of determining their suitability to be a collector of taxes, an exporter or registered importer of tobacco products or their suitability to hold a permit to engage in certain functions under the TTA, such as marking or stamping cigarettes and fine cut tobacco, manufacturing tear tape, and purchasing and selling unmarked cigarettes or UFCT. Subsection 12(2) requires the Minister to demand security from some 12 classes of persons, including collectors of taxes, importers, exporters of tobacco and holders of permits under the TTA, such as permits to mark or stamp cigarettes or fine cut tobacco and holders of permits to purchase or sell unmarked cigarettes.

[65] The security is plainly intended to provide a source of funds for any assessment made by the Minister for taxes, interest or penalties in the event of a contravention of the TTA. This, in turn, ensures compliance with the statute.

[66] In my view, having regard to the scheme and purpose of the TTA as a whole, and the context of the impugned provision, it is in pith and substance a provision in furtherance of the legislative scheme to ensure the integrity of the machinery for collection of the tax. As the Divisional Court observed, at para. 42:

On the plain language of s. 12(2)(f.1), it is clear that the legislature intended that security be provided for tax payable as a result of possible diversion of tobacco products, and that security is not limited to taxes that will be collectable on intended taxable sales to consumers.

[67] Section 12(2)(f.1) should be understood as part of what Krever J., as he then was, described as the "elaborate machinery to be found in the [TTA] that is designed to facilitate the collection of the tax": see Hill, at pp. 768, 770. The security is not imposed in relation to taxes on the sale of tobacco if used for its intended (non-taxable) purpose. It is imposed and calculated on the basis of the sale of the tobacco in a taxable market, because it serves as security in the event, among others, that the tobacco is not sold in its intended market.

[68] I would reject the appellant's submission that such security is not required because of strict federal controls on the export of tobacco products. This is a case in which the double aspect doctrine permits both levels of government to legislate in relation to different aspects of the regulation of the same commodity. Further, I would reject the appellant's argument that because it has never been involved in illegal diversion of tobacco products, the security demand is unjustified. The purpose of the legislative provision is not to single out or punish wrongdoers; it is to proactively protect against lost tax revenue should product be diverted out of non-taxable markets and into the domestic market. The security requirement is imposed on every person who holds a permit to purchase or sell UFCT.

[69] The case of Guindon v. Canada, 2015 SCC 41, [2015] 3 S.C.R. 3 is instructive. There, a penalty under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the "ITA") had been assessed against a lawyer for issuing an opinion letter in support of a sham charitable donation program and for signing tax receipts on behalf of the charity. The provision in question made it an offence to make a false statement that could be used by or on behalf of another person for the purpose of the ITA – i.e., in that case, to obtain a charitable deduction.

[70] The appellant in Guindon argued that the provision was criminal in nature and that she was entitled to the protection of s. 11 of the Canadian Charter of Rights and Freedoms. In rejecting her submission, the Supreme Court stated, at para. 70:

[The appellant] argues that s. 163.2(4) is not an administrative offence because it is not restricted to the regulated class in the ITA (taxpayers) and departs from the general purpose of the Act: the collection of tax. While the individuals targeted by s. 163.2(4) of the ITA are not the taxpayers themselves, this does not detract from the provision's administrative nature. The ITA regulatory scheme encompasses more than those who pay taxes: employers, banks, brokers, charities, and other entities are required to file information returns and to produce information in order to verify taxpayer compliance. Provisions, such as administrative monetary penalties, that encourage compliance by these non-taxpayers are integral to the ITA's regulatory regime and are not criminal in nature simply because the target is not the taxpayer.

[71] Similarly, in this case, the administrative penalties, fines and other assessments in the TTA are integral to the scheme of the Act. The provision of security is not itself a tax. It is a means of ensuring collection of amounts payable under the statute, including taxes, interest and penalties.

[72] I agree with the Minister that s. 12(2)(f.1) falls within Ontario's legislative jurisdiction because it is in furtherance of a valid scheme of direct taxation within the province. It ensures that manufacturers account for the products they manufacture, possess, purchase or sell and that, where applicable, the tax is ultimately collected from the consumer.

[73] I would also reject the appellant's submission that the Minister was not entitled to calculate the security based on the amount of product manufactured by the appellant. It argues that the definition of "acquire" in the TTA ("to obtain tobacco products by any means, including through manufacturing") must be read down to exclude manufactured products, because the tobacco tax would otherwise be an unconstitutional indirect tax on manufacturing. It says that because the Minister has no constitutional authority to tax a manufacturer based on the amount of product manufactured, he has no authority to demand security on that basis.

[74] For the reasons set out above, the TTA creates a tax on consumption of tobacco. The requirement for security is incidental to the regulatory scheme. The requirement for security from a permit holder calculated on the amount of tobacco it manufactures does not turn a tax on consumption into a tax on manufacturing.

H. DISPOSITION

[75] For these reasons, I would dismiss the appeal, with costs to the Minister in the amount of $30,000, inclusive of disbursements and all applicable taxes.

Released: September 5, 2017

"George R. Strathy C.J.O."

"I agree. E.A. Cronk J.A."

"I agree. S.E. Pepall J.A."

Footnote

[1] Section 2(1) of the TTA states that the tobacco tax rate is 11.1 cents. Pursuant to s. 2(2.2) of the TTA, the Minister may make regulations prescribing a different rate of tax. The current tax rate (effective April 28, 2017) is 16.475 cents: Tobacco Tax Rates, O. Reg. 5/05.