COURT FILE NO.: 04-207DV
DATE: 20060210
ONTARIO
DIVISIONAL COURT, SUPERIOR COURT OF JUSTICE
B E T W E E N:
OLDCASTLE BUILDING PRODUCTS CANADA, INC.
John A. Crossingham, for the Appellant, Oldcastle Building Products Canada, Inc.
Appellant (Appellant in Appeal)
- and -
MINISTER OF FINANCE
Walter Kim, for the Respondent, Minister of Finance
Respondent (Respondent in Appeal)
HEARD: January 24, 2006
REASONS FOR JUDGMENT
SPROAT J.:
Introduction
[1] The Appellant manufactures concrete products and straps them to wooden pallets for the purpose of delivery. After delivery the pallets are returned to the Appellant by the customer. The Appellant was audited for the period February 1, 1997 to May 31, 2000 and assessed tax under the Retail Sales Tax Act (“the Act”). The Appellant does not contest its liability to pay tax but takes the position that the tax was imposed retroactively such that it should not have been assessed interest on the taxes payable. The position of the Minister is that, while certain amendments to the Act in 2001 were retroactive to 1996, these returnable wooden pallets have been taxable from and after 1961 so that the tax is not retroactive and interest is properly payable.
The Act
[2] Retail sales tax was introduced in 1961 and at all material times s.2, the taxing provision, provided that purchasers of tangible personal property (subject to listed exemptions) were subject to pay a tax “in respect of the consumption or use thereof” at a stated rate.
[3] Further, the legislation has always included what the Minister characterizes as a “manufacturers’ exemption”. This exempts from tax property:
“purchased for the purpose of being processed, fabricated or manufactured into, attached to, or incorporated into, tangible personal property for the purpose of sale”.
[4] This wording of the manufacturers’ exemption remained consistent throughout. The only change relevant to this appeal is that on December 5, 2001 (made retroactive to September 12, 1996) one exception to the exemption was enacted stating:
However, this exemption does not apply with respect to,
(i) a returnable container for use or sale in Ontario,
[5] It is unclear why this statement that the manufacturers’ exemption did not apply to returnable containers was included in the RSA as opposed to the Regulations. As discussed below, from 1961 to 1987 a statement to the same effect was included in the Regulations. The parties agree that the pallets are properly characterized as returnable containers.
[6] Focusing simply on the Act, absent any regulation being enacted, the following would result:
(a) returnable containers would be subject to tax because they did not fall within the “manufacturers’ exemption”. The party purchasing the containers, in our case Oldcastle, would be the party that consumed or used the pallets within the meaning of the taxing provision and so be subject to tax. Further, the scheme of the Act is to impose a retail sales tax on purchases of personal property yet avoid double taxation. As the pallets would never be sold to a consumer, if Oldcastle does not pay tax on the pallets it purchased, then no retail sales tax is ever paid in relation to the pallets.
(b) non-returnable containers would fall within the “manufacturers’ exemption” as they are actually sold to the consumer who consumes or uses the container and pays tax on the purchase price of the product. An example would be a non-returnable pop bottle.
Regulations
[7] From 1961 to 1987 the Regulations defined “returnable container” in a manner that would include a pallet. In 1987 the Regulation was amended to revoke the separate definitions of “returnable” and “non-returnable” container in favour of a definition of “container” which would also include a pallet. In 2001 (retroactive to 1996) the Regulation was again amended to include a definition of “returnable” container.
[8] From 1961 to 1987 the Regulations contained what the Minister characterizes as a “clarification” provision which, in somewhat different language from time to time, provided that returnable containers are subject to tax. I agree with this characterization because, as discussed, returnable containers would be subject to tax even absent any regulations. (I also note that from and after 1975 there has been a specific provision in the Regulations exempting returnable milk containers).
[9] From 1961 to 1987 the Regulations defined “non-returnable containers” to mean containers not intended to be returned for re-use such as wrapping and packaging materials.
[10] In 1987 the Regulation was amended:
(a) to remove the definitions of “non-returnable container” and “returnable container”.
(b) to repeal s.16 which in 16(1) contained a definition of “returnable container” and in 16(2) provided that sales of returnable containers to manufacturers that are used in packaging and intended for re-use are subject to the tax imposed by the Act.
Analysis
[11] I agree with Justice Quinn that review of this legislative history is an “eye-glazing” exercise. I also agree with the result he reached albeit for somewhat different reasons.
[12] Justice Quinn concluded that from 1987 to 1996 returnable containers were not subject to tax. He came to this conclusion for two principal reasons:
(a) The 1987 Regulation, which eliminated the definitions of “non-returnable container” and “returnable container” and repealed s.16 which stipulated that returnable containers are subject to tax, evidenced an intent that returnable containers, taxed since 1961, were no longer subject to tax.
(b) The 2001 amendment to the Act (retroactive to 1996), which stipulated that the manufacturers’ exemption did not apply to “a returnable container”, implied that prior to the amendment such containers were not taxable.
[13] As to the first reason, I view the definitions of “non-returnable” and “returnable” container as having been for the purpose of greater certainty or clarification. As discussed, my conclusion is that absent any regulation being enacted non-returnable containers would be non-taxable and returnable containers would be taxable based upon the consistent language throughout of the taxing provision and the manufacturers’ exemption. As such, the repeal of these regulations does not alter the fact that refundable containers were subject to tax.
[14] I also derive some support for my conclusion from the fact that counsel could offer no Hansard or other contextual references to explain the purpose of the 1987 changes to the Regulation. The only suggestion was by Mr. Crossingham (who in fairness conceded it was speculation) that in 1987, the government decided to remove the tax on returnable containers to further environmental and recycling objectives.
[15] If that was the case one would expect to find some indication of that purpose or intent. Certainly in government some credit is usually claimed for public policy initiatives. If all returnable containers became tax exempt in 1987 this would have significant financial implications. One would expect some record of such a substantial policy change.
[16] The second reason relied upon by Justice Quinn was that the 2001 amendment to the Act to stipulate that returnable containers are subject to tax implied or inferred that prior to the amendment they were not taxable.
[17] The Minister argued that subsequent legislation should not be used to construe earlier statutory language having regard to s. 17 of the Interpretation Act which provides that:
The repeal or amendment of an Act shall be deemed not to be or to involve any declaration as to the previous state of the law.
[18] In Driedger on the Construction of Statutes (3rd Edition) Professor Sullivan states:
Although some courts have ruled that the subsequent evolution of legislation should not be looked at, there are many cases in which courts not only have considered subsequent amendments but have accorded them significant weight. There appears to be no principled reason to exclude this material. In so far as it can enhance or reduce the plausibility of a given interpretation, it should be considered a legitimate aid.
The chief drawback to the use of legislative evolution, whether prior or subsequent, is that it is often difficult to distinguish amendments that are meant to clarify or confirm the law from amendments that are meant to change it. Because of this difficulty, the technique of tracing legislative evolution must be used with caution. (pp. 457-8)
[19] Counsel provided us with a copy of the 2001 Ontario Budget (Paper C) which highlighted 20 pages of major tax amendments including amendments to the Act to extend a sales tax rebate to electric hybrid cars and to exempt from tax audio books for people who are blind. The amendment to s.7(1)(41) of the Act which continued the manufacturers’ exemption, but stated that it did not apply with respect to returnable containers, was not specifically identified but fell under the following general heading:
Other Technical Amendments:
To improve administrative effectiveness and enforcement, to maintain the integrity and the equity of the tax system, and also to enhance legislative clarity, various other amendments will be proposed to the following Ontario statutes:
Retail Sales Act
[20] As in the case of the changes to the Regulations in 1987, there is no record of the purpose of the 2001 amendment to the Act. If the change had the effect of imposing a tax on all returnable containers, one would expect some explanation or criticism of the changes to be on the public record. In my opinion it is plausible and reasonable given the complexity of this legislation, and I find that the Act was amended in 2001 to stipulate returnable containers were taxable for clarification or greater certainty purposes as opposed to signalling a change in the law.
[21] The interpretation that returnable containers were taxable throughout also explains why the milk carton exception was continued from its introduction in 1975. This exception would have been redundant if in fact all returnable containers were tax exempt during the period 1987 – 1996.
Conclusion
[22] I would dismiss the appeal. The parties should attempt to agree as to costs failing which the Respondent shall make brief written costs submissions within 10 days; the Appellant shall respond within a further 10 days; and the Respondent shall have 5 days for any reply.
[23] As a procedural matter, an appeal lies from the judgment and not the reasons for judgment. As such, it appears the Minister should not have cross-appealed and should simply have requested the appeal be dismissed for different reasons. The fact of the cross-appeal may have some impact on costs and so counsel may address this point.
Sproat J.
I agree. ___________________________
Killeen J.
I agree. ___________________________
J. DeP. Wright J.
Released: February 10, 2006
COURT FILE NO.: 04-207DV
DATE: 20060210
ONTARIO
DIVISIONAL COURT,
SUPERIOR COURT OF JUSTICE
B E T W E E N:
OLDCASTLE BUILDING PRODUCTS CANADA, INC.
Appellant (Appellant in Appeal)
- and –
THE MINISTER OF FINANCE
Respondent (Respondent in Appeal)
REASONS FOR JUDGMENT
Released: February 10, 2006