Hill v. Minister of Finance (Ontario), 2021 ONSC 2192

CITATION: Hill v. Minister of Finance (Ontario), 2021 ONSC 2192

DIVISIONAL COURT FILE NO.: 189/20

DATE: 2021/04/08

ONTARIO

SUPERIOR COURT OF JUSTICE

DIVISIONAL COURT

Sachs, Penny and G. King JJ.

BETWEEN:

Barbara Hill

Applicant

– and –

Minister of Finance (Ontario)

Respondent

COUNSEL:

Robert G. Kreklewetz, John Bassindale and Stuart Clark, for the Applicant

Steven Groeneveld, Daniel Irvine, Lori E.J. Patyk, Jessica Fiore and Kathleen Lindsey, for the Respondent

HEARD by videoconference: November 25, 2020

Overview

[1] The Applicant, Barbara Hill, resides on the Ontario Six Nations of the Grand River Reserve and is a First Nation person under the Indian Act, R.S.C., 1985, c. I-5. Pursuant to s. 87(1)(b) of the Indian Act all her “personal property” is exempt from taxation.

[2] Since 2012, Ms. Hill has operated a tobacco distribution business selling cigars to First Nation retailers operating on the reserve. From April 1, 2018, to April 1, 2019, she sold over $23,000,000 worth of cigars and in the next financial year she sold $15,000,000 worth of cigars. According to the Respondent Minister, the amounts sold by Ms. Hill during the years ending March 31, 2018, and March 31, 2019, represented 45 percent and 36 percent of the reported cigar sales by Ontario collectors to all First Nation retailers in 2018 and 2019 respectively (the Applicant disputes the latter figures). The Minister estimates demand by First Nation persons in the province to be 4,451,859 and 4,527,233 cigars for the 2018/19 and 2019/20 years.

[3] Under s. 2(1.5) of the Tobacco Tax Act, R.S.O. 1990, c. T.10 (“TTA”), all consumers must pay a tax on every cigar purchased at a rate of 56.6 percent of the taxable price of the cigar. The burden of collecting this tax is imposed on the retailer as agent for the Minister, who remits the tax to the Minister. Wholesalers who sell cigars to retailers are required to pre-collect the tax, as agents for the Minister, from the retailers at the time they sell their products to the retailers. The same is true for cigar manufacturers who sell to wholesalers.

[4] Consistent with s. 87 of the Indian Act, s. 23, para. 2, of R.R.O. 1990, Reg. 1034, under the TTA, provides that First Nation persons who “purchase on a reserve unmarked cigarettes, unmarked fine cut tobacco or tobacco products other than cigarettes or fine cut tobacco for their exclusive use” are exempt from the payment of tax under the TTA. An on-reserve retailer who sells to a First Nation customer is entitled to file a refund for the tax that they prepaid to the wholesaler at the time they purchased their product.

[5] For several years, the Respondent Minister has provided what it described as an “Administrative Concession” to wholesalers by not enforcing the requirement to collect an amount, on account of tax, on sales of cigars to First Nation retailers. According to the Minister, the purpose of the Administrative Concession was to relieve the burden on First Nation retailers of multiple refund claims. The Concession (which was not reduced to writing until 2018) was limited to retailers who resold to First Nation consumers (as opposed to other retailers).

[6] Despite the intent of the Administrative Concession, for many years, Ms. Hill was not required by the wholesalers whom she bought cigars from to pay an amount on account of tax. In 2018 this changed. On January 8, 2018, the Ministry sent out a letter to all wholesalers setting out the parameters of the Administrative Concession. The letter reminded them that the Concession did not apply where the amount they sold indicated that the person they were selling to was not a retailer, but a wholesaler. On December 23, 2019, the Minister posted a publication setting out the terms for the Administrative Concession (the first time that the Concession was formally published).

[7] As a result of the Ministry’s letter to wholesalers, the wholesalers who sold to Ms. Hill began insisting that Ms. Hill pre-pay an amount on account of the tax under the TTA. When Ms. Hill attempted to apply for a refund for the amount that she had prepaid, with respect to one particular transaction with one wholesaler, that refund was disallowed. The Minister was not satisfied that the sale of the cigars purchased were for the exclusive use of a First Nation consumer, as opposed to a First Nation retailer.

[8] On this application for judicial review, Ms. Hill submits that the Minister’s directions to wholesalers to collect provincial tobacco tax from her is inconsistent with her rights as a First Nation person under the Indian Act, and the corresponding exemption granted to her under the TTA. She seeks a declaration that the Minister’s directions to wholesalers to pre-collect provincial tobacco tax from her are unlawful. She also seeks a declaration that she is exempt from taxes under the TTA. In the alternative, she seeks a declaration that the TTA, its regulations, and the Minister’s administrative practices under that Act are ultra vires the powers of the Province. Finally, she requests an order prohibiting the Minister from requiring anyone to charge or collect tobacco tax from her in respect of her purchases for re-sale to on-reserve retailers.

[9] In support of her request for relief Ms. Hill makes the following submissions:

(a) The exemption found in s. 23, para. 2, of R.R.O. 1990, Reg. 1034, under the TTA, applies to tobacco purchased by a First Nation person for resale to on-reserve retailers. Thus, the sales by wholesalers to Ms. Hill are tax-exempt sales and because of this any pre-collection of an amount, on account of tax, from her is not authorized by s. 4 of the TTA.

(b) Under the Ministerial Collection Rules (the term used by the Applicant to describe the Administrative Concession), Ms. Hill is required to pay an amount, on account of tax, without having any way of passing it on to her First Nation customers, who are on-reserve retailers. Further, as her refund request demonstrated, she is not eligible for a refund. Thus, she has no choice but to “eat” the tax. This offends s. 87 of the Indian Act, which the Supreme Court of Canada has ruled requires that Ms. Hill be kept immune from taxation in respect of her property.

(c) There is a prior decision of the Divisional Court that is binding on this court and should be followed: Bomberry v. Ontario (Minister of Revenue) (1989), 70 O.R. (2d) 662 (Div. Ct.). In Bomberry, the Divisional Court found that the Minister’s actions in imposing a quota on the sale of tax-exempt cigarettes to First Nation retailers on a reserve were unlawful. According to Ms. Hill, the Minister’s insistence that wholesalers collect an amount on account of tobacco tax from her is unlawful in the same way as its actions in Bomberry were unlawful.

(d) If the pre-collection of tax from Ms. Hill is authorized by the TTA, the legislation must be declared unconstitutional under the paramountcy doctrine. In particular, since the effect of the Minister’s actions is to impose an “unrecoverable” tax on Ms. Hill, the TTA conflicts with ss. 87 and 89 of the Indian Act, which is federal legislation that has paramountcy over provincial legislation.

(e) If the pre-collection of tax from Ms. Hill is authorized by the TTA, the Minister’s pre-collection scheme must be read down under the interjurisdictional immunity doctrine, which applies when a provincial law trenches on and impairs a protected “core” of federal competence. The Supreme Court of Canada has held that s. 91(24) of the Constitution Act, 1867, protects a core of federal jurisdiction, namely all matters touching on “Indianness”. Sections 87 and 89 of the Indian Act grant Ms. Hill certain rights, including the right not to be taxed on her purchases for sale to on-reserve First Nation retailers. Therefore, the provincial pre-collection scheme must be “read down” so as not to apply to Ms. Hill.

[10] The Respondent Minister alleges that the court should decline to hear Ms. Hill’s application as she has not exhausted her appeal remedies with respect to the disallowance of the refund. If the application is allowed to proceed, the Minister argues that the exemption under the TTA does not apply to sales by wholesalers to retailers who plan to resell their products to other retailers. The exemption is limited to on-reserve sales to First Nation consumers. It also argues that the fact that Ms. Hill finds herself in the position of “eating” the tax is due to her failure to pre-collect the tax from the on-reserve retailers that she sells to. It is not due to the Minister’s pre-collection rules, which are authorized by law. The Minister disputes that Bomberry covers the facts in this case and disputes that the paramountcy or the interjurisdictional immunity doctrines have any application. The Minister asserts that the provincial pre-collection scheme under the TTA does not conflict with the provisions of ss. 87 and 89 of the Indian Act.

[11] For the reasons that follow we find that Ms. Hill’s application should not be dismissed for prematurity, but should be dismissed on its merits. Fundamentally, we agree with the position taken by the Minister regarding the scope of the exemption under the TTA, the inapplicability of Bomberry to this case, and the fact that the provincial tobacco tax pre-collection scheme is lawful and does not conflict with ss. 87 and 89 of the Indian Act. Inherent in these findings is our conclusion that were it not for her own actions in failing to abide by the terms of the Minister’s pre-collection rules, Ms. Hill would not have had to “eat” the tax at issue.

Background

Ms. Hill’s Tobacco Business

[12] Ms. Hill first established her business, Tobacconist Hill Distributors, as a sole proprietorship in 2012. The business purchases and sells some chewing and pipe tobacco, but the vast majority of its business involves the purchase and sale of cigars. As already noted, Ms. Hill’s customers are First Nation on-reserve retailers who either pick up their purchases from Ms. Hill on-reserve or have them delivered to them on-reserve. Ms. Hill does not charge her customers any amount on account of provincial tobacco tax (“PTT”). She does not question and is not aware of how, where, or to whom her customers sell the tobacco product they purchase from her.

[13] Ms. Hill purchases her inventory from off-reserve tobacco wholesalers who deliver her purchases directly to her storage warehouse on the Six Nations Reserve. Before 2018, Ms. Hill was never charged any PTT by the wholesalers. In 2018 and 2019, Ms. Hill purchased approximately 23,000,000 and 15,000,000 cigars, respectively. Ms. Hill states that she only sells to First Nation persons on the Six Nations reserve. The Minister estimates the annual consumption of cigars on the Six Nations reserve to be 569,920 cigars in the 2018/19 year and 604,632 cigars in the 2019/20 year. If these numbers are accurate, a substantial amount of the product Ms. Hill purchases is being sold by on-reserve retailers to off-reserve consumers.

[14] Beginning in 2018, some wholesalers began to significantly restrict the quantity of tobacco product they would sell to Ms. Hill on a tax-exempt basis. Others refused to sell her any tobacco product unless she paid them PTT. Ms. Hill was advised by some wholesalers that they had been assessed by the Respondent Minister for non-collection of PTT in respect of her prior purchases, and that they had been directed by the Respondent to collect PTT from her going forward.

Pre-Collection

[15] Subsection 2(1.5) of the TTA provides that the obligation to pay a tax on every cigar purchase is imposed on the consumer. Subsection 2(2) of the TTA states that the obligation to collect and remit this tax is on the retail dealer, who acts as an agent for the Minister at the time of sale. Section 4 of the TTA contains other provisions for the collection of the tax, including a provision giving the Minister power to appoint any person to collect the tax as its agent.

[16] The Act goes on to prescribe that the Minister may impose conditions on designated collectors and terminate a person’s designation as a collector. Subsection 4(1.3) contains a specific provision providing for the Minister to “designate in writing a wholesaler who sells or delivers cigars to retail dealers to collect the tax imposed on the cigars” and to remit that tax to the Minister.

[17] Subsections 4(4)-(5) set out the obligations with respect to tax collection by retail dealers and wholesalers who are not designated as collectors:

Collection of tax by retail dealer (4) Every retail dealer who is not a collector or a registered importer shall collect the tax on a tobacco product sold or delivered by the retail dealer to a consumer and pay the tax over to the collector, registered importer or registered wholesaler from whom the retail dealer purchased the tobacco. Collection of tax by wholesaler (5) Every wholesaler who is not a collector or registered importer shall collect, as agent for the Minister, the tax imposed by this Act from the retail dealer to whom the wholesaler sells or delivers tobacco products and shall pay the tax over to the collector or registered importer from whom the wholesaler purchased the tobacco.

[18] Pursuant to ss. 4(6)-(6.1), the registered importer has a duty to collect, as agent for the Minister, the tax from the wholesaler and to remit that tax to the Minister.

[19] Thus, the TTA sets out a pre-collection system to ensure that taxes on the consumption of tobacco products are collected and remitted to the Minister. The words used in s. 4 are to be contrasted with the words used in s. 2. In s. 2 the obligation is on the consumer to pay the tax. In s. 4, the obligation is to collect and remit the tax. Under this system, parties involved in the distribution chain and sale of tobacco products in Ontario collect an amount equal to the tax payable by the consumer. For example, when a manufacturer sells tobacco product to a wholesaler, the manufacturer is required to collect an amount equal to the tax that would be payable by the consumer if the consumer purchased those tobacco products. Wholesalers similarly collect an amount equal to the tax payable by the consumer when the tobacco products are sold to retailers. Retailers ultimately collect the tax from the consumer when the tobacco products are sold, effectively reimbursing themselves for the amount they paid to the wholesalers.

[20] As already noted, First Nation persons are exempt from the payment of tax imposed by the TTA on the purchase of tobacco products, including cigars, on the conditions set out in s. 23, para. 2, of R.R.O. 1990, Reg. 1034. Under that regulation, First Nation persons who “purchase on a reserve unmarked cigarettes, unmarked fine cut tobacco or tobacco products other than cigarettes or fine cut tobacco for their exclusive use” are exempt from the payment of tax under the TTA.

[21] The method for ensuring that retailers who have prepaid the tax to the wholesalers are reimbursed, when they purchased the tobacco product and then subsequently sold the product to an exempt individual, is to provide that the retailer can immediately apply for a refund of the tax that they prepaid. These refund provisions are contained in ss. 38 and 38.1 of the TTA.

The Jurisprudence on the Constitutionality of the Pre-Collection Scheme

[22] Under s. 92(2) of the Constitution Act, 1867, provinces have the authority to impose direct taxes. Direct taxes are imposed on the final consumer of the product. The province does not have the authority to impose an indirect tax, which is imposed on an earlier seller of a product, like a manufacturer or importer. Only the federal government can impose indirect taxes, an example of which is the federal excise tax.

[23] The scheme of pre-collection set out in the TTA has been examined in Re Hill and Minister of Revenue et al. (1985), 50 O.R. (2d) 765 (H.C.) and was found to be constitutional. In Re Hill the applicant was a First Nation person who resided and carried on business as a wholesaler of cigarettes on a reserve. Some of his sales were to people who lived and carried on business elsewhere than on a reserve. He was assessed for penalties under the TTA for selling for resale without having a wholesaler’s permit. Instead of appealing the assessment, Mr. Hill claimed that he was exempt from tax by virtue of s. 87 of the Indian Act, which exempted his “personal property” on a reserve from all forms of taxation. The Ministry then seized property from Mr. Hill in payment of the amount owing under the assessment.

[24] Krever J., as he then was, found that Mr. Hill was not exempt from the provisions of the TTA. In doing so, he considered the constitutionality of the Act and found that the Act imposed a direct tax on consumers and that wholesalers were not required to pay the tax; they were required to collect the tax. As put by Krever J.:

It would be difficult, if not impossible, to devise a practical method of imposing a tax on the consumer in respect of the sales of articles sold in massive quantities without resorting to the use of agents for the purposes of collection. That this sort of enforcement machinery does not have the effect of taxing these persons who are part of the collection process but who are not consumers seems to me to follow from the reasoning of the Judicial Committee of the Privy Council….

[25] The constitutionality of the pre-collection scheme in the TTA was considered by the Ontario Court of Appeal in Grand River Enterprises Six Nations Ltd. v. Ontario (Finance), 2017 ONCA 680. In that case the challenge was to s. 12(2) of the TTA, which enables the Minister of Finance to obtain security from people like the appellant in that case, who manufacture and sell tobacco intended for export or sale on First Nation reserves. The appellant argued that s. 12(2) had the effect of imposing a tax on a manufacturer and as such it was an indirect tax that was ultra vires the province. The Court of Appeal considered the “pith and substance” of the impugned provision and found, at para. 66, that the provision was “to ensure the integrity of the machinery for collection of the tax.” At para. 67, the Court of Appeal added that the provision “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”. As such, the provision was constitutional as it was “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”: at para. 72.

The Administrative Concession

[26] In Ontario, the Minister established the Administrative Concession to relieve the burden on First Nation retailers of having to make multiple refund claims. As previously mentioned, under the Concession, wholesalers were not assessed for their failure to pre-collect tobacco tax when they sold to First Nation retailers located on a reserve. The first evidence in the record of any written description of the parameters of the Administrative Concession is in the letter that the Minister sent to wholesalers on January 8, 2018. That description reads as follows:

To facilitate the tax exemption for First Nation consumers, the Ministry of Finance has been providing an administrative concession that allows wholesalers to sell cigars and other tobacco products to on-reserve retailers exempt of tax as long as the volumes are reasonable retail volumes. This concession helps minimize the financial and administrative process of refund applications for on-reserve retailers. Where sales and deliveries of cigars are made to on-reserve retailers at volumes that exceed typical retail levels and reach typical wholesale volumes, the sales do not fall within the concession designated to facilitate the exemption for First Nation consumers. The Ministry considers these sales to be to a person acting as a wholesaler, requiring pre-collection of the tax.

[27] A similar letter advising of the limits of the Administrative Concession was sent to all band councils of First Nation communities in Ontario. On December 23, 2019, the Ministry posted a publication on the Ontario Government website describing the Administrative Concession, the salient portions of which are reproduced below:

Cigar Sales on First Nations Reserves This publication provides general information and sets out the Ministry of Finance (ministry) approach for wholesalers and retailers who sell cigars on First Nations reserves. It does not replace the Tobacco Tax Act or the regulations. Requirements for Wholesalers Any wholesaler that wishes to deliver or sell cigars to a retailer in Ontario must first register with the ministry and be designated as a cigar tax collector. Every collector must ensure that every retailer to whom it sells cigars holds a Tobacco Retail Dealer’s Permit under the Tobacco Tax Act or is authorized by the ministry as a retailer under Ontario’s First Nations Cigarette Allocation System. In general, collectors are required to collect an amount on account of tax on all cigar sales. However, to facilitate the tax-exempt purchase of cigars by First Nations individuals purchasing cigars on a reserve, the ministry does not generally enforce this pre-collection of tax requirement in situations where the cigars are delivered and sold on a reserve by a collector directly to an authorized on-reserve retailer acting in their capacity as a retailer. This administrative concession helps minimize financial and administrative burden for First Nations retailers. The total quantity of cigars sold to each First Nations retailer must be reported to the ministry on a monthly basis using Schedule 9S – Sales of Tax Exempt Tobacco Products to First Nations Retailers and submitted with the collector’s monthly Tobacco Tax Return. The administrative concession does not apply to sales of cigars to a person on-reserve acting as a wholesaler. Under the Tobacco Tax Act, a wholesaler is a person who sells cigars for the purposes of resale. Depending on the nature of the transaction, a person can be a wholesaler even if the person holds a Tobacco Retail Dealer’s Permit under the Tobacco Tax Act or is authorized by the ministry as a retailer under Ontario’s First Nations Cigarette Allocation System. In situations where deliveries and sales of untaxed cigars by a collector to a person exceeds the volumes typically sold to retailers, the ministry may treat that sale as a sale to a wholesaler and assess the collector for failure to collect tax.

[28] Ms. Hill’s business was registered as a retailer. However, given the volume of product she purchased and the fact that this product was purchased for resale to on-reserve retailers, the Ministry considered her a wholesaler. As a wholesaler, she did not come within the terms of the Administrative Concession.

The Refund Request

[29] On March 8, 2018, Ms. Hill purchased 10,240 cigars from Brigham Enterprises, a registered wholesaler, and paid an amount, on account of tax, to that wholesaler. On March 9, 2018, she sold those cigars to on-reserve First Nation retailers, from whom she pre-collected no tax. On June 26, 2019, Ms. Hill applied for a refund of the tax she had prepaid to Brigham, claiming that the sales she had made were tax exempt under R.R.O. 1990, Reg. 1034 of the TTA.

[30] The Ministry disallowed the refund as it was not satisfied that the sale of cigars on March 9, 2018, was for the exclusive use of a First Nation person. The volumes were indicative of sales that were for the purpose of resale and thus the exemption set out in R.R.O. 1990, Reg. 1034 did not apply.

[31] As of the date of the hearing, Ms. Hill had not filed a Notice of Objection to the Statement of Disallowance. She had until January 11, 2021, to do so.

Issues Raised on this Application

[32] This application raises the following issues:

(1) Should the application be dismissed on the basis of prematurity?

(2) Does the exemption provided for in s. 23, para. 2, of R.R.O. 1990, Reg. 1034 apply to Ms. Hill’s purchases? If it does, is the pre-collection of tax from Ms. Hill authorized under s. 4 of the TTA?

(3) Does the Administrative Concession have the effect of making Ms. Hill pay or “eat” the tax imposed under the TTA, thereby offending s. 87 of the Indian Act?

(4) Is the Administrative Concession unlawful pursuant to Bomberry?

(5) If the pre-collection of tax from Ms. Hill is authorized by the TTA, should the legislative scheme be declared unconstitutional by virtue of the doctrine of paramountcy?

(6) If the pre-collection of tax from Ms. Hill is authorized by the TTA, should the legislative scheme be read down pursuant to the interjurisdictional immunity doctrine?

Prematurity

[33] The Minister characterizes Ms. Hill’s application as arising “from the disallowance of a refund under the Tobacco Tax Act”. The Minister therefore asks this Court to decline to hear Ms. Hill’s application because she has not exhausted her statutory appeal remedies with respect to the disallowance of her application for a refund.

[34] Ms. Hill’s Notice of Application for Judicial Review, however, sets out the basis for this application as being the Minster’s improper exercise of a statutory power – exemplified by his January 8, 2018 letter to all Ontario wholesalers, directing them to collect tax from Ms. Hill and all other First Nation persons purchasing cigars in “typical wholesale volumes”. Ultimately, Ms. Hill submits that this pre-collection of tax is not payable by her at all, given her rights under the Indian Act.

[35] In the circumstances, while the denial of Ms. Hill’s refund application for one of her cigar purchase transactions is a part of the narrative, and is used to illustrate the “bind” she alleges she has been put in by the Ministry’s policies and practices, her fundamental complaint is that she should not have had to make a refund application in the first place. Ms. Hill challenges the underlying decision of the Minister to require her to participate in the pre-collection scheme at all, as a misinterpretation of s. 23, para. 2, of R.R.O. 1990, Reg. 1034, and a violation of her rights under s. 87 of the Indian Act.

[36] It is for this reason that we find Ms. Hill’s application for judicial review is not premature. The application for judicial review deals with a different, more fundamental, challenge than the refund application. The denied refund application is a consequence, rather than the cause of, the legal challenge Ms. Hill seeks to assert.

Standard of Review

[37] The parties do not agree on the standard of review, even assuming judicial review is available to Ms. Hill in these circumstances. Ms. Hill maintains that the standard of review is correctness. The Ministry argues the standard of review is reasonableness on most questions raised in this application.

[38] In Canada (Minister of Citizenship and Immigration) v. Vavilov, 2019 SCC 65, the Supreme Court of Canada held that reasonableness is the presumptive standard of review on applications for judicial review. If, however, the judicial review involves constitutional questions or questions of law of central importance to the legal system as a whole, the standard of review is correctness: at paras. 55-62.

[39] The interpretation of the TTA, R.R.O. 1990, Reg. 1034, and s. 87 of the Indian Act per se, does not involve constitutional questions. Likewise, the interpretation of these enactments, whether the exemption under s. 23, para. 2, of R.R.O. 1990, Reg. 1034 is available to Ms. Hill in the circumstances, and the applicability of the Bomberry decision to the circumstances of this case, do not raise questions of law of central importance to the legal system as a whole. Accordingly, the standard of review on these issues is reasonableness.

[40] Whether the doctrines of paramountcy and interjurisdictional immunity are applicable in this case does raise questions of a constitutional nature, for which the standard of review is correctness.

Application of the Exemption to Ms. Hill

[41] Section 23, para. 2, of R.R.O. 1990, Reg. 1034, provides that First Nation persons who purchase on a reserve unmarked cigarettes, unmarked fine cut tobacco or tobacco products other than cigarettes, or fine cut tobacco for their exclusive use are exempt from the payment of the tax imposed by the TTA.

[42] In considering whether this exemption applies on the facts, there is no dispute on the following evidence: that the cigars in issue were purchased by a First Nation person under the Indian Act (Ms. Hill) on a reserve as defined in the Act (Six Nations of the Grand River) and all of the cigars were sold by Ms. Hill to other First Nation retailers on the reserve.

[43] To assess whether the exemption is applicable to those transactions requires a determination of whether Ms. Hill purchased the cigars from off-reserve wholesalers for “their exclusive use”. If that question is answered in the affirmative, then the exemption applies to her purchase of the cigars, and, accordingly, she is entitled to claim the s. 23, para. 2 exemption.

[44] According to Ms. Hill, the term “exclusive use” includes the concept of resale. Thus, the Minister’s interpretation of the exemption at issue is unreasonable as it does not recognize that the exemption applies whenever tobacco is purchased by a First Nation on-reserve purchaser for resale to First Nation on-reserve retailers.

[45] For the reasons that follow we disagree. We find that Ms. Hill’s purchases of cigars from off-reserve wholesalers were not for her exclusive use as defined in s. 23, para. 2, of R.R.O. 1990, Reg. 1034. Accordingly, the s. 23, para. 2 exemption does not apply to Ms. Hill.

Applicable Statutory Interpretation Principles

[46] This issue turns on the statutory interpretation of the TTA and its regulations (particularly in relation to the exemption from the tobacco tax prescribed in s. 23, para. 2, of R.R.O. 1990, Reg. 1034), as applied to the facts of this case.

[47] Ms. Hill submits that neither of the words “use” or “exclusive” are defined in the TTA or its regulations.

[48] Accordingly, these words should be interpreted on their plain meaning. Using the plain, ordinary dictionary meaning of the words, the word “use” includes resale. Thus, Ms. Hill submits that the exemption applies to her purchase and resale as a First Nation person.

[49] The Supreme Court of Canada has said that statutory interpretation requires “one principle or approach, namely, 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”: see Stubart Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, at p. 578; Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, [2006] 1 S.C.R. 715, at paras. 21-22. In other words, the interpretation of tax statutes is in accordance with a “textual, contextual and purposive” standard approach.

i) Textual Interpretation

[50] Ms. Hill relies on various dictionary definitions of the words “exclusive” and “use.” The Concise Oxford English Dictionary defines “use” as “application or conversion for some purpose,” including for “a particular end or purpose”: see Concise Oxford English Dictionary, 10th ed. (Oxford University Press, 2002). In addition, Black’s Law Dictionary, describes “use” as something one can enjoy, hold, occupy or have some manner of benefit, to imply for or apply to a given purpose: see Black’s Law Dictionary, 6th ed. (St. Paul, MN: West Publishing Co., 1990).

[51] Ms. Hill disposed of the cigars by selling them to First Nation retailers on the reserve and she asserts that the definition of “use” includes a sale. A broad interpretation of that word has been judicially determined to include a use by selling: see Qualico Developments Ltd. v. R., [1984] C.T.C. 122 (F.C.A.). As well, the word “use” has been interpreted to include a sale: see Tom Baird & Associates Ltd. v. Minister of National Revenue (1996), 120 F.T.R. 218, aff’d, 140 F.T.R. 295 (C.A.).

[52] With respect to the word “exclusive,” Ms. Hill refers to the Concise Oxford English Dictionary which defines the word as follows:

1. excluding or not admitting other things, (of terms) excluding all but what is specified or;
2. restricted to the person, group, or area concerned.

[53] She also refers to Black’s Law Dictionary which provides the following definition:

Exclusive. Appertaining to the subject alone, not in including, admitting, or pertaining to any others. Sole. Shutting out; debarring from interference or participation; vested in one person alone. Apart from all others; without the admission of other to participation.

[54] While it has been judicially determined on a textual interpretation that the word “use” may involve a sale, the Minister submits that the term “exclusive use” cannot be interpreted to include the purchase of cigars for resale. The reselling of a product includes use by more than one person and therefore, by definition, cannot be exclusive. The Black’s Law Dictionary definition of “exclusive” references terms such as “vested in one person alone” and “without the admission of other to participation”; thus, selling a product is the opposite of exclusion.

[55] We agree with the Minister that a textual interpretation of the words “exclusive use” does not support a conclusion that Ms. Hill’s purchase of the cigars for the purpose of resale was for her exclusive use.

ii) Contextual Interpretation

[56] Does a contextual interpretation assist in determining whether Ms. Hill purchased the cigars for “their exclusive use”? Ms. Hill submits that the Minister’s interpretation of those words is flawed because it equates the term “exclusive use” with “personal consumption”.

[57] A cornerstone of Ms. Hill’s argument is that the words “exclusive use” must be read in the context of the entire phrase, “for their exclusive use”. In this way, she submits the use of the word “exclusive” is not limited to use by one person as the word is defined. Rather, the phrase denotes that the use of the word “exclusive” is included to ensure that exempt tobacco products are only for the use of First Nation persons. More specifically, “for their exclusive use” must be interpreted as meaning that tobacco products are only for that group of First Nation persons subject to the exemption. Ms. Hill states that as long as the cigars are not used in combination with, or in joint venture or partnership with non-First Nation persons, that is an “exclusive use.”

[58] Based on this interpretation, sales of any quantity of cigars by Ms. Hill are exempt from the applicable tobacco tax as long as she sells to another First Nation retailer on the reserve.

[59] Ms. Hill suggests, in her factum, that the word “exclusive” is meant to modify the class of persons that the exemption is actually aimed at – namely First Nation persons.

[60] In our view, that interpretation is flawed. The suggestion that the use of the word “exclusive” in the phrase “for their exclusive use” is to ensure that the products are only exempt if sold to First Nation persons, who are also exempt, is both circular and redundant.

[61] Section 23, para. 2, of R.R.O. 1990, Reg. 1034, defines the group of persons to whom the exemption potentially applies. That is, First Nation persons “who purchase on a reserve”. That definition is clear and complete. No further clarification, modification, or amplification is required.

[62] To determine whether a person is within that class of persons who might qualify for the exemption is easily ascertainable. Only two questions are required. The first question is whether the purchaser was a First Nation person under the Indian Act. If the answer to that question is affirmative, then the next question is whether the tobacco was purchased on a reserve as statutorily defined. If either or both questions are answered in the negative, then the exemption does not apply. If both questions are answered in the affirmative, the definition of the group of persons to whom the exemption potentially applies is complete. The only remaining question to be asked is whether the purchase was for “exclusive use.”

[63] The suggestion of Ms. Hill that the words “their exclusive” is to further define and limit the group potentially eligible for the exemption is both unnecessary and erroneous. On a contextual reading of s. 23, para. 2, the word “their exclusive” is intended to modify and qualify the word “use”. It cannot reasonably be interpreted as intending to modify, amplify, or otherwise clarify the definition of “Indians” or “Indians who purchase on a reserve.” Such an interpretation is unnecessary as the definition of the group is already clear. There is no need to further define the potentially exempt group of persons. It adds nothing to the definition of the group of persons to whom the exemption potentially applies.

[64] Furthermore, Ms. Hill’s interpretation suggests the exemption is effective only on the basis of the status of the person purchasing the tobacco (i.e., a First Nation person). That interpretation is circular. It renders the exclusion meaningless as it effectively writes the words “for their exclusive use” out of the provision altogether. If the words are only intended to further clarify and describe the group of persons to whom the exemption applies, there is no qualification or definition with respect to the purpose for which the tobacco can be used.

[65] The words “their exclusive” are intended to modify the word “use”, by limiting the use to a use that excludes those purchasers who did not purchase for their exclusive use. Thus, the words “their exclusive use” do not and cannot apply to a resale of the product to anyone else.

[66] Ms. Hill also submits that the interpretation of the Minister unreasonably equates “exclusive use” with “personal consumption”. In our view, the Minister’s interpretation of the exemption’s limitation is consistent with the wording of the Act as a whole.

[67] Section 41 of the TTA authorizes various regulations:

(k) exempting any class of persons from the payment of the tax imposed by this Act; (p) providing a system for the sale of tobacco products and unmarked tobacco products to classes of persons who are exempt from the payment of the tax imposed by this Act, including the limitation on the quantity of tobacco products and unmarked tobacco products to be sold to retail dealers for resale to such consumers;

[68] R.R.O. 1990, Reg. 1034 establishes that s. 23, para. 2 exemptions from the tobacco tax apply only to purchases made by consumers. There is no language in the TTA or the regulations that provides an exemption to retailers in the supply chain.

[69] For all these reasons, a contextual analysis supports the Minister’s interpretation. The s. 23, para. 2 exemption does not apply to Ms. Hill because her business is a business in the supply chain that sells to retailers in the supply chain who then may sell to consumers who are subject to the exemption.

iii) Purposive Interpretation

[70] Ms. Hill submits that by interpreting the phrase “exclusive use” to mean “personal consumption”, the Minister is ignoring the purpose of the s. 23, para. 2 exemption – which is to conform with the overarching exemption prescribed in s. 87 of the Indian Act.

[71] Subsection 87(1)(b) of the Indian Act exempts the personal property of a First Nation person or First Nation situated on a reserve from taxation.

[72] Ms. Hill points out that the word “consumption” is used in several other sections in the TTA, but not in s. 23, para. 2, of R.R.O. 1990, Reg. 1034. According to her, this absence of the word “consumption” in s. 23, para. 2, is intentional because referencing the “consumer” was not what was intended in that provision. Accordingly, Ms. Hill argues that the exemption applies to her purchases from off-reserve wholesalers and to the sale of tobacco products to First Nation retailers on the reserve.

[73] Furthermore, s. 87 of the Indian Act has been held to apply to commercial property: see Bastien Estate v. Canada, 2011 SCC 38, [2011] 2 S.C.R. 710, at para. 22, citing LaForest J. in Mitchell v. Peguis Indian Band, [1990] 2 S.C.R. 85, at p. 139. Commercial property includes a purchase for reselling it as part of a business: see 9000-6560 Québec Inc. v. The Queen, at paras. 66, 71. Therefore, Ms. Hill submits that a purposive interpretation of the phrase “for their exclusive use” includes tobacco purchased by First Nation persons, on a reserve, for resale to on-reserve retailers.

[74] In summary, as Ms. Hill only resold the cigars to other First Nation persons on the reserve, their exclusive use of this personal property (cigars) was covered by the s. 87 exemption. Therefore, the cigars were not taxable to her pursuant to the TTA.

[75] Arguing that Ms. Hill’s interpretation of “exclusive use” is unreasonable, the Minister submits that she has misinterpreted the phrase “exclusive use” in the context of the evidence and the purpose of the TTA. We agree.

[76] The purpose of the TTA is to impose and collect a tax on all consumers of various tobacco products, except those who are statutorily exempt.

[77] In order to enforce and collect tobacco tax, the legislation prescribes two distinct processes. The first process is the requirement for the payment of tobacco tax by persons who are consumers and not otherwise exempt by the operation of the TTA. To effect this, s. 2(2) of the TTA requires a retail dealer to collect the tax from a non-exempt purchaser, at the time of sale, and to remit same to the Minister at the time and in the manner provided under the TTA.

[78] The second process is the mechanism prescribed in the TTA for the pre-collection of the tobacco tax by persons involved in the sale of tobacco products. These amounts are considered payments on account of tax.

[79] These two processes are distinct, and an understanding of that distinction is essential in determining the purposive meaning of the phrase “exclusive use” in s. 23, para. 2, of R.R.O. 1990, Reg. 1034. The distinction demonstrates that the exemption for exclusive use is only intended to apply to the process of collecting the tobacco tax from consumers. The exemption has no application to the pre-collection of tobacco tax scheme mandated for those involved in the supply chain.

The First Process: Payment of Tax on Tobacco Purchases

[80] Section 2 of the TTA provides for the payment of the tobacco tax by all consumers. With respect to cigars, s. 2(1.5) provides as follows:

Every consumer shall pay to Her Majesty in Right of Ontario a tax on every cigar purchased by the consumer at the rate of 56.6 per cent of the taxable price of the cigar.

[81] As set out in s. 23 of R.R.O. 1990, Reg. 1034, the only persons exempt from the payment of the tobacco tax are (i) Members of defined Diplomatic Corps of foreign countries situated in Ottawa or Ontario or (ii) First Nation persons who purchase on a reserve the tobacco for their exclusive use (emphasis added).

[82] Subsection 2(2) of the TTA requires retailers to pay the applicable tobacco tax on a purchase from a consumer, unless the consumer is exempt:

The tax imposed by this Act shall be collected from the consumer by the retail dealer as agent of the Minister at the time of the sale to the consumer and shall be remitted by the retail dealer to the Minister at the time and in the manner provided under this Act.

[83] These provisions deal specifically with the payment of tobacco tax by consumers.

The Second Process: Pre-Collection System for Tobacco Tax

[84] In order to collect tobacco taxes, the TTA establishes a pre-collection obligation on those persons involved in the wholesale and retail sale of tobacco products. Such persons and entities are designated as agents of the Minister for the pre-collection of taxes.

[85] Specifically, s. 4(1) of the TTA imposes this pre-collection of tobacco tax requirement on any person selling tobacco products:

The Minister may designate in writing any person to collect the tax imposed by this Act, and the person so designated shall be the agent of the Minister and shall collect and remit the tax to the Minister at the time or times and in the manner provided under this Act.

[86] Subsection 1(1) of the TTA defines a “wholesaler” as “a person who sells in Ontario tobacco products for the purpose of resale, and includes a person who operates or maintains one or more cigarette vending machines in, at or upon premises owned or occupied by another person.” Therefore, even though she possesses a retailer license, Ms. Hill sells in Ontario tobacco products for the purpose of resale, and thus, she is considered a “wholesaler” pursuant to s. 1(1) of the TTA.

[87] Subsection 2.1(1) of the TTA provides:

Every wholesaler shall inform the person to whom the wholesaler sells cigars of the quantity of cigars being sold and the tax collectable and payable on the cigars and shall deliver to the person, at the time of the purchase, an invoice containing the prescribed information.

[88] Accordingly, liability for the pre-collection of the applicable tobacco tax applies to each person in the purchase and resale of tobacco products as set out in s. 2.1(2) of the TTA:

Every person who purchases cigars from a wholesaler without obtaining an invoice containing the information required under subsection (1) remains liable for the tax collectable or tax payable under this Act in respect of the purchase until the tax is paid to the wholesaler or the Minister, as the case may be. [Emphasis added].

[89] The distinction between the payment of tobacco tax and the requirement to collect the tax is clearly delineated by the wording of this section. This section references both the collection of tax and the payment of tax.

[90] As a person engaged in the purchase and resale of tobacco products, Ms. Hill’s s. 4 obligations – to collect the tobacco tax as a tax collector from persons to whom she sells as a wholesaler – are separate and distinct from her s. 2 obligations (to pay the applicable tobacco tax with respect to purchases made directly from her by a non-exempt consumer).

[91] The distinction between a wholesaler, obligated to collect the tax, and a consumer is further codified in s. 4(2) of the TTA:

Every collector shall collect the tax collectable and payable under this Act from every person to whom the collector sells or delivers tobacco products in Ontario, and shall remit the tax, as well as the tax, if any, on all tobacco products in respect of which the collector is a consumer, to the Minister at the times and in the manner required by this Act and the regulations.

[92] By operation of s. 2.1(1) of the TTA, the off-reserve wholesaler from whom Ms. Hill purchased her cigars was required to invoice Ms. Hill for the quantity of cigars sold to her and specify the tax payable on the cigars.

[93] As prescribed by s. 2(2) of the TTA, Ms. Hill was then required to remit the applicable tobacco tax on that purchase of cigars. The amount remitted in this respect was considered an amount “on account of tax” as part of this pre-collection process.

[94] Had Ms. Hill not resold the cigars, she would have been considered a consumer and she would have been able to claim the s. 23, para. 2 exemption by virtue of being a First Nation person purchasing the cigars on a reserve for exclusive use.

[95] However, Ms. Hill resold the cigars to retailers. At that point, she is not a consumer, but a wholesaler. As prescribed in s. 2.1(1) of the TTA, Ms. Hill was then obligated to collect the tobacco tax from each retailer to whom she sold the cigars as part of her s. 4(1) obligation as a tax collector. She did not fulfil this obligation.

[96] Notwithstanding that she sold the cigars, Ms. Hill submits that she was exempt from the payment of the tax by operation of s. 23, para. 2, of R.R.O. 1990, Reg. 1034. She was a First Nation person purchasing the tobacco on a reserve for resale to other First Nation persons on a reserve. As these transactions were “for their exclusive use,” the exemption applies.

[97] On a purposive interpretation of the Act, Ms. Hill’s submission is flawed. She has incorrectly applied the exemption to both the payment of the tobacco tax requirement pursuant to s. 2 of the TTA and the process of pre-collection of the tobacco tax mechanism prescribed in s. 4 of the TTA.

[98] However, these two processes are distinct.

[99] The requirement to pay the tobacco tax clearly applies to those consumers who purchase tobacco as prescribed in the TTA under s. 2(1) (cigarettes and other tobacco), or s. 2(1.5) (cigars), and who are not exempt by operation of s. 23, para. 2, of R.R.O. 1990, Reg. 1034. This regulation has no application to the requirement for persons involved in the tobacco supply chain to collect and remit monies on account of tax.

[100] Had Ms. Hill collected the applicable tobacco tax from each retailer as prescribed in s. 4, she would have fully recouped any amount she was required to remit to the off-reserve wholesaler, on account of tax, and she would have fully satisfied her statutory obligations.

[101] By not collecting this amount, on account of tax, from the retailers to whom she sold the cigars, Ms. Hill claims she would have to “eat” the tax.

[102] That statement is not accurate. Pursuant to s. 4 of the TTA, Ms. Hill had a legal obligation to charge and collect the required payment on account of the tobacco tax as a condition of her sale to the retailers. That requirement existed regardless of whether the purchaser was a First Nation person because the quantity of cigars sold exceeded the threshold of the Administrative Concession limit, that is, a quantity that could reasonably be regarded as being for the purchasers’ exclusive use. Had Ms. Hill collected the prescribed amount, on account of tax, from her retail purchasers, Ms. Hill’s s. 4 pre-collection obligation would have ended and been fulfilled. In that circumstance, the pre-collection obligation would have been transferred to the on-reserve First Nation retailer to whom Ms. Hill sold the cigars.

[103] That First Nation retailer would have been made whole in one of two ways. First, if the retailer sold the product to a First Nation consumer, the retailer would be able to complete the necessary paperwork to obtain an exemption from collecting the tobacco tax as prescribed in s. 23, para. 2, of R.R.O. 1990, Reg. 1034. That retailer would then have received reimbursement from the Minister in an amount equal to the amount of tax paid to Ms. Hill but not collected from all exempt First Nation purchasers on the reserve.

[104] Second, if the consumer who purchased the product from the First Nation retailer was not a First Nation person, the First Nation retailer would have charged that consumer the appropriate tobacco tax as required by s. 2 of the TTA. In that instance, the retailer would not be required to seek a rebate of the tobacco tax paid to Ms. Hill because the First Nation retailer would have already been made whole by the payment of the tobacco tax paid by the non-First Nation purchaser.

[105] In summary, everyone but a non-First Nation purchaser would have been made whole. Each of the wholesalers and retailers in the supply chain would have remitted the appropriate amount on account of the tobacco tax at the time of purchase and then have been reimbursed for the same amount by the next person in the chain pursuant to the pre-collection scheme. At completion, the on-reserve First Nation retailer would have been fully reimbursed for the tax pre-collected by doing one of the following:

(i) completing the form for repayment of tobacco tax on sales to First Nation persons on the reserve, who qualify for the s. 23, para. 2 exemption; or

(ii) being reimbursed for the amount, on account of tax, paid to Ms. Hill by non-First Nation purchasers on the sale of the product including the tobacco tax.

[106] Ms. Hill erroneously equates the s. 2 obligation of a retailer to charge and collect the tobacco tax from a consumer (unless that person is exempt by operation of s. 23, para. 2) with the s. 4 pre-collection obligation to collect and remit the tobacco tax to the Minister. These obligations are not the same. At no point in the pre-collection process is any person required to do anything more than collect and remit the tobacco tax and later be paid that same amount. That payment is received either from the person to whom the product is sold, or, from the Minister on submission of the appropriate documentation in the case of a retailer who sells to a First Nation person on the reserve for the exclusive use of that person. In summary, as set out in the statute, the pre-collection system does not result in any wholesaler or retailer paying the tobacco tax.

[107] Ms. Hill is mistaken in her submission that the s. 23, para. 2 exemption applies to the pre-collection scheme. The words “exclusive use” have application to the collection of amounts on account of tax. The words “exclusive use” are not used, in conjunction with the wording in the TTA prescribing the pre-collection system, nor do they have any application with respect to the pre-collection scheme imposed by the TTA.

[108] Ms. Hill’s interpretation suggests a determination of whether the s. 23, para. 2 exemption applies to each sale of tobacco commencing with the initial wholesaler throughout the entire supply chain. On a purposive interpretation, such an approach would be unworkable, given the structure and wording of the TTA. Furthermore, the effect of such an interpretation would exempt any First Nation purchaser from the obligations with respect to the pre-collection process set out in the statute. As a First Nation person purchasing cigars for resale to retailers on the reserve, Ms. Hill would never have a legal obligation under s. 4 of the TTA to either remit the tobacco tax to her wholesaler on purchase or, if she remitted that amount, to collect an amount on account of the tax she has paid to her wholesaler as part of the pre-collection process when she sells to a retailer.

[109] Ms. Hill’s interpretation does not accord with a purposive interpretation of the TTA and R.R.O. 1990, Reg. 1034. The exemption prescribed in s. 23, para. 2, of R.R.O. 1990, Reg. 1034 that is applicable to consumers does not apply to the collection of tobacco taxes pursuant to s. 4 of the TTA.

Conclusion

[110] For all these reasons, we find that Ms. Hill did not purchase cigars from off-reserve wholesalers for her exclusive use. Therefore, she does not qualify for the exemption prescribed in s. 23, para. 2, of R.R.O. 1990, Reg. 1034.

Does the Administrative Concession Offend s. 87 of the Indian Act by Requiring Ms. Hill to “Eat” the Tax?

[111] According to Ms. Hill, the Administrative Concession puts her in a position where she is liable to remit tax to an off-reserve wholesaler, but is not able to collect tax from the on-reserve retailers to whom she sells her cigars, because these retailers will not pay her any amount on account of tax. The reason for this is that, under the Administrative Concession, when on-reserve retailers buy from a registered wholesaler, they may not be required to remit an amount on account of tax. The problem with this submission is that it is Ms. Hill’s actions that have put her in the position where she is unable to fall within the terms of the Administrative Concession. She is acting as a wholesaler without registering herself as a wholesaler. In doing so she has sought to take advantage of a concession that is only offered to on-reserve retailers. Further, in taking advantage of the Concession, she is depriving the ability of the Ministry to collect taxes it is entitled to collect as a result of the sale of tobacco to off-reserve consumers. This is clear from the fact that the volume of Ms. Hill’s sales far exceeds the demand for cigars by any First Nation community in Ontario.

[112] As discussed further below, the Administrative Concession is carefully crafted to relieve genuine on-reserve retailers of an administrative burden. In Ms. Hill’s hands the Concession became a vehicle for facilitating the tax-free sale of cigars to off-reserve consumers.

The Bomberry Decision

[113] The applicants in the Bomberry case were members of the Six Nations of the Grand River Indian Reserve. They owned a gas bar and a smoke shop that they operated on the reserve from which they sold tobacco products. The number of cigarettes purchased on a tax-exempt basis by on-reserve First Nation retailers exceeded by a large amount the number of cigarettes that were required by the First Nation persons on the reserve. In order to deal with this anomaly, the Minister of Finance introduced a quota system. Under that system the total number of cigarettes that could be purchased on a tax-exempt basis from wholesalers, by retailers who held a permit to sell cigarettes on the reserve, was limited to 2.5 million in any calendar month. This amount was an estimate of the cigarette requirements of the reserve population. This number was allocated equally among all permit holders. The Divisional Court found that the quota system had the following effects:

The quota limits the total amount of tax-exempt tobacco which all retailers can make available for purchase by [First Nation persons] on the reserve. It further limits the amount of tax-exempt tobacco which any individual retailer, competing with the others, may sell to his [First Nation] customers on the reserve. It limits the freedom of the retailer to buy from whatever wholesaler he wishes, although that freedom is not totally curtailed because the Ministry indicates that it would permit the retailers to switch wholesalers for the succeeding month if they give enough notice to the Ministry.

[114] The Bomberry applicants applied for a declaration that the Ministry’s quota system was invalid on three grounds: (1) the quota system imposed a constitutionally prohibited indirect tax; (2) the quota system was not authorized by the TTA or its regulations; and (3) the quota system represented administrative overreach by the province into jurisdiction reserved to the federal government, that was exercised by Parliament in s. 87 of the Indian Act, which exempts from taxation the personal property of a First Nation person situated on a reserve.

[115] Relying on a number of authorities, including Re Hill, the Divisional Court did not accept the applicant’s first argument – that the quota system resulted in an indirect as opposed to a direct tax.

[116] With respect to the second argument, the Court examined the provisions of the TTA and the regulations and found that there was no express authority for the Ministry officials to impose or act under the quota system. Since express authority was needed, the quota system was unlawful.

[117] Having decided in the applicants’ favour on the second argument, the Divisional Court acknowledged that it was unnecessary to deal with the third argument. However, in spite of this, the Court went on to find that the First Nation person tobacco quota did exceed the constitutional authority of the province by intruding on the federal government’s jurisdiction under s. 87 of the Indian Act. According to the Court in Bomberry, Mr. Bomberry’s rights under s. 87 were infringed because he had no quota under the quota system. Therefore, he was unable to buy any tax-exempt cigarettes. He could buy tobacco by paying tax but would not be able to recover that tax from his consumers on the reserve because they, like him, are not liable to pay tax. Another applicant in Bomberry, Mr. Hill, had a quota, but that quota limited his right to buy tax-exempt tobacco to the amount of his quota, which also limited his right under s. 87 of the Indian Act.

[118] Ms. Hill makes two main submissions regarding the applicability of the Bomberry case to her situation. First, she states that nothing in the TTA or its regulations confers the power on the Minister to impose the Administrative Concession on the tax-exempt cigars, chewing tobacco, and pipe tobacco, purchased by Ms. Hill on a reserve, because those purposes are exempt of the tax imposed under the TTA by the exemption in s. 23, para. 2, of R.R.O. 1990, Reg. 1034.

[119] There are two problems with this submission. The first is that, as already discussed, the sales to Ms. Hill are not covered by the exemption in the TTA. The second is that in this case the Minister clearly has the authority under s. 4 of the TTA to impose its pre-collection scheme. The Administrative Concession represents a break given to on-reserve First Nation retailers under the scheme to make their lives easier. If there is authority to impose the scheme, there is authority to decide to give people a break under the scheme. There is also authority to design the limits of that break, which is what the Ministry has done.

[120] Ms. Hill also submits that her case is a “carbon copy” of the Bomberry case. As put by her at para. 74 of her factum:

There is no evidence Ms. Hill is involved in any transfers of [non-cigarette tobacco] to non-[First Nation] persons. And the [Administrative Concession], like Mr. Bomberry’s Quota, “prevents [Ms. Hill] from buying tax-exempt tobacco for sale to [her] [First Nation] customers on the reserve. … [She] could get tobacco by paying the tax on it, but then [she] would not be able to recover that tax from [her] [First Nation] customers on the reserve because they, like [her], are not liable to pay tax.”

[121] Ms. Hill’s submission on this point is grounded in her argument that her purchases are tax-exempt purchases under the s. 23, para. 2 exemption provided for in R.R.O. 1990, Reg. 1034, an argument we have rejected.

[122] Unlike in Bomberry, the Minister has not imposed a quota system. The scheme does not limit the amount of tax-exempt tobacco that is available to consumers. The Administrative Concession relieves wholesalers from the requirement to collect from First Nation distributors an amount equal to the tax where there is reasonable indication that the tobacco products will be sold to on-reserve consumers. Where the Administrative Concession does not apply, the pre-collection scheme and refund provisions ensure that tax-exempt consumers are able to purchase tax free, and members of the supply chain are able to recover amounts paid on account of tax.

[123] For these reasons we find that the issues in this case are not governed by the decision in Bomberry.

The Paramountcy Doctrine

[124] Ms. Hill submits that the doctrine of federal paramountcy requires deference to federal law where inconsistency exists between otherwise constitutionally valid federal and provincial enactments. Inconsistency can arise from either “actual conflict” between the enactments or where the provincial law “frustrates the purpose” of the federal law.

[125] Section 87 of the Indian Act, as discussed earlier, provides that the personal property of a First Nation person on a reserve is exempt from taxation. The Indian Act also provides that no First Nation person is “subject to taxation in respect of any such property.” The earlier words certainly exempt certain personal property from taxation; but the latter words also exempt certain persons from taxation in respect of such property. Thus, s. 87 creates an exemption for both persons and property: Nowegijick v. The Queen, [1983] 1 S.C.R. 29, at p. 41.

[126] Ms. Hill argues that if the TTA is interpreted so as to result in the imposition of an unrecoverable provincial tobacco tax on Ms. Hill, then an operational conflict would exist between the TTA and s. 87 of the Indian Act, invoking the paramountcy doctrine and requiring s. 87 of the Indian Act to prevail over the provisions of the TTA.

[127] Ms. Hill further argues that forcing her cigar purchases and sales into the Minister’s “pre-collections” system would frustrate the purpose of s. 87 of the Indian Act. Section 87 protects the on-reserve property of a First Nation person even in the context of purely commercial arrangements.

[128] Given the high rate of taxation imposed upon the cigars (56.6 percent), and the costs of this tobacco product to begin with, imposing any provincial tobacco tax pre-collection payment obligations on Ms. Hill (even if recoverable later) would be a significant interference with her mode of life and no “mere inconvenience”. Financing costs alone could be in the $1,000,000 per annum range. These costs and additional burdens on Ms. Hill – which the Respondent’s “pre-collections” system does not reimburse or compensate – would frustrate the purposes of s. 87 of the Indian Act.

[129] Ms. Hill only sells to First Nation customers who are entitled to their own s. 87 rights. If forced to enter the “pre-collection” system under the Administrative Concession she would be required to finance and pre-pay her suppliers a 56.6 percent tax (over $12 million a year based on her 2018-2019 purchases). The time value of this cash security interest is no “mere inconvenience” to Ms. Hill. Rather, it is a real and substantial hardship, which threatens Ms. Hill’s livelihood.

[130] In our view, the doctrine of paramountcy resolves conflicts between federal and provincial laws. Where there is a conflict between valid federal and valid provincial laws, the federal law prevails to the extent of the conflict. Claims of paramountcy can arise either because compliance with both laws is impossible or because compliance with the provincial law would frustrate the purposes of the federal law.

[131] The doctrine of paramountcy, however, also promotes cooperation between the federal Parliament and the provinces, and the application where possible of both federal and provincial laws. Provincial laws may constitutionally make special provisions for First Nation persons to accommodate their rights or interests under the Constitution or federal law.

[132] The fundamental problem with Ms. Hill’s arguments on this issue is that they have been conclusively dismissed in the jurisprudence. The TTA has been held to be 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. The pre-collection scheme has further been upheld by Courts in Ontario, and across Canada, on the basis that it does not impose an indirect tax on wholesalers or retailers, but rather ensures the collection of the direct tax from the final purchaser. The collection of the tax from wholesalers rather than retailers does not transform it into an ultra vires indirect tax. Nor does the enforcement process for the collection of the tax have the effect of taxing non-consumer parties who are part of the collection process: see, for example, Grand River Enterprises, at para. 61; Re Hill.

[133] In our view, there is no conflict between the pre-collection system for wholesalers and retailers under the TTA and s. 87 of the Indian Act. Nor does requiring Ms. Hill’s participation in the Administrative Concession frustrate the purpose of s. 87 of the Indian Act. The exemption from tax under s. 87 of the Indian Act applies to the personal property of a First Nation person situated on-reserve. Section 23, para. 2, of R.R.O. 1990, Reg. 1034, exempts a First Nation person who purchases tobacco products on a reserve for their exclusive use from payment of tax, facilitates the exemption, and ensures that the TTA is administered in accordance with the rights set out in s. 87 of the Indian Act. Courts in Ontario and other provinces have consistently held that the amount, on account of tax, that is collected on the purchase of cigars and other tobacco by wholesalers and retailers is not a tax. Accordingly, there can be no conflict with the exemption from taxation for the personal property of a First Nation person under s. 87 of the Indian Act. It is possible to comply with both the provisions of s. 87 of the Indian Act and the pre-collection rules under the TTA.

[134] Nor is the purpose of s. 87 frustrated by the pre-collection requirements. To the contrary, the purpose of the exemption for First Nation persons from paying tax on their personal property is facilitated by the s. 23, para. 2 exemption and the Tobacco Tax Act refund provisions that allow First Nation retailers to recover amounts paid on account of tax where the tobacco product was sold to a First Nation consumer.

[135] In Grand River Enterprises, the Ontario Court of Appeal rejected the appellant’s submission that because the sale of tobacco to a consumer on a reserve is exempt from taxation under s. 87 of the Indian Act, the Minister was constitutionally not entitled to demand security in respect of that tobacco. The courts in Re Hill and Laforme v. Ontario (Minister of Finance), 1 C.N.L.R. 84 (Ont. Gen. Div.) similarly determined that pre-collection schemes do not impose tax on retailers but on final, non-First Nation, purchasers. The TTA does not impose a tax on wholesalers and retailers; the pre-collection scheme only requires payment of an amount on account of tax. As a result, there is no tax to which the exemption under s. 87 of the Indian Act can apply.

[136] These interpretations of the TTA, and pre-collection schemes generally, are consistent with decisions of the Courts of Appeal in other Canadian jurisdictions with respect to the application of s. 87 of the Indian Act. Most recently, the Quebec Court of Appeal, in Rice v. Agence du revenu du Québec, 2016 QCCA 666, at para. 91, determined that s. 87 was inapplicable to the circumstances of a retailer in a pre-collection scheme relying, in part, on the case law examining the pre-collection scheme introduced by the TTA.[^1]

[137] Nor, in our view, does the so-called burden of financing the pre-payment amounts result in any frustration of the purposes of the Indian Act. As determined earlier, the reason Ms. Hill may be out of pocket for failure to collect and remit pre-payments, on account of tax, is because she neglected to recover these amounts in the prices charged to her retailer customers. And, as for the financing cost of supporting the required payments, this too can presumably be managed by Ms. Hill in the timing and quantity of her purchases and sales – all actions within her control.

[138] To exempt Ms. Hill from pre-payment of an amount equal to tax as a wholesaler would give her an economic advantage over other off-reserve cigar wholesalers in the province. The past sales volumes of Ms. Hill’s business illustrate this advantage and demonstrate that tax-exempt cigars are entering the taxable market. As noted most recently by the court in Rice, at para. 72, the purpose of s. 87 of the Indian Act is to preserve the rights of First Nation persons on the lands they occupy and to ensure that governments’ taxation powers do not impair the use of property on the reserves, not to give First Nation persons a general economic advantage.

[139] Ms. Hill also relies on s. 89 of the Indian Act. Section 89 exempts the real and personal property of First Nation persons situated on a reserve from charge, mortgage, seizure, or execution in favour of any person other than another First Nation person or First Nation. Thus, s. 89 of the Indian Act relates to collection and seizure mechanisms potentially at the disposal of the Ministry regarding Ms. Hill. No authority has been cited, however, to support the submission that the obligation to remit and collect an amount on account of tax is a form of security levied against the personal property of Ms. Hill. Nor is there any evidence that there has been any seizure of property from Ms. Hill. Indeed, it seems apparent that any requirement to pay or collect an amount, on account of tax, on behalf of the Ministry is not a charge on Ms. Hill’s personal property. Section 89 is simply not applicable in the circumstances of this case.

The Doctrine of Interjurisdictional Immunity

[140] Ms. Hill submits that the doctrine of interjurisdictional immunity applies where a court determines that a provincial law trenches on the protected “core” of federal competence and does so in a way that is sufficiently serious (i.e., “impairs” the federal power). Subsection 91(24) of the Constitution Act, 1867, protects a core of federal jurisdiction in matters touching on “Indianness” even from provincial laws of general application, through the operation of the doctrine of interjurisdictional immunity.

[141] Ms. Hill argues that if the Administrative Concession imposes an unrecoverable provincial tobacco tax collection obligation on her, it trenches on a federal head of power, s. 91(24), in a way that seriously impairs the rights granted to Ms. Hill under ss. 87 and 89 of the Indian Act by the federal government.

[142] Ms. Hill therefore says this Court should “read down” the offending provincial scheme under the interjurisdictional immunity doctrine, limiting the scope of its application. We are invited to do so by reading out of the exemption in s. 23, para. 2, of R.R.O. 1990, Reg. 1034, the “for their exclusive use” condition or interpreting the word “tax” as including any “amount on account of tax”, thus permitting the exemption in s. 23, para. 2 to apply to Ms. Hill.

[143] We are unable to agree with Ms. Hill’s argument on this issue. The modern division of powers analysis recognizes that for the doctrine of interjurisdictional immunity to render a valid provincial law constitutionally inapplicable, the impugned provision must trench on the core of an exclusive head of power under the Constitution Act, 1867, and the effect of this overlap must impair the exercise of the core of the head of power. Merely incidental effects on matters or persons subject to federal regulation, including increased costs, will not make an otherwise valid law invalid, nor do they render a valid provincial law inapplicable: Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3, at para. 28.

[144] The Supreme Court has made it clear that excessive reliance on the doctrine of interjurisdictional immunity is to be avoided. The interjurisdictional immunity doctrine excludes only the “basic, minimum and unassailable content” of federal powers from the application of provincial laws. This is the “minimum content necessary to make the power effective for the purpose for which it was conferred.” Apart from this narrow exclusive core of a federal power, provincial laws will apply to federal matters including “Indians and lands reserved for Indians”: Canadian Western Bank, at paras. 33, 39-41, 50-51, and 60-61; Desgagnés Transport Inc. v. Wärtsilä Canada Inc., 2019 SCC 58, at paras. 91-94.

[145] There is no substantive support offered for the contention that the TTA pre-collection scheme in any way impairs the core of federal authority over “Indians and lands reserved for Indians”. This federal authority has been described in the jurisprudence as encompassing status and associated rights under the Indian Act, relationships within First Nation families and communities, property rights on-reserve, and aboriginal and treaty rights and title. Ms. Hill has not advanced any tenable claim that a comparable aspect of federal authority is impaired by the application of the TTA pre-collection scheme to Ms. Hill as a wholesaler of tobacco.

[146] Finally, as noted earlier in Grand River Enterprises, the Court of Appeal for Ontario upheld the applicability of the security provisions under the TTA to a tobacco manufacturer located on the Six Nations. The Court also expressly found the security requirements were constitutionally applicable notwithstanding that the distribution of tobacco in that case was also subject to extensive federal export controls. This is consistent with decisions of other courts in Ontario, and across Canada, that have determined that similar tobacco tax and other commodity tax pre-collection schemes apply to First Nation distributors operating on-reserve: Grand River Enterprises, at para 68.

[147] The pre-collection scheme under the Administrative Concession does not impair any core federal competency in the Constitution. The doctrine of interjurisdictional immunity is not engaged.

Conclusion

[148] For these reasons Ms. Hill’s application for judicial review is dismissed. The Respondent Minister seeks no costs and agrees that the Applicant, Ms. Hill, is entitled to costs in the amount of $10,000 since she was successful on the preliminary issue of prematurity. Therefore, it is ordered that the Respondent Minister shall pay the Applicant her costs fixed in the amount of $10,000, all inclusive.

Sachs J.

Penny J.

G. King J.

Released: April 8, 2021

[^1]: See also Tseshaht Band v. British Columbia (1992), 94 D.L.R. (4th) 97 (B.C.C.A.), at para 56:

“The payment by the retailer of an amount equivalent to the tax is simply part of the collection scheme held to be valid by this Court in Chehalis; it is not the payment of a tax and so s. 87 of the Indian Act can have no application.”