Ontario Home Builders' Association v. York Region Board of Education, [1996] 2 S.C.R. 929

Ontario Home Builders' Association,

Humber Green Estates Ltd.

and Butternut Grove Homes Inc. Appellants

v.

The York Region Board of Education,

the York Region Roman Catholic Separate

School Board

and the Attorney General for Ontario Respondents

and

The Attorney General of Quebec,

the Attorney General of British Columbia,

the Ontario Public School Boards' Association,

the Ontario Separate School Trustees' Association,

Carlota Guzman, Tony Ciccone, Charlotte Pope and

Doris Seto Interveners

Indexed as: Ontario Home Builders' Association v. York Region Board of Education

File No.: 24085.

1995: October 10, 11; 1996: August 22.

Present: Lamer C.J. and La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin, Iacobucci and Major JJ.

on appeal from the court of appeal for ontario

Constitutional law ‑‑ Division of powers ‑‑ Charter of Rights ‑‑ Indirect taxation ‑‑ Regulatory scheme affecting land development in order to finance new capital costs for schools necessitated by new development ‑‑ Monies placed in common account and available to public and separate school boards ‑‑ Whether charges an indirect tax ‑‑ Whether charges prejudicially affecting a right or privilege with respect to denominational schools ‑‑ Whether impugned provisions infringing s. 2(a) Charter right to freedom of religion and s. 15(1) Charter right of equality ‑‑ If so, whether saved under s. 1 -- Act to restore to Roman Catholics in Upper Canada certain rights in respect to Separate Schools, S. Prov. C. 1863, 26 Vict., c. 5 (“Scott Act”), ss. 14, 20 -- Canadian Charter of Rights and Freedoms, ss. 2(a), 15(1) -- Constitution Act, 1867, ss. 91(3), 92(2), (9), (13), (16), 93(1) -- Development Charges Act, R.S.O. 1990, c. D.9, ss. 30(1), (3), 35 -- Education Act, R.S.O. 1990, c. E.2, s. 122(1) -- Education Development Charges, R.R.O. 1990, Reg. 268, ss. 1, 2, 3, 4, 5.

Trial ‑‑ Standing ‑‑ Application brought by association composed of builders ‑‑ Builders affected by legislation ‑‑ Whether appellants had standing.

By‑laws passed by respondent school boards pursuant to the Development Charges Act required persons seeking building permits to pay an Educational Development Charge ("EDC") as a condition of obtaining the permit. The purpose of the EDC scheme was to permit school boards to raise the local share for the capital costs of new school construction on land undergoing residential and non‑residential development when that development created the need for new schools. The legislation ensured that new land development bore the cost of infrastructure on its own, rather than imposing an additional burden on existing developments. Significantly, capital costs associated with existing schools, or the building of schools for existing pupils currently accommodated in portables or sent by bus to distant schools could not be defrayed through revenues raised by EDCs. The legislation made no distinction between public and separate school boards, or between public and separate school supporters.

The appellants initiated an application in Divisional Court for judicial review of by‑laws passed by the respondent school boards. The Divisional Court found that the scheme created an indirect tax and was therefore ultra vires the province. The Court of Appeal considered the issue of standing and found that appellants indeed had standing. It ultimately found that the legislation, even though it created an indirect tax, did not impinge on the integrity of s. 92(2) (direct taxation within the province) of the Constitution Act, 1867 and that it was ancillary to a regulatory scheme clearly falling within provincial jurisdiction and justifiable under ss. 92(9) (licensing to raise revenue), (13) (property and civil rights) and (16) (matters of a local nature). At issue here was: (1) whether the appellants had standing; (2) whether the provisions of the Development Charges Act authorizing public and separate school boards to impose EDCs were ultra vires the province because (i) they imposed an indirect tax, or (ii) because they prejudicially affected a right or privilege with respect to denominational schools contrary to s. 93(1) of the Constitution Act, 1867; and (3) whether the impugned provisions were contrary to ss. 2(a) (freedom of religion) and 15(1) (the equality rights) of the Canadian Charter of Rights and Freedoms, and if so, whether they were saved under s. 1.

Held: The appeal should be dismissed.

Per Lamer C.J. and Sopinka, Cory, Iacobucci and Major JJ.: Given the serious and complex nature of the issues, it was assumed, without deciding, that the appellants had standing. The interveners had no standing. This Court takes an unfavourable view of attempts to back up an appellant's lack of standing by way of interveners. Such efforts to bootstrap flawed standing are to be discouraged.

When determining the incidence of a tax, both the context within which the tax operates and its purpose should be considered. Land taxes are generally direct taxes imposed on land against the owner and assessed as a percentage of the value of the land, or as a fixed charge per acre. The tax may be an annual, recurring assessment, or a one‑time charge. It may be enforced through the sale of the land. The desire or ability to pass on the tax or otherwise avoid taxation does not transform the direct nature of the tax into an indirect one. The jurisprudence does not prevent a tax on land by itself from being treated as an indirect tax.

EDCs are a tax on development using land as an instrument to achieve the desired end and involve features of both direct and indirect taxation. An EDC is characteristic of a land tax in that it is imposed on land undergoing residential and commercial development and failure to pay results in the charge's being placed on the tax roll. They are not, however, true land taxes in the traditional sense. Their purpose is not taxation of land, but rather, the defraying of the costs of infrastructure necessitated by new residential development. The "categories approach" (that the framers of the Constitution regarded taxes as divisible into two categories, direct and indirect, and that certain classifications of taxes were well known to the framers and fell into one or other category) was of no application here. Rather, the incidence of the EDCs must be determined according to Mill's formulation (that direct taxes are to be paid by the person taxed and the indirect taxes are not specific as to the ultimate incidence of the tax).

EDCs, since they are imposed in the course of manufacture on the commodity (a new building) to be sold and since most charge-payers intend to trade in the commodity, cling as a burden to new buildings when they are brought to market. They therefore constitute indirect taxation and are ultra vires provincial competence under s. 92(2).

However, the EDC scheme is ultimately intra vires the province as ancillary to a valid regulatory scheme for the provision of educational facilities as a component of land use planning, pursuant to ss. 92(9) (licences to raise revenue), (13) (property and civil rights) and (16) (matters of a local nature) of the Constitution Act, 1867. Since the power pursuant to s. 92(9) comprehends indirect taxation, this power is strictly limited to defray the costs of regulation. Significantly, funds can only be withdrawn when a specific project has been approved by the Minister and only in an amount equal to the actual local share of the project. The EDC scheme is appropriately limited in scope and operates only so as to defray the costs of regulation.

The EDCs are part of a comprehensive and integrated regulatory scheme, namely, the entirety of planning, zoning, subdivision and development of land in the province. Funding issues should be addressed through those aspects of the planning framework specifically designed to deal with those issues. While the regulatory scheme, of which EDCs are only a small part, is clearly very complex, the complexity is necessitated by the very scope of the matter regulated ‑‑ urban planning. The number of provincial actors involved in the various phases of the scheme's operation does not invalidate its regulatory nature. An artificial and rigid distinction should not be imposed between the school board and the municipality because such a distinction fails to reflect the true nature of the regulatory framework. The construction of schools is a legitimate and crucial component of modern land use planning. The common theme underlying new development in the province is that it should bear the costs of infrastructure necessitated by it.

The EDC scheme does not prejudicially affect the denominational educational rights embodied in s. 93(1). Even if EDCs could be characterized as "grants", s. 20 of the Scott Act has never applied to capital grants. This section does not impose an obligation of proportionality in its strict terms. Proportionality is the means to a constitutional end which is equality of educational opportunity. Strict, formalistic proportionality was abandoned because it led to a serious inequality of educational opportunity. The principle in s. 122 of the Education Act, which is legally impressed upon the Development Charges Act, honours the obligation for a fair and non‑discriminatory distribution and subsumes and supersedes any obligation of proportionality that might have been imposed by s. 20 of the Scott Act.

EDCs are a new source of funds, neither a rate nor a grant, that was not contemplated at the time of Confederation. Like other charges used to finance municipal infrastructure, they are a secular source of funds. Those paying EDCs are not identified by school support, and the proceeds are not identified as belonging to one school board or the other. The proceeds are commingled. This secular character is entirely appropriate, as money raised under the by-law of one school board may be used to build schools needed by the coterminous board.

The EDC scheme pursues the constitutionally required objective of providing separate schools with funding that is on par with the funding received by public schools. This form of legislation is required by the provisions of s. 93 of the Constitution Act, 1867 and accordingly is immune from Charter scrutiny.

Per La Forest, L'Heureux‑Dubé, Gonthier and McLachlin JJ.: The EDC scheme relates, in pith and substance, to taxation as contemplated by s. 92(2) of the Constitution Act, 1867. The legislation itself and the situation it was intended to remedy both support this conclusion. The EDC scheme gave to local school boards the means to raise the revenue taken away through cut backs in provincial grants. It revealed no feature other than the raising of a revenue in order to finance the local share of growth‑related capital while providing for specific ways in which such revenues will be spent by school boards. The scheme cannot be found to be ancillary to a valid regulatory scheme to the point where it does not relate, in pith and substance, to taxation.

Courts have recognized that provinces can enact legislation providing for the imposition of levies which are indirect in their incidence where such levies cannot be characterized as “Taxation ... in order to the raising of a Revenue for Provincial Purposes” as contemplated by s. 92(2) of the Constitution Act, 1867 because they relate, in pith and substance, to another head of power granted exclusively to provincial legislatures by s. 92. When doing so, provinces are legislating under a different head of power than their s. 92(2) taxing power, and thus outside the scope of the limitation to direct taxation imposed by that provision.

The fact that the legislative scheme specifically provides for the use the school boards will make of the money levied and that the amount that can be levied is carefully limited to that purpose is not, in itself, determinative of the characterization of the matter of the legislation. “Costs of regulation” should not be defined in such a way that the legislation providing for a levy will necessarily relate, in pith and substance, to the matter to which its purpose relates as long as a province specifically provides for the use to be made of the funds levied, for the amount to be levied and for limitations carefully restricting its uses to its purpose. The adoption of such a position would be completely at odds with the structure of the Constitution and with the previous jurisprudence of this Court.

An EDC has all the earmarks of a tax ‑‑ a compulsory levy imposed by-law by a public body for a public purpose. It is, in pith and substance, a tax. It is not aimed at regulating the construction of houses or other buildings. It is not an integral part of the activity in which those engaged are regulated. Rather it is expressly aimed at raising a revenue for another purpose, building schools. Regulatory charges have thus far been tied, as they must constitutionally be, to the regulation of particular activities. The legislative choice of permitting local school boards to impose levies to pay these additional costs for schooling on landowners who construct residences in their area, rather than imposing the costs on taxpayers generally, is perfectly legitimate. And it is equally legitimate that the construction industry (which apparently owns the bulk of the land) should bear its share of the costs since it benefits economically from the development. They are not being regulated; they are being taxed.

Extending the concept of regulatory charges in the manner argued would virtually deprive the distinction between taxation and regulation of all meaning. The constitutional restriction to direct taxation represents an important component of the constitutional arrangements and the underlying policies that support them strongly militate against this Court's permitting provincial legislatures to impose levies that are in their incidence indirect through legislation cloaked as regulatory schemes that constitute in pith and substance taxation.

The EDC scheme is intra vires the province as a direct tax within the meaning of the Constitution Act, 1867. It is a tax on land, a type of tax that has always been regarded as a quintessential example of a direct tax. It bears all the usual hallmarks of a land tax: it is imposed on the owner and is collectable against the land itself. Land taxes have always been characterized as direct taxes for the purposes of s. 92(2) because they were so perceived by the framers of the Constitution. This tax imposed on a landowner and collectable against the land cannot be construed as an indirect tax simply because of a tendency for the incidence of the tax to be passed on to subsequent purchasers of the property given the fact that the land is taxed only on owners who engage in development of the land and that the majority of them are builders who are building for sale.

The primary, if not only, rationale now underlying the prohibition of indirect taxation imposed on the provinces by s. 92(2) of the Constitution Act, 1867 is that the direct effect of their taxation measures must be confined within their territory. This should be taken into account in considering the validity of a given tax by reference to its incidence. The type of taxes the framers of the Constitution contemplated as direct taxes, land taxes for example, were seen to have predominantly local impact, while those seen as indirect, such as customs and excise, had an obvious tendency to have extraterritorial impact. Moreover, s. 92(2) expressly limited provincial taxes to the province and the limitation to direct taxation has prevented provinces from doing indirectly what they could not do directly. This approach is wholly consistent with the basic structure of the Constitution.

The framers of the Constitution considered that certain well-known categories of taxes would fall into the rubric of either direct or indirect taxes. The Mill’s test, which was seen as being a refinement of the idea underlying the earlier categories approach, where certain taxes were categorized as being either direct or indirect, defined a direct tax as one demanded from the very person who it is intended or desired should pay it and an indirect tax as one demanded from one person in the expectation and intention that that person indemnify him‑ or herself at the expense of another. While never abandoning the “categories approach”, the courts have moved to Mill’s test when dealing with taxes that did not fit comfortably with the few categories specifically adverted to by the framers. Mill’s test was found to permit the courts greater flexibility in accommodating the competing policies of according the provinces ample power to tax ‑‑ necessary to provide provinces with sufficient means to finance their legislative activities, which quickly turned out to be much more expensive than expected in 1867 ‑‑ while restraining them to their territorial scope. Thus, while EDCs might be indirect within the meaning of the definition proposed by Mill, ignoring the fact that they are land taxes ‑‑ the impact of which can only be confined to the territory of Ontario ‑‑ would disregard the important constitutional policies underlying the limitation to direct taxation provided for in s. 92 of the Constitution Act, 1867.

The use of Mill’s test to transform what in all other respects falls within the category of a land tax is wholly inconsistent with the trend of the jurisprudence and the constitutional policies that underlie it. Clearly, it does not serve the major policy grounds today supporting the limitation of the provinces to direct taxes. There are no significant extraprovincial implications to land taxes. Nor does it serve the policy adopted by the courts of expansively interpreting the ambit of provincial taxing powers to meet the important legislative functions for which they now bear responsibility.

Cases Cited

By Iacobucci J.

Distinguished: Switzman v. Elbling, 1957 CanLII 2 (SCC), [1957] S.C.R. 285; Borowski v. Canada (Attorney General), 1989 CanLII 123 (SCC), [1989] 1 S.C.R. 342; Atlantic Smoke Shops, Ltd. v. Conlon, 1943 CanLII 372 (UK JCPC), [1943] A.C. 550; considered: City of Halifax v. Estate of J. P. Fairbanks, 1927 CanLII 337 (UK JCPC), [1928] A.C. 117, rev’g 1926 CanLII 70 (SCC), [1926] S.C.R. 349; Allard Contractors Ltd. v. Coquitlam (District), 1993 CanLII 45 (SCC), [1993] 4 S.C.R. 371; referred to: Reference re Bill 30, An Act to Amend the Education Act (Ont.), 1987 CanLII 65 (SCC), [1987] 1 S.C.R. 1148; Attorney General of Quebec v. Greater Hull School Board, 1984 CanLII 29 (SCC), [1984] 2 S.C.R. 575; Shannon v. Lower Mainland Dairy Products Board, [1938] A.C. 780; Hy and Zel's Inc. v. Ontario (Attorney General), 1993 CanLII 30 (SCC), [1993] 3 S.C.R. 675; Canadian Industrial Gas & Oil Ltd. v. Government of Saskatchewan, 1977 CanLII 210 (SCC), [1978] 2 S.C.R. 545; Canadian Pacific Railway Co. v. Attorney General for Saskatchewan, 1952 CanLII 39 (SCC), [1952] 2 S.C.R. 231; Minister of Finance of New Brunswick v. Simpsons‑Sears Ltd., 1982 CanLII 158 (SCC), [1982] 1 S.C.R. 144; Bank of Toronto v. Lambe (1887), 12 App. Cas. 575; Brewers and Maltsters’ Association of Ontario v. Attorney‑General for Ontario, [1897] A.C. 231; Cairns Construction Ltd. v. Government of Saskatchewan, 1960 CanLII 59 (SCC), [1960] S.C.R. 619; City of Montreal v. Attorney‑General for Canada, 1922 CanLII 475 (UK JCPC), [1923] A.C. 136; Attorney‑General for British Columbia v. Esquimalt and Nanaimo Railway Co., 1949 CanLII 324 (UK JCPC), [1950] A.C. 87; Rattenbury v. Land Settlement Board, 1928 CanLII 42 (SCC), [1929] S.C.R. 52; Reference re Validity of Section 31 of the Municipal District Amendment Act, 1941, 1943 CanLII 50 (SCC), [1943] S.C.R. 295; Spooner Oils Ltd. v. Turner Valley Gas Conservation Board, 1932 CanLII 282 (AB SCAD), [1932] 4 D.L.R. 750; Rural Municipality of Bratts Lake v. Hudson’s Bay Co., 1918 CanLII 175 (SK KB), [1918] 2 W.W.R. 962; Dufferin‑Peel Roman Catholic Separate School Board v. Mississauga (City), [1994] O.M.B.D. No. 1093; Re Erin Mills Development Corp. and Peel Board of Education (1988), 22 O.M.B.R. 177; Etobicoke Board of Education v. Highbury Developments Ltd., 1958 CanLII 4 (SCC), [1958] S.C.R. 196; Greater Montreal Protestant School Board v. Quebec (Attorney General), 1989 CanLII 125 (SCC), [1989] 1 S.C.R. 377; Reference re Education Act (Que.), 1993 CanLII 100 (SCC), [1993] 2 S.C.R. 511; Re Scott and Ottawa (1856), 13 U.C.Q.B. 346.

By La Forest J.

Considered: Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, 1930 CanLII 91 (SCC), [1931] S.C.R. 357; Allard Contractors Ltd. v. Coquitlam (District), 1993 CanLII 45 (SCC), [1993] 4 S.C.R. 371; Attorney-General for Quebec v. Reed (1884), 10 App. Cas. 141; Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd., 1932 CanLII 313 (UK JCPC), [1933] A.C. 168; Shannon v. Lower Mainland Dairy Products Board, 1938 CanLII 250 (UK JCPC), [1938] A.C. 708; Ontario Boys’ Wear Ltd. v. The Advisory Committee, 1944 CanLII 7 (SCC), [1944] S.C.R. 349; Reference re Farm Products Marketing Act, 1957 CanLII 1 (SCC), [1957] S.C.R. 198; Coquitlam v. LaFarge Concrete Ltd., 1972 CanLII 956 (BC CA), [1973] 1 W.W.R. 681; Re Exported Natural Gas Tax, 1982 CanLII 189 (SCC), [1982] 1 S.C.R. 1004; City of Halifax v. Estate of J. P. Fairbanks, 1927 CanLII 337 (UK JCPC), [1928] A.C. 117, rev’g 1926 CanLII 70 (SCC), [1926] S.C.R. 349; referred to: Attorney-General for Canada v. Attorney-General for Ontario, 1937 CanLII 363 (UK JCPC), [1937] A.C. 355; Friends of the Oldman River Society v. Canada (Minister of Transport), 1992 CanLII 110 (SCC), [1992] 1 S.C.R. 3; Reference re Agricultural Products Marketing Act, 1978 CanLII 10 (SCC), [1978] 2 S.C.R. 1198; Attorney-General of British Columbia v. Attorney‑General of Canada, 1923 CanLII 426 (UK JCPC), [1924] A.C. 222; Attorney‑General for Canada v. Attorney‑General for British Columbia, 1929 CanLII 439 (UK JCPC), [1930] A.C. 111; In re The Insurance Act of Canada, 1931 CanLII 467 (UK JCPC), [1932] A.C. 41; Bank of Toronto v. Lambe (1887), 12 App. Cas. 575; R. v. Morgentaler, 1993 CanLII 74 (SCC), [1993] 3 S.C.R. 463; Attorney-General for British Columbia v. Esquimalt and Nanaimo Railway Co., 1949 CanLII 324 (UK JCPC), [1950] A.C. 87; Canadian Industrial Gas & Oil Ltd. v. Government of Saskatchewan, 1977 CanLII 210 (SCC), [1978] 2 S.C.R. 545; Rattenbury v. Land Settlement Board, 1928 CanLII 42 (SCC), [1929] S.C.R. 52; Canadian Pacific Railway Co. v. Attorney General for Saskatchewan, 1952 CanLII 39 (SCC), [1952] 2 S.C.R. 231; R. v. Churchill (1972), 1972 CanLII 984 (BC SC), 29 D.L.R. (3d) 368; Texada Mines Ltd. v. Attorney‑General of British Columbia, 1960 CanLII 43 (SCC), [1960] S.C.R. 713; Reference re Quebec Sales Tax, 1994 CanLII 48 (SCC), [1994] 2 S.C.R. 715; Attorney‑General for Quebec v. Queen Insurance Co. (1878), 3 A.C. 1090; Cotton v. The King, 1913 CanLII 396 (UK JCPC), [1914] A.C. 176; Alleyn v. Barthe, 1921 CanLII 606 (UK JCPC), [1922] 1 A.C. 215; Atlantic Smoke Shops, Ltd. v. Conlon, 1943 CanLII 372 (UK JCPC), [1943] A.C. 550; Edwards v. Attorney‑General for Canada, 1929 CanLII 438 (UK JCPC), [1930] A.C. 124; Law Society of Upper Canada v. Skapinker, 1984 CanLII 3 (SCC), [1984] 1 S.C.R. 357; Attorney General of British Columbia v. Canada Trust Co., 1980 CanLII 221 (SCC), [1980] 2 S.C.R. 466.

Statutes and Regulations Cited

Act to restore to Roman Catholics in Upper Canada certain rights in respect to Separate Schools, S. Prov. C. 1863, 26 Vict., c. 5 ("Scott Act"), ss. 14, 20.

Building Code Act, R.S.O. 1990, c. B.13.

Canadian Charter of Rights and Freedoms, ss. 2(a), 15(1).

Conservation Authorities Act, R.S.O. 1990, c. C.27.

Constitution Act, 1867, ss. 91(3), 92(2), (9), (13), (14), (16), 93(1).

Development Charges Act, R.S.O. 1990, c. D.9 [en. S.O. 1989, c. 58], ss. 30(1), (3)(a), (b), 35(1)(a), (b), (2), (3), (4), (5).

Education Act, R.S.O. 1990, c. E.2, ss. 11(3), 122(1), 170, paras. 6, 7; s. 171(1), para. 7; s. 195.

Education Development Charges, R.R.O. 1990, Reg. 268, ss. 1, 2, 3, 4, 5(1), (2), (3), (4), (6), (7).

Environmental Assessment Act, R.S.O. 1990, c. E.18.

Environmental Protection Act, R.S.O. 1990, c. E.19.

Fire Marshals Act, R.S.O. 1990, c. F.17.

General Legislative Grants 1992, O. Reg. 119/92, ss. 6(1), 51.

Municipal Act, R.S.O. 1990, c. M.45.

Ontario Municipal Board Act, R.S.O. 1990, c. O.28.

Ontario Water Resources Act, R.S.O. 1990, c. O.40.

Planning Act, R.S.O. 1990, c. P.13, ss. 2(i) [rep. & sub. S.O. 1994, c. 23, s. 5], 51(24)(a) [idem, s. 30], (j) [idem].

Authors Cited

Concise Oxford Dictionary of Current English, 9th ed. Edited by Della Thompson. Oxford: Clarendon Press, 1995, “commodity”.

Hogg, Peter W. Constitutional Law of Canada, vol. 1, 3rd ed. (Supplemented). Scarborough, Ont.: Carswell, 1992 (loose-leaf updated 1995, release 1).

Jowitt's Dictionary of English Law, vol. 2, 2nd ed. London: Sweet & Maxwell, 1977.

La Forest, Gérard V. The Allocation of Taxing Power Under the Canadian Constitution, 2nd ed. Canadian Tax Paper No. 65. Toronto: Canadian Tax Foundation, 1981.

Laskin, Bora. “Provincial Marketing Levies: Indirect Taxation and Federal Power” (1959), U. of T. L.J. 1.

Magnet, Joseph Eliot. “The Constitutional Distribution of Taxation Powers in Canada” (1978), 10 Ottawa L. Rev. 473.

Mill, John Stuart. Principles of Political Economy with some of Their Applications to Social Philosophy, vol. 2. New York: D. Appleton, 1893.

APPEAL from a judgment of the Ontario Court of Appeal (1994), 1994 CanLII 8710 (ON CA), 17 O.R. (3d) 103, 69 O.A.C. 216, 109 D.L.R. (4th) 289, 19 M.P.L.R. (2d) 1, allowing an appeal from the Ontario Court (Divisional Court) (1993), 1993 CanLII 8458 (ON SC), 13 O.R. (3d) 493, 62 O.A.C. 321, 103 D.L.R. (4th) 55, 15 M.P.L.R. (2d) 1. Appeal dismissed.

Neil Finkelstein and Monica Kowal, for the appellants.

Martha M. Mackinnon, for the respondent the York Region Board of Education.

Peter D. Lauwers, for the respondent the York Region Roman Catholic Separate School Board.

Janet E. Minor and Michel Y. Hélie, for the respondent the Attorney General for Ontario.

Monique Rousseau, for the intervener the Attorney General of Quebec.

George H. Copley, for the intervener the Attorney General of British Columbia.

Colin L. Campbell, Q.C., and Gordon F. Willcocks, for the intervener the Ontario Public School Boards' Association.

Peter D. Lauwers, for the intervener the Ontario Separate School Trustees' Association.

George Vegh, for the interveners Carlota Guzman and Tony Ciccone.

Jane Thompson and Robert Maxwell, for the interveners Charlotte Pope and Doris Seto.

The judgment of Lamer C.J. and Sopinka, Cory, Iacobucci and Major JJ. was delivered by

1Iacobucci J. -- This appeal involves a challenge to the constitutional validity of Part III of the Development Charges Act, R.S.O. 1990, c. D.9 (the "Act"), which authorizes Ontario public and separate school boards to impose so-called education development charges ("EDCs") on buildings that result from new development. The major issues involved are threefold: whether the Act is ultra vires the province with respect to s. 92 of the Constitution Act, 1867; whether the Act violates the guarantees given to separate school supporters pursuant to s. 93(1) of the Constitution Act, 1867; and whether the Act is in violation of ss. 2(a) and 15(1) of the Canadian Charter of Rights and Freedoms. There is also a question with respect to the standing of several of the interveners.

2I conclude that the education development charges constitute indirect taxation contrary to s. 92 of the Constitution Act, 1867. However, it is also my conclusion that Part III of the Act is intra vires the province as ancillary or adhesive to a valid regulatory scheme pursuant to ss. 92(9), (13) and (16). Further, in my view, the education development charge scheme is a legitimate component of an educational funding model that is fair and non-discriminatory, consonant with the rights and privileges granted in s. 93(1) of the Constitution Act, 1867. Finally, the legislation in question, falling as it does within the scope of s. 93(1), is immune from Charter scrutiny.

I. Background

3The appellants develop land and build homes in Southern Ontario, including the York Region. In September 1992, the appellants initiated an application in Divisional Court for judicial review of by-laws passed by the respondents, York Region Board of Education and York Region Roman Catholic Separate School Board (the "School Boards"). The by-laws were passed pursuant to Part III of the Act, and require persons seeking building permits to pay an EDC as a condition of obtaining the permit. The purpose of the EDC scheme is to permit school boards to raise the local share for new school construction on land undergoing residential and non-residential development when that development creates the need for new schools.

The EDC scheme

4Section 30 of the Act provides that if there is residential development that would increase education capital costs in the area of a school board's jurisdiction, that school board may pass by-laws imposing "education development charges" against the land undergoing residential and commercial development in the area. Such by-laws, pursuant to s. 30(3), must designate the categories of residential and commercial development upon which EDCs are to be imposed, and to designate "those uses of land, buildings or structures" upon which EDCs are to be imposed. Section 35 outlines the payment mechanism for the EDCs. The charge is payable to the municipality in which the development takes place on the date that a building permit is issued for a building or other structure to which an EDC applies. Section 35(3) provides that a municipality may withhold a building permit until the EDC has been paid. Section 35(4) states that, with the consent of the Minister of Education, a school board may accept the provision of school facilities from an owner in lieu of the payment of all or any portion of an EDC.

5The legislation makes no distinction between public and separate school boards, nor between public and separate school supporters. Anyone applying for a building permit for development to which an EDC by-law applies must pay the charge, regardless of their support of the public or the separate school system. It is important to note that EDCs are designed to deal only with education capital costs made necessary by new residential development. Capital costs associated with existing schools, or the building of schools for existing pupils currently accommodated in portables or sent by bus to distant schools cannot be included. The EDC legislation not only permits school boards to raise capital, but also ensures that new land development bears the cost of infrastructure on its own, rather than imposing an additional burden on existing developments.

6The method for calculating the amount of EDC that is payable is set out in Education Development Charges, R.R.O. 1990, Reg. 268 ("Regulation 268"). The starting point for the calculation of the charge, under s. 3 of Regulation 268, is the estimated number of new dwelling units that will result from the development on the land subject to the EDCs. The number of estimated growth-related new school pupils is then determined, as well as the number of school projects needed to serve the new pupils. The next factor is the cost of site purchase and construction cost for all the required projects. The percentage of the construction cost to be financed by legislative grant under s. 11(3) of the Education Act, R.S.O. 1990, c. E.2, is factored in, in order to determine the net growth-related education capital cost that will flow from development. A certain percentage of this cost will be paid through EDCs in respect of commercial development. The commercial contribution is calculated by dividing the percentage of growth-related cost that is to be covered by commercial EDCs by the declared value of the commercial building permits issued during the term of the EDC by-law, and multiplying the quotient by 100 to express the EDC on commercial development as a percentage of declared value.

7An EDC scheme established by a particular school board can only operate with the approval of the Minister of Education. Before passing an EDC by-law, a school board must refer its plans for school facilities that constitute an education capital cost to the Minister of Education for approval (Regulation 268, s. 2). The construction cost and cost of site figures used in calculating EDC must be approved by the Minister of Education, pursuant to Regulation 268, ss. 1, 3(9). The maximum amount of an EDC is limited by the level of provincial grant that will be made, as EDCs can only be used to fund the local share of education capital costs (Regulation 268, s. 5(7)). As well, a school board cannot withdraw funds from an EDC account for a capital project unless final approval for the project has been given by the Minister of Education making a capital grant under s. 11(3) of the Education Act. In this regard, the Minister is bound by s. 122 of the Education Act. As well, the Minister of Education has a general power to ensure compliance with the Education Act, as well as Part III of the Act, and legislation subordinate thereto.

8This power flows from s. 6(1) of the General Legislative Grants, 1992 Regulation, O. Reg. 119/92 (the "GLG Regulation"), made pursuant to the Education Act:

6. -- (1) Where a board fails to comply with the Acts administered by the Minister or the Regulations thereunder, the Minister may withhold the whole or any part of a legislative grant payable until the board has taken the action necessary to correct the condition that caused the grant to be withheld.

9The proceeds generated by an EDC by-law must be deposited in two interest-bearing accounts; the first account is for EDC revenue raised on account of residential development, and the second account is for EDC revenue raised on account of commercial development (Regulation 268, ss. 5(1)-(3)). If two or more coterminous school boards pass EDC by-laws, the proceeds are to be deposited into two commingled bank accounts (Regulation 268, s. 5(4)). Funds from these accounts may only be withdrawn with the signatures of the treasurers of all the coterminous boards on whose accounts the moneys have been deposited (Regulation 268, s. 5(6)).

II. Relevant Constitutional and Statutory Provisions

A. Constitution Act, 1867

92. In each Province the Legislature may exclusively make Laws in relation to Matters coming within the Classes of Subjects next herein-after enumerated; that is to say,--

93. Direct Taxation within the Province in order to the raising of a Revenue for Provincial Purposes.

94. Shop, Saloon, Tavern, Auctioneer, and other Licences in order to the raising of a Revenue for Provincial, Local, or Municipal Purposes.

95. Property and Civil Rights in the Province.

96. Generally all Matters of a merely local or private Nature in the Province.

97. In and for each Province the Legislature may exclusively make Laws in relation to Education, subject and according to the following Provisions:--

(1) Nothing in any such Law shall prejudicially affect any Right or Privilege with respect to Denominational Schools which any Class of Persons have by Law in the Province at the Union....

B. Canadian Charter of Rights and Freedoms

2. Everyone has the following fundamental freedoms:

(a) freedom of conscience and religion;

15. (1) Every individual is equal before and under the law and has the right to the equal protection and equal benefit of the law without discrimination and, in particular, without discrimination based on race, national or ethnic origin, colour, religion, sex, age or mental or physical disability.

C. An Act to restore to Roman Catholics in Upper Canada certain rights in respect to Separate Schools, S. Prov. C. 1863, 26 Vict., c. 5 ("Scott Act")

14. Every person paying rates, whether as proprietor or tenant, who, by himself or his agent, on or before the first day of March in any year, gives, or who, on or before the first day of March, of the present year, has given to the Clerk of the Municipality notice in writing that he is a Roman Catholic, and a supporter of a Separate School situated in the said Municipality, or in a Municipality contiguous thereto, shall be exempted from the payment of all rates imposed for the support of Common Schools, and of Common School Libraries, or for the purchase of land or erection of buildings for Common School purposes, within the City, Town, Incorporated Village or section in which he resides, for the then current year, and every subsequent year thereafter, while he continues a supporter of a Separate School; and such notice shall not be required to be renewed annually; and it shall be the duty of the Trustees of every Separate School to transmit to the Clerk of the Municipality or Clerks of Municipalities (as the case may be) on or before the first day of June in each year, a correct list of the names and residences of all persons supporting the Separate Schools under their management; and every ratepayer whose name shall not appear on such list shall be rated for the support of Common Schools.

15. Every Separate School shall be entitled to a share in the fund annually granted by the Legislature of this Province for the support of Common Schools, and shall be entitled also to a share in all other public grants, investments and allotments for Common School purposes now made or hereafter to be made by the Province or the Municipal authorities, according to the average number of pupils attending such school during the twelve next preceding months, or during the number of months which may have elapsed from the establishment of a new Separate School, as compared with the whole average number of pupils attending School in the same City, Town, Village or Township.

D. Education Act, R.S.O. 1990, c. E.2

122. -- (1) Every separate school shall share in the legislative grants in like manner as a public school.

E. Development Charges Act, R.S.O. 1990, c. D.9

30. -- (1) If there is residential development in the area of jurisdiction of a board that would increase education capital costs, the board may pass by-laws for the imposition of education development charges against land undergoing residential and commercial development in that area....

(3) A by-law passed under subsection (1) shall,

(a) designate the categories of residential development and commercial development upon which an education development charge shall be imposed;

(b) designate those uses of land, buildings or structures upon which an education development charge shall be imposed;

35. -- (1) An education development charge is payable,

(a) to the municipality in which the development takes place on the date a building permit is issued in relation to a building or structure on land to which an education development charge applies; or

(b) if the development takes place in territory without municipal organization, to the board that imposed the education development charge thirty days after the board mails a notice to the owner setting out the amount of the charge.

(2) An education development charge imposed by a board in respect of commercial development is the amount determined in the manner prescribed or calculated using the formula prescribed.

(3) Despite any other Act, a municipality is not required to issue a building permit in relation to a building or structure on land to which an education development charge by-law applies unless the education development charge has been paid.

(4) Despite subsection (1), and subject to subsection (5) and the consent of the Minister of Education, a board may by agreement permit an owner to provide school facilities in lieu of the payment of all or any portion of an education development charge....

(5) If more than one board has jurisdiction in an area and one or more boards are to receive school facilities under subsection (4), all of the boards that have imposed an education development charge in that area are required to be parties to the agreement.

F. Education Development Charges, R.R.O. 1990, Reg. 268

1. ...

"declared value" means the cost on which the building permit fee is calculated;

“elementary rate of grant" means the percentage of the construction cost of an elementary school project or of the cost of site purchase of an elementary school project that may be financed by a legislative grant under subsection 11 (3) of the Education Act;

"elementary yield factor" means a board's per unit estimate of the number of elementary school pupils generated from net new units;

"secondary rate of grant" means the percentage of the construction cost of a secondary school project or of the cost of site purchase of a secondary school project that may be financed by a legislative grant under subsection 11 (3) of the Education Act;

"secondary yield factor" means a board's per unit estimate of the number of secondary school pupils generated from net new units;

3. A board shall calculate the amount of an education development charge on residential development according to the following procedures, that shall be applied in order beginning with paragraph 1:

4. For each year that the education development charge by-law imposing the education development charge is in force, estimate the number of new dwelling units on land subject to the education development charge.

5. Determine the elementary yield factor or secondary yield factor, or both, as the case requires, or determine the elementary yield factor or secondary yield factor, or both, for each type of dwelling unit distinguished by the board and represented in the net new units.

6. Multiply the net new units for each year by the elementary yield factor or, if the board has distinguished between types of dwelling units in arriving at its elementary yield factor, multiply the net new units of each type of dwelling unit represented in the net new units for each year by the appropriate elementary yield factor.

7. Multiply the net new units for each year by the secondary yield factor or, if the board has distinguished between types of dwelling units in arriving at its secondary yield factor, multiply the net new units of each type of dwelling unit represented in the net new units for each year by the appropriate secondary yield factor.

8. Add the products obtained under paragraph 3 to obtain the total number of estimated growth-related new elementary school pupils.

9. Add the products obtained under paragraph 4 to obtain the total number of estimated growth-related new secondary school pupils.

10. Determine the number of elementary school projects required to serve the estimated growth-related new elementary school pupils determined under paragraph 5.

11. Determine the number of secondary school projects required to serve the estimated growth-related new secondary school pupils determined under paragraph 6.

12. Determine the cost of site purchase and the construction cost for each project determined under paragraphs 7 and 8.

13. Add the cost of site purchases for the elementary school projects determined under paragraph 7 to the construction costs for the elementary school projects to obtain the growth-related capital cost elementary.

14. Add the cost of site purchases for the secondary school projects determined under paragraph 8 to the construction cost for the secondary school projects to obtain the growth-related capital cost secondary.

15. Multiply the growth-related education capital cost elementary by the elementary rate of grant.

16. Multiply the growth-related education capital cost secondary by the secondary rate of grant.

17. Add the products obtained under paragraphs 12 and 13.

18. Add the growth-related education capital cost elementary to the growth-related education capital cost secondary.

19. Subtract the sum obtained under paragraph 14 from the sum obtained under paragraph 15 to obtain the growth-related net education capital cost.

20. If less than 100 per cent of the growth-related net education capital cost is to be financed by education development charges, determine the portion thereof that will be so financed.

21. Subtract the commercial contribution determined under paragraph 2 of section 4 from the growth-related net education capital cost determined under paragraph 16, or the portion thereof determined under paragraph 17, as the case requires.

22. Subtract the amount of any local share that forms part of the adjusted growth-related net education capital cost determined under a prior education development charge by-law and remaining in an education development charges account referred to in subsection 5 (2) at the expiration of the term of the prior by-law from the balance in the account at the expiration of the term of the prior by-law.

23. Subtract the difference obtained under paragraph 19 from the difference obtained under paragraph 18 to obtain the adjusted growth-related net education capital cost.

24. Divide the adjusted growth-related net education capital cost by the net new units to obtain the amount of the education development charge on residential development.

25. A board shall calculate the amount of an education development charge on commercial development, expressed as a percentage of the declared value, according to the following procedures, that shall be applied in order beginning with paragraph 1:

26. Establish a percentage that is greater than zero but does not exceed 40 per cent, that represents the portion of the growth-related net education capital cost determined under paragraph 16 of section 3, or the portion thereof determined under paragraph 17 of section 3, as the case requires, to be financed by the education development charge on commercial development.

27. Multiply the percentage determined under paragraph 1 by the growth-related net education capital cost determined under paragraph 16 of section 3, or the portion thereof determined under paragraph 17 of section 3, as the case requires, to determine the amount of commercial contribution.

28. Divide the amount of commercial contribution by the estimated declared value of all building permits to be issued during the term of the education development charge by-law imposing the charge in respect of commercial development on land subject to the education development charge imposed by the by-law.

29. Multiply the quotient obtained under paragraph 3 by 100 to obtain the amount of the education development charge on commercial development expressed as a percentage of the declared value.

III. Judgments Below

A. Ontario Court (General Division) (1993), 1993 CanLII 8458 (ON SC), 13 O.R. (3d) 493

10A three-member panel heard the appellants' application for judicial review. McKeown J. (O'Driscoll J. concurring, White J. dissenting) found that EDCs are an indirect tax. White J. (O'Driscoll J. concurring, McKeown J. holding that the issue need not be decided) found that the EDC scheme is constitutionally invalid under s. 93 of the Constitution Act, 1867, and that laws in relation to education, including the EDC by-laws, are immune from Charter scrutiny.

(i) White J. (dissenting in part)

11White J. first considered the Charter issue and concluded that the opening words of s. 93 of the Constitution Act, 1867 immunize a provincial statute relating to education from Charter scrutiny, citing Reference re Bill 30, An Act to Amend the Education Act (Ont.), 1987 CanLII 65 (SCC), [1987] 1 S.C.R. 1148.

12White J. then turned to the question of whether the EDC scheme is indirect taxation by the province contrary to s. 92(2) of the Constitution Act, 1867. After referring to Mill's well-known definition of direct and indirect taxation, White J. considered, at p. 519, Professor La Forest's (as he then was) treatise, The Allocation of Taxing Power Under the Canadian Constitution (2nd ed. 1981), in which it was suggested that while the Mill test is the principal approach to interpreting s. 92(2), "there is a continued recognition and periodic application of the ‘categories approach’", first enunciated in City of Halifax v. Estate of J. P. Fairbanks, 1927 CanLII 337 (UK JCPC), [1928] A.C. 117 (P.C.). White J. noted, at p. 519, Professor La Forest's comment at p. 90 that "[i]t seems clear that any tax which the courts are willing to characterize as a tax on land is always a direct tax". White J. concluded that the EDC scheme is taxation in the province for the purpose of raising revenue for particular educational needs in accordance with s. 92(2) of the Constitution Act, 1867, for the following reasons at pp. 521-22:

1. The education development charge falls within the category of a tax that courts generally characterize as a direct tax because it is a land tax. Among the reasons for concluding that it is a land tax are the following:

(a) The education development charge is imposed on "land undergoing residential and commercial development";

(b) The land subject to the education development charge must be within the territorial jurisdiction of a school board, either public or separate, that passes the relevant by-law imposing the charge;

(c) The failure to pay an education development charge results in that charge being added to the tax roll of the municipality or board in respect of a specific parcel of land, which parcel of land may be the subject of a forced sale to pay the education development charge just as that parcel of land may be subject to a forced sale if the local rates thereon are not paid.

2. The tax is demanded from the very person who it is intended should pay it....

3. The mere likelihood that following the basic rules of economics all costs including land costs incurred in the production of a finished building, be it residential or commercial, will be sought to be recouped from the purchaser of the building cannot convert a tax that, according to its enabling text, appears to be a direct tax into an indirect tax.

4. ...the economic evidence is compatible with the economic effect of the tax being diffused perhaps to some minor degree only among sellers of raw land, intermediate developers as well as home purchasers....

5. There is no proper analogy between the education development charge and a customs or excise tax or a commodity tax which, by its very nature, will tend to be passed on intact to the purchaser of the article taxed as an identifiable component of the price paid by the consumer.

...the education development charge is a land tax or a tax on property. It is, in my opinion, a tax on property regardless of who may have a legal interest in the property. The property is the economic thing against which the tax is aimed.

13White J. then considered whether the EDC scheme constitutes a breach of s. 93 of the Constitution Act, 1867. He noted that the pre-Confederation law in effect at the time of the enactment of the Constitution Act, 1867 was the Scott Act. Section 20 of the Scott Act provided that every separate school was entitled to a share in the annual provincial grant for the support of "common schools", and to a share in all other "public grants, investments and allotments for Common School purposes". The appellants had argued that separate school supporters are entitled to a proportionate share of all public education funds apart from local assessment, pursuant to this provision. The respondents had argued that the Act and the EDC scheme do not prejudicially affect the rights and privileges of separate school supporters, as the legislation permits both separate and public school boards equal access to EDCs. White J. was of the view that the governing precedent was Attorney General of Quebec v. Greater Hull School Board, 1984 CanLII 29 (SCC), [1984] 2 S.C.R. 575, which he commented upon as follows at p. 527:

I interpret this case as standing for the proposition that goodwill and benign treatment on the part of the school administration of the Ministry of Education to a separate school board is not enough. An ironclad explicit statutory protection is required in the legislation creating a new tax imposition or in parallel legislation applying to the new tax imposition. I regard the Greater Hull case as also standing for the proposition that the absence of an explicit safeguard is fatal to the scheme of the system and the provisions relating to the whole system. The absence of such an explicit safeguard undermines the system in both its collection phase and its payout phase as being constitutionally invalid in contemplation of s. 93(1).

White J. found, at p. 527, that the Act and the EDC scheme do not "establish any relation at all proportionate or otherwise between what a separate school board claims as an education development charge and what a public school board receives as an education development charge". He concluded, at pp. 527-28, that the EDC scheme failed "to provide explicitly that education development charges be shared in like manner or proportionately as between public and separate schools". Further, he rejected, at p. 528, the respondents’ assertion that s. 122 of the Education Act can be read with the provisions of the Act establishing the EDC scheme so as to "result in the deduction that separate and public school boards will be treated ‘in like manner’ in respect of education development charges". Accordingly, White J. held that Part III of the Act and its regulations were invalid as violating s. 93(1) of the Constitution Act, 1867.

(ii) McKeown J.

14McKeown J. first reviewed the evidence that EDCs are passed on and ultimately borne by home purchasers, as a cost factored into the price of a new house. He noted that this evidence was consistent with the "user pay philosophy" behind the EDC scheme.

15McKeown J. then considered whether EDCs should be viewed as charges or taxes. He noted, at p. 505, that if they were "a charge imposed to defray specific capital education expenditures rather than a tax within the meaning of s. 92(2), then a school board possesses the power within its jurisdiction to pass by-laws imposing such charges" (see Shannon v. Lower Mainland Dairy Products Board, [1938] A.C. 780 (P.C.)). McKeown J. concluded as follows at pp. 507-8:

Revenue raised under the scheme of the Development Charges Act for the construction of schools is closer in nature to money raised to build other essential municipal buildings. While this charge may not be imposed to "raise revenue for general purposes" as conventionally understood, it is much closer in nature to a tax for raising revenue than it is to a charge to defray costs. Neither the municipality nor the school boards have any discretion over the use of these funds. These monies can only be used for capital expenditures approved by the Minister of Education pursuant to his authority under the Education Act. Although the charge is attached to the cost of purchasing a building permit, that appears to be for administrative convenience rather than any real connection to the construction of a house.

Accordingly, we find that an education development charge is a tax for the purpose of s. 92(2) of the Constitution Act, 1867.

16McKeown J. then turned to the incidence of EDCs. He noted that Fairbanks, supra, (relied on by White J.) did not apply Mill's test to taxes already categorized in 1867, for example, property and income taxes. McKeown J. stated that although he did not accept Fairbanks as the law, he would nevertheless determine whether EDCs could be defined as property taxes. He summarized the indicia of a property tax as follows, at p. 510: "the tax must be based on the value of the property.... [T]the property must be assessed without regard to exploration, production or any transactions". McKeown J. stated at p. 510 that:

The form of the words used in s. 30 of the Development Charges Act, "land undergoing development", cannot change the real purpose of the tax which is a tax directed at the ultimate purchaser of a building or edifice. It cannot be a property tax just because the municipality has the same collection rights against the property when the education development charge is not paid as it has against arrears in property taxes. Thus this is not a property tax.

McKeown J., at p. 510, characterized EDCs as "an indirect tax on a product, i.e., the building of homes or offices or factories. It is a tax for the purpose of building schools". He concluded at p. 516 that:

When one looks at the general tendency of the education development charges, in my view, the fact that in exceptional cases the tax may not be passed on does not matter. As Professor Fallis said, in 80 to 90 per cent of the cases, the education development charges will be passed on. This tax is not recouped by the taxpayer by more or less circuitous operation of economic forces. The education development charge clings to the product going to market in much the same way as a manufacturer's sales tax does. The key is whether it relates to trading transactions. The education development charge is a tax on land undergoing development, not on the land underlying the development. The Development Charges Act does not purport to tax the final consumer. Accordingly, this is not direct taxation within the province.

As I am of the view that the education development charge is indirect taxation contrary to s. 92(2) of the Constitution Act, 1867, it is not necessary to determine the other issues relating to s. 93 of the Constitution Act, 1867 or ss. 2(a) and 15 of the Charter of Rights and Freedoms.

(iii) O'Driscoll J.

17O'Driscoll J. agreed, for the reasons given by McKeown J. that the EDCs impose indirect taxation contrary to s. 92(2) of the Constitution Act, 1867. For the reasons given by White J., O'Driscoll J. agreed at p. 528 that the EDC by-laws "fail to guarantee proportionality (‘in like manner’) as between public school supporters and separate school supporters as demanded by s. 93 of the Constitution Act, 1867". Finally, on the Charter issue, O'Driscoll J. agreed with White J. that provincial statutes relating to education are immune from Charter scrutiny.

B. Ontario Court of Appeal (1994), 1994 CanLII 8710 (ON CA), 17 O.R. (3d) 103

18Carthy J.A. (McKinlay and Goodman JJ.A. concurring) first dealt with the issue of standing. He found that the respondents (the appellants in the appeal before this Court) had standing to argue that the legislation in question amounted to unconstitutional indirect taxation. He noted that two of the respondents would face EDCs they should not have to pay if the EDC scheme were beyond provincial powers. With respect to the respondents' standing to argue the s. 93 proportionality issue, Carthy J.A. commented at p. 107 that the respondents' "sole interest is in the EDC and their obligation to pay it". After reviewing the relevant principles, as articulated in Hy and Zel's Inc. v. Ontario (Attorney General), 1993 CanLII 30 (SCC), [1993] 3 S.C.R. 675, he concluded as follows, at pp. 108-9, with respect to standing:

The seriousness of the issue is obvious. The direct interest of the respondents is another question. Their interest is in not paying the EDC, but they have no direct interest in proportional allocation of funds to separate schools. Even less do they have an interest in the overall funding model which, in my view, is the subject which must be addressed to determine constitutionality. Their selective interest indicates why they should not have been granted status on a broad issue. Finally, there most certainly is another available means of bringing the issue to court. For one example, the York Region Roman Catholic School Board could have done so in these very proceedings had it decided not to defend the constitutionality of the funding scheme.

For these reasons I would overrule the Divisional Court's grant of status to the respondents to argue the s. 93(1) issue. If the judgment quashing the by-laws is to be sustained, it must be on the division of powers argument.

19After reviewing s. 92, Carthy J.A. noted at p. 109 that EDCs "are only a part of an overall education funding package". He stated that EDCs are an element of the planning process, replacing lot levies as a condition of subdivision approval under the Planning Act, R.S.O. 1990, c. P.13. Carthy J.A. stated that EDCs are imposed on land based on the number of housing units to be produced or based on the value of commercial buildings. While the charges are payable at the building permit stage, Carthy J.A. remarked at p. 109, that "[i]n many cases homes will be pre-sold at this stage, suggesting the likelihood that the charges will be passed on as part of the price of the lot and building". He also found it significant that the funds raised by the EDCs are placed in a bank account in the names of both school boards and can only be paid out to fund school construction approved by the Minister of Education. Carthy J.A. commented at pp. 109-10 as follows:

Thus, while the charge may be characterized as indirect because it tends to cling to the housing commodity being developed, its purpose and application is specific to the provision of schools and cannot be a source of general revenue for the school board or the province.

20Carthy J.A. then referred to Allard Contractors Ltd. v. Coquitlam (District), 1993 CanLII 45 (SCC), [1993] 4 S.C.R. 371, which was released while the instant appeal was under reserve to the Court of Appeal. Carthy J.A. was of the view that the reasoning in Allard was particularly apposite to the issues at hand. Allard involved the regulation of gravel pits by local council by-laws under the British Columbia Municipal Act, R.S.B.C. 1979, c. 290. Municipalities issued permits for the removal of gravel, and charged an annual fee based upon the estimated amount of gravel to be removed from a site. The annual fee was not fixed, but varied according to the volume of gravel extracted. The by-laws were attacked as ultra vires provincial powers as granted by s. 92 of the Constitution Act, 1867. This Court, applying Mill's test, held that as the charge attached to a commodity in the course of production, the general tendency would be for the charge to be passed on to the consumer. Carthy J.A., at pp. 110-11, applied this reasoning with respect to the incidence of the EDCs:

In my view, the same reasoning applies to the EDCs. They are imposed on land and some authorities could be called forth to say they are, on that account, direct taxes. Yet, the reality is that the charges are imposed as a fee for constructing buildings for sale. The amount charged relates to the number of units, or value in the case of commercial development, and common sense therefore says that the tendency will be to pass the cost along.

I, therefore, have no hesitation in concluding on the basis of the reasoning in Allard, that the EDCs are also indirect charges within the meaning of s. 92 of the Constitution Act, 1867.

21Carthy J.A. then turned to the issue of whether EDCs, as indirect taxation, could be justified under ss. 92(9), (13) and (16) of the Constitution Act, 1867, as the gravel fees in Allard had been justified. He noted the concern expressed in Allard that if these subsections are applied too generously in favour of the provinces, the s. 92(2) restriction may become meaningless. Carthy J.A., at p. 111, quoted this Court's description in Allard (at p. 402) of the nature of the provincial power that flows from ss. 92(9), (13) and (16):

In the above cases, decided either by this Court or the Privy Council, one can discern a consistent treatment of the scope of s. 92(9) of the Constitution Act, 1867. Although somewhat broad language was used by Lord Atkin in Shannon, supra, it appears generally true that s. 92(9), in combination with ss. 92(13) and (16), comprehends a power of regulation through licences. It is a power which is not confined to the requirement of direct taxation in s. 92(2). However, in so far as it comprehends indirect taxation, these cases -- either explicitly or upon their facts -- have limited the power of indirect taxation such that it can only be used to defray the costs of regulation.

Carthy J.A., also quoted the test set out in Allard at p. 405, as follows: "can the variable fees be supported as ancillary or adhesive to a valid provincial regulatory scheme?" Carthy J.A. found, at p. 112, that the explicit purpose of the EDCs is to raise funds for school construction necessitated by new urban development, and that "[t]he charges are thus most certainly ancillary or adhesive to the production of new schools". He noted that there would be no excessive recovery under the scheme, as the amount charged is based on specific cost estimates, and only funds sufficient to meet actual costs are released. Carthy J.A., at p. 113, concluded as follows:

Ours is a much easier case than Allard for finding that a regulatory scheme exists. The province administers and regulates land development. It exercises those powers through a variety of statutes. It recognizes that new development produces a need for new schools and that there may be inequity in visiting these costs on existing home-owners. It has already delegated to the school boards the responsibility for new school construction and now delegates to them the power to decide which of two sources, EDCs or local assessment, shall provide the funding. The municipality is obligated to collect the funds, regardless of source, and the province retains supervisory control over expenditure. That is surely a description of a regulatory scheme of land development and provision of associated educational facilities. The licensing body is the municipality issuing the building permit, and a condition of the issuance is payment of a charge which is specifically calculated to meet one cost which will inevitably flow from construction under the permit.

In my view, this is a model for compliance with s. 92 of the Constitution Act, 1867 and does not in the slightest way impinge upon the integrity of s. 92(2). It is an indirect tax that is "ancillary or adhesive" to a regulatory scheme clearly falling within provincial responsibility, and is justifiable under one or more of s. 92(9), (13) and (16) of the Constitution Act, 1867. To me the overall constitutionality of this scheme is so clear that I find it unnecessary to consider each of those subsections individually.

IV. Issues

1. Do the appellants have standing to raise the issues in questions 2(i) and 3?

2. Is Part III of the Development Charges Act, R.S.O. 1990, c. D.9, which authorizes public and separate school boards to impose education development charges, ultra vires the Legislature of Ontario in that it:

(i) authorizes the imposition of an indirect tax contrary to s. 92(2) of the Constitution Act, 1867; or

(ii) prejudicially affects a right or privilege with respect to denominational schools which any class of persons have by law in the province at the union contrary to s. 93(1) of the Constitution Act, 1867?

3. (i) Is Part III of the Act contrary to ss. 2(a) and 15(1) of the Canadian Charter of Rights and Freedoms?

(ii) If the answer to question 2(i) is affirmative, is Part III of the Act saved by s. 1 of the Charter as a reasonable limit, prescribed by law as can be demonstrably justified in a free and democratic society?

V. Analysis

A. Historical and Current Legislative Context of Education Financing

22It is important to consider both the historical and legislative context within which the EDC scheme is situated in order to resolve the issues at hand. At the time of Confederation, responsibility for the financing of education was shared by the state, local authorities, and parents of pupils. From expert evidence in the record, apparently schools were historically supported through five sources of revenue: provincial and municipal grant revenue, local taxation, rates (i.e., fees charged to property owners), parental support for items like textbooks, and voluntary subscriptions. Currently, grants and taxation based on local assessment, apart from EDCs, constitute the major sources of school revenues.

23Generally, in 1867, the operating expenses of school boards were funded both locally and through provincial grants. By contrast, the capital expenditures of school boards were in large part financed only locally, with provincial grants for capital expenditures being made only in rare and unusual circumstances. Today, capital expenditures are financed both provincially, through capital grants, and locally, through rates on property. EDCs are imposed on designated land undergoing development without regard to the school support of the land owner. As well, rates can be used for operating and capital expenses, while EDCs can only be used to fund the local share of approved capital expenditures required by the new development.

24Historically, one-half of a teacher's salary was paid to both public and separate school boards by way of equal per-pupil grants. This was sometimes referred to as proportionality between public and separate school boards. However, this approach resulted in unequal funding as between urban and rural boards, owing to the differences in local assessment wealth. Accordingly, the province of Ontario moved toward a new funding scheme that emphasized equality of educational opportunity which looks to educational needs or requirements for the students involved, rather than simple equality in terms of financing. Today, those school boards with a richer assessment base, whether public or separate, receive a smaller provincial grant. This funding system strives to yield equitable financial resources for equal tax effort on a per-pupil basis and flows from s. 122 of the Education Act, which states that "Every separate school shall share in the legislative grants in like manner as a public school". Different boards, whether public or separate, receive different sized grants; however, the size of the grant is calculated "in like manner" for a separate school board as for a public school board, that is, according to need.

25A school board has the authority to build a school on its own without ministerial approval or funding (Education Act, s. 170, paras. 6, 7; s. 171(1), para. 7; s. 195). However, if provincial grants are sought, the approval of the Minister is required. Provincial capital allocations, as discussed above, are based on need. This criterion applies equally and "in like manner" to both public and separate school boards. The amount of grant is determined pursuant to s. 51 of the GLG Regulation, on the basis of equalized assessment, adjusting grants according to the relative assessment wealth of a school board, whether public or separate. For example, the York Region Board of Education's provincial grant percentage of total capital costs was 33 percent in 1990 and 26 percent in 1991. The York Region Roman Catholic Separate School Board's provincial capital grant percentage of total capital costs was 82.7 percent for elementary schools, and 74.5 percent for secondary schools in 1990, and 67.4 percent and 60.5 percent, respectively in 1991.

26It is interesting to note that before 1945 the cost of building schools was borne almost entirely through local rates. In 1945, the province began to pay 50 percent grants toward capital costs. By 1958, these grants were being made on an "equalized" basis, taking into account the assessment wealth of each board. The percentage of provincial grant increased to 75 percent, on average, although some boards received up to 90 percent and some boards received nothing. In 1989, while the average percentage of provincial grants for capital projects had dropped to 60 percent, the total amount of provincial grants needed to cover capital education costs in Ontario had grown because of an increasing school population.

27With respect to the legislative context, the EDC scheme is, as noted above, set out in Part III of the Act. Part I of this Act authorizes municipalities to impose development charges in order to defray capital costs necessitated by municipal infrastructure for new development. This infrastructure includes water mains, sewers, roads, libraries, parks and recreational facilities. Before the enactment of this legislation, municipalities financed infrastructure solely through the imposition of lot levies. However, the Act recognizes the principle that "new development should pay its own way", and should not impose further tax burdens on existing residents. The provision of adequate school facilities in a given residential development is an integral element of urban planning.

28This is reflected in the Planning Act which explicitly states that the "adequate provision and distribution of educational... facilities" and the "adequacy of school sites" are important considerations that must be factored into land use plans (ss. 2(i), 51(24)(a) and (j), as am. by S.O. 1994, c. 23, ss. 5, 30). EDCs play a significant role in addressing this aspect of urban planning. The Act, including the EDC scheme, is one component of a complex regulatory framework governing land development in Ontario, comprised of at least nine different statutes: the Building Code Act, R.S.O. 1990, c. B.13, the Environmental Assessment Act, R.S.O. 1990, c. E.18, the Environmental Protection Act, R.S.O. 1990, c. E.19, the Fire Marshals Act, R.S.O. 1990, c. F.17, the Municipal Act, R.S.O. 1990, c. M.45, the Ontario Municipal Board Act, R.S.O. 1990, c. O.28, the Ontario Water Resources Act, R.S.O. 1990, c. O.40, the Planning Act, and the Conservation Authorities Act, R.S.O. 1990, c. C.27.

B. Standing

29The Court of Appeal, at pp. 108-9, found that the appellants (the respondents before the Court of Appeal) lacked the standing to challenge the constitutionality of the EDC scheme on any basis other than s. 92(2) of the Constitution Act, 1867:

...we have had no argument pitting the entire funding scheme against s. 93(1) of the Constitution Act, 1867 and, therefore, cannot conclude for or against constitutionality. This unsatisfactory circumstance stems from the question of status.

The Supreme Court of Canada has spoken at regular intervals on the subject of status concerning constitutional issues, most recently in Hy and Zel's Inc. v. Ontario (Attorney General). ... The three-part test is now well known: The court must consider the seriousness of the issue, the direct interest of the party requesting status, and the other available means of bringing the issue to court.

The seriousness of the issue is obvious. The direct interest of the respondents is another question. Their interest is in not paying the EDC, but they have no direct interest in proportional allocation of funds to separate schools. Even less do they have an interest in the overall funding model which, in my view, is the subject which must be addressed to determine constitutionality. Their selective interest indicates why they should not have been granted status on a broad issue. Finally, there most certainly is another available means of bringing the issue to court. For one example, the York Region Roman Catholic School Board could have done so in these very proceedings had it decided not to defend the constitutionality of the funding scheme.

For these reasons I would overrule the Divisional Court's grant of status to the respondents to argue the s. 93(1) issue. If the judgment quashing the by-laws is to be sustained, it must be on the division of powers argument.

30Because of the serious and complex nature of the issues before this Court, I will assume, without deciding, that the appellants have standing. However, a brief comment is in order with respect to the role of the Interveners Guzman and Ciccone, and the Interveners Pope and Seto (the "standing interveners").

31The standing interveners adopt the submissions of the appellants, saying that if the appellants do not have standing on the s. 93 issue and the Charter question, they themselves have standing to appeal on these grounds. In support of this submission, the standing interveners cite Switzman v. Elbling, 1957 CanLII 2 (SCC), [1957] S.C.R. 285. In that case, in which the plaintiff sued for cancellation of a lease, the parties' interest under the lease lapsed by the time the matter came before the Court. The only lis remaining was between the defendant (appellant) and the intervener the Attorney General of Quebec. The Court held that the presence of the intervener with an interest adverse to a principal party made the appeal properly constituted. That case is clearly distinguishable from the instant appeal. Simply put, the interests of the parties in this appeal have not lapsed under a contractual agreement.

32The standing interveners also cite Borowski v. Canada (Attorney General), 1989 CanLII 123 (SCC), [1989] 1 S.C.R. 342, and in particular the following passage at p. 360: "the presence of interveners who had a stake in the outcome supplied the necessary adversarial context to enable the Court to hear the cases". However, they overlook the passage at p. 359 where it is made clear that the Court is referring to the specific principle of "collateral consequences", which is not relevant to the facts at hand:

[The requirement of an adversarial context] may be satisfied if, despite the cessation of a live controversy, the necessary adversarial relationships will nevertheless prevail. For example, although the litigant bringing the proceeding may no longer have a direct interest in the outcome, there may be collateral consequences of the outcome that will provide the necessary adversarial context.

The principle that collateral consequences of an already completed cause of action warrant appellate review was most clearly stated in Sibron v. New York, supra. The appellant in that case appealed his conviction although his sentence had already been completed. [Emphasis added.]

33The standing interveners, in my opinion, have no standing in the instant appeal. I would only add that this Court takes an unfavourable view of attempts to back up an appellant's lack of standing by way of interveners. Such efforts to bootstrap flawed standing are to be discouraged.

C. Section 92(2): Incidence of the EDC

34As the Privy Council noted in Atlantic Smoke Shops, Ltd. v. Conlon, 1943 CanLII 372 (UK JCPC), [1943] A.C. 550, at p. 563, the starting point in any discussion of incidence is Mill's seminal description of direct and indirect taxation:

Their Lordships must first consider whether the tax in the form (a) is a valid exercise of provincial legislative powers. It has been long and firmly established that, in interpreting the phrase "direct taxation" in head 2 of s. 92 of the Act of 1867, the guide to be followed is that provided by the distinction between direct and indirect taxes which is to be found in the treatise of John Stuart Mill. The question, of course, as Lord Herschell said in Brewers and Maltsters' Association of Ontario v. Attorney-General for Ontario, is not what is the distinction drawn by writers on political economy, but in what sense the words were employed in the British North America Act. Mill's Political Economy was first published in 1848, and appeared in a popular edition in 1865. Its author became a member of parliament in this latter year and commanded much attention in the British House of Commons. Having regard to his eminence as a political economist in the epoch when the Quebec Resolutions were being discussed and the Act of 1867 was being framed, the use of Mill's analysis and classification of taxes for the purpose of construing the expression now under review is fully justified.

35Mill's formulation (Principles of Political Economy (1893), vol. 2, Book V, c. 3, § 1) is as follows:

Taxes are either direct or indirect. A direct tax is one which is demanded from the very persons who, it is intended or desired, should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another: such as the excise or customs. The producer or importer of a commodity is called upon to pay tax on it, not with the intention to levy a peculiar contribution upon him, but to tax through him the consumers of the commodity, from whom it is supposed that he will recover the amount by means of an advance in price.

36The reasons for the constitutional prohibition of indirect taxation by the provinces are set out by Dickson J. (as he then was) in dissent in Canadian Industrial Gas & Oil Ltd. v. Government of Saskatchewan, 1977 CanLII 210 (SCC), [1978] 2 S.C.R. 545, at pp. 582-83:

There can be no doubt that by the words "direct and indirect taxation" the Fathers of Confederation contemplated certain distinct categories of taxation, as well as a general test of directness. Only certain of such categories, such as income and property taxes, were to be available to the Legislatures. There were two reasons for this. The first was based on arcane political economy. It was thought that a direct tax would be more perceived than an indirect tax. The effect was thought to provide for greater scrutiny and resistence by the electorate with a resulting parsimony in public expenditure. The second reason proved wrong from the start. It was thought that provincial activities would be limited and revenue needs would be slim; the Legislatures, therefore, would have no necessity to resort to most tax pools.

37Professor La Forest, as he then was, explores these reasons in greater detail in The Allocation of Taxing Power Under the Canadian Constitution, supra, at pp. 2-4:

The functions and responsibilities assigned to the provinces, though important, were not costly. The maintenance of a civil government, the administration of justice, education, local works and undertakings, welfare -- all these involved modest expenditures in 1867, and it was anticipated they would remain fairly static. The vast responsibilities now exercised by government in these fields could not be foreseen in the laissez faire era. In consequence the sources of revenue made available to the provinces under the Confederation agreements were either restricted or unattractive. The major sources of provincial revenue, in fact, were not intended to be taxation. Provision was made for payment of subsidies by the federal government to the provinces which, in the early years of Confederation, comprised nearly half the provincial revenues. Moreover, the public domain, excluding such items as canals, public harbours, railroads, military lands, and other assets required for the performance of federal functions, remained to the provinces. It was only as a last resort that the provinces were expected to levy taxation; and to curb any inclination the legislatures might have to embark on overly ambitious schemes, the major taxes allocated to them were the unpopular direct taxes. Any expansion of provincial governmental expenditures, it was thought, could be met by increased returns from the public domain. Thus Galt in discussing the sources of provincial revenues under the Quebec Resolutions had this to say:

We may, however, place just confidence in the development of our resources, and repose in the belief that we shall find in our territorial domain, our valuable mines and our fertile lands, additional sources of revenue far beyond the requirements of the public service. If, nevertheless, the local revenues become inadequate, it will be necessary for the local governments to have resort to direct taxation; and I do not hesitate to say that one of the wisest provisions in the proposed Constitution, and that which affords the surest guarantee that the people will take a healthy interest in their own affairs and see that no extravagance is committed by those placed in power over them, is to be found in the fact that those who are called upon to administer public affairs will feel, when they resort to direct taxation, that a solemn responsibility rests upon them, and that that responsibility will be exacted by the people in the most peremptory manner.

Reference to contemporary sources shows that the meaning of direct taxation, even during the period of Confederation, was quite broad, including in addition to property taxes, death duties and income taxes. It was not because of its narrow scope that politicians underrated direct taxation. It was because they felt that politically it would be extremely difficult to impose; hardly anything comes out more clearly in the debates of the legislatures of the time than the extreme unpopularity of direct taxation. Such taxes, as the name implies, are those imposed on the taxpayer directly, as compared with indirect taxation like customs duties which are concealed from the taxpayer in the price of some commodity or service.

38Some commentators suggest another rationale for limiting the provinces to direct taxation; for example, Professor Hogg states in Constitutional Law of Canada (3rd ed. 1992), § 30.2(b):

Why does s. 92(2) limit the provinces to direct taxation? The answer is that the limitation is a corollary to the general principle, discussed later in this chapter, that provincial taxing powers (like other provincial legislative powers) are confined to the territory of the province. The leading feature of an indirect tax is, as we have noticed, that it is likely to be passed on by the initial taxpayer through the incorporation of the tax into the price of goods or services provided by the initial taxpayer. What this means is that a tax that is initially levied on a taxpayer within the province could ultimately be borne by a consumer outside the province. If that occurred, the province would be taxing a person to whom it provided no governmental benefits and to whom it was not accountable. This result is avoided if the province is restricted to direct taxation, where the initial taxpayer within the province is also the person who ultimately bears the tax.

As noticed earlier, even a direct tax will be circuitously recouped if it forms part of the overhead of a business. But it is obviously neither possible nor desirable to exclude from the provincial taxing power all taxes that are in fact recouped by the initial taxpayer. The test of directness is a justiciable means of excluding from provincial power at least those taxes that are most likely to be passed on, and thereby confining provincial power to those taxes the burden of which is most likely to remain within the province.

39However, Professor La Forest comments, at pp. 111-12 as follows:

The limitation of the provinces under section 92(2) of the British North America Act to taxation "within the Province" has served the important function of dividing the available tax resources among the provinces. Perhaps the first point to note is that while a tax is, of course, always paid by a person, the limitation does not restrict the provinces to taxing persons in the province. A province may also levy taxes on property or transactions or benefits acquired in the province, so long as the taxes are direct. In such cases it is irrelevant that the tax may be borne by a person outside the province. Thus, no one has ever questioned the constitutional validity of ordinary municipal rates on real estate on the ground that a landowner (upon whom the tax will in practice usually fall) resides outside the province.

If such taxes were held unconstitutional for this reason, nonresidents would be permitted to exploit the resources of a province and take advantage of the protection afforded by its laws without contributing to the costs of its operations....

Though a province may impose taxes on persons, property, transactions, and benefits in the province, they must of course be properly framed to reach out to the permissible limits. Thus, a tax on a person, income, property, or transaction outside the province is invalid; but a tax on a person in the province in respect of his income or other benefit received outside the province, and a tax on income or property in the province owned by a nonresident are valid.

Professor La Forest also observes at p. 113 that:

It will be obvious from the foregoing that a taxpayer may, in practise, be taxed by several provinces in respect of the same economic interest. The courts could, of course, have held that a tax measured by an extraprovincial standard was in substance a tax on an asset in another province. But they have shown no disposition to police the provinces in this way and have left it to the legislatures to judge the soundness, wisdom or expediency of taxing measures. Only when a provincial tax amounts in substance to a regulation of a federal matter will the courts intervene. Mutual restraint based on political or economic considerations or interprovincial arrangements have, however, been sufficient until now to prevent the problem of multiple taxation from becoming acute.

40Rand J. in Canadian Pacific Railway Co. v. Attorney General for Saskatchewan, 1952 CanLII 39 (SCC), [1952] 2 S.C.R. 231, at pp. 251-52 (see also Allard, supra, at p. 396, and Minister of Finance of New Brunswick v. Simpsons-Sears Ltd., 1982 CanLII 158 (SCC), [1982] 1 S.C.R. 144, at p. 162) elaborated helpfully upon the hallmarks of an indirect tax, as follows:

If the tax is related or relateable, directly or indirectly, to a unit of the commodity or its price, imposed when the commodity is in course of being manufactured or marketed, then the tax tends to cling as a burden to the unit or the transaction presented to the market.

41Of course, it is the general tendency of the tax that is of concern, rather than the ultimate incidence of the tax in the circumstances of a particular case, Allard, supra, at p. 397:

...the court in Colpitts seems to suggest that an indirect tax involves a perfect correlation between a tax and the increased cost of a commercial item. I do not believe that the helpful approach of the Saskatchewan case is rendered sterile simply because certain units of a taxed commodity do not reach the market. While the tax imposed with reference to such units may indeed be absorbed into general "production costs", that does not prevent the tax from clinging as a burden to the vast majority of units which end up entering the market. To the extent that Colpitts denies this proposition, I would overrule it.

(See also Bank of Toronto v. Lambe (1887), 12 App. Cas. 575 (P.C.); Brewers and Maltsters' Association of Ontario v. Attorney-General for Ontario, [1897] A.C. 231 (P.C.); Cairns Construction Ltd. v. Government of Saskatchewan, 1960 CanLII 59 (SCC), [1960] S.C.R. 619.)

42As Professor La Forest notes at p. 79, the test of incidence is based on a legal, rather than an economic distinction:

Modern economic analysis has largely stripped Mill's distinction of meaning. But the courts have not abandoned it on that account. This has not been necessary because in their hands it is a legal, rather than an economic tool. From the beginning the Privy Council made it clear that its task was not to follow the burden of a tax in the manner of economists but to construe the term "direct taxation" as used in the British North America Act. Mill's definition as used by the courts required that the general incidence of a tax should be established in accordance with the general understanding of men, not its actual effect as traced by economists. Thus, a customs duty was in their view a classic instance of an indirect tax, since its general tendency was to be passed along, and it was nonetheless an indirect tax though private bargains or market conditions might compel importers to pay it themselves.

43When determining the incidence of a tax, it is important to bear in mind the context within which the tax operates as well as the purpose of the tax. In the case at hand, the EDCs are a tax on development using land as an instrument to achieve the desired end. The purpose of the EDC scheme is to ensure that education capital costs made necessary by new residential development are borne by the new development itself, rather than imposing an additional burden on existing homeowners. Significantly, capital costs associated with existing schools, or the building of schools for existing pupils currently accommodated in portables or sent by bus to distant schools cannot be defrayed through revenues raised by EDCs.

44White J. of the Divisional Court, relying on Fairbanks, supra, found at p. 521 that the “education development charge falls within the category of a tax that courts generally characterize as a direct tax because it is a land tax”. In Fairbanks, the City of Halifax levied a business tax under its charter. The business tax was payable by every person occupying real property for the purpose of any trade, profession or calling for purposes of gain, and was assessed on 50 percent of the capital value of the property (Fairbanks, at pp. 120-21). A majority of the Supreme Court (1926 CanLII 70 (SCC), [1926] S.C.R. 349) had found the incidence of the business tax to be indirect, as in the ordinary course of business the owner of the real property could be expected to pass the tax on to his or her tenant.

45The Privy Council took a different approach, Viscount Cave, L.C., stating at pp. 124-25 that:

...their Lordships have primarily to consider... whether [the business tax] is in its nature a direct tax within the meaning of s. 92, head 2, of the Act of Union. The framers of that Act evidently regarded taxes as divisible into two separate and distinct categories -- namely, those that are direct and those which cannot be so described, and it is to taxation of the former character only that the powers of a Provincial government are made to extend. From this it is to be inferred that the distinction between direct and indirect taxes was well known before the passing of the Act; and it is undoubtedly the fact that before that date the classification was familiar to statesmen as well as to economists, and that certain taxes were then universally recognized as falling within one or the other category. Thus, taxes on property or income were everywhere treated as direct taxes; and John Stuart Mill himself, following Adam Smith, Ricardo and James Mill, said that a tax on rents falls wholly on the landlord and cannot be transferred to any one else. "It merely takes so much from the landlord and transfers it to the State" (Political Economy, vol. ii., p. 416). On the other hand, duties of customs and excise were regarded by every one as typical instances of indirect taxation. When therefore the Act of Union allocated the power of direct taxation for Provincial purposes to the Province, it must surely have intended that the taxation, for those purposes, of property and income should belong exclusively to the Provincial legislatures, and that without regard to any theory as to the ultimate incidence of such taxation. To hold otherwise would be to suppose that the framers of the Act intended to impose on a Provincial legislature the task of speculating as to the probable ultimate incidence of each particular tax which it might desire to impose, at the risk of having such tax held invalid if the conclusion reached should afterwards be held to be wrong.

What then is the effect to be given to Mill's formula above quoted? No doubt it is valuable as providing a logical basis for the distinction already established between direct and indirect taxes, and perhaps also as a guide for determining as to any new or unfamiliar tax which may be imposed in which of the two categories it is to be placed; but it cannot have the effect of disturbing the established classification of the old and well known species of taxation, and making it necessary to apply a new test to every particular member of those species. The imposition of taxes on property and income, of death duties and of municipal and local rates is, according to the common understanding of the term, direct taxation, just as the exaction of a customs or excise duty on commodities or of a percentage duty on services would ordinarily be regarded as indirect taxation; and although new forms of taxation may from time to time be added to one category or the other in accordance with Mill's formula, it would be wrong to use that formula as a ground for transferring a tax universally recognized as belonging to one class to a different class of taxation.

46I agree that the incidence of a land tax, in the traditional sense, will be direct. The hallmarks of a land tax are that the tax is, of course, imposed on land against the owner of the land, and that the tax is assessed as a percentage of the value of the land, or as a fixed charge per acre. The tax may be an annual, recurring assessment, or a one-time charge. In some cases, the tax may be enforced through the sale of the land. Although landowners, like everyone, may wish to pass on their tax burden to someone else or otherwise avoid taxation, this desire or ability does not transform the direct nature of the tax into an indirect one. I also accept that the case law reveals that land taxes are generally direct taxes; but I do not believe the case law prevents a tax on land by itself from being treated as an indirect tax. (See, in addition to Fairbanks, supra, City of Montreal v. Attorney-General for Canada, 1922 CanLII 475 (UK JCPC), [1923] A.C. 136 (P.C.); Attorney-General for British Columbia v. Esquimalt and Nanaimo Railway Co., 1949 CanLII 324 (UK JCPC), [1950] A.C. 87 (P.C.); Rattenbury v. Land Settlement Board, 1928 CanLII 42 (SCC), [1929] S.C.R. 52; Reference re Validity of Section 31 of the Municipal District Amendment Act, 1941, 1943 CanLII 50 (SCC), [1943] S.C.R. 295; Spooner Oils Ltd. v. Turner Valley Gas Conservation Board, 1932 CanLII 282 (AB SCAD), [1932] 4 D.L.R. 750 (Alta. S.C., App. Div.); and Rural Municipality of Bratts Lake v. Hudson's Bay Co., 1918 CanLII 175 (SK KB), [1918] 2 W.W.R. 962 (Sask. S.C.).)

47In the case at bar, an EDC may at first blush seem to bear the characteristics of a land tax in that it is, in the words of the enabling legislation, imposed on "land undergoing residential and commercial development". Further, the failure to pay the EDC results in the charge being placed on the tax roll in respect of a specific parcel of land. In many respects, the EDC scheme is a novel scheme of taxation which involves features of both direct and indirect taxation.

48However, in my view, EDCs are not true land taxes in the traditional sense. The purpose of the EDC scheme is not taxation of land, but rather, taxation imposed in order to defray the costs of infrastructure necessitated by new residential development. As McKeown J. of the Divisional Court noted at p. 510, "[t]he land can sit forever without attracting tax if no development is undertaken". While the EDC collection mechanism is linked to land, it is not the ownership of land qua land that is the object and purpose of the tax, but rather, the costs of infrastructure associated with new development upon land. The assessment of the tax is not based upon the value of the land, but rather, is based on the impact development will have in terms of creating a need for educational services. Although the "categories approach" articulated in Fairbanks may be of some relevance on other facts, it is my view that in the instant appeal, it is of no application. Rather, the incidence of the EDCs must be determined according to Mill's formulation, as discussed above.

49As I see it, the general tendency of the EDCs is to be passed on to the ultimate purchaser of the new building. The vast majority of new development is undertaken by developers, who benefit from economies of scale when undertaking multi-unit building projects, and who have every intention of selling the new buildings and homes. As Carthy J.A. stated at p. 110 for the Court of Appeal below, "common sense therefore says that the tendency will be to pass the cost along". It is true that in certain instances, the ultimate owner of a new home will also have been the builder, and thus will have paid the EDC directly. However, this is not sufficient to dislodge the general tendency of the tax. Indeed, the legislation itself is indifferent as to who actually bears the cost of an EDC: it is the person applying for a building permit from whom the tax is collected, whether this be the developer or the ultimate homeowner. This is a further indication of indirectness, Professor La Forest, supra, at p. 86:

There are situations where actual payment of a tax is required of one person for administrative convenience but where it is obvious that the tax is really directed at another ascertained person. These situations differ from traditional indirect taxes such as customs and excise where the ultimate incidence of the taxes is a matter of indifference to the legislature.

In a sense, EDCs are imposed in the course of manufacture on the commodity to be sold, that is, the new house or building. Most of the charge payers, the majority of whom are developers, intend to trade in the commodity, that is to sell the newly constructed buildings. It follows, in my view, that EDCs cling as a burden to new buildings when they are brought to market. Accordingly, EDCs constitute indirect taxation and are ultra vires provincial competence under s. 92(2).

50However, it is my opinion that the EDC scheme is ultimately intra vires the province as ancillary to a valid regulatory scheme for the provision of educational facilities as a component of land use planning, pursuant to ss. 92(9), (13) and (16) of the Constitution Act, 1867, as interpreted by Allard, supra.

51In Allard, a municipality passed a by-law prohibiting the removal of soil and other substances except as authorized by permit. A flat rate permit fee was instituted. This fee was then changed from a flat rate to one dependent on the volume of material being removed. The fees were intended to offset the costs of the regulatory scheme, which included road repair. While there was some evidence that more revenue would be generated by the volumetric fees than the amount necessary to defray the actual costs, the municipality did make reasonable attempts to match the fee revenues with the administrative costs of regulation. The fee was found to constitute indirect taxation that was ultra vires the province; however, the scheme was found to be supportable under ss. 92(9), (13) and (16). In Allard, the Court commented on pp. 402-5 on the scope of s. 92(9), as follows:

In the above cases, decided either by this Court or the Privy Council, one can discern a consistent treatment of the scope of s. 92(9) of the Constitution Act, 1867. Although somewhat broad language was used by Lord Atkin in Shannon, supra, it appears generally true that s. 92(9), in combination with ss. 92(13) and (16), comprehends a power of regulation through licences. It is a power which is not confined to the requirement of direct taxation in s. 92(2). However, in so far as it comprehends indirect taxation, these cases -- either explicitly or upon their facts -- have limited the power of indirect taxation such that it can only be used to defray the costs of regulation.

Since the time of Reference re Farm Products, supra, several lower courts have also considered the question of indirect taxation and s. 92(9). Particularly worthy of mention is the decision of the British Columbia Court of Appeal in Coquitlam v. LaFarge Concrete Ltd. ...

... Bull J.A. was most explicit in stating that he resolved the question [of whether the by-law was intra vires the province] through a pith and substance analysis. The relevant question was stated to be the following (at p. 685):

In my view, the key lies in the question as to what is the primary and real purpose, or pith and substance, of the legislation -- is the levy or tax (whether direct or indirect by nature) merely ancillary, or adhesive, to the licensing scheme of regulating or prohibiting a trade, or is it essentially a fiscal imposition, or taxation, under a form of disguise or a colourable concept?

The three judgments in LaFarge, taken together, suggest to me that the validity of the by-law in question was linked to the costs of regulation by the court, and that the pith and substance analysis was not intended to convey more than this point. . . .

My review of the case law thus leads me to suppose that it has yet to be determined whether s. 92(9) comprehends a power to levy indirect taxes in order to raise revenue in excess of regulatory costs....

I am pressed, however, to mention that a power of indirect taxation in s. 92(9) extending substantially beyond regulatory costs could have the more serious consequence of rendering s. 92(2) meaningless.... [Emphasis in original.]

In my opinion, therefore, it is unnecessary to examine further the jurisprudence associated with s. 92(9). The authorities establish to my satisfaction that the following question frames the relevant inquiry: can the variable fees be supported as ancillary or adhesive to a valid provincial regulatory scheme? [Emphasis added.]

52Professor La Forest, supra, notes, at pp. 155-56, the potential conflict between ss. 92(2) and 92(9):

If section 92(9) is limited to direct taxation, it adds nothing to section 92(2), for there is no doubt that direct taxation may be raised under section 92(2) even though it is framed in the form of a licence. On the other hand if section 92(9) permits a province to levy indirect taxation by means of a licence, there would seem to be no limit on provincial taxing power (there being no restriction on the types of licences falling within the section) so long as a tax is framed in the form of licensing provisions. Yet the British North America Act appears to contemplate that indirect taxation should be within the sole competence of the federal Parliament. It can, of course, be argued that the dilemma does not really exist, since a distinction may be drawn between true licences and colourable attempts to raise indirect taxation; and reference may be made to the Queen Insurance case where the Privy Council struck down a statute providing for licensing provisions that were a pure facade. But as the Reference re Farm Products Marketing Act indicates, situations can arise where the levying of indirect taxation by means of licences is not a mere sham and a different test will have to be employed if the provinces are to be prohibited from indiscriminate entry into the field of indirect taxation.

53As the Court stated in Allard at p. 402, in so far as the power pursuant to s. 92(9) comprehends indirect taxation, this power is to be strictly limited "such that it can only be used to defray the costs of regulation". Any power of indirect taxation extending beyond regulatory costs would indeed render s. 92(2) meaningless. Such a result is clearly undesirable, and is avoided, in my view, as long as the province is limited to recoupment of only the actual costs of regulation.

54I agree with the Court of Appeal's observation at p. 113 that the instant appeal "is a much easier case than Allard for finding that a regulatory scheme exists". Carthy J.A. for the Court of Appeal commented at p. 112 as follows:

As stated earlier, it is my view that the reasons in Allard neatly and clearly embrace the question of the constitutionality of EDCs.

There is no question as to excessive recovery. The fees are based on specific estimates of costs and can only be released to meet actual costs. The purpose of EDCs is explicitly stated to be school construction occasioned by new development (renovations of existing facilities cannot be supported by these charges). The charges are thus most certainly ancillary or adhesive to the production of new schools. The only real question is whether this is a regulatory scheme in itself or is part of a broader scheme.

55Regulation 268, which sets out the mechanism for the calculation and disbursement of EDCs, is meticulous in its detail, and clearly operates so as to limit recoupment to the actual costs involved in providing educational facilities occasioned by new development. As Carthy J.A. stated, the fees are based on specific estimates of costs based on detailed and comprehensive calculations. (See ss. 3-4 of Regulation 268.) The construction cost and cost of site figures used in calculating EDCs are to be approved by the Minister of Education (ss. 1, 3(9) of Regulation 268). It is important to note that EDCs can only be directed toward education capital costs made necessary by new residential development. EDC revenue cannot be used to defray capital costs associated with existing schools; this is another indication that the scheme is properly limited to the actual costs of regulation.

56Further, EDC revenues are to be deposited in two accounts, one for revenue on account of residential development, and the second for revenue on account of commercial development (ss. 5(1)-(3)). Where two or more coterminous school boards generate EDC revenues, the proceeds are commingled in the two accounts (s. 5(4)). Significantly, funds can only be withdrawn when a specific project has been approved by the Minister of Education, and then only in an amount equal to the actual local share of the project:

5. ...

(7) If a project is approved by the Minister of Education for the purposes of payment of a legislative grant under subsection 11 (3) of the Education Act, a board may withdraw from its education development charges accounts an amount up to or equal to the local share of the project for the purpose of applying the amount to the local share of the project.

This provision is another indication that the EDC scheme is appropriately limited in scope, and operates only so as to defray the costs of regulation.

57It is my opinion that the EDCs are indeed part of a comprehensive and integrated regulatory scheme, namely, the entirety of planning, zoning, subdivision and development of land in the province. As the intervener the Ontario Public School Boards' Association submitted:

The regulatory regime that deals with land development and school construction includes the Provincial Government, municipalities and the school boards which are directly responsible for the construction of schools. While neither the Provincial Government nor municipalities are involved in the operation of schools, nevertheless those bodies together with the school boards have each a role to play in the regulatory process of planning for the development and construction of schools which includes land use and planning as well as the schools themselves.

58The appellants suggest that in order to meet the requirements in Allard the regulator and the body raising the revenues must be one and the same. The appellants submit that the instant appeal goes beyond Allard, as the school board, the body with the authority to raise the revenue, is entirely separate from the regulator of land development, the municipality. The appellants state that there is no element of land development regulation in the ability to impose EDCs, citing in this regard Dufferin-Peel Roman Catholic Separate School Board v. Mississauga (City), [1994] O.M.B.D. No. 1093.

59In that case, a school board appealed zoning by-laws designed to facilitate residential development. The school board had adopted a "Residential Development Evaluation Policy Statement" for the purpose of evaluating residential development applications in light of the availability of adequate school accommodation. The school board's desire was to influence development to occur in areas of existing educational facilities. If a development application did not meet the criteria set out in the school board's policy, the board would request the municipality not to approve the application. The by-laws in question had been enacted to facilitate land development that did not meet the school board's criteria. The school board appealed the by-laws with a view to preventing the development.

60As authority for the proposition that the power to pass EDCs does not bring school boards within the land development regulatory scheme, the appellants refer to the following passages from Dufferin-Peel:

In order to assist in determining the merits of the school board appeals, a review of the [. . .] Planning Act is appropriate and specifically, the case of an official plan which is enacted by a Municipality. At the same time, one must always keep in mind that the school boards are autonomous bodies given certain jurisdictions and statutory obligations under the Education Act and other relevant statutes. Neither municipality or [sic] this Board has any jurisdiction over the operation of a school board under the Planning Act. Therefore this Board, as a result of dealing with a particular growth strategy has no jurisdiction to order a school board to build an educational facility or to build it by a certain date. Similarly, the municipality does not have such jurisdiction.

There is no question, however, that as money and funds became more limited, the Ontario Legislature enacted the Development Charges Act to assist the school boards as well as municipalities. With regard to the provision of schools, the school boards can, through passing a by-law under the Development Charges Act, apply a levy on a per unit basis which funds go towards the construction of future educational facilities. This is quite a separate and independent statute to the Planning Act.

The Legislature, in the Planning Act, has set up a framework within which school boards can anticipate and plan for additional facilities. The Legislature, through other statutes deals with funding and the raising of capital to construct facilities and operate them.

As the Board understands this matter, the fundamental issue behind these appeals is the lack of funds for the school board to construct the required schools not a site reservation problem. The Board then finds that the school boards should seek remedies through the Ministry of Education and ultimately the Legislature. Such change may fundamentally alter the operation, function and operating complexities of the various school boards. [Appellants' emphasis throughout.]

61In my view, Dufferin-Peel does not stand for the proposition that funding issues with respect to the capital costs of educational facilities are not related to the planning process. Rather, the Board seems to be suggesting that the rezoning stage of the planning process is not the appropriate forum for the school board's expression of funding difficulties with respect to new development. It is implied that if funding were a concern, the school board could have availed itself of the EDC scheme. To say that the school board cannot prevent development owing to funding concerns at a particular stage of the planning process, and that the school board could have used another component of the planning scheme to deal with the funding issues does not mean that funding issues are not related to the planning process. Rather, the point is that the funding issues should be addressed through those aspects of the planning framework specifically designed to deal with those issues.

62The appellants also cite Re Erin Mills Development Corp. and Peel Board of Education (1988), 22 O.M.B.R. 177, in support of their claim that there is a lack of integration between school construction and the regulation of land development. Erin Mills involved a scheme whereby the municipality required as a condition of a subdivision plan approval that developers convey school sites to the school boards, at a maximum of 75 percent of their market value. The applicant developer questioned the municipality's jurisdiction to impose restrictions with respect to the sale price of the school sites. The Ontario Municipal Board found that the municipality did not have the authority to impose a condition to subdivision plan approval relating to the selling price of school sites. The Board stated, at p. 192, that "the power impugned must be found within the words of the statute as there is no other source. That power must be explicitly stated or be capable of necessary implication from the words that are used". (See also Etobicoke Board of Education v. Highbury Developments Ltd., 1958 CanLII 4 (SCC), [1958] S.C.R. 196.)

63The appellants rely upon the following passage, at p. 188:

The board notes, however, that a school board and all of its facilities are quite distinct from the municipality and cannot be considered "municipal services". See Clarkson v. Town of Alliston, 1928 CanLII 399 (ON SC), [1928] 2 D.L.R. 715 at p. 720, 62 O.L.R. 149, 10 C.B.R. 65 (Ont. S.C.) per Garrow J.:

One need not cite authorities to establish the proposition that the municipal corporation and the school boards are distinct and separate corporate bodies, each within its own field supreme. The earlier cases are all collected in Toronto Public Sch. Bd. v. Toronto (1901), 2 O.L.R. 727; affirmed (1902) 4 O.L.R. 468. [Appellants' emphasis.]

64While the proposition expressed in this obiter passage may have been true historically, it is my view that it is no longer accurate. In fact, Erin Mills tends to support the respondents' view, rather than the appellants'. The impugned actions of the municipality in Erin Mills, by contrast, did not flow from any express statutory jurisdiction, and it was for this reason that the Ontario Municipal Board held that the conditions with respect to the sale price of school sites could not be imposed. In contrast, the power to enact EDC by-laws flows from explicit statutory language contained in the Act.

65As noted above, the Act is one component of a comprehensive regulatory framework governing land development in Ontario, comprised of at least nine different statutes: the Building Code Act, R.S.O. 1990, c. B.13, the Environmental Assessment Act, R.S.O. 1990, c. E.18, the Environmental Protection Act, R.S.O. 1990, c. E.19, the Fire Marshals Act, R.S.O. 1990, c. F.17, the Municipal Act, R.S.O. 1990, c. M.45, the Ontario Municipal Board Act, R.S.O. 1990, c. O.28, the Ontario Water Resources Act, R.S.O. 1990, c. O.40, the Planning Act, R.S.O. 1990, c. P.13, and the Conservation Authorities Act, R.S.O. 1990, c. C.27. While the regulatory scheme of which EDCs are only a small part is clearly very complex, the complexity is necessitated by the very scope of the matter regulated -- urban planning. It is only to be expected that a variety of provincial actors would be involved in the various phases of the scheme's operation. However, this fact does not serve to invalidate the regulatory nature of the scheme. In my view, the appellants impose an artificial and rigid distinction between the school board and the municipality. This distinction fails to reflect the true nature of the regulatory framework.

66The construction of schools is a legitimate and crucial component of modern land use planning, schools being an essential element in the creation of successful, dynamic and democratic communities. The legislature of Ontario clearly takes the view that the cost of educational facilities made necessary by new land development should be taken into account in the land development approval process. For example, the Planning Act expressly provides that the "adequate provision... of educational facilities" and the "adequacy of school sites" are factors to be taken into account in land use planning (see ss. 2(i), 51(24)(a) and (j)). The Act itself authorizes municipalities to impose development charges not only for education but also for water mains, sewers, roads, libraries, parks and recreational facilities. The common theme is that new development should bear the costs of infrastructure necessitated by the new development. Further, just as the gravel excavators in Allard benefitted from the regulatory scheme in terms of road improvements, so too do the developers receive a considerable benefit from the EDC scheme: a development with adequate amenities. The presence of adequate school facilities clearly contributes to the marketability of a new home.

67For the foregoing reasons, it is my opinion that EDCs are properly adhesive to the province's planning and development regime, and accordingly, are intra vires the province of Ontario pursuant to ss. 92(9), (13) and (16) of the Constitution Act, 1867.

D. Section 93(1): Denominational Rights and Privileges

68As Part III of the Act is an education financing scheme, it is subject to s. 93(1) of the Constitution Act, 1867. Accordingly, nothing in Part III may "prejudicially affect any Right or Privilege with respect to Denominational Schools which any Class of Persons have by Law in the Province at the Union". The appellants submit that the EDC scheme prejudicially affects the rights of separate school supporters (a) to a proportionate share of all public monies, apart from local assessments; and (b) to be exempt from paying assessments for public school purposes.

69It is important at the outset to identify the constitutional value that s. 93(1) reflects as part of the constitutional fabric of our country. We heard much in argument about principles of equality, proportionality, fairness and discrimination. However, many of these submissions failed to articulate the perspective that needs to be borne in mind when considering s. 93(1).

Section 20 of the Scott Act

70The appellants cite s. 20 of the Scott Act as the source of the right to a proportionate share of all public monies. But I reiterate that it is important to consider the purpose and history of s. 93, before considering the role of the Scott Act, the question of proportionality and the other arguments raised by the parties. In Reference re Bill 30, An Act to Amend the Education Act (Ont.), supra, beginning at p. 1173, Wilson J. for the majority outlined the background to s. 93. She noted the importance of denominational educational rights at the time of Confederation, and that the framers of the Constitution viewed s. 93 in terms of a guarantee of equality. The purpose of s. 93 was to ensure that the Roman Catholic minorities of Upper Canada and the Maritime Provinces, and the Protestant minority of Lower Canada would, in the words of Lord Carnarvon, "stand on a footing of entire equality". Wilson J. also referred to Sir Charles Tupper's comments to the House of Commons in 1896, to the effect that without s. 93, Confederation would not have been possible. At p. 1176 she emphasized that:

While due regard must be paid not to give a provision which reflects a political compromise too wide an interpretation, it must still be open to the Court to breathe life into a compromise that is clearly expressed. The contextual background of s. 93 is being reviewed in these reasons not for the purpose of enlarging upon the compromise but in order to confirm its precise content. The contextual background suggests that part of the compromise was that future legislation on the part of the province with respect to separate denominational schools was permissible. The province was to be able to grant new rights and privileges to denominational schools after Union in response to new conditions but that subsequent repeal of those post-Union rights or privileges would be subject to an appeal to the Governor General in Council.

71Wilson J. also observed at p. 1177 that, pursuant to the language of s. 93(1) itself, "the scope of the rights and privileges protected under the section must be determined by ascertaining the rights and privileges in existence at the time of the Union". The Scott Act, as Wilson J. noted, "was the last statute pertaining to separate schools enacted prior to Confederation" (p. 1186). She discussed the purpose of s. 20 of the Scott Act, and its relationship to s. 120 of the Common Schools Act of 1859, at pp. 1193-96:

The whole purpose of these two sections was to preserve the separate school system. The security afforded the Roman Catholic minority through the tying of funding for its schools to a proportion of the funding for the common schools was in the certainty that the Legislature would never cut off funding for the common schools. There would therefore always be a grant in which the separate schools would be entitled to share. However, by interpreting "otherwise appropriated by law" as permitting appropriations to schools other than "common schools" serving the majority, the Privy Council created a result quite contrary to the one which seems to have been intended by the draftsmen of the Scott Act. It created a situation where the schools of the majority could be fully funded by the Legislature but the separate schools' funding was dependent upon the grace, generosity and good will of the Legislature. This hardly seems consonant with the purpose of the Scott Act, which, as stated in its preamble, was to:

... restore to Roman Catholics in Upper Canada certain rights which they formerly enjoyed in respect to separate Schools, and to bring the provisions of the Law respecting Separate Schools more in harmony with the provisions of the Law respecting Common Schools....

The view expressed by Anglin C.J. in this Court's decision in Tiny at pp. 678-79 seems apposite:

To exclude from the additional monetary benefits in which the right to "a share" was conferred on the separate schools in 1863 grants "for a common school purpose" ... would defeat the apparent intention of the Legislature in 1863 to put separate schools on a footing of absolute equality with common schools in regard to all grants, municipal or legislative, of public moneys.

If, therefore, a grant of public moneys is made by the Legislature or by a municipal authority to aid or assist in the carrying out of what would in 1867 have been deemed a common school purpose, either it must be so made that it is apportionable between the common schools (or their present day successors) and the separate schools, or compensation to the latter for their proportion of such grant must be provided for.

... s. 93(1) of the Constitution Act, 1867 was intended to give constitutional value to the rights and privileges conferred in the Scott Act and the Common Schools Act of 1859. Section 93(1) should, in my view, be interpreted in a way which implements its clear purpose which was to provide a firm protection for Roman Catholic education in the Province of Ontario and Protestant education in the Province of Quebec. To interpret the provisions of the Scott Act and the Common Schools Act of 1859 in the way in which the Privy Council interpreted them in Tiny is to render this constitutionalized protection illusory and wholly undermine this historically important compromise.

It is clear that if the foregoing right was to be meaningful an adequate level of funding was required to support it. This Court held unanimously in Attorney General of Quebec v. Greater Hull School Board, 1984 CanLII 29 (SCC), [1984] 2 S.C.R. 575, that the right of dissentient schools in Quebec to a proportionate share of government funding was a right protected by s. 93 of the Constitution Act, 1867. Likewise, in my view, the right of separate schools in Ontario. They were entitled to the proportionate funding provided for in s. 20 of the Scott Act. This conclusion, it seems to me, is fully consistent with the clear purpose of s. 93, namely that the denominational minority's interest in a separate but suitable education for its children be protected into the future.

72Even if EDCs could be characterized as "grants", it should be noted that s. 20 has never applied to capital grants. As the respondents have submitted, "[t]he concept of equal per pupil local grants measured on an annual basis cannot be applied sensibly to capital grants for assets that are to be used over a number of years. It would be absurd to require the Province to fund the construction of an unneeded separate school simply because the local public school board needed and received provincial funding for a new school". The current education funding model in Ontario is in one sense inconsistent with s. 20 of the Scott Act in that it operates on a provincial, rather than on a local basis to provide equal per pupil resources for a base level of education services, and in that it only considers local assessment wealth in fixing grants, but not the grant level enjoyed by the coterminous school board. However, recent jurisprudence, including Greater Montreal Protestant School Board v. Quebec (Attorney General), 1989 CanLII 125 (SCC), [1989] 1 S.C.R. 377, at p. 402, has continued to emphasize that a formalistic interpretation of s. 93(1) may not in fact protect the substance of the guarantee contained therein:

It is true that the rights or privileges under ordinary law to which s. 93(1) refers have been frozen at Confederation. But just like the basic provincial power which, as Viscount Cave explained, was not "stereotyped" at the Union, the exception to that power has also matured over time through judicial interpretation. The approach courts have taken to the interpretation of the expression "with respect to Denominational Schools" in cases such as Hull, supra, ... demonstrates that the law in force "at the Union" cannot on its own set the content of the constitutional rights in s. 93(1).

73Accordingly, I find myself in agreement with the respondents' submission that s. 20 of the Scott Act does not impose "a procrustean obligation of proportionality in its strict terms". In my view, when one reviews the history and purpose of s. 93(1), the principle of proportionality can be seen for what it really is, namely, the means to a constitutional end which is equality of educational opportunity. Moreover, as I have noted above, the entire system of provincial grants in Ontario has not been based on actual proportionality since early in the century. The departure from strict, formalistic proportionality was made because it had led to a serious inequality of educational opportunity. While the notion of proportionality contained in s. 20 of the Scott Act is a constitutional right embodied in s. 93(1), the substantive purpose of this notion must be borne in mind: the achievement of an educational system that distributes provincial funds in a fair and non-discriminatory manner to common and separate schools alike. This is the substantive guarantee offered by s. 93(1). As the Court per Gonthier J. stated in Reference re Education Act (Que.), 1993 CanLII 100 (SCC), [1993] 2 S.C.R. 511, at p. 567:

When we speak of equality, this must be understood in the sense of equivalence and not that of strict quantitative identity, as Chouinard J. noted in Greater Hull, supra, at p. 591:

Proportionality is more significant. Whether on the basis of total population or that of school attendance, the principle of a fair and non-discriminatory distribution is recognized. [Emphasis added by Gonthier J.]

74This guarantee has been embodied in the principle set out in s. 122 of the Education Act, the successor of s. 20 of the Scott Act: "Every separate school shall share in the legislative grants in like manner as a public school". I agree with the respondents' submission that "[t]he principle in s. 122 of the Education Act, which is legally impressed upon the [Development Charges Act] ... honours the obligation for a fair and non-discriminatory distribution, and subsumes and supersedes any obligation of proportionality that might have been imposed by s. 20 of the Scott Act". The EDC scheme established by Part III of the Act is integrated with the funding model established by the Education Act. The scheme permits school boards to build schools without recourse to the local assessment base, recovering the financial resources needed on a per-pupil basis to build schools in areas of new growth. Provincial grants, combined with EDCs, ensure that all school boards, separate and public, can meet the demand for educational services and facilities. Part III of the Act treats public and separate boards and their respective supporters equally; both public and separate boards have an equal ability to enact EDC by-laws. The needs of both public and separate school boards are dealt with in a fair and non-discriminatory manner. Therefore, in my view, the EDC scheme cannot be said to affect prejudicially the denominational rights embodied in s. 93(1).

Section 14 of the Scott Act

75The appellants cite s. 14 of the Scott Act as the source of the right of separate school supporters to be exempt from paying assessments for public school purposes. Section 14 provided that separate school supporters "shall be exempted from the payment of all rates imposed for the support of Common Schools, and of Common School Libraries, or for the purchase of land or erection of buildings for Common School purposes". However, it is my view that EDCs are not "rates" within the meaning of s. 14. A rate in this sense means the annual taxes payable by an individual on land, calculated by assessing the value of the land and applying to that value the "rate" established annually by the taxing authority (cf. Jowitt's Dictionary of English Law (2nd ed. 1977), vol. 2; and Re Scott and Ottawa (1856), 13 U.C.Q.B. 346 (C.A.)). A rate is a fixed percentage of value, applied equally to all properties within the jurisdiction, rather than a uniform charge applicable only to certain classes of property with no reference to property values. I agree with the respondents that EDCs are a new source of funds, neither a rate nor a grant, that was not contemplated by the legislation at the time of Confederation. EDCs, like other charges used to finance municipal infrastructure like sidewalks and sewers, are a secular source of funds. Those paying EDCs are not identified by school support, and the proceeds are not identified as belonging to one school board or the other. As noted above, the proceeds are commingled. Again, I agree with the submission of the respondents that this secular character is entirely appropriate, as money raised under the by-law of one school board may be used to build schools needed by the coterminous board. Further, the development from which EDCs flow will be owned and occupied by supporters of each system from time to time over the life of the new schools.

E. Sections 2(a) and 15 of the Charter

76The intervener Seto challenges the validity of the EDC scheme on the basis that it violates her rights to equality under the law and to religious freedom under ss. 2(a) and 15 of the Charter. She submits that as EDCs can be levied by Roman Catholic Separate School Boards on all new homes, whereas supporters of other religions do not have this ability to impose EDCs, the scheme is violative of the Charter. The intervener acknowledges that in so far as the EDC scheme falls within s. 93(1) of the Constitution Act, 1867, it is immune from Charter scrutiny.

77It is my view, as set out above, that the EDC scheme, as established by Part III of the Act, pursues the constitutionally required objective of providing separate schools with funding that is on par with the funding received by public schools. As a right or privilege enjoyed by separate schools at Confederation, this form of legislation is required by the provisions of s. 93 of the Constitution Act, 1867. As such, the legislation is immune from scrutiny under the Charter. As Wilson J. stated in Reference re Bill 30, An Act to Amend the Education Act (Ont.), supra, at pp. 1197-98:

I have indicated that the rights or privileges protected by s. 93(1) are immune from Charter review under s. 29 of the Charter. I think this is clear. What is less clear is whether s. 29 of the Charter was required in order to achieve that result. In my view, it was not. I believe it was put there simply to emphasize that the special treatment guaranteed by the constitution to denominational, separate or dissentient schools, even if it sits uncomfortably with the concept of equality embodied in the Charter because not available to other schools, is nevertheless not impaired by the Charter. It was never intended, in my opinion, that the Charter could be used to invalidate other provisions of the Constitution, particularly a provision such as s. 93 which represented a fundamental part of the Confederation compromise.

VI. Conclusions and Disposition

78The following conclusions emerge from the foregoing analysis. First, owing to the serious and complex nature of the issues before the Court, I have assumed, without deciding, that the appellants have standing. However, I wish to be clear that efforts to bootstrap standing by way of interveners are to be discouraged. Second, Part III of the Act authorizes the imposition of an indirect tax contrary to s. 92(2) of the Constitution Act, 1867. However, the EDC scheme is intra vires the Legislature of Ontario as ancillary to a valid regulatory scheme of land use planning, pursuant to ss. 92(9), (13) and (16) of the Constitution Act, 1867. Third, the EDC scheme does not prejudicially affect a right or privilege with respect to denominational schools contrary to s. 93(1) of the Constitution Act, 1867. Finally, the EDC scheme is immune from Charter scrutiny, for the reasons articulated by Wilson J. in Reference re Bill 30, An Act to Amend the Education Act (Ont.).

79Accordingly, I would dismiss the appeal. The parties have agreed that there should be no order as to costs.

Addendum

80Since the preparation of the foregoing reasons, I have had the opportunity to read Justice La Forest’s reasons in this case, which have prompted me to make the following additional comments.

81First, I note that underlying my colleague’s approach is an insistence upon categorizing the EDCs as “land taxes”, while ignoring their true nature. What was said by Lord Simon in Atlantic Smoke Shops, Ltd., supra, is equally applicable here. He states, at p. 565:

Their Lordships are of opinion that Lord Cave’s reference in his judgment in the Fairbanks’ case to “two separate and distinct categories” of taxes, “namely, those that are direct and those which cannot be so described”, should not be understood as relieving the courts from the obligation of examining the real nature and effect of the particular tax in the present instance, or as justifying the classification of the tax as indirect merely because it is in some sense associated with the purchase of an article.

82La Forest J. takes issue with my general, descriptive discussion of the characteristics of land taxes. It is true, as I have stated, that not all taxes that have been held to be land taxes were “assessed as a percentage of the value of the land, or as a fixed charge per acre”. However, this is a usual, but not necessary, characteristic. The point that the assessment of the tax is not based upon the value of the land is simply further illustration that in this case, while tied loosely to the land, the charges in question do not seek to tax land qua land. In characterizing EDCs as land taxes, my colleague has oversimplified the nature of the scheme, and overlooks the ways in which EDCs are novel and unlike any known form of taxation. Indeed, I note that, while La Forest J. states, at para. 91, that the EDCs are imposed “on the owner of land on which new dwelling units and commercial developments are constructed”, the charges are not in fact imposed on the owner of the land per se; rather, the legislation is phrased so as to impose the charges on persons seeking building permits as a condition of obtaining a permit. The crucial inquiry is the object and purpose of the scheme, not simply its formal or superficial characteristics.

83La Forest J. emphasizes that several of the cases have categorized taxes as land taxes even when it was clear that the incidence was indirect, the best example being the Fairbanks case. As I have stated, however, it is my opinion that, while the jurisprudence reveals that land taxes are generally direct taxes, the cases do not prevent a tax on land by itself from being treated as an indirect tax. To repeat, the EDCs are simply not true land taxes in the traditional sense. Rather, the EDC scheme is indirect taxation which is ancillary to a constitutionally valid provincial regulatory regime. My colleague’s contention, at para. 139, that I have attempted “by the use of the Mill’s test to transform what in all other respects falls within the category of a land tax, and so converts a direct tax into an indirect tax” is, therefore, beside the point.

84Finally, I wish to address my colleague’s concern with respect to the application of the Allard approach in this case. He seems to imply, at para. 93, that I have assumed that “the grant of a power to regulate, ipso facto, carries with it the power to levy the financial resources necessary to give effect to a regulatory scheme”. He also seems to be concerned that I have not used the words “pith and substance”; however, it is my opinion that the use of such terminology would not change the analysis or conclusion. Indeed, the “ancillary or adhesive to a valid regulatory scheme” approach won the unanimous support of this Court in Allard, and really is simply a different way of expressing the same concern, that is, to determine the pith and substance of the legislation in question.

85In discussing the provincial power to levy a regulatory charge, and the EDC scheme, La Forest J. states, at para. 118, that the fact that the “scheme specifically provides for the use the school boards will make of the money levied and that the amount that can be levied is carefully limited to that purpose”, is not, in itself, determinative in characterizing the matter of the scheme. I believe that my colleague has misunderstood my reasons. The key finding that I make is that the EDC scheme is part of a comprehensive and integrated regulatory scheme, namely, the entirety of planning, zoning, subdivision and development of land in the province. The fact that the scheme specifically provides for the use that will be made of the funds levied, and that the amount levied is carefully limited to such purposes, is mentioned as further support for the main finding, not as the only hallmarks, contrary to my colleague’s interpretation. The carefully designed mechanics of the scheme ensure that the power of indirect taxation will not extend beyond the regulatory costs; this is crucial in order to avoid rendering s. 92(2) of the Constitution Act, 1867 meaningless.

86My colleague obviously takes a much narrower view of what can be considered to be “regulatory activity” by a province. He simply does not see EDCs as part of a comprehensive land use planning scheme. With respect, however, I find his characterization of the EDC scheme is so narrow that he ultimately seems to deny the complexity that necessarily and appropriately exists within the realm of land use planning. Of course, housing development does not by itself dictate the building of schools. This is not what I have said in my reasons. Rather, I have recognized that the province has made a legislative, regulatory decision that new development is to pay its own way for the infrastructure, including schools, that the province considers necessary to successful communities. This legislative decision, as I have noted above, is made express in such legislation as the Planning Act, ss. 2(i), 51(24)(a) and (j). The regulatory aim is that new development should bear the cost of infrastructure occasioned by the new development.

The reasons of La Forest, L’Heureux-Dubé, Gonthier and McLachlin were delivered by

87La Forest J.-- This appeal raises the constitutional validity of Part III of the Development Charges Act, R.S.O. 1990, c. D.9, and related regulations, which enact a scheme empowering Ontario public and separate school boards to impose so-called education development charges ("EDCs") on owners of land based generally on a percentage of the construction costs of new dwelling units or commercial development.

88The appeal raises a number of major issues respecting the interpretation of s. 92 of the Constitution Act, 1867, namely, whether the scheme is valid as direct taxation within the province (s. 92(2)), or as a regulatory charge under the combined operation of s. 92(9), the provincial licensing power, s. 92(13), "Property and Civil Rights", and s. 92(16) "Matters of a merely local or private Nature". It also raises the issues whether the scheme violates the guarantees given private school supporters under s. 93(1) of the Constitution Act, 1867 or the guarantees of freedom of conscience and religion and the equality rights accorded by ss. 2(a) and 15(1) of the Canadian Charter of Rights and Freedoms.

89I have had the advantage of reading the reasons of my colleague, Justice Iacobucci. I agree with his reasons as they pertain to s. 93 of the Constitution Act, 1867 and the Charter provisions. The major issues upon which I shall focus are those concerning the interpretation of s. 92 of the Constitution Act, 1867. While I agree with my colleague's conclusion that the EDCs are intra vires the province, I do so for quite different reasons. I respectfully disagree with him that the EDC scheme is valid as a regulatory charge under the combined operation of ss. 92(9), (13) and (16) of the Constitution Act, 1867. Rather, in my view, the scheme is valid as being in pith and substance “Direct Taxation within the Province in order to the raising of a Revenue for Provincial Purposes” within the meaning of s. 92(2) of that Act.

90My colleague has set forth the legislation as well as the other relevant facts and the judicial history of the appeal and I shall not repeat them. However, since it is important to keep the central features of the EDC scheme firmly in mind, I shall briefly summarize it.

91In essence, the impugned scheme empowers Ontario public and separate school boards to pass by-laws imposing so-called EDCs on the owner of land on which new dwelling units and commercial developments are constructed. These EDCs are intended to raise the monies such boards estimate will be necessary to defray the costs (above the provincial grants for the purpose) of new schools they may decide to construct to serve the needs of new pupils from the development. The EDCs are imposed at differential rates on dwelling units and commercial development. The former is based on a percentage of the construction costs of the unit. The commercial contribution is calculated by dividing the percentage of growth-related costs that is to be covered by commercial EDCs by the declared value of the commercial building permits issued during the term of the EDC by-law and multiplying the quotient by 100 to express the EDCs on commercial development as a percentage of declared value. The monies so collected are to be used solely for building schools by the school board subject to the approval of the Minister of Education.

General Constitutional Structure

92The question whether the levy just described is a valid exercise of power under s. 92 raises fundamental issues about the basic structure and workings of the Constitution Act, 1867. Not only does it raise highly technical issues concerning the extent and manner in which a province is constitutionally permitted to finance its legislative measures; it also raises broad constitutional issues such as the extent to which such financial measures impact on the general structure of the Constitution and on the residents in other provinces who have little ongoing contact with the province’s imposing the levy. These issues can only be resolved by a careful examination of the cases, but it assists understanding to recall the basic structure of the division of legislative power under the Constitution and the rationale underlying the relevant powers.

93The bulk of the legislative powers assigned to Parliament and the provinces under the Constitution are essentially of a regulatory nature. It cannot be assumed that the grant of a power to regulate, ipso facto, carries with it the power to levy the financial resources necessary to give effect to a regulatory scheme. As in the case of other federations, a sharp division is made between the power to regulate and the power to raise revenue. Specific provisions exist respecting the raising of revenue.

94This generally poses little difficulty at the federal level. Section 91(3) gives Parliament authority for "The raising of Money by any Mode or System of Taxation". Though the raising of taxes may influence and sometimes seriously influence how people will regulate their behaviour, it is significant that the courts have respected the sharp divide created by the framers between taxes and other legislative powers by holding ultra vires schemes which, though couched in terms of taxes, were in pith and substance designed to regulate activities falling within the provincial legislative domain; see, for example, the Attorney-General for Canada v. Attorney-General for Ontario, 1937 CanLII 363 (UK JCPC), [1937] A.C. 355 (the Unemployment Insurance Reference). To do otherwise would, as the Privy Council pointed out in that case, be to permit Parliament to enter fields assigned to the provinces contrary to the intention of the framers of the Constitution.

95At the provincial level, this division between regulatory powers and the power to raise revenue has very important implications. As is the case with respect to legislation adopted by Parliament, courts have struck down provincial schemes which, though at first glance providing for the raising of revenue, in effect related in pith and substance to legislative powers vested in Parliament; see, for example, Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, 1930 CanLII 91 (SCC), [1931] S.C.R. 357. But more importantly, the division between the provincial taxing powers and other legislative powers is at the origin of the provincial power to levy what have come to be known as "regulatory charges". The courts have recognized that in certain circumstances a provincial levy may relate, in pith and substance, to the regulation of an activity falling within exclusive provincial legislative jurisdiction, and that such levy would not be subject to the requirement of directness provided for in s. 92(2), which can in all logic only apply to legislation enacted under the specific head of power provided for in s. 92(2), taxation. It will become obvious that differentiating a tax from a regulatory charge is ‑‑ as is so often the case in cases dealing with distribution of powers ‑‑ no easy task. But one thing seems clear from the sharp division made between regulation and taxation (and for good policy reasons) by the Constitution Act, 1867. The framers of the Constitution could not have intended by the simple grant of a regulatory power to have intended to in effect empower the imposition of a tax, an issue that will be given detailed attention later.

96Understanding the basic structure of the division of legislative power under the Constitution and the rationale underlying the relevant powers is also necessary in order to properly trace the limits of the directness requirement provided for in s. 92(2) of the Constitution Act, 1867. As is well known, the provinces were not given taxing powers as expansive as those assigned to Parliament. In a laissez faire era, the framers did not think the provinces would have need of much recourse to extensive taxation. They thought the revenues arising out of the public domain (which were assigned to them by s. 109 of the Constitution Act, 1867) would be sufficient to meet their financial needs in performing what were no doubt important, but not at the time expensive functions. But as they had with Parliament (to which they assigned a virtually unlimited taxing power even though they thought sufficient revenues to finance its functions would come from customs and excise), they accorded the provinces the power to levy direct taxation within the province, a field of taxation that "even in those days was theoretically broad, if unpalatable, and was to be expanded by the courts to include in fact, if not in form, almost every type of tax except customs duties and taxes having primary impact outside the taxing province". That at least was the view I arrived at after a review of all the cases in my book on the subject; see The Allocation of Taxing Power Under the Canadian Constitution (2nd ed. 1981), at p. 195. It was not because direct taxation was of a restrictive nature that the provinces were confined in raising revenues by way of taxes. Rather it was the nature of these taxes that dictated the choice. The framers rather optimistically believed the legislatures would be dissuaded from imposing indirect taxes because they were not of a kind that in John Stuart Mill's phrase (Principles of Political Economy (1893), vol. 2, Book V, c. 3, § 1, at p. 418) are “demanded from the very persons who, it is intended or desired, should pay it”, like such taxes as customs and excise which are ordinarily imposed on persons other than those intended or expected to bear the burden.

97As will become evident later, this concern of the framers became at best of secondary importance with the passage of the years. But a more fundamental difference between direct and indirect taxation was to have more enduring influence. There is a considerable difference in impact between direct taxes, like land taxes, which are directly felt locally, and indirect taxes like customs and excise, which inevitably affect trade throughout the country. This distinction was not lost on the framers of the Constitution. And this characteristic, inherent in the limitation to direct taxation, was used by the courts in the course of an organic interpretation of the Constitution to foster other objectives envisioned by the framers and incorporated in other provisions. Thus the restriction was used to confine the impact of taxes within the provinces consistent with the idea specifically expressed in s. 92(2). It was also used to prevent the provinces from creating tariff barriers, thereby supporting the national market which was clearly within the contemplation of the framers. Thus using one technique or another the courts have invariably held that export taxes, however framed, are indirect taxes. When such policies cannot really be served by some species of tax, such as notably those imposed on land or on its owner (which even at the time of Confederation were generally viewed as direct taxes), the courts have found no reason to restrict provincial taxing power, and have invariably categorized these as direct.

98The preeminence of these national policies, grounded as they are in the very structure of the Constitution Act, 1867 and the stated views of the framers during the Confederation debates, has also come into play in the interpretation given by the courts to the other means of raising a revenue accorded the provinces, s. 92(9), the power to raise revenue by means of licences. From the enumeration of shop, saloon, tavern, auctioneer, it seems clear enough that the provision was intended to have a narrow scope. Still it is not expressly provided that it is limited to direct taxation. However, the courts have resisted the notion of broadening it, and this possibility was firmly squelched in Allard Contractors Ltd. v. Coquitlam (District), 1993 CanLII 45 (SCC), [1993] 4 S.C.R. 371. The obvious justification for this is that the debate regarding major provincial levies is more appropriately channelled to the major taxation provision intended by the framers to empower the provinces to levy a revenue, s. 92(2). The limitation to direct taxation is better geared to balance the tension between the policies of giving the provinces, consistent with their heavy responsibilities, the widest possible scope for raising necessary revenues while supporting the national and structural requirements I have earlier described.

99Thus, as the following analysis will demonstrate, it is necessary to take into account the basic structure of the division of legislative powers under the Constitution and the rationale underlying the relevant powers to properly delineate the provincial power respecting regulatory charges as well as to correctly trace the limits of the directness requirement set forth in s. 92(2). In order to properly categorize the EDCs for constitutional purposes, it is first necessary to fully understand the nature, source and scope of the provincial power regarding what have come to be known as "regulatory charges" and their relationship to the power allocated to the provinces to levy direct taxation. To do so requires a detailed analysis of the cases to which I now turn.

EDCs Are Not Regulatory Charges

The Provincial Taxing Power and the Provincial Power to Impose “Regulatory Charges”

100The first case to contemplate the existence of a provincial power to levy a regulatory charge by a higher court is the decision of the Judicial Committee of the Privy Council in Attorney-General for Quebec v. Reed (1884), 10 App. Cas. 141. At issue was the constitutionality of a Quebec statute imposing a duty of 10 cents on every exhibit filed in court in any action. The incidence of that duty, the Earl of Selborne, L.C. held, was indirect, since it would ordinarily be borne by the unsuccessful party ‑‑ not necessarily the party who initially paid it. The levy could, therefore, not be supported under s. 92(2) of the Constitution Act, 1867. The Privy Council then addressed the appellant’s alternative argument that the provisions regarding the fee had, instead, been enacted under s. 92(14), as relating to the administration of justice. That argument was dismissed in the following terms (at pp. 144-45):

Now it is not necessary for their Lordships to determine whether, if a special fund had been created by a provincial Act for the maintenance of the administration of justice in the provincial courts, raised for that purpose, appropriated to that purpose, and not available as general revenue for general provincial purposes, in that case the limitation to direct taxation would still have been applicable. That may be an important question which will be considered in any case in which it may arise; but it does not arise in this case. This Act does not relate to the administration of justice in the province; it does not provide in any way, directly or indirectly, for the maintenance of the provincial Courts; it does not purport to be made under that power, or for the performance of that duty. The subject of taxation, indeed, is a matter of procedure in the provincial Courts, but that is all. The fund to be raised by that taxation is carried to the purposes mentioned in the 2nd subsection; it is made part of the general consolidated revenue of the province. It, therefore, is precisely within the words “taxation in order to the raising of a revenue for provincial purposes.” If it should greatly exceed the cost of the administration of justice, still it is to be raised and applied to general provincial purposes, and it is not more specially applicable for the administration of justice than any other part of the general provincial revenue. [Emphasis added.]

This case is interesting in many respects. Most notably, the Privy Council implied that had the nature of the impugned fee been somewhat different, it would have been supportable under the provincial legislative power over the administration of justice (s. 92(14)). This statement constituted an explicit recognition that provinces could impose certain levies which were indirect in their incidence when, in doing so, they were really legislating with respect to a head of power other than their taxing power. What later experience would reveal, however, was that, as in other situations, this was permissible only when a legislative provision was in pith and substance an exercise of that power, i.e. where, to use the phrase in some of the cases, it was “the dominant or most important characteristic of the challenged law”; see, for example, Friends of the Oldman River Society v. Canada (Minister of Transport), 1992 CanLII 110 (SCC), [1992] 1 S.C.R. 3, at p. 62.

101For close to 50 years, there was little development on the subject in the higher courts. However, in the early 1930s the higher courts were again faced with the issue in a series of cases dealing with the constitutionality of levies imposed by the provinces in connection with marketing schemes. The first is Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, supra. There the respondent committee had been given the exclusive power to control and regulate the impugned marketing scheme, which included the power to impose on certain producers and shippers levies “for the purpose of defraying the expenses of operation” of the scheme, which were indirect in their incidence. The whole scheme was eventually struck down by this Court because in pith and substance it related to extraprovincial trade and commerce, a matter within exclusive federal legislative authority under s. 91(2) of the Constitution Act, 1867. However, Duff J., as he then was, writing for the majority, did address the appellant’s argument relating to the nature of the levies. He characterized them as “taxes” according to four criteria (later generally accepted by the courts), namely: they were (a) enforceable by law, (b) imposed under the authority of the legislature, (c) levied by a public body and (d) intended for a public purpose. He then considered whether the levies could be characterized as having been enacted under the provincial power relating to licences under s. 92(9) of the Constitution Act, 1867. He had this to say, at pp. 363-64:

The question has never yet been decided whether or not the revenue contemplated by this head can in any circumstances be raised by a fee which operates in such a manner as to take it out of the scope of “direct taxation”. Prima facie, it would appear, from inspection of the language of the two several heads, that the taxes contemplated by no. 9 are not confined to taxes of the same character as those authorized by no. 2, and that accordingly imposts which would properly be classed under the general description “indirect taxation” are not for that reason alone excluded from those which may be exacted under head 9. On the other hand, the last mentioned head authorizes licences for the purpose of raising a revenue, and does not, I think, contemplate licences which, in their primary function, are instrumentalities for the control of trade ‑‑ even local or provincial trade. Here, such is the primary purpose of the legislation. The imposition of these levies is merely ancillary, having for its object the creation of a fund to defray the expenses of working the machinery of the substantive scheme for the regulation of trade. [Emphasis added.]

In Lawson, this Court clearly recognized the existence of a distinction between levies imposed for the purpose of “raising a revenue” (whether under s. 92(2) or s. 92(9), in both of which the phrase is used) and those imposed as “instrumentalities” in connection with legislation enacted under other heads of power. On that point, this Court agreed with the approach adopted by the trial judge in that case, who, at 1930 CanLII 556 (BC SC), [1930] 2 W.W.R. 23, at p. 24, was of the opinion that the true pith and substance of the subsection was not to raise revenue for public or governmental purposes. The scheme was nonetheless ultimately struck down, as I said, because it related, in pith and substance, to a head of power within exclusive federal legislative jurisdiction.

102The second important case dealing with provincial marketing schemes is Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy, Ltd., 1932 CanLII 313 (UK JCPC), [1933] A.C. 168 (P.C.), in which the constitutionality of a complex regulatory regime relating to the British Columbia milk market was at issue. A provincial statute provided for the creation of an Adjustment Committee which was responsible for imposing on farmers selling fluid milk a volumetric fee eventually redistributed to the farmers who had sold milk products (an “adjustment levy”). The general tendency of the fee was, of course, to be passed along to consumers, and it was, therefore, held to be indirect. The Adjustment Committee was also given the power to impose another type of fee to meet the expenses incurred in the administration of the scheme (an “expenses levy”). At p. 174, the Privy Council held that the substance of the scheme was “to transfer compulsorily a portion of the returns obtained by the traders in the fluid milk market”. The appellant's main argument was that such levies fell within exclusive provincial legislative jurisdiction under ss. 92(13) (property and civil rights) and 92(16) (matters of a merely local or private nature in the province). The Privy Council rejected both arguments. It first held, at p. 175, that the adjustment levy was a tax according to the criteria laid down by Duff J. in Lawson. It arrived at the same conclusion with respect to the expenses levy since it was, in their Lordships’ opinion, ancillary to the adjustment levy. The Privy Council did not specifically address the issue of whether either levy could be supported under another head of power, as the appellant had argued. In this respect, the correctness of its conclusion was subsequently questioned (see Professor Bora Laskin, as he then was, “Provincial Marketing Levies: Indirect Taxation and Federal Power” (1959), U. of T. L.J. 1, at pp. 4 et seq.) and was ultimately overruled by this Court in Reference re Agricultural Products Marketing Act, 1978 CanLII 10 (SCC), [1978] 2 S.C.R. 1198, to which I shall refer later. The principal basis for the criticism was that the levies at issue in the Crystal Dairy case were not imposed for the purpose of “raising a revenue” under s. 92(2) of the Constitution Act, 1867, but rather related to intraprovincial trade or marketing, falling under exclusive provincial legislative authority under s. 92(13) (property and civil rights).

103Six years later, the Privy Council had occasion to examine the constitutional validity of another British Columbia marketing scheme in Shannon v. Lower Mainland Dairy Products Board, 1938 CanLII 250 (UK JCPC), [1938] A.C. 708. The statute at issue provided for the creation of the respondent Board which was granted jurisdiction to establish and administer schemes relating to the control and trade of natural products. The statute also provided for the imposition of licence fees on all persons producing, packing, transporting, storing or marketing the regulated products needed to carry out the purposes of a given scheme and cover the expenses of the Board. Here again, the general tendency of the fee was to be passed along to consumers, but Lord Atkin, speaking for the Privy Council, dismissed the appeal and affirmed the constitutional validity of the impugned legislation. At pp. 720-22, he held that the fees in question fell within the exclusive provincial legislative power under s. 92(9) of the Constitution Act, 1867:

The pith and substance of this Act is that it is an Act to regulate particular businesses entirely within the Province, and it is therefore intra vires of the Province.

If regulation of trade within the Province has to be held valid, the ordinary method of regulating trade, i.e., by a system of licences, must also be admissible. A licence itself merely involves a permission to trade subject to compliance with specified conditions. A licence fee, though usual, does not appear to be essential. But, if licences are granted, it appears to be no objection that fees should be charged in order either to defray the costs of administering the local regulation or to increase the general funds of the Province, or for both purposes. The object would appear to be in such a case to raise a revenue for either local or Provincial purposes. On this part of the case their Lordships, with great respect, think that the present Chief Justice, then Duff J., took a somewhat narrow view of the Provincial powers under s. 92 (9.) in Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, where he says: “on the other hand, the last-mentioned head authorizes licences for the purpose of raising a revenue, and does not, I think, contemplate licences which, in their primary function, are instrumentalities for the control of trade ‑‑ even local or provincial trade”. It cannot, as their Lordships think, be an objection to a licence plus a fee that it is directed both to the regulation of trade and to the provision of revenue. It would be difficult in the case of saloon and tavern licences to say that the regulation of the trade was not at least as important as the provision of revenue. And, if licences for the specified trades are valid, their Lordships see no reason why the words “other licences” in s. 92 (9.) should not be sufficient to support the enactment in question. [Emphasis added.]

Their Lordships were also of the view that such fees had been validly enacted under the provincial powers relating to property and civil rights (s. 92(13)) and matters of a merely local or private nature (s. 92(16)), at p. 722:

The impugned provisions can also, in their Lordships’ opinion, be supported on the ground accepted by Martin C.J. in his judgment on the reference ‑‑ namely, that they are fees for services rendered by the Province, or by its authorized instrumentalities, under the powers given by s. 92 (13.) and (16.).

The Privy Council upheld the impugned fees because they were levied to cover the expenses incurred by the Board in administering the schemes, thereby furthering the objectives of the Act. It did so primarily, apparently, on the ground that it constituted a valid exercise of provincial legislative jurisdiction under s. 92(9) but also on the ground that the fees were instrumentalities to legislation which, in pith and substance, related to the regulation of particular businesses entirely within the province. It is noteworthy that Lord Atkin made no reference to the Crystal Dairy decision rendered only a few years earlier. The Privy Council therefore repeated what had been implied in Reed years before, namely that the imposition of a levy could constitute legislation under heads of jurisdiction other than ss. 92(2) or 92(9) if, in pith and substance, it related to any other legislative jurisdiction exclusively granted to the provinces at Confederation.

104Shannon, supra, was followed by this Court in Ontario Boys’ Wear Ltd. v. The Advisory Committee, 1944 CanLII 7 (SCC), [1944] S.C.R. 349. At issue was the constitutional validity of assessments imposed on employees through payroll deductions to finance a scheme for developing labour standards. Kerwin J., as he then was, wrote the Court’s unanimous reasons. He found that should such assessments be characterized as taxes, they were direct in their incidence and thus supportable under s. 92(2) of the Constitution Act, 1867. He added, at p. 359:

. . . in any event, it may be justified as a fee for services rendered by the Province or by its authorized instrumentalities under the powers given provincial legislatures by section 92 (13) and 92 (16) of the British North America Act. Shannon v. Lower Mainland Dairy Products Board, 1938 CanLII 250 (UK JCPC), [1938] A.C. 708.

It is noteworthy that the Court made no mention of s. 92(9), characterizing the fees as relating, in pith and substance, to property and civil rights or matters of a purely local or private nature in the province.

105In Reference re Farm Products Marketing Act, 1957 CanLII 1 (SCC), [1957] S.C.R. 198, the Governor General in Council referred to this Court certain questions as to the validity of a marketing scheme similar to that at issue in the Crystal Dairy case, supra, in that it provided for expenses levies as well as adjustment levies. The details of the various sets of reasons rendered are summarized by Iacobucci J. in Allard, supra, at pp. 401-402, and I shall not repeat them. Suffice it to say that this Court upheld the validity of the expenses levies under ss. 92(9), 92(13) and 92(16) and, in doing so, referred to the Lawson and Shannon decisions. The adjustment levies, however, were struck down, the Court following in that regard the Privy Council’s decision in Crystal Dairy.

106Similar issues arose in subsequent cases before this Court, but with the exception of two, they contain no further insight into the nature, source and scope of the provincial power to levy “regulatory charges”, whether direct or not. I shall, therefore, confine my discussion to the two cases mentioned.

107In Reference re Agricultural Products Marketing Act, supra, this Court was asked to assess the constitutionality of a marketing scheme providing for expenses levies as well as adjustment levies that were very similar to those struck down by the Privy Council in the Crystal Dairy case. The crucial difference between the two schemes was that the former had been enacted by Parliament, and not by a province, as had been the case in Crystal Dairy. The relevant discussion appears in the reasons of Laskin C.J. Though he wrote minority reasons, his comments on this issue were concurred in by Pigeon J., who wrote for the majority. Laskin C.J. was of the view that the pith and substance of the impugned scheme related to intraprovincial trade and commerce, a matter within exclusive provincial legislative jurisdiction, and that both types of levies were consequently ultra vires Parliament. He wrote, at p. 1234:

The authorization of levies in respect of local marketing purports to put in place a cardinal feature of the marketing plan as it operates intraprovincially. If the levies are to be characterized as taxes, they are being applied here not as having any integrity of their own, as is the norm in taxation (albeit there are eddying consequences of tax measures), but as elements of a marketing scheme which Parliament could not itself prescribe, namely, a scheme of intraprovincial marketing. In short, the so-called taxes do not themselves reflect the pith and substance of the marketing plan of which they are part but rather take their colour from the scheme. Beyond this, it is, in my opinion, a mistaken view to regard the various types of levies associated with marketing schemes as species of taxes; they are integral to the operation of the schemes and are, in the context thereof, related either to their administration or to their price mechanisms designed to make the schemes tolerable and equitable for those compulsorily brought within their ambit. [Emphasis added.]

108Laskin C.J.'s reasoning was as follows. First dealing with expenses levies, he held that the Privy Council’s position in Crystal Dairy in this regard had been considerably qualified by the later Privy Council decision in Shannon and this Court’s decisions in Reference re Farm Products Marketing Act, supra, and Ontario Boys’ Wear Ltd., supra. At p. 1238, he added:

It is, at any rate, now clear not only from the Shannon case but from judgments of this Court, beginning with Ontario Boys’ Wear Ltd. v. Advisory Committee, and extending through the Willis case, to Reference re Farm Products Marketing Act of Ontario, supra, that an expenses levy may validly be imposed by provincial legislation upon regulated producers and sellers to cover the cost of administering a provincial marketing scheme. It may be regarded as a “fee for services” to use the phrase of Kerwin J., as he then was, in the Ontario Boys’ Wear case, supra, at p. 359 and supportable under s. 92(13)(16) of the British North America Act, that is as an element of a valid regulatory scheme. It is quite clear from all of this that the Crystal Dairy case has been effectively overruled in respect of the validity of provincially authorized expenses or administration levies. [Emphasis added.]

It is noteworthy that Laskin C.J. made no mention of the provincial licensing power under s. 92(9) of the Constitution Act, 1867. Rather, his conclusion was that expenses levies aimed at covering the expenses incurred in the administration of a given regulatory scheme were enacted under the provincial power under which such scheme was enacted. They were, therefore, not, in pith and substance, legislation aimed at raising revenue under s. 92(2), but rather legislation relating, in pith and substance, to the matter of the scheme itself.

109Laskin C.J. then addressed the constitutionality of the adjustment levies. Adjustment levies had been struck down by the Privy Council in Crystal Dairy, supra, and its reasoning was subsequently applied by this Court in Reference re Farm Products Marketing Act, supra. After proceeding to a detailed analysis of the relevant cases on the issue, he decided that Crystal Dairy had been wrongly decided and that there were compelling reasons to overrule the Privy Council’s decision. He had this to say, at p. 1256:

I think it is time that there was an end to making the validity of intraprovincial marketing schemes turn on fine distinctions between what is truly price fixing and what are adjustment levies, when in both situations the thrust of the regulatory scheme is to provide for orderly marketing and to equalize the position and the returns of producers or vendors, or both, by pooling production and controlling marketing through licensing and through quotas. [Emphasis added.]

Here again, it is clear that Laskin C.J. was of the opinion that levies imposed in such a context were not, in pith and substance, of the nature of taxes imposed in order to the raising of a revenue within the meaning of s. 92(2) of the Constitution Act, 1867, but rather related, in pith and substance, to the regulation of trade and commerce.

110Following upon these cases, Iacobucci J. in Allard, supra, held that provinces could validly impose charges which were indirect in their incidence if those were “ancillary or adhesive to a valid provincial regulatory scheme” (p. 405). That language was taken from the reasons of Bull J.A. in Coquitlam v. LaFarge Concrete Ltd., 1972 CanLII 956 (BC CA), [1973] 1 W.W.R. 681, where the British Columbia Court of Appeal upheld a scheme similar to that at issue in Allard. The relevant passage from Bull J.A.'s reasons appears at p. 685:

It appears to me that the principle that emerges from the authorities is that taxation which can be characterized as other than direct, and hence not falling within the ambit of provincial legislation by s. 92(2) of the B.N.A. Act, may still be within the scope of provincial competency if contemplated by, and fairly authorized under, another head such as here ‑‑ s. 92(9). In my view, the key lies in the question as to what is the primary and real purpose, or pith and substance, of the legislation ‑‑ is the levy or tax (whether direct or indirect by nature) merely ancillary, or adhesive, to the licensing scheme of regulating or prohibiting a trade, or is it essentially a fiscal imposition, or taxation, under a form of disguise or a colourable concept? [Emphasis added.]

111On reviewing the key cases on the matter, it is clear that the courts have, over the years, recognized the provinces’ power to enact legislation providing for the imposition of levies which were indirect in their incidence when such levies could not be characterized as “Taxation . . . in order to the raising of a Revenue for Provincial Purposes” as contemplated by s. 92(2) because they related, in pith and substance, to another head of power granted exclusively to provincial legislatures by s. 92 of the Constitution Act, 1867. In that sense, I do not think that the Constitution specifically contemplates a provincial power regarding “regulatory charges”. Provinces can impose indirect levies if, in doing so, they are legislating under a different head of power than their s. 92(2) taxing power ‑‑ for example, property and civil rights (s. 92(13)), the administration of justice (s. 92(14)) or matters of local or private nature (s. 92(16)) ‑‑ and, consequently, outside the scope of the limitation to direct taxes imposed by that provision. Thus, the analysis is no different from the traditional analysis courts have undertaken when dealing with judicial review on federal grounds. Courts will identify the pith and substance of a given piece of legislation providing for the imposition of a levy; they will seek to find its dominant purpose or true character. Legislation aimed, in pith and substance, at raising revenue, will be subject to the requirement of directness provided for in s. 92(2). Legislation not relating, in pith and substance, to taxation as contemplated by s. 92(2) of the Constitution Act, 1867, will therefore not be subject to the directness requirement provided for in that section.

112Such an approach is also consistent with cases where federal legislation was challenged on the basis that the imposition of a levy ‑‑ that, the federal authorities submitted, had been enacted pursuant to s. 91(3) of the Constitution Act, 1867 ‑‑ amounted to regulation of a matter within exclusive provincial jurisdiction. Courts have always first identified what the federal legislation providing for the imposition of a levy related to, in pith and substance, and then concluded whether it related to a head of jurisdiction within exclusive federal or provincial jurisdiction. Such is the approach adopted by Laskin C.J. in Reference re Agricultural Products Marketing Act, supra (see also, inter alia: Attorney-General of British Columbia v. Attorney-General of Canada, 1923 CanLII 426 (UK JCPC), [1924] A.C. 222 (P.C.); Attorney-General for Canada v. Attorney-General for British Columbia, 1929 CanLII 439 (UK JCPC), [1930] A.C. 111 (P.C.); and In re The Insurance Act of Canada, 1931 CanLII 467 (UK JCPC), [1932] A.C. 41 (P.C.); also of relevance is Bank of Toronto v. Lambe (1887), 12 App. Cas. 575 (where the Privy Council upheld, as relating to taxation under s. 92(2) ‑‑ and not as relating to banks ‑‑ a provincial statute providing for a tax on banks)).

113A similar approach was followed by this Court in Re Exported Natural Gas Tax, 1982 CanLII 189 (SCC), [1982] 1 S.C.R. 1004. That case involved a challenge by the province of Alberta to the constitutional validity of a levy Parliament sought to impose on certain natural gas owned, produced and exported by the Crown in right of Alberta. The Attorney General for Alberta argued that, pursuant to s. 125 of the Constitution Act, 1867, such natural gas was shielded from the impugned levy. This Court was of the view that the exemption provided for in s. 125 was limited to taxation, i.e., levies enacted pursuant to, in that case, Parliament’s legislative authority under s. 91(3) of the Constitution Act, 1867. That prompted an analysis of the pith and substance of the legislation providing for the imposition of the levy. This Court disposed of the appeal in favour of the Attorney General for Alberta on the ground that the impugned legislation related, in pith and substance, to taxation. The majority wrote, at p. 1072:

A tax on the transit of goods from inside to outside the country may be imposed for the purpose of raising money or for the purpose of regulating trade or both. Even if the tax is aimed at export, provincial property is protected under s. 125 unless the federal legislation is regulatory. Thus, if the levy here in question were regarded as aimed at exports it would be necessary also, for the appeal to succeed, to conclude that it not be “taxation” in the sense of the foregoing discussion. There is to the proposed tax no aspect of the regulation of trade and commerce that would support its imposition under head 2 of s. 91 of the B.N.A. Act. [Emphasis added.]

The majority further held (at pp. 1073-74):

In cases considering tax measures, it may be difficult to find a single “pith and substance” of legislation. A fiscal instrument may be chosen precisely because it can kill two birds with one stone, regulating the industry while raising revenue. The legislation may have, in the argot of the cases, a “double aspect”. A subject which in one aspect and for one purpose may fall within one constitutional head of power may in another aspect and for other purposes fall within another head: see Hodge v. The Queen (1883), 9 App. Cas. 117 (P.C.) at p. 130. This is perhaps just another way of saying that a measure is supportable under two different heads of power. In most cases, it is enough to place a matter within either s. 91 or s. 92. The concept of a “double aspect” therefore finds currency in cases dealing with a federal power on one hand, and a provincial power on the other; see for example cases on highway traffic offences: O’Grady v. Sparling, 1960 CanLII 70 (SCC), [1960] S.C.R. 804; Mann v. The Queen, 1966 CanLII 5 (SCC), [1966] S.C.R. 238. It is seldom necessary to assign a particular head of power if a matter clearly falls within several heads of s. 91 or s. 92. In the present case, however, a specific assignment is necessary....

Such an analysis will not save a tax which is in pith and substance only a revenue-raising mechanism, but which may exhibit ancillary regulatory characteristics.

The majority then turned to an analysis of the levy at issue in that case and dealt with the argument of the Attorney General of Canada that it related, in pith and substance, to regulation of trade and commerce. It went on, at pp. 1074-76:

The Shorter Oxford English Dictionary, 3rd ed., (1944 revised with corrections 1973) defines “to regulate” as “To control, govern, or direct by rule or regulations; to subject to guidance or restrictions. . . To adjust, in respect of time, quantity, etc., with reference to some standard or purpose”. In relation to “regulation of trade and commerce”, this definition and common sense would suggest a restraint upon or channelling of economic behaviour in pursuit of policy goals. The proposed tax in this case, when viewed in light of other legislation touching the natural gas industry, has no such regulatory effect on behaviour. By its very comprehensiveness, the tax belies any purpose of modifying or directing the allocation of gas to particular markets. Nor does the tax purport to regulate who distributes gas, how the distribution may occur, or where the transactions may occur.

The quantity, movement and price of natural gas are carefully regulated under the present legislation and remain unaffected by the tax. The Petroleum Administration Act, S.C. 1974-75-76, c. 47, and the National Energy Board Act, R.S.C. 1970, c. N-6, together provide a complete scheme for the regulation of the export of natural gas. The volume of gas authorized for export as well as its price are established by orders pursuant to those Acts. The National Energy Program 1980 notes that trade in the major forms of energy has been closely regulated by federal agencies for many years (No. 1). The effect of the tax is to reduce the revenue or “net backs” received by producers or marketers of natural gas.

114The cases reviewed also demonstrate the uncertainty respecting the scope of the provincial power regarding licences contemplated in s. 92(9) of the Constitution Act, 1867. However, I need not deal with this question extensively. As I mentioned earlier, this Court has accepted that s. 92(9) was somewhat redundant as not constituting a source of provincial legislative jurisdiction relating to regulatory charges truly independent of that ensuing from the other heads enumerated in s. 92 of the Constitution Act, 1867; see Allard, supra, at pp. 404-5.

115In summary, the power of a province to adopt legislation providing for the imposition of levies which are indirect in their incidence stems from the other heads of power over which it has exclusive legislative authority under the Constitution Act, 1867. Where the adoption of a levy constitutes, in pith and substance, regulation of a matter falling within heads of jurisdiction other than taxation in order to the raising of revenue (s. 92(2)), the requirement that such levy be direct in its incidence will not apply. I now turn to the analysis of the pith and substance of the impugned legislation before us in this appeal, the EDC scheme.

The EDC Scheme Relates, in Pith and Substance, to “Taxation . . . in Order to the Raising of a Revenue” (Section 92(2))

116My colleague Iacobucci J. has characterized the EDC scheme as “ancillary to a valid regulatory scheme for the provision of educational facilities as a component of land use planning” (see para. 50) and “part of a comprehensive and integrated regulatory scheme, namely, the entirety of planning, zoning, subdivision and development of land in the province” (see para. 57). He first emphasizes the fact that the scheme operates so as to “limit recoupment to the actual costs involved in providing educational facilities occasioned by new development” (see para. 55). He then deals with various arguments put forward by the appellants and comes to the conclusion that there was a sufficient relationship between school construction and the regulation of land development to characterize EDCs as “regulatory charges”.

117The identification of the pith and substance of a law involves an analytical process conducted according to the approach carefully described by Sopinka J. in R. v. Morgentaler, 1993 CanLII 74 (SCC), [1993] 3 S.C.R. 463, at pp. 481-88. As he explained, at p. 482, the analysis “necessarily starts with looking at the legislation itself, in order to determine its legal effect”, but courts also “‘will look beyond the direct legal effects to inquire into the social or economic purposes which the statute was enacted to achieve’, its background and the circumstances surrounding its enactment . . . and, in appropriate cases, will consider evidence of the second form of ‘effect’, the actual or predicted practical effect of the legislation” (p. 483).

118I have no doubt that the EDC scheme relates, in pith and substance, to “Taxation . . . in order to the raising of a Revenue” as contemplated by s. 92(2) of the Constitution Act, 1867. I come to this conclusion for two principal reasons: first, by inquiring into the impugned piece of legislation itself, and second by considering the mischief the scheme was intended to remedy. I also disagree with Iacobucci J. that it is “much easier” than in Allard, supra, to find that the EDC scheme is ancillary to a valid regulatory scheme to the point where it does not relate, in pith and substance, to taxation. Finally, the fact that the legislative scheme specifically provides for the use the school boards will make of the money levied and that the amount that can be levied is carefully limited to that purpose is, in itself, irrelevant to the characterization of the matter of the legislation.

119The EDC scheme was enacted by the Legislature of Ontario as Part III of the Development Charges Act, 1989, S.O. 1989. c. 58, and related regulations. It provides for delegation to school boards of the authority to enact by-laws providing for the imposition of EDCs in a carefully detailed manner and the spending of the money levied on the construction of new educational facilities in an equally detailed manner. The scheme itself reveals no feature other than the raising of a revenue in order to finance the local share of growth-related capital expenditures while providing for specific ways in which such revenues will be spent by school boards. This is consistent with the objective pursued by the Legislature of Ontario and the mischief it sought to remedy through the enactment of the EDC scheme. As all parties to this litigation acknowledged, the EDC scheme was enacted by the Legislature of Ontario as a consequence of the reduction made at the same time of provincial grants regarding growth-related capital expenditures. In sum, it gave to local school boards the means to raise the revenue taken away through cut-backs in provincial grants. Therefore, one easily understands that the scheme was aimed at filling the gap left in educational funding in Ontario as a result of the provincial government’s decision.

120The situation in this appeal is to be distinguished from that in Allard, supra. In that case, this Court unanimously found that volumetric gravel removal fees imposed by municipalities pursuant to ss. 930(1) and 930(2) of the British Columbia Municipal Act, R.S.B.C. 1979, c. 290, had been properly enacted under a combination of ss. 92(9), 92(13) and 92(16) of the Constitution Act, 1867. The enabling provisions could not, as Iacobucci J. noted, be dissociated from other provisions of the Municipal Act relating to roads, road repair and gravel removal and the whole of those provisions related, in pith and substance, to the regulation of roads, road repair and gravel removal in such a way that the impugned fees formed an integral part of the scheme. At p. 408, Iacobucci J. explained that this relationship was made even more evident by an examination of the impugned by-laws themselves. In this regard, this Court expressly adopted (see p. 409) the characterization proposed by the British Columbia Court of Appeal in LaFarge, supra, at p. 686, of predecessor provisions to the impugned by-laws as constituting “‘a complete and detailed code for the regulation of the gravel and soil extraction and removal trade’”. It is thus necessary to refer to the reasoning adopted by the British Columbia Court of Appeal in that case to fully understand the position taken by our Court in Allard. At pp. 686-87, Bull J.A. referred to the objective pursued and the mischief the British Columbia legislature intended to remedy through the adoption of the provisions at issue and wrote:

In order to determine the true pith and substance of the impugned enactment, it seems requisite to ascertain into which slot the bylaw falls, and this, in turn, involves consideration of the circumstances surrounding its enactment. The facts can be shortly summarized into two principal categories. The first is that the removal of gravel and other substances from the eight or nine quarries or gravel pits in the Municipality by a continuous train of ten-ton trucks raised not only the displeasure of the inhabitants in the affected neighbourhoods, but past and prospective outlays of large sums of public funds for road provision and maintenance as well as regulatory expenses. The second, the other side of the coin, is that 15¢ imposed by way of permit fee for each cubic yard removed creates a heavy burden on permit holders, and greatly increases their costs of doing business. It comes down to a fee of one dollar for each loaded ten-ton truck removing gravel away from the pits through the appellant’s thorough-fares.

The bylaw being amended constitutes a complete and detailed code for the regulation of the gravel and soil extraction and removal trade, including the provision of the performance bonds and operational plans and surveys, obviously directed to safety and environmental control. In the light of the public problems and expenses resulting from the extended operation of the business in the Municipality, I am unable to conclude that the amending bylaw No. 2041, 1971, although completely changing, as it does, the basis of the permit fee and increasing it enormously, has become divorced from the licensing and regulatory concept and, in effect, has become a disguised taxation of an indirect nature. In my view, heavy as the fee may be, the levy is still ancillary and incidental, and intended so to be, to the regulatory licensing of a trade or business.

As was the case in Allard, the fee discussed by the British Columbia Court of Appeal in LaFarge formed an integral part of a legislative scheme aimed at regulating the gravel removing business in pursuance of various policy goals to the point where it had no integrity of its own, taking its “colour from the scheme” itself, to use Laskin C.J.’s words in Reference re Agricultural Products Marketing Act, supra, at p. 1234.

121Finally, I emphasize that the fact that the Ontario Legislature specifically provided for the use that was to be made of the funds levied through EDCs and that the amount of money that could be levied and the way it could be spent were carefully restricted to that purpose, is not, in itself, determinative in characterizing the matter of the scheme. This issue necessitates a clarification of precisely what the “costs of regulation” ‑‑ a phrase used by my colleague Iacobucci J. in his reasons ‑‑ refers to. This Court’s review of the cases in Allard, supra (see pp. 398 et seq.) demonstrates that the expression “costs of regulation” was developed and adopted in cases that dealt, in the context of the constitutional validity of provincial marketing schemes, with the constitutionality of “expenses levies” to describe the expenses incurred by marketing boards responsible for administering the scheme in issue. Such levies were consistently (the only exception is the Privy Council’s decision in the Crystal Dairy case which, as we have seen, was finally overruled by this Court in 1978) characterized as being ancillary and adhesive to the marketing scheme they were aimed at financing to the point that they related, in pith and substance, to the same matter as that of the impugned schemes to which they related. However, I cannot agree that those authorities are to be interpreted, and the expression “costs of regulation” to be defined, in such a way that as long as a province specifically provides for the use that will be made of the funds levied, and that the amount that will be permitted to be levied and the use that will be made of that money are carefully limited to such purposes and that this purpose is one of exclusive provincial legislative jurisdiction (such as the building of schools), the legislation providing for such levy will then necessarily relate, in pith and substance, to the matter to which such purpose relates.

122The adoption of such a position would be completely at odds with the structure of the Constitution and with the previous jurisprudence of this Court. The general power for the raising of revenues for provincial purposes by taxation was accorded to provinces by s. 92(2) of the Constitution Act, 1867, which limits them to direct taxation. That limitation serves a number of fundamental constitutional policies already identified. The courts have, it is true, upheld levies of money under regulatory powers in s. 92 where these constitute, in substance, a manner of regulating a specific activity. Examples are pooling arrangements, which are obviously an integral aspect of some regulatory schemes, expenses levies imposed on persons engaged in a particular activity, as occurred in the provincial marketing cases, or charges for services rendered to persons specifically benefitting from a regulated activity and intended to pay the costs of such services, e.g., the type of fees envisaged by the Privy Council in Reed, supra. The Allard case falls within this general description, but as I elsewhere indicated in dealing with LaFarge, supra, on which Allard is based, the case lies at the outer edges of the concept of regulatory charges (see my book, supra, at pp. 159-60). It is important, however, to refer to a number of aspects in the scheme that underlined its regulatory aspects. Not only was the money levied to be used for purposes specifically provided for in the legislation; it was also required to pay the costs incurred in constructing and maintaining roads which were essential to the regulated activities and it was levied upon the persons who took part in those very activities. The imposition of fees to pay costs integral to this activity was in those circumstances viewed by this Court as being in essence regulatory charges. These fees did not amount to a mere cloak for raising money for other purposes.

123What we have here is a quite different scheme, one that would extend the concept of regulatory charge beyond the limits of its logic. The persons called upon to pay the EDCs are owners of land upon which construction, mostly housing, is to be undertaken, the levies to be used to build schools the local school board may consider necessary for the children who will live in the houses. An EDC seems to me to have all the earmarks of a tax as identified by previous decisions of this Court -- a compulsory levy imposed by law by a public body for a public purpose. It is, as I earlier noted, in pith and substance, a tax. It is not aimed at regulating the construction of houses or other buildings. It is not an integral part of the activity in which those engaged are regulated. Rather it is expressly aimed at raising a revenue for another purpose, building schools. Regulatory charges have thus far been tied, as they must constitutionally be, to the regulation of particular activities. The levy certainly does not regulate those engaged in the construction of houses. Nor does it regulate the building of schools; it simply collects monies from those constructing houses for the purpose of building schools. I am not, of course, blind to the fact that housing developments will put pressure on school boards in the area to build new schools to accommodate the children who will come to these new areas, but that is a matter of legislative choice, a choice dictated by many other considerations as well, such as the kind and quality of the educational services. This is not a case, like Allard, supra, where the activity engaged in by the persons against whom a levy was raised (operators of gravel pits), causes the community to incur additional expenditures in constructing and maintaining roads required by the performance of the activity regulated. What dictates the need for schools is not so much that there is construction, but that there are children who need to be educated. That does not result from the fact that residences are constructed -- rather construction of residences, like schools, result from the fact that an increasing population requires these facilities. The schools and residences would generally be required wherever they were built. All the construction dictates is where these residences are built. The legislative choice of permitting local school boards to impose levies to pay these additional costs for schooling on landowners who construct residences in their area, rather than imposing the costs on taxpayers generally, seems perfectly legitimate. And it is equally legitimate that the construction industry (which apparently owns the bulk of the land) should bear its share of the costs since it benefits economically from the development. That, in fact, is all the EDCs have done. A portion of the costs originally borne by taxpayers throughout the province are now being borne by the landowners in the area engaged in. They are not being regulated in doing so; they are being taxed.

124To extend the concept of regulatory charges in the manner proposed would virtually deprive the distinction between taxation and regulation of all meaning. A skillful draftsman (or, in this case, counsel) could easily find ways to combine interrelated activities into global schemes and impose "regulatory charges" on a person engaged in any of these activities to pay for the costs of other activities. There is nothing necessarily pernicious about this as a policy choice, of course. This is not an uncommon way of imposing taxation. But when money is raised by provincial taxation it is subject to the limitation to direct taxation. Regulatory powers are not subject to this restriction. The many reasons already identified demonstrate that the restriction to direct taxation represents an important component of the constitutional arrangements agreed upon by the framers of the Constitution in 1867. This, and the underlying policies that support it, strongly militate against this Court permitting provincial legislatures imposing levies that are in their incidence indirect through legislation cloaked as regulatory schemes, which can only rest in pith and substance on taxation as contemplated by s. 92(2) as interpreted over the years by the Privy Council and this Court. The particular scheme with which we are here concerned does not, it is true, affect these policies. That is because it happens to relate to land, but I see no reason on the basis of the logic used to justify this scheme, why it should not be used in relation to other schemes, and thereby offend against the constitutional policies just mentioned.

125Thus, I am of the view that the EDC scheme constitutes taxation. EDCs are not regulatory charges because they relate, in pith and substance, to “Taxation . . . in order to the raising of a Revenue” as contemplated by s. 92(2) of the Constitution Act, 1867. Consequently, it is necessary to now turn to the issue of direct taxation to determine whether the scheme is intra vires the Legislature of Ontario.

EDCs Are Direct Taxes as Contemplated by Section 92(2)

126As I noted at the outset, I am of the view that the EDC scheme is intra vires the Legislature of Ontario as a direct tax within the meaning of the Constitution Act, 1867. I do so because it is a tax on land, a type of tax that has always been regarded as a quintessential example of a direct tax. It bears all the usual hallmarks of a land tax. It is imposed on the owner, and it is collectable against the land itself; see, for example, Attorney-General for British Columbia v. Esquimalt and Nanaimo Railway Co., 1949 CanLII 324 (UK JCPC), [1950] A.C. 87.

127The reason why land taxes have always been characterized as direct taxes for the purposes of s. 92(2) is, as the Privy Council noted in City of Halifax v. Estate of J. P. Fairbanks, 1927 CanLII 337 (UK JCPC), [1928] A.C. 117, because they were so perceived by the framers of the Constitution. Viscount Cave, L.C., at pp. 124-25, made this very clear in a passage referred to by my colleague Iacobucci J., at para. 45:

The framers of that Act evidently regarded taxes as divisible into two separate and distinct categories -- namely, those that are direct and those which cannot be so described, and it is to taxation of the former character only that the powers of a Provincial government are made to extend. From this it is to be inferred that the distinction between direct and indirect taxes was well known before the passing of the Act; and it is undoubtedly the fact that before that date the classification was familiar to statesmen as well as to economists, and that certain taxes were then universally recognized as falling within one or the other category. Thus, taxes on property or income were everywhere treated as direct taxes; and John Stuart Mill himself, following Adam Smith, Ricardo and James Mill, said that a tax on rents falls wholly on the landlord and cannot be transferred to any one else. . . . When therefore the Act of Union allocated the power of direct taxation for Provincial purposes to the Province, it must surely have intended that the taxation, for those purposes, of property and income should belong exclusively to the Provincial legislatures, and that without regard to any theory as to the ultimate incidence of such taxation. [Emphasis added.]

(See also Canadian Industrial Gas & Oil Ltd. v. Government of Saskatchewan, 1977 CanLII 210 (SCC), [1978] 2 S.C.R. 545.)

128My colleague Iacobucci J. acknowledges in his reasons that land taxes have consistently been considered as direct taxes within the meaning of s. 92(2) of the Constitution Act, 1867, regardless of their general incidence, since the Privy Council’s decision in Fairbanks, supra. However, he finds that EDCs are not true or traditional land taxes. In his opinion, land taxes are (a) imposed on land, (b) against the owner of the land and (c) assessed as a percentage of the value of the land or as a fixed charge per acre. He finds that EDCs could not be characterized as land taxes for the following reasons (at para. 48). First, the purpose of the EDC scheme is “not taxation of land, but rather, taxation imposed in order to defray the costs of infrastructure necessitated by new residential development”. Secondly, “it is not the ownership of land qua land that is the object and purpose of the tax, but rather, the costs of infrastructure associated with new development upon land”. Finally, “[t]he assessment of the tax is not based upon the value of the land, but rather, is based on the impact development will have in terms of creating a need for educational services”. Once again, with respect, I must express my disagreement with the position adopted by my colleague.

129My colleague’s approach invites consideration on two different levels. The first involves the narrow question of what the courts have held to constitute a land tax over the years. I shall, for convenience, deal with this question on the basis of the authorities first. The issue cannot, however, be fully understood, without consideration of much broader issues. For what my colleague seeks to do is to construe a tax imposed on a landowner and collectable against the land as an indirect tax because there will be a tendency for the incidence of the tax to be passed on to subsequent purchasers of the property given the fact that the land is taxed only on owners who engage in development of the land and that the majority of them are builders who are building for sale. This raises the broader issues to which I have alluded. It invites consideration of the constitutional policies underlying the division of taxes into direct and indirect, and more specifically the circumstances in which it is appropriate simply to have recourse to the broad categories of taxes contemplated by the framers of the Constitution, rather than those where it may best serve their underlying purposes to apply Mill’s test which is concerned with classifying direct and indirect taxation on the basis of the incidence of such taxes. As mentioned, I shall first deal with the narrow issue.

The Land Tax Cases

130To begin with, the courts have invariably defined land taxes in a manner consistent with that set forth at the beginning of this section, i.e., one imposed on land or on the owner of land; see, for example, Rattenbury v. Land Settlement Board, 1928 CanLII 42 (SCC), [1929] S.C.R. 52, at p. 73; and Canadian Pacific Railway Co. v. Attorney General for Saskatchewan, 1952 CanLII 39 (SCC), [1952] 2 S.C.R. 231, at pp. 258-59. I have found no authority to support the other requirements added by my colleague Iacobucci J. While the best known examples of land taxes are the ordinary municipal rates and taxes, they are by no means confined to these, and a wide variety of taxes have been held to be taxes on land because they were imposed on land or its owner, whatever their ultimate incidence might be thought to be.

131I shall mention only a few of the cases, beginning with the Fairbanks case itself. The tax there was a specific levy on land in respect of businesses conducted on the property by their tenants, although it was abundantly clear that the landlords would recoup themselves against the tenants. If my colleague's approach is correct, I do not see why the Privy Council would not have treated that tax as, in substance, a business tax which was intended ultimately to be paid by the tenants. That indeed is what this Court had done in that case; see 1926 CanLII 70 (SCC), [1926] S.C.R. 349. But the Privy Council reversed this decision. At p. 126, Viscount Cave, L.C., had this to say about the matter:

The authorities cited by Newcombe J. show the use made by this Board of Mill’s definition in determining whether a new or special tax, such as a stamp duty, a licence duty or a percentage on turnover, should be classed as direct or indirect; but, with the possible exception of Cotton v. The King, which seems to have turned on its own facts, they do not afford any instance in which a tax otherwise recognized as direct has been held to be indirect for the purposes of the British North America Act by reason of any theory as to its ultimate incidence. [Emphasis added.]

132The Privy Council’s approach in Fairbanks has been followed ever since. Thus, while this Court, in the Esquimalt and Nanaimo Railway Co. case, supra, held a tax on land essentially based on the market value of the timber thereon to be indirect because of the obvious tendency of the tax to be passed on to the purchasers of the timber, the Privy Council reversed that decision because it was a land tax. So too in Canadian Pacific Railway Co. v. Attorney General for Saskatchewan, supra, the Saskatchewan Mineral Taxation Act, 1948, S.S. 1948, c. 24, which imposed a tax on minerals in producing areas of the province at a rate based on the fair market value of the minerals, was held valid as a land tax. Again, in R. v. Churchill (1972), 1972 CanLII 984 (BC SC), 29 D.L.R. (3d) 368 (B.C.S.C.), McIntyre J., later of this Court, held that a fee imposed on operators of mobile home parks calculated in terms of the number of units in a park was a tax on land and so historically a direct tax. That fee would clearly have a tendency to be passed on to the unit holders. It can scarcely be said, as my colleague does, that these are "traditional" land taxes. As in the present case, they are based on specific uses of the land that make it very likely that the taxes will be recouped by the landowner against others. Indeed, in all the cases I have examined, taxes against land or its owner have invariably been held to be direct. This approach was most recently confirmed by this Court in Canadian Industrial Gas & Oil Ltd., supra. There Dickson J., as he then was, dissenting but on this point speaking for a unanimous Court (see Martland J.’s reasons, at p. 558), had this to say, at p. 583:

Clearly, direct and indirect taxation are terms of historical reference, and although there is no reason to believe that the B.N.A. Act is not a document of evolving meaning, not limited to its original inspiration, jurisprudence, in so far as concerns particular forms of taxation like income or property taxes, has captured the historical spirit of “direct” and “indirect” taxation and preserved it. [Emphasis added.]

133The only taxes in the cases I have found that could arguably have been considered as land taxes that were held to be indirect were taxes that were viewed by the courts as being in substance export taxes or other taxes on commodities produced from the land and entering into the general stream of commerce; see Canadian Industrial Gas & Oil Ltd., supra; Texada Mines Ltd. v. Attorney-General of British Columbia, 1960 CanLII 43 (SCC), [1960] S.C.R. 713. The impact on interprovincial and international trade, and the extraterritorial implications generally, of such commodity taxes are obvious, a point that I find is telling, and I shall expand on it later. At this stage, I simply observe that that is not the case here; the burden of a land tax cannot be passed on to persons operating outside the province. I note parenthetically that I am using the word “commodity” here in its ordinary commercial sense of articles of trade (see The Concise Oxford Dictionary of Current English (9th ed. 1995)) as it has invariably been used in this area of law, as contrasted with land; see, for example, Canadian Pacific Railway Co. v. Attorney General for Saskatchewan, supra, at p. 258.

The Purposes of Provincial Limitation to Direct Taxation

134I mentioned earlier that the categorization of export taxes as indirect taxation was telling. That is because, in my view, it reflects a broader reality. As I see it, the primary, if not the only, rationale now underlying the prohibition of indirect taxation imposed on the provinces by s. 92(2) of the Constitution Act, 1867 is that the direct effect of their taxation measures must be confined within their territory, and in considering the validity of a given tax by reference to its incidence this should be taken into account. This may, at first blush, appear to ignore the insistence of many of the participants in the Confederation debates that the provinces, because of the revenues arising out of the public domain, would have little need to resort to taxation and that if they did, transparency and accountability would be promoted by their being confined to direct taxation. These protestations in an era of laissez faire should not, however, blind us to the manner in which the enactment was drafted and the nature of governmental bodies being established or, importantly, what the framers understood as being comprised within the term direct taxation. As I mentioned earlier, the type of taxes they contemplated as direct taxes, land taxes for example, were seen to have predominantly local impact, while those seen as indirect, such as customs and excise, had an obvious tendency to have extraterritorial impact. Moreover, s. 92(2) expressly limited provincial taxes to the province, and, as Professor Hogg (Constitutional Law of Canada (3rd ed. 1992)) explained in the passage of his treatise cited by my colleague, at para. 38, the limitation to direct taxation has prevented provinces from doing indirectly what they could not do directly, since an indirect tax, while being technically levied initially “within the province” as contemplated by s. 92(2), could ultimately be borne by persons outside the province. What is more, as I indicated earlier and will again discuss shortly, this approach is wholly consistent with the basic structure of the Constitution.

135At all events, since 1867, the federation has evolved immensely on every level. In particular, provincial activities have expanded immeasurably, requiring the provinces to develop new sources of taxation, endeavours to which the courts responded favourably. In the course of this development, as everyone now agrees, some of the earlier rationales advanced by the framers have become obsolete and, in interpreting s. 92(2) and defining the scope of the prohibition of indirect taxation, courts have gradually become more and more conscious of this reality. First, social and political changes have greatly increased the role provinces had in the federation by rendering increasingly important -- and costly -- the exclusive legislative responsibilities conferred on them by the Constitution Act, 1867. Secondly, the negative perception towards indirect means of taxation has effectively disappeared over the years. Professor Magnet in “The Constitutional Distribution of Taxation Powers in Canada” (1978), 10 Ottawa L. Rev. 473, at p. 533, has this to say:

The regional constitutional distribution of taxation powers in Canada addressed problems which have become historically obsolete. This allocation reflected the view that the provincial legislatures were economically subordinate bodies entrusted with legislative responsibilities deemed insignificant. This has ceased to be the case entirely, in fact and in theory. A review of the constitutional cases by which the provincial taxation powers were expanded in order to take account of political reality is a history of gradual widening.

To this effect, I would also refer to the passage from Dickson J. (as he then was) in Canadian Industrial Gas & Oil Ltd., supra, cited by my colleague, where he held, at pp. 582-83:

There can be no doubt that by the words “direct and indirect taxation” the Fathers of Confederation contemplated certain distinct categories of taxation, as well as a general test of directness. Only certain of such categories, such as income and property taxes, were to be available to the Legislatures. There were two reasons for this. The first was based on arcane political economy. It was thought that a direct tax would be more perceived than an indirect tax. The effect was thought to provide for greater scrutiny and resistence by the electorate with a resulting parsimony in public expenditure. The second reason proved wrong from the start. It was thought that provincial activities would be limited and revenue needs would be slim; the Legislatures, therefore, would have no necessity to resort to most tax pools.

It is important to note that, a few paragraphs later, he added the following, at p. 584, which made clear that he was of the opinion that both rationales identified earlier had become obsolete in a modern Canada:

By nineteenth century political economy, any element of indirectness was a stigma as tending to obfuscate the actions of the Legislature. That consideration is of minor importance today.

136More recently, in Reference re Quebec Sales Tax, 1994 CanLII 48 (SCC), [1994] 2 S.C.R. 715, my colleague Gonthier J., writing for the Court, emphasized the fact that limiting the provinces’ available taxation means to direct taxes had the important effect of avoiding extraterritorial repercussions in language that left little doubt that this rationale had superseded other historical considerations, at pp. 727-28:

In approaching new taxes, the constitutional fate of which is unknown, it is not without interest to refer to an important effect of the s. 92(2) limitation to direct taxation. In addition to the historical desire to promote transparency and accountability, one finds a concern in the case law and literature regarding taxation of persons outside the province by indirect means or taxation which interferes with interprovincial or international trade. The prohibition against excise taxes and customs duties clearly achieves this latter purpose. As my colleague La Forest J. noted in his study of the taxation power under the Canadian Constitution, “the person who ultimately pays an excise tax may have no other connection with the province benefiting from the tax than that the product was originally produced or manufactured there” (G. V. La Forest, The Allocation of the Taxing Power Under the Canadian Constitution (2nd ed. 1981), at p. 202).

My review of the jurisprudence interpreting s. 92(2) has revealed that apart from excise taxes, import duties, or taxes of a similar nature and the two more general limitations highlighted in the preceding paragraph, the provinces have come to enjoy considerable freedom in constructing their tax systems.

137Gonthier J.’s reference to interprovincial and international trade are linked to what I have said earlier about the relation of the provincial taxing power to the basic structure of the Constitution. The framers of the Constitution, no doubt, thought the provinces would have little need to resort to their taxing power, but they nonetheless accorded a power that, even in those days, was very broad. So when the provinces became far more important governmental entities than could have been anticipated in a laissez faire era, the courts quite naturally ‑‑ and consistently with both the Constitution, and social and political realities ‑‑ interpreted the scope of provincial taxing power expansively. But they were far from ignoring a number of basic policies flowing from the very structure of the federation which have to do with the extraterritorial application of provincial taxes. I elsewhere indicated how the courts had in their interpretation of direct and indirect taxation fostered the basic underpinnings of the federation. At p. 94 of my book, supra, I wrote:

Generally, Mill’s test in the hands of the courts is concerned with form, not substance. But it has nonetheless served a number of substantive functions. Through its use the courts have effectively prevented the provinces from erecting tariff barriers against one another; they have supported a national market. Section 121 of the British North America Act, which was intended by the draftsman, but not in the original Quebec scheme, to perform this function might, if broadly construed, have been too restrictive of federal and provincial power. The courts could afford to interpret it narrowly by using the limitation to direct taxation to achieve the same result. The limitation to direct taxation also has had the effect of prohibiting taxes whose object must be to tax persons who are outside the province and who have no economic interest in the province in respect of the activity or property taxed. This explains the courts’ consistent attacks on export taxes, whatever form they might take. And it also explains the courts’ persistence in striking down estate taxes making the executor primarily responsible. Finally, as the Fathers contemplated, a direct tax is often in such a form that it is clearly brought home to the taxpayer that he is being taxed.

138In that passage, my remarks are expressed in terms of Mill’s test. But the policies served are wholly consistent with what occurs in respect of the categories of taxes the framers had specifically in mind. For example, property taxes have predominantly local impact, but customs and excise taxes have immediately obvious extraterritorial implications. Not surprisingly, then, when Mill’s test proved unequal to the task of properly balancing the broad constitutional policies I have described, the courts returned to the less precise method of categorizing taxes the framers had contemplated. In an age when the courts (and notably the Privy Council) expressed their views in technical terms without reference to underlying policies, our Court was at times misled regarding the course it should follow (see, for example, the Fairbanks case, supra). Over time, however, the direction has become clear enough, and the time has now come when courts should no longer exercise similar reticence in describing policy directions that underlie constitutional interpretation.

The Interplay Between Mill’s Test and the Categories Test

139I noted earlier that the courts have not yet carefully examined the interaction between the "categories" approach and Mill's test. It is important to do so here because of my colleague's attempt by the use of Mill's test to transform what in all other respects falls within the category of a land tax, and so converts a direct tax into an indirect tax. With respect, this seems to me to be wholly inconsistent with the trend of the jurisprudence and the constitutional policies that underlie it. Clearly, it does not serve the major policy grounds today supporting the limitation of the provinces to direct taxes. Obviously, there are no significant extraprovincial implications to land taxes. Their impact is local. Nor does it serve the policy adopted by the courts of expansively interpreting the ambit of provincial taxing powers to meet the needs of the important legislative functions for which they now bear responsibility. If the provinces' legislative functions were not costly in 1867, that is certainly not the case today, and as will become apparent, the courts have striven to so interpret s. 92(2) as to afford them adequate sources of revenues to meet their needs.

140As I mentioned earlier, the framers hoped that the provinces would have sufficient funds to perform their functions from revenues from the public domain. However (as they did in the case of Parliament, which they thought could raise sufficient funds from customs alone, but to which they accorded power to raise money by any mode or system of taxation), they gave to the provinces ample means of raising money by direct taxation. Contemporary sources reveal that even in those days the meaning of direct taxation was broad, including several categories of taxes comprising in addition to property taxes, death duties and income taxes within its compass. What it clearly did not include were customs duties and excise and other taxes that could in the course of trade virtually automatically be passed on to others. Such taxes would not only interfere with Parliament's major sources of revenue, but equally important would evidently have direct impact on taxpayers outside the province and have serious implications for interprovincial and international trade as well as generally on the national economic entity the framers had sought to create.

141The concepts of direct and indirect taxation were familiar to statesmen of the day who considered certain well-known categories of taxes to fall within one or the other of these rubrics. These understandings were reflected by the courts in the earliest decisions on the subject; see Attorney-General for Quebec v. Queen Insurance Co. (1878), 3 A.C. 1090 (P.C.). However, the courts did not confine themselves to these broad understandings but consulted the works of various economists whose works must have been familiar to the framers. Preeminent among these was John Stuart Mill, and beginning with the case of Bank of Toronto v. Lambe, supra, his formulation of the concepts was for a considerable period almost exclusively referred to. In Principles of Political Economy, supra, Mill wrote:

§ 1. Taxes are either direct or indirect. A direct tax is one which is demanded from the very persons who, it is intended or desired, should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another: such as the excise or customs. The producer or importer of a commodity is called upon to pay tax on it, not with the intention to levy a peculiar contribution upon him, but to tax through him the consumers of the commodity, from whom it is supposed that he will recover the amount by means of an advance in price.

142In Lambe, Lord Hobhouse made it clear that Mill's test should not be used to follow the incidence of a tax as economists do, but that this task should be pursued in accordance with the “common understanding of men” as sufficiently reflecting the views of the framers. But in Cotton v. The King, 1913 CanLII 396 (UK JCPC), [1914] A.C. 176 (P.C.), it was categorically stated that the test to be used was substantially that of Mill and that test was generally regarded as the sole test until the late 1920s. It must be observed, however, that the courts were then engaged in dealing with new types of taxes that did not fit, or fit comfortably, within the few categories specifically adverted to by the framers. It would have been possible, no doubt, to invent new categories. But it was quite natural to rely on more refined formulations familiar to the framers, and notably those of Mill, as they had from the beginning. As the provinces’ needs for revenues expanded, the courts responded favourably to the fiscal necessity this imposed on them. At the same time, it was essential that they confine the provinces’ fiscal power as much as possible within their territory, as the broad categories of taxation contemplated by the framers had done.

143The greater refinements of Mill’s test permitted the courts greater flexibility in accommodating the competing policies of according the provinces ample power to tax while restraining them to their territorial scope. Thus a tax on an estate was indirect because it would be passed on to the beneficiary and could thus be effectively imposed on an extraprovincial taxpayer; see Cotton’s case, supra. Placing all estate taxes in a single category would have brought the underlying policies of the courts into conflict. However, by using Mill's test to trace the incidence of a particular taxing scheme, the courts could work an accommodation between these policies. Thus a tax imposed on a beneficiary in the province (what we now call succession duty) was imposed directly on the taxpayer and would have no extraprovincial effect, so it was held to be a direct tax; see Alleyn v. Barthe, 1921 CanLII 606 (UK JCPC), [1922] 1 A.C. 215. Similarly, commodity taxes which had previously been imposed on the manufacturer or seller, and so traditionally viewed as indirect, could be reframed as taxes on a purchaser to fall within Mill's test, and this too was accepted by the Privy Council; see Atlantic Smoke Shops, Ltd. v. Conlon, 1943 CanLII 372 (UK JCPC), [1943] A.C. 550.

144When, however, the Privy Council was faced with the tax in Fairbanks, a land tax, where the use of Mill's test would have served neither of the competing constitutional policies sought to be advanced by the courts, the Privy Council turned to the categories test to uphold the tax, and for some time afterwards the categories test appeared to be the sole test to identify whether a tax was direct or indirect. (The cases are collected in my book at pp. 89-90.) But this was an overreaction. Viscount Cave, L.C., in the passage from Fairbanks cited earlier, had indicated that Mill’s test was appropriate for taxes falling outside the settled categories. Consequently, when the categories test again appeared to become too restrictive and served neither of the underlying but competing constitutional policies of providing the provinces adequate scope to raise revenue while preserving the essential structure of the federation, the Privy Council returned to Mill's formula; see ibid. But, the categories test was never abandoned, and, as the cases cited earlier demonstrate, this has been especially so of land taxes which this Court has in recent years frequently and invariably held to be direct. That is scarcely surprising. Given the broad and expansive activities now pursued by the provinces under the Constitution, it would be odd to restrict their power to raise revenues within the province where such taxes have no extraterritorial impact. Land taxes, which have always been looked upon as typically direct, are of this kind. To restrict their use by the device of applying Mill's formula to them would fly in the face of the cases to which I have already referred. In Canadian Industrial Gas & Oil Ltd., supra, Dickson J., at p. 583, indicated that the framers’ views concerning these settled categories must be respected. There are sound policy grounds for doing so. The use of Mill’s formula in cases falling outside the traditional categories serves the same underlying policies. Mill's formula and the categories test have both been used at various times to broaden provincial taxing power wherever this could be done without offending the other policies that underlie our constitutional structure. This is what Dickson J. had in mind in the passage from Canadian Industrial Gas & Oil Ltd., just mentioned, when he indicated that while the Constitution Act, 1867 should be an evolving document, the traditional categories of direct and indirect taxation had captured the meaning of direct and indirect taxation, and it has consequently been preserved.

145I am of the view that courts should take into account the fact that the primary rationale underlying the limitation to direct means of taxation imposed on provinces now relates to the potentially extraterritorial effects of indirect taxation. Our Constitution, as Lord Sankey so eloquently described it in Edwards v. Attorney-General for Canada, 1929 CanLII 438 (UK JCPC), [1930] A.C. 124, at p. 136, is a “living tree capable of growth and expansion within its natural limits”. This well-known metaphor illustrates the principle recognized by this Court on many occasions that the interpretation of constitutional instruments, such as the Constitution Act, 1867 or the Charter, can and should be adapted to changes in Canadian society; see, inter alia, Estey J.’s comments in Law Society of Upper Canada v. Skapinker, 1984 CanLII 3 (SCC), [1984] 1 S.C.R. 357, at pp. 365-66, and Attorney General of British Columbia v. Canada Trust Co., 1980 CanLII 221 (SCC), [1980] 2 S.C.R. 466, in the context of taxation powers. Professor Hogg, supra, has observed that this principle has permitted progressive constitutional development in the face of immense changes, without constitutional amendment. As he put it, at pp. 413-14:

The doctrine of progressive interpretation is one of the means by which the Constitution Act, 1867 has been able to adapt to the changes in Canadian society. What this doctrine stipulates is that the general language used to describe the classes of subjects (or heads of power) is not to be frozen in the sense in which it would have been understood in 1867. . . . [T]he words of the Act are to be given a “progressive interpretation”, so that they are continuously adapted to new conditions and new ideas.

The idea underlying the doctrine of progressive interpretation is that the Constitution Act, 1867, although undeniably a statute, is not a statute like any other: it is a “constituent” or “organic” statute, which has to provide the basis for the entire government of a nation over a long period of time. An inflexible interpretation, rooted in the past, would only serve to withhold necessary powers from the Parliament or Legislatures. It must be remembered too that the Constitution Act, 1867, like other federal constitutions, differs from an ordinary statute in that it cannot easily be amended when it becomes out of date, so that its adaptation to changing conditions must fall to a large extent upon the courts.

146In this area, the courts were sometimes able to meet new challenges by using traditional formulas ‑‑ the categories test ‑‑ but where this proved impossible, they had no hesitation in bringing Mill’s test into play. But this did not require them to abandon the traditional formulas where these more fully met constitutional requirements. Thus as my colleague Iacobucci J. explains in his reasons, the EDCs’ incidence may well be indirect within the meaning of the definition proposed by John Stuart Mill and accepted in substance by the Privy Council and this Court over the years. However, it is clear that EDCs cannot have any extraterritorial effect, because the only persons to whom they can be passed on by the builders are the buyers of the newly built structures, and that, of course, will necessarily occur within the boundaries of the province of Ontario. It would be counterproductive to apply Mill’s test to taxes of this kind, and the courts have consistently refused to do so. To do otherwise would fly against the purposive manner in which a Constitution must be interpreted. Determining the constitutional validity purely on the basis of pure technicalities or formalistic approaches must be avoided. One should not lose sight of the underlying reason why provinces are confined to having recourse to direct means of taxation. At the end of the day, this approach has the merit of focusing the constitutional analysis on substance rather than on form and furthering the constitutional values of the prohibition imposed on provinces regarding indirect taxation as they stand in a modern Canada.

Conclusion

147It is for these reasons that I would dismiss the appeal. The parties have agreed that there should be no order as to costs.