Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134

Westbank First Nation Appellant

v.

British Columbia Hydro and Power Authority Respondent

and

The Attorney General of Quebec,

the Attorney General of Manitoba and

the Attorney General of British Columbia Interveners

Indexed as: Westbank First Nation v. British Columbia Hydro and Power Authority

File No.: 26450.

Hearing and judgment: June 21, 1999.

Reasons delivered: September 10, 1999.

Present: Lamer C.J. and Gonthier, McLachlin, Iacobucci, Major, Bastarache and Binnie JJ.

on appeal from the court of appeal for british columbia

Constitutional law -- Crown -- Immunity -- Taxation -- Exemption of public lands -- Indian band passing assessment and taxation by-laws pursuant to the Indian Act -- Whether by-laws impose taxes -- Whether by-laws constitutionally inapplicable to provincial utility -- Constitution Act, 1867, s. 125.

Indians -- Taxation -- Money by-laws -- Indian band passing assessment and taxation by-laws pursuant to Indian Act -- Whether by-laws constitutionally inapplicable to provincial utility -- Constitution Act, 1867, s. 125 -- Indian Act, R.S.C., 1985, c. I-5, s. 83(1)(a).

Between 1951 and 1978, the respondent hydroelectric utility was granted from Her Majesty the Queen in Right of Canada eight permits to use and occupy various lands located on two Indian reserves in order to build electric transmission and distribution lines and to provide electrical energy to the residents of the reserves. In 1990, the appellant passed the Westbank Indian Band Assessment By-law and the Westbank Indian Band Taxation By-law, pursuant to its authority under s. 83(1)(a) of the Indian Act. The appellant passed additional by-laws from 1991 to 1995, under which the respondent was assessed $124,527.25 in taxes, penalties, and interest. The respondent refused to pay the assessed taxes, and did not appeal the assessment notices. The appellant brought an action to recover the unpaid amount. Summary judgment was granted to the respondent, which was upheld on appeal to the British Columbia Court of Appeal. The issue in this appeal is whether s. 125 of the Constitution Act, 1867 prevents the appellant from applying its assessment and taxation by-laws to the respondent, an agent of the provincial Crown.

Held: The appeal should be dismissed.

Section 125 of the Constitution Act, 1867 renders the impugned by-laws constitutionally inapplicable to the respondent. The by-laws are designed for the singular purpose of generating revenue for “local purposes”. They were enacted pursuant to s. 83(1)(a) of the Indian Act, which authorizes “taxation for local purposes of land, or interests in land, in the reserve, including rights to occupy, possess or use land in the reserve”. The by-laws themselves state that their purpose is “for raising a revenue for local purposes”.

Section 125 of the Constitution Act, 1867 is one of the tools found in the Constitution that ensures the proper functioning of Canada’s federal system. It advances the goals of federalism and democracy by according a degree of operational space to each level of government, free from interference by the other. It prohibits one level of government from taxing the property of the other. However, it does not prohibit the levying of user fees or other regulatory charges properly enacted within the government’s sphere of jurisdiction.

Although in today’s regulatory environment, many charges will have elements of taxation and elements of regulation, the central task for the court is to determine whether the levy’s primary purpose is, in pith and substance: (1) to tax, i.e., to raise revenue for general purposes; (2) to finance or constitute a regulatory scheme, i.e., to be a regulatory charge or to be ancillary or adhesive to a regulatory scheme; or (3) to charge for services directly rendered, i.e., to be a user fee. In order to determine whether the impugned charge is a “tax” or a “regulatory charge” for the purposes of s. 125, several key questions must be asked. Is the charge: (1) compulsory and enforceable by law; (2) imposed under the authority of the legislature; (3) levied by a public body; (4) intended for a public purpose; and (5) unconnected to any form of a regulatory scheme? If the answers to all of these questions are affirmative, then the levy in question will generally be described as a tax.

The levies are properly described as being, in pith and substance, taxation enacted under s. 91(3) of the Constitution Act, 1867. They are enforceable by law, imposed under the authority of the legislature, and levied by a public body for a public purpose. The appellant has not demonstrated that the levies are connected to a “regulatory scheme” which could preclude the application of s. 125. The charge does not form any part of a detailed code of regulation. No costs of the regulatory scheme have been identified, to which the revenues from these charges are tied. The appellant does not seek to influence the respondent’s behaviour in any way with these charges. There is no relationship between the respondent and any regulation to which these charges adhere. Although the Indian Act is legislation in relation to “Indians, and Lands reserved for the Indians”, this does not, in itself, create a “regulatory scheme” in the sense required by the Constitution.

As these taxes are imposed on the respondent, which it is conceded is an agent of the provincial Crown, s. 125 is engaged. The taxation and assessment by‑laws are accordingly inapplicable to the respondent.

Cases Cited

Applied: Re Exported Natural Gas Tax, 1982 189 (SCC), [1982] 1 S.C.R. 1004; Attorney-General of British Columbia v. Attorney-General of Canada (1922), 1922 47 (SCC), 64 S.C.R. 377, aff’d 1923 426 (UK JCPC), [1924] A.C. 222; referred to: M‘Culloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819); OPSEU v. Ontario (Attorney General), 1987 71 (SCC), [1987] 2 S.C.R. 2; General Motors of Canada Ltd. v. City National Leasing, 1989 133 (SCC), [1989] 1 S.C.R. 641; Eurig Estate (Re), 1998 801 (SCC), [1998] 2 S.C.R. 565; Attorney General of Canada v. City of Toronto (1892), 1893 22 (SCC), 23 S.C.R. 514; Attorney- General of Canada v. Registrar of Titles, 1934 237 (BC CA), [1934] 4 D.L.R. 764; Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, 1930 91 (SCC), [1931] S.C.R. 357; Allard Contractors Ltd. v. Coquitlam (District), 1993 45 (SCC), [1993] 4 S.C.R. 371; Ontario Home Builders’ Association v. York Region Board of Education, 1996 164 (SCC), [1996] 2 S.C.R. 929; Re Ottawa-Carleton (Regional Municipality) By-law 234-1992, [1996] O.M.B.D. No. 553 (QL); Cape Breton Beverages Ltd. v. Nova Scotia (Attorney General) (1997), 1997 9915 (NS SC), 144 D.L.R. (4th) 536, aff’d (1997), 1997 NSCA 122, 151 D.L.R. (4th) 575, leave to appeal refused, [1997] 3 S.C.R. vii; Minister of Justice v. City of Levis, 1918 402 (UK JCPC), [1919] A.C. 505; Urban Outdoor Trans Ad v. Scarborough (City) (1999), 1999 14785 (ON SC), 43 O.R. (3d) 673; Canadian Pacific Ltd. v. Matsqui Indian Band, 1995 145 (SCC), [1995] 1 S.C.R. 3.

Statutes and Regulations Cited

Constitution Act, 1867, ss. 53, 91(3), (24), 92(2), (9), (13), 125.

Indian Act, R.S.C., 1985, c. I-5, ss. 28(2), 83(1)(a) [rep. & sub. c. 17 (4th Supp.), s. 10(1)].

Interpretation Act, R.S.C., 1985, c. I-21, s. 17.

Westbank Indian Band Assessment By-law (1990), s. 36(1).

Westbank Indian Band Property Taxation Bylaw (1994), ss. 2(1), 8(1), 28, 30, 35, 36.

Westbank Indian Band Taxation By-law (1990), ss. 2(1), 8(1), 41(1), 45, 46(1), 49.

Authors Cited

Browne, Gerald P. Documents on the Confederation of British North America. Toronto: McClelland and Stewart, 1969.

Hogg, Peter W. Constitutional Law of Canada, vol. 1, 3rd ed. Toronto: Carswell, 1992 (loose-leaf updated 1997, release 2).

La Forest, Gérard V. The Allocation of Taxing Power Under the Canadian Constitution, 2nd ed. Toronto: Canadian Tax Foundation, 1981.

Lordon, Paul. Crown Law. Toronto: Butterworths, 1991.

Magnet, Joseph E. Constitutional Law of Canada, vol. 1, 7th ed. Edmonton: Juriliber Limited, 1998.

APPEAL from a judgment of the British Columbia Court of Appeal (1997), 1997 4017 (BC CA), 45 B.C.L.R. (3d) 98, 154 D.L.R. (4th) 93, 100 B.C.A.C. 92, [1998] 2 C.N.L.R. 284, affirming a decision of the British Columbia Supreme Court (1996), 1996 1456 (BC SC), 138 D.L.R. (4th) 362, [1997] 2 C.N.L.R. 229, granting summary judgment to the respondent. Appeal dismissed.

Jack Woodward, Robert J. M. Janes and Patricia Hutchings, for the appellant.

Peter D. Feldberg, Anne Dobson-Mack and Cydney J. Elofson, for the respondent.

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

Heather J. Leonoff, Q.C., for the intervener the Attorney General of Manitoba.

George H. Copley, Q.C., and Jeffrey M. Loenen, for the intervener the Attorney General of British Columbia.

The judgment of the Court was delivered by

Gonthier J. --

I - Introduction

[1] The issue in this appeal is whether s. 125 of the Constitution Act, 1867 prevents Westbank First Nation from applying its assessment and taxation by-laws to B.C. Hydro, an agent of the provincial Crown. The answer to that question depends upon whether the by-laws enact a system of taxation, which is subject to s. 125, or some other form of regulation which is not subject to the application of s. 125. If the by-laws impose taxes, then they are constitutionally inapplicable to the provincial Crown or its agents. For the reasons that follow, it is my opinion that these by-laws are properly described as taxes, and as such, cannot be imposed on B.C. Hydro.

[2] The proper approach to characterizing a governmental levy has been considered on numerous occasions by this Court in various contexts. The characterization is relevant when determining the constitutionality of a provincial levy that has indirect tendencies, for if it is a regulatory charge, or otherwise is a component of a regulatory scheme, then the provinces are constitutionally competent to impose such a charge. It is equally relevant when considering s. 53 of the Constitution Act, 1867, because if the levy is a tax, then it must be imposed by the legislature. And, as I discuss below, if the levy is characterized as a tax, then it is constitutionally inapplicable to the other level of government.

[3] The impugned by-laws are designed for the singular purpose of generating revenue for “local purposes”. They were enacted pursuant to s. 83(1)(a) of the Indian Act, R.S.C., 1985, c. I-5, which authorizes “taxation for local purposes of land, or interests in land, in the reserve, including rights to occupy, possess or use land in the reserve”. The by-laws themselves state that their purpose is “for raising a revenue for local purposes”. There are no restrictions to the expenditure of these revenues; they are simply revenues for the discretionary spending of the Westbank First Nation.

[4] The impugned charges bear all of the traditional hallmarks of a “tax”. They are enforceable by law, imposed pursuant to the authority of Parliament, levied by a public body, and are imposed for a public purpose. There is no “nexus” between the revenues raised and the cost of any services provided. As such, they do not resemble a user fee, nor any other form of a regulatory charge. I disagree with the submissions of the appellant that they are attached to a regulatory scheme, as none of the indicia of a “regulatory scheme” recognized by this Court in constitutional law are present in this case. As such, these charges are properly characterized as being in pith and substance “taxation” levied under s. 91(3) of the Constitution Act, 1867, and as such, are rendered inapplicable to the provincial government by s. 125 of the Constitution Act, 1867. As it is my opinion that s. 125 prevents the application of the by-laws to the respondent, it is unnecessary to address the additional arguments raised concerning s. 17 of the Interpretation Act, R.S.C., 1985, c. I-21.

II - Facts

[5] The relevant facts of this appeal are not in dispute. Between 1951 and 1978, the respondent acquired eight permits from Her Majesty the Queen in Right of Canada to use and occupy various lands on the Tsinstikeptum Indian Reserves No. 9 and No. 10 in British Columbia. The permits were granted pursuant to s. 28(2) of the Indian Act with the consent of the appellant. The respondent held the permits in order to build electric transmission and distribution lines and to provide electrical energy to the residents of the Reserves. In 1990, the appellant passed the Westbank Indian Band Assessment By-law (“1990 Assessment By-law”) and the Westbank Indian Band Taxation By-law (“1990 Taxation By-law”), pursuant to its authority under s. 83(1)(a) of the Indian Act. These by-laws were amended in subsequent years, but the relevant provisions remained the same. The appellant passed additional by-laws from 1991 to 1995, and under these by-laws the respondent was assessed $124,527.25 in taxes, penalties, and interest. The respondent refused to pay the assessed taxes, and did not appeal the assessment notices.

[6] The appellant brought an action against the respondent to recover the unpaid amount. The respondent counterclaimed for declaratory relief stating that it was not subject to taxation under the by-laws. Both parties brought applications to the Supreme Court of British Columbia for summary judgment under Rule 18A of the British Columbia Rules of Court. Summary judgment was granted to the respondent, which was upheld on appeal to the British Columbia Court of Appeal.

III - Relevant Constitutional and Statutory Provisions

[7] A. Constitution Act, 1867

53. Bills for appropriating any Part of the Public Revenue, or for imposing any Tax or Impost, shall originate in the House of Commons.

54. It shall be lawful for the Queen, by and with the Advice and Consent of the Senate and House of Commons, to make Laws for the Peace, Order, and good Government of Canada, in relation to all Matters not coming within the Classes of Subjects by this Act assigned exclusively to the Legislatures of the Provinces; and for greater Certainty, but not so as to restrict the Generality of the foregoing Terms of this Section, it is hereby declared that (notwithstanding anything in this Act) the exclusive Legislative Authority of the Parliament of Canada extends to all Matters coming within the Classes of Subjects next herein-after enumerated; that is to say, ^___

55. The raising of Money by any Mode or System of Taxation.

56. Indians, and Lands reserved for the Indians.

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

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

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

60. Property and Civil Rights in the Province.

61. No Lands or Property belonging to Canada or any Province shall be liable to Taxation.

B. Indian Act, R.S.C., 1985, c. I-5

28. . . .

(2) The Minister may by permit in writing authorize any person for a period not exceeding one year, or with the consent of the council of the band for any longer period, to occupy or use a reserve or to reside or otherwise exercise rights on a reserve.

83. (1) Without prejudice to the powers conferred by section 81, the council of a band may, subject to the approval of the Minister, make by-laws for any or all of the following purposes, namely,

(a) subject to subsections (2) and (3), taxation for local purposes of land, or interests in land, in the reserve, including rights to occupy, possess or use land in the reserve;

C. Westbank Indian Band Taxation By-law (1990)

2. (1) As provided in this by-law, and for raising revenue for local purposes,

(a) land and interests in land are subject to taxation;

(b) subject to any exemption contained in this by-law, every interest holder of land shall be assessed and taxed on his interest in such land. . .

D. Westbank Indian Band Assessment By-law (1990)

36. (1) Land held or occupied by a municipality or the Crown in Right of the Province of British Columbia, held or occupied by, or on behalf of, a municipality or the Crown in Right of the Province of British Columbia, is, with the improvements on it, liable to assessment under this section, subject to the Constitution Act, S.C.

IV - Judgments Below

A. Supreme Court of British Columbia (1996), 1996 1456 (BC SC), 138 D.L.R. (4th) 362

[8] Downs J. held that s. 125 of the Constitution Act, 1867, exempted B.C. Hydro from taxation imposed by the appellant. At trial, the parties agreed that the respondent is an agent of the provincial Crown and that s. 125 applies to agents of the Crown. The appellant argued that s. 125 only confers immunity from taxation imposed under s. 91(3) of the Constitution Act, 1867, and the tax imposed in this case was founded on s. 91(24) of the Constitution Act, 1867. This argument was also rejected by Downs J., who held that the legislation in pith and substance fell under s. 91(3) of the Constitution Act, 1867. Downs J. distinguished this type of tax from regulatory charges, which would not attract the scrutiny of s. 125.

[9] Downs J. further rejected the appellant’s alternative argument that the Westbank by-laws bound the Crown because of s. 17 of the Interpretation Act. After reviewing s. 17 of the Interpretation Act, Downs J. held that s. 83(1)(a) of the Indian Act did not expressly bind the Crown, nor would the Band’s taxation regime be “wholly frustrated” if the Crown were not bound. Therefore, she held that s. 83(1)(a) and the Westbank by-laws were not binding on the provincial Crown by implication.

[10] Related to this issue was the argument that the respondent was bound to accept the burden of the assessment by-law because it accepted the benefit of the permits for the rights of way. Here, Downs J. held that there was no nexus between the permits and the taxes, given that the respondent held the permits long before s. 83 of the Indian Act was enacted. Further, the by-law itself expressly stated that it was subject to the Constitution Act, and as such, the “benefit/burden” principle did not apply.

[11] Downs J. also rejected numerous other arguments advanced by the appellant, which either have not been appealed or have been conceded by the appellant before this Court. As such, Downs J. granted the respondent’s application for summary judgment.

B. British Columbia Court of Appeal (1997), 1997 4017 (BC CA), 154 D.L.R. (4th) 93

[12] Writing for the Court, Goldie J.A. found that B.C. Hydro was clearly an agent of the Crown, and held that it “at no time acted in these proceedings other than as an agent of the Crown in right of the Province” (p. 101). As B.C. Hydro was an agent of the provincial Crown, Goldie J.A. then considered the application of s. 125 of the Constitution Act, 1867. Having regard to the by-laws’ preambles and effects, Goldie J.A. agreed with the trial judge that the by-laws were properly characterized as by-laws to “raise revenue for local purposes”. As such, the charges were imposed pursuant to s. 91(3) of the Constitution Act, 1867, not s. 91(24). Section 91(24) could not allow the federal government “to do indirectly what it could not do directly, namely, tax the Province through its agent for the purpose of raising a revenue” (p. 103). He accordingly dismissed the appeal.

V - Issues

[13] On December 1, 1998, the Chief Justice stated the following constitutional questions:

1. Is the Province constitutionally competent to constitute the Respondent, British Columbia Hydro and Power Authority (“B.C. Hydro”), an agent of the Province for the purpose of acquiring and holding interests within exclusive federal jurisdiction, namely an interest in land on an Indian Reserve?

2. If the answer to question 1 is yes, is the interest of B.C. Hydro, an agent of Her Majesty the Queen in Right of British Columbia, in land and improvements located on the reserves (“Reserves”) of the Appellant, Westbank First Nation (“Westbank”) immune, as a result of the application of s. 125 of the Constitution Act, 1867, from taxation imposed by Westbank pursuant to assessment and taxation by-laws (“By-law”) promulgated pursuant to the authority of s. 83(1)(a) of the Indian Act, R.S.C., 1985, c. I-5? If so, are such By-laws purporting to impose such taxation ultra vires, or inapplicable to B.C. Hydro?

3. If the answer to question 2 is no, does the Indian Act, R.S.C., 1985, c. I-5, authorize the passing of by-laws imposing taxation on the interests of the Provincial Crown or its agents on Indian reserves? If not, are the By-laws ultra vires or inapplicable to the extent that they purport to impose taxation on the interests of B.C. Hydro on the Westbank Reserves?

[14] At the outset of the hearing before this Court, counsel for the appellant stated that he was “abandoning” his arguments concerning the first constitutional question, and arguments relating to a “commercial activity” exception to s. 125. Although this Court is not bound by these concessions, in my view, it was quite proper for counsel to have abandoned these arguments, which were either not raised in the courts below, or are not necessary to be decided on this appeal. I therefore find it unnecessary to consider these arguments any further.

VI - Analysis

[15] The only issue to be determined in this appeal is whether s. 125 of the Constitution Act, 1867, precludes the Westbank First Nation from imposing its taxation and assessment by-laws on B.C. Hydro, an agent of the provincial Crown. To answer this question, it is useful to first understand the underlying purpose of s. 125. It is these constitutional values that inform the constitutional distinction between “taxes” and “regulatory charges”, and which explain why s. 125 applies to the former but not the latter. As I explain in this section, the impugned charges are best characterized as taxation by-laws, which are constitutionally inapplicable to the respondent.

A. Section 125 of the Constitution Act, 1867

[16] Section 125 of the Constitution Act, 1867 was not originally considered at the Charlottetown Conference in September 1864. It was first tabled by the then Attorney General, Sir John A. Macdonald on October 26, 1864, at the Quebec Conference (G. P. Browne, Documents on the Confederation of British North America (1969), at p. 88). The motion read: “That no lands or property belonging to the General or Local Governments shall be liable to taxation”. Macdonald proposed the section along with a series of other miscellaneous clauses that dealt with the Crown prerogatives, and rights of Crown representatives. The motion was approved without any notable debate, and inserted into the “Miscellaneous” section of the Quebec resolutions, labelled as clause 47. The resolution attracted no scrutiny during the Confederation debates, although it was relocated several times before receiving its final designation of s. 125. The final text of s. 125 read: “No Lands or Property belonging to Canada or any Province shall be liable to Taxation.”

[17] The section is one of the tools found in the Constitution that ensures the proper functioning of Canada’s federal system. It grants to each level of government sufficient operational space to govern without interference. It is founded upon the concept that imposing a tax on a level of government may significantly harm the ability of that government to exercise its constitutionally mandated governmental functions. In M‘Culloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819), at p. 431, Marshall C.J. explained this concept as follows:

That the power to tax involves the power to destroy; that the power to destroy may defeat and render useless the power to create; that there is plain repugnance, in conferring on one government a power to control the constitutional measures of another, which other, with respect to those very measures, is declared to be supreme over that which exerts the control, are propositions not to be denied.

In Re Exported Natural Gas Tax, 1982 189 (SCC), [1982] 1 S.C.R. 1004, the majority of this Court referred to these statements at p. 1056, explaining at p. 1065 that “s. 125 is plainly intended to prevent inroads, by way of taxation, upon the property of one level of government, by another level of government”.

[18] While Canadian federalism requires some separation between each level of government, this rule is not absolute. Canada’s federal system is a flexible one, and the Constitution does not create “enclaves” around federal or provincial actors. As Dickson C.J. explained in OPSEU v. Ontario (Attorney General), 1987 71 (SCC), [1987] 2 S.C.R. 2, at p. 18, “[t]he history of Canadian constitutional law has been to allow for a fair amount of interplay and indeed overlap between federal and provincial powers” (see also Dickson C.J.’s comments in General Motors of Canada Ltd. v. City National Leasing, 1989 133 (SCC), [1989] 1 S.C.R. 641, at p. 669). Flexible federalism demands protection from taxation, but not from all forms of charges, when the charges are levied in support of other regulatory objectives within the competence of the taxing authority.

[19] While the primary constitutional value served by s. 125 is federalism, it also secondarily advances the constitutional value of democracy. As this Court recently explained in Eurig Estate (Re), 1998 801 (SCC), [1998] 2 S.C.R. 565, at para. 30, the Canadian Constitution (through the operation of s. 53 of the Constitution Act, 1867) demands that there should be no taxation without representation. In other words, individuals being taxed in a democracy have the right to have their elected representatives debate whether their money should be appropriated, and determine how it should be spent. Intergovernmental taxation is prohibited, in part, because one group of elected representatives should not be allowed to decide how taxes levied under and within the authority of another group of elected representatives should be spent. At the same time, governments are not immune from paying user fees, such as water rates, in part because the government can choose whether to use the service, and the money charged is spent solely on providing that service: Attorney General of Canada v. City of Toronto (1892), 1893 22 (SCC), 23 S.C.R. 514; Attorney-General of Canada v. Registrar of Titles, 1934 237 (BC CA), [1934] 4 D.L.R. 764 (B.C.C.A.), at pp. 771-72. In this way, imposing a user fee is more like charging a fee for a merchantable commodity than imposing any form of taxation.

[20] These principles, and the guiding structure of the Constitution, are as applicable to Indian Band Councils exercising the right of taxation authorized by s. 83 of the Indian Act as they are to the federal and provincial levels of government. The exercise of governmental powers in Canada, by any level of government, must be done in accordance with the constitutional framework of the country. This constitutional framework includes the prohibition contained in s. 125 against taxing another level of government.

B. Regulatory Charges Distinguished from Taxes

[21] The natural starting point for characterizing a governmental levy is this Court’s decision in Lawson v. Interior Tree Fruit and Vegetable Committee of Direction, 1930 91 (SCC), [1931] S.C.R. 357, at pp. 362-63. In that case, Duff J., as he then was, explained that the impugned charges in that case were taxes because they were: (1) enforceable by law, (2) imposed under the authority of the legislature, (3) imposed by a public body, and (4) intended for a public purpose. Duff J. also noted that the charges there were compulsory, and affected a large number of people.

[22] These indicia of “taxation” were recently adopted by this Court in Eurig Estate, supra, at para. 15. Major J., writing for the majority of this Court, added another possible factor to consider when characterizing a governmental levy, stating at para. 21 that “[a]nother factor that generally distinguishes a fee from a tax is that a nexus must exist between the quantum charged and the cost of the service provided”. This was a useful development, as it helps to distinguish between taxes and user fees, a subset of “regulatory charges”.

[23] A distinction is made between simple “taxation” and “regulation”, or what has elsewhere been described as “regulatory charges”: P. W. Hogg, Constitutional Law of Canada (loose-leaf ed.), vol. 1, at p. 30-28; J. E. Magnet, Constitutional Law of Canada (7th ed. 1998), vol. 1, at p. 481; G. V. La Forest, The Allocation of Taxing Power Under the Canadian Constitution (2nd ed. 1981). The distinction between taxes, on the one hand, and regulatory charges, on the other, was highlighted by the majority of this Court in Re Exported Natural Gas Tax, supra, at pp. 1055, 1070, 1072 and 1075. In that case, the majority explained at p. 1070 that a tax is to be distinguished from a “levy [imposed] primarily for regulatory purposes, or as necessarily incidental to a broader regulatory scheme”.

[24] It goes without saying that in order for charges to be imposed for regulatory purposes, or to otherwise be “necessarily incidental to a broader regulatory scheme”, one must first identify a “regulatory scheme”. Certain indicia have been present when this Court has found a “regulatory scheme”. The factors to consider when identifying a regulatory scheme include the presence of: (1) a complete and detailed code of regulation; (2) a specific regulatory purpose which seeks to affect the behaviour of individuals; (3) actual or properly estimated costs of the regulation; and (4) a relationship between the regulation and the person being regulated, where the person being regulated either causes the need for the regulation, or benefits from it. This is only a list of factors to consider; not all of these factors must be present to find a regulatory scheme. Nor is this list of factors exhaustive.

[25] The first factor to consider is the nature of the purported regulation itself. Regulatory schemes are usually characterized by their complexity and detail. In Allard Contractors Ltd. v. Coquitlam (District), 1993 45 (SCC), [1993] 4 S.C.R. 371, at p. 409, the regulatory scheme there was described as a “complete and detailed code for the regulation of the gravel and soil extraction and removal trade”. In Ontario Home Builders’ Association v. York Region Board of Education, 1996 164 (SCC), [1996] 2 S.C.R. 929, at para. 28, the charge was described as part of a “complex regulatory framework governing land development”. And, in General Motors of Canada Ltd. v. City National Leasing, supra, at p. 676, the Combines Investigation Act was described as “a complex scheme of economic regulation”.

[26] A regulatory scheme will have a defined regulatory purpose. A purpose statement contained in the legislation may provide assistance to the court in this regard. Professor Magnet, supra, at p. 459, correctly explains that a regulatory scheme usually “delineates certain required or prohibited conduct”. For example, in Re Exported Natural Gas Tax, supra, at p. 1075, the levy there was held to not be a regulatory charge because “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”. In sum, a regulatory scheme must “regulate” in some specific way and for some specific purpose.

[27] Regulatory schemes usually involve expenditures of funds on costs which are either known, or properly estimated. In the indirect tax cases, evidence was provided demonstrating how the revenues would be used and how the regulatory costs of the scheme were estimated. In Ontario Home Builders’, supra, at para. 55, the charge levied was “meticulous in its detail” and “clearly operate[d] so as to limit recoupment to the actual costs”. In Allard, supra, evidence was led by city officials demonstrating the actual costs of annual road repair, based on estimates from similar repairs in the municipality. In both cases, there was a fairly close “nexus” between the estimated costs and the revenues raised through the regulatory scheme.

[28] Finally, the individual subject to the regulatory charge will usually either benefit from the regulation, or cause the need for the regulation: Magnet, supra, at p. 459. In Allard, supra, the gravel trucks caused the need for the repair to the roads; in Ontario Home Builders’, supra, the developers and the new home-owners caused the need for the new schools. In both cases the individuals being charged also benefited from the regulation.

[29] A regulatory charge may exist to defray the expenses of the regulatory scheme, as was the case in Allard or Ontario Home Builders’, or the regulatory charges themselves may be the means of advancing a regulatory purpose. In Attorney-General of British Columbia v. Attorney-General of Canada (1922), 1922 47 (SCC), 64 S.C.R. 377 (“Johnnie Walker” case) (aff’d 1923 426 (UK JCPC), [1924] A.C. 222), this Court explained that customs duties were the method of advancing the regulatory purpose of encouraging the importation of certain products, and discouraging the importation of others. Anglin J., at p. 387, explained that customs duties “are, it seems to me, something more” than simple taxation. As with customs duties, other types of charges may proscribe, prohibit, or lend preferences to certain conduct with the view of changing individual behaviour. A per-tonne charge on landfill waste may be levied to discourage the production of waste: Re Ottawa-Carleton (Regional Municipality) By-law 234-1992, [1996] O.M.B.D. No. 553 (QL). A deposit-refund charge on bottles may encourage recycling of glass or plastic bottles: Cape Breton Beverages Ltd. v. Nova Scotia (Attorney General) (1997), 1997 9915 (NS SC), 144 D.L.R. (4th) 536 (N.S.S.C.) (aff’d (1997), 1997 NSCA 122, 151 D.L.R. (4th) 575 (N.S.C.A.), leave to appeal refused, [1997] 3 S.C.R. vii).

[30] In all cases, a court should identify the primary aspect of the impugned levy. This was the underlying current of the earlier cases on s. 125, which focussed on the “pith and substance” of the charge: “Johnnie Walker” case, supra; Re Exported Natural Gas Tax, supra. Although in today’s regulatory environment, many charges will have elements of taxation and elements of regulation, the central task for the court is to determine whether the levy’s primary purpose is, in pith and substance: (1) to tax, i.e., to raise revenue for general purposes; (2) to finance or constitute a regulatory scheme, i.e., to be a regulatory charge or to be ancillary or adhesive to a regulatory scheme; or (3) to charge for services directly rendered, i.e., to be a user fee.

C. Section 125 Treatment of Taxes, User Fees, and Regulatory Charges

[31] Section 125 applies only to taxes properly enacted under s. 91(3) or 92(2) of the Constitution Act, 1867. As this Court explained in Re Exported Natural Gas Tax, at p. 1068, s. 125 does not purport to affect activities of government other than taxation. Consequently, the section will not usually apply to user fees, for they cannot be considered to be “taxation” in the constitutional meaning of the word, as developed above: City of Toronto, supra; Minister of Justice v. City of Levis, 1918 402 (UK JCPC), [1919] A.C. 505; Registrar of Titles, supra. In particular, it is difficult to say that payment of charges for such merchantable commodities are “compulsory” or are used for a “public purpose”: Registrar of Titles, supra, at pp. 771-72; Urban Outdoor Trans Ad v. Scarborough (City) (1999), 1999 14785 (ON SC), 43 O.R. (3d) 673 (Sup. Ct.), at p. 683. However, some services may be so essential that although in theory it is not compulsory to pay for the services, in reality it is: City of Levis, supra, at p. 513; Eurig Estate, supra, at para. 17.

[32] Nor does s. 125 apply to other types of regulatory charges, as I have described them above. Where a charge itself is the mechanism for advancing a regulatory purpose, such as a charge that encourages or discourages certain types of behaviour, or where a charge is “ancillary or adhesive to a regulatory scheme” which may be used to defray the costs of that scheme, then they will usually be applicable to the other order of government. As the majority of the Court explained in Re Exported Natural Gas Tax, supra, at p. 1070:

If the primary purpose is the raising of revenue for general federal purposes then the legislation falls under s. 91(3) and the limitation in s. 125 is engaged. If, on the other hand, the federal government imposes a levy primarily for regulatory purposes, or as necessarily incidental to a broader regulatory scheme, such as the “adjustment levies” considered in Reference respecting the Agricultural Products Marketing Act, R.S.C. 1970, s. A-7 et al., 1978 10 (SCC), [1978] 2 S.C.R. 1198 or the unemployment insurance premiums in Attorney-General for Canada v. Attorney-General for Ontario, 1937 363 (UK JCPC), [1937] A.C. 355, then the levy is not in pith and substance “taxation” and s. 125 does not apply.

[33] By protecting each level of government from taxation, but not from other types of regulatory charges, the Constitution accords a degree of operational space to the governments in a manner which best advances the goals of Canada’s flexible federalism. It is with these concepts in mind that I now turn to the governmental levy at issue in this case.

D. Characterization of the Westbank First Nation Taxation By-laws

[34] There is no question that these levies apply to the “Lands or Property” of the Crown agent. However, the parties disagree as to whether the Court of Appeal was correct in describing these by-laws as “taxation”, founded upon s. 91(3) of the Constitution Act, 1867. In my view, the Court of Appeal and the trial court below were both correct in describing these by-laws as imposing “taxation” within the meaning of s. 125.

[35] The charges imposed by Westbank bear all of the hallmarks of “taxation”. The charges here are enforceable by law. Failure to comply with the by-law can result in all services provided by the Band being cancelled (1990 Taxation By-law, s. 8(1); Westbank Indian Band Property Taxation Bylaw (1994) (“1994 Property Taxation By-law”), s. 8(1)). The taxes form a lien on the property (1990 Taxation By-law, s. 41(1); 1994 Property Taxation By-law, s. 28). The Band can recover the taxes by distress (1990 Taxation By-law, s. 46(1); 1994 Property Taxation By-law, s. 30), forfeiture (1990 Taxation By-law, s. 49; 1994 Property Taxation By-law, s. 35), or by court action (1990 Taxation By-law, s. 45; 1994 Property Taxation By-law, s. 36). The taxes are as compulsory as any municipal tax on land or interests in land.

[36] The impugned charges are imposed under the authority of the legislature and levied by a public body. The by-laws are imposed pursuant to the power conferred by s. 83 of the Indian Act. The taxes are levied by the Band Council, under its conferred authority, and are approved by the Minister of Indian Affairs and Northern Development.

[37] The charges are levied for a public purpose. In this case, the public purpose is for general Band governance. Section 2(1) of the 1990 Taxation By-law and the 1994 Property Taxation By-law state that the levies are “for raising a revenue for local purposes”. As Lamer C.J. explained in Canadian Pacific Ltd. v. Matsqui Indian Band, 1995 145 (SCC), [1995] 1 S.C.R. 3, at para. 43, the purposes of these taxes are “to promote the interests of Aboriginal peoples and to further the aims of self-government”. Thus, as the Chief Justice pointed out (at para. 43), the taxes here are “more ambitious” than simple taxation. However, the existence of this secondary purpose does not remove these taxes from the head of power under which s. 83 is founded ^__ s. 91(3). Indeed, while the intention of Parliament in enacting s. 83 may have been to advance self-government, that does not mean that this is the specific purpose of the taxes themselves. Here, the specific purpose of these taxes is to simply raise revenue, to be brought into the discretionary spending accounts of the Band. No evidence has been brought demonstrating that these charges have a secondary purpose of discouraging or encouraging any behaviour of the respondent, nor have any other regulatory purposes been demonstrated.

[38] The appellant has also not demonstrated that these charges form a nexus with any regulatory costs such as to bring it into the type of charge contemplated by Allard, supra, and Ontario Home Builders’, supra. The charge forms no part of a regulatory scheme. Although the Indian Act is legislation in relation to Indian land, this is insufficient to meet the requirements for a “regulatory scheme” in the constitutional sense. There is insufficient evidence demonstrating that the charge is attached to any “complete and detailed code”; nor can it be said that this forms part of a “complex regulatory framework”. There are no costs of a regulatory scheme identified. Westbank does not seek to alter B.C. Hydro’s behaviour in any way. B.C. Hydro has not caused the need for any regulation, to which the charges adhere. Nor does it benefit from any regulation provided. In summary, these charges do not “regulate” in any sense of the word, and they are not attached to any scheme which does.

[39] I am also not convinced that there is any significance that can be attached to the fact that the charges are levied “for local purposes”, as opposed to charges which raise revenue for the federal Consolidated Revenue Fund. In Eurig Estate, supra, para. 20, the charge was directed to the “court administration in general”, as opposed to the general expenses of the province, and yet this was still held to be a tax. As in Eurig Estate, supra, at paras. 18-23, here there is only a loose, if any, relationship between the charge and any costs. I agree with the Attorney General of British Columbia’s submissions that the Constitution demands more precision in order to oust the operation of s. 125.

[40] None of the foregoing suggests that Westbank is constitutionally incapable of levying properly authorized regulatory charges or user fees on B.C. Hydro. In this regard, I note that the authorizing by-laws and the agreements entered into between B.C. Hydro and Westbank allow for the payment of regulatory charges in a manner which complies with the Constitution. Section 36(1) of the 1990 Assessment By-law states that land held on behalf of the Crown shall be “liable to assessment under this section, subject to the Constitution Act, S.C.” (emphasis added). Section 125 was thus contemplated. In addition, clause 2 of the July 22, 1960 agreement between B.C. Hydro and the Crown, for example, states that B.C. Hydro “shall pay all charges, taxes, rates and assessments whatsoever which shall during the continuance of the rights hereby granted be due and payable or be expressed to be due and payable in respect of the said lands”. Although this clause refers to “taxes”, these must be interpreted to refer to those taxes authorized under the Constitution, as explicitly provided by the by-law, such as provincial taxes, which the province can levy on one of its agents: La Forest, supra, at pp. 182-83; P. Lordon, Crown Law (1991), at pp. 487-88. The remainder of this clause provides for the payment of all charges and levies constitutionally applicable to B.C. Hydro. The impugned tax simply is not one of those types of charges. For these reasons, the appeal must fail.

[41] As it is my opinion that s. 125 renders these taxation by-laws inapplicable to the respondent, it is unnecessary to answer the third question framed by the Chief Justice.

VII - Summary

[42] Section 125 of the Constitution Act, 1867, advances the goals of federalism and democracy by according a degree of operational space to each level of government, free from interference by the other. It prohibits one level of government from taxing the property of the other. However, it does not prohibit the levying of user fees or other regulatory charges properly enacted within the government’s sphere of jurisdiction.

[43] In order to determine whether the impugned charge is a “tax” or a “regulatory charge” for the purposes of s. 125, several key questions must be asked. Is the charge: (1) compulsory and enforceable by law; (2) imposed under the authority of the legislature; (3) levied by a public body; (4) intended for a public purpose; and (5) unconnected to any form of a regulatory scheme? If the answers to all of these questions are affirmative, then the levy in question will generally be described as a tax.

[44] As is evident from the fifth inquiry described above, the Court must identify the presence of a regulatory scheme in order to find a “regulatory charge”. To find a regulatory scheme, a court should look for the presence of some or all of the following indicia of a regulatory scheme: (1) a complete, complex and detailed code of regulation; (2) a regulatory purpose which seeks to affect some behaviour; (3) the presence of actual or properly estimated costs of the regulation; (4) a relationship between the person being regulated and the regulation, where the person being regulated either benefits from, or causes the need for, the regulation. This list is not exhaustive. In order for a charge to be “connected” or “adhesive” to this regulatory scheme, the court must establish a relationship between the charge and the scheme itself. This will exist when the revenues are tied to the costs of the regulatory scheme, or where the charges themselves have a regulatory purpose, such as the regulation of certain behaviour.

[45] In the case at bar, the levies are properly described as being, in pith and substance, taxation enacted under s. 91(3) of the Constitution Act, 1867. They are enforceable by law, imposed under the authority of the legislature, and are levied by a public body for a public purpose. The appellant has not demonstrated that the levies are connected to a “regulatory scheme” which could preclude the application of s. 125. The charge does not form any part of a detailed code of regulation. No costs of the regulatory scheme have been identified, to which the revenues from these charges are tied. The appellant does not seek to influence the respondent’s behaviour in any way with these charges. There is no relationship between B.C. Hydro and any regulation to which these charges adhere. Although the Indian Act is legislation in relation to “Indians, and Lands reserved for the Indians”, this does not, in itself, create a “regulatory scheme” in the sense required by the Constitution.

[46] As these taxes are imposed on B.C. Hydro, which it is conceded is an agent of the provincial Crown, s. 125 is engaged. As such, the taxation and assessment by‑laws are inapplicable to the respondent. As this appeal can be dismissed on the second constitutional question, I find it unnecessary to consider the third constitutional question. The respondent does not seek costs in this appeal. Accordingly, it is my opinion that the appeal must be dismissed, without costs. I would therefore answer the constitutional questions as follows:

1. Is the Province constitutionally competent to constitute the Respondent, British Columbia Hydro and Power Authority (“B.C. Hydro”), an agent of the Province for the purpose of acquiring and holding interests within exclusive federal jurisdiction, namely an interest in land on an Indian Reserve?

Answer: Conceded by the appellant.

2. If the answer to question 1 is yes, is the interest of B.C. Hydro, an agent of Her Majesty the Queen in Right of British Columbia, in land and improvements located on the reserves (“Reserves”) of the Appellant, Westbank First Nation (“Westbank”) immune, as a result of the application of s. 125 of the Constitution Act, 1867, from taxation imposed by Westbank pursuant to assessment and taxation by-laws (“By-law”) promulgated pursuant to the authority of s. 83(1)(a) of the Indian Act, R.S.C., 1985, c. I-5? If so, are such By-laws purporting to impose such taxation ultra vires, or inapplicable to B.C. Hydro?

Answer: Yes. The By-laws are constitutionally inapplicable to B.C. Hydro, an agent of Her Majesty the Queen in Right of British Columbia.

3. If the answer to question 2 is no, does the Indian Act, R.S.C., 1985, c. I-5, authorize the passing of by-laws imposing taxation on the interests of the Provincial Crown or its agents on Indian reserves? If not, are the By-laws ultra vires or inapplicable to the extent that they purport to impose taxation on the interests of B.C. Hydro on the Westbank Reserves?

Answer: Given the answer to question 2, it is unnecessary to answer this question.

Appeal dismissed.

Solicitors for the appellant: Woodward & Company, Victoria.

Solicitors for the respondent: Lawson, Lundell, Lawson & McIntosh, Vancouver.

Solicitor for the intervener the Attorney General of Quebec: The Department of Justice, Sainte-Foy.

Solicitor for the intervener the Attorney General of Manitoba: The Department of Justice, Winnipeg.

Solicitor for the intervener the Attorney General of British Columbia: The Ministry of the Attorney General, Victoria.