COURT FILE NO.: CV-08-369450

DATE: 20120330

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

THE HOSPITAL FOR SICK CHILDREN and THE HOSPITAL FOR SICK CHILDREN FOUNDATION

Applicants

– and –

THE MUNICIPAL PROPERTY ASSESSMENT CORPORATION, REGION NO. 9 (“MPAC”), and THE CITY OF TORONTO

Respondents

Stephen Longo, for the Applicants

Donald Mitchell, for the Respondent, The Municipal Property Assessment Corporation, Region No. 9

HEARD: January 18, 2012

T. McEwen J.

REASONS FOR DECISION

Overview

[1] This is an application for an exemption from property taxation made pursuant to section 46 of the Assessment Act, R.S.O. 1990, c. A. 31.

[2] Subsection 3(1)(6) of the Assessment Act provides an exemption from municipal assessment and taxation for “land used and occupied by a public hospital that receives provincial aid under the Public Hospitals Act but not any portion of the land occupied by a tenant of the hospital.”

[3] The term “Public Hospital” is not defined in the Assessment Act or the Public Hospitals Act, R.S.O. 1990, c. P.40. The term is, however, referred to in the recently amended definition of “hospital” in section 1 of the Public Hospitals Act. It means “any institution, building or other premises or place that is established for the purpose of the treatment of patients and that is approved under this Act as a public hospital.” Since the Hospital for Sick Children (“HSC”) meets this definition, it is entitled to tax exempt status.

[4] Section 32 of the Public Hospitals Act allows the Minister of Health and Long Term Care (“the Minister”) to define “hospital foundation” and “hospital subsidiary.” In 1996, regulations were enacted defining “hospital foundation” as including a corporation, other than an hospital, that is a registered charity under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp), but which is not a private foundation that has as its principal object the object of benefiting one or more hospitals or hospital foundations. In 1998, regulations were enacted revoking the definition of “hospital foundation” and eliminating the requirement for hospital foundations to provide financial statements to the Minister. Currently, there is no definition of “hospital foundation” in the legislation. The definition of “hospital subsidiary” remains in the regulation. It is defined as “a corporation that is controlled directly or indirectly in any manner by one or more hospitals.”

[5] The Applicants, HSC and the Hospital for Sick Children Foundation (“the Foundation”) (collectively, “the Applicants”), seek a declaration that the Foundation’s offices located on part of the 12th, 13th and 14th floors (“the subject premises”) of the building known municipally as 525 University Avenue, Toronto (“the subject property”) are exempt from property taxation, since they constitute land used and occupied by HSC, a public hospital receiving provincial aid under the Public Hospitals Act, as amended. The application involves the 2008 tax year and all subsequent years for which the space is occupied by HSC or the Foundation.

[6] The Applicants submit that even though the Foundation alone cannot receive the exemption, the exemption should be available to the Foundation since it is responsible for all fundraising activities carried out on behalf of HSC. This creates a shared identity or patrimony between HSC and the Foundation. Accordingly, the Foundation should enjoy the same tax exempt status as HSC.

[7] HSC does not own the subject property and occupies the subject property by way of a lease. HSC allows the Foundation to use and occupy the subject premises. The Foundation reimburses HSC for HSC’s operating costs related to the subject premises. The Foundation exercises control over the subject premises, although HSC employees have access to the subject premises.

[8] HSC is incorporated pursuant to An Act to incorporate the Hospital for Sick Children, 1892. It is an independent corporation governed by its own Board of Trustees.

[9] The Foundation was incorporated in 1972 pursuant to the laws of Ontario as a corporation without share capital. The Foundation is a public foundation registered under the Income Tax Act and is exempt from payment of income tax. The Foundation may issue donation receipts for income tax purposes.

[10] HSC and the Foundation, while separate legal entities, share certain governing structures. The Governance Model adopted by the Foundation’s Board of Directors and HSC’s Board of Trustees states that the Foundation and HSC “share common strength of purpose and common profound commitment to SickKids.” The model provides for five cross appointments between the Boards of HSC and the Foundation as well as cross reporting between the Boards of HSC and the Foundation not less than quarterly. The names “SickKids Foundation” and “SickKids” are trademarked and the Foundation uses these marks with the consent of HSC.

[11] The Foundation is HSC’s largest source of non-government revenue. It is responsible for all fundraising activities carried out on behalf of HSC. For the last three years grants to HSC have averaged 95% of all grants made by the Foundation. Since its creation, the Foundation has raised approximately $750 million for HSC. In the year ending March 31, 2010, the Foundation provided $47.9 million to HSC. HSC and the Foundation have two ongoing, specific funding agreements that provide that the Foundation’s funding commitment to HSC will be in excess of $225 million over the next five years. Approximately 80% of the funds that HSC receives from the Foundation go towards medical research. A smaller percentage goes towards patient care.

[12] Although the Foundation raises considerable amounts of money for HSC, the monies raised by the Foundation and given to HSC only constitute approximately 7% of the overall financing of the operations of HSC. The vast majority of HSC’s funding comes from the provincial government pursuant to the provisions of the Public Hospitals Act.

[13] The Foundation, pursuant to its Letters Patent, can also raise funds for the benefit of any other hospital, university or medical association or any other association, foundation or person in respect of activities related to the health of children. In fact, the Foundation does raise monies for other organizations and approximately 10% of the monies raised by the Foundation are provided to organizations other than HSC. These organizations have included The University of Western Ontario, The Canadian Association of Paediatric Health Centres, Capital Health Edmonton, University of British Columbia, University of Toronto, British Columbia’s Children’s Hospital, McMaster University, Chuq-Hopital-St-François d-Assise and University of Alberta.

[14] Upon dissolution of the Foundation, its property would not become the property of HSC. Its Letters Patent dictate that the Foundation’s remaining property after payment of all debts and liabilities “shall be distributed or disposed of to charitable organizations that carry out their work solely in Canada.”

The Position of the Parties

Position of the Applicants

[15] HSC and the Foundation acknowledge that the Foundation operates as a separate legal entity from HSC. They submit, however, that there is an interdependence and alignment of priorities between HSC and the Foundation that result in such a close connection and relationship that they should be treated as one and receive the exemption.

[16] The applicants primarily rely on the following indicia of a shared identity or patrimony as follows:

(a) the Foundation exists to raise funds for, and on behalf of, HSC;

(b) HSC directs the fundraising priorities of the Foundation;

(c) the Foundation has a presence in HSC property and accepts donations on HSC property;

(d) the governing structures of HSC and the Foundation are inter-connected;

(e) there is an implied disclosure of personal donor information to both the Foundation and HSC;

(f) “SickKids Foundation” and “SickKids” are Official Marks owned by HSC and used by the Foundation with the consent of HSC;

(g) the funds raised by the Foundation for and on behalf of HSC are essential to the functioning of HSC as a public hospital;

(h) the creation of a separate Foundation from HSC for the purposes of raising funds for HSC allows HSC to focus on its core competencies and this promotes greater efficiency and delivery of services; and

(i) the legal name of the Foundation is The Hospital for Sick Children Foundation.

[17] The Applicants also point out that the Municipal Property Assessment Corporation, Region No. 9 (“MPAC”) has not sought to impose property taxation on a small amount of space occupied by the Foundation at a HSC building located at 555 University Avenue. In my view, however, not much turns on this fact. The space occupied by the Foundation at 555 University Avenue involves a small space that is identified to the public as “the Foundation Desk.” It accepts donations. This is far different from the subject premises and is of little relevance to the issue I must decide.

Position of MPAC

[18] MPAC submits that the foundation is a mere tenant of HSC and there is not a shared patrimony between them. Accordingly, the Foundation should be responsible for the payment of property tax with respect to the subject premises.

[19] In support of its argument, MPAC primarily relies on the following:

(a) the stated objects of the Foundation are, as set out in its Letters Patent, in addition to assisting HSC, to assist any other hospital, university, medical association or any other association;

(b) the Foundation is not a public hospital;

(c) the Foundation is a separately incorporated entity;

(d) the Foundation keeps its assets separate and apart from HSC;

(e) the Foundation raises and maintains funds for other charitable purposes;

(f) most of the monies given by the Foundation to HSC are dedicated to research as opposed to patient care;

(g) HSC and the Foundation have a Governance Model that acknowledges that the two may have different interests and as such contains a “Process for Issue Resolution;”

(h) upon dissolution of the Foundation, its property does not become the property of HSC; and

(i) no legislation has been enacted to incorporate the Foundation into the HSC or make the Foundation part of the HSC.

[20] In support of its submissions, MPAC submits that HSC and the Foundation maintain separate corporate entities and separate maintenance of their properties for very good and compelling reasons. These reasons include keeping the Foundation’s assets separate in the event of a successful court claim against the HSC, preventing dissipation of capital assets by future Boards of Directors or Boards of Trustees of the HSC and having the Foundation assist in preserving capital from the Ministry of Health and Long Term Care for the local health integration network.

[21] Gary Funderlich, the Vice-President and Corporate Secretary of the Foundation, agreed at his cross-examination that the Foundation’s assets would not be available to a successful tort claimant in a claim against HSC. He also agreed that one of the benefits of having the Foundation separate from HSC is that it may prevent dissipation of capital assets by future boards of HSC. Mr. Funderlich did not provide evidence with respect to preserving capital from the Ministry of Health and Long Term Care but, given the Foundation’s position above, in my view, it would be fair to conclude that the same capital preservation would likely remain in effect with respect to the Ministry: see Bloorview Childrens Hospital Foundation v. Bloorview MacMillan Centre, 2002 CanLII 49641 (ON SC), [2002] O.J. No. 521.

Analysis

[22] As noted, HSC is entitled to an exemption from municipal taxation based on the provisions of section 3(1)(6) of the Assessment Act.

[23] The section provides as follows:

3. (1) All real property in Ontario is liable to assessment and taxation, subject to the following exemptions from taxation:

Public hospitals

6. Land used and occupied by a public hospital that receives provincial aid under the Public Hospitals Act but not any portion of the land occupied by a tenant of the hospital.

Section 1 of the Act defines a tenant as follows:

“tenant” includes an occupant and the person in possession other than the owner;

[24] Given the broad definition of “tenant,” it is my view that the Foundation is clearly a tenant of the subject premises. The Foundation occupies and is in possession of the subject premises as evidenced by their continuous use of the premises and the payment of the common expenses for the subject premises.

[25] The issue of the occupation of the subject premises by the Foundation becomes immaterial if I conclude that HSC remains in occupation of the subject premises as a result of the shared identity or patrimony between HSC and the Foundation: see University Health Network v. Municipal Property Assessment Corp., [2006] O.J. No.3565 (S.C.); Ottawa Salus Corporation v. Municipal Property Assessment Corporation et al. (2004), 2004 CanLII 14620 (ON CA), 69 O.R. (3d) 417 (C.A.).

[26] The Supreme Court of Canada in its decisions in Buanderie centrale de Montréal Inc. v. Montreal (City), 1994 CanLII 59 (SCC), [1994] 3 S.C.R. 29 at para. 25 and Quebec (Communauté urbaine) v. Corp. Notre-Dame de Bon Secours, 1994 CanLII 58 (SCC), [1994] 3 S.C.R. 3 at para. 25, sets out the governing principles in interpreting property tax legislation as follows:

(a) the interpretation of tax legislation should follow the ordinary rules of interpretation;

(b) a legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent: this is the teleological approach;

(c) the teleological approach will favour the taxpayer or the tax department depending solely on the legislative provision in question, and not on the existence of predetermined presumptions;

(d) substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute; and

(e) only a reasonable doubt, not resolved by the ordinary rules of interpretation, will be settled by recourse to the residual presumption in favour of the taxpayer.

[27] The evolution of the these governing principles was summarized by Perell J. in University Health Network as follows:

[33] Recently, in Placer Dome Canada Ltd. v. Ontario (Minister of Finance), [2006] S.C.J. No. 20, 2006 SCC 20, the Supreme Court of Canada revisited the matter of the interpretation of taxation statutes, and the Court reiterated the contemporary approach it had been following with a reminder that the interpreter is not to usurp the role of the legislator. LeBel, J. delivered the judgment of the Court, and he described the general principles in paragraphs 21 to 24 of his judgment. He stated:

[21] In Stubart Investments Ltd. v. The Queen, 1984 CanLII 20 (SCC), [1984] 1 S.C.R. 536, this Court rejected the strict approach to the construction of taxation statutes and held that the modern approach applies to taxation statutes no less than it does to other statutes. That is, “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament” (p. 578): see 63502 British Columbia Ltd. v. Canada, 1999 CanLII 639 (SCC), [1999] 3 S.C.R. 804, at para. 50. However, because of the degree of precision and detail characteristic of many tax provisions, a greater emphasis has often been placed on textual interpretation where taxation statues are concerned: Canada Trustco Mortgage Co. v. Canada, [2005] 2 S.C.R. 601, 2005 SCC 54, at para. 11. Taxpayers are entitled to rely on the clear meaning of taxation provisions in structuring their affairs. Where the words of a statute are precise and unequivocal, those words will play a dominant role in the interpretive process.

[22] On the other hand, where the words of a statute give rise to more than one reasonable interpretation, the ordinary meaning of words will play a lesser role, and greater recourse to the context and purpose of the Act may be necessary: Canada Trustco, at para. 10. Moreover, as McLachlin C.J. noted at para. 47, “[e]ven where the meaning of particular provisions may not appear to be ambiguous at first glance, statutory context and purpose may reveal or resolve latent ambiguities”. The Chief Justice went on to explain that in order to resolve explicit and latent ambiguities in taxation legislation, “the courts must undertake a unified textual, contextual and purposive approach to statutory interpretation”.

[23] The interpretive approach is thus informed by the level of precision and clarity with which a taxing provision is drafted. Where such a provision admits of no ambiguity in its meaning or in its application to the facts, it must simply be applied. Reference to the purpose of the provision “cannot be used to create an unexpressed exception to clear language”: see P.W. Hogg, J.E. Magee and J. Li, Principles of Canadian Income Tax Law (5th ed. 2005), at p. 569; Shell Canada Ltd. v. Canada, 1999 CanLII 647 (SCC), [1999] 3 S.C.R. 622. Where, as in this case, the provision admits of more than one reasonable interpretation, greater emphasis must be placed on the context, scheme and purpose of the Act. Thus, legislative purpose may not be used to supplant clear statutory language, but to arrive at the most plausible interpretation of an ambiguous statutory provision.

[24] Although there is a residual presumption in favour of the taxpayer, it is residual only and applies in the exceptional case where application of the ordinary principles of interpretation does not resolve the issue: Notre-Dame de Bon-Secours, at p. 19. Any doubt about the meaning of a taxation statute must be reasonable, and no recourse to the presumption lies unless the usual rules of interpretation have been applied, to no avail, in an attempt to discern the meaning of the provision at issue …

[34] In the context of the case at bar, an initial step in applying the contemporary approach to the interpretation of the Assessment Act is to determine both its general purpose and also the purpose of the particular exemption that is the subject of this case.

[35] The general purpose of the Assessment Act is to raise revenues through property taxation so that municipal governments can meet their expenditures while recognizing that there should be exemptions for certain organizations to allow them to spend more of their limited resources on activities that are of a great benefit to either discrete groups of disadvantaged persons or to society as a whole: Ottawa Salus Corporation v. Municipal Property Assessment Corp., supra.

[36] The exemption provided in paragraph 6 of Section 3(1) is provided to free public hospitals from the burden of municipal taxation so that they may devote their financial resources to the treatment of patients and medical research and to other public services they are created to provide: Wellesley Hospital v. Ontario Regional Assessment Commissioner, Region No. 9 (1990), 1990 CanLII 6630 (ON SC), 18 O.R. (3d) 383 (Div. Ct.).

[28] Having applied the contemporary approach to the interpretation of the Assessment Act, and having considered the decisions of Buanderie, Salus and University Health Network, which I consider to be the governing cases concerning the issue before me, I have concluded that the Foundation does not share a sufficient identity or patrimony with HSC such that the Foundation can claim the exemption for a public hospital. In my view, the Foundation, at its core, is a fundraising agency that has, at least for the time being, aligned itself primarily with HSC. It has, however, maintained important distinctions that defeat a claim of patrimony.

[29] First and foremost, the Foundation and HSC have purposefully created independent corporate organizations with separate governance, accounting, objects and purposes. As Perell J. stated in University Health Network at para. 48, “in the context of taxation assessment cases, courts do not ignore the separate corporate personality of related companies unless it can be shown that the subordinate company has no independent functioning of its own: Aluminium Company of Canada Limited v. The Corporation of the City of Toronto, [1994] S.C.R. 247; Re Hydro-Electric Power Commission of Ontario and Thorold and Pelham (Townships), [1924] O.J. No. 45 (C.A.); Toronto Stock Exchange v. Regional Assessment Commissioner, Region No. 9 (1996), 1996 CanLII 913 (ON CA), 29 O.R. (3d) 634 (C.A.).”

[30] In this case, I cannot conclude that the Foundation is a subordinate company with no independent functioning of its own. Although HSC and the Foundation undoubtedly have a close connection and interconnected governing structures, the Foundation remains its own independent corporation, with its own Board of Directors and source of funding. Although HSC is involved with respect to the distribution of funds from the Foundation to HSC, there is no evidence to suggest that the funds are treated as anything other than the Foundation’s own funds. There are compelling reasons for this, being the preservation of capital from potential tort claims and other creditors of HSC, as well as the preservation of capital from dissipation by future Boards of HSC, or by the Ministry of Health and Long Term Care.

[31] To my mind, these steps constitute a deliberate and practical strategy to create and maintain separate organizations, which takes the relationship of the parties outside the realm of patrimony.

[32] I have concluded that there are important distinguishing facts between this case and the facts in the cases of Buanderie and University Health Network. These distinctions warrant an explanation. Both Buanderie and University Health Network dealt with hospital subsidiaries. Buanderie was a non-profit corporation created pursuant to the Companies Act, R.S.Q. 1964 C. 271. Up until its establishment, the hospitals involved had their own laundry services. The purpose of establishing the Buanderie was to provide public hospital establishments with a common laundry and linen service. Similarly, in University Health Network, Shared Healthcare Supply Services Limited (“SHSS”) was created under the Business Corporations Act, R.S.O. 1990, c. B.16 and was a ”hospital subsidiary” under section 32(4) of the Public Hospitals Act. The function of SHSS was to provide “back-office hospital services” for several hospitals and a few other non-public hospital clients. In both cases the entities were created to rationalize operations and reduce the costs of the hospital establishments: see University Heath Network at para. 43.

[33] In Buanderie at para. 44, Gonthier J. noted that:

It seems to me that the Regional Council and the Buanderie form a single “conduit” to the establishments they serve and that this situation is not affected by the fact that the administrative functions or the titular ownership of property have been conferred on them. In pursuing its objective the legislature made no essential change to the substance of the patrimony of the establishments as a whole, whether in terms of financial responsibility or ownership of property. Taxation relates solely to patrimony. It may therefore be concluded that, in requiring the creation of a community laundry, the legislature did not intend to affect the exempt status which had always applied to the public establishments before they were merged. No indication is given to the contrary. Such conclusion would run counter to the legislature’s aim of reducing costs.

[34] In adopting the reasoning in Buanderie, and reaching the same conclusion, Perell J., in University Health Network at para. 53, held as follows:

I would apply the interpretive logic of the Buanderie case to the case at bar. By analogy, while the hospital subsidiary corporations in the immediate case are not the alter egos of any public hospital and while the hospital subsidiary corporations in the immediate case do not expressly come within the definition of public hospital (in particular because they are not listed on the Ministry’s website as such), they share a patrimony (indeed, as great if not a greater patrimony than manifested in the Buanderie case) and, accordingly, and consistent with the purpose of the Public Hospitals Act, the legislature must have intended that the hospital subsidiary corporations in this case be treated in the same fashion as public hospitals for the purposes of the exemption for public hospitals in the Assessment Act.

[35] Unlike Buanderie and University Health Network, there is no governmental or legislative intent to suggest that the Foundation be treated in the same fashion as HSC. Furthermore, in those cases, the hospitals decided to consolidate supply services to save costs and as such, the subsidiary corporations were created and paid out of the operating budgets. That is far different from the facts of this case.

[36] In addition to the Buanderie and University Health Network cases, I am also guided by the decision of the Divisional Court in Wheatley Harbour Authority Corporation v. Municipal Property Assessment Corporation, 2010 ONSC 2499, 319 D.L.R. (4th) 723. In that case, property owned by the Crown was leased to the Harbour Authority for rent of $1 per year. One of the issues that arose on the appeal was whether the Harbour Authority shared patrimony with the Crown such that the Harbour Authority was exempt from property tax. Sachs J. wrote, at para. 34:

The Harbour Authorities do no more than carry on the same activities that the Crown did before their formation. They were formed in the expectation that because of local input they would be able to carry out those activities more efficiently and effectively, thus freeing up more resources to devote to the program. The Harbour Authorities and their operations continue to be strictly supervised by the Crown. The Crown determines the charges that they levy, pays for all major repairs, and provides them with financing. In the event of dissolution their assets revert to the Crown. They make no profit. Their budget is determined by the cost of their operations and they must report to the Crown on an annual basis with respect to their financial operations. The Crown also has a say in granting final approval to the annual operating budget. Given these realities, the Harbour Authorities have an identity of patrimony with the Crown.

[37] Unlike Wheatley, it cannot be said that the Foundation simply carries on the same Fundraising activities as HSC; nor is it supervised by HSC; nor in the event of dissolution would the Foundation’s assets revert to HSC; nor do they report to HSC on an annual basis with respect to their financial operations. While it is true that HSC is influential with respect to the charitable work of the Foundation, I cannot conclude that, overall, there is an identity of patrimony as was found in Wheatley.

[38] Lastly, I should note that the Applicants submit that section 3(1)(6) of the Assessment Act, refers to “land used or occupied by public hospitals” as opposed to more restrictive terminology that is included in the Assessment Act with respect to public educational institutions and philanthropic organizations. In each of those circumstances it is required that the land be “owned, used and occupied solely” (emphasis added) by the specified entities. The Applicants therefore argue that had the legislature meant to limit the exemption for a public hospital, it could have employed the same language which would lead to an exclusion of the concept of patrimony in this case. This argument was considered by the Ontario Court of Appeal in Salus, although the facts of this case are far different from the facts in Salus. In this case, I agree that had the word “solely” been included in the definition, it may well result in the concept of patrimony being ousted. I cannot conclude, however, based on my reasons above, that the opposite is true and that the exclusion of the word “solely” results in a finding of patrimony in this case. Further, no evidence was before the Court with respect to the legislative intent in drafting the sections referred to above. Accordingly, it would be entirely speculative to try to attempt to assume the Legislature’s intent in the circumstances of this case.

Disposition

[39] For the reasons above, I dismiss the application of HSC and the Foundation. Upon the agreement of the parties, there shall be no order as to costs.

T. McEwen J.

Released: March 30, 2012

COURT FILE NO.: CV-08-369450

DATE: 20120330

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

THE HOSPITAL FOR SICK CHILDREN and THE HOSPITAL FOR SICK CHILDREN FOUNDATION

Applicants

– and –

THE MUNICIPAL PROPERTY ASSESSMENT CORPORATION, REGION NO. 9 (“MPAC”), and THE CITY OF TORONTO

Respondents

REASONS FOR DECISION

T. McEwen J.

Released: March 30, 2012