620 Connaught: A Regulatory Fee, not a Tax

On February 29, 2008, the Supreme Court of Canada (“SCC”) released its judgment in 620 Connaught v Canada (Attorney General), [2008] 1 SCR 131.

The appellants represented over twenty bars, restaurant and hotel operating in Jasper National Park, Alberta. Each is required to pay an annual business license fee for the right to sell alcohol beverages in Jasper National Park. The Parks Canada Master List of Fees provides that a business licence for the sale of alcohol costs a base fee of $75 plus 3% of the gross value purchased annually for the sale of wine and spirits, and 2% of the gross value purchased annually for the sale of beer. The appellants challenged the legality of the fee, arguing that it represented not a regulatory charge validly imposed by the Minister of Canadian Heritage, but a tax, which was ultra vires the Minister’s power to impose. The SCC, like the Federal Court and the Federal Court of Appeal before it, dismissed the appellants’ argument.

The fees are imposed under the authority granted to the Minister of Canadian Heritage pursuant to s. 24 of the Parks Canada Agency Act, SC 1998, c 31. The appellants presented two arguments for why the fees they are forced to pay on the purchase of alcohol is a tax, rather than a valid fee. First, they argued that if the regulatory scheme relevant to the business license fee imposed upon them, then the fees they are forced to pay are unconnected to the regulations of their businesses in Jasper National Park. Therefore, the fees are a tax, and not a regulatory charge. Or, in the alternative, they argued that a regulatory scheme is too imprecisely defined to render the amounts collected valid regulatory charges of businesses generally or businesses selling alcohol specifically. In that case, there would be no nexus between the cost of the scheme and the business license fees collected as the revenues collected would be disproportionately high compared to the cost of the scheme. Once again the charge would be a tax ultra vires the Minister’s powers.

The government did not rely on the second, narrower regulatory scheme regulating only businesses generally or businesses selling alcohol. Instead, the government argued that the business license fees are ancillary to the regulatory scheme governing the administration and operation of Jasper National Park. The fees collected – which totalled $87,625 for 2003/2004 – were used to defray the cost of operating the park – which for the same period was forecast at $20.4 million. As such, the fees qualify as regulatory charges. The SCC affirmed the government’s position.

The SCC started its analysis by determining that the appropriate regulatory scheme was, as the government argued, the broader regulatory scheme for the operation and management of the park, not a narrower scheme relating only to businesses in Jasper. That established, the next step was to determine whether the fees paid were in pith and substance a tax or regulatory charge. As the fees in this case have the characteristics of both a tax and a regulatory charge, the SCC looked at the fees’ primary purpose to determine whether they should be characterized as a tax or a regulatory charge.

Regulatory charges, unlike user fees, are not imposed for the provision of specific services or facilities, but are usually imposed in relation to rights or privileges awarded by the government. The funds collected may be used to finance the scheme, or to alter individual behaviour, or simply to defray the cost of the regulatory scheme. By contrast, the SCC in Lawson v Interior Fruit and Vegetable Committee of Direction, [1931] SCR 357, later restated by Major J. in Eurig Estate (Re), [1998] 2 SCR 565, found the characteristics of the tax are that it is (1) enforceable by law; (2) imposed under the authority of the legislature; (3) levied by a public body; and (4) intended for a public purpose. To these, Gonthier J. in Westbank First Nation v British Columbia Hydro and Power Authority, [1999] 3 SCR 134 [“Westbank“], added a fifth consideration: that a government levy would be in pith and substance a tax if it was ‘unconnected to any form of a regulatory scheme.” The test for a regulatory fee set out in Westbank requires first, that a regulatory scheme is found and that it is relevant to the person being regulated under step one, and second, that there is a relationship between the levy and the scheme itself.

In this case, the SCC established that the regulation of Jasper National Park qualifies as a relevant regulatory scheme, and that the business license fees were sufficiently tied to the regulation of the park to qualify as regulatory fees.