Who Says There’s No Dialogue? (Kingstreet Investments v. New Brunswick (Finance))

The first judgment released by the Supreme Court in 2007, on January 11, was Kingstreet Investments v. New Brunswick (Finance), 2007 SCC 1 [Kingstreet]. The only issue raised in Kingstreet was whether the provincial revenue agency should be obligated to return to a taxpayer funds collected that constituted an illegal tax.

The taxpayer in this case, Kingstreet Investments, was a company operating several nightclubs in Fredricton and Moncton. From 1998 to 2004, they purchased their alcohol from the New Brunswick Liquor Corporation. In addition to paying the retail price, they also paid a surcharge ranging from 5 to 11 per cent. The total amount of taxes paid was over $1 million. Kingstreet variously characterized these charges as indirect taxes (which they argued were ultra vires the provincial government) and direct taxes (which they argued had been illegally imposed by regulation rather than by an act of the Legislature). The New Brunswick Court of Appeal held that the charge was an unconstitutional indirect tax. The Supreme Court of Canada (“SCC”) accepted this finding and proceeded to examine only the issue of relief.

The SCC held that the government was obligated to return the money collected. Although it had been argued that the government should be obligated to return the taxes based on the private law remedy of unjust enrichment, the SCC rejected this view and held that it was better to view the obligation as arising from constitutional law principles and the rule of law (citing the old battle cry of the American Revolution, “No taxation without representation!”).

However, in rejecting the New Brunswick government’s argument that this obligation could lead to fiscal crisis, Justice Bastarache noted that

“this Court’s decision in Air Canada demonstrates that it will be open to Parliament and to the legislatures to enact valid taxes and apply them retroactively, so as to limit or deny recovery of ultra vires taxes.”

That line, of course, hints at the fact that – unlike in many cases – the story does not end with the release of the judgment. Although the tax had been held to have been levied “without representation,” those representatives were waiting in the wings. Needless to say, the government of New Brunswick was unlikely to cut a cheque for $12 million (their estimate of the total collected through these levies) to the province’s night club proprietors. Within a month of the decision, they had introduced retroactive legislation to charge a tax equal to the fees that had been collected (though it appears that Kingstreet gets to keep their $1 million).

“After a thorough review of the decision, government has decided that it is in the best interest of New Brunswick to pass legislation to retroactively establish a tax between 1998 and 2004 in line with the Supreme Court decision in the appeal of Kingstreet Investments for repayment,” Public Safety Minister John Foran said. “We believe that New Brunswickers would sooner have that money spent on things like education and health care.”

Who says there’s no dialogue between the courts and the legislatures?

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