The Supreme Court of Canada's approach to the recovery of ultra vires taxes: at the border of private and public law

University of Toronto Faculty of Law Review, Wntr, 2008 by Michael Pal

I INTRODUCTION

II THE RESTITUTION OF ULTRA VIRES TAXES: THE CANADIAN
LAW PRIOR TO KINGSTREET
   Amax Potash
   Air Canada v. British Columbia
   Air Canada v. Ontario (LCBO)
   Re Eurig Estate
   Summary

III KINGSTREET V. NEW BRUNSWICK (DEPARTMENT OF FINANCE)
   Facts
   At Trial--The New Brunswick Court of Queen's Bench
   On Appeal--The New Brunswick Court of Appeal
   At the Supreme Court of Canada
     The Death of the Immunity Rule from Air Canada
     The Relationship between Constitutional and Restitutionary
     Principles
     The 'Passing On' Defence
     Limitation Periods and Ultra Vires Taxation

IV  NARROWING THE REACH OF KINGSTREET: CANADA (ATTORNEY GENERAL)
V. HISLOP

V CONCLUSION: THE RESTITUTION OF ULTRA VIRES TAXES
GOING FORWARD

Abstract

This article explores the Supreme Court of Canada's approach to the recovery of ultra vites taxes in two recent cases, Kingstreet Investments Ltd. v. New Brunswick (Department of Finance) and Canada (Attorney General) v. Hislop. Ultra vires taxation refers to the collection of taxes by a government when those moneys are levied pursuant to an unconstitutional statute, regulation or order-in-council, or by a statutory authority acting outside of the bounds of its enabling legislation.

The article argues that in Kingstreet, the Supreme Court correctly adopted an essentially constitutional law rather than a restitutionary or private law framework in deciding cases of ultra vires taxation. This framework was appropriate given the fundamental constitutional principles at stake--no taxation without representation and the rule of law. It is further argued, however, that because these fundamental constitutional principles are at issue, the recovery of ultra vires taxation should not have been categorized as a separate, third branch of the law of restitution by the Court; nor should the recovery of ultra vires taxes have been made subject to ordinary statutory limitation periods. Furthermore, although the Court was correct in holding that the 'passing on' defence was inapplicable in cases of ultra vires taxation, the article notes that the decision in Kingstreet may undermine the use of the defence in other areas of the law.

The article also argues that Hislop unduly restricts the scope of the reasoning in Kingstreet that ultra vires taxes should be recoverable by the taxpayer. By holding that Kingstreet does not apply in cases where unjust enrichment of the state has occurred through compulsory benefit schemes, Hislop severely limits the circumstances in which payments made to the state pursuant to an unconstitutional statute may be recovered.

Resume

Cet article explore l'approche de la Cour Supreme du Canada pour recuperer les taxes ultra rires dans deux cas recents, Kingstreet Investments Ltee c. le Nouveau-Brunswick (Ministere des Finances) et Canada (Procureur general) c. Hislop. L'imposition ultra vires porte sur le recouvrement de l'impot par un gouvernement lorsque l'imposition est effectuee selon un reglement, un decret, ou une loi anticonstitutionnelle, ou une autorite legislative qui agit en dehors des limites de son mandat.

L'article avance que, dans Kingstreet, la Cour Supreme a adopte une loi essentiellement correcte d'un point de vue constitutionnel, au lieu d'un cadre base sur la restitution ou sur le droit prive, pour rendre jugement dans les cas d'imposition ultra vites. Cette approche est appropriee, etant donne les principes constitutionnels fondamentaux impliques--pas de taxation sans representation, et la primaute d'un Etat de Droit. Cependant, l'argumentation continue puisque, etant donne les principes constitutionnels fondamentaux qui sont en question, la Cour n'aurait pas du classifier la recuperation d'imposition ultra vires separement en tant que troisieme ramification de la loi sur la restitution; la recuperation de taxes ultra vires ne devrait pas non plus etre assujettie aux periodes limites statutaires conventionnelles. De plus, bien que la Cour ait pris la bonne decision en jugeant que la defense de "passing on" etait inapplicable dans les cas de taxes ultra vires, l'article indique que la decision dans Kingstreet pourrait limiter l'emploi de la defense dans d'autres aspects de la loi.

L'article avance aussi que Hislop limite excessivement la portee du raisonnement dans Kingstreet qui etablit que les contribuables devraient pouvoir recuperer les taxes ultra vires. En confirmant que Kingstreet ne s'applique pas aux cas ou l'enrichissement injustifie de l'etat decoule de programme d'avantages sociaux obligatoires, Hislop limite severement les circonstances ou les paiements faits a l'etat suite a une loi anticonstitutionnelle peuvent etre recuperes.

I INTRODUCTION

This article will evaluate the current Canadian law of restitution as it relates to ultra vires taxation. Ultra vires taxation refers to the collection of fees or taxes by the government when those moneys are levied pursuant to an unconstitutional statute, regulation, or order-in-council, or by a statutory authority acting outside of the bounds of its enabling legislation. The law on ultra vires taxes is on the border between public and private law. On the one hand, it implicates the following foundational concepts and principles of the Canadian constitutional order: (1) the separation of powers between the judiciary, legislatures, and the executive; (2) the division of powers between the federal and provincial governments; and (3) the rule of law. On the other hand, levying ultra vires taxes leads taxpayers to seek recovery for moneys unconstitutionally collected by the state. Cases of ultra vires taxation are therefore also about justice between the opposing parties in a private law action for the restoration of those moneys paid to the government. Allowing governments to retain ultra vires taxes is essentially to condone arbitrary state action or, in other words, to permit governments to do what is legally impermissible. The underlying importance of the Canadian law on ultra vires taxation is the fact that it establishes whether arbitrary state action will be countenanced.