P. H. L. F. Family Holdings Ltd. v. Canada
P. H. L. F. Family Holdings Ltd., Appellant, and
Her Majesty the Queen, Respondent
Action No. 93-1436(GST)I
Tax Court of Canada
Brulé T. C. J.
Heard:March 31, 1994
Judgment:June 17, 1994
Appeal from an assessment wherein the appellant objected to being taxed under the Goods and Services Tax legislation on the grounds of unconstitutionality. The appellant carried on business under the name of "Ida's Diner" and was registered under the GST provisions. Between January and September 1991, the appellant collected GST as required, but failed to remit any tax collected or to file necessary returns, and then ceased to collect any tax at all in October 1991. During the audit period of January 1, 1991 and June 30, 1992, the appellant neglected to remit GST arising from sales of taxable supplies through Ida's Diner in the amount of $15,227.33. The appellant objected to the GST on the procedural grounds that the GST legislation was not validly enacted because of the use of standing orders which infringed the privilege of Members of Parliament to engage in free debate. The appellant also raised a substantive argument that the GST was not with the federal power falling under section 91 of the Constitution Act, 1867 in that it circumscribed the provincial powers of taxation under section 92(2).
HELD:Appeal dismissed. The appellant's procedural objections could not be sustained as the appellant was really seeking to have the Court review the internal processes and controls applied by the House over its own members, a matter strictly within the House's jurisdiction. The courts did not have the jurisdiction to inquire into the mode in which legislation was passed. The appellant's substantive objections were also without merit. The GST clearly fell within the broad scope of the federal power under section 91(3). The GST was not a tax that conflicted with the exclusive provincial taxation power under section 92(2), as its object was not to raise money by direct taxation for provincial purposes.
Statutes, Regulations and Rules Cited:
Constitution Act, 1867, ss. 18, 91(3), 92(2). Excise Tax Act, R. S. C. 1985, c. E-15.
Parliament of Canada Act, R. S. C. 1985, c. P-1.
Larry H. Wackershauser, for the Appellant.
Carman R. McNary, for the Respondent.
JUDGMENT:--The appeal from the assessment made under Part IX of the Excise Tax Act, notice of which is dated October 14, 1992 and bears number 1021510 is dismissed on both procedural and substantive grounds.
REASONS FOR JUDGMENT
BRULÉ T. C. J.:This appeal results from Assessment No. 1021510 dated October 14, 1992 wherein the Appellant objected to being taxed under the Goods and Services Tax legislation ("GST") claiming such to be unconstitutional.
These were not in dispute at the hearing and may be summarized as follows:
i) The Appellant at all material times carried on business under the name and style of "Ida's Diner", in the town of Cochrane, Alberta.
ii) The Appellant registered under the GST provisions as account #104183249, by tax registration form dated September 16, 1990.
iii) Between January and September, 1991, the Appellant collected some amounts of GST as required, but failed to remit any such tax collected or to file necessary returns in respect of such collections, and then ceased to collect tax at all on or about October 2, 1991.
iv) During the audit period of January 1, 1991, and June 30, 1992, the Appellant neglected or refused to remit GST properly arising in respect of sales of taxable supplies through the business of Ida's Diner, in the total amount of $15,227.33, upon which interest and penalties have been properly accrued under the GST provisions in the amounts referred to in paragraph 3 above.
v) The Appellant through its principal and director has indicated that no objection is made to the "arithmetic" done in calculating the amount of tax, interest and penalty, but that objection is taken to the validity of the statutory provisions and hence the tax itself.
In this appeal there are two main points in contention of the same issue: one is procedural while the other is substantive in nature. The procedural question is the validity of the legislation based on the powers of Parliament to govern its law-making procedure. The substantive question is the constitutionality of the GST legislation based on sections 91 and 92 of the Constitution Act, 1867.
Relevant Statutory Provisions
1. Constitution Act, 1867, U. K., 30 & 31 Victoria, c. 3 [formerly the British North America Act]
"18. The privileges, immunities, and powers to be held, enjoyed, and exercised by the Senate and by the House of Commons, and by the members thereof respectively, shall be such as are from time to time defined by Act of the Parliament of Canada, but so that any Act of the Parliament of Canada defining such privileges, immunities, and powers shall not confer any privileges, immunities, or powers exceeding those at the passing of such Act held, enjoyed, and exercised by the Commons House of Parliament of the United Kingdom of Great Britain and Ireland, and by the members thereof.
91. 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 hereinafter enumerated; that is to say, -- [Emphasis added]
3. The raising of Money by any Mode or System of Taxation.
And any Matter coming within any of the Classes of Subjects enumerated in this Section shall not be deemed to come within the Class of Matters of a local or private Nature comprised in the Enumeration of the Classes of Subjects by this Act assigned exclusively to the Legislatures of the Provinces.
92. In each Province the Legislature may exclusively make Laws in relation to Matters coming within the Classes of Subject next hereinafter enumerated; that is to say, --
2. Direct Taxation within the Province in order to the raising of a Revenue for Provincial Purposes."
2. Excise Tax Act, R. S. C. 1985, c. E-15, as am.
Part IX, Division II: Goods and Services Tax, sections 165-170 incl.; 224-227 incl.
3. Parliament of Canada Act, R. S. C. 1985, c. P-1
"4. The Senate and the House of Commons, respectively, and the members thereof hold, enjoy and exercise
(a) such and the like privileges, immunities and powers as, at the time of the passing of the Constitution Act, 1867, were held, enjoyed and exercised by the Commons House of Parliament of the United Kingdom and by the members thereof, in so far as is consistent with that Act; and
(b) such privileges, immunities and powers as are defined by Act of the Parliament of Canada, not exceeding those, at the time of the passing of the Act, held, enjoyed and exercised by the Commons House of Parliament of the United Kingdom and by the members thereof."
4. Standing Orders of the House of Commons
"57:Immediately before the Order of the Day for resuming an adjourned debate is called, or if the House be in Committee of the Whole, any Minister of the Crown who, standing in his or her place, shall have given notice at a previous sitting of his or her intention so to do, may move that the debate shall not be further adjourned, or that the further consideration of any resolution or resolutions, clause or clauses, section or sections, preamble or preambles, title or titles, shall be the first business of the Committee, and shall not further be postponed; and in either case such question shall be decided without debate or amendment; and if the same shall be resolved in the affirmative, no Member shall thereafter speak more than once, or longer than twenty minutes in any such adjourned debate; or, if in Committee, on any such resolution, clause, section, preamble or title; and if such adjourned debate or postponed consideration shall not have been resumed or concluded before one o'clock in the morning, no Member shall rise to speak after that hour, but all such questions as must be decided in order to conclude such adjourned debate or postponed consideration, shall be decided forthwith."
78:(1)When a Minister of the Crown, from his or her place in the House, states that there is agreement among the representatives of all parties to allot a specified number of days or hours to the proceedings at one or more stages of any public bill, the Minister may propose a motion, without notice, setting forth the terms of such agreed allocation; and every such motion shall be decided forthwith, without debate or amendment.
(2) When a Minister of the Crown, from his or her place in the House, states that a majority of the representatives of the several parties have come to an agreement in respect of a proposed allotment of days or hours for the proceedings at any stage of the passing of a public bill, the Minister may propose a motion, without notice, during proceedings under Government Orders, setting forth the terms of the said proposed allocation; provided that for the purposes of this section of this Standing Order an allocation may be proposed in one motion to cover the proceedings at both the report and the third reading stages of a bill if that motion is consistent with the provisions of Standing Order 76(10). During the consideration of any such motion no Member may speak more than once or longer than ten minutes. Not more than two hours after the commencement of proceedings thereon, the Speaker shall put every question necessary to dispose of the said motion. Any proceeding interrupted pursuant to this section of this Standing Order shall be deemed adjourned.
(3) A Minister of the Crown who from his or her place in the House, at a previous sitting, has stated that an agreement could not be reached under the provisions of sections (1) or (2) of this Standing Order in respect of proceedings at the stage at which a public bill was then under consideration either in the House or in any committee, and has given notice of his or her intention so to do, may propose a motion during proceedings under Government Orders, for the purpose of allotting a specified number of days or hours for the consideration and disposal of proceedings at that stage: provided that the time allotted for any stage is not to be less than one sitting day and provided that for the purposes of this section of this Standing Order an allocation may be proposed in one motion to cover the proceedings at both the report and the third reading stages on a bill if that motion is consistent with the provisions of Standing Order 76(10). During the consideration of any such motion no Member may speak more than once or longer than ten minutes. Not more than two hours after the commencement of proceedings thereon, the Speaker shall put every question necessary to dispose of the said motion. Any proceedings interrupted pursuant to this section of this Standing Order shall be deemed adjourned."
Issue #1: Procedural - was the GST validly enacted?
The legislation in issue, Part IX of the Excise Tax Act, was enacted pursuant to the closure and time allocation rules in the House of Commons. These rules are described in Standing Orders 57 and 78 respectively of the Standing Orders of the House of Commons, supra. The closure rule provides that, if adequate notice is given, a motion may be made to limit debate on any particular matter. After this time, no further adjournment of debate on this issue is permitted, and no Member may speak more than once, or longer than twenty minutes, on that subject. The question must be decided without further delay, at the end of the day.
The process of time allocation requires the consent of all parties in the House to allot a specified period of time to the discussion of a particular bill. The motion for such allocation must be decided at the time of proposal, without debate or amendment.
Appellant's Submissions on Procedural Issue:
It is the Appellant's submission that the GST legislation was not validly enacted because of the use of the Standing Orders. Such procedure is not authorized by statute, and infringes the privilege of Members of Parliament to engage in free debate. The Appellant in his submissions said at paragraph 26:
"The GST Act depended for its passage through the House on two Standing Orders of the House, which purportedly authorized the government to end parliamentary debate through closure, or limit it drastically through time allocation. Since these Standing orders are not authorized by statute, their use unconstitutionally infringes the privilege of the Members to engage in free debate. The process by which the GST Act was purportedly passed was therefore unconstitutional."
The Appellant contended that the remedy in such cases is to declare the legislation concerned to be invalid. Reference was made to the case of the Manitoba Language Rights,  1 S. C. R. 721 wherein it was said at page 747:
"... Failure to comply with constitutional provisions dealing with the manner and form of the enactment of legislation will result in inconsistency and thus invalidity."
There the problem was unilingual enactments of the Manitoba Legislature which did not follow the constitutional requirements to enact, print and publish statutes and regulations in both official languages which lead to inconsistency and thus invalidity.(Such is not the situation in the present case.)
Freedom of speech has always been a privilege enjoyed by individual Members of Parliament in Great Britain. It is therefore included in the Canadian repertoire of privilege. Section 18 of the Constitution Act, 1867, stipulates that some or all of the privileges enjoyed by the British Houses may be attributed to the Canadian Parliament. However, Parliament may not give itself additional powers not already existing. When section 18 was enacted, there was no provision for closure or for time allocation. As to privilege see Parliament of Canada Act, section 4, supra.
The Appellant argued that there appears to be some confusion as to what is the privilege in question. If it is freedom of speech, it has been limited by the Standing Orders, rather than extended so as to violate section 18 of the Constitution Act, 1867. If it is contended that closure and time allocation give the House of Commons, as a whole, an additional privilege, this could perhaps go against the section. However, the Appellant emphasized throughout the importance of freedom of speech. The Standing Orders in question could only curtail such powers, rather than increasing disguised amendments.
It was conceded by the Appellant in his argument that the right to freedom of speech was not absolute and must be subject to limits. Parliament has control over its proceedings. The procedure of speaking in Parliament can be regulated by the House, but not the substance of the right as was set out in paragraph 51 of the Appellant's submissions.
At paragraph 81 of the Appellant's submissions one finds the following:
"It is submitted therefore, while it is for Parliament to govern its own proceedings, it is not for Parliament to assess their compliance with the Constitution. It is the duty of the courts to review allegations of unconstitutional behavior."
Respondent's Submissions on Procedural Issue:
The Respondent claims that the GST was properly enacted. Parliamentary procedure is governed internally by Parliament. Only questions of substance may be considered by the Courts. He concluded at paragraph 25 of his submissions:
"Accordingly, it is respectfully submitted that this Court ought not to review the method of passage of the law which became the GST provisions. Such a review is within the exclusive purview of the Parliament, and can be exercised by that body if it chooses."
Counsel also argued that the law was validly passed in accordance with long-standing rules, which do not contravene the constitution.
In the Further Submissions of the Respondent it was stated that:
"... The Courts are without jurisdiction to review the procedure utilized by the Parliament in passing legislation. Once legislation is passed in accordance with the procedure established in the Parliament, and is proclaimed in force by the Governor General, the procedures of passage are beyond the power of the Courts to review."
Reference was made to the decision of the Supreme Court of Canada in the case of Speaker of the House of Assembly v. Canadian Broadcasting Corp. et al., (1993) 100 D. L. R. (4th) 212 wherein McLachlin J., held at page 265:
"... It has long been accepted that in order to perform their functions, legislative bodies require certain privileges relating to the conduct of their business. It has also long been accepted that these privileges must be held absolutely and constitutionally if they are to be effective; the legislative branch of our government must enjoy a certain autonomy which even the Crown and the courts cannot touch."
Reference was also made to the article by Katherine Swinton entitled Challenging the Validity of an Act of Parliament:the Effect of Enrolment and Parliamentary Privilege, 14 O. H. L. J. Vol. 2, 345 (1976). In the article at page 346 it was said:
"All that a Court of Justice can do is to look to the Parliamentary roll: if from that it should appear that a bill has passed both Houses and received the Royal assent, no Court of Justice can inquire into the mode in which it was introduced into Parliament, nor into what was done previous to its introduction or what passed in Parliament during its progress in its various stages through both Houses."
Professor Swinton concentrated on the issue of standing orders. They were described as "rules of each House, passed by resolution and without statutory effect". They have been described as having the status of constitutional conventions, although these are not necessarily in writing. Conventions are not binding; the notorious example is the repatriation of the Constitution in 1982, which was not approved by Quebec at the time. Although it was legal to enact such a statute, it met with political outcry. It may be that the GST is similar -- unpopular, yet legal and entirely within the Parliament's power to enact.
Conclusion to Issue #1: Procedural
What the Appellant is really seeking in this case is to have the Court review the internal processes and controls applied by the House over its own members, a matter within the House's jurisdiction. Accordingly, it is submitted that such a review is beyond the jurisdiction of this forum.
Issue #2 - Substantive - Is the GST valid under section 91 of the Constitution Act, 1867?
The heads of power set out in sections 91 and 92 of the Constitution Act, 1867, are vaguely worded; this has caused much confusion over the years. The general rule is that the powers are assigned "exclusively" to one of the two levels. Professor Hogg's comments on this point are helpful as found at page 15-34 in his book Constitutional Law of Canada, vol. I (3rd edition, 1992):
"Each list of classes of subjects in s. 91 or s. 92 of the Constitution Act, 1867 is exclusive to the Parliament or Legislature to which it is assigned. This means that a particular 'matter' will come within a class of subjects in only one list. ... However, the exclusiveness of the two lists does not mean that similar or even identical laws may not be enacted by both levels of government. Some laws are available to both levels, but that is because such laws have a double aspect (or two matters), not because the classes of subjects duplicate or overlap each other; they do not."
Hogg inserted an important footnote to this principle: "There is one arguable violation of this proposition, namely, the taxation powers of subsections 91(3) and 92(2).
According to Professor Hogg the federal government has, as a general rule, paramountcy over the provinces. Where there is direct conflict between statutes, the federal enactment is to prevail to the extent required. The provincial statute is rendered inoperative in the circumstances, but is not ultra vires, or invalid. There is a handful of exceptions to the rule of federal paramountcy, which are not relevant to the present appeal.
Hogg also stated at pages 15-20 and 21 that the Doctrine of the Presumption of Constitutionality also comes into play whenever the validity of a provision is challenged. If a provision can be interpreted in two ways, one of which would render it ultra vires, it is the other interpretation that will be retained. The onus is on the person challenging a statute's validity to prove that it is ultra vires.
The scope of the federal taxation power (subsection 91(3)) has been considered several times since the drafting of the Constitution. Recently, the Supreme Court of Canada decided a reference on the GST itself: Reference re Goods and Services Tax ("Re GST"),  4 W. W. R. 673. The Court had before it six questions referred to it by the Attorney General of Alberta. The first question is identical to that of this appeal: "Having regard to the Constitution Acts 1867 to 1982 or otherwise, is the GST Act ultra vires the Parliament of Canada in whole or in part and, if so, in what particular or particulars and to what extent?"
The question was briefly disposed of by Lamer C. J., at page 690 as follows:
"In my view the answer to the first question is quite simple. The GST Act has no purpose other than to raise revenue for the federal government, and it does in fact raise revenue at the point of consumption of taxable supplies. As such, it would be hard to dispute that the Act itself is properly characterized as being in relation to a mode or system of taxation in the meaning of s. 91(3) in the Constitution Act, 1867. While the GST Act certainly affects matters falling under provincial jurisdiction it cannot reasonably be said to be aimed at a provincial purpose."[Emphasis added]
It was conceded by the Attorney General for Canada that the GST Act affected matters falling under the provincial power to legislate regarding property and civil rights in the province (subsection 92(13) of the Constitution Act, 1867). The test therefore was to decide if the GST Act fell within a head of section 91. Then, the question was whether any effect on provincial powers was necessarily incidental to the exercise of the section 91 power. It was held that this test had been complied with in the context of the GST.
The Parliament of Canada thus has the power, under subsection 91(3), to raise money by any mode of taxation. A further allegation of the Attorney General of Alberta was that the provisions of the GST Act not dealing with the raising of revenue should be severed from the legislation. It was held that such severance would change the nature of the Act. At page 692, Lamer C. J., commented:
"... The objective of the Act is to raise revenue for the federal government, and the means chosen is a tax on value added throughout the chain of production, with input tax credits granted in respect of taxable supplies that are redirected to production instead of consumed. The means chosen are highly integrated into the scheme of the GST Act as a whole, and, indeed, to sever the system of input tax credits from the rest of the Act would be to carve out an exception to the text of s. 91(3) of the Constitution Act, 1867, which the words 'any Mode or System of Taxation' cannot reasonably bear."
An important case relied on by the Respondent in this appeal is Winterhaven Stables Ltd. v. Attorney General of Canada,  1 W. W. R. 193 (Alta. C. A.), aff'g. (1986), 29 D. L. R. (4th) 394 (Q. B.). In that case, the plaintiff was contesting the constitutionality of several federal statutes including the Income Tax Act. The other statutes were all "spending" statutes. The plaintiff's argument regarding taxation was that the Income Tax Act contravened the provincial taxation power under subsection 92(2) of the Constitution Act, 1867.
It was held that all the Acts were intra vires. Regarding taxation, Irving J. A., of Alberta delivering the judgment of the Court, quoted with approval the decision of the trial judge. The trial judge had held at page 418 of his decision:
"There is also some question as to whether it can be said that some of the money raised under the Income Tax Act is being raised for provincial purposes.... It is ... not possible to trace the payments made by the federal government to the provinces for provincial purposes to any specific source.
In my view the challenge to the Income Tax Act on the basis that it is direct taxation within a province in order to raise money for provincial purposes and therefore invalid cannot be sustained. The power given under s. 91(3) to 'the raising of Money by any Mode or System of Taxation' is a general and wide power. It would appear to be subject only to the exception contained in s. 125 which contains an exemption from taxation of lands or property belonging to the federal or provincial authority.
I do not believe that it can be said that the Income Tax Act has as its intended object the raising of money for provincial purposes. It simply raises money to be used as authorized by Parliament. The moneys received under the Income Tax Act are intrinsically mixed with other moneys and some of these funds are transferred to the provinces. They are undoubtedly then used for provincial purposes. It is, however, clear that the main object of the Income Tax Act is not to raise money by direct taxation for provincial purposes. It is concerned with raising money by taxation."
The Court submits that subsection 92(2) in no way changes the conclusion of the Supreme Court in Re GST, supra. Although it is true that the powers in section 92 belong exclusively to the provinces, subsection 92(2) allows provincial taxation only in a circumscribed context. Taxation by the province must be direct, within the province, and for provincial purposes. It is difficult to see why the GST would be in conflict with the types of taxation contemplated by subsection 92(2) of the Constitution Act, 1867. Its nature is entirely different, and thus falls into the broad scope of subsection 91(3).
Conclusion to Issue #2 - Substantive:
The authority of the Supreme Court and the Alberta Court of Appeal is not to be taken lightly, particularly when one is dealing with recent decisions very much on point. Although Re GST, supra, is a reference, and hence not technically binding, it is nevertheless to be given great weight. I submit that it answers the question at bar. I also draw support from the conclusions of the Alberta Court of Appeal in Winterhaven Stables, supra, regarding the broad nature of subsection 91(3) of the Constitution Act, 1867. Although Re GST, supra, was argued with a view to encroachment on property and civil rights under subsection 92(13), the result is the same when one considers subsection 92(2). This latter provision allows the provinces a relatively limited power to tax, requiring that certain circumstances be met. The GST legislation is not such a tax; it therefore does not infringe on the provincial exclusive right to impose taxes within the limits prescribed by subsection 92(2).
While the arguments and cases set out above do not contain all the points made by both the Appellant and the Respondent in their arguments enough has been included to arrive at a conclusion.
As regards the procedural issue the Court can expressly follow the Speaker of the House of Assembly decision, supra, finding that the closure and time allocation rules fall within the internal proceedings of Parliament, and are therefore not subject to review. What constitutes privilege was given a broad interpretation in that case; as well, judicial restraint was expressly reiterated. The enactment of the GST did not contravene the established rules and practice of Parliament, or section 18 of the Constitution Act, 1867. This position is buttressed by the presumption of constitutionality, and the fact that the onus rests on the person alleging unconstitutionality to so prove.
The substantive issue is easily dealt with, given the decisions of the Federal Court of Appeal and the Supreme Court of Canada (Winterhaven Stables, supra, and Re GST, supra). The existence of subsection 92(2), which confers certain taxation powers on the provincial government, does not prevent a finding of validity, as the nature of the GST is not that contemplated by subsection 92(2), rather it falls into the broad scope of subsection 91(3) of the Constitution Act, 1867.
For all these reasons the appeal is dismissed on both procedural and substantive grounds.