Winterhaven Stables Ltd. v. Canada (Attorney General)

Published in: (1986), 29 Dominion Law Reports (4th Series) 394


Winterhaven Stables Limited



The Attorney General of Canada


Action No. 8301-31610

Alberta Court of Queen's Bench
Judicial District of Calgary
Medhurst J.

May 28, 1986


J.J. Marshall, Esq., Q.C., S.B. Chisholm, Esq., D.A. Downe, Esq. for the Plaintiff;
T.B. Smith, Esq., T.C.R. Joyce, Esq., D.J. Rennie, Esq., for the Defendant.



MEDHURST J.:— The issues in this action are set out in Part I of the following agreed statement of facts:




1. The Plaintiff corporation is incorporated under the laws of Alberta and is liable to pay taxes under the Income Tax Act of Canada.

2. The Plaintiff has instituted these proceedings before this Honourable Court seeking a declaration that the Income Tax Act is ultra vires the Parliament of Canada as it constitutes direct taxation within a province to raise revenue for provincial purposes, a matter which the Plaintiff says is within the exclusive legislative jurisdiction of the provinces by reason of Head 2 of Section 92 of the Constitution Act, 1867.

3. The Plaintiff says that the direct taxation revenues or a portion thereof raised under the Income Tax Act fund programs established and administered under the following statutes:

(i) Federal-Provincial Fiscal Arrangements and Post- Secondary Education and Health Contributions Act, 1977, as amended ("EPF Act").

(ii) Canada Assistance Plan Act;

(iii) Canada Health Act;

(iv) Medical Care Act;

(v) Hospital Insurance-Diagnostic Services Act;

(vi) Blind Persons Act;

(vii) Disabled Persons Act;

which revenues the Plaintiff says are revenues raised for provincial purposes within the meaning of Head 2 of Section 92 of the Constitution Act, 1867.

4. The Plaintiff further seeks a declaration that the Canada Health Act, the EPF Act and the Canada Assistance Plan Act are ultra vires the Parliament of Canada.

5. In support of its claim, the Plaintiff says:

(a) Head 2 of Section 92 of the Constitution Act, 1867 gives provincial legislatures exclusive jurisdiction to raise revenues within a province for provincial purposes by means of direct taxation. Consequently, the Parliament of Canada cannot use direct taxation within a province as a means of raising revenues for provincial purposes.

(b) The Income Tax Act, constitutes direct taxation within a province.

(c) The phrase "provincial purposes" in Head 2 of Section 92 of the Constitution Act, 1867 includes any matters within provincial legislative competence.

(d) The programs funded under the federal statutes referred to in paragraph 6 of the Amended Statement of Claim fall within areas of provincial legislative competence under Section 92 of the Constitution Act, 1867.

(e) The said programs have historically been, and continue to be, funded at least in part by direct taxation revenues raised by the Parliament of Canada through the Income Tax Act and by giving up tax points to the province which were otherwise allocated to the Parliament of Canada under the Act.

(f) The Parliament of Canada, by using the Income Tax Act in conjunction with the conditional spending authorization contained in the statutes referred to in paragraph 6 of the Amended Statement of Claim has established a scheme to regulate and thereby indirectly legislate within areas of provincial jurisdiction. Consequently, those statutes and the Income Tax Act are ultra vires the Parliament of Canada.

6. The Defendant's answer to the Plaintiff's claim may be summarized as follows:

(a) that the power conferred upon the Parliament of Canada by Head 3 of Section 91 of the Constitution Act, 1867 for the raising of a revenue by any mode or system of taxation is a plenary power, the exercise of which is subject only to the provisions of Section 125 of that Act;

(b) that the Income Tax Act is valid legislation of the Parliament of Canada enacted pursuant to Head 3 of Section 91 of the Constitution Act, 1867 and is not legislation directed to any Head of power enumerated in Section 92 of that Act;

(c) that under Section 102 of the Constitution Act, 1867 all duties and revenues of Canada, including taxes imposed and collected under the Income Tax Act, form one Consolidated Revenue Fund, from which monies are appropriated by Parliament for the public service of Canada, including such objects as may be within its legislative authority;

(d) that the impugned legislation is valid legislation of the Parliament of Canada and that appropriations therein provided constitute valid statutory authority for the expenditure of funds out of the Consolidated Revenue Fund for the purposes described in those statutes.

7. In addition, the Defendant says:

(a) that the Amended Statement of Claim does not advance, nor is there any connection at law between the alleged invalidity of the Income Tax Act on the basis of Section 92 of the Constitution Act, 1867 and the legislative authority granted Parliament by Section 91 thereof pursuant to which expenditures are made, and that no action lies in the circumstances of this case for the declarations sought;

(b) Parliament's authority to impose taxation stands in no direct relation to the other powers conferred on it by Section 91 of the Constitution Act, 1867 in that the Income Tax Act may not be impugned on the basis of the alleged invalidity of federal statutes under which expenditures are made;

(c) that the gravamen of the claim being as to the expenditure of monies from the Consolidated Revenue Fund, to which the authority for taxation stands in no direct relation, the action cannot succeed;

(d) that this Honourable Court should not exercise its discretion in favour of taking jurisdiction in relation to the administration of the Income Tax Act in circumstances where, as in this case, Parliament has provided a specific method for the challenging of liability and authority to levy taxes under that Act.

8. The Defendant, the Attorney General of Canada also says that, insofar as the Plaintiff challenges the vires of the Canada Assistance Plan, the Canada Health Act, and the EPF Act it has no status or standing to impugn the said statutes or to seek the relief sought in relation to them.

9. In further answer to the allegations set forth in the Amended Statement of Claim, the Defendant says;

(a) that the impugned statutes constitute legislation within the exclusive competence of the Parliament of Canada pursuant to the plenary authority conferred on Parliament by Section 91 of the Constitution Act, 1867;

(b) that the monies in the Consolidated Revenue Fund established by Section 102 of the Constitution Act, 1867 are, insofar as they represent the fruits of income tax, properly levied for the fund under the authority of Head 3 of Section 91 of the Constitution Act, 1867 and constitute public property of Canada within the meaning of Head 1A of Section 91 of that Act which monies, upon appropriation by Parliament under section 106 of the Act, may be expended for the purposes for which they are voted; and,

(c) that the appropriations made in the impugned statues provide valid statutory authority for the expenditure of monies from the Consolidated Revenue Fund for the purposes of those statutes.


(a) Generally

10. The Parliament of Canada has made provision for the payment to the provinces of contributions in respect of provincial health and post-secondary education programs as well as for welfare programs. These latter are made under the Canada Assistance Plan which is described separately below (paragraphs 28-36). The history of health and post- secondary education contributions and the education contributions and the current legislation for payment of such monies follows.

11. Since 1977, the applicable contributions statute has been the EPF Act, which is administered by the Department of Finance.

(b) Health Care

12. The Hospital Insurance and Diagnostic Services Act, S.C. 1957, c. 28 provided for federal contributions in respect of insured provincial hospital services. Insured services as defined in Section 2(g) of the Act included in- patient and out-patient services to which residents of a province were entitled under provincial law such as accommodation and meals at public ward level, nursing, diagnostic procedures, drugs and like services provided in and by the hospital. Pursuant to Section 5 of the Act, the contributions were conditional inter alia upon the availability of the services on a uniform basis for all residents within the province.

13. Under the Hospital Insurance and Diagnostic Services Act, in a given year, the federal government made a contribution to the province of an amount equal to 25% of the cost of the insured services in the province, plus 25% of the national average per capita cost of these services multiplied by the population of the province. This meant that federal contributions to those provinces in which the per capita cost of hospital care was lower than the national average represented a higher proportion of total hospital care costs than in other provinces.

14. The Medical Care Act, S.C. 1966-67, c. 64, established a mechanism for federal contributions towards the cost of required medical services rendered by medical practitioners under provincial medical care insurance plans. The basic conditions for eligibility for contributions as set out in Section 4(1), were that provincial plans provide for:

(a) the existence of a public authority to administer the provincial plan provided for;

(b) non-profit plan administration;

(c) the furnishing of medical services on uniform terms and conditions within the province;

(d) the number of insurable residents must not be less than 90% of the total number of residents of a province; and

(e) no minimum period of residence in a province.

Under this scheme, in a given year, the federal government made a contribution to the provinces of an amount equal to 50% of the national average per capita costs of insured services, multiplied by the population of the province in that year.

15. The Canada Health Act, S.C. 1983-84, c. 6 repealed the Hospital Insurance and Diagnostic Services Act and the Medical Care Act. The purpose of the Act is to establish the criteria and conditions that must be met before full payment may be made under the EPF Act for insured health care services provided under provincial law. It defines "insured health services" to include hospital services, physician services and eligible surgical-dental services provided to insured persons. The criteria established by Sections 7 through 12 of the Canada Health Act to qualify for contributions are that provincial plans provide for public administration, comprehensive coverage, universality, portability and accessibility. Under Section 13 of the Canada Health Act a condition for receipt of contributions is the supply of information as may be requested by the Minister of National Health and Welfare relative to the carrying out of Canada's international obligations, to the planning and achieving of national standards and to the exchanging of mutually useful information on health care. Sections 18-21 of the Canada Health Act deal with extra billing and user charges.

16. Pursuant to Section 27(8) of the EPF Act, additional federal contributions are made in respect of extended health care services which consist of intermediate nursing home care, adult residential care, home care and ambulatory health care services. These services are described in paragraph 27, post.

(c) Post-Secondary Education

17. The federal government began making direct payments to the provinces for post-secondary education in 1967 pursuant to the Federal-Provincial Fiscal Arrangements Act, S.C. 1967-68, c. 89. This Act authorized the Secretary of State to make payments equal to 50% of the eligible operating expenditures of post-secondary educational institutions based on audited statements of the institutions or, at the option of the province, $15 per capita of provincial population. The $15 per capita grant was escalated annually by the growth in the eligible operating expenditures of all institutions.

(d) Program Financing

18. Before 1977 federal contributions to provincial schemes for hospital insurance, medical care and postsecondary education were made under the Hospital Insurance and Diagnostic Services Act, the Medical Care Act and the Federal-Provincial Fiscal Arrangements Act. The provisions for contributions for health care and post-secondary education are now brought together in the EPF Act. Before 1977, the contribution was dependant upon provincial expenditure. The EPF Act changed the calculation of the contributions to the programs from a cost-shared basis to a base year amount with annual escalation, which system is referred to as "block funding". Under this system the contributions are not tied to the costs of these programs to the provinces. The EPF Act arrangements also provide for equal per capital contributions to the provinces.

19. The EPF Act came into effect on April 1, 1977 and was amended on April 7, 1982 and on June 7, 1984. The Act provides for transfers to provinces based on a block funding formula. The total federal contribution to a province under the block funding formula for a given year is the product of the national average per capita federal contribution towards program costs in a base year (1975-76) escalated each subsequent year by a moving average of the rate of growth of the Canadian economy per capita and multiplied by the provincial population.

20. By virtue of the amendments to the EPF Act in June 1984, the federal post-secondary education contribution for the fiscal years 1984 and 1985 was made subject to specific growth rates of 6 and 5%.

21. Federal EPF Act contributions to the provinces for health care and post-secondary education consist of tax transfers and cash payments. Tax transfers involve a reduction in the rate of federal income tax so that a province can raise its taxes a corresponding amount without changing the total tax burden of its residents. This making available of tax room is considered a federal contribution to a province (See schedule "A").

22. One tax point is 1% of Basic Federal Income Tax (personal income tax) or 1% of Federal Corporate Taxable Income under the Income Tax Act as the case may be, the federal tax point transfer for the "established" programs of hospital insurance, medical care and postsecondary education is 13.5 personal income tax points and l corporate tax point, plus the associated equalization, and an additional 8.5% personal income tax abatement for Quebec taxpayers. The values of the tax points together with the associated equalization is estimated and deducted from the total EPF entitlements. The difference is paid in the form of cash out of the Consolidated Revenue Fund.

23. The 13.5 personal income tax points transferred in 1977 was comprised of 4.357 points that had previously been transferred under Post-Secondary Education arrangements and the additional transfer of 9.143 points implemented by the EPF Act. The 9.143 point tax transfer was in respect of hospital insurance, medical care and post-secondary education. Since 1983, the value of the total transfer has been explicitly allocated by legislation between health (now insured health services) and post-secondary education with approximately 67.9% being allocated to the former and approximately 32.1% being allocated to the latter.

24. Cash payments made to the provinces in support of the programs to which contributions are made under the EPF legislation are equal to the difference between the total entitlement of the provinces under the applicable legislation and the value of federal revenue foregone as represented by the transfers of tax points. The payments are effected by cheques made out in the name of governments or officers and are paid into provincial accounts. Schedule "B" sets out a list of the payees of the cheques issued by the Federal Government under the EPF Act and the disposition of the amounts.

25. In the case of Quebec the cash payment, as a proportion of the total contribution is less than in the case of the other provinces for historical reasons. A federal offer in the mid-1960's to the provinces to permit the "contracting out" of certain shared cost programs in exchange for tax room or cash payments was accepted by Quebec alone. The result of this "contracting out" was that more room was allowed for provincial taxation. Quebec's entitlement to funding for the various programs continued to be calculated in the same way as the other provinces so that Quebec neither gained nor lost financially as a result of the "contracting out" arrangements.

26. This contracting out was effected by way of an abatement or reduction of the federal income tax payable by residents of Quebec. This abatement, which was authorized by the Income Tax Act, now consists of 16.5 tax points, comprised as follows; 8.5 points for established programs financing, 5 points for special welfare and 3 points for youth allowance programs. The EPF Act, Part VII provides for adjustments and recoveries of the abatements.

27. In addition to federal contributions in respect of the "established" programs, the EPF Act arrangements also provide for an equal per capita cash grant of $20 (1977-78) to the provinces for Extended Health Care Services programs. This cash grant is increased annually by the EPF Act escalator for insured health services. The basis of the established programs now funded under the EPF Act bear no relation to current provincial expenditures. (In 1984-85, total federal expenditures under EPF to all provinces totalled 14,699.3 (in millions of dollars).) The various provincial and federal expenditures are set out in Schedules "C" and "J".


(a) Generally.

28. The Canada Assistance Plan, R.S.C. 1970, c.C-1 was enacted in 1966 as a comprehensive measure for providing a 50% federal cash contribution to the provincial, municipal and territorial costs of providing social assistance and welfare services. Save in the case of Quebec, where as described above part of the contribution takes the form of a tax abatement, the contribution is made by way of a cash payment. The objectives of the Canada Assistance Plan, as expressed in the preamble of the Act, are to support the provision of adequate assistance to persons in need and to encourage the development and extension of welfare services designed to help prevent and remove the causes of poverty, child neglect and dependence on public assistance.

29. Section 4 of the Canada Assistance Plan contemplates agreements whereby payments are made in circumstances where the statutory conditions are met. All provinces and territories have signed agreements under Part I of the Plan which provides for cost-sharing in two separate categories; assistance and welfare services. Attached as Schedule "D" to this Agreed Statement of Facts is a copy of the agreement between the Government of Canada and the Government of Alberta entered into under the Canada Assistance Plan in 1967, and all amendments to that agreement executed since 1974.

(b) Assistance

30. The Canada Assistance Plan is not tied to a base year contribution as provided under the EPF Act but pays 50% of the eligible costs incurred by provinces and territories in providing assistance to persons who are in need, regardless of the cause of need.

31. The assistance provisions give rise to the bulk of the federal contribution under the Canada Assistance Plan. The assistance provisions include general assistance, care in homes for special care, certain health care costs and most child welfare expenditures. The general assistance contribution is paid in respect of provincial payments for food, shelter, clothing, fuel and other basic requirements, prescribed welfare services and items of special need, such as tools or equipment essential to obtaining employment, and essential repairs or alterations to property.

(c) Welfare Services

32. The remaining contributions under Part I of the Canada Assistance Plan are in respect of certain provincial and territorial costs of providing welfare services and are at the rate of 50% of the eligible costs. Eligible welfare services include day-care, homemakers, counselling, rehabilitation (assessment, referral, counselling and job placement), community development services, research, consultation and evaluation, and administration costs relating to the delivery of assistance and welfare services programs. Welfare services are those provided by provincial social services departments or other provincially approved non-profit agencies and made available to persons who are in need or likely to become in need. Persons who benefit from welfare services include children who are in danger of abuse or neglect, or both, battered women, families and individuals in crisis, the aged and the mentally and physically disabled.

(d) Work Activity

33. Under Part III of the Canada Assistance Plan, the federal government contributes to the province 50% of the costs incurred for work activity projects designed to assist people who experience unusual difficulty in obtaining or holding employment. Agreements under Part III have been signed by all provinces.

(e) Blind and Disabled Persons Assistance

34. Payments in respect of contributions under the Blind Persons Act, R.S.C. 1970, c.B-7 and the Disabled Persons Act, R.S.C. 1970, c.D-6 are now provided under the Canada Assistance Plan. Those statutes, which established conditional payment schemes under federalprovincial agreements, the conditions being specified in section 7 of each Act, were repealed by the Miscellaneous Statutes Repeal Act, S.C. 1980-81-82-83, c. 159, which was proclaimed December 1, 1983: Canada Gazette, Part III, Vol. 118, p. 389.

(f) Canada Assistance Plan Payments

35. On a national basis, $2.844 billion was paid to the provinces and territories under the authority of the Canada Assistance Plan in 1982-83 and $3.288 billion was expended in 1983-84. In 1983-84, $326.0 million was paid to the Province of Alberta. Attached as Schedule "E" to this Agreed Statement of Facts is a summary of payments made to the provinces under the authority of the Canada Assistance Plan in the period 1977-84.

36. The Agreements under the Canada Assistance Plan are identical for all provinces and territories. The schedules to these Agreements, which list the institutions, provincially approved agencies and the provincial legislation which authorizes the programs vary from province to province.


37. The health care and social services system in Alberta is comprised of a number of health and social service programs which are provided by federal, provincial and municipal authorities as well as voluntary organizations. The majority of services fall under the jurisdiction of the provincial government's Departments of Social Services and Community Health, and Hospitals and Medical Care.

The legislation governing the provisions of services is set forth in Schedule F. The provincial government also has a number of acts and regulations in place to administer and monitor all aspects of health care delivery. Professional associations or licensing bodies exist for all health- related professions which provide their members with guidelines regarding their responsibility and expected conduct in the system.

38. The Department of Social Services and Community Health provides financial assistance to those in need, rehabilitation and support services, child welfare and community health programs. The Department is divided into the Health Services Division and the social Services Division. The Health Services Division monitors the state of public health in the province and develops and supports programs and services which help achieve, maintain and restore good health and well-being to the people of the province. The activities of the Division include communicable disease control, maternal and child health, health inspection, dental services for children, nutrition, family planning and family life education, speech therapy and audiology, and home care. Community mental health services are provided by ten regional clinics which offer free assessment, treatment and referral to individuals and families experiencing emotional or mental problems.

39. The Social Services Division provides programs which develop maintain and promote the independence, of disabled and disadvantaged Albertans. Financial assistance programs provide for, among other things, health care for people in need (the aged, those physically and mentally handicapped), child welfare programs and offer services to handicapped children. Residential, child development and vocational programs for handicapped persons are provided by private agencies with provincial funds.

40. The Department of Hospitals and Medical Care administers the Alberta Health Care Insurance Plan and the Alberta Hospitalization Benefits Plan pays for all medically required services of medical practitioners and certain surgical-dental procedures undertaken by dental surgeons in hospitals. In addition, Alberta's basic health services include services provided by dental surgeons in the field of oral surgery, optometric services, chiropractic services, pediatric services and appliances and physiotherapy services.

41. The Alberta Hospitalization Benefits Plan provides insured hospital benefits to eligible residents of Alberta (those covered by the Alberta Health Care Insurance Plan and not eligible under any statute of Canada, province or territory in Canada or Workers' Compensation Board).

42. All ordinary residents of Alberta as defined in the Alberta Health Care Insurance Act are required to register with the Health Care Insurance plan and once registered are entitled to coverage for basic health services and hospital benefits. Unless exempted, all residents are required to pay premiums, (current rates: Single $14.00; Family 2 or more $28.00). However, non-payment of premiums does not render the resident and dependents ineligible for benefits. Health identification cards, which provide bona fide residents access to insured services are issued even if there are premium arrears and/or a refusal to pay on the part of the resident.

43. Residents are permitted to elect to be outside the Health Care Insurance Plan and the Hospitalization Benefits Plan as long as they and their dependents are registered under the Health Insurance Premiums Act, and they are not liable to the Minister of Health for Alberta for any premiums. Dependents may choose to remain in the plan. The practitioner may bill the provincial plan, the patient or both. The normal procedure is that the patient presents his/her health insurance card at the time of treatment and the practitioner will then submit a claim to the Alberta Health Care Insurance Plan for payment of services rendered. The physician receives payment directly from the plan. If the patient pays the practitioner directly, the practitioner either submits a claim on the patient's behalf or provides the patient with sufficient information to submit a claim to the Plan themselves. Payment by the Plan is made directly to the patient.

44. Registered residents are eligible for benefits while temporarily absent from Alberta. For vacations, visits or business engagements, if a resident intends to resume full- time residence in Alberta, eligibility for coverage continues up to a maximum of 12 months. Fulltime students at accredited educational institutes, outside of the province, intending to return and resume full-time residence on completion of their studies are eligible for coverage. Also, those undergoing education or sabbatical leave, or certain missionary work, are eligible up to a maximum of 24 consecutive months.

45. The Plan pays medical claims, within and outside the country, up to the Alberta rate. Hospital inpatient and out-patient services received in another province are insured at the rate approved by the Plan in the province where the service is rendered unless the Minister has made another arrangement. Out-of-Canada in-patient and out- patient hospital claims are paid at the lesser of the rates prescribed by the Minister and the rates charged by the hospital or facility.

46. Residents who leave Alberta permanently for another province are entitled to continuous coverage from the day they cease to be residents of Alberta to the last day of the second month following the month of arrival in new province (one month extension for travelling up to twelve months coverage if hospitalized en route). Those leaving Canada permanently may be allowed to continue coverage, upon Ministerial determination, for a period beginning the day of departure until the end of the first, second or third month. All premium arrears plus premiums for the period of continuing coverage must be paid.

47. Persons moving permanently to Alberta from another province are covered effective the first day of the third month after the date they became residents in Alberta (must register before first day of fourth month following date of becoming resident).

48. Persons from outside Canada, who became residents of Alberta, are covered effective the date they became a resident of Alberta as long as registration occurs no later than three months after the date they became a resident. As well, first-day coverage is afforded to newborns, Canadian citizens establishing residency in Canada for the first time, and landed immigrants. The following persons and their dependents, whose ordinary place of residence is outside Canada, are deemed to be residents of Alberta; those under a work assignment, contract or arrangement, and who are registered with the Plan; full-time students at accredited educational institutes in Alberta.

49. Alberta's medical practitioners are not required to opt-in or out of the Plan. If the practitioner intends to charge an extra amount that exceeds the Plan benefit, he/ she must have an agreement with the patient to that effect before the services are rendered. The amount of extra-billing must be reported to the Plan. Physicians cannot ask a patient for an extra fee once they are admitted to hospital.

50. In general hospitals an admission fee of $10.00 is charged to residents (extensive list of exclusions). In auxiliary hospitals an accommodation charge for chronic care of $8/day is charged after 120 days. (The latter charge has been ruled exempt from deductions under Section 19(2) of the Canada Health Act. Therefore, the federal deductions for user charges in Alberta refer only to the admission fee - $1,827,000 July 1, 1984 to March 31, 1985). Although effective January 1, 1985 general hospitals were given the authority to charge for in-patient, out-patient and emergency services, the Alberta Hospital Association voted against the scheme and no charges have been implemented.

51. Hospital budgets are submitted to the Minister who determines the approved amount of operating costs applicable to a given hospital for a given fiscal period. Monthly operating payments are established by the Minister on the basis of the approved operating costs. Regulatory provisions allow the Minister to increase or decrease the monthly payments as required and also to make special payments to a hospital or a group of hospitals to cover extra-ordinary costs related to the operation of an approved program. Discretionary revenue derived from authorized charges, user charges and preferred accommodation is retained by hospitals and must be applied against hospital operating costs specified in the regulations.


(a) Generally

52. The mechanisms by which the Government of Canada receives, disburses and accounts for monies under its control are provided for in the Financial Administration Act R.S.C. 1970, c.F-27, as amended. In order to understand how payments are made to provinces a review of the relevant mechanisms is made below.

53. The Consolidated Revenue Fund (CRF) is defined by section 2 of the Financial Administration Act, as:

. . . the aggregate of all public monies that are on deposit at the credit of the Receiver General.

54. "Public money" is also defined in section 2 of the Financial Administration Act as:

. . . all money belonging to Canada received collected by the Receiver General of any other public officer in his official capacity or any other person authorized to receive or collect such money, and includes;

(a) duties and revenues of Canada,

(b) money borrowed by Canada or received through the issue or sale of securities,

(c) money received or collected for or on behalf of Canada, and

(d) money paid to Canada for a special purpose.

55. Section 15(1) of the Financial Administration Act provides that: Money received by or on behalf of Her Majesty for a special purpose and paid into the Consolidated Revenue Fund may be paid out of the Consolidated Revenue Fund for that purpose, subject to any statute applicable thereto.

56. The Consolidated Revenue Fund is comprised essentially of budgetary (taxes) and non-budgetary (proceeds of loans) items together with other specific items such as special purpose monies. During the fiscal years 1973-74 to 1982-83 receipts accruing under the Income Tax Act comprised approximately 61% of all budgetary revenues. Attached as schedule "G" hereto is a breakdown of budgetary revenues in the fiscal years 1979-80 to 1983-84.

57. As well there are collected and held in the CRF sums on account of tax payable under the provincial income tax legislation such as the Alberta Income Tax Act. Amounts on account of such tax are paid out of the CRF regularly to the provinces subject to a year end adjustment in respect of actual provincial income tax assessments. Schedule "H" contains a copy of the tax collection agreement with Alberta and Schedule "I" shows the payments to the provinces under the tax collection agreements.

(b) Appropriations and Payments

58. No payments may be made out of the CRF without the authority of Parliament: Financial Administration Act, s. 19. Such authority is given by way of an appropriation, an annual or statutory authorization by Parliament to the Crown to spend specified or sometimes unspecified sums for particular purposes from the CRF.

59. Before incurring a financial obligation on behalf of Her Majesty the administrator of the service involved must certify that a sufficient unencumbered balance is available out of the relevant appropriation to discharge the obligation (s.25 of the Financial Administration Act).

60. In addition to the requirement of a certificate, no payment may be made until it has been certified that the work was performed or the goods or services were supplied and that the cost thereof is as stipulated in the contract or is reasonable where no cost was stipulated (s.27 of the Financial Administration Act).

(c) Government Accounting

61. Under Part VI of the Financial Administration Act (s.54 and 55) Parliament has made provision for recording receipts and expenditures in the Accounts of Canada and disclosing those receipts and expenditures in the Public Accounts. They have been placed under the control of the Receiver General who is responsible inter alia, to cause the accounts to be kept in such manner as to show:

(a) the expenditures made under each appropriation;

(b) the revenues of Canada; and

(c) the other payments into and out of the Consolidated Revenue Fund.

62. The CRF is the aggregate of all public monies on deposit to the credit of the Receiver General which are maintained in numerous bank accounts throughout the world.

63. The Accounts of Canada, are, in essence, the general ledger or books of account of the Government of Canada. Within the accounts, various receipts and other credits, charges and payments are entered in accordance with instructions from Parliament or in accordance with the government's accounting policies. There are separate accounts for each appropriation authorized by Parliament. However, while there are usually approximately 500 appropriations authorized by Parliament in each fiscal year, there are in practice over 4,000 accounts in the Accounts of Canada which serve to support the proper administration of the government's financial affairs.

64. As well, there are accounts for special purpose monies (Section 15 of the Financial Administration Act) referred to above and special accounts which Parliament has, from time to time directed be established.

65. Money payable to the Crown is paid to the Receiver General and placed in the CRF. Apart from special accounting measures in specific areas, it is indistinguishable from other money held by the Receiver General.

66. Money paid out by the Crown is in effect drawn on the CRF by the Receiver General. The financial institution which has honored the cheque on behalf of the Crown then presents it to the Bank of Canada which acts for the Receiver General in the cheque clearing system. The Bank of Canada pays the institution which has presented the cheque and the Receiver General (them simultaneously) issues a cheque to the Bank of Canada drawn on the funds held at the Bank of Canada to reimburse the Bank of Canada for the sums it has distributed to redeem the Receiver General payments. it is at this point that the Consolidated Revenue Fund is reduced by the amount of that payment.

67. Since payments made under the EPF Act are approved by Parliament, the funds need not be voted annually by Parliament. Likewise, under the Canada Assistance Plan, upon the authority of the Minister of National Health and Welfare, contributions or advances on account thereof may be paid out of the CRF to the Provincial Treasurer, without the requirement of any further annual appropriation by Parliament.

68. Payments made from the CRF to all of the provinces in respect of the major programs under the EPF Act insured health services, post-secondary education, extended health care - together with the payments made under the Canada Assistance Plan may vary from year to year. In the current fiscal year it is estimated that such payments will total approximately 12% of the total budgetary expenditures from the CRF. Attached as Schedule "J" to this Agreed Statement of Facts are graphic representations of the amounts spent on other major programs.

69. The parties are agreed that the issues raised by the pleadings can be properly and expeditiously resolved by reference to an Agreed Statement of Facts supplemented by via-voce evidence. The parties hereby, by their respective solicitors, admit the facts set out in this Agreed Statement of Facts and the Schedules affixed hereto and consent to the disposition of these proceedings as if those facts had been established in evidence, subject to their relevance to the issues herein and their weight being determined by the Court."

The issue concerns the constitutional validity of the Federal-Provincial Fiscal Arrangements and Federal Post- Secondary Education and Health Contributions Act 1977 (the "EPF Act"), the Canada Health Act, the Canada Assistance Plan and the Income Tax Act.

The defendant raised two preliminary arguments in response to the plaintiff's claim which, if successful, would bar the plaintiff from proceeding further in this court.

The first contention is that there is another forum more appropriate to the proceedings and, in the circumstances, discretion should not be exercised in favor of hearing the plaintiff's claim. It is submitted that the courts constituted for this purpose are the Tax Court of Canada and the Federal Court of Canada.

The second submission is that the plaintiff has no status or standing to challenge the vires of the EPF Act, the Canada Health Act, or the Canada Assistance Plan.

With respect to the appropriateness of the forum, the defendant acknowledges that this court has the competence to hear the plaintiff's claim but under the circumstances it should not do so. It is said that the central issue concerns the plaintiff's liability for taxes imposed under the Income Tax Act. In the Income Tax Act there is a specific procedure for challenging liability to tax by way of assessment and objection. The specific courts constituted for the purpose of resolving the tax disputes are the Tax Court of Canada and the Federal Court of Canada and it would be inappropriate for this court to grant the relief sought. The defendant referred to Smeeton v. Attorney General [1920] 1 Ch. 85 where it was held that challenges to liability for payment of tax should be held in the court constituted for that purpose.

In this case however, the plaintiff's claim is not the appeal of a tax assessment but rather a challenge to the vires of the Income Tax Act. It requires a determination of the validity of the Income Tax Act and thus must be considered with the other impugned statutes. In my view this is a proper forum for consideration of the issues raised by the plaintiff.

The defendant has also challenged the status and standing of the plaintiff to question the vires of the EPF Act, the Canada Health Act, or the Canada Assistance Plan.

The defendant argues that for the plaintiff to challenge the federal taxing legislation and spending thereof it must be more than a taxpayer. It must have a special interest. It is said that an individual has no status to challenge the validity of an Act of Parliament unless he is specially affected or exceptionally prejudiced by it. In Thorson v. The Attorney General of Canada [1975] 1 S.C.R. 138 the appellant sought to have the Official Languages Act and Appropriations Act declared unconstitutional. The question of the appellants standing was raised as an issue. At page 145 Laskin, J. stated:

"The substantive issue raised by the plaintiff's action is a justiciable one; and, prima facie, it would be strange and, indeed, alarming, if there was no way in which a question of alleged excess of legislative power, a matter traditionally within the scope of the judicial process, could be made the subject of adjudication."

In Minister of Justice of Canada v. Borowski [1981] 2 S.C.R. 575, the Supreme Court of Canada dealt with the question of whether the respondent, a prominent crusader against abortion, had the legal standing necessary to challenge provisions of the Criminal Code. Martland, J. reviewed the decisions of the court dealing with legal standing (Thorson v. A.G. of Canada (supra), MacIlreith v. Hart (1908) 39 S.C.R. 657 and Smith v. A.G. of Ontario [1924] S.C.R. 331 and others) and said at p. 598:

"I interpret these cases as deciding that to establish status as a plaintiff in a suit seeking a declaration that legislation is invalid, if there is a serious issue as to its invalidity, a person need only to show that he is affected by it directly or that he has a genuine interest as a citizen in the validity of the legislation and that there is no other reasonable and effective manner in which the issue may be brought before the Court. In my opinion, the respondent has met this test and should be permitted to proceed with his action."

In this instance the plaintiff seeks to challenge the right of the federal government to collect money by imposition of the Income Tax and then to spend it in such a way as, it is alleged, controls programs under provincial jurisdiction. One of the basis for attacking the vires of the Income Tax Act is that the EPF Act, the Canada Act and the Canada Assistance Act are themselves involved.

In my view the plaintiff has met the necessary test for legal standing to commence the action. It is a taxpayer with a concern about the manner in which public funds are expended. The programs and agreements under question are the result of both federal and provincial statutes so it is unlikely that either would question their constitutionality.

The issue is such that the plaintiff ought to be able to question the actions of the federal and provincial governments in the manner of collecting and spending public funds. It is a matter where the plaintiff is entitled to the necessary standing to proceed with the action.

The plaintiff's arguments with respect to the substantive issues may be summarized as follows:

(a) that the Provincial Legislatures have exclusive jurisdiction to legislate in respect of post-secondary education, health and welfare;

(b) that the EPF Act, the Canada Health Act and the Canada Assistance Plan is legislation that is in "pith and substance" in relation to these areas of exclusive provincial jurisdiction;

(c) that the Provincial Legislatures have exclusive legislative jurisdiction to levy direct taxes within the provinces to raise revenue for provincial purposes;

(d) that the Income Tax Act, as it levies direct taxes in the provinces the revenues of which are in part used to fund the programs created by the EPF Act, the Canada Health Act and the Canada Assistance Plan, is invalid as constituting a direct tax for provincial purposes.

These issues involve a consideration of the collecting and the spending power of the federal government. Evidence was presented with respect to the evolution of fiscal arrangements made between the federal and provincial governments.

At the time of Confederation in 1867, government power was distributed between the central authority, the Parliament of Canada, and the regional or provincial authorities, the Provincial Legislatures. The Constitution Act, 1867 gave the provinces enumerated powers to make laws and, as well, gave certain powers along with the residue of power to the federal Parliment. Under this federal system neither authority is subordinate to the other but the two are co-ordinated. The powers of the Provincial Legislatures cannot be taken away, altered or controlled by the Parliament of Canada. Likewise the Provincial Legislatures are not competent to take away, alter or control the Parliament of Canada.

It is generally recognized that under the divisions of authority as set out in sections 91 and 92 of the Constitution Act, 1867, the Provincial Legislatures have authority to legislate in areas of health and welfare and post-secondary education. Section 92 does not contain a specific head of power dealing with health and welfare but s. 92(7) provides for the physical facilities of provincial health care. Under s. 92(16) the provinces are given authority over matters of a local or private nature. Historically this covered the area of health before it grew to a matter of such importance. However the view that the provinces have jurisdiction over health matters is not seriously question.

Section 92(16) has also been the authority stated for the view that welfare is a matter coming under provincial jurisdiction. Section 93 is the section which gives to the provinces exclusive legislative authority to legislate in relation to education.

It is on this basis that it is contended that the EPF Act, the Canada Health Act and the Canada Assistance Plan is legislation within the area under exclusive provincial control and are therefore invalid as outside of federal authority.

In reviewing legislation from a constitutional point of view to determine its validity as a federal or provincial power it is first necessary to ascertain the "pith and substance" of the legislation.

Professor Hogg in his text Constitutional Law of Canada (2d) said at p. 313:

"The first step in judicial review is to identify the "matter" of the challenged law."

This is also referred to as the "pith and substance" of the law and is for the purpose of identifying its most important characteristic.

The process next involves a determination of whether the "matter" is authorized by some head of power in the Constitution. Professor Hogg has also pointed out in his text (supra at p. 314) that:

"The difficulty in identifying the "matter" of a statute is that many statutes have one feature (or aspect) which comes within a provincial head of power and another which comes within a federal head of power."

The dominant feature of the law or the "pith and substance" is the determining factor in deciding validity and other features that may affect another object or subject are irrelevant.

In Carnation Company Ltd. v. Quebec Agricultucal Marketing Board et al [1968] S.C.R. 238 Martland, J. held that it was not sufficient to make a regulation invalid merely because it might effect a federal power. It must be "aimed at" or directed to a particular subject or matter not within the competence of the legislature.

It cannot be disputed that funds raised by the federal government when transferred to a province do end up being used for objects that are outside of legislative authority of the federal government.

Evidence was presented by a number of witnesses with respect to the Federal-Provincial Financial Arrangements and shared cost programs that have been in effect since Confederation.

The Canada Assistance Plan was created in 1966 and provides a program of federal assistance to the provinces for welfare programs on a 50/50 cost sharing basis. This not only requires provincial expenditure in this program before the federal assistance can be received but also requires compliance with certain federal conditions. It is therefore argued that the federal government is indirectly controlling provincial spreading in this very important area of provincial jurisdiction.

The system of federal contributions to the provinces for health care is provided by the EPF Act and the Canada Health Act. These Acts provide for grants to the provinces for health care systems that comply with terms contained in the Canada Health Act. Particulars are set out in the agreed facts. The evidence of Dr. Bird, who testified on behalf of the plaintiff as an expert on the subject, is that by attaching conditions to these federal contributions for health, the federal government directly affects provincial spending on health. This, it is submitted, is beyond the legislative authority of the Parliament of Canada.

The post-secondary education program began in 1951 as a program of federal grants to universities. In 1967 it was changed to a program to assist in financing of universities by grants and tax transfers. There are no federal terms with respect to post-secondary education and this portion of the program grant is unconditional. It is nevertheless argued that the original programs induced the provinces to spend money that might not otherwise have been spent. The provinces are now practically compelled to continue to operate these systems that were commenced under the original program.

In 1977 the three programs: post-secondary education, hospital insurance and health care were grouped together as established programs. The basis of the federal contributions now takes the form of a combination of tax points and cash grants which is independent of the provinces actual costs. It is said that this reduces the federal affect over the provincial programs as the only control is now to withhold the cash portion of the grant. The abandonment of the actual sharing of costs in the programs in favor of another system of calculating federal contributions eliminates federal interest in direct expenditures.

The plaintiff contends however that the federal statutes, the EPF Act, the Canada Health Act, and the Canada Assistance Plan all constitute federal intrusions into areas of exclusive provincial jurisdiction and are therefore unconstitutional. It is, it is submitted, an attempt by Parliament to regulate health, education and welfare programs in the provinces.

In response the defendant states that the impugned spending legislation is not directed to any provincial object but is an exercise of the plenary power of Parliament to appropriate monies from the Consolidated Revenue Fund which is a legitimate federal power. The legislation, it is said, authorizes the expenditure of funds by Parliament for national purposes. These funds are the property of the central government and are in the Consolidated Revenue Fund. The aim of the legislation is to promote objects of national concern which are beyond objects of local or provincial concerns and if it affects areas of provincial jurisdiction this is irrelevant in its characterization.

The defendant argues that the power of Parliament to provide grants or transfer payments to the provinces under the impugned laws, can be supported by the following:

(a) the general power in s. 91 (the objects of the legislation extend beyond provincial concerns);

(b) s. 91(1a) Parliament may dispose of its monies as it may think fit;

(c) Part VIII of the Constitution Act specifically s. 102 and 106. Power of Parliament to appropriate funds for the public service from the Consolidated Revenue Fund as an aid to interpretation;

(d) s. 36 of the Constitution Act.

The theory as now expressed in the Constitution is that all Canadians should receive "reasonably comparable levels of public services at reasonably comparable levels of taxation".

The position of the plaintiff is that the Constitution Act, 1867 provided for a distribution of legislative authority between Parliament and the provincial legislatures which powers are mutually exclusive. Neither body is entitled to legislate with respect to a subject that is reserved to the other. This is often referred to as the "wateright compartments" view of the Constitution as stated in Attorney-General of Canada v. Attorney-General of Ontario [1937] A.C. 355 at p. 367 by Lord Atkin:

"... If on the true view of the legislation it is found that in reality in pith and substance the legislation invades civil rights with the Province, or in respect of other classes of subjects otherwise encroaches upon the provincial field, the legislation will be invalid."

It will be "colourable" if it is directed to a s. 91 matter but in reality relates to a s. 92 matter. It is not a question of whether a law "affects" a particular matter but whether it is "in relation to" or "aimed at" the subject matter. The federal spending power then will be valid only so long as it is not in pith and substance legislation on a provincial matter.

The Constitution is generally silent on spending powers but it must be noted that federal grants to the provinces have been in force since Confederation. In order to enable some provinces to carry out their responsibilities, grants and subsidies were then made by the federal government and this has continued to the present time. (Section 118 of the B.N.A. Act as amended.)

The operation of the impugned legislation is described in the agreed statement of facts. Further evidence with respect thereto was presented by Dean Moodie and Robert Young, officials of the Department of Health and Welfare; Frank Gregg of the Department of Finance; and John Murray of the Department of Supply and Services. In addition expert reports were submitted by Professor Richard Bird on behalf of the plaintiff and by Professors Jack Mintz, Kenneth Norrie and Robin Broadway on behalf of the defendant.

It is not argued by the plaintiff that the legislation directly invades the provincial fields of health, post- secondary education and welfare. Rather it is submitted that the effect is indirect through the means of providing conditional funding with a view to controlling the provincial programs.

There is no doubt that the transfer of federal funds to the provinces amounts to a very heavy influence in areas that are reserved, under the Constitution, to the provinces.

The defendant seeks to support the legislation on the basis that the federal government has the power to levy taxes under s. 91(3). It then has the power to legislate with respect to public property under s. 91(1A) and to appropriate funds therefore under s. 106.

Section 91(1A) was relied on in Central Mortgage and Housing Corp. v. Co-operative College Residences Inc. et al (1977) 13 O.R. (2d) 394 (Ont. C.A.) to support federal payments. This was a challenge to the authority of Parliament to make loans under the National Housing Act for student residences at universities as education is a provincial responsibility. At p. 410 Howland, C.J.0. said:

"The Parliament of Canada has power under s. 91(1A) to legislate in relation to its own debt and property. It can spend money which it has raised through a proper exercise of its taxing power. It can impose conditions on the disposition of such funds while they are still in its hands. It has used this power to make federal grants-in- aid, which are subject to compliance with conditions that the Parliament of Canada has prescribed."

In this case the court held that the legislation in question was not in pith and substance a provincial matter but rather a proper exercise of its power to disburse public funds.

In Angers v. Minister of National Revenue (1957) 57 D.T.C. 1103 the Exchequer Court upheld the validity of family allowances. This was on the basis that the Family Allowances Act fell within the ambit of "for the good Government of Canada". Dumoulin, J. however did say that it would be different if Parliament attempted by means of grants to establish a system of education in opposition to the province.

In Reference Re Employment and Social Insurance Act [1936] 3 D.L.R. 644 Kerwin, J. said at p. 669:

"It is quite true that Parliament, by properly framed legislation may raise money by taxation and dispose of its public property in any manner that it sees fit. As to the latter point, it is evident that the Dominion may grant sums of money to individuals or organizations and that the gift may be accomplished by such restrictions and conditions as Parliament may see fit to enact. It would then be open to the proposed recipient to decline the gift or to accept it subject to such conditions. As to the first point, it is also undoubted, I conceive, that Parliament, by properly framed legislation may raise money by taxation, and this may be done either generally or for the specific purpose of providing the funds wherewith to make grants either before or after the conferring of the benefit."

The defendant also seeks to support the federal legislation on the basis that it can be justified by the power expressed in the opening words of s. 91 of the Constitution Act, 1867. This confers on Parliament the power:

"... 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; . . ."

It is clear from this that it purports to cover only those matters not coming within a provincial head of power. The meaning and interpretation of this general power has been the subject of considerable controversy. It has been used to support federal actions with respect to matters that

1) are not covered by one of the distributive heads of power or a gap;

2) come within the category of "national concern" or

3) come within an "emergency"; (See Hogg, Constitutional Law of Canada, 2d Ed. at 369.)

The rationale for federal government participation or assistance in programs coming under provincial responsibility is set out in the report of Professor R. Boadway, Exhibit 15 pp. 35-39. He says that it provides greater equity and greater economic efficiency in raising funds nationally and then permitting the provinces to use the funds to operate the programs. It first of all reduces tax competition between the two levels of government. A second reason is the reduction in fiscal inequities. The provinces can each provide reasonable comparable public services at reasonably comparable tax rates. Thirdly, Professor Boadway states that it reduces fiscal inefficiency as decisions affecting production and labor will not be made as a result of different levels of government services. This in turn improves the efficiency with which the economy operates.

It is as well a decision for each province to make when it decides whether or not to enter into agreements with the federal government. While the existence or availability of conditional grants greatly influences the provinces in establishing spending priorities, they still retain the control over their own budgets.

In my view the legislation under review is not legislation in relation to provincial matters of health, post-secondary education and welfare but is legislation to provide financial assistance to provinces to enable them to carry out their responsibilities.

Parliament has the authority to legislate in relation to its own debt and its own property. It is entitled to spend the money that it raises through proper exercise of its taxing power in the manner that it choses to authorize. It can impose conditions on such disposition so long as the conditions do not amount in fact to a regulation or control of a matter outside federal authority. The federal contributions are now made in such a way that they do not control or regulate provincial use of them. As well there are opting out arrangements that are available to those provinces who choose not to participate in certain shared-cost programs.

While the federal legislation does influence and affects matters under provincial jurisdiction they are, in my view, law dealing with the proper disbursement of federal public funds. The Constitution Act, 1867 in addition to making a distribution of powers between the Parlimanet of Canada and the Legislature of the Provinces, also gave to each the authority or the power to raise money by taxation. The issue of the federal taxing authority has been raised. The provincial taxing power is contained in s. 92(2) and states that the province may raise money by:

"Direct taxation within the Province in order to the raising of a Revenue for Provincial Purposes."

The federal taxing power as set out in s. 91(3) is more extensive and provides for "The raising of money by any mode or system of Taxation".

The plaintiff argued that the apparent unrestricted power given to the federal authority in the field of taxation is restricted by the power given to the provinces. In other words it is said that the federal power cannot impose direct taxation on a province to raise money for provincial purposes. The plaintiff states that monies received under the Income Tax Act are first paid into the Consolidated Revenue Fund and then some of the funds are transferred to the provinces. It is suggested that an inference can be drawn that monies collected under the Income Tax Act in this way are being used for provincial purposes.

The restriction on the federal power of taxation was considered in two decisions of the Privy Counsel. In Bank of Toronto v. Lambe (1887) 12 App. Cases 575 at 585 the Privy Council upheld a provincial law which imposed a tax on banks. In this decision, the court stated:

"... Their Lordships adhere to that view, and hold that, as regards direct taxation within the province to raise revenue for provincial purposes, that subject falls wholly within the jurisdiction of the provincial legislatures."

The law was said to be "in relation to" taxation and merely "affected" banking. A similar view was expressed in Caron v. The King [1924] A.C. 999 by Lord Phillemore at p. 1003:

"As such particular direct taxation is reserved to the Province, to that extent there is some deduction to be made from the totality of power apparently given exclusively to the Dominion Parliament to raise money for any purpose by any mode or system of taxation."

Some doubt has been expressed about the correctness of these statements and in his book, The Allocation of Taxing Power Under the Canadian Constitution (2d) (1982) at p. 52, Professor LaForest (now Mr. Justice LaForest) said:

"Whatever intellectual delights their Lordships may have derived from these nice questions, there is an air of unreality about them. In the Caron case it was held that Parliament could levy income tax notwithstanding that it was direct taxation, and as already seen there are numerous federal payments to the provinces that are used for provincial purposes. The British North America Act itself sanctions such actions, for section 118 provides for the payment of subsidies to the provinces which at one time amounted to almost half the provincial revenues. From a practical standpoint, then, the federal government does raise money for provincial purposes, and there is no telling whether this money comes from direct or indirect taxation"

In Reference re Proposed Tax on Natural Gas [1982] 1 S.C.R. 1004 Dickson, J, as he then was, referred to the general powers of taxation of the federal government and the statutory authority under s. 125 and said at p. 1067:

"Section 125 is an exception to the general constitutional competence of the federal parliament on the matter of taxation based on s. 91(3)."

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. The actual revenues collected under the Income Tax Act are paid into the Consolidated Revenue Fund pursuant to the Financial Administration Act. This Consolidated Revenue Fund is a non-segregated fund comprised of revenues received under the Income Tax Act and revenues from other sources. Monies are then paid by authority of Parliament from this fund to the provinces for the purpose of assisting in the financing the provincial programs of post-secondary education; health and welfare. The monies then are first collected and paid into the Consolidated Revenue Fund. The accounts are structured so that the source of all revenues cannot be distinguished. It is therefore 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 monies received under the Income Tax Act are intrinsically mixed with other monies 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.

It is also significant to note that federal governments authority to assist the provinces in essential public services was recognized in s. 36 of the Constitution Act 1982 which reads:

"36(1) Without altering the legislative authority of Parliament or of the provincial legislatures, or the rights of any of them with respect to the exercise of their legislative authority, Parliament and the legislatures, together with the government of Canada and the provincial governments, are committed to

(a) promoting equal opportunities for the well-being of Canadians;

(b) furthering economic development to reduce disparity in opportunities; and

(c) providing essential public services of reasonable quality to all Canadians.

(2) Parliament and the government of Canada are committed to the principle of making equalization payments to ensure that provincial governments have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation."

In my view the impugned legislation is simply carrying out objects that the federal government is authorized to undertake and accordingly the plaintiff's action is dismissed with costs.