[co-author: Vanessa Colton – Articling Student]
On October 31, 2022, in the case of Stelmach Project Management Ltd. v City of Kingstonthe Ontario Court of Appeals held that the city of Kingston could avail itself of the Municipal act issue statutes imposing rates based on the cost of capital for the installation of water and sewage infrastructure.
The implications of this decision could extend well beyond the particular development in question, potentially opening a path for municipalities to create a second source of charges – in addition to development charges – to be levied against land development in Ontario. Furthermore, this second source would be the one that does not have the same legislative and procedural controls as urban planning charges. Given the recent and proposed changes to development expenditures, parks fees and the replacement of previous Section 37 fees by the Community Benefit Charge, this decision could very well result in increased use of these alternative grants Municipal act taxes and levies on new real estate developments in Ontario.
Facts and legislative history
The appellant is a land developer who was developing two residential properties in the City of Kingston (the City). In 2014, the city enacted two ordinances imposing development-related taxes or charges within Kingston. The first is the Tax Decree, which allowed the Municipality to impose a fee, based on the capital cost, for the installation of sanitary water and sewage services. The tax law has been passed S. 391, paragraph 2, del Municipal act, SO 2001, c. 25 (the MA) which provides that a fee or charge for capital costs relating to services or activities may be imposed on persons who do not receive an immediate benefit but who will receive a benefit at a later date. For the city of Toronto, see the corresponding provision in S. 259, paragraph 2, del Toronto City Act, OS 2006, c. 11.
The second law was a development charges law, passed under the Development cost law, SO 1997, c. 27 (the DCA), under which Council charges to cover projected capital costs related to specific services such as security (fire and police), roads, parks and recreation, library, transit, affordable housing, and administration. Section 2 of the DCA expressly authorizes a municipality to levy zoning charges.
At the time their application was filed, the plaintiff owed the City $410,000 in taxes related to the development of the two properties.
Appellant argued that the city was obligated to pass the tax ordinance under the DCA rather than the MA, as the specific statute-making power in the DCA should be preferred to the general power in the MA. The plaintiff presented evidence that the City of Kingston was one of the few municipalities in Ontario that charged levy fees under a regulation made under the MA rather than the DCA. Furthermore, it was argued that the impost statute was illegal because it failed to import all of the procedural safeguards required under the DCA and that the charges under the statute were prohibited by art. 394, paragraph 1, MA.
The Judge of Appeal held that the Municipality was authorized to issue the Tax Ordinance by virtue of the general powers conferred by the AIC and that the appeals were not prohibited. The Court of Appeal finally confirmed this decision.
Is the Municipality obliged to make use of the specific competences of the DCA?
The Court of Appeal first considered whether Council was obliged to pass the Impost Statute under the more specific power of the DCA, rather than the broad powers of the MA. The Court of Appeal found that Council has multiple sources of power to levy taxes to recover capital costs and that it is not obligated to rely on the DCA. This is evidenced by the broad language in s. 391, paragraph 2, MA, which includes charges and fees to be repaid everything capital expenditure to be paid by the municipality. Furthermore, the Court of Appeal highlighted that the legislative history of the MA and DCA made it clear that the legislative intention was to create a dual regime to recover capital costs under which the City could pass statutes according to its choice of statute. For instance. 2(1) of rights and taxes, O.reg. 584/06 it specifically addresses the situation where a municipality could levy the same tax twice and prohibits such “double levying”.
Didn’t the Municipality import the necessary procedural safeguards?
The Court of Appeal then found that the Municipality did not fail to import the necessary procedural safeguards. Article 15 of the MA provides that if a municipality has the power to issue a regulation under specific articles and also pursuant to a specific provision of this or any other law, the power conferred is subject to all procedural requirements which apply to the power and any limits to the power contained in the specific provision. The appellant interpreted the art. 15 of the MA to mean that the Municipality was required to comply with the same procedural safeguards provided for by the DCA. Those DCA protections include a right to appeal, which the city was unable to provide under the tax law.
The Court found that the applicant misinterpreted the statute. The terms “any other act” in s. 15 were to be understood in the context of the relevant legislative history and that interpretation did not apply to the DCA. Furthermore, the provisions of the DCA and the MA were found to be non-interchangeable as s. 15; S. 391, paragraph 2, MA admits the accusation against a person, while the art. 2 DCA authorizes the attribution of land.
Yes. 394 (1) Prohibit taxes levied through the tax law?
Section 394(1)(e) of the MA provides that no statutory tariff or charge imposes a tariff or charge based on the generation, exploitation, harvest, processing, renewal or transportation of natural resources. The appellant argued that the aforementioned section prohibited the Municipality from levying taxes on water, including wastewater. The Court of Appeal held that the overall purpose of art. 394, paragraph 1, had to prevent the municipalities from imposing taxes and charges unrelated to matters of municipal government. Furthermore, accepting the appellant’s argument would mean preventing the Municipality from imposing the water and waste water user fee on taxpayers, an absurd result. Ultimately, yes. 394(1)(e) did not prevent a municipality from imposing taxes and charges on land developers for the cost of providing infrastructure that carries water and wastewater for the benefit of its taxpayers.
On all three points the appellant’s argument was found to be unfounded, leading to the rejection of the appeal. The City was allowed to enact the Impost Act relying on the AG to collect water and sewage infrastructure charges.