Stikeman Elliott 1 MUNICIPAL UPDATE AUGUST 1998 User fees

MUNICIPAL UPDATE AUGUST 1998

User fees? Not so fast Government, Courts limit opportunities Author: Municipal Law Practice Group Appearances are often deceiving: this could prove to be true of the user fee powers granted to Ontario municipalities in 1996. Before 1996, municipalities were limited to collecting the specific user fees and charges listed in the legislation, about 80 in total. The Savings and Restructuring Act, 1996 was supposed to change that and give municipalities a broad general power to impose user fees and charges, and so raise additional revenues. Reform of the often archaic, overly restrictive user fee provisions of the Municipal Act has not proven to be the revenue opportunity municipalities may have hoped for. First, the government used its regulation-making authority to shut down several municipal user fee initiatives which the Province deemed inappropriate. For example, the government disallowed a plan to charge residential developers for sewage treatment capacity allocated to them (and so lost to more lucrative industrial development). The Province also stopped a charge on non-refillable bottle sales, through which municipalities could have recouped the cost of recycling non-refillable bottles. Now, two court decisions (both dealing with camp ground levies) have further limited municipalities’ powers to impose fees and charges. In Carson’s Camp Limited v. Township of Amabel, (Ontario Court, General Division, April 22, 1998), a camp ground operator challenged a by-law of the respondent township which imposed fees on all camp ground operators in the township. The by-law provided that each operator would be charged $50.00 for every seasonal site and $20.00 for each tent and trailer site on its camp ground. Carson’s Camp Limited challenged the by-law on the following three grounds: first, the by-law created a tax, not a fee or charge; second, the tax was indirect; and third, the tax was based on the use of land. The Court found that the levy was actually a tax because the camp ground operator received no service or benefit specifically related to the fee or charge levied. Further, the camp ground operator had no way to avoid paying the tax by declining to receive the service or benefit. The Court was further influenced in this finding by the fact that camp ground levy went into general revenues.

STIKEMAN ELLIOTT

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Although s. 220.1(6)(a) of the Municipal Act provides that fees and levies may be “in the nature of a direct tax for the purpose of raising revenues”, the Court found that it is still necessary that the fee or charge be levied in respect of a specific service or benefit. Having found that the fee was actually a tax, the Court then decided that it was an indirect tax. A municipality, as a creation of the Province, is forbidden to levy indirect taxes under the British North America Act. The Court found that the levy would likely be passed on to the camp ground users. In reaching its conclusions, the Court was influenced by the reasons in Ontario Private Campgrounds Association v. The Corporation of the Township of Harvey, which overturned a camp ground levy for similar reasons. The municipality tried to defend the by-law by saying that the township was merely exercising its power to regulate businesses, including imposing fees. The Court rejected this defence and found that the by-law was not enacted under the licensing provisions of the Municipal Act but under the fees and levies provision. In the case of user fees, the government replaced a list of narrow, specific powers by a single, more general and more flexible grant of authority. The same approach is being used by the government in its proposed reform of the entire Municipal Act. Therefore, the restrictions that have arisen around the broad user fee power could signal what might happen were the whole Municipal Act reformed along similar lines.