Skip to content

Applicability of business tax where operations limited

There is no obligation upon a municipality to reduce a business tax due to limited operations secondary to the COVID-19 pandemic.

A municipality does, however, have the discretion to offer business tax relief. If a municipality were to consider such a policy, they should seek further legal advice in preparing the necessary resolutions to insulate itself from claims of ultra vires or discrimination.

Analysis

Municipalities have no obligation to reduce business taxes due to limited operations

Section 120 of the Municipalities Act (“Act”) reads as follows (emphasis added):

    1. A council shall impose an annual tax, to be known as “the business tax”, on all businesses carrying on business in the municipality.

This mandates that Towns impose a business tax on businesses within the municipality. Paragraph 2(1)(c) of the Act defines “business” in a broad and completely non-restrictive manner as follows (emphasis added):

    1. (1) In this Act

(c) “business” includes

(i) a commercial, merchandising or industrial activity or undertaking,

(ii) a profession, trade, occupation, calling or employment,

(iii) an activity which provides goods or services, and

(iv) a credit union, co-operative, corporation, sole proprietorship or association of persons,

whether or not it is for profit

Taking together the requirement for a municipality to charge a business tax and the broad definition of business, then the default rule for municipalities should always be to charge a business tax.

The question arising then is where businesses are limited from operating due to restrictions secondary to the COVID-19 pandemic, is there an obligation for municipalities to reduce business taxes since individual businesses are no longer “carrying on business”?

Based on the statutory provisions above, there is no such obligation. The discretion of a municipality to waive such a tax is a separate matter that is discussed later in this client update.

This conclusion is supported by Petty Harbour-Maddox Cove (Town) v Peerless Fish Co.¹ In that case, a fish processing company operated as a seasonal business and argued its business taxes should be reduced to about 25% of the tax, which was approximately the proportion of the tax relative to the percentage of the year it was in operation. The Court relied upon section 120 of the Municipalities Act and found municipalities are under no obligation to impose taxes in a particular fashion to meet the particularities of “any business” (emphasis added):

22        I was not referred to any authority for the proposition that the Town had an obligation to treat seasonal businesses differently. While it would certainly be advantageous from the perspective of the business to have its seasonal nature taken into account, and it might be good economic policy for the Town to encourage such businesses, it appears to me that there is no obligation on the Town to do so. I prefer the view that the Town has the right to impose tax, and is not obligated to impose it in a particular fashion to meet the peculiarities of any business. It may make good business sense to support economic activity in the town, but based on my reading of the legislation, it may impose the tax without reference to the seasonal nature of the business.²

This conclusion also makes sense from a policy perspective. The threshold is whether the entity is “carrying on business” – not the portion of the year that the business is in operation. By way of example, a store that that is opened on Sundays is not charged more business tax than one that is not. Or a business that opens at night is not charged more than a business that only operates during the day.

It is quite different, however, if a business stops operating entirely. While Peerless Fish stands for the proposition that the time of operation is irrelevant in the determination of business tax, section 120 of the Act states that the tax may only be applicable to businesses “carrying on business” in the municipality. Therefore, should any business’ operation cease for an entire tax year, then they are not liable for business taxes at all.

Municipalities have the discretion to reduce business tax, but must not discriminate

Section 111 of the Act provides municipalities with a mechanism through which it may reduce the business tax:

111      (1) A person may apply to a council for, and the council may, by a vote of 2/3 of the councillors in office, grant an exemption, remission or deferment of taxes and interest on the taxes, either in whole or in part, for those periods of time that the council decides and the council may determine the evidence which it shall require to warrant the exemption, remission or deferment.

(2) A council may, by a vote of 2/3 of the councillors in office, enter into tax agreements and offer tax incentives which vary existing rates of tax.

While there is no obligation on a municipality to reduce business taxes due to the COVID-19 pandemic, section 111 above provides a mechanism whereby a council may, in its discretion, create an exception to taxes they are otherwise obligated to charge, so long as they obtain a 2/3 majority vote of the council. Further, the council may only provide these reductions based on “evidence” warranting the exemption. Council has discretion in determining the evidence required.

That discretion is not limitless, especially when discrimination is at issue.³ In order to avoid discrimination issues, the policy would have to be carefully crafted, and the municipality would have to apply it objectively. The policy, then, would serve as the evidentiary basis required under section 111 of the Act to warrant an exemption, remission, or postponement of business tax.

Section 111 refers to a “person”, meaning each case would have to be considered on its own merits. In other words, the council cannot simply issue a resolution in respect of its policy and then begin applying it – the council would have to satisfy itself that each applicant has met the objective criteria depicted in the policy and then explicitly vote to approve the application.

If a municipality were to consider tax relief under section 111 of the Act, it should seek further legal advice in respect of drafting its policy and how best to apply it to insulate the municipality from claims of ultra vires or discrimination.


¹ 2005 NLTD 187, 2005 Carswell Nfld 299 [Peerless Fish].

² Ibid at 22.

³ In Peerless Fish the Court enunciated the principles applicable to tax discrimination in the municipal context:

29 From the Long Harbour analysis I take two principles: first, that without explicit statutory authority, the municipality is not authorized to treat taxpayers in the same category differently; second, the issue of good faith is irrelevant to a finding of discrimination. Since there has been no assertion of a statutory power to discriminate, then it is clear the Town is not authorized to do so.


This article is provided for general information only. If you have any questions about the above, please contact a member of our Municipal group.

Click here to subscribe to Stewart McKelvey Thought Leadership articles and updates.

SHARE

Archive

Search Archive


 
 

Input sought on Nova Scotia pension division and other family property matters

January 24, 2020

Dante Manna The Nova Scotia Government is seeking input by way of public survey or written submissions on proposed changes to family property law that would, among other things, affect pension division between former spouses.…

Read More

Atlantic Canada Year in Review 2019 – Top 15 Takeaways for Employers

January 23, 2020

Atlantic Canada experienced a number of legal developments in 2019 that regional employers should be aware of as they plan for the year ahead. Click the image below to read our 2019 year in review,…

Read More

Supreme Court of Canada’s Canada Post decision delivers good news for federal employers

January 20, 2020

G. Grant Machum & Richard Jordan On December 20, 2019, the Supreme Court of Canada released its decision in Canada Post Corporation v. Canadian Union of Postal Workers, 2019 SCC 67.  This case involved a…

Read More

Atlantic Canada pension and benefits outlook 2020

January 13, 2020

Level Chan and Dante Manna In this update we provide what we see on the employee benefits and pension plans legal horizon in 2020 and beyond, along with a review of some highlights from 2019.…

Read More

Accessible Canada Act – the beginning of a new era in accessibility?

January 9, 2020

Jennifer Thompson The Accessible Canada Act (“Act”) came into force on July 11, 2019, ushering in the start of a march towards a Canada without barriers for persons with disabilities. While the Act only applies…

Read More

Five compliance tips (for employers of foreign workers)

January 7, 2020

Kathleen Leighton If you employ an individual who holds a work permit to authorize their work in Canada, you likely have various obligations to adhere to and can face significant consequences if your business is…

Read More

Provincial Law Voids Limitations of Liability in Contract for Ship’s Engine Parts

January 7, 2020

David Constantine and Joe Thorne In the recent Supreme Court of Canada decision in Desgagnés Transport Inc v Wärtsilä Canada Inc, 2019 SCC 58, the court examined how provincial statutes and the federal maritime law…

Read More

2019 intellectual property year in review

January 6, 2020

Daniela Bassan Noteworthy cases Keatley Surveying Ltd. v. Teranet Inc., 2019 SCC 43 Considering Crown copyright for the first time, the Supreme Court of Canada upheld the dismissal of a class action brought by land…

Read More

Employer immigration compliance obligations

January 2, 2020

Kathleen Leighton Employers in Canada are obligated to only employ individuals who are legally able to work for them. Individuals who are neither citizens nor permanent residents of Canada, but who wish to work in…

Read More

The spies who saved judicial review: The top 10 takeaways from Vavilov

December 20, 2019

Twila Reid, Jennifer Taylor and Richard Jordan The Supreme Court of Canada has revolutionized administrative law (again) with its new standard of review decision, Canada (Minister of Citizenship and Immigration) v Vavilov. The decision reflects…

Read More

Search Archive


Scroll To Top