Increased power of local municipalities to impose direct taxesDecember 6th, 2017
On June 15, 2017, the National Assembly of Québec adopted An Act mainly to recognize that municipalities are local governments and to increase their autonomy and power (hereinafter the “Autonomy Act”). By adopting this law, the National Assembly has granted local municipalities governed by the Cities and Towns Act or the Municipal Code of Québec authorization to impose any municipal tax in its territory, provided it is a direct tax.
The Autonomy Act, however, lists a series of taxes that local municipalities are not authorized to impose.
Local municipalities, therefore, cannot impose the following taxes:
A tax in respect of the supply of a property or a service;
A tax on income, revenue, profits or receipts, or in respect of similar amounts;
A tax on paid-up capital, reserves, retained earnings, contributed surplus or indebtedness, or in respect of similar amounts;
A tax in respect of machinery and equipment used in scientific research and experimental development or in manufacturing and processing or in respect of any assets used to enhance productivity, including computer hardware and software;
A tax in respect of remuneration that an employer pays or must pay for services, including non-monetary remuneration that the employer confers or must confer;
A tax on wealth, including an inheritance tax;
A tax on an individual because the latter is present or resides in the territory of the municipality;
• A tax in respect of alcoholic beverages within the meaning of section 2 of the Act respecting offences relating to alcoholic beverages;
A tax in respect of tobacco or raw tobacco within the meaning of section 2 of the Tobacco Tax Act;
A tax in respect of fuel within the meaning of section 1 of the Fuel Tax Act;
A tax in respect of a natural resource;
A tax in respect of energy, in particular electric power; or
A tax collected from a person who uses a public highway in respect of equipment placed under, on or above a public highway to provide a public service.
Any by-law adopted by a local municipality to impose a municipal tax must state the subject of the said tax, the tax rate and the amount of tax payable, how the tax is to be collected and the designation of any persons authorized to collect the tax as agents for the municipality.
The Autonomy Act also sets out what may be included in the by-law.
Pursuant to the Autonomy Act, a local municipality cannot impose a municipal tax on the State, the Crown in right of Canada or one of their mandataries, a school board, a general or vocational college, a university establishment, the Conservatoire de musique et d’art dramatique du Québec, certain private educational institutions, a public institution within the meaning of the Act respecting health services and social services, certain private institutions referred to in that Act, a childcare centre any other person determined by a regulation of the Government.
The power of municipalities to tax has been considerably extended by the adoption of the Autonomy Act. Recall that pursuant to section 92 of the Constitution Act, 1867, local municipalities are not empowered, as creatures of the province of Quebec, to impose indirect taxes. Local municipalities that do so are acting unconstitutionally. A well-known passage from Principles of Political Economy by Mill, often quoted by the Supreme Court of Canada, describes the difference between direct and indirect taxes:
Taxes are either direct or indirect. A direct tax is one which is demanded from the very persons who, it is intended or desired, should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another: such as the excise or customs.
Municipalities must ensure that they only impose direct taxes in order to comply with their enabling legislation and the Constitution Act, 1867. The courts will not hesitate to declare any by-law they adopt that imposes an indirect tax illegal and null.