CLARKE, J.A.:—This is a reference to the Appellate Division of this Court for hearing and determination pursuant to s: 2 of the Constitutional Questions Act, R.S.A. 1922, c. 89, of the question of the constitutional validity of the said Act, or of any of the provisions thereof.
By an order made on May 11, 1938, Mr. J. EK. Brownlee, K.C., was appointed to represent the class of agricultural producers interested in opposing the constitutional validity of the Act. Upon the hearing Mr. W. S. Gray, K.C., and Mr. H. J. Wilson, K.C., represented the Attorney-General of Alberta, and they were opposed by Mr. Brownlee, K.C., with Mr. C. W. Clement. The Attorney-General of Canada having been notified stated that he did not desire to be heard.
Section 2 provides that in the Act, unless the context otherwise requires,—
‘‘(a) ‘Agricultural produce’ means wheat, oats, rye, barley, flax, peas, beans, hay, alfalfa, sugar beets, potatoes, grass seed, clover seed, alfalfa seed, eggs, honey, horses, cattle, sheep, swine, poultry, geese, dairy produce and wool;
“(b) ‘Minister’ means the Minister of Municipal Affairs ; “(c) ‘Municipality’ means every municipal district, improvement district and every school district which collects its own taxes other than a village school district ;
“(d) ‘Primary dealer’ means any person who in the course of and as a part of his business purchases agricultural produce from the producer thereof or deals in or handles or processes any agricultural produce for the producer thereof;
“(e) ‘Producer’ means every person who, being the registered owner or the purchaser under an agreement of sale or the lessee of any land in a municipality, occupies and uses such land for the purpose of the production of any agricultural produce.
‘*3. On, from and after the first day of the month next following the month in which this Act is proclaimed to be in force, seven undivided one-hundredth parts of all agricultural produce shall, as and from the moment upon which the same comes into being, be vested in His Majesty, in the right of the Province, to be used in such manner and for such purposes as are herein- after provided, and shall remain so vested until such produce is sold by the producer thereof.’’
"‘4. Whenever any such agricultural produce is sold by or on behalf of the producer thereof, so much of such produce as is by this Act vested in His Majesty shall be delivered to the Minister on behalf of His Majesty. ‘ ’
"5. Every primary dealer in the Province is hereby authorized and empowered as the agent for His Majesty, to receive out of all agricultural produce which is delivered to him upon the purchase thereof or which is delivered to him for the purpose of being dealt in, handled or processed, the portion thereof which is vested in His Majesty, and upon the delivery of any such produce to a primary dealer such dealer shall as such agent as aforesaid,— . . .
"(c) retain on behalf of his Majesty the portion thereof by this Act vested in His Majesty, namely, seven undivided onehundredth parts thereof, and dispose of the portion so retained in such manner as he may be directed by the Minister. . . .
"‘6(1) In case any producer of agricultural produce desires to ship such produce to any point outside the Province, he shall first. give notice in writing to the Minister setting out the kind and amount of the produce which he proposes to ship, the company or person by whom the proposed shipment is to be made, the date upon which it is proposed to make the shipment, and the legal description of the land occupied by the producer.
(2) Such notice shall be delivered to the Minister not later than the tenth day before the date of the proposed shipment;.. . .
(3) The Minister shall then proceed to give such directions as he may deem proper as to the delivery to the Minister of the part thereof belonging to the Crown in the right of the Province, and to issue a permit for the shipment, subject to the compliance by the producer with such directions which shall be set out therein.
"‘(4) No producer shall ship, move or send or cause to be shipped, moved or sent out of the Province any agricultural produce unless he has a permit under this section authorizing the shipment and has complied with all the directions set out therein.
(5) No person whatsoever shall ship or transport or accept any agricultural produce from a producer for shipment or transportation out of the Province unless he receives at the time of the receipt of the produce for shipment the permit of the Minister for such shipment and satisfies himself that the directions set out therein have been complied with.”
Section 10 authorizes the Minister to store so much of the agricultural produce received by him pursuant to the Act as he deems necessary for furnishing any relief in kind, the furnishing whereof is authorized by any Act of the Legislature of the Province, and to sell any of such produce and to place the proceeds of sale in a special trust account; and s. 11 provides that the money for the time being to the credit of the special trust account shall be available:—
Firstly, for the payment to municipal districts and improvement districts of the amounts payable to them pursuant to s. 12;
Secondly, to provide for crop loss insurance in the nature of grants of seed to farmers who have lost grain crops through drought, hail, frost, cutworms or grasshoppers, in such manner, subject to such conditions and to such extent as may be from time to time prescribed by the Lieutenant-Governor in Council.
Section 12 provides for payment out of the special trust fund of the amount of the difference between the estimated expenditures and the estimated receipts of the municipal districts and improvement districts.
The Act was not to come into force until a day fixed for that purpose by Proclamation of the Lieutenant-Governor in Council, but no such proclamation to be made until after the question of the validity of the Act has been referred to the Supreme Court of Alberta, and that upon such reference or upon appeal thereof, it is certified that the Act is valid.
Owing to the unusual character of the Act, I have quoted from its provisions at considerable length in the hope of setting forth all that appears to be material for consideration upon the reference.
Amongst other objections raised to the validity of the Act in question is a very important one, viz.:—That the Act exceeds the authority to make laws in relation to "‘Direct Taxation within the Province in order to the raising of a Revenue for Provincial Purposes’’—given to the Legislature of the Province exclusively as provided by s. 92(2) of the B.N.A. Act, 1867. It will be useful at the outset to have a clear understanding of what constitutes taxation within the meaning of s. 92(2) referred to.
In the case of Lawson v. Interior Tree Fruit & Vegetable Committee, [1931] 2 D.L.R. 193, which arose under a Produce Marketing Act, of British Columbia, it appeared that the control of the marketing of the products dealt with by the Act was given to a Committee which was given the power "‘for the pur- pose of defraying the expenses of operation to impose levies on any product marketed.’’ Mr. Justice Duff, delivering the judgment of a majority of the Court at pp. 197-8 said that he had no doubt that such levies are taxes, for the following reasons given by him, viz. :—
(a) They are enforceable by law.
(b) They are imposed under the authority of the Legislature,
and
(c) The levy is made for a public purpose.
Applying this test to the share of the produce vested in His Majesty, in the right of the Province, by s. 3 of the Act here in question, all the conditions exist which constitute the exaction of such share from the producer to be taxation.
Then as to such taxation being direct or indirect Mr. Justice Duff, at p. 197 said:—"I think . . . that such levies so imposed, have a tendency to enter into and to affect the price of the product. I think, moreover, that levies of that character, assuming for the moment they come under the head of taxation, are of the nature of those taxes on commodities, on trade in commodities, which have always been regarded as indirect taxes. If they are taxes, they cannot be justified as direct taxation within the Province.”
This question of direct or indirect taxation will be further considered when referring to other cases on the subject.
An effort was made on the argument to distinguish the taxation here in question from that found to be indirect in numerous cases cited, on the ground that the share of the Crown becomes vested from the moment upon which the agricultural produce dealt with by the Act comes into being, so that thereafter the seven undivided one-hundredth parts thereof becomes the absolute property of the Crown from the beginning of its existence and so remains until it becomes separated and set apart at the time of its marketing.
In the absence of authority to the contrary, I am unable to find such distinction either in the fact that the share of the Crown is deliverable in kind or in the fact of the vesting of such share in its embryonic state as the Act provides.
It must be agreed that the undivided share is taken from the producer willy-nilly; it does not come down as manna, it was neither created nor contributed to by the Crown nor by any person other than the producer; and then after the producer is required by law to part with an undivided share he is required to care for it at his expense until it is ready for market, and then after being separated from the producer’s own share, it is delivered to the Crown, all as required by law.
It is difficult to imagine a more effectual form of taxation, and as to its classification as direct or indirect, I cannot, I think, do better than to cite some of the leading cases where the Courts have dealt with such a question.
Bank of Toronto v. Lambe (1887), 12 App. Cas. 575 (head- note) :—
‘‘Held, that Quebec Act 45 Vict. c. 22, which imposes certain direct taxes on certain commercial corporations carrying on business in the province, is intra vires of the provincial legislature.
"‘A tax imposed upon banks which carry on business within the province, varying in amount with the paid-up capital and with the number of its offices, whether or not their principal place of business is within the province, is direct taxation within clause 2 of sect. 92 of the British North America Act, 1867, the meaning of which is not restricted in this respect by either clause 2, 3, or 15, of sect. 91.”
Lord Hobhouse delivered the judgment of their Lordships and says at p. 581:—First, is the tax a direct tax? For the argument of this question the opinions of a great many writers on political economy have been cited, and it is quite proper, or rather necessary, to have careful regard to such opinions, as has been said in previous cases before this Board. But it must not be forgotten that the question is a legal one, viz., what the words mean, as used in this statute; whereas the economists are always seeking to trace the effect of taxation throughout the community, and are apt to use the words " direct, ‘ ‘ and " indirect, ‘ ‘ according as they find that the burden of a tax abides more or less with the person who first pays it,’’ and at p. 582:— 4 "The legislature cannot possibly have meant to give a power of taxation valid or invalid according to its actual results in particular cases. It must have contemplated some tangible dividing line referable to and ascertainable by the general tendencies of the tax and the common understanding of men as to those tendencies.’’ He then quotes the definition of John Stuart Mill which is as follows :—
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 de- manded from one person in the expectation and intention that he shall indemnify himself at the expense of another; such are the excise or customs.
‘‘ ‘The producer or importer of a commodity is called upon to pay a tax on it, not with the intention to levy a peculiar contribution upon him, but to tax through him the consumers of the commodity, from whom it is supposed that he will recover the amount by means of an advance in price.’ ”
Their Lordships then take Mill’s definition as a fair basis for testing the character of the tax in question, because it seems to them to embody with sufficient accuracy for this purpose an understanding of the most obvious indicia of direct and indirect taxation, which is a common understanding, and is likely to have been present to the minds of those who passed the Federation Act, and Lord Hobhouse continues at p. 583 :—
“But the tax now in question is demanded directly of the bank apparently for the reasonable purpose of getting contributions for provincial purposes from those who are making profits by provincial business. It is not a tax on any commodity which the bank deals in and ean sell at an enhanced price to its customers. It is not a tax on its profits, nor on its several transactions. It is a direct lump sum, to be assessed by simple reference to its paid-up capital and its places of business. It may possibly happen that in the intricacies of mercantile dealings the bank may find a way to recoup itself out of the pockets of its Quebec customers. But the way must be an obscure and circuitous one, the amount of recoupment cannot bear any direct relation to the amount of tax paid, and if the bank does manage it, the result will not improbably disappoint the intention and desire of the Quebec Government.”
Brewers and Maltsters’ Ass’n of Ontario v. A.-G. Ont., [1897] A.C. 231 (headnote) :—
^Held, that the Liquor Licence Act (Revised Statutes of Ontario, ce. 194), s. 51 sub-s. 2, which requires every brewer and distiller to obtain a licence thereunder to sell wholesale within the province, is intra vires of the provincial legislature—
"(a) as being direct taxation within sub-s. 2, s. 92, of the British North America Act, 1867. . . .
(b) as comprised within the term ‘other licences’ in sub-s. 9 of the same section.’’
It was considered that on the question of ‘‘direct taxation” there was no substantial difference between the case of Bank of Toronto v. Lambe (supra) and the present ease.
Lord Herschell, who delivered the judgment of their Lordships said at pp. 236-7.—‘‘In the present case, as in Lambed Case, their Lordships think the tax is demanded from the very person whom the Legislature intended or desired should pay it. They do not think there was either an expectation or intention that he should indemnify himself at the expense of some other person. No such transfer of the burden would in ordinary course take place or can have been contemplated as the natural result of the legislation in the case of a tax like the present one, a uniform fee trifling in amount imposed alike upon all brewers and distillers without any relation to the quantity of goods which they sell. It cannot have been intended by the imposition of such a burden to tax the customer or consumer. It is of course possible that in individual instances the person on whom the tax is imposed may be able to shift the burden to some other shoulders. But this may happen in the case of every direct tax.
"‘It was argued that the provincial legislature might, if the judgment of the Court below were upheld, impose a tax of such an amount and so graduated that it must necessarily fall back upon the consumer or customer, and that they might thus seek to raise a revenue by indirect taxation in spite of the restriction of their powers to the imposition of direct taxation. Such a ease is conceivable. But if the Legislature were thus, under the guise of direct taxation, to seek to impose indirect taxation, nothing that their Lordships have decided or said in the present ease would fetter any tribunal which might have to deal with such a case if it should ever arise/ ‘
On the question of licences under s-s. (9) of s. 92, their Lordships were not satisfied that the licence rendered necessary by Liquor Licence Act in question was not one within the meaning of said s-s. (9) of s. 92.
A.-G. Man. v. A.G. Can., [1925] 2 D.L.R. 691. This relates to ce. 17 of the Statutes of Manitoba for 1923 entitled "An Act to provide for the collection of a Tax from persons selling grain for Future Delivery.’’
It appeared that the ultimate market-price for grain in Canada and Western America, the producing countries, is determined in the great importing markets in Great Britain and Europe. This is a ‘‘world-price’’ which is but little controlled by the producers, and which has to be looked to to cover all the items in cost of production and of transportation.
Viscount Haldane delivered the judgment of their Lordships and said at p. 696:—"It is impossible to doubt that the tax was imposed in a form which contemplated that someone else than the person on whom it was imposed should pay it. The amount will, in the end, become a charge against the amount of the price which is to come to the seller in the world market, and be paid by someone else than the persons primarily taxed. The class of those taxed obviously includes an indefinite number who would naturally indemnify themselves out of the property of the owners for whom they were acting.’’
A.-G. B.C. v. C.P.R., [1927] 4 D.L.R. 113. This case is concerned with the validity of the British Columbia Fuel-oil Tax Act, 1923, which enacted that every person who purchases within the Province fuel-oil sold for the first time after its manufacture or importation into the Province, should pay for provincial purposes a tax equal to one-half cent per gallon of the oil so purchased. It was decided that the tax was indirect.
Viscount Haldane, who delivered the judgment, said that while a direct tax is one that is demanded from the very person who it is intended or desired should pay it, an indirect tax is that which is demanded from one person in the expectation and with the intention that he should indemnify himself at the expense of another, as may be the case with excise and customs.
The question of validity could not be made to impose on the Courts the duty of separating out individual instances in which the tax might operate directly from those to which the general purview of the taxation applies. It may be true having regard to the practice of the respondents, the oil they purchase is used by themselves alone, and is not at present resold. But the respondents might develop their business so as to include resale of the oil they have bought. The principle of construction as established is satisfied if this is practicable, and does not for its application depend on the special circumstances of individual eases. Fuel-oil is a marketable commodity, and those who purchase it, even for their own use, acquire the right to take it into the market. It, therefore, comes within the general principle which determines that the tax is an indirect one.
City of Halifax v. Fairbanks, [1927] 4 D.L.R. 945: s. 394 of the Charter of the City of Halifax provided that any property let to the Crown was to be deemed for business purposes to be in the occupation of the owner, and was to be assessed for business tax according to the purposes for which it was occupied.
The respondent estate owned premises which it let to the Crown, represented by the Minister of Railways, for use as a ticket office of the Canadian Northern Railway, the lessee agreeing to pay the business tax.
The City assessed the respondent estate to the business tax under s. 394 of the Charter :—
Held, that the tax imposed by s. 394, being a tax upon property was ‘‘direct taxation” even though the owner probably would seek to pass it on to the tenant.
Viscount Cave, who delivered the judgment said at pp. 948-9, “that their Lordships have primarily to consider, not whether in the view of an economist the business tax imposed on an owner under s. 394 of the Halifax City Charter would ultimately be borne by the owner or by someone else, but whether it is in its nature a direct tax within the meaning of s. 92(2) of the Act of Union. The framers of that Act evidently regarded taxes as divisible into two separate and distinct categories, namely, those that are direct and those which cannot be so described, and it is to taxation of the former character only that the powers of a provincial government are made to extend. From this it is to be inferred that the distinction between direct and indirect taxes was well known before the passing of the Act; and it is undoubtedly the fact that before that date the classification was familiar to statesmen as well as to economists, and that certain taxes were then universally recognized as falling within one or the other category. Thus, taxes on property or income were everywhere treated as direct taxes. . . . On the other hand, duties of customs and excise were regarded by everyone as typical instances of indirect taxation. When therefore the Act of Union allocated the power of direct taxation to the Province, it must surely have intended that the taxation of property and income should belong exclusively to the provincial legislatures, and that without regard to any theory as to the ultimate incidence of such taxation.’’
And further at pp. 949-50 he said, referring to Mill’s formula, previously referred to “it cannot have the effect of disturbing the established classification of the old and well known species of taxation, and making it necessary to apply a new test to every particular member of those species. The imposition of taxes on property and income, of death duties and of municipal and local rates is, according to the common understanding of the term, direct taxation, just as the exaction of a customs or excise duty on commodities or of a percentage duty on services would ordinarily be regarded as indirect taxation; and although new forms of taxation may from time to time be added to one category or the other in accordance with Mill ‘s formula, it would be wrong to use that formula as a ground for transferring a tax universally recognized as belonging to one class to a different class of taxation.’’
The King v. Caledonian Collieries Ltd., [1928] A.C. 358 (headnote) :—
"The Mine Owners Tax Act, 1923, of Alberta, purported to impose upon every mine owner, as therein defined, a percentage tax upon the gross revenue of his mine during each preceding month :—
''Held, that the tax was not direct taxation within the meaning of s. 92, head 2, of the British North America Act, 1867, and that the Act was therefore ultra vires. The tax in its real nature was a tax upon sales, and the general tendency would be to pass it on to the purchaser; it was not material that in particular circumstances it might be economically undesirable or practically impossible so to do, nor that the tax became payable before the sales took place.’’
Charlottetown v. Foundation Maritime Ltd., [1932] S.C.R. 589 (headnote) :—
"The appellant City was by Statute empowered ‘to pass bylaws imposing a tax on contractors resident outside this province doing business within’ the City. It passed a by-law enacting that all contractors non-residents of the provinces who should engage in the business of a contractor for the performance of any work within the City, under a contract or agreement, should pay to the City ‘on every such contract or agreement a direct tax, ‘ the tax to be a percentage of the contract price, graduated on a sliding scale according to the amount of the contract. The City claimed from respondent payment of a tax, in accordance with the by-law, of a percentage on the amount of respondent’s contract for the building of an hotel.
Held, The tax was 'indirect taxation.’
Mr. Justice Rinfret, who delivered the judgment of the Court said at p. 359 :—' Such a tax would invariably be an element in the fixing of the price of the contract and, in its normal and general tendency, must be reasonably assumed to pass to the owner, in the ordinary course of the transaction, as enhancement of the cost. That would seem to be, in the end, the natural consequence—in fact, the inevitable result—of the taxation now in question.
Lower Mainland Dairy Products Sales Adjustment Committee v. Crystal Dairy Ltd. [1933] A.C. 168 (headnote) :—
''Because it was more profitable to dairy farmers in British Columbia to sell their milk in a fluid form than to sell products manufactured from it, the market for fluid milk became glutted. As a remedy the Provincial legislature passed the Dairy Products Sales Adjustment Act, 1929 . . . authorizing the appointment of a Adjustment Committee in any district in which the dairy farmers petitioned for one. Where a Committee was appointed the farmers had to make returns to it, and a farmer selling fluid milk had to pay to the Committee a levy assessed according to the quantity he had sold; the total of these levies, which together made up the difference in value of the milk disposed of in the two forms, was to be apportioned by the Committee among the farmers who had sold milk products. The expenses of the Committee were to be met by a further levy on the farmers. . . .
Held, that both levies were taxes, and, as they would tend to affect the price of commodities, they were indirect taxes, and the Act was therefore ultra vires the Province having regard to s. 91, head 3, and s. 92, head 2, of the British North America Act, 1867.’’
Lord Thankerton who delivered the judgment of their Lordships said at p. 85:—"In the first place, the contention of the appellants that the Act of 1929 is a law relating to agriculture under s. 95 of the Act of 1867 may be disposed of as untenable, for the Act of 1929 does not appear in any way to interfere with the agricultural operations of the farmers, and s. 21 of the Act expressly prohibits the committee from fixing prices ‘at which milk or manufactured products may be sold,’ and from directing ‘in what quantity, to whom, or when milk or manufactured products may be sold or disposed of by a dairy farmer.’ ”
A similar objection was taken on behalf of the Attorney- General in the present case based upon s. 95 of the B.N.A. Act, 1867, which is met by the opinion just quoted.
Lord Thankerton proceeds at p. 86 as follows:—‘‘The principles on which taxes are to be classified as direct or indirect are now well established by decisions of this Board, which it is quite unnecessary to recapitulate. They are summarized in A.-G. B.C. v. C.P.R., [1927] 4 D.L.R. 113, at pp. 114-5. The adjustment levies are imposed on traders in the fluid milk market in proportion to the weight sold or disposed of by each of them calculated at the standard price; the expenses levied are imposed ‘on milk and (or) manufactured products sold or disposed of.’ In effect, both levies are imposed on the sale of commodities by the persons taxed, and, in their Lordships’ opinion, there can be little doubt that such taxes have a tendency to enter into and affect the price which the taxpayer will seek to obtain for his commodities, as is the case with excise and customs. ‘ ‘
A.-G. B.C. v. Kingcome Navigation Co., [1934] 1 D.L.R. 31:— The Fuel-oil Tax Act, 1930, of British Columbia which imposes a tax upon every consumer of fuel-oil according to the quantity which he has consumed, was held to be valid under s. 92(2) of the B.N.A. Act. The tax was held to be direct taxation because it was demanded from the very persons who it was intended or desired should pay it.
Lord Thankerton in delivering the judgment of the Judicial Committee of the Privy Council says at p. 42:—‘‘The Act does not relate to any commercial transaction in the commodity between the taxpayer and someone else. Their Lordships are unable to find, on examination of the Act, any justification for the suggestion that the tax is truly imposed in respect of the transaction by which the taxpayer acquires the property in the fuel-oil nor in respect of any contract or arrangement under which the oil is consumed, though it is of course, possible that individual taxpayers may recoup themselves by such a contract or arrangement; but this cannot affect the nature of the tax.’’ Reference may also be had to a decision of this Court in Spooner Oils Ltd. v. Turner Valley Gas Conservation Bd., [1932] 4 D.L.R. 750, at p. 764; reversed [1933] 4 D.L.R. 545.
From a consideration of the foregoing cases, the following deductions seem to follow :—
(a) The forms of taxation commonly understood at the time of the passing of the B.N.A. Act have been classified as a direct tax which is one which is demanded from the very persons who it is intended or desired should pay it such as taxes on property or income, in respect of which the ultimate incidence of the tax is immaterial, and indirect taxes 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 and customs.
(b) Taxes levied on marketed products have a tendency to enter into and to affect the price of the product, and levies of that character are of the nature of those taxes on commodities or trade in commodities which have always been regarded as indirect taxes.
The case of A.-G. B.C. v. C.P.R., and of The King v. Caledonian Collieries Ltd., and the Lawson case (supra) appear to me according to their facts to be strongly in support of the conclusion that the tax in question herein is indirect and I would so decide, the result being that the Act in question is ultra vires the Legislature of the Province. In view of this holding nothing would be gained by dealing with the other questions raised. It is the view of the Court that all the questions have been argued very fully, and very ably at the bar.
In compliance with the Constitutional Questions Act, the Court certifies to the Lieutenant-Governor in Council its opinion that for the reasons stated the Agricultural Land Relief Act, 1938 (Alta.), c. 6, is constitutionally invalid.
Decree ultra vires.