Supreme Court Judgments

Supreme Court of Canada

Re: Exported Natural Gas Tax, [1982] 1 S.C.R. 1004

Date: 1982-06-23

IN THE MATTER of The Constitutional Questions Act, being c. 63, R.S.A. 1970

AND IN THE MATTER of a Reference pursuant thereto by the Lieutenant Governor in Council to the Court of Appeal of Alberta for hearing and consideration of the questions set out in Order in Council No. 1079/80, concerning a tax proposed by the Parliament of Canada on exported natural gas

File No.: 16521.

1981: June 17, 18; 1982: June 22, 23.

Present: Laskin C.J. and Martland, Ritchie, Dickson, Beetz, Estey, McIntyre, Chouinard and Lamer JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ALBERTA

Constitutional law—Taxation—National Energy Policy—Provincially owned resource—Whether or not proposed federal tax on natural gas exported by Alberta within the legislative competence of Parliament—British North America Act, 1867, R.S.C. 1970, Appendix II, ss. 91(2), (3), 108, 109, 117, 125—British North America Act, 1930, R.S.C. 1970, Appendix II, s. 1—Alberta Act, 1905 (Can.), c. 3 (R.S.C. 1970, Appendix II), s. 20(1)—Excise Tax Act, R.S.C. 1970, c. E-13—Petroleum Administration Act, 1974-75-76 (Can.), c. 47—National Energy Board Act, R.S.C. 1970, c. N-6—National Energy Board Part VI Regulations, C.R.C. 1978, c. 1056.

This appeal relates to a levy which the Crown in right of Canada sought to impose upon certain natural gas owned, produced, and to be exported, by the Crown in right of Alberta. The question was whether such natural gas was shielded from the levy by s. 125 of the B.N.A. Act. The matter originated in a Reference to the Alberta Court of Appeal by the Lieutenant Governor of that Province. This appeal is from that Court’s judgment that the tax did not apply to the gas in question and that, to the extent that it purported to apply to that gas, the tax was ultra vires the Parliament of Canada.

Held (Laskin C.J. and McIntyre and Lamer JJ. dissenting): The appeal should be dismissed.

Per Martland, Ritchie, Dickson, Beetz, Estey and Chouinard JJ.: In this case extrinsic materials, specifically the National Energy Program 1980, and 1980

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federal budget documents, are admissible to show the factual context and purpose of the Bill imposing the proposed tax. A tax on the transit of goods may be imposed for the purpose of raising revenue or for the purpose of regulating trade or both. Viewed in the context of the National Energy Program 1980, the 1980 federal budget and existing federal regulatory schemes that control the price and quantity of gas entering interprovincial and export markets, the proposed tax is clearly not a regulatory tool. Nor can it be characterized as an export tax; it applies to all gas, whether consumed outside or inside Alberta, and only incidentally reaches exports. Bill C-57 is not an exercise of Parliament’s trade and commerce jurisdiction under s. 91(2); it is in pith and substance taxation under s. 91(3). Parliament’s power to impose taxation under s. 91(3) is subordinate to s. 125, which provides that no lands or property of the federal or provincial Crown shall be subject to taxation. The purpose of this immunity is to prevent one level of government from appropriating to its own use the property of the other, or the fruits of that property. Section 25.13(1) of Bill C-57 is therefore ultra vires with respect to the interests of the Province of Alberta as the owner of the gas in question. While s. 125 restricts the federal taxing power, it does not limit the exercise of other heads of power found in s. 91. Thus, federal legislation in the form of taxation may yet be binding on a province if it is primarily enacted under a head of power other than s. 91(3).

Per Laskin C.J. and McIntyre and Lamer JJ., dissenting: The critical question in this case was how far it was constitutionally proper to limit the exercise of federal power in light of the protection given provincial Crown property by s. 125. The unqualified paramountcy plainly established in s. 91 is not subject to s. 125. Nevertheless, s. 125 can be rationalized with exercises of federal legislative power under s. 91; it permits the Crown provincial to act as proprietor beyond the province—absent federal legislation—whereas as legislator its exclusive jurisdiction is restricted to the province. Here, the province even acting only as proprietor was required to obtain an export licence pursuant to applicable federal legislation. The tax, part of that regulatory scheme, was a transaction tax arising on the movement of property across an international border and was not simply a superadded measure unconnected to the control

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of exports so far as to be a tax on the resource itself. Collecting the tax from the person, here the Crown provincial, did not affect that character that removed the tax from the cocoon of s. 125. It was not necessary to invoke the power to legislate for the “peace, order and good government” of Canada to support the validity of the legislation.

[Attorney-General for Quebec v. Nipissing Central Railway Company et al., [1926] A.C. 715; Reference re Waters and Waterpowers, [1929] S.C.R. 200; Attorney General for British Columbia v. Attorney General for Canada (the Johnny Walker case) (1922), 64 S.C.R. 377, affirmed [1924] A.C. 222, considered; Re Residential Tenancies Act, 1979, [1981] 1 S.C.R. 714; St. Catherine’s Milling and Lumber Company v. The Queen (1888), 14 App. Cas. 46; Reference respecting the Agricultural Products Marketing Act, R.S.C. 1970, c. A-7 et al., [1978] 2 S.C.R. 1198; Attorney-General for Canada v. Attorney-General for Ontario, [1937] A.C. 355; Hodge v. The Queen (1883), 9 App. Cas. 117; O’Grady v. Sparling, [1960] S.C.R. 804; Mann v. The Queen, [1966] S.C.R. 238; Bennett & White (Calgary) Ld. v. Municipal District of Sugar City No. 5, [1951] A.C. 786; Attorney-General for Saskatchewan v. Canadian Pacific Railway Company et al., [1953] A.C. 594; New York v. United States (1945), 326 U.S. 572, referred to]

APPEAL from a judgment of the Alberta Court of Appeal, [1981] 2 W.W.R. 408, 122 D.L.R. (3d) 48, 28 A.R. 11, finding the federal “Natural Gas and Gas Liquids Tax” to be ultra vires the Parliament of Canada in so far as it purported to apply to the gas in question. Appeal dismissed, Laskin C.J. and McIntyre and Lamer JJ. dissenting.

J.J. Robinette, Q.C., W.E. Code, Q.C., and T.B. Smith, Q.C., for the appellant.

William Henkel, Q.C., J.C. Major, Q.C., and R.W. Paisley, Q.C., for the respondent.

Jean-K. Samson and Odette Laverdière, for the intervener the Attorney General of Quebec.

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K.M. Lysyk, Q.C., and E.R.A. Edwards, for the intervener the Attorney General of British Columbia.

D.D. Blevins and T.G. Hague, for the intervener the Attorney General of Manitoba.

D.D.M. Goldie, Q.C., George Taylor, Q.C., and John D. Whyte, for the intervener the Attorney General of Saskatchewan.

James A. Nesbitt, Q.C., for the intervener the Attorney-General of Newfoundland.

J.M. Robertson, Q.C., and D.G. Samuelson, for the intervener Independent Petroleum Association of Canada.

Per LASKIN C.J. AND MCINTYRE AND LAMER JJ. (dissenting)—We have had the advantage of reading reasons for judgment in this appeal which would affirm the opinion of the Alberta Court of Appeal, given on a reference, that the proposed federal legislation, the subject of the reference, is ultra vires in so far as it would levy a tax upon the export of natural gas owned and produced by the Crown in right of Alberta. This is a rare case in which, in our opinion, form would triumph over substance in a constitutional matter if the confirmation of the decision of the Alberta Court of Appeal is allowed to stand. The decision below is, in a sense, an application of colourability in reverse; the substance has been found to be colourable while the form has been given independent force in a declaration of invalidity.

The issues in this case turn on the relative scope of federal power in relation to the regulation of trade and commerce under s. 91(2) of the British North America Act, and federal power in relation to the raising of money by any mode or system of taxation under s. 91(3), juxtaposed against the protection given to the Crown in right of a province, under s. 125, against taxation of lands or property belonging to a province. Two points must initially be made. First, and this must not be forgotten, the federal powers above-mentioned operate and may be invoked notwithstanding anything in the British North America Act and,

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hence, notwithstanding s. 125 or any other provincial protection or provincial legislative authority. Second, this is not a case where provincial authority or provincial action under its competent legislation is posed against unexercised federal power. Parliament has (for the purposes of this case) legislated affirmatively, and we are consequently concerned with the substance of what it has (figuratively) enacted.

Moreover, there is no principle of provincial Crown immunity from federal legislative authority, whether regulatory authority or tax authority, once a provincial Crown purports to enter the export field and engage in international transactions. That is this case. Indeed, the national government would become hostage to Crowns in right of the province if the latter could transcend general federal control of international trade simply by asserting that it was bringing Crown properties into the international market.

There is an intimation in the reasons that we have read that the proposed tax which is challenged is one in respect of provincially-owned natural gas which is thereafter exported. That, however, is not what the Ways and Means Motion or the implementing Bill C-57 says. We confine ourselves to that aspect of the Motion and of the Bill that relates to taxation upon the exportation of provincially-owned natural gas. It is only in respect of the export of such gas from Canada that the levy is challenged. Of course, in assessing the merit of the challenge it is only sensible to examine the entire program which is envisaged in the proposed legislation, and we shall come to that examination shortly.

There are some preliminary observations that must be made. It is, in our opinion, unreal to contend that the federal taxing power envisages only what might be called pure taxation. The definition of the power as directed to the raising of

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money by any mode or system of taxation (the underlining is ours) is enough to dispel such a notion. Of course, taxing measures may be designed to raise revenue without any other considerations, but many taxing measures have economic objectives, sometimes plainly stated, sometimes implicit. Moreover, when such measures are enacted in conjunction with measures under the trade and commerce power, as, for example, in customs legislation, they can hardly be considered as merely revenue-raising. This is certainly the case when export and import controls are put in place either alone under a licensing system or in conjunction with taxation so as to promote economic objectives which are open to Parliament.

We need hardly add that we know of no constitutional principle which precludes either Parliament or a provincial legislature from basing legislation on an invocation of two or more assigned legislative powers. To strip challenged legislation of a basic support and then, on that footing, to find vulnerability in what is left is not an acceptable judicial approach to a policy as carefully structured as the comprehensive one which is before us.

Contrary to the view taken by the Alberta Court of Appeal, we find it impossible to characterize the proposed legislation in this case as imposing taxation unconnected with any regulatory scheme or regime. The conclusion reached by that Court was that the federal measure cannot constitutionally apply to a provincial Crown-owned resource, even upon its exportation, or, if it purports so to apply, it is an unconstitutional exaction. Moreover, we are unable to agree, and this for the reasons which follow, that the tax is imposed on Crown‑owned property in the sense of s. 125. Once the property, here (to use the terms of the challenged legislation) marketable pipeline gas, is exported from Canada so as to attract the tax, we are no longer concerned with property in situ, or even with property of the province enjoyed therein, whether

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by the Crown owner or by transferees, but rather with an international commercial transaction which is based upon an acknowledged requirement of federal approval for the intended exportation of the particular substance.

The Proposed Federal Legislation: Purpose and Character

Bill C-57, in its relevant provisions, would add Part IV.1 to the Excise Tax Act, headed “Natural Gas and Gas Liquids Tax”. The added part begins with an interpretation or definition s. 25.1, and the following definitions and substantive provisions are germane:

25.1 (1) In this Part,

“broker” means a person, other than a gas producer or a distributor, who carries on the business of selling marketable pipeline gas;

“consumer” means a person who uses marketable pipeline gas

(a) as a fuel or an energy source,

(b) in the manufacture of products of trade and commerce, or

(c) for any other purpose, other than resale;

“distributor” means a person who, in any year, carries on the business of selling marketable pipeline gas to consumers in Canada and whose volume of such sales in any period of three consecutive months in the immediately preceding year is at least fifty per cent of his total sales of marketable pipeline gas, other than sales to provincial oil or gas marketing agencies, in that period and includes any person or class of persons designated by regulations made pursuant to paragraph 25.19(a);

…

“gas producer” means a person who has the right to take or remove gas from a natural reservoir in Canada and includes an operator;

…

“licensee” means a gas producer, broker or distributor to whom a licence has been issued under section 25.16 and includes any gas producer, broker or distributor who is required by that section to apply for a licence;

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“marketable pipeline gas” means gas, other than

(a) natural gas liquids, and

(b) gas injected into a natural reservoir for any purpose, other than storage;

(2) Where any marketable pipeline gas in respect of which no tax has been paid under this Part is exported from Canada for use outside Canada pursuant to a licence issued under Part VI of the National Energy Board Act or pursuant to any other authority under that Act, the exporter of that gas is, for the purposes of this Part, deemed to be the distributor of that gas and to have received that gas at the time he exports it.

(3) Where any marketable pipeline gas in respect of which no tax has been paid under this Part is received for export by a person on behalf of a distributor, broker or gas producer and is in exchange for natural gas of foreign origin delivered in Canada, that distributor, broker or gas producer is, for the purposes of this Part, deemed to be the distributor of that marketable pipeline gas and to have received it at the time it is received for export by that person.

(4) Where any marketable pipeline gas in respect of which no tax has been paid under this Part is received. by a person, other than a distributor, at the direction of or on behalf of a distributor, that distributor is, for the purposes of this Part, deemed to be the distributor of that gas and to have received that gas at the time it is received by that person and that person is deemed not to have received that gas.

…

(6) Where any marketable pipeline gas in respect of which no tax has been paid under this Part is consumed by a gas producer or broker, he is, for the purposes of this Part, deemed to be the distributor of that gas and to have received that gas at the time he appropriated it for his own consumption.

…

25.11 The purpose of this Part is to provide legislative authority for the imposition of a natural gas and gas liquids tax as an essential and integral element of the national oil and gas policy as expounded in the National Energy Program.

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25.12 This Part binds Her Majesty in right of Canada or a province and every person acting for or on behalf of Her Majesty in right of Canada or a province.

25.13 (1) There shall be imposed, levied and collected on the receipt of marketable pipeline gas by a distributor in Canada a tax at the rate specified in subsection (5).

(2) There shall be imposed, levied and collected on the receipt of marketable pipeline gas by a consumer in Canada from a gas producer or a broker, or from any person acting for or on behalf of a gas producer or a broker, a tax at the rate specified in subsection (5).

…

(5) Tax shall be imposed under this section at the rate of

(a) twenty-eight cents per gigajoule, in the case of marketable pipeline gas received after October 31, 1980 and before July 1, 1981;

(b) forty-two cents per gigajoule, in the case of marketable pipeline gas received after June 30, 1981 and before January 1, 1982;

(c) fifty-six cents per gigajoule, in the case of marketable pipeline gas received after December 31, 1981 and before January 1, 1983; and

(d) seventy cents per gigajoule, in the case of marketable pipeline gas received after December 31, 1982.

(6) The tax imposed under this section is payable by the distributor or the consumer, as the case may be, at the time he receives the marketable pipeline gas.

…

25.15 Whenever marketable pipeline gas or natural gas liquids are received under such circumstances or conditions as render it difficult to determine the time of receipt or quantity of such gas or liquids because of inadequate procedures or measuring devices, the Minister may determine the time of receipt or quantity for the purpose of determining the tax payable under this Part.

25.16 (1) Subject to this section, every gas producer, broker and distributor shall, in such form as may be prescribed by the Minister, apply to the Minister for a licence for the purposes of this Part.

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(2) The Minister may issue a licence to any person applying therefor under subsection (1), but may direct that any class of gas producer, broker or distributor be exempt from the requirement to obtain a licence under this section, and any person so exempted is not required to apply for a licence.

(3) An exemption granted by the Minister under subsection (2) may be withdrawn by the Minister at any time.

(4) The Minister may cancel a licence issued under this section if, in his opinion, it is no longer required for the purposes of this Part.

A key provision of the new part added to the Excise Tax Act and appearing immediately after the definition provisions is s. 25.11, already quoted. We repeat the stated purpose in s. 25.11 which is to provide legislative authority for a natural gas and gas liquids tax “as an essential and integral element of the national oil and gas policy as expounded in the National Energy Program”. This is a referential provision, comprehensive despite its terseness, which must be brought into account in assessing the thrust of Bill C-57 in adding Part IV.1 to the Excise Tax Act.

Account must also be taken of the National Energy Board Act under which the Crown in right of Alberta was licensed (according to the assumed facts in the order of reference) to export natural gas from Canada for use outside of Canada.

We turn, first, to some of the considerations applicable to this case as reflected in the National Energy Program. It is necessary to dispel at the outset an erroneous appreciation by the Alberta Court of Appeal of a paragraph on p. 34 of The National Energy Program 1980, a lengthy document issued by the Department of Energy, Mines and Resources. The Court said, in the course of its reasons:

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In passing, we observe in the National Energy Program… the express declaration that the tax was not imposed as an export tax.

This, obviously, has reference to the following statement on the aforementioned p. 34:

The Government of Canada is, therefore, not proceeding with a natural gas export tax.

The Alberta Court of Appeal ignored completely the telling word “therefore” in the quoted sentence, a word which takes one back to the discussion which resulted in the sentence. What the discussion, on pp. 32 to 34 of The National Energy Program 1980, reveals is that the Government was considering the imposition of a federal tax on natural gas exports which would be paid by the recipient of the exported gas, becoming part of the price and collectible, presumably, by the exporter as agent for the Government of Canada. This is evident from the following passages on p. 34 of The National Energy Program 1980:

The governments of Alberta and British Columbia have strongly opposed a natural gas export tax. They have argued that such a tax is an intrusion on their resource ownership rights. They also argue that taxes on gas exports are discriminatory.

The Government of Canada rejects these arguments. There is no doubt of the federal government’s constitutional right to impose export taxes on any commodity. To deny this is to attempt to extend provincial powers well beyond their present constitutional limits. The federal government imposed an export tax on electricity for 38 years, from 1925 to 1963. Similarly, the federal government established a tax on oil exports in 1973. It continues to impose this tax.

A tax on natural gas exports is not discriminatory. These exports have earned enormous economic rents as their price has soared due to OPEC’s price increases. Taxation based on the ability to pay is in accord with long-established principles.

However, in deference to the opposing provinces this federal proposal was dropped. In its place, however, a different taxing scheme was introduced

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which was reflected in the Ways and Means Motion and in Bill C-57. It was described as follows on p. 35 of The National Energy Program 1980:

All natural gas sales will be subject to the tax, including those to the export market. There is no reason to exclude exports from a tax payable on all gas produced and consumed in Canada. That portion of gas which enters the export market will be exempt from the tax until February 1, 1981, because of the agreement with the United States government requiring Canada to give 90 days’ notice of price changes.

It is impossible, in our opinion, to contend in the light of this assertion and in the light of the proposed legislation, that a tax on exports, payable by the producer-distributor, was not imposed. It is equally impossible to contend that qua this feature, export was not the triggering mechanism. The Alberta Court of Appeal has plainly misconstrued the federal position under the proposed legislation.

Certainly, The National Energy Program 1980 is a self-serving document and, for constitutional purposes, must be approached cautiously to see in what respects, if any, its assertions are reflected in the proposed legislation or in allied or associated legislation. Its mention in the proposed legislation is without the detail which it itself reveals about national energy policy. Nonetheless, it may be looked at to see what are its elements and how the anticipated revenues from the taxes under the proposed legislation (including the export tax) relate to the policies already in place and to others envisaged by the Program.

Some details of the National Energy Program must be given for proper perspective on the policies it embodies. In introducing the National Energy Program, the responsible Minister listed what he called the three precepts of federal action, as follows:

It must establish the basis for Canadians to seize control of their own energy future through security of supply and ultimate independence from the world oil market.

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It must offer to Canadians, all Canadians, the real opportunity to participate in the energy industry in general and the petroleum industry in particular, and to share in the benefits of industry expansion.

It must establish a petroleum pricing and revenue-sharing regime that recognizes the requirement of fairness to all Canadians no matter where they live.

The following considerations are recited in the Program document (the numbering and the underlining is ours):

[1.] Canada produces more than enough energy to displace all of our oil imports, and still have substantial quantities of energy available for export if desired. We have significant excess capacity in the natural gas and electricity production system, and considerable potential in coal and renewable energy. With determined efforts to restrain energy demands, giving us time to develop new energy sources, our self-sufficiency capacity could last for the foreseeable future. Recent large additions to the domestic supply of natural gas now provide a further basis for a concerted effort to substitute domestic fuels for foreign energy. The dramatic rise in oil prices since the mid-1970s, and the potential costs of reliance on insecure supplies of imported oil, establish a powerful economic and political rationale to reduce oil’s share of our energy market. The way is now clear to reduce oil imports through use of more plentiful domestic energy, which is reasonably priced, readily transportable, and environmentally acceptable.

…

[2.] Energy has always been a special case. No Canadian can escape the impact of changes in its availability or price. Its influence on other activity—other products, other services—is pervasive. Reliance upon it is enormous. None of us can eliminate this reliance. Governments in Canada and elsewhere have long recognized and responded to this uniqueness. In Canada, for example, trade in the major forms of energy has been closely regulated by federal agencies for many years. Special procedures governing energy exports have been in place for some time, reflecting a national consensus that Canadian needs are

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to be served first, and that only surplus energy may be exported. At the international level, creation of institutions such as the International Energy Agency reflects a view that energy’s role in today’s world is extraordinarily important.

And now a new reason for special treatment has emerged. Due to external events, which bear no relationship to the Canadian energy situation, Canadian consumers are asked to pay ever-rising prices for both imported and domestic energy. A large proportion—approaching one-half—of the revenue from these higher domestic prices accrues to the governments of the petroleum-producing provinces; most of it to Alberta. The resulting inter-regional transfers of wealth are now so large, and growing so rapidly, that they have become a national issue.

…

[3.] The producing provinces are entitled to substantial revenues by virtue of their ownership of resources. The revenues accruing from the sale of oil and gas, and the economic benefits of the resource boom now under way, have created an unprecedented, and welcome, prosperity in the three westernmost provinces. This prosperity has no discernible end; indeed, the energy surge is bringing about a major, enduring westward shift of wealth, activity and population.

…

At the same time, there must be recognition of a national claim—a claim by all Canadians—to a share in these revenues and benefits. The petroleum industry’s growth over the years, and its buoyant outlook, owes much to national policies, including those that provided assured markets for western Canadian oil and gas, and those which gave, and still give, extraordinarily generous incentives under the federal Income Tax Act. The citizens of Canada, and their national government, have played a major role in fostering the development of the oil and gas industry, and deserve to share in its benefits.

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[4.] Nor is the issue primarily one of the sharing of revenues between government and industry. While there is some scope to obtain increased revenues from the oil and gas companies, the solution cannot be found exclusively in this direction. To rely entirely on new taxes upon the industry would be unfair. It would also be ill-advised, for it would put in jeopardy our energy supply objectives. Finally, it would miss the basic point: what is the appropriate distribution of oil and gas revenues among governments?

What share of revenues reflects the needs and responsibilities of the two levels of government? At present, provincial governments receive more than three-quarters of the oil and gas production revenues accruing to governments. Alberta, with 10 per cent of Canada’s population, receives over 80 per cent of the petroleum revenues gained by provinces.

Under existing arrangements, the Government of Alberta is enjoying rapid increases in its oil and gas revenues. Its revenues have grown faster than its expenditures, even though those expenditures have risen faster than those in any other province. Alberta has been able, moreover, to reduce substantially its tax rates for non-resource corporations, and its citizens enjoy the lowest tax burden, and the highest disposable incomes, in Canada. With rising oil and gas prices, the revenues accruing to the province are sufficient to allow the Government of Alberta to have growing budgetary surpluses for the foreseeable future.

Under any plausible price and revenue-sharing system, the financial position of the Alberta government will improve substantially, in both absolute and per capita terms. Canadians must decide, however, whether the current arrangements, which concentrate the financial benefits of higher oil prices in one provincial government, and give little benefit to the national government, are appropriate.

The Government of Canada believes that the present system is inappropriate and unfair. It believes that more appropriate arrangements must be made, so that the national government, which is accountable to all Canadians, gains

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access to the funds it needs to support its response to national needs.

…

[5.] One of the objectives of the Energy Strategy for Canada, published by the Government of Canada in 1976, was to increase substantially Canadian ownership of the petroleum sector. While there has been some reduction in the level of foreign ownership of the industry, the objectives have not been met. Perhaps due to a pre‑occupation with oil security objectives since the mid-1970s, the set of energy policy instruments has not been sufficiently conducive to increased Canadian ownership of the sector.

In general, price and tax policies have provided the industry with the cash flow necessary to finance its expenditures. This means that the oil consumer and the Canadian taxpayer have financed virtually all of the substantial expansion of this industry.

…

[6.] The significant fact today remains that the foreign companies control most of Canada’s oil and gas industry, and of its revenues. Foreign-controlled firms control the future through their control of the land in which exploration takes place. The frontier land permits are largely held by foreign-controlled companies. Of the 290 million acres held under permit on frontier lands, 110 million acres are held by Canadian-controlled companies. Of the Canadian-held permits, Petro-Canada clearly accounts for the largest portion, about 60 per cent. It is one of the few Canadian companies capable of handling the costs and risks of frontier exploration. Dome Petroleum Limited, another Canadian‑controlled company, holds a further 15 per cent. Other Canadian companies hold only very small interests in these important new resource areas. Similarly, the existing oil sands plants are dominated by foreign-controlled firms. Canadian-controlled firms represent only 34 per cent of the equity in Syncrude.

If this pattern were left undisturbed, foreign-controlled companies would account for a large part of the future energy supplies in Canada. The

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reinvestment of the cash flow earned by the foreign companies on their current production will help increase the size and influence of these companies.

…

[7.] Canada is not so rich in energy that it can afford to squander its energy endowment, or put off hard decisions. To do so would be a disservice to ourselves, to future generations of Canadians, and to a world that expects us to play a role that reflects our strength. Nor, however, is Canada so imperiled by the energy situation that must rush blindly into energy decisions to the exclusion of other pressing national concerns.

The Government of Canada believes that energy should not be a problem. On the contrary, it can be a major factor in the solution to our broader challenges, if Canada has a program to provide Canadians with energy security, the opportunity to participate in energy development, and fairness in the manner in which the benefits of the nation’s rich resources are shared. The National Energy Program is designed to achieve these goals.

…

[8.] Despite our strengths, the nature of our energy use and trade leaves Canada unwisely and unnecessarily vulnerable to the vagaries of the world oil market. An immediate start must be made on measures to achieve sustained energy security.

The current fiscal system concentrates petroleum wealth within Canada to a highly undesirable extent, and leaves the federal government seriously short of the revenue it requires to manage the Canadian economy, reduce regional disparities, and develop an effective national energy policy. Also, while there is an important and entrepreneurial Canadian presence in the oil and gas sector, the involvement of Canadians through private and public sector corporations is still unacceptably low. The challenge is to effect the changes required to alleviate these problems.

[9.] The National Energy Program is the federal government’s response to these energy challenges. It is an energy package that includes pricing regimes, fiscal measures, expenditure programs,

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and direct federal action to achieve the goals of energy security, opportunity, and fairness. The specific elements of the National Energy Program, which are detailed in the following pages, will re-structure Canada’s energy system to balance domestic oil supplies with domestic demand by 1990, achieve an equitable sharing of energy benefits and burdens among Canadians, lead to a high level of Canadian ownership and control of the energy sector, expand the role of the public sector in oil and gas, and ensure greater industrial benefits from energy development.

What we have reproduced from the National Energy Program is, we think, enough to show that, in relation to the proposed legislation under challenge here, there is a blend of tax and regulatory policies aimed at realizing the three precepts stated by the responsible Minister, with emphasis on promoting the Canadianization of energy resources, the encouragement of energy conservation and the support of an allocation scheme under which tax money collected for natural gas and as well for oil as they go out will be used to help pay for oil as it comes in through importation.

The wisdom or likely success of the policies envisaged by the National Energy Program are not matters for assessment by this Court. The Court’s role is the determination of validity when, as here, a constitutional challenge is raised to legislation. A court must be careful not to confuse validity with wisdom or efficacy and it is also expected to defer to the legislative, indeed to the political judgment which the legislation expresses, save as it clearly sees constitutional infirmity in what is proposed or enacted.

The National Energy Board Act, R.S.C. 1970, c. N-6, as amended, as a related statute, may even more confidently be regarded as giving character to the proposed legislation herein by reason of the acknowledgement of required subservience to the licensing provisions of that Act. Section 81 of the Act, found in Part VI, provides that “Except as provided in the regulations, no person shall export

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any gas… or import any gas except under the authority of and in accordance with a licence issued under this Part”. Conditions to be met for a licence to export or import gas are set out in succeeding provisions which it is unnecessary to examine in any detail.

We need only say here that the export licence cannot be seen as a mere yielding to a regulatory authority and, thereafter, as standing apart from the tax, leaving it as an independent and unconnected levy on gas produced in and by Alberta. This is to ignore the setting in which the levy is imposed, a matter which we have already canvassed.

The Reference to the Alberta Court of Appeal

What is before this Court, by way of an appeal as of right, is the opinion of the Alberta Court of Appeal on a reference to it under an Alberta Order in Council of November 12, 1980 setting out two questions for hearing and consideration. The questions were to be answered on the basis of certain facts set out in the Order in Council. When the reference was directed, only the Ways and Means Motion was current but it is not disputed that Bill C-57 does not alter the relevant terms of the Ways and Means Motion.

The two questions asked on the reference (and we should add that there was no substantial change in them under the order in this Court directing notice to be given to the Attorneys‑General of the provinces) were as follows:

3. The questions to be heard and considered by the Court of Appeal are as follows:

(a) If the tax on exported natural gas imposed under the said legislation is intra vires the Parliament of Canada, is the said natural gas that is exported from Canada for use outside Canada liable to taxation under the tax on exported natural gas having regard to the British North America Acts, 1867 to 1975, and in particular sections 117, 125 or 126 of those Acts or any combination of those sections?

(b) Is the tax on exported natural gas imposed under the said legislation, with respect to the said natural gas that is exported from Canada for use outside Canada, ultra vires the Parliament of Canada either

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in whole or in part, and, if so, in what particular or particulars and to what extent?

The facts recited in the Order in Council as underpinning the reference declare the ownership of the Crown in right of Alberta of Crown lands, mines and minerals (including natural gas). Mention is then made of a well being drilled on certain Crown land, with a resulting production of natural gas in commercial quantities and belonging solely to the Province of Alberta. The Order in Council then continues as follows:

1…

(f) the Province of Alberta has entered into agreements with commercial corporations to have the said natural gas gathered, compressed and processed (such processing does not cause a change in the nature and quality of the said natural gas, but involves only the removal of certain impurities) and then to have it transported by a natural gas pipeline for export sale by the Province of Alberta to a purchaser in the United States of America that is a corporation carrying on business only in the United States of America and not in Canada;

(g) the said natural gas pipeline

(i) is wholly situated within the Province of Alberta and extends from a commencement point in the South-Eastern part of the Province of Alberta for approximately 20 miles to the international border between Canada and the United States of America where the border of the Province of Alberta meets the border of the State of Montana, and

(ii) does not connect with any other pipeline within the Province of Alberta;

(h) the Province of Alberta maintains sole ownership of the said natural gas until it is delivered to the purchaser on the State of Montana side of the border between the State of Montana and the Province of Alberta;

(i) the revenue from the sale of the said natural gas will be paid into the General Revenue Fund of the Province of Alberta to be appropriated to the public service of the Province;

Further facts to be assumed for the purposes of the reference were added in paragraph 2 of the Order in Council in the following terms:

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2…

(a) the Parliament of Canada has enacted legislation in the terms of the Ways and Means Motion (in this Appendix referred to as the “said legislation”);

(b) the Province of Alberta has complied with all the laws in force in the Province of Alberta relating to the sale, export and delivery of the said natural gas;

(c) the said natural gas is marketable pipeline gas as defined in the Ways and Means Motion, in respect of which no tax has been paid under the said legislation, and is exported from Canada for use outside Canada pursuant to a licence issued by the National Energy Board under Part VI of the National Energy Board Act, or pursuant to any other authority under that Act.

Although the Order in Council does not expressly refer to portions of the Ways and Means Motion that have in view the implementation of the federal National Energy Program, its reference to the Ways and Means Motion, attached as a Schedule, makes it appropriate to consider all its terms. They include its embrace of the National Energy Program which, accordingly, becomes material in dealing with the constitutional issues posed for determination. The same consideration would apply also to Bill C-57 which had emerged before the hearing in the Alberta Court of Appeal and was before the Court.

The Opinion of the Alberta Court of Appeal

The five-person Court gave a per curiam or collective opinion in which it said that although two questions were asked, there was, in substance, only one issue raised, as follows:

Is it within the competence of Parliament to impose this levy in respect of this particular natural gas or is it prevented from doing so by Section 125 of the British North America Act? Put another way: What is the reach of the protection afforded by Section 125, which provides:

“125. No lands or property belonging to Canada or any Province shall be liable to taxation.”

It approached this issue by considering, first, whether the levy was a tax (it held that it was, its

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object being unequivocally to raise revenue) and then addressed the question whether, as urged by the Attorney General of Canada, the levy was associated with a scheme which had support in the federal trade and commerce power. This federal contention was rejected on what, in our view, was too formal a ground, namely, that where money is raised to further an object under a given federal power, that does not, by that fact alone, characterize the tax as a levy under that power. An example was given of taxation of provincial property in Saskatchewan to enable the building of a lighthouse on Sable Island, matters within federal competence.

The Court of Appeal dropped the qualification in its assessment reflected in the phrase “by that fact alone” and moved, in our opinion, to a completely dissociated illustration. If there is a scheme involving a tax on a provincial resource upon its exportation in a commercial transaction, the connection of that tax with the pursuit and attempted realization of a national energy policy surely takes the matter in issue here beyond the characterization “by that fact alone”. In this assessment of the issue, the imposition of the levy is no longer dissociated revenue-raising, but is embraced, as a levy in respect of an energy resource, in a comprehensive energy allocation and conservation scheme, a matter to which we will return later in these reasons.

The Alberta Court of Appeal recognized in its reasons that it is difficult to envisage a taxation measure without some effect on trade and commerce, or that a government would tax without regard to that effect; and, further, a government needing to raise revenue would almost invariably mould its legislation to serve other ends. Having, however, said this, the Court declared that it must look at the dominant feature of the proposed legislation in this case, and it concluded that there was no regulatory aspect in it and that the levy was based solely on the power to tax under s. 91(3). It also rejected the submission that the tax was an

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export tax, distinguishing in this respect the Johnny Walker case, [1924] A.C. 222, as founded on the trade and commerce power. It purported to solidify this view by the following observation:

Moreover, the tax itself avoids export as a direct triggering mechanism. Rather it is the receipt of gas by a distributor which is taxed. An exporter is deemed to be a distributor and is deemed to have received the gas at the time the gas is exported.

We confess to considerable difficulty in following this reasoning on the stated facts in this case and under the proposed legislation. Of course, the tax extends to others in addition to the provincial Crown but in relation to the latter, we are only concerned with the levy when exportation occurs and the tax has not been paid. The assimilation of the Crown provincial to a distributor is simply an attributed character to fix liability for the tax which, itself, arises only upon exportation of the natural gas. If, as we think is the case, the Alberta Court of Appeal is wrong in rejecting the submission that the reference to it clearly envisages an export tax, then the foundation of its opinion is undermined.

The last third of the reasons of the Alberta Court of Appeal considers the scope of s. 125, examines the property provisions of the British North America Act and the effect of the transfer to Alberta (as, indeed, to the other western provinces) of the Crown lands and natural resources therein. It cannot be gainsaid that the purpose of this transfer was to place Alberta in the same position vis-à-vis property and resource ownership as the original confederating provinces and those which entered later in the 1870’s. The Court found it unnecessary to deal with an argument of counsel for the Attorney General of Alberta that the effect of the transfer legislation of 1930, especially s. 1 of the confirming statutes, put Alberta in a superior position. This point was, however, heavily pressed in the argument in this Court, and we propose to

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deal with it later in these reasons.

The Alberta Court of Appeal went on in its reasons to take issue with what it called “an artificial and non-existent situation” in attributing distributor character to the Crown provincial when in fact the Crown was a producer. It put the matter in these terms:

The Province produces natural gas which it owns, from land which it owns, through a pipeline which it owns and sells it to a purchaser in the State of Montana. That process of disposing of a Crown asset would not ordinarily be termed distribution. A distributor is one who receives the product from a producer and passes it on to a consumer. The Ways and Means Motion before Parliament and the amendments to the Excise Tax Act proposed in Bill C-57, however, make it distribution by deeming it to be so. The exporter of the gas is the Crown; the exporter is also the producer of it and not the distributor. But Section 2 of Part IV.1 provides that the exporter of gas is “deemed to be the distributor of that gas and to have received that gas at the time he exports it”.

This disposition disregards the fact, the plain fact (conceded by the Court’s reference to the Crown as exporter) that (and we have said this earlier in these reasons) attributing distributor character to the Crown provincial is not for the purpose of putting a false face on the Crown’s operations leading to the export of the natural gas but merely to charge it with tax by reason of the export.

It is plain to us that the Alberta Court of Appeal has substituted an attack on the mechanics of the tax, on the collection provisions, in place of addressing the substantive issues. The Privy Council’s reasons in Atlantic Smoke Shops, Limited v. Conlon, [1943] A.C. 550 and those of this Court in its recent judgment in Minister of Finance of New Brunswick v. Simpsons-Sears Ltd., [1982] 1 S.C.R. 144, show how wrong it is to be beguiled by

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form which goes to the gathering in of a tax and to make it a ground of invalidation. The present case, in our opinion, risks a similar approach which should equally be rejected.

There are two other conclusions by the Alberta Court that appear to us to be in the face of the words of the order of reference and of the proposed legislation and, indeed, in the face of admitted facts. These conclusions are in the following terms:

The tax, insofar as it affects the natural gas concerned in this reference, is not a tax on a transaction or on the movement of gas or on the consumption of gas or on a person. It is a tax on a Province respecting its property and is prohibited by Section 125.

And, again:

In our view the activity in this case is nothing more than primary production.

If only “primary production” was involved, it would be easy to concede that s. 125 protects against taxation in that respect. The Alberta Court of Appeal has, however, an extravagant conception of primary production when it includes in it (as its reasons go on to say) capture and removal of the natural gas by the drilling of a well, installation of the necessary piping, installation of compression facilities, removal of impurities and transport to the purchaser in the usual way. It only neglected to mention that an export transaction was involved.

Primary production surely ends where actual marketing of the product begins. We would not quarrel with a definition of primary production of natural gas which goes beyond the mere bringing it up from its situation in the ground, or even if it extended to making it fit for sale. Indeed, the proposed federal legislation appears to concede this much by making “marketable pipeline gas” the pivot upon which tax liability arises but (in respect of the Alberta Crown) only upon its export from Canada pursuant to a licence; that is upon it being marketed, not upon it being merely marketable.

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In view of the above, can it be seriously doubted that the Alberta Crown has gone far beyond primary production in the facts stated and assumed in the order of reference?

The Natural Resources Transfer Agreement: The British North America Act, 1930, c. 26

We wish to dwell briefly on an argument strongly advanced by one of the counsel for the Attorney General of Alberta, namely, that by virtue of the Natural Resources Transfer Agreement and confirmatory legislation, especially the British North America Act, 1930, the Province of Alberta is qua control of its property and natural resources in a superior position to that enjoyed by the older provinces under the various property provisions of the British North America Act, 1867. In our opinion, this is an untenable proposition.

Section 1 of the British North America Act, 1930 is the main reliance for counsel’s submission. It reads as follows:

1. The agreements set out in the Schedule to this Act are hereby confirmed and shall have the force of law notwithstanding anything in the British North America Act, 1867, or any Act amending the same, or any Act of the Parliament of Canada or in any Order in Council or terms or conditions of union made or approved under any such Act as aforesaid.

Counsel fastens on the words “notwithstanding anything in the British North America Act, 1867” etc. There are two frailties in the contention. First, and foremost, it ignores the context in which this non obstante clause is used; it is clearly addressed to the Natural Resources Transfer Agreements worked out between Canada and the Western Provinces and thus is related directly to the property provisions of the 1867 Act. The agreement with Alberta opens with the words that “it is desirable that the Province should be placed in a position of equality with the other Provinces of Confederation with respect to the administration and control of its natural resources”, and s. 1  of

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the agreement places the province in the same position as the original provinces of Confederation with respect to Crown lands, mines, minerals and royalties derived therefrom. There is simply no basis upon which Alberta can claim a superior position to that of the 1867 confederating provinces.

The second frailty in its submission is that it would erode s. 125 of the 1867 Act if not also all other restraints imposed by the 1867 Act and would, in effect, prove too much, namely, that Alberta in respect of its natural resources is not governed by any limiting terms of the Act of 1867.

There is no need to say anything more on what is a far-fetched submission.

The Scope of Section 125: Relation to Heads of Federal Power

It is not necessary to say anything about s. 125 in the face of unexercised federal power. The section is not a grant of legislative authority nor is it a grant of proprietary right. The latter is covered by s. 109 of the British North America Act and associated provisions, which, in the light of the Natural Resources Transfer Agreement, apply to Alberta as they apply to other provinces of Canada.

Only if federal power is exercised under s. 91 (as is the contemplation of the present reference) does it become necessary to consider the degree to which s. 125 immunizes provincial lands or property from the federal exercise. We readily agree with the submission of the Attorney General of Alberta that the non obstante clause of s. 91 does not itself qualify whatever scope s. 125 has, but that is because s. 125, not being itself a grant of legislative power, is not brought into possible conflict with the grants of federal legislative power in s. 91, so as to make it necessary to find a mutual accommodation as is the case with the grants of provincial legislative power under s. 92.

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The non obstante clause of s. 91 has, however, another office, another aspect, and that is to declare the paramountcy of valid federal legislation as against any incompatible provincial legislation and as against any other provisions of the Act of 1867 such as ss. 109 and 117, or s. 125. The question that arises on this score—and it is in truth the critical question in this case—is how far is it constitutionally proper to limit the exercise of federal power in the light of the protection given to provincial Crown property by s. 125.

We reject completely any contention or suggestion that the paramountcy exemplified in the plain and unambiguous language of s. 91 (“notwithstanding anything in this Act, the exclusive legislative authority of the Parliament of Canada extends” etc.) is subject to qualification and is subordinated either to s. 125 or to any other provincial protective provision or legislative authority. That does not mean, however, that an accommodation is excluded which would give rational scope to s. 125 or to other provincial matters without completely suppressing federal authority given in non obstante terms.

The Alberta Court of Appeal did not address itself to this issue, and its opinion appears to stand for an inversion of the terms of the Act of 1867, and especially of the effect of the non obstante clause of s. 91. Moreover, although that opinion indicates a qualification of the overriding protection allegedly given by s. 125 (the qualification residing in the paramount regulatory authority of Parliament in respect of international trade), it diminishes if it does not entirely abrogate the qualification by its definition of primary production as including the marketing (and, in this case, the export marketing) of natural gas.

In our opinion, a rational reconciliation of s. 125 with exercises of federal legislative power under s. 91 lies in recognizing the immunity of property and natural resources of the provincial Crown from federal taxation of such property and resources within the province, or in respect of intraprovincial transactions. This would be to

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recognize the exclusive legislative authority of the province in matters that do not extend beyond provincial territorial limits. We have, as well, no reason to doubt that the province may engage in extra-provincial transactions as a proprietor (in respect of its natural resources) so long as there is no inhibiting or regulating federal legislation. In short, it may do as a proprietor (absent federal legislation) what it might not be able to do as a legislator: see Brooks-Bidlake and Whittall, Limited v. Attorney-General for British Columbia, [1923] A.C. 450; cf. Attorney‑General for the Dominion of Canada v. Attorneys-General for the Provinces of Ontario, Quebec and Nova Scotia, [1898] A.C. 700.

These considerations do not apply to the present case either in terms of the facts, stated and assumed in the order of reference, or in terms of the proposed legislation to which those facts are addressed.

In the first place, even if the province is acting only as proprietor, it confronts applicable federal legislation governing the export of natural gas, legislation under which an export licence is admittedly required. We construe the Province of Alberta’s principal position to be that the Parliament of Canada may exercise its regulatory authority over provincial Crown property or resources in relation to export but not in relation to taxation; and we make the same assessment of the views expressed by the Alberta Court of Appeal. There is, hence, no challenge to the imposition of an obligation to obtain a licence for an international transaction in natural gas. What is challenged is any association of a tax with the regulated export of natural gas or, to put it another way, a rejection of any connection between the tax and the licence. The ground of the challenge is simply that the tax is not part of any regulatory scheme connected with the export licence. What this appears to mean is that unless the tax is interwoven in the licence requirement, as, for example, by being made a condition of securing permission to export, it stands apart as simply a superadded revenue measure unconnected with any regulation or control of

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export. On this basis, so the argument goes, it does not differ from a tax on the natural resource itself, something forbidden by s. 125.

We are guilty of repetition in asserting here, as we did earlier, that we have here not only no segregated elements but rather a situation in which both the export licence and the tax are pieces of the overall energy program embraced in the proposed federal legislation, a program which we have already examined.

It is, of course, important, and certainly necessary, in considering the foregoing submission, adverse to the validity of the tax, to dwell on the terms of the proposed enactment which is the focus of this case. Although every distributor of natural gas to a consumer in Canada is made liable for the proposed tax, and private persons who export natural gas are also subject to the proposed tax as distributors, the taxability of the Crown in right of Alberta arises only upon the export of any such gas from Canada. It does not arise in this reference upon any dealing by the provincial Crown with its natural gas in Canada.

The charging section of the proposed legislation imposes the tax “on the receipt of marketable pipeline gas by a distributor” and the exporting Crown is made liable for the tax as a distributor and, therefore, by a statutorily deemed receipt of the gas in that character. It is the receipt of gas (the deemed receipt here) which is taxable, and the tax becomes payable by a distributor upon such receipt. Although this (in the ordinary case of a distributor selling to consumers in Canada) distinguishes between a tax on property and a tax on receipt of property (natural gas), imposing the tax upon such receipt, we find nothing untoward in this and would characterize it in no different way than if the tax were imposed (as it in effect is) upon the export of the natural gas. It is a transaction tax, arising upon the movement of property across an international border. The prescription for its collection from the person, here the Crown

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provincial, does not affect its character. It is by that character taken out of the cocoon of s. 125.

The underlying principle is exemplified by judgments in this Court in the Johnny Walker case (1922), 64 S.C.R. 377, and also by the opinion of the Privy Council in that case, reported, [1924] A.C. 222, and previously cited. It involved litigation between the Government of Canada and the Government of British Columbia respecting the former’s claim to recover customs duty in respect of whiskey purchased overseas by the Government of British Columbia and shipped to Canada where customs clearance was refused unless duty was paid. The whiskey was intended for government liquor stores under provincial legislation by which the government would be sole vendors of the liquor for sale in the province. Section 125 was pressed in argument both in the Exchequer Court, in the Supreme Court of Canada and in the Privy Council, but in all courts the attempted reliance on s. 125 to defeat the claim for customs duties was rejected.

We readily agree that the situation in the Johnny Walker case may be distinguished from the present case by reason of a more express involvement of the federal trade and commerce power. There are, however, affinities which are reflected in reasons delivered in the Supreme Court of Canada. These affinities do not depend on differentiating exports and imports because, as to the latter, we take it that the result in the Johnny Walker case did not depend on where title to the whiskey passed; even if it passed in Scotland where the whiskey was purchased, the result would be the same. One of the points made by Anglin J., as he then was, at p. 388, was that “property” within s. 125 must mean property within Canada and does not include property about to be brought into the country. By parallel reasoning, it may be said that “property” in s. 125 does not include natural gas about to be exported from the country. Mignault J., at p. 394, makes much the same point

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when he says that the customs duties are not a tax imposed upon property as such, but are levied on the importation of certain goods into Canada or as a condition of their importation. So, in the present case, the tax arises upon the export of the natural gas from Canada.

There are other passages in the reasons of members of the Court which emphasize the association of customs duties with the federal trade and commerce power. Thus, Duff J., as he then was, says, at p. 382, that “Since the imposition of customs duties (as being indirect taxation) is excluded from the provincial jurisdiction, the words… [of s. 91(3)] suggest that such duties except where imposed primarily at all events for purposes of revenue are treated as falling within the ‘ambit’ of… [s. 91(2)]”. The Privy Council, too, in the short reasons of Lord Buckmaster, fastened primarily on the trade and commerce power as a support for federal legislation with paramountcy over s. 125.

The central question here is thus reduced to the degree of refinement addressed to the proposed legislation; in short, whether it makes practical sense so to divorce the export tax from the overall energy policy as reflected in the National Energy Program and in the National Energy Board Act as to conclude that two unrelated matters are involved, one being a pure revenue measure and, even more, being a taxation of provincial Crown property, albeit that property has entered into the stream of commerce under an export licence. The plain fact is that the matters are very much related, as both the order of reference and the proposed legislation indicate. They are parts in a mosaic, a combination of elements in an integrated program.

There are observations relevant to the issues herein in some decisions in Australia whose Constitution includes a clause similar to s. 125; and

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there is one decision, Attorney-General of New South Wales v. Collector of Customs for New South Wales (1908), 5 C.L.R. 818, which deals with an issue similar to that in the Johnny Walker case, supra. Section 114 reads as follows:

114. A State shall not, without the consent of the Parliament of the Commonwealth, raise or maintain any naval or military force, or impose any tax on property of any kind belonging to the Commonwealth, nor shall the Commonwealth impose any tax on property of any kind belonging to a State.

The issue in the New South Wales case was whether the state was liable to pay federal customs duties on steel rails imported by it for use in the construction of government railways of the state. It was, of course, argued on behalf of the state that goods imported by the state were property of the state within the above-quoted s. 114 and hence immune from taxation. This contention was unanimously rejected. The principal ground of rejection was that the duties were imposed in respect of the importation of the steel rails, and not on state property as such, and thus were an exercise of the federal power of taxation under s. 51(11) and its power in respect of foreign trade and commerce under s. 51(1) of the Australian Constitution. Although Isaacs J., as he then was, took the view that the tax was imposed on the steel rails themselves, he nonetheless held that, having regard to the context in which s. 114 appeared in the Constitution, customs duties were not taxes within s. 114. By parity of reasoning it may be said that an export tax is outside of s. 125 in the present case.

We come back, however, to the principal point taken in this Australian case, and it is fully considered in the reasons of Griffith C.J., as follows (at pp. 831-32):

Again, the words “property belonging to the Commonwealth,” “property belonging to a State,” seem, prima facie, to import property lying and being within the Commonwealth. Neither the Commonwealth nor a State can impose a tax upon property which is not

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within the geographical limits of its jurisdiction. Even if they can impose a tax upon a resident in respect of property situated elsewhere, such a tax is a personal tax, and cannot be properly regarded as a tax upon his property. It was contended, however, that duties of Customs are a tax upon property within the Commonwealth, since the goods must have been imported before the liability to duty can arise. But this, although true in one sense, is not true in any relevant sense. The payment of the Customs duty is an obligation or condition which must be fulfilled before the goods can lawfully form part of the stock or mass of goods in the country, although for convenience they are allowed to be retained in bond in a King’s warehouse until payment. Adapting the words of Chief Justice Taney, cited in Perkins Case, [163 U.S., 625, at p. 629] I say that a Customs law from this point of view is nothing more than an exercise of the power the Commonwealth possesses of regulating the manner and terms on which goods may be brought into the Commonwealth.

For these reasons I am of opinion that the levying of duties of Customs on importation is not the imposition of a tax upon property within the primary and literal meaning of sec. 114, standing alone. I am further of opinion that, even if it is an imposition of a tax on property within the primary and literal meaning of that section, yet that meaning is not the only or the necessary meaning, and that, for the reasons already given, it must be rejected as being inconsistent with other plain provisions of the Constitution. I think, therefore, that sec. 114 does not apply to duties of Customs.

The foregoing comments are relevant here. Although the Australian Constitution refers to “property of any kind” and not to “Lands or Property” as does the Canadian s. 125, it may appropriately be considered here even on the basis of its wide terms, having regard to the fact that the proposed taxing legislation in the present case does not apply to “lands” and thus can be looked at from the standpoint of its “property” provision alone. The New South Wales case would support the conclusion that s. 125 does not apply to a transaction tax nor to an export tax.

A number of other Australian decisions may be mentioned, all having to do with the attempted imposition of stamp duties on a Trust, constituted

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as a corporation under Commonwealth legislation and empowered to manage the Superannuation Fund created by the legislation for the benefit of public employees. These cases are Superannuation Fund Investment Trust v. Commissioner of Stamps (1978), 19 S.A.S.R. 481 and, on appeal, (1979), 26 ALR 99, and Superannuation Fund Investment Trust v. Commissioner of Stamps (SA), (1980), 31 ALR 327. The main issue in these cases was whether the Trust was, so to speak, the Crown in right of the Commonwealth and thus immune from taxation unless it had consented thereto pursuant to s. 114. The decisions turned on the Crown issue which was decided adversely to the Trust in respect of the transactions in issue. There were, however, some comments on s. 114 which may usefully be referred to.

In the first cited case, a judgment of the Supreme Court of South Australia (in banco), Jacobs J. had this to say (at p. 497) on the question whether the assessment of certain instruments for stamp duty offended s. 114:

An affirmative answer to this question involves the proposition that by assessing the instruments to duty, the State has, without the consent of the Parliament of the Commonwealth, imposed a tax on property belonging to the Commonwealth. It was but faintly argued that the assessment imposes a tax upon the subject properties, or more particularly, upon the Trust’s equitable interest in those properties as purchaser. What is taxed is the instrument or instruments which evidence a transaction in those properties, not the properties themselves. In D’Emden v. Pedder [(1904) 1 C.L.R. 91] it was decided that a receipt evidencing a payment to the Commonwealth, which was required to be stamped under State law, “although undoubtedly the property of the Commonwealth for some purposes”, is not “property” of the kind intended in s. 114, which “appears rather to refer to taxation imposed upon property qua property”. Despite the subsequent fate of that case on other issues, the decision on that point does not seem to have been doubted, and it would seem to dispose of the alternative submission, that the instruments themselves are relevant property of the Commonwealth. But even if they are so regarded, they are not taxable when they come into the hands of the Trust.

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In the appeal to the High Court in this case, only Barwick C.J. (who dissented on the main issue, holding that the Trust was entitled to Crown immunity and, further, that Parliament had not subjected the Commonwealth Crown and its property to the challenged taxation) gave any consideration to s. 114. Speaking of the South Australian stamp duty, he said this (at p. 103):

Further, in form it is a tax upon the document by which the Commonwealth acquires the land to which the instrument relates. It falls upon the document when the document has itself become the property of the Commonwealth. Unless the document is stamped, ie the tax upon it paid, its function as a document is largely, if not indeed entirely, stultified (see s 27 of the Stamp Duties Act 1923 as amended (SA). Thus, even in the most technical sense, the duty, in my opinion, is a tax upon the property of the Commonwealth. It falls squarely, in my opinion, within the operation of s 114, which is expressed in universal terms, “any tax on property of any kind”.

There is nothing in this passage that in any way qualifies what was said by Griffith C.J. in the more relevant New South Wales case.

The quoted statement by Barwick C.J. was adopted by King C.J. of the Supreme Court of South Australia in the third of the decisions above-mentioned. He earlier rejected the contention that the stamp tax was a tax on a transaction and not on the instrument (a memorandum of transfer of land), holding that it was a tax on Commonwealth property. The Commonwealth had at that time withdrawn its consent to be taxed so that the naked question was whether the Trust was entitled to Crown immunity or was otherwise free of the stamp duty in respect of the matters in issue. Mitchell J. also referred to the comment by Barwick C.J. but in the context of determining whether the stamp duty was a tax upon property of the Trust. The third Judge in the case, Matheson J., accepted what Jacobs J. said and which we quoted from the first-mentioned of these cases, and he also quoted extensively from the New South Wales (steel rails) case, including what we reproduced from the reasons of Griffith C.J. He also brought

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into account portions of the reasons of O’Connor J. and of Higgins J. in the New South Wales case. O’Connor J. said, at p. 844, that, taking the preferable narrower view of property and a tax on property in the light of the Constitution as a whole, it is “an exaction made in respect of the holding or ownership of property”. Higgins J. expressed himself as follows, at p. 854:

A Customs tax is a tax, not on property as such, but on persons in respect of the act of importation. There is a fundamental difference between taxing men for having property, and taxing men for moving property—and, in particular, for moving property into the country from overseas. [The emphasis in this quotation is that of Matheson J.]

The Australian decisions provide support for sustaining the validity of the proposed federal legislation under our characterization of its thrust. It has always been necessary, in dealing with a question of constitutionality, to examine the challenged legislation as a whole, especially where, as here, it is part of a package, and to interpret it before considering its validity. This is still the proper course.

We have one other observation. The proposed federal legislation, as noted early in these reasons, is intended to be an addition to the federal Excise Tax Act. There is no doubt that the Act serves an important revenue purpose but it is equally true that it reflects economic objectives. This was noticed by the Quebec Court of Appeal in Reader’s Digest Association (Canada) Ltd. et al. v. Attorney General of Canada (1965), 59 D.L.R. (2d) 54, affirming (1962), 37 D.L.R. (2d) 239, which sustained a federal excise tax on the value of advertising material in special editions (as defined) of non-Canadian periodicals published in Canada. The tax was designed to aid Canadian periodicals or had that effect. Both Hyde J.A. and

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Rinfret J.A. expressed the view that (in the words of Hyde J.A., at p. 58), the Excise Tax Act “contains several Parts where the Act is used to raise revenue and protect Canadian trade and commerce”. In our opinion, the legislation being questioned here is of that character. It has a constitutional base in both those heads of federal power.

What seem to dominate the views of the Alberta Court of Appeal and the views of the majority in the present appeal are a preference for protecting the property interests of the provincial Crown and a subordination of federal legislation because of the form in which that legislation is cast. We mentioned this at the outset of these reasons, and we return to it to say emphatically that it is not for the Court to attempt to soften the stated effect of federal legislation. There is nothing in the reasons of the majority that deny the power of Parliament to legislate and tax in relation to export, whether in respect of the provincial Crown or any other person. We witness here the odd result that those other than the Crown provincial are subjected to federal controls from which the Crown provincial is relieved, although the legislation purports to apply in both instances.

Reliance on the Federal General Power

There is another consideration which permeates the National Energy Program although, strictly speaking, it is unnecessary to invoke it in order to support the validity of Bill C-57, and especially the impugned portions of Part IV.1 to be added to the Excise Tax Act. We refer to a rather obvious interpenetration of the Program with social and economic conditions in all of Canada and thus as engaging the power of Parliament to legislate for the peace, order and good government of Canada. It may be that it would be sufficient in this context to embrace the trade and commerce power in that somewhat neglected dimension described in the Parsons case (1881), 7 App. Cas. 96, at p. 113, as “general regulation of trade affecting the whole dominion”. The power to legislate for the peace,

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order and good government of Canada is to us a more apt repository of authority for proposed legislation of the scope and extent envisaged by the National Energy Program.

It is necessary to allay some fears about unwarranted federal intrusion into fields of exclusive provincial competence. In the first place, the federal legislation proposed for enactment is not of the character described in the Snider case, [Toronto Electric Commissioners v. Snider], [1925] A.C. 396, as being legislation which could have been enacted by any one province, save that its field of operation was made the whole of Canada. Certainly, attempted equalization of economic benefits throughout the country is a value that goes to the heart of a working federalism although we hasten to say that it is not for this or any Court to pronounce on the wisdom or likely success of the plan of equalization. Energy resources and energy supplies are matters which in their international, transnational and interprovincial impact concern all Canadians, both in their business and domestic activities, and place upon government responsibilities which only the national government can discharge with, it is to be hoped, fairness to all.

To the extent to which revenue-raising, by whatever means and by whatever invocation of associated legislative powers, can assist in distributing and equalizing economic burdens and benefits, it transcends intrusion into any particular trades in a province or into any control of a provincial resource when there is a careful limitation to taxation at the export level if a province should choose to enter that market.

The power to legislate for the peace, order and good government of Canada must be given no less a contemporary exposition than any other powers delineated in ss. 91 and 92 of the British North America Act. Sterilizing grants of constitutional power does a disservice to a living constitution.

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Had this Court accepted sterility after the Privy Council pointed to an evolutionary path in Edwards v. Attorney-General of Canada, [1930] A.C. 124, it might have come to a different conclusion than that which it reached in the Johannesson case, [Johannesson et al. v. Rural Municipality of West St. Paul et al.], [1952] 1 S.C.R. 292. If a high point was reached in the Hauser case, [The Queen v. Hauser], [1979] 1 S.C.R. 984, it at least showed that the majority of this Court was bold enough to find support for a piece of federal legislation, the Narcotic Control Act, in the power to legislate for the peace, order and good government of Canada when other members of the Court would have been content to confine their assessment to the criminal law power and to the trade and commerce power.

Relaxation of some of the strictures thought to limit resort to the peace, order and good government power was seen in the Anti-Inflation Act Reference, [1976] 2 S.C.R. 373. That case laid to rest once and for all the idea that the general power could be invoked (apart from its purely residual scope) only in time of a war emergency. Economic stringency might also support reliance on the general power but it must be conceded that in the Anti-Inflation Act Reference the Court was concerned with temporary legislation directed to combatting a conjunction of high inflation and high unemployment. Nonetheless, the considerations actually present in that case and offered in support of the federal legislation cannot be taken to be in themselves limiting factors respecting resort to the general power of Parliament.

There has always been a two-stream line of authorities on the general powers stemming from the Privy Council’s decisions in the Russell case [Russell v. The Queen] (1882), 7 App. Cas. 829, and in the Local Prohibition case, [Attorney-General for Ontario v. Attorney‑General for the Dominion et al.], [1896] A.C. 348. The attempt by Lord Haldane in the Snider case, supra, to explain the Russell case on an emergency footing

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of the need to save the nation from the disaster of convulsing alcoholism did no credit to the judicial process and, in our view, demeaned the Privy Council. We need only call in aid that body’s corrective judgment in the Canada Temperance Federation case, [Attorney-General for Ontario v. Canada Temperance Federation], [1946] A.C. 193.

Conclusion

We would allow the appeal, set aside the decision of the Alberta Court of Appeal and issue a declaration that the proposed tax would be validly exacted in respect of the export of natural gas produced by the Crown in right of Alberta.

Per MARTLAND, RITCHIE, DICKSON, BEETZ, ESTEY AND CHOUINARD JJ.—This appeal relates to a levy which the Crown in right of Canada seeks to impose upon certain natural gas owned, produced, and to be exported, by the Crown in right of Alberta. The question is whether such natural gas is shielded from the levy by s. 125  of the British North America Act, 1867, which reads:

125. No Lands or Property belonging to Canada or any Province shall be liable to Taxation.

The matter originated in a reference to the Court of Appeal for Alberta by the Lieutenant Governor in Council of that province pursuant to s. 3 of The Constitutional Questions Act, R.S.A. 1970, c. 63. The appendix accompanying the reference stated that the answers to the two questions raised should be based on the following:

1…

(a) the Province of Alberta was established pursuant to the Alberta Act (Canada);

(b) all Crown lands, mines and minerals (precious and base) and royalties derived therefrom within the Province of Alberta belong to the Province of Alberta by virtue of

(i) the Memorandum of Agreement made the 14th day of December 1929, between the Government of the Dominion of Canada and the Government of the Province of Alberta, as amended;

(ii) the Alberta Natural Resources Act (Alberta);

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(iii) the Alberta Natural Resources Act (Canada) ;

(iv) the British North America Act, 1930;

(v) legislation enacted by the Legislature of the Province of Alberta and the Parliament of Canada approving and confirming amendments to the Agreement referred to in subclause (i);

(c) natural gas is a mineral;

(d) part of the minerals that belong to the Province of Alberta under the agreements and legislation referred to in clause (b) consists of minerals below the surface of the land legally described as follows:

Section 18 in Township 3, Range 10, West of the 4th Meridian in the Province of Alberta;

(e) during the month of September, 1980, the Province of Alberta caused a well to be drilled on the land referred to in clause (d) that resulted in the production of natural gas in commercial quantities (in this Appendix referred to as the “said natural gas”), and the said natural gas belongs solely to the Province of Alberta;

(f) The Province of Alberta has entered into agreements with commercial corporations to have the said natural gas gathered, compressed and processed (such processing does not cause a change in the nature and quality of the said natural gas, but involves only the removal of certain impurities) and then to have it transported by a natural gas pipeline for export sale by the Province of Alberta to a purchaser in the United States of America that is a corporation carrying on business only in the United States of America and not in Canada;

(g) the said natural gas pipeline

(i) is wholly situated within the Province of Alberta and extends from a commencement point in the South-Eastern part of the Province of Alberta for approximately 20 miles to the international border between Canada and the United States of America where the border of the Province of Alberta meets the border of the State of Montana, and,

(ii) does not connect with any other pipeline within the Province of Alberta;

(h) the Province of Alberta maintains sole ownership of the said natural gas until it is delivered to the purchaser on the State of Montana side of the border between the State of Montana and the Province of Alberta;

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(i) the revenue from the sale of the said natural gas will be paid into the General Revenue Fund of the Province of Alberta to be appropriated to the public service of the Province;

(j) the Minister of Finance for Canada has tabled in the House of Commons a Notice of Ways and Means Motion to amend the Excise Tax Act (2) (Sessional Paper No. 321-1/310E) attached as Schedule A (in this Appendix referred to as the “Ways and Means Motion”) respecting a measure to establish a natural gas and gas liquids tax to be imposed, levied and collected, inter alia, on natural gas exported from Canada for use outside Canada (in this Appendix referred to as the “tax on exported natural gas”).

It was also provided in the reference that the answers to the questions raised should be based on the following facts to be assumed for the purpose of the reference:

(a) the Parliament of Canada has enacted legislation in the terms of the Ways and Means Motion (in this Appendix referred to as the “said legislation”);

(b) the Province of Alberta has complied with all the laws in force in the Province of Alberta relating to the sale, export and delivery of the said natural gas;

(c) the said natural gas is marketable pipeline gas as defined in the Ways and Means Motion, in respect of which no tax has been paid under the said legislation, and is exported from Canada for use outside Canada pursuant to a licence issued by the National Energy Board under Part VI of the National Energy Board Act, or pursuant to any other authority under that Act.

The Court of Appeal of Alberta (McGillivray C.J.A., Lieberman, Laycraft, Kerans and Stevenson JJ.A.) issued a joint opinion of the Court. That judgment is now reported at [1981] 3 W.W.R. 408. The Court held that the proposed levy was indeed a tax, imposed solely for revenue purposes. The tax, said the Court, was not intended to act as a regulatory mechanism of an industry operating throughout Canada, but was to attain, in the eyes of the federal government, a more equitable sharing of gas revenues. After reference to portions of

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The National Energy Program 1980, the stated goals of the tax and its apparent impact, the Court held the tax to be supported only by s. 91(3)  of the British North America Act, 1867 ,   30‑31 Vict., c. 3 , “The raising of Money by any Mode or System of Taxation”. As such, the tax was liable to offend s. 125 of the B.N.A. Act, supra, if indeed it was taxation of “Lands or Property belonging to” the Province of Alberta. The Court then determined that the “real bite” of the tax was upon provincial property, or the province in respect of its property, and hence offended s. 125 . The Court rejected the contention that the tax was upon a transaction, the movement of property, and not the property itself. The “deemed distribution” system of the proposed tax was artificial, and could not disguise the “real bite” of the levy.

It was argued before the Court of Appeal that the application of “industry” by a province to its resources, its assimilation to a commercial entrepreneur, deprived the province of the protection of s. 125. Without ruling on the issue, the Court contented itself with holding that in any case the activity here was no more than primary production, the simple capture and sale of a resource.

The Court concluded that the tax did not apply to the gas in question; and to the extent it purported to, was ultra vires the Parliament of Canada.

The Attorney General of Canada has now appealed to this Court pursuant to s. 37 of the Supreme Court Act, R.S.C. 1970, c. S-19 as amended. The Attorneys General of Quebec, Manitoba, British Columbia, Saskatchewan and Newfoundland, and the Independent Petroleum Association were permitted to intervene and file factums in support of the Attorney General of Alberta.

Two constitutional questions were stated by the Chief Justice, corresponding to the two questions

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put by the Lieutenant Governor in Council of Alberta. They are:

1. If the tax on exported natural gas contemplated by a Notice of Ways and Means Motion and to be imposed under the proposed enactment entitled “Natural Gas and Gas Liquids Tax” is intra vires the Parliament of Canada, is the said natural gas that is exported from Canada for use outside Canada liable to taxation under the tax on exported natural gas having regard to the British North America Acts, 1867 to 1975, and in particular section 117, 125 or 126 of those Acts or any combination of those sections?

2. Is the tax on exported natural gas imposed under the proposed legislation, with respect to the said natural gas that is exported from Canada for use outside Canada, ultra vires the Parliament of Canada either in whole or in part, and, if so, in what particular or particulars and to what extent?

Although two questions are asked, only the one issue is raised: Does s. 125 protect the particular natural gas from the intended levy of the Parliament of Canada. Expressed in another way, is it within the legislative authority of the Parliament of Canada to impose a tax in respect of natural gas which, at all material times prior to its export, belongs to the Crown in right of Alberta?

Various government documents were filed both in this Court and in the Court of Appeal to aid in the constitutional characterization. This Court has recently commented on the admissibility and use of such extrinsic materials in constitutional cases: see Re Residential Tenancies Act, 1979 (now reported at [1981] 1 S.C.R. 714). In the present case, the budget documents announcing the proposed tax, and The National Energy Program 1980 of which the tax is purportedly an element, are the sort of material admissible “to show the factual context and purpose of the legislation” (ibid, per Dickson J. at p. 721.)

The material filed includes: Budget in Brief, October 28, 1980; Budget Papers, October 28, 1980; The Budget, October 28, 1980; The Medium-Term Prospects for the Canadian Economy 1980-1985, October 1980; The National Energy Program 1980; Bill C-57—“An Act to

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amend the Excise Tax Act and the Excise Act and to provide for a revenue tax in respect of petroleum and gas”; National Energy Board Annual Report 1979; and Energy Issues for the People of Alberta.

To the extent possible, we propose to deal chronologically with the matters which bear upon this dispute, under the following headings:

I Part VIII of the British North America Act, 1867 

II The Alberta Act, 1905, 1905 (Can.), c. 3

III The British North America Act, 1930, 20-21 Geo. V, c. 26 (U.K.) and the Natural Resources Transfer Agreement

IV The National Energy Program 1980

V Budget Papers, Notices of Ways and Means Motions and supplementary information on the Budget, October 28, 1980

VI Bill C-57—“An Act to amend the Excise Tax Act and the Excise Act and to provide for a revenue tax in respect of petroleum and gas”

VII Section 125  of the British North America Act, 1867 

VIII Characterizing the proposed legislation

I

Part VIII of the British North America Act, 1867 

A

In 1867, the original four provinces at the union (Ontario, Quebec, Nova Scotia and New Brunswick) retained ownership of the resources within their respective provincial boundaries. In simplest terms, s. 109 of the B.N.A. Act provided that “All Lands, Mines, Minerals, and Royalties belonging to the several Provinces… at the Union… shall belong to the several Provinces… in which the same are situate…” Section 117 went on to provide that the several provinces should retain all their respective public property not otherwise disposed of in the Act “subject to the Right of Canada to assume any Lands or Public Property required for Fortifications or for the Defence of the Country”.

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Section 125, supra, protected the lands and property of one level of government from incursion by way of taxation by the other level of government. This might seem, without more, to settle the present controversy in favour of the Province of Alberta but, as we shall see, the matter is not that plain. Section 125 must be read within the context of the entire B.N.A. Act and, in particular s. 91 of the Act.

At Confederation each of the original confederating colonies received the entire beneficial interest of the Crown in Crown lands situate within its boundaries, with the limited exception of certain public works acquired by the Dominion under s. 108 or assumed for fortifications or defence under s. 117. See St. Catherine’s Milling and Lumber Company v. The Queen (1888), 14 App. Cas. 46 (P.C.), per Lord Watson at p. 57.

The right of exploitation by the provinces of provincially owned natural resources flows logically from that ownership and is discussed in Hogg, Constitutional Law of Canada, (1977), at p. 393:

Because each provincial government may own much of the natural resources of its province, and because it has the constitutional power to purchase or expropriate resources in private hands, each province can control the exploitation of its natural resources by means of permits, licences and leases, and can profit from that exploitation through licence fees, rents, royalties or sales.

B

It was suggested from the bench during argument that the federal power of expropriation of provincial lands limited the beneficial ownership of the provinces. The case of Attorney‑General for Quebec v. Nipissing Central Railway Company et al., [1926] A.C. 715 (P.C.), was mentioned. Counsel for the intervening Province of British Columbia, however, sought to turn the analogy to the intergovernmental expropriation powers to advantage in his analysis of the relationship be-

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tween the levels of government vis-à-vis s. 125. He emphasized the limited expropriation powers of the federal authority in respect of provincial lands. In the Attorney-General for Quebec v. Nipissing Central Railway Company the Privy Council found the authority in the Parliament of Canada to authorize the expropriation by the Parliament of Canada of provincial lands. Section 189 of The Railway Act, 1919, 1919 (Can.), c. 68, which empowered any railway company, with the consent of the Governor General to take Crown lands for the use of the railway was found to apply to provincial Crown lands. Although s. 189(4) contemplated that compensation for Crown lands taken would be paid to the Governor in Council, there was no reason why he should not direct that any compensation received in respect of Crown lands of a province be handed over to the government of that province.

Viscount Cave, Lord Chancellor, stated at p. 723:

…while the proprietary right of each Province in its own Crown lands is beyond dispute, that right is subject to be affected by legislation passed by the Parliament of Canada within the limits of the authority conferred on that Parliament.

No difficulty has ever arisen in the constitutional cases with respect to the absolute right in appropriate circumstances of the federal government to take over the lands of a province where such is a necessity in order properly to discharge the constitutional responsibilities of Parliament. A more difficult question arises where it is not a direct consequence of the discharge of the federal regulatory power that the proprietary interests of the province must suffer. In that regard Viscount Cave added, at pp. 723-24:

Reference was made to certain passages in judgments pronounced on behalf of the Board in earlier cases, in which emphasis was laid on the view that the regulative powers conferred upon the Dominion Parliament by s. 91 of the British North America Act did not authorize that Parliament to transfer to itself or others the proprietary rights of a Province. But those expressions must, of course, be taken subject to the observation of Lord Herschell in the first Fisheries case, Attorney-

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General for Canada v. Attorneys-General for Ontario, Quebec and Nova Scotia, [[1898] A.C. 700, at p. 712], that the power to legislate in respect of any matter must necessarily to a certain extent enable the Legislature so empowered to affect proprietary rights; and it may be added that where (as in this case) the legislative power cannot be effectually exercised without affecting the proprietary rights both of individuals in a Province and of the Provincial Government, the power so to affect those rights is necessarily involved in the legislative power.

Three years later other aspects of the same problem arose in a constitutional reference by the Governor in Council to this Court: Reference re Waters and Water-Powers, [1929] S.C.R. 200 (“the Water-Powers case”). Duff J., as he then was, approached the relationship between valid federal action on the one hand and provincial proprietary interests on the other from several directions. He pointed out at p. 212:

In the first Fisheries case, [[1898] A.C. 700], their Lordships had to pass upon the validity of an enactment of the Parliament of Canada (R.S.C., c. 95, s. 4) empowering the Governor in Council to grant fishery leases. Their Lordships decided that “in so far as” it empowered

the grant of fishery leases conferring an exclusive right to fish in property belonging not to the Dominion but to the provinces, it was not within the jurisdiction of the Dominion Parliament to pass it.

The legislative authority in respect to “Fisheries”, conferred upon the Dominion Parliament by section 91, does not, it was held, involve the power to deal with the property of a province as if the administration of that property had been entrusted by the B.N.A. Act, to the control of the Dominion Parliament; for, as Lord Herschell, who delivered the judgment of the Board, said, such a ruling would enable the Dominion to

transfer to itself property which had by the B.N.A. Act been left to the provinces and not vested in it. (p. 713).

The full definition of expropriation or appropriation powers is beyond the scope of these reasons. One has to bear in mind, however, in dealing with the arrogation of property rights by federal authority in the exercise of some other right, that, whatever the terminology may be, it is only such

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part of the property right and such extent of the taking of that right, as may be tied inherently and of necessity to the exercise of the authority in question by the federal level of government that the Constitution will permit. Thus the Government of Canada may not take or authorize the taking of property of the province beyond the property absolutely essential to the Dominion undertaking. Mineral rights, for example, would not be involved in the appropriation of the site of the federal work. This is so both because that part of the beneficial ownership of the province is not required by the fulfillment of the federal undertaking; and, because the federal government may not take over a source of revenue for its benefit in the course of establishing, under an express legislative heading, a federal project or undertaking. A serious overlap occurs, for example, in the authorization of the harnessing of interprovincial waters, where the title to provincial lands must necessarily be directly affected. The Dominion, in the exercise of its powers, may arguably, in some circumstances, as pointed at p. 218, of the Water Powers case, do so “without payment of compensation”. Nevertheless, the Dominion may not constitutionally “assume the administration or control of water-powers so acquired for purposes not connected with the canal”.

C

Here we are not concerned with expropriation. Either the federal government has the power to impose taxation under s. 91(3), “The raising of Money by any Mode or System of Taxation”, without reference to other provisions of the B.N.A. Act, or it has not, and this must be answered in the context of the contest between s. 91(3) and s. 125 bearing in mind always the presence of the “notwithstanding” phrase (“notwithstanding anything in this Act”) which introduced the former section. Furthermore, the federal government has the undoubted power in the exercise of its regulatory authority under s. 91(2), “The Regulation of Trade and Commerce”, to affect directly and seriously the provincial proprietary interest notwith-

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standing that that effect might come through regulatory taxation and notwithstanding the presence of s. 125. That is the contest to be settled here and we do not find the analysis of the right to expropriate or the alleged right to appropriate of much assistance, even analogically. The fact that the power to expropriate is, as Sir Lyman Duff has said at p. 224 of the Water-Powers case (supra) “not expressly given” (except for defence, s. 117) under the B.N.A. Act is of little or no determinative value. The power to expropriate or the power to appropriate must be determined in conjunction with the discharge of other functions under the Constitution by one level of government or the other. Expropriation by either level of government without legislative root in the Constitution is not a legal right and cannot take place legally. What we are talking about here is not expropriation of gas but taxation of gas, or, as the federal government submits, taxation of the movement of gas. Title to the gas at no time vests in the Government of Canada or its designate. Title transfers from the province to its customer. The transaction is purported to be subjected to tax federally. That is the question and one which brings into context the federal powers under s. 91 and the limits imposed by s. 125.

D

The relationship between ss. 91 and 125 of the Act is revealed by the use in the latter provision of the expression “taxation”. This is a specific reference to an action which might be taken by one legislature or the other in the course of its governmental functions. It is this action from which the lands and property of the other level of government are exempted. The section does not purport to exempt the lands or property of either the province or the Dominion from proper regulatory action taken by the other level of government within its allocated spheres in ss. 91 and 92; but such lands or property are not subject to the taxation activities of the other level of government either under s. 91(3) or 92(2). If a contrary mean-

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ing were intended by the legislation of the United Kingdom in s. 125 of the B.N.A. Act, the term “taxation” might have been qualified as British Columbia would have had it in Attorney‑General for British Columbia v. Attorney-General for Canada (1922), 64 S.C.R. 377 (the Johnny Walker case) by the addition of words which would include taxation where undertaken for regulatory purposes. On this appeal it therefore falls to the Attorney General of Canada to demonstrate that the action undertaken by Parliament in Bill C-57 relates to legislative functions under s. 91 other than those confined purely and simply to taxation.

II

The Alberta Act, 1905

At the time of its formation, in 1905, by the Alberta Act, 1905 (Can.), c. 3, the Province of Alberta was not given the natural resources contained within the province. All Crown lands, mines and minerals, and royalties incident thereto, located within the province, continued to be vested in the federal Crown, and to be administered by the Government of Canada for the purpose of Canada. Section 20(1) of the Alberta Act stated that inasmuch as the province would not have the public land as a source of revenue, provision would be made for half yearly payments by Canada to Alberta.

III

The British North America Act, 1930 and the Natural Resources Transfer Agreement

It is contended on behalf of the Province of Alberta that in 1930, Alberta and the three other western provinces were placed in the same, or in a better, position, vis-à-vis natural resources, than the original confederating provinces. On December 14, 1929 the Government of Canada and the Government of Alberta signed an agreement known as the Natural Resources Transfer Agreement, approved by the Parliament of Canada and the Legislature of Alberta, and confirmed by the British North America Act, 1930, the effect of which

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was to place ownership of all the natural resources formerly owned by the Crown in right of Canada in the Crown in right of Alberta. The right of ownership carried with it, as a necessary incident, the right in the public interest to possess, enjoy, sell or otherwise dispose of such resources, and revenues therefrom, subject only to such laws as the Parliament of Canada might validly enact in pursuance of its legislative authority. The position of the provinces was considered by Duff J. in the Johnny Walker case, at p. 385:

The provinces are to keep the property assigned to them and enjoy the fruits of that property free from any right of the Dominion to assume it except for the purposes of defence (s. 117) and they have the further protection of section 125; a provision suggested, it may well be, by Marshall’s famous dictum adapted from Webster’s argument “a power to tax is a power to destroy”; but there is nothing in any of these clauses suggesting that the legislator is aiming at a limitation of Dominion authority in such matters as e.g. shipping and external trade. [Emphasis added]

The agreement of 1929 between the Dominion Government and the Government of Alberta includes a recital:

And whereas it is desirable that the Province should be placed in a position of equality with the other Provinces of Confederation with respect to the administration and control of its natural resources as from its entrance into Confederation in 1905:

By section 1 of that agreement it was provided:

Transfer of Public Lands Generally

1. In order that the Province may be in the same position as the original Provinces of Confederation are in virtue of section one hundred and nine of the British North America Act, 1867 , the interest of the Crown in all Crown lands, mines, minerals (precious and base) and royalties derived therefrom within the Province, and all sums due or payable for such lands, mines, minerals or royalties, shall… belong to the Province… and the said lands, mines, minerals and royalties shall be administered by the Province for the purposes thereof…

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Section 1 of the British North America Act, 1930, supra, provides:

1. The agreements set out in the Schedule to this Act are hereby confirmed and shall have the force of law notwithstanding anything in the British North America Act, 1867 , or any Act amending the same, or any Act of the Parliament of Canada, or in any Order in Council or terms or conditions of union made or approved under any such Act as aforesaid. [Emphasis added]

It is the submission of counsel for Alberta that, by reason of the presence of the words “notwithstanding anything in the British North America Act, 1867 , or any Act amending the same, or any Act of the Parliament of Canada,” the ownership by Alberta of its lands and resources is on a plane higher than that enjoyed by the founding provinces under s. 109 . Put another way, if the argument can be made that s. 125 is subject to s. 91  by reason of the presence of the word “notwithstanding” in s. 91 , then, because of the 1930 amendment to the B.N.A. Act, the presence of “notwithstanding” in s. 1 of that Act makes the grant or transfer of resources confirmed by the 1930 amendment immune from any term in the 1867 Act, as amended, including the expression of “notwithstanding” ins. 91.

We find no requirement to determine the validity of such submission, because of the disposition which we propose of this appeal. It is sufficient to conclude that whether the Province of Alberta’s title to its resources be on the level of s. 109 of the B.N.A. Act or on a higher plane, the interests of the province are not subject to federal taxation, implemented under s. 91(3), where no regulatory or other valid federal power is the constitutional basis of the taxation in question.

IV

The National Energy Program 1980

One of the documents placed before the Court is an undated publication entitled “The National Energy Program 1980” issued by the Minister of Energy, Mines and Resources Canada. It is a

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statement of the federal position in respect of energy.

The document first addresses the matter of oil availability. Three points are noted. Over the last two decades (i) the world tripled its consumption of oil; (ii) the relative use of oil doubled from one-fifth to two fifths of primary demand; (iii) the capacity of the United States to supply its own oil needs declined. The emergence of the Organization of Petroleum Exporting Countries (OPEC) cartel and its effectiveness in increasing oil prices from $3 a barrel in 1960—and about the same in 1970—to $38 or more in 1980, is discussed. “The International Context” part of the document concludes with a forecast of traumatic adjustment and transformation for the world economy, supply uncertainties and unpredictable oil prices.

The discussion of “Energy Benefits and Burdens” is of particular interest in the present inquiry, notably the following quotes from pages 11 to 16, which we will number for ease of reference:

[1.] In Canada, for example, trade in the major forms of energy has been closely regulated by federal agencies for many years. Special procedures governing energy exports have been in place for some time, reflecting a national consensus that Canadian needs are to be served first, and that only surplus energy may be exported [at p. 11].

[2.] A large proportion—approaching one-half—of the revenue from these higher domestic prices accrues to the governments of the petroleum-producing provinces; most of it to Alberta. The resulting inter-regional transfers of wealth are now so large, and growing so rapidly, that they have become a national issue [at pp. 11-12].

[3.] The national and provincial governments in Canada have specific rights, powers, and obligations under the provisions of the British North America Act. However, there is no legislatively-defined arrangement under this Act for the sharing of revenues arising from the exploitation of natural resources, including petroleum [at pp. 12-13].

[4.] The revenue share accruing to each level of government is a function of a mixture of fiscal instruments that

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has evolved over time. The result is a distribution of benefits that is extra-ordinarily unfavourable to the national government, even in comparison to a country such as Australia, where the state governments, like Canadian provinces, own the resources. Revenue-sharing arrangements in Canada are an international anomaly, bearing no relationship to the rights and responsibilities of the two levels of government [at p. 13].

[5.] While Canadian economic performance since the initial OPEC price shock compares favourably with that of other industrial countries, the effort to support the economy has left the national government’s fiscal position badly weakened. Each OPEC price shock makes the federal position worse [at p. 14].

[6.] This is a crucial difference between Canada and most other energy-rich countries, among them federal states like Australia, or unitary states such as Norway and the United Kingdom. In these countries, the national government obtains most of the revenues accruing from the increase in price of domestic petroleum; it captures the “upside” appreciation; it gets the financial wherewithal to offset the negative economic consequences of world oil price shocks. In Canada, one provincial government—not all, and not the national government—enjoys most of the windfall, under current policies. These policies are no longer compatible with the national interest. The Government of Canada must have a reasonable share of revenues from oil and gas production, if it is to shield Canadians from the full impact of the negative economic shock, and help bring about the adjustments that must be made in Canada’s economic, energy, and industrial structure [at p. 14].

[7.] To rely entirely on new taxes upon the industry would be unfair. It would also be ill‑advised, for it would put in jeopardy our energy supply objectives. Finally, it would miss the basic point: what is the appropriate distribution of oil and gas revenues among governments?

What share of revenues reflects the needs and responsibilities of the two levels of government? At present, provincial governments receive more than three-quarters of the oil and gas production revenues accruing to governments. Alberta, with 10 per cent of Canada’s population, receives over 80 per cent of the petroleum revenues gained by provinces [at p. 15].

[Page 1060]

[8.] Canadians must decide, however, whether the current arrangements, which concentrate the financial benefits of higher oil prices in one provincial government, and give little benefit to the national government, are appropriate [at p. 16].

The Government of Canada believes that the present system is inappropriate and unfair. It believes that more appropriate arrangements must be made, so that the national government, which is accountable to all Canadians, gains access to the funds it needs to support its response to national needs [at p. 16].

Under the heading “Energy Taxes”, the document refers to earlier discussion of the “major shortcomings of the prevailing tax and revenue-sharing system” and continues,

[9.] The Program [i.e. the National Energy Program] will create a framework for more balanced revenue sharing between the producing provinces, who are entitled to large and growing revenues from their resources, and the Government of Canada, which has a national claim, on behalf of all Canadians, to a share of the industry’s revenues [at p. 33].

We are told at p. 33 that “For all these reasons the proposals presented to the producing provinces incorporated a federal tax on natural gas exports” but that

[10.] The governments of Alberta and British Columbia have strongly opposed a natural gas export tax. They have argued that such a tax is an intrusion on their resource ownership rights. They also argue that taxes on gas exports are discriminatory [at p. 34].

The Government of Canada, it appears, rejected these arguments but “[r]ecognizing, however, the strong opposition of Alberta and British Columbia to the gas export tax” (at p. 34) offered to discuss other arrangements which the Alberta government, however, considered neither feasible nor appropriate.

The discussion of “Energy Taxes” concludes with a pregnant passage:

[11.] The Government of Canada is, therefore, not proceeding with a natural gas export tax. This tax would have provided the federal government with a major

[Page 1061]

source of the revenues needed to meet its national energy obligations [at p. 34]. [Emphasis added.]

Under the next heading, “New taxes on Oil and Gas”, the federal government says:

[12.] To compensate for these foregone revenues [i.e. the revenues which would have been available through a natural gas export tax] the federal government will need new sources of funds. One potential new source is the Petroleum Compensation Charge [at p. 35].

After some comment on the Petroleum Compensation Charge one reads:

[13.] Another source of revenue is needed. The Government of Canada will, therefore, impose a new natural gas and gas liquids tax.

All natural gas sales will be subject to the tax, including those to the export market. There is no reason to exclude exports from a tax payable on all gas produced and consumed in Canada [at p. 35]. [Emphasis added.]

This “new natural gas and gas liquids tax” is the tax central to the present reference.

V

Notices of Ways and Means Motions and supplementary information on the Budget, October 28, 1980

The Budget Papers of October 28, 1980 announced that a new tax would “be imposed under the Excise Tax Act on all natural gas and gas liquids produced in Canada”. It stated (at p. 84‑85) that

[14.] While the tax will generally apply to distributors of natural gas on their acquisitions of gas for resale to consumers, the purchase and sale arrangements in the industry take a variety of forms and various provisions will thus be necessary in the legislation to deal with them. Specifically:

i) In the case of marketable pipeline gas acquired by distributors for resale to consumers in Canada, the tax will be imposed upon distributors when they acquire gas and will be collected from them.

[Page 1062]

ii) In the case of sales of marketable pipeline gas by producers, pipeline companies or other gas brokers directly to consumers, the tax will be imposed on the consumer and collected by the seller on behalf of the government. This type of direct sale is often made to an industrial user.

iii) Sales of marketable pipeline gas outside Canada will be taxable in the hands of the person who exports the gas.

iv) Natural gas liquids, which are ethane, propane, and butanes, will be taxed when they are first removed, following production, from a gas processing or reprocessing plant. The operator of the plant will be required to collect the tax on behalf of the government. The tax will not apply to such liquids produced from oil.

The tax was first detailed in a Notice of Ways and Means Motion to amend the Excise Tax Act (2), tabled by the Minister of Finance in the House of Commons on November 12, 1980. This is the motion referred to in paragraph 1(j) of the reference, supra. It reads in part:

That it is expedient to introduce a measure to amend the Excise Tax Act to establish a natural gas and gas liquids tax, and to provide among other things:

1. That a tax be imposed, levied and collected,

(a) on each gigajoule of marketable pipeline gas received by a distributor, payable to the Minister of National Revenue, by the distributor, at the time when the gas is received;

(b) On each gigajoule of marketable pipeline gas, received by a consumer in Canada from a gas producer, broker or anyone for or on behalf of the gas producer or broker, payable to the Minister of National Revenue by the consumer at the time when the gas is received…

…

3. That the tax imposed by the said measure be binding on Her Majesty in right of Canada and in right of any province.

5. That where any marketable pipeline gas, in respect of which no tax has been paid under the said measure, is exported from Canada for use outside Canada, pursuant to a licence issued by the National Energy Board under Part VI of the National Energy Board Act, or pursuant

[Page 1063]

to any other authority under that Act, the exporter be deemed to be the distributor of the gas so exported and to have received that gas at the time it was exported by him. [Emphasis added]

It will be noted that it was initially proposed that the tax be imposed directly on the marketable pipeline gas.

On November 12, 1980 the Lieutenant Governor in Council of Alberta launched the present reference.

The Motion to which we have referred was apparently superseded by a later Notice of Ways and Means Motion, referred to as “Excise Tax Motion (No. 2)” in Bill C-57, tabled in the House of Commons on January 22, 1981.

VI

Bill C-57—An Act to amend the Excise Tax Act and the Excise Act and to provide for a revenue tax in respect of petroleum and gas

On January 26, 1981, Bill C-57 received first reading. Part II of the Bill is entitled “Excise Tax Act”. The explanatory material states that:

The amendments to the Excise Tax Act proposed in this Part would implement the Ways and Means Motion (No. 2) relating to that Act tabled by the Minister of Finance on January 22, 1981 (hereinafter referred to as the “Excise Tax Motion (No. 2)”).

Section 43 of Part II would add after Part IV of the Excise Tax Act a new Part IV.1 entitled “Natural Gas and Gas Liquids Tax”. Section 25.11 of the new Part states:

25.11 The purpose of this Part is to provide legislative authority for the imposition of a natural gas and gas liquids tax as an essential and integral element of the national oil and gas policy as expounded in the National Energy Program.

The provisions of the new Part are designed to ensure that all gas produced in Canada will be

[Page 1064]

subject to tax. Section 25.13 is the charging section:

25.13 (1) There shall be imposed, levied and collected on the receipt of marketable pipeline gas by a distributor in Canada a tax at the rate specified in subsection (5).

(2) There shall be imposed, levied and collected on the receipt of marketable pipeline gas by a consumer in Canada from a gas producer or a broker, or from any person acting for or on behalf of a gas producer or a broker, a tax at the rate specified in subsection (5).

A “distributor” is defined generally in s. 25.1(1) as meaning a person who, in any year, carried on the business of selling marketable pipeline gas to consumers in Canada. No tax is imposed on the exportation of gas as such. The word “distributor”, however, is given an extended meaning by a deeming provision s. 25.1(2) which reads:

25.1…

(2) Where any marketable pipeline gas in respect of which no tax has been paid under this Part is exported from Canada for use outside Canada pursuant to a licence issued under Part VI of the National Energy Board Act or pursuant to any other authority under that Act, the exporter of that gas is, for the purposes of this Part, deemed to be the distributor of that gas and to have received that gas at the time he exports it.

The new Part has many other provisions but the only other one directly of interest in the present appeal is s. 25.12 which provides:

25.12 This Part binds Her Majesty in right of Canada or a province and every person acting for or on behalf of Her Majesty in right of Canada or a province.

It is the contention of the Attorney General of Canada that despite the fact that, (i) all Crown lands, mines and minerals in Alberta are owned by the province; (ii) the province produced its natural gas and transported the gas by pipeline for export

[Page 1065]

sale to a purchaser in the United States of America; and (iii) the province maintains sole ownership of the said natural gas until it is delivered to the American purchaser on the American side of the border, the province falls within the “deeming” provision of s. 25.1(2) and is therefore liable to tax.

VII

Section 125 of The British North America Act

A

Clement, The Law of the Canadian Constitution (3rd ed., 1916), at p. 643 considered s. 125 of the B.N.A. Act unnecessary. “It was not intended,” he said, “to affect the general rule as to the exemption of Crown property from taxation as that rule is to be applied, for example, in England or in a colony under one legislature only. It was inserted by way of abundant caution to prevent the Dominion from levying taxes for federal purposes upon property held by the Crown for provincial purposes, and vice versa.”

Be that as it may, s. 125 is plainly intended to prevent inroads, by way of taxation, upon the property of one level of government, by another level of government.

It is apparent that the public domain was to be a principal source of revenue for the new provinces. The federal government had assumed the most costly obligations of government at the time, and had been granted a general power to raise “Money by any Mode or System of Taxation” (s. 91(3)). This taxing power, of course, included authority to levy duties of customs and excise which, in 1867, provided more than eighty per cent of the revenue of the British North American Colonies. By contrast, the provinces were limited to imposing “Direct Taxation within the Province in order to the raising of a Revenue for Provincial Purposes” (s. 92(2)) and licensing fees (s. 92(9)). These revenue sources were not expected to yield significant sums of money; indeed, the extreme unpopularity of direct taxes in this era of “laissez-faire” political theory created the assumption that

[Page 1066]

the provinces would levy taxes only as a last resort (LaForest, The Allocation of Taxing Power under the Canadian Constitution, Canadian Tax Paper No. 65, (2nd ed., 1981), at pp. 2-3). Provincial revenues were to be derived, not from s. 92 powers, but from the assets allocated to the provinces in Part VIII of the B.N.A. Act.

Section 118 (now repealed and superseded by the B.N.A. Act, 1907) provided for annual subsidies to be paid by the Dominion to the provinces, while the balance of provincial revenue requirements would largely be met through the exploitation and development of the public domain. These sentiments are expressed by Galt in the Confederation Debates (1865) at p. 68:

We may, however, place just confidence in the development of our resources, and repose in the belief that we shall find in our territorial domain, our valuable mines and our fertile lands, additional sources of revenue far beyond the requirements of the public service.

Neither the federal government nor the provincial governments alone have the authority unilaterally to alter the terms of the division of assets effected in Part VIII. As Duff J. observed in the Water-Powers case, supra, at p. 212, with reference to Part VIII of the B.N.A. Act including s. 125:

The effect of the decisions seems to be, that neither the Dominion nor a province can take possession of a source of revenue which has been assigned to the other, and as a source of revenue, appropriate it to itself, nor, as owner, transfer it to another.

Faced with the general constitutional taxing competence of the federal parliament under s. 91(3) of the Act it was important for the survival of the provinces and of Canadian federalism that this vital source of provincial revenue be protected from erosion through taxation. Section 125 thus gives legislative recognition to that constitutional value. LaForest states, referring to s. 125, at p. 182:

[Page 1067]

This section appears to have been enacted to ensure that the legislative powers of taxation were not used to interfere with the control the British North America Act has given the federal and provincial governments over their property.

The immunity conferred by s. 125 must override the express powers of taxation contained in ss. 91(3) and 92(2). The legislative powers conferred by Part VI (ss. 91 to 95) must be regarded as qualified by provisions elsewhere in the Act. Otherwise those other provisions are meaningless. The courts have consistently proceeded on the basis that s. 91 and s. 92 powers are so qualified even where the legislative power is fortified by a non obstante clause. The Johnny Walker case, to which much attention was paid during argument, is a good example. All courts proceeded on the basis that s. 125 would, in appropriate circumstances, limit Parliament’s legislative powers under s. 91. The overriding nature of s. 125 and, indeed, of the whole of Part VIII, was endorsed by Duff J. in the Water-Powers case, supra. “There is nothing more clearly settled,” Duff wrote at p. 216, “than the proposition that in construing section 91, its provisions must be read in light of the enactments of section 92, and of the other sections of the Act, and that where necessary, the prima facie scope of the language may be modified to give effect to the Act as a whole.” After referring to the division of assets in Part VIII and the express limitation on the power of taxation expressed in s. 125, Duff J. concluded at p. 217: “…it cannot be maintained that it is competent to the Dominion in exercise of… [section 91] powers to legislate in disregard of the provisions of sections 102‑126.”

Section 125 raised to the rank of constitutional guarantee the immunity of provincial property from taxation. Section 125 is an exception to the general constitutional competence of the federal Parliament in the matter of taxation based on s. 91(3) and in this manner the section renders inapplicable to the property of the provinces federal fiscal legislation enacted pursuant to s. 91(3).

[Page 1068]

B

While s. 125 restricts the federal taxing power, it does not limit the exercise of the other heads of power found in s. 91. Provincial Crown lands are not immune from the operation of Dominion laws made in exercise of competent authority affecting the use of such property. This proposition flows from the doctrine that laws “in relation to” a federal head of power may “affect” provincial jurisdiction or property.

Federal legislation which is in form taxation may yet be binding on a province if it is in substance and primarily enacted under another head of power. This was recognized in the Johnny Walker case. A majority of the judges in this Court (and the Privy Council [1924] A.C. 222) held that customs duties and other duties imposed by the Dominion of Canada could be levied upon alcoholic liquors imported by the Government of British Columbia for the purpose of sale, notwithstanding s. 125 of the B.N.A. Act. The rather brief judgment of Lord Buckmaster in the Judicial Committee refers to the legislative authority of Parliament with respect to both regulation of trade and commerce and the raising of money by any mode or system of taxation. The judgment is not entirely free of ambiguity. Lord Buckmaster said, at p. 225

The imposition of customs duties upon goods imported into any country may have many objects; it may be designed to raise revenue or to regulate trade and commerce by protecting native industries, or it may have the two-fold purpose of attempting to secure both ends; in either case it is a power reserved to the Dominion. It has not indeed been denied that such a general power does exist, but it is said that a breach is created in the tariff wall, which the Dominion has the power to erect, by s. 125, which enables goods of the Province or the Dominion to pass through, unaffected by the duties. But s. 125 cannot, in their Lordships’ opinion, be so regarded. It is to be found in a series of sections which, beginning with s. 102, distribute as between the Dominion and the Province certain distinct classes of property, and confer control upon the Province with regard to the part allocated to them. But this does not exclude the operation of Dominion laws made in exercise of the authority

[Page 1069]

conferred by s. 91. The Dominion have [sic] the power to regulate trade and commerce throughout the Dominion, and, to the extent to which this power applies, there is no partiality in its operation. Sect. 125 must, therefore, be so considered as to prevent the paramount purpose thus declared from being defeated. [Emphasis added.]

Although the matter is equivocal we think the better view is that customs duties on imported goods were viewed by their Lordships as primarily supportable under Parliament’s constitutional authority to regulate trade and commerce. The fiscal immunity of the provincial Crown could not prevail with respect to federal legislation founded upon a head of constitutional competence other than s. 91(3). In this Court, Duff J. had said, at p. 382:

The importance of the customs duties as an instrument for the regulation of external trade is too obvious to require comment…

I have no difficulty in point of legal construction in holding that this authority is given by sec. 91(2), that is to say that the authority to levy customs duties for trade purposes is embraced in the authority thereby conferred, “the regulation of trade and commerce”… The language used for defining the authority of the Dominion on the subject of taxation—the “raising of money by any mode or system of taxation”—seems to distinguish between taxation for trade purposes and taxation for the purpose of raising money. Since the imposition of customs duties (as being indirect taxation) is excluded from the provincial jurisdiction, the words of the last mentioned heading suggest that such duties except where imposed primarily at all events for purposes of revenue are treated as falling within the “ambit” of the power given to the Dominion in relation to “Trade and Commerce”.

Many references can be made to the judgments on this point, but suffice it to refer to the argument of counsel on behalf of the Federal Government at p. 223 of the Privy Council decision wherein it was stated:

The imposition of duties upon goods imported into Canada is not “taxation” within the meaning of s. 125, but falls within “the regulation of trade and commerce” (head 2 of s. 91);

[Page 1070]

Vide also the judgment of this Court (1922), 64 S.C.R. 377, at p. 385.

We agree with Professor Hogg who, referring to s. 125, states at p. 413:

This provides an intergovernmental immunity from taxation, but only from taxation upon “lands or property belonging to Canada or any province”. The section was held inapplicable in the Johnny Walker case, apparently because the Privy Council held that the customs duties were designed to regulate trade and commerce as well as to raise revenue. Since most taxes are levied with a view to their effects on the economy as well as their revenue yield, this reasoning seems unsatisfactory. However, if their lordships were regarding the customs legislation as primarily regulatory, then it is easier to understand not only why s. 125 did not apply, but also why the federal Parliament was held competent to tax the province.

LaForest, ibid. at p. 183, speaking of the Johnny Walker case, states: “section 125 was not meant to interfere with legislative authority other than the taxing power”.

The essential question here is no different than in any other constitutional case: What is the “pith and substance” of the relevant legislation. If the primary purpose is the raising of revenue for general federal purposes then the legislation falls under s. 91(3) and the limitation in s. 125 is engaged. If, on the other hand, the federal government imposes a levy primarily for regulatory purposes, or as necessarily incidental to a broader regulatory scheme, such as the “adjustment levies” considered in Reference respecting the Agricultural Products Marketing Act, R.S.C. 1970, s. A-7 et al., [1978] 2 S.C.R. 1198 or the unemployment insurance premiums in Attorney-General for Canada v. Attorney-General for Ontario, [1937] A.C. 355, then the levy is not in pith and substance “taxation” and s. 125 does not apply.

[Page 1071]

VIII

Characterizing the proposed legislation

The first submission of the Attorney General of Canada is that the proposed tax is an export tax, analogous to the customs duties considered in the Johnny Walker case, and thus binding on the province. He argues that the tax is a tax on the export of natural gas from Canada, that a tax on export is a duty in the nature of a customs duty, and that a customs duty is not a tax on lands or property as those words are used in s. 125 of the B.N.A. Act. Accompanying this submission is the argument that the measure is supportable as being in relation to international trade. These arguments are allied since they can both be reduced to the assertion that the measure is not “taxation” and thus is not limited by s. 125.

In our view there is little, if anything, in the language of Bill C-57 to support the contention that the proposed tax is valid as being an export tax. The tax is not levied exclusively on exported gas. It is levied without differentiation, as to the rate of tax or otherwise, between exported gas and gas that is not exported. Section 25.1(2) does not, in terms, purport to impose a tax on gas that is exported from Canada. The proposed tax applies to the “receipt” of all marketable pipeline gas produced in Canada. It is the deemed receipt, and not export, that triggers liability.

It will be noted that in the Notice of Ways and Means Motion of October 28, 1980, the tax was described as one to be imposed directly on marketable pipeline “gas”, whereas in Bill C-57, the tax is described as falling on the “receipt” of gas. The change in drafting might well be seen as a colourable attempt to legislate in a prohibited area under the guise of legislating in a permitted area.

In order to bring an exporter even within the ambit of the charging provisions the draftsman has had to give a contorted meaning to the word “distributor”. By reason of the definition of “dis-

[Page 1072]

tributor” in s. 25.1(1) and the “deeming” provision in s. 25.1(2) the Province of Alberta is deemed to be a “person who… carries on the business of selling marketable pipeline gas to consumers in Canada”, a patent legislative fiction.

It will be observed that the deeming provision only comes into play when no tax has previously been paid on the marketable pipeline gas that is exported. Thus, if marketable pipeline gas is first received by a distributor, so that the tax then becomes payable under s. 25.13(1), and if that gas is subsequently exported by that distributor, no further tax becomes payable as a consequence of export. In short, the act of export per se is irrelevant in terms of tax liability.

As the Attorney General of Saskatchewan submits, the deeming provision s. 25.1(2) is at the most an anti-avoidance device. It is a mechanism to ensure that tax will be paid by some person within Canada in the limited circumstances of gas exported from Canada under the authority of the National Energy Board Act upon which no tax has theretofore been paid.

A tax on the transit of goods from inside to outside the country may be imposed for the purpose of raising money or for the purpose of regulating trade or both. Even if the tax is aimed at export, provincial property is protected under s. 125 unless the federal legislation is regulatory. Thus, if the levy here in question were regarded as aimed at exports it would be necessary also, for the appeal to succeed, to conclude that it not be “taxation” in the sense of the foregoing discussion. There is to the proposed tax no aspect of the regulation of trade and commerce that would support its imposition under head 2 of s. 91 of the B.N.A. Act. For the reasons which follow, Bill C-57 should be regarded, in our view, as purely and simply a taxing measure, imposed for revenue purposes.

[Page 1073]

A

The text of Bill C-57 contains no language to indicate that the tax is imposed as a regulatory device or to reduce or eliminate the export of natural gas. The tax is imposed in a uniform manner. It imposes a tax on all gas produced whether consumed outside or inside Alberta. It applies equally to distributors, local or national, to exporters, to consumers. It is recoverable from anyone who uses or sells natural gas.

It is urged upon this Court by counsel for the Attorney General of Canada that the statute finds its constitutional base in s. 91(2) (Trade and Commerce) of the B.N.A. Act, as well as s. 91(3) (Taxation by any Mode). The importance of the distinction between the one constitutional base and the other lies in the ultimate problem of discerning the relationship between the federal legislative powers under s. 91 and their exercise, and the presence in the Act of s. 125. As will be seen, there is nothing in Part IV.1 added to the Excise Tax Act, supra, by Bill C-57 which is any way regulates the flow of natural gas produced in Canada through interprovincial or international channels. It is not a conservation statute nor is it indeed a price regulating statute. It has nothing to do with the channels of industry into which the gas should be routed, as, for example, in replacement of electricity, coal or other sources of energy. In short, it is purely, as announced in the budget and The National Energy Program 1980 a revenue raising measure. Even in this aspect, the tax is in no way aimed, as the expression was used by all parties before this Court, at the export sector of the natural gas industry. The Act incidentally taxes exports, but only by the indirect device of a deeming process.

In cases considering tax measures, it may be difficult to find a single “pith and substance” of legislation. A fiscal instrument may be chosen precisely because it can kill two birds with one stone, regulating the industry while raising reve-

[Page 1074]

nue. The legislation may have, in the argot of the cases, a “double aspect”. A subject which in one aspect and for one purpose may fall within one constitutional head of power may in another aspect and for other purposes fall within another head: see Hodge v. The Queen (1883), 9 App. Cas. 117 (P.C.) at p. 130. This is perhaps just another way of saying that a measure is supportable under two different heads of power. In most cases, it is enough to place a matter within either s. 91 or s. 92. The concept of a “double aspect” therefore finds currency in cases dealing with a federal power on one hand, and a provincial power on the other; see for example cases on highway traffic offences: O’Grady v. Sparling, [1960] S.C.R. 804; Mann v. The Queen, [1966] S.C.R. 238. It is seldom necessary to assign a particular head of power if a matter clearly falls within several heads of s. 91 or s. 92. In the present case, however, a specific assignment is necessary. This is because s. 125 is by its terms addressed only to s. 91(3), the power of taxation. It does not attenuate federal power to legislate under other heads in s. 91, such as “trade and commerce”.

Such an analysis will not save a tax which is in pith and substance only a revenue-raising mechanism, but which may exhibit ancillary regulatory characteristics. This leads one to consider the intended or anticipated effect of the proposed tax, its place in The National Energy Program 1980 and how it relates to other federal legislation affecting the natural gas industry.

The Shorter Oxford English Dictionary, 3rd ed., (1944 revised with corrections 1973) defines “to regulate” as “To control, govern, or direct by rule or regulations; to subject to guidance or restrictions… To adjust, in respect of time, quantity, etc., with reference to some standard or purpose”. In relation to “regulation of trade and commerce”, this definition and common sense would suggest a restraint upon or channelling of economic behaviour in pursuit of policy goals. The

[Page 1075]

proposed tax in this case, when viewed in light of other legislation touching the natural gas industry, has no such regulatory effect on behaviour. By its very comprehensiveness, the tax belies any purpose of modifying or directing the allocation of gas to particular markets. Nor does the tax purport to regulate who distributes gas, how the distribution may occur, or where the transactions may occur.

It might be said that in a free market, a general tax touching all natural gas would either lead to an increase in the price charged for gas, or if that is impossible a shifting of money and effort out of a less profitable natural gas production industry into other industries. In a word, either the consumption or production of natural gas could be discouraged. There could be valid policy reasons for such discouragement, and excise taxes have often been justified on bases apart from revenue generation: see Broadway and Kitchen, Canadian Tax Policy, Canadian Tax Paper No. 63, (1980) at pp. 201 ff. The application of differential rates of taxation, for example, might reveal a regulatory or directive purpose. Yet in the present case, no such purpose or justification is advanced. Nor has the federal government expressed any desire to create disincentives to gas production or distribution. The proposed tax was not argued to be a conservation measure.

The quantity, movement and price of natural gas are carefully regulated under the present legislation and remain unaffected by the tax. The Petroleum Administration Act, S.C. 1974‑75‑76, c. 47, and the National Energy Board Act, R.S.C. 1970, c. N-6, together provide a complete scheme for the regulation of the export of natural gas. The volume of gas authorized for export as well as its price are established by orders pursuant to those Acts. The National Energy Program 1980 notes that trade in the major forms of energy has been closely regulated by federal agencies for many years (No.1). The effect of the tax is to reduce the

[Page 1076]

revenue or “net backs” received by producers or marketers of natural gas.

B

In our view, it assists to examine in more detail other legislation bearing on the taxation and regulation of the natural gas industry by the Government of Canada. That Government determines the volume of natural gas to be exported from the country as well as the price at which such exported gas shall be sold: National Energy Board Act, supra, and National Energy Board Part VI Regulations, C.R.C. 1978, c. 1056. Under that legislation, and those regulations, the National Energy Board, acting in the national interest, regulates the disposition of natural gas when it enters the channels of interprovincial and international trade. None of the sections of Bill C-57 appears to have any relationship with the operation of the National Energy Board Act, and the regulations thereunder, as they purport to regulate the gas production and marketing industry in Canada.

Parts III, IV, and VI of the National Energy Board Act, and related regulations should be noted. Part III is entitled “Certificates of Public Convenience and Necessity” and gives the Board near total control of the capital assets used in the transport of natural gas. An equivalent control over financial operations within the gas industry is provided in Part IV, entitled “Traffic, Tolls and Tariffs”. Regulation of the movement of gas is achieved by Part VI, “Exports and Imports”. Section 81 places a blanket prohibition on all gas export or import, subject to the Board’s relieving power. By s. 82, the Board is empowered to issue export and import licences. The terms and conditions of these licences are fleshed out by regulation: C.R.C. 1978, c. 1056, as amended. Under these regulations, the quantity of export and import is dictated by the Board (s. 12).

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Parallel regulation is provided in the Petroleum Administration Act, supra. Part III of that Act, entitled “Domestic Gas Price Restraint”, provides for the setting of a uniform price for all gas entering interprovincial or international trade. This is achieved by the various regulations found at C.R.C. 1978, chapters 1259 and 1261, and SOR/80-823.

When viewed in the context of this all-embracing scheme to control the natural gas industry, the present tax is clearly not a “regulatory tool” in itself. Every major aspect of the industry is already subject to licencing, prohibitions, orders and so on. On a plain reading of Bill C-57 it is manifest that the proposed tax adds nothing to the existing structure of regulation, save revenue. An argument may be made that the tax is ancillary to the omnibus scheme for use of natural gas in the economy but, in pith and substance, it remains “taxation” and not “regulation of trade and commerce”. The title to Bill C-57—“An Act to amend the Excise Tax Act and the Excise Act to provide for a revenue tax in respect of petroleum and gas”—confirms this characterization.

Although characterization must rest essentially upon the language of the proposed enactment and what can be drawn therefrom, we have, in this instance, the complementary and explanatory materials which have been alluded to earlier. Even the most cursory reading of The National Energy Program 1980 and in particular the passages quoted, leaves no doubt as to the thrust of the proposed new taxes. The language is clear, unambiguous, emphatic. Revenue sharing arrangements in Canada are “extraordinarily unfavourable to the national government” (No. 4); the “effort to support the economy has left the national government’s fiscal position badly weakened” (No. 5); one provincial government enjoys most of windfall, “upside” appreciation accruing from the increase in price of domestic petroleum (No. 6); the “Government of Canada must have a reasonable share of revenues from oil and gas production” (No. 6); the national government must gain access to the funds it needs (No. 8); the Program “will create a

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framework for more balanced revenue sharing between the producing provinces… and the Government of Canada, which has a national claim… to a share of the industry’s revenues” (No. 9); “Another source of revenue is needed. The Government of Canada will, therefore, impose a new natural gas and gas liquids tax” (No. 13).

The National Energy Program 1980 deplores the absence of any “legislatively-defined arrangements under this Act [the British North America Act] for the sharing of revenue arising from the exploitation of natural resources, including petroleum” (No. 3). It is this very absence that in our view renders the proposed tax invalid in respect of provincially-owned natural gas.

C

Section 125 provides, in broad terms, that no lands or property of the federal or provincial Crown shall be “liable to taxation”. The purpose of this immunity, as we have seen, is to prevent one level of government from appropriating to its own use the property of the other, or the fruits of that property. This immunity would be illusory if it applied only to taxes “on property” but not to a tax on the Crown in respect of a transaction affecting its property or on the transaction itself. The immunity would be illusory since, by the simple device of framing a tax as “in personam” rather than “in rem” one level of government could with impunity tax away the fruits of property owned by the other. The fundamental constitutional protection framed by s. 125 cannot depend on subtle nuances of form.

In the present case the subject matter of the tax is the property of the provincial Crown, whether one speaks in terms of taxing property or taxing the Crown in respect of property or taxing a transaction relative to Crown property. If the

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exemption protects the “gas”, the “receipt” of the gas does not fall outside the exemption. Of course, as Lord Reid observed in Bennett & White (Calgary) Ld. v. Municipal District of Sugar City No. 5, [1951] A.C. 786, at p. 817 “no tax literally falls on ‘property’ only as opposed to ‘persons’”. All taxes are physically paid by persons. The substance of the matter is an attempt to exact a tax from the provincial Crown in respect of its property. That property is being made “liable to taxation” within the meaning of s. 125. See Attorney-General for Saskatchewan v. Canadian Pacific Railway Company, et al., [1953] A.C. 594, in which Viscount Simon quoted at p. 616, with approval, what had been said in this Court by Kellock J.:

Their Lordships agree with the view of the majority of the Supreme Court that in the present instance the tax in question is imposed upon the owner of things which he is using in his business. As Kellock J. observed: “It would be an extraordinary result if the proper interpretation of this exemption were to be said to be that while taxes imposed upon the owner in respect of his ownership of these things fall within the exemption, nevertheless taxes imposed upon the owner in respect of his use of the same items do not.”

In Abel, Laskin’s Canadian Constitutional Law, 4th ed. revised, (1975), at p. 742, it is said:

Section 125 in terms deals only with taxes charged on lands or property and not with “personal” taxes. But, it probably also covers taxation on the Crown in right of the Dominion or of a province in respect of lands or property in which the Crown has an interest. In other words, it ought reasonably to be construed as giving immunity from a tax charged on Crown property or on the Crown itself in respect of its interest in such property.

The Attorney General of Canada argues that the Province of Alberta voluntarily entered into the business of searching for and producing natural gas; tax is payable by the Province as a result of having embarked on a commercial activity as an ordinary trader. In the Court below the Attorney

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General of Canada conceded that while in situ natural gas belonging to the province is protected from taxation. His argument therefore amounts to this. So long as the gas remains in the ground it is free of tax but as soon as the Crown seeks to realize on the asset in the public interest, the federal Parliament may tax at will the proceeds of the disposition of the resource. We do not think s. 125 is to be so interpreted, nor the protection of the section so readily lost.

Counsel for the Attorney General of Canada cited United States authorities concerning the taxation by the United States federal government of certain “undertakings” by state governments (New York v. United States (1945), 326 U.S. 572). The exemption of the state from federal taxation in that country comes not as a result of an express constitutional provision analogous to s. 125 but rather was brought about by judicial decision interpreting constitutional relations at large. These decisions are, of course, wholly inapplicable here and simply serve to show how much stronger is the provincial position in the constitutional issue before us founded, as the provincial exemption is, upon an express constitutional provision, s. 125.

The allocation in 1930, by agreement and constitutional amendment, of property to the Crown in the right of the Province of Alberta necessarily carries with it the right of the province to the proceeds of disposition—in the words of Duff J. to “enjoy the fruits of that property”. The resources were intended to be an important source of revenue, indeed the basis of the provincial financial integrity, and therefore must be capable of realization. Some activity must accompany any disposal. The immunity is not lost merely because the Province of Alberta was engaged in the simple removal and transportation of natural gas in its natural unprocessed state. Water and certain impurities were removed somewhere between the wellhead and the international boundary. It is clear that the natural gas was not processed or combined in any way with any other material. At the border the gas

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was delivered to the United States buyer. It can hardly be said that the Province was in the ‘business’ of processing natural gas. It was simply selling its property in its natural and deliverable state and to which property the Province undoubtedly has the sole and absolute title.

Conclusion

It is important to recognize and indeed to emphasize that we are here dealing with the taxation of natural gas, or were we to accept the Attorney General for Canada’s characterization, the taxation of either the movement of natural gas or a transaction involving a specific resource, i.e. natural gas. Irrespective of the characterization given, the title to the natural gas is clearly in the Province. We are not concerned with the taxation or regulation of the provision of a service by a province or with the conduct by a province of business which incidentally concerns the consumption of a resource property. Considerations which might concern a court in any or all of these other matters are of no application in the application of s.125 to legislation in the form of the proposed Part IV.1 of the Excise Tax Act, supra.

The two questions posed in the Reference do not lend themselves to individual affirmative or negative answers but rather must be answered in substance:

1. Bill C-57 is not an exercise of the trade and commerce function under s. 91(2) by the Parliament of Canada; it is in pith and substance taxation.

2. Section 91(3) must be subordinated to the express provisions of s. 125;

3. The British North America Act, 1930, places the ownership position of the Province of Alberta not lower than that enjoyed by the original provinces under s. 109 and therefore, where s. 125 is applicable, the province is fully entitled to the benefits of its protection;

4. Therefore, s. 25.13(1) is ultra vires with respect to the interests of the Province of Alber-

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ta as the owner, and deemed distributor under s. 25.1(2), of the gas in question.

Appeal dismissed, LASKIN C.J. and MCINTYRE and LAMER JJ. dissenting.

Solicitor for the appellant: Roger Tassé, Ottawa.

Solicitor for the Attorney General of Alberta: W. Henkel, Edmonton.

Solicitor for the Independent Petroleum Association of Canada: J.M. Robertson (Fenerty, Robertson, Fraser & Hatch), Calgary.