In 1995, the Province of Nova Scotia introduced a new Environment Act, which provides for the use of economic instruments. The constitutionality of Section 16 of the Solid Waste-Resource Management Regulations, pursuant to the Act, was challenged by Cape Breton Beverages Ltd. and Burt Stonehouse.
Section 16 requires that distributors of beverages collect a ten-cent deposit on each beverage container sold to a retailer and that this amount be remitted to the Resource Recovery Fund Board (RRFB). The retailer, in turn, collects the deposit from the consumer at the time of sale. By delivering the empty container to a registered depot, the consumer is entitled to a refund of five cents on non-refillable containers and ten cents on refillable containers. The RRFB reimburses depot operators for the amounts refunded to consumers and retains the unrefunded portion of the deposit on non-refillable containers for the purpose of promoting recycling and environmental awareness.
The plaintiffs challenged the constitutionality of the deposit-refund system on the basis that it created an “indirect tax” and provinces are not allowed to create indirect taxes pursuant to the Constitution Act, 1867. As a result, the Nova Scotia Supreme Court was asked to determine whether collection of the deposit from wholesalers and distributors pursuant to the regulations is beyond the jurisdiction of the Nova Scotia government.
The court dismissed the claim, holding that the portion of the deposit retained by the RRFB is not a “tax,” but rather a charge that is ancillary to a valid regulatory scheme within provincial jurisdiction. The court held that the reason for creating the deposit-refund system was to provide an economic incentive for consumers to divert beverage containers from waste streams and promote reuse or recycling of such containers. Consumers were made aware of the system in a number of ways. In addition to consumers paying a deposit on beverage containers, retailers must display a notice regarding the deposit and reflect this amount on the cash receipt provided to consumers. Also, the words “Return for Refund” or words to that effect must be included on the beverage label. All of these methods serve to draw the attention of the consumer to the economic impact of the scheme.
The court also considered the purposes to which the deposits were put and the nexus between these purposes and the regulatory scheme. Deposits remitted to the board are part of the resource recovery and are used by the board to cover its costs in providing services to those whose consumer products are governed by the deposit-refund program. Monies remaining after administration of this system go to other waste diversion objectives of the fund, such as education and awareness.
The plaintiffs had acknowledged that the province had the constitutional competence to legislate with respect to environmental matters and to impose a deposit-refund system, such as the one established by the regulations. However, the plaintiffs disputed the manner in which the deposit is collected pursuant to the regulations. Specifically, the plaintiffs argued that the portion of the deposit retained by the RRFB is an indirect tax and that, for the scheme to be valid, the deposit must be collected directly from the consumer (i.e., by the retailer) then remitted to the board. The plaintiffs also argued that the deposit could not be considered a regulatory charge because the party paying the deposit (the retailer) would not be getting the benefit of it. Rather, the citizens of Nova Scotia were the beneficiaries of the scheme.
In response, the province argued that the deposit was not a tax, but rather a regulatory charge where the payor receives something in return. In this case, the consumer pays and reaps a benefit by the elimination of beverage containers from the waste chain, thereby removing containers from landfills and incinerators that cause environmental pollution.
The court held that in order to determine whether the charge was a regulatory charge, the overall purpose of the program had to be examined. The court found that the amount of the revenue raised by the scheme is not substantially in excess of the amount required to fund the scheme, so there would not be a significant surplus of revenue generated. However, any surplus would remain in the fund and not be used for ulterior purposes. The court held that the payor is the beneficiary of the scheme and that it is not an attempt at raising revenues for purposes other than the designated regulatory scheme.
The court concluded that the scheme was not a tax, but rather a regulatory charge for the purpose of raising revenue to fund a valid regulatory scheme within provincial legislative competence. If it was incorrect and the deposit-refund scheme should be treated as a tax, the court was satisfied that it was a direct tax and therefore valid.
The plaintiffs appealed the decision to the Nova Scotia Court of Appeal, which upheld the lower court’s decision that the deposit-refund scheme created by the regulations was a valid exercise of legislative power. Permission to appeal to the Supreme Court of Canada was denied earlier this year. The deposit-refund system survived a constitutional challenge and withstood intensive court scrutiny. This decision has implications for deposit-refund systems across Canada.
Written by Rosalind H. Cooper, of Fasken Campbell Godfrey in Toronto, Ontario.