Section 125 of the Constitution Act, 1867

Section 125 of the Constitution Act, 1867 provides that:

This affects the taxation powers of both levels of government, and has received a broad interpretation in the Canadian courts.

Nature of the taxation power in Canada

Since the 1930 Supreme Court of Canada ruling in Lawson v. Interior Tree Fruit and Vegetables Committee of Direction, taxation is held to consist of the following characteristics:[1]

  • it is enforceable by law;
  • imposed under the authority of the legislature;
  • levied by a public body; and
  • intended for a public purpose.

In addition, the 1999 SCC ruling in Westbank First Nation v. British Columbia Hydro and Power Authority has also declared that a government levy would be in pith and substance a tax if it was "unconnected to any form of a regulatory scheme."[2] The test for a regulatory fee set out in Westbank requires:

  • a complete, complex and detailed code of regulation;
  • a regulatory purpose which seeks to affect some behaviour;
  • the presence of actual or properly estimated costs of the regulation; and
  • a relationship between the person being regulated and the regulation, where the person being regulated either benefits from, or causes the need for, the regulation.[3]

This is important to note, as taxation is barred under s. 121, but regulatory fees are not, and Canadian jurisprudence under s. 125 has turned on that distinction.

Interpretation in the Canadian courts

The nature of s. 125 has been described as thus:

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.[4]

Therefore, its prohibition covers taxation on the holding, as well as the acquisition and disposal, of property. In addition:

  • the provision also extends to property held by Crown corporations,[5] and
  • the prohibition on levying such taxation also extends to local governments levying taxes on federal property, as well as to First nations levying taxes on provincial property, [6] although measures have been taken to mitigate the impact[7]

However, provinces must collect and remit sales taxes on any commercial sales they make, since the obligation when it acts as supplier does not amount to a taxation of the province's property.[8]

In addition, provincial authorities must still pay customs duties, because such charges are not strictly based on the taxation power. As noted in the Johnnie Walker case:

Customs duties are, no doubt, in at least one aspect "taxation" within the meaning of that term as ordinarily used and, I think, as used in the B.N.A. Act, s. 91 (3). They are a mode or system of taxation for the raising of money and are a typical form of indirect tax. But they are, it seems to me, something more—they are tolls levied at the border as a condition of permission to import goods into the country being granted by the governmental authority clothed with jurisdiction either entirely to prohibit their entry, or to prescribe conditions on which such entry may be effected. In legislating for such prohibition or for permission to enter conditional upon payment of certain duties, Parliament is exercising its authority for "the regulation of trade and commerce", as well as its right to provide for "the raising of money by any mode or system of taxation". In their aspect as tolls imposed in exercise of the power to regulate trade and commerce customs duties are not "taxation".[9]

Because of that, as noted in Re Exported Natural Gas Tax:

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, ... then the levy is not in pith and substance “taxation” and s. 125 does not apply.[10]



The Attorney-General of the Province of British Columbia v. The Attorney-General for Canada ("the Johnnie Walker case"), [1922] 64 SCR 377 (SCC). Full text of Supreme Court of Canada decision at LexUM
Lawson v. Interior Tree Fruit and Vegetables Committee of Direction, [1931] SCR 357 (SCC). 1930 CanLII 2 (SCC) Full text of Supreme Court of Canada decision at LexUM and CanLII
Re: Exported Natural Gas Tax, [1982] 1 SCR 1004 (SCC). 1982 CanLII 189 (SCC) Full text of Supreme Court of Canada decision at LexUM and CanLII
Reference re Goods and Services Tax, [1992] 2 SCR 445 (SCC). 1992 CanLII 69 (SCC); 94 DLR (4th) 51; [1992] 4 WWR 673; 2 Alta LR (3d) 289 Full text of Supreme Court of Canada decision at LexUM and CanLII
Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 SCR 134 (SCC). 1999 CanLII 655 (SCC); 176 DLR (4th) 276; [1999] 9 WWR 517; 67 BCLR (3d) 1 Full text of Supreme Court of Canada decision at LexUM and CanLII
Michael D. Donison (April 2009). "Knee-Capping the Competition: The Tax Exempt Status of Crown Corporations in Canada" (PDF). Frontier Centre for Public Policy. Retrieved 7 September 2012.
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