1. The Plaintiff corporation is incorporated under the laws of Alberta and is liable to pay taxes under the Income Tax Act of Canada.

2. The Plaintiff has instituted these proceedings before this Honourable Court seeking a declaration that the Income Tax Act is ultra vires the Parliament of Canada as it constitutes direct taxation within a province to raise revenue for provincial purposes, a matter which the Plaintiff says is within the exclusive legislative jurisdiction of the provinces by reason of Head 2 of Section 92 of the Constitution Act, 1867.

3. The Plaintiff says that the direct taxation revenues or a portion thereof raised under the Income Tax Act fund programs established and administered under the following statutes:

4. The Plaintiff further seeks a declaration that the Canada Health Act, the EPF Act and the Canada Assistance Plan Act are ultra vires the Parliament of Canada.

5. In support of its claim, the Plaintiff says:

6. The Defendant’s answer to the Plaintiff’s claim may be summarized as follows:

7. In addition, the Defendant says:

8. The Defendant, the Attorney General of Canada also says that, insofar as the Plaintiff challenges the vires of the Canada Assistance Plan, the Canada Health Act, and the EPF Act it has no status or standing to impugn the said statutes or to seek the relief sought in relation to them.

9. In further answer to the allegations set forth in the Amended Statement of Claim, the Defendant says;

10. The Parliament of Canada has made provision for the payment to the provinces of contributions in respect of provincial health and post-secondary education programs as well as for welfare programs. These latter are made under the Canada Assistance Plan which is described separately below (paragraphs 28-36). The history of health and post-secondary education contributions and the education contributions and the current legislation for payment of such monies follows.

11. Since 1977, the applicable contributions statute has been the EPF Act, which is administered by the Department of Finance.

12. The Hospital Insurance and Diagnostic Services Act, S.C. 1957, c.28 provided for federal contributions in respect of insured provincial hospital services. Insured services as defined in Section 2(g) of the Act included in-patient and out-patient services to which residents of a province were entitled under provincial law such as accommodation and meals at public ward level, nursing, diagnostic procedures, drugs and like services provided in and by the hospital. Pursuant to Section 5 of the Act, the contributions were conditional inter alia upon the availability of the services on a uniform basis for all residents within the province.

13. Under the Hospital Insurance and Diagnostic Services Act, in a given year, the federal government made a contribution to the province of an amount equal to 25% of the cost of the insured services in the province, plus 25% of the national average per capita cost of these services multiplied by the population of the province. This meant that federal contributions to those provinces in which the per capita cost of hospital care was lower than the national average represented a higher proportion of total hospital care costs than in other provinces.

14. The Medical Care Act, S.C. 1966-67, c. 64, established a mechanism for federal contributions towards the cost of required medical services rendered by medical practitioners under provincial medical care insurance plans. The basic conditions for eligibility for contributions as set out in Section 4(1), were that provincial plans provide for:

15. The Canada Health Act, S.C. 1983-84, c. 6 repealed the Hospital Insurance and Diagnostic Services Act and the Medical Care Act. The purpose of the Act is to establish the criteria and conditions that must be met before full payment may be made under the EPF Act for insured health care services provided under provincial law. It defines “insured health services” to include hospital services, physician services and eligible surgical-dental services provided to insured persons. The criteria established by Sections 7 through 12 of the Canada Health Act to qualify for contributions are that provincial plans provide for public administration, comprehensive coverage, universality, portability and accessibility. Under Section 13 of the Canada Health Act a condition for receipt of contributions is the supply of information as may be requested by the Minister of National Health and Welfare relative to the carrying out of Canada’s international obligations, to the planning and achieving of national standards and to the exchanging of mutually useful information on health care. Sections 18-21 of the Canada Health Act deal with extra billing and user charges.

16. Pursuant to Section 27(8) of the EPF Act, additional federal contributions are made in respect of extended health care services which consist of intermediate nursing home care, adult residential care, home care and ambulatory health care services. These services are described in paragraph 27, post.

17. The federal government began making direct payments to the provinces for post-secondary education in 1967 pursuant to the Federal-Provincial Fiscal Arrangements Act, S.C. 1967-68, c. 89. This Act authorized the Secretary of State to make payments equal to 50% of the eligible operating expenditures of post-secondary educational institutions based on audited statements of the institutions or, at the option of the province, $15 per capita of provincial population. The $15 per capita grant was escalated annually by the growth in the eligible operating expenditures of all institutions.

18. Before 1977 federal contributions to provincial schemes for hospital insurance, medical care and post-secondary education were made under the Hospital Insurance and Diagnostic Services Act, the Medical Care Act and the Federal-Provincial Fiscal Arrangements Act. The provisions for contributions for health care and post-secondary education are now brought together in the EPF Act. Before 1977, the contribution was dependant upon provincial expenditure. The EPF Act changed the calculation of the contributions to the programs from a cost-shared basis to a base year amount with annual escalation, which system is referred to as “block funding”. Under this system the contributions are not tied to the costs of these programs to the provinces. The EPF Act arrangements also provide for equal per capital contributions to the provinces.

19. The EPF Act came into effect on April 1, 1977 and was amended on April 7, 1982 and on June 7, 1984. The Act provides for transfers to provinces based on a block funding formula. The total federal contribution to a province under the block funding formula for a given year is the product of the national average per capita federal contribution towards program costs in a base year (1975-76) escalated each subsequent year by a moving average of the rate of growth of the Canadian economy per capita and multiplied by the provincial population.

20. By virtue of the amendments to the EPF Act in June 1984, the federal post-secondary education contribution for the fiscal years 1984 and 1985 was made subject to specific growth rates of 6 and 5%.

21. Federal EPF Act contributions to the provinces for health care and post-secondary education consist of tax transfers and cash payments. Tax transfers involve a reduction in the rate of federal income tax so that a province can raise its taxes a corresponding amount without changing the total tax burden of its residents. This making available of tax room is considered a federal contribution to a province (See Schedule “A”).

22. One tax point is 1% of Basic Federal Income Tax (personal income tax) or 1% of Federal Corporate Taxable Income under the Income Tax Act as the case may be, the federal tax point transfer for the “established” programs of hospital insurance, medical care and post-secondary education is 13.5 personal income tax points and 1 corporate tax point, plus the associated equalization, and an additional 8.5% personal income tax abatement for Quebec taxpayers. The values of the tax points together with the associated equalization is estimated and deducted from the total EPF entitlements. The difference is paid in the form of cash out of the Consolidated Revenue Fund.

23. The 13.5 personal income tax points transferred in 1977 was comprised of 4.357 points that had previously been transferred under Post-Secondary Education arrangements and the additional transfer of 9.143 points implemented by the EPF Act. The 9.143 point tax transfer was in respect of hospital insurance, medical care and post-secondary education. Since 1983, the value of the total transfer has been explicitly allocated by legislation between health (now insured health services) and post-secondary education with approximately 67.9% being allocated to the former and approximately 32.1% being allocated to the latter.

24. Cash payments made to the provinces in support of the programs to which contributions are made under the EPF legislation are equal to the difference between the total entitlement of the provinces under the applicable legislation and the value of federal revenue foregone as represented by the transfers of tax points. The payments are effected by cheques made out in the name of governments or officers and are paid into provincial accounts. Schedule “B” sets out a list of the payees of the cheques issued by the Federal Government under the EPF Act and the disposition of the amounts.

25. In the case of Quebec the cash payment, as a proportion of the total contribution is less than in the case of the other provinces for historical reasons. A federal offer in the mid-1960’s to the provinces to permit the “contracting out” of certain shared cost programs in exchange for tax room or cash payments was accepted by Quebec alone. The result of this “contracting out” was that more room was allowed for provincial taxation. Quebec’s entitlement to funding for the various programs continued to be calculated in the same way as the other provinces so that Quebec neither gained nor lost financially as a result of the “contracting out” arrangements.

26. This contracting out was effected by way of an abatement or reduction of the federal income tax payable by residents of Quebec. This abatement, which was authorized by the Income Tax Act, now consists of 16.5 tax points, comprised as follows; 8.5 points for established programs financing, 5 points for special welfare and 3 points for youth allowance programs. The EPF Act, Part VII provides for adjustments and recoveries of the abatements.

27. In addition to federal contributions in respect of the “established” programs, the EPF Act arrangements also provide for an equal per capita cash grant of $20 (1977-78) to the provinces for Extended Health Care Services programs. This cash grant is increased annually by the EPF Act escalator for insured health services. The basis of the established programs now funded under the EPF Act bear no relation to current provincial expenditures. (In 1984-85, total federal expenditures under EPF to all provinces totalled 14,699.3 (in millions of dollars).) The various provincial and federal expenditures are set out in Schedules “C” and “J”.

28. The Canada Assistance Plan, R.S.C. 1970, c.C-1 was enacted in 1966 as a comprehensive measure for providing a 50% federal cash contribution to the provincial, municipal and territorial costs of providing social assistance and welfare services. Save in the case of Quebec, where as described above part of the contribution takes the form of a tax abatement, the contribution is made by way of a cash payment. The objectives of the Canada Assistance Plan, as expressed in the preamble of the Act, are to support the provision of adequate assistance to persons in need and to encourage the development and extension of welfare services designed to help prevent and remove the causes of poverty, child neglect and dependence on public assistance.

29. Section 4 of the Canada Assistance Plan contemplates agreements whereby payments are made in circumstances where the statutory conditions are met. All provinces and territories have signed agreements under Part I of the Plan which provides for cost-sharing in two separate categories; assistance and welfare services. Attached as Schedule “D” to this Agreed Statement of Facts is a copy of the agreement between the Government of Canada and the Government of Alberta entered into under the Canada Assistance Plan in 1967, and all amendments to that agreement executed since 1974.

30. The Canada Assistance Plan is not tied to a base year contribution as provided under the EPF Act but pays 50% of the eligible costs incurred by provinces and territories in providing assistance to persons who are in need, regardless of the cause of need.

31. The assistance provisions give rise to the bulk of the federal contribution under the Canada Assistance Plan. The assistance provisions include general assistance, care in homes for special care, certain health care costs and most child welfare expenditures. The general assistance contribution is paid in respect of provincial payments for food, shelter, clothing, fuel and other basic requirements, prescribed welfare services and items of special need, such as tools or equipment essential to obtaining employment, and essential repairs or alterations to property.

32. The remaining contributions under Part I of the Canada Assistance Plan are in respect of certain provincial and territorial costs of providing welfare services and are at the rate of 50% of the eligible costs. Eligible welfare services include day-care, homemakers, counselling, rehabilitation (assessment, referral, counselling and job placement), community development services, research, consultation and evaluation, and administration costs relating to the delivery of assistance and welfare services programs. Welfare services are those provided by provincial social services departments or other provincially approved non-profit agencies and made available to persons who are in need or likely to become in need. Persons who benefit from welfare services include children who are in danger of abuse or neglect, or both, battered women, families and individuals in crisis, the aged and the mentally and physically disabled.

33. Under Part III of the Canada Assistance Plan, the federal government contributes to the province 50% of the costs incurred for work activity projects designed to assist people who experience unusual difficulty in obtaining or holding employment. Agreements under Part III have been signed by all provinces.

34. Payments in respect of contributions under the Blind Persons Act, R.S.C. 1970, c.B-7 and the Disabled Persons Act, R.S.C. 1970, c.D-6 are now provided under the Canada Assistance Plan. Those statutes, which established conditional payment schemes under federal-provincial agreements, the conditions being specified in section 7 of each Act, were repealed by the Miscellaneous Statutes Repeal Act, S.C. 1980-81-82-83, c.159, which was proclaimed December 1, 1983: Canada Gazette, Part III, Vol. 118, p. 389.

35. On a national basis, $2,844 billion was paid to the provinces and territories under the authority of the Canada Assistance Plan in 1982-83 and $3,288 billion was expended in 1983-84. In 1983-84, $326.0 million was paid to the Province of Alberta. Attached as Schedule “E” to this Agreed Statement of Facts is a summary of payments made to the provinces under the authority of the Canada Assistance Plan in the period 1977-84.

36. The Agreements under the Canada Assistance Plan are identical for all provinces and territories. The schedules to these Agreements, which list the institutions, provincially approved agencies and the provincial legislation which authorizes the programs vary from province to province.

37. The health care and social services system in Alberta is comprised of a number of health and social service programs which are provided by federal, provincial and municipal authorities as well as voluntary organizations. The majority of services fall under the jurisdiction of the provincial government’s Departments of Social Services and Community Health, and Hospitals and Medical Care.

38. The Department of Social Services and Community Health provides financial assistance to those in need, rehabilitation and support services, child welfare and community health programs. The Department is divided into the Health Services Division and the Social Services Division. The Health Services Division monitors the state of public health in the province and develops and supports programs and services which help achieve, maintain and restore good health and well-being to the people of the province. The activities of the Division include communicable disease control, maternal and child health, health inspection, dental services for children, nutrition, family planning and family life education, speech therapy and audiology, and home care. Community mental health services are provided by ten regional clinics which offer free assessment, treatment and referral to individuals and families experiencing emotional or mental problems.

39. The Social Services Division provides programs which develop maintain and promote the independence, of disabled and disadvantaged Albertans. Financial assistance programs provide for, among other things, health care for people in need (the aged, those physically and mentally handicapped), child welfare programs and offer services to handicapped children. Residential, child development and vocational programs for handicapped persons are provided by private agencies with provincial funds.

40. The Department of Hospitals and Medical Care administers the Alberta Health Care Insurance Plan and the Alberta Hospitalization Benefits Plan pays for all medically required services of medical practitioners and certain surgical-dental procedures undertaken by dental surgeons in hospitals. In addition, Alberta’s basic health services include services provided by dental surgeons in the field of oral surgery, optometric services, chiropractic services, pediatric services and appliances and physiotherapy services.

41. The Alberta Hospitalization Benefits Plan provides insured hospital benefits to eligible residents of Alberta (those covered by the Alberta Health Care Insurance Plan and not eligible under any statute of Canada, province or territory in Canada or Workers’ Compensation Board).

42. All ordinary residents of Alberta as defined in the Alberta Health Care Insurance Act are required to register with the Health Care Insurance plan and once registered are entitled to coverage for basic health services and hospital benefits. Unless exempted, all residents are required to pay premiums, (current rates: Single $14.00; Family 2 or more $28.00). However, non-payment of premiums does not render the resident and dependents ineligible for benefits. Health identification cards, which provide bona fide residents access to insured services are issued even if there are premium arrears and/or a refusal to pay on the part of the resident.

43. Residents are permitted to elect to be outside the Health Care Insurance Plan and the Hospitalization Benefits Plan as long as they and their dependents are registered under the Health Insurance Premiums Act, and they are not liable to the Minister of Health for Alberta for any premiums. Dependents may choose to remain in the plan. The practitioner may bill the provincial plan, the patient or both. The normal procedure is that the patient presents his/her health insurance card at the time of treatment and the practitioner will then submit a claim to the Alberta Health Care Insurance Plan for payment of services rendered. The physician receives payment directly from the plan. If the patient pays the practitioner directly, the practitioner either submits a claim on the patient’s behalf or provides the patient with sufficient information to submit a claim to the Plan themselves. Payment by the Plan is made directly to the patient.

44. Registered residents are eligible for benefits while temporarily absent from Alberta. For vacations, visits or business engagements, if a resident intends to resume full-time residence in Alberta, eligibility for coverage continues up to a maximum of 12 months. Fulltime students at accredited educational institutes, outside of the province, intending to return and resume full-time residence on completion of their studies are eligible for coverage. Also, those undergoing education or sabbatical leave, or certain missionary work, are eligible up to a maximum of 24 consecutive months.

45. The Plan pays medical claims, within and outside the country, up to the Alberta rate. Hospital inpatient and out-patient services received in another province are insured at the rate approved by the Plan in the province where the service is rendered unless the Minister has made another arrangement. Out-of-Canada in-patient and out-patient hospital claims are paid at the lesser of the rates prescribed by the Minister and the rates charged by the hospital or facility.

46. Residents who leave Alberta permanently for another province are entitled to continuous coverage from the day they cease to be residents of Alberta to the last day of the second month following the month of arrival in new province (one month extension for travelling up to twelve months coverage if hospitalized en route). Those leaving Canada permanently may be allowed to continue coverage, upon Ministerial determination, for a period beginning the day of departure until the end of the first, second or third month. All premium arrears plus premiums for the period of continuing coverage must be paid.

47. Persons moving permanently to Alberta from another province are covered effective the first day of the third month after the date they became residents in Alberta (must register before first day of fourth month following date of becoming resident).

48. Persons from outside Canada, who became residents of Alberta, are covered effective the date they became a resident of Alberta as long as registration occurs no later than three months after the date they became a resident. As well, first-day coverage is afforded to newborns, Canadian citizens establishing residency in Canada for the first time, and landed immigrants. The following persons and their dependents, whose ordinary place of residence is outside Canada, are deemed to be residents of Alberta; those under a work assignment, contract or arrangement, and who are registered with the Plan; full-time students at accredited educational institutes in Alberta.

49. Alberta’s medical practitioners are not required to opt-in or out of the Plan. If the practitioner intends to charge an extra amount that exceeds the Plan benefit, he/she must have an agreement with the patient to that effect before the services are rendered. The amount of extra-billing must be reported to the Plan. Physicians cannot ask a patient for an extra fee once they are admitted to hospital.

50. In general hospitals an admission fee of $10.00 is charged to residents (extensive list of exclusions). In auxiliary hospitals an accommodation charge for chronic care of $8/day is charged after 120 days. (The latter charge has been ruled exempt from deductions under Section 19(2) of the Canada Health Act. Therefore, the federal deductions for user charges in Alberta refer only to the admission fee - $1,827,000 July 1, 1984 to March 31, 1985). Although effective January 1, 1985 general hospitals were given the authority to charge for in-patient, out-patient and emergency services, the Alberta Hospital Association voted against the scheme and no charges have been implemented.

51. Hospital budgets are submitted to the Minister who determines the approved amount of operating costs applicable to a given hospital for a given fiscal period. Monthly operating payments are established by the Minister on the basis of the approved operating costs. Regulatory provisions allow the Minister to increase or decrease the monthly payments as required and also to make special payments to a hospital or a group of hospitals to cover extra-ordinary costs related to the operation of an approved program. Discretionary revenue derived from authorized charges, user charges and preferred accommodation is retained by hospitals and must be applied against hospital operating costs specified in the regulations.

52. The mechanisms by which the Government of Canada receives, disburses and accounts for monies under its control are provided for in the Financial Administration Act R.S.C. 1970, c.F-27, as amended. In order to understand how payments are made to provinces a review of the relevant mechanisms is made below.

53. The Consolidated Revenue Fund (CRF) is defined by section 2 of the Financial Administration Act, as:

54. “Public money” is also defined in section 2 of the Financial Administration Act as:

55. Section 15(1) of the Financial Administration Act provides that:

56. The Consolidated Revenue Fund is comprised essentially of budgetary (taxes) and non-budgetary (proceeds of loans) items together with other specific items such as special purpose monies. During the fiscal years 1973-74 to 1982-83 receipts accruing under the Income Tax Act comprised approximately 61% of all budgetary revenues. Attached as schedule “G” hereto is a breakdown of budgetary revenues in the fiscal years 1979-80 to 1983-84.

57. As well there are collected and held in the CRF sums on account of tax payable under the provincial income tax legislation such as the Alberta Income Tax Act. Amounts on account of such tax are paid out of the CRF regularly to the provinces subject to a year end adjustment in respect of actual provincial income tax assessments. Schedule “H” contains a copy of the tax collection agreement with Alberta and Schedule “I” shows the payments to the provinces under the tax collection agreements.

58. No payments may be made out of the CRF without the authority of Parliament: Financial Administration Act, s.19. Such authority is given by way of an appropriation, an annual or statutory authorization by Parliament to the Crown to spend specified or sometimes unspecified sums for particular purposes from the CRF.

59. Before incurring a financial obligation on behalf of Her Majesty the administrator of the service involved must certify that a sufficient unencumbered balance is available out of the relevant appropriation to discharge the obligation (s.25 of the Financial Administration Act).

60. In addition to the requirement of a certificate, no payment may be made until it has been certified that the work was performed or the goods or services were supplied and that the cost thereof is as stipulated in the contract or is reasonable where no cost was stipulated (s.27 of the Financial Administration Act).

61. Under Part VI of the Financial Administration Act (s.54 and 55) Parliament has made provision for recording receipts and expenditures in the Accounts of Canada and disclosing those receipts and expenditures in the Public Accounts. They have been placed under the control of the Receiver General who is responsible inter alia, to cause the accounts to be kept in such manner as to show:

62. The CRF is the aggregate of all public monies on deposit to the credit of the Receiver General which are maintained in numerous bank accounts throughout the world.

63. The Accounts of Canada, are, in essence, the general ledger or books of account of the Government of Canada. Within the accounts, various receipts and other credits, charges and payments are entered in accordance with instructions from Parliament or in accordance with the government’s accounting policies. There are separate accounts for each appropriation authorized by Parliament. However, while there are usually approximately 500 appropriations authorized by Parliament in each fiscal year, there are in practice over 4,000 accounts in the Accounts of Canada which serve to support the proper administration of the government’s financial affairs.

64. As well, there are accounts for special purpose monies (section 15 of the Financial Administration Act) referred to above and special accounts which Parliament has, from time to time directed be established.

65. Money payable to the Crown is paid to the Receiver General and placed in the CRF. Apart from special accounting measures in specific areas, it is indistinguishable from other money held by the Receiver General.

66. Money paid out by the Crown is in effect drawn on the CRF by the Receiver General. The financial institution which has honored the cheque on behalf of the Crown then presents it to the Bank of Canada which acts for the Receiver General in the cheque clearing system. The Bank of Canada pays the institution which has presented the cheque and the Receiver General (them simultaneously) issues a cheque to the Bank of Canada drawn on the funds held at the Bank of Canada to reimburse the Bank of Canada for the sums it has distributed to redeem the Receiver General payments. It is at this point that the Consolidated Revenue Fund is reduced by the amount of that payment.

67. Since payments made under the EPF Act are approved by Parliament, the funds need not be voted annually by Parliament. Likewise, under the Canada Assistance Plan, upon the authority of the Minister of National Health and Welfare, contributions or advances on account thereof may be paid out of the CRF to the Provincial Treasurer, without the requirement of any further annual appropriation by Parliament.

68. Payments made from the CRF to all of the provinces in respect of the major programs under the EPF Act-insured health services, post-secondary education, extended health care - together with the payments made under the Canada Assistance Plan may vary from year to year. In the current fiscal year it is estimated that such payments will total approximately 12% of the total budgetary expenditures from the CRF. Attached as Schedule “J” to this Agreed Statement of Facts are graphic representations of the amounts spent on other major programs.

69. The parties are agreed that the issues raised by the pleadings can be properly and expeditiously resolved by reference to an Agreed Statement of Facts supplemented by via-voce evidence. The parties hereby, by their respective solicitors, admit the facts set out in this Agreed Statement of Facts and the Schedules affixed hereto and consent to the disposition of these proceedings as if those facts had been established in evidence, subject to their relevance to the issues herein and their weight being determined by the Court.