Law Times

Page 4 December 3, 2012 Law Times • NEWS Hospital fundraising arm not exempt from city tax: court BY SHANNON KARI For Law Times T he fundraising arm of the Hospital for Sick Children has lost a legal challenge seeking to be exempt from municipal taxation under legislation in Ontario that applies to hospitals. In a ruling that could have implications for other hospital fundraising organizations in the province, the Divisional Court found that the Hospital for Sick Children Foundation doesn't qualify for an exemption under the provisions of the Assessment Act. The relationship between the two entities doesn't contain a "sufficient identity or patrimony" for the foundation to benefit from the hospital's exemption, the Divisional Court concluded in its decision issued Nov. 9 in The Hospital for Sick Children v. The Municipal Property Assessment Corp. The foundation operates on three floors of a building in downtown Toronto that is leased by the hospital. The application for a property tax exemption was based on the argument that the premises were "land used and occupied by a public hospital" under the Assessment Act. The court heard that in the past three years, the hospital received about 95 per cent of grants made by the foundation and that there's a specific funding commitment of $225 million over the next five years. The foundation doesn't pay rent, although it was responsible for common expenses related to the office space that were a total of $1.6 million in 2009 and 2010. The hospital and the foundation share a governance model, the Divisional Court was told. However, they're separate legal entities and the foundation is entitled to raise funds for other children's health-related activities. As well, if the foundation is dissolved, its remaining assets The Hospital for Sick Children lost its legal challenge related to property taxes last month. wouldn't be transferred to the hospital. The Municipal Property Assessment Corp., which opposed the application, argued that the level of independence enjoyed by the foundation means its property is distinct from the hospital's. "The foundation and HSC do not share a patrimony. The foundation and HSC are independent organizations with separate governance, separate accounting, and different objects and purposes," said Donald Mitchell, the lawyer retained by MPAC, in written arguments. "There are good reasons why the foundation and HSC have treated their property as separate. The existence of a separate foundation will preserve capital from claims of potential tort and other creditors of HSC. Another benefit is that it may EXPLORE THE RULES OF THE FEDERAL COURTS NEW EDITION FEDERAL COURTS PRACTICE 2013 BRIAN J. SAUNDERS, DONALD J. 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AVAILABLE RISK-FREE FOR 30 DAYS Order online: www.carswell.com Call Toll-Free: 1-800-387-5164 In Toronto: 416-609-3800 AUTHORITATIVE. INNOVATIVE. TRUSTED. www.lawtimesnews.com assist in preserving capital from dissipation by future boards of HSC who may be tempted to use capital to fund short-term operations." The foundation and the hospital argued that the "alignment" of priorities and close connections justified treating them as a single entity that would be eligible for the tax exemption. Superior Court Justice Thomas McEwen disagreed in a ruling issued earlier this year. The judge found the foundation met the legal definition of a "tenant" in the downtown Toronto building. While the foundation has a "close connection" to the hospital, it's an independent corporation. "Although HSC is involved with respect to the distribution of funds from the foundation to HSC, there is no evidence to suggest that the funds are treated as anything other than the foundation's own funds," wrote McEwen. The appeal to the Divisional Court argued McEwen had erred in concluding there wasn't a shared patrimony in the space occupied by the foundation. In a decision issued in 2006, another Superior Court judge found there was a patrimony in the space used by a subsidiary company created by several Toronto hospitals to provide laundry services. The court in its Hospital for Sick Children ruling distinguished the findings in University Health Network v. Municipal Property Assessment Corp. because the laundry company was funded from the hospitals' operating budgets. That's not the case for the foundation. "The foundation occupies the premises for the purpose of fundraising," wrote Justice Katherine Swinton with justices Joan Lax and David Aston concurring. "The hospital's fulfilment of its main purpose, the provision of patient care and research, is not dependent on the foundation's occupancy of the subject premises," added Swinton. While the foundation may have significant ties to the hospital, there are "important distinctions" that defeated its claim of patrimony, says Mitchell, a lawyer at the Toronto firm of Conway Davis Gryski. "Both the application judge and Divisional Court decided that there was no legislative intent to give hospital foundations the same exemption as that provided to public hospitals under the Assessment Act," Mitchell says. The hospital and the foundation were represented by Stephen Longo, a lawyer at Borden Ladner Gervais LLP. He didn't return calls seeking comment. Another major Toronto hospital has filed a similar application that was adjourned pending the outcome in the Hospital For Sick Children proceeding. The lawyer acting for the hospital indicated he's still reviewing the Divisional Court ruling in that case before deciding on the next course of action. LT

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