Canada: Property Tax Issues For Public Hospitals And Hospital Foundations

Last Updated: February 5 2013
Article by Sarah J. Turney, Lynne Golding and Paul R. King

On March 30, 2012 Ontario's Superior Court released its decision in the Hospital for Sick Children v. MPAC1 ("Sick Kids").  The case involved a dispute over whether a portion of an office building leased by the Hospital for Sick Children (the "Hospital") but occupied by the Hospital's fundraising foundation (the "Foundation") is liable for taxation.  In a surprising decision, the Court determined that it was. The Court's decision was appealed and ultimately upheld by Ontario's Divisional Court.2 The Sick Kids decision has implications for fundraising foundations in Ontario hospitals. 

Taxation and Assessment in Ontario

In Ontario, the property assessment and taxation system is comprised of three primary components: the legislative framework3, municipalities and the Municipal Property Assessment Corporation ("MPAC")4, the latter of which assesses and establishes values for properties in Ontario. The Assessment Act (the "Act")5 is the enabling statute that permits municipalities and MPAC to carry out their municipal property assessment functions.

Under the Act, all properties in Ontario are assessed, but pursuant to subsection 3(1) of the Act, some properties are exempt from taxation, including public educational institutions, public hospitals and charitable institutions. Public hospitals are exempt pursuant to paragraph 6 of subsection 3(1) of the Act, which provides an exemption for "land used and occupied by a public hospital that receives provincial aid under the Public Hospitals Act, but not any portion of the land occupied by a tenant of the Hospital."6The Act defines a tenant as including "an occupant and the person in possession other than the owner."

The Sick Kids Decision

The interpretation of section 3(1)6 of the Act was the central issue in the Sick Kids case.  The Hospital argued that its Foundation is an extension of itself and should therefore attract the same statutory exemptions. The Hospital led evidence that it and the Foundation share an inter-connected governance structure, that the Hospital directs the fundraising priorities of the Foundation and that the funds raised by the Foundation are critical to the functioning of the Hospital. 

MPAC focused on the fact that the Foundation and the Hospital are in fact two separate corporate entities. MPAC led evidence showing that the Hospital does not supervise the Foundation, it does not require annual financial reporting from the Foundation and upon dissolution, the Foundation's assets would not revert to the Hospital. MPAC also led evidence that although the Foundation did not pay rent to the Hospital, it did pay its share of common expenses. Ultimately the Court concluded that "[a]lthough the [Hospital] and the Foundation undoubtedly have a close connection and interconnected governing structures, the Foundation remains its own independent corporation, with its own Board of Directors and source of funding."7

As an independent corporation, the Court found that the Foundation met the legal definition of a "tenant", which is quite broad. The Court concluded that the Foundation "occupies and is in possession of the subject premises as evidenced by their continuous use of the premises and the payment of the common expenses"8. As an independent corporation occupying the premises, the Foundation was found to be a tenant of the Hospital and liable for taxation.

The Sick Kidsdecision is a departure from its earlier decision in University Health Network v. Municipal Property Assessment Corp.9 (the "UHN Decision"), which was released in September 2006. The issue before the Court in the UHN Decision was whether the exemption found in 3(1)6 of the Act was available for land occupied by a hospital subsidiary performing functions necessarily incidental to the functioning of a public hospital.

In the UHN Decision, Shared Healthcare Supply Services Ltd. ("SHSS"), had been created by several Toronto hospitals to provide services that had previously been performed by the hospitals themselves. The issue of exemption arose because SSHS occupied space leased from a public hospital. As a result, a dispute arose as to whether SSHS was subject to the same exemption as public hospitals under 3(1)6 of the Act.

The Court held that while the hospital subsidiaries were not alter egos of any public hospital and did not expressly come under the definition of public hospital, they shared patrimony. The Court took note of how a hospital subsidiary was defined in the regulations under Ontario's Public Hospitals Act, which was as "a corporation that is controlled directly or indirectly in any manner by one or more hospitals." Accordingly, the Court concluded that the legislature intended that the hospital subsidiary be treated in the same manner as public hospitals for the purpose of taxation. 

In contrast, Sick Kids is an example of where a foundation maintained too many distinct functions from the hospital it served. The Court placed significant emphasis on the fact that the Hospital and the Foundation had intentionally created two independent corporate organizations with distinct accounting, objectives and purposes.10 This was not an example of a subordinate corporation with no ability to function autonomously. The Foundation had its own board of directors and independent sources of funding. Although the Foundation's funds were almost entirely distributed to the Hospital, the Court found no evidence that this money was initially treated as anything other than funds of the Foundation.  In addition, about 10% of the funds of the Foundation were disbursed to various organizations other that Sick Kids, such as The University of Western Ontario, Capital Health Edmonton, University of Toronto, McMaster University, et al. The Court concluded that the separation of funds was most likely a deliberate attempt to protect such fundraising from tort claims and other creditors. These deliberate steps to maintain separate organizations removed the relationship from the realm of patrimony.11

The Sick Kids decision reveals a number of considerations that foundations and hospitals should keep in mind if they wish to maintain tax exempt status for areas occupied by foundations. For more information about the matters discussed above, please contact the authors of this bulletin or any of the members of our firm's Health Law team.


1.Hospital for Sick Children v. MPAC, 2012 ONSC 1351 (Canlii)

2.Hospital for Sick Children v. The Municipal Property Assessment Corporation, 2012 ONSC 6112 (Canlii)

3.In addition to the Assessment Act, MPAC conducts its activities in accordance with the Assessment Review Act, Municipal Freedom of Information and Protection of Privacy Act, Municipal Act, Education Act, Municipal Elections Act, Municipal Property Assessment Corporation Act, Provincial Land Tax Act, Local Savings Board Act, Payment-in-lieu of Taxes Act, Municipal Tax Assistance Act

4.MPAC was established by the Municipal Property Assessment Corporation Act, 1997. MPAC started operating on December 31, 1998, when the Government of Ontario transferred responsibility for property assessment to the Corporation. Originally named the Ontario Property Assessment Corporation, the Corporation was renamed MPAC as a result of amendments included in the 2001 Ontario Budget

5.Assessment Act, R.S.O. 1990, c. A.31

6.Ibid at 3(1)6

7.Supra note 1 at para. 30

8.Supra note 1 at para. 24

9.University Health Network and 3339637 Canada Inc. v. Municipal Property Assessment Co. and the City of Toronto [2006] O.J. No. 3565

10.Supra note 1 at para. 29

11.Supra note 1 at para. 30-31

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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