The Supreme Court of Canada has agreed to hear a challenge by certain broadcasters, satellite operators and cable companies to Section 11 of the Broadcasting Licence Fee Regulations, 1997. That section established a twofold fee structure for broadcasting licences. Under Part II, broadcasters must pay the Canadian Radio-television and Telecommunications Commission (CRTC) licence fees based on a percentage of the broadcaster’s gross revenue from broadcasting activities in the year, subject to certain prescribed exemptions. Between 1997 and 2005, the CRTC collected approximately $680 million in Part II fees.

The applicants sought a declaration that the section is invalid and requested the return of the monies paid under this regime, arguing that the Part II fees are a tax. They contended that, while the CRTC is empowered to impose regulatory charges, it does not have the authority to impose a tax.

The Federal Court found that the Part II fees are a tax, observing that the CRTC deposits the fees into the Consolidated Revenue Fund for general revenue purposes. The court further noted that the fees are not earmarked to defray the costs of the general regulation of the broadcasting system and are disproportionate to the costs of managing the broadcasting spectrum. There is no reasonable nexus between the amount of the licence fee and the cost of administering the corresponding regulatory scheme, the court therefore concluded. It declared Section 11 of the Regulations to be ultra vires (it was beyond the authority conferred on the CRTC by Section 11 of the Broadcasting Act). However, it did not order the return of the monies paid.

On appeal, the Federal Court of Appeal reversed the lower court decision. It ruled that the Federal Court judge had mischaracterized the legal test to be applied in distinguishing a tax from a regulatory charge. It found that Part II fees are tied to the costs of a regulatory scheme — administering the Canadian broadcasting system, which includes financing the Canadian Broadcasting Corporation.

The Federal Court of Appeal also concluded that the fees have a valid regulatory purpose — conferring the benefit of operating in the Canadian broadcasting system, in which the CRTC restricts competition through its licensing function. As such, the court determined that the fees are connected to a regulatory scheme and therefore constitute a regulatory charge.

Barbara A. McIsaac, Q.C. is acting for the appellants in this case.