Executive Summary: Key Legal and Evidentiary Issues

• Legality of the City’s repeal and replacement of by-laws establishing the Municipal Accommodation Tax (MAT) under the Municipal Act.

• Question of whether MAT revenue-sharing created a debt obligation restricting the City’s legislative authority.

• Allegation that the City acted in bad faith to annul a valid agreement and deprive the Hotel Association of vested rights.

• Interpretation of statutory provisions governing municipal taxation and agreements with eligible tourism entities.

• Dispute over whether the matter should be resolved by private arbitration or public adjudication.

• Finding that the City’s actions were within statutory authority and did not constitute illegality or bad faith.

Facts and outcome of the case

Background and factual context

This case involves Niagara Falls Canada Hotel Association Inc. (the Hotel Association) as applicant and The Corporation of the City of Niagara Falls (the City) as respondent. The Hotel Association applied to quash By-law Number 2025-009, passed by the City on January 14, 2025, which repealed earlier by-laws establishing a Municipal Accommodation Tax (MAT), also referred to as a Transient Accommodation Tax (TAT). The application was brought on the basis of alleged illegality under Section 273(1) and 414(1) of the Municipal Act, 2021, S.O. c. 25.

The Ontario legislature amended the Municipal Act in 2017 to allow municipalities to levy a transient accommodation tax. Under Regulation 435/17, municipalities adopting this tax were required to provide a minimum amount of funds raised to one or more “eligible tourist entities,” defined as non-profit entities whose mandate includes the promotion of tourism. The City established the MAT in 2018 through By-Law 2018-104, later amended in 2021 by By-Law 2021-58 to include vacation rentals and bed and breakfast operations.

The Hotel Association was incorporated in 2018 to be an eligible tourism entity for the purposes of the Regulation and to administer the MAT for the City. In 2019, the Hotel Association and the City entered into an agreement regarding the MAT, setting it at $2.00 per night, with the City collecting the funds and forwarding them to the Hotel Association, less a 5% fee. The agreement required the Hotel Association to use the funds to promote Niagara Falls as a tourist destination and provided that disagreements would be adjudicated through arbitration. The agreement also included a provision that either party could provide one year's notice of termination, but not within five years of the agreement date.

In 2021, the City passed By-Law 2021-58 to extend the MAT to additional types of accommodations. On March 9, 2022, the parties amended the agreement to allow the Hotel Association to increase the MAT at its discretion and to extend the agreement’s term to December 31, 2029.

Between May 28, 2024, and October 9, 2024, the parties discussed further amendments to the agreement. On June 28, 2024, the City gave Notice of Termination of the Agreement, intending to terminate it as of December 31, 2025. Negotiations did not result in consensus on all issues. In mid-October 2024, the Hotel Association was informed that the City was considering a new by-law in relation to the MAT. On January 2, 2025, the City provided a draft revised by-law to the Hotel Association. On January 10, 2025, the Hotel Association indicated it would take legal action if the by-law was passed. On January 14, 2025, the City passed By-Law 2025-009, repealing the prior by-laws.

Policy terms and clauses at issue

The Hotel Association argued that the MAT payments under the earlier by-laws constituted a debt under s. 414(1)(a) of the Municipal Act, which prohibited the City from repealing the by-law until the debt was paid. The Association also claimed that the City’s actions were an attempt to vitiate a valid and subsisting agreement and deprive it of vested rights. The City argued that no debt existed under the Municipal Act, that the matter should be resolved by arbitration per the agreement, and that there was no evidence of bad faith or illegality.

The court reviewed the legislative framework, including s. 400.1, s. 400.5, s. 400.6, s. 401, and s. 414 of the Municipal Act, and Regulation 435/17. The court found that the MAT arrangement was a revenue-sharing mechanism, not a debt, and that the City had not contracted a debt with the Hotel Association. The court also found no evidence that the City acted in bad faith or for an improper purpose.

Outcome

The application to quash the by-law was dismissed. The court held that the City’s actions were within its statutory authority and did not constitute illegality or bad faith. The court did not determine the validity or termination of the agreement itself, as those issues were to be resolved outside of this application. As to costs, the court directed that if the parties could not agree within 14 days, they could serve and file written submissions. No specific monetary award, damages, or costs were ordered in the decision, and the successful party was The Corporation of the City of Niagara Falls.