Niagara Falls case involves transient accommodation tax under Municipal Act
The Ontario Superior Court of Justice has dismissed a hotel association’s application to quash a by-law repealing prior by-laws establishing a municipal accommodation tax (MAT) and extending its application to vacation rentals and bed and breakfast operations.
In Niagara Falls Canada Hotel Association Inc v. The Corporation of the City of Niagara Falls, 2025 ONSC 5228, the provincial legislature introduced a May 2017 amendment to Ontario’s then Municipal Act, which empowered and authorized municipalities to charge a transient accommodation tax (TAT), also known as the MAT, as a direct consumer fee.
Regulation 435/17 allowed a municipality to adopt this tax. The municipality had to provide a minimum amount of funds raised to one or more “eligible tourist entities,” which were non-profit entities required to promote tourism in the province or its municipalities for that exclusive purpose.
The City of Niagara Falls established the MAT in 2018 through By-Law 2018-104 and amended this by-law in 2021 via By-Law 2021-58, which extended the MAT’s applicability to vacation rentals and bed and breakfast operations.
In 2018, the city incorporated the Niagara Falls Canada Hotel Association as an “eligible tourism entity” under Regulation 435/17 to administer the city’s MAT.
In 2019, the city and the hotel association executed an agreement, which imposed the MAT at $2 per night. This agreement required:
- the city to collect funds and forward them to the hotel association, subject to a five percent fee
- the hotel association to use such funds to promote Niagara Falls as a tourist destination
- the parties to resolve disagreements via arbitration
Last January, the city passed By-Law 2025-009. It repealed By-Laws 2018-104 and 2021-58 for being illegal under ss. 273(1) and 414(1) of Ontario’s Municipal Act, 2021.
The hotel association applied to quash the latest by-law for being illegal and void under the Municipal Act. The association raised two arguments.
First, it claimed that the city lacked jurisdiction because the TAT payments under the earlier by-laws amounted to a debt under s. 414(1)(a) of the Municipal Act. The hotel association said the city should not repeal these payments through a by-law until the payment of the debt.
Second, the hotel association alleged an illegal purpose in the city’s bad-faith efforts to legislate, avoid, or vitiate its contractual obligations, thus depriving the association of its vested rights.
Repeal affirmed
The Ontario Superior Court of Justice dismissed the application.
First, the court rejected the hotel association’s claim that the city passed the latest by-law in breach of the prohibition against repealing by-laws under s. 414(1) of the Municipal Act.
The court ruled that the city never contracted a debt and owed no debts to the hotel association. The court explained that the TAT payments to the association under the prior by-laws constituted a revenue-sharing arrangement, not a debt or a sum the city should pay in response to a liquidated demand.
Second, the court held that the city did not use its legislative authority for the improper purpose of annulling a valid and subsisting agreement to which it was a party to deprive the hotel association of its vested rights.
The court noted that the relevant legislation and regulations empowered and entitled the city to execute agreements with “eligible tourist entities,” not exclusive to the hotel association.
The court saw no bad faith by the city toward the hotel association. To reach this finding, the court considered the legislation’s historical background and the tax’s development on a revenue-sharing basis with entities seeking to promote tourism.
In this context, the court acknowledged the city’s need to assess, reassess, and evolve the strategic approaches and best practices for increasing tourism.
