1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar

Tax Court Interprets “Ownership” For Purposes Of GST/HST New Housing Rebate

In Rochefort v. The Queen (2014 TCC 34), the Tax Court of Canada provided clarity on the definition of “ownership” for the purposes of the GST/HST New Housing Rebate. Justice Campbell Miller held that “ownership” in subparagraph 254(2)(e) of the Excise Tax Act (the “ETA”) does not necessarily mean holding legal title but denotes a more expansive view of ownership.

In the case, the recently-married Mr. and Mrs. Rochefort decided to buy a new home. Unfortunately, shortly before the closing, Mr. Rochefort was advised by his bank that, due to his failure to sell his current property and his wife’s poor credit rating, the couple no longer qualified for a mortgage. Having already paid $20,000 in deposits, the couple chose to close the deal, and so they enlisted Mr. Fontaine, the nephew of Mr. Rochefort, to act as a co-signor on a mortgage from another bank.

Mr. Fontaine testified that he was prepared to help his uncle by signing whatever documents were required. Mr. Fontaine in fact signed a Fixed Rate Mortgage form, as well as a Direction re: Title, authorizing the lawyers to transfer the deed to Mr. Rochefort and Mr. Fontaine as joint tenants.  It was evident from Mr. Fontaine’s testimony that he was not entirely clear as to what he had signed, and he had no intention of ever living in, or receiving a benefit from, the property. Rather, it was clear that the new home was for the sole benefit of Mr. and Mrs. Rochefort, and Mr. Fontaine was merely assisting a family member by doing a favour.

Mr. Rochefort signed the new housing rebate in 2010 and, as a result, the developer was credited with $27,278. The Minister of National Revenue reassessed Mr. Rochefort on the basis that he was not entitled to the rebate as the definition of “ownership” in subparagraph 254(2)(e) of the ETA had not been satisfied.

The Minister argued that, under subparagraph 254(2)(e), “ownership” must be transferred to a “particular individual” (the Court noted that, where there is more than one purchaser, subsection 262(3) of the ETA makes it clear that “particular individual” refers to both purchasers). Ownership had not been transferred to Mr. and Mrs. Rochefort but had been transferred to Mr. Rochefort and Mr. Fontaine. Therefore, in the Minister’s view, this requirement had not been met.

The Tax Court disagreed. Mr. and Mrs. Rochefort were the “particular individuals” who signed the Agreement of Purchase and Sale and, thus, Mr. Fontaine was not a “particular individual” for the purposes of the ETA. The requirements in subsection 254(2) of the ETA had been met by Mr. Rochefort. The only question was whether the other “particular individual” (i.e., Mrs. Rochefort)  had ownership transferred to her as required by subparagraph 254(2)(e).

The Minister argued that “ownership” meant title to the property, and suggested that definition of owner in the Ontario Land Titles Act (i.e., an owner in fee simple) should apply for the purposes of the ETA. However, the Tax Court noted that, if the drafters of the ETA had intended ownership to mean title, they could have said as much in the ETA. The Tax Court held that “ownership” for purposes of the GST/HST New Housing Rebate must be explored in a “textual, contextual and purposive manner for a fuller meaning than simply title.”

The Court interpreted subparagraph 254(2)(e) as a timing condition – ownership happens after substantial completion. This view is consistent with the views expressed by the CRA in GST/HST Memorandum 19.3.1 “Rebate for Builder-Built Unit (Land Purchased)” (July 1998, as amended in 2002 and 2005).

The Tax Court viewed Mr. and Mrs. Rochefort as the individuals the rebate was intended to benefit. They were the buyers of the property, the individuals liable for the GST, and they took possession of the property after its substantial completion in order to reside in it as their primary residence. Moreover, Mrs. Rochefort had acquired sufficient rights to constitute ownership thereby satisfying the requirements in 254(2)(e): she had signed the Agreement of Purchase and Sale to become an owner, she had made the necessary deposits, she acted as an owner in making decisions to amend the Agreement of Purchase and Sale, she was liable for the GST, she took possession of the property with her husband, and had acted in every way as an owner by enjoying the property.

The Tax Court concluded that Mrs. Rochefort was a beneficial owner of the property and that Mr. Fontaine had agreed to hold title solely for the benefit of the Rocheforts. As a trustee, Mr. Fontaine was required to convey title to the Rocheforts on demand or to any third party at their request. “Ownership” of the property had been transferred to Mrs. Rochefort.

Accordingly, the taxpayer’s appeal was allowed and Mr. Rochefort was entitled to the GST/HST New Housing Rebate under subsection 254(2) of the ETA.

, ,

Tax Court Interprets “Ownership” For Purposes Of GST/HST New Housing Rebate

Imposition of GST on Criminal Defence Legal Fees Does Not Infringe Section 10(b) of the Charter: Stanley J. Tessmer Law Corporation v The Queen

In Stanley J. Tessmer Law Corporation v The Queen, 2013 TCC 27, Justice Paris of the Tax Court of Canada confirmed that the general GST charging provision in section 165 of the Excise Tax Act, R.S.C. 1985, c. E-15 (the “ETA”) does not infringe section 10(b) of the Canadian Charter of Rights and Freedoms (the “Charter”).  Section 10(b) of the Charter provides:

Everyone has the right on arrest or detention

to retain and instruct counsel without delay and to be informed of that right;

The Appellant (“Tessmer”) provides criminal defence legal services.  During the period July 1, 1999 to December 31, 2006, Tessmer did not collect GST (totaling $228,440.97) in respect of legal services for criminal defence work charged to clients who had been arrested or detained and who were either charged with a criminal offence or who had been arrested with criminal charges pending.

Tessmer did not conduct an independent review of the financial circumstances of its clients to determine the ability of its individual clients to afford its fees and any GST exigible on those fees.  In addition, no financial records of any of Tessmer’s individual clients were produced at the hearing.

The Minister of National Revenue (the “Minister”) assessed Tessmer for such GST plus interest and penalty, and Tessmer appealed those assessments to the Tax Court.  In the context of those appeals, the parties decided to bring a reference to the Tax Court, pursuant to section 310 of the ETA, to determine the following question raised by Tessmer in its appeals:

Whether, based on the facts set out in the Agreed Statement of Facts filed herewith, the goods and services tax (GST) imposed by s. 165 of the Excise Tax Act infringes or is inconsistent with the rights of the Appellant’s clients guaranteed by ss. 7 and ss. 10(b) of the Charter of Rights and Freedoms such that s. 165 of the Excise Tax Act is, to the extent of any such inconsistency and, subject to s.1 of the Charter, of no force and effect by reason of s. 52(1) of the Constitution Act.

Although the question put to the Tax Court referred to both sections 7 and 10(b) of the Charter, Tessmer’s counsel advised the Tax Court at the hearing that he was only relying on section 10(b) of the Charter, and the above question was amended accordingly.

Subsection 165(1) of the ETA, the general GST charging provision, read as follows during the periods at issue:

Subject to this Part, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the rate of 7% [note: 6% for the period between July 1, 2006 through December 31, 2006 – Ed.] on the value of the consideration for the supply.

Tessmer argued that a tax on criminal defence legal services provided to a person who has been arrested or detained is inconsistent with that person’s right under section 10(b) of the Charter to retain or instruct counsel of choice, on the basis that the tax is an impediment to the exercise of that right and is therefore unconstitutional with respect to both purpose and effect.  Relying on a U.S. case (United States v. Stein, SI 05 Crim. 0888 LAK United States District Court, Southern District of New York June 26, 2006), Tessmer argued that a tax on criminal defence legal fees will interfere with the right to counsel since the additional cost of the tax to an accused will interfere with the financial resources available to mount a defence to the charges brought against him or her.

Tessmer also argued that it was not required to provide evidence that any of its clients were denied counsel of their choice as a result of the tax imposed on the services of counsel.  Instead, and relying on a series of past Charter cases, Tessmer argued that it only needed to show that the general effect of the tax is unconstitutional under reasonably hypothetical circumstances.

The Tax Court, therefore, was required to determine whether either of the purpose or the effect of subsection 165(1) of the ETA was contrary to section 10(b) of the Charter.

With respect to the purpose of subsection 165(1) of the ETA, the Tax Court readily found that the purpose of that provision was not unconstitutional:

[31]        The appellant contends that the general purpose of the GST legislation imposing the tax is to raise revenue but that it also has a specific purpose to tax an accused with respect to the provision of legal services in defence of a State-sponsored prosecution. Its only submission regarding the unconstitutionality of the purpose of the tax was that it is patently inconsistent to prosecute a person and at the same time tax the legal services that the person requires in order to defend against the prosecution.

[32]        I am unable to ascribe the specific purpose suggested by the appellant to subsection 165(1) of the ETA, ….

[33]        Subsection 165(1) is a provision of general application and covers an infinite variety of transactions. I do not believe that it can be said that a specific purpose of subsection 165(1) is to tax legal services in defence of a State-sponsored prosecution since Parliament has not singled out those particular services for different treatment under that provision. Therefore I find that the appellant has not shown that subsection 165(1) of the ETA has an invalid purpose.

With respect to the effect of subsection 165(1) of the ETA, the Tax Court rejected Tessmer’s arguments that no evidence of an impediment to section 10(b) Charter rights was required.  The Tax Court stated, in relevant part, as follows:

[54]        From my review of the Supreme Court decisions on point, it appears that a party may only rely on hypotheticals to establish a factual foundation for a Charter challenge where actual facts are not available to that party. In such cases, the Court has been willing to consider imaginable circumstances which could easily arise in day-to-day life. ….

[55]        A party will also be relieved from presenting any factual foundation at all in cases where the unconstitutionality of the impugned legislation is apparent on the face of the legislation.

[56]        Apart from these limited exceptions, a party challenging legislation will be required to bring evidence of the effects of the legislation. Therefore, I reject the appellant’s contention that in any Charter challenge the Court may rely on imaginable circumstances to establish the effects of impugned legislation.

[57]        Furthermore, since the appellant does not take the position that evidence of the effect of the GST on the ability of its clients who were detained or arrested to afford its services is unavailable, I find that this case does not fall within the exception set out in Mills and implicitly recognized in Seaboyer/Gayme.

[58]        It is also obvious that the section 12 Charter standard of review which was applied in Goltz and Ferguson is not relevant to this case.

[64]        In response to the appellant’s submission that prejudice to a person’s section 10(b) rights must be presumed in this case, I can only say that I am unable to easily imagine that a person who has been arrested or detained would be prevented or even deterred from retaining and instructing counsel in that situation by the additional GST payable on counsel fees.

[65]        Finally, I do not accept the appellant’s contention that the constitutionality of the GST on criminal legal defence services is a question of law alone and therefore that it is not required to produce any evidence because it is apparent on its face that the tax will impede access to counsel.

Therefore, in the absence of evidence that any of Tessmer’s clients were unable to retain counsel as a result of the GST payable on legal services, the Tax Court found that the GST imposed under section 165 of the ETA does not infringe section 10(b) of the Charter.

Interestingly, the Tax Court hearing took place on December 15, 2011, and the decision was released on January 28, 2013.  Tessmer is still within the time limit to file an appeal with the Federal Court of Appeal, so it remains to be determined whether the Tax Court’s judgment remains the final word on this issue.

, , , , ,

Imposition of GST on Criminal Defence Legal Fees Does Not Infringe Section 10(b) of the Charter: Stanley J. Tessmer Law Corporation v The Queen

Canada Revenue Agency Toronto Centre Tax Services Office Describes Current Audit Issues

At today’s Canada Revenue Agency Toronto Centre Tax Professionals Group Breakfast Seminar (November 14, 2012), the CRA provided an update on a number of current audit issues.

The CRA was represented by Sal Tringali, Regional Technical Advisor of Aggressive Tax Planning, and James McNamara, Manager of International Taxation and Aggressive Tax Planning Audit Division from the Toronto Centre Tax Services Office. The discussion was moderated by Jacques Bernier (Baker McKenzie LLP) and Rachel Gervais (BDO Canada LLP).

The audit issues highlighted by the panel included the following:

GST/HST

  1. Recapture input tax credit
  2. ITC allocation % – mixed supplies
  3. Financial services
  4. Imported supplies
  5. Reinsurance/loading
  6. Loyalty reward points
  7. VDP – Related parties

Income Tax

  1. Artificial capital losses
  2. Loss trading
  3. Surplus strips
  4. Offshore bank accounts held by individuals
  5. Donation arrangements
  6. International transactions
  7. S. 85 rollovers
  8. RRSP appropriations
  9. Tax-free savings accounts (TFSA)

Additionally, the CRA made the following comments:

    • The CRA’s access to/requests for accountants’ working papers remains a “hot topic”. Generally speaking, the CRA will first ask the taxpayer for information/documents, after which the CRA may request information/documents from the taxpayer’s accountants. The CRA’s objective is to perform high-quality audits, and access to complete information is required to do so.
    • The CRA reminded taxpayers of its recent announcement that the CRA will not assess a taxpayer’s return where the taxpayer has claimed a charitable donation and the alleged gift is made as part of a donation arrangement. The delay in assessing the return could be two years or more (see Jamie Golombek’s recent article on the subject).
    • The CRA has appealed the Tax Court’s decision in Guindon v. The Queen to the Federal Court of Appeal. In light of the Tax Court’s decision, the CRA is currently considering its options in respect of the assessment of third party penalties.
    • The CRA has considered the application of third party penalties in 185 cases. In 71 of those cases the penalty was applied, resulting in the imposition of $79 million of penalties. In 50 cases the penalty was not applied, and 64 cases are ongoing.
    • The CRA will continue to revoke e-file privileges where a tax preparer is subject to a penalty, even where a penalty against a single tax preparer may result in the revocation for his or her entire firm.
    • The CRA referred to the recent Supreme Court decision in GlaxoSmithKline v. The Queen and stated that it intends to follow the new OECD guidelines on transfer pricing and the hierarchy of pricing methods. The CRA said that it did not expect to release any formal communication to the public on this issue, but Information Circular IC 87-2R “International Transfer Pricing” may be updated to reflect this position.

UPDATE: After the seminar, the CRA informed us that it intends to follow the guidance in the recently updated OECD Guidelines and will be issuing a Transfer Pricing Memoranda (TPM) on the matter to the public. This TPM will reflect a recently released internal Communique on the same subject and will be made available in the near future.

    • The CRA clarified that Tax Earned By Audit (“TEBA”) remains a metric for measuring ”tax at risk”, but it is not used to measure the performance of an auditor. Rather, the CRA measures the performance of auditors based on six major elements: (i) planning the audit, (ii) conducting the audit, (iii) applying the appropriate legislation/policy, (iv) the end product of the audit, (v) professionalism in the audit, and (vi) timeliness of completion of the audit.
    • The CRA plans to convene face-to-face meetings with approximately 160 large businesses (i.e., annual sales over $250 million) as part of the CRA’s large business audit project. The CRA will continue to risk-assess all large businesses/entities annually.
    • The CRA intends to clear a backlog of approximately 1,300 audit files so that it may assess the most recent taxation year and the immediately preceding taxation year for most businesses by 2015-16.
    • The CRA reiterated that issues that arise during the audit process should be raised with the auditor, after which it may be appropriate to involve the auditor’s team leader. If the issue cannot be resolved at that level, it would be appropriate to raise the issue with the auditor’s manager or the assistant director of audit at the particular TSO.

, , ,

Canada Revenue Agency Toronto Centre Tax Services Office Describes Current Audit Issues

“Secondary” but not “incidental”: FCA provides guidance on s.138 of the Excise Tax Act in 9056-2059 Quebec Inc. v. The Queen

In 9056-2059 Quebec Inc. v. The Queen (“9056-2059”), the Federal Court of Appeal (Nadon, Trudel and Mainville, JJ.A.) allowed the taxpayer’s appeal from a decision of the Tax Court of Canada. In the process, the FCA provided valuable guidance on the interpretation of section 138 of the Excise Tax Act (the “Act”), which deals with the provision of multiple supplies for a single price.

The registrant in 9056-2059 operated an agri-tourism business interested in beekeeping.  To promote sales of its cottage-industry products (such as honey), the registrant developed a network of nature trails on its land.  To gain access to the trails, users were obliged to purchase a farm product.  The transaction was carried out through the purchase of tickets.  The first ticket was sold at $12 for an adult and $10 for a child.  In practice, an adult who paid $12 obtained a first farm product, priced at one ticket, and needed do nothing more to be able to use the trails that day for as many hours as desired.  According to the pricing sheet, one ticket could have been used to obtain one of the following products: 50 g of honey or maple syrup, a bag of 8 candies, a maple lollipop or a 454-g bag of buckwheat flour.  By comparison, a 500-g jar of churned liquid honey is priced at 4 tickets, whereas the 1-kg jar is priced at 6 tickets.  Exceptions aside, additional tickets cost $1.50 each.

If supplied separately, the supply of farm products would have been zero-rated (i.e., taxed at a rate of 0%) whereas the supply of access to the trails would have been fully taxable.

The Minister of National Revenue assessed the registrant on the basis that section 138 of the Act applied to the combined supplies of admission and farm products.  Specifically, the Minister asserted (and the Tax Court of Canada agreed) that the principal supply was taxable access to the trails and the otherwise zero-rated supply of farm products was only incidental to the main supply, such that section 138 of the Act deemed the supply of farm products to form part of the taxable main supply.  This had the effect of rendering all sales taxable, and the Minister assessed accordingly.

At issue in 9056-2059 was whether section 138 of the Act applied.  The Federal Court of Appeal (per Trudel J.A.) noted that for section 138 to apply, each of the following conditions must be satisfied: (1) two or more supplies must be supplied for a single consideration; and (2) the provision of one of the supplies must reasonably be regarded as incidental to the provision of the other.  While the Federal Court of Appeal found that the first condition was met, the Court was not satisfied that the supply of food products was incidental to the supply of access to the trails.

Using the Canada Revenue Agency’s (“CRA’s”) Policy Statement P-159R-1: Meaning of the Phrase Reasonably Regarded as Incidental (revised on March 8, 1999) (“P-159”) against the CRA, the Federal Court of Appeal noted that while the disproportionate gap between the price of the first ticket and the quantity of honey to which the purchaser was entitled suggested that the provision of farm products was secondary to the provision of access to trails, that did not mean that it was incidental.  The production costs for honey and the honey-based products (approximately 89% of selling price) were found to be too significant for them to be considered small in comparison to the price of the first ticket.

Further, the Court noted that P-159 emphasizes that section 138 “is intended to apply in situations where the dollar value of the purported incidental supply is small. It generally will not apply to transactions where its application would have significant tax revenue implications”.  That is precisely what would happen here, if it applied.  Thus, the Court found that section 138 did not apply in the circumstances and allowed the registrant’s appeal.  As a result, for the period at issue, the registrant had to remit only the net tax resulting from its sales in connection with access to the trails.

, , , , , ,

“Secondary” but not “incidental”: FCA provides guidance on s.138 of the Excise Tax Act in 9056-2059 Quebec Inc. v. The Queen

Archived Webcast of the City of Calgary Hearing: Watch Argument in the Second GST Dispute Heard by the Supreme Court of Canada

For those who missed the live webcast of the hearing in City of Calgary v. The Queen before the Supreme Court of Canada on November 15, 2011, the archived webcast of the argument is now available.  McLachlin C.J. and LeBel, Deschamps, Rothstein, Cromwell, Moldaver and Karakatsanis JJ. heard the appeal.

Ken S. Skingle, Q.C. argued for the City of Calgary and Gordon Bourgard argued for the Crown. 

For our report on the argument, see our earlier post.  Judgment was reserved.

, , , , ,

Archived Webcast of the City of Calgary Hearing: Watch Argument in the Second GST Dispute Heard by the Supreme Court of Canada

Argument in SCC in City of Calgary v. The Queen: Questions from the Bench Directed Primarily at Appellant

Earlier today, the Supreme Court of Canada heard arguments in the City of Calgary v. The Queen, the second GST dispute to be heard by Canada’s highest court.  The issue was whether the City was entitled to an input tax credit (“ITC”) in respect of approximately $6.3 million in GST paid in relation to the construction of a municipal transit system.  See our earlier post to read more about the appeal.

Counsel for the City of Calgary faced questioning from the panel (McLachlin C.J., and LeBel, Deschamps, Rothstein, Cromwell, Moldaver and Karakatsanis JJ.) throughout his submissions.  Members of the panel were particularly concerned about whether the City made a “supply” to the Province of Alberta.  If the answer was “no”, the City’s appeal would be dismissed.  Counsel for the City argued that there was a taxable supply in this case, and that there need not be a prior contractual obligation to provide a supply in order for a “supply” (within the meaning of the Excise Tax Act) to exist.  In addition, members of the panel were concerned about the City’s characterization of its agreements with the Province of Alberta, insofar as (in their view) it reflected an artificial view of the relationship between the City and the Province.  In addition, questions were asked regarding whether the agreements were more in the nature of “accountability agreements” (i.e., to ensure public grants were applied for their intended purpose, as the Crown contends) rather than “supply of service agreements” (as the City contends).  Counsel for the City referred the panel to U.K. authorities (including Edinburgh Leisure et al v. Commissioners of Customs and Excise [2005] LLR 41 (VATD Tribunal)) and the Federal Court of Appeal decision of Commission Scolaire des Chênes v. The Queen in support of the City’s position that it made a separate taxable supply of services to the Province, for which it would be entitled to claim ITCs on its taxable inputs.

Counsel for the Crown faced relatively few questions.  In particular, the panel was interested in hearing the Crown’s position on whether the Commission Scolaire des Chênes decision was correct and whether it was distinguishable.  Counsel for the Crown pointed out certain differences between that case and the present case, yet he stated that the Federal Court of Appeal’s analytical approach in the Commission Scolaire des Chênes decision reflected the correct approach.

Counsel for the City made a very brief reply, and the panel reserved its decision.

, , , , , ,

Argument in SCC in City of Calgary v. The Queen: Questions from the Bench Directed Primarily at Appellant

Argument begins at 9:30 this morning in the Supreme Court of Canada in City of Calgary v. The Queen

This morning at 9:30 a.m. catch the live webcast of the arguments in the Supreme Court of Canada in City of Calgary v. The Queen, the second GST dispute to be heard by Canada’s highest court.

See our earlier post to read more about the appeal.

, , ,

Argument begins at 9:30 this morning in the Supreme Court of Canada in City of Calgary v. The Queen

FCA Allows a “Second Kick at the Can” for ITC Allocation Methodology – CIBC World Markets Inc. v. The Queen

On September 30, 2011, the Federal Court of Appeal (Sharlow, Layden-Stevenson, and Stratas, JJ.A.) released Reasons for Judgment in the appeal of CIBC World Markets Inc. (“CIBC”) from a judgment of the Tax Court of Canada (see our earlier post).  CIBC’s appeal was allowed.

By way of background, the Excise Tax Act (the “Act”) permits a taxpayer to claim an input tax credit (“ITC”) to recover goods and services tax (“GST”) paid in respect of property and services acquired by that taxpayer for consumption, use or supply in the course of a “commercial activity”.  Where there is a mixed use of inputs in both commercial and GST-exempt activities, then for purposes of claiming ITCs, subsection 141.01(5) of the Act requires the taxpayer to allocate its GST among the taxable and exempt activities using a “fair and reasonable” method that is “used consistently throughout the year”.

In 1998 and 1999, CIBC used a particular ITC allocation methodology to determine its ITC claims for those years.  In 2000, CIBC used a new ITC allocation methodology to determine its ITC claim for the year, which enhanced its recovery of ITCs.  The Minister of National Revenue considered both ITC allocation methods to be “fair and reasonable” within the meaning of subsection 141.01(5) of the Act.

Using the new method, however, CIBC then made a second claim for ITCs in respect of the 1998 and 1999 years for amounts over and above those originally claimed for the 1998 and 1999 years.

The issue was whether CIBC was entitled to make a further claim for ITCs using the new ITC allocation methodology.  The Tax Court of Canada held that CIBC was not entitled to make such claims.  CIBC appealed to the Federal Court of Appeal (the “FCA”).

Justice David W. Stratas, writing for the panel, held that a person can make more than one claim for ITCs in respect of a year, provided the person does not try to claim the same ITCs more than once.  In so holding, he noted that there is nothing in the Act precluding a person from making more than one claim per year.  Although a person cannot use one ITC allocation methodology for one part of the year and another ITC allocation methodology for another part of the year, CIBC did not do so in this case; instead, CIBC merely used an alternative ITC allocation methodology which it applied throughout the year.

The Crown has until Tuesday, November 29, 2011, to file an application for leave to appeal to the Supreme Court of Canada.

, , ,

FCA Allows a “Second Kick at the Can” for ITC Allocation Methodology – CIBC World Markets Inc. v. The Queen

Federal Court of Appeal Hears Arguments in CIBC World Markets Inc. v. The Queen: Judgment Reserved

On September 21, 2011, the Federal Court of Appeal (Sharlow, Layden-Stevenson, and Stratas, JJ.A.) heard an appeal by CIBC World Markets Inc. (“CIBC”) from a judgment of the Tax Court of Canada dismissing the taxpayer’s appeal of an assessment by the Minister of National Revenue under the Excise Tax Act.  For further details, see our earlier post.

The Appellant’s oral argument dealt with many of the points raised in the reasons for judgment of the Tax Court judge (Rip, CJ), specifically the interpretation of subsection 141.01(5) and section 225 of the Excise Tax Act.  Counsel for the Appellant was asked only a few questions from the bench during his submissions.

Counsel for the Respondent faced a number of questions from the panel.  Counsel for the Respondent argued that the Appellant had not adduced evidence to show that its revised input tax credit (“ITC”) allocation methodology was “fair and reasonable” within the meaning of subsection 141.01(5) of the Excise Tax Act.  The panel observed that the revised ITC allocation methodology had already been accepted by the Minister as a “fair and reasonable” method for subsequent years.  The panel was interested in hearing the Respondent’s submissions on what statutory basis exists in the Excise Tax Act precluding a taxpayer from using an alternative “fair and reasonable” allocation methodology in respect of prior years.

After a brief reply by Appellant’s counsel, the hearing concluded and the panel reserved judgment.

, , , ,

Federal Court of Appeal Hears Arguments in CIBC World Markets Inc. v. The Queen: Judgment Reserved

How Will the Supreme Court of Canada Decide its Second GST Appeal? City of Calgary v. The Queen – Input Tax Credits (GST)

On November 15, 2011, the Supreme Court of Canada is scheduled to hear its second GST appeal in The City of Calgary v. The Queen. The first GST appeal was heard in 2009 in United Parcel Service Canada Ltd. v. Canada where it was unanimously decided that a customs broker was entitled to a rebate for overpaying GST.

In this case, the City of Calgary constructed a transit system for the use of Calgary residents pursuant to obligations imposed on it by the City Transportation Act, R.S.A 2000, c. C-14 (the CTA).  In the course of constructing that system, the City entered into funding agreements with the Province of Alberta as contemplated in the CTA.  The City paid GST with respect to purchases made for the construction of the transit system.

Since the provision of a municipal transit service is an exempt supply for purposes of the Excise Tax Act, R.S.C. 1985, c. E-15 (the ETA), the City would not be entitled to claim input tax credits (ITCs) with respect to purchases made for the purpose of providing that exempt supply.

The City took the position that the construction of the transit system (as opposed to its operation) was a separate supply to the Province of Alberta, pursuant to its contracts with the Province, for which the Province paid consideration, pursuant to those contracts.  The City took the position that this separate supply was not an exempt supply and claimed ITCs with respect to that supply.  The Minister rejected the City’s position.

The Tax Court of Canada decided in favour of the City, however, this decision was overturned by the Federal Court of Appeal.

The main issue for the Supreme Court of Canada is whether the City was entitled to an ITC in respect of approximately $6.3 million in GST paid in relation to the construction of a municipal transit system.  In answering this question, the Supreme Court of Canada may provide guidance on the meaning of “supply” for purposes of the ETA.

For the written submissions of the appellant, see the factum of the City of Calgary.

For the written submissions of the respondent, see the factum of the Crown.

, , , , , , , , , ,

How Will the Supreme Court of Canada Decide its Second GST Appeal? City of Calgary v. The Queen – Input Tax Credits (GST)