Surrey City Centre Mall - Tax Court decision suggests that intercompany debt reductions following a settlement can give rise to double GST taxation

A settlement payment received by the grandparent company of a project company as a result of the termination of contracts for the construction of a B.C university facility otherwise likely would have been subject to GST under s. 182 of the Excise Tax Act both in its hands (in light of the impairment of its indirect investment in the project company and its various direct contractual rights and obligations under the project agreements) and to the project company (given that its debt to its parent was written down following the settlement - so that under s. 182 it had enjoyed a debt reduction "as a consequence" of the settlement).  In fact, there was no GST payable on the settlement payment as the only relevant assessment was of the project company, and the deemed supply made by it enjoyed the Crown immunity of the province (notwithstanding that the province did not provide the usual certification of Crown immunity).

This case illustrates that care should be taken if any intercompany or other debts are settled in connection with a contractual settlement.

Neal Armstrong.  Summaries of Surrey City Centre Mall Ltd. v. The Queen,  2012 TCC 619 under ETA s. 182(1) and Constitution Act, 1867, s. 125.