Citation: 2012 TCC 7
Date: 20120108
Dockets: 2007-3806(GST)G
2007-3723(GST)G
BETWEEN:
CALGARY
BOARD OF EDUCATION,
BOARDWALK EQUITIES INC.,
appellants,
and
HER MAJESTY THE QUEEN,
respondent.
REASONS FOR JUDGMENT
Jorré J.
Introduction
[1]
At the beginning of
2001, energy prices in Alberta had risen significantly.
[2]
On the one hand, the
deregulation of the electricity market had led to significant increases in the
price of electricity. On the other hand, demand for natural gas was very high
and natural gas prices paid by customers in Alberta
in January 2001 were roughly three times what they had been a year earlier.
[3]
The Alberta government wanted to help. It took measures to
improve the operation of the electricity market.
[4]
It also took a number
of measures to reduce the immediate impact of high energy prices on customers.
One of the measures was a program of electricity rebates; another was a program
of heating fuel rebates.
There was also a $300 energy tax refund paid to each adult.
[5]
The scale of these
measures was quite significant; for residential customers the electricity
rebate was $40 a month for a year and the natural gas rebate was $150 a month
for a period of four months, a total of $1,080.
[6]
Non-residential
customers such as the appellants could also receive rebates although they were
calculated on the basis of use, unlike the flat rate provided to residential
customers.
[7]
The issue in these
appeals is whether or not the appellants’ goods and services tax (GST) should
be computed on the gross amount that their suppliers billed for electricity or
gas, as the respondent contends, or whether it should be computed on the price
of the energy used after deducting the amount of the rebate, as the appellants
contend.
The Facts
Agreed Partial Statement of Facts/Joint Book of
Documents
[8]
There is no significant
dispute as to the underlying facts.
Most of the evidence in the present cases was put in by agreement. The parties
provided a Joint Book of Documents as well as an Agreed Partial Statement of Facts.
[9]
In addition, Terry
Holmes, Director of Rural Utilities, Alberta Agriculture and Rural Development testified and
portions of the transcript of the examination for discovery of Grant Breen of
the Calgary Board of Education were read in.
[10]
The parties advised me
that there are no issues of quantum.
The Agreed Partial Statement of Facts states:
Province of Alberta Rebate Programs ― Introduction
1. In December 2000, the Province of Alberta (“Alberta”) announced energy rebate programs, for the provision of grants and
credits for the benefit of and to assist Albertans, in respect of their
consumption of energy, for heating and lighting of homes or other premises. The
grants were for natural gas (“gas”), propane or other heating fuels for the
period January 1, 2001 to April 30, 2001 (“relevant time”). The credits were
for electricity for all of 2001 (“relevant time”). The GST claim periods in
this action are the same as the relevant times.
2. Alberta introduced the grants and credits (“rebates”) for the relevant
times to protect, shield and provide relief to Albertans from the sharp climb
and increases in energy prices.
3. All residential and most non-residential
consumers (“consumers”) were eligible to receive some form of rebate during the
relevant times.
4. Alberta had the choice of providing the rebates directly to the consumers
or provide the rebates to the energy suppliers for the benefit of consumers.
5. Issuing cheques directly to consumers would
have been administratively unwieldy and time consuming for Alberta, in that Alberta would have had to construct a
system and gather consumption and rate class information. Since the suppliers
already had a system to contact all customers, and records of their energy
consumption, using the suppliers’ billings systems saved the need to create a
system. In most cases, for 2001 Alberta chose to provide the rebates to the energy suppliers. The energy
suppliers then applied the rebates to consumers’ monthly bills sent by the
energy suppliers such as Atco Gas (“Atco”) and Enmax for electricity (“Enmax”)
and other energy suppliers (“suppliers”), so as to provide immediate assistance
to Albertans.
6. An application process was necessary in less
common situations ― for example, if consumers of energy for heating premises did not
receive bills from the energy suppliers or having received a bill were not
given a rebate on the bills; if the consumers purchased propane or other
heating fuels, or wanted a review of the amount of the gas rebate on their bill
or an alternate gas rebate to what they had been provided; or if the gas
supplier billing system was not available. In these types of situations,
consumers could complete a form and apply directly to Alberta for the gas rebates or an adjustment to the gas rebates. If the
consumer provided the supporting information, Alberta then provided cheques directly to the consumer for the rebates.
7. The suppliers participated in the process of
providing rebates without any written agreement or formal arrangement with Alberta. Alberta’s view was that delivering the rebates in this manner enabled the
suppliers to maintain good customer relations at a time of rising energy costs.
8. The rebates were distributed, with the
participation of the suppliers, by applying the rebates on the gas bills. In
the case of the electricity rebates, the Balancing Pool Allocation
Regulation provided that electricity suppliers were to distribute the
rebates by including the rebates on the electricity bills.
9. The rebates were provided to suppliers and
applied to consumers’ energy bills.
10. During the relevant times, Alberta had no obligation to provide gas or
electricity to consumers.
Gas Rebate Program and Rebates
11. Alberta had an opportunity, with rising royalties, to soften the impact on
consumers during a period of unprecedented high gas bills. An existing
regulation was amended to allow for the provision of rebates (that is, gas
grants). The gas rebate program operated between January 1, 2001 to April 30,
2001. Rebates totalling $1.1 billion were provided to Albertans during the
relevant time. The gas rebates were funded from royalty revenues.
12. Initially, residential consumers were to
receive a rebate of $50 per month. The rebate amount was then increased to $150
per month on their gas bills during the relevant time regardless of how or from
whom they purchased gas.
13. Non-residential consumers received a rebate,
based on actual consumption of gas, of $6 per gigajoule (“GJ”) to a maximum of
5,000/GJ or $30,000 per month on their gas bills during the relevant time
regardless of the rate they paid to their supplier under contract or default
supplier. Commercial consumers of a “residential building” received a rebate,
based on consumption of gas, of $6 per GJ.
14. Consumers of propane or heating fuels were
eligible to receive an equivalent consumption-based rebate upon application to Alberta.
Administration of Gas Rebate Program and Rebates
15. In 2001 there were approximately 110 gas
suppliers. The process for the provision of gas rebates was that the gas
suppliers would bill consumers according to their normal billing practices.
Some bills were based on actual consumption, if the meter was read, and others
were estimates.
16. Except for the rare instances, as described at
paragraph 22 of this document, in 2001 gas suppliers did not provide Alberta with an estimate of the rebates
that they would apply to consumers’ bills. For non-residential consumers, the
rebates were calculated and provided based on the amount of consumption of
energy that was actually shown on the bills to consumers. The amount of the
rebate was applied on the bills generated from the gas supplier’s billing
systems. Bills were sent to consumers according to the gas supplier’s billing
practices, and with whatever consumer payment date was that gas supplier’s
practice. The time span between billing and payment ranged from 21 to 35 days,
depending on the supplier.
17. Gas suppliers then provided Alberta with a request for the amount of
the rebates that they had actually applied to their consumers’ bills. Suppliers
could send their request for the amounts of the rebates to Alberta as soon as they had finished their
billing processes, or at anytime after.
18. After reviewing the request, Alberta then provided the gas suppliers the
amounts of the actual rebates as reflected on consumers’ bills. In most cases, Alberta provided the amounts for the
rebates to the gas suppliers by direct deposit to the gas suppliers’ bank
account on or the day before the consumers’ bills were due. However, if a gas
supplier was late in making its request to Alberta for the rebate, the direct deposit amounts would have been made
after the consumer’s due date for the bill. It was the consumer, not Alberta, that was responsible for paying
interest and penalties to the gas supplier on any amounts outstanding on the
bill after the due date.
19. In the case of residential consumers, a flat
rebate amount of $150 per month was applied to consumers’ bills. However, the
same process for tallying the rebates, requests by the suppliers to Alberta for
the rebate amounts, and the direct deposit of the amounts of the rebates, by
Alberta, on or the day before the consumers’ bills were due was also followed,
as the requests were relative to a billing cycle.
20. The rebate amounts provided by Alberta to the gas suppliers were not
required to be segregated.
21. Smaller gas suppliers normally were on monthly
billing — that is, they only did one bill run per month. Larger gas suppliers
did cycle billing — that is, they ran bills for a portion of their customers
each day. Most of the larger suppliers do 20 to 21 cycles per month. The
grouping of consumers in a specific cycle is associated with the schedule for
meter reading. For example, everyone that normally has their meter read on the
3rd of the month would be on the same billing cycle. Generally, a billing cycle
would be composed of a blend of residential, commercial and industrial
customers.
22. In rare instances, Alberta provided rebate amounts to suppliers for rebates based on
estimates. This occurred when Alberta was dealing with smaller suppliers that had challenges with
administering the rebate program. If a small supplier was unable to provide the
actual month consumption in time to meet deadlines for this information, Alberta would estimate consumption based on
prior months’ actuals and rebate amounts would be provided to suppliers on that
basis. This actual amount would be reconciled prior to the provision of the
next month’s rebate amount and the appropriate adjustment applied. In the end, Alberta ensured that the correct amount was
provided to each supplier. The suppliers in these appeals are not small
suppliers.
23. At the end of the rebate programs, there were
reconciliations by Alberta with
all gas suppliers, as follows, and any shortfall or excess was paid or
reimbursed. All suppliers, except Atco, provided Alberta with a data extract from their billing systems and Alberta
reconciled that information to the information it had as to the amounts of the
rebates that Alberta had
provided to suppliers. Atco, as a large supplier, was audited so as to confirm
that all of the rebate amounts provided to Atco by Alberta had been applied to consumers as rebates on consumers’ bills.
Electricity Rebate Program and Rebates
24. The electricity rebate program operated in
2001. The restructuring of the electricity industry, prior to 2001, was to
foster a competitive retail market for electricity by allowing that market to
be responsive to changes in supply and demand, resulting in more competitive
prices and more choices of electricity suppliers to consumers. The Power Pool Council
administers the Balancing Pool (“BP”). The BP was established in 1999 as a
financial account to receive and disburse funds arising from the transition to
a competitive generation market on behalf of electricity consumers.
25. A significant component of that transition was
the public auction of the Power Purchase Arrangements (“PPAs”), for the rights
to purchase future generation of electricity. The PPAs were created to provide
greater competition. The PPAs were sold at public auctions to bidders, energy
suppliers and BP participants, in August and December 2000. The $2.1 billion
net proceeds from the auctions were placed in the BP.
26. Legislation set out the roles and
responsibilities of electricity suppliers and of the BP in respect of the
distribution of the electricity rebates (that is, BP credits) for and to
consumers. In 2001, the rebates were provided by the Power Pool Council from
the BP to electricity suppliers and then applied to consumers’ bills using the
billing operations of electricity suppliers. Electricity suppliers were
required by the Balancing Pool to apply the rebates on the electricity bills
sent to consumers. These rebates were intended to provide assistance to
consumers in a period of high prices.
27. The rebate amounts provided by Alberta to the electricity suppliers were
not required to be segregated.
28. In 2001, electricity rebates totalling $2.1 billion
were distributed to Albertans. The high electricity pool prices led to a
quicker delivery of the rebates from the BP to provide assistance to consumers.
29. Residential consumers received a rebate of $40
per month on their electricity bills, during the relevant time, based on
consumption of 650 kilowatt hours per month for an average household.
30. Non-residential consumers (industrial,
commercial, consumer groups and businesses) received a rebate each month,
during the relevant time, on the electricity bills based on the total actual
eligible consumption. The rebate was calculated by multiplying 3.6 cents per
kilowatt hour by the consumers’ actual eligible consumption. Farmers received
rebates as residential and non‑residential consumers of electricity.
Administration of Electricity Rebate Program and Rebates
31. In 2001, electricity suppliers were to
calculate the rebates for consumers monthly and then apply the rebates on the
electricity bills sent to consumers each month. The amounts of the monthly
rebates were based on the actual eligible monthly consumption of electricity
consumed.
32. Data was to be submitted by the suppliers to
the BP on or before the 7th business day of each month. Suppliers with
residential consumers had to provide the prior month’s actual eligible
consumption. All suppliers, regardless of the type of consumer, had to report
any adjustments to rebate amounts allocated in prior months as soon as
practicable. Adjustments had to align with the amounts applied to consumers’
bills.
33. In the fall of 2001, a supplier was to
forecast for the remaining months of 2001 for the monthly allocation for
residential consumers and the monthly eligible consumption allocation for
non-residential consumers. Had a supplier been provided with rebates based on
forecasts, a one-time adjustment would be made to align rebate amounts from
forecasts to the actual eligible consumption.
Price Deregulation and Rate
34. In 2001 Alberta consumers could purchase gas from a supplier under a contract that
typically provides the gas at a fixed price per GJ for a specified period, or
it can be a variable rate. Consumers that did not choose to purchase gas under
a contract were provided gas at the default rate (the so‑called
“regulated rate”). In 2001, this default rate was determined under a
methodology approved by the Energy and Utilities Board (EUB) but the rate
reflected market forces. The methodology is to provide consistency amongst
suppliers. The suppliers would seek approval from the EUB. EUB would ensure the
suppliers followed the methodology. Rebates were applied to consumers’ bills
whether they purchased gas under a contract from a supplier at a fixed or
variable rate or from a default supplier under the default rate.
35. The Electric Utilities Act was enacted
in May 1995. It established the power pool, the new spot market and the
legislative hedges. Electricity generated throughout Alberta goes into the Power Pool. This restructuring of the electricity
industry was to foster a competitive retail market for electricity by allowing
that market to be responsive to changes in supply and demand, resulting in more
competitive prices and more choices of electricity suppliers to consumers. A
system of “legislative hedges” maintained the regulated price regime for the
vast majority of customers until the hedges expired on December 31, 2000. The
hedging was to maintain regulated pricing for regulated generation existing in
1995 — a specific volume of generation capacity — and share the regulated price
of electricity among the distribution utilities according to its proportionate
share. That is, if a distribution utility served a percentage of the provincial
load, it would be entitled to its proportionate percentage at the regulated
price of electricity. In 2001 consumers were then exposed to prices determined
in the wholesale market.
36. On January 1, 2001 electricity consumers who
had not chosen to sign a contract with an electricity supplier were
automatically moved to the Regulated Rate Option (“RRO”); the electrical
service would continue with the existing energy supplier. In 2001, all RRO
suppliers were required to charge 11 cents per kilowatt per hour on their
electricity bills for RRO customers. If it subsequently turned out that the RRO
had a deficit or surplus as it relates to the 11 cents, because they were
buying electricity in the competitive market, they could apply to the EUB,
after October 2001, to seek approval to collect or be reimbursed from their
customers for the difference in the amounts. The RRO was based on each energy
supplier’s purchasing strategy and the price would vary with the market price.
Calgary Board of
Education (“CBE”)
37. CBE is the school board for the City of Calgary and a public service body within
the meaning of section 259 of Part IX of the Excise Tax Act.
38. CBE claimed, and was allowed, a public service
body rebate of 68% of the tax payable with respect to the supplies of gas and
electricity (“energy”) that it acquired during the relevant times.
39. At the relevant times, CBE was a
non-residential consumer of energy.
40. At the relevant time, CBE had entered into a
written agreement with Atco that was similar to the agreement CBE had with
Enmax. Under the agreement, CBE was liable to pay Atco for the price of the gas
supplied by Atco to CBE based on the quantity of energy consumed.
41. CBE received monthly invoices from Atco
detailing various charges some of which include the cost for the delivery of
the gas, the cost for the gas based on the quantity consumed in the billing
period, the gas rates and municipal franchise fee. The invoice also showed the
Alberta Government Natural Gas Rebate adjustment arising from the Alberta
Government Natural Gas Rebate program, that was calculated and based on the
actual quantity of gas consumed.
42. In December 2000, CBE entered into a written
agreement, the Electricity Services Agreement (“Agreement”), with Enmax
effective January 1, 2001. Pursuant to the Agreement:
(i) CBE chose Enmax for the provision of the
supply of electricity services effective January 1, 2001;
(ii) Enmax agreed to supply and CBE agreed to
purchase electricity from Enmax;
(iii) CBE received monthly invoices from Enmax
detailing various charges, including the cost of electricity based on the
quantity consumed in a particular billing cycle, and the system access charge,
distribution access charge, and municipal consent and access fee for the
electricity supplied to CBE during the relevant time;
(iv) the price of the supply of electricity is
determined by amounts agreed to between CBE and Enmax per kilowatt hour during
peak and off peak periods based on quantities consumed;
(v) CBE was liable to pay Enmax the price for
supplies of electricity supplied by Enmax to CBE based on the quantity of
electricity consumed.
43. The invoices from Enmax also showed the
Alberta Non-Residential Electricity Rebate, provided each month, was calculated
and based on the actual amount of electricity consumed.
44. GST of 7% was calculated on the amount on the
value of the charges on the invoices that CBE each received from the energy
suppliers. GST was calculated on the cost of gas, the cost to distribute the gas
and a municipal consent charge, before the energy rebates were applied. CBE
paid the invoices.
45. CBE sought to obtain refunds of GST from the
Minister of National Revenue for the portion of GST it claims it paid in error
relating to the amounts of GST attributable to the amounts of the rebates.
46. CBE would contact the suppliers directly, not Alberta, if there was a concern with
respect to the payment of the invoice. The suppliers would pursue CBE if there
was a concern with the agreement or the invoice or the energy supplied.
47. At the relevant times, Alberta:
a) did not get involved, nor insist, in any way
which energy suppliers CBE could select;
b) was not responsible for ordering gas and
electricity supplies on behalf of CBE from Atco or Enmax;
c) was not a party to the agreements between CBE
and Atco or CBE and Enmax regarding any gas or electricity supply;
d) did not co-sign any of the gas or electricity
accounts that CBE had with Atco or Enmax; and
e) was not responsible for any services on the
invoices sent by Atco or Enmax to CBE.
48. If consumers had a problem with their
agreement with an energy supplier or invoice with an energy supplier, Alberta did not get involved in the
relationship between the supplier and the consumer for the supply of energy. Alberta had a Program Office that assisted
and responded to consumer inquiries related to rebate issues. Alberta was contacted directly by a number
of consumers seeking explanations of the rebate programs.
Boardwalk Equities Inc. (“Boardwalk”)
49. Boardwalk owns buildings and rents
multi-family residential units in those buildings; there are from 40 to 100
plus rental units in each of the buildings in the complexes.
50. In 2001, Boardwalk:
a) Operated 17,000 residential rental units in Alberta and 9,000 in two other provinces,
and owned townhouse projects that were rented for a minimum of one month and
most units were on long‑term leases.
b) May have been responsible for the energy
supplies for the rental units in each residential complex or the tenant may
have been responsible, and Boardwalk may have been responsible for arranging
for energy to be turned back on when a unit is vacated without the tenant
paying the energy suppliers.
c) Arranged for the supply of energy for the
common areas for all of the building complexes.
d) Rented a portion of the residential complexes
as a commercial space.
e) Was a non-residential consumer of gas (that
is, a commercial consumer of energy for residential buildings containing rental
units for gas) under the gas rebate program.
f) Was a non-residential consumer of
electricity and in isolated situations a residential consumer of electricity
under the electricity rebate program.
51. Boardwalk chose the suppliers for the supply
of gas and supply of electricity at the relevant times.
52. The suppliers agreed to supply and Boardwalk
agreed to purchase gas and electricity from the respective suppliers of energy.
53. At the relevant times, Boardwalk had entered
into agreements with Atco for gas, Enmax for electricity and other suppliers of
energy and agreed to pay and be liable to pay the suppliers for the supplies of
energy based on the quantity of energy consumed.
54. The price of the supply of gas was determined
by the price, fixed or variable, per GJ as agreed between Boardwalk and the gas
suppliers based on the actual quantity of gas consumed by Boardwalk.
55. The price of the supply of electricity was
determined by the price per kilowatt hour during peak and off peak periods as
agreed to between Boardwalk and the electricity suppliers based on the actual
quantity of electricity consumed by Boardwalk.
56. Under agreements between Boardwalk and the gas
suppliers and electricity suppliers, Boardwalk was liable to pay the price for
the supplies of electricity and gas supplied by Boardwalk.
57. Boardwalk received monthly bills from gas
suppliers detailing various charges, some of which include the cost for the
delivery of the gas, the cost for the gas based on the actual quantity consumed
in the billing period, the gas rates and municipal franchise fee. The bill also
shows the Alberta Government Natural Gas Rebate adjustment arising from the
Alberta Government Natural Gas Rebate program. This was calculated and based on
the actual quantity of gas consumed for non-residential consumers.
58. Boardwalk received monthly bills from the
electricity suppliers detailing various charges. These included the cost of
electricity based on the actual quantity consumed in a particular billing
cycle, and the system access charge, distribution access charge, and municipal
consent and access fee for the electricity supplied to Boardwalk during the
relevant time. The bills from the electricity suppliers show the Alberta
Non-Residential Electricity Rebate that was provided each month, was calculated
and based on the actual amount of electricity consumed as a non‑residential
consumer. One bill shows a rebate of $40, as a flat fee, other bills show
rebates as variable amounts as a residential consumer.
59. GST of 7% was calculated on the amount on the
value of the charges on the bills that Boardwalk received from each of the gas
and electricity suppliers. For gas, GST was calculated on the cost of gas, the
cost to deliver the gas and a municipal franchise fee/charge, before the gas
rebates were applied. For electricity, GST was calculated on various charges
some of which include the energy charge, distributions charge and Municipal
Consent and Access Fee before the electricity rebates were applied. Boardwalk
paid the bills.
60. Boardwalk sought to obtain refunds from the
Minister for the portion of GST it claims it paid in error relating to the
amounts of GST attributable to the amounts of the rebates.
61. Boardwalk would contact the suppliers
directly, if there was a concern with respect to the agreements or the bills or
the energy supplied.
62. At the relevant times, Alberta:
a) did not get involved, nor insist, in any way
which energy suppliers Boardwalk could select;
b) was not responsible for ordering gas and
electricity supplies on behalf of Boardwalk from energy suppliers;
c) was not a party to the agreements between
Boardwalk and energy suppliers regarding any gas or electricity supply;
d) did not co-sign any of the gas or electricity
accounts that Boardwalk had with the energy suppliers; and
e) was not responsible for any services on the
invoices sent by the energy suppliers to Boardwalk.
63. In 2001 there were no written or other trust
agreements between or among Alberta, BP, and the energy suppliers in respect of the provision of any of
the gas and electricity rebates in issue.
64. In 2001 there were no written or other agency
agreements between or among Alberta, BP, the energy suppliers of consumers in respect of the provisions
of any of the gas and electricity rebates in issue.
65. Other than the agreements referred to at
paragraphs 40, 42 and 53 of this document, there were no other agreements
(specifically, no written or other trust or agency agreements) that CBE or
Boardwalk had entered into in 2001.
66. At the end of the rebate programs, there were
reconciliations as between all gas suppliers and Alberta and any shortfall or excess was provided . . . to
each other.
[11]
The natural gas rebate
was funded by the province from general revenues.
[12]
As indicated above at
paragraphs 24 and 25 of the Agreed Partial Statement of Facts, auctions of the power
purchase arrangements yielded some $2.1 billion which was placed in the balancing
pool and was the source of funds for the electricity rebates.
[13]
In order to generate
the $2.1 billion, the successful bidders must have believed that in the
deregulated market, they would be able to sell the electricity for prices in
excess of the total of the amounts bid at the auction plus the cost of the
electricity pursuant to the power purchase arrangements.
Testimony of Mr. Holmes
[14]
Much of the testimony
of Mr. Holmes confirmed facts already in the Agreed Partial Statement of Facts.
[15]
Mr. Holmes helped
design the natural gas rebate program and its administration. He also had some knowledge
of the electricity rebate program but not to the same degree as with respect to
the gas rebate program.
[16]
Mr. Holmes explained
that the gas heating fuel rebate program was put in place very quickly and that
the province could not have organized and operated in a timely way a system
where all the rebate beneficiaries applied for the rebate and then received a
cheque from the government. Setting up an application and refund system would
have been too slow in providing relief to customers.
[17]
As a result, the government
sought an administratively efficient way to deliver the gas rebate and made the
arrangements with the gas suppliers. There were no written agreements with the
gas suppliers.
Read-ins from the Discovery of Mr. Breen
[18]
Mr. Breen was the
nominee of the Calgary Board of Education. He agreed that under the agreements
for supply of the energy in issue here the Board was liable to pay the invoiced
amounts for gas or electricity and the province had no obligation to pay for
the supplies on behalf of the Board.
[19]
The appellant also read
in some qualifications by counsel to the effect that it was the Board’s
position that the rebate reduced the value of the consideration and that if the
Board had not paid its bill the energy supplier would only have gone after the
Board for the net amount due after the rebate was deducted from the bill.
Issues
[20]
In their notices of appeal
the appellants framed the legal issues as follows:
For the
supply of the electricity:
(i)
Does the value of the consideration for the supply to the Appellant
include the reduction on the invoices to reflect the Balancing Pool credit?
(ii)
Is the Balancing Pool credit consideration paid by the Government of
Alberta for a supply?
If (i) or
(ii), or either of them, are answered in the affirmative, the result will be
that the consideration payable by the Applicant was reduced and GST should have
applied on that reduced amount.
For the
supply of the natural gas:
(iii) Does the value of the consideration for the supply to the Appel1ant
include the amount of the reduction on the invoices to reflect the Grant?
(iv) Is the Grant consideration paid by the Government of Alberta
for a supply?
If (iii) or
(iv), or either of them, are answered in the affirmative, the result will be
that the consideration payable by the Applicant was reduced and GST should have
applied on that reduced amount.
[21]
In her amended replies
the respondent framed the issues as follows:
The issues to
be decided are whether, for GST purposes, the Energy Rebates:
(a) reduce the consideration the Appellant was liable to pay under
the agreements to the Gas Suppliers or the Electricity Retailers for the Gas
Supplied and the Electricity Supplied?
(b) constitute consideration paid by Alberta for supplies?
[22]
The parties’ view of
the issues evolved somewhat by the time the trial began.
Analysis
[23]
It is useful to begin
by examining the situation of the appellants apart from the Alberta government rebate program.
[24]
It is quite clear that
the two appellants entered into contractual agreements with the suppliers of
energy, be it gas or electricity, and those agreements provided that:
(a) the price of the
energy supplied was
(i) the price for each
unit of energy determined in accordance with the contractual agreement
(ii) multiplied by the
quantity of energy consumed
(b) and the appellants
agreed to pay and were liable to pay the suppliers that price for the amount of
electricity supplied.
GST Legislation
[25]
The basic charging
section, subsection 165(1) in Part IX of the Excise Tax Act (hereinafter,
the “GST”),
provides:
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 5%
on the value of the consideration for the supply.
[Emphasis added.]
At the relevant time, the rate was 7%.
[26]
The following
definitions contained in subsection 123(1) of the GST are also relevant:
In section 121, this Part and Schedules V to X,
. . .
“consideration” includes any amount that is payable for
a supply by operation of law;
. . .
“recipient” of a supply of property or a service
means
(a) where consideration for the supply is
payable under an agreement for the supply, the person who is liable
under the agreement to pay that consideration,
(b) where paragraph (a) does not apply and consideration is
payable for the supply, the person who is liable to pay that
consideration, and
(c) where no consideration is payable for the supply,
(i) in the case of a supply of property by way of sale, the
person to whom the property is delivered or made available,
(ii) in the case of a supply of property otherwise than by way of
sale, the person to whom possession or use of the property is given or made
available, and
(iii) in the case of a supply of a service, the person to whom
the service is rendered,
and any reference to a person to whom a supply is made shall be read
as a reference to the recipient of the supply;
. . .
“service” means anything other than
(a) property,
(b) money, and
(c) anything that is supplied to an employer by a person who
is or agrees to become an employee of the employer in the course of or in
relation to the office or employment of that person;
. . .
“supply” means, subject to sections 133 and 134, the
provision of property or a service in any manner, including sale, transfer,
barter, exchange, licence, rental, lease, gift or disposition;
[Emphasis added.]
Situation in the Absence of the Rebate
Programs
[27]
In the absence of the
rebate programs there can be no dispute that in providing energy, whether in
the form of gas or electricity, the energy suppliers are making a supply to the
appellants and the consideration for the supply is the price provided for under
the contracts multiplied by the number of units of energy supply. The consequence
is that the GST will be payable on the entire consideration paid by the
appellants.
[28]
Do the rebate programs
change this?
Legal Framework of the Rebate Programs
[29]
The legal framework of
the two rebate programs is important and I will reproduce below certain
portions of the relevant Alberta law.
[30]
With respect to gas
rebates,
(a) section 13 of the Government
Organization Act of Alberta, R.S.A. 2000, chapter G-10, provides:
13(1) A Minister may make grants if
(a) the Minister is authorized to do so by
regulations under this section, and
(b) there is authority available in a supply vote
for the purpose for which the grant is to be made.
(2) The Lieutenant Governor in Council may make regulations
applicable to a Minister
(a) authorizing the Minister to make grants;
(b) respecting the purposes for which grants may
be made;
. . .
(m) authorizing the Minister to enter into an
agreement with respect to any matter relating to the payment of a grant.
(3) A regulation made under subsection (2) may be specific or
general in its application.
(4) Notwithstanding subsection (2)(g), the Minister may impose
further conditions not prescribed in the regulations on the making of a
particular grant.
(b) the Transportation
and Utilities Grants Regulation (Alberta Regulation 355/1986) provides:
1 The Minister is hereby authorized to make grants in
accordance with this Regulation.
Agreement
2 The Minister is authorized to enter into an agreement with
respect to any matter relating to the payment of a grant and the Minister may
require any applicant for a grant under this Regulation to enter into an
agreement with respect to any matter relating to the payment of the grant.
3 Repealed.
Purpose of grant
4 A grant recipient under this Regulation shall use the grant
only
(a) for those purposes described in the Schedule under
which the grant was made,
(b) for those purposes for which the application for
the grant was made, or
(c) where the original application for a grant or the
purposes for which the grant is made have been varied by the Minister and the
applicant for a grant, for those varied purposes.
Evidence of use of grant
5 A grant recipient shall, at the times that the Minister may
require, produce evidence satisfactory to the Minister of the manner in which
the grant was used, is being used or will be used and in the case of a person or
organization that receives a grant in trust for a grant recipient the person,
organization or grant recipient shall, at the times that the Minister may
require, produce evidence satisfactory to the Minister of the manner in which
the grant was used, is being used or will be used.
Payment
6(1) The Minister may provide for the payment of a
grant in a lump sum or by way of installments and may prescribe the time or
times at which the grant is to be paid.
(2) The Minister may pay the grant to the grant recipient or may
pay the grant in trust to a person or organization for the intended grant recipient.
. . .
SCHEDULE 10
GRANTS IN RESPECT OF HEATING COSTS
1(1) The Minister may make grants for the purpose of
alleviating the impact on consumers of increased natural gas, propane and
heating oil prices in Alberta.
(2) The Minister may make a grant under this section to a
consumer directly or to another person for the benefit of a consumer.
(3) Subject to subsection (4), the Minister may not make grants
under this section in respect of any month other than January, February, March
and April of 2001.
. . .
[Emphasis added.]
(c) ministerial order
No. 6/01, dated February 12, 2001,
has the following appendix:
1. The natural gas rebate will be paid to Alberta users of natural gas.
2. The rebates are for the period January to April
2001.
3. Qualifying users of natural gas who do not
receive an automatic natural gas rebate through their natural gas supplier as a
deduction from their monthly natural gas bills, or who request a review of the
amount of their rebate, will be required to apply for an adjustment. Completed
forms and supporting information must be mailed, faxed or delivered to the
addresses or fax numbers indicated on the application forms by July 31,
2001.
4. Categories and rate of
rebate:
· Residential
|
Definition
|
Maximum
Monthly Rebate
|
|
Single family residence
|
$150
|
|
Boarding house (i.e., house with one or more residential
rental rooms)
|
$150
|
|
Foster home (i.e., family residence into which one or
more foster children have been accepted)
|
$150
|
|
Single family residence ($150) with one or more self‑contained
residential rental suites ($75)
|
$225
|
|
Each unit of a multi-unit building containing 4 or
fewer self-contained residential units
|
$150
|
|
A residential building with a master meter only used
as a group home, shelter, dormitory, or other similar multi‑resident
facility
|
$150
|
. . .
· Commercial
|
Definition
|
Maximum
Monthly Rebate
|
|
A residential building with a master meter only and
having more than 4 residential self-contained units, including apartment
buildings, condominiums, seniors’ lodges, assisted living facilities, long‑term
care facilities, and other similar multi-resident facilities
|
$6/Gigajoule
|
|
Any non-residential commercial building, including offices,
stores, municipal buildings, community halls, recreational facilities, farm
buildings, greenhouses, etc.
|
$6/Gigajoule
to a maximum of $30,000/month
|
. . .
[Emphasis added.]
[31]
With respect to
electricity,
(a) section
45.97(r) of the Electric Utilities Act of Alberta,
R.S.A. 2000, chapter E‑5, provides:
The Minister may make regulations
. . .
(r) respecting the
establishment and operation by the Power Pool Council of a balancing pool,
including the calculation of amounts to be paid into or out of the balancing
pool, at what interval those amounts are to be paid into or out of the
balancing pool and by whom;
(b) the Balancing Pool
Allocation Regulation (Alberta Regulation 330/2000) provides:
2(1) The balancing pool administrator must establish
and implement processes and procedures that will result in
. . .
(b) each residential customer
receiving a balancing pool credit of $40 for each calendar month in
2001.
. . .
3(1) The balancing pool administrator must establish and
implement processes and procedures that will result in
. . .
(b) each non-residential customer
receiving a balancing pool credit in 2001 based on the customer’s
total eligible consumption in 2001 at all sites for
which the customer is responsible for paying the electricity bill.
(2) A customer’s balancing pool credit under this section is
calculated by multiplying 3.6 cents per kilowatt hour by the customer’s
eligible consumption in 2001 at all sites for which the customer is
responsible for paying the electricity bill.
. . .
Duty to maintain records and disclosure of records
6(1) A person involved in the distribution of
balancing pool credits or
the collection of balancing pool charges must maintain
(a) a record of any information provided to the balancing pool administrator
and others involved in the distribution of balancing pool credits and the
collection of balancing pool charges, and
(b) a record of the balancing pool credits provided to customers
and the balancing pool charges collected from customers.
(2) A person involved in the distribution of balancing pool
credits or the collection of balancing pool charges must disclose to the
balancing pool administrator on request any information in the records referred
to in subsection (1).
. . .
9(1) Balancing pool credits and balancing pool
charges referred to in sections 2, 3 and 4 must be shown on electricity bills
provided to customers in the normal billing cycle.
(2) A balancing pool credit under section 2 must be identified
on electricity bills as an “Alberta residential electricity rebate”.
(3) A balancing pool credit under section 3 must be
identified on electricity bills as an “Alberta non-residential electricity rebate”.
. . .
Duty to co-operate
10 Any person involved in the distribution of balancing pool credits
and the collection of balancing pool charges
(a) must co-operate with the Power Pool Council and the balancing pool
administrator, and
(b) must carry out in a timely and efficient manner the procedures,
processes and requirements established by the Power Pool Council and the
balancing pool administrator.
[Emphasis
added.]
(c) the
Balancing Pool Rules, Balancing Pool for Alberta’s
Electricity Consumers, revised October 1, 2001, provide:
1.1 General Definitions
In these rules:
. . .
“BPAR” means the Balancing Pool
Allocation Regulation (330/2000), as amended from time to time;
. . .
“monthly allocation” means, in respect
of each month, the balancing pool credit or balancing pool
charge that will be paid to or received from each site for which a residential
customer or a farm customer is responsible for paying the electricity
bill and may be prorated under these rules;
“monthly eligible consumption allocation” means, in respect of each month,
the balancing pool credit or balancing pool charge based
on eligible consumption that will be paid to or received from each
non‑residential customer and farm customer site;
. . .
3.1 Balancing Pool Allocation
3.1.1 2001 Balancing Pool Credits
a) The monthly allocation
for 2001 is a balancing pool credit of $40.00.
b) The monthly eligible consumption allocation for
2001 is a balancing pool credit of 3.6 cents per kilowatt hour.
3.1.2 2001 Residential Credit for Retailers
a) Each retailer shall credit the monthly
allocation against each electricity bill for each of its residential
customers . . . for each billing period in 2001.
. . .
e) Subject to the other provisions of rule 3, each retailer
shall be entitled to receive out of the balancing pool for each month
during 2001 and applicable months in 2002 an amount equal to the
aggregate of the monthly allocations attributed to the 2001 billing
period of all of its residential customers . . . during such months.
3.1.3 2001 Non-Residential Credit for Retailers
a) Each retailer shall credit the monthly
eligible consumption allocations against each of its non-residential
customers . . . for 2001.
b) Each retailer shall ensure that the monthly
eligible consumption allocations are identified on the electricity bills
of its customers, as stipulated in section 9(3) of the BPAR.
. . .
d) Subject to the other provisions of rule 3,
each retailer shall be entitled to receive out of the balancing pool
for each month during 2001 and applicable months in 2002 an
amount equal to the aggregate of the monthly eligible consumption
allocations attributed to 2001 of all of its non-residential customers . . .
during such months.
[Emphasis added.]
Submissions of the Parties
[32]
At this point, it is useful
to set out part of the parties’ arguments.
[33]
The core of the appellants’
argument is that the rebates in issue represented a reduction in the
consideration payable by the appellants for the gas and electricity purchased
during the period in issue.
[34]
The appellants further
submit that to reach this conclusion one must first answer two questions:
(a) Were the rebates paid
to and for the account:
(i) of customers or
(ii) of the energy
suppliers?
The appellants submit that the rebates were
paid to and for the account of the suppliers on condition that the rebates
would then be passed on by energy suppliers to customers as reductions in the
consideration payable by the appellants for the energy.
(b) If the rebates were
paid to and for the account of the energy suppliers, were the rebates
consideration for a supply to the province or the Power Pool Council?
The appellants submit that the answer is
yes.
[35]
Part of the respondent’s
response was that there was no reduction in the consideration for the supply of
energy to the appellants and that the energy suppliers were simply a conduit
for transferring the rebates from the province, or the balancing pool (administered
by the Power Pool Council), to customers such as the appellants.
[36]
I agree with the
parties that the nature of the relationship between the rebate providers, Alberta and the Power Pool Council, on the one hand, and the
energy suppliers, on the other, is critical to the issues in these appeals.
[37]
Put simply, one must
first determine:
(a) whether the funds
(rebates) were paid to the energy suppliers in return for the suppliers
reducing the price per unit of energy to customers, including the
two appellants
or, alternatively,
(b) whether the suppliers
were transferring the funds (rebates) to the customers by crediting to the
accounts of customers the amount of the rebate, thereby offsetting part of the
customers’ energy bills?
[38]
The appellants argued
that the respondent’s conduit theory implied either that the energy suppliers
must be in an agency relationship with the rebate payors or, alternatively,
that the rebate amounts were paid to the energy suppliers in trust for the
energy consumers.
[39]
The respondent stated
that she was not arguing the law of agency or that there was a trust
relationship. Accordingly, I will proceed on the basis that there was no trust
or contract of agency.
[40]
I do not agree with the
appellants. For someone to act as a conduit it is not necessary that there be a
contract of agency or a trust. If A enters into an arrangement with B, whereby
B carries an envelope containing cash to C, that arrangement involves no
contract of agency nor does it involve the creation of a trust; the same is
true here if the arrangement was one where the energy suppliers acted as a
conduit.
Nature of the Relationship Between Rebate
Providers and Energy Suppliers
[41]
Accordingly, in order
to determine if the rebate program alters the relationship between the appellants
and the energy suppliers, we need to determine the relationship between the energy
suppliers and the rebate providers.
Gas Rebates
[42]
With respect to gas
rebates, what exactly is the relationship between Alberta
and the gas suppliers?
[43]
There were no written
agreements.
[44]
We know that
operationally the natural gas suppliers insured that the customer benefited
from the rebates in accordance with the legal framework created by Alberta.
[45]
This is reflected in
the bills which show the cost of gas before the rebate, the rebate as a credit
to the customer’s account and a net cost after the rebate.
[46]
The net cost is the
amount the customer pays. However, in the case of gas if the gas supplier
received the amount of the rebate after the due date the customer remained
liable for any interest or penalties that arose as a result of late payment.
[47]
The rebate is usage
based with the consequence that the customer must first consume the gas before
the province makes any payment.
[48]
Administratively, the
suppliers requested from Alberta the amount of the rebates once they had
sent the bills to the customers showing the rebates.
[49]
Then the government
provided to the suppliers an amount equal to the rebates.
[50]
The actual conduct of
the gas suppliers and the government is more suggestive of a conduit given that
generally the actions of the government and the suppliers do not suggest that
there is a reduction in the price of the natural gas to the customers.
[51]
The bill shows the full
price of the gas and then deducts the rebate.
If there were a price reduction one would expect the gas suppliers to make some
reference to it in bills.
[52]
One would also expect
the Alberta government news releases to refer to a
price reduction; generally the news releases talk of rebates although there is
a backgrounder that has a table showing three columns “Winter Rate”, “Rebate”
and “Price after rebate”.
The term “Price after rebate” is ambiguous as to whether the price itself is
reduced.
[53]
By itself, the apparent
conduct of the gas suppliers and the government between themselves does not
tell us definitively what the arrangement is between them.
[54]
What makes the question
difficult is that, apart from GST, the practical effect for the two appellants
is the same whether the suppliers were paid to reduce the price or to act as a
conduit.
[55]
However, the Alberta legislative framework does assist the determination.
[56]
As we saw above, the
Minister may make grants if, among other requirements, authorized by
regulation and the Transportation and Utilities Grants Regulation provided
authority to make grants, notably:
. . . for the purpose of alleviating the impact on
consumers of increased natural gas, propane and heating oil prices in Alberta.
The Minister could also make such a grant:
. . . to a consumer directly or to another person for the
benefit of a consumer.
[57]
The Minister then implemented
a program of grants by ministerial order No. 6/01, above, that provided:
1. The natural gas rebate will be paid to Alberta users of natural gas.
. . .
3. Qualifying users of natural gas who do not
receive an automatic natural gas rebate through their natural gas supplier
as a deduction from their monthly natural gas bills . . . will be required
to apply for an adjustment. . . .
[Emphasis
added.]
[58]
While the Regulation
authorizes the Minister to make grants either to the consumer or to someone for
the benefit of the consumer, when he implemented the grants he issued an order
that is crystal clear: the “rebate will be paid to Alberta
users of natural gas”.
This is a very clear choice to make payments to consumers and not to make
payments to suppliers for the benefit of consumers.
[59]
Given that, the
conclusion seems unavoidable that the only arrangement the province could enter
into was one where the gas suppliers were acting as a conduit; the Minister
did not choose to create the authority to enter into arrangements that paid the
companies to reduce the price. As a result, the arrangement entered into had to
be one where the energy suppliers were a conduit.
[60]
Consequently, there was
no change to the relationship between the appellants and the gas suppliers as
it was prior to the rebate programs and there was no reduction in the
consideration payable by the appellants.
Electricity Rebates
[61]
The situation is
clearer in the case of electricity.
[62]
While there are no
written agreements between the electricity suppliers and the Power Pool
Council, the operation of the rebate scheme is clearly set out in the legal
framework created by the province.
[63]
The Balancing Pool
Allocation Regulation provides that the balancing pool administrator must
see to it that “each non-residential customer [receives] a balancing
pool credit in 2001 based on the customer’s total eligible consumption in
2001” (emphasis added). The credit is 3.6 cents per kilowatt hour, the amount
of the rebate received by the appellants.
[64]
The Regulation imposed
on electricity suppliers:
(a) record
keeping requirements and the obligation to disclose information to the
balancing pool administrator,
(b) the
obligation to:
. . . co-operate with the Power Pool Council and the balancing
pool administrator, and . . . carry out in a timely and efficient
manner the procedures, processes and requirements established by the Power Pool
Council and the balancing pool administrator.
and
(c) the requirement that:
A balancing pool credit under section 3 must be identified on
electricity bills as an “Alberta non-residential electricity rebate”.
[65]
In
turn, the Balancing Pool Rules,
above, defined the “monthly eligible consumption allocation” for non‑residential
customers, such as the appellants, as “the balancing pool credit . . .
based on eligible consumption that will be paid to . . . each
non‑residential customer”
(emphasis added), and provided that:
a) Each retailer shall credit the monthly
eligible consumption allocations against each of its non-residential customers . . .
for 2001.
b) Each retailer shall ensure that the monthly
eligible consumption allocations are identified on the electricity bills of its
customers, as stipulated in section 9(3) of the BPAR.
. . .
d) . . . each retailer shall be entitled
to receive out of the balancing pool for each month during 2001 . . .
an amount equal to the aggregate of the monthly eligible consumption
allocations attributed to 2001 of all of its non‑residential customers . . . .
[66]
This legal framework
has two main effects in relation to the issues here.
[67]
First, it creates a
system of allocating credits (the rebates in issue) from the funds in the
balancing pool that “will be paid” to non-residential customers.
[68]
Second, the framework
creates the obligation for the electricity suppliers to cooperate in the
administration of the system.
[69]
In support of their
position, the appellants submit that the Balancing Pool Rules clearly
provide that the electricity suppliers received the rebates on their own
account. While rule 3.1.3 d), quoted above, clearly states that they shall
receive an amount equal to the “monthly eligible consumption allocations”, that
is equally compatible with the suppliers receiving the amounts in return for a
price reduction or with the suppliers receiving the amounts in return for
crediting an equal amount to the accounts of customers.
[70]
The language of the
definition of “monthly eligible consumption allocation” is unambiguous; the
credits “will be paid to . . . each non‑residential
customer”. There is simply no way this language can be read as somehow creating
a system where the electricity suppliers are being paid to lower prices.
[71]
Accordingly, there is
no reduction in the consideration payable by the appellants to the electricity
suppliers during the period in issue.
Other Arguments
[72]
Given these conclusions
it is unnecessary for me to deal with the other arguments made by the parties.
[73]
In particular, I note
that, assuming there is a supply for consideration by the energy suppliers to
the province and the Power Pool Council, that supply is for the service of
transferring funds to the accounts of customers; that has no effect on the consideration
payable by the appellants.
Conclusion
[74]
Given that the rebate
program did not change the consideration payable by the appellants, the
Minister of National Revenue made the correct decision in refusing the rebates.
The appeals are dismissed with costs.
Signed at Ottawa, Ontario, this
8th day of January 2012.
“Gaston Jorré”
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