REASONS
FOR JUDGMENT
D'Arcy J.
[1]
The Minister has assessed the Appellant in
respect of its monthly reporting period ending on October 31 for each year from
2002 to 2007. The appellant also filed an appeal for its monthly reporting
period ending on October 31, 2008. I quashed that appeal at the
commencement of the hearing with the consent of the Appellant.
[2]
As stated in the Amended Partial Agreed
Statement of Facts and Issues (the PASF), the Appellant “was created to facilitate the administration and
operation of resort accommodations in connection with a vacation accommodation
ownership plan. . .” (the Intrawest Program).
[3]
The issues in this appeal arise from
transactions between the following parties:
-
The Appellant.
-
Intrawest Resort Ownership Corporation and its
successor corporations, Intrawest Corporation and Intrawest ULC (individually
and collectively referred to as the Canadian Developer).
-
Intrawest Resort Ownership U.S. Corporation and
Resort Ventures L.P (jointly referred to as the U.S. Developer).
-
Certain third parties situated in Canada who
entered into an agreement with the Canadian Developer that allowed them to
participate in the Intrawest Program(Canadian
Resort Point Purchasers).
-
Certain third parties situated in the United
States who entered into an agreement with the U.S. Developer that allowed them
to participate in the Intrawest Program (the American Resort Point
Purchasers).
[4]
The appeal relates to the following issues that
arise in respect of the Appellant’s participation in the Intrawest Program:
-
Whether the Appellant acquired numerous goods
and services as agent for the Canadian Resort Point Purchasers, the American
Resort Point Purchasers, the Canadian Developer, and the U.S. Developer
(collectively referred to as the Members of the Appellant).
-
If the Appellant did not acquire the numerous
goods and services as agent for the Members of the Appellant,
o
What was the nature of the supply made by the
Appellant to the Members of the Appellant? Specifically, was it a supply of
intangible personal property or of a service?
o
How do the place-of-supply rules contained
in section 142 of Part IX of the Excise Tax Act (the GST Act)
apply to a supply of intangible personal property or a service that relates to
both real property situated in Canada and real property situated outside of
Canada?
-
Whether the Minister followed the provisions of
the GST Act when calculating the Appellant’s net tax.
[5]
The Appellant called two witnesses, Mr. Robert
Keith Thompson and Ms. Sandra Ruff.
[6]
Mr. Thompson is a retired lawyer. He informed
the Court that, starting in 1993, he acted for Intrawest Corporation (the
parent company of the Canadian Developer) and the Canadian Developer. Mr. Thompson
informed the Court that his clients, Intrawest Corporation and the Canadian
Developer, were waiving privilege with respect to discussions he had had with them
relating to the establishment of the Appellant and the drafting of documents regarding
the establishment of the Appellant.
[7]
Most of Mr. Thompson’s testimony involved the
identification of certain documents that he drafted on behalf of the Canadian Developer.
The PASF discusses the majority of these documents.
[8]
Mr. Thompson testified that he did not act for
the Appellant. In addition, he was not involved in the transactions between the
Canadian Developer and Canadian Resort Point Purchasers pursuant to which the
Canadian Resort Point Purchasers purchased their interests in the Intrawest
Program.
[9]
Ms. Ruff is an accountant who works for a
division of the Canadian Developer. Specifically she is the Vice-President of
Finance of the Intrawest Resort Club Group division of the Canadian Developer.
The majority of her testimony related to the calculation of an annual fee that
the Appellant bills to the Members of the Appellant (the Annual Resort Fee).
[10]
I found both witnesses to be credible.
[11]
The Respondent called three witnesses: Mr. Jaya
Abraham, Ms. Brenda Ewing and Mr. Dennis Lum.
[12]
Mr. Abraham and Ms. Ewing are Canadian Resort
Point Purchasers. In 2008, subsequent to the assessed periods, Ms. Ewing was a
sales representative for the Canadian Developer.
[13]
Mr. Lum is a large-business auditor and has
worked for the CRA for 25 years.
[14]
I found all of the Respondent’s witnesses to be
credible.
[15]
The Appellant is a non-profit, non-stock
corporation that was established on November 9, 1993 under the laws of the
state of Delaware in the U.S.A. The Appellant is a GST registrant and its
mailing and business address is 326-375 Water Street, Vancouver, British
Columbia.
[16]
When assessing the Appellant, the Minister
assumed that the Appellant was at all material times a resident of Canada. The
Appellant did not provide any evidence to rebut this assumption.
[17]
Paragraph 14 of the PASF notes that the
following documents govern the Intrawest Program:
-
Exhibit A-1, Table 1: The table contains an
agreement entitled, FOURTEENTH AMENDED AND RESTATED Master Declaration for Club
Intrawest entered into by the Appellant and the Canadian Developer (the Master
Declaration).
-
Exhibit A-1, Table 13: The table contains two
documents: the Certificate of Incorporation for the Appellant with amendments (the
Incorporation Documents) and the by-laws of the Appellant (the By-laws).
-
“The agreements governing the trust arrangements described. . .in
paragraph 19” of the PASF. Paragraph 19 states
the following:
When the developer [the
Canadian Developer] transferred a vacation home in Canada to the Club [the
Appellant], legal title to the vacation home was transferred to a trust company
created under Canadian law, as trustee for the Club [the Appellant]. When the
U.S. developer transferred a vacation home in the United States or Mexico to
the Club [the Appellant], legal title to the vacation home was transferred to a
trust company created under U.S. law, as trustee for the Club [the Appellant].
I will refer to the trust agreement involving the Canadian Developer
and the Appellant as the Canadian Bare Trust Agreement and the agreement
involving the U.S. Developer and the Appellant as the U.S. Bare Trust
Agreement.
-
Exhibit A-1, Table 6: “the
guidelines setting out the rules applicable to members in connection with the
Intrawest program.” (the Membership
Guidelines)
-
Exhibit A-1, Table 8: The document entitled
Purchase and Membership Agreement which agreement was entered into by the
Canadian Developer and a Canadian Resort Point Purchaser (the Canadian Purchase
and Membership Agreement)
-
Exhibit A-3: A document entitled Membership
Certificate
[18]
As noted in paragraph 13 of the PASF, the parties
are satisfied that the documents at Exhibits A-1 and A-2 are materially
representative of these documents for the period between 2002 and 2007. I
assume that the Membership Certificate, Exhibit A-3, is also materially
representative of that document for the period between 2002 and 2007.
[19]
The Canadian Developer established the Appellant
and created the Intrawest Program in 1993. During the relevant period, the
program involved vacation homes located in resorts in Canada (the Canadian
Vacation Homes), the United States and Mexico (the U.S./Mexico Vacation
Homes).
[20]
It is my understanding that the Canadian
Vacation Homes and the U.S./Mexico Vacation Homes (which I will refer to
together as the Vacation Homes) are studio, one, two, and three bedroom
condominium units in the various resorts.
[21]
The Canadian Developer either built or purchased
the Canadian Vacation Homes.
It appears that the U.S. Developer either built or purchased the U.S./Mexico
Vacation Homes.
As I will discuss, the Canadian Developer and the U.S. Developer transferred
their respective interests in the Canadian Vacation Homes and the U.S./Mexico Vacation
Homes to the Appellant.
[22]
The Appellant retained the Canadian Developer to
manage and operate the Canadian Vacation Homes and the U.S./Mexico Vacation
Homes.
[23]
Each of the Canadian Developer and the U.S.
Developer transferred individual Vacation Homes to the Appellant. The Appellant
paid for the Vacation Homes by transferring the occupancy rights to the
Vacation Homes, in perpetuity, to the Canadian Developer and the U.S. Developer
respectively.
I received very little detailed evidence with respect to these key
transactions.
[24]
The PASF notes the following:
7. When the developer(s) [the
Canadian Developer] transfer a vacation home, either built or acquired, to the
Club [the Appellant], it is transferred in exchange for the number of resort
points required for the right to occupy and use the vacation home for an entire
year.
. . .
12. The
point values for the right to occupy and use the vacation home at a particular
resort are determined before the developer(s) [the Canadian Developer] transfer
the vacation home to the Club [the Appellant].
[25]
I have concluded from paragraphs 7 and 12 of the
PASF, and after reading section 2.1(a) of Exhibit A-1, that the Canadian
Developer transferred Vacation Homes to the Appellant in consideration of the
occupancy rights, in perpetuity, to the Vacation Home. The occupancy rights are
evidenced by a point system. According to paragraph 11 of the PASF, the
Canadian Developer determines the actual number of points that represent the
value of occupancy of a home for each day in a year (the Resort Points).
[26]
While paragraphs 7 and 12 of the PASF refer only
to the Canadian Developer, I assume that the U.S. Developer received the same
consideration when it transferred U.S./Mexico Vacation Homes to the Appellant.
[27]
The Appellant did not provide the Court with any
of the actual transfer agreements used by the Canadian Developer to transfer
Canadian Vacation Homes to the Appellant (the Canadian Vacation Home
Transfer Agreement), or used by the U.S. Developer to transfer U.S./Mexico
Vacation Homes to the Appellant (the American Vacation Home Transfer Agreement).
The Appellant’s counsel argued that the Master Declaration effected the
transfers. I do not agree. While the Master Declaration permits the transfers
to take place, it is not an agreement that actually transfers the Vacation
Homes to the Appellant. The Master Declaration does not contain basic clauses
that are required in order to effect a transfer of a specific Vacation Home,
such as a consideration clause, a date-of-transfer clause and a clause that specifies
the interests that are being transferred. Mr. Thompson confirmed to the
Court that the transfers were effected by documents that are not before the
Court.
[28]
In addition, the Appellant did not call as a witness
an employee, officer, or director of the Canadian Developer, the U.S. Developer
or the Appellant who had knowledge of the terms of these agreements. In fact,
the Appellant did not call any employees, officers or directors of the Appellant
to testify before the Court.
[29]
As a result, as I will discuss, it is not clear
to the Court what beneficial interests in the Vacation Homes, or
responsibilities with respect to the Vacation Homes, were retained by the
Appellant under the two transfer agreements.
[30]
As discussed previously, when the Canadian
Developer transferred a Canadian Vacation Home to the Appellant, legal title
was transferred to a trustee pursuant to the Canadian Bare Trust Agreement. When
the U.S. Developer transferred a U.S./Mexico Vacation Home to the Appellant,
legal title was transferred to a trustee pursuant to the U.S. Bare Trust
Agreement.
[31]
The Appellant provided the Court with a copy of
the Canadian Bare Trust Agreement between the Canadian Bare Trustee, the
Canadian Developer and the Appellant. Section 2.1 of the trust indenture states
the following:
2.1 Appointment:
The Club [the Appellant] appoints the Trustee as its bare trustee to hold legal
title to the Resort Accommodation in trust for and on behalf of the Club [the
Appellant] in accordance with the terms of this Agreement. The Trustee accepts
the appointment and declares that:
(a) It
will hold legal title to the Resort Accommodation in trust for the Club [the
Appellant] in trust as bare Trustee for and on behalf of the Club [the Appellant];
and
(b) It
will hold no beneficial interest in the Resort Accommodation and that all the
equitable and beneficial interest in the Resort Accommodation will be vested
solely and exclusively in the Club [the Appellant] for the benefit of the Club
[the Appellant] and its Members.
[32]
The Court was not provided with a copy of the U.S.
Bare Trust Agreement. It appears, from the evidence before me, that the U.S.
Bare Trustee held the legal title in the Vacation Homes in trust as bare
trustee for and on behalf of the Appellant.
[33]
The Canadian Developer markets and sells the
Intrawest Program in Canada.
The U.S. Developer markets and sells the Intrawest Program in the United
States.
[34]
The PASF provides the following description of
the Canadian Developer’s involvement in the program:
-
The Canadian Developer assigns “a point value” (Resort
Points) to the right to occupy one day in each [Vacation Home], with possible
variations in assigned point value for the particular [Vacation Home],
depending on which of five Intrawest program seasons – holiday season, peak
season, activity season, relax season and opportunity season-the particular day
falls within.
-
The Canadian Developer then sells, in Canada,
Resort Points to Canadian Resort Point Purchasers.
[35]
The PASF states that the Canadian Developer is a
member of the Appellant.
It is not clear to the Court when or how the Canadian Developer acquired this
membership.
[36]
I did not receive any evidence with respect to
the U.S. Developer’s involvement in the assignment of point values to the
U.S./Mexico Vacation Homes.
[37]
The only reference in the PASF to the U.S.
Developer’s involvement in the Intrawest Program is the statement in paragraph
5 that the U.S. Developer markets and sells the Intrawest Program in the United
States.
[38]
The PASF does not state whether the U.S.
Developer is a member of the Appellant. However, section 1.34 of the Master
Declaration states that “‘Member’ means Resort
Point Members and Advantage Members (collectively the Resort Point Purchasers), together with the Declarant,
with respect to the Declarant’s Resort Points and the Declarant’s Advantage
Interests.” Pursuant to sections 1.4 and 7.3 of the Master Declaration, Advantage
Members are, generally speaking, Resort Point Purchasers who have special
occupancy rights.
Section 1.18 of the Master Declaration defines Declarant as including the
Canadian Developer and its appointees. Section 1.6 of the Master Declaration
states that ‘Appointee’ means Intrawest Resort
Ownership U.S. Corporation, Resort Ventures, L.P [the U.S. Developer]. In
summary, pursuant to the Master Declaration, the U.S. Developer is a member of
the Appellant.
[39]
The Canadian Developer and the Canadian Resort
Point Purchasers entered into the Canadian Purchase and Membership Agreement. Section
2 of the agreement provides that the Canadian Resort Point Purchaser agrees to
purchase, and the Canadian Developer agrees to sell, a specific number of Resort
Points.
For the purposes of the Canadian Purchase and Membership Agreement, Resort
Points are defined as “the currency of use at
the Club [the Appellant] through which Resort Point Members reserve occupancy
of Resort Accommodation in accordance with the Club Instruments.”
[40]
The Canadian Purchase and Membership Agreement
also provides that “on the purchase of the
Resort Points, the Purchaser [the Canadian Resort Point Purchaser] shall be
admitted as a Member of the Club [the Appellant] at no additional cost.”
[41]
The parties did not file with the Court the
agreements that the U.S. Developer entered into with the American Resort Point
Purchasers when the U.S. Developer sold Resort Points to the American Resort
Point Purchasers. I assume that the American Resort Point Purchasers, when
purchasing Resort Points from the U.S. Developer, acquired a membership in the
Appellant.
[42]
The Canadian Resort Point Purchasers and the
American Resort Point Purchasers (referred to collectively as the Resort
Point Purchasers), may occupy the Vacation Homes “during
a particular year by applying their resort points available to use that year
towards a vacation home at a resort based on the assigned point values for each
day and size of vacation home chosen”.
[43]
The taxation of the sale of Resort Points is not
before the Court. The issue before the Court is the taxation of the Annual
Resort Fee paid by the Members of the Appellant.
[44]
Paragraph 21 of the PASF states the following:
21. The principal
rights that a member has in connection with the Intrawest program are the
following:
(a) the
right to use resort points held by the member to reserve the use of the
vacation homes in accordance with the Guidelines as established by the
developer [the Canadian Developer];
(b) the
right to vote at annual general meetings of the Club [the Appellant], including
the election of directors of the Club [the Appellant] and on any other Club
matters that require member approval pursuant to the by-laws; and
(c) in the
event of wind-up and dissolution of the Club [the Appellant], the right to
receive a distribution of the net proceeds from the liquidation of the assets
of the Club [the Appellant] that is in proportion to the ratio of the member’s
resort points to all resort points.
[45]
Paragraph 22 of the PASF states: “Each member [the Canadian Developer, the U.S.
Developer, the Canadian Resort Point Purchasers and the American Resort Point
Purchasers] is liable to pay an annual assessment to the Club [the Appellant]
to meet ‘Membership Costs’ as defined in the master declaration.”
[46]
Section 1.37 of the Master Declaration states: “‘Membership Costs’ means and includes all costs
incurred by the Club [the Appellant] for and on behalf of the Members [the
Members of the Appellant] as provided in Section 10.3 hereof.”
[47]
Section 10.2 of the Master Declaration states: “Each Member, including the Declarant [the Canadian
Developer] and each Appointee [the U.S. Developer] and a Lender
of Record acquiring a Membership as a result of enforcement of its security
interest, shall be required to pay a Resort Fee for each Membership owned.” Section 1.50 of the Master Declaration states: “‘Resort Fees’ means the annual assessment levied by
the Board upon all Members [the Members of the Appellant] for their proportionate
share of the annual Membership Costs.”
[48]
As a result, the Canadian Resort Point
Purchasers, the American Resort Point Purchasers, the Canadian Developer and
the U.S. Developer satisfy the obligation to pay the annual Membership Costs
when each pays the “Resort Fees” [i.e. the Annual Resort Fee].
[49]
Paragraphs 25 to 38 of the PASF provide a
general description of the calculation of the Annual Resort Fee. These
paragraphs are attached hereto as Appendix A. The facts contained in these
paragraphs may be summarized as follows:
- The Annual Resort Fee payable by a Member of
the Appellant is a dollar amount per Resort Point for the particular calendar
year multiplied by the number of Resort Points owned by the particular person.
- The Appellant, through its board of directors,
establishes the per-Resort-Point rate for a calendar year by dividing the budgeted
costs for the particular year by the total amount of Resort Points issued by
the Appellant. The per-Resort-Point rate is subject to the limitation in the
Master Declaration with respect to the maximum rate per Resort Point that the
Appellant is entitled to assess for a particular year.
- Section 10.5 of the Master Declaration states
that the Annual Resort Fee may not exceed a certain amount and provides rules
for determining the maximum amount.
- Paragraphs 36 and 37 of the PASF deal with
Members of the Appellant who have not paid the Annual Resort Fee by its due
date. Those paragraphs state the following:
36. All resort fees must be current in order for a member to make
reservations using their resort points, to bank, borrow or transfer resort
points, to use vacation homes, or maintain any other member rights or
privileges.
37. Members who fail to pay their resort fees by the due date are in
default. In the event of default, the Club [the Appellant] may exercise its
right to forfeit the defaulting member’s membership.
- Paragraph 38 of the PASF notes that the
payment of the Annual Resort Fee does not entitle members to any additional
rights or privileges.
[50]
Ms. Ruff provided additional evidence with
respect to the calculation and payment of the Annual Resort Fee.
[51]
She testified that the budgeted costs are
determined in September of each year being based upon the estimated costs for
the next year. For example, the budgeted costs used to calculate the Annual
Resort Fee for the 2003 calendar year were determined by the end of September
2002.
[52]
The Appellant uses the budgeted costs to
determine a cost per outstanding Resort Point, that is, a cost for Resort Points
held by the Canadian Developer, the U.S. Developer, the Canadian Resort Point
Purchasers and the American Resort Point Purchasers. For example, the Appellant
determined in September 2002 that the cost per-Resort-Point for the 2003
calendar year was $5.25.
[53]
The Appellant then identified the “owners of record” of
the Resort Points as at September 30 of a particular year. In
October of each year, the Appellant billed each Resort Point Purchaser an
amount for the Annual Resort Fee. For example, if a Resort Point Purchaser held
200 Resort Points as of September 30, 2002, then the Appellant billed that Resort
Point Purchaser $1,050 in October 2002 (200 x $5.25) as the Annual Resort Fee
for 2003.
[54]
The Canadian Developer is not billed the total
Annual Resort Fee in October of each year. Instead, the Appellant bills the
Canadian Developer monthly for its portion of the Annual Resort Fee. While I did not hear specific
evidence with respect to whether the U.S. Developer is billed on an annual or a
monthly basis, I have concluded, after reviewing Ms. Ruff’s calculations, that
it was billed on a monthly basis.
[55]
She also testified that the Canadian Developer
may pay all or a portion of the Annual Resort Fee on behalf of a Canadian
Resort Point Purchaser as an incentive for that person to enter into the
Canadian Purchase and Membership Agreement or as an incentive for a Resort
Point Purchaser to purchase additional Resort Points; the Canadian Developer
may also do so when a Canadian Resort Point Purchaser refers a person to the
Canadian Developer and that person purchases Resort Points.
[56]
Ms. Ruff testified as well that if the actual
expenses exceed the budgeted costs then the excess was added to the budgeted
amount in the subsequent year. For example, if the actual expenses incurred in
2003 exceeded the budgeted amounts, then the excess would have been added to
the budget for 2004. If the actual expenses are less than the budgeted amounts,
then the subsequent year’s budget is reduced by the amount of the excess.
[57]
Paragraph 73 of the PASF states the following:
From the time the
Intrawest Program was established in 1993, the developer [the Canadian
Developer] has operated various rental programs outside of the Intrawest
Program under which the developer [the Canadian Developer] has generated
revenues from renting out vacation homes (using occupancy rights associated
with resort points owned by the developer [the Canadian Developer])
[58]
One of these programs was referred to as the
Passport Program. Paragraphs 74 and 76 of the PASF provide the following
description of the program:
74. The Passport
Membership Program (the “Passport Program”) is a Vacation Home rental program
that the developer [the Canadian Developer] created in 2006 to support the developer’s
sales and marketing of resort points.
. . .
76. Under the
Passport Program, a purchaser buys a number of points that can be redeemed with
the developer [the Canadian Developer] (rather than the Club [the Appellant])
to occupy vacation homes during a 12-month period. . .
[59]
The PASF states that persons who participated in
the Passport Program did not pay any resort fees to either the Canadian
Developer or the Appellant.
[60]
The Appellant’s financial statements indicate
that the Appellant earned revenue in respect of “getaway
fees”.
I did not hear any oral evidence with respect to these fees, nor are they
discussed in the PASF. It appears that these fees are earned when Vacation
Homes are rented to Resort Point Purchasers for cash as opposed to Resort Points.
The Master Declaration and the Membership Guidelines provide that Vacation
Homes that are not reserved by Resort Point Purchasers fourteen days prior to
an occupancy date may be rented on a cash basis to Resort Point Purchasers. It is not clear to the Court
whether all, or only a portion, of the “getaway
fees” are paid to the Appellant. As discussed in
the next paragraph, revenue earned from the rental of Vacation Homes to the
public may be paid to either the Canadian Developer or the Appellant.
[61]
The Appellant’s financial statements refer to “other revenue”. I did
not receive any evidence with respect to this revenue. I assume that the “other revenue” is, in
part, the revenue realized from the rental of Vacation Homes to the general
public pursuant to section 5.11 of the Master Declaration, which states, in
part, the following:
If a Member [a
Member of the Appellant] does not reserve occupancy at Resort Accommodation [a
Vacation Home] fourteen (14) days prior to an occupancy date, then the Manager
[the Canadian Developer]
may offer the Resort Accommodation [a Vacation Home] for rent to the general
public and the rental proceeds received after deduction of the Manager’s fee shall
be paid at the direction of the Declarant [the Canadian Developer] either to the Club [the
Appellant] or to the Declarant . . .
[62]
It is not clear to the Court what portion of
these fees was paid to the Canadian Developer and what portion was paid to the
Appellant.
[63]
There is no evidence before me that the persons
who rented Vacation Homes under either of these two programs paid the Annual
Resort Fee.
[64]
It is the Appellant’s position that the Annual
Resort Fee is not subject to GST since it is a reimbursement of expenses that
the Appellant incurred as agent for each of the Canadian Developer, the U.S.
Developer, the Canadian Resort Point Purchasers and the American Resort Point
Purchasers.
[65]
It is the Respondent’s position that the Annual
Resort Fee is consideration for a taxable supply of intangible personal
property. Specifically, the Annual Resort Fee is part of the ongoing
consideration the Canadian Developer, the U.S. Developer, the Canadian Resort
Point Purchasers and the American Resort Point Purchasers must pay in order to
maintain their membership in the Appellant.
[66]
This appeal is concerned with the GST levied
under subsections 165(1) and (2) of Division II of the GST Act. Those
subsections read as follows:
(1) 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.
(2) Subject to this Part, every recipient of a
taxable supply made in a participating province shall pay to Her Majesty in right
of Canada, in addition to the tax imposed by subsection (1), tax in respect of
the supply calculated at the tax rate for that province on the value of the
consideration for the supply.
[67]
The 5% rate currently imposed under subsection
165(1) was 7% prior to July 2006 and 6% from July 2006 to the end of 2007.
[68]
The effect of subsections (1) and (2) is to levy
a single federal value-added tax at two rates: the 5% rate for supplies made in
so-called non-participating provinces
and a 13%, 14% or 15% rate for supplies made in participating provinces.
[69]
The answers to the following questions determine
the amount, if any, of Division II tax payable under subsections 165(1) and (2):
-
Did the supplier
make a taxable supply?
-
What was the
amount of the consideration for the supply?
-
Was the taxable
supply made in Canada?
-
Was the taxable
supply made in a participating province?[42]
[70]
A taxable supply
is defined as a supply made in the course of a commercial activity.[43]
The GST Act defines a supply as the provision of
property or a service in any manner, including sale, transfer, barter,
exchange, licence, rental, lease, gift or disposition.[44]
[71]
If I find that the Members of the Appellant paid
the Annual Resort Fee to the Appellant as a reimbursement of expenses that the
Appellant incurred as agent for the Canadian Developer, the U.S. Developer and
the Resort Point Purchasers, then the Annual Resort Fee is not subject to GST. Where
an agent is acting for a principal when acquiring property or a service from a
third party supplier, the agent is not making a supply of the property or
service to its principal, but is merely acting as a conduit.
[72]
The agency argument raised by the Appellant is
in respect of costs incurred in Canada, the United States and Mexico. The costs
were incurred by the Appellant (a corporation incorporated in the United States),
the Canadian Developer or the U.S. Developer. Further, the costs relate to
Vacation Homes situated in Canada, the United States and Mexico. In such a
situation, the Court must consider whether the agency law of the United States
and Mexico applies to certain of the costs.
[73]
It is possible that the law in the United States
and/or Mexico relating to the creation of an agency relationship differs from
the law in Canada.
[74]
In Fernandez v “Mercury Bell” (The)[45] the Federal Court of Appeal
held that:
It is well known that in countries governed by the
English law, a court is not entitled to inquire proprio motu as to the
content of the foreign law on the basis of which an action brought before it
should be disposed of. The court will not in principle take judicial notice of
foreign law; it will not even consider foreign law as an ordinary fact (which
it is not, in any event) about which it may require the parties to adduce
satisfactory evidence. If the parties, willfully or inadvertently, fail
to bring expert evidence of the foreign law, the court will act as if the
foreign law is the same as its own law, it will apply the lex fori.[46] [Emphasis added.]
[75]
In short, the consequence of a party failing to
bring expert evidence to explain the operation of foreign law is that the
concept of lex fori will apply. The Canadian court will act as if the
foreign law is the same as its own law, unless the law is of a local or
regulatory nature.
[76]
The Appellant did not bring expert witnesses to
explain to the Court the operation of the law of agency (or of any law) in the
United States or Mexico. As a result, I will use Canadian law to make my
decision on the agency issue and any other legal issue before the Court.
[77]
The following definition of agency, by Gerald
Fridman, has been quoted and applied in a number of decisions of Canadian
courts:
Agency is the
relationship that exists between two persons when one, called the agent, is
considered in law to represent the other, called the principal, in such a way
as to be able to affect the principal’s legal position by the making of
contracts or the disposition of property.
. . .
Whether an agency relationship exists is a question of fact. If
there is no evidence proving that one party intended another to act as his or
her agent, there is no agency.[47]
[78]
Royal Securities Corp v Montreal Trust Co[48] outlined the generally
accepted three components of an agency relationship as follows:
1. The consent of both the principal and the agent;
2. Authority
given to the agent by the principal allowing the former to affect the latter’s legal
position;
3. The principal’s control of the agent’s actions.
[79]
Counsel for the Appellant stated at the commencement of her oral
argument that “one of the key issues that needs to be addressed before we can get
to characterization of the resort fees [the Annual Resort Fee] is the ownership
of the vacation properties [the Vacation Homes].” She argued that the
beneficial interests in the Vacation Homes are held by the Appellant in trust
for the benefit of the Members of the Appellant, namely, the Canadian
Developer, the U.S. Developer, the Canadian Resort Point Purchasers and the
American Resort Point Purchasers. Further, she argued that the members hold an
“un-deeded, undivided co-ownership” interest in
each Vacation Home.
[80]
I agree with the Appellant’s counsel that this is a key issue.
One of the components of agency is the authority of the Appellant to affect the
legal rights of the Members of the Appellant. If the Members of the Appellant
are not obligated to pay the expenses required to maintain, repair, improve and
operate the Vacation Homes (the Vacation Home Operating Costs), or to incur
other expenses with regard to the Vacation Homes, then there are no legal
rights that the Appellant can affect on behalf of the members in respect of
such expenses. In such a situation, an agency relationship cannot, as a
question of fact, exist.
[81]
It is the Respondent’s position that the
Appellant does not hold the beneficial interest in trust for the members of the
Appellant.
[82]
When assessing the Appellant, the Minister made the following
assumptions,
-
Under the Intrawest Program, the Canadian Developer builds
Vacation Homes situated in Canada and transfers beneficial ownership of those
properties to the Appellant in exchange for the rights to occupy the resort
accommodations beneficially owned by the Appellant.
-
The Appellant beneficially owns resort accommodations in British
Columbia, Ontario, Quebec, California, Florida, Hawaii and Mexico.
-
The Appellant acquires beneficial ownership of the real
properties acquired by the Canadian Developer and the U.S. Developer in
exchange for Resort Points.
-
The Resort Point Purchasers do not hold fee-simple title to their
interest in the Vacation Homes, but only hold points.
[83]
In my view, these assumptions mean that the Minister assumed,
when assessing the Appellant, that the Appellant held the beneficial interest
in the Vacation Homes, subject to the occupancy rights granted to the Canadian
Developer and the U.S. Developer.
[84]
The onus is on the Appellant to establish, on a prima facie
basis, that someone transferred beneficial interests in the Vacation Homes, and
particularly the risk with respect to the homes, to the Canadian Developer, the
U.S. Developer, the Canadian Resort Point Purchasers and the American Resort
Point Purchasers.
[85]
In Velcro Canada Inc v The Queen,
Associate Chief Justice Rossiter (as he then was), citing Associate Chief
Justice Rip (as he then was) in Prévost Car Inc. v The Queen,
stated that there are four elements in considering the attribution of
beneficial ownership: possession, use, risk and control. Associate Chief
Rossiter stated the following: “In
looking at the beneficial ownership issue one must apply the test as set out by
Chief Justice Rip, and in doing so, one must look to the meaning of individual
words, that is, ‘possession’, ‘use’, ‘risk’ and ‘control’. These words have
ordinary meanings.”
[86]
The evidence before me is that the Canadian Developer was the
first of the relevant persons to hold legal and beneficial ownership in any of
the Canadian Vacation Homes. The Canadian Developer transferred its legal and
beneficial ownership in each of the Canadian Vacation Homes to the Appellant.
[87]
Simultaneously with its acquisition of a Canadian Vacation Home,
the Appellant transferred the legal title in the Canadian Vacation Home to the
Canadian Bare Trustee. The Canadian Bare Trust Agreement clearly states that,
at the time the Appellant acquired the Canadian Vacation Home, the Appellant
held the beneficial ownership in the Canadian Vacation Home.
[88]
As consideration for the Canadian Vacation Home, the Appellant
then transferred to the Canadian Developer the occupancy rights to the Canadian
Vacation Home in perpetuity.
[89]
In summary, when the Appellant, the Canadian Developer and the
Canadian Bare Trustee completed the transactions, the Canadian Bare Trustee
held legal title in the Canadian Vacation Home in trust for the Appellant, and
the Canadian Developer held the right to occupy the Canadian Vacation Home.
[90]
One must apply the test set out by then Associate Chief Justice
Rip to determine, who, at that point in time, held the beneficial ownership in
the Vacation Homes.
[91]
The first element I will consider is “use”. Black’s Law Dictionary defines the noun “use”, in part, as “the application or employment
of something; esp., a long-continued possession and employment of a thing for
the purpose for which it is adapted. . .”
The Canadian Oxford Dictionary defines the verb “use” as meaning, among other things, “to employ or avail oneself of (something) regularly”
[92]
In my view, if the Canadian Developer held the right to occupy
the Canadian Vacation Homes, then it held the right to employ the homes and thus
the right to use them.
[93]
The second element to consider is “possession”.
Black’s Law Dictionary defines “possession” as:
1. The fact of having or holding
property in one’s power; the exercise of dominion over property. 2. The right
under which one may exercise control over something to the exclusion of all
others . . .
[94]
Without a copy of the Canadian Vacation Home Transfer Agreement
or viva voce evidence from a witness, it is not clear to me what power,
if any, the Appellant retained over the Canadian Vacation Homes after it
transferred the occupancy rights to the Canadian Developer. The Canadian
Developer certainly held significant control over the Canadian Vacation Homes
since it held the right to use the homes. However, under the Intrawest Program,
particularly the Master Declaration, the Appellant also exercised significant
control over the Vacation Homes. It is not clear to me whether the Appellant
retained this control pursuant to the Canadian Vacation Home Transfer Agreement
or whether it acquired the control after it transferred the use of the properties
to the Canadian Developer.
[95]
It is impossible for me to make a definitive finding with the
little evidence before me; the Canadian Developer probably held possession
rights in the Canadian Vacation Homes subject to any residual interest that the
Appellant may have held in the homes.
[96]
The third element to consider is “risk”. This is the key element for the purposes of
the Appellant’s argument.
[97]
In Black’s Law Dictionary “risk” signifies “the chance of injury, damage,
or loss. . . liability for injury, damage, or loss if it occurs”. The Canadian Oxford
Dictionary refers to “a
chance or possibility of danger, loss, injury, or other adverse consequences”.
[98]
With respect to the Canadian Vacation Homes, risk refers to the
risk of damage to the property through fire, misconduct of the users or normal
wear and tear. It includes the liability to incur expenses in respect of the
operation, repair and maintenance of the properties in order to ensure that they
are suitable for occupancy under the Intrawest Program (i.e. the Vacation Home
Operating Costs).
[99]
While I have evidence that the Appellant transferred use and
possession
to the Canadian Developer, there is no evidence before me that the Appellant
transferred any risk with respect to the Canadian Vacation Homes to the
Canadian Developer.
[100] If the Appellant did transfer some or all
of the risk relating to the Canadian Vacation Homes to the Canadian Developer,
then it would have done so pursuant to the Canadian Vacation Home Transfer
Agreement. The Appellant did not provide the Court with a copy of this
agreement nor did it produce a witness from either the Appellant or the
Canadian Developer who could have testified concerning the contents of the
agreement, or provided viva voce evidence of a transfer of the risk.
[101] As a result, since I have no evidence that
the Appellant transferred any portion of the risk, I am left with the
conclusion that the Appellant retained the risk. This is consistent with the
testimony of Ms. Ruff that the Appellant, not the Canadian Developer, pays the
expenses for repairing, maintaining and operating the Canadian Vacation Homes.
[102] Further, I have drawn an adverse inference
from the Appellant’s failure to provide such a key document as the Canadian
Vacation Home Transfer Agreement or to produce a witness from the Appellant or
the Canadian Developer to speak to the terms of the transfer.
[103] The impact of not calling relevant witnesses was discussed by the
Supreme Court of Canada in Lévesque v Comeau et al.[60] The Court held that
a party’s failure to call a witness meant that the “Court
must presume that such evidence would adversely affect her case.”[61]
I have drawn such a conclusion in this appeal.
[104] The last element to consider is “control”. Black’s Law Dictionary defines the verb “control” as meaning “to exercise
power or influence over”. The Canadian Oxford Dictionary
defines it as having the sense of “dominate or
have command of.”
[105] Since the Appellant did not provide the
relevant agreements or relevant viva voce evidence, I simply do not know
the extent to which the Appellant retained control over the Canadian Vacation
Homes and the extent to which it transferred control to the Canadian Developer.
However, the evidence before me is that the Appellant and the Canadian
Developer shared control of the Canadian Vacation Homes.
[106] Clearly, the Canadian Developer, as the
person entitled to occupy the Canadian Vacation Homes, exercised significant
control over the Vacation Homes. However, it appears from the Master
Declaration that the Appellant, when managing the Intrawest Program, also
exercised some control over the homes.
[107] My conclusion that the two shared control
is also supported by section 5.11 of the Master Declaration, which provides that the Canadian Developer
and the Appellant share the revenue realized when a Vacation Home is rented to
the general public. That section states that the Canadian Developer determines
how such revenue is shared by the two parties.
[108] To summarize, I have concluded that, once
the transfer of a Vacation Home from the Canadian Developer to the Appellant
was completed, both the Appellant and the Canadian Developer held beneficial
interests in the Canadian Vacation Home. More importantly for the purposes of
this appeal, the risk of damage to the property through fire, misconduct of the
users or normal wear and tear rested with the Appellant. This included the
liability to repair and maintain the Canadian Vacation Homes in order to ensure
that they were suitable for occupancy under the Intrawest Program.
[109] Further, I was not provided with any
evidence of a subsequent transaction that resulted in the Appellant
transferring beneficial interests, including the risk with regard to repairing
and maintaining the Canadian Vacation Homes, to the Canadian Developer or to
the U.S. Developer.
[110] I have, for the same reasons, concluded
that, once the transfer of a U.S./Mexico Vacation Home from the U.S. Developer
to the Appellant was completed, both the Appellant and the U.S. Developer held
beneficial interests in the U.S./Mexico Vacation Home. The Appellant bore the
risk relating to the repair and maintenance of the U.S./Mexico Vacation Homes.
[111] There is no evidence before me of any
subsequent transfer by the Appellant to the U.S. Developer, or the Canadian
Developer of beneficial interests in the U.S./Mexico Vacation Homes, including
the risk relating to the repair and maintenance of the homes.
[112] Counsel
for the Appellant argued that the “members”
acquire their interest in the Vacation Homes by purchasing Resort Points from
the “developer”.
When referring to “members” she
was referring, I assume, to the Canadian Resort Point Purchasers and the
American Resort Point Purchasers. When referring to “developer”,
she was referring, I assume, to the Canadian Developer and the U.S. Developer.
[113] I
will first deal with the sale of Resort Points by the Canadian Developer to the
Canadian Resort Point Purchaser.
[114] Pursuant
to sections 2 and 4 of the Canadian Purchase and Membership Agreement,
the Canadian Developer sold Resort Points and memberships in the Appellant to
the Canadian Resort Point Purchasers.
[115] The
sale by the Canadian Developer of Resort Points and memberships in the
Appellant appears to me to be the granting of a contractual right to occupy the
Vacation Homes pursuant to the rules set out in the Master Declaration and the Membership
Guidelines. As noted in paragraph 21(a) of the PASF, the principal rights that
a Member of the Appellant has in connection with the Intrawest Program are the
following:
(a) the right to use resort points held by the member to reserve the
use of the vacation homes in accordance with the Guidelines [the Membership
Guidelines] as established by the developer [the Canadian Developer].
[116] This
is a contractual right. The fact that a Canadian Resort Point Purchaser has the
contractual right to use Resort Points in such a way does not grant the
Canadian Resort Point Purchaser a beneficial interest in a specific Vacation
Home. Rather, it provides the Canadian Resort Point Purchaser with the right to
occupy an individual unit in accordance with the rules established under the
Intrawest Program.
[117] For
example, section 10.15 of the Master Declaration states that if a Resort Point
Purchaser is in default on any assessment levied upon him/her by the board of directors
of the Appellant, then the Resort Point Purchaser is not entitled to occupy any
of the Canadian or U.S./Mexico Vacation Homes until the default is corrected. In
other words, the Resort Point Purchaser’s (including a Canadian Resort Point
Purchaser’s) contractual right to occupy one of the Vacation Homes is suspended.
[118] Further,
since the Canadian Developer was not at risk with regard to the Canadian
Vacation Homes, it could not, in any scenario, transfer the obligation to
repair and maintain the Canadian Vacation Homes to the Canadian Resort Point
Purchasers.
[119] Also, there is no evidence before me that the Canadian Developer
held any interests in the U.S./Mexico Vacation Homes. Specifically there is no
evidence before me that either the Appellant or the U.S. Developer transferred
any beneficial interests in the U.S./Mexico Vacation Homes to the Canadian
Developer. As a result, the Canadian Developer could not have transferred
beneficial interests in the U.S./Mexico Vacation Homes to the Canadian Resort
Point Purchasers.
[120] There is no evidence before me of any transactions between the U.S.
Developer and the Canadian Resort Point Purchasers.
[121] In summary, there is no evidence before me of any transaction that
resulted in either the Canadian Developer or the U.S. Developer transferring
beneficial ownership of the Canadian Vacation Homes or the U.S./Mexico Vacation
Homes to the Canadian Resort Point Purchasers. Specifically, there is no
evidence of either corporation transferring to the Canadian Resort Point
Purchasers a beneficial interest that would result in the purchasers being
responsible for the repair and maintenance of the Canadian Vacation Homes or the
U.S./Mexico Vacation Homes.
[122] I will now consider the sale of Resort Points by the U.S. Developer.
[123] I have very little evidence with respect to transactions between the
U.S. Developer, the Appellant and the American Resort Point Purchasers. The
only evidence I have is the statements in the PASF that the American Resort
Point Purchasers purchased Resort Points from the U.S. Developer. I was not
provided with a copy of the agreement pursuant to which the American Resort
Point Purchasers purchased the points.
[124] In short, there is no evidence that would allow me to conclude, even
on a prima facie basis, that an American Resort Point Purchaser acquired
a beneficial interest in either a U.S./Mexico Vacation Home or a Canadian
Vacation Home from either the U.S. Developer or the Canadian Developer.
[125] There is no evidence before me of the supply of any property by the
Appellant to the Canadian Resort Point Purchasers. In fact, the only
transaction that I am aware of between the Appellant and the Canadian Resort
Point Purchasers is the one resulting in the payment of the Annual Resort Fee.
[126] The Canadian Resort Point Purchasers did acquire memberships in the
Appellant; however, they acquired these memberships from the Canadian Developer
at the time they entered into the Canadian Purchase and Membership Agreement. I
assume that the Canadian Developer acquired the memberships from the Appellant.
[127] Similarly, I received no evidence with respect to any transactions
between the Appellant and the American Resort Point Purchasers.
[128] In summary, there is no evidence before me that either the Canadian
Resort Point Purchasers or the American Resort Point Purchasers held a
beneficial interest in the Vacation Homes.
Did the Appellant transfer beneficial interests in the
Vacation Homes to a trust for the benefit of the Members?
[129] The Appellant’s counsel also argued that the Appellant held
beneficial interests in the Vacation Homes in trust for the Members of the
Appellant.
[130] The Appellant did not provide the Court with written or oral
evidence with respect to the terms of such a trust. Specifically, the Appellant
did not provide the Court with a transfer agreement, or oral evidence of such
an agreement, pursuant to which the Appellant transferred beneficial interests
in either the Canadian Vacation Homes or the U.S./Mexico Vacation Homes to a trust
under which the members were beneficiaries. In addition, the Appellant did not
provide the Court with a trust agreement or with oral evidence with respect to
the terms of such a trust agreement.
[131] I have drawn an adverse inference from the failure of the Appellant
to produce such evidence. The existence of the trust was a key part of its
argument. It certainly realized the importance of providing a copy of a trust
agreement with respect to a trust that it alleged existed, since it provided
the Court with a copy of the Canadian Bare Trust Agreement. In my view, if
documents that were key to the Appellant’s argument, such as an agreement
transferring its beneficial interest to a trust or a trust agreement in respect
of such trust, did exist then the Appellant would have provided such documents
to the Court. The fact that such documents were not provided seriously damaged
the credibility of the Appellant’s argument.
[132] The only evidence before me that such a trust existed is the testimony
of Mr. Thompson and section 4.4 of the Master Declaration.
[133] Although Mr. Thompson referred to the existence of a trust, he did
not take me to any trust agreements or provide any oral evidence with respect
to the terms of such a trust.
[134] Section 4.4 of the Master Declaration states the following:
. . . The Club will hold title to all
Resort Accommodation registered in its name, and to all beneficial interests in
the Trust [the Canadian and U.S. bare trusts] or other similar holding vehicle
to which title to Resort Accommodation may be transferred, in trust, for the
benefit of the Members and the value of each Member’s beneficial interest in
the Resort Accommodation shall be paid out and distributed to each Member of
the Club in accordance with Article X of the Bylaws of the Club . . .
[135] In my view, this clause does not create a trust. It merely evidences
that the Appellant and the Canadian Developer (the parties to the Master
Declaration) have agreed that the Appellant will create a trust to hold its
beneficial interests in the Vacation Homes. There is no evidence before me that
the Appellant created such a trust.
[136] Further, the clause is ambiguous since it states that “the value of each Member’s beneficial interest in the
Resort Accommodation shall be paid out and distributed to each Member of the
Club in accordance with Article X of the Bylaws of the Club.” Article 10.2 of the By-laws states the following:
On a winding-up and dissolution of the Club [the
Appellant], the Board of Directors or the Trustee shall liquidate all of the
assets of the Club [the Appellant] and convert them to cash and the
balance, after making a provision for the payment of all debts, taxes, (if
any), and expenses associated with the winding-up and dissolution shall be
distributed to the Members of the Club . . .
[Emphasis added.]
[137] This clause appears to state that the assets, including the Vacation
Homes, are the assets of the Appellant and are only distributed to its members
on a winding up and dissolution of the Appellant. There is no reference in the
By-laws to the Appellant holding any of its assets in trust for its members.
Further, sections 10.1 and 10.2 of the By-laws, which constitute all of Article
X, contemplate a situation where the Appellant holds its assets for its own
account, not in trust for its members.
[138] For the foregoing reasons, I have concluded that the Appellant, not
a trust, held the beneficial interests in the Vacation Homes.
[139] Even if I were to find that the Appellant transferred its beneficial
interests in the Vacation Homes to a trust, such a factual finding would not
support the Appellant’s argument that Members of the Appellant held beneficial
interests in the Vacation Homes. A “person” is
defined in subsection 123(1) of the GST Act to include a trust. Further,
the effect of this definition and the provisions of sections 267.1 to 269 is
that, if the Appellant did transfer its beneficial interests in the Vacation
Homes to a trust for the benefit of its members, then the Trust, and not the
trustee or the beneficiaries, held the beneficial interests.
[140] On the evidence before me, I have concluded that the Appellant held
the beneficial interests in the Vacation Homes, subject to occupancy rights
(and any incidental rights and interests) held by the Canadian Developer and
the U.S. Developer. The beneficial interests held by the Appellant included the
risk with respect to the Vacation Homes, including the obligation to incur the
Vacation Home Operating Costs.
[141] There is no evidence before me of the Appellant transferring to the
Canadian Developer, the U.S. Developer, the Canadian Resort Point Purchasers or
the American Resort Point Purchasers, beneficial interests in the Vacation
Homes that would result in any of them being responsible for the operation,
repair and maintenance of the Vacation Homes or being liable to incur any
expenses with respect to the Vacation Homes.
[142] As a result, since there were no legal rights that the Appellant
could affect on behalf of its members (the Canadian Developer, the U.S.
Developer, the Canadian Resort Point Purchasers and the American Resort Point
Purchasers), an agency relationship did not exist between the Appellant and
each of these persons in respect of such expenses.
[143] Another component of an agency relationship is the consent of both
the principal and the agent.
[144] In assessing the Appellant, the Minister assumed that “Members do not consent to the appellant acting as
their agent”. For the following reasons, I agree
with the Minister’s assumption.
[145] I was not provided with any agreement that, in my view, constitutes
between the Appellant and the Canadian Resort Point Purchasers, the American
Resort Point Purchasers, the Canadian Developer or the U.S. Developer, an
agency agreement pursuant to which the Appellant agreed to act as agent for any
of these parties with respect to the Vacation Home Operating Costs.
[146] I was provided with the Management Agreement between the Appellant
and the Canadian Developer pursuant to which the Appellant, among other things,
appointed the Canadian Developer as its agent for specific functions, such as
employing persons to maintain and operate the Vacation Homes, including maids
and front desk personnel. The agreement also states that the Canadian Developer
will, as agent for the Appellant, oversee and supervise all employees of the
Appellant.[66]
[147] The agreement contains numerous clauses that one would expect in an
agency agreement, such as a standard of care clause, an indemnification clause,
a term clause and a discretionary authority clause.[67]
[148] I was not provided with a similar agreement whereby the Canadian
Resort Point Purchasers, the American Resort Point Purchasers, the Canadian
Developer or the U.S. Developer appointed the Appellant as their agent with
respect to the Vacation Home Operating Costs. I have drawn a negative inference
from the failure of the Appellant to provide the Court with such an agreement.
The Appellant was certainly aware of the importance of any such agreement,
since it provided the Court with the Management Agreement.
[149] I have a very difficult time accepting that the Members of the
Appellant, particularly the Canadian Resort Point Purchasers and the American
Resort Point Purchasers, would have appointed the Appellant as their agent
without entering into an agreement with the Appellant that specified the actual
expenses the Appellant could incur as their agent, the standard of care the Appellant
was expected to meet and the terms of any indemnification.
[150] Paragraph 14 of the PASF states that the Intrawest Program is
governed by the following documents: the Master Declaration, the Incorporation
Documents, the By-laws, the Canadian Bare Trust Agreement, the U.S. Bare Trust
Agreement, the Membership Guidelines, the Purchase and Membership Agreement and
the Membership Certificate.
[151] There is no mention of the Appellant acting as agent for its members
in any of these documents except for section 7 of the Canadian Purchase and
Membership Agreement and sections 9.1 and 9.3 of the Master Declaration.
[152] The Appellant appears to be arguing that the Canadian Purchase and
Membership Agreement and the Master Declaration constitute agency agreements. I
do not agree.
[153] With respect to the Purchase and Membership Agreement, the only
reference to agent is in section 7 entitled “Charges
and Assessments”, which states that “[t]he Purchaser understands and agrees that the Club
will incur Membership expenses as the agent for all Members in accordance with
their proportionate share of the Resort Points issued by the Club . . .”[68]
[154] Mr. Thompson testified that he drafted this clause on behalf of the
Canadian Developer. He noted that the reference to the Appellant incurring the
expenses as agent for its members did not exist when he first drafted the Canadian
Purchase and Membership Agreement; it was added three years after the creation
of the Intrawest Program.[69]
The only evidence I received with respect to why the reference to agent was
added was Mr. Thompson’s testimony that the Canadian Developer added the
words three years after the creation of the Intrawest Program, on the advice of
an accountant.
[155] The effect of the Canadian Developer adding such words three years
after the start of the Intrawest Program is that some Canadian Resort Point
Purchasers purchased Resort Points and memberships in the Appellant pursuant to
an agreement that did not refer to the Appellant acting as their agent.
[156] Regardless, the Appellant is not a party to the Purchase and
Membership Agreement. That agreement is between a Canadian Resort Point Purchaser
and the Canadian Developer. I do not see how it could constitute an agency
agreement between the Canadian Resort Point Purchaser and the Appellant if the
Appellant is not a party to the agreement.
[157] While the agreement indicates that the Appellant will be appointed
to act as the agent of the Canadian Resort Point Purchasers, I was not provided
with an agency agreement that effects this intention.
[158] The second agreement is the Master Declaration. This appears to me
to be an agreement between the Canadian Developer and the Appellant whereby
they agree to establish and operate the Intrawest Program. In the agreement,
the two parties agree on how they will operate the program.
[159] It is not an agency agreement.
[160] Sections 9.1 and 9.3, which contain the only references to agency,
state the following:
9.1 Administration
of the Resort Accommodations. Subject to any Project Instruments and the
Club Instruments, responsibility for the maintenance, repair, replacement,
restoration, improvement, operation, and administration of the Resort
Accommodations shall be vested in the Club. The Club shall act as the agent of
all of the Members in collecting Assessments and in paying taxes, utility
costs, and other Membership Costs. The Club, through its Board of Directors,
Officers, the Manager, and other duly authorized agent(s) may exercise any and
all rights and powers granted to it by law or by the Club Instruments, as
amended or supplemented from time to time. Pursuant to the provisions of the
Certificate of Incorporation, the exclusive power to promulgate and amend the
Guidelines shall be vested in the Declarant as long as the Declarant is
retained as Manager and the Board shall have no power with respect to such
Guidelines except as to the enforcement thereof.
. . .
9.3 Resort
Accommodations and Equipment. Subject to any Project Instruments, exclusive
control and responsibility over the maintenance, repair, modification, and
alteration of all Resort Accommodations and the Equipment therein is vested in
the Club, as agents for the Members. The Club shall at all times maintain the
Resort Accommodations in good condition and repair. In the event of any
disruption in service, the Club shall immediately make such repairs as may be
necessary to restore such services. If the Declarant believes in good faith
that the Club cannot or will not immediately make such repairs, the Declarant
may, but shall not be obligated to, immediately arrange for and make such
repairs in order to restore service, and the Club shall be liable to the
Declarant for the cost of such repairs. The Club shall have complete discretion
to determine the interior color scheme, decor and furnishings of all Resort
Accommodations, as well as the timing, extent, and nature of all redecoration,
repairs, and replacements thereof.
No
Member shall make any repairs, modifications, alterations, additions,
redecoration, or replacements to any Resort Accommodation or to any Equipment
therein, without the prior written approval of the Club. Each Member, during
his or her reserved or scheduled Use Period(s), shall keep the interior of his or
her Assigned Resort Accommodation, including, without limitation, the interior
walls, windows, glass, ceilings, floors, fixtures, and appurtenances thereto,
and all Equipment contained therein, in a clean, sanitary, and attractive
condition, and shall be personally liable for any damage or destruction thereto
caused by such Member, members of his or her family, his or her guests,
tenants, invitees, or licensees as provided in Section 5.3 hereof.
[161] Mr. Thompson testified that the reference to agent in sections 9.1
and 9.3 was not contained in the original Master Declaration; rather, as with
the Canadian Purchase and Membership Agreement, the words were added three
years after the Master Declaration was first executed, at the direction of an
accountant.[70]
[162] This may help explain the inconsistencies in Article 9 of the Master
Declaration. In my view, the article, when read as a whole, states that it is
the Appellant that incurs, on its own account, the Vacation Home Operating
Costs. For example, the first sentence in section 9.1 states that the
responsibility for the maintenance, repair, replacement, restoration,
improvement, operation and administration of the Vacation Homes is vested in
the Appellant. Further, the first sentence of the second paragraph of section 9.3
states that no Member shall make or do any repairs, modifications, alterations,
additions, redecoration or replacements to or in any Vacation Home without the
prior written approval of the Appellant. These two clauses appear to me to
state that it is the Appellant, not the Members, that is responsible for the
operation and upkeep of the Vacation Homes.
[163] This is consistent with my previous factual finding that the
beneficial interests in the Vacation Homes held by the Appellant included the
risk with respect to the homes, including the expenses incurred in respect of
their operation, repair and maintenance.
[164] Obviously, such a factual finding is inconsistent with the
references in the second sentence of section 9.1 and the first sentence in section
9.3 to the Appellant incurring the Vacation Home Operating costs as agent for its
members. It is not clear to me why the agency words were added three years
later to an agreement that contemplates the Appellant incurring the expenses on
its own account. I do not believe that this reflected the actual relationship
between the Appellant and its members.
[165] The Purchase and Membership Agreement and the Master Declaration
cannot constitute an agency agreement between the American Resort Point
Purchasers and the Appellant or between the U.S. Developer and the Appellant,
since the American Resort Point Purchasers and the U.S. Developer are not parties
to either agreement. Further, I was not provided with any written agreements or
viva voce evidence with respect to any agreements (including an agency
agreement) entered into by either the American Resort Point Purchasers or the
U.S. Developer in respect of the Intrawest Program.
[166] In my view, in a situation where the Court has not been provided
with an agency agreement, the Court must look at the conduct of the parties to
determine whether an agency relationship has come into existence.[71]
[167] The Appellant did not call any Canadian Resort Point Purchasers,
American Resort Point Purchasers or employees, officers or directors of the
Appellant to testify before the Court with respect to the purported agency
relationship.[72]
Counsel for the Respondent argued that I should draw an adverse inference from
the failure of the Appellant to call such a witness. I agree.
[168] Such a witness would have provided the Court with definitive
evidence with respect to whether a Canadian Resort Point Purchaser or an
American Resort Point Purchaser consented to the Appellant acting as that
purchaser’s agent. A witness for the Appellant could have also addressed the purported
agency relationship between the Appellant and the Canadian Developer and
between the Appellant and the U.S. Developer.
[169] The Respondent did call two Canadian Resort Point Purchasers,
Mr. Abraham and Ms. Ewing. Ms. Ewing did not address the agency issue.
[170] However, Mr. Abraham testified that he entered into the Canadian
Purchase and Membership Agreement in 1998. He testified that the only documents
he received when he purchased the Resort Points were the Canadian Purchase and
Membership Agreement and a Membership Certificate. He did not receive a copy of
the Master Declaration, the Canadian Bare Trust Agreement, the Management
Agreement, the By-laws, the Incorporation Documents or any other documents.[73]
[171] More importantly, he testified that he did not know that the
Appellant was holding itself out as his agent.[74]
This is the only direct evidence I have relating to the consent issue.
[172] In summary, the only direct evidence I have before me with respect
to the conduct of the members supports the Minister’s assumption that the
Members of the Appellant did not consent to the Appellant acting as their
agent.
[173] There is other evidence before me that supports a finding that the
conduct of the parties does not support a finding of agency. This includes the
following:
[174] The Appellant calculated the Annual Resort Fee in part on the basis
of expenses other than Vacation Home Operating Costs. In the first instance, it
included internal costs of the Appellant, such as the cost of its annual
general meeting, the cost of its auditor, income tax and legal costs of the
Appellant. As a question of fact, these were costs of the Appellant, not its
members (i.e. the Canadian Developer, the U.S. Developer and the Resort Point
Purchasers). In other words, the Appellant incurred these costs on its own
account, not as agent for its members.
[175] A portion of the Annual Resort Fee relates to a reserve fund
maintained by the Appellant. This portion of the Annual Resort Fee represents a
contingency fee for future unexpected costs. It does not represent an expense
incurred by the Appellant as agent of its Members.
[176] Section 7.2 of the By-laws provides that the Members of the
Appellant shall pay the Assessments (the Annual Resort Fee) to the Appellant in
accordance with the terms and provisions of the Master Declaration. There is no
obligation in the By-laws for the members to personally incur the Vacation Home
Operating Costs or any other expenses related to the Vacation Homes.
[177] In fact, section 4.18 of the By-laws states that the board of directors
of the Appellant has the duty to maintain, repair, restore, improve and operate
the Vacation Homes.
[178] Section
10.1 of the Master Declaration states the following:
10.1 Creation of Lien and
Personal Obligation for Assessments. . . . each Member by acceptance of a
Membership Certificate . . . is deemed to covenant and agree to pay to the Club
an annual Resort Fee, Special Assessments for capital improvements or other
extraordinary expenses or costs, and Personal Charges, all such Assessments to
be established and collected as provided in this Article 10 and as hereinafter
provided. . .
[179] This
section obligates a member to pay the Annual Resort Fee. In my view, this is
distinct from being personally liable for the Vacation Home Operating Costs.
[180] Further, pursuant to section 10.4 of the Master Declaration, while
the amount of the Annual Resort Fee is based on estimated costs, the actual
amount of the fee is at the sole discretion of the Appellant’s board and may be
adjusted, such adjustment being “based on the additional
expenses incurred by the Club [the Appellant].”[75]
Section 10.5 of the Master Declaration provides that the Annual Resort Fee may
not exceed a specific amount.
[181] These clauses, in my view, are predicated on the assumption that the
costs are incurred by the Appellant on its own account and not as agent for its
members.
[182] Ms. Ruff acknowledged that the Canadian Developer has the option of
not paying the Annual Resort Fee if it elects to subsidize the financial
operations of the Appellant. This is provided for in sections 10.7 and 1.8 of
the Master Declaration. Section 10.7 states the following: “In lieu of the payment of an annual Resort Fee, the
Declarant [the Canadian Developer] may elect to subsidize the financial
operations of the Club in the event all Assessments and every other revenue
source (income) received by the Club fails [sic] to equal or exceed the actual
expenses incurred during the fiscal year. . .” Section
1.8 of the Master Declaration defines “Assessment” as including the Annual Resort Fees.[76]
[183] Section 10.7 does not contemplate a situation where the Appellant is
incurring costs as the Canadian Developer’s agent. Rather, it is based upon the
assumption that the Appellant incurs costs on its own account. The Canadian
Developer is agreeing to provide financial assistance if such costs exceed the
Appellant’s annual revenue.
[184] The third factor to consider when determining the existence of an
agency relationship is the principal’s control of the agent’s (Appellant’s)
action.
[185] The Appellant is a non-share corporation. In similar fashion to
corporations that issue shares, the Appellant is controlled by its board of directors,
who are elected by the Members of the Appellant. As a result, the Canadian
Resort Point Purchasers, the American Resort Point Purchasers, the Canadian
Developer and the U.S. Developer control the Appellant, since they collectively
constitute all of the Members of the Appellant.
[186] Both of the parties, in their argument, focused on the ability of
the Canadian Resort Point Purchasers and the American Resort Point Purchasers,
as opposed to the Canadian Developer and the U.S. Developer, to elect the
majority of the directors of the Appellant. The relevance of this argument is
not clear to me. The question before the Court is whether the Appellant acted
as agent for all of the Members of the Appellant, not just the Canadian Resort
Point Purchasers and the American Resort Point Purchasers.
[187] Further, the question that must be asked is not whether the Members
of the Appellant controlled the Appellant for corporate law purposes, but
whether they exercised control over the Appellant pursuant to an agency
agreement.
[188] My colleague Justice Hogan summarized the law on this point in Fourney
v The Queen, 2011 TCC 520, as follows:
[46] The
Appellant in this case had full control over every action of the corporations.
Indeed, the corporations could not act without her; even if the minority
shareholders became active, the Appellant would remain the controlling party.
The mere fact that she had such control, however, is not sufficient for a
finding of an agent-principal relationship, otherwise many privately controlled
corporations could be characterized as the agents of their majority
shareholders. What, then, is the actual test to apply in determining whether an
agency relationship existed?
[47] In Otineka
Development Corporation Limited et al. v. The Queen, the Tax Court of
Canada emphasized the need for a high threshold of evidence for a finding that
a corporation was actually acting as an agent:
. . .Where a
corporation holds itself out to third parties as owning its property and
business, keeps separate financial records, files its own corporate income tax
returns and acts like any other corporation that is independent of its
shareholders, it would require extremely cogent evidence to establish that all
along it was really just an agent or trustee for its shareholders on the basis
of an unwritten oral understanding or assumption on the part of some of the
shareholders or directors.
[189] While Justice Hogan was dealing with a fact situation involving a
corporation and a shareholder, I believe the law applies on the same basis to a
non-share corporation and the members of that corporation. The members control
the corporation through their ability to elect the board of directors of the
corporation. However, such corporate control does not mean that the corporation
acts as the members’ agent.
[190] The Appellant held itself out as owning its own property; it
maintained separate financial records, filed its own tax returns and acted like
any other non-share corporation that is a separate entity from its members. As
a result, I require extremely cogent evidence that the Members of the Appellant
exercised control over the Appellant pursuant to an agency agreement.
[191] I do not have such evidence before me. As I have already noted, I
was not provided with an agency agreement and the Appellant did not call any
witnesses to testify on the control issue. Specifically, the Appellant did not
call any employees, officers or directors of the Appellant and did not call any
of the Members of the Appellant to address the agency issue.
[192] For the foregoing reasons, I have concluded that the Annual Resort
Fee is an amount each of the Canadian Resort Point Purchasers, the American
Resort Point Purchasers, the Canadian Developer and the U.S. Developer is
required to pay, as a member of the Appellant, to fund the annual costs of the
Appellant. The annual costs of the Appellant include the Vacation Home
Operating Costs, the costs of operating the Intrawest Program and the corporate
costs of the Appellant. The Appellant holds a portion of the Annual Resort Fee
as a reserve fund for future unexpected expenditures of the Appellant.
[193] The Annual Resort Fee does not represent an amount paid by the Members
of the Appellant to the Appellant as a reimbursement of costs the Appellant
incurred as agent for the members.
[194] As a result, the Annual Resort Fee constitutes consideration paid
for a supply. I must now determine whether that supply was subject to Division
II tax.
[195] Under subsections 165(1) and (2), the supply will only be subject to
GST if it is a taxable supply that was made in Canada.
[196] Both parties accept that, if the Appellant did make a supply, the
supply was a taxable supply. However, they disagree on the application of the
made-in-Canada rules contained in the GST Act.
[197] When assessing the Appellant, the Minister assumed that the Members
of the Appellant paid the Annual Resort Fee as consideration for the supply of
intangible personal property that related to both real property situated in
Canada and real property situated outside of Canada.
[198] The Respondent is asking the Court to allocate the Annual Resort Fee
between taxable supplies made in Canada and taxable supplies made outside of
Canada, basing the allocation on the ratio of total resort points issued in
respect of properties located in Canada to the total resort points issued in
respect of all properties.
[199] The Appellant argues that, if the Court determines that the
Appellant made a supply to its members, then the supply was a supply of a
service in relation to real property, with the consideration for the supply
being the Annual Resort Fee. Further, the Appellant argues that the Appellant
made separate single supplies of services in respect of each Vacation Home.
[200] The Appellant is asking the Court to allocate the Annual Resort Fee
between taxable supplies made in Canada and taxable supplies made outside of
Canada, basing the allocation on the ratio of membership costs associated with
the operation of the Vacation Homes situated in Canada to the total costs for
all Vacation Homes.
[201] The GST, like most value-added taxes, is a destination-based tax
that is intended to tax consumption, in this case in Canada. The GST Act
attempts to accomplish this objective by only taxing, under subsections 165(1)
and (2), supplies that are deemed under the GST Act to be made in
Canada and by zero-rating, under Part V of Schedule VI of the GST Act
(the “Export Schedule”),
certain cross-border supplies that are deemed to be made in Canada.
[202] Section 142 contains two sets of place-of-supply rules for
intangible personal property.
[203] The first set of rules looks at where the intangible personal
property may be used. The second set of rules looks at the location of related
real property, tangible personal property or services.
[204] Subparagraph 142(1)(c)(i) deems a supply of intangible personal
property to be made in Canada if the property may be used in whole or in part
in Canada. Subparagraph 142(2)(c)(i) deems a supply of intangible personal
property to be made outside Canada if the intangible personal property may not
be used in Canada.
[205] Subparagraph 142(1)(c)(ii) deems a supply of intangible personal
property to be made in Canada if the property relates to real property
situated in Canada, to tangible personal property ordinarily situated in
Canada or to a service to be performed in Canada.
[206] Subparagraph 142(2)(c)(ii) deems a supply of intangible personal
property to be made outside Canada if the property relates to real property
situated outside Canada, to tangible personal property ordinarily situated
outside Canada or to a service to be performed wholly outside Canada.
[207] Section 142 contains three sets of place-of-supply rules for
services. The first set of rules applies to a supply of a service in relation
to real property. The second set of rules is contained in paragraphs 142(1)(f)
and 142(2)(f) and applies to prescribed services. There are currently no
prescribed services. The third set of rules applies to all other services.
[208] Paragraph 142(1)(d) provides that a supply of real property or a service
in relation to real property will be deemed to be made in Canada if the
real property is situated in Canada. Paragraph 142(2)(d) provides that a supply
of real property or a service in relation to real property will be
deemed to be made outside Canada if the real property is located outside
Canada.
[209] Paragraphs 142(1)(g) and 142(2)(g) apply to all services that are not
in relation to real property. Paragraph 142(1)(g) deems a supply of such a
service to be made in Canada if the service is performed in whole or in part in
Canada. Paragraph 142(2)(g) deems a supply of such a service to be made outside
Canada if the service is performed wholly outside Canada.
[210] The application of the made-in-Canada rules to supplies of
intangible personal property and services that do not relate to real property
is straightforward.
The supply of intangible personal property that does not relate to real
property (or tangible personal property or a service) will be deemed to be made
in Canada if the intangible personal property may be used in whole or in part
in Canada. The supply of such intangible personal property will only be deemed
to be supplied outside of Canada if the intangible personal property may not be
used in Canada.
[211] Similarly, the supply of a service that does not relate to real
property is deemed to be made in Canada if the service is performed in whole or
in part in Canada. The service will only be deemed to be supplied outside of
Canada if the service is performed wholly outside of Canada.
[212] The application of the place of supply rules is not as
straightforward if the intangible personal property or service relates to real
property.
The problem is that subsections 142(1) and (2) deem two mutually exclusive
events to occur.
[213] For example, it is my understanding that the parties agree that the
supply of the Resort Points (which is not before the Court) is a supply of
intangible personal property that relates to real estate situated in Canada
(the Canadian Vacation Homes) and to real estate situated outside of Canada
(the U.S./Mexico Vacation Homes). I assume the parties reached this conclusion
on the basis that the sole purpose of the Resort Points is to allow members to
reserve specific Vacation Homes for specific periods.
[214] In such a situation, on a plain reading subparagraph 142(1)(c)(ii)
deems the supply of the Resort Points to be made in Canada since the Resort
Points relate to real property situated in Canada. However, on a plain reading
of subparagraph 142(2)(c)(ii) the supply is deemed to be made outside of Canada
since the Resort Points relate to real property situated outside of Canada.
This is clearly an absurd result.
[215] A similar result occurs in respect of a single supply of a service
that relates to both real property situated inside Canada and real property
situated outside of Canada.
[216] In the situation before me, where the GST Act on a plain
reading, creates an internal inconsistency, one must apply the principles of
statutory interpretation to avoid a potentially absurd result.
[217] As has been stated by this Court on numerous occasions, the general
rule for interpreting statutes is the textual, contextual and purposive
approach, as confirmed by the Supreme Court of Canada in Canada Trustco
Mortgage Co v Canada.
[218] Further, it is a general rule of statutory interpretation that
legislation is deemed to be well drafted and to express completely what the
legislature wanted to say. As a result, when interpreting a particular section,
the Court should not add words to the section. The Supreme Court of Canada
explained this principle in R v McIntosh, as follows:
Second, the
contextual approach allows the courts to depart from the common grammatical
meaning of words where this is required by a particular context, but it does
not generally mandate the courts to read words into a statutory provision. It
is only when words are "reasonably capable of bearing" a particular
meaning that they may be interpreted contextually. I would agree with
Pierre-André Côté's observation in his book The Interpretation of
Legislation in Canada (2nd ed. 1991), at p. 231, that:
Since the judge's task
is to interpret the statute, not to create it, as a general rule,
interpretation should not add to the terms of the law. Legislation is deemed to
be well drafted, and to express completely what the legislator wanted to say. .
.
The Crown is
asking this Court to read words into s. 34(2) which are simply not there. In my
view, to do so would be tantamount to amending s. 34(2), which is a legislative
and not a judicial function. The contextual approach provides no basis for the
courts to engage in legislative amendment.
[219] It is interesting to note that Professor Pierre-André Côté made the
following comment in a subsequent edition of his book:
The presumption against adding
words must be treated with caution because legal communication, like all
communication, contains both implicit (the overall context of the enactment)
and explicit (the actual wording) elements. The presumption only concerns the
explicit element of the legislature’s message: it considers that the judge who
adds terms to a provision legislates, and usurps the role of the legislature.
However, if the judge makes additions in order to render the implicit explicit,
he or she is not overreaching their authority. The relevant question is
not whether the judge can add words or not, but rather if the words added do
anything more than express what is already implied by the statute.[82] [Emphasis added.]
[220] In
Lévis (City) v Fraternité des policiers de Lévis Inc.,[83] Justice Bastarache made the
following comments on conflicts that arise in provisions enacted by the same
legislature:
47 The starting point in
any analysis of legislative conflict is that legislative coherence is presumed,
and an interpretation which results in conflict should be eschewed unless it is
unavoidable. The test for determining whether an unavoidable conflict exists is
well stated by Professor Côté in his treatise on statutory interpretation:
According to case law, two statutes are
not repugnant simply because they deal with the same subject: application of
one must implicitly or explicitly preclude application of the other.
(P.-A. Côté, The Interpretation of
Legislation in Canada (3rd ed. 2000), at p. 350)
. . . Unavoidable conflicts, on
the other hand, occur when two pieces of legislation are directly contradictory
or where their concurrent application would lead to unreasonable or absurd
results. A law, for example, which allows for the extension of a time limit for
filing an appeal only before it expires is in direct conflict with another law
which allows for an extension to be granted after the time limit has expired (Massicotte
v. Boutin, [1969] S.C.R. 818).[84]
[221] In
concurring reasons, Justices Deschamps and Fish preferred a narrower definition
of conflict for provisions enacted by the same legislature:
89 . . . the rule should in
our view be applied even more rigorously where the conflicting laws have been
enacted by a single legislature. Since the legislature is presumed to know its
own laws and to intend that they be applied consistently, the application of a
rule favouring an interpretation that makes it possible to avoid conflicts is
fully justified.
90 . . . It is therefore only where conflict is unavoidable
that a court must apply the principles of interpretation that give precedence
to one law over the other, in which case the conflicting provision will be
tacitly repealed or found to be partially inapplicable.[85]
[222] Furthermore,
an interpretation of a statute must be consistent with the presumption against
tautology, which requires that, to the extent possible, a court should avoid
adopting an interpretation that renders any portion of a statute meaningless or
redundant.[86]
[223] In
Mathew v Canada,[87]
Chief Justice McLachlin and Justice Major underscored the importance of a contextual
and purposive analysis when dealing with two provisions of the Income Tax
Act that are in conflict with one another:
40 To resolve the dispute arising from the combined operation
of s. 18(13) and s. 96 of the Income Tax Act, it is necessary to
determine Parliament’s intention in enacting these provisions by interpreting
them purposively, in light of their context.[88]
[224] Before addressing the legislative inconsistencies in section 142, I
must first determine if the Members of the Appellant paid the Annual Resort Fee
as consideration for the supply of a service or as consideration for the supply
of intangible personal property.
[225] I have already concluded that the Annual Resort Fee is an amount
each of the Canadian Resort Point Purchasers, the American Resort Point
Purchasers, the Canadian Developer and the U.S. Developer is required to pay,
as a Member of the Appellant, to fund the annual costs of the Appellant.
[226] The Respondent argues that the Members of the Appellant paid the
Annual Resort Fee as additional consideration for the supply of their
membership in the Appellant, which constitutes the supply of intangible
personal property. Specifically, the Respondent argues that the Annual Resort
Fee is part of the ongoing consideration Members of the Appellant pay in order
to maintain their membership in the Appellant. As a result, in the Respondent’s
view, the Appellant made a supply of intangible personal property that relates
to both real property situated in Canada and real property situated outside of
Canada.
[227] The Respondent argues that the portion of the supply of such
intangible personal property that relates to real property situated in Canada
is subject to GST and the portion of the supply that relates to real property
situated outside of Canada is not within the scope of the GST. The Respondent argues that the
Court should add the words “to the extent that” to the beginning of paragraph 142(1)(c)(ii) so that
the paragraph would read, “(ii) to the extent
that the property relates to real property situated in Canada.”
[228] The Respondent’s argument that tax may apply to only a portion of
the consideration for a taxable supply appears to be based on an administrative
concession made by the Canada Revenue Agency.
[229] The Appellant argues, in the first instance, that the Members of the
Appellant pay the Annual Resort Fee as consideration for a supply of a service
in relation to both real property situated in Canada and real property situated
outside of Canada. The Appellant’s argument is summarized at paragraph 151 of
the Written Submissions of the Appellant as follows:
Consequently, if this Court concludes the Club is
making a supply to the Members, the nature of the supply is the supply of the
operation and maintenance of the Vacation Homes for Members – which is a
service in relation to real property. Pursuant to paragraphs 142(1)(d) and
(2)(d), only the services that relate to the Vacation Homes in Canada would be
subject to GST.
[230] The Appellant also makes what appears to be an alternative argument.
It argues, at paragraphs 27 to 33 of its Additional Written Submissions, that
it is making a separate single supply of a service in relation to each of the
Vacation Homes.
[231] The GST Act contains definitions for the words “property” and “services”. Property is defined to mean any property,
whether real or personal, movable or immovable, tangible or intangible,
corporeal or incorporeal, and includes a right or interest of any kind whatever
but does not include money.
[232] Bruce Ziff in Principles of Property Law defines “property” as:
From an intuitive
perspective, the idea of property is perfectly straightforward: the term refers
to those things one can own. . . . Property is sometimes referred to as a
bundle of rights.[93]
[233] Furthermore, Ziff cites Professor Honoré, who identifies 11 elements
composing the bundle of rights:
Ownership
comprises the right to possess, the right to use, the right to manage, the
right to income of the thing, the right to the capital, the right to security,
the rights or incidents of transmissibility and absence of term, the duty to
prevent harm, liability to execution, and the incident of residuarity.[94]
[234] “Intangible
personal property” is not defined in the GST
Act. It is generally accepted as meaning property that lacks a physical
form (i.e. personal property other than tangible personal property).
[235] The GST Act defines a service to mean anything other
than property, money and certain services supplied to an employer by an
employee, an officer and certain other persons. The definition of a service
is extremely broad. If something is not property, money or an “employee service”,
then it will be deemed to be a service.
[236] I agree with the Appellant that the Annual Resort Fee is paid as
consideration for a service rendered by the Appellant to each of its members.
[237] The Appellant does not provide any rights in consideration of the
Annual Resort Fee. In other words, it does not supply any property. What it
supplies is the agreement to use the Annual Resort Fees to fund its operations.
Specifically, it agrees to use the funds to pay the Vacation Home Operating
Costs, to pay costs incurred to operate the Intrawest Program (including the
reservation system and the member relation function), to pay its own internal
expenses (such as head office salaries, legal fees, audit fees, cost of annual
meetings, etc.) and to hold a portion of the funds in a reserve fund for future
unexpected expenses (collectively referred to as the Annual Services).
[238] This is a supply of a service. It is the supply of something other
than property.
[239] I do not accept the Respondent’s argument that the Annual Resort Fee
is part of the ongoing consideration the Members of the Appellant pay to
maintain their membership in the Appellant.
[240] With respect to the Canadian Resort Point Purchasers, pursuant to
the terms of the Canadian Purchase and Membership Agreement, a Canadian Resort
Point Purchaser purchases both the Resort Points and the membership in the
Appellant from the Canadian Developer. Specifically, section 4 of the agreement,
states: “By signing this Agreement, the
Purchaser [the Canadian Resort Point Purchaser] is incurring a contractual
obligation to purchase the Membership and Resort Points. . .”.
[241] This is a different supply than the Appellant’s supply of the Annual
Services to the Canadian Resort Point Purchasers in consideration of the Annual
Resort Fee. In the first instance, different persons are making the supplies.
The Canadian Developer, not the Appellant, supplies the membership to the
Canadian Resort Point Purchaser.
[242] Second, the supply of the memberships by the Canadian Developer to
each Canadian Resort Point Purchaser is a supply of intangible personal
property, namely the rights arising from a membership in the Appellant and the rights
arising from the Resort Points.
[243] The membership in the Appellant provides the Canadian Resort Point
Purchaser with various rights with respect to the Appellant, such as the right
to participate in the Intrawest Program, vote at annual general meetings, elect
directors and share in any proceeds realized on the winding-up of the
Appellant. The Resort Points provide the Canadian Resort Point Purchaser with
the right to reserve specific Vacation Homes pursuant to the terms of the
Intrawest Program.
[244] The supply by the Appellant to the Canadian Resort Point Purchasers,
in consideration of the Annual Resort Fee, does not involve a supply of any
rights. The Canadian Resort Point Purchasers are merely agreeing, as members of
the Appellant, to fund the costs of the Appellant. The members are not
acquiring any additional membership rights; they acquired all of their rights
as members when the Canadian Developer supplied the membership in the
Appellant.
[245] I did not receive a copy of any agreement pursuant to which the American
Resort Point Purchasers purchased either Resort Points or a membership in the
Appellant. Paragraph 6 of the PASF states: “Under
the Intrawest program, purchasers acquire resort points and thereby
automatically become members of the Club [the Appellant] . . .”. I assume that the reference to purchasers in this
paragraph is to both the Canadian Resort Point Purchasers and the American
Resort Point Purchasers. As a result, I have assumed that the American Resort
Point Purchasers purchased the Resort Points and their memberships in the
Appellant from the U.S. Developer pursuant to an agreement very similar to the
Canadian Purchase and Membership Agreement.
[246] Therefore, in similar fashion to the Canadian Resort Point
Purchasers, the American Resort Point Purchasers paid the Annual Resort Fee as
consideration for the supply of a service.
[247] The parties did not present the Court with any evidence with respect
to the acquisition of memberships in the Appellant by either the Canadian
Developer or the U.S. Developer. I have no idea how or when they acquired their
memberships.
[248] There is no evidence before me that either the Canadian Developer or
the U.S. Developer paid the Annual Resort Fee as consideration for a membership
in the Appellant. As I have just discussed, the evidence before me is that the
Members of the Appellant (including the Canadian Developer and the U.S.
Developer) paid the Annual Resort Fee in consideration of the Appellant
agreeing to use the fees to fund its operations.
[249] Counsel for the Respondent focused on the fact that the failure of a
Member of the Appellant to pay the Annual Resort Fee may result in the
Appellant placing a lien on the member’s membership and then selling the
membership under a power of sale.
This does not mean that the Annual Resort Fee is consideration for the supply
of a membership in the Appellant. It simply means that if a Member of the
Appellant fails to pay the fee, the Appellant may take collection actions,
which can include seizing and selling the membership.
[250] The Respondent also raised the fact that, if a Canadian Resort Point
Purchaser or an American Resort Point Purchaser does not pay the Annual Resort
Fee, the member cannot use Resort Points to reserve a room in one of the
Vacation Homes. Again, this is a collection action; it does not evidence the
supply of rights. Further, this relates to the rights attached to the Resort
Points not the rights attached to a membership in the Appellant.
[251] In summary, each of the Members of the Appellant paid the Annual
Resort Fee as consideration for the supply by the Appellant of a service.
[252] Counsel for the Appellant argued that the Appellant made, in
consideration of the Annual Resort Fee, separate single supplies of services in
respect of each Vacation Home.
[253] The Respondent argues that the Appellant made a single supply
comprising a number of constituent elements.
[254] As I noted in Jema International Travel Clinic Inc. v The
Queen, 2011 TCC 462 (Jema), at paragraphs 28 and 29:
[28] The determination of this issue involves two steps. First,
it must be determined whether a single supply or multiple supplies were made by
the supplier; that is a question of fact. If it is determined that multiple supplies
were made then the deeming provisions in section 138 and 139 of the HST
Legislation must be considered.
[29] The
factual question of whether a supplier has made a single supply or multiple
supplies has been considered by the Court and the Federal Court of Appeal on
numerous occasions. Most of these decisions follow the principles summarized by
Justice Rip (as he then was) in O.A. Brown Ltd. v. Canada, [1995]
G.S.T.C. 40 (O.A. Brown).
[255] In O.A. Brown, Judge Rip (as he then was) summarized the law
as follows:
In deciding this
issue, it is first necessary to decide what has been supplied as consideration
for the payment made. It is then necessary to consider whether the overall
supply comprises one or more than one supply. The test to be distilled from the
English authorities is whether, in substance and reality, the alleged
separate supply is an integral part, integrant or component of the overall
supply. One must examine the true nature of the transaction to
determine the tax consequences. The test was set out by the Value Added Tax
Tribunal in the following fashion:
In our opinion, where the parties enter into a transaction involving
a supply by one to another, the tax (if any) chargeable thereon falls to be
determined by reference to the substance of the transaction, but the substance
of the transaction is to be determined by reference to the real character of
the arrangements into which the parties have entered.[100]
[256] My following statement at paragraph 32 of Jema emphasizes the
importance of common sense when making the determination:
[32] Justice
Rip noted the importance of common sense when the determination is made. As my
colleague Justice McArthur noted in Gin Max Enterprises Inc. v. the
Queen at paragraph 18,
From a review of the
case law, the question of whether two elements constitute a single supply or
two or multiple supplies requires an analysis of the true nature of the
transactions and it is a question of fact determined with a generous
application of common sense. . .
(Emphasis
added)
[257] As noted in paragraph 22 of the PASF, the Members of the Appellant
pay the Annual Resort Fee to fund membership costs. Membership costs
are defined in section 1.37 of the Master Declaration. As can be seen from
Exhibit A-13, they include all of the Annual Services.
[258] As I noted previously, the Annual Services comprise four separate
groups of activities of the Appellant: the maintenance, operation and improvement
of each Vacation Home; the operation of the Intrawest Program; the operation of
the Appellant itself; and the maintaining of a reserve fund. It appears to me
that, if I were to accept that the Appellant made separate supplies in respect
of the Canadian Vacation Homes and the U.S./Mexico Vacation Homes, then I would
have to accept that the Appellant made separate supplies in respect of the other
three groups of activities.
[259] As a question of fact, the Appellant did not make four separate
groups of supplies. It made a single supply by agreeing to use the Annual
Resort Fee to fund its operations. The Master Declaration clearly treats the
supply as a single supply, with the consideration being based upon the
Appellant’s total estimated costs. The Appellant could only continue to operate
the Intrawest Program if it incurred all of the costs set out in Exhibit A-13;
it could not cherry-pick certain costs.
[260] Having concluded that the Appellant made a single supply of a
service, I must now determine if section 142 deems the supply to have been made
in Canada.
[261] The actual wording of the section 142 place-of-supply rules for
services is as follows:
142(1) For the
purposes of this Part, subject to sections 143, 144 and 179, a supply shall be
deemed to be made in Canada if
. . .
(d) in the case of a supply of real property or of a service in
relation to real property, the real property is situated in Canada;
. . .
(f) the supply is a supply of a prescribed service; or
(g) in the case of a supply of any other service, the service is, or
is to be, performed in whole or in part in Canada.
142(2) For the
purposes of this Part, a supply shall be deemed to be made outside Canada if
(d) in the case of a supply of real property or a service in
relation to real property, the real property is situated outside Canada;
. . .
(f) the supply is a supply of a prescribed service; or
(g) in the case of a supply of any other service, the service is, or
is to be, performed wholly outside Canada.
[262] There are currently no prescribed services.
[263] The internal inconsistency only exists as a result of the wording of
paragraphs 142(1)(d) and 142(2)(d). These paragraphs apply in the narrow
situation where the supplied service is “in
relation to real property”.
[264] Having determined that the Appellant made a single supply of a
service, I must next determine if the Appellant made a supply of a service in
relation to real property as those words are used in paragraphs 142(1)(d)
and 142(2)(d).
[265] I agree with counsel for the Appellant that, in light of the Supreme
Court of Canada’s decision in Nowegijick v. The Queen, the phrase “in relation to” as
used in paragraphs 142(1)(d) and 142(2)(d) should be given a wide scope.
However, within the context of section 142, the words require a direct
relationship between the service and the real property. The service must be
performed directly on the real property or relate directly to the real
property. This would include services such as repairs to the real property,
maintenance of the real property, architectural services relating to a specific
building or legal services performed in respect of the sale or rental of the
real property.
[266] The Appellant’s only business is the operation of the Intrawest
Program. As a result, all of the services it performs relate directly or indirectly
to real property. However, paragraphs 142(1)(d) and 142(2)(d) only apply to
services performed by the Appellant that relate directly to real property.
[267] The actual services the Appellant provided in the relevant periods
in consideration of the Annual Resort Fee are set out in Exhibit A-13, Ms.
Ruff’s budgeting spreadsheet. It shows the following groups of costs,
-
Front desk and concierge
-
Member services
-
Housekeeping
-
Utilities
-
Maintenance
-
Cleaning and security
-
General and administration (wages, general expenses,
cost of the Appellant’s annual general meeting, audit costs, income tax, legal
expenses, property taxes, insurance, “fees
payable to division” and local resort fees)
-
Management fee paid to the Canadian Developer
-
Reserve fund.
[268] Certain services, such as the front desk and concierge services, and
the housekeeping, maintenance, and cleaning and security services, clearly
relate directly to the Vacation Homes. However, some of the services do not
relate directly to the Vacation Homes. For example, the general and
administrative services are services provided at the Appellant’s Vancouver
office and do not relate directly to a Vacation Home. Rather these services are
in relation to the operation of the Appellant as a corporation. This is the
case, for example, with services relating to the holding of the Appellant’s
annual general meeting, the carrying out of its audit, and the preparation of
its tax returns and with services giving rise to general costs for the
Vancouver office.
[269] In addition, sections 2.1 and 3.1 of the Management Agreement state
that the services provided by the Canadian Developer to the Appellant include
administrative and financial services. A number of the actual services are set
out in paragraphs a) to t) of section 3.1. These services include a number of
services that do not relate directly to real property, such as the filing of
forms with regulatory bodies with respect to the operation of the Appellant,
instructing lawyers and accountants on behalf of the Appellant with respect to
the preparation of financial statements, income tax returns and audits, providing
administrative services with respect to meetings of the Appellant’s board of directors
and meetings of the Members of the Appellant, and providing financial services.
[270] In addition, I believe that a number of services performed by the
Appellant in respect of the administration of the membership program do not
relate directly to real property. From the testimony of the Appellant’s
witnesses and the documentary evidence before me, it appears that a number of
the services relate to the operation of the membership program as opposed to
the operation of a Vacation Home. This would include such services as the
tracking of memberships, providing information to members, the drafting and circulation
of membership newsletters and dealing with inquires by members relating to the
status of their membership.
[271] In my view, the Appellant made a single supply of services that relate
to real property situated outside of Canada (the U.S./Mexico Vacation Homes),
real property situated in Canada (the Canadian Vacation Homes) and things other
than real property, such as the operating costs of the Appellant.
[272] Since the supply of the Annual Services relates in part to real
property in Canada and real property outside of Canada, I must address the
legislative inconsistency in paragraphs 142(1)(d) and 142(2)(d).
[273] I have already discussed the text of the relevant provisions; it is
the text that creates the internal inconsistency.
[274] A consideration of the context of the section 142 place-of-supply
rules must begin with subsection 165(1): the provision that imposes the tax. As
discussed previously, that subsection imposes the tax on taxable supplies that
are made in Canada. The actual tax is calculated on the consideration
for the taxable supply.
[275] Both the Appellant and the Respondent ask the Court to interpret
subsection 165(1) in such a manner that the tax is levied on only a portion of
the consideration for a single taxable supply.
[276] I do not see how subsection 165(1) can be interpreted in such a
manner. In my view, it clearly states that, if the supplier makes a taxable
supply and the supply is made in Canada, then tax is payable on the value of
the consideration for the taxable supply. There is no ambiguity in these words;
the subsection imposes the tax on the full consideration for the taxable
supply.
[277] Further, the GST Act, when read as a whole, does not
contemplate splitting a single supply that is made in Canada into a taxable portion
and a non-taxable portion.
[278] For example, subsection 169(1) is a key provision of the GST Act.
It contains the basic rules for the claiming of input tax credits. Its
operation is based on the assumption that all of the consideration for a single
taxable supply is subject to tax.
[279] Under this subsection, a GST registrant is entitled to claim an
input tax credit based upon the formula A x B where A is equal to the tax paid
or payable in respect of the supply and B, in most instances, represents the
extent to which the registrant acquired the property or service for consumption,
use or supply in the course of commercial activities.
[280] This formula allows input tax credits based on the tax paid on the
total consideration, and on the use of the entire property or service. It does
not apportion the tax and the use of the property between taxable and
non-taxable portions of a single supply. As a result, this formula will not
produce the result intended by Parliament if only a portion of the
consideration for a single supply is taxed. For example, consider the following
situation:
-
A single taxable supply is made of services that
relate to real property in Canada and real property outside of Canada.
-
Only the portion of the consideration allocated
to the services that relates to the real property situated in Canada is taxed.
-
The portions of the services that relate to the
real property situated in Canada are consumed in GST exempt activities.
-
The portions of the services that relate to real
property situated outside of Canada are consumed in GST commercial activities.
[281] In such a situation, since the tax was paid on services that were
consumed solely in exempt activities (the services consumed in Canada), one
would expect that no input tax credits would be available under subsection
169(1). However, subsection 169(1) looks at the total consumption of the single
supply. It does not distinguish between a taxable and a non-taxable portion of
a single supply. As a result, it would allow the registrant to claim an input
tax credit for a portion of the tax paid, to the extent that the service was
used in commercial activities (the activities outside of Canada). This would be
the result even though the portion of the services in respect of which the tax
was paid (the portion related to the services in Canada) was consumed solely in
exempt activities. In my view, this is not a result intended by Parliament
under subsection 169(1).
[282] Taxing only a portion of the consideration for a single supply would
cause similar difficulties when one tries to apply the change-in-use rules in
section 199 and the all-or-substantially-all rules in section 141.
[283] If Parliament had intended that subsections 165(1) and (2) levy tax
on only a portion of the consideration for a single supply of a service or
property, then, in my view, it would have included in the input tax credit
rules a provision allocating the tax paid to the taxable portion of the supply.
[284] Parliament, when enacting the GST Act, did turn its mind to
situations where it wanted portions of a single supply to be taxed in different
manners. In such situations, it deemed the single supply to be two or more
separate supplies.
[285] For example, subsection 136(2) addresses the situation where a
single supply is made of a piece of real property that includes a non-taxable
residential unit and a taxable commercial unit. The subsection deems the supply
of the residential unit and the commercial unit to be separate supplies.
Further, subsections 141(5) and 153(2) ensure that, if only a portion of the
supply of real property is taxed because of the application of the subsection
136(2) deeming rules, then a registrant is only entitled to claim input tax
credits for tax paid on goods and services consumed in relation to the taxable
portion.
[286] Parliament has used the same approach in subsections 136(3) and 136(4)
and sections 136.2, and 136.3.
[287] The GST Act does not contain similar provisions that apply
for the purposes of the section 142 place-of-supply rules. In my view, this
means that Parliament did not intend that tax would only apply to a portion of
the consideration for a single supply of property or a service that is deemed
to be made in Canada.
[288] In summary, the GST Act, particularly the sections that
impose the tax and the sections that allow for the claiming of input tax
credits, contemplates a single supply which is either subject to tax on the
whole of the consideration paid for the supply or not subject to tax at all.
[289] Both of the parties appear to be arguing that it is not the intent
behind the section 142 place-of-supply rules that a supply consumed both inside
and outside of Canada be deemed to be made in Canada. I do not agree.
[290] Paragraphs 142(1)(g) and 142(2)(g) contain what is normally referred
to as the general place-of-supply rules for services. The two paragraphs apply
to the supply of all services other than a service that is in relation to real
property. The two paragraphs determine the place-of-supply according to where
the service is physically performed. Parliament has equated the place of
consumption of a service to the place where the supplier of the service
performs the service.
[291] The only exception to the general rule is where the supply is a supply
of a service in relation to real property. In such a situation, paragraphs
142(1)(d) and 142(2)(d) look at the location of the real property.
[292] The effect of the general rule contained in paragraphs 142(1)(g) and
142(2)(g) is that a single supply of a service that is performed both inside
and outside of Canada and does not relate to real property will be deemed to be
a supply made in Canada. This means that, for most supplies of services (i.e.
supplies of services that do not relate to real property), Parliament has decided
that the supply will be deemed to be a supply made in Canada even if the supply
is consumed both inside and outside of Canada.
[293] Similarly, under paragraphs 142(1)(c)(i) and 142(2)(c)(i) a single
supply of intangible personal property that may be used both inside and outside
of Canada and does not relate to real property, tangible personal property or a
service will be deemed to be a supply made in Canada.
[294] This does not mean that Parliament intended tax to apply to all such
supplies. The section 142 place-of-supply rules are only one of the sets of
rules that determine when a taxable supply is subject to tax.
[295] In certain situations, Parliament has removed the tax from taxable
supplies that are deemed under section 142 to be made in Canada by zero-rating
the supply under the Export Schedule. Specifically, the Export Schedule
provides for a zero rate of tax on certain taxable supplies that are made in
Canada.
[296] The Export Schedule contains twenty-two provisions that zero-rate
supplies of services that are deemed to be made in Canada. In all but two of
these sections, the zero-rated supply is made to a non-resident person. For
example, section 7 of the Export Schedule zero-rates numerous supplies of
services that are performed in whole or in part in Canada where the supply of the
service is made to a non-resident person and is not subject to the numerous
exclusions set out in the section. Section 23 zero-rates professional services
(such as legal services) performed in whole or in part in Canada where the
supply is made to a non-resident and is not subject to one of the four
exclusions.
[297] In my view, Parliament has assumed that, if the supply is made to a
non-resident in a situation that qualifies for zero-rating under the Export
Schedule, then, generally, the supply is consumed outside of Canada.
[298] The only two zero-rating sections that do not require the supply to
be made to a non-resident are sections 2.2 and 4 of the Export Schedule.
Section 4 involves services in respect of temporarily imported tangible
personal property. In effect, this section zero-rates the supply of services
performed on tangible personal property, where the tangible personal property
is consumed or used outside of Canada. Section 2.2 provides for zero-rating for
certain cross-border air navigation services.
[299] Sections 10 and 10.1 of the Export Schedule are the two sections
that zero-rate the supply of intangible personal property. Both sections
require the supply to be made to a non-resident of Canada.
[300] The place-of-supply rules in section 142 are subject to sections
143, 144 and 179.
[301] Section 143 contains the so-called non-resident override rule. The
effect of section 143 is that supplies that would otherwise be deemed to be
made in Canada under section 142 are deemed to be made outside of Canada. Section
143 applies if a non-resident person makes the supply, unless the non-resident
makes the supply in the course of a business carried on in Canada by the
non-resident or the non-resident is registered under the GST Act. If the
non-resident supplies services or intangible personal property, Division IV of
the GST Act attempts to tax such supplies if they are consumed in Canada
in non-commercial activities.
[302] Section 144 contains a rule that applies to certain tangible
personal property imported into Canada. It is intended to avoid the double
payment of Division II and Division III tax.
[303] Section 179 contains a number of extremely complex rules that apply
to certain supplies of services and tangible personal property. The rules are
referred to as the drop-shipment rules. Generally speaking, the rules
will apply to the supply of a service where a Canadian supplier sells goods to
a non-resident, the non-resident has a service performed on the goods in Canada
and the goods are exported from Canada after the service is performed and
before they are consumed or used. In such a situation, even though the service
is performed in Canada, the supply of the service will be deemed to be made
outside of Canada provided the non-resident complies with the administrative
provisions of section 179. In such a situation, the taxation of the service is
not dependent on where the service is performed but rather on where the goods
are consumed or used.
[304] The section 179 drop-shipment rules do not apply to intangible
personal property.
[305] In my view, it is the combination of section 142, the Export
Schedule and section 179 that determines whether a supply of a service will be
subject to tax.
[306] With respect to section 142, the general place-of-supply rules for
services, contained in paragraphs 142(1)(g) and 142(2)(g), assume that the
services are consumed in the place where they are rendered. This assumes that the
services are not portable. Further, the supply of the service will be deemed to
be made in Canada provided the service is performed at least partly in Canada.
It is only supplies of such services that are performed entirely outside of
Canada that are deemed to be made outside of Canada.
[307] In situations where the service is portable, consumption may occur
in a location other than the place where the service is performed. Parliament has
provided relief from tax under the Export Schedule for portable services that
are consumed outside of Canada.
In most instances, Parliament has only provided relief if the supply is made to
a non-resident person or the supply is a supply of a service in respect of
tangible personal property where the tangible personal property is consumed or
used outside of Canada.
[308] In the situation where the service is in relation to real property,
paragraphs 142(1)(d) and 142(2)(d) apply for the purpose of determining whether
the supply is made in Canada. These rules are based on the assumption that the
services are consumed where the real property is located.
[309] How then does one resolve the section 142 internal inconsistency?
[310] In my view, section 142 must be interpreted in a manner that
respects Parliament’s intention to impose the tax, at the applicable rate, on
all of the consideration for a single taxable supply that is deemed to be made
in Canada, its general intention to deem, under section 142, supplies of
services that are performed inside and outside of Canada to be made in Canada,
and its intention to impose the tax on supplies of services to residents of
Canada where the services are consumed at least partly in Canada.
[311] In my view, the parties are asking the Court to interpret section
142 in a manner that offends all three of these intentions. In particular,
their interpretation would allow residents of Canada to escape a portion of the
tax on a single supply of services that the resident consumes partly in Canada.
A significant portion of the supplies made by the Appellant in consideration of
the Annual Resort Fee is made to residents of Canada, specifically the Canadian
Resort Point Purchasers and the Canadian Developer. The parties are asking the
Court to interpret section 142, subsection 165(1) and subsection 165(2) of the GST
Act in such a way that tax will only apply to a portion of the
consideration such Canadian residents pay for supplies of services that are
consumed inside and outside of Canada and for supplies of intangible personal
property that is used inside and outside of Canada.
[312] They appear to be arguing that I should interpret the GST Act
in a manner that offers special relief from taxation for a supply of services
in relation to real property, relief that is not offered with respect to any
other supplies of services, since the GST applies to all of the consideration
for a supply of a service that does not relate to real property and is
performed (consumed) partly in Canada.
[313] I cannot accept such an interpretation. First, it would require the
Court, as suggested by the Respondent, to read words into section 142. As the
Supreme Court of Canada noted in The Queen v McIntosh, supra, it is not
my task to create or amend legislation; that is a legislative, not a judicial,
function.
[314] Further, in my view, such an interpretation is not consistent with
Parliament’s intention, as reflected in section 142, the Export Schedule and
section 179, to impose the tax on the full consideration for a supply made to a
resident of Canada that is consumed partly in Canada.
[315] The internal inconsistency must be resolved in a manner that
respects Parliament’s intention without adding words to the relevant
paragraphs.
[316] Paragraphs 142(1)(g) and 142(2)(g) apply to the supply of all services
that do not relate to real property.
There is no inconsistency in the application of these paragraphs and they
address all situations that may arise: namely, a service performed completely
in Canada, a service performed completely outside of Canada and a service
performed both inside and outside of Canada. In my view, these paragraphs reflect
Parliament’s intention with respect to the application of the deeming rules to
supplies of services. If the service is performed partially or wholly inside of
Canada, the supply is deemed to be made in Canada; it is only when the service
is performed wholly outside of Canada that the supply is deemed to be made outside
Canada.
[317] Paragraphs 142(1)(d) and 142(2)(d) provide a narrow exception to
this general rule. This exception only applies when the supply is in respect of
a service in relation to real property. In my view, any interpretation of
paragraphs 142(1)(d) and 142(2)(d) that resolves the inconsistency must be
consistent with Parliament’s intention as reflected in the general rule
contained in paragraphs 142(1)(g) and 142(2)(g).
[318] Further, the words “a service in
relation to real property” in paragraphs
142(1)(d) and 142(2)(d) should be interpreted to mean that these paragraphs
only apply if the single supply of a service relates solely to real
property. The paragraphs do not apply if only a portion of the single supply of
the service relates to real property. In such a situation, the supply is
subject to the general deeming rules set out in paragraphs 142(1)(g) and
142(2)(g).
[319] For example, if a supplier supplies a service and a portion of that
service relates to real property and the remaining portion does not relate to
any real property, then paragraphs 142(1)(d) and 142(2)(d) do not apply to the
supply. In such a situation, the supply will be deemed under paragraphs
142(1)(g) and 142(2)(g) to be made in Canada if the service is performed in
whole or in part in Canada and to be made outside of Canada only if the service
is performed wholly outside of Canada.
[320] This interpretation is consistent with the immediate context in
which the relevant words are used in section 142. Both paragraph 142(1)(d) and
paragraph 142(2)(d) deal first with the supply of real property and then with
the supply of a service in relation to real property. In fact, paragraphs
142(1)(d) and 142(2)(d) contain the only reference in the place-of-supply rules
to the supply of real property. This supports an interpretation that Parliament
intended paragraphs 142(1)(d) and 142(2)(d) to apply to supplies that relate
solely to real property, including services that relate only to such real property.
[321] I have already determined that the Annual Resort Fee is paid as
consideration for a single supply of the Annual Services and that those
services relate to real property situated in Canada, real property situated
outside of Canada and things other than real property. As a result, since the
single supply relates, at least partly, to things other than real property, the
place of supply of the service must be determined under paragraphs 142(1)(g)
and 142(2)(g). Paragraph 142(1)(g) deems the supply to be made in Canada since
the Appellant performed the Annual Services partially in Canada.
[322] Therefore the GST applied to all of the Annual Resort Fee paid by
the Members of the Appellant in consideration of the Annual Services.
[323] I appreciate that my finding results in more tax being payable than
would be payable under the Canada Revenue Agency’s administrative policy.
However, this Court must determine the application of tax on the basis of the
provisions of the GST Act. The Canada Revenue Agency’s administrative
position, while beneficial to recipients of supplies, does not comply, in my
view, with the provisions of the GST Act. Further, since the Respondent
cannot appeal its own decision, my judgment cannot increase the tax assessed by
the Minister.
[324] The Minister, under subsection 296(1), reassessed the net tax for
each of the Appellant’s October monthly reporting periods from 2002 to 2008 (the
October Reporting Periods).
[325] As is allowed by section 302 of the GST Act, the Appellant
appealed these reassessments of net tax for each of its October Reporting Periods
to the Court. The Appellant did not appeal with respect to any other reporting
periods. As a result, the issue before the Court is the calculation of the
Appellant’s net tax for the October Reporting Periods.
[326] The net tax of a person for a specific reporting period is
determined under subsection 225(1). Generally speaking, that determination is
made as follows:
GST that became collectable during the
reporting period
+ GST that was collected during the
reporting period
- input tax credits claimed in the GST return filed by the
person
[327] There is no provision in the GST Act that specifically states
when the tax becomes collectable. However, subsection 221(1) provides that
every person who makes a taxable supply shall collect the tax payable by the
recipient in respect of the supply. Accordingly, it would appear that GST
becomes collectable by a registrant at the time it becomes payable by the
recipient of the supply. As a result, GST became collectable by the Appellant
on the supply of the Annual Services at the time the tax in respect of the supply
became payable by the Members of the Appellant.
[328] Subsections 168(1) and (2) of the GST Act contain the general
rules for determining when GST in respect of a taxable supply becomes payable.
Subsection 168(1) provides that the tax becomes payable on the earlier of the
day the consideration for the supply is paid and the day it becomes due.
Subsection 168(2) provides that if the consideration is paid or becomes due on
more than one day, the tax becomes payable on a part of the consideration on
the earlier of the day that that part is paid and the day that it becomes due.
[329] Section 152 of the GST Act provides that the consideration
for a taxable supply is deemed to be due on the earliest of the following three
dates:
- The earlier of the day an invoice is issued in
respect of the supply for that consideration or part and the date of the
invoice,
- The day the
invoice would have been issued but for undue delay, and
- The day the recipient is required to pay that
consideration or part to the supplier pursuant to an agreement in writing.
[330] Ms. Ruff testified that the Appellant issued invoices in October of
each year to each Canadian Resort Point Purchaser and American Resort Point
Purchaser who held Resort Points on September 30 of the particular year. The
invoice was for the full amount of the Annual Resort Fee, being the
consideration for the Annual Services. As a result, under section 152, the full
consideration (the Annual Resort Fee) for the supply of these services became
due in October of each year. Therefore, under subsection 168(1), all of the GST
on the Annual Resort Fee invoiced to Canadian Resort Point Purchasers and
American Resort Point Purchasers who held Resort Points on September 30 of each
year became payable and collectable in October of each year.
[331] However, Ms. Ruff also testified that the Appellant did not issue
invoices to the Canadian Developer and the U.S. Developer in October of each
year for the full amount of the Annual Resort Fee. Rather, the Appellant billed
each of the Canadian Developer and the U.S. Developer monthly for their
portions of the Annual Resort Fee. I have assumed that, because of the broad
definition of invoice in subsection 123(1), the monthly bill issued by the
Appellant to each of the Canadian Developer and the U.S. Developer constituted
an invoice. I have also assumed that the Appellant billed the Annual Resort Fee
in twelve equal amounts. In other words, only 1/12 of the Annual Resort Fee
billed to the Canadian Developer and U.S. Developer became due in October of
each year. Therefore, GST on 1/12 of Annual Resort Fee paid by the Canadian Developer
and the U.S. Developer became payable and collectable in October of each year.
[332] In summary, when calculating the net tax of the Appellant for the
October Reporting Periods, the Minister should have only added the GST payable
in respect of the amount of the Annual Resort Fee invoiced to each of the
Canadian Resort Point Purchasers, the American Resort Point Purchasers, the
Canadian Developer and the U.S. Developer in October of each year. For the
Canadian Resort Point Purchasers and the American Resort Point Purchasers, this
was the full amount of the Annual Resort Fee. For the Canadian Developer and
the U.S. Developer, it was 1/12 of the Annual Resort Fee.
[333] This is not how the Minister calculated the net tax. Mr. Lum
testified that the Canada Revenue Agency did not determine the amount of tax
collectable by the Appellant in its October Reporting Period by looking at the
amounts invoiced by the Appellant in October of each year. Rather, as evidenced
by Exhibit A-29, the Canada Revenue Agency calculated the tax collectable in
October of each year on the total Annual Resort Fees reported in the annual
financial statements of the Appellant for the following year.
[334] For example, Mr. Lum testified that he determined the GST collectable
by the Appellant in its October 2002 reporting period as follows:
-
He first determined the total revenue reported
on the Appellant’s December 31, 2003 financial statements in respect of the
Annual Resort Fee.
-
He then determined, using the Minister’s
assumption that only a portion of the Annual Resort Fee was subject to GST,
that 68.55% of the Annual Resort Fee was subject to GST.
-
He then applied the 7/107 ratio to the result to
determine an amount for GST collectable. The 7/107 ratio was used since the tax
rate at the time was 7% and the Appellant had invoiced the Annual Resort Fee on
the basis that the invoiced amount included any tax payable by the Member of
the Appellant.
[335] This calculation is not based on the amount invoiced by the
Appellant in October 2002, but rather is based on amounts reported on the
Appellant’s 2003 financial statements, which were prepared at least fourteen
months after the end of the October 2002 reporting period, and includes all
revenue earned by the Appellant in 2003.
[336] In short, instead of following sections 168 and 152, the Canada
Revenue Agency used their own method to determine the Appellant’s net tax for
its October reporting periods, a method that is not consistent with the
definition of net tax in subsection 225(1) and does not comply with the provisions
of sections 168 and 152.
[337] The Canada Revenue Agency’s method included in the Appellant’s net
tax for October amounts that were not collectable in that particular month. Specifically,
the Canada Revenue Agency included GST on the 11/12 of the Annual Resort Fee
invoiced to the Canadian Developer and the U.S. Developer in months other than
October.
[338] In addition, it is not clear to the Court that the amounts reported
on the Appellant’s 2003 financial statements as Annual Resort Fees received
from the Canadian Resort Point Purchasers and the American Resort Point
Purchasers represent only the amounts invoiced to these members in October 2002.
For example, Mr. Lum testified that the numbers that appear in the 2003
financial statements include write-offs for bad debts. I assume that they also
include the Annual Resort Fee paid by Canadian Resort Point Purchasers and
American Resort Point Purchasers who were not invoiced for the Annual Resort
Fee in October of a particular year because they joined the Intrawest Program
in October, November or December of that particular year.
[339] Further, the Canada Revenue Agency’s administrative method would
result in potential non-compliance with a number of other provisions of the GST
Act, such as the rules in section 225(4) that provide a two-year or four-year
limitation period for the claiming of input tax credits, and the transitional
rules that applied when the rate of tax was reduced from 7% to 6% in July 2006.
[340] The Canada Revenue Agency, when assessing a GST registrant, must follow
the provisions of the GST Act. It cannot use its own administrative
methods simply because they facilitate the assessing process.
[341] Counsel for the Respondent argued that section 306.1 precluded the
Appellant from raising this issue, since the Appellant is a specified person as
defined in section 301 and did not raise the calculation of its net tax issue
in its notice of objection.
[342] I do not accept this argument. The Minister, under subsection 296(1),
assessed the Appellant’s net tax for each October reporting period. In my view,
the Appellant raised the application of section 225(1) as soon as it objected
to the amount of the net tax it was assessed.
[343] The very issue before the Court is the Appellant’s net tax for the
relevant October reporting periods.
[344] Further, the Respondent states in her Reply that she relies on
section 225. As a result, even if I were to accept that the Appellant did not
raise the application of subsection 225(1), the Respondent certainly raised its
application in her Reply. Also, the Respondent’s witness took the Court to the
method used by the Canada Revenue Agency to calculate the Appellant’s net tax.
[345] The Respondent also argued that the legal principle of conduct
estoppel applies since the Appellant agreed to the method used by the Canada
Revenue Agency to determine its net tax in October of each year. In effect, the
Respondent is arguing that, provided it has the consent of the taxpayer, the
Canada Revenue Agency can ignore the provisions of the GST Act and
assess using its own methods. It is trite law that the Canada Revenue Agency,
when assessing, must follow the law as laid down by Parliament. It cannot rely
on the consent of the taxpayer as a reason to ignore the provisions of the GST
Act.
[346] I must now determine the Appellant’s net tax for the October
reporting period under subsection 225(1) of the GST Act.
[347] Unfortunately, the parties did not provide the Court with the number
of Resort Points held by the Members of the Appellant on September 30 of each
year or the amount the Appellant billed its members in October of each of the
relevant years.
[348] However, the PASF indicates the total number of Resort Points held
by the Members of the Appellant on December 30 of each year. The Resort Points are
divided between Resort Points held by Non-Developer Members (the
Canadian Resort Point Purchasers and the American Resort Point Purchasers) and
Resort Points held by Developers (the Canadian Developer and the U.S.
Developer). Exhibit A-13 contains the amount billed per outstanding Resort
Point for each of the relevant years.
[349] Using these numbers, I have determined that the amount assessed by
the Minister is less than the amount that should have been assessed given my
determination that the Appellant’s net tax for each October included GST on the
full amount of the Annual Resort Fee payable by the Canadian Resort Point
Purchasers and the American Resort Point Purchasers who owned Resort Points on
September 30 and GST on 1/12 of the Annual Resort Fee payable by the Canadian
Developer and the U.S. Developer.
[350] For the foregoing reasons, the appeal is dismissed. The parties have thirty days from the date of this
judgment to make representations with respect to the amount of costs that the
Court should award to the Respondent. If no submissions are received, costs
shall be awarded to the Respondent as set out in the Tariff.
Signed
at Ottawa, Canada, this 9th day of June 2016.
“S. D’Arcy”
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