SUPREME
COURT OF CANADA
Between:
City
of Calgary
Appellant
and
Her
Majesty The Queen
Respondent
Coram: McLachlin C.J. and LeBel, Deschamps, Rothstein, Cromwell,
Moldaver and Karakatsanis JJ.
|
Reasons for
Judgment:
(paras. 1 to 67):
|
Rothstein J. (McLachlin C.J. and LeBel, Deschamps,
Cromwell, Moldaver and Karakatsanis JJ. concurring)
|
Calgary
(City) v. Canada, 2012 SCC 20, [2012] 1 S.C.R. 689
City of
Calgary Appellant
v.
Her Majesty
The Queen Respondent
Indexed as: Calgary (City)
v. Canada
2012 SCC 20
File No.: 33804.
2011: November 15; 2012: April 26.
Present: McLachlin C.J. and LeBel, Deschamps, Rothstein,
Cromwell, Moldaver and Karakatsanis JJ.
on appeal from the federal court of appeal
Taxation
― Goods and services tax ― Single supply or multiple supplies ―
City acquiring and constructing transit facilities ― City claiming and
receiving public service body rebates for portion of GST paid ― City also
claiming input tax credits in respect of GST paid on purchases made for transit
facilities ― Whether acquisition and construction of transit facilities
constituting an exempt supply, a taxable supply or both ― Whether “transit
facilities services” a taxable supply to the Province separate from exempt
supply of “public transit services” to public ― City Transportation Act,
R.S.A. 2000, c. C‑14 ― Excise Tax Act, R.S.C. 1985, c. E‑15,
ss. 123(1) , 169(1) , Sched. V, Part VI, ss. 1, 24.
The
City of Calgary acquired and constructed transit infrastructure, facilities,
and equipment for the use of the Calgary public as part of the municipal
transit system pursuant to the City Transportation Act, R.S.A. 2000,
c. C‑14 (“CTA”). Under the CTA, the Province of
Alberta entered into funding agreements with the City. The City paid GST in
respect of its purchases for the acquisition and construction of the transit
facilities. The provision of a “municipal transit service” is an exempt supply
under the terms of the Excise Tax Act, R.S.C. 1985, c. E‑15
(“ETA ”). Input tax credits (“ITCs”) cannot be claimed with respect to
purchases made for the purpose of providing an exempt supply. Prior to 2003,
the City claimed public service body rebates for 57.14% of the GST paid. In
January 2003, the City filed a GST return in which it claimed ITCs for the
difference between the GST paid for the transit facilities and the rebates that
the City had previously received. The Minister of National Revenue rejected
the City’s position denying the City’s claim for ITCs; the Tax Court of Canada
agreed with the City, allowing the appeal and remitted the matter to the
Minister for reassessment. The Federal Court of Appeal allowed the Minister’s
appeal.
Held: The appeal
should be dismissed.
The
question in this appeal is whether the acquisition and construction of the
transit facilities constituted an exempt supply only, or whether it also, or
instead, constituted a taxable supply. The City asserts it made two supplies: (1) operating
the transit facilities on the one hand (“public transit services”), and
(2) constructing, acquiring, and making transit facilities available to
Calgary citizens (“transit facilities services”), on the other. The City
claims that its “transit facilities services” are a separate, taxable supply,
the recipient of which is the Province, thus entitling it to input tax credits.
Guidance
on the question of whether there were one or two supplies in this case may be
drawn from the way in which courts have dealt with whether a supplier has made
a single supply comprised of a number of constituent elements, or multiple
supplies of separate goods and/or services. The test to determine whether a
particular set of facts reveals single or multiple supplies for the purposes of
the ETA is whether, in substance and reality, the alleged separate
supply is an integral part, integrant or component of the overall supply. One
should look at the degree to which the services alleged to constitute a single
supply are interconnected, the extent of their interdependence and intertwining,
whether each is an integral part or component of a composite whole. 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. Work
preparatory to, or in order to make a supply, does not become a separate
service subject to GST.
Here,
the true nature of the City’s “transit facilities services” was work of a
preparatory nature to the supply of a municipal transit service to the public.
Transit facilities were constructed, acquired, and made available in order to
supply a municipal transit service to the Calgary public. This would point to
the “transit facilities services” being in fact a component of the overall
supply of “public transit services” to the Calgary public. The leading
separate supply cases do not contemplate a situation, such as in this case, in
which there are allegedly two recipients of the supply or supplies. To
determine whether the Province received any service or benefit from the City,
the nature of the respective obligations of the City and Province under the funding
agreements, having regard to the statutory context, must be analyzed. Here, nothing
in the CTA provides for the supply, by the City, of any goods, services,
or other benefit to the Province. Further, the City’s compliance with the
accountability measures under the funding agreements with the Province did not
amount to the provision of any goods, services, or benefit to the Province.
Accordingly,
the City made only one supply: the exempt supply of a municipal transit system.
The City’s activities of acquiring, constructing, and making public transit
facilities available for the Calgary public, did not fall within its
“commercial activit[ies]”, under s. 123(1) of the ETA . The City is not
entitled to claim ITCs for GST paid for the acquisition and construction of the
transit facilities. The ETA demonstrates that Parliament intended for
public service bodies to receive rebates at specified rates for the GST that
they pay in the course of making exempt supplies.
Cases Cited
Approved:
O.A. Brown Ltd. v. Canada, [1995] G.S.T.C. 40; Maritime Life
Assurance Co. v. R., [2000] G.S.T.C. 89; explained: Commission
scolaire Des Chênes v. Ministre du Revenu national, 2001 FCA 264, 286 N.R.
264; referred to: Reference re Goods and Services Tax, [1992] 2
S.C.R. 445; Hidden Valley Golf Resort Assn. v. R., [2000] G.S.T.C. 42; Gin
Max Enterprises Inc. v. R., 2007 TCC 223, [2007] G.S.T.C. 56; Corp. des
Loisirs de Neufchâtel v. R., 2006 TCC 339, [2008] G.S.T.C. 153.
Statutes and Regulations Cited
City Transportation Act, R.S.A. 2000,
c. C‑14, ss. 1 “transportation facility”, “transportation
system”, 2, 3, 4(1), (6), 6(1), (2), 7.
Excise Tax Act, R.S.C. 1985, c. E‑15,
ss. 123(1) “business”, “commercial activity”, “exempt supply”, “recipient”,
“service”, “supply”, 169(1), 259 [am. 2004, c. 22, s. 39(1)], Sched.
V, Part VI, ss. 1 “municipal transit service”, 24.
Municipal Government Act, R.S.A. 2000,
c. M‑26.
Public Service Body Rebate (GST/HST) Regulations, SOR/91-37, s. 5(e).
APPEAL
from a judgment of the Federal Court of Appeal (Blais C.J. and Sharlow and
Pelletier JJ.A.), 2010 FCA 127, 403 N.R. 41, 74 M.P.L.R. (4th) 93, [2010]
G.S.T.C. 78, 2010 G.T.C. 1043, [2010] F.C.J. No. 700 (QL), 2010
CarswellNat 1410, setting aside a decision of Rossiter A.C.J., 2009 TCC 272,
[2009] G.S.T.C. 85, 2009 G.T.C. 969, [2009] T.C.J. No. 195 (QL), 2009
CarswellNat 1309. Appeal dismissed.
Ken S. Skingle, Q.C., and D.
Blair Nixon, Q.C., for the appellant.
Gordon Bourgard and Michael Lema, for the respondent.
The judgment
of the Court was delivered by
Rothstein J. —
I. Introduction
[1]
The City of Calgary acquired and constructed
transit infrastructure, facilities, and equipment (“facilities”) for the use of
the Calgary public as part of the municipal transit system pursuant to the City
Transportation Act, R.S.A. 2000, c. C‑14 (“CTA”). Under the CTA,
the Province of Alberta was authorized to share the cost of the transit system
with the City, and to that end, entered into funding agreements with the City.
[2]
The City paid Goods and Services Tax (“GST”) in
respect of its purchases for the acquisition and construction of the transit
facilities. The provision of a “municipal transit service” is an exempt supply
under the terms of the Excise Tax Act, R.S.C. 1985, c. E-15 (“ETA ”).
Input tax credits (“ITCs”) cannot be claimed with respect to purchases made for
the purpose of providing an exempt supply. However, the City took the position
that the construction of the transit facilities (in contrast to their
operation) was a separate, non-exempt supply to the Province, pursuant to its
contractual obligations to the Province under the funding agreements, for which
the Province paid consideration. It therefore claimed ITCs in respect of the
purchases made for the construction of the transit facilities. The Minister of
National Revenue rejected the City’s position. The Tax Court of Canada agreed
with the City, allowing the appeal and remitting the matter to the Minister for
reassessment. The Federal Court of Appeal allowed the Minister’s appeal.
[3]
I would dismiss this appeal. The City made only
one supply: the exempt supply of a municipal transit system to the public.
Fulfilling the accountability obligations under the funding agreements with the
Province did not result in a separate supply to the Province. The acquisition
and construction of transit facilities was an input to the single supply of the
municipal transit service to the Calgary public. In accordance with the ETA ,
the City had applied for and received rebates of a portion of the GST that it
had paid on the facilities for the municipal transit service supply. The City
was not entitled to claim ITCs in respect of the GST paid on the facilities for
the municipal transit service. Therefore, it cannot recover the portion of GST
paid that exceeds the rebates that it had received.
II. Facts
[4]
As the Tax Court judge set out the facts
thoroughly and accurately, in accordance with the evidence, the summary that
follows parallels his findings closely. The City is a body corporate existing
under the Municipal Government Act, R.S.A. 2000, c. M-26 (“MGA”),
and is a city for the purposes of the MGA. The MGA imposes both
its own duties and the duties of other enactments, including the CTA, on
the City. Under the CTA, the City is required to prepare a
comprehensive transportation study report for the development of a public
transportation system, and then, by bylaw, to establish such a system.
[5]
“[T]ransportation system” is defined in s. 1(i)
of the CTA to mean a system of transportation facilities, including
streets, highways, rapid transit, and all types of transportation facilities to
which the CTA applies, on, above and below the ground. The expression
“transportation facility” is defined in s. 1(g) of the CTA to mean
everything necessary for the efficient transportation of persons or goods in a
particular manner. A “municipal transit service”, as defined in the ETA ,
is a public passenger transportation service supplied by a transit authority.
The CTA definition of “transportation system” is broader than the ETA
definition of “municipal transit service”, since the former includes
roadways, which are not at issue in this case. In these reasons, I will refer
to the Calgary public passenger transportation service as a “municipal transit
service”.
[6]
Under the CTA, each city,
including the City of Calgary, is responsible for the costs of establishing and
maintaining all transportation facilities subject to its direction, control,
and management. However, by complying with the CTA, a city may qualify
for financial assistance from the Province. The City entered into funding
agreements with the Province, which provided for the funding of eligible
transportation projects. Under the agreements, funding could only be used to
pay for expenditures relating to the construction or acquisition of transit
facilities that had been specifically approved by the Province. Projects
approved under the agreements included, among other things, the extension of
the Light Rail Transportation System (“LRT”), the acquisition of buses, LRT
vehicles, and LRT communication systems. The CTA provides that in the
absence of any agreement or statute to the contrary, title to all
transportation facilities forming the transportation system vests in the City.
In this case, there is no agreement or statute to the contrary.
[7]
The funding agreements between the City and
Province covered both roadway construction and public transit facilities. This
appeal only deals with the transit facilities, since no issue of exempt supply
arises in connection with roadway construction. The City and Province entered
into four agreements: the Basic Capital Grant Agreement (“BCG agreement”); the
Transit Capital Grant Agreement (“TCG agreement”); the City Transportation Fund
Agreement (“CTF agreement”); and the Primary Highway Connectors Grant
Agreement. The fourth of these concerned highway construction only. The other
three agreements (together, “Agreements”) are all relevant to this appeal.
[8]
Prior to March 2000, the Province provided
funding to the City under the BCG and TCG agreements. These two agreements
provided for the funding of eligible transportation projects, subject to
provincial budgetary restrictions. The BCG and TCG agreements established an application
process by which it would be determined whether the City’s proposed projects
met grant eligibility criteria. The City applied for funding following this
process, providing the Province with detailed financial and technical
information concerning the transit projects. Once approved, the City accepted
funding from the Province under the BCG and TCG agreements, subject to certain
additional terms and conditions, including: an obligation to maintain separate
accounting for the funds; obligations relating to the investment of the funds;
an obligation to comply with timeframes for and restrictions on fund usage; an
obligation to submit to audits and investigations by the Province; and when
carrying out work, an obligation to comply with prevailing legislative and
industry standards, and with the standards set down in the CTA. The
City carried out all of its obligations pursuant to the BCG and TCG agreements
with the Province.
[9]
The City and Province entered into the third of
the Agreements, the CTF agreement, in March 2000. Funding under this agreement
was subject to terms and conditions similar to those in the BCG and TCG
agreements. However, unlike those agreements, funding under the CTF agreement
was not subject to provincial annual budget availability, but was based on a
$0.05 per litre tax on the delivery of gasoline and diesel products within the
City of Calgary over a specified period of time. The CTF agreement also
expanded the scope of eligible transit projects to include noise barriers, landscaping,
upgrades to security and scheduling and communications systems for the LRT.
The CTF agreement differed from the BCG and TCG agreements in several
additional respects that are not relevant to this appeal. The City complied
with the terms of the CTF agreement and fulfilled its obligations to the
Province.
[10]
In the course of completing the transit
facilities under the three Agreements, the City incurred expenditures. The
expenditures related to the acquisition and construction of the transportation
facilities, and included the cost of extensions to the LRT system, the
refurbishment of equipment, LRT vehicle rebuilds, and the acquisition of
communication systems, signalling systems, buses, shuttle buses, and LRT
vehicles. The City owned all of the facilities that it upgraded or acquired in
the course of completing the transit projects.
[11]
The City paid GST in respect of the expenditures
that it incurred to construct and acquire the transit facilities. Prior to
2003, it claimed public service body rebates under s. 259 of the ETA ,
which resulted in the return by rebate of 57.14% of the GST paid by the City.
In January 2003, the City filed a GST return for the period ending December 31,
2002, in which it claimed ITCs in the amount of $6,351,967, which was the
difference between the GST paid for the transit facilities and the rebates that
the City had previously received. The Minister reassessed, denying the City’s
claim for ITCs. The City objected to the re-assessment and eventually appealed
to the Tax Court of Canada.
III. Judicial History
A. Tax Court of Canada (Rossiter A.C.J.), 2009 TCC 272, [2009]
G.S.T.C. 85
[12]
At the Tax Court of Canada, Rossiter A.C.J.
found that all three requirements to claim an ITC were fulfilled: (1) the City
was a registered claimant; (2) the City had paid GST in acquiring goods and
services; and (3) the City had acquired goods and services in the course of
“commercial activit[ies]”, as defined in the ETA . Of the three
requirements, only the third was disputed at trial.
[13]
Rossiter A.C.J. found the definition of
“commercial activity” in the ETA to be broad enough to include the
City’s performance of its obligations to the Province under the Agreements.
The definition excludes the making of an exempt supply. He considered
whether the construction of the transit facilities was an exempt supply, which
would turn on the question of who was the recipient of the supply: the
Province, or the public. If the Province was the recipient, the supply of the
transit facilities would not be an exempt supply, and the City would be
eligible for ITCs in respect of its GST expenditures.
[14]
Rossiter A.C.J. determined that under the terms
of the Agreements, funding was a legal obligation of the Province, directly
linked to the City’s obligation to supply the Province with the transit
facilities. He held that the Province had received from the City the service
of making available for its citizens the transit facilities, in accordance
with the terms of the Agreements.
B. Federal Court of Appeal (Blais C.J. and Sharlow and
Pelletier JJ.A.), 2010 FCA 127, 403 N.R. 41
[15]
Pelletier J.A., for the court, concluded that
the Tax Court judge erred in his conclusion that the Agreements required the
City to supply a municipal transit system to the Province for the use of the
Calgary public. He found that the City had a statutory obligation to establish
and maintain the public transportation system described in its comprehensive
transportation study and adopted in its bylaw, as approved by the Province. The
Province, by contrast, had statutory authority, but no obligation, to provide
the City with financial assistance. The Agreements did not require the City to
provide the Province with a transportation system, but merely provided a
mechanism by which the financial assistance would be administered, and
accountability for public funds would be maintained. The Minister’s appeal was
allowed.
IV. Analysis
[16]
The basic structure of the GST regime was well
explained in Reference re Goods and Services Tax, [1992] 2 S.C.R.
445. The GST is designed to be a tax on consumption, and as such, the ETA
contemplates three classes of goods and services: (1) taxable supplies; (2)
exempt supplies; and (3) zero-rated supplies. Taxable supplies currently
attract a goods and services tax of 5% (7% at the relevant time) each time they
are sold. To the extent that the purchaser of a taxable supply uses that good
or service in the production of other taxable supplies, that is, in the course
of commercial activities, the purchaser is entitled to an ITC and can recover
the tax it has paid from the government. This is to prevent the cascading of
GST, and to allow the obligation to pay GST to flow through to the ultimate
consumer. The other two classes of goods and services, exempt supplies and
zero-rated supplies, do not attract GST from the ultimate consumer. Vendors of
exempt supplies, while paying the GST on their purchases, are not entitled to
ITCs. In consequence, GST is paid to the federal government at the penultimate
stage in the production chain rather than by the ultimate consumer.
[17]
Provincial governments are not liable to pay GST
on their purchases. However, a number of subordinate entities created by the
provincial governments, including municipalities, are liable to pay GST. These
entities are entitled to claim ITCs to the extent that their purchases are used
in making taxable supplies, and are eligible for public service body rebates of
the GST paid on other purchases. The rebate rate for municipalities applicable
at the relevant time was 57.14%: Public Service Body Rebate (GST/HST)
Regulations, SOR/91-37, s. 5(e). (Subsequent to 2004, the
municipal public service body rebate was increased to 100%: S.C. 2004, c. 22,
s. 39(1) , amending s. 259(1) of the ETA .) In the instant case, the City
was eligible for and had collected public service body rebates for the GST paid
in the course of constructing the transit facilities, pursuant to s. 259 of the
ETA .
[18]
The requirements for claiming an ITC are set out
in s. 169(1) of the ETA , the portion relevant to this case being:
169. (1) Subject
to this Part, where a person acquires or imports property or a service or
brings it into a participating province and, during a reporting period of
the person during which the person is a registrant, tax in respect of the
supply, importation or bringing in becomes payable by the person or is paid by
the person without having become payable, the amount determined by the
following formula is an input tax credit of the person in respect of the
property or service for the period:
A × B
where
A is
the tax in respect of the supply, importation or bringing in, as the case may
be, that becomes payable by the person during the reporting period or that is
paid by the person during the period without having become payable; and
B is
. . .
(c) in any other case, the
extent (expressed as a percentage) to which the person acquired or imported the
property or service or brought it into the participating province, as the case
may be, for consumption, use or supply in the course of commercial activities
of the person.
[19]
For the purposes of this appeal, the
requirements to claim an ITC are (1) the claimant is registered; (2) the
claimant has acquired the goods or services for consumption, use or supply in
the course of commercial activities; and (3) the claimant has paid, or is
legally required to pay GST (or HST, in provinces with harmonized provincial
and federal sales tax) in acquiring the goods or services. It is not disputed
that the City is registered and has paid GST (in Alberta, there is no
provincial sales tax) in respect of its acquisition of goods and services. The
only issue is whether the City acquired the goods and services, for which it
paid GST, for “consumption, use or supply” in the course of its commercial activities.
[20]
“[C]ommercial activity” is defined for the
purposes of the ETA in s. 123(1) as
(a) a
business carried on . . . except to the extent to which the business involves
the making of exempt supplies . . . .
[21]
“Exempt supply” is defined in s. 123(1) to mean
a
supply included in Schedule V [to the ETA ].
[22]
The supply of a municipal transit service to a
member of the public is enumerated in Sched. V, Part VI, s. 24 of the ETA :
1. In this Part,
. . .
“municipal
transit service” means a public passenger transportation service (other than a
charter service or a service that is part of a tour) that is supplied by a
transit authority all or substantially all of whose supplies are of public
passenger transportation services provided within a particular municipality and
its environs;
. . .
24. A
supply made to a member of the public of a municipal transit service or of a
public passenger transportation service designated by the Minister to be a
municipal transit service.
[23]
A registrant may claim an ITC to the extent that
GST has been paid for property used, consumed or supplied in the course of the
registrant’s commercial activities which, by definition, exclude the making of
exempt supplies. Thus, to establish entitlement to ITCs in respect of the GST
paid on transit facilities, the City must show that in acquiring, constructing
and making available transit facilities, it carried on a business of making a
separate, taxable supply, rather than, or in addition to, an exempt supply of a
municipal transit service.
[24]
“[B]usiness”, as defined in s. 123(1) of the ETA ,
includes
a
profession, calling, trade, manufacture or undertaking of any kind whatever,
whether the activity or undertaking is engaged in for profit, and any activity
engaged in on a regular or continuous basis that involves the supply of
property by way of lease, licence or similar arrangement, but does not include
an office or employment;
[25]
The Tax Court judge concluded that the
activities of the City under the Agreements of acquiring, constructing, and
making public transit facilities available for the citizens of Calgary,
constituted a “business”, as that term is broadly defined in s. 123(1) , because
those activities involved an “undertaking of any kind whatever”. I would agree
with the Tax Court judge. I see no reason why the words “undertaking of any
kind whatever” would exclude the construction of a public transit facility.
Therefore, the City’s activity of constructing the transit facilities would fall
within the definition of “commercial activity”, except to the extent to which
that activity involved the making of exempt supplies.
[26]
The question in this appeal is whether the
acquisition and construction of the transit facilities constituted an exempt
supply only, or whether it also, or instead, constituted a taxable supply. The
City asserts that it made two supplies. The first, which it has called “public
transit services”, it provides in operating its transit facilities. This, it
acknowledges, meets the definition of a “municipal transit service”, an exempt
supply under the ETA . The recipient of this supply, according to
the City, is the Calgary public. The second supply, which the City has called
“transit facilities services”, it argues it has provided in “acquiring,
constructing and making available the transit facilities to the citizens of
Calgary”. The City claims that its “transit facilities services” are a
separate, taxable supply, the recipient of which is the Province.
[27]
Under s. 123(1) of the ETA , “supply”
means
the
provision of property or a service in any manner, including sale, transfer,
barter, exchange, licence, rental, lease, gift or disposition;
[28]
The term “service” is defined in s. 123(1) of
the ETA to mean
anything other than
(a) property,
(b) money . . . .
[29]
The Tax Court judge was satisfied that under
these expansive definitions, the City had made a supply. His analysis centred
on whether the supply was made to the public or to the Province. This was
because he was of the view that whether the acquisition and construction of the
transit facilities was an exempt supply turned on the question of who was the
recipient of the supply: the Province, or the public. However, the recipient
of the supply may not be dispositive of the exempt supply issue. Having determined
the recipient of a supply, it still must be determined whether the supply is
taxable or exempt, with reference to the applicable ETA definitions.
Further, the learned judge did not address whether the City made one supply
only, or two supplies. The issue in this appeal is what supply or supplies
were made by the City, and whether the supply or supplies were taxable or
exempt.
A. Supplies Made
[30]
The distinction that the City draws is between
(1) operating the transit facilities on the one hand, and (2) constructing,
acquiring, and making them available, on the other. The City argues that the
Province is the only recipient of the second supply, and the Calgary public is
not a recipient. If the City is right, then its second supply would fall
outside Sched. V, Part VI, s. 24 of the ETA , would be a taxable supply,
and the City would be entitled to ITCs. If the City is wrong and there is only
one supply of a municipal transit service to the public, then the supply is
exempt and ITCs are not available.
[31]
While not precisely on point, guidance on the
question of whether there were one or two supplies in this case may be drawn
from the way in which courts have dealt with whether a supplier has made a
single supply comprised of a number of constituent elements, or multiple
supplies of separate goods and/or services.
[32]
In determining whether a supplier has made a
single supply or multiple supplies, the relevant principles were summarized by
Justice Rip (as he then was) in O.A. Brown Ltd. v. Canada, [1995]
G.S.T.C. 40 (T.C.C.). His approach was confirmed by the Federal Court of
Appeal in Hidden Valley Golf Resort Assn. v. R., [2000] G.S.T.C. 42.
[33]
In O.A. Brown, the appellant O.A.
Brown Ltd. (“OAB”) bought livestock for customers, but on its own account and
at its own risk, not as agent for its customers. Customers would contact OAB’s
salesman to place an order specifying the type of cattle they required. OAB
charged its customers disbursements, such as the cost of branding and
inoculations, and a clearing commission, in addition to the cost of livestock.
Livestock is a zero-rated supply for GST purposes, which means that the vendor
neither pays GST on his acquisition of the livestock, nor collects it from his
customers. The Minister assessed GST on the commission and the other
disbursements. The main issue in the appeal was whether OAB supplied a service
of acquiring livestock according to its customers’ specifications, or whether
it was supplying livestock and other supplies, in which case it should have
collected and remitted GST on the other supplies.
[34]
Justice Rip found that the Value Added Tax
statute in the United Kingdom contained many provisions similar to our GST (Value
Added Tax Act (UK), 1983, c. 55). In the English cases the issue had been
defined as whether the supply in question comprises a compound supply or a
multiple supply. A compound supply is a single supply with a number of
constituent elements which, if supplied separately, some would have been taxed
and some not. Multiple supplies are made and taxed separately.
[35]
O.A. Brown
established the following test to determine whether a particular set of facts
revealed single or multiple supplies for the purposes of the ETA :
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. [p. 40-6]
[36]
When reaching his decision, Justice Rip made the
following observation:
. . . one should look at the degree to which the
services alleged to constitute a single supply are interconnected, the extent
of their interdependence and intertwining, whether each is an integral part or
component of a composite whole. [p. 40-6]
(Citing
Mercantile Contracts Ltd. v. Customs & Excise Commissioners, File
No. LON/88/786, U.K. (unreported).)
[37]
Justice Rip also noted the importance of common
sense when the determination is made. McArthur T.C.J. made a similar
observation in Gin Max Enterprises Inc. v. R., 2007 TCC 223, [2007]
G.S.T.C. 56, at para. 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.
[38]
Applying the test, Justice Rip found that the
disbursements and commission were not charged for services that were “distinct
supplies, independent of the whole activity” (p. 40-8). Only if taken together
did the activities of buying, branding, inoculation, and other disbursements
form a useful service. He concluded:
In
substance and reality, the alleged separate supply, that of a buying service,
is an integral part of the overall supply, being the supply of livestock. The
alleged separate supplies cannot be realistically omitted from the overall
supply and in fact are the essence of the overall supply. The alleged separate
supplies are interconnected with the supply of livestock to such a degree that
the extent of their interdependence is an integral part of the composite whole.
. . . The appellant is making a single supply of livestock and the commission
and disbursements charged are part and parcel of the consideration for that
supply. They do not amount to separate supplies. [pp. 40-8 to 40-9]
[39]
In O.A. Brown, Rip J. characterized the
commission, inoculation, branding and transportation costs not as distinct
services but as inputs for the cattle and part of the cost of supplying the
cattle. If this approach is followed, the public transit facilities would not
be a separate supply, but would be an input to, or part and parcel of, the
supply of the municipal transit service to the Calgary public.
[40]
Maritime Life Assurance Co. v. R., [2000] G.S.T.C. 89 (F.C.A.), also supports the proposition that
work preparatory to, or in order to make a supply, does not become a separate
service subject to GST. In Maritime Life, the taxpayer, Maritime Life
Assurance Co., issued insurance policies of various kinds, including a number
of deferred annuity contracts. The holder of such a policy would pay periodic
premiums to Maritime Life as consideration for the right to receive, on a
specified future date, a payment of money or an annuity of equivalent value.
[41]
The Tax Court judge found two kinds of services
were being provided to Maritime Life’s policy holders, the insurance services
represented by the issuance and administration of the policies, and the
services represented by its management of the segregated funds. The Federal
Court of Appeal held that the only supply Maritime Life made to the policy
holders was the provision of the policies. Maritime Life administered the
policies and maintained the investments that backed its obligations under the
policies, but that was the work it had to do to ensure that it remained in
position to fulfil its policy obligations. The Federal Court of Appeal
reasoned that the work should not be treated as a service that Maritime Life
provided to the policy holders, any more than the work undertaken by a cleaning
service to keep its cleaning equipment in good repair is a service provided to
its clients. Applying the same reasoning in the present case, the acquisition
and construction of the transit facilities, work undertaken by the City to
develop a municipal transit service that meets the needs of the Calgary public,
would not be treated as a supply that is separate from the supply of the
municipal transit service itself.
[42]
Applying the O.A. Brown test, the
question in this appeal is whether, in substance and reality, the alleged
separate “transit facilities services” supply is an integral part, integrant or
component of the overall supply of “public transit services”. According to the
jurisprudence, if one supply is work of a preparatory nature to another supply
(an “input” to that supply), then the input is a part or component of the
single overall supply.
[43]
In my opinion, the true nature of the City’s
“transit facilities services”, a determination to be made with common sense,
was work of a preparatory nature to the supply of a municipal transit service
to the public. Transit facilities were constructed, acquired, and made
available in order to supply a municipal transit service to the Calgary
public. This would point to the allegedly separate “transit facilities
services” being in fact a component of the overall supply of “public transit
services” to the Calgary public.
[44]
Further, the single supply/multiple supplies
analysis, as it has emerged, presupposes that several distinct elements or
components of a supply can be identified before the analysis can be performed.
In the present case, the alleged separate supplies are so interconnected that
it would be difficult to identify distinct elements or components.
[45]
The purchase of an LRT vehicle (part of the
alleged “transit facilities services” provided to the Province), and the
operation of that vehicle as part of a municipal transit service (part of the
“public transit services” provided to the Calgary public), are distinct
activities. However, these activities are better seen as steps taken in order
to produce a municipal transit service than they are seen as distinct elements
or components of that transit service. The City’s acquisition and construction
of the transit facilities served the purpose of enabling the City to provide a
transit service to the public. The end result of those activities was that a
municipal transit service, featuring several expansions and improvements, could
be operated. Nothing else was produced as a result of the activities. In this
regard, this case is analogous to O.A. Brown, in which all disbursements
and services for which customers were charged ultimately enabled OAB to deliver
livestock as ordered by its customers. Further, the transit facilities
have no use and provide no service except to the extent to which they are
deployed for use within the Calgary municipal transit service. The
interdependence and interconnectedness of the “transit facilities services” and
the “public transit services” is obvious.
[46]
The application of the test for a separate
supply would indicate that there is only one supply in the circumstances.
However, in the leading separate supply cases, the allegedly separate supplies
are provided to single recipients. The cases do not contemplate a situation in
which there are allegedly two recipients of the supply or supplies. In
addition to the O.A. Brown test, there are other relevant factors to
consider. Here, it has been argued that the “transit facilities services”,
which ultimately benefit the Calgary public, provide a separate and distinct
benefit to the Province. To determine whether the Province received any
service or benefit from the City, the nature of the respective obligations of
the City and Province under the Agreements, having regard to the statutory
context, must be analyzed.
B. The Statutory Context
[47]
If the Province has a statutory obligation to
provide municipal transit services for the public in its cities, then the
City’s work in establishing the municipal transit service, including the
acquisition and construction of the transit facilities, would provide the
benefit to the Province of enabling it to fulfill its statutory obligation. If
there is no such obligation, it would point away from a service to the
Province.
[48]
As noted earlier, the City is subject to the CTA.
Under the CTA, the City has several obligations. It must prepare a
comprehensive transportation study report for the development of an integrated
transportation system under s. 3. Section 4(1) obliges the City to establish
the transportation system described in its report, by bylaw. Under s. 4(6),
the bylaw must be submitted for approval by the Lieutenant Governor in Council,
and if approved, the bylaw must be enforced as approved.
[49]
With respect to the cost of establishing and
maintaining its transportation system, s. 2 makes the City responsible for the
cost, but provides that it may qualify for financial assistance from the
Province. Section 6(1) provides that, when the City determines that a
particular transit facility, included in the transportation system, is to be
constructed, it must submit a proposal to the Minister. This provision makes
provincial approval necessary for the construction or acquisition of any
transit facilities. Further, under s. 6(2), provincial approval of a transit
facility is a precondition to entry into a funding agreement, between the City
and Province, with respect to a transit facility. Section 6(2) of the CTA
vests in the Province the discretion to share in the cost of the construction
of those transportation facilities which it has approved pursuant to s. 6(1).
[50]
The relevant provisions of the CTA are:
2 Each city
is responsible for the costs of establishing and maintaining all transportation
facilities subject to its direction, control and management but may qualify for
financial assistance from the Government by complying with this Act.
3 The city
shall prepare a comprehensive transportation study report for the development
of an integrated transportation system designed to service the needs of the
entire city.
4(1) The city
council shall by bylaw establish a transportation system in accordance with the
transportation study report and the bylaw shall designate the transportation
system.
. . .
(6) The city
council shall submit the bylaw to the Minister for approval by the Lieutenant
Governor in Council and the Lieutenant Governor in Council may vary or approve
the bylaw in whole or in part and if the bylaw is varied or approved in part
only, it shall be enforced and take effect as approved.
. . .
6(1) When a city
considers that a transportation facility included in the transportation system
should be constructed it shall submit the proposal to the Minister.
(2) If the
proposal is approved by the Minister, the Minister may enter into an agreement
with the city with respect to the sharing of costs of establishing the
transportation facility.
. . .
7 The title to all transportation facilities forming the
transportation system is, subject to any Act or agreement to the contrary,
vested in the city.
[51]
Since the CTA imposes no obligations on
the Province with respect to the establishment or operation of municipal
transit services, the statutory context does not support the contention that
the City provided the benefit or service to the Province of fulfilling a
statutory obligation on its behalf.
[52]
If any provision of the legislation provided for
a transfer, from the City to the Province, of title to the transportation
facilities, it would support the argument that the City made a supply to the
Province. However, there is no statutory provision to such effect. Under s. 7
of the CTA, title to all facilities constructed vested in the City.
[53]
Nothing in the CTA provides for the
supply, by the City, of any goods, services, or other benefit to the Province.
C. The Agreements
[54]
The next question is whether the City supplied a
service or benefit to the Province by complying with the terms of the
Agreements. The Tax Court judge concluded that the Agreements required the
City to supply to the Province a municipal transit service for the use of the
Calgary public. However, the Court of Appeal held that the Tax Court judge had
erred in this interpretation. Pelletier J.A. found that the Agreements were
simply the mechanism by which the financial assistance given by the Province to
the City was administered, and by which accountability for those public funds
was maintained (para. 57).
[55]
The Court of Appeal found that the preambles to
the BCG and TCG agreements recognized a previous commitment by the Province to
contribute 75% of the cost of projects approved under the terms of the
particular grant program and the City’s agreement to use the funds for those
projects. The City, for its part, agreed to accept the funds to be made
available by the Province upon the terms set out in the agreements (para. 38).
[56]
As the Court of Appeal recognized, art. 2 of the
BCG agreement set out the conditions to which the City agreed in order to
receive funds from the Province. The conditions in the TCG were the same
except for some small elements which are immaterial to this discussion. The
conditions generally relate to the application of the funds, the required
accounting, the application of interest earned on the funds, the application of
unexpended funds and other matters of an administrative nature. The one
condition which related to construction was condition h), which required that
any construction which was funded by the grant program had to meet the
prevailing legislative standards and best practices (paras. 39 to 40).
[57]
The Court of Appeal further found that art. 4 of
the BCG and art. 5 of the TCG operated so as to ensure that the work which was
funded under the agreements would be carried out in conformity with the terms
of the CTA and its Regulations (paras. 41 to 43). Finally, the
remaining clauses of the BCG and TCG agreements imposed certain reporting
requirements on the City and dealt with the accounting for unused funds (para.
45). The Court of Appeal concluded that both of these agreements were
framework funding agreements which governed the manner in which funds for
approved projects were to be disbursed and administered (para. 46).
[58]
The CTF agreement differed from the other two in
that it established a dedicated fund to be funded by payment to the City of
$0.05 on the sale of each litre of taxable gasoline or diesel fuel within the
City of Calgary. The balance of the agreement addressed the administration of
that fund. As in the BCG and TCG agreements, the Court of Appeal concluded
that nothing in the CTF required the City to construct anything whatsoever.
Nothing in the agreement would give contractual effect to the City’s statutory
obligations with respect to the establishment of a transportation system (para.
52).
[59]
The Province provided funding under the
Agreements to assist the City in carrying out its own activities. The Province
did not contribute funding to obtain a supply of accountability from the City;
the contributions only went to assist the City with the capital costs of
improving its municipal transit system. I agree with the Court of Appeal that
the City’s compliance with the accountability measures did not amount to the
provision of any goods, services, or benefit to the Province.
[60]
Following the jurisprudence on single or
multiple supplies, the construction and acquisition of the transit facilities
were inputs into the supply of the municipal transit service to the public. In
addition, nothing in the applicable statutes, and nothing in the Agreements,
indicates that there was a separate supply of “transit facilities services” by
the City to the Province. For these reasons, there was only one supply by the
City in this case, the supply of a municipal transit service.
D. The Recipient of the Supply
[61]
The City urges this Court to follow the
approach of the Federal Court of Appeal in Commission scolaire Des Chênes v. Ministre du Revenu national, 2001 FCA 264, 286 N.R. 264. In Des Chênes, the Federal
Court of Appeal held that Des Chênes, a school board, having received a subsidy
from the Province of Quebec, had made a taxable supply of its school bussing
services to the Province, and that ITCs were available to the school board.
[62]
Here, the City has acknowledged that members of
the Calgary public are the recipients of its supply of “public transit
services”. Its acknowledgment is consistent with the definition of “recipient”
in s. 123(1) of the ETA , according to which the recipient of a supply is
the person liable to pay consideration for that supply. Users of the municipal
transit service pay fares in consideration for the supply, and are therefore
recipients of the supply under the ETA . Nothing in the ETA
requires a supply to have only one recipient.
[63]
In my view, Des Chênes does not assist
the City. Even if this Court were to find, following Des Chênes, that
because the Province contributed grant funding to the City, the Province was a
recipient of the supply of municipal transit services, the public would remain
a recipient of the supply. In Corp. des Loisirs de Neufchâtel v. R., 2006 TCC 339, [2008] G.S.T.C. 153, Lamarre Proulx T.C.J. found that there were two recipients of a
supply of community leisure services: the community, who enjoyed the leisure
services and paid part of the consideration, and the municipality, which had
paid the other part of the consideration for the supply.
[64]
As observed above, the identity of the recipient
of a supply may not determine whether the supply is taxable or exempt. The
identity of the recipient only determined the nature of the supply in Des
Chênes because the parties had agreed that, if the subsidy from the
Province of Quebec did not constitute consideration for the supply of
transportation services, then the students were the recipients of the supply,
and that the supply would be exempt. However, if the subsidy constituted
consideration, then the province would be the recipient of the supply of
transportation services, making it a taxable supply. The Federal Court of
Appeal noted that whether the supply was taxable or exempt was an issue, but in
light of the parties’ agreement, limited its analysis to the issue of whether
the subsidy was “consideration”. Finding that it was, it followed that the
Province was the recipient, and that the supply was therefore taxable,
entitling the school board to ITCs.
[65]
Schedule V, Part VI, s. 24 of the ETA provides
that a supply is exempt if it is the supply of a municipal transit service made
to members of the public. Section 24 does not indicate that the supply must be
made exclusively to members of the public. As determined above, the City made
only one supply, the supply of a municipal transit service. The construction,
acquisition, and making available of the transit facilities were inputs into
that supply. Whether or not the Province is a recipient of the supply in
addition to the public, the supply is of a municipal transit service to the
public, and is therefore exempt. Accordingly, the City’s activities of
acquiring, constructing, and making public transit facilities available for the
Calgary public, did not fall within its “commercial activit[ies]”, under s.
123(1) of the ETA , because they involved the making of exempt supplies.
The City is not entitled to claim ITCs for GST paid for the acquisition and
construction of the transit facilities for the municipal transit service that
it supplied to the Calgary public. To the extent that Des Chênes is
inconsistent with this reasoning, it should not be followed.
V. Conclusion
[66]
There was only one supply in this case, the
exempt supply of a municipal transit service to the Calgary public. The ETA
demonstrates that Parliament intended for public service bodies to receive
rebates at specified rates for the GST that they pay in the course of making
exempt supplies. There was no separate, non-exempt supply to the
Province, and accordingly, ITCs for GST paid in the course of acquiring and
constructing the municipal transit facilities are not available to the City.
[67]
I would affirm the findings of the Federal Court
of Appeal and dismiss the appeal with costs.
Appeal
dismissed with costs.
Solicitors
for the appellant: Felesky Flynn, Calgary.
Solicitor for the
respondent: Attorney General of Canada, Ottawa.
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