Citation: 2009 FCA 114
HER MAJESTY THE QUEEN
GENERAL MOTORS OF CANADA
REASONS FOR JUDGMENT
appeal of a decision of Campbell J. (the Tax Court Judge), Her Majesty the
Queen v. General Motors of Canada Limited, 2008 TCC 117, was heard consecutively
to appeal A-243-08, Her Majesty the Queen v. the Canadian Medical Protective
Association, 2008 TCC 33, rendered by Bowman C.J.
issue is whether General Motors Canada Ltd. (GMCL) was, during the relevant
period, eligible for input tax credits (ITCs) under subsection 169(1) of the Excise
Tax Act, R.S.C. 1985, c. E-15 (the Act) in respect of GST paid to investment
GMCL is not entitled to claim ITCs, the question becomes whether GMCL is entitled
to a rebate of GST paid in error pursuant to subsection 296(2.1) of the Act, on
the basis that the investment services would not be subject to GST at all,
since they would be an exempt supply of a “financial service” as defined in
subsection 123(1) of the Act.
Tax Court Judge found that GMCL was eligible for the ITCs based on the
three-prong test of subsection 169(1), namely (1) that GMCL acquired the supply
(the investment management services), (2) that the GST was payable or paid by
GMCL on the supply (the investment management services) and (3) that the supply
(the investment management services) was acquired for consumption or use in the
course of GMCL’s commercial activities.
Tax Court Judge rejected GMCL’s submission that it was entitled to a rebate for
GST paid in error. She found that the services of investment managers did not involve
the exempt financial service of buying and selling securities or arranging for
such buying and selling.
appellant (the Crown) appeals on the first issue. The respondent raises the
second issue as an alternative in the event that we decide the first issue in
favour of the Crown.
facts are not in dispute. A detailed description can be found in the reported
decision of the Tax Court Judge. For the purpose of this appeal, the salient
is engaged in the business of manufacturing, assembling and selling cars and
trucks. In addition, it is the administrator of the pension plans of its
are two registered pension plans: the Hourly Plan and the Salaried Plan (the
Plans). The Hourly Plan was created pursuant to the terms of a collective
agreement between GMCL and the National Automobile, Aerospace and Agricultural
Implement Workers Union of Canada for the benefit of GMCL’ hourly employees. The
Hourly Plan is a single employer plan funded by employer contributions only.
The Salaried Plan for the salaried employees of GMCL and certain affiliated
corporations of GMCL is funded primarily by employer contributions with a very
small portion funded by the employees.
As administrator of these Plans, GMCL’s
responsibilities include the calculation and payment of pension entitlements
and the disclosure of information to the members of the respective Plans. GMCL
also submits filings and accurate reports, it invests the assets, it ensures that
all required contributions are made and that the fees and expenses are reasonable.
Plans are funded through trusts which hold and invest the assets of the Plans.
For each of the Plans, the relevant Master Trust arrangements are two-tiered.
Firstly, GMCL pays into the Master Trusts the required contributions for each
Plan. Secondly, the funds in each of the Master Trusts are invested in units of
Trust Company of Canada Limited (Royal Trust) is appointed as trustee of the
Master Trusts and the Unitized Trusts. Royal Trust takes bare legal title to
the assets of the Unitized Trusts and discharges various duties, including
maintaining custody, safekeeping and registration of securities, transferring
funds and processing information from third parties.
retains investment managers in order to manage the investment funds within one
or more investment asset classes. Its powers and duties as administrator originate
in a number of constating documents. In addition, Ontario’s Pension
Benefits Act, R.S.O. 1990, c. P.8 (the OPBA), imposes
specific statutory responsibilities on GMCL.
responsibilities of the investment managers are described in the following
terms by the respondent at paragraph 13 of its memorandum of fact and law:
Management Agreements pursuant to which the Investment Managers were retained
provided that the Investment Managers had, among other things, full discretion
to purchase, receive or subscribe for securities, to retain in trust such securities,
to purchase, enter, sell, hold and generally deal in any manner in and with
contracts for the immediate or future delivery of financial instruments, and to
convert monies into Canadian and foreign currencies, subject to certain
prudential investment guidelines determined by GMCL which governed the nature
and/or extent of investment which Investment Managers could undertake in the
context of their power as fully discretionary Investment Managers.
Investment Management Agreement is entered into between GMCL and each individual
investment manager. In each case, GMCL is the person liable under the
Investment Management Agreement to pay both the consideration for the supply of
services by the investment managers and the GST payable on such consideration.
investment managers are entitled to receive a fee determined as per a separate
agreement between GMCL and each investment manager.
separate agreements confirm that fees will be calculated based on a percentage
of the market value of the assets under management. The agreements provide that
“invoices should be sent quarterly for approval to…” and specify an employee of
2 of the Hourly Supplemental Agreement, Articles 16 and 17 of the Salaried
Plan, the Seventh Article of the Master Trust Agreements and the Thirteenth Article
of the Unitized Trust Agreements set out the mechanism for payment of the cost
of administration of the Plans as being:
directly by GMCL to the investment manager, with reimbursement directed to GMCL
from the Plan Trust; or
directly by the relevant Plan Trust to the investment manager upon the
direction of GMCL.
investment management fees are recorded as expenses of the trusts.
the material times, the investment managers invoiced GMCL directly for a
“supply” of investment management services on which the investment managers
collected GST from GMCL.
paid the invoices by directing payment from the Plan Trusts.
DECISION OF THE CANADA
obtained an advance GST ruling (the ruling) from the Canada Revenue Agency
(CRA) concerning its entitlement to claim an input tax credit in respect of the
investment management services. In the ruling, the CRA acknowledged that GMCL
was the only person “liable to pay” the investment manager and was, therefore,
the “recipient” of the services as that term is defined in subsection 123(1) of
the Act. In addition, the CRA also acknowledged in the ruling that GMCL was the
person who “acquired” the investment management services. The sole reason given
by the CRA in rejecting GMCL’s input tax credit claim was that GMCL did not
acquire investment management services for consumption, use or supply in the
course of its commercial activities. The ruling read in relevant part as
Based on the
facts above, we rule that:
…2. GMCL is
not entitled to claim ITCs with respect to investment management services that
it has procured under agreements with investment managers because these
services are acquired by GMCL solely for consumption by the registered pension
trusts resident in Canada…
contracting for the supply of services to the trusts, prior to April 18, 2000, GMCL
as the person liable under the agreement to pay the consideration for the
supply of investment management services, is the ‘recipient’, under the
terms of the ETA, of the investment management services…
imposes GST/HST on the “recipient” of a “taxable supply”. The supplies from the
investment managers to GMCL are taxable supplies and GMCL is liable for the
GST/HST relating to these supplies. Subsection 169(1) sets out the general rule
for ITCs. GMCL is not entitled to claim input tax credits (ITCs) with respect
to investment management services procured by virtue of agreements with
investment managers because, GMCL as the administrator of the GMCL pension
plans, has acquired the investment managers’ services for use otherwise that
in the course of GMCL’s commercial activities. The terms of the investment
agreements clearly indicate that the services provided by the investment
managers are to be provided in relation to the trust assets, through direct
communication with the custodial trustee, and that the parties intend that the
services be for use by the trusts as set out in each of the IMAs, viz., “the
consummation of all purchases, sales, deliveries and investments made pursuant
to the investment manager’s direction, in accordance with the terms of this
agreement, shall rest with Royal Trust and its sub custodian.” GMCL obtains
these services in order to fulfil its responsibilities under paragraph 22(1)(a)
of the Ontario Pension Benefits Act, which sets out that the
administrator of a pension plan has a fiduciary duty relating to the
administration and investment of the pension fund. For these reasons, it is our
view that the services are acquired by GMCL in its role as administrator of the
trusts, solely for consumption by the trusts, in the hands of the custodial
trustee, and not for use, consumption or supply by GMCL in the course of GMCL’s
commercial activities.’ (A.B., vol.5, tab 6(D), p. 1162-1163).
2001, GMCL claimed input tax credits of $861,366.82 for GST on investment
managers’ fees for services rendered from November 1, 1997 to December 31,
1999. The claim was disallowed by the CRA by notice of assessment dated
November 26, 2003.
general rule for ITC entitlement is found in section 169 of the Act. The
relevant parts are the following:
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
A 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 B is
(a) where the tax is deemed under
subsection 202(4) to have been paid in respect of the property on the last
day of a taxation year of the person, the extent (expressed as a percentage
of the total use of the property in the course of commercial activities and
businesses of the person during that taxation year) to which the person used
the property in the course of commercial activities of the person during that
(b) where the property or service
is acquired, imported or brought into the province, as the case may be, by
the person for use in improving capital property of the person, the extent
(expressed as a percentage) to which the person was using the capital
property in the course of commercial activities of the person immediately
after the capital property or a portion thereof was last acquired or imported
by the person, and
(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.
169. (1) Sous réserve des autres dispositions de la présente partie,
un crédit de taxe sur les intrants d’une personne, pour sa période de
déclaration au cours de laquelle elle est un inscrit, relativement à un
bien ou à un service qu’elle acquiert, importe ou transfère dans une
province participante, correspond au résultat du calcul suivant si, au
cours de cette période, la taxe relative à la fourniture, à
l’importation ou au transfert devient payable par la personne ou est payée
par elle sans qu’elle soit devenue payable :
A A représente la taxe
relative à la fourniture, à l’importation ou au transfert, selon le cas, qui,
au cours de la période de déclaration, devient payable par la personne ou est
payée par elle sans qu’elle soit devenue payable;
:B B :
a) dans le cas où la taxe est
réputée, par le paragraphe 202(4), avoir été payée relativement au bien le
dernier jour d’une année d’imposition de la personne, le pourcentage que
représente l’utilisation que la personne faisait du bien dans le cadre de ses
activités commerciales au cours de cette année par rapport à l’utilisation
totale qu’elle en faisait alors dans le cadre de ses activités commerciales
et de ses entreprises;
b) dans le cas où le bien ou
le service est acquis, importé ou transféré dans la province, selon le cas,
par la personne pour utilisation dans le cadre d’améliorations apportées à
une de ses immobilisations, le pourcentage qui représente la mesure dans
laquelle la personne utilisait l’immobilisation dans le cadre de ses
activités commerciales immédiatement après sa dernière acquisition ou
importation de tout ou partie de l’immobilisation;
c) dans les autres cas, le
pourcentage qui représente la mesure dans laquelle la personne a acquis
ou importé le bien ou le service, ou l’a transféré dans la province,
selon le cas, pour consommation, utilisation ou fourniture dans le cadre
de ses activités commerciales.
Activity” is defined in subsection 123(1) of the Act as:
activity" of a person means
a business carried on by the person (other than a business carried on without
a reasonable expectation of profit by an individual, a personal trust or a
partnership, all of the members of which are individuals), except to the
extent to which the business involves the making of exempt supplies by the
an adventure or concern of the person in the nature of trade (other than an
adventure or concern engaged in without a reasonable expectation of profit by
an individual, a personal trust or a partnership, all of the members of which
are individuals), except to the extent to which the adventure or concern
involves the making of exempt supplies by the person, and
the making of a supply (other than an exempt supply) by the person of real
property of the person, including anything done by the person in the course
of or in connection with the making of the supply;
commerciale » Constituent des activités commerciales exercées par une
l’exploitation d’une entreprise (à l’exception d’une entreprise exploitée
sans attente raisonnable de profit par un particulier, une fiducie
personnelle ou une société de personnes dont l’ensemble des associés sont des
particuliers), sauf dans la mesure où l’entreprise comporte la réalisation
par la personne de fournitures exonérées;
les projets à risque et les affaires de caractère commercial (à l’exception
de quelque projet ou affaire qu’entreprend, sans attente raisonnable de
profit, un particulier, une fiducie personnelle ou une société de personnes
dont l’ensemble des associés sont des particuliers), sauf dans la mesure où
le projet ou l’affaire comporte la réalisation par la personne de fournitures
la réalisation de fournitures, sauf des fournitures exonérées, d’immeubles
appartenant à la personne, y compris les actes qu’elle accomplit dans le
cadre ou à l’occasion des fournitures.
term “business” is also defined in subsection 123(1) of the Act:
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;
« entreprise »
« entreprise » Sont compris parmi les entreprises les commerces, les
industries, les professions et toutes affaires quelconques avec ou sans but
lucratif, ainsi que les activités exercées de façon régulière ou continue qui
comportent la fourniture de biens par bail, licence ou accord semblable. En
sont exclus les charges et les emplois.
267.1 of the Act reads thus:
(1) The definitions in this subsection
apply in this section and in sections 268 to 270. "trust"
« fiducie »
includes the estate of a deceased individual.
« fiduciaire »
includes the personal representative of a deceased individual, but does not
include a receiver (within the meaning assigned by subsection 266(1)).
Subject to subsection (3), each trustee of a trust is liable to satisfy every
obligation imposed on the trust under this Part, whether the obligation was
imposed during or before the period during which the trustee acts as trustee
of the trust, but the satisfaction of an obligation of a trust by one of the
trustees of the trust discharges the liability of all other trustees of the
trust to satisfy that obligation.
and several liability
A trustee of a trust is jointly and severally liable with the trust and each
of the other trustees, if any, for the payment or remittance of all amounts
that become payable or remittable by the trust under this Part before or
during the period during which the trustee acts as trustee of the trust
the trustee is liable for the payment or remittance of amounts that became
payable or remittable before the period only to the extent of the property
and money of the trust under the control of the trustee; and
the payment or remittance by the trust or the trustee of an amount in respect
of the liability discharges the joint liability to the extent of that amount.
The Minister may, in writing, waive the requirement for the personal
representative of a deceased individual to file a return for a reporting
period of the individual ending on or before the day the individual died.
of a trustee
For the purposes of this Part, where a person acts as trustee of a trust,
anything done by the person in the person’s capacity as trustee of the trust
is deemed to have been done by the trust and not by the person; and
notwithstanding paragraph (a), where the person is not an officer of the
trust, the person is deemed to supply a service to the trust of acting as a
trustee of the trust and any amount to which the person is entitled for
acting in that capacity that is included in computing, for the purposes of
the Income Tax Act, the person’s income or, where the person is an
individual, the person’s income from a business, is deemed to be consideration
for that supply.
(1) Les définitions qui suivent s’appliquent au présent article et aux
articles 268 à 270. « fiduciaire »
fiduciaire » Est assimilé à un fiduciaire le représentant personnel d’une
personne décédée. N’est pas un fiduciaire le séquestre au sens du paragraphe
fiducie » Sont comprises parmi les fiducies les successions.
Sous réserve du paragraphe (3), le fiduciaire d’une fiducie est tenu
d’exécuter les obligations imposées à la fiducie en vertu de la présente
partie, indépendamment du fait qu’elles aient été imposées pendant la période
au cours de laquelle il agit à titre de fiduciaire de la fiducie ou
antérieurement. L’exécution d’une obligation de la fiducie par l’un de ses
fiduciaires libère les autres fiduciaires de cette obligation.
Le fiduciaire d’une fiducie est solidairement tenu avec la fiducie et, le cas
échéant, avec chacun des autres fiduciaires au paiement ou au versement des
montants qui deviennent à payer ou à verser par la fiducie en vertu de la
présente partie pendant la période au cours de laquelle il agit à ce titre ou
avant cette période. Toutefois :
le fiduciaire n’est tenu au paiement ou au versement de montants devenus à
payer ou à verser avant la période que jusqu’à concurrence des biens et de
l’argent de la fiducie qu’il contrôle;
le paiement ou le versement par la fiducie ou le fiduciaire d’un montant au
titre de l’obligation éteint d’autant la responsabilité solidaire.
Le ministre peut, par écrit, dispenser le représentant personnel d’une
personne décédée de la production d’une déclaration pour une période de
déclaration de la personne qui se termine au plus tard le jour de son décès.
Les présomptions suivantes s’appliquent dans le cadre de la présente partie
lorsqu’une personne agit à titre de fiduciaire d’une fiducie :
tout acte qu’elle accomplit à ce titre est réputé accompli par la fiducie et
non par elle;
malgré l’alinéa a), si elle n’est pas un cadre de la fiducie, elle est
réputée fournir à celle-ci un service de fiduciaire et tout montant auquel
elle a droit à ce titre et qui est inclus, pour l’application de la Loi de
l’impôt sur le revenu, dans le calcul de son revenu ou, si elle est un
particulier, dans le calcul de son revenu tiré d’une entreprise est réputé
être un montant au titre de la contrepartie de cette fourniture.
THE STANDARD OF REVIEW
appellant claims that the standard of review to be applied is correctness since
the issues at stake are questions of law (Housen v. Nikolaisen,  2
S.C.R. 235 paras. 8 ff.). The respondent claims that the question as to whether
the services were acquired by GMCL for use in its commercial activity has a
substantial factual component to it. Consequently, the standard to be applied
is whether the Tax Court Judge has made a palpable and overriding error (Housen
v. Nikolaisen,  2 S.C.R. 235 paras. 26 ff.).
agree with both with the qualifier that although issues of law have been raised
in argument, particularly with regard to the concept of trust, this case rests
far more on the application of the law to the facts and on the evidence adduced
before the Tax Court Judge.
DECISION OF THE TAX COURT JUDGE
paragraph 30 of her reasons, the Tax Court Judge set the three conditions which
must be satisfied in order for GMCL to be eligible to claim an ITC:
claimant (GMCL) must have acquired the supply (the Investment Management
(2) The GST
must be payable or was paid by the claimant (GMCL) on the supply (the
Investment Management Services);
claimant (GMCL) must have acquired the supply (the Investment Management
Services) for consumption or use in the course of its commercial activity.
found that GMCL met the three conditions.
appellant submits she erred in doing so.
(1) The claimant (GMCL) must have acquired
the supply (the Investment Management Services).
regard to the first condition, the appellant argued before the Tax Court Judge
and before us that the acts performed by GMCL, in acquiring the services, are
deemed by section 267.1 of the Act to be acts of the Plan Trusts. Therefore,
GMLC is not entitled to claim input tax credits in respect of such Plan Trust
issue then becomes “whether GMCL should be considered as trustee so that
section 267.1 can apply” (paragraph 38 of the Tax Court Judge’s reasons for
respondent claims that the application of section 267.1 of the Act was not specifically
indicated as a statutory provision relied on by the Crown in its reply to the
appellant’s notice of appeal before the Tax Court (A.B., vol. 1, tab 6(A)(2),
p. 69) and that it is only before us, in her notice of appeal, that the Crown
raised specifically the fact that the Tax Court Judge erred in law in the
interpretation of sections 169 and 267.1 of the Act (A.B., vol. 1, tab
is unclear whether the respondent raised before the Tax court this flaw in the
Crown’s proceedings. What is clear is that the Tax Court Judge did not discuss it
in her reasons.
us, the Crown’s proceedings, in conformity with Rule 337 of the Federal
Courts Rules, SOR/98-106, indicate that the Crown relies on section 267.1 of
the Act. Since the matter was not raised before the Tax Court, where the defect
originated and where it should have been dealt with, I need not indulge further
on this procedural dispute.
Tax Court Judge found (at para. 42 of her reasons) that section 267.1 of the
Act had no application. She wrote that there was no evidence produced during
the hearing that would suggest that GMCL took title, legal or otherwise, to the
assets under the deed of trust. She found that the trust agreements expressly
established Royal Trust as the trustee. GMCL’s role in relation to the trusts
was of an administrator, as defined and contemplated under the OPBA. It did not
include, nor was it intended to include, the role of trustee in relation to the
trusts. For the purposes of subsection 267.1 of the Act, the role of GMCL was
that of an administrator to these Plans. The roles and respective duties of
GMCL, as administrator, and Royal Trust, as the trustee, were entirely separate.
She noted that while GMCL may have exercised some fiduciary duties as the Plan’s
administrator, this did not mean that GMCL was a trustee to the trust. She
concluded that it was GMCL which contracted for and acquired the services of the
investment managers. She said:
267.1 has no application here. There was no evidence produced during the
hearing that would suggest that GMCL took title, legal or otherwise, to the
assets under the deed of trust. All of the Agreements reference Royal Trust as
the legal title holder. Thus GMCL cannot fall within the ambit of the
definition of trustee. The trust agreements expressly established Royal Trust
as the trustee. Clearly GMCL's role, in relation to the trusts, was as an
administrator, as defined and contemplated under the OPBA. It did not
include, nor was it intended to include, the role of trustee in relation to the
trusts. For the purposes of section 267.1, the role of GMCL was that of an
administrator to these plans. The roles and respective duties of GMCL, as
administrator, and Royal Trust, as the trustee, were entirely separate. While
GMCL may have exercised some fiduciary duties as the plan's administrator, that
does not mean that GMCL was a trustee of the trust. The only trustee of these
pension plans can be Royal Trust, the Custodial Trustee, which, according to
the definition of "trustee" and the evidence, holds legal title.
Consequently, it was GMCL that contracted for and acquired the services of the
view of her finding based on the evidence, I find no reviewable error in her
(2) The GST must be payable or was
paid by the claimant (GMCL) on the supply (the Investment Management
regard to the second condition, namely, whether GST was payable or was paid by
GMCL, the Tax Court Judge proceeded with an analysis of the mode of payment
provided in the various agreements. She concluded, at paragraph 57 of her
reasons, that although GMCL re-supplied the investment services to the trusts,
and despite a reimbursement to GMCL by the Trust in the event that GMCL paid
these fees directly, GMCL was still the person liable for payment of the supply
of these services by the investment managers, pursuant to the terms of the
agreements between GMCL and the investment managers.
she said, at paragraphs 54 and 57, is the following:
54 Contractually, GMCL is
the only party that carried the liability to pay this consideration to the
Investment Managers. The Investment Management and Fee Agreements are
definitive on this point. The Investment Managers invoiced only GMCL.
Generally, liability crystallizes upon the issuance of an invoice. If GMCL did
not pay the invoice, the Managers could sue only GMCL, not the Plan Trust. Only
GMCL is liable to pay these invoices. Since the trust was never vested with
responsibility for managing the assets, it had no requirement for the services
of Investment Managers. The Managers can look only to GMCL for payment. Thus,
GMCL is the recipient of the supply of the services of the Investment Managers
and GST was "payable" by GMCL. Under subsection 169(1), ITCs are
available only to the person who "acquires" the supply if tax
is payable by that person. While tax will be payable by the recipient under
subsection 165(1), it does not necessarily follow that the eventual recipient
will always be the person who "acquired" the supply. Subsection
123(1) states that "recipient" will be the person to whom a supply
is made. Therefore in certain circumstances the person who acquired the
supply (GMCL) may not be the person to whom the supply is eventually made (the
pension trusts). GMCL has satisfied this requirement under subsection 169(1)
since it is the only person liable to pay the consideration for the supply of
services of the Investment Managers under the relevant Agreements. Although
some of the financial statements of the Hourly and Salaried Plans suggest that
payments are treated as being made by the trust, these accounting documents are
subordinate to the primary Investment and Fee Agreements and do not alter the
contractual provisions in those Agreements. The pension trusts are not liable
to pay for the services and cannot be the recipient, although the supply of
services was eventually re-directed to the assets in the trusts. …
57 It follows from these
comments that, although GMCL re-supplied the investment services to the trusts,
and despite a reimbursement to GMCL by the Trust in the event that GMCL paid
these fees directly, GMCL was still the person liable for payment of the supply
of these services by the Investment Managers, pursuant to the terms of the
Agreements between GMCL and the Managers. The origin of the payment of the fees
is irrelevant because the bottom line, as reiterated by Woods J. in Y.S.I.'S
Yacht Sales, is that the person who satisfies the requirement at subsection
169(1), and who carries the contractual liability to pay, will be the person
entitled to claim ITCs.
[Emphasis in original]
find no reviewable error in her second finding.
(3) The claimant (GMCL) must have
acquired the supply (the Investment Management Services) for consumption or
use in the course of its commercial activity.
third and final condition of the subsection 169(1) test for eligibility to
claim ITCs by GMCL is whether GMCL acquired the services for consumption or use
in the course of its commercial activities.
Tax Court Judge gave to the words “in the course of”, found in paragraph
169(1)(c), a wide meaning given by this Court in The Queen v.
Blanchard, 95 D.T.C. 5479 (F.C.A.) and in M.N.R. v. Yonge-Eglington
Building Ltd., 74 D.T.C. 6180, at page 6184, where the words “in connection
with”, or “incidental to”, or “arising from” were suggested. She held that GMCL’s
responsibilities to properly manage the Pension Plan assets were derived not
only through the agreements but also through its duties as administrator under
the OPBA and its duties to provide pension benefits to its employees (her para.
65). She noted that pension benefits, like salaries, are part of the compensation
package which is an integral component to the commercial activities of the
corporation. She fully explains these considerations at paragraphs 66-67. At paragraph
67 she stated:
In addition to these contractual and
statutory obligations, GMCL has agreed to provide, maintain and administer a
compensation package, not only as one of the terms of employment extended to
its employees, but as a vehicle for attracting and keeping the most qualified
individuals within its organization. Without a profitable pension plan, GMCL's
capacity to successfully compete in the market is substantially diminished.
While the expenses associated with the administration of these pension assets
may be viewed as being only indirectly related to the manufacture of vehicles,
they are nonetheless an integral component to the overall success of GMCL's
commercial activities in the market place. According to Mr. Marven's evidence,
he likened the provision of a pension plan to other forms of employee
compensation such as the provision of health care benefits. The only logical,
common sense conclusion is that all of the functions of GMCL, in relation to
these pension assets, are for the sole benefit of its employees, both the
salaried and hourly employees and, consequently, they are an essential
component to GMCL's business activities. Therefore, GMCL acquired the services
of the Investment Managers for use in its commercial activities. As such, while
GMCL does not directly utilize the services in making GST supplies in its
operations, those services are part of its inputs toward its employee
compensation program, which is a necessary adjunct of its infrastructure to
making taxable sales. The expenses are not personal in nature. They are
ancillary to the primary business activities of GMCL and meet the need of
attracting and maintaining an adequate employee base to support its primary
business operations. Therefore these expenses, although indirect expenses to
GMCL's business, qualify as expenses paid for in the consumption or use in the
course of the commercial activities of GMCL. Subsection 169(1) does not
require that managing a pension plan be the sole
commercial activity of a person, only that the supply be consumed or used
"in the course of commercial activities". To divorce the services of
the Investment Managers from the commercial activities of GMCL, in the manner
that the Respondent would have me do, ignores not only the contractual and
statutory obligations of GMCL but also the commercial realities of a
appellant makes three points:
first relates to the fact that pension plan trusts are a third person
involved in the process;
second relates to the notion of indirect nexus; and
third relates to the concept of economic substance over form.
the trust as a third person
appellant submits (at para. 42 and following of her memorandum of fact and law)
that even if section 267.1 of the Act does not apply, GMCL cannot claim input
tax credits because the investment management services are not acquired for use
in its commercial activities. The commercial activities of GMCL, she claims, is
the manufacture, assembly and sale of cars. GMCL, as administrator of the
pension plans, exercises a separate activity. According to Her, the pension
plan trusts are a third person involved and their existence and role should be considered
in determining the activity in which the investment management services are used.
She notes that the trusts pay the fees and GST on the fees, and show them as an
expense in their financial statements. She contends that "it was not open
to the trial judge to find that GMCL was acting both as fiduciary in respects
of interests of the pension plan trusts while carrying on its own commercial
activities in its own interests”.
appellant’s assertion fails, in my view, to take into account the collective
agreement between GMCL and its employees under which GMCL undertakes to provide
pension benefits to its employees. GMCL is the key contributor to the trust
funds and is the entity liable to pay the investment management fees under the agreement
it signed with the investment managers. The fact that, as determined by GMCL, those
fees and the GST on these fees are ultimately borne by the trustees does not
change the nature of the operation. Moreover, as indicated by the Tax Court
Judge at paragraph 53 of her reasons, no evidence whatsoever was adduced to
suggest that the Plan Trusts were a party to the Investment Management and Fee
Agreements that made GMCL liable to pay, or that GMCL entered into an
Investment Management Agreement as an agent on behalf of the Plan Trusts.
appellant’s first point is untenable.
appellant claims that the Tax Court Judge erred in law in concluding that an
indirect nexus was sufficient to hold that the supplies were for the use in the
course of the commercial activities of GMCL.
support to her position, the appellant relies on the decision of this Court in 398722
Alberta Ltd. v. Canada,  F.C.J. No. 644
(C.A.), where she says “…this Court has held that it is the direct use of a
supply that governs the entitlement to input tax credits”.
398722 Alberta Ltd. case dealt with a “four-plex” apartment building for
residential housing built as a condition precedent for obtaining a permit to
build a hotel. The corporation, 398722 Alberta Ltd., argued that the operation
of the residential housing was an integral part of its hotel business and thus
was a “commercial activity” within the statutory definition of subsection
123(1) of the Act and that the corporation’s GST liability under the
self-supply rule of subsection 191(3) should be offset, in the same amount, by
an input tax credit under subsection 169(1) of the Act.
issue in that case turned on whether the operation of the residential housing
fell within the ambit of the hotel’s commercial activity. The answer to this
question rested on the interpretation of the closing words of the definition of
“commercial activity” found in subsection 123(1) of the Act. For ease of
reference, these words were
“commercial activity” of a person
business carried on by the person … except to the extent to which the business
involves the making of exempt supplies by the person.
Court held that input tax credits under subsection 169(1) of the Act were not
available to the taxpayer who was fulfilling an obligation to meet another
business objective and that 398722 Alberta Ltd. was not entitled to an
input tax credit to offset the GST payable on the self-supply of the four-plex.
J.A. said for the Court at paragraphs 22 and 23 of her reasons:
22 Any business may
consist of a number of components, each of which is integral to the business as
a whole. The definition of "commercial activity" recognizes that
possibility but requires, for GST purposes, that any part of the business that
consists of making exempt supplies be notionally severed. The statutory
definition dictates that the business of the respondent is not a
"commercial activity" in so far as it consists of the rental of the
units of the four-plex. On that basis I agree with the Crown that the
respondent is not entitled to an input tax credit to offset the GST payable on
the self-supply of the four-plex.
23 The respondent is
in exactly the same position as anyone who acquires an apartment building and
rents out the apartments. It should not and does not matter whether the
acquisition is motivated by the prospect of receiving rent or, as in the
respondent's case, is the fulfilment of a legal obligation that must be met in
order to accomplish another business objective.
factual situation in the case at bar is distinct for the case above. Contrary to
the hotel in 398722 Alberta Ltd., which had a legal obligation to
accomplish another business objective, GMCL, as found by the Tax Court Judge, is
contractually obligated to maintain a benefits pension plan as part of its
employee compensation program.
the case of GMCL, the pension plans and their management are not a stand alone
business, even if trust funds have been set up. Without a collective agreement between
GMCL and its employees, such pension plans would not exist. The pension plan is
not simply another business objective.
finding of the Tax Court Judge that the services were part of GMCL’s inputs
towards its employee compensation program does not warrant the intervention of
economic substance over form
the appellant argues that the Tax Court Judge effectively applied an “economic
substance over form” analysis in finding that the denial of input tax credits would
ignore the commercial realities of the marketplace.
Tax Court Judge’s application of the concept of “economic substance”, says the
appellant, is contrary to the principles set out in Shell Canada Limited v.
R.,  3 S.C.R. 622, paragraphs 39 and 40. As a matter of law, she
says, pension plans are separate and distinct from other businesses, and a
pension plan fund cannot be considered as being part of an employer’s business
following principles were set out in Shell Canada Limited v. R. at
paragraphs 39 and 40:
Court has repeatedly held that courts must be sensitive to the economic
realities of a particular transaction, rather than being bound to what first
appears to be its legal form: Bronfman Trust, supra, at pp.
52-53, per Dickson C.J.; Tennant, supra, at para. 26, per
Iacobucci J. But there are at least two caveats to this rule.
First, this Court has never held that the economic realities of a situation can
be used to recharacterize a taxpayer’s bona fide legal relationships.
To the contrary, we have held that, absent a specific provision of the Act to
the contrary or a finding that they are a sham, the taxpayer’s legal
relationships must be respected in tax cases. Recharacterization is only
permissible if the label attached by the taxpayer to the particular transaction
does not properly reflect its actual legal effect: Continental Bank Leasing
Corp. v. Canada,  2 S.C.R. 298, at para. 21, per Bastarache J.
it is well established in this Court’s tax jurisprudence that a searching
inquiry for either the “economic realities” of a particular transaction or the
general object and spirit of the provision at issue can never supplant a
court’s duty to apply an unambiguous provision of the Act to a taxpayer’s
transaction. Where the provision at issue is clear and unambiguous, its
terms must simply be applied: Continental Bank, supra, at para.
51, per Bastarache J.; Tennant, supra, at para. 16, per
Iacobucci J.; Canada v. Antosko,  2 S.C.R. 312, at pp. 326-27
and 330, per Iacobucci J.; Friesen v. Canada,  3 S.C.R.
103, at para. 11, per Major J.; Alberta (Treasury
Branches) v. M.N.R.,  1 S.C.R. 963, at para. 15, per Cory
fail to understand that the Tax Court Judge would have betrayed the teaching of
the Court in the Shell Canada Limited case.
Supreme Court of Canada first sets out the general rule that the courts must be
sensitive to the economic reality rather than being bound to what first appears
to be the legal form of a transaction.
Supreme Court of Canada then sets out two caveats, first that the economic
realities of a situation cannot recharacterize a bona fide legal
relationship and, secondly, that economic realities should not supplant the
operation of an otherwise unambiguous legal provision.
do not find, as claimed by the appellant that, as matter of law, pension plans
are necessarily separate and distinct from other businesses. An examination of
the circumstances of each case is necessary.
the case at bar, the Tax Court Judge found as a fact that GMCL’s pension plans
were an integral component to the commercial activities of the corporation. There
is no recharacterization of GMCL’s legal relationship.
find no reviewable error in the Tax Court Judge’s analysis.
it becomes unnecessary to analyze the alternative issue dealt with by the Tax
Court Judge at paragraphs 70 to 102 of her reasons and, in particular, on
whether investment management services are an exempt financial service.
Tax Court Judge’s conclusion, at paragraph 103 of her reasons, that GMCL is
entitled to claim ITCs with respect to the provision of investment management services
would dismiss this appeal with costs.
M. Nadon J.A.”
Pierre Blais J.A.”