REASONS
FOR JUDGMENT
Lyons J.
[1]
Athabasca University (“Athabasca”) delivers instructional
services in respect of courses and programs (“courses”) online and through
distance learning, to students across Canada and internationally. Athabasca purchased
printed books (“Books”) from vendors for courses. Students that registered in
and paid for courses, were sent the same Books, by mail, from Athabasca’s
warehouse. Athabasca contends it acquired Books for the ultimate purpose of
providing exempt instructional services – its only single supply - to its
students. Therefore, it is entitled to the “printed book” rebates (“Rebates”) claimed
for goods and services tax (“GST”) it paid on Books for the claim periods from
April 1, 2008 to December 31, 2011 (“Periods”).
[2]
Athabasca appeals the reassessments made by the
Minister of National Revenue. The Minister disallowed the Rebates because Athabasca
acquired the Books from vendors for the immediate purpose of providing the books
to students by way of sale upon registration in courses. Transferring the same Books to
its students, as it was obligated to do, constitutes a “sale”. Consequently, Athabasca
falls outside the specific language in subsection 259.1(2) of the Excise Tax
Act (the “Act”) and is not entitled to the Rebates.
[3]
At the outset of trial, the respondent admitted
that Athabasca made only a single supply of instructional services of the
courses (“instructional services”) and the Books were inputs or integral
components provided in the context of the supply of instructional services in
respect of the courses (the “concession”).
Also, she disavows the position she advanced, at paragraph 18 of her Amended
Reply, that “A printed book is a separable supply of a standalone finished
consumer or educational product in and of itself. A printed book does not merge
into or become indistinguishable from the supply of instructional services such
that printed books and instructional services have become a single supply.” as
it is not an issue.
Notwithstanding the concession, the Books were transferred to its students by
sale.
[4]
Unless otherwise specified, all references to
provisions that follow are to the Act.
I.
ISSUE
[5]
The crux of the dispute in this appeal is
whether Athabasca acquired the Books “otherwise than for the purpose of supply
by way of sale” within the meaning of subsection 259.1(2) (“rebate provision”).
II.
BACKGROUND TO LEGISLATIVE PROVISIONS
[6]
It is useful to briefly describe some background
to the rebate provisions for GST paid on inputs in making exempt supplies, by municipalities,
universities, colleges, schools, hospitals plus qualifying non‑profit
organizations (“NPOs”) and charities. Rebating provisions were enacted because
suppliers of exempt supplies do not receive input tax credits (“ITCs”) for GST
that they pay on inputs in making exempt supplies.
[7]
Subsections 259(1) and (3) combined provides the
basic rebate with specified percentages that vary depending on the type of public
service body (“PSB”). This rebate is designed to relieve PSBs of the GST paid
for inputs for exempt supplies. Athabasca, a selected
PSB, was allowed
a 67%
rebate pursuant to paragraph 259(1)(d) and the
PSB regulations for GST it paid on inputs for the exempt supply of
instructional services. Nothing turns on this in this appeal.
[8]
Parliament expanded rebating of GST for property,
such as printed books, acquired by schools, universities, libraries, certain
charities and NPOs and other front-line literacy-promoting/supporting
organizations under subsection 259.1(2). A 100% rebate of GST that becomes
payable after October 23, 1996 by a specified person upon acquisition of a
printed book from a vendor is available. However, a rebate is not available
where the printed book was acquired for the purpose of supply by resale.
[9]
Parliament amended subsection 259.1(2),
effective for GST that becomes payable after March 29, 2012 (beyond the Periods
in issue), to include specified property acquired or imported to be given away
for free by an organization that is a charity or qualifying NPO whose primary
purpose is the promotion of literacy.
Prior to that, literacy-promoting/supporting organizations gave away books but were
not given rebates because the extended definition of sale included books given
away for free.
III.
LEGISLATIVE PROVISIONS
[10]
The relevant portion of subsection 259.1(2) reads:
259.1(2) Rebate for printed books, etc. — Where a person that is, on the last day of a claim period of the
person or of the person’s fiscal year that includes that claim period, a
specified person acquires or imports, otherwise than for the purpose of
supply by way of sale, property that is
(a) a printed
book or an update of such a book,
(b) an audio
recording all or substantially all of which is a spoken reading of a printed
book, or
(c) a bound or
unbound printed version of scripture of any religion,
the Minister
shall, subject to subsection (3), pay a rebate to the person equal to the
amount of tax under subsection 165(1) or section 212 that became payable in the
claim period by the person in respect of the acquisition or importation. …
[Emphasis added]
[11]
Generally, subsection 259.1(2) provides if a
“specified person” purchases a “printed book”, or other property, the Minister
shall pay to the specified person the printed book rebate, for the GST that
becomes payable to the vendor, if the printed book was acquired for the purpose
of supply other than sale.
As a specified person, Athabasca acquired printed books from publishers/vendors
(“vendors”) and claimed the Rebates for the GST it had paid to vendors within
the time limits. Except for paragraph 11 b), all of the following requirements
have been satisfied by Athabasca:
a) the
claimant is a “specified person”;
b) the
printed book is acquired otherwise than for the purpose of supply way of sale
(the exclusionary “phrase”);
c) GST was payable on the acquired printed book; and
d) the
claimant applies for the printed book rebate within the legislative time limit.
IV.
FACTS
[12]
The witnesses called by and on behalf of Athabasca
were Dr. Alain May, Associate Vice President of Athabasca’s Academic Services, and
David Liddell, C.P.A. and Chartered Management Accountant. Nathalie Boutin, a
Canada Revenue Appeals Officer, testified on behalf of the Canada Revenue
Agency. I find the testimony of all of the witnesses to be reliable.
Background
[13]
The facts are largely undisputed.
[14]
The appellant, located in Alberta, was
originally conceived as a traditional campus-based institution. It evolved into an online
distance education institution. It currently offers courses which comprise of undergraduate
and graduate degree, diploma and certificate programs to Canadian and
international students, for which credit can be obtained in specific
disciplines plus other types of courses. As an “open” university, students are
admitted without regard to previous educational background or history.
[15]
Distance learning methods and resources (such as
printed books, guides, manuals and/or software) are utilized to deliver the instructional
services. This enables students to access such services anywhere or anytime on
their own schedule and at their own pace barrier free outside of the
conventional classroom setting.
Instructors
[16]
An academic instructor is tasked with various
activities including the delivery and development of the courses, and any revisions,
within the area of his/her discipline. An academic instructor can enlist others’
assistance to deliver the instructional services and determines the learning
resources necessary to be utilized in delivering the instructional services.
Instructional services
[17]
During the Periods, Athabasca made exempt
supplies of instructional services to students enrolled in the courses and did
not charge the students GST on instructional services.
Students
[18]
Undergraduate students were charged a single,
all-inclusive fee for all courses calculated by combining tuition, learning
resources (“LRF”) and student union and alumni relations fees. Prior to September 1,
2011, graduate students were charged only course tuition fees that included all
required materials. Effective September 1, 2011, a separate learning resource
component was introduced.
[19]
Mr. Liddell explained that the LRF was not tied
to the Books. As an institution, there were constraints and a tuition cap.
Since the LRF was separate from the cap, it allowed Athabasca to work within
the environment and the funding envelope.
Materials Management Process
[20]
The process to acquire and ultimately ship the
Books to students was a collaborative effort involving materials management
personnel including buyers, the manager and warehouse staff (“Materials”) and
the instructors. Mr. Liddell was responsible for the acquisition and
distribution of the Books. That process was described in detail at the hearing
supported by a detailed three-page summary of activities and responsibilities of
the various individuals plus a one-page workflow chart outlining the steps in
respect of the Course Material Purchase Order.
[21]
After instructors identified the learning
resources, they informed Materials personnel via email of the learning
resources necessary, including the Books, for the instructional services based
on a forecasted amount. Materials followed various steps to purchase the Books
from vendors to ensure availability for potential students.
Books
[22]
The Books, shrink-wrapped and on pallets, arrived
via a truck at Athabasca’s warehouse located in the town of Athabasca, Alberta.
The pallets were opened and the Books were placed on shelves pending shipment
to its students. Upon confirmation of successful registration, enrolment in
courses and payment of the all-inclusive fee, a command went to Materials.
Within a day or so the same shrink-wrapped Books were sent in packages, often
accompanied by handouts for the courses designated by the instructors, from
Athabasca’s warehouse directly to its students. Unless students withdrew from
the courses within 30 days after registration, entitling students to a refund
once the Books were returned, students owned the Books outright.
[23]
GST was paid by Athabasca to vendors on the
purchases of Books and the Rebates for the Periods, totalling $441,441.99, were
claimed by Athabasca pursuant to subsection 259.1(2).
V.
PARTIES’ POSITIONS
[24]
Athabasca’s position is it acquired the Books
from vendors for the ultimate purpose of making a single supply of exempt
instructional services to educate its students, not to resell the Books as a
separate supply.
The Books were inputs and integral to the single supply. Using the Books in providing
instructional services, falls squarely within the object of subsection
259.1(2), designed to minimize financial barriers to education (where books
are freely distributed to students), by providing PSBs that promote knowledge
and education with GST relief.
[25]
The respondent’s position is that Athabasca
acquired the Books from vendors with the intent and for the immediate purpose
of having the Books “shipped out” to students, thus Athabasca was obliged to
acquire the Books as evidenced by the system designed to facilitate that.
Within a day or so of the successful registration in and payment for courses,
the same shrink-wrapped Books were packaged and mailed to its students. Transferring
the Books, as it alone was obligated to do, constituted a “sale” as defined in
subsection 123(1), thereby disentitling Athabasca to the Rebates pursuant to
subsection 259.1(2) because it falls within the exclusion. Athabasca did not
retain any Books for its own use, collection or library contrary to
Parliamentary intent nor was it a literacy-promoting/supporting organization as
contemplated in the 2012 amendment.
VI.
ANALYSIS
[26]
The parties’ interpretation of the exclusionary
phrase in subsection 259.1(2), as to whether the Books acquired by Athabasca
were for the purpose of supply by way of sale, applied to the facts, is the
focus of this analysis and raises various questions.
Supply
of what?
[27]
The English version of the provision in
subsection 259.1(2) refers to “supply by way of sale” without identifying whether
that is a supply of anything or printed books by way of sale. The French version
is clear that the exclusion is referring to the supply of the acquired printed
books by way of sale. Hence, the rebate is unavailable only if a taxpayer
acquires printed books for the purpose of supplying printed books by way of
sale.
[28]
Arguments from both parties focussed on whether Athabasca
acquired the Books with the purpose of supplying Books by way of sale.
“Supply”
[29]
The words “supply”, “supplies”, “supplied” and
“supplying” are used extensively in the Act.
[30]
“Supply” in subsection 259.1(2) is used as a
verb.
[31]
Applying the single supply test (“Test”), based
on the principles in O.A. Brown Ltd. v Canada, [1995] GSTC 40 [Brown]
and endorsed by the Supreme Court of Canada in Calgary (City) v Canada, 2012
SCC 20, [2012] 1 S.C.R. 689 [City of Calgary], Athabasca argues it supplied
only the exempt instructional services, not Books. This is premised on the Books
being an input or component provided in the context of the single supply of instructional
services.
[32]
In the City of Calgary, the Test arose in
circumstances where the taxpayer made a supply with various exempt and
non-exempt elements. Parties argued whether each element constituted a separate
supply (or multiple supplies) each with its own tax characteristics (taxable,
exempt or zero-rated), or whether collectively the elements formed a single
supply with one-tax characteristic. Entitlement to ITCs under section 169 was
under consideration. ITCs are limited to tax paid on property or services
acquired “for consumption, use or supply in the course of commercial
activities”. The Court applied the Test and found that it made only one supply:
the exempt supply of a municipal transit system such that its activities of
acquiring, constructing and making public transit facilities available for the
public did not fall within its commercial activities.
[33]
“Commercial activity” is defined in subsection
123(1):
“commercial activity” of a person means
(a) 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 person, …
[34]
The Court held that since the purpose of the
property was for the provision of exempt activity, it was not a commercial
activity and could only recover ITCs in respect of property or services used to
make non-exempt supplies.
[35]
The question becomes whether the Test applies to
subsection 259.1(2) despite it arose in City of Calgary in the context
of the definition of “commercial activities.” Athabasca applies the Test to a
provision which asks whether a taxpayer upon acquiring the Books had the
purpose of supply of printed books.
[36]
Although the Test is usually applied in
determining whether exempt or non-exempt supplies were made (City of Calgary),
there is no reason why it cannot apply in the context of a rebate if the words
of the provision support the application. In my view, the Test should apply to
subsection 259.1(2) because “supply by way of sale” in that provision is
equivocal to “making a supply by way of sale”. That is, to supply something by
way of sale is to make a supply of that thing by way of sale. By virtue of
subsection 33(3) of the Interpretation Act, RSC, 1985, c. I-21, the
definition of “supply” in subsection 123(1) of the Act applies to both
the noun and verb form of the word.
This means there should be no difference in meaning when “supply” is used as a
verb (the supply of something) versus as a noun (making a supply of something).
Using the definition of “supply” to make a supply of something is to provide
that thing. There is no apparent meaningful difference between the two.
[37]
Further, where the act of supplying something is
intended to take on a different meaning than to make a supply of that thing, this
is clear from the context.
Using “supply” as both a verb and a noun appears to arise from imprecise
drafting in the Act.
Single supply of instructional services
[38]
Athabasca argues a common-sense approach, the
statutory scheme, context and the evidence supports that there is no separate
supply of selling Books and it did not have a bookstore. Athabasca submits if
only a single supply of instructional services is made as conceded, then it has
not made a supply of Books. Instead, Books were used as inputs for the single
supply of instructional services. Consequently, Athabasca did not acquire the
Books for the purpose of supplying those Books by sale.
[39]
The respondent argued that looking at the true
nature of the transaction with a generous application of common sense and
focussed on the specific language of the rebate provision, it would show that
regardless of whether Books were inputs to the single supply of instructional
services, the Books were acquired to satisfy Athabasca’s obligation culminating
(by transferring the Books) in a sale within the definition of subsection
123(1).
[40]
Since both parties accept that Athabasca only
made a single supply of instructional services, then Athabasca did not acquire
the Books for the purpose of supply (or supplying) of those Books as
contemplated by the specific language in the provision. That is:
(a)
if Athabasca only made a single supply of
instructional services, Athabasca did not make a separate supply of the Books;
and
(b)
if Athabasca did not make a separate supply of
the Books, then Athabasca did not acquire the Books for the purpose of
supplying those Books as a separate supply of Books.
[41]
Focussing on paragraph 40(a) of my reasons, the
Test is used to determine whether a supply with multiple elements, each element
having different tax characteristics (i.e. taxable, exempt, zero-rated), should
be treated as a single supply with a single tax characteristic. If, despite
finding that an entity only made a single supply - as here - it was still open
for the Court to find that some of those elements formed their own separate
supply (implicit in the respondent’s argument that Athabasca was obligated to
acquire and then supplied the Books because of the obligation), then it could
also be found that that separate supply had a tax characteristic that differed
from the tax characteristic of the single supply.
[42]
I respectfully disagree with the respondent’s
submission. In my view, such approach would either render the Test redundant or
decouple it even though she said she accepts Athabasca’s analysis of the
principles in the Test and was not suggesting that the Court revisit the Test. Effectively,
the respondent’s submission appears to carve the inputs from the outputs or
deem a single supply to be a separate supply/multiple supply. Had Parliament
wanted to carve out printed books that are integral to the single supply of
instructional services, it would have created a deeming provision as it has
done in other instances.
[43]
Even if she is asserting there was a sale
without a supply of Books (by virtue of the concession she acquiesced there was
no separate supply), that too is problematic because under the specific
language of subsection 259.1(2), it matters not whether there was a sale of the
Books if there was no supply of Books (by sale). Parliament used two
distinct terms of “supply” and “sale” in the exclusionary phrase, which are
legal concepts, and must have intended both things to occur.
Purpose in acquiring Books?
[44]
Focussing on paragraph 40(b) of my reasons, the
Court is required to inquire into Athabasca’s “purpose” in acquiring the Books.
Athabasca argues that its purpose in acquiring the Books was to use them for
the ultimate purpose of providing the single supply of exempt instructional
services to its students as evidenced by Dr. May’s testimony that the purpose
in acquiring any of the learning resource materials was to teach the course and
she and Mr. Liddell testified that the reason for the LRF was for students to have
the proper tools to learn.
[45]
The central argument of the respondent places a
more restrictive interpretation in suggesting that the acquisition was for the
immediate purpose of selling the same Books to discharge its obligation, evidenced
by what happened to the Books (transferred to students) and the processes in
place (registration and payment for courses activated shipment of the shelved
Books within a day or so of registration). According to the respondent,
transferring the Books went against legislative intent that the acquired Books should
have been retained by Athabasca for its own use, library or collection which
was not done as confirmed by Mr. Liddell. I note, he also said that the
Books were not acquired for resale.
[46]
The parties’ positions highlight the disparity
in the two meanings of the term “purpose” that have emerged based on different
interpretations in the jurisprudence below as to the phrase “for the purpose
of” or the term “purpose”, making it unclear whether it means ultimate or
immediate purpose in the context of subsection 259.1(2).
[47]
Given the uncertainty, a textual, contextual and
purposive analysis is required. Whether the conflicting meanings create a
textual ambiguity, my conclusion of that will be deferred until after
conducting a full statutory interpretation analyses.
[48]
The term “purpose” is used extensively in the Act
(and the Income Tax Act) but it is not defined in the legislation and
the ordinary meaning is broad. The Canadian Oxford Dictionary, 2d ed.,
defines “purpose” as:
1 a something to be attained; a thing intended. … b the reason
for which something is done or made, or for which it exists (for tax
purposes). …
[49]
Contending that the exclusionary phrase refers
to immediate purpose, the respondent relies on the decision of Avis
Immobilien G.M.B.H. v Canada, 94 DTC 1039 (TCC), aff’d 97 DTC 5002
(FCA) [Avis].
She asserts that Athabasca acquired the Books for the immediate purpose of
having the same unaltered Books shipped to its students to fulfill its
obligation to them and the Books were not retained by Athabasca. Described as
“Books in, put on a shelf, Books out”, the respondent characterizes the nature
of such transactions as a “sale” because the transfer (of possession and
ownership) of the Books, facilitated by the design of the registration system,
made it incumbent on Athabasca to ship the Books within a day or so of the
student’s successful registration in the courses and payment for same.
[50]
However, in Avis Justice Rip, as he then
was, appears to have limited his conclusion of immediate purpose to the context
of subparagraph 40(1)(a)(i) of the Income Tax Act having regard
to Parliamentary intent and noted it might not apply in other contexts. He contrasted
the regime of capital gains with the regime of calculating business income in
making his determination and states at paragraph 43, that cases interpreting
the phrase “for the purpose of” in paragraph
18(1)(a) might not apply directly to “for the
purpose of” in section 40. Paragraph 18(1)(a) uses the phrase
“for the purpose of gaining or producing income”, and purpose in that context
has been interpreted more broadly.
[51]
In the decision in 398722 Alberta Ltd. v
Canada, [2000] GSTC 32 (FCA), [2000] FCJ No. 644 (QL) (FCA), the Federal
Court of Appeal found that the immediate purpose of supplying the four-plex as accommodation
for hotel staff took precedence over the ultimate purpose of constructing the
hotel in concluding that the four-plex was an exempt supply.
[52]
Athabasca referred to the Federal Court of
Appeal decision in London Life Insurance Co. v Canada, [2000] GSTC 111
(FCA), [2000] FCJ No. 2121 (QL) (FCA) [London], which involved the
entitlement to ITCs. The question under paragraph 169(1)(c) was whether the
improvements were “acquired … for consumption, use or supply in the course of
commercial activities”. Although the word “purpose” does not appear in
paragraph 169(1)(c), the Court rejected the notion that ultimate purpose
should be looked at when considering whether property was acquired for use in
the course of commercial activities.
[53]
Whilst the decisions demonstrate the differing
regimes and highlight Parliament’s intent as either an immediate or ultimate
purpose, these do not assist in ascertaining the purpose in the context of the
rebate provision.
[54]
The context in which the term “purpose” is used
in the legislation must also be considered. Subsection 259.1(2) is the proper
focus of the inquiry which shows Parliament intended it to restrict
qualification for the printed book rebate to specified persons provided that
the book was acquired “otherwise than for the purpose of supply by way of
sale.”
[55]
This requires the Court to look into the thing
supplied (here instructional services) plus the process for making a supply of
the thing which might require the purchase of various inputs to make the supply
“for the purpose of” under subsection 259.1(2). Given Athabasca ultimately made
only a single supply of instructional services, then it cannot have immediately
made a supply of Books and detracts from the single supply concept. Athabasca’s
actions surrounding the purchase and subsequent handling of the Books do not
demonstrate an immediate purpose of supplying the Books.
[56]
A court must look to objective manifestations in
ascertaining the purpose or intention behind an action: Symes v Canada,
94 DTC 6001 at para 74. The factors in the Test and in Sterling and Avenue
Business provide factors that go to ascertaining objective manifestations
of purpose. In the latter two cases, the Tax Court highlighted the following
factors when determining whether books and materials formed a single supply
with the instructional services offered by the taxpayer:
• Whether a single
price (covering books, supplies, and tuition) was advertised or whether each
item was quoted separately (single price suggests single supply);
• Whether a
student reviewing the promotional literature would view the price as a single
consideration for a course of instruction, or whether the student would think
that they were paying several considerations for books, tuition, etc. (single
consideration suggests single supply);
• Whether books
were sold exclusively to students enrolled in the course, or whether the
general public could purchase the books (if sold exclusively to students, then
this suggests single supply);
• Whether a
student would be reimbursed for books if they withdrew from the course (if not,
then this suggests a single supply);
• Whether, upon
enrollment in a course, students were required to purchase the books (if the
purchase was mandatory, then this suggests single supply); and
• Whether the
price books were marked-up when sold to students (if not, then this suggests
single supply).
[57]
Athabasca’s policies, in place when it purchased
the Books, are factors to be used as objective manifestations of purpose. As to
the findings of fact, on balance, the following factors favour Athabasca’s
position:
•
Despite course fees were broken into a tuition
fee and an LRF, undergraduate students were charged a “single, all-inclusive
fee” for all courses calculated by combining tuition, learning resources and
student union and alumni relations.
•
Prior to September 1, 2011, graduate students
were charged only course tuition fees that includes all required materials.
•
The LRF was fixed and mandatory for all courses
and entitled students to receive most learning resources to be utilized in and
for completion of the courses or programs regardless of whether or not the
courses included any printed books and was not correlated with the number of
Books required in a course.
•
Athabasca sold the Books exclusively to enrolled
students, and students were required to purchase the Books even if they already
owned them except if a student took the course and failed it or left the course
and later registered for the same course and provided the Book was the same.
•
Students would be reimbursed for the Books upon
withdrawal, but only within 30 days of registration.
•
There was no evidence whether Athabasca marked
up the prices of the Books.
[58]
The respondent submits even if Athabasca’s
argument is accepted that the Books, as inputs, were for the ultimate purpose
of supply of instructional services, Athabasca acquired the Books with the
intention of transferring the Books and triggering the exclusion upon transfer (sale)
and brings the transaction outside of the language of the provision based on
the evidence from Mr. Liddell that the Books were not retained by Athabasca for
its own use contrary to Parliament’s intent. I will return to Parliamentary
intent later in these reasons.
Books remained identifiable
[59]
The respondent’s next argument is despite
Athabasca made only a single supply of instructional services and the Books are
inputs, it does not preclude Athabasca from having acquired the Books for the
immediate purpose of “supplying” the same Books to its students because the
Books were not consumed nor used and remained identifiable. The “Book went in
was Book that went out” and was not consumed in the single supply of instructional
services. Consequently, “where an element of a single supply is not consumed,
processed or modified, it may be acquired for the purpose of simply
transferring it to a subsequent party, in the same form of which it was
acquired” and therefore was acquired with the purpose of transfer to honour its
obligation and triggered the exclusion in subsection 259.1(2).
[60]
The Act treats the verbs “supply”,
“consume”, and “use” as distinct actions. The cases the respondent relied on in
support of the consumption argument are not relevant to the issue in the present
appeal or are not supportive of her position. For example, Budget Steel Ltd.
v Canada, [1996] GSTC 90 (FCA), [1996] FCJ No. 1621 (QL) (FCA) [Budget
Steel] involved two groups of scrap automobiles that were acquired and recycled
through a process that produced scrap metal, a new product for sale. One group
involved the issue of entitlement to ITCs and whether through the recycling
process, the automobiles were “consumed” or “used”. The statute specified if
they were consumed or used, then they would not be inventory. The language of
subsection 259.1(2), however, does not ask whether the Books were consumed or
used. The fact that Books were not consumed or used has no bearing on whether
they were acquired for the purpose of supply in the context of the rebate
provision.
[61]
The second group involved the phrase “acquired
for the purpose of supply in the course of commercial activities” under
paragraph 176(1)(b). Referring to the definition of “supply” in
subsection 123(1), the Court’s finding that they were not acquired for the
purpose of supply, does not assist the respondent because the scrap automobiles
were consumed and transformed into something else, they were not acquired for
the purpose of supplying the same scrap automobiles. However, the respondent is
arguing the inverse: that if the Books were not consumed, then they were
supplied by way of sale.
[62]
Read in the context of the entire decision, the
excerpt from paragraph 80 in the decision Commissioners for Her Majesty’s
Revenue and Customs v David Baxendale Limited, 2009 WL 289314, [2009] EWHC
162 (Ch), relied on by the respondent, appears to illustrate a different point
than that suggested by her in her submission. The principle to be drawn from
that decision is that once two otherwise separate supplies are found to
constitute a single supply under the Test, and it must be determined what tax
characteristic to assign that single supply (i.e. taxable, exempt, or zero‑rated),
it does not necessarily follow that the characteristic assumed by the single
supply is based entirely on which element cost the most (thus the “dominant”
element).
[63]
Other concerns with the consumption argument are
that in focussing on the specific language in subsection 259.1(2), the
exclusionary phrase:
(a) refers
to the supply of the Books and what is disputed is whether Athabasca acquired
the Books for such a purpose (supply to the students); and
(b) only
asks whether Athabasca supplied the Books and does not use the words consume,
subsume, merge into etcetera such that the focus should only be whether Athabasca
supplied Books.
[64]
The respondent notes that the Books were
purchased, stored, and shipped out in the exact same form, and uses this as
support for the argument that Athabasca intended to make a supply of the Books.
However, when viewed in the context of Athabasca’s non-traditional based campus,
this fact is not inconsistent with an intent to make a supply of instructional
services. Also, faculty rely on published textbooks in providing instructional
services. There would be no reason for a university to alter widely-used
textbooks in the field and should not be altered as it might impact the consistency
of educational standards in the education system. The fact that the Books
retained identity does not change the purpose for which the Books were
acquired.
[65]
When students enrolled for courses, barrier
free, in a non-traditional campus setting, paid a single, all-inclusive,
mandatory fee and could only obtain the Books once registered, applying common
sense (per the Test), this would be a single supply of instructional services.
I find that a supply of the Books was not made and were inputs into the single
supply of instructional services. I also find that Athabasca’s purpose in
acquiring the Books was to utilize these as inputs in its supply of exempt instructional
services rather than to supply the Books by way of sale. Accordingly, I
conclude “purpose” in the exclusionary phrase refers to the ultimate purpose.
[66]
Turning to a purposive analysis of subsection
259.1(2), the scheme of that subsection indicates that the broad purpose of the
rebate provision is to promote literacy and aims to achieve this by eliminating
the GST on books in certain circumstances. It is clear Parliament intended the
Rebates to be available to public libraries that held books in its collections but
not to bookstores that sell books (and can claim ITCs relating to commercial
activities). It is unclear whether Parliament intended the Rebates to be
available to entities that purchase books as inputs into instructional services
such as Athabasca.
[67]
A further complicating factor is a comparison of
the Finance Minister's broad statements that universities will receive the
Rebates on all their purchases of books and the restrictive language in the
Technical Notes reveals a disparity.
[68]
Athabasca argues that Parliament intended the
Rebates to be widely available based on statements made when printed books
rebates were being introduced. The Minister of Finance at the time said:
The [Rebate] ... means there will be no GST
on all books purchased by educational institutions and learning organizations
across Canada. It means no GST on all books distributed freely in primary
schools, secondary schools and other educational settings. It means tax relief
on books, not only for structured learning in our schools and colleges, but
also for lifelong learning through public libraries and front-line literacy
groups.
Mr. Speaker, we
do not claim that today's measure answers all the challenges we face with
respect to literacy in this country. But, by targeting assistance in this way,
we can get greater impact for every dollar we spend at a time of limited
resources. The 100 per cent rebate provides this kind of targeted relief to
groups and organizations on the front lines of literacy in Canada.
[69]
Although the quotes provided in Athabasca’s
submissions suggest that the rebates should be widely available, the statutory
provision and accompanying Technical Notes contemplate restrictions on
availability.
[70]
Athabasca incorrectly stated in its submissions that
the Technical Notes [July 1997] did not contain the phrase “or to give away
permanently.” However, the reproduction of the Notes in its written submissions
and at Tab 1 of the respondent’s Book of Authorities includes that phrase as
follows:
New subsection
259.1(2) provides authority for the Minister of National Revenue to pay to
specified persons rebates equal to the GST payable in respect of their
acquisitions or importations of printed books (and their updates), audio
recordings of spoken readings of such books and printed versions of religious
scriptures, except where the specified persons have acquired or imported these
items for the purpose of resale or to give away permanently.
[71]
The respondent argues that Parliament intended
for the Rebates to provide GST relief for books and textbooks only where the
entity retains the books and does not transfer them to a third party. Her argument
is supported by those Technical Notes. However, the plain wording of the
exclusionary phrase refers to an entity supplying the book, not merely giving
it away permanently. Conceivably, the intent behind the Technical Notes is that
entities that purchase books and give those same books away will not get the
Rebates (likely a supply by way of sale), but the Technical Notes for the
Periods in issue do not refer to entities that purchase books for use in the
supply of instructional services and in the process give books away.
[72]
Although there is some support for the argument
that this outcome contradicts Parliamentary intent because Athabasca did not
retain ownership of the Books, the wording of the provision is clear that
Athabasca was to have made a supply of the Books and not merely a transfer
ownership of the Books. If Parliament did not intend this outcome, it is up to Parliament
to revise the rebate provision.
[73]
To reconcile the disparity previously noted, it
could be said that Parliament only intended universities to get the rebates for
books purchased for use in their libraries, since these books would not be
given away permanently to students. Athabasca is a long distance on-line
non-traditional university.
[74]
The plain meaning of the words, if unambiguous,
should be applied. In Placer Dome Canada Ltd. v Ontario (Minister of
Finance), 2006 SCC 20, [2006] 1 S.C.R. 715, the Supreme Court of Canada held
that the plain meaning of words still plays a primary role when interpreting
tax legislation if the words of a statute give rise to a single reasonable
interpretation:
21 In Stubart
Investments Ltd. v. The Queen, [1984] 1 S.C.R. 536, this Court rejected the
strict approach to the construction of taxation statutes and held that the
modern approach applies to taxation statutes no less than it does to other
statutes. That is, “the words of an Act are to be read in their entire context
and in their grammatical and ordinary sense harmoniously with the scheme of the
Act, the object of the Act, and the intention of Parliament” (p. 578): see 65302
British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804, at para. 50. However,
because of the degree of precision and detail characteristic of many tax
provisions, a greater emphasis has often been placed on textual interpretation
where taxation statutes are concerned: Canada Trustco Mortgage Co. v. Canada,
[2005] 2 S.C.R. 601, 2005 SCC 54, at para. 11. Taxpayers are entitled to rely
on the clear meaning of taxation provisions in structuring their affairs. Where
the words of a statute are precise and unequivocal, those words will play a
dominant role in the interpretive process.
[75]
Subsection 259.1(2) clearly contemplates if a
specified person was to supply Books by way of sale, it would become
disentitled to the rebate. To the extent that there is a mismatch between
Parliamentary intent and the words of the statute and the words of the statute
cannot be interpreted to give effect to Parliamentary intent, then the words of
the statute should prevail.
[76]
In Elim Housing Society v Canada,
2015 TCC 282, [2015] TCJ No 214 (QL), Justice Woods noted that the words
actually used in the provision were broad and did not include any reference to
services provided by hospitals. To read in this requirement would be to “cross
the line from judicial interpretation to impermissible legislative drafting.”
[77]
Even if Parliament intended the Rebates to be
available only where the books are not transferred permanently, the provision
uses the phrase “supply by way of sale”. Supplying something, a legal concept, is
crucial to the Act and Parliament must be presumed to have understood
this at the time of drafting. I find that Athabasca’s purpose for acquiring the
Books was to use them in providing the single supply of instructional services
to its students. Since the Books were inputs, I find that Athabasca does not
make a supply of Books by sale. It is of some import that the Test existed at
the time of enactment of the rebate provision. I conclude that in acquiring the
Books, it was for the ultimate purpose to use them as inputs in its single supply
of exempt instructional services and since there is no separate supply of
Books, there can be no supply of Books by way of sale.
VII.
CONCLUSION
[78]
Based on the foregoing, I conclude that
Athabasca made only a single supply of exempt instructional services, that the
Books are inputs/integral to the instructional services, and Athabasca did not make
a supply of selling the Books because it acquired the Books for the purpose of
its supply of instructional services. Consequently, Athabasca did not acquire
the Books for the purpose of supply by way of sale and is entitled to the
Rebates pursuant to subsection 259.1(2) of the Act.
[79]
The appeal is allowed. Costs are awarded to the
appellant on a party and party basis.
Signed at Vancouver,
British Columbia, this 4th day of November 2016.
“K. Lyons”
Email this Content