Citation: 2007TCC229
Date: 20070614
Docket: 2004-4671(GST)G
BETWEEN:
UNIVERSITÉ DE SHERBROOKE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1] This is an appeal
pursuant to the general procedure from an assessment for $234,560.75 made
for the Appellant by the Minister of National Revenue through the Minister of
revenue of Quebec (the "Minister") under the Excise Tax Act (the
"Act"), for the period of August 1, 1999, to May 31, 2003 (the
"relevant period"). In determining its net tax for the relevant period,
the Appellant declared, as input tax credits ("ITC"), all of the
goods and services tax ("GST") related to property and services
acquired and used to construct an athletics stadium (the "Stadium")
on an idle lot already in its possession (the "Lot") and to expenses
related to the Stadium's operations. Under the terms of this assessment, the
Minister essentially determined that the Appellant could only claim, as ITC,
67% of the GST paid in this way during the relevant period.
The facts
[2] The Appellant is
registered for GST purposes. It is a corporation legally constituted under the Loi
relative à l'Université de Sherbrooke, S.Q. 19154, Chapter 136, the
object of which is university teaching. The Appellant's main campus is located
at the base of Mont Bellevue in the city of Sherbrooke; it includes many
buildings in the west and pavilions where most faculties are located. Because
of its object, the Appellant provides, almost exclusively, exempt supplies.
During the relevant period, the Appellant also carried out commercial
activities. Although its main campus was not primarily used for its commercial
activities, its cultural centre, sports centre and parking lot were used for
commercial purposes. The Appellant, as a public service organization, asked for
partial repayment (67%) of the GST on supply acquisitions. Nonetheless, it also
asked for ITC related to the commercial use of its sports centre, cultural
centre and parking lot.
[3] Starting in 2000,
discussions were held between representatives for the Appellant and the City of
Sherbrooke (the "City") for the purpose of getting the World Youth
Championships in Athletics 2003 (the "Championships"). During these
discussions and to meet the requirements related to holding the Championships,
the idea of setting up a new outdoor stadium on the Appellant's main campus was
proposed.
[4] In 2001, the
International Amateur Athletic Federation (the "IAAF") awarded the
Championships to the City of Sherbrooke. The Appellant and the City set up the
3rd IAAF World Youth Championships in Athletics Organizing Committee—Sherbrooke
2003 by incorporating a non-profit organization with the name Committee (the
"Organizing Committee"). The Organizing Committee received the
mandate to organize the Championships. On February 14, 2002, the Appellant
entered into an agreement with the Organizing Committee under which it took
responsibility for constructing the infrastructures required for the
Championships.
[5] The Stadium was
built by the Appellant, in accordance with the IAAF requirements, behind the
university pavilion on its main campus. Construction on the Stadium began in
the spring of 2002 and was completed in the spring of 2003. Construction of the
Stadium cost around $10 million and was funded mainly through government
grants. The Stadium was constructed on lot number 2132202 of the Cadastre
of Quebec, Registration Division of Sherbrooke (the "Lot"). Before
construction of the Stadium, the lot was raw land, and when the Appellant
proceeded with construction of the Stadium, its main campus was not primarily
used for its commercial activities.
[6] The Appellant and
the Organizing Committee entered into a lease (the "Lease") under
which the Appellant allowed the Organizing Committee to use all the Stadium's
installations free of charge, for the sole purpose of organizing the
Championships, and did so for a period of three months, starting May 15, 2003,
and ending August 15, 2003.
[7] From the end of its
construction in May 2003 to the date of the hearing of this appeal, the Stadium
was used almost exclusively for non-commercial purposes.
[8] On June 7, 2004,
the Appellant and the City entered into a partnership agreement to encourage
optimal use of the sporting installations, for the Sherbrooke community, the
university community and for the Quebecois, Canadian and international
communities during wide-scale events. Under the terms of this agreement, the
parties also agreed to jointly manage the use and maintenance of some of the
Appellant's sporting installations, including the Stadium, and to create a
partnership under the Civil Code of Quebec to give effect to their
partnership agreement for operating and managing the sporting installations. As
seen at paragraph 2.1 of this agreement, the parties mutually agree to make all
reasonable efforts and, where required, to carry out the necessary additions
for the benefit of the Partnership to:
[translation]
2.1.1 ... manage the
use of the sporting installations in a cost-effective way and to avoid, or
limit when necessary, Associates' financial support or contributions to the
operations of the Partnership and achievement of the goals and objectives of
this Convention;
[9] For the
cost-effectiveness goal, the partners agreed to establish a fee structure for
the use of the sporting installations. As stated at paragraph 6.2 of the
agreement, the Appellant and the City share all operating income. To reach the
goals set out by the City and the Appellant, a management committee was set up
for the purpose of making all decisions and taking necessary measures to
achieve the objectives and goals set out in the agreement.
Respondent's position
[10] The Respondent
refused to grant all of the ITC the Appellant claimed when determining its net
tax for the relevant period for the following reasons:
(i) she
submits that the Stadium was not used primarily by the Appellant for its
commercial activities;
(ii) she
also submits that the Stadium was an improvement, within the meaning of
subsection 123(1) of the Act, of the Appellant's capital property, its
lot. She submits that in accordance with the formula at paragraph 169(1)(b)
of the Act, the Appellant could not claim the ITC related to the goods and
services used (construction of the Stadium) to improve its capital property
(the "Lot") because the Lot was never used by the Appellant in the
course of its commercial activities before construction of the Stadium;
(ii) lastly,
she submits that the Appellant did not use a reasonable method for claiming its
ITC.
[11] First, I will
determine whether the Minister was wrong to refuse part of the Appellant's ITC
as requested on the ground that the Stadium was not used primarily for its
commercial activities.
The law
[12] The general rule
governing the calculation of ITC is found at subsection 169(1) of the Act,
which provides:
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
(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 taxation year,
(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.
[13] Thus, when a
registrant only provides taxable services, it has the right to all the ITC
because the percentage at "B" is equal to 100%. However, if the
registrant only provides exempt supplies, it does not have the right to any ITC
because the percentage established at "B" is zero. The calculation at
"B" in subsection 169(1) applies in cases where the registrant's
business produces both taxable and exempt supplies.
[14] Taxable supply means
a supply carried out during commercial activity, under subsection 123(1) of the
Act. The same provision gives the following definition of commercial activity:
"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,
(b) 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
(c) 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.
[15] An exempt supply
means a supply found in Schedule V of the Act, according to the provisions of
subsection 123(1).
[16] Sections 10 and 11
Part VI, Schedule V of the Act describe exempt supplies as follows:
10. A supply made
by a public sector body of any property or service where all or substantially
all of the supplies of the property or service by the body are made for no
consideration, but not including a supply of blood or blood derivatives.
11. A supply of a right to be
a spectator at a performance, athletic event or competitive event, where all or
substantially all of the performers, athletes or competitors taking part in the
performance or event do not receive, directly or indirectly, remuneration for
doing so (other than a reasonable amount as prizes, gifts or compensation for
travel or other expenses incidental to the performers’, athletes’ or
competitors’ participation in the performance or event, or grants paid by a
government or a municipality to the performers, athletes or competitors), and
no advertisement or representation in respect of the performance or event
features participants who are so remunerated, but does not include a supply of
a right to be a spectator at a competitive event in which cash prizes are
awarded and in which any competitor is a professional participant in any
competitive event.
[17] It must be noted
that the Appellant is a public service organization under
subsection 259(1) of the Act and that subsection 209(1) of the Act provides
that when a registrant is a public service organization,
subsections 199(2) and (4), and 200(2) and (3) apply, with the necessary
modifications, to real property acquired for use as capital property and, in
the case of subsection 199(4), to improvements made to the real property that
is part of the capital property, as if it were personal property.
[18] Also, for
determining the percentage of use of the Stadium in the Appellant's commercial
activities, subsection 199(2) of the Act states:
Acquisition of capital personal
property – Where a registrant acquires or imports
personal property or brings it into a participating province for use as capital
property,
(a) the tax payable by the registrant in respect of the acquisition,
importation or bringing in of the property shall not be included in determining
an input tax credit of the registrant for any reporting period unless the
property was acquired, imported or brought in, as the case may be, for use
primarily in commercial activities of the registrant; and
(b) where the registrant acquires, imports or brings in the property
for use primarily in commercial activities of the registrant, the registrant is
deemed, for the purposes of this Part, to have acquired, imported or brought in
the property, as the case may be, for use exclusively in commercial activities
of the registrant.
Analysis and conclusion
[19] These relevant
provisions of the Act indicate that if the Appellant shows it used the Stadium
primarily, meaning more than 50%, in the course of its commercial activities,
it could claim the ITC in question. However, the evidence offered did now show
this. On the contrary, the evidence showed that since the Stadium's
construction, the Appellant delivered exempt supplies almost exclusively.
However, the Appellant claims that even if it did not use the Stadium primarily
in the course of its commercial activities, it still has the right to claim all
the ITC because its intent, even before construction of the Stadium, was to use
it primarily in the course of its commercial activities. In support of its
claims to this effect, the Appellant relied on the phrase "for use
primarily" [en vue d'être utilisée] found in paragraph 199(2)(a) of
the Act. Essentially, the Appellant submitted that this phrase requires a
determination of the purpose of the acquisition of the Stadium and not its
actual use. In light of Associate Chief Justice Bowman's principles (as was his
title at the time) in 510628 Ontario Ltd. (Rosset Landscaping) v.
Canada, [2000] T.C.J. No. 451, I must accept the Appellant's opinion in
this respect.
[20] However, the
Appellant's intent to use the Stadium primarily in the course of its commercial
activities should, per Kempo J. in Beau Rivage Appartements v. Canada,
[1994] T.C.J. No. 1137, be a formal and firm intention (as opposed to vague
intentions). Also, there must have been a reasonable chance of a follow-up on
the stated intention, within a reasonable time; this is an objective criterion.
Lastly, the Appellant must have made a decision that was not merely considered,
and that was not dependent on future events.
[21] At this stage, the relevant
question is: Did the Appellant show, on a balance of probabilities, that its
intention was to use the Stadium primarily in the course of its commercial
activities?
[22] The evidence
essentially shows that:
(i) as early as the fall of 2001, the
Appellant and the City had set up a working group comprised of representatives
from both parties, with the goal of obtaining the Championships;
(ii) the
Appellant and the City's main concerns during the project design were:
(1) to
obtain sufficient grants from the various levels of government for the
construction of the Stadium;
(2) to
build an athletics stadium that would meet not only IAFF requirements but that
would also be versatile enough to host other national and international
athletics competitions, professional and amateur soccer matches, university and
professional football matches, and cultural events of a commercial nature
(fireworks, rock concerts, drum and bugle competitions, etc.);
(3) to
make the Stadium cost-effective by holding cultural and sporting events of a
commercial nature. The Parties did not want the Stadium to be a "white
elephant" what would require them to absorb an annual operational deficit;
(4) to
make the Appellant the owner of the Stadium after the Championships were held
and for the Stadium to be run by a management corporation, the partners of
which would be the City and the Appellant; this corporation was created in June
2004 after long negotiations between the parties.
[23] The testimony in
support of the Appellant's position and the documentary evidence showed,
however:
(i) at
the stage of conception of the project to construct the Stadium, the parties
had agreed that after the Championships were held, the Stadium would primarily
be used as a place for athletics training and competitions and that it could
host other types of events (for example: drum line and bugle competitions,
open-air shows, etc.);
(ii) although
the goal to make the Stadium cost-effective was always in the minds of the
City's and the Appellant's representatives, there was never any real planning
related to holding cultural events of a commercial nature for the purpose of
making the Stadium's operations cost-effective.
Jean-Guy Ouellette's testimony on this is worth quoting:
[translation]
Q. Do you agree
with me that there was no planning of activities or events to ensure that the
operations were self-financing? When I say no planning, I mean at the time the
Stadium was being planned.
A. I must
say that yes, there was some planning. Meaning there were some ideas presented.
(iii) that
the planning and hosting of sporting or cultural events of a commercial nature
could not occur as quickly as the parties wished, because as soon as the
project was being conceived, the parties had foreseen that this task would be
given to a management corporation that the parties would co-own; this
corporation was not created until June 2004 because of lengthy negotiations
between the parties;
(iv) the
lack of cultural or sporting events of a commercial nature before and after the
creation of the management corporation could also have been caused by concerns
in the sporting community that holding such events would damage the grassy area
of the Stadium. Luce Samoisette's testimony on this is worth quoting:
[translation]
As I said earlier, it was people from the
sporting community and they tried to make it cost-effective with sporting
activities, which was not the case in 2005 and 2006. They were always asked:
"Why don't you hold other types of activities?" and they always
answered: "Because of the natural field that will be damaged and it will
be impossible to bring it back to an acceptable or ideal condition" in
their opinion, with the…without great costs.
(v) the
Appellant is still seeking donations and grants in order to solve the problem
related to the grassy surface being damaged, which might be caused by holding
cultural events of a commercial nature.
[24] In this case, the
Appellant showed, at most, that it had a vague intention (as opposed to a
definitive and formal intention) during the project planning to make the
Stadium cost-effective and occasionally holding cultural or sporting events of
a commercial nature without necessarily showing, on a balance of probabilities,
that at the time the Stadium was acquired it had a firm intent to use it
primarily for commercial purposes, meaning more than 50%, in terms of use and
surface area used. The Appellant must understand that the objective, even if
definitive when the property is acquired, to make it cost-effective and the
objective at this time to use it primarily for commercial purposes are two very
distinct and different objectives. Indeed, it is highly possible that a
registrant could have a firm intent when the property is acquired to make it
cost-effective while at the same time have a firm intent of not using it primarily
for commercial purposes. For example, the Appellant could very well have
achieved its objective of cost-effectiveness by taking the majority of its
income from the occasional sporting or cultural event of a commercial nature
while using the Stadium for these purposes for only 10% in terms of time or
surface area used. In this case, the evidence very clearly showed that, at the
stage of conception of the project, the Appellant's intention was for the
Stadium to be used primarily as an athletic training and competition site after
the Championships were held, and thus, the Appellant did not have the intention
of using it primarily, in terms of time or surface area used, for commercial
purposes.
[25] Moreover, I am of
the view that the Appellant did not even succeed in showing that it had a firm
intention at the stage of conception of the project to make the Stadium
cost-effective by holding cultural or sporting events of a commercial nature
there. I am also of the view that the Appellant did not have a reasonable
chance to follow-up with its vague intentions then shown, within a reasonable
time. At best, the Appellant showed that it had a vague intention at that time
to make the Stadium cost-effective by holding such events and it wanted to hand
over the achievement of that objective to a management corporation that it
would co-own with the City.
[26] A person such as the
Appellant who claims to have had, at the stage of conception the project, a
definitive and formal intention to make the Stadium cost-effective should have,
in my opinion, taken concrete action to achieve this objective while waiting
for the management corporation to be created. At that time, it should already have
planned such commercial events by formally mandating its employees or an independent
company to organize such events. For the period between the conception of the
project and the training of the management corporation, the Appellant took no
concrete action in this direction. Even after the management corporation was
formed, the Appellant did not insist that its representatives on the management
corporation's management committee reach this cost-effectiveness objective.
Indeed, the Stadium had still not held any such events (except for two soccer
matches) as of the date of the hearing of this appeal and its operations were
still in deficit on that date. In my opinion, the Appellant's delay in
following up on the vague intention it showed at the stage of conception of the
project can be explained first by the problems, for which there are still no
solutions, related to the grassy surface of the Stadium during such events. The
evidence showed that, from that time, the Appellant's sporting organizations resisted
the idea of holding such events on the Stadium's grassy surface. The evidence
also showed that the Appellant's representatives on the management committee of
the management corporation also resisted the idea of holding such events in
2005 and 2006, for the same reasons. This clearly shows, in my opinion, that
the Appellant was not, objectively, likely to follow up on the intention it
showed at the stage of conception of the project, within a reasonable time.
[27] For these reasons, I
find that the Appellant did not use the Stadium primarily in the course of its
commercial activities. Although other issues raised by the Respondent and
related to the concept of improving capital property and the reasonable method
for claiming ITC are very interesting, I do not feel that it is necessary to
address them in this case, considering my decision on the first issue.
[28] Finally, although it
is not necessarily relevant to the determination of this dispute, I would like
to note that the Appellant could still claim the ITC related to the acquisition
of the Stadium once it has attained a commercial operating level of more than
50% in terms of operations and surface area used, in accordance with the change
of use rules set out in the Act. It seems that this option made available by
Parliament is more in keeping with its intention regarding the use of the
phrase "for use primarily" at paragraph 199(2)(a) of the
Act to not grant ITC to persons with only vague intentions, during the
acquisition of property, to use it primarily for commercial purposes.
[29] For these reasons,
the appeal is dismissed, with costs.
Signed at Ottawa, Canada, this 14th day of June 2007.
"Paul Bédard"
on this 29th day
of January 2008
François Brunet,
Revisor
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