Citation: 2008TCC14
Date: 20080304
Docket: 2005-1113(GST)G
BETWEEN:
SOCIÉTÉ DE TRANSPORT DE LAVAL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Bédard J.
[1] The Appellant is
appealing the following three assessments made on July 16, 2004, by
the Quebec Minister of Revenue on behalf of the Minister of National Revenue ("the
Minister") under the Excise Tax Act ("the ETA"):
|
No.
|
Period covered
|
|
|
03260110839
|
January 1, 1988, to December 31, 2001
|
("first period covered")
|
|
03260110840
|
January 1, 1998, to December 31, 2001
|
("second period covered")
|
|
03260110841
|
January 1, 2002, to December 31, 2002
|
("third period covered")
|
[2] The Appellant is a
public transit authority constituted as a legal person established in the
public interest by the Act respecting public transit authorities (R.S.Q.
c. S‑30.01) ("the APTA").
[3] Under section 246
of the APTA, the Appellant succeeded to the rights and obligations of the
Société de transport de la Ville de Laval, which had itself been constituted for the same
purposes by the Act respecting the Société de transport de la Ville
de Laval (S.Q. 1984, c. 42). The Société de transport de la Ville de Laval was dissolved by
section 245 of the APTA.
[4] During the periods
covered by the reassessments, the Appellant and the Société de transport de la
Ville de Laval were properly registered for the purposes of the ETA. They thus
acted as agents of the Minister in collecting the goods and services tax ("GST")
and were entitled to claim input tax credits ("ITCs") and tax rebates
to the extent allowed by the ETA.
[5] The APTA came into
force on December 31, 2001, which means that any reference to the Appellant
in this judgment must be read as a reference to the Société de transport de la Ville de Laval for the period prior to
December 31, 2001.
[6] In the course of
its activities during the periods covered, the Appellant acquired property and
services that it used for mixed purposes under the ETA, that is, both to make
taxable supplies and to make exempt supplies. As a general rule, the Appellant
did not initially claim ITCs for the property and services so acquired and used
by it for mixed purposes, and it was entitled to the partial rebate of 55.14%
granted to municipalities and the public sector bodies put in the same category
as municipalities. Believing that it was entitled to an ITC considering the proportion
of its taxable use of the property and services acquired for mixed purposes,
the Appellant claimed the difference between the amount to which it maintained
it was entitled and the amount of the rebate paid by the Minister, as follows:
|
Date
|
Period
|
Amount
|
|
17/05/02
|
1998 to 2002
|
$856,345.53
|
|
10/03/03
|
2002
|
$298,500.00
|
[7] The Appellant's
claim was calculated on the basis, inter alia, that the following
supplies made by it were taxable supplies such that the property and services
acquired for mixed purposes were used by it primarily in the course of its
commercial activities:
(a)
the
supply of transit services to the Agence métropolitaine de transport ("AMT")
for customers of the AMT with metropolitan transit tickets issued by it;
(b)
the
exclusive supply of transit services by the Appellant to the AMT on a line
operated by the AMT, namely line 902 (Le Carrefour), in accordance
with an agreement entered into on June 27, 2000, and renewed on
December 1, 2001;
(c)
the supply
of transportation to the Sir‑Wilfrid‑Laurier and Laval school
boards, for students of those boards, pursuant to agreements entered into on
November 3, 1998, and August 4, 1999, in the case of the former board
and on July 11 in the case of the latter;
(d)
various
other taxable supplies, such as management contracts, charters, the sale of
scrap metal, maintenance and repairs, which are not in dispute, made by the Appellant
to various clients.
[8] In the course of
its activities during the periods covered, the Appellant also had to supply a
paratransit service for handicapped persons. It subcontracted that service
under contractual agreements, and 75% of the cost of the service was assumed by
the Minister of Transport under the Act respecting the Ministère des
Transports until 2002, when the payment formula was changed somewhat under
the Transport Act to between 65% and 75%.
[9] Considering the
services thus provided for the transportation of handicapped persons to be a
taxable supply, the Appellant filed an ITC claim on May 17, 2002, for the
period from January 1, 1998, to December 31, 2001. The claim was for
$224,901.42, net of any rebate already received from the Minister, for the tax
paid by it with respect to the acquisition of property and services used
exclusively to supply such transportation.
[10] It was in this
context that the Appellant filed the following with the Minister on
May 17, 2002:
(a)
two
general GST rebate applications dated May 15, 2002, on the English version
of the prescribed form (FP‑189‑V), one for an amount of
$224,901.43 in GST paid during the first period covered, which the Appellant
claimed as an ITC, and the other for an amount of $856,345.53 in GST paid
during the second period covered, which the Appellant claimed as an ITC;
(b)
two
additional net tax returns, which were undated, one, for the monthly period of
February 2002, in which the Appellant again claimed an additional ITC in
the amount of $224,901.43 mentioned above, and the other, for the monthly
period of March 2002, in which the Appellant again claimed an additional
ITC in the amount of $856,345.53 mentioned above.
[11] On March 10,
2003, the Appellant, through its representative, filed the following:
(a)
one
general GST rebate application, which was undated, on the French version of the
prescribed form (FP‑189-V), for an estimated $298,500 in GST paid
during the third period covered, which the Appellant claimed as an ITC;
(b)
one
additional net tax return, which was undated, for the monthly period of
December 2002, in which the Appellant again claimed an additional ITC in
the estimated amount of $298,500 mentioned above.
[12] On July 13,
2004, after receiving the three general rebate applications and three
additional net tax returns referred to in the preceding two paragraphs, an
employee of the Minister informed the Appellant in three separate letters,
one for each of the three general rebate applications/additional net tax returns,
of the amounts that would be refunded to it and of the fact that it would be
later sent notices of assessment in that regard. Thus,
(a)
for
the first period covered, the Minister informed the Appellant that the ITC
claim for $224,901.43 had been disallowed in full;
(b)
for
the second period covered, the Minister informed the Appellant that the ITC
claim for $856,345.53 had been allowed in part: $117,234.21 was to be
refunded to the Appellant, while the difference, $739,111.22, could not be
refunded;
(c)
for
the third period covered, the Minister informed the Appellant that the ITC
claim for $298,500 had been allowed in part: $36,750.43 was to be refunded
to the Appellant, while the difference, $261,749.57, could not be refunded.
[13] On July 16,
2004, in reply to the three general rebate applications for the first, second
and third periods covered ("the three periods covered") and the
three additional net tax returns referred to in paragraphs 10 and 11
above, and as indicated in the preceding paragraph, the Minister made the
three assessments concerning the Appellant, in which its rebates were
determined to be $0, $117,234.31 and $36,750.43. The Minister thus disallowed
the entire $224,901.42 claimed as an ITC as well as amounts of $739,111.22 and
$261,749.57. The Minister sent the Appellant three notices of assessment
to this effect, which were numbered 03260110839, 0326011041
and 03260110840, respectively, and dated the same day. Those
three assessments are under appeal here.
[14] In making those
three assessments concerning the Appellant, the Minister relied, inter alia,
on the following findings and assumptions of fact:
[TRANSLATION]
(a) .
. .
(b) the Appellant is a
registrant for the purposes of Part IX of the ETA;
(c) the Appellant filed
its net tax returns with the Minister every month during the three periods
covered;
(d) the Appellant's
monthly reporting periods correspond to calendar months;
(e) during the
three periods covered, the Appellant made both taxable and exempt supplies
in the course of carrying on its activities, including its public transit
activity;
(f) the Appellant
primarily operates a public transit enterprise in the territory of the city of Laval, with service links to places outside that territory,
and this includes the paratransit service for mobility‑impaired persons;
(g) in this connection, for
its local public transit services, the Appellant issues its own tickets, which provide persons who purchase them
with access to the said local services;
(h) the Agence
métropolitaine de transport has established a metropolitan bus transit system
that forms all or part of a public transportation service that allows a person
to travel, inter alia, in the territory of the Appellant, the
Société de transport de Montréal and the Société de transport de Longueuil, as
well as from one of these territories to any other territory in the
metropolitan bus transit system established by the Agence métropolitaine de
transport;
(i) the Agence
métropolitaine de transport has created metropolitan transit tickets for those,
including the Appellant, who use the services provided by two or more public
transit authorities, and has fixed the prices for those tickets, which provide
the persons who purchase them with access to the said services in several
territories;
(j) the Agence
métropolitaine de transport does not itself operate a public passenger
transportation enterprise in the Appellant's territory;
(k) the Appellant gives
access to its local public transit system to persons with metropolitan transit
tickets at no additional cost, which is to say that it carries in its buses persons
with such tickets;
(l) the Appellant sells
to public transit users both its own transit tickets and the metropolitan
transit tickets issued by the Agence métropolitaine de transport;
(m) the Appellant hands
over to the Agence métropolitaine de transport the proceeds of sale of the
metropolitan transit tickets;
(n) the Agence
métropolitaine de transport shares with, among others, the public transit
authorities, including the Appellant, the revenue derived from the sale of
metropolitan transit tickets, according to the utilization of their respective
systems by users;
(o) there is no written
agreement between the Appellant and the Agence métropolitaine de transport
concerning the foregoing;
(p) during the
three periods covered, the Appellant acquired taxable supplies of property
and services for consumption, use or supply in the course of both its
commercial activities (the making of taxable supplies) and its non-commercial activities
(the making of exempt supplies), and it paid its suppliers the GST on those
supplies;
(q) the Appellant entered
in its accounting records the GST so paid or payable on the taxable supplies it
acquired and then claimed from the Minister under section 259 of the ETA
the partial rebate for selected public service bodies (hereinafter "partial
GST rebate") of the GST paid when acquiring the property and services
during the three periods covered; the Appellant received this partial GST
rebate, representing 57.14% of the GST paid throughout the three periods
covered;
(r) in the general GST rebate
application for the first period covered and in the additional net tax
return for the period of February 2002, in both of which the same amount,
$224,901.43, is claimed as an
ITC, that amount represents the difference between the amount of GST the Appellant
paid its suppliers when it acquired supplies of property and services consumed,
used or supplied for the purpose of supplying a paratransit service for
mobility‑impaired persons and the portion of the said amount of GST that
was refunded to the Appellant by the Minister after the Appellant had claimed that
portion as a partial GST rebate with respect to the said supplies under
section 259 of the ETA;
(s) the Appellant
determined that all the supplies of property and services it had acquired
exclusively for the purpose of supplying a paratransit service for mobility‑impaired
persons, which were current expenses, had been consumed, used or supplied in
the course of its commercial activities, that is, for the purpose of making
taxable supplies;
(t) the Minister
instead determined that the Appellant's supply of a paratransit service for
mobility‑impaired persons was an exempt supply and thus did not entitle
the Appellant to any ITC;
(u) moreover, part of
the said $224,901.43 claimed as an ITC, namely, $11,996.31, was claimed
from the Minister more than four years after the end of the reporting
period in which the Appellant could first have claimed that amount as an ITC in
computing its net tax for the reporting periods of January, February and
March 1998;
(v) in the general GST
rebate application for the second period covered and the additional net tax
return for the period of March 2002, in both of which the same amount,
$856,345.53, is claimed as an ITC, the said amount is broken down as follows:
(i) a first amount, of $649,091.82, representing,
as the case may be, between 47.52% and 55.85% of the difference between the
amount of GST the Appellant paid its suppliers when acquiring supplies of property
and services (current expenses) that were consumed, used or supplied for the
purpose of making all the supplies it made, other than the supply of a
paratransit service for mobility‑impaired persons, and the portion of the
said amount of GST that was refunded to the Appellant by the Minister after the
Appellant had claimed that portion as a partial GST rebate with respect to the
said supplies under section 259 of the ETA;
(ii) a second amount, of $207,253.71,
representing the difference between the amount of GST the Appellant paid its
suppliers when acquiring supplies of capital personal property that were consumed
or used for the purpose of making all the supplies it made, other than the
supply of a paratransit service for mobility‑impaired persons, and the
portion of the said amount of GST that was refunded to the Appellant by the
Minister after the Appellant had claimed that portion as a partial GST rebate with
respect to the said supplies under section 259 of the ETA;
(w) for the second period
covered, the Appellant determined, using a convoluted method that is not fair and
reasonable, that all the supplies of property and services it had acquired as
current expenses, other than those acquired to supply a paratransit service for
mobility‑impaired persons, had been consumed, used or supplied in the
course of its commercial activities, that is, for the purpose of making taxable
supplies, in a proportion that varied between 47.52% and 55.85%, depending on
the calendar year involved;
(x) for the second
period covered, the Appellant determined, using a convoluted method that is not
fair and reasonable, that the supplies of capital personal property, other than
those acquired to supply a paratransit service for mobility‑impaired
persons, had been consumed or used in the course of its commercial activities,
that is, for the purpose of making taxable supplies, in a proportion that
varied between 52.56% and 55.85%, depending on the calendar year involved;
(y) using an output‑based
allocation method, which is a fair and reasonable method, the Minister instead
determined that all the supplies of property and services acquired by the Appellant
as both current expenses and capital personal property, other than those
acquired to supply a paratransit service for mobility‑impaired persons,
had been consumed, used or supplied in the course of its commercial activities,
that is, for the purpose of making taxable supplies, in a proportion of 6.82%
for the 1998 calendar year and in a proportion ranging between 10.22% and
12.53% for the other three calendar years in the second period covered;
(z) the difference
between the percentages determined by the Appellant and those determined by the
Minister can be explained (other than by the allocation method used) mainly as
follows:
(i) the Appellant
considered certain supplies it had made, namely, the supplies made to the Laval
and Sir‑Wilfrid‑Laurier school boards for the transportation of
their students, to be taxable supplies, that is, supplies made in the course of
its commercial activities, whereas the Minister determined that those supplies
were instead exempt supplies, that is, supplies made in the course of
activities of the Appellant that were not commercial activities;
(ii) the Appellant believed that it was making
a taxable supply to the Agence métropolitaine de transport for the
transportation of persons with metropolitan transit tickets issued by that
agency, whereas the Minister determined that the Appellant was not making any
supply of which the Agence métropolitaine de transport was the recipient;
(aa) accordingly, with
regard to the $649,091.82 in ITCs referred to in subparagraph 23(v)(i)
above with respect to supplies of property and services (current expenses) that
the Appellant acquired and consumed, used or supplied, the Minister determined as
follows:
(i) for the 1998 calendar year in the
second period covered, the Appellant was not entitled to any amount
because substantially all of the use, consumption or supply of the said
supplies of property and services (current expenses) was in the course of
activities that were not commercial activities, that is, in a proportion
greater than 90% (100% - 6.82%);
(ii) for the other three calendar years in the
second period covered, the Appellant was entitled to only $117,234.31, which
was calculated on the basis of the proportion in which the said supplies of property
and services (current expenses) had been used, consumed or supplied in the
course of its commercial activities, which was determined to be 10.22% for the
1999 calendar year, 12.12% for the 2000 calendar year and 12.53% for
the 2001 calendar year;
(bb) moreover, part of the
said $649.091.82 claimed as ITCs for the second period covered, namely,
$38,885.54, was claimed from the Minister more than four years after the
end of the reporting period in which the Appellant could first have claimed
that amount as an ITC in computing its net tax for the reporting periods of
January, February and March 1998;
(cc) with regard to the
$207,253.71 in ITCs referred to in subparagraph 23(v)(ii) with respect to
supplies of capital personal property that the Appellant acquired and consumed
or used, the Minister determined that the Appellant was not entitled to any
amount for the second period covered because the said supplies of capital
property had been used or consumed primarily in the course of its non-commercial
activities, that is, the proportion was greater than
50% (100% - [between 6.82% and 12.53%]);
(dd)
in addition, part of
the said $207,253.71 claimed as ITCs, namely, $9,361.03, had already been
refunded to the Appellant following a rebate claim dated March 26, 2002, made
under section 258.1 of the ETA, in respect of which claim the Minister
made an assessment relating to the Appellant, the notice of which was numbered 032G0110324 and dated December 10, 2003;
(ee)
in the general GST
rebate application for the third period covered and the additional net tax
return for the period of December 2002, in both of which the same
estimated amount, $298,500.00, is claimed as an ITC, the said amount represents
86.36% (according to departmental calculations, since the Appellant, at the
time of filing the general rebate application/additional net tax return, had
not calculated any proportion whatsoever with respect to use, consumption or
supply in the course of its commercial activities) of the difference between
the amount of GST the Appellant paid its suppliers when acquiring the supplies
of property and services (current expenses) that were consumed, used or
supplied for the purpose of making all the supplies it made, other than the
supply of a paratransit service for mobility‑impaired persons, and the
portion of the said amount of GST that was refunded to the Appellant by the
Minister after the Appellant had claimed that portion as a partial GST rebate with
respect to the said supplies under section 259 of the ETA;
(ff)
using an output‑based
allocation method, which is a fair and reasonable method, the Minister instead
determined that all the supplies of property and services acquired by the Appellant
as current expenses, other than those acquired to supply a paratransit service
for mobility‑impaired persons, had been consumed, used or supplied in the
course of its commercial activities, that is, for the purpose of making taxable
supplies, in a proportion of 10.63% for the third period covered;
(gg)
the difference between
the percentage determined by the Appellant and that determined by the Minister
can be explained mainly by the reasons set out in subparagraph 23(z) above
and the fact that the Appellant did not use a fair and reasonable allocation
method to establish the proportion of 86.36% but instead estimated an arbitrary
rebate amount to be claimed as an ITC without any other type of calculation;
(hh)
accordingly, the
Minister determined that, with regard to ITCs in respect of the acquired
supplies of property and services (current expenses) that the Appellant had
consumed, used or supplied, the Appellant was entitled to only $36,750.43,
which was calculated on the basis of the proportion in which the said property and
services had been used, consumed or supplied in the course of its commercial
activities, which was determined to be 10.63% for the third period covered;
(ii) therefore, the Appellant
is entitled to an ITC of only $153,984.74 ($117,234.31 + $36,750.43) out of the
total of $1,379,746.96 ($224,901.43
+ $856,345.53 + $98,500.00)
claimed by it for the three periods covered.
[15] It should be noted
that the facts set out in subparagraphs (b), (c), (d), (e), (f), (g), (h),
(i), (k), (l), (m), (n), (o), (p), (q), (u), (bb) and (dd) of the Reply to the
Notice of Appeal were admitted.
Issues
[16] The Court must
decide the following issues:
(a) whether the Appellant
makes a supply of municipal transit services or some other supply with respect
to the transportation of persons with metropolitan transit tickets, of which
the AMT is the recipient and, if so, whether the said supply is taxable or
exempt;
(b) whether the supply
made by the Appellant to the Laval and Sir‑Wilfrid‑Laurier school
boards is taxable or exempt;
(c) whether the Appellant's
supply of a paratransit service for mobility‑impaired persons is taxable
or exempt;
(d) the extent
(proportion) to which the Appellant acquired property and services that it
consumed, used or supplied both for the purpose of making taxable supplies
(that is, in the course of a commercial activity) and for the purpose of making
exempt supplies (that is, not in the course of a commercial activity or, in
other words, in the course of a non-commercial activity);
(e) out of the total
ITC claimed, namely $1,379,746.96 ($224,901.43 + $856,345.53 + $298,500.00),
excluding the amount already allowed, $153,984.74 ($0 + $117,234.31 +
$36,750.43), to what additional ITC amount the Appellant is entitled.
Appellant's position
[17] The Appellant argues
that the supplies described in paragraphs 7 and 8 above were taxable supplies
for the purposes of calculating the ITC to which it claims to be entitled, for
the following reasons:
(a)
with
regard to the supply of transit services made by the Appellant to the AMT for
customers of the AMT with metropolitan transit tickets issued by the AMT, the Appellant
submits that it is a taxable supply, particularly because
(i)
the supply is made
entirely to the AMT and is not an exempt supply within the meaning of
section 24 of Part VI of Schedule V to the ETA;
(ii)
in supplying such
services, the Appellant acts as a mandatary for, or subcontractor of, the AMT,
which is the entity that provides the said transit services to holders of
metropolitan transit tickets issued by it;
(b)
the
transit service supplied for the AMT on the AMT's 902 line
(Le Carrefour) is a taxable supply and not an exempt supply because it is
not a "municipal transit service" as defined in section 1 of
Part VI of Schedule V to the ETA; it should be noted that the Respondent
has admitted that this supply is taxable;
(c)
the
paratransit service is not an exempt supply within the meaning of
section 24 of Part VI of Schedule V to the ETA but rather a
taxable supply, since the recipient of the supply in question is the Ministère
des Transports;
(d)
with
regard to the transportation provided for the Laval and Sir‑Wilfrid‑Laurier
school boards, those boards are the recipients of the said supplies pursuant to
bilateral agreements, and so this is not a "municipal transit service"
within the meaning of section 24 of Part VI of Schedule V to the
ETA.
Analysis and conclusion
The law
[18] The provisions of
the ETA relevant to this case are as follows:
(a)
the expression "exempt
supply" defined in subsection 123(1) of the ETA, which refers to the
supplies included in Schedule V to the ETA;
(b)
section 24 of
Part VI of Schedule V to the ETA, under which a supply made by the Appellant
to a member of the public of a "municipal transit service", an
expression defined in section 1 of Part VI of Schedule V to the ETA,
is an exempt supply;
(c)
the
definition of "commercial activity" in subsection 123(1) of the ETA,
which indicates that the making of exempt supplies is not a "commercial
activity";
(d)
subsection 169(1)
of the ETA, under which a registrant may, in computing its net tax, claim an
ITC corresponding to the GST paid or payable by it when acquiring any supply of
property or services, based on the extent (expressed as a percentage) to which
the property and services were acquired by the registrant for the purpose of
making taxable supplies for consideration in the course of its commercial
activities or for other purposes;
(e)
subsection 141.01(5)
of the ETA, which provides that a registrant must use a fair and reasonable method to
determine the extent to which property and services were acquired by the
registrant for the purpose of making taxable supplies for consideration in the
course of its commercial activities or for other purposes;
(f)
subsection 141(3) of
the ETA, which provides, with regard to supplies of property and services
acquired by a registrant and characterized as current expenses, that, where
substantially all of the consumption or use of the said property and services
is in the course of particular activities of the registrant that are not
commercial activities, all of the consumption or use of the property and
services is deemed to be in the course of those particular activities; in other
words, a minimum of 10% of the use or consumption of the property and services
must be in the course of the Appellant's commercial activities for the Appellant
to be entitled to an ITC in proportion to that consumption, use or supply, but
otherwise it is entitled to nothing;
(g)
subsection 199(2)
of the ETA, which provides, with regard to supplies of property acquired by a
registrant as capital personal property, that, where the said property is used
primarily in the registrant's commercial activities, the property is deemed to have
been used exclusively in those commercial activities; in other words, for the
registrant to be entitled to an ITC at 100%, a minimum of 50% of the use of the
said property must be in the registrant's commercial activities (it does not
matter whether such use is 51%, 66% or 98%, for example), but otherwise it is
entitled to nothing;
(h)
insofar
as a registrant that is a municipality or other body included in the term "municipality"
is not entitled to an ITC or is entitled only to a partial ITC,
section 259 of the ETA provides for a rebate of 57.14% of the amount not
eligible for an ITC;
(i)
moreover, under
paragraph 225(4)(b) of the ETA, a registrant may not claim ITCs in computing
its net tax under section 225 of the ETA unless, inter alia,
the claim is made within four years after the end of the reporting period
in which the registrant could first have claimed the said amount as an ITC in computing
its net tax; in addition, a registrant may not, in computing its net tax, claim
an amount as an ITC if the GST has already been refunded to the registrant
under section 258.1 of the ETA;
(j)
the
definition of the term "recipient" in subsection 123(1) of the ETA,
which definition reads as follows:
(a) where consideration for the supply is payable under an
agreement for the supply, the person who is liable under the agreement to pay
that consideration,
(b) where paragraph (a) does not apply and
consideration is payable for the supply, the person who is liable to pay that
consideration, and
(c) where no consideration is payable for the supply,
(i) in the case of a supply of property by
way of sale, the person to whom the property is delivered or made available,
(ii) in the case of a supply of property
otherwise than by way of sale, the person to whom possession or use of the
property is given or made available, and
(iii) in the case of a supply of a service, the
person to whom the service is rendered;
(k)
the
definition of the expression "commercial activity" in
subsection 123(1) of the ETA, which definition reads as follows:
"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;
(l)
the definition
of the term "consideration" in subsection 123(1) of the ETA, which
definition reads as follows:
"consideration" includes any amount that is payable for a
supply by operation of law;
(m)
the definition
of the expression "taxable supply" in subsection 123(1) of the ETA,
which definition reads as follows:
"taxable supply" means a supply that is made in the course
of a commercial activity.
[19] In light of the
relevant provisions of the ETA, the following conclusions can be drawn:
(a)
where
property and services are acquired by a registrant for use exclusively or
almost exclusively for commercial purposes, the registrant is entitled to a
full ITC;
(b)
where
property and services are acquired by a registrant for mixed purposes and are
used primarily in activities that are not commercial activities, the registrant
is not entitled to an ITC if substantially all of the use of the property and
services is in the course of non-commercial activities;
(c)
where
property and services are acquired by a registrant for mixed purposes and are
used primarily in activities that are not commercial activities, the registrant
is entitled to a full ITC in the case of capital personal property and to an
ITC in proportion to their use in the case of other expenses;
(d)
where
property and services acquired by a registrant for mixed purposes are not used
primarily in commercial activities nor is all or substantially all of their use
for non‑commercial purposes, the registrant is not entitled to an ITC in
the case of capital personal property but is entitled to an ITC in proportion
to their commercial use in the case of other expenses;
(e)
where
a registrant that is a municipality or other body included in the term "municipality"
is not entitled to an ITC or is entitled only to a partial ITC, 57.14% of the
amount not eligible for an ITC is refunded to the registrant.
[20] Accordingly, using a
fair and reasonable method (here the ridership method) as required by
subsection 141.01(5) of the ETA, the Appellant concluded that 55.79% of
all of its supplies were taxable and that it was therefore entitled, in
calculating its ITC, to apply that percentage to all the property and services
it had acquired for mixed purposes during the periods covered.
[21] In the alternative,
even if the Court were to find that one or more of the supplies described in
paragraphs 7 and 8 above were not taxable supplies, the Appellant submits
that it would still be entitled to a proportional ITC, since not all or
substantially all of the use of the property and services acquired by it for
mixed purposes during the periods covered was for non‑commercial
purposes.
Supply of transit service to the
AMT
[22] First of all, we
will determine whether the Appellant made a supply of municipal transit services
or some other supply involving the transportation of persons with metropolitan
transit tickets, of which the AMT was the recipient, and if so, whether the
said supply was taxable or exempt.
[23] To answer this
question, the relevant provisions of the APTA and the Act respecting the
Agence métropolitaine de transport should first be examined to better
understand the nature of the legal relationship between the Appellant and the
AMT.
[24] The AMT is a legal
person established by the Act respecting the Agence métropolitaine de
transport ("AMT
Act"). The Appellant operates a public transportation enterprise in its
area of jurisdiction but may provide service links to places outside that area. The Appellant issues its own transit
tickets for its local public transit services. In addition, the AMT has
established the metropolitan bus transit system with the approval of the
Government.
Under the AMT Act, "metropolitan transportation by bus" means all or
part of a public transportation service, determined by the AMT, that allows a
person to travel from one territory to another territory unless both are
situated in the territory of the same public transit operating authority. The AMT may establish metropolitan
transit tickets for the use of services—which may include suburban train
services—provided by two or more public transit operating authorities (TOAs),
issue them on any medium and fix the fares for them. Like the Société de transport de
Montréal and the Société de transport de Longueuil, the Appellant is a TOA, that is, a
legal person established in the public interest that is authorized by an Act or
its constituting Act to organize public transportation services in the AMT's
area of jurisdiction. The Appellant must give the bearer of a metropolitan transit
ticket access to its local transit system.
When the AMT establishes metropolitan transit tickets for the use of services
provided by two or more TOAs, it must share with the TOAs the revenue derived
from the sale of those tickets according to the utilization of their respective
systems by users.
The AMT may also, on the basis of factors and in the manner it establishes,
grant financial assistance to the TOAs to compensate in whole or in part for
the cost of their contribution to the metropolitan bus transit system. The AMT imposes on the TOAs its requirements
relating to schedules, transfers and routes.
The AMT must acquire the equipment and facilities it identifies as being
necessary for the operation of its metropolitan bus transit system. The AMT may institute penal
proceedings for fraudulent use of a metropolitan transportation service, and it
keeps the fines imposed.
Revenue from the sale of metropolitan transit tickets belongs to the AMT. Lastly, the TOAs must sell
metropolitan transit tickets as mandataries of the AMT. The mandate is gratuitous.
[25] It was in the
context we have just examined that the Appellant sold metropolitan transit
tickets during the periods covered and handed over to the AMT the proceeds of
sale. It was also in this context that, during the periods covered, the Appellant
transported passengers with metropolitan transit tickets in its buses and
received money from the AMT in return. During the years in question, the Appellant
also received amounts from the AMT as financial assistance, in accordance with
section 45 of the AMT Act.
[26] Counsel for the Respondent
basically reiterated the reasoning relied on by the Minister in support of his
decision dated April 28, 2003 (Exhibit A‑1, Tab 1), namely
that the supply in question is a supply of a municipal transit service made to
a member of the public and is thus exempt. It is worth quoting that decision in
full:
Decision
[TRANSLATION]
Under its enabling legislation, the AMT
may establish metropolitan transit tickets and fix the fares for those tickets,
in particular where users make use of services provided by two or more public
transit operating authorities.
The ETA provides that a supply of a
municipal transit service made to a member of the public is exempt. In our
opinion, when the Société (Appellant) sells a user a metropolitan transit
ticket, it is, with respect to that user, the supplier of an exempt municipal
transit service to a member of the public.
With regard to the AMT's role, its
enabling legislation provides that its objects are to support, develop,
coordinate and promote shared transportation and to foster the integration of
the services provided through various modes of transportation.
It is also our opinion that the amounts
the AMT gives the public transit operating authorities (TOAs), including the
Société (Appellant), are not remuneration paid by the AMT to the TOAs. As its
enabling legislation provides, the AMT is merely sharing with the TOAs the
revenue derived from the sale of metropolitan transit tickets according to the
utilization of their respective systems by users. Moreover, the AMT's enabling
legislation provides that such sharing can occur only where services provided
by two or more TOAs are used.
Likewise, the amounts that the AMT may
grant to the Société (Appellant), over and above the revenue derived from the
sale of transit tickets, to compensate for the cost of its contribution as a
TOA to the metropolitan bus transit system are, according to the terms used in
the AMT's enabling legislation, financial assistance and not consideration for
a supply made by the Société (Appellant) to the AMT.
We conclude that the amounts handed over
to the Société (Appellant) by the AMT are not consideration for a supply. Thus,
the Société (Appellant) cannot claim an ITC for the expenses it incurs in the
course of its metropolitan bus transit activity.
[27] Lastly, counsel for
the Respondent argued that the Appellant had not submitted any evidence to
rebut the assumption of fact set out in subparagraph 23(j) of the Reply to
the Notice of Appeal, which reads as follows:
[TRANSLATION]
(j) the Agence métropolitaine de transport
does not itself operate a public passenger transportation enterprise in the Appellant's
territory;
[28] Thus, the question
that must be answered first is as follows: Do the amounts paid by the AMT in
sharing the revenue derived from the sale of metropolitan transit tickets
constitute consideration for a taxable supply made by the Appellant to the AMT?
Section 24 of Part VI of Schedule V to the ETA provides that a
supply made to a member of the public (emphasis added) of a municipal
transit service or of a public passenger transportation service designated by
the Minister to be a municipal transit service is an exempt supply. In my
opinion, the phrase "supply made to a member of the public" in
section 24 refers only to the "recipient" of a supply as defined
in subsection 123(1) of the ETA. In light of the definition of the word "recipient"
in subsection 123(1) of the ETA, it can be concluded that, to the extent
that the amounts paid by the AMT to the Appellant in sharing the revenue
derived from the sale of metropolitan transit tickets are not "consideration"
within the meaning of subsection 123(1) of the ETA, it is the users who are
the recipients of the transit service under subparagraph (c)(iii)
of the definition of the word "recipient" in paragraph 123(1) of the
ETA and this supply is therefore exempt under section 24 of Part VI
of Schedule V to the ETA. Since an exempt supply is excluded from the
definition of "commercial activity" in subsection 123(1) of the ETA
and only a supply made in the course of a commercial activity can create
entitlement to an ITC, the Appellant would not be entitled to the ITCs claimed.
On the other hand, to the extent that the amounts paid by the AMT to the Appellant
are "consideration", the AMT is the recipient of the transit service
under paragraph (b) of the definition of the word "recipient"
in subsection 123(1) of the ETA, so that the supply of this transit service is
part of the Appellant's commercial activities and the Appellant is entitled to
the ITCs claimed. It should be noted, moreover, that the Minister did not
dispute the fact that the Appellant's supply of transit services may have been
made in the course of its commercial activities. Therefore, the issue to be
determined is only whether the amounts paid to the Appellant in sharing the
revenue derived from the sale of metropolitan transit tickets are or are not "consideration"
within the meaning of the ETA. In my opinion, to be "consideration",
a payment must result from a legal obligation (whether contractual or otherwise)
and must be sufficiently connected with a supply to be considered to have been
made "for" the supply.
[29] In my view, when the
AMT issues metropolitan transit tickets to users, it enters into a contract of
carriage with them within the meaning of article 2030 of the Civil Code
of Québec. In issuing such tickets to users, the AMT undertakes to provide
metropolitan transit services in return for a price which the users undertake
to pay at the agreed time. It must be pointed out that the Appellant sells
metropolitan transit tickets as a mandatary for the AMT and that the revenue
from the sale of the tickets belongs to the AMT.
[30] I also note that the
Appellant must give the bearer of a metropolitan transit ticket access to its
local transit system. Finally, I note that, when the AMT establishes
metropolitan transit tickets for the use of services provided by two or more
TOAs, it shares with the TOAs the revenue derived from the sale of the tickets
according to the utilization of their respective systems by users. Thus, the Appellant
acts as a mandatary of, or subcontractor for, the AMT, which is the entity that
provides services to users holding metropolitan transit tickets. I conclude
from this that the payments made by the AMT to the Appellant are consideration
within the meaning of the ETA, since they result from a legal obligation,
namely, that created by sections 35 and 42 of the AMT Act, and are
directly connected with the services rendered to the AMT by the Appellant.
Accordingly, since the amounts paid by the AMT to the Appellant constitute
consideration, the AMT is the recipient, within the meaning of paragraph (b)
of the definition of this term in subsection 123(1) of the ETA, of the transit
service, hence the supply of the service is made in the course of the Appellant's
commercial activities and the Appellant is entitled to ITCs.
Supply made to school
boards
[31] We will now consider
whether the supply made by the Appellant to the Laval and Sir‑Wilfrid‑Laurier
school boards is taxable or exempt. Under the contracts between the Appellant
and those boards (Exhibits A‑2 and A‑3), the Appellant
undertakes to transport the boards' students under the age of 18 in its buses used in its system. Moreover,
the contracts require the school boards, which have to provide free school bus
service to their students under the age of 18, to pay consideration equal to
the cost, set out in the contracts, of the transit tickets used by their
students. The amounts so paid to the Appellant are thus consideration within
the meaning of the ETA, since they result from a contractual obligation and are
directly connected with the supply the Appellant has undertaken to make.
Accordingly, the school boards are the recipients, within the meaning of
paragraph (b) of the definition of this term in subsection 123(1) of
the ETA, of the transportation service, hence the supply of services is made in
the course of the Appellant's commercial activities and the Appellant is
entitled to ITCs.
Allocation method
[32] Under subsection 141.01(5) of the ETA, a registrant must use a
fair and reasonable method to determine the extent to which property and
services were acquired by the registrant for the purpose of making taxable
supplies for consideration in the course of its commercial activities or for
other purposes.
[33] In the instant case,
the Minister used an allocation method based on outputs, that is, revenue.
Using that method, the Minister determined that the proportion in which the Appellant
had used, consumed or supplied property and services in the course of its
commercial activities was 6.82%, 10.22%, 12.12%, 12.53% and 10.63% for the
1998, 1999, 2000, 2001 and 2002 calendar years respectively.
[34] The Minister
determined those percentages from the Appellant's detailed revenue (which he
accepted as established) as set out in Exhibits I‑7, I‑5, I‑3,
I‑1 and I‑10 for the 1998, 1999, 2000, 2001 and 2002 calendar
years respectively. For each of those years, the Minister determined the percentage
of commercial use in the same way, namely, by dividing the taxable revenue
(from which he excluded the revenue from the AMT and the Laval school board) by
the total revenue. In light of my decision that the revenue from the AMT and
the Laval school board is taxable, the commercial‑use percentages based
on the output method should instead be 9.10%, 51%, 48%, 46% and 44% for the
1998, 1999, 2000, 2001 and 2002 calendar years, respectively.
[35] As noted earlier,
the Minister relied on the commercial‑use percentages he had established
to make the determinations set out hereunder.
(a)
In
1998, the Appellant was not entitled to any ITC with respect to any of the
supplies of property and services it had acquired as current expenses (other
than those acquired to supply a paratransit service for mobility‑impaired
persons), since substantially all of the use, consumption or supply of the said
supplies of property and services (current expenses) was in the course of
particular activities of the Appellant that were not commercial activities,
that is, the proportion was greater than 90% (100% - 6.82%).
(b)
Although
I have found, employing the output method used by the Minister, that the
commercial‑use percentage for 1998 was 9.10%, I am of the opinion that, under
that method, the Appellant was not entitled to any rebate in 1998 for any of
the supplies of property and services it had acquired that year as current
expenses (other than those acquired to supply a paratransit service for
mobility‑impaired persons). Indeed, the Appellant was not entitled to any
ITCs in 1998 in respect of any of the supplies of property and services it had
acquired that year as current expenses (other than those acquired to supply a
paratransit service for mobility‑impaired persons) because substantially
all of the use, consumption or supply of the said supplies of property and
services (current expenses) was in the course of particular activities that
were not commercial activities, that is, the proportion was greater than 90%
(100% - 9.10%). Moreover, the Minister did not (contrary to what was done for 1999,
2000, 2001 and 2002) consider the current expenses for that year as
established, and the Appellant did not submit any evidence in this regard. I
note that the current expenses for 1998 were never verified by the Minister, as
he determined that substantially all of the use, consumption or supply of the
said supplies of property and services (current expenses) was in the course of
particular activities of the Appellant that were not commercial activities,
that is, the proportion was greater than 90% (100% - 6.82%).
(c)
In
1999, the Appellant was entitled to an ITC of $27,407.69 with respect to all
the supplies of property and services it had acquired that year as current
expenses (other than those acquired to supply a paratransit service for
mobility‑impaired persons). The Minister determined that amount on the
basis of the Appellant's current expenses as detailed in Exhibit I‑6
(which current expenses he considered as established). To determine the amount
of $27,407.69, the Minister multiplied by 10.22% (the commercial‑use
percentage he had established) the amount of $268,201.47 found at page 3
of Exhibit I‑6, which was the total GST paid by the Appellant that
year (with regard to the current expenses detailed in Exhibit I‑6)
minus the total of the amounts refunded to the Appellant in respect of those
current expenses in the course of that year under section 259 of the ETA
(which provides for a partial rebate for selected public service bodies of
57.14% of the GST paid when acquiring property and services). Since I have
already determined that the commercial‑use percentage for 1999 was 51%, I
am of the opinion that the Appellant was instead entitled, on the basis of the
output method used by the Minister, to a rebate of $136,782.74 (51% x
$268,201.47) with respect to all the supplies of property and services it
acquired in 1999 as current expenses (other than those acquired to supply a
paratransit service for mobility‑impaired persons).
(d)
In 2000, the Appellant
was entitled to an ITC of $43,133.89 with respect to all the supplies of property and
services it had acquired that year as current expenses (other than those
acquired to supply a paratransit service for mobility‑impaired persons).
The Minister determined that amount on the basis of the Appellant's current
expenses as detailed in Exhibit I‑4 (which current expenses he considered
as established). To determine the amount of $43,133.89, the Minister multiplied
by 12.12% (the commercial‑use percentage he had established) the amount
of $355,928.39 found at page 3 of Exhibit I‑4, which was the
total GST paid by the Appellant that year (with regard to the current expenses
detailed in Exhibit I‑4) minus the total of the amounts refunded to
the Appellant in respect of those current expenses in the course of that year
under section 259 of the ETA, which provides for a partial rebate for
selected public service bodies of 57.14% of the GST paid when acquiring
property and services. Since I have already determined that the commercial‑use
percentage for 2000 was 48%, I am of the opinion that the Appellant was instead
entitled, on the basis of the output method used by the Minister, to a rebate
of $170,845.26 with regard to all the supplies of property and services it
acquired in 2000 as current expenses (other than those acquired to supply a
paratransit service for mobility‑impaired persons).
(e)
In 2001, the Appellant
was entitled to an ITC of $46,642.73 with respect to all the supplies of property and
services it had acquired that year as current expenses (other than those
acquired to supply a paratransit service for mobility‑impaired persons).
The Minister determined that amount on the basis of the Appellant's current
expenses as detailed in Exhibit I‑2 (which current expenses he considered
as established). To determine the amount of $46,642.73, the Minister multiplied
by 12.53% (the commercial‑use percentage he had established for 2001) the
amount of $372,460.82 found at page 3 of Exhibit I‑2, which was
the total GST paid by the Appellant that year (with regard to the current
expenses detailed in Exhibit I‑2) minus the total of the amounts
refunded to the Appellant in respect of those current expenses in the course of
that year under section 259 of the ETA, which provides for a partial
rebate for selected public service bodies of 57.14% of the GST paid when
acquiring property and services. Since I have already determined that the commercial‑use
percentage for 2001 was 46%, I am of the opinion that the Appellant was instead
entitled in 2001, on the basis of the output method used by the Minister, to a
rebate of $171,331.97 with regard to all the supplies of property and services
it acquired in 2001 as current expenses (other than those acquired to supply a
paratransit service for mobility‑impaired persons).
(f)
In 2002, the Appellant
was entitled to an ITC of $36,750.43 with respect to all the supplies of property and
services it had acquired that year as current expenses (other than those
acquired to supply a paratransit service for mobility‑impaired persons).
The Minister determined that amount on the basis of the Appellant's current
expenses as detailed in Exhibit I‑11 (which current expenses he considered
as established). To determine the amount of $36,750.43, the Minister multiplied
by 10.63% (the commercial‑use percentage he had established for 2002) the
amount of $345,628.93 found at page 3 of Exhibit I‑11, which
was the total GST paid by the Appellant that year (with regard to the current
expenses detailed in Exhibit I‑11) minus the total of the amounts
refunded to the Appellant in respect of those current expenses in the course of
that year under section 259 of the ETA, which provides for a partial
rebate for selected public service bodies of 57.14% of the GST paid when
acquiring property and services. Since I have already determined that the
commercial‑use percentage for 2002 was 44%, I am of the opinion that the Appellant
was instead entitled in 2002, on the basis of the output method used by the
Minister, to a rebate of $152,076 with regard to all the supplies of property
and services it acquired in 2002 as current expenses (other than those acquired
to supply a paratransit service for mobility‑impaired persons).
[36] On the other hand,
the Appellant, using the so‑called ridership method, which it considers
fair and reasonable in this case, concluded that 55.79% of all of its supplies
were taxable and that it was therefore entitled, in calculating its ITC, to
apply that percentage to all the property and services it had acquired for
mixed purposes during the periods covered. The explanations given by
Marcel Chaput (the person authorized by the Appellant to prepare and file
the GST rebate applications dated May 17, 2002, and March 10, 2003)
during his testimony on this so‑called ridership method and the reasons
why it must be considered fair and reasonable are worth quoting insofar as they
are relevant:
[TRANSLATION]
Q. So, you . . .
A. In
simple terms, ultimately we preferred the ridership approach because we said to
ourselves that, when a passenger is transported, no matter what transit ticket
the passenger holds or has bought, the passenger will take up the same space in
the bus and generate approximately the same costs. So, the fairest way to
allocate costs, because we recover on costs and not revenue, we said, if we
have the data, since we have the ridership data, we can identify local
ridership versus regional ridership and total ridership; it's much more
accurate to use that data. So, based on ridership, we said, as you can see on
page 2 of the document, for 98 to 2002, there is the local
ridership . . .
. .
.
[37] Mr. Chaput also
explained that, in determining its local ridership versus its regional
ridership, that is, the proportion of users it transported who had local
tickets compared with the proportion who had metropolitan transit tickets, the Appellant
had relied on statistical studies (surveys) conducted by external consultants
it hired.
[38] The so‑called
ridership method used here by the Appellant to establish that 55.79% of all the
supplies it made during the periods covered were taxable seems, in principle,
to be a fair and reasonable method within the meaning of subsection 141.01(5)
of the ETA. However, I cannot accept the figure of 55.79% determined by the Appellant,
since the Appellant did not prove what its local ridership versus its regional
ridership was. The Appellant should have introduced in evidence the statistical
studies (surveys) conducted by the external consultants it had hired to
determine the proportion of users it transported who had local tickets compared
with the proportion who had metropolitan transit tickets. For reasons of
procedural fairness, I allowed the objection of counsel for the Respondent to
the filing of those studies in evidence at the hearing. Procedural fairness
required that, first, the studies be on the Appellant's list of documents, and
that they then be introduced in evidence during the testimony of the authors of
the studies so that the Respondent could effectively challenge their accuracy
or reliability.
Acquisition of buses
[39] With regard to the
$207,253.71 in ITCs referred to in subparagraph 23(u)(ii) of the Reply to the
Notice of Appeal, which ITC's are in respect of supplies of capital personal
property (acquisition of buses)
that the Appellant acquired in 2000 and consumed and used, I am of the opinion
that the Appellant was not entitled to any ITC because the said supplies of
capital property were used or consumed primarily in the course of activities of
the Appellant that were not commercial activities, that is, the proportion was
greater than 50%. In this connection, I refer to my earlier conclusion that the
proportion of use for commercial purposes was 48% in 2000.
Paratransit
[40] We will now look at
the issue of ITCs with respect to the supplies of property and services
acquired by the Appellant exclusively for the purpose of supplying a
paratransit service for mobility‑impaired persons.
[41] The evidence showed
the following in this regard:
(a)
The Appellant
was required to provide a paratransit service for handicapped persons.
(b)
75%
of the cost of that service was paid by the Ministère des Transports under the Act
respecting the Ministère des Transports until 2002, when the payment formula
was changed somewhat under the Transport Act to between 65% and 75%.
(c)
The Appellant
could not require handicapped persons to pay a fare higher than that paid by
users of regular public transit.
(d)
The Appellant
subcontracted its entire obligation to transport handicapped persons to 9062‑5498 Québec
Inc. for a 38‑month period starting on April 1, 1999, and ending on
March 31, 2002, at an estimated total cost of $3,362,523.24, in accordance
with the terms of a tender (Exhibit A‑5) submitted to the Appellant
by that corporation on February 9, 1999. Notwithstanding that exclusivity
granted to the corporation by the Appellant with respect to the transportation
of handicapped persons for that 38‑month period at an estimated total
cost of $3,362,523.24, the Appellant also had the CO‑OP des propriétaires
de taxi de Laval provide part of the transit services for handicapped persons
(Exhibit A‑4). It should be noted that there is nothing in the
evidence adduced by the Appellant that makes it possible to determine what
amounts were actually paid to those two subcontractors during the periods covered
or whether the amounts paid to the CO‑OP des propriétaires de taxi de
Laval must be subtracted from estimated total cost of $3,362,253.24. The Appellant's
evidence in this regard was consisted solely of certain documents it filed
(Exhibits A‑4 to A‑9), which, in my opinion, do not provide
any way of determining the amounts actually paid to those two subcontractors
during each of the periods covered, and the testimony of Louis Champagne (the Appellant's treasurer and
executive director), which was scarcely more conclusive in this regard. Indeed,
Mr. Champagne was not even able to say with certainty whether the amounts
the Appellant paid to the CO‑OP des propriétaires de taxi de Laval should
be subtracted from the estimated amount of $3,362,523.24.
[42] The Respondent's
arguments are as follows:
(a)
The
supply by the Appellant of a paratransit service for mobility‑impaired
persons was an exempt supply under section 24 of Part VI of
Schedule V to the ETA, hence the Appellant could not claim an ITC
corresponding to the GST it paid on the amounts paid to its
two subcontractors for providing that service. In this regard, the Respondent
argues essentially that the recipient of such a supply (paratransit) is the
user, that is, the handicapped person, and not the Ministère des Transports.
(b)
The Appellant
has not proved what amounts were paid to its two subcontractors for
providing a paratransit service during each of the periods covered.
[43] In my opinion, the Appellant
could not claim an ITC corresponding to the GST it paid on the amounts paid to
its two subcontractors for providing a paratransit service unless the
subsidies it received from the Minister of Transport for that service (from 65%
to 75% of the cost) constituted "consideration" within the meaning assigned
to that term in subsection 123(1) of the ETA. Thus, to the extent that the
subsidies were "consideration", the Ministère des Transports can be
considered a "recipient" of the paratransit service under
paragraph (b) of the definition of the word "recipient"
in subsection 123(1) of the ETA, so that the supply of that service would have
been part of the Appellant's commercial activities and the Appellant would be
entitled to the ITCs claimed. Therefore, the issue in this regard is only
whether the subsidies paid to the Appellant were or were not "consideration"
within the meaning of the ETA. In my opinion, there is no doubt that there was
an obligation to pay a subsidy to the Appellant, and the Minister of Transport
could not pay such a subsidy for any purpose other than to enable the Appellant
to transport handicapped persons. There is no ambiguity about either the
purpose of the subsidy or its connection with the contemplated supply. If the Appellant
did not provide that service to handicapped persons as provided for in the
orders in council (that is, at the regular fare), the Minister of Transport would
not pay the Appellant any subsidy (the subsidy being between 65% and 75% of the
paratransit costs). In the absence of a contractual relationship between the Appellant
and the Ministère des Transports, it is difficult to imagine a more direct
connection between the payment (the subsidy) and the supply of a paratransit
service for mobility‑impaired persons. It can therefore be concluded that
the subsidies so paid were "consideration". The difficulty here lies
in the fact that the user might also be considered a "recipient" of
the supply of transportation. While the definition of the word "recipient"
in subsection 123(1) of the ETA does not specifically provide that there
must be several recipients of a given supply, nor does it state, in my opinion,
that there can be only one "recipient" of that supply.
[44] However, I cannot
allow the ITCs claimed by the Appellant because it has simply not proved what
amounts it paid its two subcontractors during each of the periods covered.
I stress that the amounts paid by the Appellant to its two subcontractors
were never verified by the Minister, since the Minister disallowed the claim
for an ITC corresponding to the GST paid on the amounts paid to the two subcontractors
for providing the paratransit service on the basis that the "recipient"
of the supply was the registered user and that the supply was therefore exempt
under section 24 of Part VI of Schedule V to the ETA. It should
be added that, during the hearing, the Respondent never accepted as an
established fact that the Appellant had paid any amount to its
two subcontractors.
[45] Accordingly, the
appeal is allowed in that, on the basis of the output method employed by the
Department, which I consider fair and reasonable, the Appellant is entitled to
the following with respect to all
the supplies of property and services it acquired as current expenses (other
than those acquired to supply a paratransit service for mobility‑impaired
persons):
(a)
a
GST rebate of $136,782.74 rather than $27,407.69 for 1999;
(b)
a
GST rebate of $170,845.26 rather than $43,133.89 for 2000;
(c)
a
GST rebate of $171,331.97 rather than $46,642.73 for 2001;
(d)
a
GST rebate of $152,076 rather than $36,750.43 for 2002;
and both parties shall
bear their own costs.
The Appellant is not entitled to any
other GST rebate.
Signed at Ottawa, Canada, this
4th day of March 2008.
"Paul Bédard"
Translation
certified true
on
this 28th day of November 2008.
Erich
Klein, Revisor
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