Citation: 2005TCC809
Date: 20060214
Docket: 2004-1974(GST)G
BETWEEN:
COUNTY OF LETHBRIDGE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AND BETWEEN:
2004-600(GST)G
MUNICIPAL DISTRICT OF SPIRIT RIVER NO. 133,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AND BETWEEN:
2004-1606(GST)G
COUNTY OF TWO HILLS NO. 21,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR DETERMINATION OF A QUESTION OF LAW UNDER SECTION 58 OF THE TAX COURT OF CANADA RULES
(GENERAL PROCEDURE)
Bell, J.
[1] The parties jointly applied to the Tax Court of Canada for the determination of a question of law under section 58 of the Tax Court of Canada Rules (General Procedure) ("Rules").
QUESTIONS
[2] The questions of law to be determined relate to three Appellants as follows:
1. Countyof Lethbridge ("Lethbridge") for the period from April 1, 2001 to June 30, 2001.
2. County of Two Hills No. 21 ("Two Hills") for the period from July 1, 2001 to September 30, 2001; and
3. The Municipal District of Spirit River No. 133 ("SpiritRiver") for the period from July 1, 2001 to September 30, 2001.
Those questions, as set forth in an application made jointly by the Appellants and the Respondent, are as follows:
a. whether, in the context of each grant program, the Appellants have made a supply to the Province of Alberta;
b. whether the grant funding is consideration for that supply.
[3] The parties filed an Agreed Statement of Facts ("ASF"), consisting of 150 paragraphs together with 114 documents relating to seven different programs. This ASF will not be reproduced here. Instead, I shall extract therefrom the facts relative to those programs, the names of which and participants in which are:
1. Streets Improvement Program
Two Hills
2. Rural Road Study Initiative Sponsorship Program
Two Hills
SpiritRiver
Lethbridge
3. Secondary Highways Partnership Program
Two Hills
Lethbridge
4. Rural Transportation Grant Program
Two Hills
Spirit River
Lethbridge
5. Canada-Alberta Infrastructure Program
SpiritRiver
6. Resource Road/New Industry Program
Two Hills
Spirit River
Lethbridge
7. Bridge/Culvert Agreements Program
Two Hills
SpiritRiver
Lethbridge
GENERAL
[4] The parties have agreed in the ASF that:
For the purposes of the application under Rule 58, all figures regarding the amount of expenditures and input tax credits being claimed are best estimates only.
These Reasons for Judgment will deal with the two questions of law in issue. The question, under each appeal, as to whether an Appellant is entitled to input tax credits ("ITC's") will be resolved, either by consent or by a subsequent hearing before this Court.
[5] Paragraph 4 of the jointly submitted application for the Rule 58(1)(a) determination reads as follows:
If the judgment on the application under Rule 58(1)(a) holds that there is no supply and that the grant funding was not consideration for a supply then, subject to an appeal, this will end the matter. However, if the Tax Court determines that there is a supply and that the grant funding is consideration for that supply, then, subject to an appeal, it may be necessary to have a trial to deal with whether the supply is exempt on the basis that the supply was an exempt supply of maintenance or repairs. This latter issue would likely not proceed under Rule 58(1)(a).
[6] The relevant terms are defined in section 123 of the Excise Tax Act, Part IX, respecting Goods and Services Tax ("Act"), namely:
"consideration"includes any amount that is payable for a supply by operation of law;
"supply" means, subject to sections 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition;
[7] Section 169(1) of the Act reads, in part, as follows:
Subject to this Part, where a person acquires ... property or a service ... and ... tax in respect of the supply ... becomes payable by the person ... the amount determined by ...
a prescribed formula is an input tax credit of the person in respect of the property or service for the period. The important part of that formula reads as follows:
(c) in any other case, the extent (expressed as a percentage) to which the person acquired ... the property or service ... for consumption, use or supply in the course of commercial activities of the person
multiplied by the amount of tax payable or paid (as described in that section).
[8] Appellant's counsel made a very well organized presentation of documents. However, his written submission, from which he strayed during oral submissions, was too general. Respondent's submissions, as did those of the Appellants, failed to analyze the many documents that should have been carefully examined in preparation for the hearing. I reviewed all such documents in detail and divided them into seven segments, each of which relate to a given program. I shall deal with those seven programs seriatim by referring to all the participants in each such program. I shall include, after a description of each program, a brief analysis and conclusion as to whether there is, in such program, an amount payable by the Province to an Appellant. I shall discuss whether there was "consideration" for a "supply" under GENERAL ANALYSIS AND CONCLUSIONS.
1. Streets Improvement Program
[9] The ASF states:
7. Two Hills entered into a Memorandum of Agreement with Alberta Infrastructure under the Streets Improvement Program on June 6, 2000. Attached at Tab 1 and forming part of this Agreed Statement of Facts is a copy of the Memorandum of Agreement.
8. Two Hills was required to provide a listing of proposed work for the upcoming and/or future years to Alberta Infrastructure. Approved projects were eligible for 75% provincial funding for all cost sharable construction and engineering costs up to the maximum grant available. Two Hills provided a Statement of Funding and Expenditures for the calendar year on/or before March 31 the following year.
9. The purpose of the grant under the Streets Improvement Program was to fund a specific program for the benefit of the general public. The Streets Improvement Program commenced on April 1, 2000 and Two Hills was not required to submit an application form. Two Hills was required to indicate to Alberta Infrastructure the projects that were going to be completed with the funds by way of a letter attached at Tab 2 and forming part of this Agreed Statement of Facts.
10. Two Hills made expenditures in the amount of $213,224.22 in respect of completed activities undertaken under the Streets Improvement Program as shown on the Final Agreement Payment Claim Form attached at tab 3 and forming part of this Agreed Statement of Facts. Two Hills is claiming input tax credits (net of the Public-Sector Body ("PSB") rebate) of $5,978.26 under the Act in respect of activities undertaken under the Streets Improvement Program.
[10] The only Appellant involved in this program is Two Hills. It entered into a Memorandum of Agreement as of June 6, 2000, with Her Majesty The Queen in right of the Province of Alberta[1], represented by the Minister of Infrastructure. One recital provides that:
WHEREAS, the Minister desires to conditionally grant to [Two Hills], funds necessary for projects approved under the [Streets Improvement Program] upon the terms and conditions herein; ...
Another recital provides that:
... the Minister has agreed to conditionally advance such funds, as approved annually, to [Two Hills] upon ...
legislature approval of the program budget in the Province's annual budget. The agreement provides that Two Hills agrees to accept the funds granted by the Minister on a number of terms and conditions, the relevant ones being:
1. Two Hills to provide annually to the Minister a listing of proposed work for the year or a proposed future program, consistent with the Streets Improvement Program guidelines for eligible projects.
2. Two Hills to maintain a separate accounting for the funds received, with interest thereon to be applied to reduce the total cost of projects.
3. Two Hills to provide to the Minister an annual Statement of Funding and Expenditures, including a summary of grant funds received and a summary report of the details of the work approved and completed in the calendar year.
4. Two Hills to carry out the work in accordance with a described standard and to allow the Minister access to the project site and documents relating thereto.
The agreement also provides that the parties give the agreement a fair and liberal interpretation.
[11] Two Hills completed the work on projects "eligible to receive funding" under the program and submitted a Final Agreement Payment Claim Form dated September 6, 2001, in respect of the work completed on October 24, 2000. That document showed a total invoice of $213,224.17 from which the sum of $14,925.65 as GST was deducted, showing costs of $198,298.52.
Analysis and Conclusion
[12] The aforesaid agreement provided that the Province had agreed "to conditionally advance such funds" as were approved annually to Two Hills. Two Hills agreed to carry out the work in accordance with the described standard subject to certain conditions. It completed that work and submitted a Final Agreement Payment Claim Form describing its Total Invoice, which was obviously paid. In the full context of the agreement, the aforesaid sum was payable by the Province to Two Hills under that agreement.
2. Rural Roads Study Initiative Sponsorship Program
[13] The following two paragraphs of the ASF are applicable to each of the three Appellants herein:
21. The objective of the Rural Roads Study Initiative Sponsorship Program funding was to provide assistance to municipalities to prepare an inventory study of the rural municipalities' local roads, including its bridges in the municipality. Attached at tab 20 and forming part of this Agreed Statement of Facts are Alberta Municipal Affairs' Rural Roads Study Guidelines.
22. Under the Rural Roads Study Guidelines, the inventory study had to be conducted by a professional engineer and the municipality was required to submit an engineer's certification form by August 15, 2000. A copy of the completed Rural Roads Study Report had to be provided to Alberta Municipal Affairs by May 1, 2001. An Acknowledgement of Compliance Form certifying that the grant funding was used in accordance with the terms of the program was submitted to Alberta Municipal Affairs by the municipalities. The report is used by Alberta Infrastructure to decide on applications for grants. It is also used by municipalities to set priorities for projects.
[14] The general grant conditions contained in the Rural Road Study Guidelines provide that the grant application must be received by the Province by March 15, 2000, that none of the funds could be used to pay for work carried out before the Conditional Grant Agreement was signed by the Minister and that the work must be completed by March 31, 2001. Specifically,
The municipality must be prepared to enter into a Conditional Grant Agreement with the Province if the application is approved. The terms of the agreement will include the use of the grant for approved purposes only, the eligibility, reporting, accountability requirements, Minister's right to audit any project, and the Minister's right to require a refund of any grant funds not used in accordance with the agreement. Failure to comply with this agreement may result in the municipality having to repay the Grant.
The municipality must cover any additional cost if the project cost exceeds the grant amount.
Two Hills
[15] The ASF continues with paragraph 23 which reads:
23. Attached at tab 21 and forming part of this Agreed Statement of Facts is a letter from the Minister of Municipal Affairs to Two Hills advising that Two Hills was eligible for a grant of $40,000 under the Rural Roads Study Initiative. Attached at tab 22 and forming part of this Agreed Statement of Facts is a letter dated March 2, 2000 from Alberta Municipal Affairs advising that the Province of Alberta granted $40,000 to Two Hills under the Rural Roads Study Initiative. Two Hills has not been able to locate a copy of the signed conditional grant agreement.
[16] Paragraphs 24 and 25 of the ASF state that Two Hills engaged a contractor, and paid $40,270.55 to that contractor under this program in respect of which ITC's of $1,208.12 (net of the PSB rebate) are being claimed.
SpiritRiver
[17] The following paragraphs from the ASF are pertinent:
70. Spirit River made the application under the Rural Roads Study Sponsorship Initiative by way of the application form attached at tab 53 and forming part of this Agreed Statement of Facts. The conditional grant agreement made between Her Majesty The Queen in right of Alberta and Spirit River forms part of the application form.
71. Attached at tab 54 and forming part of this Agreed Statement of Facts is a letter from Alberta Municipal Affairs dated March 2, 2000 advising that the Province of Alberta granted $40,000 to Spirit River under the Road Study Initiative.
[18] Paragraphs 72 and 73 of the ASF provide that SpiritRiver engaged a contractor to complete the work and "made expenditures of $39,824.62 during the period in issue" and took the position that it was entitled to ITC's of $1,194.74 (net of the PSB rebate).
[19] Tab 53 includes the Rural Road Study Initiative Grant Application and Conditional Grant Agreement between the Province and SpiritRiver. The agreement recites that the Province had approved Spirit River's application and agreed to make a conditional grant to the municipality. The agreement then provides that the Province shall, subject to the provisions of the agreement, pay SpiritRiver a grant amount of $40,000 in order to carry out the specified work. It provides that the grant to the municipality would be made by lump sum payment within two weeks of the agreement being signed by the Minister. Spirit River agreed to carry out the work without material alteration, to hire a professional engineer to carry out the project, to complete it by March 31, 2001, to use the entire amount for the purpose of carrying out the project, to submit a copy of the professional engineer's report by May 1, 2001, et cetera. The agreement was signed in February, 2000.
Lethbridge
[20] The following paragraphs are quoted from the ASF:
137. Attached at tab 108 and forming part of this Agreed Statement of Facts is a letter from Alberta Infrastructure to Lethbridge advising that Lethbridge's grant of $9,999.17 under the Rural Roads Study Initiative was being processed.
138. Lethbridge made expenditures in the amount of $9,767.77 under the Rural Roads Study Initiative Sponsorship program and is claiming input tax credits of $293.03 (net of the PSB rebate).
[21] Tab 108 includes Rural Road Study Initiative Guidelines, the same as those in respect of Two Hills, and a Conditional Grant Agreement identical to that of Spirit River.
Analysis and Conclusion
[22] Although a signed Conditional Grant Agreement was not produced for Two Hills, it can be assumed that it was in the form described in the Guidelines. As set out above, those Guidelines stated that a municipality must be prepared to enter into a Conditional Grant Agreement with the Province if the application is approved. Copies of such an agreement for each of SpiritRiver and Lethbridge were produced.
[23] As described in the above Conditional Grant Agreement the amount paid by the Province to SpiritRiver was payable under this agreement upon SpiritRiver having fulfilled its contractual conditions. This conclusion applies also to Two Hills and Lethbridge.
3. Secondary Highways Partnership Program
[24] There are four agreements, one for Two Hills and three for Lethbridge, all with the Province under this Program. The Two Hills agreement and the Lethbridgeagreement at tab 107 are described as a Memorandum of Agreement between Alberta Infrastructure and County of Two Hills No. 21 and a Memorandum of Agreement between Alberta Infrastructure and County of Lethbridge No. 26. Each of those two agreements bears this endorsement on the cover page, namely:
Transition period before the Province assumes direction, control and management of all secondary roads in the municipality.
[25] With respect to the Two Hills and Lethbridgeagreements, the ASF informs us that:
26. Prior to April 1, 2000, secondary highways in the Province of Alberta were under the direction, control, and the management of the municipalities. Effective April 1, 2000 the Province of Alberta assumed direction, control and management of all secondary roads within municipalities in the Province. Effective April 1, 2000 the Province assumed financial responsibility for all secondary highways in the Province, including maintenance and construction. Until such time as the Province was able to coordinate the actual delivery of maintenance activities, the Province made transition payments to the municipalities. Transition payments were paid at a per kilometer rate varying from $3,000 per kilometer per year to $10,000 per kilometer per year depending on the width of the road.
27. The Province of Alberta and Two Hills entered into a memorandum of agreement for the transition period before the Province assumed direction, control and the management of all secondary roads in Two Hills. Attached at tab 24 and forming part of this Agreed Statement of Facts is the Memorandum of Agreement between Alberta Infrastructure and Two Hills for Transition Period before the Province Assumes Direction, Control and Management of all Secondary Roads in the Municipality, February 11, 2000.
(emphasis added)
28. Two Hills made expenditures in the amount of $45,350.72 under the Secondary Highways Transition Agreement in respect of which input tax credits (net of the PSB rebate) of $1,853.44 were claimed. Two Hills' position now is that it is only entitled to input tax credits of $1,271.60.
[26] Respecting the aforesaid Lethbridgeagreement, paragraphs 134 and 135 of the ASF read as follows:
134. The Province of Alberta and Lethbridge entered into a memorandum of agreement for the transition period before the Province assumed direction, control and the management of all secondary roads in Lethbridge. Attached at tab 107 and forming part of this Agreed Statement of Facts is the Memorandum of Agreement between Alberta Infrastructure and Lethbridge for Transition Period before the Province Assumes Direction, Control and Management of all Secondary Roads in the Municipality, February 11, 2000.
(emphasis added)
135. Lethbridge made expenditures in the amount of $477,254.06 under the Secondary Highways Transition Agreement in respect of which input tax credits of $14,412 were claimed (net of the PSB rebate). Lethbridge now takes the position that it is only entitled to claim input tax credits of $14, 317.62 (net of the PSB rebate).
[27] The relevant wording of the aforesaid two agreements follows:
3. The Municipality shall maintain and continue the current level of maintenance and management practices, including, without limitation, the maintenance of road surface, bridge structures rights-of-way, traffic control devices, and lighting facilities, provision of first response emergency service, policing and enforcement, and management of roadside development, access and speed limits, for all secondary roads within its boundaries during the Transition Period.
4. ... the Minister shall pay the Municipality an equivalent amount of $3,100 per year per kilometre of secondary roads in the Municipality, as full compensation for the administration and provision of the said services. The said amount also includes a fee for administrative services provided to the Minister by the Municipality.
(emphasis added)
A clause in each of those agreements provides that the actual adjusted payment amount and payment schedule are shown in Schedule "A" attached to the agreement. The schedule in respect of the Two Hills agreement shows:
Total Owing from Alberta Infrastructure: $1,011,685
and
Total Paid by Alberta Infrastructure: $1,011,685
A similar schedule appears in the Lethbridgeagreement showing a "Total payable by Alberta Infrastructure" of $1,304,420 and the same amount is described as "Total paid by Alberta Infrastructure."
[28] In the Lethbridgeagreement dated June 17, 1997, between Alberta Transportation and Utilities and Lethbridge respecting Secondary Highway 520, the ASF says:
127. Attached at tab 102 and forming part of this Agreed Statement of Facts is the Memorandum of Agreement dated June 17, 1997 between Alberta Transportation and Utilities and Lethbridge in respect of the construction of Secondary Highway 520-06 ...
128. Attached at tab 103 and forming part of this Agreed Statement of Facts is correspondence dated January 28, 1999 from Lethbridge to Alberta Transportation and Utilities enclosing project completion reports in respect of the grading construction of 3.93 kilometers of Secondary Highway 520.
129. Attached at tab 104 and forming part of this Agreed Statement of Facts is correspondence dated October 26, 1999 from Lethbridge to Alberta Transportation and Utilities enclosing project completion reports in respect of the grading construction of 4.86 kilometers of Secondary Highway 520.
[29] Portions of that agreement read as follows:
Ownership of the said Secondary Highway520 is vested in the Crown in right of Alberta; and
Under Section 12 of the Public Highways Development Act, the Minister may enter into an agreement with a rural municipality for the construction of secondary highways within its boundaries; ...
In consideration of the terms and conditions specified in this document the parties agree as follows:
1. The Municipality shall undertake the construction of Regrading Secondary Highway520 ... in accordance with the detailed plans and specifications as approved by the Minister.
2. The Parties agree that the project is estimated to cost FIVE HUNDRED EIGHTY FOUR THOUSAND DOLLARS ($584,000.00), as shown in the Schedule of Costs, ... attached to this document and forming part of this Agreement: and that the Municipality will receive credit for this project towards the Secondary Highways Partnership Program.
...
8. The Parties agree to give this Agreement a fair and liberal interpretation and to negotiate with fairness and candour, any modification or alteration that may be rendered necessary by changing conditions.
[30] The agreement further provides that the Minister had the right to inspect the work and records of the municipality and that the municipality would use competent engineering consultants and, among other similar covenants, complete the work by a specified date.
[31] A letter dated February 10, 1997 from Lethbridgeto the Province states that:
... the County will be requesting credit for those costs incurred outside the contribution of the Alberta Government to that program.
[33] A letter of February 2, 1999 to Lethbridgefrom the Province reads, in part:
Approval to grant credit for regrading completed in 1998 and the county's offer to fund additional regrading in 1999 will require an amendment to Agreement PMB 022/97.
Please sign and return the attached amendment to this office. Following execution of this amendment the County will receive a credit of $80,000 per kilometre for the 3.9 kilometres completed in 1998. A contribution of $314,400 will be shown on the Secondary Highway Partnership Program Investment Ledger for 1998.
Attached to that was an amendment to the former agreement increasing the estimated cost to $729,600.00. It reads, in part:
... that the Municipality will receive credit for this project towards the Secondary Highways Partnership Program.
[34] Copy of a letter found in the Book of Exhibits dated January 28, 1999to the Province from Lethbridgereads, in part, as follows:
The County of Lethbridge, with engineering assistance from Torchinsky Engineering Ltd., completed the grading construction on 3.93 kms. of S.H. 520:06. Torchinsky Engineering reports are enclosed.
The construction was done utilizing County labour and equipment. Credit for the work based on your standard formula would be greatly appreciated.
Thank you for your continued assistance in this important aspect of the County's transportation infrastructure.
[35] A letter from Torchinsky Engineering Ltd. dated January 18, 1999 to Lethbridgeincludes the following paragraph:
Please find enclosed two copies of the project shut down report for S.H. 520:06, 1998 construction. Forward one copy to Alberta Transportation and Utilities as they require this information to apply credit on the Secondary Highway Partnership Program, the other copy is for your files.
[36] The ASF with respect to the Lethbridgeagreement dated August 28, 1998 reads as follows:
127. Attached at tab 105 and forming part of this Agreed Statement of Facts is the Memorandum of Agreement dated August 28, 1998 between Alberta Transportation and Utilities and Lethbridge in respect of the construction of Secondary Highway 843:02 from south of Picture Butte to south the south Town limits of Picture Butte, a distance of 1.90 kilometers.
128. Attached at tab 106 and forming part of this Agreed Statement of Facts is correspondence dated January 26, 1999 from Lethbridge to Alberta Transportation & Utilities enclosing the final report on the construction of Secondary Highway 843.
[37] The above agreement contains the same terms as the June 17, 1997 Lethbridgeagreement respecting section 12 of the Public Highways Development Act and the municipality's undertaking to construct upon written approval from the Minister. Then, clause 3 of the agreement reads:
The Minister agrees to pay the cost incurred by the Municipality for this work to a maximum of TWO HUNDRED TEN THOUSAND FOUR HUNDRED ELEVEN DOLLARS ($210,411.00) as shown in the Schedule of Costs, ... attached to this document and forming part of this Agreement. ...
The rest of the agreement includes standard clauses respecting the Minister's right of inspection and the municipality's proper use of engineering consultants, et cetera.
[38] A letter dated March 12, 1998 from the Province to Lethbridge(written months before the agreement was signed) reads, in part, as follows:
I am pleased to advise your council that government funding will be provided under the Secondary Highway Partnership Program for the paving of Secondary Highway 843 from south of Picture Butte to Picture Butte.
(emphasis added)
[39] The Book of Exhibits includes a letter of January 26, 1999 from Lethbridgeto the Province enclosing Invoice #9801 in the amount of $287,934.13. The ASF contains a summary reading as follows:
132. Lethbridge made expenditures in the amount of $391,182.76 under the Secondary Highways Partnership Program. Lethbridge originally claimed input tax credits in respect of this program under the Resource Road/New Industry Program and Resource Roads Improvement Program. Lethbridge now takes the position that it is entitled to input tax credits of $11,446.94 (net of the PSB rebate) under this program.[2]
Analysis and Conclusion
[40] Respondent's counsel, by written submission, stated:
With respect to the Secondary Highways Transition Agreement funding, the Respondent accepts that the grant funding was consideration for a supply. In April 2000, the Province took over direction, control and management of secondary highways. The Province also assumed financial responsibility for secondary highways. Therefore, when the municipalities carried out road projects, they were doing it for the Province's benefit. The Province received something in return for the transfer payments.
(emphasis added)
[41] With respect to the June 17, 1997 Lethbridge agreement, the agreement is clear that in consideration of the terms and conditions specified in the agreement, Lethbridgewould:
... undertake the construction of Regrading Secondary Highway520 ... in accordance with the detailed plans and specifications as approved by the Minister.
It also provides that:
The Parties agree that the project is estimated to cost FIVE HUNDRED EIGHTY FOUR THOUSAND DOLLARS ($584,000.00), as shown in the Schedule of Costs, ... attached to this document and forming part of this Agreement: and that the Municipality will receive credit for this project towards the Secondary Highways Partnership Program.
(emphasis added)
The same wording applied to an amending agreement. The amount set out therein was payable by the Province to Lethbridge.
[42] Respecting the August 28, 1998 Lethbridge agreement, the Province expressly agrees to pay the cost incurred by the municipality for specified work to a maximum amount as shown on the Schedule of Costs attached to and forming part of that agreement.
[43] The June 17, 1997 and August 28, 1998 Lethbridgeagreements resulted in amounts being payable by the Province to Lethbridge.
4. Rural Transportation Grant Program
[44] There are ten agreements respecting this program. Seven of these are virtually identical and the other different group of three are virtually identical. Accordingly, I will set forth comments on a representative agreement with respect to each of those groups. Before referring to those agreements, the ASF sets forth the following material respecting this program:
30. The Rural Transportation Grant Program ("RTG") allows municipalities to increase the safety of their local infrastructures for the traveling public. The objective of the RTG is to assist municipalities by providing grants for improvement to their local road systems. Under this program, the municipalities were required to provide to Alberta Infrastructure, for its review and approval, a listing of proposed work for the upcoming year, generally on or before April 1 of the upcoming year. Upon review of the listing of proposed work, Alberta Infrastructure advised the municipality of the grant allocation. The grant allocation was based on a formula incorporating population, kilometers of open road and equalized assessment and terrain of roads. Municipalities provided a Statement of Expenditure to the Province of Albertaat the end of each year. The grant funding only paid for a portion of the project costs. The remainder of the costs were paid for with municipal tax funding. Alberta Transportation provides an overview of the Program on its website. Attached at tab 25 and forming part of this Agreed Statement of Facts is the program description for 2004-5. For purposes of this appeal, the parties agree that, even though the attached program description is for 2004-5, there are no material differences in the program description in respect of the periods in issue.
Two Hills
31. Two Hills and the Province of Alberta entered into a number of agreements regarding the RTG in respect of the period in issue. Attached at tabs 26, 27 and 28 and forming part of this Agreed Statement of Facts are the Memorandum of Agreement for Payment of Rural Transportation Grant between Her Majesty the Queen and Two Hills, dated May 12, 1997; the Memorandum of Agreement for Payment of Rural Transportation Grant between Her Majesty the Queen and Two Hills, dated February 23, 1998; and the Memorandum of Agreement between Alberta Transportation and Utilities and Two Hills for the Rural Transportation Grant, dated May 6, 1999.
44. Two Hills made expenditures during the period in issue in respect of the RTG in the amount of $2,887,707.64 in respect of which input tax credits of $106,627.06 were claimed (net of the PSB rebate). Two Hills now takes the position that it is only entitled to input tax credits of $80,824.07.
1997/1998 Fiscal Year
[45] In addition to the material quoted above I shall set forth a summary of other documents concerning Two Hills. A letter of April 14, 1997from the Province to Two Hills says, in part:
I am pleased to advise that the 1997/1998 Rural Transportation Grant allocation to the County of Two Hills No. 21 will be $367,117.
As in past years, once you have identified your projects and signed the trust agreement, an initial advance of 50 percent of the total allocation will be forwarded. Upon completion of your projects and the submission of a summary statement of costs to me, the remainder of the grant allocation will be processed.
Please execute both copies of the attached trust agreement and return them to me, along with the list of projects you intend to proceed with this year.
[46] A letter of May 7, 1997 to Rob Penny, the author of the above letter, apparently in response thereto, from Two Hills, reads:
Enclosed are two (2) signed Memorandum of Agreements for the 1997/98 Rural Transportation Grant.
It also includes a list of projects approved by Two Hills to be undertaken by it.
[47] A letter of May 12, 1997from Rob Penny encloses Two Hills' copy of the "finalized Rural Transportation Grant agreement." It also states that the sum of $183,559 was currently being processed by the Province for Two Hills. It was described as representing a fifty percent trust advance of the 1997/98 Rural Transportation Grant. The letter advises Two Hills, upon completion of the specified work, to forward a certified statement of costs to the Province:
... in order that the balance of the grant may be processed for payment.
[48] A letter of January 22, 1998 from Two Hills to the Province sets forth the construction cost and gravel cost of projects, copies of engineering invoices, copies of invoices for dust control oil and truck haul and total cost of trucks and cost of gravel. The total of these components is $1,640,060. The letter ends with the following paragraph:
Your early and favorable [sic] consideration provided to this claim is hereby acknowledged.
1998/1999 Fiscal Year
[49] A letter dated February 13, 1998 to Two Hills from the Province, reads in part as follows:
I am pleased to advise that the 1998/99 regular Rural Transportation Grant (RTG) allocation to the County of Two Hills No. 21 will be $367,117.00.
As in past years, an initial advance of 50 percent of the total RTG allocation will be forwarded early in the year. Upon completion of your projects and the submission of a summary statement of costs to my attention, the remainder of the grant allocation will be processed.
I am also pleased to advise that the Government of Alberta will be providing supplementary funding of $533,504.00 to assist with transportation infrastructure, within your municipality and will be advanced early in the year. This one-time-only financial assistance is intended to provide additional support for your roadway infrastructure, recognizing the increase of heavy traffic on municipal roads. This supplementary funding is subject to the same reporting/eligibility criteria as the regular RTG allocation.
The letter then asks Two Hills to execute both copies of the attached trust agreement and return them to Rob Penny, the author of the letter.
[50] A letter of February 17, 1998 from Two Hills to the Province, to the attention of Rob Penny, encloses two signed Memorandum of Agreements for the 1998/99 Rural Transportation Grant. It then outlines the projects to be undertaken in 1998, "with fund utilization from the grant in question". It states that on completion of all such projects Two Hills would submit a final statement of costs to the Province. It also states that Two Hills looks forward to receiving fifty percent of the total (amount being $450,310.50) early in that fiscal year.
[51] A letter of January 22, 1999to the Province, to the attention of Rob Penny, sets forth the total cost of the project, enclosing invoices in a total amount of $1,209,112.00. This was described by Two Hills as a "final claim".
1999/2000 Fiscal Year
[52] A letter of May 12, 1999 from Rob Penny to Two Hills acknowledges the receipt of signed copies of the Rural Transportation Grant agreement, being the May 6, 1999agreement referred to above, and a summary of 1999 planned projects. It encloses Two Hills' copy of that agreement. It also advises that the sum of $563,431.00 was currently being processed for Two Hills, this amount representing the total regular grant amount of $367,117.00 and the total Premier's Task Force Injection amount of $196,314.00. It asks, upon completion of the work, for a certified statement of costs.
[53] A letter of February 24, 2000 to Rob Penny from Two Hills includes a statement of expenditures for 1999. A letter of February 12, 2001to Rob Penny from Two Hills advises of and includes a statement of expenditures for 2000.
Spirit River
[54] The ASFalso contains these paragraphs:
75. Spirit River and the Province of Albertaentered into a number of agreements regarding the RTG in respect of the period in issue. Attached at tabs 55, 56 and 57 and forming part of this Agreed Statement of Facts are the Memorandum of Agreement for Payment of Rural Transportation Grant between Her Majesty the Queen and Spirit River, dated March 19, 1998 the Memorandum of Agreement for Payment of Rural Transportation Grant between Her Majesty the Queen and Spirit River, dated November 5, 1998; and the Memorandum of Agreement between Alberta Transportation and Utilities and Spirit River for the Rural Transportation Grant, dated June 25, 1999.
...
89. Spirit River made expenditures of $1,535,070.33 during the period in issue in respect of the RTG in respect of which input tax credits of $51,689 were claimed. Spirit River now takes the position that it is only entitled to input tax credits of $46,052.11 (net of the PSB rebate).
[55] There are thirteen letters, tabs 58 to 70 inclusive, between the Province and Spirit River, the content and import of which is substantially identical, but for figures, to letters described above respecting Two Hills.
Lethbridge
[56] The ASFcontains these further paragraphs:
98. Lethbridge and the Province of Alberta entered into a number of agreements regarding the RTG in respect of the period in issue. Attached at tabs 71, 72 and 73 and forming part of this Agreed Statement of Facts are the Memorandum of Agreement for Payment of Rural Transportation Grant between Her Majesty the Queen and Lethbridge, dated July 7, 1997; the Memorandum of Agreement for Payment of Rural Transportation Grant between Her Majesty the Queen and Lethnridge, dated March 3, 1998; the Memorandum of Agreement for Payment of Rural Transportation Grant between Her Majesty the Queen and Lethbridge, dated November 9, 1998; and the Memorandum of Agreement between Alberta Transportation and Utilities and Lethbridge for the Rural Transportation Grant, dated July 2, 1999.
...
116. Lethbridge made expenditures in the amount of $3,776,130 under the RTG program in respect of which input tax credits were claimed (net of the PSB rebate). Lethbridge now takes the position that it is entitled to input tax credits of $113,282,90 (net of the PSB rebate) in respect of the RTG program.
[57] There are eighteen letters, tabs 75 to 92 inclusive, between the Province and Lethbridge, the content and import of which is substantially identical, but for figures, to letters described above respecting Two Hills and SpiritRiver.
The Seven Agreements for 1997/1998 and 1998/1999 Fiscal Years
[58] Of the first seven agreements, two are between the Province and Two Hills, two between the Province and Spirit Riverand three between the Province and Lethbridge. An agreement, representative of the seven agreements, dated May 12, 1997 between the Province and Two Hills contains a recital to the effect that the Province desires to grant to Two Hills funds necessary for projects under the program. It recites further that section 21 of the Public Highways Development Act authorizes the Province to enter into an agreement with any municipality for the construction of any street or road. Clause 2 of the agreement reads as follows:
The Province hereby undertakes and agrees to:
a) Issue an initial payment of 50 percent of the 1997/98 grant allocation, upon signing of this agreement by both parties and approval of the proposed projects by the Regional Director.
b) Issue a final payment of the remainder of the committed grant upon receipt of the final statement of costs.
[59] The municipality then agrees to "accept the funds granted by the Province" on certain conditions. These include it maintaining a separate account for the funds, carrying out the work in accordance with the appropriate rules and regulations, providing the Province, upon completion, with a statement and summary report of the details of approved work, et cetera. The municipality also agrees that any funds advanced in trust and not expended prior to March 31, 1998 would be returned to the Province.
[60] With respect to six of the agreements in the group of seven, a letter in each case advises of the amount of the grant allocation and states that upon identification of projects and a signed trust agreement, an initial advance of fifty percent of the total allocation would be forwarded. These letters then provide that upon completion of the projects and the submission of summary statements of costs the remainder of the grant allocation would be processed. It appears, from an examination of the seventh agreement, that a letter probably existed but was not attached to the agreement.
The Three Agreements for 1999/2000 Fiscal Year
[61] An agreement made as of May 6, 1999 between the Province and Two Hills, being representative of the three remaining identical agreements, contains a recital that under section 21 of the Public Highways Development Act, the Province "may enter into an agreement with any ... Municipality for the construction of any street or road that is subject to its direction, control and management." It further includes a recital that the Province desires to "conditionally grant to the Municipality funds necessary for projects approved under the Rural Transportation Grant Program". The agreement then reads:
WHEREAS, the Province has agreed to conditionally advance such funds, as approved annually, to the Municipality upon:
a) Legislature approval of the required Rural Transportation Grant budget contained within the Province's annual budget; and
b) Review and approval by the Province of the Municipality's annual program of eligible projects; and
c) Commencing in 2000, receipt and acceptance by the province of the municipalities [sic] previous year's Statement of Expenditures pertaining to the Rural Transportation Grant, including certification of the financial statement by an appropriate municipal official.
...
[62] The Municipality agrees:
... to accept the funds granted by the Province
on certain terms and conditions. These include its covenant to provide annually to the Province a list of proposed work for the year, maintaining a separate accounting for funds advanced, investing such funds appropriately, returning funds advanced in trust and not expended prior to the fiscal year, allowing the Province to inspect cost records and work, et cetera.
[63] Another provision in the above May 6, 1999 agreement refers to "Administrative Guidelines" which are described as being attached as Appendix "A". Although they were not forwarded with the above agreement, such guidelines are included with the other two agreements namely, the agreement of June 25, 1999 between the Province and Spirit Riverand the agreement of July 2, 1999 between the Province and Lethbridge. They provide that following the approval of the Province's annual budget for the Rural Transportation Grant and following acceptance of the municipality's outline of proposed work for new grant funds and previous year's statement, the municipality's grant allocation for the current year would be forwarded to the municipality. The agreement also provides that the Administrative Guidelines:
... may be amended from time to time by the Province without altering the intent of the agreement.
Analysis and Conclusion
[64] The agreement, representative of the above described seven agreements, provides specifically that the Province undertake and agree to issue an initial payment of fifty percent of a grant allocation upon the signing of the agreement and approval of the Regional Director and also to issue a final payment of the remainder of the committed grant upon receipt of the final Statement of Costs. Regarding a letter that I described as having probably existed but not having been produced, it is my view that its absence is inconsequential. It is assumed that, in that agreement, as in the other six agreements, the Province agreed to pay Lethbridgea certain sum for services performed. Each agreement constituted a contract under which the specified amount was payable by the Province to Lethbridgeon completion of work.
[65] The agreement representative of the three agreements described above recites that under section 21 of the Public Highways Development Act, the Province "may enter into an agreement with any ... Municipality for the construction of any street or road that is subject to its direction, control and management." That Act uses the same words, "may enter into an agreement". Clause 1 of the agreement states that the preamble is incorporated as an integral part of the agreement. That preamble obviously is the series of recitals one of which says that:
... The Province has agreed to conditionally advance such funds, as approved annually, to the Municipality ...
This is said to be upon Legislature approval combined with the Province's annual budget and on approval by the Province of the municipality's proposed program. It is difficult and, perhaps, unnecessary to attempt to analyze the import of clause 1. In any event, there is no covenant in this document for the Province to pay any amount to a municipality. Although clause 2(a) refers to the "Administrative Guidelines", these are not incorporated as part of the agreement. The agreement provides that they may be amended from time to time by the Province "without altering the intent of this agreement". It also states that the municipality "hereby agrees to accept the funds granted by the Province ...". As set out above, there are a number of terms and conditions imposed upon the municipality (which includes all three Appellants).
[66] The agreement also includes these two provisions:
The parties agree to give this Agreement a fair and liberal interpretation and when required, to negotiate with fairness and candor, any modification or alteration hereof for the purpose of carrying out the intent of this Agreement and of rectifying any omission in any of these provisions.
...
The Province may terminate this agreement at any time, consistent with the intent of the preamble of this agreement.
[67] However, the import of this agreement, combined with the series of letters respecting each of the three Appellants, is an obligation on the part of the Province to pay each Appellant for services performed. The amounts expended by the municipalities are set forth in each case and the amount paid by the Province to each of the Appellants is set forth in each case. My conclusion with respect thereto is that the amounts received by the Appellants were payable to them by the Province.
5. Canada-Alberta Infrastructure Program
[68] This involves SpiritRiver only. The ASF contains four paragraphs respecting the program. They read as follows:
53. The Canada Agri-Infrastructure Program ("CAIP") is a partnership involving federal, provincial and municipal governments. Under CAIP, the federal government and provincial government each contribute one-third (1/3) of the project costs to the municipality. The purpose of CAIP is to improve the agricultural infrastructure in Alberta. Attached at tab 39 and forming part of this Agreed Statement of Facts is a description of CAIP.
54. Spirit River entered into a contribution agreement with the Province of Alberta in respect of CAIP on February 20, 1997. Attached at tab 40 and forming part of this Agreed Statement of Facts is a copy of the contribution agreement. Spirit River also entered into a contribution agreement with the Government of Canada in respect of CAIP on or about December 10, 1997. Attached at tab 41 and forming part of this Agreed Statement of Facts is a copy of the contribution agreement. Under CAIP, Spirit River undertook and completed activities in respect of Alberta Wheat Pool Road, a.k.a. Elevator Road, (hereinafter referred to as "Wheat Pool Road") and Ross Road. Attached at tab 42 and forming part of this Agreed Statement of Facts is an application form dated June 23, 1997 in respect of Spirit River's application for funding for the Ross Road upgrade.
55. Attached at tab 43 and forming part of this Agreed Statement of Facts is the Municipal Project Final Report.
56. Spirit River made expenditures of approximately $794,667 in respect of activities undertaken and completed under CAIP in respect of which input tax credits of $30,102 were claimed. Spirit River now takes the position that it is only entitled to input tax credits of $23,840.
The CAIP is described in tab 39 as:
... a two year federally funded initiative to invest in road infrastructure.
The tab then sets out what projects may be supported.
[69] Tab 40 is entitled Contribution Agreement - 1997 and is dated the 20th day of February, 1997. It is between the Province and SpiritRiver. It states that the agreement entitles Spirit River to a maximum combined federal/provincial contribution of $21,793.32 under the CAIP agreement (attached as Appendix I). Such agreement was not presented in the materials filed in evidence. It states further that funding for the projects:
... will be disbursed to the applicant in accordance with:
1) the Canada-Alberta Infrastructure Program Agreement and its amendments;
2) the Program Guidelines issued by the Ministry to all local governments on February 7, 1997;
3) any information or interpretive bulletins issued by the Management Committee established for the Canada-Alberta Infrastructure Program Agreement.
The documents described in numbers 1) and 3) were not enclosed.
[70] The only paragraph in that agreement relating to consideration reads as follows:
4. Alberta may terminate this Contribution Agreement by giving the Applicant seven days notice in writing. All funds received by the Applicant prior to termination must be returned to the Provincial Treasurer on demand, except for the amount required to complete projects by the Management Committee and commenced by the Applicant prior to the termination.
That agreement refers to the terms and conditions of the Canada-Alberta Infrastructure Program Agreement dated February 18, 1994. A copy of such was not presented. A document entitled Information and Guidelines presented with this agreement is simply that. It contains no covenants.
[71] Tab 41 includes the above described Canada Agri-Infrastructure Program (Alberta 1996-97) Contribution Agreement. This is an agreement dated December 10, 1997 between the Government of Canada ("Canada") and SpiritRiver. A recital refers to the fact that Spirit Riverhad applied to Canadafor financial assistance under the Canada Agri-Infrastructure Program (Alberta 1996-97) Agreement. A second recital reads as follows:
AND WHEREAS the Project outlined above has been approved by the Management Committee of the CAIP Agreement at an estimated cost of Three Hundred thousand one hundred fifty eight dollars ($300,158.00), the approval of which is attached as Appendix "B" to this Contribution Agreement;
In the body of the agreement Canada agrees, subject to completion of the project to Canada's satisfaction, to pay to the Applicant:
... a financial contribution of sixty six and two thirds percent (66 2/3%) of the approved Project Costs for phase one of the Project as described above and payable by Canada to a maximum of Two Hundred thousand one hundred and Five dollars ($200,105.00). ... Should any disagreement arise as to the deemed shareable cost, if any, Canada's decision pertaining to deemed shareable costs will be final and conclusive.
Canadaalso agrees to pay the contribution referred to on the basis of invoices or proof of payment setting out expenditures actually incurred and/or paid by Spirit River.
[72] The amount contributed by Canadatowards the project will not vest in Canada any proprietary interest in the project nor does Canadaby this Contribution Agreement assume any management, operation, maintenance or control of the project.
Analysis and Conclusion
[73] The Contribution Agreement, being tab 40 between the Province and Spirit River, does not contain an obligation on the part of the Province to pay the Appellant. Accordingly, there is no amount payable to Spirit River.
[74] Appellants' counsel, by written submission, wrote that:
55. It is SpiritRiver's position that section 7 of AR 216/87 ensures that the amount received under the grant is spent for the purposes specified in the agreement. Section 9 provides the Minister with audit powers to ensure that the grant is spent for those purposes. As such, there is a direct link between the supply and the consideration.
Section 7(1) of Alberta Regulation 216/87 reads as follows:
7(1) A recipient of a grant shall use the grant only
(a) only for the purpose for which the application for the grant was made, or
(b) if the original application for a grant or the purposes for which the grant is made have been varied by the Minister and the applicant for a grant, for the very purpose only.
Appellants' counsel made no other submissions with respect to the Agreement with the Province. For reasons which I shall set forth below, I do not find the concept of "direct link" applicable. No amount is payable by the Province to Spirit River.
[75] Under the Canada Agri-Infrastructure Program (Alberta 1996-97) Contribution Agreement, no amount is payable by the Province to Spirit River.
6. Resource Road/New Industry Program
[76] Under this program there are six agreements: one for Two Hills, one for Spirit Riverand four for Lethbridge. The ASF with respect to this program, reads as follows:
11. The Resource Road/New Industry Program was available to municipalities in the Province of Alberta. The purpose of the Resource Road/New Program was to provide funding assistance to local authorities for the movement of goods and people associated with new or expanded, value-added processing facilities, resource and other industries, intensified farming operations or high throughput grain elevators. The program applied to local roads and bridges, including intersection improvements to primary and secondary highways.
12. Funding under the Resource Road/New Program was provided on a project basis. The funding was provided to make up for the inability of municipalities to levy taxes on carriers or industries not located within their jurisdiction.
13. Two Hills entered into a Memorandum of Agreement with Alberta Infrastructure under the Resource Road/New Industry Program for the Highland Feeders Access Road on March 14, 2001. Attached to tab 4 and forming part of this Agreed Statement of Facts is a copy of the Memorandum of Agreement. The Province of Alberta funded the project to the extent of the lesser of 75% of the actual shareable costs and $740,940.31.
14. Two Hills made expenditures in the amount of $245,615.93 under the Resource Road/New Industry Program in respect of which input tax credits (net of the PSB rebate) of $7,392.29 were claimed. Two Hills' position now is that it is only entitled to input tax reedits of $7,368.94.
...
58. Spirit River entered into a Memorandum of Agreement with Alberta Infrastructure under the Resource Road/New Industry Program for the Elevator Roads Upgrade Project on October 7, 1999. Attached at tab 44 and forming part of this Agreed Statement of Facts is a copy of the Memorandum of Agreement. Under the agreement, Spirit River undertook and completed the construction of the Elevator Roads Upgrade Project as described in the Memorandum of Agreement.
59. Spirit River undertook the activities under the Memorandum of Agreement and provided Alberta Infrastructure with an accounting. Alberta Infrastructure accepted this accounting as described in a letter to Spirit River attached at tab 45 and forming part of this Agreed Statement of Facts.
...
60. Spirit River made expenditures in the amount of $763,281.67 under the Resource Road/New Industry Program in respect of which input tax credits of $22,819 (net of the PSB rebate) were claimed. Spirit River now takes the position that it is entitled to input tax credits of $22,898.45.
118. Attached at tab 93 and forming part of this Agreed Statement of Facts is an application made by Lethbridge under the Resource Road/New Industry Program in respect of South Readymade Road.
119. Lethbridge entered into a Memorandum of Agreement with Alberta Transportation and Utilities under the Resource Roads Improvement Program for South Readymade Road on March 19, 1997. Attached at tab 94 and forming part of this Agreed Statement of Facts is a copy of the Memorandum of Agreement. Under the agreement, Lethbridge undertook grading, base course and paving of South Readymade Road.
120. Lethbridge entered into a Memorandum of Agreement with Alberta Transportation and Utilities under the Resource Roads Improvement Program for Kedon Road on March 19, 1997. Attached at tab 95 and forming part of this Agreed Statement of Facts is a copy of the Memorandum of Agreement. The parties agree that references to South Readymade Road in clauses 8 and 9 are in error and ought to be references to Kedon Road. Under the agreement, Lethbridge undertook grading and graveling of Kedon Road.
121. By letter dated March 4, 1999 attached at tab 96 and forming part of this Agreed Statement of Facts, Lethbridge made an application under the Resource Road/New Industry Program in respect of Kedon Road. Attached at tab 97 and forming part of this Agreed Statement of Facts is the application made to Alberta Infrastructure. Attached at tab 98 and forming part of this Agreed Statement of Facts is further correspondence provided by Lethbridge to Alberta Transportation and Utilities regarding the application under the Resource Road/New Industry Program in respect of Kedon Road.
122. Lethbridge entered into a Memorandum of Agreement with Alberta Infrastructure under the Resource Road/New Industry Program for Kedon Road on September 20, 1999. Attached at tab 99 and forming part of this Agreed Statement of Facts is a copy of the Memorandum of Agreement.
123. By letter dated March 4, 1999 attached at tab 100 and forming part of this Agreed Statement of Facts, Lethbridge made an application under the Resource Road/New Industry Program in respect of Powerline road.
124. Lethbridge entered into a Memorandum of Agreement with Alberta Infrastructure under the Resource Roads/New Industry Program for Powerline Road on September 20, 1999. Attached at tab 101 and forming part of this Agreed Statement of Facts is a copy of the Memorandum of Agreement.
125. Lethbridge made expenditures in the amount of $2,067,562.01 under the Resource Road/New Industry Program in respect of which input tax credits of $72,278 were claimed (net of the PSB rebate). Lethbridge now takes the position that it is only entitled to claim input tax credits of $60,830.60 (net of the PSB rebate).
[77] Tab 4 is an agreement between the Province and Two Hills signed the 14th day of March, 2001. The pertinent portions of that agreement are:
The Municipality has proposed the grading and gravel surfacing of the Highland Feeders Access Road ...
Ownership of the said Highland Feeders Access Roadis vested in the Crown in right of Alberta...
Under Section 21 of the Public HighwayDevelopment Act, the Minister may enter into an agreement with an urban or rural municipality for the construction of any street or road, other than a highway, within the boundaries of [the] municipality.
In consideration of the terms and conditions specified in this document and the program guidelines for the Resource Road/New Industry Program attached and incorporated into this document as EXHIBIT "A" the parties agree as follows:
1. The municipality shall undertake the construction ...
2. The maximum contribution by the Minister will be limited to SIX HUNDRED NINETY ONE THOUSAND FIVE HUNDRED DOLLARS ($691,500.00) or SEVENTY FIVE (75) PERCENT of the actual shareable costs, whichever is less, as shown in the Schedule of Costs, ... attached ...;
3. The Minister may advance a portion or all of the funds specified in Clause No.2 in trust or provide payments upon submission of invoices submitted by the municipality based on actual expenditures incurred on the project.
5. The Municipality will accept the funds granted conditionally by the Minister on the following terms and conditions:
... maintain a separate accounting for costs ...;
... any funds on accrued interest unexpended on completion or termination of the Project, will be treated as an advance on the following year's Resource Road/New Industry Program or other transportation program as may be specified by the Minister.
The other standard covenants of the municipality are to provide the right of inspection of cost records and work, to provide competent engineering consultants, et cetera.
[78] The other agreements are virtually identical to the Two Hills agreement.
Analysis and Conclusion
[79] The Agreement, representative of all six agreements in this program, includes a covenant on the part of the Province to pay to each Appellant an amount in respect of services performed upon
... submission of invoices submitted by the municipality based on actual expenditures incurred on the project.
The amount thereof, accordingly, is an amount payable by the Province to the Appellants.
7. Bridge/Culvert Agreements Program
[80] The ASFcontains paragraphs pertaining to this program respecting all three Appellants as follows:
15. Under the Bridge/Culvert Agreements Program, the Department of Transportation and Utilities (later renamed Alberta Infrastructure) was permitted to provide financial assistance to municipalities for their bridge structures. Funding assistance was provided to municipalities to the extent that budgets approved by the Provincial legislature allowed. Attached at tab 5 and forming part of this Agreed Statement of Facts is Alberta Transportation's GAP-01 Funding Guidelines for Municipal Bridge Structures dated October 8, 1998.
16. The funding arrangements under the Bridge/Culvert Agreements were based on a cost shared arrangement whereby the Department reimbursed the municipalities for eligible bridge items on approved projects and the municipality paid for the remaining items. The Province did not reimburse any applicable GST. Generally, the Province of Alberta provided 75% of the funding.
Two Hills
[81] Relevant provisions from the ASF are as follows:
17. Two Hills entered into an agreement with Boutin Steel Erectors Ltd. on February 18, 1999 to undertake the projects authorized by Alberta Transportation and Utilities or Alberta Infrastructures [sic] under the Bridge/Culvert Agreements Program. Attached at tab 6 is the Agreement between Two Hills and Boutin Steel Erectors Ltd., which describes the work that was completed.
18. Two Hills obtained authorization from Alberta Infrastructure for various work completed on bridges as described in the following Bridge Authorization documents which are attached at the tabs indicated and form part of this Agreed Statement of Facts.
19. Regarding bridge inspections (documents at tabs 7 to 19), the funding was requested for the purposes of obtaining funding for engineering assessments in regards to the structure of the particular bridges. Based on a bridge plan prepared by Two Hills, the Province advised Two Hills as to which bridges the Province wanted inspected each year.
20. Two Hills made expenditures in the amount of $71,943.22 under the Bridge/Culverts [sic] Agreement Program in respect of which input tax credits (net of the PSB rebate) of $1,429.20 were claimed. Two Hills' position now is that it is only entitled to input tax credits of $1,229.05.
There are thirteen Bridge Authorization documents, identical but for numbers and project description. A representative Bridge Authorization contains a description of the bridge location and the following under the heading Instructions:
I am pleased to advise that funding is approved for the engineering design of the replacement structure, in accordance with the current guidelines.
When submitting invoices, we require the following information to process payments:
- invoice from municipalities excluding GST
- copy of all third party billing
- this original authorization complete with all pertinent information including dates and signatures
- copy of the design.
Funding limits must not be exceeded without prior approval from the Bridge Manager.
The document includes the Engineering Estimated Cost. The document then instructs the applicant to sign and return the "original yellow copy of this authorization when the work is completed." This document has been signed and is authorized and approved by two officials of the Province, namely, the Field Support Technologist and the Regional Director. No copies of invoices were submitted to the Court.
At the hearing, Appellants' counsel referred to the written submission and quoted therefrom as follows:
In the absence of a written agreement, as in the case of work completed in respect of bridges, the Appellants submit that there is nonetheless an agreement between the Province and the Appellants to carry out the work and to receive amounts from the Province in respect of the work. The Appellants submit that the agreement arises from the following ...
[82] Counsel then said:
First, the conduct of the parties, including the issuance of the bridge authorization documents, the fact that the appellants carried out and completed the bridge work, and the fact that the Province paid the amounts to the appellants upon completion of the bridge work.
... Two, the fact that the Province of Alberta is the owner of the bridges. ... The third point (quoted as read):
The fact that the funding guidelines for the municipal bridge structures provide that the Minister of the Department of Transportation and Utilities may provide assistance to the municipalities for their bridge structures to the extent that budgets approved by the provincial legislature allow.
Counsel then said that the guidelines required the projects to be approved by the Department. He added that the guidelines set out a number of requirements of the municipality including providing a "prioritized" list of projects for the Department's consideration, et cetera.
[83] After referring to the Payment Procedures from the guidelines, counsel said:
I say that that is the indication that there is an agreement between the appellants and the Province of Alberta under which the appellants will carry out the bridge work and the Province of Albertawill pay the amounts.
SpiritRiver
[84] The relevant ASF paragraphs are:
62. In 1997, Spirit River established a Proposed 3 Year Bridge/Culvert Replacement Priorities program, as described in the document dated November 14, 1997 attached at tab 46 and forming part of this Agreed Statement of Facts.
63. On January 18, 1999 Alberta Transportation and Utilities authorized Spirit River to undertake and complete certain activities on bridges in Spirit River under GAP-01 as described in the letter attached at tab 47 and forming part of this Agreed Statement of Facts.
64. On June 30, 1999 Alberta Transportation and Utilities authorized Spirit River to undertake and complete certain activities under GAP-01 funding as described in the letters attached at tabs 48 and 49 and forming part of this Agreed Statement of Facts.
65. On August 18, 2000 Alberta Infrastructure authorized Spirit River to undertake and complete certain activities under GAP-01 funding as described in the Culvert Authorization attached at tab 50 and forming part of this Agreed Statement of Facts.
66. On August 30, 2000 Alberta Infrastructure authorized Spirit River to undertake and complete certain activities under GAP-01 funding as described in the Bridge Authorization attached at tab 51 and forming part of this Agreed Statement of Facts.
67. On October 17, 2001 Alberta Infrastructure authorized Spirit River to undertake and complete certain activities under GAP-01 funding as described in the Bridge Authorization attached at tab 52 and forming part of this Agreed Statement of Facts.
68. Spirit River made expenditures in the amount of $1,245,700 in order to complete these activities under the Bridge/Culverts Agreement Program which are listed at paragraph 13(jj) of the Reply in respect of which input tax credits of $37,371 are being claimed (net of the PSB rebate).
The document referred to in paragraph 62 quoted above reads, in part:
For the 1998 construction year the Council is desirous of proceeding with the bridge replacement project for Bridge File No. 1162 as described in our correspondence ... and desirous of having the repair work required on Bridge No. 71053 scheduled as described in our correspondence of September 29th, 1997.
The document referred to in paragraph 63 quoted above is described as:
Proposed 3 Year Bridge/Culvert Replacement Priorities
It sets forth the location of a number of bridge/culvert requirements prepared by Mighty Piece Engineering Ltd. showing the cost of each such project and reads in part:
Please proceed with the engineering design on Bridge File 13988. We have tentatively scheduled these projects to be completed by your municipal district in 1999. Once our budget is set, we will be able to approve projects for construction. However, we would like the designs completed early to allow more time for construction.
The documents referred to in paragraph 64 include a letter from the Province to Spirit River stating that:
Funding will be provided by Alberta Infrastructure in accordance with the GAP-01 Guidelines.
Could you please fax any cost projections or tender results as you receive them ...
Another document referred to in that paragraph states, in part:
I am pleased to advise your council that government funding will be provided under the GAP 01 Guidelines, for the removal of two existing 2100 millimetre diameter culverts and replacement with a 5230 millimetre diameter culvert. ... The Municipal District of Spirit River will be responsible for their portion of funding under the GAP 01 Guidelines.
An agreement needs to be prepared between the department and the MD, which must be fully executed before any payments can be made. Please contact ... to make arrangements for the agreement and to discuss design, tender, award and payment processes.
The document referred to in paragraph 65 is entitled Culvert Authorizations. It describes the location and work done. It then sets out estimated cost of $285,000.00 and actual cost of $255,871.91. The document is authorized and signed by the Construction Manager and is approved and signed by the Regional Director on behalf of the Province.
The document referred to in paragraph 66 describes the subject bridge and work to be done with an estimated cost of $70,300.00. This document is shown as authorized by the Operations Manager and approved by the Regional Director of Alberta Infrastructure.
The document referred to in paragraph 67 describes the proposed structure and rehabilitation to an existing bridge and reads in part as follows:
All construction is to be carried out as per Alberta Transportation Standard Drawings and the current Specifications for Bridge Construction.
All Department funding will be provided according to the GAP-01 Guidelines and current Department standards.
Lethbridge
[85] The relevant paragraphs in the ASF are:
144. During the period in issue, Lethbridge undertook activities under the Bridge/Culvert Agreements Program, including:
(a) work as outlined in a letter attached at tab 109 and forming part of this Agreed Statement of Facts on bridge file 80272;
(b) work as outlined in a Bridge Work Order attached at tab 110 and forming part of this Agreed Statement of Facts on bridge file 80218;
(c) work as outlined in an invoice attached at tab 111 and forming part of this Agreed Statement of Facts and as outlined in a proposal letter from AGRA Torchinski Ltd. attached at tab 112 and forming part of this Agreed Statement of Facts on bridge file 80213;
(d) work as outlined in a letter attached at tab 113 and forming part of this Agreed Statement of Facts and in a letter attached at tab 114 and forming part of this Agreed Statement of Facts.
145. Lethbridge made expenditures in the amount of $222,813.98 under the Bridge/Culverts Agreement Program and is claiming input tax credits of $6,684.43 (net of the PSB rebate) in respect of this program
146. Lethbridge originally claimed additional input tax credits of $10,912 for miscellaneous engineering expenses. Lethbridgeis no longer claiming that it is entitled to these input tax credits.
(emphasis added)
The letter referred to as tab 109 in paragraph 144 above, from Lethbridgeto the Province states that the repair work cost $6,197.40 and encloses a copy of the contractor's invoice. The letter reads, in part:
Please consider this letter as your invoice for the repair work which was undertaken.
The Bridge Work Order referred to as tab 110 in paragraph 144 of the ASF sets forth the name of the contractor and estimated costs and actual invoiced costs. A copy of the invoice from the contractor was attached to that letter.
The invoice referred to in paragraph 144(c) as tab 111 was from Lethbridgeto the Province. The invoice shows a number of amounts and then the following notations:
LESS A.T. ADVANCE $65,000.00 -
LESS PREVIOUSLY INVOICED $ 6,072.50 -
showing a subtotal remaining of $13,619.50.
The letter referred to in paragraph 144(d) as tab 114 is a letter from the Province to Lethbridge setting out requirements for certain Canal Crossing Local Roads, part of which reads:
A culvert material order detailing culvert fabrication, acceptable corrugations and thicknesses is also enclosed for your use. This department would reimburse the county (upon receipt of invoices) for the purchase price of materials ... and provide a culvert installation contribution as per departmental schedule for the satisfactory installation of the pipes. In order to provide any funds and update our BIM system upon completion of the work, provide this office with as constructed information, photographs that document the quality and the different phases of construction.
Bridge Guidelines and Procedures
[86] The document entitled Alberta Transportation and Utilities Bridge Guidelines and Procedures sets forth GAP-01 Funding Guidelines For Municipal Bridge Structures which reads, in part, as follows:
The legislation permits the Minister of the Department of Transportation and Utilities to provide assistance to municipalities for their bridge structures. Therefore, the Department may provide funding assistance to municipalities to the extent that budgets approved by the Provincial Legislature allow.
This guideline outlines the funding which a Municipality may receive for their municipal bridge structures. The funding arrangements in these guidelines are based on a cost share arrangement whereby the Department will reimburse the Municipality for eligible bridge items on approved projects and the Municipality will pay for the remaining items, primarily the road related items but also including minor repair items.
The Department will prioritize the requests for funding from the municipalities on a regional and provincial basis and will provide funding in accordance with this guideline according to the priorities which are assigned.
[87] Under the section in the above guidelines, entitled "Funding Assistance Guidelines," items eligible for provincial funding are set forth. Another section provides that the municipality is responsible for certain specified costs. Another heading, namely Requirements, sets forth what a municipality must do to be eligible for funding on a project. It must provide a "prioritized" list of projects for consideration, undertake the work in accordance with engineering terms of reference, detailed plans and specifications approved by the Province and provide certain other specified information.
[88] The guidelines provide that the Province shall have the right to inspect cost records and work performed, et cetera. Under a heading, Payment Procedure, the following is set forth:
Costs incurred for this project will be based on the approved consultant rate schedule and for actual hours worked or disbursements made by the Consultant, contract unit bid prices and actual quantities utilized and other approved eligible items, to the maximum amounts to which the Department has agreed. ...
The Municipality agrees to provide written notice and advise the Department of anticipated costs in excess of the amounts agreed to by the Department immediately upon becoming aware of the potential cost increases. Cost over-runs above the amounts agreed to by the Department will only be accepted if approved by the Minister.
[89] The municipality, under such guidelines, is then required to receive and pay all progress and other billings and to submit its final invoice to the Province within 120 days of the scheduled completion date. Further:
... The Department, upon receipt of the billing from the Municipality, will remit funds to the Municipality equal to the amount of the billing, subject to the Department's review and approval of the billing.
Analysis and Conclusion
[90] There is no written agreement between the Province and any one of the three Appellants involved in this program. Appellants' counsel has not satisfied me that there is an implied or "tacit" agreement between the Province and any Appellant. I have concluded that no amount was payable by the Province to any Appellant. For reasons stated elsewhere, I have also concluded that the Appellants can enjoy no relief on the basis of a "direct link" advanced by Appellants' counsel.
GENERAL ANALYSIS AND CONCLUSIONS
[91] Any payments by the Province to the Appellants not expressly said to have been made are accepted by me as having been made, because of the contractual arrangement between the parties and because the Respondent has not challenged the fact that they have been paid.
[92] A restatement of the questions of law set forth in the application will be helpful here. Those questions are:
a. whether, in the context of each grant program, the Appellants have made a supply to the Province of Alberta;
b. whether the grant funding is consideration for that supply.
[93] Respecting the first question, the term "supply" is defined in the Act as follows:
"supply" means ... the provision of property or a service in any manner ...
[94] Section 1(1)(s) of the Municipal Government Act defines "municipality" to mean:
... a city, town, village, summer village, municipal district or specialized municipality.
Subsection 16(1) of that Act provides that:
The title to all roads in a municipality, other than a city, is vested in the Crown in right of Alberta.
The Appellants undertook and completed projects on roads and bridges owned by the Province. It is axiomatic that the provision of all property and services by the Appellants to the Province in so doing constituted a "supply".
[95] Respecting the second question, the definition of "consideration" is:
"consideration" includes any amount that is payable for a supply by operation of law
This definition, not being exclusive, includes any amount that would be consideration under common law. In Dunlop Pneumatic Tyre Co. Ltd. v. Selfridge & Co. Ltd. [1915] AC 847 at 855, HL, Lord Dunedin wrote:
I am content to adopt from a work of Sir Frederick Pollock ... the following words as to consideration:
An act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable.
[96] I have stated that amounts under five programs were payable by the Province to the Appellants. An amount is payable under a contract which makes payment of that amount enforceable. I have determined that where an amount was payable under any of those programs, that amount was payable under an agreement for a "supply". Such amount is, therefore, "consideration".
RESPONDENT'S SUBMISSIONS
[97] In her written submission, Respondent's counsel said that ITC's would only be available where a municipality made taxable supplies. It added that the road work projects were exempt under Schedule V of the Act because they were made for no consideration. I have dealt with this point. It then continues that the Appellants received "grants and subsidies, not consideration." It is not the name of the funds which is determinative of their character. It is, in fact, what happened. In five of the seven programs the Appellants provided a supply of services and property for consideration.
[98] The next submission made by the Respondent was that the municipalities did not make supplies of the road work projects but simply discharged the statutory obligation imposed upon them to maintain roads. Whether or not there was such a statutory obligation, the municipalities, in respect of five of the seven programs, made supplies of services and property to the Province. Respondent counsel's written submission states that:
The Respondent submits that grants are not generally treated as consideration for a supply. In order for transfer payments to be treated as consideration there must be a direct link between the payments and a supply.
The term "direct link" is taken from the Canada Customs and Revenue Agency ("Revenue") Technical Information Bulletin B-067 ("Bulletin"). It includes POLICY GUIDELINES which, are said, inter alia, to:
... help persons who provide or receive a transfer payment to determine whether or not the payment is directly linked to a supply of goods or services.
[99] The question of entitlement to ITC's is a matter of law, not Revenue policy. It is the meaning of the legislation that must be employed in determining the solution to a given problem. That legislation, in this case, includes a definition of "consideration". I make this statement with no disrespect for the Federal Court of Appeal's decision in Des Chênes (Commission scolaire) v. Canada, [2002] G.S.T.C. 11 (F.C.A.). That case arose in the Province of Quebecwhere the common law concept of consideration is not found in the Civil Code of Quebec or in that Province's jurisprudence.
[100] If the Bulletin presumes to explain the doctrine of "consideration" under the common law of contract it is in failing competition with a host of educated authors of books on that subject matter. The Bulletin dwells on the term "transfer payment". Any payment is a transfer of money or money's worth. When discussing the purpose of the "transfer payment", the Bulletin says that certain purposes strongly suggest that a payment is consideration. The test to be applied is not whether there is a "direct link". This rhapsodic venture into a mire of possibilities is foreign to the common law concept of contractual consideration. The test in this case is whether there was "consideration" as that term, both under the definition in the Act, and under common law, exists.
[101] The Respondent's brief states:
The grant funding was simply financial assistance used for the Appellants' own benefit, not consideration for a supply.
Counsel failed, in reaching this conclusion, to present to the Court an analysis of the extensive documentation, including agreements and a host of other documents, totalling some 114.
[102] Respondent's counsel then referred to exempt supplies including supplies made for no consideration and to ITC's not available to a person respecting exempt supplies. The matter of exempt supplies, apart from the aspect of consideration, was not before the Court and indeed may not come before the Court. Any determination of that matter is reserved, if required, for a subsequent hearing.
[103] A number of further submissions based upon the interpretation of the Bulletin have no force of law as the Bulletin is no foundation for legal submissions. This deals with all the Respondent's submissions respecting "linked", "direct link", and "direct link test", et cetera. The Bulletin states that it is intended to "help persons to determine whether or not the payment is directly linked to a supply of goods and services". It is suggested that it would have been easy for Revenue, had it conducted a detailed examination of the documentation, to have concluded, with reference to the Bulletin, that there was "consideration" in some of the programs.
[104] The Respondent also submits that:
The Province has no legal obligation to pay for road construction. The Province can, however, either share in the cost or contribute to the cost. This is up to the discretion of the Province.
The Province, in five of the above programs, entered into contracts with the Appellants for the undertaking and completion of projects and was obliged to pay determinable amounts of money thereunder.
[105] The Respondent's brief states that:
Further, there was no supply to the Province, as the municipalities were the ones that benefitted from the road construction due to the fact that direction, control and management of secondary highways was the responsibility of the municipalities and the municipalities were responsible for keeping roads in their jurisdiction in a reasonable state of repair. The municipalities were also the ones who benefitted from any increased municipal tax revenues associated with the new infrastructure. Further, no proprietary interest in the projects passed to the Province.
It is difficult to understand what led counsel to this conclusion since the Province owned the property on which all work was done. How could the municipalities be described as the only "ones" that benefitted from road construction? The owner, namely the Province, and all users would have benefitted from it.
[106] Respecting the second question, Respondent's counsel said that:
... In order for transfer payments to be treated as consideration there must be a direct link between the payments and a supply. In the present case the amount of the grants is not linked to the actual cost of the projects (the grants contribute to only a portion of the cost); in some cases (e.g. the rural transportation grant program) the amount of the grants was determined by a formula based on factors (e.g. population) that did not relate to the actual work being performed; the purpose of the payments was to provide assistance to municipalities and not for the Province to make a purchase; the payments were part of on-going programs of financial assistance and the payments were made by an organization which regularly provides funding rather than a commercial organization.
I have dealt with the concept of "direct link".
[107] The statement that the grants contribute only to a portion of the cost was obviously made without consideration of the elements of contract law.
Leake on Contracts[3], at page 440, informs us that:
The adequacy of the consideration, in point of value, as an equivalent for the promise is immaterial to the validity of a contract; the parties being at liberty to agree upon any consideration, provided it is one that the law can recognise (o). The consideration of giving up a document, purporting to be a guarantee, was held sufficient, though it was invalid as a guarantee, the Court saying that "the actual surrender of the possession of the paper to the defendant was a sufficient consideration, without reference to its contents"; and that they could not enquire into the motive of wanting the document (p). So the delivery up of a will, though the will was invalid (q); a licence to use a pretended patent right which was in fact invalid (r); the execution of indentures of apprenticeship which were void for not fully and truly setting forth the premium as required by statutes (s); a licence by a highway authority to open the soil of a road, though such authority has no property in the soil or right to open it (t); have all been held to be a sufficient consideration for a promise.
Indeed, the classic example of minimal consideration being sufficient consideration for an enforceable contract, is a peppercorn.
[108] A present day affirmation of the foregoing is found in the 29th edition of Chitty on Contracts[4], Volume 1 at 224, namely:
Under the doctrine of consideration, a promise has no contractual force unless some value has been given for it. But as a general rule the courts do not concern themselves with the question whether "adequate" value has been given, or whether the agreement is harsh or one-sided. The fact that a person pays "too much" or "too little" for a thing may be evidence of fraud or mistake, or it may induce the court to imply a term as to the quality of the subject-matter or be relevant to the question whether a contract has been frustrated. But it does not of itself affect the validity of the contract, so that (for example) a promise by a local authority to make "irrational generous" redeployment payments to certain employees has been enforced.
The present rule is subject to a number of exceptions discussed elsewhere in this book. These indicate that the courts are (even where the legislature has not intervened) by no means insensitive to the problems raised by unequal or unfair bargains; but in none of them is a promise held invalid merely because adequate value for it has not been given.
[109] A number of Court decisions have been reported dealing with "supply" and "consideration" under the Act[5]. These cases have been of no assistance in this analysis. Further, I chose to analyze and apply the law to the given fact situations without regard to the Bulletin.
[110] The main issue in the three appeals is whether the Appellant, in each case, is entitled to the ITC's claimed under section 169 of the Act. Apart from what has been decided above, the determination of the issues under appeal involves a consideration of the definition of "business" and of "commercial activities". No question respecting those matters was posed in this application. As already stated, the resolution of same could be affected by a potential subsequent hearing respecting "exempt supply".
[111] The first question of law set forth in the aforesaid application, namely:
whether, in the context of each grant program, the Appellants have made a supply to the Province of Alberta;
is answered as follows. The Appellants have made a supply, as defined, in the seven programs described above.
[112] The second question is:
whether the grant funding is consideration for that supply.
The amounts described above in five of the seven programs that were payable by the Province to the Appellants constituted consideration, as defined, for the supply of property and services made by those Appellants to the Province.
[113] Costs are awarded to the Appellants. A sum equal to one-third of the amount thereof is payable by the Respondent to each Appellant.
Signed at Ottawa, Canada this 14th day of February, 2006.
Bell, J.
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