Date: 20100521
Docket: A-250-09
Citation: 2010 FCA 127
CORAM: BLAIS
C.J.
SHARLOW
J.A.
PELLETIER
J.A.
BETWEEN:
HER MAJESTY THE QUEEN
Appellant
and
CITY OF CALGARY
Respondent
REASONS FOR JUDGMENT
PELLETIER J.A.
INTRODUCTION
[1]
The City
of Calgary (the City) constructed a transit system for the use of the residents
of Calgary pursuant to obligations
imposed on it by the City Transportation Act, R.S.A 2000, c. C-14 (the
CTA). In the course of constructing that system, the City entered into funding
agreements with the Province
of Alberta as contemplated in the CTA.
[2]
The City
paid GST with respect to purchases made for the construction of the transit
system. Since the provision of a municipal transit service is an exempt supply,
as that term is defined in the Excise Tax Act, R.S.C. 1985, c. E-15 (the
Act), the City would not be entitled to claim input tax credits with respect to
purchases made for the purpose of providing that exempt supply. The City took
the position that the construction of the transit system (as opposed to its
operation) was a separate supply to the Province of Alberta, pursuant to its contracts
with the Province, for which the Province paid consideration, pursuant to those
same contracts. The City claimed that this separate supply was not an exempt
supply and claimed input tax credits with respect to that supply. The Minister
rejected that argument but the Tax Court of Canada accepted it in a decision
reported as City of Calgary v. Canada, 2009 TCC 272, [2009] T.C.J.
No. 195. I disagree. For the reasons which follow, I would allow the
appeal.
THE FACTS
[3]
The City
is constituted under the terms of the Municipal Government Act, R.S.A.
2000, c. M-26. As a city, it is subject to the terms of the CTA which
requires it to prepare a transportation plan and to implement that plan by
constructing a transportation system, for whose costs it is responsible. Prior
to proceeding with construction of a transportation facility, the City must
submit its proposal to the Province. If the Province approves the proposal, it
may enter into a cost sharing agreement with the City. In the absence of any
agreement to the contrary, title to the transportation system vests in the name
of the City. In this case, there is no agreement to the contrary.
[4]
In
compliance with the legislation, the City developed a transportation plan (the
Plan) and set about implementing it. The Province approved the Plan and entered
into agreements with the City relating to the construction of transportation
facilities contemplated by the Plan. While the agreements covered both roadway
construction and public transit facilities, we are only concerned with the
latter since no issue of exempt supply arises in connection with roadway construction.
[5]
While four
agreements were entered into by the parties, only three of them are relevant to
this appeal since the fourth, the Primary Highway Connectors Grant Agreement,
concerned roadway construction only. Of the remaining three agreements, two
were substantially the same, the Basic Capital Grant Agreement (the BCG
agreement) and the Transit Capital Grant Agreement (the TCG agreement). The
third agreement, the City Transportation Fund Agreement (the CTF agreement) (collectively,
the Agreements) differed from the other two in a number of ways, including its
source of funding. The specific terms of those agreements which are relevant to
this appeal will be discussed later.
[6]
It is
common ground that the City applied for and received funding under these three
agreements for the construction of its public transit system.
[7]
Prior to
2003, the City claimed public service body rebates under section 259 of the Act
with respect to GST paid in connection with the development of its transit
system. The Minister assessed the City on the same basis. This resulted
approximately 56% of the GST paid by the City being returned to it in the form
of rebates.
[8]
However,
in January 2003, the City filed a GST return for the period ending December 31,
2002, in which it claimed input tax credits with respect to GST paid in
connection with the development of its transit system up to that time. The City
acknowledged the amounts received as rebates under section 259 of the Act and
claimed as an input tax credit the difference between the rebates received and
the GST paid, some 6.5 million dollars. In assessing the City with respect to
the period ending December 31, 2002, the Minister denied the City’s claim for input
tax credits. The City objected to the assessment and eventually appealed to the
Tax Court of Canada.
THE DECISION BELOW
[9]
The appeal
was heard by Associate Chief Justice Rossiter (the Tax Court Judge) who, as
noted above, allowed the City’s appeal.
[10]
The Tax
Court Judge began his reasons by summarizing the requirements of the CTA. He
then summarized the terms of the Agreements.
[11]
The Tax
Court Judge described the City’s obligations under the Agreements as follows:
[14] In the course
of fulfilling its obligations under the [Agreements], the Appellant incurred
expenditures and paid GST in respect of those expenditures. These expenditures
relate to specific transportation facilities, including LRT [Light Rail
Transit] extensions, refurbishment of equipment, LRT equipment rebuilds, and
the acquisition of communications systems, signalling systems, buses, shuttle
buses, and LRT vehicles.
[12]
The Tax
Court Judge described the issue before him as follows:
[18] The issue is
whether [the City] is entitled to the additional ITCs [input tax credits] in
respect of GST incurred in the course of constructing transit facilities
pursuant to its agreements with the Province.
[13]
The Tax
Court Judge began his analysis by reproducing subsection 169(1) of the Act
which sets out the formula for calculating the amount of input tax credit which
a registrant can claim. He summarized the requirements for eligibility for
input tax credits as follows: (1) the claimant must be registered; (2) the
claimant must have acquired goods or service for consumption, use or supply in
the course of commercial activities; and (3) the claimant must have paid, or be
required to pay GST in acquiring the goods or services. The Tax Court Judge
noted that the only issue in the appeal was whether the City had acquired the
goods and services in respect of which it had paid GST for consumption. use or
supply in the course of its commercial activities.
[14]
The Tax
Court Judge then quoted the definition of “commercial activities” found at
subsection 123(1) of the Act and noted that the portion of the definition which
applied to the City was paragraph (a) which provides that commercial
activity means a business carried on by a person except to the extent that the
business involves the making of exempt supplies.
[15]
The Tax
Court Judge noted the City’s argument that meeting its obligations under the
Agreements constituted a business. According to the City, “…in acquiring,
constructing and making public transportation facilities available for the
citizens of the City of Calgary, it made a taxable supply to
the Province”: see Reasons, at paragraph 25. The City took the position that
the amounts paid by the Province under the Agreements were consideration for
that supply. According to the City’s argument, the property and services in
question were acquired in the course of its business of making a supply to the
Province, a separate business from that of supplying municipal transit services
to members of the public.
[16]
The Tax
Court Judge reviewed the definitions of “business”, “supply” and “service”
found at subsection 123(1) of the Act, noting that all were very broad. This,
in conjunction with his interpretation of the Agreements between the City and the
Province, led him to the conclusion that:
[32] It
follows that the Appellant's activities in performing its obligations under the
BCG Agreement, the TCG Agreement and the [CTF] fell within its commercial
activities except to the extent to which these activities involved the making
of exempt supplies. As described above, the activities under these
agreements consisted of acquiring, constructing and making public
transportation facilities available for the citizens of the City of Calgary.
[My
emphasis.]
[17]
This in
turn led him to the conclusion that in acquiring, constructing and making
available transit facilities, the City made a supply for the purposes of the
Act. This left only the question of the recipient of the supply.
[18]
In order
to answer that question, the Tax Court Judge turned to the definition of
“recipient” in subsection 123(1), the material portions of which are reproduced
below:
|
“recipient” of a supply of property or a service
means
(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 any reference to a person to whom a
supply is made shall be read as a reference to the recipient of the supply;
|
« acquéreur »
a)
Personne qui est tenue, aux termes d’une convention portant sur une
fourniture, de payer la contrepartie de la fourniture;
b)
personne qui est tenue, autrement qu’aux termes d’une convention portant sur
une fourniture, de payer la contrepartie de la fourniture;
[…]
Par ailleurs, la mention
d’une personne au profit de laquelle une fourniture est effectuée vaut
mention de l’acquéreur de la fourniture.
|
[19]
The Tax
Court Judge also referred to the definition of consideration found at
subsection 123(1) which includes, “any amount payable for a supply by operation
of law”. He then looked to this Court’s decision in Commission Scolaire des
Chênes v. R., 2001 FCA 264, [2001] F.C.J. No. 1559 in which the
question of the status of activities undertaken with government funding was
examined. After quoting paragraphs 19 and 20 of that case, the Tax Court Judge
concluded that:
[41] Therefore
in order for the funding provided by the Province to [the City] to constitute
consideration, (1) it must have been provided pursuant to a legal obligation
(contractual or otherwise), and (2) it must be closely enough linked to a
supply that it may be regarded as having been made “for” that supply.
[20]
Relying on
the evidence before him to the effect that the agreements between the City and
the Province were enforceable by action, as well as the history of the dealings
between the Province and the City, the Tax Court Judge concluded that the
Agreements were in fact valid and enforceable contracts. As a result, he was of
the view that the provision of funding to the City by the Province according to
the terms of the Agreements between them was a legal obligation of the Province.
[21]
The Tax
Court Judge was also of the view that there was a direct link between the
funding provided and the supply in question. Citing the Commission Scolaire
des Chênes case, he noted that “a payment under a contract will inevitably
meet the requirement of a direct link since the very existence of the
obligation to pay is conditional upon the co-contracting party fulfilling the
corresponding obligations under the terms of the contract.”: see paragraph 45
of the Tax Court Judge’s Reasons.
[22]
The Tax
Court Judge rejected the argument that the Province was not receiving anything
in return for its money, relying once again on this Court’s decision in Commission
Scolaire des Chênes, where it was held that an amount paid to obtain a
benefit for a third party was just as much consideration as money paid to
obtain a benefit for the payor. In this case, the Province obtained from the
City of Calgary “the service of making
available for its citizens the transit facilities in accordance with the terms
negotiated and agreed upon between the Province and [the City].”: see paragraph
48 of the Tax Court Judge’s Reasons.
[23]
The Tax
Court Judge then went on to bolster his conclusion by reference to the division
of powers between the federal and provincial governments. Since the provinces
have legislative authority over local works and undertakings, and since
municipalities are the creatures of the provincial legislature, the Tax Court
Judge concluded that where a municipality experiences financial difficulties,
the provincial legislature has a duty to ensure that local government is
provided funding. Furthermore, the province has the power to delegate
jurisdiction over local works and undertakings to the municipal government and
when it does so, it has a legal obligation to make adequate funding available:
see paragraph 54 of the Tax Court Judge’s reasons. This obligation was another
indication of the direct link between the funds paid by the Province and the
transit projects which they funded.
[24]
After
touching upon some other questions which are not in issue in this appeal, the
Tax Court Judge addressed the issue of the distinction between the putting in
place of a transit system (a taxable supply) and the supply of municipal
transit service to the public (an exempt supply). The Tax Court Judge relied on
the decision of this Court in London Life Assurance Co. v. Canada,
[2000] F.C.J. No. 2121, to assert that an entity may carry on more than one
business in the course of operating its enterprise. In London Life, it
was held that an insurance company, whose business consisted of making exempt
supplies, made a taxable supply to its landlord when it provided him with
improved leasehold premises in return for a leasehold improvement allowance. The
business of supplying improved leasehold premises to a landlord was a separate
business from London Life’s normal business of providing insurance contracts,
which are exempt supplies.
[25]
The Tax
Court Judge concluded that “the construction, acquisition and making available
of transit facilities reflected an independent commercial activity. The
[City’s] business so described did not include the making of exempt supplies.”:
see paragraph 68 of the Tax Court Judge’s Reasons.
[26]
In
accordance with this reasoning, the Tax Court Judge found that the goods and
services acquired by the City in the course of developing its transit system
were acquired in the course of the City’s commercial activities, that the
supply of a transit system to the province in exchange for grant funding was a
separate business which was not an exempt supply and that consequently, the
City was entitled to claim input tax credits with respect to the GST paid in
connection with those goods and services.
ISSUES
[27]
The Tax
Court Judge’s formulation of the issue focused on the ultimate question, i.e.
was the City entitled to input tax credit? His conclusion on that question was
a function of his views as to the effect of the contracts between the City and
the Province and, in particular, what the City supplied under those contracts. This
led him to inquire as to the recipient of that supply, a question which turns
on the question of consideration for the supply.
[28]
In my
view, the City framed its argument, and the Tax Court Judge based his reasons,
on the nature and effect of the Agreements. The City argued, and the Tax Court
Judge concluded, that the Agreements required the City to provide the Province
with a municipal transit system, in return for which the City received funding
which constituted consideration flowing from the Province. The issue in the
appeal is the interpretation of the Agreements and the determination of the
obligations which they imposed on the parties.
ANALYSIS
The Standard of Review
[29]
Since this
is an appeal from the decision of a judge after a trial, the standard(s) of review
are as set out in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235.
With respect to findings of fact, the standard of review is palpable and
overriding error. As for questions of law, the standard of review is
correctness. Questions of mixed fact and law are to be reviewed on the same
standard as questions of fact unless it is possible to identify an extricable
question of law, in which case that question is reviewable on a standard of
correctness.
The legislative context
[30]
As noted
earlier in these reasons, the City is subject to the CTA. The relevant
provisions of that Act are reproduced below:
2. Each city is responsible for the
costs of establishing and maintaining all transportation facilities subject to
its direction, control and management but may qualify for financial assistance
from the Government by complying with this Act.
3. The city shall prepare a comprehensive transportation
study report for the development of an integrated transportation system
designed to service the needs of the entire city.
4(1) The city council shall by bylaw establish a transportation system in
accordance with the transportation study report and the bylaw shall designate
the transportation system.
4(6) The city council shall submit the
bylaw to the Minister for approval by the Lieutenant Governor in Council and
the Lieutenant Governor in Council may vary or approve the bylaw in whole or in
part and if the bylaw is varied or approved in part only, it shall be enforced
and take effect as approved.
6(1) When a city considers that a transportation facility
included in the transportation system should be constructed it shall submit the
proposal to the Minister.
6(2) If
the proposal is approved by the Minister, the Minister may enter into an
agreement with the city with respect to the sharing of costs of establishing
the transportation facility.
7. The title to all transportation facilities
forming the transportation system is, subject to any Act or agreement to the
contrary, vested in the city.
[31]
The
obligations of the City under the CTA are the following:
- To prepare a comprehensive transportation study report for the development of an integrated
transportation system.
- To establish by
bylaw a transportation plan in accordance with the report.
- To submit the
bylaw for approval by the Lieutenant Governor in Council.
- To submit a
proposal to the Minister when it considers that a transportation facility
should be constructed.
- To pay the costs
of establishing and maintaining its transportation facilities.
[32]
The obligation
of the Province under the CTA is to review and approve the City bylaw
establishing its transportation plan and to approve the construction of
specific transportation facilities.
[33]
While the
wording of subsection 6(1) suggests that the decision as to whether or not to
proceed with the implementation of the transportation plan is a matter left to
the City’s discretion, the better view is that subsection 6(1) refers only to
the sequencing of the steps to be taken in the implementation of the transportation
plan. In my view, the CTA imposes on cities the obligation to implement the
approved transportation plan but leaves the sequencing of the work to the
City’s discretion. Section 2 makes the city responsible for the costs of establishing
and maintaining its transportation system while subsection 4(6) provides
that if the Province approves the City’s bylaw, it shall be enforced as
approved. In my view, these are indications that the City’s statutory
obligations are not limited to planning a transportation system but include the
construction and operation of the approved transportation plan.
[34]
On the
other hand, the CTA vests in the Province the discretion to either provide
financial assistance to the City to enable it to meet the costs for which
section 2 makes the City responsible, or to share in the cost of construction
of those transportation facilities which it has approved pursuant to subsection
6(1). Theoretically, the Province could decline to share in the cost of
construction of a transportation facility but could provide financial
assistance in the form of loans or loan guarantees or otherwise.
[35]
In
summary, the City has a statutory obligation to establish and maintain the
public transportation system described in its comprehensive transportation study
and adopted in its bylaw, as approved by the Province. The Province, on the
other hand, has statutory authority to provide the City with financial
assistance with respect to the costs of its transportation system or to share
in the costs of construction of approved transportation facilities.
The nature and effect of the
contracts between the City and the Province
[36]
The next
step in the analysis is to examine the nature of the City’s obligations in its
contracts with the Province. Since the City has based its claim on its
agreements with the Province, the issue is what those agreements required the
City to do. If they did not require the City to make a supply of a transit
system to the Province, then the City’s claim fails and the appeal must be
allowed.
[37]
The BCG agreement and the TCG agreement are
substantially the same and will be discussed together. The preamble of each
agreement is incorporated into the Agreement. The preamble of the BCG agreement
is reproduced below. The preamble of the TCG agreement is substantially the
same except for the references to the grant program in question and the
omission of the conditions upon which the Province will make grants:
Whereas the Province has
agreed to conditionally grant to the City 75% (seventy-five per cent) of the
funds required for projects meeting the criteria under the Basic Capital Grant
of the Alberta Cities Transportation Partnership upon the terms and conditions
contained herein; and
Whereas the Province has
agreed to conditionally advance such funds, as approved annually, to the City
upon:
a)
Legislature approval of the
required Basic Capital Grant budget contained within the Province’s budget for
each of the calendar years 1989 to1991 inclusive; and
b)
Review and approval by the
Province of the City’s Application for Project Acceptance for cost-sharing on
eligible projects; and
c)
Commencing in 1990, receipt and
acceptance by the Province of the City’s previous calendar year-end (December
31) Statement of Funding and Expenditures pertaining to the Basic Capital
Grant, including certification of the financial statement and attesting to
compliance with the terms and conditions of both this Agreement and the
document entitled “Administrative Procedures – Cities Transportation
Partnership”; (hereinafter referred to as “Administrative Procedures”).
Whereas these funds are to be used by the City as the
Province’s portion of the eligible capital expenditures incurred on projects
approved by the City Council; and
Whereas the City has agreed to accept these funds upon
the terms and conditions contained herein;
Now therefore this agreement witnesseth that in
consideration of the mutual terms and conditions hereinafter specified, the
parties agree as follows:
1.
The preamble is incorporated as an
integral part of this agreement.
[38]
The
preamble recognizes a previous commitment by the Province to contribute 75% of
the cost of projects approved under the terms of the particular grant program and
the City’s agreement to use the funds for those projects. The City, for its part,
agrees to accept the funds to be made available by the Province upon the terms
set out in the agreement.
[39]
Article 2
of the BCG agreement sets out the conditions to which the City agrees in order
to receive the funds from the province. The conditions in the TCG are the same
except for some small elements which are immaterial to this discussion. The
conditions generally relate to the application of the funds, the required
accounting, the application of interest earned on the funds, the application of
unexpended funds and other matters of an administrative nature. The one
condition which relates to construction is condition (h), which provides as
follows:
(h)
on any accepted project, the work shall be carried out in accordance with the
rules, regulations and laws governing such work and in accordance with the best
general practice, and in a manner agreeable to the Province.
[40]
In
response to the Crown’s argument that the contracts do not require the City to
construct anything whatsoever, the City argues that condition (h) requires the
City to undertake construction of an “accepted project”. In my view, the City’s
argument misconstrues the nature of the condition. It does not contain an
obligation to build anything, but requires that any construction which is funded
by the grant program must meet the prevailing legislative standards and best
practices. It is essentially a warranty of good workmanship.
[41]
Article 4
of the BCG agreement provides as follows:
4-
The parties agree that all projects receiving funds from the Province under the
Basic Capital Grant shall be undertaken fully in accordance with the City
Transportation Act R.S.A 1980 Chapter C-10, the Regulations passed pursuant to
that Act and any amendments to both which may be made from time to time, and in
accordance with the Administrative Procedures as same may be amended by the
Province from time to time.
[42]
Article 5
of the TCG agreement is to the same effect.
[43]
While this
clause could be construed as importing into the Agreements the City’s
obligation to construct a municipal transit system, the better view is that it simply
ensures that the work which is funded under the agreement will be carried out
in conformity with the terms of the CTA and the Regulations. The CTA contains
four parts. Part 1 deals with the establishment of transportation systems. Part
2 deals with protection and acquisition of land while Part 3 deals with control
of access, parking and adjacent development. Part 4 contemplates the
implementation of the CTA by agreements and regulations. These provide detailed
requirements for the implementation of the transportation plan. This clause
simply provides that to the extent that projects are funded by the Province,
their development will comply with the standards set down in the CTA.
[44]
The clause
only applies to those projects which are funded under the agreement. The CTA,
however, imposes on the City the obligation to establish the municipal transit
system and makes it responsible for the cost of the system. If the City, for
whatever reason, did not apply for funding, it would nonetheless remain
responsible for the establishment of the municipal transit system and its cost.
As a result, I conclude that, properly construed, this clause does not require
the City to construct a municipal transit system but requires it to construct
those portions of it for which it receives funding from the Province in
accordance with the CTA and the regulations made under the CTA.
[45]
The
remaining clauses of the BCG agreement impose certain reporting requirements on
the City and deal with the accounting for unused funds. The TCG agreement
contains similar requirements.
[46]
In my
view, a proper interpretation of the BCG and the TCG agreements does not
support the view that the City was required by those agreements to provide the
province with a transportation system. Both agreements are framework funding
agreements which govern the manner in which funds for approved projects are to
be disbursed and administered. Nothing in those agreements requires the City to
submit any project for approval or prevents the City from constructing
transportation facilities without applying for grant funding.
[47]
The CTF
agreement differs from the other two in that it is built upon a funding
arrangement which is described in the Preamble to the agreement:
Whereas
the Minister [of Infrastructure] has agreed to provide to the City, for capital
transportation infrastructure, funding for projects meeting the eligibility
criteria contained herein; and
Whereas
the amount of the funding provided will be an equivalent of five cents per
litre of taxable gasoline and diesel fuel delivered to service stations and
bulk dealerships within the City of Calgary as confirmed by Alberta Treasury in
accordance with Schedule 1; and
Whereas
this funding is to be used by the City to establish a “City Transportation
Fund” which will be the Minister’s contribution towards the eligible
expenditures incurred or to be incurred on Capital Transportation Projects
approved by City Council and the Minister; and
Whereas
the City has agreed to accept these funds upon the terms and conditions
contained herein;
Now
therefore this agreement witnesseth that in consideration of the mutual terms
and conditions hereinafter specified, the parties agree as follows:
1.
The preamble is incorporated as an
integral part of this Agreement.
[48]
The change
introduced by the CTF agreement is the establishment of a dedicated fund to be
funded by payment to the City of five cents on the sale of each litre of
taxable gasoline or diesel fuel within the City of Calgary. The balance of the agreement deals with
the administration of that Fund and the uses to which it may be put.
[49]
Section 7
of the agreement sets out certain obligations of the City:
7-
The City agrees to provide to the Minister as a condition of the Agreement:
i)
prior to March 31, 2000, for review and acceptance, the Program Application as
outlined in Schedule 2 listing all projects to be carried out utilizing the
funding provided under section 5. [Section 5 provides for an advance against
future payments in the amount of $170,000,000.]
A)
the Program Application may be updated in accordance with the timing specified
by the Minister following consultation with the City. The program update may be
in the form of either a Supplementary Program Application or a full annual
updated Program Application. The full annual program update shall list all
previously accepted projects being continued as well as new projects being
initiated and for which the City wishes to allocate funding from the City
Transportation Fund,
ii)
the City’s annual Pavement Management System Summary Report indicating the
current average pavement condition for each of the following road
classifications i) all numbered highway connector routes, ii) freeways, iii)
major streets and iv) other streets as may be determined by the Minister from
time to time following consultation with the City, commencing with the 1998
report; and
iii)
the City’s annual Transit Indicator Summary Report indicating i) the percent of
the total in service transit vehicle fleet with a vehicle age in excess of the
optimum vehicle design life, ii) the number of transit rides carried per annum
per 1,000 population, iii) the current percentages of the total fleet which is
accessible to persons with disabilities in accordance with the barrier free
design guidelines, or iv) other indicators as may be determined by the Minister
following consultation with the city, commencing with the 1998 report, and
iv)
commencing in 2001, the City’s previous calendar year-end (December 31)
Statement of Funding and Expenditures as outlined in Schedules 3A and 3B
pertaining to the Transportation Fund, including certification by the City of
the statement and attesting to compliance with the terms and conditions of this
Agreement prior to March 31 of each year.
[50]
These
requirements illustrate that the City Transportation Fund is intended to be
used for all of the City’s transportation needs including roadway construction
and maintenance. That intention is further evidenced by the list of “general
types of transportation projects [which] may be funded from the city
transportation fund” at article 13 of the CTF, a list which includes roadways,
transit, and general roadway/transit projects.
[51]
The CTF
agreement goes on to require the City to meet the same administrative and
accounting requirements as the BCG and the TCG (articles 8 to 12). Provision is
made for the winding up of previous grant programs (articles 14 and 15) and for
the completion of certain outstanding highway construction projects (article
16).
[52]
Once
again, there is nothing in the CTF which requires the City to construct
anything whatsoever. The agreement is a funding agreement which provides for
the creation of a fund from which the City may fund certain approved
transportation projects. There is nothing in the agreement which, properly
interpreted, would give contractual effect to the City’s statutory obligations
with respect to the provision of a municipal transit system.
[53]
Given the
capital intensive nature of infrastructure programs, it is not surprising that
the Province would make financial assistance available to municipalities, just
as it is not surprising that municipalities would take advantage of the
availability of provincial grants. But it is, in my view, an error to construe
these agreements in such a way so as to make the City the Province’s general
contractor for the construction of a municipal transit system.
[54]
The
interpretation of contracts is a question of law: see MacNeil v. Canada (Employment Insurance
Commission), 2009
FCA 306, [2009] F.C.J. No. 1358, at paragraph 26, and the cases cited therein. Accordingly,
the Tax Court Judge’s interpretation of the Agreements in force between the
City and the Province is a matter reviewable on the standard of correctness. In
my view, the Tax Court Judge erred in law in his interpretation of these Agreements
when he held that:
[14] In
the course of fulfilling its obligations under the Previous Funding Agreements
and the New Agreement, the Appellant incurred expenditures and paid GST in
respect of those expenditures. These expenditures relate to specific
transportation facilities, including LRT extensions, refurbishments of
equipment, LRT vehicle rebuilds, and the acquisition of communications systems,
signaling systems, buses, shuttle buses, and LRT vehicles.
[My emphasis.]
[55]
It is true
that the City made the expenditures enumerated by the Tax Court Judge. It is
false that those expenditures were made by the City in the course of fulfilling
its obligations under its agreements with the Province.
[56]
Similarly,
the Tax Court Judge erred when he held that:
[32]
It follows that the Appellant’s activities in performing its obligations
under the BCG Agreement, the TCG Agreement and the New Agreement fell within
its commercial activities except to the extent to which these activities
involved the making of exempt supplies. As described above, the activities
under these agreements consisted of acquiring, constructing, and making public
transportation facilities available for the citizens of the City of Calgary.
[57]
In my
view, the Tax Court Judge erred in his conclusion that the Agreements required
the City to supply to the Province a municipal transit system for the use of
the citizens of Calgary.
The Agreements were made in the
context of the CTA, whose terms were set out above. The legislation required
the City to elaborate a transportation plan, to have it approved by the
Province and to implement the approved plan. The Province is authorized by the
CTA to provide financial assistance. The Agreements are simply the mechanism by
which that financial assistance is administered and by which accountability for
public funds is maintained.
[58]
It may be
true, as the Tax Court Judge found, that the City’s activities under the
Agreements constituted a business, but that business, as defined in the
Agreements, did not consist of making a supply of transit facilities to the
Province for the benefit of the residents of Calgary.
The application of the Act
[59]
The basis
on which input tax credits are calculated is set out at subsection 169(1) of
the Act:
|
169. (1) Subject to this Part,
where a person acquires or imports property or a service or brings it into a
participating province and, during a reporting period of the person during
which the person is a registrant, tax in respect of the supply, importation
or bringing in becomes payable by the person or is paid by the person without
having become payable, the amount determined by the following formula is an
input tax credit of the person in respect of the property or service for the
period:
A × B
where
A
is the tax in respect of the supply, importation or bringing in, as the case
may be, that becomes payable by the person during the reporting period or
that is paid by the person during the period without having become payable;
and
B
is
…
(c) in any
other case, the extent (expressed as a percentage) to which the person
acquired or imported the property or service or brought it into the
participating province, as the case may be, for consumption, use or supply
in the course of commercial activities of the person
[Emphasis added.]
|
169. (1)
Sous réserve des autres dispositions de la présente partie, un crédit de taxe
sur les intrants d’une personne, pour sa période de déclaration au cours de
laquelle elle est un inscrit, relativement à un bien ou à un service qu’elle
acquiert, importe ou transfère dans une province participante, correspond au
résultat du calcul suivant si, au cours de cette période, la taxe relative à
la fourniture, à l’importation ou au transfert devient payable par la
personne ou est payée par elle sans qu’elle soit devenue payable :
A × B
où :
A
représente la taxe relative à la fourniture, à l’importation ou au transfert,
selon le cas, qui, au cours de la période de déclaration, devient payable par
la personne ou est payée par elle sans qu’elle soit devenue payable;
B :
[…]
c) dans les autres cas, le
pourcentage qui représente la mesure dans laquelle la personne a acquis ou
importé le bien ou le service, ou l’a transféré dans la province, selon le
cas, pour consommation, utilisation ou fourniture dans le cadre de ses
activités commerciales.
[Je souligne.]
|
[60]
The
relevant portion of the definition of commercial activities found at subsection
123(1) is reproduced below:
|
123(1)
“commercial activity” of a person means
(a) a business carried on by the person (other than a
business carried on without a reasonable expectation of profit by an
individual, a personal trust or a partnership, all of the members of which
are individuals), except to the extent to which the business involves the
making of exempt supplies by the person,
…
|
123(1) « activité commerciale »
Constituent des activités commerciales exercées par une
personne :
a)
l’exploitation d’une entreprise (à l’exception d’une entreprise exploitée
sans attente raisonnable de profit par un particulier, une fiducie
personnelle ou une société de personnes dont l’ensemble des associés sont des
particuliers), sauf dans la mesure où l’entreprise comporte la réalisation
par la personne de fournitures exonérées;
[…]
|
[61]
Exempt
supplies are defined as those described in Schedule V to the Act. Section 24 of
Part VI of Schedule V reads as follows:
|
24. A supply made to a member of the public of a
municipal transit service or of a public passenger transportation service
designated by the Minister to be a municipal transit service.
1. In this Part…
“municipal transit service” means a
public passenger transportation service (other than a charter service or a
service that is part of a tour) that is supplied by a transit authority all
or substantially all of whose supplies are of public passenger transportation
services provided within a particular municipality and its environs;
|
24. La fourniture, effectuée au profit
d’un membre du public, de services municipaux de transport ou de services
publics de transport de passagers désignés par le ministre comme services
municipaux de transport.
1. Les définitions qui suivent
s’appliquent à la présente partie….
« service municipal de
transport » Service public de transport de passagers (sauf un service
d’affrètement ou un service qui fait partie d’un voyage organisé) fourni par
une commission de transport et dont la totalité, ou presque, des fournitures
consistent en services publics de transport de passagers offerts dans une
municipalité et ses environs.
|
[62]
Reading
these provisions together, a registrant is entitled to claim an input tax
credit to the extent that tax has been paid for property or services used,
consumed or supplied in the course of the registrant’s commercial activities
which, by definition, exclude the making of exempt supplies. In this case, the
property and services with respect to which GST was paid were consumed, used or
supplied in the course of constructing and operating a municipal transit
system, which is an exempt supply. Consequently, the City is not entitled to
claim input tax credits with respect to those payments of GST
[63]
The City’s
argument that the Province was the recipient of the supply because it paid the
consideration for the supply of a municipal transit system is based upon a
mistaken interpretation of the City’s obligations under the Agreements. The
Agreements exist to provide a framework for the administration of the financial
assistance authorized by the CTA. It may be that the Province was obligated to
make payments under the Agreements, as the Tax Court Judge found, but those
payments do not determine the nature of the supply made under the Agreements. One
must look to the terms of the Agreements. When they are properly interpreted,
it is clear that they do not require the City to supply to the Province a
municipal transit system.
CONCLUSION
[64]
As a
result, I conclude that the Tax Court Judge erred in law in finding that the
City made a taxable supply of a municipal transit system to the Province
pursuant to the Agreements. I would therefore allow the appeal with costs here
and below, set aside the judgment of the Tax Court of Canada and confirm the
Minister’s assessment.
"J.D.
Denis Pelletier"
“I
agree.
Pierre
Blais C.J.”
“I
agree.
K.
Sharlow J.A.”
Email this Content