British Columbia Investment Management Corp. v. Canada (A. G.), 2018 BCCA 47, aff'd 2019 SCC 63

The petitioner (“bcIMC”) was created as a provincial Crown corporation by special Act (the “PSPPA”) to manage and hold investments for B.C.’s public sector pension plans as Crown agent. A Regulation made under the PSPA provided that bcIMC was to hold various investment assets in its pooled investment portfolios, the (pension plan) investors in a pooled portfolio were to be issued units of the portfolio in proportion to their interests, that "All the assets of a portfolio are held in trust by the [bcIMC]” and that “ownership in any asset in a portfolio must not be attributed to a participating fund.” The PSPPA stated that bcIMC “is not liable for taxation except as the government is liable for taxation.” The Province and Canada signed a reciprocal taxation agreement (“RTA”) which provided that the Province and its agents would pay any tax imposed under Part IX of the ETA. Following a GST audit, bcIMC brought an application for a declaration that it was not subject to tax under the ETA. CRA subsequently assessed bcIMC for HST on fees which bcIMC took out of the funds under its administration, on the basis inter alia that ETA s. 267.1(5)(a) deemed the statutory trust impressed on bcIMC’s investments to be a separate (non-Crown) person who thus was not exempt from federal tax – and also on the basis that the investment funds did not belong to bcIMC or the province but, rather, to the pension fund members.

The Court below found that bcIMC as a provincial Crown agent was immune from taxation under s. 125 of the Constitution Act, 1867, but found that the RTA together with a second agreement between Canada and the Province (the “CITCA”) was legislatively binding on bcIMC.

Willcock JA found (at para. 113) that ETA s. 267.1(5)(a) and related rules effected “a change in the identity of the recipient of the services from the trustee, here the exempt Province, to the trust, a third party” and thereby “had the effect of separating the Crown from its assets” and that instead “bcIMC is immune from Canada’s taxation” (para. 114).

However, in also affirming the finding below as to the binding effect of the RTA and the CITCA on the Province’ agent (bcIMC), he stated (at para. 142):

[T]here is no doubt that agreements between the federal and provincial governments may be mere political agreements or legally enforceable. As noted in South Australia [(1962), 108 C.L.R. 130], where any particular agreement falls on this spectrum will depend on the circumstances of the case and whether the parties intended to be legally bound. In my opinion, the RTA and the CITCA bear the hallmarks of agreements that were intended to create legally binding obligations.

He further stated (at paras. 148-150) that “enforcement of the [Agreement] is possible” pursuant to s. 19 of the Federal Courts Act (Canada) and s. 1(1)(a) of the Federal Courts Jurisdiction Act (B.C.).

bcIMC was a BC Crown agent which was formed to manage and hold investments for the provincial pension plans. The governing Act created a statutory trust under which each pension plan only had an entitlement to units in the investment pools managed by bcIMC and did not have ownership in any investment pool assets.

CRA took the view (and ultimately assessed bcIMC for $40M in uncollected GST on the basis) that ETA s. 267.1(5)(a) deemed the statutory trust to be a person separate from bcIMC as agent for the provincial Crown, so that the investment services of bcIMC were supplied to that separate person. Willcock JA found that s. 267.1(5)(a) indeed had this effect, which was an “effect of separating the Crown from its assets” and that instead “bcIMC is immune from Canada’s taxation” under s. 125 of the Constitution Act, 1867.

However, he found that such immunity was taken away by the reciprocal taxation agreement between B.C. and Canada in which the Province committed itself and its agents to pay any tax imposed under the ETA. He stated that “agreements between the federal and provincial governments may be mere political agreements,” but found that the terms of the Agreement here evinced an intention to be legally bound, and stated that “enforcement of the [Agreement] is possible” pursuant to s. 19 of the Federal Courts Act (Canada) and s. 1(1)(a) of the Federal Courts Jurisdiction Act (B.C.).

bcIMC was a BC Crown agent which was formed to manage and hold investments for the provincial pension plans. The governing Act created a statutory trust under which each pension plan only has an entitlement to units in the investment pools managed by bcIMC and does not have ownership in any investment pool assets. Willcock JA noted (at para 109) that “there is no clear beneficial interest in the pooled funds that is distinct from bcIMC’s legal interest.”

Before concluding that (but for an intergovernmental agreement under which the Province agreed that it and its agents would be liable for GST), s. 267.1(5)(a) had the effect of imposing federal tax on bcIMC contrary to s. 125 of the Constitution Act, 1867, Willcock JA found (at para. 113) that s. 267.1(5)(a) effected “a change in the identity of the recipient of the services from the trustee, here the exempt Province, to the trust, a third party” and thereby “had the effect of separating the Crown from its assets.”

bcIMC was a BC Crown agent which was formed to manage and hold investments for the provincial pension plans. The governing Act created a statutory trust under which each pension plan only has an entitlement to units in the investment pools managed by bcIMC and does not have ownership in any investment pool assets. Willcock JA noted (at para 109) that “there is no clear beneficial interest in the pooled funds that is distinct from bcIMC’s legal interest.”

Before concluding that (but for an intergovernmental agreement under which the Province agreed that it and its agents would be liable for GST), s. 267.1(5)(a) had the effect of imposing federal tax on bcIMC contrary to s. 125 of the Constitution Act, 1867, Willcock JA found (at para. 113) that s. 267.1(5)(a) effected “a change in the identity of the recipient of the services from the trustee, here the exempt Province, to the trust, a third party” and thereby “had the effect of separating the Crown from its assets.”

bcIMC was a BC Crown agent which was formed to manage and hold investments for the provincial pension plans. The governing Act created a statutory trust under which each pension plan only has an entitlement to units in the investment pools managed by bcIMC and does not have ownership in any investment pool assets. Willcock JA noted (at para 109) that “there is no clear beneficial interest in the pooled funds that is distinct from bcIMC’s legal interest.”

In the absence of an intergovernmental agreement under which the Province agreed that it and its agents would be liable for GST, the federal government would have been precluded by s. 125 of the Constitution Act, 1867 from effectively imposing federal tax on bcIMC by deeming services performed by it in relation to the investment pools to be taxable services.

However, he found that such immunity was taken away by the reciprocal taxation agreement between B.C. and Canada in which the Province committed itself and its agents to pay any tax imposed under the ETA. He stated that “agreements between the federal and provincial governments may be mere political agreements,” but found that the terms of the Agreement here evinced an intention to be legally bound, and stated that “enforcement of the [Agreement] is possible” pursuant to s. 19 of the Federal Court Act (Canada) and s. 1(1)(a) of the Federal Courts Jurisdiction Act (B.C.).