Daville Transport – Tax Court of Canada provides for an apportionment of trans-border supplies of fuel and maintenance services for GST/HST purposes [corrected link]

The taxpayer (DTI) used its trucks, and independent contractors as drivers (to whom it paid a per-trip fee), to transport freight in Canada and the U.S DTI was found by Russell J to bear the costs of the diesel fuel for the trips through the use by the drivers on its behalf of cards (enabling the participating Shell or other station to receive payment out of a prepaid balance made by DTI) and to bear the costs of maintenance of the trucks. He further found that charges made by DTI at the end of each trip to the drivers of $0.76 per mile for fuel, and $0.08 per mile for vehicular maintenance, were consideration for an on-supply by DTI to the drivers of fuel and maintenance services.

After finding that such fuel and diesel supplies were not zero-rated supplies by DTI of “freight transportation service” (which instead were being supplied by the drivers), Russell J found that, given that 69% of the fuel purchases were acquired by DTI at service stations outside Canada and immediately on-supplied to the drivers, it followed (under s. 142(2)(a)) that there was no GST/HST on 69% of the fuel immediately on-supplied by DTI to the drivers.

Regarding the application of s. 142(2)(g) to the maintenance services supplied by DTI to the drivers, Russell J found that, since the evidence was that “95% of DTI’s maintenance/repair expenses was for maintenance/repair provided, i.e., supplied in the U.S.” to it, it followed the 95% on the on-supplies of repair services to the drivers were not “made in Canada” and, thus, not subject to GST/HST. Accordingly, 95% of the maintenance on-supplies of DTI were made by it outside Canada, and were not subject to GST/HST.

S. 142(2)(g) only deems a supply of a service (subject to carve-outs) to be made outside Canada if the service is “to be performed wholly outside Canada.” Implicitly, this case considered it to be inappropriate to regard DTI as making a single supply of maintenance services to a driver who drives both inside and outside Canada, so that the Canadian portion of that single supply taints the service - and instead regarded the U.S. and Canadian services as separate supplies. This is consistent with the Intrawest approach.

Neal Armstrong. Summaries of Daville Transport Inc. v. The Queen, 2021 TCC 47 under Sched VI, Pt. VII, s. 1(1) – freight transportation service, s. 142(2)(a) and s. 142(2)(g).