News of Note

The appellant (CIBC) was charged by Aeroplan for the number of Aeroplan Miles that were credited to the cards of CIBC cardholders. CIBC argued that these fees were (1) consideration for intangible personal property (the Miles) that were supplied by Aeroplan, and (2) that such property was exempted from GST as being a supply of “gift certificates.”

Webb JA rejected the first argument in light of the terms of the agreement between CIBC and Aeroplan, which he found essentially labelled the fees as being for promotional and marketing services. He stated:

The issuance of Aeroplan Miles to CIBC’s customers cannot be elevated to be the predominant supply when such issuance of Aeroplan Miles is not even mentioned in the referral activities for which the consideration was payable. …

The legal relationship between CIBC and Aeroplan is defined by the agreement between these two parties. There is nothing to suggest that this agreement is not a bona fide agreement. …

Given this finding, it was unnecessary for him to address the gift certificate argument, but he nonetheless stated that he should not in any way be considered to be endorsing the Tax Court’s views that the Miles were not gift certificates.

In his dissenting reasons, Stratas JA referred approvingly to the argument in Osler’s memorandum that "'[t]he parties cannot, by a contractual provision, bind each other or the Minister to a particular determination of the predominant element of a single composite supply for GST purposes’," and then stated:

My colleague focuses on literal contractual language and exclusively so. … Now that my colleague’s approach is law, I fear that in the future parties will add words not to change their contractual obligations or the practical, commercial substance of the supply but merely to trigger favourable GST treatment. This may be a boon for cunning drafters and their bag of tricks. …

[T]he element that gives the supply commercial efficacy—the predominant element of the supply—is the right to allocate Miles. But for the right to allocate Miles, there would have been no point in the parties performing their other obligations.

Stratas JA went on to indicate that the Miles acquired by CIBC were deemed under the gift certificate rule (ETA s. 181.2) not to be a supply, so that the fees were not subject to GST, stating:

In the commercial world, Miles function as gift certificates. … They are an exchange device because they may be used as consideration for property or services in the same way as money or a gift certificate.

Neal Armstrong. Summaries of Canadian Imperial Bank of Commerce v. Canada, 2021 FCA 96 under ETA s. 123(1) – supply, s. 181.2, s. 309(1) and Federal Courts Act, s. 27(1.3).

CRA indicated that a business receiving a contribution (as a result of COVID-related liquidity issues) from a Regional Relief and Recovery Fund (“RRRF”) that is forgiven as to the remaining balance of the contribution if a required portion of the contribution is repaid by a certain date, will be required to include that forgivable portion in its income under s. 12(1)(x) in the year of receipt of the contribution, to the extent the amount was not already included under s. 9.

Neal Armstrong. Summary of 15 February 2021 Internal T.I. 2021-0879231I7 under s. 12(1)(x).

In order to reduce its municipal tax bill, a company in the business of renting self-constructed apartment buildings, registered each of the 137 units in a 12-storey apartment building in London, Ontario (that was ready for occupancy at the end of 2008) as condominium units, even though it rented the units out, rather than making condo unit sales. St-Hilaire J found that this meant that the applicable HST self-assessment rule was that under ETA s. 191(1), i.e., the company was required to self-assess HST on the FMV of each “condo” unit as each unit was occupied by its tenant, rather than self-assessing under s. 191(3) on the FMV of the whole building when the first tenant moved in (or on substantial completion, if later). Furthermore, she accepted that the best method for valuing condo units is comparable sales of condo units, and rejected a variant of the cost method of valuation proposed by the company. (She accepted that any cost-based method - which should be based on replacement cost rather than historical costs incurred - would be inappropriate given difficulties in allocating common-area costs to the individual units.)

However, the resulting per-unit value was to be reduced by a 6% “absorption discount” to reflect the effect on the market of absorbing the sale of 137 condo units over a 16-month period.

It is understood that in recent years, sales in the condo market have generally reflected higher per-square-foot valuations than sales of rental apartment buildings. If so, registration of the units as condo units in this case was costly from an HST perspective.

Neal Armstrong. Summaries of Carvest Properties Limited v. The Queen, 2021 TCC 21 under ETA s. 191(1) and General Concepts – Estoppel.

The tax return software used by Mr Tooth (which had been approved by HMRC) had a glitch, so that it did not permit him to claim a loss from a tax scheme in the box on the online return for employment losses (which was the correct box, had the scheme worked, which it did not). Instead, he entered it in the partnership loss box, coupled with an explanation in the adjacent “white space” that, rather than a partnership loss, it was an employment-related loss.

Whether HMRC was statute-barred from denying the loss (or, to use the U.K. terminology, whether it could issue a “discovery assessment”) turned on whether (as per s. 118(7) of the Taxes Management Act 1970) the insufficiency of the initial assessment of the year arose as “a result of a deliberate inaccuracy” in the return.

Lord Briggs and Lord Sales gave a joint judgment for the Court, finding that this reference to "deliberate inaccuracy" meant a statement which, when made, was deliberately inaccurate (i.e. the taxpayer intended to mislead HMRC), rather than a deliberate statement which was inaccurate. They stated:

Deliberate is an adjective which attaches a requirement of intentionality to the whole of that which it describes, namely “inaccuracy”. An inaccuracy in a document is a statement which is inaccurate. Thus the required intentionality is attached both to the making of the statement and to its being inaccurate.

Furthermore, as to whether there was an inaccuracy, there was no reason to depart from the usual approach to interpreting a document (here, the return) as a whole. They stated that although the online tax return form clearly stated that it would be read upon receipt by an HMRC computer:

A document written in the English language …does not have a different meaning depending upon whether it is read by a human being or by a computer. A choice by the recipient of such a document to have it machine-read cannot alter its meaning. Furthermore, the Revenue-approved online tax return form used by Mr Tooth and his advisors contained numerous “white spaces” … within which the taxpayer is invited to add information using his own words and phrases, so as to ensure that the declaration [was accurate].

Therefore, there was no inaccuracy in the return and, even if there were, it was not deliberate, as Mr Tooth did his best with an intractable online form. HMRC’s appeal failed.

Perhaps the same result would have obtained regarding a similar return filing in Canada, where s. 152(4)(a)(i) refers to “any misrepresentation that is attributable to neglect, carelessness or wilful default.” Has CRA improved its position by deliberately not providing much in the way of “white spaces” for explanations on its online returns?

Neal Armstrong. Summary of Revenue and Customs v Tooth [2021] UKSC 17 under s. 152(4)(a)(i).