News of Note

Dr. Axelrod, a dentist, provided dentures, bridges, crowns and implants, which the parties agreed constituted artificial teeth within the meaning of Sched. VI, Pt. II, s. 11, which zero-rated “a supply of artificial teeth.” Dr. Axelrod took the position that when he provided an artificial tooth to a patient, he was thereby making a zero-rated supply. CRA reassessed him on the basis that he was making the supplies of artificial teeth, as acquired by him from the laboratory, to the patients as zero-rated supplies pursuant to Sched. VI, Pt. II, s. 11, and making supplies of health care services (regarding diagnosis, preparation work, such as measuring and taking impressions, and installation) that were exempted pursuant to Sched. V, Pt. II, s. 5. Sommerfeldt J instead found that Dr. Axelrod was making a single supply of exempt services pursuant to Sched. V, Pt. II, s. 5, so that his appeal was dismissed.

Before so finding, Sommerfeldt J first found that Dr. Axelrod was making a single supply to such patients, stating:

It is difficult to imagine that a patient of Dr. Axelrod would have wanted to acquire dentures, a bridge, a crown or an implant without Dr. Axelrod having first done all of the preliminary work necessary to ensure that the particular prosthesis would fit and function properly in the patient’s mouth, and without Dr. Axelrod actually installing the prosthesis in the patient’s mouth. Similarly, all of the dental services rendered by Dr. Axelrod would have made no sense if they had not related to the prosthesis desired by the patient.

He went on to indicate that, to determine the character of the single supply, it was necessary to determine “which element caused the payment of the consideration,” and then stated that in light of the importance of the professional services provided by Dr. Axelrod, “the predominant element of the supply made by Dr. Axelrod to a patient was his professional dental services, and not the prosthesis per se.”

Sommerfeldt J further found that if, contrary to his single-supply analysis, Dr. Axelrod were regarded as making supplies that came within both provisions, “the exempt status of the supplies will preclude Dr. Axelrod’s dental practice (which is a business) from being a commercial activity, by reason of the exception at the end of paragraph (a) of the definition of the term “commercial activity” in subsection 123(1) of the ETA.” In other words, the exclusion from the definition of commercial activity for a business of making exempt supplies had the effect of making the exempting provision (Sched. V, Pt. II, s. 5) paramount over the zero-rating provision (Sched. VI, Pt. II, s. 11) to the extent of any overlap.

Neal Armstrong. Summaries of Axelrod v. The King, 2022 TCC 157 under ETA Sched. VI, Pt. II, s. 11, Sched. V, Pt. II, s. 34 and s. 123(1) – commercial activity.

CRA confirmed that rents paid by an operating CCPC to an associated CCPC owning the property, such that those rents were deemed to be from an active business of the recipient, would not be included in the recipient’s adjusted aggregate investment income (“AAII”) as defined in s. 125(7).

Neal Armstrong. Summary of 11 October 2022 External T.I. 2020-0856421E5 under s. 125(7) – AAII – para. (c).

The City’s construction agreements contained a liquidated damages clause, which required the contractor to compensate the City when work was not completed within specified timelines through the payment of “Damages” at a specified per diem rate per calendar day of the delay. The Damages were to be paid by the City reducing its payments for amounts that were invoiced to it by the contractor.

CRA ruled that GST/HST did not apply to the Damages amounts given that they were compensation for damages rather than consideration for any supply by the City, and given that s. 182(1) (which can apply to damages received by a supplier from the recipient, but not generally to damages flowing the other way) did not apply.

Thus, it did not matter that the Damages were computed on a per diem, rather than lump sum, basis and that, in a broad sense, they were an adjustment to a taxable sale price.

It might have been more tax efficient for the City to have instead required the contractor to adjust the sale price charged to it, so that the City could reduce its net HST outlay pursuant to the s. 232 rebate mechanism.

Neal Armstrong. Summary of 26 July 2022 GST/HST Ruling 232189 under ETA s. 182(1).

A farmer constructed a 600 square-feet bunkhouse (with 2 bedrooms, a kitchen and bathroom) to provide accommodation to two temporary foreign workers for each annual 10-week harvest period. CRA found that self-supply rule in s. 191(3) did not apply since the bunkhouse was first occupied as a place of lodging, rather than as a “place of residence” as required by s. 191(3)(b)(i). In this regard, CRA stated that the workers likely would regard their stay as a “transient” one and, due to the cramped accommodation, would not “view it as a place where a person is … intended to settle into or maintain an ordinary mode of living.”

Even though the units were places of lodging rather than places of residence, CRA nonetheless considered the bunkhouse to qualify as a residential complex and as a multiple unit residential complex.

The supplies to the workers of the accommodation would be exempted under Sched. V, Pt. V, s. 6. There also was relatively “minimal” use of the bunkhouse in commercial activities while the temporary workers were not there. Accordingly, having regard to the rule in s. 141(4) - that if substantially all (90% or more) of the intended consumption or use of property or service is for activities that are not commercial activities, then the consumption or use is deemed to be in those activities that are not commercial activities - it appeared likely that the farmer could not claim any input tax credits for the construction costs.

Neal Armstrong. Summaries of 22 March 2022 GST/HST Interpretation 238955 under ETA s. 191(3), s. 123(1) – residential complex and s. 141(4).