Date: 20130605
Docket: A-389-12
Citation: 2013 FCA 149
CORAM: TRUDEL
J.A.
STRATAS J.A.
MAINVILLE
J.A.
BETWEEN:
TELE-MOBILE COMPANY
PARTNERSHIP
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
MAINVILLE J.A.
[1]
This
concerns an appeal from a judgment of Campbell J. Miller J. of the Tax Court of
Canada (“Tax Court Judge”) dated July 17, 2012, the amended reasons for which
are dated August 13, 2012 and cited as 2012 TCC 256 (“Reasons”). The Tax Court
Judge dismissed the appeal of Tele-Mobile Company Partnership (“TELUS”) from
the assessment made by the Minister of National Revenue denying input tax credits
to TELUS under sections 181 and 181.1 of the Excise Tax Act, R.S.C.
1985, c. E-15, for the reporting periods between January 2, 2001 and December
31, 2002.
BACKGROUND AND CONTEXT
[2]
For
the purpose of attracting subscribers to its long-term wireless phone service
contracts, TELUS offered various promotional programs which were principally
tied to the purchase of a cellular phone. Pursuant to one aspect of these
promotional programs, TELUS provided billing credits to certain subscribers who
agreed to enter into long-term service contracts. The billing credit varied for
each customer depending on the length of the service contract entered into, but
was typically $50 for a one-year term contract, $100 for a two-year term
contract, and $150 for a three-year term contract.
[3]
The
billing credit would be applied on the customer’s wireless phone service
invoice where (a) the customer purchased a phone at a retail store which could
not sign the customer up to the TELUS service and could not therefore give the
customer a point of sale discount; (b) the customer renewed a contract with
TELUS without purchasing a new phone; (c) the customer switched from a
month-to-month plan to a contract term; or (d) the customer was a corporate
client which received additional acquisition credits as part of a corporate
agreement involving the purchase of handsets for corporate use.
[4]
TELUS
applied the billing credits to its customers’ invoices after all the charges
were totalled, which included the applicable Goods and Services tax (“GST”)
calculated on all those charges. Thus, customers paid the GST (then applied at
the rate of 7%) on the full consideration charged by TELUS for its service, and
before the billing credits were applied.
[5]
The
Tax Court Judge reproduced in his Reasons an illustrative invoice from TELUS,
and that invoice is attached as Appendix “A” to these reasons. The handwritten
calculations at the bottom of this invoice were added for the purposes of the
proceedings in the Tax Court of Canada, and consequently did not appear on the
original invoice sent to the customer.
[6]
TELUS
did not immediately claim input tax credits (also referred to herein as “ITCs”)
in relation to the billing credits it had provided to its customers in 2001 and
2002. For reasons which are not disclosed by the record, TELUS did not claim
these ITCs until 2005 and 2006. Then, to justify its entitlement to the ITCs,
TELUS took the position that each billing credit was a “coupon” as defined in
subsection 181(1) of the Excise Tax Act allowing it to claim an ITC
pursuant to paragraph 181(3)(b) of the Excise Tax Act. As an
alternative argument, TELUS took the position that each billing credit was a
rebate entitling it to claim an ITC pursuant to section 181.1 of the Excise
Tax Act.
[7]
The
Tax Court Judge found that the billing credits were not “coupons” for the
purposes of section 181 of the Excise Tax Act. However, he did find that
the billing credits were rebates. Nevertheless, he was of the view that these
rebates could not give rise to ITCs under section 181.1 of the Excise Tax
Act since TELUS, by failing to provide a sufficiently clear written
indication that portions of the rebates were on account of the GST, had not met
the requirements of that section. TELUS now appeals to this Court.
BILLING CREDITS AS “COUPONS”
[8]
The
Tax Court Judge found that the billing credits did not fall under the
definition of “coupon” found in subsection 181(1) of the Excise Tax Act.
Sections 181 and 181.1 of that Act are reproduced as a schedule to these
reasons. However, for ease of reference, I will also reproduce here the
definition of “coupon” found in subsection 181(1):
|
“coupon” includes a voucher,
receipt, ticket or other device but does not include a gift certificate or a
barter unit (within the meaning of section 181.3).
|
« bon » Sont compris parmi les bons les pièces
justificatives, reçus, billets et autres pièces. En sont exclus
les certificats-cadeaux et les unités de troc au sens de l’article 181.3.
|
[9]
TELUS
recognized that the billing credits were not vouchers, receipts or tickets.
However. it submitted that they were electronic credits in its computer system
which its customers held intangibly in their accounts and that, as a result,
they were “other device[s]” contemplated by the definition of “coupon”.
[10]
The
Tax Court Judge did not accept this submission. He found that a billing credit
was “not some thing entitling the customer to the reduction – it is the
reduction itself” (Reasons at para. 26), and that “the purpose of s[ection] 181
relates to the treatment of a coupon not a straightforward discount” (Reasons
at para. 29). He further found that in order to fall under the definition of a
“coupon”, a device must be something which the customer can present for
acceptance (Reasons at paras. 39-40). He recognized that “a customer’s
entitlement to a reduction in price can be effected electronically” (Reasons at
para. 27). He was also of the view “that where the fixed amount is clearly
known to both sides, and is evidenced in writing, as hard copy or
electronically, that can be offered by a customer as partial consideration, the
requirement [of section 181] has been met” (Reasons at para. 35). However, he
further found that TELUS had simply advertised its discount, and not set up a
coupon system (Reasons at para. 35). He concluded his analysis as follows:
[42] In summary, TELUS offered a discount. You
buy a three-year term contract, you get $150 off your charges. That is it. That
is the promotion. There was no coupon or device or anything like airline
points, for example. It was just a discount on the price of the charges:
nothing was presented by the customer and accepted by TELUS in anything that
could under even the broadest definition of coupon or device be viewed as such.
I agree with the Respondent that if I found this discount offered by TELUS was
a coupon, I am in effect writing the word coupon out of the provision. I cannot
do that.
[11]
I
agree with the Tax Court Judge. The position advanced by TELUS would allow just
about any advertised discount to be considered as a “coupon” for the purposes
of section 181 of the Excise Tax Act. In order to fall under section
181, a “coupon” must be a physical or electronic device which the purchaser can
submit for acceptance as full or partial consideration for a taxable supply of
property or a service, and which entitles the purchaser to a reduction of the
price of the property or service equal to a fixed dollar amount specified in
the physical or electronic device: subsections 181(2) and (3) of the Excise
Tax Act. An advertised discount, without more, does not meet these
statutory requirements.
REBATES
[12]
Turning
to TELUS’s alternative submission, the Tax Court Judge found that the billing
credits were indeed rebates. The conditions that allow a registrant to claim an
ITC on a rebate are set out in the introductory provisions of section 181.1 of
the Excise Tax Act. One of those conditions is that the registrant
“provides written indication that a portion of the rebate is an amount on
account of tax” (paragraph 181.1(c)). The debate before the Tax Court
Judge turned on whether the TELUS invoices met that requirement.
[13]
TELUS
took the position that by adding up all the charges set out in its invoice, and
by multiplying that sum by the then applicable GST rate of 7%, any customer
would readily understand that the GST had been applied to the entire charges
prior to the rebate. In the view of TELUS, this was sufficient written
indication that the rebate itself must have included a GST component giving
rise to an ITC claim for TELUS under section 181.1.
[14]
The
Tax Court Judge agreed that had the recipient of the invoice carried out these
calculations, he or she would have concluded that the GST had been applied to
the entire charges prior to the rebate. The Tax Court Judge, however, was of
the view that, in order to meet the requirements of section 181.1, the “written
indication” must be “sufficiently clear” (Reasons at para. 50). Applying that
standard to the TELUS invoice, the Tax Court Judge found that it did not
provide a sufficiently clear indication that a portion of the rebate was an
amount on account of tax. Rather, he concluded that the invoice was confusing,
noting the following at para. 51 of his Reasons:
The TELUS invoice is confusing. A “written
indication” should be clear. It is not – to anyone. It invites the recipient to
assume the credit has been offset against the price, yet then goes on to
calculate the GST as though the credit was applied after the GST attached to
the price. It takes too much sorting out to figure this out and falls well
short, I find, of “written indication”.
[15]
Though
I conclude that the Tax Court Judge reached the right result, I do so for
different reasons. I agree with the respondent that, in addition to a literal
interpretation, it is necessary to apply a contextual and purposive
interpretation to section 181.1 of the Excise Tax Act in order to
understand the type of written indication called for under that section. Following
the contextual and purposive interpretation further set out below, I conclude
that the required written indication serves two purposes: (a) to allow a
customer who is a registrant to determine if the GST component of a rebate
should be treated in accordance with paragraph 181.1(f) of the Excise
Tax Act; and (b) to inform the customer that the rebate is reduced by its
GST component. In the light of these purposes, an opportunity for a customer to
calculate the GST does not met the requirements of section 181.1.
The Modern Approach to
Statutory Interpretation
[16]
Today,
there is just one approach to statutory interpretation. That approach was
described as follows by McLachlin C.J. and Major J.
in Canada Trustco Mortgage Co. v. Canada, 2005 SCC
54, [2005] 2 S.C.R. 601, at paragraph 10:
It has been long established as a matter
of statutory interpretation that "the words of an Act are to be read in
their entire context and in their grammatical and ordinary sense harmoniously
with the scheme of the Act, the object of the Act, and the intention of
Parliament": see 65302 British Columbia Ltd. v.
Canada, [1999] 3 S.C.R. 804, at para. 50. The interpretation of a
statutory provision must be made according to a textual, contextual and
purposive analysis to find a meaning that is harmonious with the Act as a
whole. When the words of a provision are precise and unequivocal, the ordinary
meaning of the words plays a dominant role in the interpretive process. On the
other hand, where the words can support more than one reasonable meaning, the
ordinary meaning of the words plays a lesser role. The relative effects of
ordinary meaning, context and purpose on the interpretive process may vary, but
in all cases the court must seek to read the provisions of an Act as a
harmonious whole.
[17]
Under the modern contextual approach to statutory
interpretation, regard must be had not only to the ordinary and natural meaning
of the words, but also to the context in which they are used and the purpose of
the provision considered as a whole within the legislative scheme in which it
is found: Bell ExpressVu Limited Partnership v. Rex,
[2002] 2 S.C.R. 559, 2002 SCC 42 at para. 27. The most significant element of
this analysis is the determination of legislative intent: R.
v. Monney, [1999] 1 S.C.R. 652 at para. 26.
The
General Scheme of the GST
[18]
The
legislation enacting the GST was passed by Parliament in December 1990 as part
of the Excise Tax Act. It received Royal Assent on December 17, 1990. It
was then calculated at a rate of 7% and applies to most sales of taxable
supplies, including most goods and services. The GST is designed as a value
added tax. It is therefore collected and reimbursed at every stage along the
production and marketing chain, with the final consumer ultimately being the
one to pay the tax on the entire accumulated value of the good or service: Reference
re Quebec Sales Tax, [1994] 2 S.C.R. 715 at p. 720.
[19]
For
this purpose, those who form part of the production chain must register under
the Excise Tax Act. Each registrant who sells a taxable supply down the
production and distribution chain must collect and remit the tax on that
supply. However, each registrant is also entitled to input tax credits which
are normally equal to the tax paid by the registrant on the products and
services it acquires upstream of the production and distribution chain. As a
result of this system of tax collections and of input tax credits, each
registrant pays the tax on the value it added to the product or service, and
passes on that tax downstream the production and distribution chain. The tax is
ultimately assumed by the consumer.
[20]
The
GST replaced the federal sales tax. The old federal sales tax was applied on
sales by manufacturers to wholesalers and retailers. These would, in turn, pass
the tax on to consumers in the form of higher prices. The federal sales tax was
thus not apparent to the consumers. The “hidden” nature of the federal sales
tax, the fact that it applied at different rates, and the fact that wholesale
and retail mark-ups varied considerably from product to product, made it almost
impossible for the consumer to know just how much federal tax was being assumed
in the sale price of the product.
[21]
One
of the fundamental purposes of introducing the GST was to provide transparency
in the tax system. Under the general scheme of the GST, each participant is now
able to clearly understand the amount of tax it is actually paying. The
visibility and transparency of the GST was, and still is, one of the key
aspects of the GST.
Rebates and the GST
[22]
Within
the overall scheme of the GST, coupons and price rebates pose particularly
difficult issues. The first legislation introducing the GST (S.C. 1990, c. 45,
s.12) set out special rules for coupons and rebates in then section 181 of the Excise
Tax Act. Under these rules, a registrant which paid a rebate was also
deemed to have received the rebate as a taxable supply and to have paid tax in
respect of the tax fraction of the rebate. Under the general scheme of the GST,
this entitled the registrant to claim an ITC on the GST portion of the rebate.
Conversely, the customer who was also a registrant was deemed to have made a
taxable supply equal to the rebate and to have collected a corresponding tax.
The treatment of the GST component of the rebate was automatic, compulsory and
inflexible.
[23]
However,
rebates are often complex transactions which do not easily fit into a single
category for the purposes of GST treatment. As an example, if a registrant
sells a product at a discount by providing a rebate at point of sale, the
customer should not normally be required to pay the GST calculated as if the
item was sold at the full price. Yet the original legislative rules dealing
with the GST treatment of rebates were ambiguous about such business practices.
[24]
Conversely,
many rebates are provided after the original sale transactions have occurred
and after the GST has been collected on these transactions. As an example, a
rebate may be provided on past sales after a certain volume of sales has been
achieved. In this last example, many questions arise: Should the GST component
of the rebate be reimbursed? And if so, who should benefit from such
reimbursement? Considerations of administrative ease and efficiency in the
management of the GST must also be considered in such cases.
[25]
In
light of these complexities, it was not long after the introduction of the GST
that legislative amendments were adopted and made to apply to rebates paid
after 1992 (S.C. 1993, c. 27, ss. 46(2) and (4)). These amendments introduced a
new requirement: in order to claim an ITC related to a rebate the registrant
must provide the customer with written indication that a portion of the rebate
is an amount on account of tax. This had the effect of making the requirements
of section 181.1 optional at the discretion of the registrant providing
the rebate. This allowed considerable flexibility in the treatment of the GST
component of rebates to better accommodate the practical operations of the
marketplace.
[26]
Thus,
the amendments removed any uncertainty about those point of sale rebates which
were applied to the sale price before the GST was calculated. In those cases,
the registrant simply deducts the GST from the original sale price, and charges
GST on the discounted price. Since, in such circumstances, the rebate does not
contain a GST component, the registrant does not provide the written indication
called for under section 181.1, and avoids altogether the application of the
section.
[27]
The
requirement of a written indication for section 181.1 to come into play also
served two other purposes. First, it enabled the customer who is a registrant
to determine whether it would be required to account for the GST portion of the
rebate in accordance with section 181.1: Information Release 92-064 of the
Department of Finance, September, 1992, at p. 4. Second, it served to draw to
the customer’s attention the treatment of the GST component of the rebate “and
thus increase the prospect that the marketplace will demand that the rebate be
adjusted to reflect the input tax credit received by the manufacturer”: D.M.
Sherman, Canada GST Service, Binder C4, Carswell, Toronto at p. 181-207.
[28]
To
better understand the purposes for which a written indication is required under
section 181.1, it is useful to consider some of the options available to a
registrant that provides a rebate.
[29]
The
registrant may apply the rebate to the price prior to the calculation of the
GST. Subject to certain statutory restrictions, this option may be available
for rebates provided at point of sale. This was in fact the option used by
TELUS for many of its promotional programs offering a rebate on the purchase of
a phone, where the rebate would be applied to the price of the phone prior
to GST being applied: Reasons at paras. 4 and 6; Appeal Book (“AB”) Vol. 2 p.
321 lines 23 to 28. If this option is pursued, the customer receives the full credit
for the GST portion of the rebate. As an example:
|
Original price
|
$100.00
|
|
Less Discount (or rebate)
|
$50.00
|
|
Total Sale Price
|
$50.00
|
|
GST (at the then rate of 7%)
|
$3.50
|
|
Customer’s disbursement
|
$53.50
|
In this example, the registrant has obviously excluded
the GST portion of the rebate from the transaction. It therefore need not (and
cannot) provide the written indication required by section 181.1. The
registrant has, in this case, effectively opted out of section 181.1 by
ensuring that the customer does not incur GST in regard to the rebated portion
of the sale price.
[30]
However,
the registrant may also choose to apply the rebate after the GST has been
itself applied to the full price. This was the option which TELUS used for the
billing credits: Reasons at para. 6; AB Vol. 2 p. 322 lines 8 to 16. In such
circumstances, the registrant has options.
[31]
As
a first option,
the registrant remits the full GST charged for the supply, including the GST
related to the rebate. It can proceed to claim an ITC pursuant to section 181.1
of the Excise Tax Act. But in order to do so, the registrant must
provide written indication to the customer that a portion of the rebate is on
account of tax. One reason for this is that, under this option, the customer
is at a loss. Indeed, the actual rebate provided to the customer is less
than its nominal value, i.e. the value of rebate is reduced by its GST
component. The customer must be made aware of this. As an example:
|
Original price
|
$100.00
|
|
GST (at the then rate of 7%)
|
$7.00
|
|
Total Price
|
$107.00
|
|
Less Discount (or rebate)
|
$50.00
|
|
Customer’s disbursement
|
$57.00
|
[32]
As
a second option,
the registrant can compensate the customer by providing an enhanced rebate
which takes into account the GST component of the rebate. By so enhancing the
rebate, the registrant places the customer in essentially the same position as
if the rebate had been applied to the original price prior to the calculation
of the GST. The registrant thus “passes on” to the customer the input tax
credit related to the rebate. The registrant can here also claim the ITC under
section 181.1 of the Excise Tax Act, but in this case it is doing so not
as a benefit to itself, but as part of a flow-though to the customer. The
following example illustrates the matter:
Original price
|
$100.00
|
|
GST (at the then rate of 7%)
|
$7.00
|
|
Total Price
|
$107.00
|
|
Less enhanced rebate
|
$53.50
|
|
Customer’s disbursement
|
$53.50
|
[33]
The
net effect of all this is to allow the registrant (in this case TELUS) the
option of either passing on to the customer the GST related portion of the
rebate, or of holding on and thus benefiting from this GST related portion.
[34]
TELUS
essentially submits that by providing the customer with an opportunity to
calculate how the GST was determined, it met the requirements of section 181.1
and was thus entitled to claim an ITC on the rebate portion of the GST. TELUS
states that an opportunity to calculate is sufficient since “GST registrants
often face challenges in determining the GST impact of transactions” but “are
nonetheless required to correctly account for the GST”(TELUS memorandum at
paras. 78-79). It adds that when Parliament requires information to be in a
specific and detailed form, it provides for this. Thus, in the view of TELUS, “[i]f Parliament had
intended to require more than a mere indication, or that an invoice (or
discount device) be formatted in a specific manner as held by the lower Court,
words similar to the [Credit Note and Debit Note Information (GST/HST)]
Regulations would be present in section 181.1”(TELUS memorandum at para. 86).
[35]
I disagree
with the position advanced by TELUS. In my view, a mere opportunity to
calculate is insufficient in light of the above-described purposes of the
written indication. The legislation requires more than an opportunity to
calculate. It requires an actual written indication.
[36]
To
put it simply, the written indication is required from TELUS under section
181.1 to allow its customer which is a registrant (the “particular person who
is a registrant” referred to in section 181.1) to determine whether a GST
component is included or not in the rebate, and if so, to treat that GST
component in accordance with paragraph 181.1(f) of the Excise Tax Act.
The written indication also serves the purpose of ensuring transparency in
the GST aspects of the transaction by informing the customer that the rebate
provided by TELUS is less than the nominal value of the rebate itself.
[37]
In
light of its purposes, the written indication called for under section 181.1 of
the Excise Tax Act must be more than a simple opportunity for the
customer to calculate and figure out how the registrant (here TELUS) treated
the GST aspects of the rebate.
[38]
To sustain a claim to an input tax
credit under section 181.1 of the Excise Tax Act, a registrant (here
TELUS) must either break down the GST component of the rebate and indicate in
writing the resulting amount to the customer, or alternatively, indicate in
writing to the customer that a
portion of the rebate is an amount on account of tax using the words of paragraph
181.1(c) of the Excise Tax Act or similar words. TELUS did not do
so in this case.
CONCLUSION
[39]
I
would dismiss this appeal, with costs in favour of the respondent.
“Robert M. Mainville”
“I agree
Johanne
Trudel J.A.”
“I agree
David
Stratas J.A.”
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