Date: 20120530
Docket:
A-493-10
Citation: 2012 FCA 160
CORAM: EVANS
J.A.
SHARLOW
J.A.
LAYDEN-STEVENSON
J.A.
BETWEEN:
HER MAJESTY
THE QUEEN
Appellant
and
COSTCO
WHOLESALE CANADA LTD.
Respondent
REASONS FOR
JUDGMENT
SHARLOW J.A.
[1]
The
respondent Costco Wholesale Canada Ltd. (“Costco”) has been assessed for
federal goods and services tax (GST) on payments it received from Amex Bank of Canada (“Amex”)
between September 3, 2001 and August 29, 2004. Costco appealed the assessments
to the Tax Court of Canada. The appeal was allowed. The assessments were
vacated on the basis that the payments in issue were not consideration for a
taxable supply, but a reduction or partial refund of a fee payable by Costco to
Amex for an exempt supply (2009 TCC 134). The Crown appealed that decision to
this Court, which ordered a rehearing (2010 FCA 9). After the rehearing, the
judge confirmed his original decision and rendered judgment accordingly (2010
TCC 609). The Crown appeals again to this Court. For the reasons that follow, I
have concluded that the Crown’s second appeal should be dismissed.
Statutory
framework
[2]
GST
is imposed by Part IX of the Excise Tax Act, R.S.C. 1985, c. E-15. The
charging provision is subsection 165(1), which reads as follows:
|
165. (1) Subject to this
Part, every recipient of a taxable supply made in Canada shall pay to Her
Majesty in right of Canada tax in respect of the supply calculated at the
rate of 5% on the value of the consideration for the supply.
|
165. (1) Sous réserve des
autres dispositions de la présente partie, l’acquéreur d’une fourniture
taxable effectuée au Canada est tenu de payer à Sa Majesté du chef du Canada
une taxe calculée au taux de 5
% sur la valeur de
la contrepartie de la fourniture.
|
During the period relevant to this case, the
rate of GST was 7%. No issue arises with respect to the GST rate.
[3]
Subsection
165(1) uses several terms defined in subsection 123(1) of the Excise Tax Act,
and the definitions of those terms use other defined terms – “recipient”,
“consideration”, “supply”, “taxable supply”, “exempt supply”, “property”,
“service”, “commercial activity”, “business”, “financial service”.
[4]
However,
it is not necessary to consider these statutory definitions in detail. It is
common ground that a person who pays consideration for a taxable supply made in
the course of a business activity is required to pay GST at the rate of 5%
(formerly 7%) of the value of the consideration. In the context of this appeal,
“consideration” should be understood to include anything that would be consideration
under the law of contract, and “taxable supply” should be understood to mean
anything except a “financial service” (as defined in subsection 123(1) of the Excise
Tax Act; that definition is considered in more detail below).
[5]
Although
subsection 165(1) imposes GST on the recipient of a taxable supply (the
person who pays the consideration), the person who receives the
consideration (the supplier) generally has the legal obligation to charge
the recipient of the taxable supply the applicable GST, collect the GST, and
remit it to the government. A supplier who fails to meet that obligation may be
held liable for the unpaid GST, and may be assessed accordingly. This appeal
involves a GST assessment of that kind. The Crown is alleging that Amex paid
Costco consideration for a taxable supply, and Costco failed to charge, collect
and remit the applicable GST.
Factual background and
procedural history
(a) The contractual
arrangements between Costco and Amex
[6]
To understand the basis of
the reassessments under appeal, it is necessary to consider two contracts made
simultaneously by Amex and Costco in November of 1999. Although the two
contracts were separate in the sense that there is a separate document for each
contract, the judge concluded that the two contracts were part of a single
transaction. That conclusion is supported by the evidence and has not been
challenged.
[7]
One
of the contracts was entitled “Agreement for American Express® Card
Acceptance” (the “Merchant Agreement”). In the Merchant Agreement, Amex authorized Costco
to
accept Amex credit cards from its customers and Costco agreed to pay Amex a fee
(the “Amex discount”) for that right. It is undisputed that the form of the
Merchant Agreement was the same as the form Amex used for all merchants authorized
to accept Amex credit cards.
[8]
For
the purposes of this appeal, the only relevant provisions of the Merchant
Agreement are those that refer to the Amex discount. Those provisions read as
follows:
|
We
[Amex] will pay you [Costco] in Canadian Dollars for the face amount of
Charges you submit, minus: 1) our Discount; 2) any amounts you owe us; and 3)
any Credits you issued. We will send payments to you in accordance with the
payment plan you select. …
|
|
Discount Rate
The Discount is the amount we charge
you for accepting the Card. The Discount rate is [X] % and will apply to all
Charges made using Cards. The Discount will be deducted from our payments.
|
[9]
As
these provisions indicate, the amount of the Amex discount was a percentage of
Costco sales paid with any Amex credit card (“Amex card sales”). The percentage
rate is referred to as “X” because in these proceedings, it was agreed that the
rate would be kept confidential.
[10]
The
second contract between Amex and Costco was entitled “American Express/Costco
Co-Branded Card Program Agreement” (the “Co-Branding Agreement”). Under the
Co-Branding Agreement, Costco and Amex agreed to issue credit cards bearing
both the Costco and Amex brand names. These Costco/Amex cards would function as
both a Costco membership card and an Amex credit card. The holder of a
Costco/Amex card would be entitled to use it to purchase anything from Costco
or from any other merchant who is authorized to accept Amex credit cards.
[11]
Article
III of the Co-Branding Agreement, entitled “Compensation to Costco”, contained
four provisions that obliged Amex to pay money to Costco – section 3.01(a),
section 3.01(b), section 3.01(c) and section 3.02.
[12]
The
assessments under appeal imposed GST only on payments made under section
3.01(a) of the Co-Branding Agreement, which read as follows (my emphasis):
|
[3.01]
(a) Within thirty (30) days after the end of each calendar quarter during
the term of this Agreement, Costco shall be paid an amount equal to [Y] % of
the Costco Net Volume of Charges during that calendar quarter. Provided
that for the time period ending January 31, 2000, the amount paid to Costco
shall equal ___% (instead of [Y] % ) of the Costco Net Volume of Charges
during that period. Provided further that, if by April 8, 2000 Costco does
not complete its information systems requirements to support the issuance of
the [Co-Branding] Consumer Cards, then for the time period beginning April 8,
2000 through the date Costco completes its information systems requirements,
the amount paid to Costco shall equal ___% (instead of [Y] % of the Costco
Net Volume of Charges during that period. (It is understood that, to make a
payment promptly, Amex may be required to use Net Annual Volume of Charge
figures which are tentative, and therefore may require adjustments in a
future calendar quarter.)
|
[13]
The
amount of each section 3.01(a) payment was a specified percentage of Amex card
sales during a calendar quarter. The percentage rate is referred to as “Y”,
again because in these proceedings it was agreed that the rate would be kept
confidential.
[14]
The
computational basis of the Amex discount and the section 3.01(a) payments was
the same – a percentage of Amex card sales. The only asymmetry was that the
Amex discount payments were made within days of each submission by Costco of
Amex charges, while the section 3.01(a) payments were made quarterly. It is
undisputed that X was greater than Y. Thus, on a net basis and ignoring timing
differences, cash flowed from Costco to Amex in an amount equal to X minus Y,
multiplied by Amex card sales.
[15]
As
mentioned above, there were three other provisions of the Co-Branding Agreement
that required Amex to make payments to Costco. One of those provisions
was section 3.01(b), which read as follows (my emphasis):
|
[3.01]
(b) In exchange for the marketing efforts provided by Costco as contained
in Section 2.02 (a) above, Costco shall be paid for each 12-month period
beginning with the issuance of the first [Co-Branding] Card, the amount
specified in the charts below for each [Co-Branding] Consumer Card Account
and each [Co-Branding] Small Business Card Account acquired during that
12-month period. All payments are inclusive of applicable Taxes. “Acquired”,
for purposes of this subsection (b) means that a [Co-Branding] Card Account
was approved, a Basic Card is issued by Amex, and the Basic Card is not
canceled prior to the end of the calendar quarter in which it was approved.
The number of Accounts Acquired is determined for each such 12-month period
independently under the charts below as if each 12-month period begins with 0
Acquired Accounts, i.e., there is no accumulation from one 12-month period to
the next 12-month period. Payments under this subsection (b) shall be made
within thirty (30) days after the end of each calendar quarter in a given
12-month period.
|
[16]
The
parties refer to the section 3.01(b) payments as “bounty fees” because the amount of each
payment was a function of the number of Costco/Amex cards issued during a
specified period. The section 3.01(b) payments were stipulated to be in
exchange for the marketing efforts provided by Costco pursuant to section
2.02(a) of the Co-Branding Agreement.
[17]
However,
Costco had other obligations under the Co-Branding Agreement that were not
covered by section 2.02(a). The most prominent example of such an obligation
was “exclusivity”, or the obligation of Costco under section 2.11 of the
Co-Branding Agreement not to accept any credit cards except Amex credit cards.
[18]
Amex
was also required to make payments to Costco under section 3.01(c) and section
3.02 of the Co-Branding Agreement. Those payments related, respectively, to the
Costco/Amex card usage and new membership targets. No section 3.01(c) or
section 3.02 payments were made during the period relevant to this appeal, and
the parties agree that these payments can be disregarded for the purposes of
this case.
(b) GST implications of the contractual
arrangements
[19]
It
is undisputed that when Amex permitted Costco to accept Amex credit cards
pursuant to the Merchant Agreement, Amex was supplying a “financial service” as
defined in section 123(1) of the Excise Tax Act, which by definition was
an exempt supply and therefore not a taxable supply.
[20]
It
is also undisputed that the Amex discount was the consideration Costco paid for
that financial service, and therefore Costco had no liability to pay GST on the
Amex discount. Although the record is not explicit on this point, I assume that
the service supplied by Amex fell within one or more of paragraphs (g),
(i) and (l) of the definition of “financial service”. During the
period relevant to this case, those provisions read as follows:
|
“financial service” means
|
« service financier »
|
|
...
|
[…]
|
|
(g) the making of any advance, the granting of
any credit or the lending of money,
|
g) l’octroi d’une avance ou de
crédit ou le prêt d’argent;
|
|
...
|
[…]
|
|
(i) any
service provided pursuant to the terms and conditions of any agreement
relating to payments of amounts for which a credit card voucher or charge
card voucher has been issued,
|
i) un service rendu en conformité
avec les modalités d’une convention portant sur le paiement de montants visés
par une pièce justificative de carte de crédit ou de paiement;
|
|
...
|
[…]
|
|
(l) the
agreeing to provide, or the arranging for, a service that is referred to in
any of paragraphs (a) to (i).
|
l) le fait de consentir à
effectuer, ou de prendre les mesures en vue d’effectuer, un service qui, à la
fois est visé à l’un des alinéas a) à i).
|
[21]
As
mentioned above, the assessments under appeal imposed GST on the payments Amex
made to Costco pursuant to section 3.01(a) of the Co-Branding Agreement. To
determine whether the section 3.01(a) payments were subject to GST as the Crown
contends, it is necessary to determine the purpose of those payments or, more
precisely, for what consideration (if any) the section 3.01(a) payments were
made. The section 3.01(a) payments were subject to GST only if they were
consideration for a taxable supply by Costco.
[22]
The
purpose of the section 3.01(a) payments must be discerned by interpreting the
Co-Branding Agreement and the Merchant Agreement. The interpretative challenge
is that nothing in either agreement specifies why the section 3.01(a) payments
were made. Costco and the Crown offer different interpretations.
(i)
Costco’s position on the purpose of the section 3.01(a) payments
[23]
Costco
argues that the actual Amex discount – the consideration Costco actually
paid to Amex for an exempt supply – was not X% of Amex card sales, but (X-Y) %
of Amex card sales. Costco’s position is based on the business objective of the
Merchant Agreement and the Co-Branding Agreement (considered together), and
relies on the fact that the same computational basis was used for the Amex
discount and the section 3.01(a) payments, both being a percentage of Amex card
sales.
[24]
Specifically,
Costco argues that as a matter of contractual interpretation, the section
3.01(a) payments were a reduction or partial refund of the Amex discount, and
not consideration for anything supplied by Costco under the Co-Branding
Agreement. It follows, according to Costco, that no GST liability can arise on
the section 3.01(a) payments and the assessments under appeal cannot stand.
(ii) The
Crown’s position on the purpose of the section 3.01(a) payments
[25]
The
Crown’s position begins with the proposition that all obligations of Costco
under the Co-Branding Agreement were supplies Costco made to Amex, and all
payment obligations imposed on Amex under the Co-Branding Agreement were
consideration for those supplies. As the Co-Branding Agreement
did not state the specific purpose of the section 3.01(a) payments, it is
necessary to interpret the Co-Branding Agreement to determine that question,
and then determine whether the section 3.01 payments were consideration for a
taxable supply or an exempt supply (specifically, a financial service). If it was a financial
service, then the supply was an exempt supply and there would have been no GST
liability. Otherwise, GST would be payable and the assessments under appeal
would be correct.
[26]
The
Crown’s analysis takes into account the payment provisions other than section
3.01(a), including section 3.01(b) (quoted above). The section 3.01(b) payments
were expressly stipulated to be paid for the marketing efforts provided by Costco
pursuant to section 2.02(a) of the Co-Branding Agreement. That suggests that
the section 3.01(a) payments must have been consideration for something other
than Costco’s section 2.02(a) marketing obligations.
[27]
The
Crown argues that, as Costco had substantial obligations under the Co-Branding
Agreement that were not within section 2.02(a), including the obligation of
exclusivity under section 2.11, the section 3.01(a) payments must have been
consideration for those other obligations.
(c) Tax appeals
[28]
After
the first Tax Court hearing, the judge accepted Costco’s position and allowed
the appeal. He went on to consider in the alternative whether, if he was wrong
on the main point and the section 3.01(a) payments were consideration for a
supply by Costco, they were consideration for a taxable supply or an exempt
supply. He found, for reasons that are summarized below, that if they were
consideration for a supply by Costco, the supply was a financial service as
defined in paragraph (i) of the definition of “financial service” in
subsection 123(1) of the Excise Tax Act, and was therefore an exempt
supply.
[29]
The
Crown appealed to this Court, which concluded that the judge had not put his
mind to the statutory definition of “property”. On the basis of that omission,
the appeal was allowed and the matter was returned to the judge “so that it may
be decided again, taking into consideration the definition of “property” based
on the existing evidence, or any further evidence which the Tax Court judge may
decide to allow” (2010 FCA 9, paragraph 10).
[30]
On
the rehearing, the judge considered the statutory definition of “property” as
he had been directed to do, and also the statutory definition of “service”
because that was argued as well. He acknowledged that the parties agreed that
rights of exclusivity were “property” as defined in subsection 123(1) of the Excise
Tax Act, and he discussed this concept at some length.
[31]
After
a detailed review of the agreements and the additional evidence, he concluded
that even if the Crown was correct in interpreting section 2.11 of the
Co-Branding Agreement (the exclusivity provision) as stipulating a taxable
supply by Amex to Costco, he had no basis for finding that the section 3.01(a)
payments were consideration for that supply. Accordingly, he was not persuaded
that the section 3.01(a) payments were anything but a reduction or partial
refund of the Amex discount, as he had concluded after the first hearing.
[32]
The
judge also discussed the possibility that the section 3.01(a) payments could be
seen as in part a reduction or partial refund of the Amex discount and in part
consideration for something supplied by Amex under the Co-Branding Agreement.
However, he concluded that because there was no evidence on this point, any
attempt at such an allocation would be purely speculative. He confirmed his
earlier decision to allow Costco’s appeal and vacate the assessments. The Crown
has now appealed for a second time to this Court.
Standard of review
[33]
In
this appeal, the standard of review
is correctness for questions of law. Findings of fact or mixed law and fact
must stand absent palpable and overriding error, or an extricable error of law
(Housen v. Nikolaisen, [2002] 2 S.C.R. 235). The only relevant facts in this case relate to
the factual background to the relevant contracts, that which is sometimes
called the factual matrix. None of those facts are in dispute.
[34]
The
dispute is whether the payments made by Amex to Costco pursuant to section
3.01(a) of the Co-Branding Agreement are consideration (within the meaning of
the principles of the law of contract) for a taxable supply by Costco. That is
essentially a question of contractual interpretation, which is a question of
law: Calgary (City) v. Canada, 2010 FCA 127 (affirmed but with no discussion
of this point: City of Calgary v. Her Majesty the Queen, 2012 SCC 20); McNeil
v. Canada (Employment Insurance
Commission),
2009 FCA 306.
Issues
[35]
The
parties have proposed different analytical frameworks for resolving the issues
that arise in this appeal. For that reason they have proposed different questions
to be answered. In my view, the issues may be simply stated. This appeal must
be dismissed if:
(a)
the
section 3.01(a) payments were not
consideration for a supply by Costco under the Co-Branding Agreement,
or
(b)
the
section 3.01(a) payments were consideration for a supply by Costco under the
Co-Branding Agreement, but the supply was a financial service and thus an
exempt supply.
Discussion
Were the payments
consideration for a supply?
[36]
The
judge found that the section 3.01(a) payments were a reduction or partial
refund of the Amex discount and not consideration for a supply by Costco under
the Co-Branding Agreement. That conclusion was based on two findings of fact
made by the judge on the basis of the testimony of Amex and Costco officials.
[37]
First,
Amex would have been willing to accept a lower discount rate for Amex card
sales than the X % stipulated in the Merchant Agreement, and would have agreed
to a discount rate of (X-Y) %, if Costco agreed to the Co-Branding Agreement.
Second, if the Amex discount were to be set at (X-Y) %, the Y part of the
formula would have to be set out in the Co-Branding Agreement so that the
willingness of Amex to accept (X-Y) % could be kept confidential. These
findings of fact accord with the evidence and cannot be disputed.
[38]
But exactly
how do these facts inform the interpretation of the relevant contracts, or
assist in determining whether the section 3.01(a) payments were consideration
for a supply by Costco? The judge held that they were effectively dispositive
in Costco’s favour. I respectfully disagree. In my view, the undisputed facts
identify, from the point of view of Amex, the business objectives of the
contractual arrangements to which Costco and Amex agreed. An understanding of
business objectives may be helpful in interpreting a contract that is entered
into to meet those objectives. However, it does not necessarily determine the
interpretation of the contract if, as in this case, there is more than one way
to achieve the business objectives, and the contractual language is not
specific as to which solution was chosen.
[39]
Amex
had a cash flow objective and a confidentiality objective. The cash flow
objective was to derive payments of (X – Y) % of Amex card sales from the
contractual arrangements with Costco. Those objectives probably could have been
achieved in a number of different ways. For example, both objectives would have
been met if the section 3.01(a) payments were stipulated in the Co-Branding
Agreement to be a reduction or partial refund of the Amex discount. Alternatively,
both objectives would have been met if the section 3.01 payments were
stipulated to be consideration for any or all of the obligations of Amex under
the Co-Branding Agreement.
[40]
However,
the legal rights and obligations necessary to give effect to these two possible
solutions are not the same. The first solution would have embodied Costco’s
position that the actual amount of the Amex discount rate was (X‑Y) %
of Amex card sales. The second solution would have embodied the Crown’s
position that the section 3.01(a) payments were consideration paid by Amex for
one or more obligations of Costco under the Co-Branding Agreement.
[41]
The
judge accepted the contractual interpretation proposed by Costco, and found
that the section 3.01(a) payments were a reduction or partial refund of the
Amex discount payable by Costco under the Merchant Agreement. In my view, there
are three difficulties with Costco’s interpretation.
[42]
First,
section 3.01(a) is located in the part of the Co-Branding Agreement that
describes the compensation payable by Amex to Costco. Thus, the implication
from the face of the agreement is that the section 3.01(a) payments were
consideration for one or more of Costco’s obligations under the Co-Branding
Agreement.
[43]
Second,
Costco’s interpretation assumes that the confidentiality objective of Amex
could not be met by identifying the section 3.01(a) payments as a reduction or
partial refund of the Amex discount. In my view, that assumption is unfounded.
As I understand the record, the confidentiality advantage was achieved by
limiting access to the Co-Branding Agreement, not by failing to be explicit in
section 3.01(a).
[44]
Third,
Costco’s interpretation assumes that Costco was providing nothing of value to
Amex under the Co-Branding Agreement that was not being paid for by the section
3.01(b) payments (the bounty fee). That is not consistent with the evidence
that exclusivity – Costco’s obligation under section 2.11 of the Co-Branding
Agreement to accept only Amex credit cards – had substantial value to Amex, and
therefore was something that could justify the payment of consideration by
Amex. The value to Amex of exclusivity is readily discernible from the
contractual terms. Every Costco sale on a credit card other than an Amex credit
card would reduce the value to Amex of the entire co-branding arrangement. It
would defy common sense to suggest that Amex would have agreed to the
Co-Branding Agreement without exclusivity.
[45]
In
my view, the interpretation of the contracts that is more consistent with the
language of the contracts and the undisputed facts is that the section 3.01(a)
payments were consideration paid by Amex to Costco, either for Costco entering
into the Co-Branding Agreement, or specifically for the exclusivity provision.
In either case, Costco was providing Amex with something of value by entering
into the Co-Branding Agreement (apart from the marketing efforts required by
section 2.02(a) for which the consideration was the bounty fees; it is
undisputed that the bounty fees were subject to GST.)
[46]
Were
the section 3.01(a) payments made as consideration for a “supply” as defined in
the Excise Tax Act? The answer must be yes, because of the breadth of
the statutory definitions of “supply”, “property” and “service”. Those
definitions read
in relevant part as follows:
|
“supply”
means … the provision of property or a service in any manner, including sale,
transfer, barter, exchange, licence, rental, lease, gift or disposition.
|
« fourniture »
[…] livraison de biens ou prestation de services, notamment par vente,
transfert, troc, échange, louage, licence, donation ou aliénation.
|
|
“property” means any
property, whether real or personal, movable or immovable, tangible or
intangible, corporeal or incorporeal, and includes a right or interest of any
kind, a share and a chose in action, but does not include money.
|
«
bien » À l’exclusion d’argent, tous biens — meubles et immeubles — tant
corporels qu’incorporels, y compris un droit quelconque, une action ou une
part.
|
|
…
|
[…]
|
|
“service”
means anything other than
(a) property,
(b) money,
and
(c) anything that is supplied to an employer
by a person who is or agrees to become an employee of the employer in the
course of or in relation to the office or employment of that person.
|
«
service » Tout ce qui n’est ni un bien, ni de l’argent, ni fourni à un
employeur par une personne qui est un salarié de l’employeur, ou a accepté de
l’être, relativement à sa charge ou à son emploi.
|
|
|
|
[47]
Every
supply of a property or a service is a taxable supply (and therefore subject to
GST) unless it is an exempt supply, which in the context of this case means a
financial service. In other words, anything supplied by Costco to Amex under
the Co-Branding Agreement is subject to GST unless it is a financial service.
Therefore, the only remaining issue is whether what Costco supplied to Amex
under the Co-Branding Agreement was a financial service. That issue is
discussed in the next part of these reasons.
Is the supply by Costco
a financial service and therefore an exempt supply?
[48]
As
mentioned above, the judge concluded after the first Tax Court hearing that if
the paragraph 3.01(a) payments were consideration paid by Amex for a supply by
Costco under the Co-Branding agreement, the supply by Costco was an exempt
supply because it fell within paragraph (i) of the definition of
“financial service” in subsection 123(1) of the Excise Tax Act.
Paragraph (i) of the definition is quoted above and is repeated here for
ease of reference:
|
“financial service” means
|
« service financier »
|
|
…
|
[…]
|
|
(i) any service provided pursuant to the terms
and conditions of any agreement relating to payments of amounts for which a
credit card voucher or charge card voucher has been issued.
|
i) un service rendu en
conformité avec les modalités d’une convention portant sur le paiement de
montants visés par une pièce justificative de carte de crédit ou de paiement.
|
[49]
I
summarize as follows the judge’s reasoning on this point. Whether the section
3.01(a) payments are treated as part of the consideration for all of Costco’s
obligations under the Co-Branding Agreement, or as consideration only for
Costco’s obligations other than marketing, Costco is providing the services of
an intermediary between Amex, a major credit card company, and its potential
customers. Essentially, Costco’s function under the Co-Branding agreement is to
support Amex in its business of supplying credit, and its services are an
integral part of that aspect of the business of Amex. The judge concluded as
follows at paragraph 43 of his reasons (2009 TCC 134 – emphasis in original):
|
Further, paragraph (i) of the definition of
financial service which refers to any service provided pursuant to the
terms of any agreement relating to payments of amounts for which
credit card vouchers have been issued is so broad as to easily capture
Costco's obligations, especially if read in conjunction with the expression
"agreeing to provide" such services, even where these obligations
are not the direct "marketing efforts" obligation of subsection
2.02(a).
|
[50]
The reasons for judgment in
the first appeal to this Court are silent on the issue of whether any supply by
Costco to Amex is a financial service, and this issue is not mentioned in the
reasons for the Tax Court judgment now under appeal. Nor has the Crown argued
in this appeal that the judge erred in his first decision when he concluded
that the Costco supply fell within paragraph (i) of the definition of
“financial service”. Further, I see no basis in the record as it was at the
time of the first Tax Court hearing, or the expanded record from the second Tax
Court hearing, to find that the judge erred on this point. Normally, that would
be a sufficient basis for concluding that the Crown’s appeal from the second
Tax Court judgment should be dismissed.
[51]
However,
the Crown has submitted that this Court must go further and consider whether,
because of retrospective amendments to the definition of “financial service”,
this Court should conclude that the Costco supply does not fall within the current
definition, and was therefore a taxable supply when it was made.
[52]
By
the time of the second Tax Court hearing, the definition of “financial service”
had been amended by section 55 of the Jobs and Economic Growth Act, S.C.
2010, c. 12 (assented to on July 12, 2010). Those amendments were deemed to
come into effect on December 17, 1990, subject to transitional provisions in
subsection 55(5) for certain services rendered under a written agreement. No
change was made to paragraph (i) of the definition of “financial
service”.
[53]
The
definition of ‘financial service” in subsection 123(1) of the Excise Tax Act
now reads as follows (the words added by section 55 of the Jobs and Economic
Growth Act are underlined):
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“financial
service” means
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«
service financier »
|
|
(a) the
exchange, payment, issue, receipt or transfer of money, whether effected by
the exchange of currency, by crediting or debiting accounts or otherwise,
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a) L’échange, le paiement,
l’émission, la réception ou le transfert d’argent, réalisé au moyen d’échange
de monnaie, d’opération de crédit ou de débit d’un compte ou autrement;
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(b) the
operation or maintenance of a savings, chequing, deposit, loan, charge or
other account,
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b) la tenue d’un compte
d’épargne, de chèques, de dépôt, de prêts, d’achats à crédit ou autre;
|
|
(c) the
lending or borrowing of a financial instrument,
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c) le prêt ou l’emprunt
d’un effet financier;
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|
(d) the
issue, granting, allotment, acceptance, endorsement, renewal, processing,
variation, transfer of ownership or repayment of a financial instrument,
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d) l’émission, l’octroi,
l’attribution, l’acceptation, l’endossement, le renouvellement, le
traitement, la modification, le transfert de propriété ou le remboursement
d’un effet financier;
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(e) the
provision, variation, release or receipt of a guarantee, an acceptance or an indemnity
in respect of a financial instrument,
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e) l’offre, la
modification, la remise ou la réception d’une garantie, d’une acceptation ou
d’une indemnité visant un effet financier;
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(f) the
payment or receipt of money as dividends (other than patronage dividends),
interest, principal, benefits or any similar payment or receipt of money in
respect of a financial instrument,
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f) le paiement ou la
réception d’argent à titre de dividendes, sauf les ristournes, d’intérêts, de
principal ou d’avantages, ou tout paiement ou réception d’argent semblable,
relativement à un effet financier;
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(f.1) the
payment or receipt of an amount in full or partial satisfaction of a claim
arising under an insurance policy,
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f.1) le paiement ou la
réception d’un montant en règlement total ou partiel d’une réclamation
découlant d’une police d’assurance;
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(g) the
making of any advance, the granting of any credit or the lending of money,
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g) l’octroi d’une avance ou
de crédit ou le prêt d’argent;
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(h) the
underwriting of a financial instrument,
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h) la souscription d’un
effet financier;
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(i) any
service provided pursuant to the terms and conditions of any agreement
relating to payments of amounts for which a credit card voucher or charge
card voucher has been issued,
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i) un service rendu en
conformité avec les modalités d’une convention portant sur le paiement de
montants visés par une pièce justificative de carte de crédit ou de paiement;
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(j) the service of
investigating and recommending the compensation in satisfaction of a claim
where
(i) the
claim is made under a marine insurance policy, or
(ii) the
claim is made under an insurance policy that is not in the nature of accident
and sickness or life insurance and
(A) the
service is supplied by an insurer or by a person who is licensed under the
laws of a province to provide such a service, or
(B) the
service is supplied to an insurer or a group of insurers by a person who
would be required to be so licensed but for the fact that the person is
relieved from that requirement under the laws of a province,
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j) le service consistant à
faire des enquêtes et des recommandations concernant l’indemnité accordée en
règlement d’un sinistre prévu par :
(i) une
police d’assurance maritime,
(ii) une
police d’assurance autre qu’une police d’assurance-accidents,
d’assurance-maladie ou d’assurance-vie, dans le cas où le service est
fourni :
(A) soit
par un assureur ou une personne autorisée par permis obtenu en application de
la législation d’une province à rendre un tel service,
(B) soit
à un assureur ou un groupe d’assureurs par une personne qui serait tenue
d’être ainsi autorisée n’eût été le fait qu’elle en est dispensée par la
législation d’une province;
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(j.1) the
service of providing an insurer or a person who supplies a service referred
to in paragraph (j) with an appraisal of the damage caused to
property, or in the case of a loss of property, the value of the property,
where the supplier of the appraisal inspects the property, or in the case of
a loss of the property, the last-known place where the property was situated
before the loss,
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j.1) le service consistant à
remettre à un assureur ou au fournisseur du service visé à l’alinéa j)
une évaluation des dommages causés à un bien ou, en cas de perte d’un bien,
de sa valeur, à condition que le fournisseur de l’évaluation examine le bien
ou son dernier emplacement connu avant sa perte;
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(k) any
supply deemed by subsection 150(1) or section 158 to be a supply of a
financial service,
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k) une fourniture réputée
par le paragraphe 150(1) ou l’article 158 être une fourniture de service
financier;
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(l) the agreeing to provide, or the
arranging for, a service that is
(i) referred to in any of paragraphs
(a) to (i), and
(ii) not
referred to in any of paragraphs (n) to (t), or
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l) le fait de consentir à
effectuer, ou de prendre les mesures en vue d’effectuer, un service qui, à la
fois :
(i) est visé à l’un des alinéas a)
à i),
(ii) n’est
pas visé aux alinéas n) à t);
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(m) a
prescribed service,
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m) un service visé par
règlement.
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but
does not include
|
La
présente définition exclut :
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|
(n) the
payment or receipt of money as consideration for the supply of property other
than a financial instrument or of a service other than a financial service,
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n) le paiement ou la
réception d’argent en contrepartie de la fourniture d’un bien autre qu’un
effet financier ou d’un service autre qu’un service financier;
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(o) the
payment or receipt of money in settlement of a claim (other than a claim
under an insurance policy) under a warranty, guarantee or similar arrangement
in respect of property other than a financial instrument or a service other
than a financial service,
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o) le paiement ou la
réception d’argent en règlement d’une réclamation (sauf une réclamation en
vertu d’une police d’assurance) en vertu d’une garantie ou d’un accord semblable
visant un bien autre qu’un effet financier ou un service autre qu’un service
financier;
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(p) the service of providing advice, other
than a service included in this definition because of paragraph (j) or
(j.1),
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p) les services de conseil,
sauf un service visé aux alinéas j) ou j.1);
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(q) the
provision, to an investment plan (as defined in subsection 149(5)) or any
corporation, partnership or trust whose principal activity is the investing
of funds, of
(i) a
management or administrative service, or
(ii) any
other service (other than a prescribed service),
if
the supplier is a person who provides management or administrative services
to the investment plan, corporation, partnership or trust,
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q) l’un des services
suivants rendus soit à un régime de placement, au sens du paragraphe 149(5),
soit à une personne morale, à une société de personnes ou à une fiducie dont
l’activité principale consiste à investir des fonds, si le fournisseur est
une personne qui rend des services de gestion ou d’administration au régime,
à la personne morale, à la société de personnes ou à la fiducie :
(i) un
service de gestion ou d’administration,
(ii) tout
autre service (sauf un service prévu par règlement);
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(q.1) an
asset management service,
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q.1) un service de gestion
des actifs;
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(r) a
professional service provided by an accountant, actuary, lawyer or notary in
the course of a professional practice,
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r) les services
professionnels rendus par un comptable, un actuaire, un avocat ou un notaire
dans l’exercice de sa profession;
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(r.1) the
arranging for the transfer of ownership of shares of a cooperative housing
corporation,
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r.1) le fait de prendre des
mesures en vue du transfert de la propriété des parts du capital social d’une
coopérative d’habitation;
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(r.2) a
debt collection service, rendered under an agreement between a person
agreeing to provide, or arranging for, the service and a particular person
other than the debtor, in respect of all or part of a debt, including a
service of attempting to collect, arranging for the collection of,
negotiating the payment of, or realizing or attempting to realize on any
security given for, the debt, but does not include a service that consists
solely of accepting from a person (other than the particular person) a
payment of all or part of an account unless
(i) under
the terms of the agreement the person rendering the service may attempt to
collect all or part of the account or may realize or attempt to realize on
any security given for the account, or
(ii) the
principal business of the person rendering the service is the collection of
debt,
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r.2) le service de
recouvrement de créances rendu aux termes d’une convention conclue entre la
personne qui consent à effectuer le service, ou qui prend des mesures afin
qu’il soit effectué, et une personne donnée (sauf le débiteur) relativement à
tout ou partie d’une créance, y compris le service qui consiste à tenter de
recouvrer la créance, à prendre des mesures en vue de son recouvrement, à en
négocier le paiement ou à réaliser ou à tenter de réaliser une garantie
donnée à son égard; en est exclu le service qui
consiste
uniquement à accepter d’une personne (sauf la personne donnée) un paiement en
règlement de tout ou partie d’un compte, sauf si la personne qui effectue le
service, selon le cas :
(i) peut,
aux termes de la convention, soit tenter de recouvrer tout ou partie du
compte, soit réaliser ou tenter de réaliser une garantie donnée à son égard,
(ii) a
pour entreprise principale le recouvrement de créances;
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(r.3) a
service (other than a prescribed service) of managing credit that is in
respect of credit cards, charge cards, credit accounts, charge accounts, loan
accounts or accounts in respect of any advance and is provided to a person
granting, or potentially granting, credit in respect of those cards or
accounts, including a service provided to the person of
(i) checking,
evaluating or authorizing credit,
(ii) making
decisions on behalf of the person in relation to a grant, or an application
for a grant, of credit,
(iii) creating
or maintaining records for the person in relation to a grant, or an
application for a grant, of credit or in relation to the cards or accounts,
or
(iv) monitoring
another person’s payment record or dealing with payments made, or to be made,
by the other person,
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r.3) le service, sauf un
service visé par règlement, qui consiste à gérer le crédit relatif à des
cartes de crédit ou de paiement, à des comptes de crédit, d’achats à crédit
ou de prêts ou à des comptes portant sur une avance, rendu à une personne qui
consent ou pourrait consentir un crédit relativement à ces cartes ou comptes,
y compris le service rendu à cette personne qui consiste, selon le cas :
(i) à
vérifier, à évaluer ou à autoriser le crédit,
(ii) à
prendre, en son nom, des décisions relatives à l’octroi de crédit ou à une
demande d’octroi de crédit,
(iii) à
créer ou à tenir, pour elle, des dossiers relatifs à l’octroi de crédit ou à
une demande d’octroi de crédit ou relatifs aux cartes ou aux comptes,
(iv) à
contrôler le registre des paiements d’une autre personne ou à traiter les
paiements faits ou à faire par celle-ci;
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(r.4) a
service (other than a prescribed service) that is preparatory to the
provision or the potential provision of a service referred to in any of
paragraphs (a) to (i) and (l), or that is provided in
conjunction with a service referred to in any of those paragraphs, and that
is
(i) a
service of collecting, collating or providing information, or
(ii) a
market research, product design, document preparation, document processing,
customer assistance, promotional or advertising service or a similar service,
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r.4) le service, sauf un
service visé par règlement, qui est rendu en préparation de la prestation
effective ou éventuelle d’un service visé à l’un des alinéas a) à i)
et l), ou conjointement avec un tel service, et qui consiste en l’un
des services suivants :
(i) un
service de collecte, de regroupement ou de communication de renseignements,
(ii) un
service d’étude de marché, de conception de produits, d’établissement ou de
traitement de documents, d’assistance à la clientèle, de publicité ou de
promotion ou un service semblable;
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(r.5) property
(other than a financial instrument or prescribed property) that is delivered
or made available to a person in conjunction with the rendering by the person
of a service referred to in any of paragraphs (a) to (i) and (l),
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r.5) un bien, sauf un effet
financier ou un bien visé par règlement, qui est livré à une personne, ou mis
à sa disposition, conjointement avec la prestation par celle-ci d’un service
visé à l’un des alinéas a) à i) et l);
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(s) any
service the supply of which is deemed under this Part to be a taxable supply,
or
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s) les services dont la
fourniture est réputée taxable aux termes de la présente partie;
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(t) a prescribed service.
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t) les services visés par
règlement.
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[54]
The
Crown relies in particular on paragraphs (r.3), (r.4) and (r.5)
of the amended definition, but without specifying which of these paragraphs
capture the services of Costco for which Amex paid the section 3.01 payments.
The Crown’s position is that the enactment of these provisions should be taken
as an indication that services provided by retailers such as Costco to
financial institutions such as Amex were not intended to be exempt supplies.
[55]
The
Crown’s argument is based on the assumption that the enactment of paragraphs (r.3),
(r.4) and (r.5) precludes the need for a detailed examination of
the statutory definition against the relevant facts. I do not accept that
assumption. In my view, when the Court is required to determine whether a
particular supply falls within the statutory definition of “financial service”,
the Court must determine, on the basis of the evidence, whether the supply is
within the scope of one of the inclusions in paragraphs (a) to (m)
of the definition, or within the scope of one of the exclusions in paragraphs (l)
to (t) of the definition, and must identify which inclusion or exclusion
applies.
[56]
In
this case, the Court is faced with the decision of the judge that the supply in
issue was included in the definition of “financial service” by virtue of
paragraph (i). The Crown has not argued that the judge’s decision was
wrong when it was made, and I have been able to discern no reason for
concluding that it was wrong.
[57]
More
importantly, the Crown has pointed to nothing in the record that would justify
a finding by this Court that the supply in issue is within one of the newly
enacted exclusions in paragraphs (r.3), (r.4) and (r.5) of
the definition of “financial service” (assuming, without deciding, that such a
finding would necessarily exclude the supply from the definition of “financial
service” where the supply is also within paragraph (i) of the
definition). In the absence of any submissions by the Crown addressing the
factual basis for the application of paragraphs (r.3), (r.4) and
(r.5) in this case, I am not persuaded that this Court has any basis for
finding that the supply in issue is within the scope of paragraphs (r.3),
(r.4) or (r.5).
[58]
I do
not say that retrospective amendments to the Excise Tax Act cannot be
made, or cannot be applied. I say only that in this case, I am not persuaded
that there is a factual basis for finding the supply in issue to be within the
scope of paragraphs (r.3), (r.4) or (r.5).
[59]
Costco
has submitted that it is “grandfathered” or, in other words, that by virtue of
the transitional provisions in subsection 55(5) of the Jobs and Economic
Growth Act, it is relieved from the retrospective effect of the amendments
to the statutory definition of “financial service”. It is not necessary for
me to consider that argument, and I decline to do so.
[60]
I
conclude that there is no basis upon which this Court should intervene in the
judge’s conclusion that the supply in issue was an exempt supply.
Observations
on dealing with retrospective amendments
The
importance of a trial decision
[61]
In the unusual
circumstances of this case, there is force in Costco’s argument that,
for reasons of fairness, this Court should not entertain the Crown’s argument
that is based on the retrospective amendments made by section 55 of the Jobs
and Economic Growth Act. Nevertheless, the Crown’s argument has been
considered as fully as possible on the available record.
[62]
The
amended provisions are complex and technical, and are part of a statutory
scheme that is even more complex and technical. A proper consideration of the
application of the amended provisions requires an informed analysis of a number
of related provisions (including sections 138 and 139). This Court is at a
considerable disadvantage in attempting to deal with these matters without the
assistance of the reasoned decision of a judge who has presided at a trial
where evidence was presented specifically to address the factual issues raised
by the amended provisions.
[63]
I
hasten to add that neither party suggested that this case would justify a third
Tax Court hearing, and I do not suggest that any such step is warranted.
Procedure for
raising a new argument based on a retrospective amendment
[64]
The
amended statutory provisions upon which the Crown seeks to rely were argued in
the second Tax Court hearing without the benefit of amended pleadings or
evidence presented specifically to address the factual issues raised by the
amended provisions. Generally, where the Crown seeks to defend an assessment in
the Tax Court on the basis of a new statutory provision (including a newly
enacted retrospective amendment), the Crown should, subject to the applicable
procedural rules, amend its pleadings to include any new factual allegations
that may be required and to refer to the new statutory provisions.
[65]
The
onus would then be on the Crown to prove any new facts that are relevant to the
application of the new provisions and that are not within the factual
assumptions upon which the assessment was based. If that onus cannot be met by
evidence in the existing record, the Crown should present further evidence,
subject to the applicable procedural rules. In this case, the Crown had the
opportunity to adduce evidence at the second Tax Court hearing, but apparently
did not do so.
Conclusion
[66]
For
the reasons set out above, I have concluded that the payments made by Amex
pursuant to section 3.01(a) of the Co-Branding Agreement were consideration for
a supply by Costco, and that the supply was a “financial service” and therefore
an exempt supply. I would dismiss the appeal. Costco is entitled to its costs
of this appeal and the first appeal in this Court.
“K.
Sharlow J.A.”
“I agree
John M.
Evans J.A.”
“I agree
Carolyn
Layden-Stevenson J.A.”
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