Westcan Malting Ltd. v. The Queen, [1998] G.S.T.C. 34

Date: 19980401

Docket: 96-434-GST-G

BETWEEN:

WESTCAN MALTING LTD.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Teskey, J.T.C.C.

[1] The Appellant appeals an assessment of the Goods and Services Tax made under the provisions of the Excise Tax Act (the "Act"), notice of which bears No. 10D1700569, dated December 3, 1993, for the period of November 1, 1991 to September 30, 1993 for net tax of $221,073.27, interest of $19,226.84 and penalties in the amount of $19,021.58.

Issues

[2] The issues are whether amounts paid by the Province of Alberta and the Dominion of Canada to the Village of Alix ("Alix") and paid over to the Appellant, was consideration for a taxable supply made by the Appellant to Alix, as defined in section 123 of the Act, and, if so, whether an election was available to the Appellant and Alix under section 273 of the Act that would have exempted the Appellant from the tax.

Facts

[3] Besides receiving into evidence numerous exhibits, two witnesses were called on behalf of the Appellant, namely:

Bryan James Mickelson, Director of Finance and Administration and an officer of the Appellant,

and

John Herbert Lund, the present Mayor of Alix, and who was a councillor of Alix during the period before the Court and Chairman of the Management Committee (particulars of which will be given herein later).

[4] The evidence given by these two witnesses is accepted as completely factual and without hesitation.

[5] The Appellant was desirous of establishing a malt process plant in Central Alberta. Alix fit the Appellant's requirements as to its geographical location.

[6] Over and above, the Appellant required a large constant supply of water in the minimum amount of 330 gallons per minute, and sewage lagoons and distribution to process and get rid of the large volume of effluent the plant would produce. The plant now processes 120,000 metric tons of malt barley into 95,000 metric tons of malt each year, which is sold to the brewery industry around the world.

[7] Neither the Appellant nor Alix had the necessary capital to build the necessary infrastructure to produce the required water and handle the effluent.

[8] In June of 1991, a letter of intent was signed by the Appellant and Alix. A portion of this letter of intent reads as follows:

Preamble: Westcan looked at numerous locations around Central Alberta before choosing Alix as the location for their proposed $50 million malting plant. Westcan Malting have commenced construction of the plant on land adjacent to the Village of Alix. In preliminary talks as to the location of the plant Westcan proposed, and Alix has agreed to provide, services, in particular water and effluent disposal, as required by the plant.

The Westcan project is an agricultural processing plant built to serve a perceived off-shore market. It is expected that the market will take a number of years to develop and for this reason, the plant is being constructed in three phases which will be brought on stream as sales dictate.

The project will be of great benefit to the village and to the region. However, the profitability of the venture is questionable in the opening years as the sales are building to the target levels. Understanding this most municipalities were prepared, and offered, to grant some assistance to offset the municipal tax load. The Village of Alix agreed to this in principle. It was soon quite evident to the company that Alix was not in a very good position to grant any direct financial assistance. In discussions between Westcan and Alix it was agreed that efforts would be made to provide an alternative long term financial benefit to the company through a mutually acceptable joint utilities program. It was also agreed that if such a utilities program was brought about, that there would be no expectation on the part of Westcan for further breaks in the municipal tax.

It was proposed that Alix and Westcan would mutually search, lobby, and apply, for assistance from senior Governments to cover the capital costs of the required infrastructure to service the proposed malt plant.

Following the various efforts the Provincial Government has agreed to fund $2.4 million of the proposed infrastructure package. The Federal Government has pledged $700,000 to cover the Alix portion of the commitment. Westcan has agreed to provide the land for irrigation and cover the over-runs if they occur, a commitment estimated at $800,000. The net effect is that the Village of Alix will be absolved of any major capital costs in the project.

Alix would agree because of the foregoing to provide the utilities at cost to Westcan Malting during the life of the plant and that an acceptable definition of "at cost" is required in the form of an operating agreement.

[9] The benefit to Alix, which at the time was stagnating with no growth and excess water and sewage capacity, was that if the Appellant would establish in Alix and the capital costs of the infrastructure came from the Provincial and Federal governments at no cost to Alix, the result would be that the municipal taxes paid by the Appellant would be such that the residential tax rate would be lowered by 20% and the Village would experience growth and prosperity. This has occurred.

[10] The project would never have proceeded if the grant monies had not been obtained. Alix did not care who owned the infrastructure and would have been just as happy to have the Appellant own it.

[11] In March of 1991, three months prior to the execution of the above letter of intent of the Appellant, it was the Appellant's position that Alix would be solely responsible for all costs of constructing the said infrastructure (Tab 10, Exhibit A-1).

[12] Alix entered into a written agreement with the Federal Government in September of 1991, regarding the federal grant (Tab 15, Exhibit A-1). Schedule B to the agreement demonstrates that the Federal Government knew the whole purpose of the grant was to cover the cost to upgrade water and sewage treatment facilities to provide suitable water and adequate sewage treatment for the Appellant's malt plant. Paragraphs 2 and 3 of this agreement read:

2. The RECIPIENT agrees to pay any amount in excess of the contribution made by CANADA that is necessary to implement the project, and understands that no further contribution shall be made by CANADA.

3. The project shall be at all times under the direct supervision, management, and control of the RECIPIENT.

[13] Alix also entered into a written agreement with the Province of Alberta. Portions thereof read:

1. The Municipality hereby agrees:

(a) to finance the entire cost of the project,

(b) to undertake to acquire all necessary permits, licences, authorities, property easements and lands required to allow the implementation of the Project,

(c) to retain competent engineering expertise as required to meet the design and construction standards acceptable to the Province,

(d) that when undertaking the construction on a Contract basis, the Municipality shall invite tenders; and where the Municipality recommends that any tender other than the low tender be accepted, the Municipality shall submit to the Province for its written approval its recommendation respecting such awarding, together with details of all tenders received; and

...

(f) to construct the project at its sole risk in a proper and workmanlike manner, complete in all respects in accordance with the plans and specifications for the Project and pay all costs and expenses relating thereto,

...

3. The parties agree that their respective contributions toward the project are for the work comprising of water wells, distribution of water to the village and the Westcan site, enhancements to the village effluent treatment system, connecting the Westcan site into the treatment system, installation of irrigation disposal equipment and improved road access.

[14] Obviously, Alix breached both contracts. The Appellant and Alix entered into a formal agreement (Tab 16, Exhibit A-1, The Agreement) which both parties thereto have operated under and pursuant to its terms and have not attempted to amend it, either formally or by their actions.

[15] The important provisions of The Agreement are:

WHEREAS Westcan intends to construct and operate a Malting Plant on lands owned by it which are in the proximity of Alix;

AND WHEREAS Westcan will have certain water supply and effluent disposal requirements for the operation of the Malting Plant;

AND WHEREAS Alix has requirements for back-up water supply and a new source of disposal of treated effluent for the general purpose of Alix;

AND WHEREAS Alix has agreed to provide water supply and effluent disposal as may be required by the Malting Plant during its life;

AND WHEREAS Westcan and Alix have agreed to develop a utilities program of mutual benefit for the construction and operation of the Systems which will be used jointly by Westcan for the purposes of the Malting Plant and by Alix for the purposes of its residents;

AND WHEREAS it is an integral part of this joint utilities program that all of the costs associated with the development, construction and installation of the Systems which are required to be constructed for the implementation of this joint utilities program be funded by the Grants and any cost overruns be funded by Westcan;

AND WHEREAS it is also an integral part of this joint utilities program that Westcan be entitled to be served from the Systems during the Term for any and all purposes which it has for the operation of the Malting Plant at a cost to Westcan based upon the actual cost of the provisions of such services;

...

(q) "Management Committee" shall mean the committee established pursuant to Section 10.1 hereof;

...

(z) "Term" shall mean the time period from the he date of this Agreement until the time when the Malting Plant ceases to operate;

ARTICLE 2

2.1 General Intent of Agreement

The parties acknowledge and agree that it is their express intention that:

(a) the recitals are expressly incorporated into this Agreement;

(b) Alix shall only be required to contribute payments for capital costs for construction of the Improvements and payment of the Construction management Fee from the Grants and any cost overruns shall be contributed by Westcan pursuant to its obligations under this Agreement;

(c) after construction of the Improvements has been completed and the Effluent, Irrigation and Water Systems are operational, Westcan shall only be responsible for its Proportionate Share of Cost of these Systems and Westcan shall have no liability to Alix for any other rates, levies, costs, expenses or charges relating to these Systems, the use thereof or the utility services that they provide during the Term or other than such Proportionate Share;

...

4.4 Payment of Contract Price

The Contract Price shall be paid by Alix to Westcan as follows:

(a) monthly payments based upon the value of the Work in such amounts as shall be certified by the Consultant;

(b) upon substantial performance of the Work as certified by the Consultant, any unpaid balance of holdback monies then due;

(c) upon total performance of the Work as certified by the Consultant, any unpaid balance of the Contract Price; and,

(d) payment of all amounts for performance of the Work shall be subject to the General Conditions;

...

4.9 Cost Overruns

Alix shall only be required to pay the Contact Price and the Construction Management Fee to an amount not exceeding the amount of the Grants. Where the sum of the Contract Price and the Construction Management Fee exceeds the amount of the Grants, then Westcan shall be required to pay that amount of the Contract Price and the Construction Management Fee which exceeds the amount of the Grants.

ARTICLE 5

5.1 Negotiations For Licences and Rights of Way

Westcan is to be responsible for the negotiation and settlement of any and all leases, licenses, rights of way or easements which are required for the installation, construction, location, operation, maintenance, inspection, replacement or removal of the Improvements. All such leases, licenses, rights of way or easements shall be in a form and substance satisfactory to Alix and shall be assignable to Alix. The cost associated with the negotiation and all payment required to be made to third parties under the negotiated lease, license, right of way or easement shall be in addition to the Contract Price provided that there shall be no fee chargeable by Westcan in addition to the Construction Management Fee for its services in negotiating and settling these matters.

ARTICLE 6

6.1 Transfer Of Ownership Of Improvements To Alix

Ownership of the Improvements shall be transferred and assigned to Alix upon satisfaction of the following conditions:

(a) upon completion of the construction of such Improvements;

(b) upon payment in full by Alix of the Contract Price and Management Fee to Westcan to the maximum amount of the Grants;

(c) upon final inspection and acceptance of these Improvements by the engineer for Alix.

6.2 Ownership of Systems and Licenses

Alix shall be and remain the owner of the Systems and Licenses during the Term or for so long as Alix shall deem necessary, provided however that at any time should Alix decide that it shall no longer require use of any of the Effluent Conveyance, Irrigation or Water Systems or the Water License, then, at the request of Westcan, it shall transfer ownership of the System or Systems which it no longer requires use of to Westcan and transfer and assign all Water Licenses and other licenses as are necessary for the operation of such System or Systems in favour of Westcan all for a nominal consideration of ONE DOLLAR ($1.00). In the event that the Water Licenses or any other licenses cannot be immediately transferred to Westcan, then Alix agrees that it shall continue to own the System or Systems and the Water Licenses or other licenses in its name and continue to provide the services and operations of the Systems to Westcan pursuant to the terms and provisions hereof.

6.3 Expiry of Term

Upon the expiry of the Term, ownership of the Systems shall remain vested in Alix. Where Alix decides that it requires continued use of the Systems after the expiry of the Term, Westcan shall grant Alix such rights of access and easements to the Water Lands and the Irrigation lands as may be required by Alix for nominal consideration in order that Alix may continue to utilize the Water Lands and the Irrigation lands for those purposes contemplated under any water or other licenses which have been and then remain in existence in the name of Alix, provided always that such rights of way and easements shall remain in existence only for so long as Alix utilizes the Water Licenses and thereafter such rights of way and easements shall be terminated and of no further force and effect.

...

7.4 Insurance on Systems

Alix shall insure and keep insured the Systems against loss or damage by fire, windstorm, hail, lightning, explosion, riot, earthquake, impact by aircraft or vehicles, smoke damage and, to the extent applicable, against loss or damage caused by the explosion and against such other risks or perils as are usual for systems and apparatus of a similar nature to the Systems to their full insurable value in respect of any loss. Alix also covenants that it will during the continuance of this security maintain, or cause to be maintained general public liability and property damage insurance against claims for personal injury, death or property damage occurring in or about the Systems such insurance to afford protection in such amounts as the Management Committee may from time to time decide.

ARTICLE 8

8.1 Use of Effluent and Lagoon Systems by Westcan

Westcan shall be entitled to transport effluent from the Plant lands through the Effluent system to the Lagoon System to utilize any excess capacity in the lagoon system for the Term of the Agreement. Where the use of the Lagoon System by Westcan results in a continued shortage of capacity in the Lagoon System over six (6) months for the normal uses of Alix, then, upon notification by Alix, Westcan shall have the option to provide additional capacity in the Lagoon System in such fashion as Alix shall reasonably require, provided always, that in the event that Westcan and Alix have not reached agreement respecting the provision of such additional capacity to Alix within twelve (12) months from the date of such notification, then Westcan shall no longer be entitled to the use of the Lagoon System for effluent disposal and Alix shall be entitled to prevent Westcan from so using the Lagoon System. Westcan's right to use of excess capacity in the Lagoon System shall survive the transfer of ownership of the Effluent Conveyance, Irrigation or Water Systems or any part thereof to Alix pursuant to Section 6.1 hereof.

8.2 Use of Water System by Westcan

Westcan shall be entitled to use and receive a minium of three hundred thirty (330) gallons of water per minute from the Water System during the Term of this Agreement in priority to any and all other uses by Alix.

8.3 Costs of Use of Systems

The parties are to pay their Proportionate Share of Costs of the Systems.

8.4 Other Costs

There shall be no other costs whatever payable by Westcan for the operation and maintenance of the Systems except as provided for in this Agreement.

...

ARTICLE 10

10.1 Decisions Relating to Operation

and Maintenance of the Systems

All decisions respecting the operation, maintenance, repair or replacement of the Systems shall be vested in the Management Committee established by the parties on the execution hereof. The Management Committee shall be comprised of one voting representative of Westcan and one voting representative of Alix. The parties may each appoint an alternate to be its representative on the Management Committee and may change its representative from time to time by notice in writing to the other party. Each representative or alternative representative of a party shall be such parties agent, with full authority to bind such party for the purposes contemplated herein. Non-voting representatives of each party may attend any meeting of the Management Committee. All decisions made by the Management Committee shall be binding upon the parties. For certainty and clarity, the parties agree that it is not their intention that the Management Committee have any jurisdiction whatsoever over any other utilities services or other issues or matters normally dealt with by the Village of Alix but the jurisdiction of the Management Committee shall apply only to the matters referred to herein.

Article 11 deals with arbitration if a dispute arises between the Appellant and Alix and is in the usual form.

ARTICLE 12

12.1 Assignment

This Agreement and the terms and provisions hereof may be Assigned by Westcan to any other party who continues to carry on the business of the Malting Plant on the Plant Lands.

...

12.4 Entire Agreement

This Agreement constitutes the entire Agreement between the parties hereto relating to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties relating thereto and there are no general or specific warranties, representations or other agreements by or among the parties in connection with the entering into of this Agreement or the subject matter hereof except as specifically set forth herein.

[16] The Appellant and Alix have abided by the terms of The Agreement. In March of 1996, the Appellant invoiced Alix for effluent disposal and water consumption. Although Alix did not pay this invoice (Exhibit A-2), it did pay an agreed upon lesser amount. This invoice demonstrates that Alix does use, to a very small percentage, the increased infrastructure.

[17] In the fall of 1997, the Appellant and Alix executed what purports to be an election to have a joint venture account for GST pursuant to section 273 of the Act (Exhibit A-3). Exhibit A-4 contains a sheet entitled "Westcan Malting Ltd. project expenses incurred". This page demonstrates that Alix deducted from the grant money $9,903.77 as a management fee.

[18] On May 17, 1993, Alix sent the Appellant a letter (Exhibit A-5) reconciling the revenues and expenses which reads:

As per your request the revenue and expenditure figures for the infrastructure project are as follows:

Revenue

Federal Grant $ 703,915,87

Provincial Grant $2,460,514.60

Developers Contribution $ 112,843.35

TOTAL: $3,277,273.38

Expenses

Westcan Claims 1 to 13 $2,900,874.80

Partial Claim #14 (grant $) $ 186,600.00

Remainder #14, Claim 15 & 16 $ 112,843.35

Village Expenses to 01/09/92 $ 76,901.27

TOTAL: $3,277,299.42

Difference: $ 53.96

These figures are provided from the Village's 1992 audit. The accountant did not reconcile the $53.96 difference.

Also enclosed is an invoice for audit services in 1992 less the remaining grant funds. Please remit this amount to the Village.

If you have any questions please call.

[19] This letter demonstrates that Alix passed on to the Appellant the net grant money after deducting all its expenses for the project.

[20] Alix received grants totalling approximately $3,164,430.47 and paid the Appellant only $3,087,000.00, retaining approximately $77,000.00 to recover all its expenses. The Appellant had to pay a cost overrun of $112,843.35.

Appellant's Position and Argument

[21] The Appellant submits that the construction of the infrastructure was not a supply, nor were the monies paid by Alix to it consideration for a supply,

and in the alternative,

if the Court found that it was a supply, then it was between co-venturers and therefore was not taxable.

[22] The general taxing section in the Act is section 165(1) under the heading "Imposition of Tax" and it reads:

(1) Imposition of goods and services tax - 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 7% on the value of the consideration for the supply.

[23] The Appellant submits that Alix is only nominally the owner of the infrastructure, that if there had been no grants, no infrastructure and that the grant money simply flowed through Alix to the Appellant, that the essence of The Agreement was that the Village was accommodating the Appellant.

[24] The Appellant pointed out that the provisions of subsection 141.01(1.2), under the heading "Grants and Subsidies", were not applicable. The Respondent did not take issue with this.

[25] The Appellant referred me to Revenue Canada's Information Bulletin B-067, concerning Goods and Services Tax Treatment of Grant and Subsidies, and in particular page 7 thereof, under "Summary of Policy Guidelines" with the question "Is a transfer payment consideration for a supply?" This bulletin indicates that if a public purpose is served and that the supplies are solely for accountability, then it will be considered that there is no consideration. It argues that the Municipality did not change the money but simply passed the benefit of the grants onto the Appellant.

[26] The Appellant submits that the provisions of section 6.2 of The Agreement is for the Appellant's benefit, so that no other entity can take over the infrastructure, and that the Village did not care about ownership and only did so out of necessity to obtain the grant money for the benefit of the Appellant locating its plant in Alix.

[27] The alternative position of the Appellant, should I decide there was a taxable supply, is that the joint enterprise was a joint venture within the provisions of section 273 of the Act, which is an exemption of tax levied by section 165(1), and reads:

273. Joint venture election

(1) Where a registrant (in this section referred to as the "operator") is a participant in a joint venture (other than a partnership) under an agreement, evidenced in writing, with another person (in this section referred to as the "co-venturer") for the exploration or exploitation of mineral deposits or for a prescribed activity, and the operator and the co-venturer jointly make an election under this subsection,

(a) all properties and services that are, during the period the election is in effect, supplied, acquired, imported or brought into a participating province under the agreement by the operator on behalf of the co-venturer in the course of the activities for which the agreement was entered into shall, for the purposes of this Part, be deemed to be supplied, acquired, imported or brought into the province, as the case may be, by the operator and not by the co-venturer;

(b) section 177 does not apply in respect of a supply referred to in paragraph (a); and

(c) all supplies of property or services made to the co-venturer by the operator under the agreement and in the course of the activities for which the agreement was entered into shall, for the purposes of this Part, be deemed not to be supplies.

Paragraph (c) was amended after September 15, 1992 to read as follows:

(c) all supplies of property or services made, during the period the election is in effect, under the agreement by the operator to the co-venturer, shall, for the purposes of this Part, be deemed not be supplies to the extent that the property or services are, but for this section, acquired by the co-venturer for consumption, use or supply in the course of commercial activities for which the agreement was entered into.

Subparagraph 4 reads:

(4) Form of election or revocation

An election or revocation under this section made jointly by an operator and a co-venturer is not a valid election or revocation unless it is made in prescribed form containing prescribed information and specifies the effective date of the election or revocation.

[28] Regulations prescribing joint venture activities was proposed in December 1990 and are cited as "Joint Venture (GST) Regulations". Subsection 3(1), under the heading "Prescribed Activity" reads:

3.(1) Subject to subsection (2), for the purposes of subsection 273(1) of the Act, the following activities are prescribed activities:

(a) the construction of real property, including feasibility studies, design work, development activities and the tendering of bids, where undertaken in furtherance of a joint venture for the construction of real property; and

(b) the exercise of the rights or privileges, or the performance of the duties or obligations, of ownership of an interest in real property, including related construction or development activities, the purpose of which is to derive revenue from the property by way of sale, lease, licence or similar arrangement.

[29] The Appellant alleges that there are 19 or more activities being administered by Revenue Canada as though they were prescribed such as:

(1) the disposal of waste

(2) the operation and maintenance of the North Warning System;

(3) maintenance of roads on Indian reserves;

and

(4) the acquisition of seismic data.

[30] The Appellant submits that the joint venture election (Exhibit A-3) complies with the provisions as to form, and that it is a document that can be signed any time after the effective date, and referred me to Policy Number P 187 which says:

As a result of the requirement that an effective date be specified, that participants in the joint venture may complete the election form after the fact.

[31] The Appellant points out that the last page of Exhibit A-4 shows what payments were made, both prior to and after September 15, 1992, but that in any event the wording of paragraph 273(1)(c), after September 15, 1992, is still wide enough to exempt the total payments.

Respondent's position

[32] The Respondent submits that the assessment falls within the provisions of subsection 165(1) of the Act (produced above) and refers me to the definition of "Supply", which reads:

"Supply" means, subject to section 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition.

and to the definition of "Consideration", which reads:

"Consideration" includes any amount that is payable for a supply by operation of law.

[33] The Respondent acknowledges that there was a community of interest for both the Appellant and Alix, and although you may call the agreement a joint venture, it was not a joint venture as defined or contemplated by the Act.

[34] Its position being that to be a joint venture, something must be done to produce income and thus The Agreement is not a joint venture, as contemplated by section 273.

[35] It is suggested that "Participant", as found in section 273 of the Act means:

a person who, under a joint venture agreement evidenced in writing, makes an investment by contributing resources and takes a proportionate share of any revenue or incurs a proportionate share of the losses from the joint venture activities.

[36] The Respondent submits that a "joint venture" is an arrangement whereby two or more persons work together, in a limited and defined business undertaking, which does not constitute a partnership, a trust, or a corporation, the expenses and revenues of which will be distributed in mutually agreed portions and that the participant normally have a joint interest in the product of the joint venture.

Analysis

Issue One

[37] Was the building of the infrastructure a supply and the monies paid, a consideration for the supply?

[38] Alix did not require the new infrastructure, it was the Appellant that required it for a successful operation. The benefit to Alix to proceed with the accommodation agreement was the 20% reduction of municipal taxes to its residential rate payers. Alix was prepared to do this, provided it did not cost Alix any money.

[39] The Agreement is a two-fold agreement in that it provides for the building of the infrastructure and the operation thereafter. It is only the building of the infrastructure I am concerned with.

[40] The building of the infrastructure did not cost Alix one dollar. At any time it desires to divest itself of these infrastructures, the Appellant or its successors to the malting business could take over the infrastructure for one dollar.

[41] The cruix of the question is the ownership of the infrastructure. When The Agreement is considered as a whole, there can be no other conclusion other than Alix is the owner of the infrastructure. The obligations contained in paragraph 7.4 of The Agreement to maintain insurance is an indicator of ownership. It cannot be said that Alix holds titles in trust for the Appellant or that it acted as agent for the Appellant. The grant money was paid by both governments pursuant to written agreements with Alix, the main purpose being the building of a municipal infrastructure that would accommodate the requirements of the Appellant.

[42] The Appellant needed the infrastructure. If it had built at it's costs the infrastructure, the end result would have been that it had invested $3,200,000 and had the use of it at it's costs. Under The Agreement, it gets the use of the infrastructure at cost and the Appellant's capital cost was lowered from $3,200,000 to only $100,000 (All figures being rounded). The obvious benefit to the Appellant was that it did not have to invest $3,100,000 to arrive at the position of use at cost. Originally, the Appellant wanted Alix to be responsible for all costs of upgrading its infrastructure. This was not acceptable to Alix. The actual final agreement was the next best position for the Appellant.

[43] Supply is defined in the Act as:

Supply means, subject to sections 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition.

[44] This definition is an inclusive definition that is far reaching in what it encompasses. One such inclusion in its definition is that of a disposition which is not defined in the Act.

[45] My colleague, Bonner, T.C.J., in Plant National Ltd. v. M.N.R., 89 DTC 401, said at pages 402 and 403:

The definitions of the word "disposition" in Black's Law Dictionary fifth Edition include "the parting with, alienation of, or giving up property". In the same dictionary "dispose of" is defined in part as follows: "to alienate, relinquish, part with, or get rid of; to put out of the way; to finish with; to bargain away"

[46] The next consideration is whether this supply may be regarded as a taxable supply. Under the Act, a taxable supply is a supply made in the course of a commercial activity. Under the Act, the making of a supply by the person, of real property of the person, constitutes a commercial activity. On the basis of the evidence, there can be no conclusion other than that a supply has occurred. That supply consisted of the infrastructure project; real property for the purposes of the Act. I find that in the case at hand there was a supply of real property of the Appellant, by the Appellant to Alix, constituting a taxable supply.

[47] The next issue to address for the purposes of section 165 of the Act, is what the value of the consideration for this supply is. For the purposes of this appeal, I have found it useful to consult Technical Information Bulletin ("TIB") B-067, of August 24, 1992, titled Goods and Services Tax Treatment of Grants and Subsidies, to determine if the grants may be regarded as consideration. This TIB instructs that generally a grant, made in the public interest, will not be considered as consideration for a supply. However, if there exists a direct link between a grant being received by a person, and a supply being provided by that person to either the grantor of the funds, or one or more third parties, that grant will be regarded as consideration for the supply. To determine if there exists this direct link, the TIB sets out some questions to be addressed. Those are:

1) Does a supply take place in respect of the payment?

2) Is there a direct link between the payment and the supply?

3) What was the purpose of the payment?

4) Was the purpose of the supply to allow the grantor to maintain accountability in respect of the use of the payment?

[48] On the basis of the evidence before me, I have determined that the supply of infrastructure does take place in respect of the grants provided to the Appellant. Irrespective of whether those grants are from the various governments, funnelled through Alix, or are regarded from Alix, it is inescapable that ownership of the infrastructure passed to Alix on the final payment of the grant money to the Appellant. There is a direct link between the Appellant receiving the grant money, and Alix receiving ownership of the infrastructure. As such, the grant money received by the Appellant from Alix constitutes the consideration received for the supply of the infrastructure.

[49] Although it is apparent from the evidence that ownership of infrastructure was not a major consideration between the parties, the substance and form of the overall agreements between the various governments, Alix, and the Appellant, indicate that Alix was to own the final infrastructure. The direct purpose of the grants were to allow Alix to enlarge its water and sewer capacity in order to have the Appellant establish its plant.

[50] There was a supply by the Appellant to Alix and consideration paid by Alix to the Appellant.

[51] The Appellant's appeal fails on issue one and I must deal with issue two.

Issue Two - Joint Venture

[52] Jones, J. of the Nova Scotia Supreme Court, in his reasons for judgment in Central Mortgage & Housing Corporation v. Graham et al., 43 D.L.R. (3d) 686, said starting at page 704 and continuing through to part of page 707:

... A joint venture is defined in vol. 1 of Barrett and Seago, Partners and Partnerships, Law and Taxation (1956), at p. 65 as follows:

Joint adventures may be defined as an association of two or more individuals, corporations or partnerships or some combination of these, for the purpose of carrying on a business venture. Of more recent years, this rather peculiar type of business organization has had increased use and attention. Joint adventures are quite common in building and construction work. A useful and practical result can thus be obtained in that the task might well prove too large for a single firm, corporation or group of individuals. Moreover, a combination of equipment is required together with a pooling of skilled and experienced personnel make this form of organisation an attractive one. Speaking in broad general terms, much of the law of partnership is applicable to joint adventures.

Another definition stresses the fact that the joint adventure is almost invariably concerned with a single undertaking that does not continuously require the attention of every participant.

The authors also state at p. 67: "It is well settled that a corporation may engage in and be a party to a joint adventure."

Volume 2 of Williston on Contracts, 3rd ed. (1959), states at pp. 544-5:

A form of organization long known to commerce but only recently endowed with a distinctive recognition in law, the joint venture is a convenient means for providing the great concentration of economic resources, knowledge and skill requisite to the accomplishment of large-scale construction projects such as public buildings, national monuments and similar structures, bridges, tunnels, super highways and toll roads, power dams, canals and seaways, electric energy projects, atomic reactors and other power sources, to mention but a few of the typical results of joint ventures.

And at pp. 547-8:

As a means for conducting trade or commerce, the joint venture is rooted deep in the past; but as a legal concept, it has been slow of growth. The early common law did not recognize any relationship between persons as joint venturers apart from that of partners, and required proof of the existence of the requisite elements of such a status.

The courts, however, responding to the urgent problems arising from the need of applying fundamental principles of the common law to new developments in the world of business and commerce, had gradually evolved what may become a distinctive legal relationship: The joint venture. Here, parties combine their resources, usually consisting of capital, knowledge, skill and services, in the conduct of a business venture without organizing a partnership in the legal sense of the word.

And at pp. 549-50:

Unaided by established precedents of stare decisis and faced with the exigencies of rapidly developing and expanding business methods and requirements, the courts have, quite naturally, shown a wide divergence of views in their characterization of the joint venture, and an understandable reluctance to formulate a precise definition of "this case law hybrid of recent origin and undetermined connotation."

The cases show that there has been a complete lack of terminological uniformity or exactitude in the judicial expressions attempting to formulate a definition of joint ventures; and many courts have declared that the particular circumstances and agreement as well as the object of the undertaking must determine the legal nature of the association.

Succinctly expressive of this attitude and of the difficulties confronting the courts in defining the nature of a joint venture is the language in a leading and representative case:

"Precise definition of a joint venture is difficult. The cases are of little help since they are generally restricted to their own peculiar facts. 'Each case in which a coadventure is claimed...depends of course for its results on its own facts, and owing to the multifariousness of facts, no case of coadventure rises higher than a persuasive precedent for another.'"

As the author points out at p. 553, a joint adventure is founded entirely on an agreement between the parties. At p. 554, the author refers to the following definitions:

The joint venture is an association of two or more persons based on contract who combine their money, property, knowledge, skills, experience, time or other resources in the furtherance of a particular project or undertaking, usually agreeing to share the profits and the losses and each having some degree of control over the venture. Stated in somewhat greater detail:

"It can be said that a joint adventure contemplates an enterprise jointly undertaken, that it is an association of such joint undertakers to carry out a single project for profit; that the profits are to be shared, as well as the losses, though the liability of a joint adventurer for a proportionate part of the losses or expenditures of the joint enterprise may be affected by the terms of the contract. There must be a contribution by the parties to a common undertaking to constitute a joint adventure; and a community of interest as well as some control over the subject matter or property right of the contract.

"Whether the parties to a particular contract have thereby created as between themselves, the relation of joint adventurers or some other relation depends upon their actual intention, and such relationship arises only when they intend to associate themselves as such. This intention is to be determined in accordance with the ordinary rules governing the interpretation and construction of contracts."

And at pp. 555-6:

In summary, then, a working definition of joint venture based on the actual judicial decisions may be thus formulated: A joint venture is an association of persons, natural or corporate, who agree by contract to engage in some common, usually ad hoc undertaking for joint profit by combining their respective resources, without however, forming a partnership in the legal sense (of creating that status) or corporation; their agreement also provides for a community of interest among the joint venturers each of whom is both principal and agent as to the others within the scope of the venture over which each venturer exercises some degree of control.

After pointing out the necessity of an agreement, the author continues at pp. 557-9:

Whether persons have engaged in a joint venture depends largely upon their intention as expressed in the provisions of their agreement and upon the construction they have given it. The conduct of the parties, the nature of the undertaking and other attendant facts and circumstances will generally be determinative.

Facts showing an intention to unite resources, such as money, property, labour, knowledge and skill in a joint endeavor to attain a result for the benefit of the parties will go far towards establishing the existence of a joint venture. Other factors which will come under judicial scrutiny are the extent to which the joint venturers have a right to participate in the management and control of the enterprise, and the existence of a fiduciary relationship among them. The consideration for the joint venture contract may be a promise, express or implied, to contribute capital, labour, property, knowledge, skill or any other resource to the venture.

Conformable to the general principles governing contracts, the agreement between the co-venturers "need not be express" nor need it be embodied in a writing or specify, in any particular way, the rights and duties of the parties. Proof of active participation in the enterprise, some control over the subject matter or property involved in the venture, the conduct of the parties, the facts and circumstances of the situation, will, assuming other requisites to be present, justify the court in inferring the existence of a joint venture.

At pp. 563-5 the author states:

Besides the requirement that a joint venture must have a contractual basis, the courts have laid down certain additional requisites deemed essential for the existence of a joint venture. Although its existence depends on the facts and circumstances of each particular case, and while no definite rules have been promulgated which will apply generally to all situations, the decisions are in substantial agreement that the following factors must be present:

(a) A contribution by the parties of money, property, effort, knowledge, skill or other asset to a common undertaking;

(b) A joint property interest in the subject matter of the venture;

(c) A right of mutual control or management of the enterprise;

(d) Expectation of profit, or the presence of "adventure", as it is sometimes called;

(e) A right to participate in the profits;

(f) Most usually, limitation of the objective to a single undertaking or ad hoc enterprise.

[53] In Bow Valley Husky (Bermuda) Ltd. v. Saint John Shipbuilding Ltd.,126 D.L.R. (4th) 1 (Nfld. C.A.), Cameron, J.A., speaking for the Court, quoted from Graham supra, in particular the definition of joint venture, and Williston’s list of factors for a joint venture, as found in S. Williston & W.H.E. Jaeger, eds., Williston on Contracts. Cameron, J.A. went on further to find at page 12 that:

No one seems to have been prepared to attempt the quintessential definition of a joint venture. In part, as illustrated by the discussion above, joint venture is defined by what it is not. It is not a partnership, though it has been described as being "in the nature of a partnership": H.C. Black, Black's Law Dictionary, 6th ed. (St. Paul, Minnesota: West Publishing Co., 1990). Neither is it a corporation.

Counsel for SJSL states that BVI and HOOL have all the indicia of a joint venture listed by Jones J. in Graham. I do not agree.

...HOOL and BVI do not have a joint property interest in the Bow Drill 3 which was solely owned by BVHB... As to management, Raychem concedes that HOOL and BVI had no responsibility for the operation of the rig. Whatever their relationship otherwise, there was no joint venture between HOOL and BVI to build and operate the Bow Drill 3. In finding that there was, the trial judge was in error.

On appeal to the Supreme Court of Canada[1], McLachlin, J. speaking for the Court on the appeal matter, affirmed the Court of Appeal’s finding that there was no joint venture, stating at paragraph 49:

The case at bar does not fall into any of the above three categories. The plaintiffs here had no possessory or proprietary interest in the rig and the case is not one of general averaging. While related contractually, the Court of Appeal correctly held that the plaintiff and the property owner cannot, on any view of the term, be viewed as joint venturers.

[54] Whether a joint venture exists for the purposes of section 273 of the Act must be determined on the basis of conduct between the parties, the nature of their intentions, the facts and circumstances of their situation, and the Agreement between them. While the list of factors set out by Williston are not determinative as to the existence of a joint venture between the parties, on the basis that they have been cited in approval in Graham and Bow Valley supra, they must be given consideration.

[55] I do not find there existed the right to participate in profits nor an expectation of profit, from the infrastructure for either party. The benefit accruing to Alix from the infrastructure would not be in the form of profit, but rather a decreased tax rate available to its citizens should the Appellant locate in the municipality. The benefit accruing to the Appellant from the infrastructure is that it gets its water and sewage disposal at cost with very little capital outlay. There does not exist the element that a financial interest is at stake, nor is there an assumption of risk in the overall success or failure of the joint utilities program. I am not convinced that both parties had a joint property interest in the infrastructure necessary to constitute a joint venture.

[56] The joint utilities program undertaken by the Appellant and Alix cannot be regarded as a joint venture for the purposes of the Act. The election under section 273 of the Act is not available to the Appellant or Alix. The supply of the infrastructure to Alix remains a taxable supply for the purposes of section 221 of the Act.

[57] It is with great reluctance that this appeal is being dismissed. I do not believe that it was intended that this type of transaction that took place herein would be taxable. I would hope that if the Appellant applies to the Minister for a remission order that it would be forthwith granted.

[58] Under these circumstances, I am not awarding any costs.

Signed at Ottawa, Canada, this 1st day of April 1998.

"Gordon Teskey"

J.T.C.C.

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