Consideration

Table of Contents

Cases

Global Cash Access (Canada) Inc. v. Canada, 2013 FCA 269

"consideration" under law of contract

In the course of finding that the appellant was receiving a financial supply from the casinos it contracted with, Sharlow JA stated (at para. 15):

In the context of this appeal, the word "consideration" should be understood to mean anything that would be consideration under the law of contract, and "taxable supply" should be understood to include anything supplied in the course of a commercial activity except a "financial service" as defined in subsection 123(1) of the Excise Tax Act. It is undisputed that the business of the Casinos is a commercial activity, and the acts of Casinos pursuant to its contract with Global are acts in the course of that commercial activity.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (g) commercial efficacy of arrangement involving kiosk and support services turned on the advance of money 418
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply three elements integrally connected 230
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) "consideration" under law of contract 111
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) predominant element not described in (r.4) or (r.5) 179

Boardwalk Equities Inc. v. Canada, 2013 FCA 140, aff'g Calgary Board of Education v. The Queen, 2012 TCC 7

consideration not reduced by credit for subsequent provincial subsidy

The appellant ("Boardwalk Equities") was entitled to receive amounts under an Alberta energy assistance program to defray additional costs to consumers and businesses from a spike in natural gas and electricity costs. The suppliers invoiced Boardwalk Equities for the full value of the natural gas and electricity supplied, plus GST thereon; but showed a "credit" on the same invoices for the Alberta grant to be received by the suppliers on or after the invoice due date (with the suppliers' entitlement to be paid the grant being based on having previously credited the amount of the grant to the customer - Boardwalk Equities). Boardwalk Equities applied for a GST rebate under s. 261 on the basis that the GST payable by it should reflect consideration net of the credit, and was denied that rebate. In dismissing the appeal on the basis that there had been no such reduction in the consideration, Webb JA stated (at para. 13):

When the suppliers received the funds from the Province, the liability of the appellant was then reduced since such amount was accepted by the suppliers as partial payment of the amount that the appellant otherwise had to pay under its agreements with the suppliers. However, this was after the date of the invoices and after the liability arose to pay the GST. Therefore, the liability of the appellant for GST under the Act was correctly calculated as 7% of the amount payable for the supply of natural gas and electricity before the credit for the amount that the suppliers would subsequently receive from the Province is taken into account.

Words and Phrases
consideration

Commission Scolaire des Chênes v. Canada, [2002] GSTC 11, 2001 FCA 264

provincial subsidy was paid only if busing services provided

The appellant school boards paid GST charges of independent bus companies for their busing services, and were compensated with a Quebec government subsidy (which was not subject to GST due to provincial government immunity).

In finding that the school boards were making taxable supplies to the Quebec government, so that they were entitled to full input tax credits, Noël J.A. stated (at paras. 19, 28):

[I]n order for a payment to constitute consideration, it must have been made pursuant to a legal obligation (contractual or otherwise) and must be closely enough linked to a supply that it may be regarded as having been made "for" that supply… . That is why a direct link is required.

… It is therefore apparent that the purpose of the subsidy is unequivocal and that the link with the supply in question is equally unequivocal; the service must be provided, failing which the subsidy may be cancelled. Given that this situation is outside the realm of contracts, it is difficult to imagine a more direct link between the payment and the supply of the student transportation service.

See Also

A Oy v. Veronsaajien oikeudenvalvontayksikkö, [2019] EUECJ C-410/17 (10 January 2019) (European Court of Justice (9th Chamber))

a demolition contract entailed a barter exchange of dismantling services and scrap

Pursuant to demolition contracts, a company (“A”) undertook to demolish old factory buildings with responsibilities that included the disposal and processing of materials and waste. It took the estimated sales proceeds of the materials generated into account in quoting its price for the work but did not communicate this estimate to the client.

Article 73 of The Council Directive 2006/112/EC of 28 November 2006 provided:

In respect of the supply of goods or services … the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party … .

In finding that there was a reciprocal supply of the dismantling services and the materials for consideration, the Court first stated (at paras. 39-40, 45):

[I]t is clear from settled case-law that the consideration which is the taxable amount for a transaction has a subjective value … [being] the value which the recipient of services constituting the consideration for the supply of goods attributes to the services which he is seeking to obtain and must correspond to the amount which he is prepared to spend for that purpose … .

[T]he supply of recyclable scrap metal is made for consideration if the person acquiring it, namely a demolition company, attributes a value to that supply which it takes into account in the calculation of the price quoted for carrying out the demolition works … .

Therefore, in such a case, reciprocal transactions are exchanged under the same contract, between the service provider and its client, so that a direct link … exists between the performance of the demolition works and the supply of the recyclable scrap metal.

The company would also pay a client under a similar dismantling contract. The Court stated (at paras. 57, 59):

[T]he value of the performance of dismantling and waste disposal … must be regarded as equal to the amount that the purchaser, that is a demolition company, takes into account as a factor reducing the purchase price of the goods to be dismantled.

…[T]he taxable base of the supply of goods to be dismantled is, therefore, constituted by the price actually paid for the purchase of those goods and the amount corresponding to the factor applied by the purchaser in order to reduce the purchase price proposed.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) demolition contract entailed reciprocal supplies of dismantling services and scrap 285

Adecco UK Ltd & Ors v Revenue & Customs, [2018] EWCA Civ 1794

consideration for temps included their remuneration

The appellants ("Adecco") were employment bureaux supplying clients with temporary staff ("temps") who were not employees of Adecco. Adecco introduced them to clients looking for a temporary worker to undertake an assignment, and if the temps accepted an assignment, Adecco paid them for the work they did for the clients.

Following the finding in Reed Employment Ltd v Revenue and Customs Commissioners [2011] UKFTT 200 (TC) that the bureau in that case effectively paid the temp workers as agents for the clients, so that it was only its commission that was subject to VAT, Adecco sought a VAT refund of the portion of its charges to its clients that reimbursed it for the compensation of the temps.

Although Adecco could not direct the temps as to how to carry out their assignments, had no effective control over when the assignments ended and did not conduct any appraisals of the temps, it nonetheless was found to be making a supply of their services to the clients (rather of only an introductory service) so that it had been correctly treating all of the amounts received from the clients as subject to VAT.

Points noted by Newey LJ in support of this conclusion included that there was no contract between the temps and the clients, the contracts referred to their services being provided "through Adecco," it paid temps on its own behalf, not as agent for the clients, and Adecco charged a client a single sum for each hour a temp worked, i.e., it did not split its fees into remuneration for the temp and commission for itself, the same contract between Adecco and a client was used in irrespective whether Adecco was providing a non-employee or employee.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Agency a placement service providing non-employee temps to clients was not paying the temps’ compensation on the clients’ behalf 173

Stewardship Ontario v. The Queen, 2018 TCC 59

statutorily-mandated waste recycling charges were consideration for a taxable supply

Stewardship Ontario (“SO”) was a not-for-profit corporation that operated, as part of a regime governed by the Waste Diversion Act, 2002 (Ontario) ('WD Act"), an Ontario program for recycling various types of waste such as paints, solvents, batteries, empty propane tanks and antifreeze. It collected the waste and paid for its processing or disposal. “Stewards,” being persons who had a commercial connection with such waste, were statutorily responsible for paying fees to SO to reflect their reasonable share of the associated costs.

After rejecting the Crown’s argument that SO was not making supplies but instead merely performing a statutory duty, D’Arcy J then also rejected the Crown’s argument that the “Steward Fees” were a “regulatory charge” rather than a “user fee,” stating (at paras. 108-109):

The MHSW Steward Fees are payable by the MHSW Stewards to the Appellant by operation of law. Specifically, section 30 and subsections 31(1) and 34(6) of the WD Act provide that if a person has a commercial connection with designated waste or a product from which the designated waste is derived that person (i.e., a steward) must pay a portion of the Appellant’s cost of developing, implementing and operating a waste diversion program … .

Further, such fees are payable for a supply made by the Appellant. Once a person is found to have, under the MHS Waste Program Agreement, the required commercial connection with the MHS Waste, the person is deemed to be an MHSW Steward. … [O]nce the person becomes an MHSW Steward that person is required to pay the costs of collecting and recycling the designated waste.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply performance of a statutory duty can nonetheless by a supply 252
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) statutory object of avoiding tax cascading 369
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Service "service" has broad meaning 181
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Recipient those subject to statutory user charges were "recipients" 189

Université Laval v. The Queen, 2016 TCC 17

subsidy paid in consideration for future access rights

Quebec City and the University of Laval entered into an agreement providing that the City would pay a grant of $10 million to the University for the expansion of the University’s sports complex and provide preferred access to the complex by the City populace, and simultaneously entered into a second agreement specifying inter alia that the populace would have access to the complex for 70% of its operating hours. After finding (at paras. 30-32, 50-51) that the two agreements created reciprocal and integrated obligations, Tardif J found (at para. 59) that “the grant was paid in consideration for a supply.”

He then found that ETA s. 136(1) deemed this to be a supply of immovable property (which therefore was a taxable supply) rather than a potentially exempt supply of movable property or a service.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 136 - Subsection 136(1) s. 136 applied to agreement to offer, at a distant date, to license sports complex to unidentified individuals 175
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part VI - Section 25 agreement to licence complex in future was not exempted becasue complex primarily used in commercial activity 136
Tax Topics - Excise Tax Act - Schedules - Schedule V - Part VI - Section 2 agreement to licence sports complex in futre to City inhabitants was a real property supply 149

Invesco Canada Ltd. v. The Queen, 2014 TCC 375

management fee distributions to large MFT unitholders

The appellant, which was the manager (and also trustee) for various mutual fund trusts, charged reduced management fees to the trusts to reflect the reduced management fees agreed with the larger investors (with a corresponding reduction in the GST collected). However, the Funds made special "Management Fee Distributions" to the large investors equal to the difference between the ‘gross" management fees they otherwise would have borne and the reduced management fee amounts. Before finding that the trust obligations to pay the Management Fee Distributions to the large investors was not part of the consideration that the Funds provided in exchange for the appellant's management services, Campbell J stated (at para. 35):

Pursuant to Commission Scolaire des Chênes and the common law definition of consideration, all that would be required for the Management Fee Distributions to constitute consideration for the taxable supply of management services would be a contractual obligation.

See detailed summary under ETA – s. 153(1).

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) discounted management fees charged by manager to MFTs not grossed up by MFT distributions of the discounts to large unitholders 308
Tax Topics - General Concepts - Evidence evidence of surrounding circumstances including income tax objective relevant to contract interpretation 152

Thompson Trailbreakers Snowmobile Club Inc. v. The Queen, [2005] GSTC 124, 2005 TCC 269

funds received by snowmobile club from government for managing trails were taxable consideration

The appellant operated a snowmobile club as a member of Snowmobilers of Manitoba Inc., which was dedicated to developing and maintaining snowmobiling trails on provincial crown lands. It sold trail passes to snowmobilers, which were issued by the provincial government, and it received back approximately 80% of the sale proceeds from the government, which reflected a 20% administrative holdback to cover such costs as liability insurance. Hershfield J found (at para. 16) that the gross amounts paid by the snowmobilers for the passes were government levies.

In finding that funds received from the province were taxable consideration for services performed (of managing and maintaining the snowmobile trails) which were not subject to GST due to the provinces’s Crown status, Hershfield J. stated (at para. 21):

[T]he particular service is one the government has undertaken to provide and has effectively retained a third party to perform it. Funding in respect of that retention can, in my view, properly be regarded as consideration for the services provided. ...

Section 123 of the Act defines consideration as including any amount paid for a supply. Even if only a small portion of the funds set aside by the province is to help pay for equipment,…and even if the grant is inadequate to actually cover the cost of such equipment, the setting aside of the funds for that purpose as part of a contracting out scenario may be sufficient to constitute consideration at law.

As the appellant was engaged in commercial activity, it was entitled to input tax credits on its purchase of trail-grooming equipment.

Commission Scolaire des Découvreurs c. La Reine, 2003 TCC 295

City school renovation subsidy was consideration

The City of Quebec City paid a subsidy to a school board of $880,000 to enable the school board to renovate a school and expand its gymnasium. In return, the school board was required to make the new facility available to the City for free for 30 years. In finding that the school board was making a taxable supply, Lamarre Proulx J stated (at paras. 55-6):

[W]hat is involved is not a definition of the term "consideration" but a clarification in the case of a non-contractual situation. In such a situation, this term must be given its normal legal meaning. … If we refer to the definition of that term in this same reference work, we read:

Consideration provided by the person who receives a benefit in the synallagmatic contract; reciprocal benefit (perceived as equal) charged to a party to a contract, for example, wages in consideration for work, or the price in consideration for the article sold.

In the two agreements at issue, the benefit provided by the appellant was to construct and to provide the premises. What should the benefit provided by the city for the supply of the real estate have been? … We see from reading the agreements.. that the common intention of the parties is that, if the premises are destroyed, disposed of or expropriated, the full amount of the grant, that is, $880,660, shall be reimbursed, prorated according to the number of years remaining. I am therefore obliged to find that this amount is the consideration for the supply by way of lease.. .

Meadow Lake Swimming Pool Committee Inc. v. The Queen, [1999] GSTC 96, Docket: 98-2588-GST-I (TCC)

town payment of operating loss of civic pool operator was taxable consideration

Residents of a town, Meadow Lake, Saskatchewan, formed the appellant to raise funds and build a pool on town property. The town provided an annual grant to cover the pool operating deficit.

In concluding that these grants were consideration for a taxable supply of management servicers by the appellant, Rowe DJ. stated (at para 20):

Pool Committee Inc. received money each year…to utilize the funds solely in connection with the stated purpose of operating, maintaining and regulating the swimming pool…The Town owned the facility and …chose to pay Pool Committee Inc. to run the pool on a day-to-day basis and it received the exact service which was the subject matter of the payment. ...

Pool Committee Inc. - albeit a non-profit corporation specially created for that very purpose - was functioning in the same manner as any other manager or operator of the facility in return for payment of money.

Although a by-law referred to “Lease and Operating Agreement”, Rowe J. found that there was no lease (so that the grant could not be construed as a subsidy for the operation by the appellant of its own pool).

Administrative Policy

2 August 2017 Ruling 182285

Ontario electricity rebate does not reduce the consideration for the supply

The Ontario Rebate for Electricity Consumers Act, 2016 provided a rebate equal to the provincial portion of HST on the electricity bills of residential, farm, small business and other eligible customers. CRA ruled that the rebate is financial assistance and does not reduce the consideration for the supply of the electricity – so that input tax credits or public service body rebate claims of the recipient are not reduced by the rebate amount.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1) Ontario electricity rebate does not reduce ITCs 202

19 January 2017 Ruling 172004

contributions, resulting from collective agreement, to workplace development fund were not conisderation for supply

An employers’ organization for collective bargaining on behalf of employers (i.e., construction contractors) in the construction industry agreed during the negotiation of the collective agreements between the organization and the unions, that for each hour worked by employees pursuant to the collective agreements, the employers would contribute amounts to support workforce development initiatives. As a result, and as authorized by the provincial legislation, the contributions were paid by the employers over to the organization, which contributed them to a trust to be applied as bargained for.

CRA ruled that:

There is no direct link between the contributions made by the contractors to the Trust Fund and a supply made by the Trust Fund to the contractors. The payment of amounts as an industry development fee set by [the Organization] are therefore not consideration for a supply and therefore not subject to GST/HST.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply contributions made by construction contractors to a workplace development fund as agreed to by their collective bargaining agent were not subject to GST/HST 338

18 September 2015 Ruling 168521r

HST applicable to on-charges for waste diversion fees imposed on Ontario tire seller

As also described in 144133, Ontario Tire Stewardship (“OTS”) was designated by Waste Diversion Ontario (“WDO”) as an industry funding organization (“IFO”) for used tires and, as such, was responsible for operating the waste diversion and recycling program in Ontario for used tires including collection, transporting and processing. ACo, which imports tires into Ontario as well as purchasing them from Ontario-based tire manufacturers (i.e., from “brand owners”) was designated by WDO as a “steward” in respect of the tires it imported into Ontario for sale in Ontario (but not in respect of the tires it purchased from the brand owners, who instead were the stewards respecting such tires). As a steward, ACo is required to pay fees (calculated by applying a per-tire charge to the tires imported by it) to OTS to help cover the costs of the waste diversion and recycling program operated by OTS. ACo charges its tire customers an amount for each tire and an amount separately identified on its invoices as an “OTS” charge (which ACo determines by referring to the tire stewardship fees posted on the OTS website). After ruling that ACo’s OTS charges were part of the value of the consideration for its taxable supplies of tires and, thus, subject to GST/HST, CRA stated:

The tire stewardship fees that [ACo] pays (as first importer), and the costs of the tire stewardship fees that other stewards (e.g. brand owners) pay and pass on to [ACo] are costs of doing business that [ACo] chooses to pass on to its tire customers in a separately identified “OTS” charge on its invoices. For ETA purposes, this cost, even when separately identified as an “OTS” charge on an invoice to a tire customer, forms part of the consideration for a taxable supply of tires and is subject to GST/HST… .

…[T]he tire stewardship fee is payable by [ACo] when [ACo] is the first importer of the tire …and the fee is payable by the brand owner (i.e. the manufacturer) in respect of tires that [ACo] purchases from the manufacturer. As a result, in both of these circumstances, the tire stewardship fee is not payable by the recipient of [ACo]’s supply of tires (i.e. [ACo]’s tire customer) and it is not excluded from the consideration for the tire charged to the tire customer by virtue of section 154… .

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 154 - Subsection 154(2) on-charges made to an Ontario tire seller’s customers for waste diversion fees imposed on it by Ontario Tire Stewardship are subject to HST 189

22 May 2014 Ruling 156633

additional rent for municipal taxes applied to ground rent is taxable until constructed apartment commences its exempt use

The Lessee of the “Property” constructed a multi-storey, multi-unit residential apartment building (the “Complex”) on the rooftop of an existing building. The residential units in the Complex will be leased for use as a place of residence by an individual for periods of continuous occupancy of at least one month, so that their rental will be exempt. In addition to the “Ground Rent” payment, the Lessee must pay, as “Additional Rent,” an amount in respect of the portion of the municipal property tax bill attributable to the residential space constructed by the Lessee.

After ruling that the supply of real property made under the ground lease agreement is a taxable supply of real property from the commencement of the agreement up to the end of the lease interval in which the Lessee is considered to have made and received a taxable supply of the Complex pursuant to s. 191(3) (the "Taxable Supply Period"), CRA ruled:

The Lessor is required to charge and collect GST/HST on the Ground Rent payments that are paid or become payable under the Agreement for lease intervals that fall within the Taxable Supply Period. The Lessor is not required to charge and collect GST/HST on the Ground Rent payments that are payable under the Agreement for lease intervals that fall within the [subsequent] Exempt Supply Period.

28 October 2013 Ruling 144133

stewardship fees paid under Ontario waste diversion program are regulatory charges, not fees

Pursuant to the Waste Diversion Act, 2002 (Ontario) (“WDA”), Waste Diversion Ontario (“WDO”), a non-share corporation, is responsible for operating waste diversion and recycling programs for designated wastes in cooperation with an industry funding organization (“IFO”) (i.e., Ontario Tire Stewardship (“OTS”) for used tires, Stewardship Ontario (“SO”) for municipal hazardous waste and Ontario Electronic Stewardship (“OES”) for used electrical and electronic equipment) and designates stewards (e.g., a company which imports the product into Ontario or which is the registered owner or licensee of the brand for the product) which it requires to pay fees to cover the costs of the particular waste diversion program, including the costs of the IFO of operating the program (e.g., collection, transportation and processing of waste), and of the related WDO and Ministry costs. In connection with ruling that the fees paid to OTS, OES and SO were not consideration for a supply (so that they could not claim input tax credits for HST on purchases of property or services in respect of the stewardship programs), CRA stated:

[T]here is nothing within the WDA that makes stewards responsible for the implementation or operation of waste diversion programs or for the waste generated as a result of their products. As a result, the stewards are not paying for a supply related to the collection, transportation, consolidation and recycling of the waste generated, or for any other supply. Stewards are only responsible to pay the required stewardship fees and to file stewardship reports. Accordingly, it is our view that the stewardship fees are regulatory charges that are not related to the supply of property or a service (e.g., they are not fees for a service).

23 December 2002 Technical Interpretation RITS 38588

municipal taxes paid by tenant are additional rent

"Where a separate amount is paid by a lessee on account of property taxes, this amount is part of the consideration for the rental of the property, even if the lessee pays the amount directly to the municipality ... While the Tenant may be responsible under the agreement to pay property taxes to the municipality, the ultimate liability to pay the property taxes rests with the Landlord."

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) tenant property taxes part of consideration 66
Tax Topics - Excise Tax Act - Section 165 - Subsection 165(1) 66

Technical Information Bulletin B-067, "Goods and Services Tax Treatment of Grants and Subsidies," 24 August 1992

There is a direct link between a transfer payment and a supply if the payment is directly related to the provision of a supply to the grantor, or to a third party, by the recipient of the transfer payment. If a direct link exists, the payment is consideration... .

CRA also stated that if the grantor of a transfer payment (incluidng acontribution, subsidy, or similar payment) does not receive any property or service in return, then

the payment is not consideration for a supply since there is no activity involved that can be considered to be a supply"