Consideration

The taxpayer was a banquet hall which held such events as weddings and other large celebrations. Each patron signed a contract with specified the food, beverage and event packages to be purchased for a specific date. The contract in question stated that “All Pricing is Subject to 13% HST and 15% Gratuities.” Before agreeing with the position of the Minister that the “gratuity” was part of the consideration for the supply under the contract, Bocock J referred inter alia to the finding in NDP Co Ltd v Customs and Excise Commissioner, [1988] VATTR 40 that:

[V]oluntary gratuities are not subject to VAT because voluntary gratuities are: ‘[N]o part of the contract that the customer should pay a charge for service … .’

Before dismissing the taxpayer’s appeal, he stated (at paras. 21, 27-28):

[T]he inclusion of an obligation as part of the bargain, cannot be viewed as a gift but part of the consideration. …

Subsection 133(b) combined with subsection 138(a) … suggests that tips included in an agreement are part of the overall supply of prepared meals, which is subject to HST. …

The ETA defines “consideration” as “any amount that is payable for a supply by operation of law.” The almost mandatory tip is enforceable by operation of contract law whereas a voluntary tip is not “consideration” because it is not payable by operation of law… .

In order to promote the sale of its farm products (mostly honey), the appellant developed a “labyrinth” of trails on its forest lands and, when it sold tickets for access by visitors to the trails, stipulated that the ticket, generally sold for $12, also constituted a coupon of $1.50 to be applied to the purchase of honey or other products. However, if the visitor purchased further coupons, the value proposition improved, for example, six coupons (with the additional five purchased at $1.50 each), would purchase 20 times as much honey as one coupon.

In 9056-2059 Québec, the Federal Court of Appeal had rejected the CRA position that s. 138 applied to deem all the supplies by the appellant to be taxable supplies of access to a place of amusement (rather than zero-rated supplies of food), in light inter alia of beekeeping accounting for 50% of the appellant’s maintenance costs, and remitted the matter for redetermination by the Minister on that basis.

Before confirming the resulting reassessments that treated $1.50 of the ticket prices as being zero-rated consideration for the honey or other food products, and the balance as consideration that was subject to tax, Boyle J indicated that s. 153(2) required that the “cost of admission to … the … forest must be reasonably divided between access to the labyrinth and other activities, and the mandatory purchase of a coupon to be exchanged for a honey or maple food product” (para. 8, TaxInterpretations translation) and then stated (at para. 19):

Appellant was unable to present any valid reason why the value of the initial coupon should be other than $1.50, which is what it charged for the same coupons when purchased individually.

The taxpayer received organic sludge from suppliers in the agri-food industry, and was paid by them for taking over the sludge, which it then treated and transformed, using electricity, into residual fertilizer materials ("RFM"). It then paid companies (the "Receivers") to acquire the RFM, which they recovered for composting, agricultural land application or as an energy source. It profited by paying significantly less to the Receivers than it received from its sludge suppliers.

Although s. 206.1 of the Quebec Sales Tax Act denied an input tax refund for tax on supplies of electricity, s. 206.3 provided an exclusion from this rule where the electricity was used for a purpose that came within the exemption in s. 17(aa) of the Quebec Retail Sales Tax Act (“RSTA”), which exempted “sales of electricity … which a person … uses to produce movable property … intended for sale/” The Court of Quebec followed C.R.I. Environnement in finding that this exemption did not apply. C.R.I. Environnement on similar facts had found that the goods were not intended for “sale” because Article 1708 of the Civil Code of Quebec defined a sale as “a contract by which a person, the seller, transfers ownership of property to another person, the buyer, for a price in money which the latter obligates himself to pay,” whereas there, there was no monetary consideration received from the persons to whom the goods were transferred.

In reversing the decision below, and finding that the exemption applied, Marcotte JCA noted that “sale” was broadly defined in s. 2(9) of the RSTA to include “any other contract whereby, for a price or other consideration, a person delivers or binds himself to deliver, to another, movable property” and that “sale price” was defined in s. 2(7) to include “other considerations or prestations accepted by the vendor as the price of the thing covered by the contract of sale.”

Marcotte JCA quoted (at para. 56) from the statement of Waddams, The law of contracts, that:

A valuable consideration in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment loss, or responsibility given, suffered or undertaken by the other.

She then stated (at para. 57, TaxInterpretations translation):

In this case, by transferring its environmental obligations to the Receivers, the Appellant relieved itself of various environmental obligations or liabilities. In my view, this relief conferred a benefit on the Appellant and, in light of the foregoing analysis, constituted valuable consideration that may be characterized as "any other consideration" within the meaning of section 2(9) of the RSTA.

CanLII was a not-for-profit corporation providing an open-access virtual law library that had all of its operating budget (of around $3 million per annum) funded by its sole member, being the Federation of Law Societies of Canada (Federation), which collected matching fees from 14 Canadian law societies. CanLII collected GST on the payments from the Federation, and claimed input tax credits on its taxable purchases. The Minister disallowed these ITCs on the basis that CanLII provided its service for no consideration (i.e., to its readers) and, therefore, provided an exempt supply pursuant to Shed. V, Pt. V, s. 10.

Lamarre ACJ found that CanLII instead was making a taxable supply for which the amounts collected from the Federation were the consideration. She first noted that the ETA definition of “consideration” included any amount that is payable for a supply “by operation of law,” stating (at para. 40):

I do not read the definition as imposing a requirement for an enforceable legal obligation to pay as argued by the respondent.

In rejecting a Crown submission, she stated (at para. 54):

I agree with CanLII that a direct link exists between the payment of the levy by the Federation and the supply of the virtual library. …

Given that the Federation became legally obligated to pay a “levy” for a year to CanLII once such levy and the corresponding levies on the provincial law societies, had been approved by its council, “the levy was paid by operation of law for the supply of the virtual library,” i.e., “[t]here was an obligation on the Federation to pay and payment was not discretionary as argued by the [Crown]” (para. 510.

Accordingly, the Sched. V, Pt. V, s. 10 exemption was inapplicable.

Although the European VAT Directive provided that supplies of services (or goods) for consideration were taxable for VAT purposes, Italian VAT legislation provided that the secondment of staff where only the payroll costs were reimbursed was to be ignored for VAT purposes. In finding that this Italian legislation was contrary to the VAT Directive, so that VAT was applicable to the payments made by an Italian subsidiary (San Domenico Vetraria) to its Italian parent (Avir) to reimburse the latter for the payroll costs of a staff member who had been seconded to San Domenico Vetraria, the 7^th Chamber stated (at paras. 21-23:

[A] supply of services is effected ‘for consideration’ … if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient. … .

[T]he secondment was carried out on the basis of a legal relationship of a contractual nature between Avir and San Domenico Vetraria … [and] there was reciprocal performance, namely the secondment of a director from Avir to San Domenico Vetraria, on the one hand, and the payment by San Domenico Vetraria to Avir of the amounts invoiced to it, on the other.

The case focused on this hypothetical example. A customer pays for parking in a car park of the appellant (NCP) by going to the ticket machine which, on its tariff board, displays a price for one hour of £1.40 – but also states that change is not given but overpayments are accepted. She deposits £1.50 in coins into the machine, which flashes up 'press green button for ticket', which she does. The amount paid is printed on her ticket, as is the expiry time of one hour later. The customer displays the ticket in her car and leaves the car park.

In finding that the consideration received by NCP for VAT purposes was £1.50, and rejecting NCP’s submission that £0.10 was a gratuitous payment, Newey LJ stated (at para. 18):

English law, of course, generally adopts an objective approach when deciding what has been agreed in a contractual context. Here, it seems to me that, taken together, the tariff board and the statement that "overpayments" were accepted and no change given indicated, looking at matters objectively, that NCP was willing to grant an hour's parking in exchange for coins worth at least £1.40. In the hypothetical example, the precise figure was settled when the customer inserted her pound coin and 50p piece into the machine and then elected to press the green button rather than cancelling the transaction. The best analysis would seem to be that the contract was brought into being when the green button was pressed. On that basis, the pressing of the green button would represent acceptance by the customer of an offer by NCP to provide an hour's parking in return for the coins that the customer had by then paid into the machine. At all events, there is no question of the customer having any right to repayment of 10p. The contract price was £1.50.

MEO, a Portuguese telecommunications company providing telecommunications, internet access, television and multimedia services for monthly subscription fees was entitled under its customer contracts upon deactivation of service to compensation corresponding to the amount of the agreed monthly subscription fee multiplied by the difference between the duration of the minimum commitment period provided for in the contract and the number of months during which the service was provided. Article 2(1)(c) of the VAT Directive provided that “the supply of services for consideration within the territory of a Member State by a taxable person acting as such” is subject to VAT. Article 73 of the VAT Directive provided:

In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, 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, including subsidies directly linked to the price of the supply.

In finding that the early-termination amounts so received by MEO were “for consideration” and, thus, subject to VAT, the Court stated (at paras. 39-40, 45):

[A] supply of services is carried out ‘for consideration’, within the meaning of that provision, only if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the actual consideration for the service supplied to the recipient … . This is the case if there is a direct link between the service supplied and the consideration received … .

[T]he Court has already held, as regards the sale of air tickets that passengers have not used and for which they could not obtain repayment, that the consideration for the price paid at the time of the signing of a contract for the supply of a service is formed by the right derived by the customer to benefit from the fulfilment of the obligations arising from the contract, irrespective of whether the customer uses this right. Thus, that supply is made by the supplier of services when it places the customer in a position to benefit from the supply, so that the existence of the abovementioned direct link is not affected by the fact that the customer does not avail himself of that right … .

[I]t must be held that the consideration for the amount paid by the customer to MEO is constituted by the customer’s right to benefit from the fulfilment, by MEO, of the obligations under the services contract, even if the customer does not wish to avail himself or cannot avail himself of that right for a reason attributable to him.

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.

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.

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.

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.

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).

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.

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.. .

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).