Section 153

Pursuant to demolition contracts, a company 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 scrap metal and other materials generated into account in quoting its price for the work but did not communicate this estimate to the customer. The company also undertook dismantling contracts under which the equipment and materials to be removed had an estimated value such that the company would pay the customer to enter into the contract (rather than being paid to perform the dismantling).

The 9^th Chamber held in both cases there was a reciprocal supply of a demolition or dismantling service and of goods (the removed materials or equipment) for VAT purposes. In the first case,

the 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 (para. 40)

with the consideration it received for its demolition work effectively being grossed up by this estimated amount.

Similarly, in the second (dismantling) case (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.

Although accepting (per BLP) that a mere borrowing by a company is not a supply by it, Arden LJ confirmed the finding below that the services provided by ING to its on-line depositors (including 24-hour access to their deposits) were more than merely “peripheral” to the borrowing represented by the deposits, so that ING was engaged in an exempt banking business. In finding that ING was also making such supplies for consideration notwithstanding that it advertised itself as providing “no fee” banking, she stated (at para. 46, adopting findings below):

[T]he contract was one of barter. The bank provided the banking facilities and interest payments in exchange for the making of the loan. … The provision by the customer of the loan was the consideration for both the payment of interest and the provision of the banking services.

An individual (Mr. Hussain), who was the CEO of a Canadian corporation (“GEM”) which directly and through subsidiaries (including “Melville Ridge“) was engaged in the nursing home business, was also the key employee of Melville Ridge. GEM provided and charged for various management services it provided to its subsidiaries, including Melville Ridge, but it reduced the fee charged to Melville Ridge by the amount of Mr. Hussain’s salary with Melville Ridge to reflect that, as Mr. Hussain was also an employee of Melville Ridge, his services were not provided to Melville Ridge.

CRA took the position that the arrangement between GEM and Melville Ridge constituted two separate supplies, one being a supply of services (including services performed by Mr. Hussain in his capacity as an employee of GEM) supplied by GEM to Melville Ridge, and the other being a supply of services (including services performed by Mr. Hussain in his capacity as an employee of Melville Ridge) supplied by Melville Ridge to GEM. and added to the management fees receivable by GEM a non-cash component (being the value of the services provided on this theory by Melville Ridge to GEM).

In rejecting this approach, Sommerfeldt J stated (at para. 91):

The approach taken by the CRA is based on the premise that the services of Mr. Hussain flowed in both directions (i.e., GEM provided the services of Mr. Hussain to Melville Ridge, and Melville Ridge provided the services of Mr. Hussain to GEM), and seems to suggest an element of circularity. Furthermore, the CRA’s approach seems peculiar in that, as Mr. Hussain was an employee of GEM, there was no reason for Melville Ridge to make the services of Mr. Hussain available to GEM in the manner suggested by the CRA, and, as Mr. Hussain was an employee of Melville Ridge, there was no reason for GEM to make the services of Mr. Hussain available to Melville Ridge.

The appellant, which was the manager (and also trustee) for various mutual fund trusts (the "Funds"), arranged that large investors in the Funds, such as pension funds, would bear lower Fund management fees than those which otherwise would be charged by it to the Funds. Initially, this was accomplished through fee refunds paid by the appellant to the large investors. However, in 1994 CRA indicated (in 9332265) that these refunds would be treated as "inducement payments," to be included in the Funds' incomes under ITA s. 12(2.1) (thereby resulting in double taxation.)

Under restructured arrangements:

1. the weekly management fees charged by the appellant to the Funds were reduced to reflect the "net" management fees agreed with the larger investors, with a corresponding reduction in the GST collected; and
2. the Funds made special "Management Fee Distributions" to the large investors on a monthly or quarterly basis equal to the difference between the "gross" management fees they otherwise would have borne and the net management fee amounts.

The Minister considered that the Fund obligations to pay the Management Fee Distributions to the large investors was part of the consideration that the Funds provided in exchange for the appellant's services, and assessed the appellant for failure to charge GST on the gross amounts.

Campbell J allowed the appellant's appeal. The Minister's position depended on the special distribution amounts being owed by the appellant to the large investors (para. 53). However, it was the Funds' own trust declarations that created the obligation to make the special distributions - the obligation was never the appellant's (paras. 64, 68, 85). In other words, the management fees were "discounted at the point of sale" and it was only this net amount that was payable to the appellant (para. 80). Furthermore, there was a time lapse between the weekly payment of the reduced management fees and the eventual monthly or quarterly special distributions (para. 54).

The registrant ("Mattamy"), which was a housing developer, paid municipal development levies at the time it entered into a subdivision agreement with the municipality, or when the municipality issued building permits. The sales agreements with home purchasers stated the parties' agreement that "as part of …the Purchase Price herein, the Vendor has or will pay on behalf of the Purchaser…all applicable development charges…." Mattamy did not collect GST (aggregating $15 million) from the purchasers on amounts reimbursing it for the relevant development levies which had been charged to it (on a GST-exempt basis) by the municipality.

Woods J concluded that under the clause quoted above, it was agreed that "Mattamy pays the development charges on its own account, but for the ultimate benefit of Purchasers" (para. 36): first, the development charges often were paid by Mattamy prior to executing a sales agreement with its supposed principal, and were not payable if the purchaser terminated the sales agreement; and second, the agreement stated that the development charges were part of the purchase price (implying that they were paid by Mattamy on its own account).

Accordingly, the recoupment of the development charges by Mattamy was part of the sales consideration received by it, and was subject to GST.

The appellant leased a transit system to another municipal transit entity for rent of $1 per year, but with the lessee being obligated to pay municipal taxes imposed on the leased premises (which amounted to around $2 million per year). C Miller J noted that this obligation represented non-nominal consideration for the lease. See summary under s. 141.01(1.1).

A theatre company which invited members of the public to sponsor a new seat in the theatre by paying £150, and which provided such subscribers with a personalized brass plaque displayed on the seat, an acknowledgement in its main foyer and a limited edition print by a Glagow artist, was liable to VAT on the total proceeds received pursuant to s. 10(2) of the Value Added Tax Act, 1983 (which provided that "if the supply is for a consideration in money its value shall be taken to be such amount as ... is equal to the consideration"), notwithstanding evidence that the payments included an extremely large element of donation.

The taxpayer organized overseas coach tours and received 80% of the tour price listed in the brochure from its Bermudan parent. It was found that the taxpayer was the person with whom the passengers contracted and that sums paid by the passengers to overseas subsidiaries of the Bermudan parent were received by the subsidiaries for and on behalf of the taxpayer through a chain of agency arrangements, and that the only reason why the taxpayer did not actually receive the full sums paid by the passengers was that it permitted sums to be deducted by the overseas subsidiaries by way of commission for their respective services in marking the tours on behalf of the taxpayer. Accordingly, the "consideration" received by the taxpayer for the supply was the full price, rather than 80% thereof. Slade L.J. stated that (p. 5012) "the concept of receipt for this purpose is not to be confined to mere physical receipt; anything which is received by persons for and on behalf of the supplier must be treated for this purpose as received by the supplier himself".

Boots operated a sales promotion scheme under which it distributed to its customers coupons which entitled the customer upon presenting the coupon for the purchase of other specified goods to a reduction in the price of those goods. The consideration which Boots received for those goods did not include the value of such coupons which were presented to it:

"It is clear from the coupon's legal and economic characteristics ... that, although a 'nominal value' is indicated on it, the coupon is not obtained by the purchaser for consideration and is nothing other than a document incorporating the obligation assumed by Boots to allow to the bearer of the coupon, in exchange for it, a reduction at the time of purchase of redemption goods. Therefore, the 'nominal value' expresses only the amount of the reduction promised." (p. 5073)

In order to promote the sale of its honey products produced on its rural lands, the appellant developed a “labyrinth” of trails on its forest lands. The many visitors were required to purchase honey or another farm product to gain access to the trails, which was accomplished through the sale of tickets. The first ticket, sold for $12 per adult ($10 per child), was marked as a coupon with a $1.50 value, which could be applied to purchase 50 g of honey or maple syrup, a bag of 8 candies, a maple lollipop or a 1 lb. bag of buckwheat flour. By comparison, a 500‑g. jar of churned liquid honey, for example, was assessed at $6 (four tickets) and a 1‑kg. jar, at $9 (6 tickets). Additional tickets generally cost $1.50 each.

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 the $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 referred to s. 153(2), and stated (at paras. 8. 19, TaxInterpretations translation):

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. The appellant called the coupon received at the entrance the coupon for the purchase of basic products. …

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. Appellant also could not explain how or why a coupon could have a different value if it came with an adult or child entry.

The Appellant also had not adequately established that the non-coupon portion of the ticket revenue was collected by it on behalf of a related entity.

Lamarre TCJ. concluded that s. 153(2) did not have the effect of deeming a separate service fee charged by a co-operative retail outlet to its members to be consideration paid by them for zero-rated groceries. Instead, the provision "was designed as an anti-avoidance rule that applies where there has been an unreasonable apportionment of consideration as between two or more supplies" (p. 34-6).