Section 182

Following the vacating by a tenant (“Trillium College”) of shopping-mall premises of the appellant (“BH Parkway”) in breach of the terms of the lease, a settlement agreement of an action between BH Parkway and Trillium College was reached pursuant to which Trillium College agreed to pay $260,000 to BH Parkway, of which $100,000 was received during the reporting periods under appeal. The heads of claimed damages of BH Parkway that were settled included $500,000 for the value of the goods removed by Trillium College of at least $250,000 together with a penalty pursuant to s. 50 of the Commercial Tenancies Act equal to 100% of such value. This penalty was intended to penalize in the situation of “’a tenant in removing its goods from a premise to defeat a landlord’s ability to distrain them’” (para. 26).

D'Auray J found that (at para. 27) that such a penalty would be paid “as a consequence of the operation of a provincial statute rather than as a consequence of the breach of the lease.” Since the $250,000 penalty claimed represented 33% of the total amount claimed, on a pro rata basis, s. 182 applied only to 67% of the $100,000 received, so that BH Parkway was deemed under s. 182 to have collected only 13/113 of this amount rather than of the full $100,000.

The appellant, which had a trucking business, had a contract with a customer (“McKesson”) for the delivery of pharmaceutical products to various locations. After McKesson eliminated various of the routes and forced a renegotiation of the rates, the appellant brought an action, which was settled for $727,934 plus interest. After the potential application of s. 182 to this amount was brought to its attention by Revenu Québec, the appellant claimed GST calculated on this amount from McKesson, but McKesson refused to pay.

In finding that this amount was deemed by s. 182 to include GST, Favreau J stated (at paras. 65-67, TaxInterpretations translation):

[T[he conditions for the application of section 182 … are met in this case. There was a modification of an agreement for the making of a taxable supply in Canada to a person and an amount was paid to the registrant otherwise than as consideration for the supply. …

Unfortunately for the appellant, the rules provided under paragraph 182(1)(b) … applied irrespective whether McKesson had claimed an input tax credit respecting the damages paid.

Subscribers to the services of a Portuguese telecommunications company (“MEO”) agreed to pay for a minimum subscription period, and when they discontinued service before the end of that guaranteed period they were required under the terms of their contracts to pay a lump sum equal to their monthly subscription fee multiplied by the number of remaining months in the guaranteed period. The ECJ found that this lump sum was taxable “consideration” received by MEO for its services on ordinary principles, stating (para. 45):

[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.

The appellant, a university, maintained parking spaces around campus and imposed parking fines pursuant to special statutory authority. The signs setting out the parking rates did not describe the fines other than to say "vehicles not displaying valid receipts are subject to ticketing." The Minister argued that the fines were consideration for a taxable supply (being the provision of parking services) and therefore were subject to GST or, in the alternative, that they were subject to GST under s. 182 on the basis of a breach of contract for those parking services.

C Miller J granted the university's appeal. The fines were pure fines rather than consideration for parking services. They were imposed pursuant to the university's mandate to conduct university business rather than a profit motive, and the obligation to pay was based on the university's statutory powers rather than contract. These two factors distinguished the present case from Imperial Parking. C Miller J stated (at para. 26):

I have found that the contractual terms of the contract between a non‑paying driver and Simon Fraser University do not provide for consideration for a parking spot, but an agreement by the non-paying driver to run the risk of having to pay a fine. There is not an intention to breach an agreement to pay for the taxable supply of parking; the agreement is not to pay consideration for the supply of the parking spot: the agreement is basically, if I get caught I pay a fine. I agree that seems a somewhat, dare I say it, "fine" distinction, but it does recognize the fine, in this case, is indeed just that, a fine, pure and simple, and if there is no term in the agreement for the taxable supply to a non-paying driver other than to be subjected to a fine, there is no breach that would invoke section 182 of the ETA.

The appellant ("Mall Co"), its parent ("IPL"), which was the master real estate subsidiary of The Insurance Corporation of British Columbia ("ICBC"), and ICBC itself, entered into a complex of agreements (including an agreement to enter into a lease with a formula rent) with a start-up university ("Tech BC") and the Province of B.C., which contemplated that Mall Co would be funded by ICBC (through IPL) in order to construct facilities, including facilities that would be occupied by Tech BC and rented to it. Approximately half way through construction, the Province decided that there would not be a new university, the agreements were terminated, and (after negotiations) a settlement agreement was entered into among the five parties in which Tech BC agreed on behalf of itself and the Province to pay $41.1M to ICBC in consideration for ICBC, IPL and Mall Co releasing Tech BC and the Province from all obligations under the project agreements. The settlement agreement did not address GST, and CRA assessed Mall Co on the basis that Mall Co had failed to remit GST of $2.4M which it was deemed by s. 182 to have received as part of the settlement payment.

Hershfield J found that ICBC received the settlement payment on its own account (as was in fact recognized in the settlement agreement) rather than on behalf of Mall Co in light inter alia of its own entitlements under the project agreements, including the right to require Tech BC to enter into the lease, and the fact that it had funded a substantial investment in IPL in connection with the project work for which it was being compensated.

Although the above analysis by itself would indicate that Mall Co did not receive a payment as a consequence of the project agreement terminations, upon receipt of the settlement amount, ICBC instructed IPL and Mall Co to write down an equivalent amount of intercompany debt owing to their respective parents. Hershfield J referred (at para. 91) to this being from the perspective of Mall Co a "quid pro quo from ICBC to forego its entitlement against Tech BC." Accordingly, there was a sufficient "causal link" to conclude that the debt of Mall Co had been reduced as a consequence of the termination of the project agreements so that, subject to the final finding below, the assessment of Mall Co was correct.

However, the settlement payment was not subject to GST, on the basis that the primary obligor (the Province) was exempt under s. 125 of the Constitution Act. Furthermore (viewing Tech BC as the deemed recipient), Tech BC was stated in its governing Act to "not be liable to taxation except to the extent the government is liable," which effectively was "the voice of the province claiming immunity for Tech BC" (para. 112). Hershfield J also noted (at para. 112) that although there was no documentary evidence of the type stipulated by CRA of the exempt character of the deemed supply, "any failure to comply with such evidentiary requirements cannot deny a province that [exemption] right where in fact it, a province, has been found by this Court to be the recipient of the supply in respect of the payment."

Mall Co's appeal was allowed.

The appellant, which had been leasing computer equipment, notified the lessor that it would no longer be making the agreed monthly payments nor using the equipment. Following negotiations, the lessor agreed to release the appellant from any further obligation to make monthly lease payments upon payment of a fixed amount of compensation. At issue was whether such payments were subject to Ontario retail sales tax, which turned on whether such payments were for the consumption or use of the equipment.

In finding that no retail sales tax was applicable, Macpherson J.A. stated (at para. 57):

The appellant defaulted under the lease. After the appellant breached and repudiated the lease, C Ltd. could have terminated it immediately and repossessed the leased computer equipment. In addition, or in the alternative, it could have commenced an action against the appellant for damages. The appellant and C Ltd. entered into negotiations against the backdrop of those two options, not against a backdrop of the continuation of the operation of the lease. The compensation payments constituted settlement payments, not payments made under the lease. The effect of s. 2(1) and (6) of the Retail Sales Tax Act is that sales tax must be paid only with respect to each rental payment while the lease is still in operation. Sales tax was not payable on the compensation payments.

A $15,000 lump sum payment made by the registrant to its landlord in order to terminate its lease was found not to give rise to an input tax credit to the registrant in the absence of any evidence that the $15,000 sum was a GST-included amount and given that the payment gave the registrant no rights to occupy and use the premises. Section 182 was not referred to in argument.