Words and Phrases - "consideration"

The appellant estate donated shares of a private company (Edmette), which were non-qualifying securities, to a private foundation with which it did not deal at arm’s length. Shortly thereafter, those shares were purchased for cancellation in exchange for a promissory note of Edmette for $17.7 million, which then was repaid in cash by Edmette between four and eight months later. The donation of the Edmette shares was deemed by s. 118.1(13)(a) to not be a gift except to the extent “of the fair market value of any consideration (other than a non-qualifying security of any person) received by the donee [i.e., the foundation] for the disposition” by it of the Edmette shares. The estate argued that for these purposes, the consideration received by the foundation for such shares should be considered to be the subsequent cash repayments of $17.7 million rather than the promissory note (which clearly was also a non-qualifying security), so that the estate’s previous donation was deemed by s. 118.1(13)(c) to be of $17.7 million rather than nil.

In rejecting this submission and finding that s. 118.1(13)(a) deemed there to be no gift, Rossiter CJ stated (at paras. 46, 59):

The consideration could not be both the Promissory Note and the corresponding cash payments. The cash payments were made approximately eight months after the disposition occurred, not at the time of the disposition. The only consideration received at the time of the disposition was the Promissory Note.

… Parliament does not want to grant a tax credit where the donor is not impoverished and the charity is not enriched. A non-arm’s length promissory note creates no real obligation to pay. Non-arm’s length parties can artificially enter into similar transactions, claim a donation tax credit and never actually make payments. For this reason, it is important to show that the charity is actually enriched and the donor is in fact impoverished. A promissory note between non‑arm’s length parties is not convincing enough.

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.

The taxpayer sold its gold production to bullion dealers at the spot price but also, in order to manage the risk associated with fluctuations in the spot price of gold, entered into cash-settled derivatives such as forward contracts, spot deferred contracts, fixed interest floating lease rate contracts, put options and call options. “Proceeds” for purposes of computing its mining profits under the Mining Tax Act (Ontario) referenced: (a) consideration received from the output of a mine; (b) consideration from hedging; and (c) consideration from future sales or forward sales of the output of the mine That Act in relevant part defined “hedging” as including “the fixing of a price for output of a mine before delivery by means of a forward sale or a futures contract on a recognized commodity exchange.” (LeBel J noted, at para. 51, that in this context “’all consideration from hedging” must necessarily refer to a net concept.”)

In finding that the mining profits of the taxpayer included its profits from settling such derivatives, and in rejecting the taxpayer’s arguments that hedging referred only to contracts which entailed the physical delivery of mine output, LeBel J first noted (at para. 31) that:

at least for the purposes of GAAP, the way in which a derivative contract functions as a “hedge” is unaffected by the method by which the contract is settled

and then went on to state (at para. 46):

[T]he value of a forward sale contract that is settled by delivery of output is for all intents and purposes just the price received for the output. There is no doubt that this amount would be caught by the definition of proceeds, and there would have been no need for the legislature to include this element in a statutory definition of “hedging”. In the circumstances, the presumption against tautology carries considerable weight.

As to the meaning of “hedging,” he stated (at para. 35) that the general principles set out in Echo Mines “have some relevance here.”

He also stated (at para. 51):

[A]lthough forward sales and options are distinguished from one another in terms of the particular way in which each is used to hedge price risk, both are used in much the same way to “fix the price” for output. PDC’s argument about the serious distortion implicit in treating options as a subset of forward sales is belied by the PDC’s own Annual Reports … .

The taxpayer, a family trust, made a non-arm's-length sale of shares to a numbered corporation for a promissory note of approximately $2.6 million. The numbered corporation then immediately sold the shares at arm's length to a third party ("Keolis") for approximately $2.8 million. The lower sale price on the first transfer reflected that it had been determined that 404 would bear the cost of professional fees, relating to the structuring of the sale to Keolis, of $233,786.

Archambault J. affirmed the Minister's position that the amount of these professional fees was "consideration" received by the taxpayer. That amount was therefore added to variable D in s. 84.1(1)(b), resulting in an increase in the dividend deemed to be received by the taxpayer. Archambault J. stated (at para. 16):

I accept the definition of consideration laid down in Currie and referred to by Judge Lamarre in Republic National Bank, above, and the definition in Black's Law Dictionary, according to which "consideration" can encompass "[t]he inducement to a contract... [s]ome right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss, or responsibility, given, suffered, or undertaken by the other." By agreeing to be billed for the fees related to the sale of the shares in the place of Fiducie, [the numbered corporation] was, in a sense, undertaking Fiducie's responsibility. A benefit therefore accrued to Fiducie.

The taxpayer received pursuant to the Expropriation Act (Ontario) $3 million in respect of the acquisition of its land and building by the City of Toronto and a further $9 million from the City in respect of damages occasioned as a result of its inability to relocate its business following the acquisition.

After noting that, in the context of s. 14, "'consideration' ... must be understood as the thing that the recipient of a payment gives in exchange for the payment", Sharlow J.A. found that the consideration given by the taxpayer for the $9 million payment was the release of any claim by it for compensation for the destruction of the goodwill of its business, and that under the mirror image rule the amount was not an eligible capital amount because the expropriation was effected for civic purposes rather than for the purposes of producing profit, and an expenditure made by the taxpayer for this purpose would not qualify as an eligible capital expenditure.

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.

The appellant was entitled to receive amounts under an Alberta energy assistance program to defray additional costs to users (consumers and businesses) from a spike in natural gas and electricity costs. Although such users were the ones entitled to receive such government grants, as a matter of convenience the grants were paid directly to the suppliers on the due dates for the invoices, provided that such amounts had been “credited” by the suppliers to the users. The suppliers invoiced the appellant for the full value of the natural gas and electricity supplied, plus GST thereon. Webb JA found that if, for some reason, the suppliers had not been paid the grants, they would have held the users including the appellant liable for the full invoice amounts rather than just the amounts net of the "credits" shown on the invoices for the Alberta grant to be received by the suppliers.

The appellant 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 value of 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.