Words and Phrases - "in relation to"
Potash Corporation of Saskatchewan Inc. v. The Queen, 2022 TCC 75, aff'd 2024 FCA 35
The taxpayer, which produced and sold potash from mines in Saskatchewan, was subject to both a profit tax and to the making of “base payments” under the Mineral Taxation Act, 1983 (Saskatchewan). In finding that the base payments made in its 1999 to 2002 taxation years did not satisfy the requirement under s. 18(1)(a) of having been incurred for the purpose of producing income from the taxpayer’s business, Owen J applied the principle that since an income tax is imposed on the profits generated by a business rather than being incurred to generate those profits, it cannot satisfy this purpose test. Although the base payments in fact were computed in substantial part based on potash sales made in the year, he indicated that such sales had been chosen “as a proxy for income to ensure that a minimum amount of tax would be collected in respect of such potash even if the producer did not have profits for the year” (para. 72).
Owen J went on to find that deduction of the base payments was also denied for those taxation years by former s. 18(1)(m), which relevantly applied if they could "reasonably be regarded as being in relation to” the acquisition, development or ownership of a Canadian resource property, or the production in Canada to any stage that is not beyond the prime metal stage or its equivalent of minerals from a mineral resource located in Canada. After noting (at para. 79) that the base payment “is a tax on the producer selling or otherwise disposing of its potash,” he stated (at para. 86):
[A] “sale or other disposition of” potash is an activity that relates to the production of that potash. There is a direct and immediate connection between the production of potash and the subsequent sale or disposition of that potash.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | deductibility of Saskatchewan potash tax “base payments” denied given that sales they were applied to were a proxy for income | 357 |
Westcoast Energy Inc. v. Canada, 2022 FCA 57
Westcoast reimbursed (through Manulife as its agent) employees who had incurred various health care services – including some which were GST/HST-taxable, namely, acupuncture, massage therapy, naturopathy and homeopathy services. On appeal, Westcoast did not challenge the finding below that the employees were the recipients of such taxable services, so that Westcoast did not satisfy the requirement in s. 169, for generating input tax credits (ITCs) for the tax, of having acquired such services. However, Westcoast submitted, contrary to the finding below, that the employees should be considered to have consumed or used the services “in relation to activities of [Westcoast]” so as to generate ITCs under s. 175(1)(c).
Stratas JA agreed with the Tax Court below that ExxonMobil, which had held (at para. 50 thereof) under the similar wording of s. 174 that “property or services which are intended by the employer for the exclusive personal use of the employees and which lend themselves to such a use bear no relationship with the employer’s activities” also applied here in the context of s. 175, such that if “an employer reimburses for a service or property that is for the exclusive personal use of employees, the employer will not enjoy the deeming effect of subsection 175(1).” Accordingly, no ITCs were generated to Westcoast under s. 175.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 170 - Subsection 170(1)) - Paragraph 170(1)(b) - Subparagraph 170(1)(b)(ii) | s. 170(1)(b)(ii) did not apply to reimbursed employee health care services as the services were acquired by the employees rather than the employer | 201 |
Club Intrawest v. The Queen, 2016 TCC 149, varied 2017 FCA 151
The members of the Appellant (which was a non-share Delaware corporation resident in Canada) included Canadian and U.S.-resident individuals who had been sold “Resort Points,” which could be periodically applied under a booking system to obtain access to particular resort condo units ("Vacation Homes") beneficially owned by the Appellant in Canada, the U.S. and Mexico. The Appellant paid various expenses respecting the Vacation Home operations which it recovered through “Annual Resort Fees” charged to its members. D’Arcy J found that the Annual Resort Fees were consideration for a service rather than intangible personal property, stating (paras. 237-8):
The Appellant does not provide any rights in consideration of the Annual Resort Fee. … What it supplies is the agreement to use the Annual Resort Fees to fund its operations. … This…is the supply of something other than property.
In rejecting the Appellant’s submission that it “made, in consideration of the Annual Resort Fee, separate single supplies of services in respect of each Vacation Home,” he stated (at para. 259):
It made a single supply by agreeing to use the Annual Resort Fee to fund its operations…with the consideration being based upon the Appellant’s total estimated costs. The Appellant could only continue to operate the Intrawest Program if it incurred all of the costs…; it could not cherry-pick certain costs.
Although "'in relation to'...should be given a wide scope" (para. 265), he found (at para. 265) that in order for there to be “a supply…of a service in relation to real property” under s. 142(1)(d) or 142(2)(d):
The service must be performed directly on the real property or relate directly to the real property. This would include services such as repairs to the real property, maintenance of the real property, architectural services relating to a specific building or legal services performed in respect of the sale or rental of the real property.
After noting (at para. 213) that where a service relates both to real property inside and outside Canada, ss. 142(1)(d) and 142(2)(d) “deem two mutually exclusive events to occur” i.e., that supply occurs inside and outside Canada, and (at para. 272) that “the supply of the Annual Services relates in part to real property in Canada and real property outside of Canada,” and finding (at para. 288) that “the GST Act…contemplates a single supply which is either subject to tax on the whole consideration paid for the supply or not subject to tax at all,” he found (at para. 318) that this inconsistency should be resolved on the basis that:
[P]aragraphs 142(1)(d) and 142(2)(d)…only apply if the single supply of a service relates solely to real property. The paragraphs do not apply if only a portion of the single supply of the service relates to real property. In such a situation, the supply is subject to the general deeming rules set out in paragraphs 142(1)(g) and 142(2)(g).
On this basis (paras. 321-2):
Paragraph 142(1)(g) deems the supply to be made in Canada since the Appellant performed the Annual Services partially in Canada.
Therefore the GST applied to all of the Annual Resort Fee paid by the Members... .
The CRA administrative position, which was "to allocate the Annual Resort Fee between taxable supplies made in Canada and taxable supplies made outside of Canada, basing the allocation on the ratio of total resort points issued in respect of properties located in Canada to the total resort points issued in respect of all properties" (para. 198), did not comply with the Act (para. 323). However, his judgment could not increase the tax assessed (para. 323).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Agency | annual fees charged by non-share corporation to its members were not reimbursements for expenses incurred by it as their agent | 377 |
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Service | payment of condo operating expenses was a service | 211 |
| Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply | single supply of covering all time share operating costs | 172 |
| Tax Topics - Excise Tax Act - Section 168 - Subsection 168(1) | GST collectible based on invoicing times | 79 |
| Tax Topics - Excise Tax Act - Section 306.1 - Subsection 306.1(1) | objecting to quantum was sufficient particularity | 177 |
| Tax Topics - General Concepts - Ownership | beneficial owner did not transfer property risk | 183 |
| Tax Topics - General Concepts - Evidence | foreign law assumed the same | 101 |
ExxonMobil Canada Ltd. v. Canada, 2010 FCA 1
The appellants were required to relocate their employees to different locations as part of their business. In addition to reimbursing direct moving costs, their relocation policy entailed paying the relocated employees a moving allowance in respect of incidental expenses (e.g., draperies, blinds and carpeting for the new premises, costs of cancelling and entering into new service contracts and the replacement of items which could not be shipped.) The appellants claimed ITCs in respect of the moving allowances on the basis of s. 174.
The Court found that, under s. 174(a)(iv), it is the supply, not the allowance used to acquire it, that must be "in relation" to the employer's activities. Noël J.A. stated (at para. 50):
If meaning is to be given to the words of subparagraph 174(a)(iv), regard must be had to the particular property or services contemplated and their intended use. Applying these criteria, property or services which are intended by the employer for the exclusive personal use of the employees and which lend themselves to such a use bear no relationship to the employer's activities. In contrast, property or services which can be used by the employees in the course of their employment activities, and which are intended for such a use, are in relation to the employer's activities.
Accordingly, as the "supplies of property or services which the allowances were intended to fund...were for the exclusive personal use of the employees" (para. 52), they did not qualify under s. 174.
Noël JA further noted obiter (at para. 54-55) that, as s. 174 deals with an "allowance," i.e., an amount for which the recipient "is under no duty to account and remains free to use...as he or she pleases," by legislative design there is no requirement for the payor of the allowance to assess the reasonability of the actual consumption or use of the property by the recipient of the allowance as would be required for a reimbursement referred to in s. 170(2)(a) and "that is why the test under paragraph 174(b) of the ETA is framed by reference to the reasonability of the allowance as a deductible expense in the hands of the employer."
Stantec Inc. v. The Queen, 2008 TCC 400 (Informal Procedure), aff'd 2009 FCA 285
The appellant acquired a US public company ("Keith") in a Delaware merger (in which Keith Industries merged into the appellant's US subsidiary, with the latter as the survivor, and Keith shareholders received shares of the appellant), which required the appellant's shares to be listed on the NYSE. In finding that the appellant was entitled to input tax credits for GST on the fees incurred by it in connection with this listing, C Miller J found that ss. 186(1) and 186(2) both applied, so that the appellant was deemed to incur the fees for use in its commercial activities.
The transactions, although not a purchase of Keith's shares, was an "acquisition" of the shares, by way of "contractually having control of the disposition of those shares in the form of their cancellation" (para. 24). To hold otherwise would defeat the essence of s. 186(2), which is to deal with takeovers (para. 25).
In affirming C Miller J's finding that the listing services were "in relation to" the shares for the purpose of s. 186(2) (without commenting on the same finding made in relation to s. 186(1)), Layden-Stevenson JA stated (at paras. 16-17):
Applying the Supreme Court’s construction [of “in relation to” in Slattery, [1993] 3 S.C.R. 430], he reasoned that the nexus between acquiring the listing services and the shares of either Keith or Stantec California need not be one of prominence, let alone exclusivity. He concluded that the listing services were acquired so that Stantec could complete its deal to own all the shares of the company resulting from the merger of Keith and Stantec California. ...Miller J. found, as a fact, that the services “can readily and reasonably be regarded as being in relation to the shares of either Keith Companies or Stantec California or the shares of the merged company, that is, the investment by Stantec in its new acquisition.”
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Excise Tax Act - Section 186 - Subsection 186(1) | listing fees to issue shares to target shareholders were eligible | 263 |
Miedzi Copper Corporation v. The Queen, 2015 TCC 26 (Informal Procedure)
Essentially the appellant's only activity was to indirectly finance the mineral exploration activities of six Polish subsidiaries of its immediate wholly-owned Luxembourg subsidiary ("Luxco") by lending funds (raised through private placements) to Luxco, with such loans being converted to mandatorily redeemable preferred shares at the end of each year. The appellant had no employees or premises of its own, but was charged fees for consulting services provided by its executives and consultants as well as being charged for professional and other incidental services.
After noting the broad construction given to the phrase "in relation to" in Stantec, and in finding that the appellant was entitled to full input tax credits for GST on these charges, Paris J stated (at para. 35):
[E]verything Miedzi does can be said to be done in relation to the shares or indebtedness of Luxco. Therefore, there is a clear nexus between the administrative, management and legal services in issue and the shares or indebtedness of Luxco.
He stated (at para. 36) his agreement with the appellant's submission (at para.18) that:
Parliament intended subsection 186(1) to be applied as a look-through rule to allow a holding company to claim ITCs that the underlying corporation could have claimed if it incurred the costs of the services or property directly.
GST/HST memorandum 9.4 "Reimbursements" June 2012
15. However, if a person is an employee, a partner or a volunteer at the time the property or service is acquired, imported or brought into a participating province, it is not necessary that the person still be an employee, partner or volunteer at the time of the reimbursement.
Agents
16. If the employee, partner or volunteer was acting as an agent for the employer, partnership, charity or public institution at the time the individual acquired, imported or brought into a participating province property or services, section 175 does not apply to the reimbursement. Instead, as the employer, partnership, charity or public institution would be considered to be the recipient of the supply, the usual rules for determining whether that person was eligible to claim ITCs or rebates would apply.
Executor of an estate s 267 and 267.1
17. ...Provided that the individual acquired, imported or brought into a participating province property or services at the time that the person was an employee, partner or volunteer, any reimbursement to the estate of the deceased individual could be subject to the rules in section 175. ...
Reimbursements to employees of other companies
18. Where a company (Company A) reimburses the employees of another company (Company B) for expenses that these employees incurred as a result of a contract Company B entered into with Company A, Company A is not entitled to use section 175 for these reimbursements. There is no employer – employee relationship between Company A and the employees of Company B. Rather, the reimbursements would be consideration for a supply.
"In relation to"
21. It is a question of fact whether the consumption or use of the property or service is "in relation to" the activities of the employer, partnership, charity or public institution. However, there must be a direct connection between the consumption or use of the property or service and the activities engaged in by the person.
Credit card expenses..
34. The CRA allows a person who is an employer, a partnership, a charity or a public institution to use a factor approach [12/112 in Ontario] to calculate ITCs or rebates in respect of the tax deemed paid by the person on purchases made by the person's employees, partnership members or volunteers where credit cards have been used to make purchases. The use of factors is intended to simplify the administrative burden persons have because credit card receipts are often a one sum total and include gratuities and provincial sales tax (PST). The choice of using the factor approach is an option for a person. Some persons may prefer to use the exact calculation method.
12 December 2012 Interpretation Case No. 142112
A real estate broker based in Nova Scotia is hired by a company with a head office in Nova Scotia to lease real property in New Brunswick to a tenant. Before concluding that the supply of the service would be in New Brunswick, CRA stated:
A service and real property would generally be regarded as being in relation to each other pursuant to the above guidelines if the purpose of the service is to: • physically count the property; • appraise or value the property; • physically protect or secure the property; or • enhance the value of the property. Similarly, if the service is aimed at effecting or dealing with the transfer of ownership of, claims on or rights to the real property, or determining title to the property, the service will generally be regarded as being in relation to the property.