Words and Phrases - "ordinarily situated"

The appellant issued fleet insurance policies to trucking companies who operated their vehicles in both Canada and the US. The appellant claimed input tax credits on the basis that 1/3 of its supplies of insurance were zero-rated under Sched VI, Pt. IX, s. 2(d). The 1/3 figure came from its historical analysis that 1/3 of its payouts under the policies it issued respected perils that arose in the U.S. (i.e., the policies to that extent “relate[d] to risks that are ordinarily situated outside Canada.”) The Minister denied those ITCs on the basis that none of such financial services were zero-rated.

Graham J set the stage for his analysis by stating (at para. 21):

Insurance has two components: the object of the insurance and the peril which that object is insured against. If an insurer issues a policy insuring against the theft of a painting, the peril is theft and the object of the insurance is the painting. … If, like the Appellant, an insurer issues automobile insurance, “the insured objects include the owner, driver, and occupants of the motor vehicle, as well as the automobile itself and its contents, whereas the insured perils include accidental loss, damage, injury, or death; legal liability; theft; vandalism; and fire."

He then concluded (at para. 69):

“[R]isks” means the objects of an insurance policy. Paragraph 2(d) treats the supply of an insurance policy as zero-rated to the extent that those objects are ordinarily situated outside Canada. A multi-factor approach should be taken when examining where the objects are ordinarily situated. If a policy insures more than one object, any apportionment of the supply of that policy into exempt and zero-rated parts should occur on an object-by-object basis.

In dismissing the appeal, he stated (at paras 72 and 73):

…The Appellant’s apportionment between exempt and zero-rated was done on a global basis. … [S]ection 2 is a very unique section under which an apportionment happens within a given supply on an object-by-object basis. The Appellant should have made a separate apportionment for each policy on a vehicle-by-vehicle basis for the vehicles covered by that policy.

… I do not have any specific evidence regarding the individual policies in issue, let alone evidence regarding the vehicles covered by those policies. Without this evidence, it is impossible for me to determine whether the supply of any given policy was partly zero-rated. This lack of evidence is a sufficient basis for me to dismiss the appeals and I do so on that basis.

However, in describing how he might have applied s. 2 had the appropriate evidence been before him, he stated (at paras 75, 76, 77, 78, 79):

Assuming that the evidence before me is representative…, I would have found that those policies related to risks that were ordinarily situated in Canada, that the supply of each policy was entirely an exempt supply and that the appeals should therefore be dismissed.

… I would have started my analysis by looking at the objects of the insurance (i.e. the vehicles). I would have focused on both the number of days that each vehicle spent outside Canada and the percentage of the overall kilometers travelled by each vehicle that occurred outside Canada.

I would have found the fact that the vehicles were all insured using the standard insurance terms for Ontario vehicles to be a relevant factor. …

… I would have considered …relevant … the jurisdiction in which the owners of the fleets were based; the location where regular maintenance on the vehicles was conducted; the jurisdiction in which the drivers were licensed; and the location where the vehicles were kept when not in use.

I may also have considered the reason why the vehicles left Canada. …