Words and Phrases - "consideration"


7 October 2021 APFF Roundtable Q. 14, 2021-0901041C6 F - Meaning of Any consideration received by Donee

“consideration … received” in s. 118.1(13)(c) includes a s. 84(3) deemed dividend

Under s. 118.1(13)(c), where a qualified donee that disposes of non-qualifying securities (“NQS”) that were gifted to it, the amount of the original gift will be deemed in some circumstances to equal the fair market value of the “consideration” received by the donee for that subsequent disposition. Is the FMV “of any consideration received by the donee for the disposition” of the NQS not limited to the specific concept of "proceeds of disposition" under s. 54, and may include an s. 84(3) deemed dividend received by the donee on that disposition (where it is a share redemption)? CRA responded:

[G]enerally speaking, and in the absence of any indication to the contrary … the notion of "consideration" is broad enough to encompass any amount, good or service received upon the disposition of property.

The CRA is of the view that the word "consideration" in the phrase "fair market value of any consideration … received by the donee for the disposition … of the security" in paragraph 118.1(13)(c) must be given the broad meaning generally accepted in the jurisprudence. Thus, for the purposes of paragraph 118.1(13)(c), the expression "consideration received for the disposition" is not limited to "proceeds of disposition" as defined in section 54.

Consequently, the CRA is of the view that for the purposes of paragraph 118.1(13)(c), the consideration received by the qualified donee for the disposition of a NQS may include the portion of such consideration that is a deemed dividend received by the qualified donee pursuant to subsection 84(3) on a redemption of shares.

Words and Phrases

Odette (Estate) v. The Queen, 2021 TCC 65

a promissory note subsequently repaid in cash could not be equated to cash consideration for s. 118.1(13)(c) purposes

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.

Words and Phrases
consideration receive payment

Centre de traitement de la biomasse de la Montérégie inc. v. Agence du revenu du Québec, 2021 QCCA 1068

consideration for a transfer of waste included the assumption of environmental responsibility

The taxpayer received organic sludge from suppliers in the agri-food industry, and was paid by them for taking over the sludge, which it then treated and transformed, using electricity, into residual fertilizer materials ("RFM"). It then paid companies (the "Receivers") to acquire the RFM, which they recovered for composting, agricultural land application or as an energy source. It profited by paying significantly less to the Receivers than it received from its sludge suppliers.

Although s. 206.1 of the Quebec Sales Tax Act denied an input tax refund for tax on supplies of electricity, s. 206.3 provided an exclusion from this rule where the electricity was used for a purpose that came within the exemption in s. 17(aa) of the Quebec Retail Sales Tax Act (“RSTA”), which exempted “sales of electricity … which a person … uses to produce movable property … intended for sale/” The Court of Quebec followed C.R.I. Environnement in finding that this exemption did not apply. C.R.I. Environnement on similar facts had found that the goods were not intended for “sale” because Article 1708 of the Civil Code of Quebec defined a sale as “a contract by which a person, the seller, transfers ownership of property to another person, the buyer, for a price in money which the latter obligates himself to pay,” whereas there, there was no monetary consideration received from the persons to whom the goods were transferred.

In reversing the decision below, and finding that the exemption applied, Marcotte JCA noted that “sale” was broadly defined in s. 2(9) of the RSTA to include “any other contract whereby, for a price or other consideration, a person delivers or binds himself to deliver, to another, movable property” and that “sale price” was defined in s. 2(7) to include “other considerations or prestations accepted by the vendor as the price of the thing covered by the contract of sale.”

Marcotte JCA quoted (at para. 56) from the statement of Waddams, The law of contracts, that:

A valuable consideration in the sense of the law, may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment loss, or responsibility given, suffered or undertaken by the other.

She then stated (at para. 57, TaxInterpretations translation):

In this case, by transferring its environmental obligations to the Receivers, the Appellant relieved itself of various environmental obligations or liabilities. In my view, this relief conferred a benefit on the Appellant and, in light of the foregoing analysis, constituted valuable consideration that may be characterized as "any other consideration" within the meaning of section 2(9) of the RSTA.

Words and Phrases
consideration sale
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 125.1 - Subsection 125.1(3) - Canadian Manufacturing and Processing Profits a taxpayer made sales of partially processed waste when it paid other processors to complete its processing 354

National Car Parks Ltd v Revenue and Customs, [2019] EWCA Civ 854

car park machines that did not refund coin payments thereby received extra consideration for VAT purposes

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.

Words and Phrases

MEO — Serviços de Comunicações e Multimédia SA v. Autoridade Tributária e Aduaneira, (2018), ECLI:EU:C:2018:942 (ECJ (5th Chamber))

payments pursuant to contract for remaining minimum service term were consideration

MEO, a Portuguese telecommunications company providing telecommunications, internet access, television and multimedia services for monthly subscription fees was entitled under its customer contracts upon deactivation of service to compensation corresponding to the amount of the agreed monthly subscription fee multiplied by the difference between the duration of the minimum commitment period provided for in the contract and the number of months during which the service was provided. Article 2(1)(c) of the VAT Directive provided that “the supply of services for consideration within the territory of a Member State by a taxable person acting as such” is subject to VAT. Article 73 of the VAT Directive provided:

In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

In finding that the early-termination amounts so received by MEO were “for consideration” and, thus, subject to VAT, the Court stated (at paras. 39-40, 45):

[A] supply of services is carried out ‘for consideration’, within the meaning of that provision, only if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the actual consideration for the service supplied to the recipient … . This is the case if there is a direct link between the service supplied and the consideration received … .

[T]he Court has already held, as regards the sale of air tickets that passengers have not used and for which they could not obtain repayment, that the consideration for the price paid at the time of the signing of a contract for the supply of a service is formed by the right derived by the customer to benefit from the fulfilment of the obligations arising from the contract, irrespective of whether the customer uses this right. Thus, that supply is made by the supplier of services when it places the customer in a position to benefit from the supply, so that the existence of the abovementioned direct link is not affected by the fact that the customer does not avail himself of that right … .

[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.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 182 - Subsection 182(1) fee for early termination of services contact was consideration for the service 149

Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 DTC 6532, 2006 SCC 20, [2006] 1 S.C.R. 715

cash-settled derivatives had the effect of fixing mine production]

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 … .

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Interpretation Bulletins, etc. shifting CRA position could not be relied upon except to evidence ambiguity 79
Tax Topics - Statutory Interpretation - Redundancy/reading in words presumption against tautology 120
Tax Topics - Statutory Interpretation - Resolving Ambiguity residual presumption in favour of the taxpayer 133
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Futures/Forwards/Hedges “hedging “ includes cash settled derivatives including options 461
Tax Topics - Statutory Interpretation - Regulations/Statutory Delegation addition of regulation did not significantly expand scope of tax 264

Dale v. The Queen, 94 DTC 1100, [1994] 1 CTC 2303 (TCC), aff'd supra.

shares must be issued within a reasonable time

The taxpayers agreed with a corporation controlled by them to transfer an apartment building to the corporation in consideration for the issuance of preference shares. However, at the time of the agreement, the authorized capital of the corporation did not include preference shares, and this deficiency was not rectified until well after the taxation year of the taxpayers in question.

In rejecting the submission of the Crown that the shares had to be validly issued in the year of the transfer of the building, Bowman J. found (at p. 1110) that the expression "consideration that includes shares" was not confined to executed consideration, and that:

What is essential is that there be either an actual issuance of shares or a binding obligation to do so at the time of transfer and that the shares be issued within a period of time that, in all the circumstances, is reasonable. ... Consideration is of two kinds - executed and executory - and it would be an unwarranted restriction on that term to limit it to only one of the two types [citing Chitty on Contracts on the meaning of "consideration"].

Accordingly, an election under s. 85(1) in respect of the transfer of the apartment building was effective, notwithstanding that a purported issuance of preference shares at the time was not validated until a subsequent date.

Words and Phrases

Fiducie Famille Gauthier v. The Queen, 2011 DTC 1343 [at 1917], 2011 TCC 318, aff'd 2012 FCA 76

agreement to bear costs was additional consideration

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.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - General Concepts - Substance 233

Groupmark Canada Ltd. v. The Queen, 93 DTC 5179, [1993] 1 CTC 234 (FCTD)

A related corporation issued a non-interest bearing promissory note for $120,000 to the taxpayer on May 18, 1984. Given that advances in excess of $120,000 had actually been made by the taxpayer to the other corporation in varying amounts both before and after the agreement of May 18, 1984, the requirement that "consideration" for $120,000 be issued or granted was met.

Words and Phrases

Canada v. Toronto Refiners and Smelters Ltd., 2003 DTC 5002, 2002 FCA 476

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.

Words and Phrases

Dowbrands Canada Inc. v. The Queen, [1997] GSTC 85 (TCC)

rebates reduced consideration but no obligation to rebate GST

The registrant, when it paid volume rebates to customers, was found by McArthur J to be thereby reducing the consideration on the previous sales for purposes of s. 232(2) (stating at p. 85-5 that "volume rebates...[are] a mechanism which reduces the consideration paid by the customer to the manufacturer"). However, it was not obligated under s. 232(2) to rebate GST under s. 232(3) when the consideration was so reduced (as the word "may" only gave it the "option" of doing so), and it did not do so. Accordingly, for purposes of former s. 181.1, s. 232(3) did not apply to the volume rebates.

Words and Phrases

Global Cash Access (Canada) Inc. v. Canada, 2013 FCA 269

"consideration" under law of contract

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.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Consideration "consideration" under law of contract 123
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (g) commercial efficacy of arrangement involving kiosk and support services turned on the advance of money 428
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply three elements integrally connected 240
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Financial Service - Paragraph (r.4) predominant element not described in (r.4) or (r.5) 183

Commission Scolaire des Chênes v. Canada, [2002] GSTC 11, 2001 FCA 264

(Correctness questioned in City of Calgary at para. 65.)

Student busing services were found to have been provided by the Appellant school board to the Ministry of Transport rather than to the students given that it was clear that the service had to be provided by the board, failing which subsidies (which largely or completely covered the cost of the service) would not be paid to the board by the Ministry. Noël J.A. stated (at p. 11-13) that:

"A payment will be regarded as consideration if it is directly linked to the supply of a good or a service by the person who received the payment ... ."

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Consideration provincial subsidy was paid only if busing services provided 192

Boardwalk Equities Inc. v. Canada, 2013 FCA 140, aff'g Calgary Board of Education v. The Queen, 2012 TCC 7

consideration not reduced by credit for subsequent provincial subsidy

The appellant ("Boardwalk Equities") was entitled to receive amounts under an Alberta energy assistance program to defray additional costs to consumers and businesses from a spike in natural gas and electricity costs. The suppliers invoiced Boardwalk Equities for the full value of the natural gas and electricity supplied, plus GST thereon; but showed a "credit" on the same invoices for the Alberta grant to be received by the suppliers on or after the invoice due date (with the suppliers' entitlement to be paid the grant being based on having previously credited the amount of the grant to the customer - Boardwalk Equities). Boardwalk Equities 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 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.

Words and Phrases

Canada v. Costco Wholesale Canada Ltd., 2012 FCA 160

Costco agreement to use Amex cards exclusively was "arranging for" support of Amex's supply of credit

The appellant ("Costco") entered into a conventional "Merchant Agreement" with the Amex Bank of Canada ("Amex") pursuant to which it agreed to pay the discount fees of Amex, and at the same time entered into a "Co-Branding Agreement" under which it agreed to accept only Amex credit cards and Amex agreed to make payments to it equal to Y% of the discount fees earned by it.

After noting (at para. 4) that "‘consideration' should be understood to include anything that would be consideration under the law of contract," Sharlow JA rejected the primary position of Costco that the amounts received by it from Amex were rebates of the merchant discount fees earned by Amex, noting that it was more consistent with the wording of the Co-Branding Agreement to consider such amounts as consideration for Costco entering into the Co-Branding Agreement or, more specifically, for the exclusivity provision. However, she affirmed the Tax Court finding that Costco provided services as an intermediary between Amex and its potential customers by supporting Amex in its business of supplying credit and that such service fell within paragraph (l) of the definition of financial service. Furthermore, in the absence of submissions by the Crown with respect to any factual basis to support the Crown's argument that paragraphs (r.3), (r.4) and (r.5) should apply retroactively, the Tax Court's finding that the supply by the taxpayer fell within para. (l) was upheld.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 153 - Subsection 153(1) payments by credit card company to store were not merely discounts to its fees 184