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GOODS AND SERVICES TAX (GST) - Constitutional validity - Supply - Supply by government and municipalities

Friday, December 13, 2019 @ 1:33 PM  


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Appeal and cross-appeal from a judgment of the British Columbia Court of Appeal affirming a decision that the Excise Tax Act (ETA) did not apply to the British Columbia Investment Management Corporation (BCI) and that BCI was subject to the obligations set out in the intergovernmental agreements. In 1999, the legislature of British Columbia created BCI to provide investment management services to the province’s public sector pension plans and other Crown entities. On its creation, BCI assumed ownership and management of the investment assets held in pooled investment Portfolios. The Attorney General of Canada (Canada) submitted that this structure required BCI to collect and remit GST on the costs it incurred in making investments in the Portfolios on behalf of the public sector pension boards and other Crown entities. Canada further submitted that because the investment assets were beneficially owned by private entities (the pension boards), they were not provincial “property” and were not constitutionally immune from federal taxation, or even if they were, BCI nevertheless had to pay GST pursuant to reciprocal taxation agreements signed by the federal and provincial governments (the Agreements). BCI argued that the provisions of the ETA did not capture its investment management activities, and that even if the Province was bound by the Agreements, BCI was not a party and was not subject to them. BCI filed a petition in the Supreme Court of British Columbia, seeking declarations that, as a statutory Crown agent, it was immune from taxation in respect of the Portfolios assets and that it was not bound by the Agreements or the payment obligations found in those Agreements. Canada sought to strike BCI’s petition, arguing that the dispute should be heard by the Tax Court of Canada, not the Supreme Court of British Columbia. The chambers judge held that the Court had jurisdiction to decide the petition, and that BCI, as a statutory agent mandated to manage the Portfolios, enjoyed the same tax immunity as the Province under s. 125 of the Constitution Act, 1867. Canada appealed the holding that BCI was immune from taxation and BCI cross-appealed with respect to the binding nature of the Agreements. Both the appeal and cross-appeal were dismissed by the Court of Appeal.

HELD: Appeal and cross appeal dismissed. The chambers judge did not err in exercising his jurisdiction. The shared assumption of the parties in this appeal was that the Portfolios were a “trust” for the purposes of ETA. The ETA’s mechanism for imposing GST on the Portfolios would result in Crown property being subject to taxation. Therefore, s. 125 of the Constitution Act, 1867, rendered the relevant provisions of Part IX of the ETA inapplicable in respect of the Portfolios. There was no question that the federal GST fell squarely within the meaning of “taxation” in s. 91(3) of the Constitution Act, 1867. The Portfolios, including the British Columbia legislature’s choice to vest legal title of the Portfolio assets in BCI as trustee, fell within the “operational space” that s. 125 immunity from taxation afforded to the Province and BCI. Clearly, BCI’s operations would be affected by imposing federal tax on the Portfolios, thereby reducing significantly the investment assets under BCI’s control. While it was unnecessary to determine the outer bounds of s. 125 in this case, these aspects of BCI’s statutory mandate indicated that its control over the assets went far beyond that of a bare trustee. The ETA used a legal fiction to require a trust to pay tax on taxable services provided to it by its trustee. However, when the trustee was a provincial Crown agent, this mechanism ran afoul of s. 125 because it imposed tax on property legally owned by the Crown. The ETA did not impose GST on a distinct private beneficial ownership interest in this case. Therefore, the ETA was constitutionally inapplicable to the Portfolios. The Agreements at issue in the cross-appeal resembled private law contracts and were intended to create legally binding, mutual obligations for Canada and the Province. Although otherwise constitutionally immune from the ETA’s operation, the Province voluntarily agreed to pay GST to Canada. BCI was generally subject to the obligations set out in the Agreements to the same extent as the Province. The nature of any specific obligations under the agreements was beyond the scope of the appeal.

Canada (Attorney General) v. British Columbia Investment Management Corp., [2019] S.C.J. No. 63, Supreme Court of Canada, R. Wagner C.J., R.S. Abella, M.J. Moldaver, A. Karakatsanis, R. Brown and S.L. Martin JJ., December 13, 2019. Digest No. TLD-December92019016-SCC