April 26, 2012
Supreme Court Restricts GST Input Tax Credits on Publicly Funded Project
The Supreme Court of Canada (SCC) today released its unanimous ruling that the City of Calgary was not entitled to input tax credits (ITCs) for GST paid in connection with the development of its public transit facilities for which it received funding from the Province of Alberta. Though this case dealt specifically with a municipality, it has implications for other organizations that receive public funding.
The Court ruled that the City of Calgary only made one supply—the exempt supply of a municipal transit system to the public. As such, the city was not entitled to ITCs. The City had argued that it made two supplies: one by constructing the transit system and another by operating it.
In light of the SCC’s analysis in this case on single versus multiple supplies and the concept of the recipient of the supply, many organizations, including various public sector entities, that receive funding from the federal or provincial governments may wish to review their agreements to determine whether the supply and the recipient identified on these agreements reflect the SCC’s conclusions.
The City had argued that it made two supplies: One to the public of GST-exempt “public transit services”, and one to the Province of GST-taxable “transit facilities services”. The City argued that it provided the separate GST-taxable supply of “transit facilities services” to the Province by “acquiring, constructing and making available the transit facilities to the citizens of Calgary”.
The SCC reviewed the concept of single versus multiple supplies of goods and services and the related jurisprudence. The Court noted that, if one supply is work of a preparatory nature to another supply (i.e., an input to the supply), the input is a component of the single overall supply.
The Court found that the true nature of the City’s “transit facilities services” was work of a preparatory nature for the supply of municipal transit service to the public and, as such, a component of the overall supply of the public transit services made to the public.
The Court noted that the jurisprudence related to single versus multiple supplies dealt with a single recipient. In this appeal, there were allegedly two recipients: the public and the Province. As such, the Court noted that to determine whether the Province received any service or benefit from the City, the agreements had to be analyzed having regard to the statutory context.
The Court found that the provincial legislation did not provide for any supply of goods, services or other benefit to the Province. The legislation did not impose on the Province an obligation with respect to the establishment or operation of municipal transit services. The legislation also did not provide for a transfer of the title of the transportation facilities. The Court found that the legislation did not support the City’s contention that it provided a supply to the Province of fulfilling a statutory obligation on its behalf.
The Court then turned to the agreements between the City and the Province. Did the City supply a service or benefit to the Province under the agreements? The SCC reviewed the conclusions of the TCC and FCA and agreed with the FCA. The Province provided funding under the agreement to assist the City in carrying out its own activities. Fulfilling the accountability obligations under the funding agreements did not result in a separate supply to the Province.
As a result, the Court ruled that there was only one supply by the City, the supply of municipal transit services. Nothing in the legislation or agreements indicated that there was a separate supply of “transit facilities services” by the City to the Province.
The Court stated that there is nothing in the law that requires a supply to have only one recipient. The Court added that whether or not the Province is also a recipient of the supply in addition to the public, the supply was of a municipal transit service to the public and was therefore a GST-exempt supply. As such, the City was not entitled to the ITCs claimed.
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