Tax agreement between provincial and federal governments may affect constitutional immunity, Supreme Court rules
While the investment portfolios managed by a B.C. investment management corporation are not taxable under the Excise Tax Act, the corporation is still subject to obligations under the intergovernmental agreements between the provincial and federal governments, the Supreme Court of Canada has found, which may include GST payments.
In a 6-1 ruling in Canada (Attorney General) v. British Columbia Investment Management Corp., 2019 SCC 63 on Dec. 13, the Supreme Court explored the issue of taxability as applied to the transactions undertaken by the British Columbia Investment Management Corporation (BCI), which was created by the B.C. government to provide investment management services under a joint trusteeship structure for the benefit of the province and other Crown entities.
BCI was incorporated under the Public Sector Pension Plans Act as a trust company authorized to provide investment management services as part of a restructuring of the provincial public-sector pension system. iT manages certain assets in pooled investment portfolios pursuant to the Pooled Investment Portfolios Regulation. The majority of the funds held by bcIMC are investments of the five major B.C. public-sector pension plans, and BCI provides investment management for these funds.
BCI was assessed for GST owing in relation to the provision of investment management services for the pooled portfolios, at $40,498,754.94, exclusive of interest and penalties. It filed without prejudice notices of objection to the assessments, which it was required to do in order to preserve its rights to challenge them.
The Supreme Court of British Columbia granted a declaration that the management services performed by BCI in relation to those assets are not subject to taxation by Canada under the Excise Tax Act, R.S.C. 1985, c. E-15. At the same time, a declaration was granted that BCI is bound by the provisions of two agreements between Canada and British Columbia, the RTA and the CITCA, that may require BCI to collect and remit certain taxes.
The Attorney General of Canada appealed the former declaration and BCI cross-appealed the latter to the Court of Appeal. The Court of Appeal dismissed the appeal and the cross-appeal.
The majority of the Supreme Court concluded that while the corporation, as a provincial Crown agent, is constitutionally immune under s. 125 of the Constitution Act, 1867, it is nonetheless liable for tax under the obligations voluntarily assumed by the province under the Reciprocal Tax Agreement (RTA) and the Comprehensive Integrated Tax Coordination Agreement (CITCA) with the federal government.
Under the RTA, the province must pay the taxes imposed under the federal Excise Tax Act (ETA) in exchange for the federal government paying certain provincial taxes and fees. Under the CITCA, the province and Canada each agree to pay harmonized sales tax on supplies purchased by their respective governments and agents.
Under the terms of both intergovernmental agreements, constitutionally immune provincial entities may file for a rebate of taxes paid; however, in 2003 BCI was removed from the list of entities that could apply for a rebate.
Writing for the majority, Justice Andromache Karakatsanis found that, as a provincial Crown agent under s. 16(5) of the PSPPA, the corporation enjoys the same benefit of statutory immunity as the province when it comes to its investment portfolios.
The SCC then delved into the issue of whether the property sought to be taxed under the ETA is considered property that belongs to BCI, entitling it to immunity under s. 125 of the Constitution Act, 1867, which exempts lands or property belonging to the federal and provincial governments from taxation.
In ruling in the affirmative, Justice Andromache Karakatsanis wrote that “Pursuant to s. 4(1) of the Regulation and s. 18.1(3) of the PSPPA, BCI, as trustee, legally owns the assets held in the Portfolios. In this case, the ETA places the burden of the tax on the Portfolio assets to which BCI holds legal title. BCI, a Crown agent, has thus successfully shown that it has an ownership interest in the property which bears the federal tax.”
As for its obligations under the intergovernmental agreements, BCI, as the appellant in the cross-appeal, argued that the agreements are political in nature, not legal, and that the commitments undertaken by the province did not extend to it.
In rejecting this argument, the court found that “the language of the Agreements demonstrates that the Province and Canada intended to create mutually binding obligations. Although otherwise constitutionally immune from the ETA’s operation, the Province voluntarily agreed to pay GST to Canada.”
Because s. 16(6) of the PSPPA links BCI’s tax obligations and immunities with those of the Province, the corporation is therefore “generally subject to the obligations set out in the Agreements to the same extent that the Province is.”
The judgement also enumerated indicators of the intention of the finance ministers to enter into a legal obligation, not merely a political one. The subject matter of the agreements was limited to the obligation to pay existing taxes, not to implementing broad policy goals, and the wording of the agreements was so clear and unambiguous that the court could not help but resolve that these agreements pertained to voluntarily assumed tax liabilities.
Justice Karakatsanis added that “both Canada and the Province take the position that the Agreements create binding obligations. This is a strong indicator that the parties intended to be bound by the Agreements.”
Thus, despite the lack of a dispute resolution mechanism, as well as the absence of records showing that the signatories carried out the undertakings set out in the intergovernmental agreements, the Supreme Court concluded that BCI was subject to the obligations assumed by the province under the RTA and the CITCA.