Amex Bank of Canada v. The King

Amex Bank of Canada v. The King
Court (s) Database
Tax Court of Canada Judgments
Date
2023-06-27
Neutral citation
2023 TCC 93
File numbers
2019-871(GST)G
Judges and Taxing Officers
Robert James Hogan
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2019-871(GST)G
BETWEEN:
AMEX BANK OF CANADA,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
Appeal heard on February 27 and 28, 2023 and March 1, 2 and 3, 2023, at Toronto, Ontario
Before: The Honourable Justice Robert J. Hogan
Appearances:
Counsel for the Appellant:
Neil E. Bass
Angelo Gentile
Josh Kumar
Counsel for the Respondent:
Craig Maw
Janice Liu
JUDGMENT
The appeal made under the Excise Tax Act with respect to the reassessments of the 11 annual reporting periods of the Appellant beginning on January 1, 2002 and ending on December 31, 2012 is dismissed in accordance with the attached reasons for judgment.
The parties will have until August 28, 2023 to agree on costs, failing which they are directed to file their written submissions on costs no later than August 28, 2023. Such submissions should not exceed 10 pages.
Signed at Ottawa, Canada, this 27th day of June 2023.
“Robert J. Hogan”
Hogan J.
Citation: 2023 TCC 93
Date: 20230627
Docket: 2019-871(GST)G
BETWEEN:
AMEX BANK OF CANADA,
Appellant,
and
HIS MAJESTY THE KING,
Respondent.
REASONS FOR JUDGMENT
Hogan J.
I. Overview
[1] The issue in this appeal is whether the Appellant, Amex Bank of Canada (hereinafter “Amex” or the “Appellant”), is entitled to input tax credits (“ITCs”) for GST/HST paid on expenses arising in connection with the administration and operation of Amex’s Membership Rewards Program (“MRP”), including expenses incurred for the purpose of providing its Members with Rewards on the redemption of Points.[1]
[2] Under the Excise Tax Act (Canada)[2] (the “ETA”), ITCs cannot be claimed to the extent the expenses are incurred for inputs used by a registrant to make exempt supplies of financial services. In this case, the GST/HST is borne by the provider of the exempt supplies. The reason why the provider of exempt supplies is not entitled to claim ITCs is because the supplier of exempt financial services is not subject to GST under the ETA. Because of this, the scheme of the ETA operates in a way to ensure that the tax is borne by the maker of exempt supplies and not the recipient of the supply.
[3] The Appellant’s position is that it provided multiple supplies, some taxable and others exempt. According to the Appellant, all of the GST/HST that it has paid on expenses incurred under its MRP was incurred in the course of making taxable supplies, which are separate and distinct from the other exempt supplies made by the Appellant to its Cardholders.
[4] The position of the Minister of National Revenue (the “Minister”) is the polar opposite of the Appellant’s position. The Minister claims that the expenses incurred under the MRP, including those related to the purchase of Rewards, constitute a single composite supply. Furthermore, according to the Respondent, the predominant element of the composite supply is an exempt financial service such that the Minister was correct to deny the Appellant’s claims for ITCs.
II. Partial Agreed Statement of Facts
[5] The parties filed a Partial Agreed Statement of Facts (“PASF”). I have reproduced it for ease of reference.[3]
A. Facts
Background
1. The Appellant . . . was incorporated under the Canada Business Corporations Act on June 22, 1987 and continued under the Bank Act (Canada) on April 25, 1990 and has been thereafter a Schedule II bank regulated under the Bank Act (Canada).
2. Amex is, and was throughout Amex’s 2002 through 2012 annual reporting periods (the “Relevant Periods”), registered for the Goods and Services Tax/Harmonized Sales Tax (the “GST/HST”) under Part IX of the ETA.
3. Amex issued American Express charge cards and credit cards (collectively, “Cards”) to members of the public (“Cardholders”) who applied for and qualified for such Cards.
4. Amex Canada Inc. (“ACI”) is an Ontario corporation and, during the Relevant Periods, was a member of a “closely related group” (as that term is defined in the ETA) with Amex.
5. During the Relevant Periods, ACI carried on the business of, inter alia, providing travel agency services to the public.
The Membership Rewards Program
6. During the Relevant Periods, Amex operated a loyalty program known as the Membership Rewards Program (the “MRP”).
7. A Cardholder who was a member of the MRP (a “Member”) accrued and was credited with a certain number of points (the “Points”) by Amex for each dollar charged to a Card for the purchase of goods or services.
8. Under the MRP, Amex did not credit a Member with Points for amounts charged to a Card for, inter alia, delinquency fees, interest, Card fees, purchases of American Express Travellers Cheques and Gift Cheques, balance transfers, or the purchase of foreign currency.
9. The more dollar value of eligible purchases a Cardholder charged on the Card, the more Points the Cardholder earned.
10. The more Points a Cardholder accumulated, the more Rewards (as defined below) or the higher the value of the Reward a Cardholder could redeem from Amex.
Becoming a Member of the MRP
11. Participation in the MRP was available only to Cardholders.
12. Amex offered a variety of Cards with different rights and obligations attached to each.
13. Some Cards required the Cardholder to pay an annual fee to Amex (a “Card Fee”), with different Card Fees payable for different Cards.
14. Amex did not charge Cardholders GST/HST on the Card Fees.
MRP Fees
15. Some Cards (the “MRP‑Inclusive Cards”) carried with them enrollment of the Cardholder in the MRP with no additional enrollment fee charged to the Cardholder.
16. For other Cards (the “MRP‑Extra Cards”), a Cardholder had the option (but was not required) to join the MRP by paying Amex an enrollment fee (the “MRP Enrollment Fee”) (the MRP‑Inclusive Cards, together with all MRP‑Extra Cards whose Cardholders opted to join the MRP, are collectively referred to as “MRP Cards”).
17. MRP‑Extra Cardholders could enroll in, or withdraw from, the MRP at any time.
18. Amex charged MRP‑Extra Cardholders GST/HST on the MRP Enrollment Fee.
19. Under some MRP Cards, a Member had the option to pay an extra fee (the “Points Accelerator Fee”) to be entitled to be credited with a higher ratio of Points per dollar charged to a Card.
20. Amex charged Members GST/HST on the Points Accelerator Fees.
Claiming Rewards
21. A Member was entitled to exchange or redeem his or her accrued Points for various rewards (the “Rewards”) such as airline tickets, airline frequent flyer points, hotel chain loyalty points, travel certificates, meals at restaurants, gift cards and tangible items such as watches, golf clubs, luggage and headphones.
22. A Member was required to redeem a specific number of Points to claim any particular Reward.
23. Amex determined the number of Points required for each Reward.
24. It was Amex that determined limitations on MRP Point redemptions for a Reward.
25. Subject to certain conditions, if a Member did not have enough Points to claim a particular Reward, the Member could purchase from Amex for a fee (the “Points Fee”) the additional Points required.
26. Amex charged Members GST/HST on the Points Fee.
The Participation Agreements
27. To ensure that there were Rewards available for its Members, Amex entered into agreements (“Participation Agreements”) with suppliers (the “Participants”) of various Rewards.
28. Under each Participation Agreement, Amex agreed to pay the Participant a negotiated amount of money for providing the Rewards.
29. The Rewards purchased by Amex from the various Participants are offered and provided to the Cardholders, in exchange for Points.
30. The Members did not pay Amex or the Participants for obtaining the Rewards (other than by redeeming Points and/or purchasing additional Points).
31. The Participants charged Amex and Amex paid the Participants GST/HST where applicable (the “Participant GST”), in respect of the Participants’ supplies of goods and services that are being used as Rewards.
The ACI Participants Agreements
32. Amex and ACI also entered into Participation Agreements that were in place throughout the Relevant Periods (the “ACI Participation Agreements”).
33. Under the ACI Participation Agreements, a Member could exchange a specific number of Points for a certificate (a “Travel Certificate”) from Amex that would have a fixed face value (e.g., $100, $500, etc.).
34. A Member who acquired a Travel Certificate from Amex could redeem it with ACI or an ACI‑franchised travel agency (collectively, “ACI”) up to the fixed face value to pay for all or part of travel products or services (with the Member paying ACI for any remaining costs).
35. If a Member used a Travel Certificate as aforesaid, ACI would invoice Amex for the Travel Certificate, which Amex would pay to ACI (the “Travel Certificate Payments”).
36. It was Amex that determined the denominations for Travel Certificates that may be issued.
Amex’s Card Operations
37. A Cardholder could present a Card to a store as payment instead of cash. Amex would pay the Canadian store the amount charged on the Card (less a discount or merchant fee). Amex would then send the Cardholder a monthly statement with the total of all payments charged by that Cardholder to that Card that month (the “Card Operations”).
38. Most of Amex’s domestic supplies made in the course of its Card Operations during the Relevant Periods were “exempt supplies” for ETA purposes such that no GST/HST was charged by Amex on Card Fees, discount fees and delinquency charges or interest on late‑paid account balances.
Amex’s MRP Operations
39. In the course of operating the MRP, Amex paid system maintenance and other overhead costs (the “Overhead”) used in connection with the MRP.
40. Amex self‑assessed, under Division IV of the ETA, GST/HST on the Overhead (the “Overhead GST”).
Amex’s Revenue and Expenses
41. At all relevant times, Amex earned substantial revenue from credit card and charge card operations.
42. In 2009 and 2010, the revenue received from the credit/charge cards was more than 96% of Amex’s total revenue, whereas the revenue from the MRP fees accounted for under 0.75% of Amex’s total revenue.
43. At all relevant times, interest income, transaction charges, and discount revenue earned from the credit/charge card operations were Amex’s largest revenue sources.
44. The more a Cardholder spent using an Amex Card, the more discount revenue Amex earned.
45. At all relevant times, MRP Points redemption cost was an expense of Amex on its income statement.
46. At all relevant times, reserves for the estimated cost of anticipated MRP Points redemption were recorded as a liability on Amex’s balance sheet.
Calculation of Net Tax
47. For the Relevant Periods, Amex filed its GST/HST returns.
48. In calculating its net tax for each Relevant Period, Amex claimed ITCs on the Participant GST and the Overhead GST, and claimed ITCs under subsection 181(5) in respect of GST/HST (the “Notional GST”) that Amex was deemed to have paid in respect of the Travel Certificate Payments.
49. With respect to the Participant GST, Amex claimed ITCs as follows:
(i) in its GST/HST returns for its 2002 through 2012 reporting periods, a portion of the Participant GST based on the percentage of the MRP‑Extra Cards to the total of all MRP Cards issued (the “Fee Extra Ratio”); and
(ii) in its GST/HST returns for its 2005 and 2008 reporting periods, Amex also claimed the balance of the Participant GST paid and not claimed in those years and in the immediately two preceding years it applied the Fee Extra Ratio.
The Assessments
50. By Notices of Assessment dated:
(i) May 1, 2006 with Reference Number 05CP0119127 for the reporting period ending December 31, 2002;
(ii) December 20, 2007 with Reference Number 04063000170100001 for the reporting period ending December 31, 2003;
(iii) June 2, 2008 with Reference Number 05090000970100031 for the reporting period ending December 31, 2004;
(iv) April 16, 2012 with Reference Number 06116011312370001 for the reporting period ending December 31, 2005;
(v) April 16, 2012 with Reference Number 07113000172360903 for the reporting period ending December 31, 2006;
(vi) March 19, 2012 with Reference Number 08091000172360196 for the reporting period ending December 31, 2007;
(vii) March 10, 2014 with Reference Number 13008001212370001 for the reporting period ending December 31, 2008;
(viii) March 20, 2014 with Reference Number 14024004212370001 for the reporting period ending December 31, 2009;
(ix) September 3, 2015 with Reference Number 13184005712370001 for the reporting period ending December 31, 2010;
(x) June 6, 2016 with Reference Number 13150000112370001 for the reporting period ending December 31, 2011; and
(xi) August 29, 2017 with Reference Number 13196004612370001 for the reporting period ending December 31, 2012,
(collectively, the “Assessments”),
the [Minister] assessed Amex in respect of the Relevant Periods by, inter alia, denying ITCs claimed in each Relevant Period in respect of the Participant GST, the Overhead GST and the Notional GST less $2,643,833.19 of GST/HST collected by Amex on Enrollment Fees, Points Accelerator Fees and Points Fees in the amounts set out below:
Period
ITCs Disallowed
January 1–December 31, 2002
$1,533,218.06
January 1–December 31, 2003
$1,102,733.30
January 1–December 31, 2004
$1,249,498.95
January 1–December 31, 2005
$4,759,312.45
January 1–December 31, 2006
$463,515.30
January 1–December 31, 2007
$398,217.85
January 1–December 31, 2008
$2,904,774.56
January 1–December 31, 2009
$234,593.00
January 1–December 31, 2010
$496,527.00
January 1–December 31, 2011
$418,945.93
January 1–December 31, 2012
$412,533.35
Total:
$13,973,869.75
51. In making the Assessments, the Minister denied the above‑noted ITCs and, as a result of such denials and other adjustments that are not being appealed, assessed Amex additional net tax plus penalties and interest.
52. Amex filed Notices of Objection to the Assessments.
53. The Minister confirmed each of the Assessments with respect to the denial of ITCs related to the MRP through Notices of Confirmation dated December 10, 2018 and December 17, 2018 (the “Confirmations”).
54. Throughout the Relevant Periods, Amex and ACI were parties to an election under section 150 of the ETA and did not revoke such election throughout the Relevant Periods.
[6] The defined terms used hereinafter have the meaning assigned to them in the PASF unless otherwise provided. In this regard, the Overhead expenses, Travel Certificates, and payments made to Participants for Rewards are collectively defined as the “MRP Expenses”.
III. Viva Voce Evidence
[7] Mr. Joseph Ryan, who is presently a vice president of the Appellant and responsible for the MRP, testified as the first witness on behalf of the Appellant. Mr. Ryan’s testimony covered the administration and operation of the MRP as well as the Appellant’s dealings with Participants and ACI.
[8] Mr. Ryan’s testimony, for the most part, was consistent with the PASF and the documentary evidence submitted jointly by the parties. That said, one part of his evidence was largely contradicted by other evidence, including his own testimony.
[9] Mr. Ryan insisted that one of the purposes pursued by the Appellant under the MRP was the promotion of the Participants’ activities through advertising and marketing to its Members. This part of his testimony was key to the Appellant’s argument that one of the purposes of the MRP was the promotion of the endeavours of the Participants.
[10] The Appellant claims that Mr. Ryan’s testimony is bolstered by the pitch books used to enroll Participants under the MRP.[4]
[11] I do not share the Appellant’s assessment that considerable weight should be attached to Mr. Ryan’s evidence in this regard for the following reasons.
[12] First, a large portion of the pitch book was devoted to describing the benefits procured by Amex under the MRP.[5] The substantial benefits that the MRP procured to Amex were highlighted during the Respondent’s cross‑examination of Mr. Ryan.
[13] For example, on cross‑examination Mr. Ryan stated that the provision of Rewards was made to influence a Member’s spending behaviour. Spending behaviour and accompanying credit card revenue is enhanced because Amex selects, promotes and offers attractive Rewards that are greatly desired by its Members. Amex’s marketing material for Rewards is designed to drive spending on Amex Cards by Members and promote loyalty.[6]
[14] Why does Amex focus on the above? Mr. Ryan recognized during his cross‑examination that Amex promotes attractive Rewards to drive spending because a substantial portion of Amex’s revenue is derived from spending by Members for goods and services charged to an Amex credit card.[7]
[15] The following part of Mr. Ryan’s testimony highlights the Appellant’s reason for emphasizing to prospective Participants the benefits of Amex’s marketing of and promotion of Rewards procured from them.
THE COURT: From your perspective, presumably all of the pitching that you are doing is leaning towards a price - -
THE WITNESS: Exactly.
THE COURT: - - that goods is going to be redeemed at?
THE WITNESS: Correct.
THE COURT: Is that price the price that the merchant normally charges its clients or is it a different price?
THE WITNESS: It’s generally a different price. If I take a gift card, which is a simple example, it might have a face value of $100, we would have a price that we would purchase those gift cards at which was less than the face value. We would then set the amount of points for that redemption of that gift card, if that makes sense.[8]
[16] In my opinion, this statement identifies that Amex regularly promotes Rewards to its Members to reinforce the attractiveness of the MRP to derive Members’ spending on Amex credit cards. This is something that Amex must do in any event for its own purpose.
[17] With this backdrop in mind, I believe that Amex emphasized the marketing and promotion of the Rewards in its discussions with prospective and existing Participants to great effect, namely, to achieve Amex’s goal, which was to secure the procurement of attractive Rewards for its Members at the lowest possible price. From the evidence, I infer that Amex intended to spend money on marketing and promoting Rewards in any event.
[18] Spending behaviour and accompanying credit card revenue is enhanced because Amex selects, promotes and offers attractive Rewards that are greatly desired by its Members. Amex’s marketing material for Rewards is designed to drive spending on Amex Cards by Members and promote loyalty.[9]
[19] Considering all of the above, I believe that Amex promoted Rewards because it suited Amex’s purpose to do so.
[20] On cross‑examination, Mr. Ryan’s demeanor changed somewhat. He became argumentative when documentary evidence from the Joint Book of Documents was used by counsel for the Respondent to establish the purpose and use of the supplies made by the Appellant under the MRP. Mr. Ryan appeared to be reluctant to answer simple yes or no questions.[10] Mr. Ryan appeared to me to be well‑informed of how to formulate answers that would be helpful to the Appellant’s case. In the end, I found his testimony to be somewhat rehearsed.[11]
[21] The second and last witness to appear on behalf of the Appellant was Ms. Orleen Sinclair, the Director of Indirect Tax for the Appellant. Her testimony consisted largely of a review of the Appellant’s claim for ITCs in respect of the MRP Expenses, particularly how it changed over time in light of the audit by the Canada Revenue Agency (“CRA”).
[22] Specifically, Ms. Sinclair testified that the Appellant’s initial approach (the “Initial Method”) to claiming ITCs with respect to the MRP Expenses (excluding redemption payments for Travel Certificates) and notional ITCs (“NITCs”) for redemption payments for Travel Certificates was based on an allocation method. The Appellant’s initial position in that regard was that supplies made to Members with MRP-Extra Cards who elected to become Members of the MRP for a fee received taxable supplies under the MRP. The Members who were automatically enrolled in the MRP with MRP–Inclusive Cards were treated as having received exempt financial services under the MRP. Ms. Sinclair then added up all of the HST paid on MRP Expenses on an allocation method that was based on the percentage obtained by the number of Members who paid an initial fee and annual renewal fee to become Members divided by the number of Cards held by all Members. The recovery rate of ITCs under the Initial Method worked out to 19.14% of all GST/HST paid in connection with the MRP Expenses.[12]
[23] Ms. Sinclair explained that Amex decided to abandon the Initial Method after the CRA began an audit that culminated in the denial of all of the Appellant’s initial ITCs claim based on the aforementioned allocation method. In 2005, the Appellant filed an additional claim seeking to obtain a refund equal to the amount of difference between 100% of the GST/HST paid in connection with the MRP Expenses and the amount of GST/HST initially claimed by the Appellant. Likewise, in 2008, the Appellant filed an additional claim based on the methodology described immediately above. The Appellant’s revised claims were based on the premise that only taxable supplies were made in connection with the MRP, thus 100% of the GST/HST charged to the Appellant on the MRP Expenses should be refunded to the Appellant. That is the position that the Appellant defends in its appeal before this Court.
[24] Ms. Sinclair clarified that the Appellant claimed NITCs only in respect of Travel Certificates accepted by ACI franchisees for travel and accommodation obtained as Rewards through the services of franchisees. No NITCs were claimed when Travel Certificates were accepted by ACI to book travel or hotel accommodations for Members. The latter redemptions were treated differently than the former because of the section 150 election entered into ACI and the election. By virtue of this election, all supplies between ACI and Amex are deemed to be supplies of exempt financial services.
[25] Ms. Sinclair was asked questions about accounting standards that were applied to defer part of the merchant discount revenue earned by the Appellant to match it to the value of the Amex’s accrued but unrealized Point liability. She recognized that she was not qualified to speak to this issue. Both the Respondent and I were disappointed with this admission as the Appellant’s counsel had led us earlier to believe that Ms. Sinclair would testify on Amex’s accounting treatment of merchant discount revenue and MRP Expenses and that she was competent to do so.[13]
[26] Ms. Julie Ho, who is presently a manager of the CRA Business Integration and Program Operations Division, appeared as the sole witness of the Respondent. She was a CRA appeals officer when she received carriage of the Appellant’s file following its Notices of Objection for the Relevant Periods. Her testimony was largely a recital of her understanding of the relevant facts, which is consistent with the facts alleged in the Respondent’s Reply to the Appellant’s Notice of Appeal. She also testified on her reasons for recommending a confirmation of the assessments.
[27] Ms. Ho stated that she decided to recommend that all of the Appellant’s ITC claims should be denied because no separate taxable supplies were made by Amex to Members under the MRP. According to Ms. Ho, the elements and components of the MRP were intertwined and linked to the supply of exempt financial services made by Amex to its Members. The predominant element of that single supply was the supply of exempt financial services.[14] Consistent with that observation, Ms. Ho also stated that the auditor made an error in allowing a credit for the GST/HST collected in error by Amex on the annual and renewal fees because those amounts should have been refunded to the Members who paid the GST/HST and not the Appellant.[15] Nothing further needs to be said about Ms. Ho’s testimony.
IV. Analysis
A. The Law
[28] The provisions of the ETA that are relevant to my analysis are reproduced below for ease of reference:[16]
. . .
Business includes a profession, calling, trade, manufacture or undertaking of any kind whatever, whether the activity or undertaking is engaged in for profit, and any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease, licence or similar arrangement, but does not include an office or employment;
. . .
commercial activity of a person means
(a) a business carried on by the person (other than a business carried on without a reasonable expectation of profit by an individual, a personal trust or a partnership, all of the members of which are individuals), except to the extent to which the business involves the making of exempt supplies by the person,
(b) an adventure or concern of the person in the nature of trade (other than an adventure or concern engaged in without a reasonable expectation of profit by an individual, a personal trust or a partnership, all of the members of which are individuals), except to the extent to which the adventure or concern involves the making of exempt supplies by the person, and
(c) the making of a supply (other than an exempt supply) by the person of real property of the person, including anything done by the person in the course of or in connection with the making of the supply;
. . .
financial service means
(a) the exchange, payment, issue, receipt or transfer of money, whether effected by the exchange of currency, by crediting or debiting accounts or otherwise,
(b) the operation or maintenance of a savings, chequing, deposit, loan, charge or other account,
(c) the lending or borrowing of a financial instrument,
(d) the issue, granting, allotment, acceptance, endorsement, renewal, processing, variation, transfer of ownership or repayment of a financial instrument,
(e) the provision, variation, release or receipt of a guarantee, an acceptance or an indemnity in respect of a financial instrument,
(f) the payment or receipt of money as dividends (other than patronage dividends), interest, principal, benefits or any similar payment or receipt of money in respect of a financial instrument,
(f.1) the payment or receipt of an amount in full or partial satisfaction of a claim arising under an insurance policy,
(g) the making of any advance, the granting of any credit or the lending of money,
(h) the underwriting of a financial instrument,
(i) any service provided pursuant to the terms and conditions of any agreement relating to payments of amounts for which a credit card voucher or charge card voucher has been issued,
(j) the service of investigating and recommending the compensation in satisfaction of a claim where
(i) the claim is made under a marine insurance policy, or
(ii) the claim is made under an insurance policy that is not in the nature of accident and sickness or life insurance and
(A) the service is supplied by an insurer or by a person who is licensed under the laws of a province to provide such a service, or
(B) the service is supplied to an insurer or a group of insurers by a person who would be required to be so licensed but for the fact that the person is relieved from that requirement under the laws of a province,
(j.1) the service of providing an insurer or a person who supplies a service referred to in paragraph (j) with an appraisal of the damage caused to property, or in the case of a loss of property, the value of the property, where the supplier of the appraisal inspects the property, or in the case of a loss of the property, the last-known place where the property was situated before the loss,
(k) any supply deemed by subsection 150(1) or section 158 to be a supply of a financial service,
(l) the agreeing to provide, or the arranging for, a service that is
(i) referred to in any of paragraphs (a) to (i), and
(ii) not referred to in any of paragraphs (n) to (t), or
(m) a prescribed service,
but does not include
(n) the payment or receipt of money as consideration for the supply of property other than a financial instrument or of a service other than a financial service,
(o) the payment or receipt of money in settlement of a claim (other than a claim under an insurance policy) under a warranty, guarantee or similar arrangement in respect of property other than a financial instrument or a service other than a financial service,
(p) the service of providing advice, other than a service included in this definition because of paragraph (j) or (j.1),
(q) the provision, to an investment plan (as defined in subsection 149(5)) or any corporation, partnership or trust whose principal activity is the investing of funds, of
(i) a management or administrative service, or
(ii) any other service (other than a prescribed service),
if the supplier is a person who provides management or administrative services to the investment plan, corporation, partnership or trust,
(q.1) an asset management service,
(r) a professional service provided by an accountant, actuary, lawyer or notary in the course of a professional practice,
(r.1) the arranging for the transfer of ownership of shares of a cooperative housing corporation,
(r.2) a debt collection service, rendered under an agreement between a person agreeing to provide, or arranging for, the service and a particular person other than the debtor, in respect of all or part of a debt, including a service of attempting to collect, arranging for the collection of, negotiating the payment of, or realizing or attempting to realize on any security given for, the debt, but does not include a service that consists solely of accepting from a person (other than the particular person) a payment of all or part of an account unless
(i) under the terms of the agreement the person rendering the service may attempt to collect all or part of the account or may realize or attempt to realize on any security given for the account, or
(ii) the principal business of the person rendering the service is the collection of debt,
(r.3) a service (other than a prescribed service) of managing credit that is in respect of credit cards, charge cards, credit accounts, charge accounts, loan accounts or accounts in respect of any advance and is provided to a person granting, or potentially granting, credit in respect of those cards or accounts, including a service provided to the person of
(i) checking, evaluating or authorizing credit,
(ii) making decisions on behalf of the person in relation to a grant, or an application for a grant, of credit,
(iii) creating or maintaining records for the person in relation to a grant, or an application for a grant, of credit or in relation to the cards or accounts, or
(iv) monitoring another person’s payment record or dealing with payments made, or to be made, by the other person,
(r.4) a service (other than a prescribed service) that is preparatory to the provision or the potential provision of a service referred to in any of paragraphs (a) to (i) and (l), or that is provided in conjunction with a service referred to in any of those paragraphs, and that is
(i) a service of collecting, collating or providing information, or
(ii) a market research, product design, document preparation, document processing, customer assistance, promotional or advertising service or a similar service,
(r.5) property (other than a financial instrument or prescribed property) that is delivered or made available to a person in conjunction with the rendering by the person of a service referred to in any of paragraphs (a) to (i) and (l),
(s) any service the supply of which is deemed under this Part to be a taxable supply, or
(t) a prescribed service;
fiscal month of a person means a period that is determined under section 243 to be the fiscal month of the person;
. . .
Supply means, subject to sections 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition;
. . .
General rule for credits
169 (1) Subject to this Part, where a person acquires or imports property or a service or brings it into a participating province and, during a reporting period of the person during which the person is a registrant, tax in respect of the supply, importation or bringing in becomes payable by the person or is paid by the person without having become payable, the amount determined by the following formula is an input tax credit of the person in respect of the property or service for the period:
A × B
where
A is the tax in respect of the supply, importation or bringing in, as the case may be, that becomes payable by the person during the reporting period or that is paid by the person during the period without having become payable; and
B is
(a) where the tax is deemed under subsection 202(4) to have been paid in respect of the property on the last day of a taxation year of the person, the extent (expressed as a percentage of the total use of the property in the course of commercial activities and businesses of the person during that taxation year) to which the person used the property in the course of commercial activities of the person during that taxation year,
(b) where the property or service is acquired, imported or brought into the province, as the case may be, by the person for use in improving capital property of the person, the extent (expressed as a percentage) to which the person was using the capital property in the course of commercial activities of the person immediately after the capital property or a portion thereof was last acquired or imported by the person, and
(c) in any other case, the extent (expressed as a percentage) to which the person acquired or imported the property or service or brought it into the participating province, as the case may be, for consumption, use or supply in the course of commercial activities of the person.
. . .
Redemption of coupon
181(5) For the purposes of this Part, where, in full or partial consideration for a taxable supply of property or a service, a supplier who is a registrant accepts a coupon that may be exchanged for the property or service or that entitles the recipient of the supply to a reduction of, or a discount on, the price of the property or service and a particular person at any time pays, in the course of a commercial activity of the particular person, an amount to the supplier for the redemption of the coupon, the following rules apply:
(a) the amount shall be deemed not to be consideration for a supply;
(b) the payment and receipt of the amount shall be deemed not to be a financial service; and
(c) if the supply is not a zero-rated supply and the coupon entitled the recipient to a reduction of the price of the property or service equal to a fixed dollar amount specified in the coupon (in this paragraph referred to as the “coupon value”), the particular person, if a registrant (other than a registrant who is a prescribed registrant for the purposes of subsection 188(5)) at that time, may claim an input tax credit for the reporting period of the particular person that includes that time equal to the tax fraction of the coupon value, unless all or part of that coupon value is an amount of an adjustment, refund or credit to which subsection 232(3) applies.
[Emphasis added.]
B. General Observations on the Law and the Parties’ Positions
[29] As noted earlier, the key issue in this appeal is whether the Appellant is entitled to claim ITCs with respect to the GST/HST that it paid on the MRP Expenses. Under subsection 169(1), the Appellant is entitled to claim ITCs only to the extent that the MRP Expenses are incurred as inputs for the consumption, use or supply in the course of commercial activities of the Appellant. Similarly, one of the conditions that must be met for the Appellant to be able to claim ITCs under subsection 181(5) of the ETA in respect of Travel Certificate Payments is that the payment must have been made by the Appellant in the course of a commercial activity of the Appellant. A business that involves the making of exempt supplies is excluded from the definition of a commercial activity. As noted in the numerous cases cited by the parties, both of these questions call for an inherently fact‑driven determination.
[30] With the above backdrop in mind, first, I must consider whether Amex incurs the MRP Expenses in the course of a single composite supply made to its Members. In other words, are the elements and components of the MRP intertwined and linked to the financial services made by Amex to its Members.
[31] Secondly, if I determine that the MRP Expenses are incurred by the Appellant in the course of a single supply, I must then determine the nature of that supply having regards to its predominant element.
(1) Single Supply versus Multiple Supplies [32] The analytical approach defined in the relevant case law is to determine whether there are single or multiple supplies. This determination is to be made by applying what is commonly referred to as the “composite supply test”. Under this test, if an alleged separate supply is, in substance or reality, an integral part, integrant or component of the overall supply, then that alleged separate supply will be considered a part of the overall supply as a single composite supply. This requires observing the degree that the elements or components are interconnected, and the extent of their interdependence and intertwining.[17] The Federal Court of Appeal has also examined the commercial efficacy of the arrangement in considering whether there is a single composite supply.[18] It is on this particular point that the parties disagree.
[33] The Appellant claims that it is entitled to claim ITCs in respect of the MRP Expenses (excluding the Travel Certificate Payments under subsection 169(1) and the Travel Certificate Payments under subsection 181(5)) because these expenses were incurred in the course of commercial activities carried on by the Appellant. The reasoning underlining the Appellant’s arguments appears to be as follows:
The MRP is an undertaking with its own dedicated employees and dedicated information technology. MRP‑Extra Cardholders must enroll and pay a nominal fee to become Members of the MRP. This is optional. Cardholders who choose not to enroll in the MRP continue to receive exempt supplies of financial services. According to the Appellant, this means that the supplies made under the MRP are not linked to and intertwined with supplies made by Amex in its credit card business.
Members may acquire Points for cash if additional Points are needed to acquire a Reward. The Appellant did not provide evidence as to the amounts of Points acquired for cash by Members during the Relevant Period. I infer from the evidence considered as a whole that the amount of Points purchased by Members for cash was nominal compared with the Points accumulated by Members in connection with spending on their Amex credit card.
Expenses are incurred to provide Rewards to Members.
Marketing and promotional expenses are incurred by Amex to provide promotional services to Participants.[19]
[34] In its written submissions, the Appellant quotes extensively from the Supreme Court of Canada’s decision in Calgary (City) v. Canada, 2012 SCC 20, wherein the Court endorsed the decision of the Tax Court in OA Brown Ltd. v Canada, [1995] GSTC 40 (TCC). The relevant passages are reproduced below for ease of reference:[20]
The test to determine whether there is a single or multiple supply for purposes of the Excise Tax Act was summarized by the Supreme Court of Canada in Calgary (City) v. Canada,