General Motors of Canada Limited v. The Queen

General Motors of Canada Limited v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2008-02-22
Neutral citation
2008 TCC 117
File numbers
2004-3594(GST)G
Judges and Taxing Officers
Diane Campbell
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2004-3594(GST)G
BETWEEN:
GENERAL MOTORS OF CANADA LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on November 27 and 28, 2006 and January 23, 2007 at
Toronto, Ontario,
Before: The Honourable Justice Diane Campbell
Appearances:
Counsel for the Appellant:
Al Meghji, Sean C. Aylward, D’Arcy A. Schieman
Counsel for the Respondent:
John McLaughlin, Michael Ezri
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under Part IX of the Excise Tax Act, notice of which is dated November 26, 2003 and bears number 05CP0117364 in respect to the period November 1, 1997 to December 31, 1999 is allowed and referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 22nd day of February 2008.
“Diane Campbell”
Campbell J.
Citation: 2008TCC117
Date: 20080222
Docket: 2004-3594(GST)G
BETWEEN:
GENERAL MOTORS OF CANADA LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Campbell J.
[1] This appeal is in respect to an assessment, under the Excise Tax Act (the “Act”) for the period November 1, 1997 to December 31, 1999, which denied the Appellant’s claim for input tax credits (“ITCs”).
[2] The Appellant, General Motors of Canada Limited (“GMCL”), is a Canadian corporation engaged in the business of manufacturing, assembling and selling of automobiles and trucks. GMCL provides various pension plans to its employees. The contributions to these plans are invested and administered using the services of investment managers (“Investment Managers”), who in turn charge investment management fees, together with goods and services tax (“GST”), in respect to those services. Between 1997 and 1999, a number of Investment Managers provided services to GMCL in respect to the management of the pension assets, pursuant to investment management agreements (“Investment Management Agreements”), which were between individual managers and GMCL. It is the GST on these investment management services (“Investment Management Services”) and the adjustment to the Appellant’s net tax to deny the ITC claim that form the basis for this appeal.
[3] GMCL is the administrator of two registered pension plans, funded through trusts, created by GMCL to hold and invest the assets of these plans (the “Pension Plan Trusts”). As part of the compensation package for its hourly and salaried employees, GMCL established the following:
(a) The General Motors Canadian Retirement Program for Salaried Employees (together with any amendment thereof, the “Salaried Plan”); and
(b) The General Motors Canadian Hourly-Rate Employees Pension Plan (together with any amendments thereof, the “Hourly Plan”).
[4] The Salaried Plan provided benefits to those salaried employees of GMCL and certain affiliated corporations of GMCL. The Hourly Plan was created pursuant to the terms of a collective agreement between GMCL and the National Automobile, Aerospace and Agricultural Implement Workers Union of Canada for the benefit of GMCL’s hourly employees. The Salaried Plan was funded primarily by employer contributions with a very small portion funded by the employees. The Hourly Plan was a single employer plan funded by employer contributions only.
[5] Pursuant to the constating documents of the Salaried Plan, GMCL was appointed as the plan’s administrator and was granted “all powers and authority necessary to properly administer the Plan…” (Exhibit A-2, Tab 1, Article 16). Similarly, the constating documents of the Hourly Plan provided that “The general administration of the Plan shall be vested exclusively in the Company…” (Exhibit‑A-2, Tab 2, Article IV). The powers and duties of GMCL as administrator, including the power to retain Investment Management Services, originate in these constating documents. Additionally, the Ontario Pension Benefits Act (the “OPBA”), R.S.O. 1990 c.P.8, imposes specific statutory responsibilities on GMCL as an administrator of these pension plans. In particular, section 22 of the OPBA imposes a general duty to exercise care, skill and due diligence in the investment of pension funds.
[6] As administrator, GMCL’s contractual and statutory responsibilities were in relation to the overall operation of the pension plans and included the calculation and payment of pension entitlements, disclosure of information to members of respective Plans, submitting required filings within specified time limits, ensuring the content and accuracy of required reports, investing the assets, and ensuring that all required contributions were made and that fees and expenses were reasonable.
[7] The first witness was Craig William Marven, a Chartered Accountant, employed by GMCL during this period as a senior financial analyst in the compensation activities group. As company appointed administrator for over five years, he was responsible for the overall functioning of the Plans, including confirming that contributions were timely, that pertinent filings were made on time and that the Investment Managers were performing according to expectations. GMCL met with these managers twice annually to review their performance and to ensure that they were investing in the appropriate classes of assets as well as following asset allocation policies. In addition, the Investment Managers reported monthly on the performance of the assets and were compensated based on the value of the assets they managed.
[8] Mr. Marven explained that the role of the pension plans was to provide another form of compensation that would allow GMCL to attract and retain the highest quality employees. He considered GMCL to be at the top of the hierarchy or the “backstop” of the Plans, with the result that GMCL was responsible for the assets contained in the Plans. He referred to the Plans as “defined‑benefit plans”, meaning that GMCL was obligated to account for the difference if there was a funding shortfall. Mr. Marven’s evidence‑in‑chief consisted primarily of taking the Court through the pension plan trust structures used for investing and administering the pension funds.
[9] For each of the Pension Plans, the relevant Master Trust arrangements were two-tiered. First, GMCL paid into the Master Trusts the required contributions in respect to each of the Plans (in the case of the Salaried Plan, each affiliated corporation paid contributions commensurate with coverage provided to its employees). Second, the funds in each of the Master Trusts were invested in units of unitized trusts (the “Unitized Trusts”).
[10] For the purpose of funding benefits accrued under the two pension plans, GMCL created two Master Trusts, pursuant to trust agreements, which were amended and restated in their entirety on September 1, 1993 (the “Master Trust Agreements”):
- The General Motors Canadian Retirement Program for Salaried Employees Pension Plan Trust Agreement between GMCL, GMMD, GMAC, E.D.S., MIC, and Royal Trust Corporation of Canada (“Royal Trust”), which was the Master Trust Agreement for the trust fund created under the Salaried Plan (the “Salaried Master Trust”) (Exhibit A-2, Tab 3).
- The General Motors Canadian Hourly-Rate Employees Pension Plan Trust Agreement between GMCL and Royal Trust, which was the Master Trust Agreement for the trust fund created under the Hourly Plan (the “Hourly Master Plan”) (Exhibit A-2, Tab 4).
[11] Under each of the Master Trusts, two Unitized Trusts existed as vehicles for the pooling of assets which were invested in both foreign and domestic investments. Mr. Marven testified that the flow of funds from the Master Trusts into the Unitized Trusts was “virtually seamless”. On September 1, 1993, GMCL entered into four Unitized Trust Agreements:
(a) The General Motors Canadian Retirement Program for Salaried Employees Unitized Trust Agreement – Foreign Pension Investments between GMCL, GMMD, GMAC, E.D.S., MIC, and Royal Trust, which established a Unitized Trust to invest in foreign investments, the units of which were held by the Salaried Master Trust (Exhibit A-2, Tab 5).
(b) The General Motors Canadian Retirement Program for Salaried Employees Unitized Trust Agreement – Domestic Pension Investments between GMCL, GMMD, GMAC, E.D.S., MIC and Royal Trust, which established a Unitized Trust to invest in domestic investments, the units of which were held by the Salaried Master Trust (Exhibit A-2, Tab 6).
(c) The General Motors Canadian Hourly-Rate Employees Pension Plan Unitized Trust Agreement – Foreign Pension Investments between GMCL and Royal Trust, which established a Unitized Trust to invest in foreign investments, the units of which were held by the Hourly Rate Master Trust (Exhibit A-2, Tab 7).
(d) The General Motors Canadian Hourly-Rate Employees Pension Plan Unitized Trust Agreement – Domestic Pension Investments between GMCL and Royal Trust, which established a Unitized Trust to invest in domestic investments, the units of which were held by the Hourly Master Trust (Exhibit A-2, Tab 8).
[12] Royal Trust was appointed as trustee of the Master Trusts and the Unitized Trusts. Although GMCL did not call a representative from Royal Trust, it is clear from the evidence that Royal Trust took bare legal title to the assets of the Unitized Trusts and discharged various duties including maintaining custody, safekeeping and registration of securities, transferring funds and processing information from third parties.
[13] Allocation of assets to broad categories of investments, for both the Hourly and Salaried Plans, was determined by GMCL. Following GMCL’s decision to allocate certain portions of Unitized Trust assets to particular categories of investment, GMCL entered into various Investment Management Agreements, pursuant to which Investment Managers were retained to manage the investment of funds within one or more of the asset categories of domestic equity, foreign equity, domestic fixed income, domestic short‑term fixed income and domestic cash equivalents. The Investment Managers had discretion to purchase, receive or subscribe for securities, to retain such securities in trust, to purchase, enter, hold and generally deal in any contractual manner with contracts for the immediate or future delivery of financial instruments and to convert monies into Canadian and foreign currencies. This discretion, however, was moderated by and subject to investment guidelines established by GMCL and which were contained in Schedule “A” of the Agreements. These guidelines governed the nature and extent of the investments, which Investment Managers could be involved with, in the context of their power as full discretionary Investment Managers. They were also subject to the Trustee’s ongoing monitoring and authority to approve or deny the buy/sell orders because the Investment Managers had no access to the funds.
[14] While Royal Trust was the main trustee for the majority of the eight billion dollars held in trust assets, GMCL also had a separate Agreement, similar to the other Investment Management Agreements, with Standard Life Assurance Company (“Standard Life”) which held several hundred million dollars of trust assets (Exhibit A-3, Tab 38). Mr. Marven referred to these assets as segregated funds, with Standard Life acting in a capacity similar to an Investment Manager. Although Standard Life was in the unique and slightly different position of having both investment management and custodial responsibilities, it had the right to be paid its fees directly from the fund.
[15] The second witness, Owen Phillips, has approximately 20 years of experience in investment management and is currently employed with Legg Mason, Canada formerly Perigee Investment Counsel Inc. (“Perigee”). He provided evidence with respect to the services provided by Investment Managers. Because of the similarity of the terms and conditions of all of the Investment Management Agreements, pursuant to which the Investment Managers were retained by GMCL, the evidence of Mr. Phillips provided an adequate and representative sample of the terms of all of these Agreements. He personally managed the domestic cash equivalents and, to some degree, the fixed income investments for the Hourly Plan.
[16] Although the exhibits contain numerous Investment Management Agreements relating to the Salaried and Hourly Rate Employees for the various asset categories, the Agreement dated December 1, 1997, between GMCL and Perigee (Exhibit A‑3, Tab 33) is representative of the collection. Clause 4 of this Agreement sets out the extensive “powers of the investment manager”. Schedule “A” to the Agreement provided various investment guidelines to be used in managing the investments on behalf of GMCL. Mr. Phillips testified that Perigee made decisions about portfolios without consulting GMCL on buying and selling specific financial instruments. In other words, Perigee was a discretionary money manager that could buy and sell on behalf of the account without the need to seek prior approval. A portion of the preamble to the Agreement states:
And whereas, pursuant to its appointment hereunder, the Investment Manager shall manage those assets of the Unitized Trust Fund allocated to an investment account (the “Investment Account”) by GM Canada, in accordance with the Unitized Trust Agreement and shall provide investment advice and other related administrative services as requested from time to time by GM Canada. (emphasis added) (Exhibit A-3, Tab 33)
[17] The Investment Managers received performance reviews twice yearly from GMCL. They were required to meet performance standards that not only outperformed an objective benchmark, but that also respected the boundaries of the prescribed investment guidelines outlined in Schedule “A” of the Investment Management Agreements. According to these agreements, Investment Managers were also required to provide monthly statements to GMCL “indicating all investments” (Transcript p. 288).
[18] Articles 16 and 17 of the Salaried Plan, the Seventh Article of the Master Trust Agreement and the Thirteenth Article of the Unitized Trust Agreements set out the mechanism for payment of the cost of the administration of the pension plan and the pension fund as being:
(a) Payment directly by GMCL to the Investment Manager, with reimbursement directed to GMCL from the trust; or
(b) Payment directly by the relevant Master Trust or Unitized Trust to the Investment Manager upon the direction of GMCL.
[19] With respect to the Unitized Trust Agreement, Article 13 provided that:
Expenses and fees relating to the administration of the Unitized Trust Fund incurred (either internally or through external appointments) by the Company, including expenses and fees incurred in retaining Investment Managers, investment advisors, consultants, sub-trustees and sub-custodians, and reasonable and proper counsel fees of the Company, to the extent permitted by Pension Law, shall, at the direction of the Company or its delegate, be withdrawn and paid by the Trustee out of the Unitized Trust Fund if not otherwise paid by the Company or the Trust Fund; provided, however, that if the Company has paid such expenses and fees it shall, upon direction to the Trustee, be reimbursed for such payments out of the Unitized Trust Fund. (emphasis added) (Exhibit A-2, Tab 5)
[20] At paragraph 17 of Perigee’s Investment Management Agreement, it stated:
17. Compensation for Services Hereunder. The Investment Manager shall be entitled to receive as compensation for services rendered hereunder, a fee determined and paid in accordance with a separate written agreement between GM Canada and the Investment Manager; provided that if and as soon as the Investment Manager charges a fee to other clients for the management of portfolios having similar characteristics or that are managed by a substantially similar process with substantially the same services under a fee rate schedule that would reduce the fee paid hereunder, then the Investment Manager shall promptly so notify GM Canada and the fee hereunder shall be reduced accordingly.
[21] The parties then entered into a separate written agreement (Exhibit A-3, Tab 39A), as referred to in the preceding clause 17, that set out various rates of fees dependent upon the size of the investment portfolio and that provided a GMCL address to which the Investment Manager was instructed to forward invoices for approval.
[22] This documentation is consistent with Mr. Marven’s testimony. He explained that the Investment Managers forwarded the invoices to GMCL for review and approval, after which GMCL would direct that the pension fund trust pay these obligations. He explained that the Investment Managers billed GMCL for their services because the legal agreements for the management of the funds are between GMCL and the Investment Managers. Mr. Marven described the payment mechanism as follows:
If we sign off on saying that the cheque is to be paid, that is part of the issuance of the cheque whether or not we cut the cheque. I am not sure what distinction you are making. Did we print the cheque? No, we did not print the cheque. Did we tell Royal Trust to print the cheque? We did tell Royal Trust to print the cheque. (Transcript p. 60)
[23] When asked why the payments were paid out of the trust rather than by GMCL directly, he explained that, with GMCL’s size, there were policies and procedures for everything. As well, on cross-examination the following exchange occurred:
Q: Why doesn't General Motors take the money and reduce any operating deficits?
A: We could not, no. No. There are laws against that.
Q: You really can't deal with the money. That is, General Motors can't deal with the money in these pension plans other than for purposes of paying pensions, is that a fair statement?
A: Yes, we cannot. That money is earmarked for pensions, yes.
(Transcript p. 67)
[24] Mr. Phillips, in examination-in-chief, described this situation as follows:
Q: Why are these invoices being sent to General Motors of Canada Limited, when the assets you are managing are sitting in the unitized trust?
A: General Motors is the client and they are the ones who paid us to do this. They are paying us. They are the ones that we charge.
(Transcript pp. 229-230)
[25] The third witness was Aaron Wong, the auditor. His evidence focused primarily on whether or not, in reassessing, he made the assumption of fact contained at paragraph 5(f) of the Reply.
[26] The Appellant argued that this assumption of fact was never made by the Minister because Mr. Wong’s evidence established that the sole basis of the assessment was the Advance Tax Ruling (Exhibit A-4), which did not address the issue of whether the Investment Management Services fell within the definition of financial services contained in paragraphs 123(1)(a) to (m). During Mr. Wong’s testimony, there were numerous lengthy objections by both Appellant and Respondent counsel. While it is clear that objections served an essential tool in protecting the client’s interests during the hearing, they also severely disrupted the flow of the hearing, consequently hindering the proceedings. I intend to address Mr. Wong’s testimony in the context of deciding several preliminary matters. My decisions in those matters are essential to my approach respecting the two issues in this appeal.
Issues
[27] This appeal raised two issues:
(1) Whether GMCL is entitled to claim input tax credits, pursuant to section 169 of the Act, in respect to GST paid to Investment Managers for the supply of Investment Management Services.
(2) Alternatively, whether the Investment Management Services are an exempt “financial service” as defined in subsection 123(1) of the Act such that GMCL is entitled to a rebate of tax paid in error on those services.
Preliminary Matters
[28] The following two preliminary matters were the subject of much debate during the hearing:
(1) The Appellant argues that the Respondent’s submissions are comprised overwhelmingly of arguments that are not properly before this Court as they were not pleaded in the Reply.
(2) The Appellant alleges that the Minister improperly included assumption 5(f) in the Reply and should not be permitted to defend the assessment on this basis.
Preliminary Matter #1 – Crown’s Arguments not Properly Before the Court and Issue # 1 – Is GMCL Entitled to Claim ITCs paid to Investment Managers?
[29] The general test for ITC entitlement is found in section 169 of the Act. The relevant parts of this section are:
169. General rule for credits
(1) [General rule for credits]
Subject to this Part, where a person acquires … property or a service … tax in respect of the supply, … 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 x B
where
A is the tax in respect of the supply, …, 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
…
c) … the extent (expressed as a percentage) to which the person acquired … the property or service …, for consumption, use or supply in the course of commercial activities of the person. (emphasis added)
[30] In order for GMCL to be eligible to claim an ITC, pursuant to subsection 169(1) in respect of GST payable by it on receipt of Investment Management Services, three conditions must be satisfied:
(1) The claimant (GMCL) must have acquired the supply (the Investment Management Services);
(2) The GST must be payable or was paid by the claimant (GMCL) on the supply (the Investment Management Services);
(3) The claimant (GMCL) must have acquired the supply (the Investment Management Services) for consumption or use in the course of its commercial activity.
[31] The Respondent argued that the Appellant must satisfy all three elements of this test for ITC entitlement. The Appellant argued that only the third element of that test is at issue because the Advance Ruling, issued by Canada Revenue Agency (“CRA”) which denied the Appellant’s claim for an ITC, conceded that GMCL acquired the Investment Management Services (the first condition of the test) and that GMCL was liable to pay for these Services and the applicable GST (the second condition of the test). The relevant portions of the Ruling stated:
RULING GIVEN
Based on the facts set out above, we rule that:
…
2. GMCL is not entitled to claim ITCs with respect to investment management services that is procured under agreements with investment managers because these services are acquired by GMCL solely for consumption by the registered pension trusts resident in Canada …
EXPLANATION
…
… When contracting for the supply of services to the trusts, prior to April 18, 2000, GMCL as the person liable under the agreement to pay the consideration for the supply of investment management services, is the ‘recipient,’ under the terms of the ETA, of the investment management services…
Section 165 imposes GST/HST on the ‘recipient’ of a ‘taxable supply’. The supplies from the investment managers to GMCL are taxable supplies and GMCL is liable for the GST/HST relating to these supplies. Subsection 169(1) sets out the general rule for ITCs. GMCL is not entitled to claim input tax credits (ITCs) with respect to investment management services procured by virtue of agreements with investment managers because, GMCL as the administrator of the GMCL pension plans, has acquired the investment managers’ services for use otherwise than in the course of GMCL’s commercial activities… GMCL acquires these services in order to fulfil its responsibilities under paragraph 22(1)(a) of the Ontario Pension Benefits Act, which sets out that the administrator of a pension plan has a fiduciary duty relating to the administration and investment of the pension fund. For these reasons, it is our view that the services are acquired by GMCL in its role as administrator of the trusts, solely for consumption by the trusts … and not for use, consumption or supply by GMCL in the course of GMCL’s commercial activities. [emphasis added] (Appellant’s Reply, page 3)
[32] The Appellant summarized its argument at page 4 of the Appellant’s Reply:
9. The Reply to the Notice of Appeal put the Crown’s position in this appeal on the same footing as the assessment – that GMCL is not entitled to the input tax credit solely because the services were acquired for the consumption or use of the Plan trusts and not GMCL. This is clear in assumption 5(d) and in the reasons, paragraph 11.
10. The parties have now closed their cases and GMCL has filed its written argument to answer the case that was put to it in the Crown’s reply. It would be completely unfair to allow the Crown to now put into issue these new matters. Raising these matters at this stage in an abuse of process of the Court.
[33] In Zelinski v. The Queen, 2002 DTC 1204 (T.C.C.) at paragraph 4, Bowie J. summarized the purpose of pleadings to be:
The purpose of pleadings is to define the issues in dispute between the parties for the purposes of production, discovery and trial. …
[34] In Status‑One Investments Inc. v. The Queen, 2005 DTC 821 (T.C.C.) at paragraph 8, Rip J. as he was then, stated:
Pleadings fulfil several functions. Among other things, when drafted well, they enable the judge to determine clearly the matter submitted to him for decision, they enable the defendant (or respondent) to know what the plaintiff (or appellant) is alleging against him, and they enable the claimant to know what defences will be raised in answer to his claim. [FOOTNOTE 2] In addition, pleadings often give their drafters a better understanding of their case. After an exchange of pleadings, the parties should know exactly which points are in issue and what proof each of them will have to make.
[35] In D. Casson’s Odgers on High Court Pleading and Practice, 23rd ed. (London: Sweet and Maxwell/Stevens, 1991) at pages 123 – 24, the purpose of pleadings was described as follows:
…The pleadings should always be conducted so as to evolve some clearly defined issues, that is, some definite propositions of law or fact, asserted by one party and denied by the other, but which both agree to be the points which they wish to have decided in the action.
…
The function of pleadings then is to ascertain with precision the matters on which the parties differ and the points on which they agree; and thus to arrive at certain clear issues on which both parties desire a judicial decision.
[36] Based on my review of the case comments and of the wording contained in the Reply, I conclude that the Respondent has sufficiently defined the issues involved in this appeal to allow me to address all three components of the subsection 169(1) test. Paragraph 6 of the Reply succinctly states that the Respondent believes the issue to be: whether or not the Appellant can claim ITCs with respect to GST payable on the Investment Management Services. This is a broad enough statement to have put the Appellant on notice and to therefore allow the Respondent to put in issue all three elements of the test under section 169. I make this conclusion, which is favourable to the Respondent, despite my rejection of the Respondent’s argument that the Respondent did not know all of the facts prior to the hearing, particularly in respect to the payment of the invoices. That is simply not the case. It appears from the evidence that the Rulings Officer had the same documentation that I have before me.
(1) The first element of the subsection 169(1) test for eligibility by GMCL to claim ITCs: Did GMCL acquire the Investment Management Services?
[37] The Advance Tax Ruling states that GMCL, as administrator of the Plans and by virtue of agreements with Investment Managers, has “acquired” the services. Although the language contained in the Ruling is straightforward, I am not bound by an admission in a failed Ruling.
[38] The Respondent did not address the first element of this test from the perspective of dealing with the key word “acquires”. Instead, the Respondent relied on the argument that acts done by GMCL, in acquiring the services, are deemed by section 267.1 of the Act to be acts of the Plan Trusts, not acts of GMCL, because GMCL is in essence a trustee of the Plan Trusts. Since section 267.1 recognizes that acts done by a person who represents a trust are really acts of the trust, then GMCL’s acts on behalf of the trust are, for GST purposes, acts of the trust. The Respondent defined the issue under this first element of the test as “whether GMCL should be considered a trustee so that section 267.1 can apply”. Essentially the Respondent’s argument is that:
(a) subsection 123(1) provides that a “person” includes a trust;
(b) the trust, not GMCL, acquired the services;
(c) section 267.1 deems acts of the trustee to be those of the trust; and
(d) GMCL’s role in respect to the trust funds is no different than the role that a trustee would play, except that GMCL’s role is defined by the OPBA and, under that statute, GMCL is called an administrator instead of a trustee.
[39] Underhill, Law of Trusts and Trustees, 11th ed., provides a widely accepted and often quoted definition of a trust:
A trust is an equitable obligation, binding a person (who is called a trustee) to deal with property over which he has control (which is called the trust property) for the benefit of persons (or are called the beneficiaries or cestuis que trust), of whom he may himself be one, and any one of whom may enforce the obligation.
[40] Black’s Law Dictionary, 8th ed. (St. Paul, Minn.: West Pub. Co., 2004) defines trust and trustee as:
trust, n. 1. The right, enforceable solely in equity, to the beneficial enjoyment of property to which another person holds the legal title; a property interest held by one person (the trustee) at the request of another (the settler) for the benefit of a third party (the beneficiary) …
trustee, n. 1. One who, having legal title to property, holds it in trust for the benefit of another and owes a fiduciary duty to that beneficiary … (emphasis added)
[41] In section 1 of the OPBA, administrator is defined as the person or persons that administer the pension plan.
[42] Section 267.1 has no application here. There was no evidence produced during the hearing that would suggest that GMCL took title, legal or otherwise, to the assets under the deed of trust. All of the Agreements reference Royal Trust as the legal title holder. Thus GMCL cannot fall within the ambit of the definition of trustee. The trust agreements expressly established Royal Trust as the trustee. Clearly GMCL’s role, in relation to the trusts, was as an administrator, as defined and contemplated under the OPBA. It did not include, nor was it intended to include, the role of trustee in relation to the trusts. For the purposes of section 267.1, the role of GMCL was that of an administrator to these plans. The roles and respective duties of GMCL, as administrator, and Royal Trust, as the trustee, were entirely separate. While GMCL may have exercised some fiduciary duties as the plan’s administrator, that does not mean that GMCL was a trustee of the trust. The only trustee of these pension plans can be Royal Trust, the Custodial Trustee, which, according to the definition of “trustee” and the evidence, holds legal title. Consequently, it was GMCL that contracted for and acquired the services of the Investment Managers.
(2) The second element of the subsection 169(1) test for eligibility by GMCL to claim ITCs: Was GST “payable” by GMCL?
[43] The Respondent’s position is that GST was not paid by GMCL because the actual payment of GST on the services was paid to the Investment Managers out of the trust funds and GMCL only “approved” payment of the invoices. In addition, the Respondent argued that, since GMCL was not liable to pay the consideration, under the various agreements, no GST could be payable by GMCL. Since section 169 does not expressly contain the word “recipient”, the Respondent argued that the definition of “recipient” is not relevant to my determination. Alternatively, the Respondent claimed that GMCL would not be the recipient as GMCL had no personal liability under the trust agreements.
[44] Again the Ruling presupposed that GMCL was the recipient of the Investment Management Services.
[45] Under the Act, whether tax will be “payable” by GMCL depends on whether GMCL was the “recipient” of the services. Subsection 169(1) was amended in 1997. The phrase “supplied to” was replaced with the term “acquires”.[1] There is an abundance of CRA administrative policy emphasizing that the determination of the recipient is essential to an ITC entitlement. There has also been much debate about whether the term “acquires” imports a new requirement in the Act in respect to the meaning of recipient.
[46] David Schlesinger described the issue as follows:
While we understand from Finance’s Technical Notes that the intent may not have been to change the original scope of the subsection, the word “acquires” was introduced and may be interpreted by some as to introduce a new requirement. We understand that the CRA agrees that the “recipient” of a supply is the person that may be able to claim an ITC for GST/HST paid on the supply. However, based on the meaning given by the CRA to the word “acquires” and the recent jurisprudence on the meaning of “recipient”, the recipient of a supply may not necessarily be the person that “acquires” the supply.[2]
[47] Contrary to an abundance of CRA administrative policy which appears to state otherwise, the Respondent now contends that the determination of the “recipient” is not germane to an ITC entitlement, as the word “recipient” is not found in subsection 169(1).
[48] Subsection 165(1), the charging provision, provides that a “recipient” of a supply “shall pay tax” with respect to that supply.
[49] Subsection 123(1) defines recipient as:
“recipient” of a supply of property or a service means
(a) where consideration for the supply is payable under an agreement for the supply, the person who is liable under the agreement to pay that consideration,
(b) where paragraph (a) does not apply and consideration is payable for the supply, the person who is liable to pay that consideration, and … (emphasis added)
[50] It appears that, where a person is the recipient of the supply, the Act expressly contemplates that GST is payable by that person.
[51] Subsection 152(1) of the Act places emphasis on the issuance of an invoice and section 168 provides that:
Tax … is payable by the recipient on … the day the consideration for the supply becomes due.
[52] While the amendment to subsection 169(1) in April 1997 replaced the phrase “supplied to” with the term “acquires”, a determination as to who is the recipient of the supply remains directly relevant in dealing with the question “was GST payable by GMCL?” I do not believe that the 1997 amendment replaced the focus on the central determination in this appeal of which party is contractually liable to pay GST pursuant to the Agreements.
[53] This determination is one of both fact and law. GMCL and the relevant Investment Managers were the parties to all of the Fee Agreements. According to Mr. Phillips, GMCL, as the client, was solely liable to pay their accounts. No evidence whatsoever was adduced to suggest that the Plan Trusts were a party to the Investment Management and Fee Agreements that made GMCL liable to pay, or that GMCL entered into an Investment Management Agreement as an agent on behalf of the Plan Trusts. The Fee Agreements, pursuant to which consideration was calculated with respect to the Investment Management Agreements, were solely between GMCL and the respective Investment Managers. The Investment Managers issued invoices, pursuant to the Agreements, solely to GMCL. GMCL approved the amounts invoiced in accordance with the Fee Agreements and then instructed the Trust to pay the Investment Managers from the funds it had placed in the pension plans. This in no way converts or transfers the liability for payment of the invoices to the trustee.
[54] Contractually, GMCL is the only party that carried the liability to pay this consideration to the Investment Managers. The Investment Management and Fee Agreements are definitive on this point. The Investment Managers invoiced only GMCL. Generally, liability crystallizes upon the issuance of an invoice. If GMCL did not pay the invoice, the Managers could sue only GMCL, not the Plan Trust. Only GMCL is liable to pay these invoices. Since the trust was never vested with responsibility for managing the assets, it had no requirement for the services of Investment Managers. The Managers can look only to GMCL for payment. Thus, GMCL is the recipient of the supply of the services of the Investment Managers and GST was “payable” by GMCL. Under subsection 169(1), ITCs are available only to the person who “acquires” the supply if tax is payable by that person. While tax will be payable by the recipient under subsection 165(1), it does not necessarily follow that the eventual recipient will always be the person who “acquired” the supply. Subsection 123(1) states that “recipient” will be the person to whom a supply is made. Therefore in certain circumstances the person who acquired the supply (GMCL) may not be the person to whom the supply is eventually made (the pension trusts). GMCL has satisfied this requirement under subsection 169(1) since it is the only person liable to pay the consideration for the supply of services of the Investment Managers under the relevant Agreements. Although some of the financial statements of the Hourly and Salaried Plans suggest that payments are treated as being made by the trust, these accounting documents are subordinate to the primary Investment and Fee Agreements and do not alter the contractual provisions in those Agreements. The pension trusts are not liable to pay for the services and cannot be the recipient, although the supply of services was eventually re‑directed to the assets in the trusts. I also believe that the conclusion reached by Dussault J. in 163410 Canada Inc. v. The Queen, [1998] T.C.J. No. 827, supports my reasons in this appeal, contrary to the view of both counsel for the Appellant and the Respondent. In that decision, although the facts were confusing, in determining that the Appellant was entitled to claim ITCs, Dussault J. focused on the Agreement which identified the Appellant as the party liable to pay. Dussault J. determined that regardless of the nature of the ancillary agreement between Midland and the Appellant respecting the payment of the Appellant’s legal services and regardless of the fact that Midland was identified as the supplier’s client, and not the Appellant, it was the Appellant that remained liable to pay the consideration for the services. This was so, even though Midland was instructed to pay for the services with the Appellant’s funds. Following Dussault’s reasoning then, even if the investment advice had been given directly by the managers to the pension plans (which it was not), where the fees were invoiced to GMCL, by virtue of the Fee Agreements, this liability to pay would prevail.
[55] In the course of the proceeding, both Respondent and Appellant addressed my findings in Bondfield Construction Company (1983) Limited v. The Queen, 2005 TCC