Club Intrawest v. Canada

Club Intrawest v. Canada
Court (s) Database
Federal Court of Appeal Decisions
Date
2017-07-11
Neutral citation
2017 FCA 151
File numbers
A-249-16
Notes
Digest
Decision Content
Date: 20170711
Docket: A-249-16
Citation: 2017 FCA 151
CORAM:
NADON J.A.
DAWSON J.A.
GAUTHIER J.A.
BETWEEN:
CLUB INTRAWEST
Appellant
and
HER MAJESTY THE QUEEN
Respondent
Heard at Vancouver, British Columbia, on May 15, 2017.
Judgment delivered at Ottawa, Ontario, on July 11, 2017.
REASONS FOR JUDGMENT BY:
DAWSON J.A.
CONCURRED IN BY:
NADON J.A.
GAUTHIER J.A.
Date: 20170711
Docket: A-249-16
Citation: 2017 FCA 151
CORAM:
NADON J.A.
DAWSON J.A.
GAUTHIER J.A.
BETWEEN:
CLUB INTRAWEST
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
DAWSON J.A.
[1] Subsection 165(1) of the Excise Tax Act, R.S.C. 1985, c. E-15 (Act) imposes the Goods and Services Tax in respect of taxable supplies “made in Canada”. Subsection 142(1) of the Act deems certain supplies to be made in Canada; subsection 142(2) deems certain other supplies to be made outside of Canada. Together, these provisions are referred to as the place-of-supply rules.
[2] The appellant, Club Intrawest, “was created to facilitate the administration and operation of resort accommodations in connection with a vacation accommodation ownership plan (the Intrawest program)” (Amended Partial Agreed Statement of Facts and Issues (Agreed Statement) paragraph 4). The Intrawest program is marketed and sold in Canada and the United States. Vacation homes are located in as many as nine resorts situated in Canada, the United States and Mexico.
[3] The appellant was assessed under the Act in respect of annual resort fees paid by members of the Intrawest program to the appellant for the reporting periods ending October 31 for the 2002 to 2007 taxation years. The appellant objected to the assessment and ultimately appealed from it to the Tax Court of Canada. The appellant argued that the resort fees were paid to it as reimbursement for expenses it incurred as agent for the members of the Intrawest program. It followed, the appellant argued, that GST was not exigible on the resort fees. In the alternative, if GST applied to the resort fees, the appellant argued that because the resort accommodations administered and operated under the Intrawest program were located both inside and outside of Canada, GST should be allocated on the basis it proposed and not on the basis applied by the Minister of National Revenue in her assessment. More will be said later about the alternative approaches proposed by the parties.
[4] The Tax Court rejected the appellant’s argument that it had incurred the resort fees as agent of the members of the Intrawest program. The Court went on to apply the place-of-supply rules and concluded that the entire supply was made in Canada (2016 TCC 149). This is an appeal from the judgment of the Tax Court.
I. The Issues [5] Two issues are raised on this appeal:
i. Did the Tax Court err in failing to find that the resort fees paid to the appellant by the members represented reimbursement of expenses incurred by the appellant as agent for the members of the Intrawest program?
ii. Did the Tax Court err in its interpretation and application of the place-of-supply rules?
[6] Before I turn to consideration of these issues, it is helpful to review the facts needed to situate these issues and then to review the relevant findings of the Tax Court.
II. The Facts [7] The facts are set out in detail in the lengthy reasons of the Tax Court. The following facts are sufficient to situate the issues raised on appeal.
[8] The Intrawest program is a timeshare program offering vacation homes in resorts located in Canada, the United States and Mexico. Members of the Intrawest program purchase points to be used to rent vacation homes based on an assigned point value. The vacation homes were originally either built or purchased by a Canadian developer and an American developer. The developers transferred the vacation homes to the appellant in exchange for the number of resort points required to acquire the right to occupy and use the vacation homes for an entire year in perpetuity. Legal title to the vacation homes was transferred to a trust company as trustee for the appellant.
[9] Under this scheme, the developer and the vacation home timeshare purchaser enter into a Purchase and Membership Agreement. In the Purchase and Membership Agreement, the developer sells resort points acquired from the appellant to the purchaser who then uses the resort points to reserve occupancy of a vacation home for a specified period of time each year. The Tax Court found that the legal substance of resort points is the right to occupy vacation homes. As a practical matter, resort points provide a means of keeping track of the proportionate interests of the point holders in the timeshare vacation homes. The Purchase and Membership Agreement also provides that the purchaser becomes a member of the appellant, and thus a member of the Intrawest program.
[10] The members of the appellant are the Canadian and American resort point purchasers and the Canadian and American developers. Members are required to pay an annual assessment to the appellant to meet “Membership Costs”.
[11] “Membership Costs” are defined to include all costs incurred by the appellant for and on behalf of the members, as more specifically provided in the Master Declaration entered into by the Canadian developer and the appellant. Article 10.3 of the Master Declaration states that membership costs “shall include, but shall not be limited to”:
(a) The maintenance, repair, modification, alteration, redecoration or replacement of any Resort Accommodation;
(b) The maintenance, repair, modification, alteration, redecoration, replacement, and rental of the Equipment;
(c) Insurance coverage;
(d) A capital contribution for reserves;
(e) Domestic services, including cleaning and maid service, the frequency of which shall be determined from time to time by the Board, furnished to or on behalf of Members;
(f) Assessments levied against Resort Accommodations by a Project or association for a Project; and
(g) Any other costs incurred by the Club in connection with the maintenance, repair, replacement, restoration, redecoration, improvement, operation, and administration of the Resort Accommodations, or in connection with the operation or administration of the Club, which are directly attributable to the commitment of one (1) or more Resort Accommodations in accordance with the provisions [of the Master Declaration].
[12] To calculate the annual resort fee, the appellant divides the budgeted membership costs for a particular year by the total number of issued resort points in order to establish the per point rate for a calendar year. The annual resort fee payable by a member to the appellant for a calendar year is the per point rate for that year, multiplied by the number of resort points owned by the member.
[13] The appellant did not collect GST on the resort fees charged annually to members of the Intrawest program.
III. The Decision of the Tax Court [14] The Tax Court considered three issues, only two of which are relevant to this appeal. The first was described to be whether the appellant “acquired numerous goods and services as agent” for the members of the Intrawest program. The second issue was described to be whether the taxable supply of services was made in Canada.
[15] With respect to the agency issue, the Tax Court began its analysis by noting that when an agent acts for a principal and acquires property or a service from a third party supplier, the agent does not make a supply of the property or service to the principal. Rather, the agent acts as a conduit for the supply (reasons, paragraph 71). This means that the principal acquires the underlying supply and the reimbursement from the principal to the agent represents the principal’s payment to the supplier for the underlying supply.
[16] With respect to agency relationships generally, citing Royal Securities Corporation Ltd. v. Montréal Trust Co. et al., [1967] 1 O.R. 137 at page 155, [1996] O.J. No. 1078 at paragraph 55; aff’d [1967] 2 O.R. 200, [1967] O.J. No. 997 (Ont. C.A.), the Tax Court correctly noted that the three generally accepted components of an agency relationship are:
i. Both the principal and the agent consent to the agency relationship.
ii. The principal grants authority to the agent allowing the agent to affect the principal’s legal position.
iii. The principal controls the agent’s actions (reasons, paragraph 78).
[17] The Tax Court then turned to consider each element of this test. The Tax Court dealt first with the authority of the appellant to affect the legal position of the members of the Intrawest program.
[18] In its notice of appeal the appellant asserted that it held the vacation homes in trust for the members of the Intrawest program. During oral argument in the Tax Court, counsel for the appellant argued that before one could properly characterize the resort fees, a determination had to be made about the ownership of the vacation homes. The appellant argued that it held the beneficial interests in the vacation homes in trust for the members of the Intrawest program.
[19] The Tax Court thus turned to address this issue, noting that if members of the Intrawest program were not obligated to pay the expenses required to maintain, repair, improve and operate the vacation homes, or to incur other expenses with respect to the vacation homes, there would be no legal rights that the appellant could affect on behalf of its members in respect of such expenses. It would follow that an agency relationship could not “as a question of fact” exist (reasons, paragraph 80).
[20] After reviewing the evidence before it, and applying the test to determine who held the beneficial ownership in the vacation homes, the Tax Court concluded that the appellant itself held the beneficial interest in the vacation homes, subject to the occupancy rights held by the Canadian and American developers. Moreover, the beneficial interest held by the appellant included the risk of damage to the vacation homes and the obligation to incur operating costs (reasons, paragraph 140). Members of the Intrawest program simply acquired a contractual right to occupy the vacation homes pursuant to the rules set out in the governing documents (reasons, paragraph 115).
[21] It followed that the members were not responsible for the operation, repair and maintenance of the vacation homes and were not liable to incur any expenses with respect to the vacation homes (reasons, paragraph 141). It further followed that because there were no legal rights that the appellant could affect on behalf of its members with respect to the operating expenses, an agency relationship did not exist between the appellant and the members of the Intrawest program (reasons, paragraph 142).
[22] While this was dispositive of the appellant’s agency argument, the Tax Court went on to consider the remaining two components of the agency relationship.
[23] With respect to the issue of consent, the Tax Court drew a negative inference from the appellant’s failure to adduce a written agreement whereby the members of the Intrawest program appointed it as their agent with respect to the vacation home operating costs. The Court had difficulty accepting that the members would have appointed the appellant as their agent without entering into an agreement that specified the expenses the appellant could incur as agent, the standard of care required of the appellant and the terms of any indemnification (reasons, paragraphs 148 and 149). The Tax Court went on to find that the only direct evidence before it with respect to the conduct of the members supported the Minister’s assumption that members of the Intrawest program did not consent to the appellant acting as their agent (reasons, paragraph 172). The Court then went on to review other evidence that supported a finding that the conduct of the parties did not support a finding of agency.
[24] With respect to the issue of control, while the Tax Court accepted that the members of the Intrawest program control the appellant through their ability to elect the board of directors, such corporate control did not mean that the appellant acted as the members’ agent. At the end of the day, the Tax Court concluded that the evidence fell short of establishing that the members exercised control over the appellant pursuant to an agency agreement (reasons, paragraphs 190 and 191).
[25] Having concluded that the resort fees did not represent an amount paid by the members to the appellant as reimbursement of costs incurred by the appellant as agent for the members, it followed that the resort fees constituted consideration paid for a supply. The Tax Court then turned to consider whether that supply was subject to GST, and more particularly whether the supply was made in Canada (reasons, paragraph 194).
[26] The Tax Court began its analysis by noting that the parties accepted that if the appellant did make a supply, the supply was a taxable supply. However, the parties disagreed on the application of the place-of-supply rules contained in the Act (reasons, paragraph 196).
[27] The Minister, when assessing the appellant, assumed that the members of the Intrawest program paid the resort fees as consideration for the supply of intangible personal property that related to real property situated both inside and outside of Canada. The Minister submitted that the Court ought to allocate the resort fees between taxable supplies made inside Canada and taxable supplies made outside of Canada by basing the allocation on the ratio of total resort points issued in respect of properties located in Canada to the total resort points issued in respect of all of the vacation properties (reasons, paragraph 197).
[28] The appellant disagreed, arguing that any supply made by it was a supply of a service in relation to real property, with the resort fees being the consideration for the supply. The appellant further argued that the appellant made separate single supplies of services in respect of each vacation home. Thus, the appellant submitted that the Court ought to allocate the resort fees basing the allocation on the ratio of membership costs associated with the operation of vacation homes situated in Canada to the total cost for the operation of all vacation homes (reasons, paragraphs 199-200).
[29] The Tax Court then discussed what it viewed to be a legislative inconsistency in the place-of-supply rules: as described in detail later in these reasons, subsections 142(1) and (2) deem two mutually exclusive events to occur (reasons, paragraphs 201-212). However, before addressing the legislative inconsistency the Tax Court moved to consider whether members paid the resort fees to the appellant as consideration for the supply of a service or as consideration for the supply of intangible personal property (reasons, paragraph 224).
[30] The Tax Court rejected the Minister’s argument that the resort fees were paid as consideration for the supply of membership in the Intrawest program, which constituted the supply of intangible personal property. The Tax Court found that the appellant did not provide any rights in consideration for the resort fees. It followed that it did not supply any property. What the appellant supplied was its agreement to use the resort fees to fund its operations. Specifically, the appellant agreed to use the funds to pay the vacation home operating costs, to pay costs incurred to operate the Intrawest program, to pay its own internal expenses and to hold a portion of the funds in a reserve fund for future unexpected expenses (reasons, paragraphs 226-238).
[31] Having characterized the resort fees as being consideration for the supply of a service, it was necessary for the Court to consider whether the appellant made a single supply or multiple supplies in consideration of the resort fees. Applying the test articulated in O.A. Brown Ltd. v. Canada, [1995] G.S.T.C. 40 at page 40, 3 G.T.C. 2092 (T.C.C.), at page 2095, the Tax Court found as a fact that the appellant made a single supply by agreeing to use the resort fees to fund its operations. In the Court’s view, the Master Declaration treated “the supply as a single supply, with the consideration being based upon the [a]ppellant’s total estimated costs.” The appellant “could only continue to operate the Intrawest Program if it incurred all of the costs” (reasons, paragraph 259).
[32] It followed that the Tax Court rejected the notion that the resort fees, which were used to fund four separate activities (the maintenance, operation and improvement of each vacation home; the operation of the Intrawest program; the operation of the appellant itself; and the maintenance of a reserve fund), constituted four separate groups of supplies. The Tax Court further rejected the notion that the appellant made separate supplies in respect of the Canadian vacation homes on the one hand and the American and Mexican vacation homes on the other (reasons, paragraph 258).
[33] Having found that the appellant made a single supply of a service, the Tax Court considered whether section 142 of the Act deemed the supply to have been made in Canada. The Tax Court began its analysis by setting out the relevant portions of the place-of supply rules in section 142 of the Act:
142 (1) For the purposes of this Part, subject to sections 143, 144 and 179, a supply shall be deemed to be made in Canada if
142 (1) Pour l’application de la présente partie et sous réserve des articles 143, 144 et 179, un bien ou un service est réputé fourni au Canada si :
…
…
(d) in the case of a supply of real property or of a service in relation to real property, the real property is situated in Canada;
d) s’agissant d’un immeuble ou d’un service y afférent, l’immeuble est situé au Canada;
…
…
(f) the supply is a supply of a prescribed service; or
f) il s’agit d’un service visé par règlement;
(g) in the case of a supply of any other service, the service is, or is to be, performed in whole or in part in Canada.
g) s’agissant de tout autre service, il est, ou sera, rendu en tout ou en partie au Canada.
142 (2) For the purposes of this Part, a supply shall be deemed to be made outside Canada if
142 (2) Pour l’application de la présente partie, un bien ou un service est réputé fourni à l’étranger si :
…
…
(d) in the case of a supply of real property or a service in relation to real property, the real property is situated outside Canada;
d) s’agissant d’un immeuble ou d’un service y afférent, l’immeuble est situé à l’étranger;
…
…
(f) the supply is a supply of a prescribed service; or
f) il s’agit d’un service visé par règlement;
(g) in the case of a supply of any other service, the service is, or is to be, performed wholly outside Canada.
g) s’agissant de tout autre service, il est, ou sera, rendu entièrement à l’étranger.
(emphasis added)
(soulignement ajouté)
[34] Noting that there were currently no prescribed services, the Tax Court observed that the internal inconsistency it had previously referred to exists as a result of the wording of paragraphs 142(1)(d) and 142(2)(d) of the Act, which apply when the supplied service is “in relation to real property”. Where a single supply of a service is made in relation to real property both inside and outside of Canada, the supply will be deemed to be made both inside and outside of Canada, depending upon which paragraph of section 142 is applied (reasons, paragraph 263).
[35] In order to resolve this inconsistency, the Tax Court concluded that, while the phrase “in relation to” should be given a wide scope, “within the context of section 142, the words require a direct relationship between the service and the real property. The service must be performed directly on the real property or relate directly to the real property” (reasons, paragraph 265).
[36] This interpretation was found to be “consistent with the immediate context in which the relevant words are used in section 142.” More particularly, at paragraph 320 the Tax Court reasoned that:
… Both paragraph 142(1)(d) and paragraph 142(2)(d) deal first with the supply of real property and then with the supply of a service in relation to real property. In fact, paragraphs 142(1)(d) and 142(2)(d) contain the only reference in the place-of-supply rules to the supply of real property. This supports an interpretation that Parliament intended paragraphs 142(1)(d) and 142(2)(d) to apply to supplies that relate solely to real property, including services that relate only to such real property.
[37] It followed that notwithstanding the Tax Court’s conclusion that all of the services performed by the appellant “relate directly or indirectly to real property”, paragraphs 142(1)(d) and 142(2)(d) of the Act were inapplicable – they applied only to services performed by the appellant that related directly and solely to real property (reasons, paragraphs 266 and 318). While certain services supplied by the appellant clearly related directly to the vacation homes, others were found not to relate directly to the vacation homes. For example, the general and administrative services provided at the appellant’s Vancouver office did not relate directly to the vacation homes. Rather, these services were in relation to the operation of the appellant as a corporation (reasons, paragraph 268).
[38] As a result of this analysis, because the single supply related, at least in part, to things other than real property, the place-of-supply of the service was determined under paragraphs 142(1)(g) and 142(2)(g) of the Act. On this analysis, paragraph 142(1)(g) deemed the supply to be made in Canada because the appellant performed the service partially in Canada. It further followed that the GST applied to the totality of the resort fees paid by the members of the Intrawest program (reasons, paragraphs 321 and 322).
[39] The Tax Court completed its analysis by noting that its analysis resulted in more tax being payable than would be exigible under the applicable Canada Revenue Agency administrative policy. However, the Tax Court found that the administrative policy did not comply with the relevant provisions of the Act. Finally, because the Minister could not appeal its own assessment, notwithstanding the conclusion that GST applied to the totality of the resort fees, the judgment could not increase the tax assessed by the Minister (reasons, paragraph 323).
IV. Consideration of the Issues 1. The Agency Issue [40] The appellant acknowledges that the Tax Court correctly articulated the components of an agency relationship. The appellant argues, however, that the Tax Court erred in law in the application of the test for agency by failing to give effect to the provisions of the Master Declaration, the Purchase and Membership Agreement and notes to the appellant’s financial statements.
[41] I begin consideration of the agency issue by rejecting the submission that the asserted errors are errors of law. The appellant challenges the Tax Court’s conclusion that the appellant did not receive the resort fees as agent of its members and the weight the Court gave to the evidence before it. Absent an extricable error of law, the appellant must demonstrate a palpable and overriding error of fact or mixed fact and law (Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235, at paragraphs 36 and 46).
[42] I turn now to the substance of the asserted errors.
[43] The appellant relies upon the Fourteenth Amended and Restated Master Declaration executed by the Canadian developer and the appellant effective October 27, 2006. The appellant points to and relies upon Articles 9.1 and 9.3, as well as the definitions of “membership costs” and “resort fees”.
[44] In Article 9.1, under the heading “Management, Maintenance, and Repairs”, responsibility for the repair, replacement, restoration, improvement, operation and administration of the vacation homes is vested in the appellant. Thereafter, “[t]he [appellant] shall act as the agent of all of the Members in collecting Assessments and in paying taxes, utility costs, and other Membership Costs” (emphasis added).
[45] Article 9.3, subject to certain limited exceptions, provides that “exclusive control and responsibility over the maintenance, repair, modification, and alteration of all Resort Accommodations and the Equipment therein is vested in the [appellant], as agent for the Members” (emphasis added).
[46] Article 1 contains the defined terms. Article 1.37 defines “Membership Costs” to mean and include “all costs incurred by the [appellant] for and on behalf of the Members”. Article 1.50 defines “Resort Fees” to mean “the annual assessment levied by the Board upon all Members for their proportionate share of the annual Membership Costs”.
[47] Next, the appellant points to Articles 5 and 7 of the Purchase and Membership Agreement. This is the only purchase and membership agreement placed in evidence and it is an agreement between the Canadian developer and the Canadian resort point purchasers.
[48] In Article 5, the purchaser acknowledges receiving copies of the agreement together with copies of a number of other specified documents. The purchaser states that he or she has been given the opportunity to read the documentation and that he or she understands their provisions. The purchaser also “agrees to be bound by, to be subject to and to abide by the provisions of all Club Instruments as they may be amended from time to time.”
[49] In Article 7, the purchaser signifies his or her understanding and agreement that the appellant will incur membership expenses “as the agent for all Members in accordance with their proportionate share of the Resort Points” (emphasis added). The purchaser agrees to reimburse the appellant “on a cost-sharing basis for the Purchaser’s share of the Membership expenses as determined annually by the [appellant] and referred to as the Resort Fee”.
[50] Finally, in the notes to appellant’s financial statements as at December 31, 2003, the appellant is said to incur expenses and to recover costs as “agent of the members”. The members’ assets are described to include real estate and equipment at vacation home resorts.
[51] In addition to arguing that the Tax Court failed to give effect to this evidence, the appellant argues that the Tax Court erred by requiring an express, standalone written agency agreement.
[52] Illustrative of this error is said to be the summary manner in which the Tax Court dismissed the significance of the reference to agency in Article 7 of the Purchase and Membership Agreement. At paragraph 156 of its reasons, the Tax Court wrote that it could not see how this could constitute an agency agreement between the resort point purchasers and the appellant because the appellant was not a party to the agreement. The appellant argues that this statement ignores that in the Master Declaration the appellant expressly accepted its role as agent for the members, and ignores that the members agreed in the Purchase and Membership Agreement to be bound by the Club Instruments, including the Master Declaration.
[53] I begin by rejecting the argument that the Tax Court erred by requiring an express, standalone written agency agreement.
[54] It is correct that the Tax Court drew a negative inference from the failure of the appellant to provide the Court with a written agreement whereby the Canadian and American developers and the Canadian and American resort point purchasers appointed the appellant to act as their agent with respect to the operating costs of the vacation homes (reasons, paragraph 148). The Court found it to be implausible that the resort point purchasers would appoint the appellant as their agent without entering into an agreement specifying such things as the actual expenses that the appellant could incur as agent (reasons, paragraph 149). This was particularly so in light of the terms of the Management Agreement entered into between the appellant and the Canadian developer in which the appellant appointed the Canadian developer as its agent for specific functions. This agreement contained numerous clauses “that one would expect in an agency agreement” such as an indemnification clause and a standard of care clause (reasons, paragraphs 146-147). The appellant has not shown that the negative inference drawn by the Tax Court was palpably and overridingly wrong.
[55] This said, in any event I am not persuaded that the negative inference drawn as a result of the appellant’s failure to produce a written agency agreement was material to the Court’s conclusion that the appellant had failed to demonstrate the existence of an agency relationship.
[56] The negative inference was not material because the Tax Court recognized, citing G.H.L. Fridman, Canadian Agency Law, 2nd ed. (Markham, Ont: LexisNexis, 2012) at paragraphs 3 through 7, that where no express, written agency agreement exists it remains necessary to “look at the conduct of the parties to determine whether an agency relationship has come into existence” (reasons, paragraph 166). The Court’s reliance on this passage and subsequent examination of parties’ conduct show that the Court did not consider it was necessary for the appellant to produce an express, standalone written agency agreement.
[57] The Tax Court also considered in detail the appellant’s argument, which it re-argues in this Court, that the Purchase and Membership Agreement and the Master Declaration constitute agency agreements (reasons, paragraph 152). The Court rejected this argument for the following reasons:
i. With respect to the reference to the appellant incurring membership expenses “as the agent for all Members” in Article 7 of the Purchase and Membership Agreement, this reference to agency did not exist in the first iteration of the agreement; this reference was only added three years after the creation of the Intrawest program. The only explanation given for this addition was that the reference to agency was added on the advice of an accountant. Because the Canadian developer added these words three years after the program was created, some Canadian resort point purchasers acquired their resort points and memberships pursuant to an agreement that did not refer to the appellant acting as their agent (reasons, paragraphs 153-155).
ii. With respect to Articles 9.1 and 9.3 of the Master Declaration and their references to agency, again such references were not contained in the original Master Declaration. Rather, the words were added three years after the Master Declaration was first executed, also at the direction of an accountant (reasons, paragraph 161).
iii. The late addition of the reference to agency in these agreements might explain internal inconsistencies in Article 9 of the Master Declaration. To illustrate, the first sentence in Article 9.1 states that the responsibility for the maintenance, repair, replacement, restoration, improvement, operation and administration of the vacation homes is vested in the appellant. Further, the first sentence of the second paragraph of Article 9.3 prohibits any member from making or doing any repairs, modifications or the like. These two clauses state that it is the appellant, not the members, who is responsible for the operation and upkeep of the vacation homes (reasons, paragraph 162).
iv. This conclusion is consistent with the Court’s finding of fact that the beneficial interest in the vacation homes held by the appellant included the risk of damage or loss attached to the homes, including the obligation to pay the expenses incurred in respect of the operation, repair and maintenance of the homes (reasons, paragraph 163).
v. This conclusion that it is the appellant that is responsible for the operation and upkeep of the vacation homes is inconsistent with the references in Articles 9.1 and 9.3 to the appellant incurring operating costs as agent for its members. Notwithstanding the addition of the agency language, the Court was not of the view that this addition reflected the actual relationship between the appellant and its members (reasons, paragraph 164).
vi. Further, these agreements cannot constitute an agency agreement between the American resort point purchasers and the appellant, or between the American developer and the appellant because they were not parties to the agreements. No written agreements or viva voce evidence was provided with respect to any agreements entered into by the American resort point purchasers or the American developer in respect of the Intrawest program (reasons, paragraph 165).
The Court noted the failure of the appellant to call any resort point purchaser or any officer or director or employee of the appellant to testify about the agency relationship and drew an adverse inference from this failure (reasons, paragraph 167).
[58] The Court then turned to other evidence that in its view negated the existence of an agency relationship (reasons, paragraph 173):
i. The first matter considered was that the appellant calculated the annual resort fee in part on the basis of expenses other than vacation home operating costs. The appellant included its own internal costs, such as the cost of its annual general meeting, the cost of its auditor, its income tax obligations and legal costs. The Court found that these were costs of the appellant, not its members. They were not costs incurred by the appellant as agent for the appellant’s members. Similarly, a portion of the annual resort fee related to a reserve fund maintained by the appellant as a contingency fund for future unexpected costs. This too did not represent an expense incurred by the appellant as agent of its members (reasons, paragraphs 174-175).
ii. The Court then turned to the content of the appellant’s bylaws and the Master Declaration. Section 7.2 of the bylaws provides that the appellant’s members are required to pay the annual resort fee to the appellant in accordance with the terms of the Master Declaration. The bylaws did not oblige the members to personally incur the vacation home operating costs or any other expenses related to the vacation homes. Article 10.1 of the Master Declaration obligates a member to pay the annual resort fee. This is a distinct obligation from one where the member is personally liable for the vacation home operating costs. Further, Article 10.4 of the Master Declaration provides that while the annual resort fee is to be based on estimated costs, the actual amount of the resort fee is in the sole discretion of the appellant’s board and may be adjusted “based on the additional expenses incurred by [the appellant].” The Court found that these clauses were based on the assumption that the costs incurred by the appellant were costs incurred on its own account and not as agent for its members (reasons, paragraphs 176-181).
iii. Finally, the Court considered the evidence that the Canadian developer had an option not to pay the annual resort fee if it elected to subsidize the financial operations of the appellant. This is provided for in Articles 10.7 and 1.8 of the Master Declaration which allow the Canadian developer to subsidize the appellant’s financial operations in the event that the assessments, including the annual resort fee, and “every other revenue source (income) received by” the appellant fails to equal or exceed the actual expenses incurred during the fiscal year. Thus, Article 10.7 does not contemplate the situation where the appellant incurs costs as the Canadian developer’s agent. Rather, the article is based upon the assumption that the appellant incurs costs on its own account. The Canadian developer agrees to provide financial assistance if such costs exceed the appellant’s annual revenue (reasons, paragraphs 182-183).
[59] Read fairly, the Tax Court did not require evidence of an express, standalone written agency agreement. Rather, the Court carefully examined the relevant agreements and concluded that they did not support the existence of an agency relationship. The Court then looked at the conduct of the parties for the purpose of determining whether the conduct evidenced an agency relationship and found it did not. I can detect no palpable and overriding error of fact or mixed fact and law in the reasoning of the Tax Court. Nor can I detect any extricable legal error. It follows that the appellant has failed to demonstrate that the Tax Court erred in finding that the resort fees paid to the appellant by its members did not represent the reimbursement of expenses incurred by the appellant as agent for its members.
[60] Before leaving this issue, two final points should be addressed.
[61] First, the listing in paragraph 57 above of the findings the Tax Court relied on to conclude that the Canadian Purchase and Membership Agreement and the Master Declaration do not evidence an agency relationship, did not enumerate the Tax Court’s reference to the evidence of a Canadian resort point purchaser, Mr. Abraham. Mr. Abraham testified that he did not know that the appellant was holding itself out as his agent (reasons, paragraph 171). The appellant argues that such evidence was inadmissible and contrary to the parol evidence rule. I agree that the parol evidence rule precludes, among other things, evidence about the subjective intentions of the parties to a contract (Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129, at paragraphs 54-59; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at paragraph 59). However, in light of the extensive reasons given by the Tax Court for its conclusion on the agency issue, I am satisfied that the brief reference to Mr. Abraham’s testimony was not in any way material to the ultimate conclusion reached by the Tax Court.
[62] Second, while the Tax Court did not expressly deal with the notes to the appellant’s financial statements, given the Tax Court’s detailed reasons for its conclusion on the agency issue, I am not persuaded that an auditor’s characterization of the appellant’s relationship to its members is of such import that it required comment.
2. An Agency Sub-Issue: The Inquiry into Beneficial Ownership [63] Before the Tax Court, the appellant argued that the beneficial interest in the vacation homes is held by the appellant’s members – the members of the Intrawest program. As explained above at paragraphs 19 and 20, the Tax Court rejected this argument. Instead, the Tax Court found that the appellant held a beneficial interest in the vacation homes, subject to the occupancy rights held by the Canadian and American developers.
[64] In its written argument, the appellant characterizes the Tax Court’s analysis to be misguided; it asserts that the Court erroneously concluded that the appellant bore the onus of proving that its members held beneficial ownership of the vacation homes.
[65] During oral argument, counsel for the appellant resiled to a degree from this argument. Counsel stated that he was no longer certain that the bundle of rights members acquired when purchasing their interest in the vacation homes rose to the level of beneficial ownership. Counsel did not, however, withdraw the argument.
[66] I will therefore deal briefly with this issue.
[67] I begin by rejecting the notions that the Tax Court’s analysis was misguided and that it imported a requirement that the appellant prove that its members were the beneficial owners of the vacation homes. Rather, the appellant asserted in its notice of appeal such ownership to be one of the material facts it relied upon. In argument before the Tax Court, the appellant characterized this to be one of the “key issues” (reasons, paragraph 79). The Tax Court therefore did not engage in a legal detour as the