Canada (Attorney General) v. British Columbia Investment Management Corp.

Canada (Attorney General) v. British Columbia Investment Management Corp.
Collection
Supreme Court Judgments
Date
2019-12-13
Neutral citation
2019 SCC 63
Report
[2019] 4 SCR 559
Case number
38059
Judges
Wagner, Richard; Abella, Rosalie Silberman; Moldaver, Michael J.; Karakatsanis, Andromache; Brown, Russell; Rowe, Malcolm; Martin, Sheilah
On appeal from
British Columbia
Subjects
Constitutional law
Taxation
Notes
Case in Brief
SCC Case Information
Decision Content
SUPREME COURT OF CANADA
Citation: Canada (Attorney General) v. British Columbia Investment Management Corp., 2019 SCC 63, [2019] 4 S.C.R. 559
Appeal Heard: May 13, 2019 Judgment Rendered: December 13, 2019 Docket: 38059
Between:
Attorney General of Canada
Appellant/Respondent on cross-appeal
and
British Columbia Investment Management Corporation
Respondent/Appellant on cross-appeal
and
Her Majesty The Queen in Right of the Province of British Columbia
Respondent/Respondent on cross-appeal
- and -
Attorney General of Ontario and
Attorney General of Alberta
Interveners
Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Brown, Rowe and Martin JJ.
Reasons for Judgment: (paras. 1 to 114)
Reasons Dissenting in Part: (paras. 115 to 171)
Karakatsanis J. (Abella, Moldaver, Brown, Rowe and Martin JJ. concurring)
Wagner C.J.
canada v. b.c. investment management
Attorney General of Canada Appellant/Respondent on cross‑appeal
v.
British Columbia Investment Management Corporation Respondent/Appellant
on cross‑appeal
and
Her Majesty The Queen in Right of the
Province of British Columbia Respondent/Respondent on cross‑appeal
and
Attorney General of Ontario and
Attorney General of Alberta Interveners
Indexed as: Canada (Attorney General) v.
British Columbia Investment Management Corp.
2019 SCC 63
File No.: 38059.
2019: May 13; 2019: December 13.
Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Brown, Rowe and Martin JJ.
on appeal from the court of appeal for british columbia
Constitutional law — Intergovernmental immunity from taxation — Goods and services tax — Scope of intergovernmental immunity — Provincial Crown corporation created by legislature to provide investment management services to province’s public sector pension plans and other Crown entities — Whether provincial Crown corporation required to collect and remit federal GST on costs it incurs in making investments in pooled investment portfolios — Whether provincial Crown corporation entitled to constitutional immunity from taxation — Constitution Act, 1867, s. 125 — Excise Tax Act, R.S.C. 1985, c. E-15 , Part IX.
Taxation — Goods and services tax — Federal‑provincial reciprocal taxation agreement — Whether agreements entered into by federal and provincial governments to pay the other’s sales taxes are binding on other Crown entities — Whether agreements have legal effect of removing immunity from taxation that would otherwise be enjoyed by Crown agent.
In 1999, the legislature of British Columbia (the Province) created the British Columbia Investment Management Corporation (BCI) to provide investment management services to the Province’s public sector pension plans and other Crown entities through the Public Sector Pension Plans Act (PSPPA). On its creation, BCI assumed ownership and management of the investment assets held in pooled investment portfolios (Portfolios), which formerly were held and managed by the Province’s Minister of Finance. At the same time, the Province modernized its public sector pensions by creating a joint trusteeship structure, to allow both pension plan members and their employers to participate in the management of the public sector pension plans. These changes were intended to create a degree of separation between the government and the management of its investment funds and the public sector pensions.
By virtue of two separate agreements, the Province and Canada have agreed to pay the other’s sales taxes in certain circumstances. Under the Reciprocal Taxation Agreement (RTA), Canada agreed to pay certain provincial taxes and fees and the Province agreed to pay the taxes imposed under the federal Excise Tax Act , Part IX (ETA). Provincial entities listed in Schedule A of the RTA could apply for a rebate of any GST paid. BCI was added to Schedule A in 1999 but removed in 2003. Under the Comprehensive Integrated Tax Coordination Agreement (CITCA), the Province and Canada agreed to pay HST on supplies purchased by their respective governments and agents. The CITCA was in effect until 2013, when the Province withdrew from the HST regime and returned to the GST/PST model.
Following BCI’s removal from Schedule A of the RTA in 2003, Canada Revenue Agency (CRA) began to question whether BCI was entitled to claim immunity from GST in respect of the expenses it incurred in managing the Portfolios. In December 2013, BCI filed a petition in the Supreme Court of British Columbia, seeking declarations that as a statutory Crown agent, BCI is immune from taxation in respect of the assets it holds in the Portfolios, and is not bound by either the RTA or the CITCA or the payment obligations found in those agreements.
Canada sought to strike BCI’s petition, arguing that the dispute should be heard by the Tax Court of Canada, not the Supreme Court of British Columbia but its motion was dismissed. The chambers judge held that the Supreme Court of British Columbia had jurisdiction to hear the petition, that BCI, as a statutory Crown agent, enjoys immunity under s. 125 of the Constitution Act, 1867 , which states that no lands or property belonging to Canada or any Province shall be liable to taxation, and that BCI is bound by the taxation agreements. The Court of Appeal agreed. Canada appeals the holding that BCI is immune from taxation and BCI cross-appeals with respect to the binding nature of the agreements.
Held (Wagner C.J. dissenting in part): The appeal and cross‑appeal should be dismissed.
Per Abella, Moldaver, Karakatsanis, Brown, Rowe and Martin JJ.: The chambers judge did not err in exercising his jurisdiction to decide BCI’s petition. Both the scope and the timing of BCI’s petition supports the chambers judge’s characterization of BCI’s claim and its decision to exercise its jurisdiction. In deciding whether to exercise its jurisdiction, a court must determine the essential nature of the claim. In this case, the chambers judge determined that the core of BCI’s petition was not an attack on the GST assessments but rather Canada’s ability to tax BCI in the first place. He also concluded that the constitutional immunity and intergovernmental agreements issues were linked — if the immunity claim was successful, the agreements were the only way BCI could be required to pay GST. There is no reversible error in this analysis. The issues raised in BCI’s petition go beyond the assessment of tax under the ETA, this case is about the rights, obligations, and duties of a Crown agent, under the Constitution and at common law. Furthermore, although challenges to the correctness of a tax assessment under the ETA fall within the exclusive jurisdiction of the Tax Court, at the time BCI filed its petition, the reassessments issued in 2015 had not yet been issued so the Tax Court had no jurisdiction over the dispute.
The ETA’s mechanism for imposing GST on the Portfolios would result in Crown property being subject to taxation. Therefore, s. 125 of the Constitution Act, 1867 , renders the relevant provisions of Part IX of the ETA inapplicable in respect of the Portfolios. Part IX of the ETA governs the payment, collection and remittance of the federal GST (and HST, where applicable). Every recipient of a taxable supply must pay GST on the consideration paid for the supply. Suppliers registered under the ETA are required to collect GST and periodically remit it to the federal government. BCI uses two different structures to manage the assets placed with it for investment: investments are either held in the Portfolios or as segregated funds, separate and apart from the assets of the Portfolios. There is no dispute that the investment management services BCI provides outside the context of the Portfolios (i.e. in managing the segregated funds) are taxable supplies for GST purposes. However, for the Portfolios, BCI recovers the costs of managing them from the income realized on the assets held in the Portfolios and does not collect GST on these amounts. Thus, the issue under the ETA does not relate to the nature of BCI’s investment management activities but rather involves whether the Portfolios can be considered a “recipient” of a taxable supply under the ETA.
Section 123(1) of the ETA defines a “recipient” with reference to either the person who is liable to pay consideration for a supply of services or, if no consideration is payable, the person to whom a service is rendered. To fall within this definition, a recipient must also be a person. At common law, only natural persons and corporations have legal personalities; a trust does not. To capture transactions involving a wide range of entities, the ETA defines “person” and confers upon a trust a separate, artificial legal identity for tax purposes. The combined effects under the ETA is to impose GST collection, remittance and payment obligations on trusts and trustees in certain circumstances. For the purposes of determining whether BCI enjoys constitutional immunity, it is assumed that the Portfolios are “a trust” within the meaning of Part IX of the ETA. On this assumption, BCI would hold the Portfolio assets in trust for the benefit of the unit holders.
Applying the ETA to BCI and the Portfolios is further complicated by the fact that BCI is a provincial Crown agent. Intergovernmental immunity from taxation grants each level of government operational space to govern without interference and seeks to maintain the federal-provincial distribution of property set out in the Constitution Act, 1867 . Section 125 grants constitutional immunity from taxation when two requirements are met. First, the pith and substance of the impugned charge must constitute “taxation” within the meaning of ss. 91(3) or 92(2) of the Constitution Act, 1867 . Second, the subject matter of the tax must be property belonging to the federal Crown in the case of a tax imposed by the provincial legislature and to the provincial Crown in the case of a tax imposed by Parliament. Where these two prerequisites are met, s. 125 applies and renders otherwise valid taxation provisions inapplicable in respect of Crown property.
In the instant case, there is no question that the federal GST falls squarely within the meaning of “taxation” in s. 91(3) of the Constitution Act, 1867 , and that, as a statutory Crown agent, BCI enjoys the same constitutional immunity in respect of its property as the provincial Crown does. When the Crown holds property in trust, s. 125 of the Constitution, 1867, protects only the Crown’s interest in trust property from taxation. A private beneficial interest can therefore be taxed when the Crown holds legal title. However, if the tax is imposed on the Crown’s interest in the property, then constitutional immunity applies. In this case, the ETA uses a legal fiction to require a trust to pay tax on taxable services provided to it by its trustee. However, when the trustee is a provincial Crown agent, this mechanism runs afoul of s. 125 because it imposes tax on property legally owned by the Crown. The ETA does not impose GST on a distinct private beneficial ownership interest in this case. Therefore, the ETA is constitutionally inapplicable to the Portfolios.
BCI is subject to the RTA and the CITCA. In light of their clear wording, the agreements resemble private law contracts and were intended to create legally binding obligations for Canada and the Province. The PSPPA establishes that BCI’s tax immunities and obligations follow those of the Province. Because the language of this provision is broad enough to include obligations voluntarily assumed by the Province, BCI is generally subject to the obligations set out in the agreements to the same extent that the Province would be. However, the nature of any specific obligations under the agreements is beyond the scope of this appeal.
Per Wagner C.J. (dissenting in part): There is agreement with the majority that the Supreme Court of British Columbia appropriately assumed jurisdiction over this litigation and that BCI is bound by the relevant intergovernmental taxation agreements between British Columbia and Canada. However, there is disagreement on the issue of immunity under s. 125 of the Constitution Act, 1867 . BCI’s legal title to the taxed property is insufficient to make it property “belonging to” the Province, as s. 125 requires, because the property was entrusted to BCI by private parties to hold and manage for their sole benefit in exchange for payment. The property is liable to taxation only because the private pension boards chose to make it the mechanism of payment for the services they received from BCI. Extending immunity under s. 125 in these circumstances does not protect the constitutional values of federalism and democracy that s. 125 exists to promote. Instead, it overshoots those purposes by giving private parties the benefit of an immunity from taxation to which they are not entitled, protecting the Province from adverse contractual consequences, and providing BCI with an unjustified commercial advantage.
The unit holders are the beneficiaries of the funds BCI holds in trust. The investment management services that BCI provides for the Portfolios ultimately benefit the unit holders. It is the unit holders that are entitled to the income and capital gains generated by the Portfolios while they exist, and it is the unit holders that are entitled to the net proceeds on termination of the Portfolios. Neither BCI nor the Province has the ability or right to appropriate Portfolio assets. The only benefit BCI derives from the Portfolios is the recouping of its operating costs and capital expenditures from the funds therein, which reduces the value of the units and the ultimate return realized by the unit holders. The Province’s involvement with the public sector pension plans is purely contractual. The pension boards, which form the bulk of the unit holders, are private parties. The real impact of the tax is borne by the private unit holders because BCI provides the services relating to the Portfolios for the benefit of the unit holders alone. Only the pension boards’ choice to pay BCI indirectly by permitting it to take its payment from the trust makes the Portfolios the recipients under the ETA of the services that BCI provides. Had BCI and the pension boards agreed that BCI would bill the boards directly for its services instead of taking its payment from the Portfolios, the boards would have been the recipients under the ETA and would thus have been liable to pay GST.
Private parties cannot rely on s. 125 of the Constitution Act, 1867 , to immunize themselves from paying tax on investment management services they receive from a Crown corporation. The interpretation of s. 125 should not overshoot the purposes of federalism and democracy. It is clear that Parliament can require private purchasers of provincial services to pay GST in respect of those services without running afoul of s. 125 . Further, s. 125 is not intended to immunize the Crown from contractual consequences or other adverse commercial effects that it may bear as a result of the taxation of a private party. The commercial and contractual interests of the Crown cannot be favoured at the expense of those of private parties. In the instant case, the property does not belong to the Crown and is thus not immune under s. 125 . Section 125 does not immunize property that private parties have placed with the Crown to hold in trust for their sole benefit from a tax on services that they have contracted to receive from the Crown in respect of that property. The property in substance belongs not to the Crown but to the private parties, and the Crown’s legal title as trustee does not trigger the immunity. Extending the immunity here would overshoot s. 125 ’s purposes by extending immunity to private parties’ interests, relying on adverse contractual consequences for the Crown to extend the immunity, and rendering the Crown’s assets more commercially attractive by making them a tax haven for private parties.
Extending the immunity would not advance s. 125 ’s purposes. It would not advance s. 125 ’s objective of preventing one level of government from appropriating the property of the other, or the fruits of that property, to its own use. Further, holding that immunity does not apply in these circumstances would not undermine the Province’s decision to allow BCI to hold the Portfolio assets in trust. Instead, it would merely impose appropriate tax consequences on a mode of payment for services chosen by BCI and its private clients. Nothing in the PSPPA or trust law requires the mode of payment that is said to give rise to s. 125 immunity. The PSPPA makes direct payment from the trust funds only one of multiple possible payment options available and also permits BCI to bill its clients directly for services rendered. Providing immunity is not necessary to protect the Province’s operational space to govern. Moreover, requiring the Portfolios to pay GST would not put them at risk. BCI and the pension boards remain free to ensure that the GST is not paid from the trust funds by agreeing that the boards will pay BCI directly for its services, an option that is both provided for by the legislature and used by BCI and the boards for the segregated funds. Finally, applying immunity does not advance the constitutional value of democracy because this case is not about Parliament deciding how taxes levied by the Province should be spent. The Province has already decided how it should spend its tax revenues. It authorized the payment of tax funds to private pension boards in order to meet its contractual obligations to compensate provincial employees. Once the Province paid those funds to the private pension boards, they ceased to be public funds and became subject to the contractual terms of the joint trust agreements. The services at issue are thus provided by BCI to private parties that agreed to pay for those services. All Canada is trying to do is ensure that those private parties pay GST on those services.
Cases Cited
By Karakatsanis J.
Considered: Reference re Exported Natural Gas Tax, [1982] 1 S.C.R. 1004; Quirt v. The Queen (1891), 19 S.C.R. 510; referred to: British Columbia Investment Management Corp. v. Canada (Attorney General), 2014 BCSC 1296, [2014] G.S.T.C. 93, aff’d 2015 BCCA 373, 80 B.C.L.R. (5th) 316; Canada (Attorney General) v. Fontaine, 2017 SCC 47, [2017] 2 S.C.R. 205; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633; Hryniak v. Mauldin, 2014 SCC 7, [2014] 1 S.C.R. 87; Canadian Imperial Bank of Commerce v. Green, 2015 SCC 60, [2015] 3 S.C.R. 801; MiningWatch Canada v. Canada (Fisheries and Oceans), 2010 SCC 2, [2010] 1 S.C.R. 6; Windsor (City) v. Canadian Transit Co., 2016 SCC 54, [2016] 2 S.C.R. 617; Canada (Attorney General) v. TeleZone Inc., 2010 SCC 62, [2010] 3 S.C.R. 585; Johnson v. Minister of National Revenue, 2015 FCA 51, 469 N.R. 326; JP Morgan Asset Management (Canada) Inc. v. Canada (National Revenue), 2013 FCA 250, [2014] 2 F.C.R. 557; Sorbara v. Canada (Attorney General), 2009 ONCA 506, 98 O.R. (3d) 673; Aboriginal Federated Alliance Inc. v. Canada Customs and Revenue Agency, 2002 ABCA 104, 303 A.R. 304; Smith v. Canada, 2006 BCCA 237, 61 B.C.L.R. (4th) 231; Canada v. Addison & Leyen Ltd., 2007 SCC 33, [2007] 2 S.C.R. 793; Pintendre Autos Inc. v. The Queen, 2003 TCC 818, 2004 D.T.C. 2596; Whitford v. The Queen, 2008 TCC 359, 2008 G.T.C. 638; R. v. Eldorado Nuclear Ltd., [1983] 2 S.C.R. 551; Province of Bombay v. City of Bombay, [1947] A.C. 58; Alberta Government Telephones v. Canada (Canadian Radio-television and Telecommunications Commission), [1989] 2 S.C.R. 225; Nova Scotia Power Inc. v. Canada, 2004 SCC 51, [2004] 3 S.C.R. 53; Canada (Attorney General) v. Thouin, 2017 SCC 46, [2017] 2 S.C.R. 184; Reference re Goods and Services Tax, [1992] 2 S.C.R. 445; Will‑Kare Paving & Contracting Ltd. v. Canada, 2000 SCC 36, [2000] 1 S.C.R. 915; Backman v. Canada, 2001 SCC 10, [2001] 1 S.C.R. 367; R. v. D.L.W., 2016 SCC 22, [2016] 1 S.C.R. 402; Schmidt v. Air Products Canada Ltd., [1994] 2 S.C.R. 611; British Columbia v. Henfrey Samson Belair Ltd., [1989] 2 S.C.R. 24; Guarantee Company of North America v. Royal Bank of Canada, 2019 ONCA 9, 144 O.R. (3d) 225; Ermineskin Indian Band and Nation v. Canada, 2009 SCC 9, [2009] 1 S.C.R. 222; Guerin v. The Queen, [1984] 2 S.C.R. 335; Attorney-General of British Columbia v. Esquimalt and Nanaimo R. Co., [1950] 1 D.L.R. 305; De Mond v. The Queen (1999), 99 D.T.C. 893; C.I. Mutual Funds Inc. v. Canada, [1997] G.S.T.C. 84, var’d [1999] 2 F.C. 613; First Vancouver Finance v. M.N.R., 2002 SCC 49, [2002] 2 S.C.R. 720; Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134; City of Halifax v. Halifax Harbour Commissioners, [1935] S.C.R. 215; Re Canadian Broadcasting Corp. Assessment, [1938] 4 D.L.R. 591, aff’d [1938] 4 D.L.R. 764; Calgary & Edmonton Land Co. v. Attorney‑General of Alberta (1911), 45 S.C.R. 170; Smith v. Rur. Mun. of Vermillion Hills (1916), 30 D.L.R. 83; City of Vancouver v. Attorney‑General of Canada, [1944] S.C.R. 23; Phillips and Taylor v. City of Sault Ste. Marie, [1954] S.C.R. 404; Rural Municipality of Vermillion Hills v. Smith (1913), 6 Sask. L.R. 366; Regina v. County of Wellington (1890), 17 O.A.R. 421; Reference re Anti‑Inflation Act, [1976] 2 S.C.R. 373; Northrop Grumman Overseas Services Corp. v. Canada (Attorney General), 2009 SCC 50, [2009] 3 S.C.R. 309; Reference re Canada Assistance Plan (B.C.), [1991] 2 S.C.R. 525; Reference re Pan‑Canadian Securities Regulation, 2018 SCC 48, [2018] 3 S.C.R. 189; Quebec (Attorney General) v. Moses, 2010 SCC 17, [2010] 1 S.C.R. 557; South Australia v. The Commonwealth (1962), 108 C.L.R. 130; Toronto District School Board v. R., 2009 TCC 39, [2009] G.S.T.C. 6; Ottawa Hospital Corp. v. R., 2010 TCC 53, [2010] G.S.T.C. 15.
By Wagner C.J. (dissenting in part)
Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8, [2018] 1 S.C.R. 224; Ehrcke v. Public Service Pension Board of Trustees, 2004 BCSC 757, 32 B.C.L.R. (4th) 388; McKinney v. University of Guelph, [1990] 3 S.C.R. 229; Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134; Reference re Exported Natural Gas Tax, [1982] 1 S.C.R. 1004; Eurig Estate (Re), [1998] 2 S.C.R. 565; Caron v. Alberta, 2015 SCC 56, [2015] 3 S.C.R. 511; R. v. Blais, 2003 SCC 44, [2003] 2 S.C.R. 236; Calgary & Edmonton Land Co. v. Attorney-General of Alberta (1911), 45 S.C.R. 170; Reference re Goods and Services Tax, [1992] 2 S.C.R. 445; City of Vancouver v. Attorney‑General of Canada, [1944] S.C.R. 23; Phillips and Taylor v. City of Sault Ste. Marie, [1954] S.C.R. 404; Pecore v. Pecore, 2007 SCC 17, [2007] 1 S.C.R. 795; Csak v. Aumon (1990), 69 D.L.R. (4th) 567; R. v. Penunsi, 2019 SCC 39, [2019] 3 S.C.R. 91; Trident Holdings Ltd. v. Danand Investments Ltd. (1988), 64 O.R. (2d) 65; De Mond v. The Queen (1999), 99 D.T.C. 893; Smith v. Rural Municipality of Vermilion Hills (1914), 49 S.C.R. 563, aff’d (1916), 30 D.L.R. 83; Quirt v. The Queen (1891), 19 S.C.R. 510; Regina v. County of Wellington (1889), 17 O.R. 615; Regina v. County of Wellington (1890), 17 O.A.R. 421.
Statutes and Regulations Cited
Comprehensive Integrated Tax Coordination Agreement Between the Government of Canada and the Government of British Columbia, arts. 1, 38 to 41, 42, 51, 65.
Constitution Act, 1867 , Part VIII, ss. 91(3), 92(2), 125.
Constitution Act, 1982, s. 52(1) .
Excise Tax Act, R.S.C. 1985, c. E-15 , Part IX, ss. 122, 123(1), 165, 221(1), 225(1), 228(1), (2), 267.1(5), 306, 309(1).
Federal-Provincial Fiscal Arrangements Act, R.S.C. 1985, c. F-8, ss. 32 , 33 .
Financial Administration Act, R.S.B.C. 1996, c. 138, s. 43.
Financial Administration Act, S.B.C. 1981, c. 15, s. 36.
Funds Investment and Management Agreement Between British Columbia Investment Management Corporation and the Teachers’ Pension Board of Trustees, ss. 1.1.22, 2.1, 2.2, 2.4.3, 5.1, 8, 8.2, 9.1.2, 12.1.1, Sch. A, ss. 2 to 4, 5.
Income Tax Act, R.S.C. 1985, c. 1 (5th Supp .), s. 104(1) .
Interpretation Act, R.S.B.C. 1996, c. 238, ss. 14(1), 29.
Interpretation Act, R.S.C. 1985, c. I-21, ss. 8.1 , 17 .
Ministry of Intergovernmental Relations Act, R.S.B.C. 1996, c. 303, s. 4.
Pooled Investment Portfolios Regulation, B.C. Reg. 84/86, ss. 3, 4, 11.
Pooled Investment Portfolios Regulation, B.C. Reg. 447/99, ss. 1, 2, 4, 5, 6(2), 10(1), (2), (3), (4), (5), 11, 14.
Public Sector Pension Plans Act, S.B.C. 1999, c. 44, Part 3, ss. 15, 16(5), (6), 17 , 18(2), (3), (4), 18.1, 20, 21(2)(b), 24(1), 25.1.
Public Service Pension Plan Joint Trust Agreement, recitals C(c), (d), preamble, ss. 3, 7.2, 7.3, 10.3, 13.
Reciprocal Taxation Agreement (Canada — British Columbia), preamble, ss. 1, 3, 4, 6(d), 9, 15, Sch. A.
Tax Court of Canada Act, R.S.C. 1985, c. T‑2, s. 12(1) .
Authors Cited
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APPEAL and CROSS‑APPEAL from a judgment of the British Columbia Court of Appeal (Smith, Willcock and Goepel JJ.A.), 2018 BCCA 47, 5 B.C.L.R. (6th) 237, 37 C.C.P.B. (2nd) 163, [2018] 7 W.W.R. 235, [2018] G.S.T.C. 11, [2018] B.C.J. No. 190 (QL), 2018 CarswellBC 227 (WL Can.), affirming a decision of Weatherill J., 2016 BCSC 1803, 90 B.C.L.R. (5th) 126, 28 C.C.P.B. (2nd) 169, 401 D.L.R. (4th) 729, [2017] 1 W.W.R. 589, [2016] G.S.T.C. 90, [2016] B.C.J. No. 2061 (QL), 2016 CarswellBC 2749 (WL Can.). Appeal and cross‑appeal dismissed, Wagner C.J. dissenting in part.
Michael Taylor and Ian Demers, for the appellant/respondent on cross‑appeal the Attorney General of Canada.
Craig A. B. Ferris, Q.C., Lisa A. Peters, Q.C., Gordon Brandt and Michael Sobkin, for the respondent/appellant on cross‑appeal the British Columbia Investment Management Corporation.
Sointula Kirkpatrick and David Poore, for the respondent/respondent on cross‑appeal Her Majesty The Queen in Right of the Province of British Columbia.
Padraic Ryan and Robin K. Basu, for the intervener the Attorney General of Ontario.
Written submissions only by L. Christine Enns, Q.C., for the intervener the Attorney General of Alberta.
The judgment of Abella, Moldaver, Karakatsanis, Brown, Rowe and Martin JJ. was delivered by
[1] Karakatsanis J. — This appeal and cross-appeal consider when the activities of a provincial Crown corporation may be taxed by the federal government. It requires this Court to evaluate the scope of the intergovernmental immunity from taxation set out in s. 125 of the Constitution Act, 1867 , and whether agreements entered into by two levels of government to pay the equivalent of “taxes” may be binding on other Crown entities.
[2] In 1999, the legislature of British Columbia created the British Columbia Investment Management Corporation (BCI) to provide investment management services to the province’s public sector pension plans and other Crown entities. On its creation, BCI assumed ownership and management of the investment assets held in pooled investment Portfolios. At the same time, the legislature modernized its public sector pensions by creating a joint trusteeship structure whereby employers and employees would assume greater control over the management of pension monies. Both of these changes were intended to create a degree of separation between the government and the management of its investment funds and the public sector pensions.
[3] The Attorney General of Canada submits that these structural changes require BCI to collect and remit federal Goods and Services Tax[1] (GST) on the costs it incurs in making investments in the Portfolios on behalf of the public sector pension boards and other Crown entities. Because the investment assets are beneficially owned by private entities (the pension boards), they are not provincial “property” and are not constitutionally immune from federal taxation. Even if BCI is constitutionally immune, it must nevertheless pay GST pursuant to reciprocal taxation agreements signed by the federal and provincial governments.
[4] BCI argues that the provisions of the Excise Tax Act, R.S.C. 1985, c. E-15 (ETA ), do not capture the investment management activities it provides. As a provincial Crown agent, it claims constitutional immunity from taxation with respect to the property that it legally owns, including the investment assets. And even if the Province is bound by the agreements, BCI is not a party to the agreements and is not subject to them.
[5] The Attorney General of British Columbia largely agrees with BCI, except on the applicability of the intergovernmental agreements, taking the position that the agreements apply to BCI.
[6] Like the courts below, I have concluded that the ETA cannot apply to BCI’s activities in managing the Portfolios because it is constitutionally immune under s. 125 . The ETA cannot impose GST on property legally owned by a Crown agent. Nevertheless, I also agree that both the Province and BCI are subject to the obligations set out in the intergovernmental agreements.
[7] I would dismiss the appeal and the cross-appeal.
I. Background
[8] This matter involves a myriad of statutory and contractual relationships. I begin by summarizing the statutory framework governing BCI, the nature of the intergovernmental agreements, and the events leading up to the present appeal and cross-appeal. After reviewing the approaches taken by the courts below, I consider the three substantive issues raised by the parties.
A. General Statutory Framework and History
(1) BCI and the Pooled Investment Portfolios
[9] BCI was established in 1999 by Part 3 of the Public Sector Pension Plans Act, S.B.C. 1999, c. 44 (PSPPA).[2] BCI’s purpose is “to provide funds management services, including the making of investments and loans, for funds placed with [it]”: s. 18(2). In fulfilling this purpose, BCI receives and invests monies on behalf of various authorized entities.
[10] Prior to the enactment of the PSPPA, large sums of money, including the public sector pension fund, were held and managed by British Columbia’s Minister of Finance through the office of the chief investment officer. Beginning in 1984, s. 36 of the Financial Administration Act, S.B.C. 1981, c. 15 (FAA),[3] empowered the Minister to establish and operate “pooled investment portfolios” (Portfolios). The Portfolios’ structure allowed the Minister to combine money from a variety of sources and invest it in a diversified group of assets. Originally, money held in a Portfolio could only be invested in low-risk debt securities. But in an effort to increase the rate of return of the Portfolios, the FAA was amended in 1989 to allow investment in a variety of financial instruments, including equities, options, and futures.
[11] The operation of the Portfolios was governed by the Pooled Investment Portfolios Regulation, B.C. Reg. 84/86. The Minister was responsible for investing, managing and controlling all of the assets of the Portfolios: s. 3(2).[4] When money from a “fund” (e.g. the public sector pension fund) was placed with the Minister for investment in a Portfolio, the fund was issued units of participation in the Portfolio. Ownership of any investment assets purchased by the Minister was not attributable to any of the unit holders: s. 3(4).[5] Rather, the value of a unit of participation reflected the fund’s proportionate investment in the Portfolio: s. 4.[6] However, all of the assets of a Portfolio were “held in trust by the minister” and had to be identified separately from the other property of the government: ss. 3(1) and 3(3).[7] If the Minister decided to terminate a Portfolio, the net proceeds realized were to be distributed to the unit holders: s. 11.[8]
[12] In the early 1990s, concerns arose over potential conflicts of interest because the Minister supervised investment in companies with ties to British Columbia and made policy decisions which could affect their profitability. At the same time, the provincial and municipal governments, the province’s four public sector pension plans and the major public sector unions discussed at length how to modernize British Columbia’s pension legislation. These events culminated in the introduction of the PSPPA, which established the framework for joint trusteeship of the public sector pension plans.
[13] The purpose of joint trusteeship was to allow both pension plan members and their employers to participate in the management of the public sector pension plans. The PSPPA created infrastructure necessary to support the newly created boards of trustees of the pension plans. This included two new Crown entities: (1) the British Columbia Pension Corporation, tasked with providing administration services to the boards of trustees; and (2) BCI. BCI is a statutory agent of the government and the Minister of Finance is its only shareholder: ss. 16(5) and 17 . At the second reading of the bill, the Minister of Finance explained the PSPPA’s goals:
The second purpose of the bill is to provide an option for joint trusteeship of pension plans. Joint trusteeship is based on the premise that plan members should share in the responsibility for and control over the pension plans in which they participate. . . .
The bill provides for the possibility of transferring full responsibility for the operation of each of the public sector pension plans to a board of pension trustees, which would have equal representation from plan members and plan employers. The transfer of this responsibility will result in the pension plans being operated at arm’s length from government. . . .
. . .
An arm’s-length relationship to government is necessary, since the pension trustees must have the unfettered ability to determine the quality and timeliness of the service provided to plan members in order to carry out their responsibilities.
. . . The British Columbia Investment Management Corporation will be the successor organization to the office of the chief investment officer. It will provide investment management services to the public sector pension plans and other non-pension clients. [Emphasis added.]
(British Columbia, Official Report of Debates of the Legislative Assembly (Hansard), vol. 16, No. 25, 3rd Sess., 36th Parl., July 14, 1999, at p.14409 (Hon. J. MacPhail))
[14] With the enactment of the PSPPA, BCI assumed the investment management responsibilities which formerly belonged to the Minister. According to s. 18(4), BCI “has the same powers, functions and duties in the provision of funds management services for funds placed with it . . . as the Minister of Finance would have if the funds had been placed with that minister under Part 5 of the Financial Administration Act as it read on April 1, 1999”. As part of this transfer of responsibilities, the previously established Portfolios were continued under the PSPPA: s. 18.1. The unit holders continued to hold the same units as they did before and all assets of a Portfolio previously held by the Minister continued to be held by BCI. Under the updated Pooled Investment Portfolios Regulation, B.C. Reg. 447/99 (Regulation), the Portfolios operate in substantially the same manner as when the Minister managed them.
[15] In 2013, BCI was the fourth largest pension fund manager in Canada, managing $102.8 billion in gross assets for 39 institutional clients. A significant portion of these funds are managed on behalf of British Columbia’s four public sector pension plans. BCI uses two different structures to manage the assets placed with it for investment. Investments are either held in the Portfolios or as segregated funds, separate and apart from the assets of the Portfolios. Only the Portfolios are at issue in this appeal.
[16] Section 20(2)(d) of the PSPPA requires BCI’s board of directors to “have in place an equitable fee system based on the user pay principle”. Section 24(1) stipulates that BCI must recover its operating costs from one of three sources:
(a) amounts charged to the funds for operating costs and capital expenditures necessarily incurred by the investment management corporation on behalf of the funds it manages;
(b) amounts charged to persons, organizations and other clients for services provided by the investment management corporation;
(c) income accruing f