County of Lethbridge v. The Queen

County of Lethbridge v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2006-02-14
Neutral citation
2005 TCC 809
File numbers
2004-1974(GST)G
Judges and Taxing Officers
Ronald D. Bell
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2004-1974(GST)G
BETWEEN:
COUNTY OF LETHBRIDGE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
_______________________________________________________________
Hearing held on April 19, 2005, at Calgary, Alberta.
Before: The Honourable Justice R.D. Bell
Appearances:
Counsel for the Appellants:
Michel Bourque
Curtis Stewart
Counsel for the Respondent:
Julie Rogers-Glabush
JUDGMENT
The Appellant, having, with the County of Two Hills No. 21 and the Municipal District of Spirit River No. 133, presented questions of law to be determined under section 58 of the Tax Court of Canada Rules (General Procedure), namely:
a. whether, in the context of each grant program, the Appellants have made a supply to the Province of Alberta;
b. whether the grant funding is consideration for that supply,
are determined as follows:
1. With respect to (a), the Appellant made a "supply" as defined in section 123 of the Excise Tax Act, Part IX ("Act"), to the Province of Alberta, respecting all seven programs, as described in the Reasons for Judgment.
2. With respect to (b), the amounts paid to the Appellant by the Province of Alberta (described in (b) as "grant funding"), constituted consideration as defined in section 123 of the Act, for the supply under programs 2, 3, 4 and 6, as described in the Reasons for Judgment.
Signed at Ottawa, Ontario, this 14th day of February, 2006.
"R.D. Bell"
Bell, J.
Docket: 2004-600(GST)G
BETWEEN:
MUNICIPAL DISTRICT OF SPIRIT RIVER NO. 133,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
_______________________________________________________________
Hearing held on April 19, 2005, at Calgary, Alberta.
Before: The Honourable Justice R.D. Bell
Appearances:
Counsel for the Appellants:
Michel Bourque
Curtis Stewart
Counsel for the Respondent:
Julie Rogers-Glabush
______________________________________________________________
JUDGMENT
The Appellant, having, with the County of Two Hills No. 21 and the County of Lethbridge, presented questions of law to be determined under section 58 of the Tax Court of Canada Rules (General Procedure), namely:
a. whether, in the context of each grant program, the Appellants have made a supply to the Province of Alberta;
b. whether the grant funding is consideration for that supply,
are determined as follows:
1. With respect to (a), the Appellant made a "supply" as defined in section 123 of the Excise Tax Act, Part IX ("Act"), to the Province of Alberta, respecting all seven programs, as described in the Reasons for Judgment.
2. With respect to (b), the amounts paid to the Appellant by the Province of Alberta (described in (b) as "grant funding"), constituted consideration as defined in section 123 of the Act, for the supply under programs 2, 4 and 6, as described in the Reasons for Judgment.
Signed at Ottawa, Ontario, this 14th day of February, 2006.
"R.D. Bell"
Bell, J.
Docket: 2004-1606(GST)G
BETWEEN:
COUNTY OF TWO HILLS NO. 21,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
_______________________________________________________________
Hearing held on April 19, 2005, at Calgary, Alberta.
Before: The Honourable Justice R.D. Bell
Appearances:
Counsel for the Appellants:
Michel Bourque
Curtis Stewart
Counsel for the Respondent:
Julie Rogers-Glabush
______________________________________________________________
JUDGMENT
The Appellant, having, with the County of Lethbridge and the Municipal District of Spirit River No. 133, presented questions of law to be determined under section 58 of the Tax Court of Canada Rules(General Procedure), namely:
a. whether, in the context of each grant program, the Appellants have made a supply to the Province of Alberta;
b. whether the grant funding is consideration for that supply,
are determined as follows:
1. With respect to (a), the Appellant made a "supply" as defined in section 123 of the Excise Tax Act, Part IX ("Act"), to the Province of Alberta, respecting all seven programs, as described in the Reasons for Judgment.
2. With respect to (b), the amounts paid to the Appellant by the Province of Alberta (described in (b) as "grant funding"), constituted consideration as defined in section 123 of the Act, for the supply under programs 1, 2, 3, 4 and 6, as described in the Reasons for Judgment.
Signed at Ottawa, Ontario, this 14th day of February, 2006.
"R.D. Bell"
Bell, J.
Citation: 2005TCC809
Date: 20060214
Docket: 2004-1974(GST)G
BETWEEN:
COUNTY OF LETHBRIDGE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AND BETWEEN:
2004-600(GST)G
MUNICIPAL DISTRICT OF SPIRIT RIVER NO. 133,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AND BETWEEN:
2004-1606(GST)G
COUNTY OF TWO HILLS NO. 21,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR DETERMINATION OF A QUESTION OF LAW UNDER SECTION 58 OF THE TAX COURT OF CANADA RULES
(GENERAL PROCEDURE)
Bell, J.
[1] The parties jointly applied to the Tax Court of Canada for the determination of a question of law under section 58 of the Tax Court of Canada Rules (General Procedure) ("Rules").
QUESTIONS
[2] The questions of law to be determined relate to three Appellants as follows:
1. Countyof Lethbridge ("Lethbridge") for the period from April 1, 2001 to June 30, 2001.
2. County of Two Hills No. 21 ("Two Hills") for the period from July 1, 2001 to September 30, 2001; and
3. The Municipal District of Spirit River No. 133 ("SpiritRiver") for the period from July 1, 2001 to September 30, 2001.
Those questions, as set forth in an application made jointly by the Appellants and the Respondent, are as follows:
a. whether, in the context of each grant program, the Appellants have made a supply to the Province of Alberta;
b. whether the grant funding is consideration for that supply.
[3] The parties filed an Agreed Statement of Facts ("ASF"), consisting of 150 paragraphs together with 114 documents relating to seven different programs. This ASF will not be reproduced here. Instead, I shall extract therefrom the facts relative to those programs, the names of which and participants in which are:
1. Streets Improvement Program
Two Hills
2. Rural Road Study Initiative Sponsorship Program
Two Hills
SpiritRiver
Lethbridge
3. Secondary Highways Partnership Program
Two Hills
Lethbridge
4. Rural Transportation Grant Program
Two Hills
Spirit River
Lethbridge
5. Canada-Alberta Infrastructure Program
SpiritRiver
6. Resource Road/New Industry Program
Two Hills
Spirit River
Lethbridge
7. Bridge/Culvert Agreements Program
Two Hills
SpiritRiver
Lethbridge
GENERAL
[4] The parties have agreed in the ASF that:
For the purposes of the application under Rule 58, all figures regarding the amount of expenditures and input tax credits being claimed are best estimates only.
These Reasons for Judgment will deal with the two questions of law in issue. The question, under each appeal, as to whether an Appellant is entitled to input tax credits ("ITC's") will be resolved, either by consent or by a subsequent hearing before this Court.
[5] Paragraph 4 of the jointly submitted application for the Rule 58(1)(a) determination reads as follows:
If the judgment on the application under Rule 58(1)(a) holds that there is no supply and that the grant funding was not consideration for a supply then, subject to an appeal, this will end the matter. However, if the Tax Court determines that there is a supply and that the grant funding is consideration for that supply, then, subject to an appeal, it may be necessary to have a trial to deal with whether the supply is exempt on the basis that the supply was an exempt supply of maintenance or repairs. This latter issue would likely not proceed under Rule 58(1)(a).
[6] The relevant terms are defined in section 123 of the Excise Tax Act, Part IX, respecting Goods and Services Tax ("Act"), namely:
"consideration"includes any amount that is payable for a supply by operation of law;
"supply" means, subject to sections 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition;
[7] Section 169(1) of the Act reads, in part, as follows:
Subject to this Part, where a person acquires ... property or a service ... and ... tax in respect of the supply ... becomes payable by the person ... the amount determined by ...
a prescribed formula is an input tax credit of the person in respect of the property or service for the period. The important part of that formula reads as follows:
(c) in any other case, 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
multiplied by the amount of tax payable or paid (as described in that section).
[8] Appellant's counsel made a very well organized presentation of documents. However, his written submission, from which he strayed during oral submissions, was too general. Respondent's submissions, as did those of the Appellants, failed to analyze the many documents that should have been carefully examined in preparation for the hearing. I reviewed all such documents in detail and divided them into seven segments, each of which relate to a given program. I shall deal with those seven programs seriatim by referring to all the participants in each such program. I shall include, after a description of each program, a brief analysis and conclusion as to whether there is, in such program, an amount payable by the Province to an Appellant. I shall discuss whether there was "consideration" for a "supply" under GENERAL ANALYSIS AND CONCLUSIONS.
1. Streets Improvement Program
[9] The ASF states:
7. Two Hills entered into a Memorandum of Agreement with Alberta Infrastructure under the Streets Improvement Program on June 6, 2000. Attached at Tab 1 and forming part of this Agreed Statement of Facts is a copy of the Memorandum of Agreement.
8. Two Hills was required to provide a listing of proposed work for the upcoming and/or future years to Alberta Infrastructure. Approved projects were eligible for 75% provincial funding for all cost sharable construction and engineering costs up to the maximum grant available. Two Hills provided a Statement of Funding and Expenditures for the calendar year on/or before March 31 the following year.
9. The purpose of the grant under the Streets Improvement Program was to fund a specific program for the benefit of the general public. The Streets Improvement Program commenced on April 1, 2000 and Two Hills was not required to submit an application form. Two Hills was required to indicate to Alberta Infrastructure the projects that were going to be completed with the funds by way of a letter attached at Tab 2 and forming part of this Agreed Statement of Facts.
10. Two Hills made expenditures in the amount of $213,224.22 in respect of completed activities undertaken under the Streets Improvement Program as shown on the Final Agreement Payment Claim Form attached at tab 3 and forming part of this Agreed Statement of Facts. Two Hills is claiming input tax credits (net of the Public-Sector Body ("PSB") rebate) of $5,978.26 under the Act in respect of activities undertaken under the Streets Improvement Program.
[10] The only Appellant involved in this program is Two Hills. It entered into a Memorandum of Agreement as of June 6, 2000, with Her Majesty The Queen in right of the Province of Alberta[1], represented by the Minister of Infrastructure. One recital provides that:
WHEREAS, the Minister desires to conditionally grant to [Two Hills], funds necessary for projects approved under the [Streets Improvement Program] upon the terms and conditions herein; ...
Another recital provides that:
... the Minister has agreed to conditionally advance such funds, as approved annually, to [Two Hills] upon ...
legislature approval of the program budget in the Province's annual budget. The agreement provides that Two Hills agrees to accept the funds granted by the Minister on a number of terms and conditions, the relevant ones being:
1. Two Hills to provide annually to the Minister a listing of proposed work for the year or a proposed future program, consistent with the Streets Improvement Program guidelines for eligible projects.
2. Two Hills to maintain a separate accounting for the funds received, with interest thereon to be applied to reduce the total cost of projects.
3. Two Hills to provide to the Minister an annual Statement of Funding and Expenditures, including a summary of grant funds received and a summary report of the details of the work approved and completed in the calendar year.
4. Two Hills to carry out the work in accordance with a described standard and to allow the Minister access to the project site and documents relating thereto.
The agreement also provides that the parties give the agreement a fair and liberal interpretation.
[11] Two Hills completed the work on projects "eligible to receive funding" under the program and submitted a Final Agreement Payment Claim Form dated September 6, 2001, in respect of the work completed on October 24, 2000. That document showed a total invoice of $213,224.17 from which the sum of $14,925.65 as GST was deducted, showing costs of $198,298.52.
Analysis and Conclusion
[12] The aforesaid agreement provided that the Province had agreed "to conditionally advance such funds" as were approved annually to Two Hills. Two Hills agreed to carry out the work in accordance with the described standard subject to certain conditions. It completed that work and submitted a Final Agreement Payment Claim Form describing its Total Invoice, which was obviously paid. In the full context of the agreement, the aforesaid sum was payable by the Province to Two Hills under that agreement.
2. Rural Roads Study Initiative Sponsorship Program
[13] The following two paragraphs of the ASF are applicable to each of the three Appellants herein:
21. The objective of the Rural Roads Study Initiative Sponsorship Program funding was to provide assistance to municipalities to prepare an inventory study of the rural municipalities' local roads, including its bridges in the municipality. Attached at tab 20 and forming part of this Agreed Statement of Facts are Alberta Municipal Affairs' Rural Roads Study Guidelines.
22. Under the Rural Roads Study Guidelines, the inventory study had to be conducted by a professional engineer and the municipality was required to submit an engineer's certification form by August 15, 2000. A copy of the completed Rural Roads Study Report had to be provided to Alberta Municipal Affairs by May 1, 2001. An Acknowledgement of Compliance Form certifying that the grant funding was used in accordance with the terms of the program was submitted to Alberta Municipal Affairs by the municipalities. The report is used by Alberta Infrastructure to decide on applications for grants. It is also used by municipalities to set priorities for projects.
[14] The general grant conditions contained in the Rural Road Study Guidelines provide that the grant application must be received by the Province by March 15, 2000, that none of the funds could be used to pay for work carried out before the Conditional Grant Agreement was signed by the Minister and that the work must be completed by March 31, 2001. Specifically,
The municipality must be prepared to enter into a Conditional Grant Agreement with the Province if the application is approved. The terms of the agreement will include the use of the grant for approved purposes only, the eligibility, reporting, accountability requirements, Minister's right to audit any project, and the Minister's right to require a refund of any grant funds not used in accordance with the agreement. Failure to comply with this agreement may result in the municipality having to repay the Grant.
The municipality must cover any additional cost if the project cost exceeds the grant amount.
Two Hills
[15] The ASF continues with paragraph 23 which reads:
23. Attached at tab 21 and forming part of this Agreed Statement of Facts is a letter from the Minister of Municipal Affairs to Two Hills advising that Two Hills was eligible for a grant of $40,000 under the Rural Roads Study Initiative. Attached at tab 22 and forming part of this Agreed Statement of Facts is a letter dated March 2, 2000 from Alberta Municipal Affairs advising that the Province of Alberta granted $40,000 to Two Hills under the Rural Roads Study Initiative. Two Hills has not been able to locate a copy of the signed conditional grant agreement.
[16] Paragraphs 24 and 25 of the ASF state that Two Hills engaged a contractor, and paid $40,270.55 to that contractor under this program in respect of which ITC's of $1,208.12 (net of the PSB rebate) are being claimed.
SpiritRiver
[17] The following paragraphs from the ASF are pertinent:
70. Spirit River made the application under the Rural Roads Study Sponsorship Initiative by way of the application form attached at tab 53 and forming part of this Agreed Statement of Facts. The conditional grant agreement made between Her Majesty The Queen in right of Alberta and Spirit River forms part of the application form.
71. Attached at tab 54 and forming part of this Agreed Statement of Facts is a letter from Alberta Municipal Affairs dated March 2, 2000 advising that the Province of Alberta granted $40,000 to Spirit River under the Road Study Initiative.
[18] Paragraphs 72 and 73 of the ASF provide that SpiritRiver engaged a contractor to complete the work and "made expenditures of $39,824.62 during the period in issue" and took the position that it was entitled to ITC's of $1,194.74 (net of the PSB rebate).
[19] Tab 53 includes the Rural Road Study Initiative Grant Application and Conditional Grant Agreement between the Province and SpiritRiver. The agreement recites that the Province had approved Spirit River's application and agreed to make a conditional grant to the municipality. The agreement then provides that the Province shall, subject to the provisions of the agreement, pay SpiritRiver a grant amount of $40,000 in order to carry out the specified work. It provides that the grant to the municipality would be made by lump sum payment within two weeks of the agreement being signed by the Minister. Spirit River agreed to carry out the work without material alteration, to hire a professional engineer to carry out the project, to complete it by March 31, 2001, to use the entire amount for the purpose of carrying out the project, to submit a copy of the professional engineer's report by May 1, 2001, et cetera. The agreement was signed in February, 2000.
Lethbridge
[20] The following paragraphs are quoted from the ASF:
137. Attached at tab 108 and forming part of this Agreed Statement of Facts is a letter from Alberta Infrastructure to Lethbridge advising that Lethbridge's grant of $9,999.17 under the Rural Roads Study Initiative was being processed.
138. Lethbridge made expenditures in the amount of $9,767.77 under the Rural Roads Study Initiative Sponsorship program and is claiming input tax credits of $293.03 (net of the PSB rebate).
[21] Tab 108 includes Rural Road Study Initiative Guidelines, the same as those in respect of Two Hills, and a Conditional Grant Agreement identical to that of Spirit River.
Analysis and Conclusion
[22] Although a signed Conditional Grant Agreement was not produced for Two Hills, it can be assumed that it was in the form described in the Guidelines. As set out above, those Guidelines stated that a municipality must be prepared to enter into a Conditional Grant Agreement with the Province if the application is approved. Copies of such an agreement for each of SpiritRiver and Lethbridge were produced.
[23] As described in the above Conditional Grant Agreement the amount paid by the Province to SpiritRiver was payable under this agreement upon SpiritRiver having fulfilled its contractual conditions. This conclusion applies also to Two Hills and Lethbridge.
3. Secondary Highways Partnership Program
[24] There are four agreements, one for Two Hills and three for Lethbridge, all with the Province under this Program. The Two Hills agreement and the Lethbridgeagreement at tab 107 are described as a Memorandum of Agreement between Alberta Infrastructure and County of Two Hills No. 21 and a Memorandum of Agreement between Alberta Infrastructure and County of Lethbridge No. 26. Each of those two agreements bears this endorsement on the cover page, namely:
Transition period before the Province assumes direction, control and management of all secondary roads in the municipality.
[25] With respect to the Two Hills and Lethbridgeagreements, the ASF informs us that:
26. Prior to April 1, 2000, secondary highways in the Province of Alberta were under the direction, control, and the management of the municipalities. Effective April 1, 2000 the Province of Alberta assumed direction, control and management of all secondary roads within municipalities in the Province. Effective April 1, 2000 the Province assumed financial responsibility for all secondary highways in the Province, including maintenance and construction. Until such time as the Province was able to coordinate the actual delivery of maintenance activities, the Province made transition payments to the municipalities. Transition payments were paid at a per kilometer rate varying from $3,000 per kilometer per year to $10,000 per kilometer per year depending on the width of the road.
27. The Province of Alberta and Two Hills entered into a memorandum of agreement for the transition period before the Province assumed direction, control and the management of all secondary roads in Two Hills. Attached at tab 24 and forming part of this Agreed Statement of Facts is the Memorandum of Agreement between Alberta Infrastructure and Two Hills for Transition Period before the Province Assumes Direction, Control and Management of all Secondary Roads in the Municipality, February 11, 2000.
(emphasis added)
28. Two Hills made expenditures in the amount of $45,350.72 under the Secondary Highways Transition Agreement in respect of which input tax credits (net of the PSB rebate) of $1,853.44 were claimed. Two Hills' position now is that it is only entitled to input tax credits of $1,271.60.
[26] Respecting the aforesaid Lethbridgeagreement, paragraphs 134 and 135 of the ASF read as follows:
134. The Province of Alberta and Lethbridge entered into a memorandum of agreement for the transition period before the Province assumed direction, control and the management of all secondary roads in Lethbridge. Attached at tab 107 and forming part of this Agreed Statement of Facts is the Memorandum of Agreement between Alberta Infrastructure and Lethbridge for Transition Period before the Province Assumes Direction, Control and Management of all Secondary Roads in the Municipality, February 11, 2000.
(emphasis added)
135. Lethbridge made expenditures in the amount of $477,254.06 under the Secondary Highways Transition Agreement in respect of which input tax credits of $14,412 were claimed (net of the PSB rebate). Lethbridge now takes the position that it is only entitled to claim input tax credits of $14, 317.62 (net of the PSB rebate).
[27] The relevant wording of the aforesaid two agreements follows:
3. The Municipality shall maintain and continue the current level of maintenance and management practices, including, without limitation, the maintenance of road surface, bridge structures rights-of-way, traffic control devices, and lighting facilities, provision of first response emergency service, policing and enforcement, and management of roadside development, access and speed limits, for all secondary roads within its boundaries during the Transition Period.
4. ... the Minister shall pay the Municipality an equivalent amount of $3,100 per year per kilometre of secondary roads in the Municipality, as full compensation for the administration and provision of the said services. The said amount also includes a fee for administrative services provided to the Minister by the Municipality.
(emphasis added)
A clause in each of those agreements provides that the actual adjusted payment amount and payment schedule are shown in Schedule "A" attached to the agreement. The schedule in respect of the Two Hills agreement shows:
Total Owing from Alberta Infrastructure: $1,011,685
and
Total Paid by Alberta Infrastructure: $1,011,685
A similar schedule appears in the Lethbridgeagreement showing a "Total payable by Alberta Infrastructure" of $1,304,420 and the same amount is described as "Total paid by Alberta Infrastructure."
[28] In the Lethbridgeagreement dated June 17, 1997, between Alberta Transportation and Utilities and Lethbridge respecting Secondary Highway 520, the ASF says:
127. Attached at tab 102 and forming part of this Agreed Statement of Facts is the Memorandum of Agreement dated June 17, 1997 between Alberta Transportation and Utilities and Lethbridge in respect of the construction of Secondary Highway 520-06 ...
128. Attached at tab 103 and forming part of this Agreed Statement of Facts is correspondence dated January 28, 1999 from Lethbridge to Alberta Transportation and Utilities enclosing project completion reports in respect of the grading construction of 3.93 kilometers of Secondary Highway 520.
129. Attached at tab 104 and forming part of this Agreed Statement of Facts is correspondence dated October 26, 1999 from Lethbridge to Alberta Transportation and Utilities enclosing project completion reports in respect of the grading construction of 4.86 kilometers of Secondary Highway 520.
[29] Portions of that agreement read as follows:
Ownership of the said Secondary Highway520 is vested in the Crown in right of Alberta; and
Under Section 12 of the Public Highways Development Act, the Minister may enter into an agreement with a rural municipality for the construction of secondary highways within its boundaries; ...
In consideration of the terms and conditions specified in this document the parties agree as follows:
1. The Municipality shall undertake the construction of Regrading Secondary Highway520 ... in accordance with the detailed plans and specifications as approved by the Minister.
2. The Parties agree that the project is estimated to cost FIVE HUNDRED EIGHTY FOUR THOUSAND DOLLARS ($584,000.00), as shown in the Schedule of Costs, ... attached to this document and forming part of this Agreement: and that the Municipality will receive credit for this project towards the Secondary Highways Partnership Program.
...
8. The Parties agree to give this Agreement a fair and liberal interpretation and to negotiate with fairness and candour, any modification or alteration that may be rendered necessary by changing conditions.
[30] The agreement further provides that the Minister had the right to inspect the work and records of the municipality and that the municipality would use competent engineering consultants and, among other similar covenants, complete the work by a specified date.
[31] A letter dated February 10, 1997 from Lethbridgeto the Province states that:
... the County will be requesting credit for those costs incurred outside the contribution of the Alberta Government to that program.
[33] A letter of February 2, 1999 to Lethbridgefrom the Province reads, in part:
Approval to grant credit for regrading completed in 1998 and the county's offer to fund additional regrading in 1999 will require an amendment to Agreement PMB 022/97.
Please sign and return the attached amendment to this office. Following execution of this amendment the County will receive a credit of $80,000 per kilometre for the 3.9 kilometres completed in 1998. A contribution of $314,400 will be shown on the Secondary Highway Partnership Program Investment Ledger for 1998.
Attached to that was an amendment to the former agreement increasing the estimated cost to $729,600.00. It reads, in part:
... that the Municipality will receive credit for this project towards the Secondary Highways Partnership Program.
[34] Copy of a letter found in the Book of Exhibits dated January 28, 1999to the Province from Lethbridgereads, in part, as follows:
The County of Lethbridge, with engineering assistance from Torchinsky Engineering Ltd., completed the grading construction on 3.93 kms. of S.H. 520:06. Torchinsky Engineering reports are enclosed.
The construction was done utilizing County labour and equipment. Credit for the work based on your standard formula would be greatly appreciated.
Thank you for your continued assistance in this important aspect of the County's transportation infrastructure.
[35] A letter from Torchinsky Engineering Ltd. dated January 18, 1999 to Lethbridgeincludes the following paragraph:
Please find enclosed two copies of the project shut down report for S.H. 520:06, 1998 construction. Forward one copy to Alberta Transportation and Utilities as they require this information to apply credit on the Secondary Highway Partnership Program, the other copy is for your files.
[36] The ASF with respect to the Lethbridgeagreement dated August 28, 1998 reads as follows:
127. Attached at tab 105 and forming part of this Agreed Statement of Facts is the Memorandum of Agreement dated August 28, 1998 between Alberta Transportation and Utilities and Lethbridge in respect of the construction of Secondary Highway 843:02 from south of Picture Butte to south the south Town limits of Picture Butte, a distance of 1.90 kilometers.
128. Attached at tab 106 and forming part of this Agreed Statement of Facts is correspondence dated January 26, 1999 from Lethbridge to Alberta Transportation & Utilities enclosing the final report on the construction of Secondary Highway 843.
[37] The above agreement contains the same terms as the June 17, 1997 Lethbridgeagreement respecting section 12 of the Public Highways Development Act and the municipality's undertaking to construct upon written approval from the Minister. Then, clause 3 of the agreement reads:
The Minister agrees to pay the cost incurred by the Municipality for this work to a maximum of TWO HUNDRED TEN THOUSAND FOUR HUNDRED ELEVEN DOLLARS ($210,411.00) as shown in the Schedule of Costs, ... attached to this document and forming part of this Agreement. ...
The rest of the agreement includes standard clauses respecting the Minister's right of inspection and the municipality's proper use of engineering consultants, et cetera.
[38] A letter dated March 12, 1998 from the Province to Lethbridge(written months before the agreement was signed) reads, in part, as follows:
I am pleased to advise your council that government funding will be provided under the Secondary Highway Partnership Program for the paving of Secondary Highway 843 from south of Picture Butte to Picture Butte.
(emphasis added)
[39] The Book of Exhibits includes a letter of January 26, 1999 from Lethbridgeto the Province enclosing Invoice #9801 in the amount of $287,934.13. The ASF contains a summary reading as follows:
132. Lethbridge made expenditures in the amount of $391,182.76 under the Secondary Highways Partnership Program. Lethbridge originally claimed input tax credits in respect of this program under the Resource Road/New Industry Program and Resource Roads Improvement Program. Lethbridge now takes the position that it is entitled to input tax credits of $11,446.94 (net of the PSB rebate) under this program.[2]
Analysis and Conclusion
[40] Respondent's counsel, by written submission, stated:
With respect to the Secondary Highways Transition Agreement funding, the Respondent accepts that the grant funding was consideration for a supply. In April 2000, the Province took over direction, control and management of secondary highways. The Province also assumed financial responsibility for secondary highways. Therefore, when the municipalities carried out road projects, they were doing it for the Province's benefit. The Province received something in return for the transfer payments.
(emphasis added)
[41] With respect to the June 17, 1997 Lethbridge agreement, the agreement is clear that in consideration of the terms and conditions specified in the agreement, Lethbridgewould:
... undertake the construction of Regrading Secondary Highway520 ... in accordance with the detailed plans and specifications as approved by the Minister.
It also provides that:
The Parties agree that the project is estimated to cost FIVE HUNDRED EIGHTY FOUR THOUSAND DOLLARS ($584,000.00), as shown in the Schedule of Costs, ... attached to this document and forming part of this Agreement: and that the Municipality will receive credit for this project towards the Secondary Highways Partnership Program.
(emphasis added)
The same wording applied to an amending agreement. The amount set out therein was payable by the Province to Lethbridge.
[42] Respecting the August 28, 1998 Lethbridge agreement, the Province expressly agrees to pay the cost incurred by the municipality for specified work to a maximum amount as shown on the Schedule of Costs attached to and forming part of that agreement.
[43] The June 17, 1997 and August 28, 1998 Lethbridgeagreements resulted in amounts being payable by the Province to Lethbridge.
4. Rural Transportation Grant Program
[44] There are ten agreements respecting this program. Seven of these are virtually identical and the other different group of three are virtually identical. Accordingly, I will set forth comments on a representative agreement with respect to each of those groups. Before referring to those agreements, the ASF sets forth the following material respecting this program:
30. The Rural Transportation Grant Program ("RTG") allows municipalities to increase the safety of their local infrastructures for the traveling public. The objective of the RTG is to assist municipalities by providing grants for improvement to their local road systems. Under this program, the municipalities were required to provide to Alberta Infrastructure, for its review and approval, a listing of proposed work for the upcoming year, generally on or before April 1 of the upcoming year. Upon review of the listing of proposed work, Alberta Infrastructure advised the municipality of the grant allocation. The grant allocation was based on a formula incorporating population, kilometers of open road and equalized assessment and terrain of roads. Municipalities provided a Statement of Expenditure to the Province of Albertaat the end of each year. The grant funding only paid for a portion of the project costs. The remainder of the costs were paid for with municipal tax funding. Alberta Transportation provides an overview of the Program on its website. Attached at tab 25 and forming part of this Agreed Statement of Facts is the program description for 2004-5. For purposes of this appeal, the parties agree that, even though the attached program description is for 2004-5, there are no material differences in the program description in respect of the periods in issue.
Two Hills
31. Two Hills and the Province of Alberta entered into a number of agreements regarding the RTG in respect of the period in issue. Attached at tabs 26, 27 and 28 and forming part of this Agreed Statement of Facts are the Memorandum of Agreement for Payment of Rural Transportation Grant between Her Majesty the Queen and Two Hills, dated May 12, 1997; the Memorandum of Agreement for Payment of Rural Transportation Grant between Her Majesty the Queen and Two Hills, dated February 23, 1998; and the Memorandum of Agreement between Alberta Transportation and Utilities and Two Hills for the Rural Transportation Grant, dated May 6, 1999.
44. Two Hills made expenditures during the period in issue in respect of the RTG in the amount of $2,887,707.64 in respect of which input tax credits of $106,627.06 were claimed (net of the PSB rebate). Two Hills now takes the position that it is only entitled to input tax credits of $80,824.07.
1997/1998 Fiscal Year
[45] In addition to the material quoted above I shall set forth a summary of other documents concerning Two Hills. A letter of April 14, 1997from the Province to Two Hills says, in part:
I am pleased to advise that the 1997/1998 Rural Transportation Grant allocation to the County of Two Hills No. 21 will be $367,117.
As in past years, once you have identified your projects and signed the trust agreement, an initial advance of 50 percent of the total allocation will be forwarded. Upon completion of your projects and the submission of a summary statement of costs to me, the remainder of the grant allocation will be processed.
Please execute both copies of the attached trust agreement and return them to me, along with the list of projects you intend to proceed with this year.
[46] A letter of May 7, 1997 to Rob Penny, the author of the above letter, apparently in response thereto, from Two Hills, reads:
Enclosed are two (2) signed Memorandum of Agreements for the 1997/98 Rural Transportation Grant.
It also includes a list of projects approved by Two Hills to be undertaken by it.
[47] A letter of May 12, 1997from Rob Penny encloses Two Hills' copy of the "finalized Rural Transportation Grant agreement." It also states that the sum of $183,559 was currently being processed by the Province for Two Hills. It was described as representing a fifty percent trust advance of the 1997/98 Rural Transportation Grant. The letter advises Two Hills, upon completion of the specified work, to forward a certified statement of costs to the Province:
... in order that the balance of the grant may be processed for payment.
[48] A letter of January 22, 1998 from Two Hills to the Province sets forth the construction cost and gravel cost of projects, copies of engineering invoices, copies of invoices for dust control oil and truck haul and total cost of trucks and cost of gravel. The total of these components is $1,640,060. The letter ends with the following paragraph:
Your early and favorable [sic] consideration provided to this claim is hereby acknowledged.
1998/1999 Fiscal Year
[49] A letter dated February 13, 1998 to Two Hills from the Province, reads in part as follows:
I am pleased to advise that the 1998/99 regular Rural Transportation Grant (RTG) allocation to the County of Two Hills No. 21 will be $367,117.00.
As in past years, an initial advance of 50 percent of the total RTG allocation will be forwarded early in the year. Upon completion of your projects and the submission of a summary statement of costs to my attention, the remainder of the grant allocation will be processed.
I am also pleased to advise that the Government of Alberta will be providing supplementary funding of $533,504.00 to assist with transportation infrastructure, within your municipality and will be advanced early in the year. This one-time-only financial assistance is intended to provide additional support for your roadway infrastructure, recognizing the increase of heavy traffic on municipal roads. This supplementary funding is subject to the same reporting/eligibility criteria as the regular RTG allocation.
The letter then asks Two Hills to execute both copies of the attached trust agreement and return them to Rob Penny, the author of the letter.
[50] A letter of February 17, 1998 from Two Hills to the Province, to the attention of Rob Penny, encloses two signed Memorandum of Agreements for the 1998/99 Rural Transportation Grant. It then outlines the projects to be undertaken in 1998, "with fund utilization from the grant in question". It states that on completion of all such projects Two Hills would submit a final statement of costs to the Province. It also states that Two Hills looks for