University of Calgary v. The Queen

University of Calgary v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2015-12-11
Neutral citation
2015 TCC 321
File numbers
2013-3473(GST)G
Judges and Taxing Officers
Steven K. D'Arcy
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2013-3473(GST)G
BETWEEN:
UNIVERSITY OF CALGARY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeals heard on October 29 and 30, 2014, at Calgary, Alberta. Submissions received from the Respondent on April 2, 2015 and from the Appellant on April 6, 2015.
Before: The Honourable Justice Steven K. D'Arcy
Appearances:
Counsel for the Appellant:
Justin Kutyan
Carla Hanneman
Counsel for the Respondent:
Ronald MacPhee
Jack Warren
JUDGMENT
The appeals from the reassessments made under the Excise Tax Act and dated September 30, 2011, January 24, 2012, February 2, 2012 and April 20, 2012 are allowed with costs. The reassessments are referred back to the Minister for reconsideration and reassessment on the basis that, during the relevant periods, the Appellant used the property identified as Plan 1935JK to the extent of 81.2% in its commercial activities, the property identified as Plan 859JK to the extent of 41.33% in its commercial activities and the property identified as Plan 9410341 to the extent of 25.86% in its commercial activities. The parties have thirty days from the date of this judgment to make representations with respect to the amount of costs that the Court should award to the Appellant. If no submissions are received, costs shall be awarded to the Appellant as set out in the Tariff.
Signed at Ottawa, Canada, this 11th day of December 2015.
“S. D’Arcy”
D'Arcy J.
Citation: 2015 TCC 321
Date: 2015 12 11
Docket: 2013-3473(GST)G
BETWEEN:
UNIVERSITY OF CALGARY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
D'Arcy J.
I. Issue [1] The issue in these appeals is the extent to which the Appellant acquired and subsequently used certain of its land in its GST commercial activities.[1] This issue requires the Court to address the application of the general input tax credit rule in subsection 169(1), the “fair and reasonable” rule in subsection 141.01(5), and the input tax credit apportionment rules in subsections 141.01(2) and (3) of the GST Act.
II. Interrelationship with the University of Alberta’s Appeals [2] These appeals and appeals by the University of Alberta[2] were scheduled to be heard over the same three-day period. The appeals of both Appellants raise the same issue.
[3] Counsel for the Appellant suggested, at the commencement of the hearing of the appeals, that the Court hear the appeals of the University of Calgary on common evidence with the appeals of the University of Alberta. However, he asked that the Court issue two separate judgments.
[4] Counsel for the Respondent was willing, for efficiency purposes, to proceed in such a manner but had some concerns since each Appellant would be presenting different facts to support its claim for input tax credits.
[5] I was not willing to follow counsel for the Appellant’s suggestion for the simple reason that the evidence was not common to both parties. Although the Appellants carried on very similar, if not identical businesses, they engaged in different activities in the course of their respective businesses. These activities determine their entitlement to input tax credits.
[6] However, I did recognize that the two Appellants used very similar methodologies to determine their entitlement to input tax credits. In addition, counsel for the Appellant informed the Court that, while there was no evidence that was common to both appellants, there was “quite a bit of parallel in the evidence”.
[7] As a result, the appeals of both Appellants proceeded as follows:
- The Court called the University of Calgary appeals and both parties presented their evidence.
- The Court adjourned these appeals.
- The Court called the University of Alberta appeals and both parties presented their evidence.
- The Court called the appeals of both Appellants, allowing the parties to present a single argument for the appeals of both Appellants.
III. Summary of Facts [8] I heard from two witnesses. Mr. Bradley Klaiber testified on behalf of the Appellant and Mr. Robert Kinzner testified on behalf of the Respondent.
[9] Mr. Klaiber, a chartered accountant, is the Director of Financial Reporting for the Appellant. Mr. Kinzner, a certified management accountant, is a CRA auditor.
[10] I found both witnesses to be credible. However, as I will discuss, I do not accept Mr. Kinzner’s application of subsections 141.01(2) and (3).
[11] The University of Calgary is a public research university located in Calgary, Alberta, with 31,500 students and 4,800 faculty and staff. Founded in 1966, the university has 14 faculties and more than 85 research institutes and centres.[3]
[12] The Appellant owns several parcels of real property in Calgary, which collectively constitute its land and premises.[4] Mr. Klaiber described the main campus of the university as follows: “It’s sort of like a mini city . . . within Calgary where a number of people come to live, work, study, complete research.”[5]
[13] Notwithstanding that the campus is predominantly used for educational purposes, the University of Calgary also provides various commercial and non‑educational services to students, staff and the public.[6]
[14] The parties note the following in the PASF I at paragraph 2,
At all relevant times, the University of Calgary was a “registrant”, a “public service body” and a “public institution” as defined in subsection 123(1) of the Act. For the purposes of the Act, the University of Calgary makes both taxable and exempt supplies in the course of conducting its activities.
[15] The fact that the Appellant is a public service body means that it is also a public sector body,[7] which is relevant for the purposes of the section 206 change‑in-use rules.
[16] These appeals involve three parcels of land owned by the Appellant. I will refer to the three parcels of land and the buildings located on the lands as, collectively, the “U of C Properties”. The parties, at paragraph 4 of the PASF I, describe each of the three parcels as follows:
- “Plan 1935JK (“U of C Child Development Centre”)”; I will refer to this parcel of land and the buildings located on the land as the “CDC”.
- “Plan 859JK (“U of C Main Campus”)”; I will refer to this parcel of land and the buildings located on the land as the “Main Campus”.
- “Plan 9410341 (“U of C South Campus”)”; I will refer to this parcel of land and the buildings located on the land as the “South Campus”.
[17] The Appellant made an election, effective February 1, 2006, under section 211 of the Act in respect of each of the U of C Properties.[8] I will discuss the effect of the elections shortly. The main consequence of the elections, for the purposes of these appeals, is that the Appellant was deemed to have received on February 1, 2006 a taxable supply of each of the properties by way of sale and to have paid on that day tax in respect of each of the deemed supplies.[9]
[18] Subsequent to February 1, 2006, the Appellant made improvements to the U of C Properties. The tax in respect of the improvements to the U of C Properties appears to have been paid or to have become payable between February 2006 and March 2009.[10]
[19] As a result of the deemed acquisition of the U of C Properties and the subsequent improvements to the properties, the Appellant is required to determine, for input tax credit purposes, the extent to which it acquired the U of C Properties, additions to the properties or improvements to the properties for use in its GST commercial activities.
[20] The Appellant developed a methodology to determine the extent to which it used the U of C Properties in its commercial activities (the “Appellant’s Original Methodology”). The parties provided the following general description of the Appellant’s Original Methodology in the PASF I:
For each of the U of C Properties, the University of Calgary took into account all of the structures on the property. It identified within a particular structure all of the space (measured by square meters) that was directly used in making taxable supplies for consideration, exempt supplies, and a mix of the two activities.[11]
. . .
The University of Calgary then developed a ratio (expressed as a percentage) between taxable and exempt activities within each structure and applied it to the mixed activities within the structure (i.e., internal common areas). The University of Calgary then aggregated all of the activities from all the structures on the property to determine a ratio (expressed as a percentage) to be applied to the remaining space on the property (i.e., external common areas).[12]
[21] The Appellant, using this methodology, filed numerous GST returns in which it claimed input tax credits in respect of the U of C Properties on the basis that, during the relevant periods, the following percentages represented the extent to which it acquired each property for use, or used each property, in the course of its commercial activities:
- CDC – 85.77%
- Main Campus 43.2%
- South Campus 27.52%[13]
[22] The Minister reassessed on the basis that three adjustments are required to the Appellant’s Original Methodology in order for the methodology to comply with the provisions of the GST Act, particularly section 141.01.
[23] First, the Minister disagrees with the Appellant’s determination of the amount of space in specific buildings that the Appellant used directly in the making of taxable supplies for consideration, directly in the making of exempt supplies, and indirectly to make both taxable and exempt supplies. Second, she disagrees with the Appellant’s treatment of the external common areas on the U of C Properties (the “External Common Areas”). Third, she believes that the Appellant’s Original Methodology should be amended to add a weighting or index factor.
[24] The Appellant accepts the changes proposed by the Minister with respect to the allocation of space within specific buildings. The PASF I states the following:
Subsequent to issuance of the Reassessments under appeal, the Appellant agreed to some of the adjustments proposed by the Minister (in applying the Appellant’s methodology). As a result, the Appellant now claims the extent to which each U of C Property was being used in commercial activities is as follows:[14]
Properties
Extent of Use
Child Development Centre
81.20%
Main Campus
41.33%
South Campus
25.86%
[25] I will refer to the methodology used by the Appellant to determine these percentages as the “Appellant’s Final Methodology” and the resulting percentages as the “Appellant’s Final Percentages”.
[26] The Appellant does not accept the Minister’s treatment of the External Common Areas or the addition of an indexing factor.
[27] The parties provided in the PASF I, the following general description of the methodology developed by the Respondent (the “Respondent’s Methodology”):
The Minister takes the position that the entirety of each of the U of C Properties must be considered in calculating the extent of use in commercial activity. The Minister takes the position that the outdoor areas (other than parking areas) such as green space, roadways, walkways, and landscaped areas were not for use in making taxable supplies for consideration. Based on this view, the Minister takes the position that the U of C Method must be applied in a manner that includes these outdoor areas when calculating the extent of use in the commercial activity of the appellant.
The Minister takes the position that a weighting or index system is required to take into account the different types of space on each of the U of C Properties. The Minister has identified the replacement costs of the various structures on each of the U of C Properties and uses that information to apply an indexing factor to the U of C Properties.[15]
[28] The Minister, using the Respondent’s Methodology and after making adjustments to the Appellant’s original calculation of the use of space within specific buildings, determined the extent to which each of the U of C Properties was used during the relevant period in commercial activities, as follows (the “Respondent’s Percentages”):
- CDC – 69.91%
- Main Campus – 18.06%
- South Campus – 11.93%[16]
[29] This resulted in the Minister assessing the Appellant to increase its net tax by approximately $3.9 million for the relevant periods.[17]
[30] Although they disagree on the treatment of the External Common Areas and the addition of a weighting or indexing factor to the Appellant’s Final Methodology, the parties do agree on the actual use of the space within each building situated on the U of C Properties. Specifically, the Appellant’s Final Methodology and the Respondent’s Methodology use the same determination of the extent (measured in square meters) to which the Appellant used each building directly in the making of taxable supplies for consideration, directly in the making of exempt supplies and indirectly in the making of both taxable and exempt supplies.[18]
IV. The Appellant’s Methodology [31] Mr. Klaiber explained the Appellant’s Original and Final Methodologies to the Court.
[32] As noted in the PASF I, the Appellant identified within a particular structure[19] situated on the U of C Properties all of the space (measured in square meters) that was used directly in the making of taxable supplies for consideration, directly in the making of exempt supplies and indirectly in the making of both taxable and exempt supplies.[20]
[33] Mr. Klaiber explained the process used by the Appellant to identify the use of particular space.[21] He emphasized that the Appellant tried to use “readily available information”.
[34] His department first worked with the Appellant’s Teams and Facilities Maintenance and Development group. This group has a database containing information relating to the space on campus within the Appellant’s structures and buildings. This database contains detailed information for each building identifying each room in the building, the physical size of the room, the name of the room and the Appellant’s use of the room.
[35] Mr. Klaiber and his staff reviewed all of the space on each floor of each building and allocated the space in each room and each common area to use directly in the making of exempt supplies, use directly in the making of taxable supplies for consideration or indirect use in making both exempt and taxable supplies (the “Internal Common Areas”).[22]
[36] He noted that space used directly in the making of exempt supplies included classrooms and research labs that were not leased to third parties. Space used directly in the making of taxable supplies included food establishments, bookstores, parking lots and space leased to third parties.
[37] The Internal Common Areas included utility rooms, corridors and hallways, washrooms, etc. He explained that this space supported the “directly attributable activities” in the specific building.
[38] Exhibits A3, A4, and A5 summarize the Appellant’s calculations for each room in each building on the three U of C Properties. These exhibits contain 270 pages of calculations for thousands of rooms in 90 structures (including parking lots) comprising approximately 898,000 square meters of space.
[39] The Appellant then aggregated the amounts calculated for the structures located on the U of C Properties. Specifically, for each of the three pieces of land comprising the U of C Properties, it calculated the square meters it used directly in making taxable supplies for consideration, the square meters it used directly in making exempt supplies and the square meters that comprised the Internal Common Areas.[23]
[40] At some point in time, the Appellant reviewed these calculations with the CRA and accepted certain adjustments proposed by the CRA with respect to the Appellant’s determination of the use of the space within the structures. Exhibits B, C, and D to the PASF I contain the parties’ agreed allocation of space in each of the structures on the U of C Properties.[24]
[41] Exhibit B to the PASF I contains the numbers agreed upon by the Appellant and the Respondent for the CDC land. The Appellant identifies seven structures on the CDC land. Exhibit B shows the total of the room-by-room calculation for each structure on the CDC land broken down according to the square meters used directly in the making of taxable supplies for consideration, the square meters used directly in the making of exempt supplies and the square meters used indirectly in the making of both taxable and exempt supplies (the Internal Common Areas).
[42] The square meters for the seven structures are then totalled, with the following result:
- The Appellant used 30,261.78 square meters directly in the making of taxable supplies for consideration.
- The Appellant used 7,004.81 square meters directly in the making of exempt supplies.
- The Appellant used 1,582.81 square meters indirectly in the making of both taxable and exempt supplies.
[43] Exhibit C contains the same calculation for the structures on the Main Campus. The Appellant identifies seventy-seven structures on the Main Campus. The totals of the calculations for the seventy-seven structures are as follows:
- The Appellant used 258,842 square meters directly in the making of taxable supplies for consideration.
- The Appellant used 367,485 square meters directly in the making of exempt supplies.
- The Appellant used 27,863 square meters indirectly in the making of both taxable and exempt supplies.
[44] Exhibit D contains the same calculation for the structures on the South Campus. The Appellant identifies six structures on the South Campus. The totals of the calculations for the six structures are the following:
- The Appellant used 53,001.30 square meters directly in the making of taxable supplies for consideration.
- The Appellant used 151,941.60 square meters directly in the making of exempt supplies.
[45] It is the Appellant’s position that the extent to which a specific piece of land was used in commercial activities is determined by taking the total square meters of all of the structures on the specific piece of land that were used directly in the making of taxable supplies for consideration and dividing it by the total of the square meters of such land used directly in the making of taxable supplies for consideration and the square meters of such land used directly in the making of exempt supplies. Using the numbers in Exhibits B, C and D results in the following (the Appellant’s Final Percentages), which the Appellant argues represents the extent to which each piece of land was used in commercial activities:
- CDC - 30,261.78/(30,261.78+7,004.81) = 81.20%[25]
- Main Campus - 258,842/(258,842+367,485) = 41.33%[26]
- South Campus - 53,001.30/(53,001.30+151,941.60) = 25.86%[27]
[46] It is the Appellant’s position that it is entitled to the input tax credits resulting from the application of the Appellant’s Final Percentages to the GST paid or deemed to have been paid in the relevant reporting periods, as set out in Exhibit A to the PASF I.
[47] For example, Exhibit A shows that the parties have agreed that the GST in respect of which the Appellant is entitled to claim an input tax credit as of August 2007 was $543,700. It is the Appellant’s position that it was entitled to claim an input tax credit equal to 81.2% of this amount.
[48] The Appellant’s Final Methodology assumes that the Appellant acquired all areas of the land on the U of C Properties for the purpose of making either taxable or exempt supplies.
V. The Respondent’s Methodology [49] The Respondent does not accept the Appellant’s methodology. She does not believe it complies with section 141.01. She proposes a methodology developed by the CRA that starts with the Appellant’s calculations and makes two substantial adjustments. First, it treats the External Common Areas as space that was “not for use in making taxable supplies for consideration”.[28] Second, it applies a weighting or index factor based upon the replacement cost of the various structures on the U of C Properties.
[50] Mr. Kinzner explained the CRA’s methodology to the Court.
[51] The CRA started with the numbers contained in Exhibits B, C, and D of the PASF I for each structure on the U of C Properties. These are the numbers the Appellant used, in its Final Methodology, to determine the extent to which it used the U of C Properties in commercial activities. The numbers represent the square meters in each structure used directly in the making of taxable supplies for consideration, the square meters used directly in the making of exempt supplies, and the square meters used indirectly in making both taxable and exempt supplies.[29]
[52] The CRA then adjusted the calculations in each of Exhibits B, C and D of the PASF I on the assumption that the Appellant did not use the External Common Areas indirectly to make taxable and exempt supplies.[30] As noted in Exhibits B, C, and D respectively of the PASF I, the square meters of the External Common Areas for each parcel of land are as follows:
- 168,420 square meters for the External Common Areas on the CDC land.
- 567,183 square meters for the External Common Areas on the Main Campus.
- 31,614 square meters for the External Common Areas on the South Campus.
[53] Mr. Kinzner testified that the Appellant used the External Common Areas on the CDC Lands and the Main Campus in “exempt” activities.[31] He also testified that the Appellant used 22,795 of the square meters making up the External Common Areas located on the South Campus in “exempt” activities. The CRA determined that the Appellant did not use the remaining 8,819 square meters of the External Common Areas on the South Campus in “exempt” activities, but rather leased the land as part of the parking garage.[32]
[54] Mr. Kinzner took me to Exhibits R3, R4 and R5, which show the adjustments the CRA made to the Appellant’s Final Methodology.
[55] With respect to the CDC, Exhibit R3 shows that the CRA did not change the square meters of space the Appellant used directly in the making of taxable supplies for consideration or the square meters of space within the structures that the Appellant used indirectly in the making of both taxable and exempt supplies. However, the CRA did increase the number of square meters the Appellant used directly in the making of exempt supplies by the 168,420 square meters of External Common Areas, resulting in an increase from 7,004.81 square meters to 175,424.81 meters.[33]
[56] Exhibit R4 sets out the similar adjustments the CRA made to the Appellant’s numbers in Exhibit C of the PASF I with respect to the Main Campus. The square meters used directly in the making of taxable supplies and those used within structures indirectly for making both taxable and exempt supplies do not change. The number of square meters used directly in the making of exempt supplies increases by the 567,183 square meters of External Common Areas, resulting in an increase from 367,485 to 934,669 square meters.[34]
[57] The CRA made similar adjustments to the Appellant’s numbers in Exhibit D of the PASF I with respect to the South Campus. It increased the square meters used directly in the making of taxable supplies by the 8,819 of the External Common Area that was leased as part of the parking garage, resulting in an increase from 53,001 to 61,820 square meters. It increased the number of square meters used directly in the making of exempt supplies by the remaining 22,795 square meters of the External Common Areas, resulting in an increase from 151,941 to 174,736 square meters.[35]
[58] After adjusting the Appellant’s calculations for the External Common Areas, the CRA then applied what it refers to as a “weighting index” to its square meter calculations.
[59] A CRA valuator, David Jang, estimated the replacement costs for the buildings, parking lots, and landscaped areas located on the U of C Properties (referred to in the PASF II as the improvements).[36] Mr. Jang calculated the total replacement cost of each of the improvements as of September 30, 2011.[37]
[60] The appendices to Exhibit R3 set out the application of the CRA’s indexing factor to the CDC lands.
[61] The CRA auditor, using the replacement cost determined by the CRA valuator, determined a cost per square foot for each of the seven structures and the External Common Areas on the CDC lands as follows:
- CDC - $230.57 per square foot
- Physical plant - $204.53 per square foot
- General services building - $32.13 per square foot
- Materials handling - $32.13 per square foot
- The three parking lots - $5.05 per square foot
- Green space (roads/sidewalks/landscaping/forest) (the External Common Areas) - $4.25 per square foot[38]
[62] The CRA used the cost per square foot as a weighting index and applied it to the square meter breakdown agreed to by the parties for the seven structures on the CDC land.[39]
[63] For example, for the physical plant located on the CDC land the parties agree that the Appellant used 1,867 square meters of the plant directly in the making of taxable supplies for consideration and 3,592 square meters directly in the making of exempt supplies.[40] The CRA applied its weighting index as follows:
- It first calculated a weighted commercial area for the physical plant equal to the space used directly in the making of taxable supplies for consideration times the weighted index (the cost per square foot for the physical plant), i.e., 1,867 square meters x 204.53 = 381,857.51.
- It then calculated a weighted exempt area for the physical plant equal to the space used directly in the making of exempt supplies times the weighted index (the cost per square foot for the physical plant), i.e., 3,592.00 x 204.53 = 734,671.76.
- The CRA then totalled these amounts to arrive at a weighted total area for the physical plant of 1,116,529 (381,857 + 734,671).
[64] The CRA completed the same calculation for each of the other six structures on the CDC land.[41]
[65] A calculation was also done for the External Common Areas. Specifically, the CRA auditor began with the 168,420 square meters that the parties agreed was the size of the CDC External Common Areas.[42] Since Mr. Kinzner assumed all of this area was “exempt”, he calculated a weighted exempt area for the entire External Common Areas equal to the size of the External Common Areas times the weighting index (cost per square foot for improvements on the External Common Areas) i.e., 168,420 x 4.25 = 715,785.[43]
[66] The CRA then totalled the calculated weighted commercial area, the weighted exempt area, and the weighted total area for the CDC lands with the following result:
- Weighted square meters used in commercial activities – 3,888,152.35
- Weighted square meters used in exempt activities - 1,673,408.46 [44]
- Weighted total area – 5,561,560.81
[67] The CRA used the same method to apply the indexing factor to the Main Campus. It used the cost per square foot as a weighting index and applied it to the agreed calculation of the square meters used directly in the making of taxable supplies for consideration, the square meters used directly in making exempt supplies and the square meters used indirectly in the making of supplies for the structures on the Main Campus.[45]
[68] With respect to the External Common Areas, the auditor began with the 567,183 square meters that the parties agreed was the size of the External Common Areas on the Main Campus.[46] Since the CRA auditor assumed all of this area was “exempt”, he calculated a weighted exempt area for the entire External Common Areas equal to the size of the External Common Areas times the weighted index (cost per square foot for improvements on the External Common Areas) i.e., 567,183 x 4.25 = 2,410,528.[47]
[69] The CRA then totalled the calculated weighted commercial area, the weighted exempt area and the weighted total area for the Main Campus, including the External Common Areas, with the following result:
- Weighted square meters used in commercial activities – 18,824,279
- Weighted square meters used in exempt activities – 85,426,040
- Weighted total area – 104,250,320.[48]
[70] The CRA used the same indexing method for each structure on the South Campus and for the South Campus External Common Areas, with the following result:
- Weighted square meters used in commercial activities – 5,152,150
- Weighted square meters used in exempt activities – 38,016,992
- Weighted total area 43,169,142 [49]
[71] The CRA then determined the extent to which the Appellant used each piece of land in commercial activities by taking, for each of the three pieces of land, the amount it calculated as the total weighted square meters used in making taxable supplies for consideration and dividing it by the weighted total area for the piece of land. This resulted in the following percentages (i.e., the Respondent’s Percentages),
- CDC – 69.91% (3,888,152/5,561,561)
- Main Campus 18.06% (18,824,279/104,250,320)
- South Campus 11.93% (5,152,150/43,169,142 )[50]
[72] It is the Respondent’s position that the Appellant is entitled to input tax credits calculated by applying the Respondent’s Percentages to the agreed amount of GST that the Appellant paid or was deemed to have paid on each property.[51] For example, Exhibit A of the PASF I shows that the eligible amount of GST for the Appellant’s August 2007 reporting period for the CDC was $543,700.11. It is the Minister’s position that the Appellant was entitled to claim an input tax credit equal to 69.91% of this amount.[52]
VI. The Law [73] Subsection 169(1) of the Act contains the general rules for the claiming of input tax credits. The applicable portions of subsection 169(1) read as follows:
Subject to this Part, where a person acquires or imports property or a service or brings it into a participating province and, during a reporting period of the person during which the person is a registrant, tax in respect of the supply, importation or bringing in becomes payable by the person or is paid by the person without having become payable, the amount determined by the following formula is an input tax credit of the person in respect of the property or service for the period
A x B
where
A is the tax in respect of the supply, importation or bringing in, as the case may be, that becomes payable by the person during the reporting period or that is paid by the person during the period without having become payable; and
B is
. . .
(b) where the property or service is acquired, imported or brought into the province, as the case may be, by the person for use in improving capital property of the person, the extent (expressed as a percentage) to which the person was using the capital property in the course of commercial activities of the person immediately after the capital property or a portion thereof was last acquired or imported by the person, and
(c) in any other case, the extent (expressed as a percentage) to which the person acquired or imported the property or service or brought it into the participating province, as the case may be, for consumption, use or supply in the course of commercial activities of the person.
[74] These appeals relate to the Appellant’s ability to claim input tax credits with respect to the acquisition of capital real property and subsequent improvements to the real property. Under paragraph (c) of the definition of B in subsection 169(1), a GST registrant is entitled to claim an input tax credit for GST paid on the acquisition of capital real property according to the extent to which it acquired the property for consumption, use or supply in the course of its commercial activities. With respect to improvements to the capital real property, paragraph (b) of the definition of B in subsection 169(1) allows a person who is a registrant to claim an input tax credit based upon the extent to which the person was using the capital real property in the course of the person’s commercial activities immediately after the capital real property was last acquired by the person.
[75] Subsection 209(1) provides that subsections 199(2) to (4) and 200(2) and (3) apply, with any modifications the circumstances require, to certain real property acquired by a registrant that is a public service body as if the real property were personal property. Those subsections apply to real property acquired by the public service body for use as capital property or, in the case of subsection 199(4), to improvements to capital real property of the public service body.
[76] The Appellant is a public service body. Therefore, in the first instance, subsection 209(1) would apply to any acquisition of the U of C Properties and to improvements to those properties.
[77] Subsections 199(2) to (4) contain rules that are generally referred to as the primary use test. The combined effect of those provisions and subsection 209(1) is that tax payable by a registered public service body in respect of the acquisition of capital real property is not included in determining the input tax credit of the public service body unless the real property was acquired for use primarily in commercial activities of that body.[53] A similar rule applies for improvements to such real property. Any tax payable in respect of improvements is not included in determining the input tax credit of the public service body unless, at the time that such tax is paid or becomes payable, the capital real property is used primarily in commercial activities of the public service body.[54]
[78] It is my understanding that the Appellant prior to making the section 211 elections on February 1, 2006, was not entitled to claim input tax credits in respect of the U of C Properties since it was not using the properties primarily in commercial activities.
[79] Section 211 provides a mechanism whereby certain public service bodies may claim input tax credits in respect of real property that they do not use primarily in commercial activities. In addition, the election results in certain exempt supplies of the real property becoming taxable supplies.
[80] Subsection 211(1) provides in part that, where a public service body files an election with respect to real property that is capital property of the body, section 209 does not apply to the property. As a result, the public service body is entitled to claim input tax credits in respect of such real property even if the real property is used primarily in non-commercial activities.
[81] In addition, supplies of the real property that would otherwise be exempt because of the application of section 1 of Part V.1 of Schedule V[55] or the application of section 25 of Part VI of Schedule V[56] are excluded from exemption under these sections.
[82] The evidence before me is that, prior to February 1, 2006, the Appellant made significant exempt supplies of real property by way of lease. As a result of the elections under section 211, these supplies became taxable supplies.
[83] Once a public service body makes an election under subsection 211(1), it is deemed under paragraph 211(2)(a) to have made, immediately before the effective date of the election, a supply of the real property by way of sale and to have collected, on the particular day, tax in respect of the supply equal the basic tax content of the property on the particular day.[57]
[84] Paragraph 211(2)(b) deems the public service body to have received on the effective date of the election a taxable supply of the real property by way of sale and to have paid, on the particular day, tax in respect of the supply equal to the basic tax content of the property on the particular day.
[85] Effective February 1, 2006, the Appellant made elections under section 211 in respect of the CDC, the Main Campus, and the South Campus. As a result, it was deemed to have made a supply of each property immediately before February 1, 2006 and to have acquired each of the properties on February 1, 2006.
[86] There is no dispute before the Court with respect to either the deemed supply under paragraph 211(1)(a) of each of the three properties or the Appellant’s ability to claim an offsetting input tax credit for the tax it was deemed to have collected.[58]
[87] The issue before the Court is the Appellant’s ability to claim input tax credits for the tax it was deemed to have paid on the exercise of the elections and for the GST it subsequently paid in respect of improvements to the U of C Properties.
[88] The majority of the input tax credits at issue relate to the GST the Appellant was deemed under paragraph 211(2)(b) to have paid on the deemed acquisition of the U of C Properties. Under subsection 169(1), the Appellant is entitled to claim a credit for such tax based on the extent (expressed as a percentage) to which it acquired the real property for use in the course of its commercial activities.
[89] The parties also disagree on the amount of input tax credits the Appellant is entitled to claim in respect of tax paid or payable, after the deemed acquisition, on improvements to the properties. Since the U of C Properties are capital real property of the Appellant and the Appellant has made elections under subsection 211(1), paragraph 169(1)(b) and the change-in-use rules in section 206 apply when determining the Appellant’s entitlement to input tax credits for tax paid in respect of improvements to the properties. These provisions look at the Appellant’s actual use of the properties.
[90] Regardless of which provisions apply, the Appellant’s ability to claim input tax credits is dependent on its intended or actual use of the properties in its commercial activities. Commercial activity is defined in subsection 123(1). The relevant portions of the definition for the purposes of these appeals are as follows:
(a) a business carried on by the person . . . except to the extent to which the business involves the making of exempt supplies by the person,
. . . and
(c) the making of a supply (other than an exempt supply) by the person of real property of the person, including anything done by the person in the course of or in connection with the making of the supply.
[91] Business is defined in subsection 123(1) as follows:
“business” includes a profession, calling, trade, manufacture or undertaking of any kind whatever, whether the activity or undertaking is engaged in for profit, and any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease, licence or similar arrangement, but does not include an office or employment.
[92] Under the GST Act, a person’s business is broader than the person’s commercial activity. A business includes all of the activities of a person regardless of whether the activities involve the making of taxable supplies or of exempt supplies. This is an important distinction for the purposes of various provisions of the Act, including the input tax credit apportionment rules contained in section 141.01.
[93] On the evidence before me, I have concluded that the Appellant carried on a single business, namely, the operation of a university, and that it carried on all of its activities in the course of this business. All of the business constituted a commercial activity of the Appellant, except to the extent to which the business involved the making of exempt supplies.
[94] The application of subsection 169(1) to tax paid on property or services acquired by a registrant in the course of its business for consumption or use directly in the making of a specific supply is relatively straightforward. For example, if the registrant acquires the property or service only for consumption or use directly in the making of a taxable supply, then the property is consumed or u