Reference re Goods and Services Tax

Reference re Goods and Services Tax
Collection
Supreme Court Judgments
Date
1992-06-25
Report
[1992] 2 SCR 445
Case number
22635, 22664
Judges
Lamer, Antonio; La Forest, Gérard V.; L'Heureux-Dubé, Claire; Sopinka, John; Gonthier, Charles Doherty; Cory, Peter deCarteret; McLachlin, Beverley; Stevenson, William; Iacobucci, Frank
On appeal from
Alberta
Subjects
Action
Agency
Appeal
Constitutional law
Notes
SCC Case Information: 22635, 22664
Decision Content
Reference re Goods and Services Tax, [1992] 2 S.C.R. 445
IN THE MATTER OF Section 27 of the
Judicature Act, R.S.A. 1980, c. J‑1
AND IN THE MATTER OF a Reference by the
Lieutenant‑Governor in Council to the
Court of Appeal of Alberta for hearing
and consideration of the questions set out
in Order-in-Council O.C. 538/90 in respect
of Bill C‑62, an Act proposed by the House
of Commons of Canada to amend the Excise Tax Act ,
the Criminal Code , the Customs Act , the Customs
Tariff, the Excise Act , the Income Tax Act,
the Statistics Act, and the Tax Court of
Canada Act
between
The Attorney General of Canada Appellant
v.
The Attorney General for Alberta Respondent
and
The Attorney General for Ontario,
the Attorney General of British Columbia,
the Attorney General for Saskatchewan and
the Canadian Federation of Independent
Business Interveners
and between
The Attorney General for Alberta Appellant
v.
The Attorney General of Canada Respondent
and
The Attorney General for Ontario,
the Attorney General of British Columbia,
the Attorney General for Saskatchewan and
the Canadian Federation of Independent
Business Interveners
Indexed as: Reference re Goods and Services Tax
File Nos.: 22635, 22664.
1992: February 24, 25; 1992: June 25.
Present: Lamer C.J. and La Forest, L'Heureux‑Dubé, Sopinka, Gonthier, Cory, McLachlin, Stevenson* and Iacobucci JJ.
on appeal from the court of appeal for alberta
Constitutional law ‑‑ Distribution of legislative powers ‑‑ Taxation ‑‑ Goods and Services Tax ‑‑ Whether GST Act ultra vires Parliament in whole or in part ‑‑ Whether suppliers under GST Act entitled to recover expenses incurred in collection and remittance of GST from consolidated revenue fund ‑‑ Constitution Act, 1867, ss. 91(3) , 92(13) , 103 ‑‑ Excise Tax Act, R.S.C., 1985, c. E‑15 , Part IX.
Constitutional law ‑‑ Intergovernmental immunity from taxation ‑‑ Appropriation of provincial funds ‑‑ Provinces obliged under GST Act to collect and remit GST on taxable supplies when they act as suppliers ‑‑ Whether obligation to collect and remit GST amounts to taxation of provinces' property or appropriation of provincial funds for federal purposes ‑‑ Constitution Act, 1867, ss. 91(3) , 125 , 126 ‑‑ Excise Tax Act, R.S.C., 1985, c. E‑15 , Part IX.
Agency ‑‑ Obligations of principal ‑‑ Remuneration of agent ‑‑ Vendors of taxable supplies appointed agents of Crown in right of Canada under GST Act for purposes of collecting and remitting GST ‑‑ Whether vendors entitled to recover expenses incurred in collection and remittance of GST ‑‑ Excise Tax Act, R.S.C., 1985, c. E‑15, ss. 122 , 123 , 221 , 240 , 346 .
Appeal ‑‑ Reference ‑‑ Abstract question ‑‑ Whether Court should decline to answer question.
Practice ‑‑ Interveners ‑‑ New issues ‑‑ Reference ‑‑ New issues raised by intervener falling outside scope of reference ‑‑ Whether Court should consider intervener's arguments.
The Lieutenant Governor in Council of Alberta referred to the Court of Appeal of that province several questions challenging the constitutionality of the federal Goods and Services Tax ("GST"), which was enacted by Part IX of the Excise Tax Act ("GST Act "). The GST, a value‑added tax, is designed to be a tax on consumption. It is imposed on any supply other than an exempt supply. A taxable supply attracts the tax each time it is sold. To the extent that the purchaser of a taxable supply uses that good or service in the production of other taxable supplies, it is entitled to an "input tax credit" and can recover the tax it has paid from the government. A number of subordinate entities created by the provincial governments, such as municipalities, universities, public colleges, public hospitals, schools and school authorities, are entitled to claim input tax credits to the extent that their purchases are used in making taxable supplies, and they are eligible for a special rebate of a portion of the tax paid on other purchases. The provinces are not liable to pay tax on their purchases. Under the GST Act , every vendor of a taxable supply, including a province, is appointed an agent of the Crown in right of Canada for the purposes of the collection and remittance of the GST .
The questions referred to the Court of Appeal read as follows:
1.Having regard to the Constitution Acts, 1867 to 1982 or otherwise, is the GST Act ultra vires the Parliament of Canada in whole or in part and, if so, in what particular or particulars and to what extent?
2.Does the system of collection under the GST Act
(a)at any stage prior to the supply of taxable supplies to consumers or to suppliers of exempt supplies,
(b)prior to the collection by a supplier from a recipient, or
(c)otherwise
constitute an infringement of the jurisdiction of the Legislature of Alberta with respect to the regulation of property and civil rights pursuant to s. 92(13) of the Constitution Act, 1867 , or of another provincial power under that Act , so that the GST Act in its application of the system of collection or any part of it is ultra vires the Parliament of Canada?
3.Having regard to s. 103 of the Constitution Act, 1867 and the common law, are suppliers entitled to charge and to collect from the Consolidated Revenue Fund of Canada all costs, charges and expenses incidental to collecting and paying a remittance under the GST Act ?
4.Having regard to s. 125 of the Constitution Act, 1867 ,
(a)is the imposition of obligations under the GST Act on the Government of Alberta as a supplier to collect and pay a remittance on a taxable supply that is Alberta property ultra vires the Parliament of Canada,
(b)does the imposition of a remittance under the GST Act on a recipient from the Government of Alberta of a taxable supply that is Alberta property or that generates revenue to the Government of Alberta constitute taxation of Alberta property that is ultra vires the Parliament of Canada, and
(c)does the imposition of a remittance that is computed under s. 154 of the GST Act on the basis of consideration for a taxable supply that includes an amount of provincial tax constitute taxation of Alberta property that is ultra vires the Parliament of Canada?
5.Having regard to s. 126 of the Constitution Act, 1867 , is the requirement under the GST Act that the Government of Alberta use part of the Government of Alberta's revenue
(a)to collect a remittance or cause a remittance to be collected, or
(b)to pay a remittance prior to the receipt of the remittance from the recipient of a taxable supply
ultra vires the Parliament of Canada?
6.Having regard to ss. 125 and 126 of the Constitution Act, 1867 ,
(a)is the purchase of taxable supplies by provincial authorities, or any of them, in the course of their exercising a delegated constitutional power of the Government of Alberta exempt from tax under the GST Act ,
(b)is the purchase of taxable supplies by provincial authorities, or any of them, designated as agents of the Government of Alberta, in the course of their exercising a delegated constitutional power of the Government of Alberta, exempt from tax under the GST Act ,
(c)is the acquisition of taxable supplies by the Crown Purchase Agency referred to in section 2(k) of the Appendix exempt from tax under the GST Act , and
(d)is the acquisition or use by provincial authorities, or any of them, in the course of their exercising a delegated constitutional power of the Government of Alberta, of taxable supplies that are provided by the Crown Purchase Agency to the provincial authorities exempt from tax under the GST Act ?
The opinion of the Court of Appeal was unanimous, except on question 4. The answer to question 1 was no, though the provisions referred to in question 5(a) and (b) are not binding on the province. The answer to question 2 was no. The answer to question 3 was yes, but with four limiting qualifications. The answer to question 4 was yes, with qualifications that differed between the majority and the minority. The answer to question 5 was yes, to the extent that the GST Act purported to impose collection and remittance obligations upon the province. The Court of Appeal declined to answer question 6.
The Attorney General of Canada appealed from the judgment of the Court of Appeal with respect to the answers to questions 1, 3, 4 and 5. The Attorney General for Alberta appealed with respect to the answers to questions 1, 2, 3, 4 and 6. In this Court, as in the Court of Appeal, the Attorney General for Ontario sought to raise a new ground for attacking the constitutionality of the GST Act , arguing that the Act had never been properly passed through Parliament because the "closure" and "guillotine" rules invoked by the federal government in the passage of the GST Act were themselves ultra vires.
Held: The appeal of the Attorney General of Canada is allowed and the appeal of the Attorney General for Alberta is dismissed. Questions 1 to 5 were answered in the negative. The Court declined to answer question 6.
Per Lamer C.J. and Sopinka, Gonthier, Cory, McLachlin and Iacobucci JJ.: The GST Act as a whole is a valid exercise of the federal taxation power under s. 91(3) of the Constitution Act, 1867 . The GST Act is properly characterized as being in relation to a mode or system of taxation. Its sole purpose is to raise revenue for the federal government, and the effects produced by the Act on matters within provincial jurisdiction over property and civil rights are incidental to this purpose. The means chosen to raise revenue is a tax on value added throughout the chain of production, with input tax credits granted in respect of taxable supplies used in the production of other taxable supplies. To sever the system of input tax credits from the revenue-raising portions of the Act would fundamentally change the character of the tax, from a value‑added tax to a federal retail sales tax, and would carve out an exception to the text of s. 91(3) which the words "any Mode or System of Taxation" cannot reasonably bear. The means chosen is sufficiently well integrated into the scheme of the GST Act as a whole that the intrusion upon provincial jurisdiction is justified.
The registered suppliers under the GST Act do not have a right, under s. 103 of the Constitution Act, 1867 , to be reimbursed from the consolidated revenue fund of Canada for all expenses and charges incurred in collecting the GST . Section 103 is an appropriations provision, permitting the Government of Canada to make disbursements from the consolidated revenue fund for the purposes of raising revenue without the necessity of annual Parliamentary votes. Its purpose is to immunize the revenue‑collecting machinery of the federal government from the uncertainties of annual appropriations by Parliament. It was never intended to create a legally enforceable right in third parties to receive compensation for revenue‑raising duties imposed on them by Parliament. Even if s. 103 were to confer authority on the federal government to compensate such third parties, it would not create a correlative power in those third parties to enforce these payments. The decision to spend appropriated funds remains within the discretion of the government.
As well, the vendors of taxable supplies, as agents of the government for the collection and remittance of the GST , are not entitled to recover at common law the expenses incurred in the course of the agency. Firstly, the presumption that compensation is to be paid where property is taken under a statutory scheme, unless this is expressly excluded by the terms of the statute, has no application in the case of the GST collection regime since no property of the supplier is "taken" by the imposition of the GST collection and remittance obligations. Secondly, Parliament has the right to legislate to impose duties relating to the collection of taxes without reimbursing those upon whom the duties are imposed. In any case, the GST Act does contemplate a limited right of reimbursement in the form of the transitional credit for small businesses. Since Parliament did direct its attention to the question of compensation by providing partial compensation in certain cases, common law rights which might have operated but for the statute cannot be relied upon. Thirdly, there is no question of any contractual relationship between the vendors of taxable supplies and the Government of Canada. In the absence of a contract, the common law duty of principals to pay remuneration for services rendered has no application to vendors of taxable supplies. Fourthly, while the principal has a duty to indemnify an agent for tortious liability to third parties incurred in good faith in the course of the agency, compliance with a statutorily imposed duty would constitute a defence in the unlikely event that such claims of liability were to arise. Finally, the suggestion that registered suppliers have a restitutionary claim against the federal government for the costs and expenses of collecting the GST is without merit.
The GST Act does not violate s. 125 of the Constitution Act, 1867 . The province's obligation under the GST Act to collect and remit the GST from purchasers of taxable supplies when the province acts as supplier does not amount to taxation of the property of the province. The GST only becomes payable by virtue of transactions in which some property interest has left the supplier and become vested in the purchaser. It is clearly the purchaser, not the supplier, which is liable to pay the tax. The possibility that the application of the GST on property sold by the provinces may reduce provincial revenues does not render the GST a "taxation" of provincial property. Nor does the calculation of the GST as a fraction of a price a portion of which is provincial tax amount to the federal taxation of provincial tax. Rather, the price paid for a taxable supply, including a component that is provincial tax, is the measure chosen by Parliament by which the liability of the purchaser to pay the GST is calculated.
The GST Act does not violate s. 126 of the Constitution Act, 1867 . The obligation imposed by the Act upon provinces to collect and remit the GST when they act as suppliers does not amount to the appropriation of provincial funds for federal purposes by Parliament. The obligation is clearly not the same as an obligation to pay out a sum of money to the federal government from the provincial consolidated revenue fund. Parliament has simply imposed certain administrative burdens upon suppliers that are necessarily incidental to a valid federal scheme of "taxation" within the meaning of s. 91(3) of the Constitution Act, 1867 . It is only in so far as the province operates as a commercial entity that it becomes subject to these burdens.
Question 6 should not be answered. This question is highly abstract and cannot precisely or usefully be answered in its present form.
The arguments of the Attorney General for Ontario should not be considered. The issues sought to be raised by the intervener, which relate to the regularity of the adoption of the GST Act , fall outside the intended scope of the Reference.
Per La Forest and L'Heureux‑Dubé JJ.: The GST Act is intra vires Parliament. The Act falls squarely within s. 91(3) of the Constitution Act, 1867 . The GST, a value‑added tax, is intended to raise money. It is in pith and substance a mode or system of taxation, so one need not enquire any further about whether it might be justified as necessarily incidental to the legislative scheme. The fact that it may affect activities within provincial regulatory competence is immaterial. It flows from this that the collection provisions of the GST Act , which are simply part and parcel of the mode or system of taxation adopted by Parliament, are also intra vires. There is no indication that they were enacted for any other purpose than to collect the tax, and colourability is not lightly to be imputed. To sever the provisions of the Act that do not result in raising revenues from those that do would result in a completely different system of taxation. It would fetter Parliament's discretion to raise money by any mode or system of taxation. That the collection provisions may have an impact on property and civil rights is of no moment. There is no hermetic division between the federal legislative domain and that covered by property and civil rights. Some spillover is inevitable.
Section 103 of the Constitution Act, 1867 merely provides for the appropriation of monies from the consolidated revenue fund of Canada and does not impose an independent legal obligation on Canada to compensate collecting agents. Rather, it refers to costs, charges and expenses the Government of Canada is obliged to pay by statute or contract independently of s. 103 . Whatever duty might reside in the Crown at common law to pay suppliers for collecting the tax, by providing in the GST Act for a one‑time transitional credit for small businesses to assist them in offsetting their initial compliance costs, Parliament has given a clear indication that it did not intend to provide further compensation for the purpose.
For the reasons given by Lamer C.J., the GST Act does not violate s. 125 of the Constitution Act, 1867 . The GST is not, in pith and substance, a tax imposed on provincial property. It is a tax imposed against the purchaser of goods or services and simply collected by the province in common with other suppliers of goods or services. The province is in no different position from an employer obliged to withhold income under the Income Tax Act.
Under s. 126 of the Constitution Act, 1867 , a province has the exclusive power to appropriate money from its consolidated revenue for provincial purposes. The federal government cannot impose on a province the cost of carrying out a federal activity in the province. It does not follow, however, that an administrative duty reasonably placed by Parliament on a province in the course of enacting a scheme falling squarely within a federal power will be invalid because the performance of that duty will in consequence require some expenditure by the province. In creating a tax system, which falls in pith and substance within s. 91(3) of the Constitution Act, 1867 , Parliament may incidentally require the provinces to assume such a burden. Otherwise, the broad taxing power there granted would be frustrated.
Question 6 should not be answered. Parliament has seen fit not to impose duties and taxes of the kind addressed in that question. The Court would ill serve the nation if it attempted to respond to a question raising such fundamental issues in the abstract.
For the reasons given by Lamer C.J., the arguments of the Attorney General for Ontario should not be considered.
Cases Cited
By Lamer C.J.
Applied: General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641; McEvoy v. Attorney General for New Brunswick, [1983] 1 S.C.R. 704; Reference re Agricultural Products Marketing Act, [1978] 2 S.C.R. 1198; distinguished: Reference re The Employment and Social Insurance Act, [1936] S.C.R. 427; Manitoba Fisheries Ltd. v. The Queen, [1979] 1 S.C.R. 101; Reference re Exported Natural Gas Tax, [1982] 1 S.C.R. 1004; Regional Municipality of Peel v. MacKenzie, [1982] 2 S.C.R. 9; Attorney‑General for Quebec v. Nipissing Central Railway Co., [1926] A.C. 715; Coughlin v. Ontario Highway Transport Board, [1968] S.C.R. 569; referred to: The Queen v. Waterous Engine Works Co. (1893), 3 Que. Q.B. 222; Pettkus v. Becker, [1980] 2 S.C.R. 834; Zaidan Group Ltd. v. London (City), [1991] 3 S.C.R. 593, aff'g (1990), 71 O.R. (2d) 65 (C.A.); Phillips v. City of Sault Ste. Marie, [1954] S.C.R. 404; Reference re Troops in Cape Breton, [1930] S.C.R. 554; Valin v. Langlois (1879), 3 S.C.R. 1; Reference re Education System in Montreal, [1926] S.C.R. 246; Reference re Waters and Water‑Powers, [1929] S.C.R. 200; Reference re Angliers Railway Crossing, [1937] S.C.R. 451; Reference re Authority of Parliament in Relation to the Upper House, [1980] 1 S.C.R. 54.
By La Forest J.
Distinguished: Reference re Exported Natural Gas Tax, [1982] 1 S.C.R. 1004; Attorney‑General for Canada v. Attorney‑General for Ontario, [1937] A.C. 355; referred to: Friends of the Oldman River Society v. Canada (Minister of Transport), [1992] 1 S.C.R. 3; Whitbread v. Walley, [1990] 3 S.C.R. 1273; Reference re Anti‑Inflation Act, [1976] 2 S.C.R. 373; Bank of Montreal v. Hall, [1990] 1 S.C.R. 121; Zaidan Group Ltd. v. London (City), [1991] 3 S.C.R. 593; Reference re Troops in Cape Breton, [1930] S.C.R. 554; Valin v. Langlois (1879), 3 S.C.R. 1; Coughlin v. Ontario Highway Transport Board, [1968] S.C.R. 569; Regional Municipality of Peel v. MacKenzie, [1982] 2 S.C.R. 9.
Statutes and Regulations Cited
Constitution Act, 1867, ss. 91(3) , 92(13) , 102 , 103 , 104 , 105 , 106 , 125 , 126 .
Excise Tax Act, R.S.C., 1985, c. E‑15 [am. 1990, c. 45, s. 12], ss. 122 , 123 , 154 , 221 , 222 , 240 , 313(1) , 346 .
Income Tax Act, S.C. 1970‑71‑72, c. 63, ss. 153, 227(4).
Judicature Act, R.S.A. 1980, c. J‑1, s. 27.
Authors Cited
Fridman, G. H. L. The Law of Agency, 5th ed. London: Butterworths, 1983.
APPEAL from a judgment of the Alberta Court of Appeal (1991), 82 Alta. L.R. (2d) 289, 117 A.R. 321, 84 D.L.R. (4th) 577, [1992] 1 W.W.R. 1, in the matter of a reference concerning the federal Goods and Services Tax. The appeal of the Attorney General of Canada is allowed and the appeal of the Attorney General for Alberta is dismissed.
T. B. Smith, Q.C., James M. Mabbutt, Q.C., and James N. Shaw, for the appellant/respondent.
James C. MacPherson, Peter J. McIntyre and Gina A. Ross, for the respondent/appellant.
Janet E. Minor, Peter Landmann and John Terry, for the intervener the Attorney General for Ontario.
Hunter W. Gordon, for the intervener the Attorney General of British Columbia.
Graeme G. Mitchell, for the intervener the Attorney General for Saskatchewan.
F. J. C. Newbould, Q.C., and Freya Kristjanson, for the intervener the Canadian Federation of Independent Business.
//Lamer C.J.//
The judgment of Lamer C.J. and Sopinka, Gonthier, Cory, McLachlin and Iacobucci JJ. was delivered by
Lamer C.J. --
1. The Facts
These appeals involve a challenge to the constitutionality of the federal Goods and Services Tax. The legislation enacting the Goods and Services Tax (hereinafter referred to as the "GST Act ") was passed by Parliament in December, 1990, by Part IX of the Excise Tax Act, R.S.C., 1985, c. E-15 . It received Royal Assent on December 17, 1990 (S.C. 1990, c. 45, s. 12). The Goods and Services Tax ("GST") is calculated at the rate of seven percent and this rate applies to most sales of taxable supplies, which include most goods and services. Provincial governments are not liable to pay tax on their purchases. However, a number of subordinate entities created by the provincial governments such as municipalities, universities, public colleges, public hospitals, schools and school authorities, for convenience referred to as the "MUSH sector", are liable to pay the tax.
The GST is designed to be a tax on consumption. To this end, the GST Act contemplates three classes of goods and services. Taxable supplies attract the tax of seven percent each time they are sold. To the extent that the purchaser of a taxable supply uses that good or service in the production of other taxable supplies, it is entitled to an "input tax credit" and can recover the tax it has paid from the government. The MUSH sector is entitled to claim input tax credits to the extent that its purchases are used in making taxable supplies, and it is eligible for a special rebate of a portion of the tax paid on other purchases.
By definition, to the extent that taxable supplies are not used by the purchaser to produce other taxable supplies, they are consumed by the purchaser. To this extent, the purchaser cannot recapture the tax already paid through the input tax credit mechanism. Hence, the GST is collected and refunded down through each stage of the production process to the ultimate consumption of a taxable supply, at which stage the tax paid is not recoverable by the purchaser.
Exempt supplies and zero-rated supplies do not attract any tax from the ultimate consumer. However, in respect of exempt supplies, the vendor, while paying the GST on purchases, is not entitled to an input tax credit. In consequence, in the case of exempt supplies GST is paid to the federal government at the penultimate stage in the production chain rather than by the ultimate consumer. In principle, zero-rated supplies attract the GST in the same way as any other taxable supply as they move through the production chain to the ultimate consumer. However, the consumer pays a tax set at "0 %", and suppliers are entitled to the input tax credit, so that no net revenue is raised for the federal government at any stage in the production chain by the production and sale of these goods.
By Order-in-Council dated October 11, 1990, the Lieutenant-Governor in Council of Alberta referred several questions relating to the validity and effect of the GST Act to the Court of Appeal for Alberta, pursuant to s. 27 of the Judicature Act, R.S.A. 1980, c. J-1. These questions are reproduced below:
1.Having regard to the Constitution Acts, 1867 to 1982 or otherwise, is the GST Act ultra vires the Parliament of Canada in whole or in part and, if so, in what particular or particulars and to what extent?
2.Does the system of collection under the GST Act
(a)at any stage prior to the supply of taxable supplies to consumers or to suppliers of exempt supplies,
(b)prior to the collection by a supplier from a recipient, or
(c)otherwise
constitute an infringement of the jurisdiction of the Legislature of Alberta with respect to the regulation of property and civil rights pursuant to s. 92(13) of the Constitution Act, 1867 , or of another provincial power under that Act , so that the GST Act in its application of the system of collection or any part of it is ultra vires the Parliament of Canada?
3.Having regard to s. 103 of the Constitution Act, 1867 and the common law, are suppliers entitled to charge and to collect from the Consolidated Revenue Fund of Canada all costs, charges and expenses incidental to collecting and paying a remittance under the GST Act ?
4.Having regard to s. 125 of the Constitution Act, 1867 ,
(a)is the imposition of obligations under the GST Act on the Government of Alberta as a supplier to collect and pay a remittance on a taxable supply that is Alberta property ultra vires the Parliament of Canada,
(b)does the imposition of a remittance under the GST Act on a recipient from the Government of Alberta of a taxable supply that is Alberta property or that generates revenue to the Government of Alberta constitute taxation of Alberta property that is ultra vires the Parliament of Canada, and
(c)does the imposition of a remittance that is computed under s. 154 of the GST Act on the basis of consideration for a taxable supply that includes an amount of provincial tax constitute taxation of Alberta property that is ultra vires the Parliament of Canada?
5.Having regard to s. 126 of the Constitution Act, 1867 , is the requirement under the GST Act that the Government of Alberta use part of the Government of Alberta's revenue
(a)to collect a remittance or cause a remittance to be collected, or
(b)to pay a remittance prior to the receipt of the remittance from the recipient of a taxable supply
ultra vires the Parliament of Canada?
6.Having regard to ss. 125 and 126 of the Constitution Act, 1867 ,
(a)is the purchase of taxable supplies by provincial authorities, or any of them, in the course of their exercising a delegated constitutional power of the Government of Alberta exempt from tax under the GST Act ,
(b)is the purchase of taxable supplies by provincial authorities, or any of them, designated as agents of the Government of Alberta, in the course of their exercising a delegated constitutional power of the Government of Alberta, exempt from tax under the GST Act ,
(c)is the acquisition of taxable supplies by the Crown Purchase Agency referred to in section 2(k) of the Appendix exempt from tax under the GST Act , and
(d)is the acquisition or use by provincial authorities, or any of them, in the course of their exercising a delegated constitutional power of the Government of Alberta, of taxable supplies that are provided by the Crown Purchase Agency to the provincial authorities exempt from tax under the GST Act ?
These same six constitutional questions were stated by the Chief Justice on November 14, 1991 and form the background of these appeals.
The opinion of the Court of Appeal for Alberta was unanimous, except for Côté J.A., who was in dissent on question 4: (1991), 82 Alta. L.R. (2d) 289, 117 A.R. 321, 84 D.L.R. (4th) 577, [1992] 1 W.W.R. 1. The answer to question 1 was no, though the provisions referred to in question 5(a) and (b) are not binding on the province. The answer to question 2 was no.
The answer to question 3 was yes, but with four limiting qualifications: reimbursement was available provided that (a) the charges are not salary wages or remuneration for time and effort, (b) they are incurred in the course of the supplier's activities as an agent for the federal government in collecting the tax, (c) they are reasonably attributable to Canada's interest in the tax, and (d) they are incurred reasonably and without negligence or known illegality.
The answer to question 4 was yes, with qualifications that differed between the majority and Côté J.A. in dissent. The answer to question 5 was yes, to the extent that the GST Act purported to impose collection and remittance obligations upon the province. The Court of Appeal declined to answer question 6.
The Attorney General of Canada appealed from the judgment of the Court of Appeal with respect to that court's answers to questions 1, 3, 4 and 5 of the Reference. The Attorney General of Alberta also appealed, with respect to the answers to questions 1, 2, 3, 4 and 6. By an order of this Court the two appeals were consolidated and set down for hearing on February 24 and 25, 1992.
2. Judgment of the Court of Appeal for Alberta (1991), 84 D.L.R. (4th) 577
(1)Majority (Laycraft C.J.A., Kerans, Hetherington, Stratton JJ.A., Côté J.A. dissenting in part)
The majority of the Court of Appeal concluded that the system of collection created by the GST Act was not ultra vires the Parliament of Canada. To sever those provisions of the GST Act that did not result in the raising of money -- the input tax system and the scheme in respect of zero-rated supplies -- from those that did, would result in a completely different system of taxation from that contemplated by Parliament. The tax, instead of being a value-added tax, would become a retail sales tax.
The Court of Appeal concluded that nothing in s. 91(3) of the Constitution Act, 1867 , restricted Parliament in its choice of any system of taxation, and concluded that those provisions that did not have the effect of raising money were necessarily incidental to the scheme of the GST as a whole.
The Court of Appeal further concluded that various provisions of the GST Act -- notably the agency and trust provisions, and the imposition upon suppliers of detailed accounting requirements -- did encroach significantly upon matters traditionally subject to provincial jurisdiction over property and civil rights in the province under s. 92(13) of the Constitution Act, 1867 . Relying on the judgment of this Court in General Motors of Canada Ltd. v. City National Leasing, [1989] 1 S.C.R. 641, the Court of Appeal concluded that "a strict test" was required to determine whether the challenged provisions were sufficiently integrated with the overall scheme of the legislation to be justified. However, the court noted that the object of the GST Act was the imposition of a value-added tax on consumers of taxable supplies and suppliers of exempt supplies, and found that the government achieved this object by requiring a supplier to pay the tax at the time of purchase and then allowing recovery, through the input tax scheme, of that portion of the payment that is attributable to the production and sale of other taxable supplies. In the opinion of the Court of Appeal, these provisions of the GST Act were essential if the legislation was to achieve its object, and their inclusion in the scheme was therefore justified. Consequently, the test of necessary incidence was passed.
In respect of the third question, the Court of Appeal stated that there exists a general common law presumption against the taking of property without payment of compensation. However, it concluded that it was not necessary to resort to this general doctrine, since ss. 221(1) and 222(1) of the GST Act unilaterally designate vendors of taxable supplies agents of the Crown in right of Canada for the collection of the GST , and trustees of the Crown in respect of the funds collected. Consequently, the more specific common law duties of principals to reimburse agents for expenses incurred in the course of their agency were directly applicable. The court concluded that the obligations of the principal or person requesting services fell into two distinct categories: compensation for time and effort expended in the course of the agency, and indemnification against expense or liability incurred to third parties. The court concluded that, in the absence of a contract, a principal is under no duty to reimburse an agent for time and effort expended in the course of the agency. On this basis, the court concluded, at p. 589, that:
To suggest that here Canada is impliedly contracting to pay GST suppliers for their time and effort would be to invent both an intent and an appearance. Canada is not so promising, and no reasonable person could think that Canada really is. None of the parties to this reference suggest that there is any such contract, express or implied. Yet (as noted), that is the common-law test for remuneration. The standard textbooks on restitution do not appear to offer any basis to compel payment for such services either.
Therefore, we conclude that, apart from s. 103 of the Constitution Act, 1867 , Canada need not pay suppliers for their time and trouble.
On the other hand, the Court of Appeal concluded that a principal did have a common law duty to indemnify the agent for special expenses and liability incurred to third parties in the course of the agency. While there was no question that valid legislation could extinguish this duty, the court concluded that there were no provisions in the GST Act which purported to do this. The great bulk of GST transactions and remittances would involve no such expense or liability, and therefore would not bring into play the duty for Canada to reimburse vendors of taxable supplies. However, in situations where such liability was incurred, it would be just that Canada, the principal, reimburse its fair share of that expense or liability to its agents. Therefore, and to this extent only, the court concluded that the obligation to reimburse or indemnify did exist.
In view of its conclusions with respect to the common law duty to reimburse, the Court of Appeal found it unnecessary to decide whether s. 103 of the Constitution Act, 1867 imposes a duty of reimbursement independently of the common law. However, where the common law duty of reimbursement does operate, the court concluded that s. 103 makes fulfilment of this duty a first charge upon the consolidated revenue fund of Canada. In the court's opinion, the words "first charge" contained in s. 103 were inconsistent with the idea that such payments were optional.
The Court of Appeal was of the view that s. 125 of the Constitution Act, 1867 , offered a province immunity from a tax imposed on its property by Canada, and that Canada enjoyed the same immunity in respect of taxation by the provinces. This dual immunity constituted one of the "warning markers" essential to the working of a federal system of government. The court considered that the purpose of s. 125 was to head off the temptation for a government to exact revenue, not from the people directly, but from another level of government. Similarly, the purpose of s. 126 of the Constitution Act, 1867 , was to prohibit the appropriation of the funds of one level of government by another, a logical corollary of interjurisdictional immunity from taxation of government property.
The majority of the Court of Appeal concluded that the collection and remittance provisions under attack did not impose a tax directly on the property of a province. However, they did purport to impose certain obligations on a province. By virtue of s. 313(1) of the GST Act , the price for non-compliance with collection and remittance obligations was an action in the superior courts for recovery of the tax revenued "deemed" to have been collected, and, ultimately, the issuance of writs of execution against provincial property. Since the collection mechanism required the vendor of taxable supplies either to collect and remit the tax or pay the tax itself, it offended s. 125 of the Constitution Act, 1867 in its application to provincial governments, and was to that extent inoperative. Thus, while a province might voluntarily comply with the GST Act 's collection and remittance provisions, it was under no legal obligation to do so. The court concluded, at p. 602, that:
[A]n attempt by Canada to oblige a province to expend valuable effort to collect the GST on taxable supplies by the province is an exaction in the nature of a tax and is caught by both s. 125 and s. 126 . As a result, the provisions in the GST Act imposing these duties do not validly operate against a province. However, we would not declare them of no force and effect, because they do, as we have elsewhere said, lawfully bind others.
The court also rejected the suggestion that the application of the GST to taxable supplies sold by the province amounted to a tax on the province's property. While the imposition of GST upon sales by the province might well depress the price that the province could charge on such transactions, the real bite of the tax was not intended to fall on the seller. Most federal taxes, including the federal income tax, have some impact upon provincial revenues, but they do not amount, for this reason alone, to impermissible indirect taxation of provincial property contrary to s. 125 , or to indirect appropriations of provincial funds contrary to s. 126 , of the Constitution Act, 1867 .
The Court of Appeal declined to answer the final question in the Reference, on the grounds that some of the Crown organizations and agents referred to in the question did not exist, and that without greater specificity of description, any answers given would be useless or even misleading. Moreover, even if it were possible to give the answers requested, exceptions would have to be made if it were decided that the establishment of these organizations was in truth a colourable attempt to interfere with a federal scheme of taxation. In the absence of any specific existing scheme to evaluate, the Court of Appeal concluded that it would not be appropriate to provide speculative answers.
(2) Côté J.A. (dissenting in part)
Côté J.A. joined in the judgment of the Court of Appeal except with respect to question 4. In his opinion, there could arise circumstanc