Canadian Imperial Bank of Commerce v. The Queen

Canadian Imperial Bank of Commerce v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2019-04-16
Neutral citation
2019 TCC 79
File numbers
2012-1261(GST)G
Judges and Taxing Officers
Henry A. Visser
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2012-1261(GST)G
BETWEEN:
CANADIAN IMPERIAL BANK OF COMMERCE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on April 10 and 11, 2017, at Toronto, Ontario
By: The Honourable Justice Henry A. Visser
Appearances:
Counsel for the Appellant:
Al Meghji, Al Nawaz-Nanji,
Andrew Boyd
Counsel for the Respondent:
Marilyn Vardy, Craig Maw
JUDGMENT
The Appeal made under the Excise Tax Act by Notice of Assessment dated March 25, 2011, is dismissed.
The parties shall have 30 days from the date hereof to reach an agreement on costs, failing which the Respondent shall have a further 30 days to file written submissions on costs and CIBC shall have yet a further 30 days to file a written response. Any such submissions shall not exceed 10 pages in length. If the parties do not advise the Court that they have reached an agreement and no submissions are received, costs shall be awarded to the Respondent as set out in the Tariff.
Signed at Ottawa, Canada, this 16th day of April 2019.
“Henry A. Visser”
Visser J.
Citation: 2019 TCC 79
Date: 20190416
Docket: 2012-1261(GST)G
BETWEEN:
CANADIAN IMPERIAL BANK OF COMMERCE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Visser J.
[1] The Canadian Imperial Bank of Commerce (“CIBC”) is seeking a rebate for GST paid in error of approximately $44.6 million in relation to payments it made to Aeroplan Limited Partnership (“Aeroplan”) under the Aeroplan Mile loyalty program (the “Aeroplan Mile Program”). Therefore, this appeal requires the determination of whether the supplies made by Aeroplan to CIBC in respect of the Aeroplan Mile Program were subject to GST during the period under appeal. For the reasons that follow, it is my view that they were subject to GST, and that as a result CIBC did not pay GST in error and is therefore not eligible to claim the rebate at issue in this Appeal.
I. OVERVIEW
[2] During the period from March 25, 2005 to February 26, 2007 (the “Period”), CIBC was an accumulation partner of the Aeroplan Mile Program operated by Aeroplan. Pursuant to agreements between the parties, CIBC made substantial payments (the “Aeroplan Payments”) [1] in the Period to Aeroplan for its participation in the Aeroplan Mile Program. The Aeroplan Payments were substantially computed with reference to the number of Aeroplan Miles issued by Aeroplan to CIBC’s customers during the Period. Pursuant to section 165 of Part IX of the Excise Tax Act (the “Act”) [2] , Aeroplan charged, and CIBC paid, goods and services tax (“GST”) [3] on the Aeroplan Payments on the basis that the supplies made by Aeroplan to CIBC during the Period (the “Aeroplan Supplies”) were taxable supplies for the purposes of the Act.
[3] CIBC subsequently took the position that the Aeroplan Supplies made by Aeroplan to CIBC were supplies of exempt financial services and were therefore not subject to GST under the Act. In that respect, CIBC filed a General Application for Rebate of GST/HST (Form GST189 E (06)) (the “Rebate Form”) pursuant to section 261 of the Act with the Minister of National Revenue (the “Minister”) on March 26, 2007 in the amount of $44,631,063.32 for the Period on the basis that it had paid GST in error on the Aeroplan Supplies. [4] On May 13, 2009, CIBC revised the amount of the rebate claimed (the “Rebate”) to $44,784,563.64 (an increase of $153,500.32) due to an alleged incorrect calculation of input tax credits which the Appellant had claimed in respect of the Aeroplan Supplies in the relevant periods. [5] On March 25, 2011, the Minister issued a Notice of Assessment (the “Assessment”) pursuant to section 297 of the Act in respect of CIBC’s rebate application, denying the rebate in full [6] on the basis that the Aeroplan Supplies were taxable supplies. [7] CIBC has appealed that Assessment to this Court. In a Notice of Motion filed by the Respondent on January 18, 2013 in this matter, the Respondent notes that the Appellant has also claimed an additional $79,838,793.63 of similar GST rebates for periods between February 27, 2007 and June 30, 2010. Those additional rebates claimed by CIBC are not directly at issue in these appeals. [8]
II. ISSUES
[4] CIBC’s basis for the Rebate it claimed pursuant to section 261 of the Act shifted over time. In its letter of March 26, 2007, and the accompanying Rebate Form [9] , as well as in its correspondence of May 13, 2009, [10] CIBC took the position that the Aeroplan Supplies were exempt supplies of financial services. In its Notice of Appeal filed on March 28, 2012, CIBC initially took the position that the Aeroplan Supplies were exempt supplies of financial services, or alternatively that the Aeroplan Mile Program was a joint venture or in the further alternative that the Aeroplan Miles were gift certificates. Prior to trial, however, CIBC amended its Notice of Appeal a number of times and abandoned some of its positions, so that at trial CIBC only raised a single issue and basis for its positon as follows:
The issue in this Appeal is whether the Aeroplan Payments were consideration for Aeroplan’s issuance or sale of a “gift certificate” as contemplated by section 181.2 of the Act. [11]
[5] In essence, CIBC argues that the Aeroplan Miles issued by Aeroplan to CIBC’s customers were “gift certificates”, and that the Aeroplan Supplies were therefore deemed not to be a supply pursuant to section 181.2 of the Act and were therefore not subject to GST pursuant to the Act.
[6] In her Fresh as Amended Reply to Further Amended Notice of Appeal (the “Fresh Reply”), the Respondent set out the following three issues at paragraph 28 thereof in relation to this Appeal:
a) Is there any element of potential double recovery of tax paid as a result of ITCs previously claimed by the [A]ppellant and allowed by the Minister for the period under appeal?
b) Did the [A]ppellant satisfy the requirements for making a valid rebate application within the limitation period?
c) Was Air Canada/Aeroplan issuing or selling “gift certificates”?
[7] At trial, Counsel for the Respondent further narrowed these issues by abandoning the first issue set out above. As such, the primary issue in this Appeal is whether the Aeroplan Supplies made by Aeroplan to CIBC (and by extension the Aeroplan Payments made by CIBC to Aeroplan) during the Period under appeal were taxable supplies subject to GST, or whether they were excluded from the application of GST by being deemed not to be a supply pursuant to section 181.2 of the Act. In this respect, the parties have characterized the issue as being whether the Aeroplan Payments were in consideration for the issuance or sale of “gift certificates” by Aeroplan to CIBC or its customers. In the alternative, the Respondent characterized the issue as being whether the Aeroplan Payments were in consideration for the supply of a promotional and marketing service by Aeroplan to CIBC. In essence, the primary issue in this Appeal is whether the Aeroplan Supplies should be characterized for GST purposes as a taxable supply of promotional and marketing services or whether they should be characterized as a supply of “gift certificates” which are deemed by section 181.2 not to be a supply.
[8] A secondary issue in this Appeal relates to the computation of CIBC’s rebate claim and is only relevant if the Appellant is successful in respect of the primary issue. In particular, the secondary issue is whether $2,254,282.60 of GST claimed by CIBC, which was paid on February 28, 2007, being two days after the February 26, 2007, end of the rebate claim Period as set out in the Appellant’s Rebate Form, can be recovered by CIBC as a rebate in this Appeal. In this respect, the Appellant argues that the Rebate Form contained a small, non-material, clerical error regarding the rebate period end date, and that it should be entitled to recover the $2,254,282.60 of GST paid on February 28, 2007 notwithstanding the clerical error. The Respondent argues that the February 28, 2007 payment was made after the Period under appeal before this Court, and that therefore the Appellant cannot recover that amount pursuant to this Appeal.
[9] For the reasons that follow, it is my view that the Aeroplan Supplies were taxable supplies of promotional and marketing services by Aeroplan to CIBC. In the alternative, it is also my view that the Aeroplan Miles at issue in this Appeal were not “gift certificates” for the purpose of section 181.2 of the Act, and that therefore section 181.2 did not apply to deem the Aeroplan Supplies not to be a supply for the purposes of the Act. As a result, it is my view that the Aeroplan Supplies were subject to GST for the Period and the Assessment under appeal, and that the Minister therefore properly denied CIBC’s Rebate application. Although the secondary issue is moot as a result of my determination of the primary issue, it is my view that CIBC could claim a rebate in respect of the $2,254,282.60 of GST paid on February 28, 2007 if CIBC was otherwise entitled to claim the Rebate.
III. BACKGROUND FACTS
[10] The facts in this case are generally not in dispute. The parties submitted a Statement of Agreed Facts (Partial) which is set out at Appendix “A”. The parties also submitted a Joint Book of Documents [12] which includes, inter alia, copies of the relevant agreements governing the relationship between CIBC and Aeroplan during the Period, as well as copies of the Rebate Form and the invoices which are the subject of the Aeroplan Payments and the Rebate under Appeal. In addition, the Appellant called Stephen Webster to testify. Mr. Webster joined CIBC in 1992 and, at the time of trial, was vice president of travel cards at CIBC. His responsibilities included management of the Aeroplan Mile Program for CIBC. Mr. Webster testified about how CIBC used Aeroplan to market financial services, and about how the relationship between the companies worked and how both companies interacted with customers. He also described how Aeroplan Miles were distributed as loyalty rewards and given away to attract and retain customers. Mr. Webster also explained that customers of CIBC’s various financial products accumulated Aeroplan Miles at different rates. I found Mr. Webster to be a credible witness. Each of the parties also submitted discovery read-ins. [13]
[11] The Aeroplan Mile Program was originally owned and operated by Air Canada prior to transferring it to Aeroplan. CIBC and Air Canada entered into a Credit Card Agreement in relation to the Aeroplan Mile Program dated as of January 1, 1995, as amended by a Credit Card Amending Agreement dated October 18, 1999, and by letter dated April 25, 2000 (collectively, the “1995 Agreement”). On April 1, 2003, Air Canada obtained an order from the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act (Canada) in relation to its financial restructuring (the “CCAA Order”). Subsequently, and concurrent with the establishment of a $350 million credit facility by CIBC to Air Canada, Air Canada and CIBC entered into a new Credit Card Agreement, dated April 16, 2003 (the “2003 Credit Card Agreement”), which replaced the 1995 Agreement. [14] The 2003 Credit Card Agreement was itself amended by and subject to the following additional agreements:
a) Letter agreement dated October 31, 2003 between Air Canada and CIBC; [15]
b) Letter agreement dated November 28, 2003 between Air Canada and CIBC; [16]
c) Letter agreement dated April 7, 2004 between Air Canada and CIBC; [17]
d) Assignment and Assumption Agreement dated July 5, 2004, between Air Canada (as Assignor), Aeroplan Limited Partnership (as Assignee) and CIBC; [18]
e) Assignment and Assumption Agreement dated June 29, 2005 between APLN Limited Partnership (formerly Aeroplan Limited Partnership) (as Assignor), Aeroplan Limited Partnership (as Assignee), CIBC and Air Canada; [19]
f) Amending Agreement dated September 28, 2006 between CIBC and Aeroplan Limited Partnership; [20]
g) Amending Agreement dated October 2, 2006 between CIBC and Aeroplan Limited Partnership; [21] and
h) Letter agreement dated November 16, 2006 between CIBC and Aeroplan Limited Partnership. [22]
[12] The 2003 Credit Card Agreement, as amended and assigned, governed CIBC’s participation in the Aeroplan Mile Program during the Period under appeal, and therefore also forms the basis of the Aeroplan Supplies and the Aeroplan Payments which are the subject of this Appeal. [23]
IV. LAW AND ANALYSIS
A. Introduction – Primary Issue - are the Aeroplan Supplies Taxable Supplies?
[13] Section 165 of the Act provides that GST applies to taxable supplies made in Canada. Subsection 123(1) of the Act provides that a ““taxable supply” means a supply that is made in the course of a commercial activity”. Subsection 123(1) of the Act defines a “commercial activity” as follows:
“commercial activity” of a person means
(a) a business carried on by the person (other than a business carried on without a reasonable expectation of profit by an individual, a personal trust or a partnership, all of the members of which are individuals), except to the extent to which the business involves the making of exempt supplies by the person,
(b) an adventure or concern of the person in the nature of trade (other than an adventure or concern engaged in without a reasonable expectation of profit by an individual, a personal trust or a partnership, all of the members of which are individuals), except to the extent to which the adventure or concern 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;
[14] Subsection 123(1) of the Act defines “exempt supply” to mean “a supply included in Schedule V” of the Act. Part VII of Schedule V of the Act provides that certain supplies of financial services are exempt from GST, excluding certain exported financial services that are zero-rated supplies pursuant to Part IX of Schedule VI of the Act. In this case, while CIBC initially argued that the Aeroplan Supplies were exempt supplies of financial services pursuant to the Act, it abandoned this position prior to trial. I also note that neither party argued that Aeroplan was not carrying on a business in Canada during the Period or that the Aeroplan Supplies were not otherwise taxable supplies. As such, the Aeroplan Supplies made by Aeroplan to CIBC during the Period will be subject to GST unless a relieving provision of the Act applies, such as section 181.2 which deems certain supplies of gift certificates not to have been made.
[15] As previously noted, in this case CIBC claimed the Rebate pursuant to section 261 of the Act on the basis that it paid GST in error in respect of the Aeroplan Supplies. In this respect, CIBC argues that the Aeroplan Supplies are not subject to GST because they are “gift certificates”, and therefore deemed not to be supplies pursuant to section 181.2 of the Act. In contrast, the Respondent argues that the Aeroplan supplies are not “gift certificates”, or in the alternative that they are the supply of a promotional or marketing service. Before addressing the specific arguments raised by the parties in relation to the “gift certificate” provisions set out in section 181.2 of the Act, it is, in my view, necessary to characterize the Aeroplan Supplies for GST purposes and determine if they are a single supply of property or services. If the Aeroplan Supplies are a multiple supply of property and or services, it is also necessary to determine if the supply of one or more of the multiple supplies is incidental to another supply such that section 138 of the Act applies to deem the incidental supply to be part of the other supply. [24] After characterizing the Aeroplan Supplies for GST purposes, it is then necessary to determine if they are subject to GST or if they are the supply of gift certificates and therefore deemed not to be a supply for GST purposes pursuant to section 181.2 of the Act (and therefore not subject to GST).
B. Characterization of the Aeroplan Supplies
[16] The test for characterizing single versus multiple supplies for GST purposes was set out and discussed in Calgary (City) v. R., 2012 SCC 20 at paragraphs 31 – 46 as follows:
31 While not precisely on point, guidance on the question of whether there were one or two supplies in this case may be drawn from the way in which courts have dealt with whether a supplier has made a single supply comprised of a number of constituent elements, or multiple supplies of separate goods and/or services.
32 In determining whether a supplier has made a single supply or multiple supplies, the relevant principles were summarized by Justice Rip (as he then was) in O.A. Brown Ltd. v. R., [1995] G.S.T.C. 40 (T.C.C.). His approach was confirmed by the Federal Court of Appeal in Hidden Valley Golf Resort Assn. v. R., [2000] G.S.T.C. 42 (Fed. C.A.).
33 In O.A. Brown, the appellant O.A. Brown Ltd. (“OAB”) bought livestock for customers, but on its own account and at its own risk, not as agent for its customers. Customers would contact OAB's salesman to place an order specifying the type of cattle they required. OAB charged its customers disbursements, such as the cost of branding and inoculations, and a clearing commission, in addition to the cost of livestock. Livestock is a zero-rated supply for GST purposes, which means that the vendor neither pays GST on his acquisition of the livestock, nor collects it from his customers. The Minister assessed GST on the commission and the other disbursements. The main issue in the appeal was whether OAB supplied a service of acquiring livestock according to its customers' specifications, or whether it was supplying livestock and other supplies, in which case it should have collected and remitted GST on the other supplies.
34 Justice Rip found that the Value Added Tax statute in the United Kingdom contained many provisions similar to our GST (Value Added Tax Act (UK), 1983, c. 55). In the English cases the issue had been defined as whether the supply in question comprises a compound supply or a multiple supply. A compound supply is a single supply with a number of constituent elements which, if supplied separately, some would have been taxed and some not. Multiple supplies are made and taxed separately.
35 O.A. Brown established the following test to determine whether a particular set of facts revealed single or multiple supplies for the purposes of the ETA:
The test to be distilled from the English authorities is whether, in substance and reality, the alleged separate supply is an integral part, integrant or component of the overall supply. One must examine the true nature of the transaction to determine the tax consequences. [p. 40-6]
36 When reaching his decision, Justice Rip made the following observation:
... one should look at the degree to which the services alleged to constitute a single supply are interconnected, the extent of their interdependence and intertwining, whether each is an integral part or component of a composite whole. [p. 40-6]
(Citing Mercantile Contracts Ltd. v. Customs & Excise Commissioners, File No. LON/88/786, U.K. (unreported).)
37 Justice Rip also noted the importance of common sense when the determination is made. McArthur T.C.J. made a similar observation in Gin Max Enterprises Inc. v. R., 2007 TCC 223, [2007] G.S.T.C. 56 (T.C.C. [Informal Procedure]), at para. 18:
From a review of the case law, the question of whether two elements constitute a single supply or two or multiple supplies requires an analysis of the true nature of the transactions and it is a question of fact determined with a generous application of common sense...
38 Applying the test, Justice Rip found that the disbursements and commission were not charged for services that were “distinct supplies, independent of the whole activity” (p. 40-8) Only if taken together did the activities of buying, branding, inoculation, and other disbursements form a useful service. He concluded:
In substance and reality, the alleged separate supply, that of a buying service, is an integral part of the overall supply, being the supply of livestock. The alleged separate supplies cannot be realistically omitted from the overall supply and in fact are the essence of the overall supply. The alleged separate supplies are interconnected with the supply of livestock to such a degree that the extent of their interdependence is an integral part of the composite whole. ... The appellant is making a single supply of livestock and the commission and disbursements charged are part and parcel of the consideration for that supply. They do not amount to separate supplies. [pp. 40-8 to 40-9]
39 In O.A. Brown, Rip J. characterized the commission, inoculation, branding and transportation costs not as distinct services but as inputs for the cattle and part of the cost of supplying the cattle. If this approach is followed, the public transit facilities would not be a separate supply, but would be an input to, or part and parcel of, the supply of the municipal transit service to the Calgary public.
40 Maritime Life Assurance Co. v. R., [2000] G.S.T.C. 89 (Fed. C.A.), also supports the proposition that work preparatory to, or in order to make a supply, does not become a separate service subject to GST. In Maritime Life, the taxpayer, Maritime Life Assurance Co., issued insurance policies of various kinds, including a number of deferred annuity contracts. The holder of such a policy would pay periodic premiums to Maritime Life as consideration for the right to receive, on a specified future date, a payment of money or an annuity of equivalent value.
41 The Tax Court judge found two kinds of services were being provided to Maritime Life's policy holders, the insurance services represented by the issuance and administration of the policies, and the services represented by its management of the segregated funds. The Federal Court of Appeal held that the only supply Maritime Life made to the policy holders was the provision of the policies. Maritime Life administered the policies and maintained the investments that backed its obligations under the policies, but that was the work it had to do to ensure that it remained in position to fulfil its policy obligations. The Federal Court of Appeal reasoned that the work should not be treated as a service that Maritime Life provided to the policy holders, any more than the work undertaken by a cleaning service to keep its cleaning equipment in good repair is a service provided to its clients. Applying the same reasoning in the present case, the acquisition and construction of the transit facilities, work undertaken by the City to develop a municipal transit service that meets the needs of the Calgary public, would not be treated as a supply that is separate from the supply of the municipal transit service itself.
42 Applying the O.A. Brown test, the question in this appeal is whether, in substance and reality, the alleged separate “transit facilities services” supply is an integral part, integrant or component of the overall supply of “public transit services”. According to the jurisprudence, if one supply is work of a preparatory nature to another supply (an “input” to that supply), then the input is a part or component of the single overall supply.
43 In my opinion, the true nature of the City's “transit facilities services”, a determination to be made with common sense, was work of a preparatory nature to the supply of a municipal transit service to the public. Transit facilities were constructed, acquired, and made available in order to supply a municipal transit service to the Calgary public. This would point to the allegedly separate “transit facilities services” being in fact a component of the overall supply of “public transit services” to the Calgary public.
44 Further, the single supply/multiple supplies analysis, as it has emerged, presupposes that several distinct elements or components of a supply can be identified before the analysis can be performed. In the present case, the alleged separate supplies are so interconnected that it would be difficult to identify distinct elements or components.
45 The purchase of an LRT vehicle (part of the alleged “transit facilities services” provided to the Province), and the operation of that vehicle as part of a municipal transit service (part of the “public transit services” provided to the Calgary public), are distinct activities. However, these activities are better seen as steps taken in order to produce a municipal transit service than they are seen as distinct elements or components of that transit service. The City's acquisition and construction of the transit facilities served the purpose of enabling the City to provide a transit service to the public. The end result of those activities was that a municipal transit service, featuring several expansions and improvements, could be operated. Nothing else was produced as a result of the activities. In this regard, this case is analogous to O.A. Brown, in which all disbursements and services for which customers were charged ultimately enabled OAB to deliver livestock as ordered by its customers. Further, the transit facilities have no use and provide no service except to the extent to which they are deployed for use within the Calgary municipal transit service. The interdependence and interconnectedness of the “transit facilities services” and the “public transit services” is obvious.
46 The application of the test for a separate supply would indicate that there is only one supply in the circumstances. However, in the leading separate supply cases, the allegedly separate supplies are provided to single recipients. The cases do not contemplate a situation in which there are allegedly two recipients of the supply or supplies. In addition to the O.A. Brown test, there are other relevant factors to consider. Here, it has been argued that the “transit facilities services”, which ultimately benefit the Calgary public, provide a separate and distinct benefit to the Province. To determine whether the Province received any service or benefit from the City, the nature of the respective obligations of the City and Province under the Agreements, having regard to the statutory context, must be analyzed.
[17] The test for determining whether there are single or multiple supplies in a given situation was also discussed by the Federal Court of Appeal in Global Cash Access (Canada) Inc. v. R., 2013 FCA 269, at paragraphs 21 – 26 as follows:
Procedural history
21 The Casinos initially believed that the commissions it received from Global in respect of Funds Access Service transactions were exempt from GST. Accordingly, they did not collect GST from Global on the commissions. The Minister of National Revenue concluded otherwise and initially assessed Global for the uncollected GST. The Casinos paid the GST and were reimbursed by Global. Global then filed a rebate application on the basis that the GST had been paid in error. The Minister did not agree and assessed Global for the GST. The notice of assessment permitted Global to object and, when that did not succeed, to appeal to the Tax Court.
22 As indicated above, the issue before the Tax Court was whether the commissions paid by Global to the Casinos were consideration for a “financial service” supplied by the Casinos. Justice Woods concluded that what the Casinos supplied to Global in exchange for the commission was a bundle of supplies comprised of three elements, described as follows at paragraph 63 of her reasons:
63. Accordingly, there are three main aspects to the bundle of supplies by the Casinos: (1) allowing kiosks on the premises, (2) providing support services at the cashier cages such as transaction procedures and initiating transactions on behalf of patrons, and (3) cashing Global's cheques.
23 She held that these three elements were not sufficiently interdependent to constitute a “single supply”, and that none of the three elements could properly be characterized as incidental to the other. Therefore, she considered it necessary to determine which of the three elements, if any, fell within the statutory definition of “financial service”. She concluded that only the third element, “cashing Global's cheques”, fell within the statutory definition. She estimated that the third element represented 25% of the total value of what the Casinos supplied to Global and on that basis she concluded that only 25% of the commission was exempt from GST.
Discussion
24 The parties agree that this was a case of a single supply by the Casinos, not a supply of several things of which only one was within the statutory definition of “financial service”. I agree.
25 It is clear from the contract and from the undisputed facts that none of the three elements of the supply as identified by Justice Woods had commercial efficacy on its own. More importantly, there is no evidence that Global would have been prepared to pay consideration to the Casinos for any of the three elements on its own. Since the three elements are integrally connected and there is a single consideration, there is a single supply.
26 To determine whether that single supply falls within the statutory definition of “financial service”, the questions to be asked are these: (1) Based on an interpretation of the contracts between the Casinos and Global, what did the Casinos provide to Global to earn the commissions payable by Global? (2) Does that service fall within the statutory definition of “financial service”?
[18] The Federal Court of Appeal also noted the following with respect to this test in Club Intrawest v. R., 2017 FCA 151, at paragraphs 80 – 82:
80 In order to determine whether an overall supply consists of more than one supply, that is whether a supply consists of a compound supply or multiple supplies, one must determine whether an “alleged separate supply is an integral part, integrant or component of the overall supply. ... One factor to be considered is whether or not the alleged separate supply can be realistically omitted from the overall supply.” (O.A. Brown, paragraphs 22-23).
81 More recently, in Global Cash Access, this Court looked to the commercial efficacy of an arrangement in order to determine the predominant element of a single supply. As that predominant element fell within the statutory definition of “financial service” in subsection 123(1) of the Act, and did not fall within any statutory exception, the consideration received by the taxpayer in exchange for the supply was not subject to GST.
82 What I take from Global Cash Access is that when applying the Act regard must be had to the predominant element of a single supply. It is an error of law to apply the Act having regard to services that do not form the predominant element of a single supply (see also: Great-West Life Assurance Co. v. R., 2016 FCA 316, [2016] G.S.T.C. 118, [2016] F.C.J. No. 1408 (Fed. C.A.), at paragraph 43).
[19] Before applying the O.A. Brown test as described by the Supreme Court of Canada in Calgary (City) and the Federal Court of Appeal in Global Cash Access and Club Intrawest, it is first necessary to determine what supplies (or elements thereof) Aeroplan was making to CIBC in respect of the Aeroplan Supplies. In this case, the Aeroplan Supplies were made by Aeroplan to CIBC pursuant to the 2003 Credit Card Agreement which, as previously noted, governed CIBC’s participation in the Aeroplan Mile Program during the Period under appeal. At paragraphs 3-14 of the Statement of Agreed Facts (Partial) set out in Appendix “A” hereto, the parties summarized the operation of the Aeroplan Mile Program as follows: [25]
Aeroplan Mile Program
3. Air Canada operated a loyalty program (the "Aeroplan Mile Program"), which was subsequently transferred to Aeroplan Limited Partnership.
4. CIBC entered into an agreement with Air Canada dated as of April 16, 2003, as amended from time to time (the "Agreement"), which was subsequently assigned to Aeroplan Limited Partnership.
5. Pursuant to the Agreement, CIBC added the "Aeroplan Miles" reward feature to certain CIBC Visa Cards ("Visa AeroCards") and certain mortgages ("AeroMortgages”).
6. The Agreement, inclusive of the relevant amendments, consisted of the following:
a. Credit Card Agreement dated as of April 16, 2003 between CIBC and Air Canada
b. Letter amending agreement dated October 31, 2003 between CIBC and Air Canada
c. Letter amending agreement dated November 28, 2003 between CIBC and Air Canada
d. Letter amending agreement dated April 7, 2004 between Air Canada and CIBC
e. Assignment and Assumption Agreement dated July 5, 2004 between Air Canada, Aeroplan Limited Partnership ("Old Aeroplan") and CIBC
f. Assignment and Assumption Agreement dated June 29, 2005 between APLN Limited Partnership (formerly Old Aeroplan), Aeroplan Limited Partnership, CIBC and Air Canada
g. Amending Agreement dated as of September 28, 2006 between CIBC and Aeroplan Limited Partnership
h. Amending Agreement dated as of October 2, 2006 between CIBC and Aeroplan Limited Partnership
i. Letter amending agreement dated November 16, 2006 between Aeroplan Limited Partnership and CIBC
7. The Aeroplan Mile Program generally operated as follows:
a. Aeroplan entered into agreements with various suppliers of property or services (each, an "Accumulation Partner") under which the Accumulation Partners added the Aeroplan Mile loyalty reward feature to certain of their consumer products.
b. An Aeroplan member could earn Aeroplan Miles as and when the member purchased eligible products from any Accumulation Partner.
c. The Accumulation Partner in each case would advise Aeroplan of the amount of the member's purchases eligible for Aeroplan Miles and the Accumulation Partner would pay Aeroplan for those Aeroplan Miles.
d. Aeroplan would issue the Aeroplan Miles to the member.
e. Once a sufficient number of Aeroplan Miles had been accumulated by the member in his or her Aeroplan account maintained with Aeroplan, the member could redeem the Aeroplan Miles with Aeroplan toward the acquisition of property or services ("Rewards") chosen from a menu of Rewards made available by Aeroplan from time to time.
f. Aeroplan would purchase the Rewards from suppliers (referred to as its "Redemption Partners") with which it had agreements for the supply of Rewards.
g. The member would receive his or her chosen Rewards.
8. In CIBC's case, the Aeroplan Mile Program generally operated as follows in respect of its Visa AeroCard product:
a. CIBC would issue a Visa AeroCard to a customer ("Cardholder"), and if the Cardholder was not already an Aeroplan member, CIBC would, on behalf of the Cardholder, request Aeroplan to enroll the Cardholder as an Aeroplan member.
b. The Cardholder would charge purchases to his or her Visa AeroCard account.
c. At the end of the billing period for the Cardholder's Visa AeroCard account, CIBC would invoice the Cardholder and collect the amount owing on the account from the Cardholder, pursuant to a Cardholder Agreement between CIBC and the Cardholder.
d. CIBC would indicate on the Cardholder's Visa AeroCard account statement that the Cardholder had earned an amount of Aeroplan Miles as a result of the credit card purchase transactions.
e. The Cardholder would generally, but not always, earn one Aeroplan Mile for each dollar of purchases charged to the Cardholder's Visa AeroCard account -- the precise number of Aeroplan Miles so earned per dollar of purchases using the Visa AeroCard sometimes varied.
f. CIBC would advise Aeroplan of the amount of the Cardholder's purchases eligible to earn Aeroplan Miles and Aeroplan would issue the Aeroplan Miles to the Cardholder by crediting the Cardholder's Aeroplan member account with those Aeroplan Miles.
g. Aeroplan would then invoice CIBC for the Aeroplan Miles at the cost specified in Appendix "D" of the April 16, 2003 Credit Card Agreement or at the cost as modified and set out in the subsequent amendments to the Agreement.
h. Provided the Cardholder's Visa AeroCard account remained in good standing, the Cardholder could earn Aeroplan Miles as described above. If and when the Visa AeroCard account was no longer in good standing, the Cardholder would cease being entitled to earn Aeroplan Miles until his or her account was restored to good standing.
i. Subject to any applicable terms and conditions specified in the Agreement and the relevant Cardholder Agreement and Benefits Guide, an Aeroplan member could accumulate Aeroplan Miles in the member's Aeroplan account and, upon accumulating a sufficient number of Aeroplan Miles, the member could redeem all or some of the Aeroplan Miles with Aeroplan for property or services as Rewards offered by Aeroplan at that time.
9. A Cardholder Agreement and a Benefits Guide were provided by CIBC to Visa AeroCard Cardholders, which generally set out the benefits and the terms and conditions of having a CIBC Visa AeroCard. These documents included a general description of the benefits and certain terms and conditions specifically associated with the Aeroplan Miles reward feature of the Visa AeroCard.
10. There were certain other circumstances in which CIBC awarded Aeroplan Miles to customers, for example, where a customer paid interest on a CIBC AeroMortgage, opened a new account with CIBC or where CIBC awarded the Aeroplan Miles as a customer service gesture. In these cases, CIBC paid Aeroplan for the Aeroplan Miles so awarded, which were credited by Aeroplan to the customer's Aeroplan member account.
11. Aeroplan made available a menu of Rewards, which varied from time to time, being property and services that Aeroplan would purchase from Redemption Partners with which it had agreements. Rewards available at various times included, among other things, airline flights, stays in hotels and resorts, car rentals, electronics, a broad selection of brand-name merchandise, concert tickets, spa packages, meals at restaurants, and gift cards from a network of over 20 well-known national retailers such as Gap, the Body Shop, Holt Renfrew, Pier One and Pottery Barn, to name a few.
12. Aeroplan generally had discretion to change the Rewards made available to Aeroplan members and/or the number of Aeroplan Miles required to obtain any given Reward.
13. Upon redemption of Aeroplan Miles by an Aeroplan member, Aeroplan would incur the cost to acquire the desired Reward from the Redemption Partner.
14. In October 2006, Aeroplan announced that, beginning on January 1, 2007, Aeroplan Miles unused after seven years would expire. Aeroplan Miles accumulated prior to January 1, 2007 would expire on December 31, 2013. This seven-year expiry policy was subsequently cancelled and various modifications to the Aeroplan Mile Program were implemented as of January 1, 2014. Effective July 1, 2007, generally Aeroplan members were required to transact with the Aeroplan Mile Program through either one accumulation or one redemption within the last 12 months, or the accumulated Aeroplan Miles would expire. However, under the letter agreement of November 16, 2006 between CIBC and Aeroplan, Aeroplan agreed that CIBC would have the right to purchase from Aeroplan one Aeroplan Mile for each Cardholder whose Aeroplan Miles would otherwise expire under the new One-Year Expiry Rule with the result that no existing or future Cardholder's Aeroplan Miles wou1d expire pursuant to this Rule.
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