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Federal Tax - GST/HST

. Northbridge Commercial Insurance Corporation v. Canada

In Northbridge Commercial Insurance Corporation v. Canada (Fed CA, 2023) the Federal Court of Appeal reviews GST/HST portions of the Excise Tax Act, and aspects of statutory interpretation - particularly those of 'insurance' and 'risk':
[26] The ETA is a highly detailed statute. Part IX of the ETA (the GST provisions) sets out a detailed tax regime in sections 122 to 363.2. In addition, there are 12 schedules (I to X, including II.1 and III.1). Section 2 of Part IX of Schedule VI only applies to financial institutions that issue insurance policies. It does not apply to a person who acquires an insurance policy. Since this section is limited to financial institutions that issue insurance policies, in my view, the word “risks” should be interpreted from the perspective of the insurance companies.

[27] In Canada v. Resman Holdings Ltd., [2000] 3 CTC 442, 2000 CanLII 15312 (FCA) (leave to appeal to the Supreme Court of Canada refused May 24, 2001, 28080), the issue was the interpretation of “accumulation” for the purposes of subsection 66.1(6) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (ITA). This Court found that “accumulation”, in the context of the highly detailed statutory provisions of the ITA, was to be given the meaning that would be understood in the industry:
[34] The Crown argues that the word "accumulation" was intended to be read in the sense it [sic] which it would be understood in the industry. In my view, that is the correct approach to a word as general as "accumulation" when it is used in the context of highly detailed statutory provisions that are intended to be of use to a particular industry.
[28] An insurance policy is a contract of insurance (definition of insurance policy in subsection 123(1) of the ETA). Black’s Law Dictionary, 11th ed., 2019, defines insurance as:
1. A contract by which one party (the insurer) undertakes to indemnify another party (the insured) against risk of loss, damage, or liability arising from the occurrence of some specified contingency. • An insured party usu. pays a premium to the insurer in exchange for the insurer's assumption of the insured's risk. Although indemnification provisions are most common in insurance policies, parties to any type of contract may agree on indemnification arrangements. 2. The amount for which someone or something is covered by such an agreement.
[29] The Supreme Court of Canada in Somersall v. Friedman, 2002 SCC 59, defined risk in relation to liability insurance as a future event which may result in a loss:
[16] The purpose of liability insurance generally is to spread risk among those who, as policyholders, pay premiums for this coverage. Risk was defined by L'Heureux-Dubé J., adopting the language of Malouf J.A., in Frenette v. Metropolitan Life Insurance Co., 1992 CanLII 85 (SCC), [1992] 1 S.C.R. 647, at p. 668, as [TRANSLATION] "a future event, certain or uncertain, which may occasion loss". In University of Saskatchewan v. Fireman's Fund Insurance Co. of Canada (1997), 1997 CanLII 9789 (SK CA), 158 Sask. R. 223 (C.A.), Sherstobitoff J.A., at paras. 33-34, defined risk as "the peril insured against", or "the hazard or chance of misfortune or loss at some time in the future". He noted that "[i]f the misfortune or loss has already occurred, it is no longer a risk, but a certainty." Thus, the insurer crafts a policy which provides the policyholders with protection against a specified risk or future peril in return for the periodic payment of a premium. To provide this protection, the insurer undertakes to be prepared to pay out to the insured up to the maximum quantum of loss that could be suffered were the risk to occur, usually set at some cap.
[30] Similarly, as noted by the Tax Court Judge, the definition of “insurance” for the purposes of the Insurance Act, R.S.O. 1990, c. I.8, equates risk with the peril insured against:
“insurance” means the undertaking by one person to indemnify another person against loss or liability for loss in respect of a certain risk or peril to which the object of the insurance may be exposed, or to pay a sum of money or other thing of value upon the happening of a certain event, and includes life insurance;
[31] The Tax Court Judge also noted that several provinces (Alberta, British Columbia, Manitoba, Newfoundland and Labrador, Nova Scotia, Saskatchewan and Prince Edward Island) also adopt a definition of insurance that is similar to the definition in the Ontario statute.

[32] The critical element of an insurance policy issued by an insurance company is the indemnification against risk of loss, damage or liability. From the perspective of the insurance company, the risk is that a claim will be made by the insured as a result of the occurrence of an insurable event and payment of that claim will have to be made. For Northbridge, the risk was that a claim (or claims) would be made by its customers arising as a result of accidents involving its customers’ vehicles. The risk to Northbridge was not the vehicle, per se, but rather that the vehicle would be involved in an accident (or other insurable event), which would result in a claim.

[33] The use of “risks” within the phrase “risks that are ordinarily situated outside Canada” when viewed from the perspective of insurance companies does not, in my view, alter the interpretation of risks as the perils or the events which would give rise to a claim. The Tax Court Judge acknowledged in paragraph 37 of his reasons that “‘ordinarily situated’ means usually, commonly or customarily situated”.
. Northbridge Commercial Insurance Corporation v. Canada

In Northbridge Commercial Insurance Corporation v. Canada (Fed CA, 2023) the Federal Court of Appeal considered GST/HST tax interpretation, here the 'zero-rated' concept under Excise Tax Act (ETA):
[41] The general rules related to exports and the purpose behind making exported goods and services zero-rated are set out in the August 1989 Goods & Services Tax Technical Paper issued by the Department of Finance:
Consistent with the principle that the tax should only apply to consumption in Canada, exports of goods and services will be zero-rated (see Section 2.6). This will ensure that exports are completely relieved of GST. [page 54]


As with all other goods and services, financial services provided to nonresidents will be zero-rated. This will ensure that Canadian firms providing financial services remain competitive on world markets.

The rules for financial services will primarily affect a specific group of registrants—such as banks, trust companies, insurers, financial co-operatives and investment dealers—since the vast majority of financial services are provided by these institutions. In addition to exempt financial services, these institutions will normally make taxable and zero-rated supplies. Accordingly, under the general GST rules, they will have to allocate their inputs in order to determine their input tax credit entitlements. The tax paid on their purchases will be eligible for input tax credits to the extent they are for use in making a taxable or zero-rated supply. … [page 141]


The location of the supply of insurance services will be determined by the location of the risk. The insurance of foreign risks by a resident insurer will be considered to be an exported service, and as such, will be zero-rated. Accordingly, input tax credits will be allowed for purchases to the extent they are reasonably allocable to the supply of these zero-rated services. [page 148]
[42] In general, exported goods and services are to be “relieved of GST”. This is accomplished by providing that no tax is payable on the supply of such goods or services and the exporter is entitled to recover any GST paid on any goods or services acquired for the purpose of making such supply.
. Northbridge Commercial Insurance Corporation v. Canada

In Northbridge Commercial Insurance Corporation v. Canada (Fed CA, 2023) the Federal Court of Appeal considered the GST/HST status of a 'financial instrument', here an insurance policy [under Excise Tax Act]. These quotes consider the distinction between "exempt supplies and zero-rated supplies":
[15] An insurance policy is a financial instrument (paragraph (c) of the definition of financial instrument in subsection 123(1) of the ETA). The issuance of a financial instrument is a financial service (paragraph (d) of the definition of financial service in subsection 123(1) of the ETA). The supply of a financial service is an exempt supply for the purposes of the ETA, unless it is included in Part IX of Schedule VI (section 1 of Part VII of Schedule V).

[16] No GST is collectible in relation to exempt supplies (section 165 of the ETA and the definitions of taxable supply and commercial activity in subsection 123(1) of the ETA) and no ITCs can be claimed for any GST paid on any goods or services acquired in connection with the making of exempt supplies (section 169 of the ETA and the definition of commercial activity in subsection 123(1) of the ETA).

[17] Part IX of Schedule VI provides that certain supplies of financial services will be zero-rated supplies. No GST is payable by a recipient of a zero-rated supply (subsection 165(3) of the ETA), but since a zero-rated supply is not an exempt supply, to the extent a person is carrying on a business that involves the making of zero-rated supplies (or other taxable supplies), ITCs may be claimed by that person in relation to GST paid to acquire goods and services used in making the zero-rated supplies (or other taxable supplies). The general rule to determine the amount of such ITCs that may be claimed is found in section 169 of the ETA. Section 141.02 of the ETA is also a relevant provision in determining the amount of ITCs that a financial institution may claim.

[18] The distinction between exempt supplies and zero-rated supplies is, therefore, the ability to claim ITCs. In this appeal, the issue is whether Northbridge is entitled to claim any ITCs in relation to the GST it paid for general head office and overhead costs.
. River Cree Resort Limited Partnership v. Canada

In River Cree Resort Limited Partnership v. Canada (Fed CA, 2023) the Federal Court of Appeal considered a casino's appeal from the Tax Court, the issue being whether fees for automated teller machines (ATMs) were subject GST. The casino argued (and lost) that the ATM services were "payments for financial services" and thus were 'exempt supplies' (rather than 'taxable supplies') for GST purposes.

. Jayco Inc. v. Canada (Revenue Agency)

In Jayco Inc. v. Canada (Revenue Agency) (Ont CA, 2022) the Court of Appeal summarizes the federal GST/HST tax system:
[5] In Quebec (Revenue) v. Caisse populaire Desjardins de Montmagny, 2009 SCC 49, [2009] 3 S.C.R. 286, at para. 10, the court described the operation of the GST/HST:
The GST, which was implemented in 1990 by legislation that amended the ETA (S.C. 1990, c. 45), replaced the former federal manufacturers’ sales tax. The GST can be regarded as a value-added tax. It is collected at every stage of the manufacturing and marketing of goods and services and is payable by the recipient, who is regarded as the debtor in respect of the tax liability to the Crown (s. 165 ETA). However, the supplier is responsible for collecting and remitting the tax (s. 221(1) ETA). The supplier is deemed to hold the amounts so collected in trust for Her Majesty (s. 222(1) and (3) ETA) and must periodically file returns and make remittances. In addition, the Act establishes a system under which input credits can be claimed, at each step of the marketing and supply of the good, in respect of the taxes the supplier has had to pay to his or her own suppliers (ss. 141.01 and 169(1) ETA). The ultimate recipient bears the full burden of the tax. [Citation omitted.]
. Toronto-Dominion Bank v. Canada

In Toronto-Dominion Bank v. Canada (Fed CA, 2020) the Federal Court of Appeal considered an appeal under the Excise Tax Act [s.221] as to whether a bank, having lent money to a business on the security of real property, was bound by the GST tax trust provisions when the debtor defaulted and the bank realized on their secured interest in the property. The Court of Appeal viewed these GST trust provisions as similar to those applicable to employer source deductions trusts, and - given subsequent amendments to expressly give the government priority over secured interests - held that the seized property was held in trust for the government to the extent of the GST owing - ie. that the trust interest had priority over the bank's secured interest. That conclusion was apparent to the court as a matter of straightforward statutory interpretation.

The bank advanced two main arguments against this conclusion, firstly that the deemed trust required a 'triggering event' to be activated. The court dismissed this on text analysis from the applicable Excise Tax Act [paras 55-58]

Next, the bank argued that they took the secured property unknowing of the trust debt and were thus bona fide purchasers for value, and thus entitled to the property free of the debt claim. The court found that this argument would survive the trust if it was advanced by a party who was not a secured creditor, but not by the bank, who was [paras 72-77].


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