Date: 19990601
Docket: 97-2618-GST-I
BETWEEN:
CENTRE PROVINCIAL DE RESSOURCES PÉDAGOGIQUES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowman, J.T.C.C.
[1] The appellant, the Centre provincial de ressources pédagogiques (“the CPRP”), is appealing a Goods and Services Tax (“GST”) assessment made by the Minister of National Revenue for the period from August 1, 1992, to July 31, 1996.
[2] The issue is whether, as the Minister argued, the CPRP is an integral part of the Université Sainte-Anne, a charity, or whether it is a body of the Department of Education and Culture of Nova Scotia.
[3] The appellant claims to be a body of the Department because its services are being loaned to the Department by the Université Sainte-Anne, because it is under the Department’s jurisdiction and because it receives 100 percent of its funding from the Department. For that reason, the appellant argued that it is entitled to be exempt from the GST.
[4] Before deciding this issue, it is necessary to summarize the provisions of the Excise Tax Act dealing with the taxation of public sector bodies and of charities.
[5] Public sector bodies, including charities, normally make exempt supplies covered by Schedule V to the Act. However, such bodies—which include the provincial and federal governments, universities, charities and municipalities—must register and collect the GST on the supplies they make in the course of their commercial activities. Moreover, only the supplies listed in Part VI of Schedule V to the Act are exempt from the GST. It follows that, if all the supplies produced by a public sector body are exempt, no input tax credit can be claimed.
[6] In Reference Re G.S.T., [1992] 2 S.C.R. 445, Lamer C.J. stated the following at pages 456-57:
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.
[7] This passage provides a very good summary of how the Act works. In the case at bar, the Minister denied the claim for input tax credits on the ground that the appellant did not acquire the goods and services in question in the course of its commercial activities. He relied on Part VI of Schedule V to the Act, which lists all the exempt goods and services that public sector bodies supply. He concluded that the goods and services were acquired by the appellant in the course of activities covered by section 2 of Part VI of Schedule V to the Act.
[8] It is important to note that, in the course of their activities, public sector bodies often acquire goods and services on which the GST is collected. It follows that, if they do not make a taxable supply, the GST paid cannot be recaptured through the input tax credit mechanism. To remedy this absurd result, a special rebate is provided for in section 259 of the Act. A prescribed percentage of 67 percent for universities is set out in section 5 of the Public Service Body Rebate (GST) Regulations.
[9] I return now to the question posed at the beginning of these reasons: is the appellant an integral part of the Université Sainte-Anne or rather of the Department of Education and Culture of Nova Scotia?
[10] I am satisfied that the appellant is part of the Université Sainte-Anne, which is a charity under subsection 123(1) of the Act.
[11] There have been a number of agreements between that university and Her Majesty the Queen in right of the province of Nova Scotia. I will cite a few typical provisions from one of those agreements:
This Agreement dated the 7th day of July, A.D. 1988
BETWEEN:
HER MAJESTY THE QUEEN in the Right of the Province of Nova Scotia, represented by the Minister of Education, (hereinafter referred to as the “Minister”),
OF THE FIRST PART
- and –
UNIVERSITÉ SAINTE-ANNE, a body corporate pursuant to Chapter 106 of the Acts of 1977 (hereinafter referred to as the “Université”)
OF THE SECOND PART
WHEREAS the Université has been carrying on a project financed through the Secretary of State known as The Centre Provincial de Ressources Pédagogiques (hereinafter referred to as the “C.P.R.P.”);
AND WHEREAS the C.P.R.P. provides essential services in the French language to the public school system including a lending library, evaluation material, films and other materials and services;
AND WHEREAS the Minister is desirous that the services of the C.P.R.P. should continue;
AND WHEREAS the Université has agreed that C.P.R.P. should work for the Minister in the area of French curriculum development and implementation;
NOW THEREFORE THIS AGREEMENT WITNESSETH THAT in consideration of the mutual covenants and agreements herein contained the Parties hereto covenant and agree with each as follows:
1. The C.P.R.P. will serve the following functions:
(a) a lending library for francophone and immersion schools,
(b) development and implementation of support materials for francophone and immersion schools, and
(c) in-service of new materials for francophone and immersion schools.
2. The C.P.R.P. shall carry out the duties under the direction of the Curriculum Director of French Language Programs.
3. The financial administration of the C.P.R.P. shall continue to be the responsibility of the Université.
4. (1) The Université shall submit to the Minister for his approval a budget of the costs, salaries and benefits required for the C.P.R.P. project.
(2) The Université shall continue payments to the C.P.R.P. of its regular costs, salaries and benefits.
(3) The Minister shall reimburse the Université for the budget pursuant to subsection (1) in twelve (12) monthly payments per year.
[12] I acknowledge that the project carried out by the appellant was fully financed by the province. However, this does not mean that the appellant ceased to be an integral part of the university or became a body of the province. In the agreement cited above and the subsequent agreements, the appellant is treated as a body of the university.
[13] For this reason, I have concluded that the appellant is not entitled to be exempt from the GST or to receive the input tax credit. However, it is entitled to the rebate provided for in section 259 of the Act and in the Public Service Body Rebate (GST) Regulations.
[14] The appeal is dismissed.
Signed at Ottawa, Canada, this 1st day of June 1999.
“D.G.H. Bowman”
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 29th day of March 2000.
Erich Klein, Revisor