Supreme Court of Canada Rules that Intergovernmental Tax Agreements Supersede Constitutional Taxation Immunity

December 26, 2019

Mark Feigenbaum

The Supreme Court of Canada recently ruled that while a British Columbia Crown corporation was not obliged to pay GST on its own property under the Constitution, it was still required to pay taxes because of agreements signed between the federal and provincial governments. 

What Happened?

In 1999, the British Columbia government created the British Columbia Investment Management Corporation (“BCI”) to provide investment management services to the province’s public sector pension plans and other Crown entities through the Public Sector Pension Plans Act

Under two separate agreements, the Canadian government agreed to pay certain provincial taxes and fees and British Columbia agreed to pay the taxes imposed under the federal Excise Tax Act (“ETA”). 

BCI didn’t charge direct fees for some of its investment services and instead took some of the profits from those investments to cover the costs of its services. It didn’t charge GST for them. 

However, the Canada Revenue Agency (“CRA”) began to question whether BCI was entitled to claim immunity from GST in respect of the expenses it incurred in managing the investment portfolios. According to the federal government, BCI was holding the investments “in trust” for pension boards and the pension boards were private and not part of any government. Because the pension boards were getting a service, the federal government said they had to pay GST, which BCI had to collect. It claimed that BCI owed over $40 million, plus interest and penalties, for three years.

In December 2013, BCI filed a petition in the Supreme Court of British Columbia, seeking declarations that as a statutory Crown agent, BCI was immune from taxation in respect of the assets it held in the portfolios, and was not bound by the payment obligations found in the provincial agreements with the federal government. 

Lower Court Decisions

The chambers judge found that BCI, as a statutory Crown agent, enjoyed immunity under s. 125 of the Constitution Act, 1867, which states that no lands or property belonging to Canada or any province shall be liable to taxation. However, the chambers judge also found that BCI was bound by the taxation agreements between the province and the Canadian government and was obliged to pay on that basis. 

The Court of Appeal agreed with the lower court’s decision. 

Canada appealed the holding that BCI was immune from taxation and BCI cross-appealed with respect to the binding nature of the agreements.

Supreme Court of Canada Decision

The court found that, as a statutory Crown agent, BCI enjoyed the same constitutional immunity in respect of its property as the provincial Crown did. It found that the ETA’s mechanism forimposing GST on the portfolios would result in Crown property being subject to taxation, which would go against s. 125 of the Constitution Act, 1867, stating: 

“In the instant case, there is no question that the federal GST falls squarely within the meaning of “taxation” in s. 91(3) of the Constitution Act, 1867, and that, as a statutory Crown agent, BCI enjoys the same constitutional immunity in respect of its property as the provincial Crown does. When the Crown holds property in trust, s. 125 of the Constitution, 1867, protects only the Crown’s interest in trust property from taxation. A private beneficial interest can therefore be taxed when the Crown holds legal title. However, if the tax is imposed on the Crown’s interest in the property, then constitutional immunity applies. In this case, the ETA uses a legal fiction to require a trust to pay tax on taxable services provided to it by its trustee. However, when the trustee is a provincial Crown agent, this mechanism runs afoul of s. 125 because it imposes tax on property legally owned by the Crown. The ETA does not impose GST on a distinct private beneficial ownership interest in this case. Therefore, the ETA is constitutionally inapplicable to the Portfolios.”

However, the court further found that BCI was subject to the two agreements signed with the federal government. The court stated that the agreements resembled private law contracts and were intended to create legally binding obligations between the federal government and British Columbia. It found that BCI was generally subject to the obligations set out in the agreements to the same extent that British Columbia would be. Therefore, under the agreements, BCI was obligated to pay.

As a result, the court dismissed the appeal and the cross‑appeal.

Get Advice 

Mark Feigenbaum brings together many years of litigation experience with a deep knowledge of tax law, corporate law, accounting, finance, and other related practice areas. Mark can help you avoid the biggest risks that may arise in tax disputes.

Prior to founding his law firm, Mark worked in the cross-border tax department of an international Big 4 firm, and held accounting management positions across a variety of sectors in both Canada and the United States.

With tax legislation in constant flux on both sides of the border, Mark takes great care to stay current on all relevant developments in law and policy. He carefully considers all solutions available to craft a response that proactively considers the policies and best practices of a given tax authority.

If you are involved in a tax dispute or related litigation, contact Mark Feigenbaum for exceptional representation and guidance. Mark’s many years of interdisciplinary knowledge in law, tax, accounting, and finance and significant cross-border experience make him uniquely positioned to assist you. Mark offers services to clients in the U.S., Canada and around the world. Contact Mark online or call him at (905) 695-1269 or toll-free at (877) 275-4792 to book a consultation.


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