http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/180731/index.do
407 ETR Concession Company Limited v. R. (September 27, 2016 – 2016 TCC 213, D’Arcy J.).
Précis: The taxpayer, a private corporation, operated Highway 407 in Ontario under a public-private partnership arrangement. Policing for the Highway was provided by the Ontario Provincial Police (“OPP”) and was billed by the OPP to the taxpayer. The taxpayer took the position that the policing was the supply of a “municipal service” and therefore an exempt supply. CRA took that position that, since the policing was provided by the province and not a municipal entity, the service was taxable.
The Tax Court held that the statute did not require that the exempt services be supplied by a municipality but rather that they be in the nature of services provided by municipalities and be provided by a municipality or government. As a result the appeal was allowed with costs.
Decision: The issue before the Court was very narrow:
[61] The position of the Respondent is that the supply made by the Appellant is not a supply of “a municipal service” for the purposes of section 21 of the Exempting Schedule because the supply was a supply of providing traffic patrol on the King’s Highway, which is not within the mandate of any municipal authority. The Respondent’s counsel argued that the police services provided by the OPP are police services that are not a municipal responsibility; they are exclusively a provincial responsibility and for that reason fall outside of the opening words, “a municipal service”, in section 21 of the Exempt Schedule.
[62] The Appellant argues that the term “a municipal service” as used in section 21 of the Exempt Schedule is to be interpreted more broadly to include all services that are in the nature of services typically provided by municipalities.
The Court reviewed the statute and the case law and ended up siding with the taxpayer:
[56] As noted previously, the relevant section for the purposes of this appeal is section 21 of the Exempting Schedule. Throughout the relevant period that section read as follows:
21. [Municipal services] — A supply of a municipal service, if
(a) the supply is
(i) made by a government or municipality to a recipient that is an owner or occupant of real property situated in a particular geographic area, or
(ii) made on behalf of a government or municipality to a recipient that is an owner or occupant of real property situated in a particular geographic area and that is not the government or municipality;
(b) the service is
(i) one which the owner or occupant has no option but to receive, or
(ii) supplied because of a failure by the owner or occupant to comply with an obligation imposed under a law; and
(c) the service is not one of testing or inspecting any property for the purpose of verifying or certifying that the property meets particular standards of quality or is suitable for consumption, use or supply in a particular manner.
…
[69] In short, the interpretation suggested by the Respondent is not consistent with the presumption against tautology. Section 21 applies, in part, to a supply of a municipal service made by a government, i.e., the Federal Government or a province. An interpretation of municipal service that limits the application of section 21 to supplies made by a municipality renders the words “made by a government” meaningless.
[70] The words municipal service must be interpreted in a way that allows for the service to be supplied by either a government or a municipality. I agree with the Appellant: interpreting “a municipal service”, as that phrase is used in section 21, to mean a service that is in the nature of services typically provided by municipalities satisfies Parliament’s intention that the service may be supplied by either a government or a municipality.
…
[74] In my view, the OPP policing services provided by the Province of Ontario to the Appellant are in the nature of services typically provided by municipalities. In fact, policing services are one of the core services provided by a municipality.
[75] The 407 ETR is located in various regional municipalities. As a result, the various regional municipal police forces would police the 407 ETR if it were not designated a King’s Highway for the purposes of paragraph 3 of subsection 19(1) of the Police Services Act. This can be seen from the corridor lands that are adjacent to the 407 ETR and owned by the Province of Ontario. Since such lands are located in the regional municipalities and are not part of a King’s Highway, they are policed by the relevant regional municipal police force. It also can be seen from the fact that during its construction phase the 407 ETR was policed by the relevant regional municipal police force.
[76] Similarly, the Appellant’s operations centre land and patrol yard lands are policed by the relevant regional municipal police force. These lands are leased to the Appellant by the Province but, since they are not physically part of the King’s Highway, they are policed by the regional municipal police force for the region in which they are situated.
[77] More importantly, as noted by Staff Sergeant Kaizer, the policing services provided by the OPP on the 407 ETR are the same services that municipal police forces provide under subsection 4(2) of the Police Services Act. His testimony was consistent with the testimony of Inspector McDonald and the annual business plans of the OPP’s Highway 407 Detachment.
[78] For these reasons, I have concluded that the policing services provided by the OPP to the Appellant were of the same nature as services typically provided by municipalities. As a result, the supply of the services constituted “a supply of a municipal service” for the purposes of section 21 of the Exempting Schedule.
As a result the appeal was allowed with costs. The parties were given 30 days to make submissions on costs, failing which they would be fixed at the Tariff amount.