http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/68557/index.do 
Caithkin Inc. v. The Queen (March 24, 2014 – 2014 TCC 80) was a GST/HST appeal by a corporation engaged in providing foster care services to various Children’s Aid Societies within Ontario. The appeal turned on whether the services they supplied were taxable:
[1] Caithkin Inc. is involved in the provision of foster care to children in Ontario. It is registered for GST. From April 1, 2004 to December 31, 2004 and April 1, 2005 to March 31, 2009, Caithkin made supplies of various services to various Children’s Aid Societies in Ontario. Caithkin did not collect or remit GST on those supplies. Caithkin took the position that the supplies were exempt supplies under Schedule V, Part IV, section 2 of the
Excise Tax Act (the “Act”). Despite believing that the supplies were exempt supplies, Caithkin nonetheless claimed input tax credits in respect of those supplies.
[2] The Minister of National Revenue (the “Minister”) reassessed Caithkin for its reporting periods from April 1, 2004 to December 31, 2004 and April 1, 2005 to March 31, 2009 on the basis that Caithkin’s supplies to the Children’s Aid Societies were not exempt supplies. Despite believing that the supplies were taxable supplies, the Minister nonetheless denied the input tax credits claimed by Caithkin.
Caithkin’s claim that it was providing exempt supplies arose out of Schedule V, Part IV, section 2 of the
Excise Tax Act, R.S.C. 1985, c. E-15:
[15] Schedule V, Part IV, section 2 (“section 2”) of the Act makes the following supplies exempt:
A supply of a service of providing care, supervision and a place of residence to children, under-privileged individuals or individuals with a disability
in an establishment operated by the supplier for the purpose of providing such service.
[Emphasis added]
The court described the nature of Caithkin’s activities briefly as follows:
[23] What I am left with is the following clear facts:
- The Societies need someone to provide care, supervision and a place of residence to their foster children.
- The foster parents are able to supply care, supervision and a place of residence but they do not have a contract with the Societies and are not paid by the Societies.
- Caithkin is not, by itself, able to supply care, supervision and a place of residence.
- Yet Caithkin does have a contract with the Societies and is paid by the Societies for each day of care that a foster child receives and that pay explicitly takes into account the per diem rate that will be paid to the foster parents.
- The foster parents do have a contract with Caithkin and are paid a per diem rate by Caithkin for each foster child in their care.
- Caithkin has no need to be supplied with the foster parents’ services unless its intention is to re-supply those services to the Societies.
- There is no evidence whatsoever that would indicate that Caithkin is in any way acting as an agent of the Societies by entering into contracts with the foster parents and paying them on the Societies’ behalf.
[24] Based on the foregoing, the only conclusion that I can reach is that, despite the omission of this term from all but one of the Resource Service Agreements, Caithkin has agreed to re-supply the Societies with the care, supervision and a place of residence services that it acquires from the foster parents. There is no other characterization that can explain why Caithkin has contracted with the foster parents, how the Societies acquire the services that they need and why the money flows from the Societies to Caithkin and then to the foster parents.
The decision contains an extensive review of the factual background and the relevant legal considerations but at the end it boiled down to whether the foster homes were “establishments” operated by Caithkin. The court found they were not:
[37] Even if I were to give the benefit of the doubt to Caithkin and interpret the word “operate” in as broad a way as possible, I cannot find that Caithkin is operating the foster parents’ homes. Section 2 requires the “establishment” to be operated by Caithkin, not the “service”. While I accept that Caithkin could be said to manage the foster care service that is provided in the homes, I cannot accept that it is managing the houses themselves. The houses are the foster parents’ homes. Caithkin neither owns nor leases the homes. The foster parents are the kings and queens of their own castles. First and foremost, their homes are a place of shelter and residence for themselves and their natural children. Caithkin has nothing to do with those aspects of the homes. Furthermore, the foster parents have the right at all times to refuse to care for or to continuing caring for a given foster child in their home. At best, Caithkin can be said to manage some of the activities that occur in the homes but not the homes themselves.
Thus the court found that Caithkin was making taxable supplies. On this basis it upheld the imposition of penalties:
DUE DILIGENCE
[39] The fact that Caithkin both treated its supplies as being exempt supplies and, at the same time, claimed input tax credits in respect of those supplies makes it impossible for me to find that Caithkin exercised due diligence in determining its GST obligations. In no way could this have-my-cake-and-eat-it-too approach be seen to be duly diligent. Accordingly, the Minister was correct to apply the penalty under former paragraph 280(1)(a) of the Act.
The court allowed the appeal only to the extent of certain concessions made by the Crown (a prior statute-barred period and applicable input tax credits) and awarded costs to the Crown.