Boardwalk Equities Inc. V. The Queen – Federal Court of Appeal holds GST payable on the full cost of natural gas and electricity notwithstanding that part of that cost was paid directly to the suppliers by the province of Alberta

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The decision of the Federal Court of Appeal delivered on May 30 2013 in Boardwalk Equities Inc.v. The Queen is a difficult case to evaluate since there appear to have been gaps in the evidence. In 2000, the province of Alberta became concerned about increasing energy costs and introduced a program to assist residents with their natural gas and electricity payments in 2001. In the case of commercial activities, that assistance amounted to a percentage of the costs and was paid to the suppliers directly by the province. The sole issue was whether GST was payable on the gross energy costs or the costs net of the provincial assistance.

The legal question before the court was what was the amount of the “consideration” (within the meaning of the Excise Tax Act) payable for the energy supplies by Boardwalk. One can imagine this case being decided either for or against the taxpayer. If the provincial assistance took the form of a simple, unrestricted grant to the taxpayer then arguably it would not reduce the consideration payable by the taxpayer for energy; rather it would just add to its bottom line. If, on the other hand, the assistance took the form a grants to the energy suppliers conditional on them reducing their prices to consumers, then that would seem to reduce the actual consideration for the supply of energy. The problem in this case is that it fell in the median area with the assistance being described by the province in same cases as “rebates”, in some cases as “credits” and in other cases as “grants” to consumers; but factually in almost every case the amounts were paid directly to the energy suppliers [an exception being where the consumer applied to the province to have the amounts paid directly to the consumer]. The matter is further complicated by the fact that the invoices from suppliers specifically applied the “credit” that they were to receive from the province.

The Court of Appeal’s decision is summarized in two paragraphs [Note: a companion case, Calgary Board of Education v. The Queen, had the same issue and reached the same result for the same reasons.] :

[12] The authorizing orders or rules provided that the Province would be paying the amount to the consumers (including the appellant). These amounts were indirectly paid to the appellant by the Province paying to the suppliers of natural gas and electricity a portion of the amounts payable by the appellant for such supplies. The liability of the appellant for the amount payable for natural gas and electricity was not reduced, as of the date of the invoice, by the amount of the credit shown on the invoice. There was nothing to suggest that if, for any reason, the Province did not pay the amount indicated as the credit, that the suppliers would be unable to recover this amount from the consumers (including the appellant). It seems to me that the Province had not partially assumed the liability of the appellant to pay its suppliers for natural gas and electricity. The Province had simply implemented an assistance program to provide funds to customers of natural gas and electricity in Alberta. The funds were provided to such customers by the Province paying such amounts to their suppliers of natural gas and electricity.

[13] When the suppliers received the funds from the Province, the liability of the appellant was then reduced since such amount was accepted by the suppliers as partial payment of the amount that the appellant otherwise had to pay under its agreements with the suppliers. However, this was after the date of the invoices and after the liability arose to pay the GST. Therefore, the liability of the appellant for GST under the Act was correctly calculated as 7% of the amount payable for the supply of natural gas and electricity before the credit for the amount that the suppliers would subsequently receive from the Province is taken into account.
[Emphasis added.]

The difficulty with this passage, particularly the italicized portion, is that the judgment of the Tax Court does not disclose that any evidence was adduced on these points, i.e., whether the suppliers were looking to the consumer, the province or both for payment. New Window

If the suppliers had credible evidence (including testimony, internal records, emails, etc.) establishing that they were not looking to the consumer for payment of the “assistance portion” the Court might have reached a different conclusion.

At trial before the Tax Court the evidence consisted of the testimony of one Alberta official, a read-in of discovery evidence from a Calgary Board of Education official and a 66 paragraph Agreed Partial Statement of Facts. No evidence was called from the energy suppliers.

One cannot be critical of counsel as it is impossible to know the background to a case likely evolving over many years. Nonetheless, it could be argued that this case demonstrates the dangers of too much reliance upon Agreed Statements of Facts (partial or otherwise). Statements of Facts tend to be bloodless products of extensive negotiation reciting bland and often stilted recounts of the events at issue. Where there are gaps in the evidence (as, for example, in this case – no evidence of the position of the suppliers) the court is forced to attempt to fill in the gaps by inference (or, unfortunately, in some cases, supposition).

Note: This case was important to Calgary Board of Education because since it was a “public service body” it only received a 68% rebate of the GST it paid (Agreed Partial Statement of Facts, para. 38) rather than a full input tax credit. There is no indication in either the Tax Court or Federal Court of Appeal decision as to what was the tax position of Boardwalk.