Tax Court of Canada Judgments

Docket: 2003-1576(GST)I

BETWEEN:

THOMPSON TRAILBREAKERS SNOWMOBILE CLUB INC.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on April 8, 2004 and at Thompson, Manitoba

Submissions completed on March 24, 2005

Before: The Honourable Justice J.E. Hershfield
Appearances:
Agent for the Appellant:	Colleen Smook
Counsel for the Respondent:	Michael Van Dam

JUDGMENT

          The appeal from the assessment made under the Excise Tax Act, notice of which is dated July 26, 2001 for the period from January 1, 2000 to March 31, 2000, is allowed, with costs, for the reasons set out in the attached Reasons for Judgment.

Signed at Ottawa, this 23rd day of June 2005.

"J.E. Hershfield"

Hershfield J.

Citation: 2005TCC269

Date: 20050623

Docket: 2003-1576(GST)I

BETWEEN:

THOMPSON TRAILBREAKERS SNOWMOBILE CLUB INC.,

Appellant,

And

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Hershfield J.

[1]      The Appellant snowmobile club was assessed for the reporting period of January 1, 2000 to March 31, 2000 and disallowed input tax credits (ITCs) claimed in respect of the purchase of certain equipment (a Snowcat) used to groom snowmobile trails. The Minister of National Revenue (the Minister) denied the Appellant ITCs in respect of the goods and services tax (GST) paid on this purchase on the basis that the Appellant did not, as required by section 169 of the Excise Tax Act (GST portions) Part IX (the Act), acquire the Snowcat for use by it in the course of a commercial activity carried on by it.

[2]      The Appellant maintained snowmobile trails in the Thompson area on provincial lands and sold passes for the use of such trails. The Appellant's undertakings are acknowledged to be a business as defined in section 123 of the Act, but the Respondent asserts that the Appellant is a "qualifying non-profit organization" that makes exempt supplies. Whether or not this is the case boils down to the question of whether the Appellant receives "consideration" for its supplies. If not, the Appellant's undertakings will not be a commercial activity and the ITC claim will fail.

[3]      I note at the outset that the Minister allowed the Appellant to claim a rebate of 50% of the GST paid pursuant to subsection 259(2) of the Act on the basis that the Appellant was a "qualifying non-profit organization" as defined in subsection 259(2) which provides as follows:

(2) For the purposes of this section, a person is a qualifying non-profit organization at any time in a fiscal year of the person if, at that time, the person is a non-profit organization and the percentage of government funding of the person for the year is at least 40%. [emphasis added]

[4]      The Appellant acknowledged being a "non-profit organization" but asserted that the revenue that the Minister regarded as government funding was in fact consideration paid to it by snowmobilers for the supply of trail maintenance and grooming services. If the Appellant is correct in this assertion it will be entitled to the ITCs claimed as opposed to the rebate[1]. Alternatively, even if such services are considered to have been paid by government, the Appellant's assertion that its undertakings are a commercial activity will still prevail if the government funding was paid as "consideration" for such services.

[5]      The Respondent regards the monies paid by snowmobilers for passes as provincial revenues that were paid back to snowmobile clubs such as the Appellant as a grant or transfer payment from the Province of Manitoba. If the revenues are government grants not in the nature of consideration for a service, the supply would be an exempt supply and the Appellant's undertaking would not be a "commercial activity" so as to result in the failure of the ITC claim.

[6]      The statutory references that prescribe this result start with section 169 that allows ITCs in the circumstances of this case only in respect of supplies used in the course of a commercial activity. "Commercial activity" is defined in section 123 of the Act, the relevant portions of which read as follows:

(a) a business carried on by the person (other than a business carried on without a reasonable expectation of profit by an individual, a personal trust or a partnership, all of the members of which are individuals), except to the extent to which the business involves the making of exempt supplies by the person, [emphasis added]

[7]      As stated, the Respondent maintains that the Appellant's business involves the making of an exempt supply. This position is based on the Appellant being a "public sector body" whose supplies are exempt if made for no consideration. Section 10 of Part VI of Schedule V of the Act provides as follows:

10. A supply made by a public sector body of any property or service where all or substantially all of the supplies of the property or service by the body are made for no consideration, but not including a supply of blood or blood derivatives. [emphasis added]

[8]      As per the definitions of "public service body" and "public sector body" in subsection 123(1) of the Act, a non-profit organization is a public service body and a public service body is a public sector body. Hence, for the Appellant to acknowledge that it is a "non-profit organization" is to concede that it is a "public sector body" for the purposes of the Act. This narrows the issue to essentially one: the characterization of the Appellant's receipts. In this regard, the Appellant's revenue source derived from the sale of trail passes requires close scrutiny. These passes are referred to as "SnoPasses". They are good throughout the province on provincial lands where trails have been developed and maintained by snowmobile clubs under the umbrella of a central organization which I refer to in the next paragraph of these Reasons as "Snoman".

[9]      An officer of the Appellant gave evidence on behalf of the Appellant. She acknowledged that the Appellant was formed to operate a snowmobile club in the Thompson area of Manitoba as a member of Snowmobilers of Manitoba Inc. (Snoman) which is also an incorporated non-profit organization. Snoman is dedicated to developing and maintaining safe snowmobiling trails on provincial crown lands in Manitoba. It is the umbrella organization under which regional snowmobile clubs operate. Approximately 50 snowmobile clubs are members of Snoman each being an incorporated non-profit organization. Each member club has designated trails that they are responsible to maintain. Each club sells SnoPasses to its members and to snowmobile enthusiasts at large who intend to use the snowmobile trails maintained by member clubs operating under the Snoman umbrella. Revenues from such sales are, indirectly at least, a major source of funding for each club.

[10]     SnoPass fees are governed by a written agreement entered into between the Province of Manitoba and Snoman in March 1998 (the Designated Trails Agreement). The Respondent asserts that Snoman's role under this agreement, as the umbrella organization, is to administer provincial grants funded from SnoPass revenues. Under the terms of the granting program Snoman allocates and distributes the grant monies to member clubs such as the Appellant. Extending this position, the Respondent argues that as the recipient of grants the Appellant, a "public sector body", did not receive "consideration" for any services including its trail grooming services.

[11]     Determining the correctness of the Respondent's position requires a close examination of the SnoPass system and the authorities that have dealt with the differential treatment of public sector bodies which receive government funds.

The SnoPass System

[12]     The terms under which SnoPass revenues are generated and held are provided for in the Designated Trails Agreement. Under that agreement monies remitted to Snoman periodically by member clubs are deposited into an account called the Snowmobile Network Opportunities Fund (SnoFund). The SnoFund consists, it seems, entirely of monies received from the sale of SnoPasses with the exception of an initial contribution from the province in 1996. The amount of this initial grant is not in evidence or agreed to by the parties but evidence was tendered by the Respondent that indicated that an amount not to exceed $87,500.00 was budgeted for the SnoFund in 1995. Since then the SnoFund has apparently been funded solely by SnoPass revenues.

[13]     The Designated Trails Agreement includes the following provisions:

2(1)       Manitoba and Snoman agree to jointly participate in a program ("the Program") for the management, control and maintenance of designated snowmobile trails on Crown land ("designated trails"), excluding those trails within Provincial Parks which are presently maintained by Manitoba.

. . .

2(4)       Snoman agrees to undertake the management, control and maintenance of designated trails in accordance with:

            (a)         the terms and conditions set out in this Agreement; and

(b)         specifications and directions provided by Manitoba to Snoman from time to time.

. . .

3(3)       Snoman shall:

(a)         deposit in the SnoFund all proceeds paid to Snoman or vendors as a levy for Annual and Four-Day SnoPasses required by the registrations under The Crown Lands Act for use of designated trails; and

(b)         use the funds deposited in the SnoFund for activities designed for the maintenance and enhancement of designated trails in accordance with this Agreement.

. . .

5(1)       Manitoba, at its sole discretion, will determine the annual levy to be charged for SnoPasses and will include these fees in regulation under The Crown Lands Act.

. . .

8(1)       Snoman agrees to maintain designated trails in a prudent and reasonable manner suited to the use of trails for snowmobiling.

. . .

11(1)     This Agreement does not create the relationship of employer and employee, or of principal and agent, between Manitoba and Snoman or between Manitoba and any officers, employees or agents of Snoman.

. . .

13(2)     Snoman shall be solely responsible for:

. . .

(b)        the breach of any term or condition of this Agreement by Snoman or by the officers, employees, agents or members of Snoman; and

. . .

and shall save harmless and indemnify Manitoba, its officers, employees and agents from and against all claims, liabilities and demands with clauses (a), (b) and (c).

13(3)     Snoman shall maintain throughout the term of this Agreement public liability and property damage insurance against claims for personal injury, death or damage to property arising out of any of the operations of Snoman under this Agreement, or any of the acts or omissions of Snoman or any of its officers, employees or agents which shall:

(a)         have a minimum limit of liability of five million ($5,000,000.00) dollars per occurrence;

            (b)         have terms and conditions satisfactory to Manitoba; and

(c)         shall name Manitoba, its officers, employees and agents as additional insureds with respect to the activities under this Agreement and the use of designated trails.

. . .

14(1)     Either Manitoba or Snoman may terminate the Agreement by providing at least thirty (30) days notice in writing to the other party.

14(2)     Upon termination or expiration of this Agreement, the parties shall, subject to Subsections (3) and (4), have no further obligations to each other.

14(3)     Within thirty (30) days of the date of termination or expiration of this Agreement, Snoman shall transfer all monies held in the SnoFund to Manitoba, subject to a reconciliation and audit by Manitoba.

[14]     It is noteworthy that clubs such as the Appellant that comprise the membership of Snoman are not referred to in the Designated Trails Agreement in terms of their having any entitlements or responsibilities. The SnoFund manual describes their role as being part of a structure under which they (member clubs) jointly have the responsibility of implementing the SnoFund program. Under this program, a dedicated fund (i.e. the SnoFund) holds SnoPass revenues in trust to be applied 100% back into snowmobiling by helping to cover costs related to such things as maintaining existing trails, developing new trails, purchasing and maintaining trail equipment, purchasing and installing trail signs and producing trail maps.[2] This description of the SnoFund supports the Respondent's view that it is a trust fund settled by the province for use by member clubs in the provision of safe trails. The Respondent acknowledged this position by granting rebates to the Appellant on the basis that the SnoPass revenues flowing through the SnoFund to the Appellant are government funds received by the Appellant.

[15]     On the other hand, the Appellant argues that the SnoFund is at the heart of what is essentially a user-pay snowmobile trail system. Indeed the August 2001 SnoFund Manual describes the SnoPass system as a user-pay system. Further, I have no direct evidence that SnoPass revenues are brought into the province's general revenues. This bolsters the Appellant's theory that the SnoPass revenues are not revenues of the province but rather are revenues the right to which have been assigned to Snoman and its member clubs. The assignment of the right is one step removed from regarding the Appellant's revenues as government sourced which is to say they are not grants but are consideration paid to the clubs by snowmobilers acquiring SnoPasses. The Appellant's evidence was that they enjoyed a consistent return out of the SnoFund of some 80% of SnoPass revenues collected by them. Subject to a 20% administrative holdback to cover such costs as their liability insurance, the Appellant argues that the SnoFund is its agent managing revenues earned by it from sales of SnoPasses.

[16]     However, the reality of the situation as reflected by the Designated Trails Agreement does not support a finding that the right to SnoPass revenues has been assigned. Such revenues are never the property of the Appellant. Amounts paid by snowmobilers are "levies" charged by the province for SnoPasses as required by regulation under The Crown Lands Act for use of designated trails. Snoman is responsible for the sale of SnoPasses at the fee set by the Province. Producing the SnoPasses is the responsibility of Snoman but they are required to be delivered at the beginning of each season to the "Licensing Section, Financial Services Branch, Manitoba Natural Resources" which issues them back to Snoman for issue to its member clubs which act as the principal selling outlets of SnoPasses. Funds collected from SnoPass purchasers by member clubs are remitted (including the GST portion collected from SnoPass purchasers) to Snoman for deposit into the SnoFund. Snoman is responsible for reconciling passes issued against proceeds received. Financial records of the SnoFund must be satisfactory to the province and be available for audit by the province on request. At the end of the season, unsold SnoPasses are delivered back to the licensing section of the province's department of Natural Resources. The GST portion of SnoPass receipts is remitted by Snoman to the Minister under the province's GST registration number.[3] The SnoPass revenues net of GST are used to fund Snoman's operating costs, which include insuring all member clubs, and the balance is distributed to club members to fund the snowmobile trail development and maintenance activities carried out by them in their respective areas in accordance with the Designated Trails Agreement. A committee consisting of the president of Snoman, five regional member representatives and a representative of the province is established to manage the SnoFund including making decisions about the allocation of funds to Snoman member clubs based on submissions by them for the maintenance and enhancement of designated trails. In such circumstances it cannot be said that the Appellant's revenues are the fees paid to it by snowmobilers. They are revenues received from the province as asserted by the Respondent. That the Appellant enjoys a consistent return of some 80% of fees collected by it does not reflect any entitlement to the proceeds of the sale of SnoPasses.[4] The SnoPass fees are the revenues of the province. Further recognition of this is found in the fact that under the Designated Trails Agreement control over the program and over the funds on termination of the agreement vest in the province. The SnoFund holds the provincial license fee revenues at the pleasure of the province.

[17]     Accordingly, the Appellant's first assertion, that it receives revenues directly from snowmobilers from the sale of SnoPasses, is not well founded. However its alternative assertion, that the funds received from the province are consideration for services performed, has merit based on the authorities.

Consideration for Services or Provincial Grant Without Consideration?

[18]     As evidenced by the case law in this area,[5] GST Technical Information Bulletin B-067 is helpful in considering the distinction between grants and acquired services. It discusses the GST implications of transfer payments including government grants and sets out the "direct link" test as the appropriate test to determine whether a transfer payment is to be regarded as consideration for a supply and thus whether a commercial activity exists. The Bulletin states:

In general, transfer payments made in the public interest or for charitable purposes will not be regarded as consideration for a supply.

However, if there is a direct link between a transfer payment received by a person and a supply provided by that person, either to the grantor of the transfer payment or to third parties, the transfer payment will be regarded as consideration for the supply . . .

[19]     While departmental practices and bulletins are not binding and may not be reflective of the law that this Court must apply, they can be helpful and should not be ignored where they offer constructive input consistent with the law as written or input consistent with legal principles and the spirit of the legislation where the law is ambiguous. Indeed, where the exercise is to develop guidelines for determining when a government payment constitutes "consideration" for a supply and when it is a payment to support a project or program for the good of the community with conditions designed to ensure the integrity of that project or program in terms of the community's interest in it, constructive input from any thoughtful source might be welcomed particularly where there appear to be competing approaches. To illustrate the difficulty in this area with competing approaches, consider the following scenarios:

a)        Some grant recipients want grant monies not to be regarded as "consideration" for a supply. Typically they would be cases where the grants are from entities such as municipalities who pay GST. If the payment by the municipality is consideration for a supply or sufficiently linked to a supply to properly be viewed as consideration for the supply, GST is chargeable on the supply and the grant recipient is required to collect and remit the tax. To avoid this liability, the grant recipient would argue that the grant was made for a public purpose and not given as consideration. In these cases, to protect or expand the fisc, the Minister may be inclined to seek support for a test that views consideration broadly, which is to argue the sufficiency of any link between a supply and a payment in terms of constituting consideration and treating a public benefit as incidental to the making of the grant as opposed to being the real object of it;

b)       Then there are cases, such as the one at bar, where the Minister may be inclined to seek support for a test that views consideration narrowly, which is to argue treating any public benefit or purpose for the making of the grant as being the real object or legal effect of it. The Minister would then argue that the grant is not consideration given the public purpose involved and that any apparent purchase element, purchase link or purchase purpose in respect of a supply should be seen as incidental to the grant (even if necessarily incidental to the grant) but not a supply that the grantor was "paying for" in a contractual or legal sense. This approach by the Minister might be expected where the services are provided to a province. Provinces are immune from taxation so supplies to a province create an unbalanced result where the supplier receives ITCs. That is, no GST is collected where the province is the end-user of the supply. But this is a result of the system as legislated. In the ordinary case of a commercial service provider, the Minister has little to say - the fisc loses; but where the service provider is a non-profit organization the Minister has a chance to restore "balance" if the payment to the supplier is a grant that is not consideration. The Appellant argues it is unfair to be put in a worse position than commercial suppliers, especially since in the case at bar, GST is paid by the snowmobilers who are the real end-users of their supplies. However this argument puts too much focus on "balance" in a system where balance is clearly not always of paramount importance to the legislators who in an attempt to restore some balance have, for example, offered non-profit suppliers a rebate; and

c)        Some user funded community activities operated by non-profit organizations get ITCs which the system sees as appropriate where the users pay GST. Why distinguish the user funded activity in the present case where users pay GST, just because a government has placed itself as a conduit between the user fees paid and the supplier? From a policy point of view, treating these two cases differently is arguably not consistent with the objectives of a value added tax system. If the SnoPass system is a user-pay system - if Snopass fees are consideration paid to the clubs for providing groomed trails - and the province is merely giving up the lands as a concession to snowmobile enthusiasts in the province - an ITC would seem appropriate in terms of fiscal neutrality in a value added tax system. The snowmobilers are the end-users of groomed trails. They pay GST for the use of the trails and the supplier of them should get ITCs on its tax paid purchased supplies. A non-profit golf club that charges user fees and grooms its course for those users would be entitled to ITCs on grooming equipment acquired. From the Appellant's perspective it is hard to justify why it should be treated differently. One problem with this perspective however is that it does not pay adequate attention to the role played by the government in the case under appeal, such as the use of government lands, and ignores the contractual relationship that the Appellant has with the government.

[20]     These scenarios underline that there are inherent anomalies with comparisons that will never be fully rationalized. Rationalizing them then should take a back seat to developing and applying relevant principles for consistent application in the resolution of the central issue in this case which simply boils down to when a grant is consideration for a supply.

[21]     While the guidelines in the Bulletin are a good starting point in the resolution of the issue and while it asks relevant questions to determine if a grant is more in the nature of a public interest expenditure or a payment in consideration for a supply, it is important to note that the real basis for the discussion generally comes down to analysing a contractual relationship and determining at law the nature of the contractual commitments. In this regard the intentions of the parties are relevant. That is, do the parties intend the purchase of a supply for consideration? Hence the Bulletin is on the right track to describe the exercise as determining whether there is a purchase purpose or a public purpose. What do the parties intend? A written contract will assist coming to a determination of intent or it might be sufficiently specific in setting out mutual obligations so as to be determinative of the issue regardless of the purpose. As noted by Justice Noël in Des Chênes,[6] where there is an obligation to pay for a service in a written contract, the inevitable consequence of that is that there is consideration payable for the service. This confirms that the purchase purpose can be drawn from the reality or substance of the contract regardless of even a readily apparent public purpose, but the difficulty will be to determine "where there is an obligation to pay for a service" as opposed to awarding a grant in respect of which there are performance requirements imposed as conditions to ensure accountability for the use of public funds. Des Chênes and cases decided by this Court suggest a loose connection between a service and provincial funding will be sufficient to characterize government funding as consideration for that service. This is a slippery slope given that the Act does impose a test based on the notion of consideration which is a well considered essential element of a contract. A vague connection between a requirement to pay and a service performed would not typically constitute consideration applying common law principles. However, in the case at bar, the particular service is one the government has undertaken to provide and has effectively retained a third party to perform it. Funding in respect of that retention can, in my view, properly be regarded as consideration for the services provided. That is, contracting out a service generally recognizes a payment obligation and the setting aside of funds to help pay for that service might readily be seen as a means of paying for that service. [7] At this point, I also stress that the adequacy of the consideration is neither an issue at common law nor under the Act. Section 123 of the Act defines consideration as including any amount paid for a supply. Even if only a small portion of the funds set aside by the province is to help pay for equipment, such as grooming equipment, in exchange for trail grooming services and even if the grant is inadequate to actually cover the cost of such equipment, the setting aside of the funds for that purpose as part of a contracting out scenario may be sufficient to constitute consideration at law.[8]

[22]     While referring to cases illustrating the sufficiency of loose linkages between funding and services in terms of constituting consideration, may not be necessary or helpful, for the sake of completeness I will refer to them briefly.

[23]     In Westcan Malting the Appellant received government funding which was used to construct and operate a malting plant. At trial the Appellant argued that no GST was collectible on the value of the plant since government grants do not constitute consideration, and therefore no taxable supply was made. In response, the Minister relied on the definition in subsection 123(1) of "consideration", which provides that it "includes any amount that is payable for a supply by operation of law". The Appellant relied on the Bulletin and argued that the linkage between the grant and what was done was not sufficient to find that government funding was consideration. Justice Teskey embraced the "purpose" test found in the Bulletin but found the required linkage. He held that the grant money was paid pursuant to a written agreement, the main purpose of which was the building of a municipal infrastructure. Having found that the money was paid in respect of the provision of the infrastructure, he determined that the payment was consideration. He expressly referred to and seemingly adopted the considerations referred to in the Bulletin but the linkage he required is arguably somewhat minimal.

[24]     In Meadow Lake the Municipality of Meadow Lake owned a parcel of land upon which a pool was built. Deputy Judge Rowe reviewed Westcan Malting and Justice Teskey's analysis of the Technical Bulletin. Upon reviewing the evidence he held:

[20]       ... The evidence establishes the appellant did exactly what it was supposed to do in accordance with a plan established between it and the Town at an early stage in the process of planning to construct a swimming pool facility...

[21]       ... The Town owned the facility and had a duty to ensure the residents of Meadow Lake had the right to use the swimming pool complex. In order to do so, it could operate the pool as part of ordinary Town operations or it could enter into an arrangement with another person or entity to manage the facility in return for payment of certain amounts of money under specific conditions. It chose to pay Pool Committee Inc. to run the pool on a day-to-day basis and it received the exact service which was the subject matter of the payment. ... For the foregoing reasons, the Minister was correct in assessing the appellant on the basis the payments received from the Town were in consideration for a supply which was taxable within the provisions of the Excise Tax Act.[9]

Again, the Court was not persuaded by the argument that there was a public benefit to the payment, and held that the presence of a link between the payment and the supply was enough to find that the government payment was consideration.

[25]     In Des Chênes, this Court denied the School Board of Des Chênes ITCs on the grounds that the government funding it received (a transportation subsidy) was not consideration. After considering the Bulletin, Justice Lamarre Proulx dismissed the appeal stating that there was no linkage between the supply and the grant. Upon appeal, Justice Noël at paragraph 10 of his Reasons repeated the "crux" of her reasons as set out at paragraph 32 of her Reasons:

. . . The evidence did not show that the subsidy provided by the Department of Education was linked to the price of the transportation service. On the contrary, the evidence revealed that the Department had no obligation with respect to the actual cost of the student transportation service, that the school boards had broad latitude with respect to the use of the funds allocated for such transportation and that there was no link between the payment of the subsidy and the actual cost of the service. The subsidy is in the nature of financial assistance made available to the school board to enable it to perform one of its tasks, that is, to provide a student transportation service. It is not in the nature of a payment of the price of a service. Therefore no consideration is paid for this service. The recipient of the supply of the service is thus the elementary or secondary school student for whom the service is rendered as described in section 5, Part III, Schedule V of the Act.

[26]     This approach is to require a direct and well prescribed link between a payment and a service in order to find that there has been consideration paid for the service. It is a reasonable approach consistent with common law principles and one I would be inclined to follow, however, the Federal Court of Appeal overturned the decision, writing:

[30]       The trial judge seems to have placed undue weight on the fact that the subsidy constitutes a type of financial assistance paid in the public interest. Even though subsidies paid in the public interest are not generally associated with a corresponding obligation, that is not always the case. Regardless of the interest in question, a payment will be regarded as consideration if it is directly linked to the supply of a good or a service by the person who received the payment ...

[31]       The trial judge seems also to have found that the fact that the subsidy did not correspond to the actual cost of the service provided by the appellant. That dichotomy is not surprising since the subsidy was determined before the expenses that the appellant was seeking to cover were incurred. Nonetheless, consideration need not be equal to the cost of the good or service for which it is given, and in fact this is rarely the case. It is more important that the subsidy was determined based on the experience in previous years in order for the appellant to be able to fulfill its current obligations in relation to student transportation.

Such rejection of the trial court's findings followed a finding that the linkage between the subsidy and the supply was unequivocal. After considering that the transportation subsidy could be cancelled if the subsidy conditions were not complied with, Justice Noël found that:

[28]       It is therefore apparent that the purpose of the subsidy is unequivocal and that the link with the supply in question is equally unequivocal; the service must be provided, failing which the subsidy may be cancelled. Given that this situation is outside the realm of contracts, it is difficult to imagine a more direct link between the payment and the supply of the student transportation service.

[27]     One further case that I will mention is Regina(City) v. Canada, [2001] T.C.J. No. 315. While the decision in that case was rendered before the Federal Court of Appeal decision in Des Chênes, it applies a principle compatible with that decision. In that case Justice Rip noted that the concept of linkage between the grant or subsidy and the supply "is simply a means to determine if a transfer payment was made to fund a particular supply, in other words, if a supply was made for consideration".[10] He then went on to find:

[41]       . . . It may well be that in determining the amounts of unconditional grants to the City, the Government of Saskatchewan included monies for construction of, or additions to, highway connectors. However, on the evidence before me I cannot find that the amount of any unconditional grant, in whole or in part, was related to a particular project before me that the Province agreed to subsidize. Hence, no consideration was paid to the City by the Government of Saskatchewan. (Emphasis added)

That the amount of the grant was not related to a particular project was determinative. In the case at bar virtually the whole amount of the grant is related to a particular project and is intended to pay for or subsidize the third party costs incurred under contract to operate that project. Such linkage is consistent with that found sufficient in the Federal Court of Appeal decision in Des Chênes.

[28]     The Federal Court of Appeal decision in Des Chênes however should not be taken as undermining the importance of determining whether the intent of a contract under which a government has made a payment is for a broad public purpose on condition of meeting accountability and performance requirements imposed to ensure fulfillment of that public purpose. In the case at bar there is clearly a public purpose served but it is not one undertaken alone by a public sector body and funded by government. It is a public service project undertaken by the province which has contracted with a public service body to carry out the management of the project and the province has agreed to contribute funds to pay for such management services. There is a written agreement that clearly imposes obligations on the recipient of government funds such as those imposed at paragraphs 3(3)(b) and 8(1) of the Designated Trails Agreement. Satisfying these obligations is the essence of what Snoman and its member clubs bring to the table as its contribution to this joint effort described in paragraph 2(1) of the Designated Trails Agreement. The province for its part brings land and substantial funding to the table as its contribution. Each party's contribution is made in reliance on the contribution of the other and that is the essence of mutual consideration in joint projects such as these.

[29]     In the final analysis, the intent of the arrangement is that the province has sought to contract out its undertaking for consideration in the form of dedicating fees to fund or help fund the undertaking. Such contributions in the context of this case are consideration for the services rendered. It is not necessary to pinpoint the exact amount of consideration paid for a particular component of the supply and it is not fatal that there is a public purpose associated with the payment or a public interest being served by it. Through Snoman the Appellant has received money from the province but such receipt is coupled with obligations that go beyond accountability and ensuring public funds are properly spent. The obligations are in the nature of the performance of contracted services required by the grantor to be performed under its own mandate to provide those very services. Although the funding might be seen as government financial support in the nature of a grant, the contractual regime supports a finding that the monies received are consideration for things done as required under the contract. Consequentially then, the Appellant has not made an exempt supply. Its undertaking was a commercial activity in respect of which it is entitled to the ITCs claimed.

[30]     Before concluding, I will comment on one further question. That question is whether the Appellant's activities viewed as a whole would take the analysis in a different direction. The question arises because the Appellant has other sources of revenues.

[31]     A review of the Appellant's Statement of Income for 2000 is a helpful context to examine its activities as a whole. Revenues were approximately $48,000.00[11] consisting in approximate amounts of:

          - donations received through the City of Thompson          $ 8,800.00

          - sales (t-shirts, trail supplies, food concession)                 $ 1,600.00

          - membership receipts                                                      $     500.00

          - SnoFund (operation and special project funding)             $15,900.00

          - fundraising                                                            $17,700.00

          - security services                                                             $ 2,500.00

          - misc.                                                                             $ 1,000.00

Total expenses were approximately $18,500.00 consisting in approximate amounts of:

          - cost of goods sold                                                         $ 1,000.00

          - groomer expenses (loan interest for Snowcat,

maintenance, fuel and insurance)                                     $ 7,000.00

- fundraising                                                            $ 9,000.00

- admin. (office, club house, fees, insurance, bank)            $10,500.00

[32]     This overview of the Appellant's operations underlines the difficulty associated with deciding the need to and, if necessary, the task of isolating what might be an exempt supply in an enterprise that might have both exempt and non-exempt supplies. If there was an exempt supply in this case, a determination would have to be made as to the extent the Snowcat was used in the course of its non-exempt (commercial) supply activity, say to its members as opposed to its exempt supply to the government.[12] Paradoxically, the more the determination favours a finding that the supply of the Snowcat is in respect of an "exempt supply", the more likely that that supply is linked with the payment made for its use by the government, which may, if such linkage is a relevant factor in determining whether the supply is an exempt supply, contradict the finding that the supply of the Snowcat is an "exempt supply". This seems to raise questions as to whether links between funding and services should be given weight as constituting consideration. In any event and nonetheless, I have found that the Appellant's supplies to the province were for consideration. That is sufficient to dispose of the appeal in favour of the Appellant. A consideration of the Appellant's activities as a whole does not change that finding.

[33]     Accordingly the appeal is allowed with costs.

Signed at Ottawa, Canada, this 23rd day of June 2005.

"J.E. Hershfield"

Hershfield J

CITATION:

2005TCC269

COURT FILE NO.:

2003-1576(GST)I

STYLE OF CAUSE:

Thompson Trailbreakers Snowmobile Club Inc. and Her Majesty the Queen

PLACE OF HEARING:

Thompson, Manitoba

DATE OF HEARING:

April 8, 2004

REASONS FOR JUDGMENT BY:

The Honourable Justice J.E. Hershfield

DATE OF JUDGMENT:

June 23, 2005

APPEARANCES:

Agent for the Appellant:

Colleen Smook

Counsel for the Respondent:

Michael Van Dam

COUNSEL OF RECORD:

For the Appellant:

Name:

Firm:

For the Respondent:

John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada

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