Aug

Bobby Solhi Quoted by Bloomberg BNA International Tax Monitor regarding GST/HST on Canadian Property

Posted By: Marina Skachkova on August 16, 2017 at 11:27:32 in All , Articles

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Bobby Solhi of TaxChambers LLP was quoted by Bloomberg BNA International Tax Monitor about a recent GST/HST case from the Federal Court of Appeal in Club Intrawest v. the Queen case.

Canada Court Limits Real Estate VAT to Canadian Property

  •  Federal Court of Appeal finds time-share operator only owes goods tax on services to Canadian properties
  •  Ruling clarifies application of “place-of-supply” rules in Excise Tax Act

By Peter Menyasz

Canada’s Federal Court of Appeal has clarified that companies are only subject to federal value-added taxes on services related to real estate if the property is in the country.

The ruling confirms that companies can split the value of services based on whether properties are inside or outside Canada to limit their tax liability, but could also allow the government to tax transactions that were previously exempt, lawyers say.

Companies that provide services related to real estate inside and outside Canada can limit the value-added tax they must collect to the portion related to Canadian properties, Justice Eleanor R. Dawson said in the appellate court’s 3-0 ruling, reversing a June 2016 ruling by the Tax Court of Canada (Club Intrawest v. the Queen, Federal Court of Appeal, No. A-249-16, 7/11/17).

“It will be necessary to quantify the consideration paid for the taxable supply, i.e. the consideration paid for the services provided in relation to real property situated in Canada,” Dawson said in the ruling, posted publicly on July 14. “The method of quantification must be fair and reasonable.”

The July 11 ruling found that time-share resort company Club Intrawest need only collect and remit the federal Goods and Services Tax (GST) and Harmonized Sales Tax (HST), in provinces that combine their provincial sales tax with the GST, on the value of services it provides to properties in Canada.

The court set aside the Tax Court judgment and referred the assessments back to the CRA for reconsideration. It awarded Intrawest its costs throughout the case.

The company, created to administer vacation homes at resorts in Canada, the United States, and Mexico, unsuccessfully argued before the Tax Court that it was only acting as an agent for its time-share members, so was exempt from GST/HST. The Tax Court also found that Intrawest’s services represented a single supply of services, so the full value of those services was subject to tax.

The appellate court upheld rejection of the agency argument and the conclusion that there was a single supply of services, but found that it would make more sense to apply the “place-of-supply” rules in the Excise Tax Act in a way that allows splitting it into two supplies—one for services to properties inside Canada, which are taxable, and one for services to those outside Canada, which are tax-exempt.

“This approach simply recognizes the distinction between the intertwined bundle of services that constitute the Intrawest program and the reality that the bundle of services are operated on a property-by-property basis,” Justice Dawson said.

Club Intrawest will not comment on the ruling until the period for seeking leave to appeal to the Supreme Court of Canada has expired, Intrawest attorney Chia-yi Chua, a partner in the Toronto office of McCarthy Tétrault LLP, told Bloomberg BNA on July 18.

The Canada Revenue Agency cannot comment on details of the case as it remains before the courts, and because of the confidentiality provisions of the Income Tax Act, agency spokesman David Walters told Bloomberg BNA on July 18.

The parties have 60 days from the date of the ruling to seek leave to appeal.

Court Reached Right Conclusion: Lawyers

…..

Intrawest wasn’t completely successful, as it failed to gain an exemption from GST/HST on the services, but the appellate court recognized that a significant portion of the resort fees — any related to services for real property outside Canada — were non-taxable, Toronto tax lawyer Bobby Solhi said July 18.

“Companies with operations both inside and outside of Canada should be even more prudent to evaluate the GST/HST implications for each type of service or good that they provide,” Solhi, a partner with TaxChambers LLP, told Bloomberg BNA.

“There may be advantages, as we saw in this case, to separate such supplies, particularly where services related to real property outside of Canada, rather than lump all services into one invoice or supply.”

 

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