The decision of the Tax Court of Canada in CanLII v. MNR will not be appealed by the Minister of National Revenue. The case was argued on behalf of the registrant CanLII (Canadian Legal Information Institute) by Miller Thomson partners David Chodikoff and Ron Choudhury.
Background
Over a period of approximately five years, the Minister of National Revenue had denied input tax credit claims under the Excise Tax Act (Canada) (the “ETA”) by CanLII on the basis that CanLII was not engaged in a commercial activity. The Minister’s decision was based on section 10 of Schedule V, Part VI of the ETA, which states that a supply by a public sector body of any property or service is an exempt supply if all or substantially all of the supplies of property or service by the body are made for no consideration. The Minister assessed CanLII on the basis that it was making supplies of a virtual library to the public at large, such supplies were made for no consideration, and being a public service body, its supplies fell within the ambit of section 10 of Schedule V, Part VI of the ETA. Accordingly, CanLII’s supplies were exempt from GST/HST and therefore, CanLII was not entitled to any input tax credits. An important element of the Minister’s position was its reliance on an administrative position (in Technical Information Bulletin B-067) that states that supplies made in the public interest are made for no consideration.
CanLII argued against the characterization of its supplies as exempt on the basis that its supplies were funded by the legal community across the country through payments to provincial law societies, which payments in turn were paid to the Federation of Law Societies of Canada to fund CanLII.
Issue
The Tax Court was asked to rule on whether CanLII made exempt supplies and whether amounts paid by the Federation of Law Societies of Canada constituted consideration.
Decision
Lamarre ACJ allowed CanLII’s appeal, holding that there was a direct link between the payments made to CanLII by the Federation of Law Societies of Canada, such payments were intended to allow CanLII to operate a virtual library, and that CanLII made a supply to the Federation in the course of a commercial activity. The Court held that the supply of CanLII’s virtual library was made for consideration and therefore, section 10 of Schedule V, Part VI of the ETA was inapplicable.
The Court pointed to evidence indicating that the top users of the CanLII website were all legal service providers and noted that notwithstanding that the public could access the CanLII website, without the Federation of Law Societies of Canada and its members (i.e., the Law Societies and indirectly the legal profession), CanLII would not be making any supplies.
Impact
The Tax Court decision (which has not been appealed to the Federal Court of Appeal) is a significant victory for CanLII and Miller Thomson. While it is likely that the Canada Revenue Agency will seek to distinguish the facts of this case from similar matters, the decision of the Court may be viewed as an expansion of the meaning of consideration. Where an entity is unable to make supplies without funding, the fact that funding may come from a specific subset of the recipient of its supplies does not detract from such funding being consideration. Additionally, funding for the entity’s activities should be viewed as consideration for the supplies when the supplies could not have been made in the absence of such funding.
