Reproduced from the September 2013 edition of the Canadian Tax Highlights, a Canadian Tax Foundation publication
In Global Learning Group Inc. v. Eskasoni First Nation (2013 ONCA 325), the Ontario Court of Appeal (ONCA) concluded that a fee described as “including GST” did not mean that it included any GST. The purchaser had argued unsuccessfully that because it was tax-exempt, it should receive a discount from the stated fee.
Global provided fundraising services to the Eskasoni First
Nation. The contract stated that Global’s fee was “15 percent (including GST)” of the gross funds raised. The
Eskasoni First Nation is an Indian band under the Indian Act and is thus not
subject to the imposition of the GST
on goods or services provided to it. The band claimed that because GST was not chargeable on the services
provided to it, the words “including GST”
must be interpreted to mean that the band was entitled to a discount from the
fees payable to Global in an amount equal to the GST that would have been collected from a taxable recipient
of the fundraising activities.
The band argued that the words “including GST” imply that the actual fees are less
than the 15 percent quoted because the 15 percent includes 5 percent GST. Thus, for an exempt client such as
the Eskasoni First Nation, the band argued that the contract should be
interpreted as requiring an equivalent discount to arrive at the amount that
exempt client must pay.
A unanimous ONCA
disagreed and dismissed the appeal. The court said that the phrase “including GST” meant that there was no GST in the fee because the band was tax-exempt:
the contract’s wording did not mandate different treatment for exempt and
non-exempt clients. The phrase did not imply that a discount should be allowed
to the band: the amount payable to Global was referred to in the contract as a
percentage of the funds raised, and the band was not being asked to pay more
than it had agreed to pay. The contract also provided that the Eskasoni band was
not responsible for remitting the GST.
We agree with the court that a discount should not be
allowed to the band. However, it appears that the phrase “including GST” does not refer to the (nil) GST rate payable by the tax-exempt band;
rather, it indicates that Global was collecting a fee that included GST at the regular 5 percent rate
regardless of the band’s exempt status. The phrase “including GST” is not ambiguous and is understood
by practitioners to include the 5 percent GST
rate. The parties were unlikely to have considered band’s exempt status when
arriving at the wording of the clause, which was probably standard in all of
Global’s contracts.
Instead of litigating to seek a discount, the band should
have sought a GST rebate from the
minister under subsection 261(1) of the Excise Tax Act. Global was
contractually obliged to remit the GST on the fees collected. GST (or HST)
that is shown on the documentation between the parties must be remitted by the
supplier even if there was no tax payable by the purchasers. In Gastown Actors' Studio Ltd. (2000 CanLII 16656), the FCA said that “a taxpayer who has . . . collected GST, whether for services that are
taxable or for services that are later determined to be exempt supplies, must
remit those amounts and is liable to be assessed if they are not remitted.”
Sunita Doobay
TaxChambers, Toronto
Darcy L. MacPherson
