Case analysis – Calgary (City) v The Queen 2012 SCC 20

Calgary (City) v Canada  2012 SCC 20 is a decision by Canada’s highest court.  In a unanimous judgment, the Court found that the construction of transit facilities by the City of Calgary made a single exempt supply of “public transport services” to Calgary citizens rather than two supplies, being the exempt supply of “public transport services” and a separate taxable supply of “transit facilities services” to the Province -thus entitling the City to input tax credits for the costs of construction.


The City of Calgary acquired and constructed transit infrastructure, facilities and equipment for the use of the Calgary public as part of the municipal transit system pursuant to the City Transportation Act (CTA).  Under the CTA, the Province of Alberta was authorised to share the cost of the transit system with the City, and to that end, entered into funding agreements with the City.

Under the CTA, each city, including the City, was responsible for the costs of establishing and maintaining all transportation facilities subject to its direction, control, and management.  By complying with the CTA, a city may qualify for financial assistance from the Province.  The City entered into funding agreements with the Province, which provided for the funding of eligible transportation projects.  Under the agreements, funding could only be used to pay for expenditures relating to the construction or acquisition of transit facilities that had been specifically approved by the Province.  The CTA provided that in the absence of any agreement or statute to the contrary, title to all transportation facilities forming the transportation system vests in the City. In this case, there was no agreement or statute to the contrary.

In the course of completing the transit facilities under the funding agreements, the City incurred expenditures and paid GST on those expenditures.  It was the ability of the City to claim input tax credits on this GST which was the subject of the dispute.

The issue on the appeal

The basic structure of the Canadian GST regime is similar to that in Australia.  The GST is designed to be a tax on consumption and the legislation contemplates three classes of goods and services; (1) taxable supplies; (2) exempt supplies (input taxed); and (3) zero-rated supplies (GST-free supplies).  As under the Australian system, to the extent that the purchaser of a taxable supply uses that good or service in the course of its commercial activities, the purchaser is entitled to an input tax credit.  Further, that entitlement is not available to the extent to which the business involves the making of exempt supplies.  The supply of a municipal transit service to a member of the public is an exempt supply.

The question in the appeal was whether the acquisition and construction of the transit facilities constituted an exempt supply only, or whether it also, or instead, constituted a taxable supply.  The City contended that it made two supplies.  The first supply, described as “public transit services”, it provides in operating its transit facility.  This supply was made to the Calgary public and it was accepted as an exempt supply of a “municipal transit service”.  The second supply, described as “transit facilities services”, it provides in “acquiring, constructing and making available the transit facilities to the citizens of Calgary” – this was contended to be a separate taxable supply the recipient of which is the Province.

Single supply or two supplies?

The Court considered that City sought to draw a distinction between (1) operating the transit facilities on the one hand, and (2) constructing, acquiring, and making them available, on the other.

In considering the issue, the Court found guidance in the approach of the courts in dealing with whether a supplier has made a single supply comprised of a number of constituent elements, or multiple supplies of separate goods and/or services.  That approach is similar to that of the UK and the Federal Court in Australia.  The Court found that the test was whether, in substance and reality, the alleged separate supply is an integral part, integrant or component of the overall supply.  One must examine the true nature of the transaction to determine the tax consequences.

The Court also found that work preparatory to, or in order to make a supply, does not become a separate service subject to GST. Further, if one supply is work of a preparatory nature to another supply (an “input” to that supply), then the input is a part of component of the single overall supply.

Adopting these principles, the Court found that the true nature of the City’s “transit facilities services” was work of a preparatory nature to the supply of a municipal transit service to the public.  As noted by the Court “Transit facilities were constructed, acquired, and made available in order to supply a municipal transit service to the Calgary public.  This would point to the allegedly separate “transit facilities services” being in fact a component of the overall supply of “public transit services” to the Calgary public.

A statutory/agreement analysis – did the Province receive a supply?

The Court also noted that the above principles did not contemplate a situation (as here) where there are allegedly two recipients of the supply or supplies.  It was argued that the “transit facilities services”, which ultimately benefit the Calgary public, provide a separate and distinct benefit to the Province.  To determine this question, the Court found that the nature of the respective obligations of the City and Province under the funding agreements must be analysed.

The Court noted that “If the Province has a statutory obligation to provide municipal transit services for the public in its cities, then the City’s work in establishing the municipal transit service, including the acquisition and construction of the transit facilities, would provide the benefit to the Province of enabling it to fulfil its statutory obligation.  If there is no such obligation, it would point away from a service to the Province.”  The Court then found that the CTA imposed no obligation on the Province with respect to the establishment or operation of municipal transit services – therefore the statutory context did not support the contention that the City provided the benefit or service to the Province of fulfilling a statutory obligation on its behalf.  Further, if a provision of the CTA provided for a transfer of the title to the transportation facilities from the City to the Province, that would support the contention – however, there was no such statutory provision and title to the facilities vested in the City.

The Court then considered whether the City supplied a service or benefit to the Province by complying with the terms of the funding agreements.  The Court agreed with the decision of the Court below that nothing in the funding agreements required the City to construct anything whatsoever – further, the City’s compliance with accountability measures under the funding agreements did not amount to the provision of any goods, services, or benefit to the Province.

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