Introduction

In Tele-Mobile Company Partnership and The Queen 2013 FCA 149 the Federal Court of Appeal the taxpayer’s appeal against the decision of the Tax Court of Canada (2012 TCC 256) which agreed with the decision of the Revenue to deny input tax credits in respect of various billing credits given to subscribers to phone service contracts.

The decision illustrates that the Courts in Canada adopt a similar approach to statutory interpretation in the context of GST (indeed generally). While the words of the statute are the starting point (indeed the end point as well in many cases), it is necessary to also apply a contextual and purposive interpretation, particularly where the words can support more than one reasonable meaning.

The facts

The facts can be shortly stated:

• for the purpose of attracting subscribers to its long-term wireless phone service contracts, the taxpayer offered various promotional programs which were principally tied to the purchase of a cellular phone. Pursuant to one aspect of the promotion, the taxpayer provided billing credits to certain subscribers who agreed to enter into long-term service contracts – the credit varied depending on the length of the service contract.
• the taxpayer applied the billing credits after all the charges were totalled, which included the applicable GST calculated on those charges – thus, customers paid GST on the full consideration charged by the taxpayer before the credits were applied.

The decision at first instance

The taxpayer relied on two arguments, both of which were dismissed by the Tax Court:

• each billing credit was a “coupon” as defined in s 181(1) of the Excise Tax Act, allowing it to claim an input tax credit; alternatively
• each billing credit was a rebate entitling it to claim an input tax credit.

The Appeal

The taxpayer appealed on both grounds raised before the Tax Court.

Were the billing credits a “coupon”?

The Court found that the billing credits did not fall under the definition of “coupon” in s 181(1) of the Excise Tax Act, which read as follows:

“coupon” includes a voucher, receipt, ticket or other device but does not include a gift certificate or barter unit (within the meaning of section 181.3).

The taxpayer accepted that the billing credits were not vouchers, receipts or tickets, but argued that they were electronic credits in its computer system which its customers held intangibly in their accounts and that, as a result, they were “other device[s]” contemplated by the definition of “coupon”.

The Court agreed with the view of the Tax Court that the billing credit was “not some thing entitling the customer to the reduction – it is the reduction itself” and that in order to fall within the definition of “coupon” a device must be something which the customer can present for acceptance. The Court observed that the position advanced by the taxpayer would allow just about any advertised discount to be considered as a “coupon”.

Were the billing credits a “rebate”

Section 181.1 of the Excise Tax Act allows a taxpayer to claim input tax credits in respect of a rebate where certain conditions are met, including that the taxpayer “provides written indication that a portion of the rebate is an amount on account of tax”.

The taxpayer contended that by looking at the invoice, any customer which had added the charges in the invoice and multiplied the sum by the applicable rate of GST would have readily understood that GST had been applied to the entire charges prior to the rebate, and this was sufficient written indication that the rebate must have itself included a GST component – giving rise to an input tax credit claim.

The Tax Court agreed that the billing credits were rebates, but found that the invoice did not satisfy the requirement in the legislation that the invoice be “sufficiently clear” that a portion of the rebate was on account of tax.

On appeal, the Court concluded that the Tax Court reached the right result, but relied on different reasons. In doing so, the Court conducted an analysis into the modern approach to statutory interpretation in Canada. The Court observed that there was just one approach to statutory interpretation, being that described by MacLahlin CJ and Major J in Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54 (CanLII), 2005 SCC 54,  [2005] 2 S.C.R. 601, at paragraph 10:

It has been long established as a matter of statutory interpretation that “the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament”: see 65302 British Columbia Ltd. v. Canada, 1999 CanLII 639 (SCC), [1999] 3 S.C.R. 804, at para. 50. The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole. When the words of a provision are precise and unequivocal, the ordinary meaning of the words plays a dominant role in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays a lesser role. The relative effects of ordinary meaning, context and purpose on the interpretive process may vary, but in all cases the court must seek to read the provisions of an Act as a harmonious whole.

The Court also observed that:

Under the modern contextual approach to statutory interpretation, regard must be had not only to the ordinary and natural meaning of the words, but also to the context in which they are used and the purpose of the provision considered as a whole within the legislative scheme in which it is found:Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42 (CanLII), [2002] 2 S.C.R. 559, 2002 SCC 42 at para. 27. The most significant element of this analysis is the determination of legislative intent: R. v. Monney, 1999 CanLII 678 (SCC), [1999] 1 S.C.R. 652 at para. 26.

This approach finds similarities with the recent views of the High Court in Australia, including Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; (2012) 298 ALR 257 at [39] (referring to what the High Court said in Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27 at [47]). In a GST context, reference can be had to the very recent decision of the High Court in Commissioner of Taxation v Unit Trend Services Pty Ltd [2013] HCA 16 at [47] where the Court stated as follows (footnotes omitted):

As French CJ, Hayne, Crennan, Bell and Gageler J said in Federal Commissioner of Taxation v Consolidated Media Holdings Ltd: “This Court has stated on many occasions that the task of statutory construction must begin with a consideration of the [statutory] text”. Context and purpose are also important. In Certain Lloyd’s Underwriters Subscribing to Contract No IH00AAQS v Cross French CJ and Hayne J said:

“The context and purpose of a provision are important to its proper construction because, as the plurality said in Project Blue Sky Inc v Australian Broadcasting Authority ‘[t]he primary object of statutory construction is to construe the relevant provision so that it is consistent with the language and purpose of all the provisions of the statute’…That is, statutory construction requires deciding what is the legal meaning of he relevant provision ‘by reference to the language of the instrument viewed as a whole’, and ‘the context, the general purpose and policy of a provision and its consistency and fairness are surer guides to its meanings than the logic with which it is constructed'”

The Court observed that one of the fundamental purposes of introducing GST was to provide transparency in the GST system and that the visibility and transparency of the GST was, and still is, one of the key aspects of the GST. The same applies to the GST system in Australia, as reflected by the disclosure requirements for documents such as tax invoices and adjustment notes.

In the context of transparency, the requirement of “written indication” served the purposes of allowing a registered customer to determine whether it would be required to account for the GST portion of the rebate and also to draw the customer’s attention to the GST component of the rebate. In this context, the taxpayer’s contention that by providing the customer with “an opportunity” to calculate how the GST was determined, it met the disclosure requirements, could not be accepted. The legislation required more than an opportunity to work out that GST was included in the rebate, it required an actual indication.