Tax/Constitutional Law: Crown Agents

Canada (Attorney General) v. British Columbia Investment Management Corp., 2019 SCC 63 (38059)

“In 1999, the legislature of British Columbia (the Province) created the British Columbia Investment Management Corporation (BCI) to provide investment management services to the Province’s public sector pension plans and other Crown entities through the Public Sector Pension Plans Act (PSPPA). On its creation, BCI assumed ownership and management of the investment assets held in pooled investment portfolios (Portfolios), which formerly were held and managed by the Province’s Minister of Finance. At the same time, the Province modernized its public sector pensions by creating a joint trusteeship structure, to allow both pension plan members and their employers to participate in the management of the public sector pension plans. These changes were intended to create a degree of separation between the government and the management of its investment funds and the public sector pensions.

By virtue of two separate agreements, the Province and Canada have agreed to pay the other’s sales taxes in certain circumstances. Under the Reciprocal Taxation Agreement (RTA), Canada agreed to pay certain provincial taxes and fees and the Province agreed to pay the taxes imposed under the federal Excise Tax Act , Part IX (ETA). Provincial entities listed in Schedule A of the RTA could apply for a rebate of any GST paid. BCI was added to Schedule A in 1999 but removed in 2003. Under the Comprehensive Integrated Tax Coordination Agreement (CITCA), the Province and Canada agreed to pay HST on supplies purchased by their respective governments and agents. The CITCA was in effect until 2013, when the Province withdrew from the HST regime and returned to the GST/PST model.

Following BCI’s removal from Schedule A of the RTA in 2003, Canada Revenue Agency (CRA) began to question whether BCI was entitled to claim immunity from GST in respect of the expenses it incurred in managing the Portfolios. In December 2013, BCI filed a petition in the Supreme Court of British Columbia, seeking declarations that as a statutory Crown agent, BCI is immune from taxation in respect of the assets it holds in the Portfolios, and is not bound by either the RTA or the CITCA or the payment obligations found in those agreements.

Canada sought to strike BCI’s petition, arguing that the dispute should be heard by the Tax Court of Canada, not the Supreme Court of British Columbia but its motion was dismissed. The chambers judge held that the Supreme Court of British Columbia had jurisdiction to hear the petition, that BCI, as a statutory Crown agent, enjoys immunity under s. 125  of the Constitution Act, 1867 , which states that no lands or property belonging to Canada or any Province shall be liable to taxation, and that BCI is bound by the taxation agreements. The Court of Appeal agreed. Canada appeals the holding that BCI is immune from taxation and BCI cross-appeals with respect to the binding nature of the agreements.”

The S.C.C. held (6:1, the Chief Justice dissenting in part) appeal and cross‑appeal dismissed.

Justice Karakatsanis wrote as follows (at paras. 1, 6, 32, 94-95, 109-110):
“This appeal and cross-appeal consider when the activities of a provincial Crown corporation may be taxed by the federal government. It requires this Court to evaluate the scope of the intergovernmental immunity from taxation set out in s. 125  of the Constitution Act, 1867 , and whether agreements entered into by two levels of government to pay the equivalent of “taxes” may be binding on other Crown entities.

Like the courts below, I have concluded that the ETA  cannot apply to BCI’s activities in managing the Portfolios because it is constitutionally immune under s. 125 . The ETA cannot impose GST on property legally owned by a Crown agent. Nevertheless, I also agree that both the Province and BCI are subject to the obligations set out in the intergovernmental agreements.

…First, I conclude that the chambers judge did not err in exercising his jurisdiction. Next, I consider the operation of the ETA  and determine that s. 125  renders the ETA  inapplicable with respect to the costs BCI recovers from the Portfolios. Finally, I conclude that the Agreements are binding on the Province and BCI is subject to the obligations set out in them by virtue of s. 16(6) of the PSPPA.

Intergovernmental agreements exist on a spectrum, ranging from the merely aspirational and political to those which resemble private law contracts and create legally enforceable obligations: see Quebec (Attorney General) v. Moses, 2010 SCC 17, [2017] 1 S.C.R. 557, at paras. 85-86, LeBel and Deschamps JJ. (dissenting, but not on this point). As with private law contracts, intergovernmental agreements must be evaluated to determine whether the parties intended to create legal obligations: see Esquimalt and Nanaimo R. Co., at pp. 311-12; South Australia v. The Commonwealth, [1962] HCA 10, 108 C.L.R. 130.

Various elements of an intergovernmental agreement may demonstrate an intention to create legal obligations:

  • The subject matter: does the agreement deal with discrete commercial matters rather than broad questions of public policy?
  • The language used: do the terms of the agreement resemble a private law contract? For example, does it use mandatory language such as “shall” or “binding,” set out the duration of the agreement, or require audits or the publishing of financial statements?
  • The mechanism for resolving disputes: did the parties agree to refer disputes to arbitration or a designated court rather than resolving them by purely political means?
  • Subsequent conduct: did the parties treat the agreement as binding, rely on it to their detriment or derive clear benefits from it?

See J. Poirier, “Intergovernmental Agreements in Canada: At the Crossroads Between Law and Politics” in J.P. Meekison, H. Telford and & H. Lazar, eds., Canada: The State of the Federation 2002 – Reconsidering the Institutions of Canadian Federalism (2004) 425, at pp. 430-34; Kennett, at pp. 653-56; N. Bankes, “Co-operative Federalism: Third Parties and Intergovernmental Agreements and Arrangements in Canada and Australia” (1991), 29 Alta. L. Rev. 792, at pp. 794 and 832; J. Owen Saunders, lnterjurisdictional Issues in Canadian Water Management (1988), at pp. 95-99. I consider each factor in turn.

Textual nuances aside, there is a more fundamental reason why BCI’s immunity from taxation (constitutional, statutory, contractual or otherwise) must be the same as the Province’s. Section 16(6) directly ties BCI’s liability for and immunity from tax to the liabilities and immunities of the Province. In a similar fashion, both Agreements indicate an intention to require the Province’s agents to assume the same tax liabilities as the Province: RTA, art. 3; CITCA, art. 51. By entering into the Agreements, the provincial Crown chose to pay taxes for which it would not otherwise have been liable. Given that any immunity that BCI enjoys is directly tied to the Crown’s by s. 16(6) of the PSPPA, there is simply no basis for BCI to assert that it is not generally subject to taxation on the same basis as the Province. Obviously, BCI’s actual liability is determined by the terms of the taxing statute and this cross-appeal does not concern any specific obligations that BCI might have under the Agreements.

In summary, the language of the RTA and the CITCA demonstrates that the Province intended to bind itself to fulfill the obligations found in those Agreements.  Section 16(6) of the PSPPA establishes that BCI’s tax immunities and obligations follow those of the Province. Because the language of this provision is broad enough to include obligations voluntarily assumed by the Province, BCI is generally subject to the obligations set out in the Agreements to the same extent that the Province would be. However, as noted above, the nature of any specific obligations under the Agreements is beyond the scope of the cross-appeal.”

Full Decision