CANADA (ATTORNEY GENERAL) v. BRITISH COLUMBIA INVESTMENT MANAGEMENT CORP., 2019 SCC 63

Different level of governments can’t force each other for payment of tax due to immunity by constitution, but if inter level agreement is signed, obligation to pay exists.

British Columbia Investment Management Corporation (BCI) of British Columbia is a provincial Crown Corporation since 1999. It filed a petition under Supreme Court of British Columbia seeking immunisation from tax regarding its assets which it holds in the portfolios. Under the Excise Tax Act, the federal government has the authority to collect GST. For any of its investment facilities, BCI didn’t charge direct fees. Instead, to offset the expense of its facilities and services, it took some of the gains from those investments. As BCI being a statutory Crown agent, it gets immunity for tax on property and land which belongs to Canada and Province, under Sec 125 of the Constitution Act, 1867.

But the federal government claimed that for the investment services, BCI must pay GST. It supported its claim by stating that the Province and Canada have agreed to pay sales taxes in certain circumstances under a long-standing Reciprocal Taxation Agreement (RTC), and under a Comprehensive Integrated Tax Coordination Agreement (CITCA) relating to the planned harmonization of BC provincial sales tax with the GST. The Canada Revenue Agency (CRA) investigated the organisation in 2013 and discovered that BCI owed back taxes worth over $40 million and after-tax dispute the BCI filled the petition.

The BC Supreme Court ruled that, under section 125 of the Constitution Act, BCI was immunised from federal taxation under the said Act for investments held in portfolios and taxes on those properties, but BCI was bound by the agreements of RTA and CITCA clauses on federal taxation of those investments. This judgment was objected by the BCI. Further, CRA made an appeal to B.C. Court of Appeal (SCBC), appealing against the presumption of authority by the lower court judge and his assertion that BCI was exempted from federal taxes as per the constitution. At the same time, BCI cross-appealed the decision holding that they were bounded by the terms and conditions of the two agreements, the RTA and CITCA. Both the appeal and the cross-appeal were dismissed by the Court of Appeal and the issue of appeal by Canada went to the SCC. The Justice stated that, the Portfolios were established to allow the Province and other approved institutions (here BCI) to pool their funds for diversified investment, as well as the investing portfolios, including the option of the British Columbia legislature to reserve the ownership rights of the Portfolio assets in BCI as trustee, fall within the operational scope of section 125, hence the Province and BCI was granted exemption from taxes under ETA and the federal government cannot require or demand BCI to pay tax. But the court also said that because of BC government has agreed to pay some tax in certain situation through binding agreements with the federal government, BCI was liable for the obligations set out in the agreement, so it had to pay tax imposed.