Univ. Laval v. R - TCC: Subsidy from city allowing residents to use sports facilities subject to GST

Univ. Laval v. R - TCC:  Subsidy from city allowing residents to use sports facilities subject to GST


Université Laval v. The Queen (January 20, 2016 – 2016 TCC 17, Tardif J.).

Précis:   Université Laval is a university located in the City of Québec.  It commenced plans to expand its sports facilities, Physical Education and Sports Pavilion (PEPS), to meet growing demand.  As a part of that expansion it entered into two agreements with the municipality in 2010.  The first agreement provided for a $10 million subsidy from the municipality.  The second agreement governed usage of the PEPS facilities by municipal residents.  CRA treated the $10 million subsidy as consideration for a taxable supply being made by the university to the municipality, i.e., the right to use part of its real property in the form of the PEPS facility.  The university argued that the subsidy was a gift without any strings attached and therefore did not involve a taxable supply.  The Tax Court accepted CRA’s position that the two 2010 agreements were part of the same transaction.  The Court also rejected the university’s argument that the PEPS facility was primarily used in the course of its exempt educational activities holding on the evidence that more than 50% of the facility was used in the university’s commercial activities.  Accordingly the supply was not exempt.  As a result the Court dismissed the university’s appeal with costs.

Decision:   The Court held that it was clear that the two agreements entered into with the municipality were part and parcel of one supply:

[50]        Based on Mr. D’Amboise’s entire testimony, there is no doubt about the direct link between the two agreements; indeed, that interpretation fully validates the clear, and even obvious contents of both agreements. Based on the contents of these two agreements, the intent of the parties is so clearly expressed that it leaves no room for interpretation; the parties are mutually required to fulfill obligations and provide a service.

[51]        They are mutually bound so that each party’s obligation is correlated to the other party’s obligation. Each party derives an advantage in exchange for the obligation.

[52]        Any interpretation to the contrary is essentially based on assumptions and speculation. When one or more written agreements clearly express the will of the parties, the Court must stand by the language agreed to by the parties. In this case, both agreements were reached through meetings, discussions and negotiations. The final written version, prepared by qualified skilled professionals, correctly expressed the clear will of the parties. Contradicting or distorting the contents of valid written instruments requires very specific evidence based on a solid foundation. However, in this case, the situation is completely different and there is no doubt as to the meaning and scope of the two agreements.

[53]        In addition, the contents of these agreements are precise and consistent. As such, I do not believe it is possible to counter what they so clearly express. The amounts involved are considerable. Those who prepared the agreement clearly defined the rights and obligations of the parties. The precision, clarity and consistency of the contents of the two agreements completely rule out any other interpretation.

Similarly the Court rejected the university’s argument that the supply, if any, was exempt:

[75]        Given that the supply in question is the supply of real property, the next step is to verify whether or not this supply is exempt.

[76]        We should therefore look at Section 25 of Part VI of Schedule V of the ETA, which deals with exempt supplies and more specifically the supply of real property by a public service body.

[77]        Section 25 provides that this type of supply can be exempt, unless the property is used primarily in the Appellant’s commercial activities.

[78]        The Respondent argues that the real property was used for commercial purposes 66% of the time, and the Appellant itself determined that the rate of commercial use was 69%.

[79]        Mr. D’Amboise, as director of PEPS sports activities, testified for the Appellant regarding this issue; he confirmed that since September 2010 the PEPS was used for commercial purposes over 50% of the time.

[80]        On the balance of probabilities, it is permissible, if not necessary, to conclude that the real property is used primarily in the course of the Appellant’s commercial activities; consequently, it is not an exempt supply.

As a result the appeal was dismissed with costs.