If you have two ways to interpret a contract, should you read it so that GST will apply twice or only once? Hogan J. says, choose the “interpretation [that] avoids double taxation”. (Para. 25.)
Casa Blanca agreed to buy 14 parcels of land from a developer. It paid a deposit for each purchase. Then, for 12 of the properties, Casa Blanca assigned its purchase rights to buyers for a total price made of two parts: (a) reimbursement of its deposit and (b) an assignment fee (profit).
CRA said that the buyers paid Casa Blanca a single amount for a taxable assignment of an interest in land. If CRA were right, then the buyers would pay GST to Casa Blanca on the assignment fee and on the deposit; then they would pay GST on the deposit again to the developer when the purchase closed.
The TCC judge thought that “double taxation … was not intended by Parliament.” So, he strained to find “that two separate supplies were made under each of the Assignment Agreements. One supply was of an interest in land, for which the Appellant received the Assignment Fee and collected GST thereon. The other supply was the Deposit, for which the Appellant received the Deposit Recovery.” (Para. 20.)
Because a deposit is a “debt security” and its transfer is an exempt “financial service” for GST purposes, this interpretation avoided double tax.
In other cases, Tax Courts have read contracts with multiple, itemized charges as a single supply. In those cases, the result has often been to prevent any GST from being payable. (See Calgary (City) v. Canada, 2012 SCC 20, and the cases it discusses and also paras. 11-17 of Casa Blanca.)
In straining to get to this result, Justice Hogan said, in the alternative, that “what the Appellant assigned to the Assignees was an interest in money, which is neither ‘property’ nor a ‘service’ under the ETA.” (Para. 22.) This is a very odd view because s. 123(1) of the ETA defines a “debt security” as “a right to be paid money and includes a deposit of money“. So, his conclusion seems to contradict the ETA definition.
Is a deposit a debt or “money”? As a rule, the developer would show deposits it collects from others as liabilities on its balance sheet. Also, a buyer would show the same deposit as an asset, but not, generally, as cash.
This view of a deposit as “money” was not essential to the decision. It seems best not to rely on it.