The appellant ("Mall Co"), its parent ("IPL"), which was the master real estate subsidiary of The Insurance Corporation of British Columbia ("ICBC"), and ICBC itself, entered into a complex of agreements (including an agreement to enter into a lease with a formula rent) with a start-up university ("Tech BC") and the Province of B.C., which contemplated that Mall Co would be funded by ICBC (through IPL) in order to construct facilities, including facilities that would be occupied by Tech BC and rented to it. Approximately half way through construction, the Province decided that there would not be a new university, the agreements were terminated, and (after negotiations) a settlement agreement was entered into among the five parties in which Tech BC agreed on behalf of itself and the Province to pay $41.1M to ICBC in consideration for ICBC, IPL and Mall Co releasing Tech BC and the Province from all obligations under the project agreements. The settlement agreement did not address GST, and CRA assessed Mall Co on the basis that Mall Co had failed to remit GST of $2.4M which it was deemed by s. 182 to have received as part of the settlement payment.
Hershfield J found that ICBC received the settlement payment on its own account (as was in fact recognized in the settlement agreement) rather than on behalf of Mall Co in light inter alia of its own entitlements under the project agreements, including the right to require Tech BC to enter into the lease, and the fact that it had funded a substantial investment in IPL in connection with the project work for which it was being compensated.
Although the above analysis by itself would indicate that Mall Co did not receive a payment as a consequence of the project agreement terminations, upon receipt of the settlement amount, ICBC instructed IPL and Mall Co to write down an equivalent amount of intercompany debt owing to their respective parents. Hershfield J referred (at para. 91) to this being from the perspective of Mall Co a "quid pro quo from ICBC to forego its entitlement against Tech BC." Accordingly, there was a sufficient "causal link" to conclude that the debt of Mall Co had been reduced as a consequence of the termination of the project agreements so that, subject to the final finding below, the assessment of Mall Co was correct.
However, the settlement payment was not subject to GST, on the basis that the primary obligor (the Province) was exempt under s. 125 of the Constitution Act. Furthermore (viewing Tech BC as the deemed recipient), Tech BC was stated in its governing Act to "not be liable to taxation except to the extent the government is liable," which effectively was "the voice of the province claiming immunity for Tech BC" (para. 112). Hershfield J also noted (at para. 112) that although there was no documentary evidence of the type stipulated by CRA of the exempt character of the deemed supply, "any failure to comply with such evidentiary requirements cannot deny a province that [exemption] right where in fact it, a province, has been found by this Court to be the recipient of the supply in respect of the payment."
Mall Co's appeal was allowed.