Principles stated by FCA in ExxonMobil apply to s. 174 and s. 175 of Excise Tax Act, tax court says
In a recent case, the Tax Court of Canada considered whether an employer could claim an input tax credit regarding GST or HST imposed in connection with health-related services offered to employees under a healthcare benefit plan.
In Westcoast Energy Inc. v. The Queen, 2020 TCC 116, Westcoast Energy Inc. filed an appeal with respect to a reassessment issued by the Canada Revenue Agency corresponding to the reporting period of Dec. 1, 2015 to Dec. 31, 2015. Westcoast, a Canadian corporation carrying out a business involving natural gas and natural gas liquids, amalgamated with Enbridge Inc. following its acquisition by Enbridge in 2017.
There were contracts between Westcoast and its workers through which the covered employees would receive various health-related and other benefits, including acupuncture, massage therapy, naturopathy and homeopathy services. Westcoast’s appeal revolved around these four services, which were also available to an employee’s spouse and minor children, depending on the employee’s choice.
The issue was whether Westcoast could claim input tax credits pursuant to s. 169(1) and 175(1) of the Excise Tax Act, RSC 1985, c E-15 with respect to the payment or reimbursement of the goods and services tax or harmonized sales tax imposed in connection with the cost of the four services which were the subject of the appeal.
Westcoast alleged that, by reason of s. 175 of the Act, the requirements of s. 169(1) were met. The Crown, on the other hand, contended that s. 175 was not applicable for several reasons. The Crown cited ExxonMobil Canada Ltd. v. Canada, 2010 FCA 1, a case that applied s. 174 of the Act, which is similar to a limited extent to s. 175.
The Tax Court of Canada considered whether s. 175(1) was applicable to Westcoast in this case and concluded that Westcoast failed to establish a relationship between its activities and the consumption or use of the four services by Westcoast’s employees or their families, which is a condition for the application of s. 175(1).
The test in ExxonMobil has two prongs, the first of which is that the “property or services which are intended by the employer for the exclusive personal use of the employees and which lend themselves to such a use bear no relationship with the employer’s activities,” and the second of which is that the “property or services which can be used by the employees in the course of their employment activities, and which are intended for such a use, are in relation to the employer’s activities.” In the present case, the tax court stated that the test in ExxonMobil applied to both s. 174 and s. 175.
“As the principles enunciated in ExxonMobil apply to this Appeal, it becomes necessary to determine: a) whether the Subject Services were intended by Westcoast for the exclusive personal use of its employees and whether the Subject Services lent themselves to such a use; or b) whether the Subject Services could have been used by the employees of Westcoast in the course of their employment activities and whether the Subject Services were intended for such a use,” wrote Justice Don Sommerfeldt for the Tax Court of Canada.
Sommerfeldt said that, considering the nature of the four services, it appeared that such services were meant for the exclusive personal use of Westcoast’s employees or their family members and were capable of being subjected to such use.
On the other hand, it was difficult to think of a situation where services such as acupuncture, massage therapy, naturopathy or homeopathy services would be consumed or used by Westcoast employees while on the job, Sommerfeldt said.
Sommerfeldt concluded that these four services were not intended to be consumed or used in the course of a Westcoast worker’s employment activities, and that the link between the consumption or use of such services to the employee’s work activities grew even more remote in the event that the employee’s spouse or minor offspring received the service.
For these reasons, the tax court dismissed the appeal.
