Attorney General of Canada Appellant/Respondent on cross-appeal v. British Columbia Investment Management Corporation, 2019 SCC 63

SUPREME COURT OF CANADA Citation: Canada (Attorney General) v. British Columbia Investment Management Corp., 2019 SCC 63, [2019] 4 S.C.R. 559 Appeal Heard: May 13, 2019 Judgment Rendered : December 13, 2019 Docket: 38059 Between: Attorney General of Canada Appellant/Respondent on cross-appeal and British Columbia Investment Management Corporation Respondent/Appellant on cross-appeal and Her Majesty The Queen in Right of the Province of British Columbia Respondent/Respondent on cross-appeal - and - Attorney General of Ontario and Attorney General of Alberta Interveners Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Brown, Rowe and Martin JJ.

Reasons for Judgment: (paras. 1 to 114) Reasons Dissenting in Part: (paras. 115 to 171) Karakatsanis J. (Abella, Moldaver, Brown, Rowe and Martin JJ. concurring) Wagner C.J. canada v. b.c. investment management Attorney General of Canada Appellant/Respondent on cross-appeal v. British Columbia Investment Management Corporation Respondent/Appellant on cross-appeal and Her Majesty The Queen in Right of the Province of British Columbia Respondent/Respondent on cross-appeal and Attorney General of Ontario and Attorney General of Alberta Interveners Indexed as: Canada ( Attorney General ) v.

British Columbia Investment Management Corp. 2019 SCC 63 File No.: 38059. 2019: May 13; 2019: December 13.

Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Brown, Rowe and Martin JJ. on appeal from the court of appeal for british columbia Constitutional law — Intergovernmental immunity from taxation — Goods and services tax — Scope of intergovernmental immunity — Provincial Crown corporation created by legislature to provide investment management services to province’s public sector pension plans and other Crown entities — Whether provincial Crown corporation required to collect and remit federal GST on costs it incurs in making investments in pooled investment portfolios — Whether provincial Crown corporation entitled to constitutional immunity from taxation — Constitution Act, 1867, s. 125 — Excise Tax Act, R.S.C. 1985, c.

E-15 ,

Part IX. Taxation — Goods and services tax — Federal-provincial reciprocal taxation agreement — Whether agreements entered into by federal and provincial governments to pay the other’s sales taxes are binding on other Crown entities — Whether agreements have legal effect of removing immunity from taxation that would otherwise be enjoyed by Crown agent.

In 1999, the legislature of British Columbia (the Province) created the British Columbia Investment Management Corporation (BCI) to provide investment management services to the Province’s public sector pension plans and other Crown entities through the Public Sector Pension Plans Act ( PSPPA ). On its creation, BCI assumed ownership and management of the investment assets held in pooled investment portfolios (Portfolios), which formerly were held and managed by the Province’s Minister of Finance.

At the same time, the Province modernized its public sector pensions by creating a joint trusteeship structure, to allow both pension plan members and their employers to participate in the management of the public sector pension plans. These changes were intended to create a degree of separation between the government and the management of its investment funds and the public sector pensions. By virtue of two separate agreements, the Province and Canada have agreed to pay the other’s sales taxes in certain circumstances.

Under the Reciprocal Taxation Agreement (RTA), Canada agreed to pay certain provincial taxes and fees and the Province agreed to pay the taxes imposed under the federal Excise Tax Act ,

Part IX ( ETA ). Provincial entities listed in

Schedule A of the RTA could apply for a rebate of any GST paid. BCI was added to

Schedule A in 1999 but removed in 2003. Under the Comprehensive Integrated Tax Coordination Agreement (CITCA), the Province and Canada agreed to pay HST on supplies purchased by their respective governments and agents. The CITCA was in effect until 2013, when the Province withdrew from the HST regime and returned to the GST/PST model.

Following BCI’s removal from

Schedule A of the RTA in 2003, Canada Revenue Agency (CRA) began to question whether BCI was entitled to claim immunity from GST in respect of the expenses it incurred in managing the Portfolios. In December 2013, BCI filed a petition in the Supreme Court of British Columbia, seeking declarations that as a statutory Crown agent, BCI is immune from taxation in respect of the assets it holds in the Portfolios, and is not bound by either the RTA or the CITCA or the payment obligations found in those agreements.

Canada sought to strike BCI’s petition, arguing that the dispute should be heard by the Tax Court of Canada, not the Supreme Court of British Columbia but its motion was dismissed. The chambers judge held that the Supreme Court of British Columbia had jurisdiction to hear the petition, that BCI, as a statutory Crown agent, enjoys immunity under s. 125 of the Constitution Act, 1867 , which states that no lands or property belonging to Canada or any Province shall be liable to taxation, and that BCI is bound by the taxation agreements. The Court of Appeal agreed.

Canada appeals the holding that BCI is immune from taxation and BCI cross-appeals with respect to the binding nature of the agreements. Held (Wagner C.J. dissenting in part): The appeal and cross-appeal should be dismissed. Per Abella, Moldaver, Karakatsanis, Brown, Rowe and Martin JJ.: The chambers judge did not err in exercising his jurisdiction to decide BCI’s petition. Both the scope and the timing of BCI’s petition supports the chambers judge’s characterization of BCI’s claim and its decision to exercise its jurisdiction.

In deciding whether to exercise its jurisdiction, a court must determine the essential nature of the claim. In this case, the chambers judge determined that the core of BCI’s petition was not an attack on the GST assessments but rather Canada’s ability to tax BCI in the first place. He also concluded that the constitutional immunity and intergovernmental agreements issues were linked — if the immunity claim was successful, the agreements were the only way BCI could be required to pay GST. There is no reversible error in this analysis.

The issues raised in BCI’s petition go beyond the assessment of tax under the ETA , this case is about the rights, obligations, and duties of a Crown agent, under the Constitution and at common law. Furthermore, although challenges to the correctness of a tax assessment under the ETA fall within the exclusive jurisdiction of the Tax Court, at the time BCI filed its petition, the reassessments issued in 2015 had not yet been issued so the Tax Court had no jurisdiction over the dispute. The ETA ’s mechanism for imposing GST on the Portfolios would result in Crown property being subject to taxation.

Therefore, s. 125 of the Constitution Act, 1867 , renders the relevant provisions of

Part IX of the ETA inapplicable in respect of the Portfolios.

Part IX of the ETA governs the payment, collection and remittance of the federal GST (and HST, where applicable). Every recipient of a taxable supply must pay GST on the consideration paid for the supply. Suppliers registered under the ETA are required to collect GST and periodically remit it to the federal government. BCI uses two different structures to manage the assets placed with it for investment: investments are either held in the Portfolios or as segregated funds, separate and apart from the assets of the Portfolios.

There is no dispute that the investment management services BCI provides outside the context of the Portfolios (i.e. in managing the segregated funds) are taxable supplies for GST purposes. However, for the Portfolios, BCI recovers the costs of managing them from the income realized on the assets held in the Portfolios and does not collect GST on these amounts. Thus, the issue under the ETA does not relate to the nature of BCI’s investment management activities but rather involves whether the Portfolios can be considered a “recipient” of a taxable supply under the ETA .

Section 123(1) of the ETA defines a “recipient” with reference to either the person who is liable to pay consideration for a supply of services or, if no consideration is payable, the person to whom a service is rendered. To fall within this definition, a recipient must also be a person. At common law, only natural persons and corporations have legal personalities; a trust does not. To capture transactions involving a wide range of entities, the ETA defines “person” and confers upon a trust a separate, artificial legal identity for tax purposes.

The combined effects under the ETA is to impose GST collection, remittance and payment obligations on trusts and trustees in certain circumstances. For the purposes of determining whether BCI enjoys constitutional immunity, it is assumed that the Portfolios are “a trust” within the meaning of

Part IX of the ETA . On this assumption, BCI would hold the Portfolio assets in trust for the benefit of the unit holders. Applying the ETA to BCI and the Portfolios is further complicated by the fact that BCI is a provincial Crown agent. Intergovernmental immunity from taxation grants each level of government operational space to govern without interference and seeks to maintain the federal-provincial distribution of property set out in the Constitution Act, 1867 .

Section 125 grants constitutional immunity from taxation when two requirements are met. First, the pith and substance of the impugned charge must constitute “taxation” within the meaning of ss. 91(3) or 92(2) of the Constitution Act, 1867 . Second, the subject matter of the tax must be property belonging to the federal Crown in the case of a tax imposed by the provincial legislature and to the provincial Crown in the case of a tax imposed by Parliament. Where these two prerequisites are met, s. 125 applies and renders otherwise valid taxation provisions inapplicable in respect of Crown property.

In the instant case, there is no question that the federal GST falls squarely within the meaning of “taxation” in s. 91(3) of the Constitution Act, 1867 , and that, as a statutory Crown agent, BCI enjoys the same constitutional immunity in respect of its property as the provincial Crown does. When the Crown holds property in trust, s. 125 of the Constitution, 1867 , protects only the Crown’s interest in trust property from taxation. A private beneficial interest can therefore be taxed when the Crown holds legal title.

However, if the tax is imposed on the Crown’s interest in the property, then constitutional immunity applies. In this case, the ETA uses a legal fiction to require a trust to pay tax on taxable services provided to it by its trustee. However, when the trustee is a provincial Crown agent, this mechanism runs afoul of s. 125 because it imposes tax on property legally owned by the Crown. The ETA does not impose GST on a distinct private beneficial ownership interest in this case. Therefore, the ETA is constitutionally inapplicable to the Portfolios. BCI is subject to the RTA and the CITCA.

In light of their clear wording, the agreements resemble private law contracts and were intended to create legally binding obligations for Canada and the Province. The PSPPA establishes that BCI’s tax immunities and obligations follow those of the Province. Because the language of this provision is broad enough to include obligations voluntarily assumed by the Province, BCI is generally subject to the obligations set out in the agreements to the same extent that the Province would be. However, the nature of any specific obligations under the agreements is beyond the scope of this appeal.

Per Wagner C.J. (dissenting in part): There is agreement with the majority that the Supreme Court of British Columbia

appropriately assumed jurisdiction over this litigation and that BCI is bound by the relevant intergovernmental taxation agreementsbetween British Columbia and Canada. However, there is disagreement on the issue of immunity under s. 125 of the Constitution Act,1867. BCI’s legal title to the taxed property is insufficient to make it property “belonging to” the Province, as s. 125 requires, becausethe property was entrusted to BCI by private parties to hold and manage for their sole benefit in exchange for payment.

The property isliable to taxation only because the private pension boards chose to make it the mechanism of payment for the services they received fromBCI. Extending immunity under s. 125 in these circumstances does not protect the constitutional values of federalism and democracy thats. 125 exists to promote. Instead, it overshoots those purposes by giving private parties the benefit of an immunity from taxation to whichthey are not entitled, protecting the Province from adverse contractual consequences, and providing BCI with an unjustified commercialadvantage.

The unit holders are the beneficiaries of the funds BCI holds in trust. The investment management services that BCIprovides for the Portfolios ultimately benefit the unit holders. It is the unit holders that are entitled to the income and capital gainsgenerated by the Portfolios while they exist, and it is the unit holders that are entitled to the net proceeds on termination of thePortfolios. Neither BCI nor the Province has the ability or right to appropriate Portfolio assets.

The only benefit BCI derives from thePortfolios is the recouping of its operating costs and capital expenditures from the funds therein, which reduces the value of the units andthe ultimate return realized by the unit holders. The Province’s involvement with the public sector pension plans is purely contractual.The pension boards, which form the bulk of the unit holders, are private parties. The real impact of the tax is borne by the private unitholders because BCI provides the services relating to the Portfolios for the benefit of the unit holders alone.

Only the pension boards’choice to pay BCI indirectly by permitting it to take its payment from the trust makes the Portfolios the recipients under the ETA of theservices that BCI provides. Had BCI and the pension boards agreed that BCI would bill the boards directly for its services instead oftaking its payment from the Portfolios, the boards would have been the recipients under the ETA and would thus have been liable to payGST. Private parties cannot rely on s. 125 of the Constitution Act, 1867, to immunize themselves from paying tax on investmentmanagement services they receive from a Crown corporation. The

interpretation of s. 125 should not overshoot the purposes offederalism and democracy. It is clear that Parliament can require private purchasers of provincial services to pay GST in respect of thoseservices without running afoul of s. 125. Further, s. 125 is not intended to immunize the Crown from contractual consequences or otheradverse commercial effects that it may bear as a result of the taxation of a private party. The commercial and contractual interests of theCrown cannot be favoured at the expense of those of private parties. In the instant case, the property does not belong to the Crown and isthus not immune under s.

Section 125 does not immunize property that private parties have placed with the Crown to hold in trustfor their sole benefit from a tax on services that they have contracted to receive from the Crown in respect of that property.

The propertyin substance belongs not to the Crown but to the private parties, and the Crown’s legal title as trustee does not trigger the immunity.Extending the immunity here would overshoot s. 125’s purposes by extending immunity to private parties’ interests, relying on adversecontractual consequences for the Crown to extend the immunity, and rendering the Crown’s assets more commercially attractive bymaking them a tax haven for private parties. Extending the immunity would not advance s. 125’s purposes.

It would not advance s. 125’s objective of preventing onelevel of government from appropriating the property of the other, or the fruits of that property, to its own use. Further, holding thatimmunity does not apply in these circumstances would not undermine the Province’s decision to allow BCI to hold the Portfolio assets intrust. Instead, it would merely impose appropriate tax consequences on a mode of payment for services chosen by BCI and its privateclients. Nothing in the PSPPA or trust law requires the mode of payment that is said to give rise to s. 125 immunity.

The PSPPA makesdirect payment from the trust funds only one of multiple possible payment options available and also permits BCI to bill its clientsdirectly for services rendered. Providing immunity is not necessary to protect the Province’s operational space to govern. Moreover,requiring the Portfolios to pay GST would not put them at risk. BCI and the pension boards remain free to ensure that the GST is notpaid from the trust funds by agreeing that the boards will pay BCI directly for its services, an option that is both provided for by thelegislature and used by BCI and the boards for the segregated funds.

Finally, applying immunity does not advance the constitutionalvalue of democracy because this case is not about Parliament deciding how taxes levied by the Province should be spent. The Provincehas already decided how it should spend its tax revenues. It authorized the payment of tax funds to private pension boards in order tomeet its contractual obligations to compensate provincial employees. Once the Province paid those funds to the private pension boards,they ceased to be public funds and became subject to the contractual terms of the joint trust agreements.

The services at issue are thusprovided by BCI to private parties that agreed to pay for those services. All Canada is trying to do is ensure that those private parties payGST on those services. Cases Cited By Karakatsanis J. Considered: Reference re Exported Natural Gas Tax, (SCC), [1982] 1 S.C.R. 1004; Quirt v. The Queen(1891), 1891 CanLII 9 (SCC), 19 S.C.R. 510; referred to: British Columbia Investment Management Corp. v. Canada (AttorneyGeneral), 2014 BCSC 1296, [2014] G.S.T.C. 93, aff’d 2015 BCCA 373, 80 B.C.L.R. (5th) 316; Canada (Attorney General) v.

Fontaine,2017 SCC 47, [2017] 2 S.C.R. 205; Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633; Hryniak v. Mauldin,2014 SCC 7, [2014] 1 S.C.R. 87; Canadian Imperial Bank of Commerce v. Green, 2015 SCC 60, [2015] 3 S.C.R. 801; MiningWatchCanada v. Canada (Fisheries and Oceans), 2010 SCC 2, [2010] 1 S.C.R. 6; Windsor (City) v. Canadian Transit Co., 2016 SCC 54,[2016] 2 S.C.R. 617; Canada (Attorney General) v. TeleZone Inc., 2010 SCC 62, [2010] 3 S.C.R. 585; Johnson v. Minister of NationalRevenue, 2015 FCA 51, 469 N.R. 326; JP Morgan Asset Management (Canada) Inc. v.

Canada (National Revenue), 2013 FCA 250,[2014] 2 F.C.R. 557; Sorbara v. Canada (Attorney General), 2009 ONCA 506, 98 O.R. (3d) 673; Aboriginal Federated Alliance Inc. v.Canada Customs and Revenue Agency, 2002 ABCA 104, 303 A.R. 304; Smith v. Canada, 2006 BCCA 237, 61 B.C.L.R. (4th) 231;Canada v. Addison & Leyen Ltd., 2007 SCC 33, [2007] 2 S.C.R. 793; Pintendre Autos Inc. v. The Queen, 2003 TCC 818, 2004 D.T.C.2596; Whitford v. The Queen, 2008 TCC 359, 2008 G.T.C. 638; R. v. Eldorado Nuclear Ltd., (SCC), [1983] 2 S.C.R.551; Province of Bombay v. City of Bombay, [1947] A.C. 58; Alberta Government Telephones v.

Canada (Canadian Radio-television andTelecommunications Commission), (SCC), [1989] 2 S.C.R. 225; Nova Scotia Power Inc. v. Canada, 2004 SCC 51,[2004] 3 S.C.R. 53; Canada (Attorney General) v. Thouin, 2017 SCC 46, [2017] 2 S.C.R. 184; Reference re Goods and Services Tax, (SCC), [1992] 2 S.C.R. 445; Will-Kare Paving & Contracting Ltd. v. Canada, 2000 SCC 36, [2000] 1 S.C.R. 915;

Backman v. Canada, 2001 SCC 10, [2001] 1 S.C.R. 367; R. v. D.L.W., 2016 SCC 22, [2016] 1 S.C.R. 402; Schmidt v. Air ProductsCanada Ltd., (SCC), [1994] 2 S.C.R. 611; British Columbia v. Henfrey Samson Belair Ltd., (SCC),[1989] 2 S.C.R. 24; Guarantee Company of North America v. Royal Bank of Canada, 2019 ONCA 9, 144 O.R. (3d) 225; ErmineskinIndian Band and Nation v. Canada, 2009 SCC 9, [2009] 1 S.C.R. 222; Guerin v. The Queen, (SCC), [1984] 2 S.C.R.335; Attorney-General of British Columbia v. Esquimalt and Nanaimo R. Co., (UK JCPC), [1950] 1 D.L.R. 305; DeMond v. The Queen (1999), (TCC), 99 D.T.C. 893; C.I.

Mutual Funds Inc. v. Canada, [1997] G.S.T.C. 84, var’d (FCA), [1999] 2 F.C. 613; First Vancouver Finance v. M.N.R., 2002 SCC 49, [2002] 2 S.C.R. 720; Westbank First Nationv. British Columbia Hydro and Power Authority, (SCC), [1999] 3 S.C.R. 134; City of Halifax v. Halifax HarbourCommissioners, (SCC), [1935] S.C.R. 215; Re Canadian Broadcasting Corp. Assessment, (ON SC),[1938] 4 D.L.R. 591, aff’d (ON SC), [1938] 4 D.L.R. 764; Calgary & Edmonton Land Co. v. Attorney-General ofAlberta (1911), (AB CA), 45 S.C.R. 170; Smith v. Rur. Mun. of Vermillion Hills (1916), (UK JCPC),30 D.L.R. 83; City of Vancouver v.

Attorney-General of Canada, (SCC), [1944] S.C.R. 23; Phillips and Taylor v. City ofSault Ste. Marie, (SCC), [1954] S.C.R. 404; Rural Municipality of Vermillion Hills v. Smith (1913), 6 Sask. L.R. 366;Regina v. County of Wellington (1890), 17 O.A.R. 421; Reference re Anti-Inflation Act, (SCC), [1976] 2 S.C.R. 373;Northrop Grumman Overseas Services Corp. v. Canada (Attorney General), 2009 SCC 50, [2009] 3 S.C.R. 309; Reference re CanadaAssistance Plan (B.C.), (SCC), [1991] 2 S.C.R. 525; Reference re Pan-Canadian Securities Regulation, 2018 SCC 48,[2018] 3 S.C.R. 189; Quebec (Attorney General) v.

Moses, 2010 SCC 17, [2010] 1 S.C.R. 557; South Australia v. The Commonwealth(1962), 108 C.L.R. 130; Toronto District School Board v. R., 2009 TCC 39, [2009] G.S.T.C. 6; Ottawa Hospital Corp. v. R., 2010 TCC53, [2010] G.S.T.C. 15. By Wagner C.J. (dissenting in part) Valard Construction Ltd. v. Bird Construction Co., 2018 SCC 8, [2018] 1 S.C.R. 224; Ehrcke v. Public Service PensionBoard of Trustees, 2004 BCSC 757, 32 B.C.L.R. (4th) 388; McKinney v. University of Guelph, (SCC), [1990] 3 S.C.R.229; Westbank First Nation v.

British Columbia Hydro and Power Authority, (SCC), [1999] 3 S.C.R. 134; Reference reExported Natural Gas Tax, (SCC), [1982] 1 S.C.R. 1004; Eurig Estate (Re), (SCC), [1998] 2 S.C.R.565; Caron v. Alberta, 2015 SCC 56, [2015] 3 S.C.R. 511; R. v. Blais, 2003 SCC 44, [2003] 2 S.C.R. 236; Calgary & Edmonton LandCo. v. Attorney-General of Alberta (1911), (AB CA), 45 S.C.R. 170; Reference re Goods and Services Tax, (SCC), [1992] 2 S.C.R. 445; City of Vancouver v. Attorney-General of Canada, (SCC), [1944] S.C.R. 23;Phillips and Taylor v. City of Sault Ste. Marie, (SCC), [1954] S.C.R. 404; Pecore v.

Pecore, 2007 SCC 17, [2007] 1S.C.R. 795; Csak v. Aumon (1990), (ON SC), 69 D.L.R. (4th) 567; R. v. Penunsi, 2019 SCC 39, [2019] 3 S.C.R. 91;Trident Holdings Ltd. v. Danand Investments Ltd. (1988), (ON CA), 64 O.R. (2d) 65; De Mond v. The Queen (1999), (TCC), 99 D.T.C. 893; Smith v. Rural Municipality of Vermilion Hills (1914), (SCC), 49 S.C.R. 563,aff’d (1916), (UK JCPC), 30 D.L.R. 83; Quirt v. The Queen (1891), 1891 CanLII 9 (SCC), 19 S.C.R. 510; Regina v.County of Wellington (1889), 17 O.R. 615; Regina v. County of Wellington (1890), 17 O.A.R. 421.

Statutes and Regulations Cited Comprehensive Integrated Tax Coordination Agreement Between the Government of Canada and the Government of British Columbia,arts. 1, 38 to 41, 42, 51, 65. Constitution Act, 1867,

Part VIII, ss. 91(3), 92(2), 125. Constitution Act, 1982, s. 52(1). Excise Tax Act, R.S.C. 1985, c. E-15,

Part IX, ss. 122, 123(1), 165, 221(1), 225(1), 228(1), (2), 267.1(5), 306, 309(1). Federal-Provincial Fiscal Arrangements Act, R.S.C. 1985, c. F-8, ss. 32, 33. Financial Administration Act, R.S.B.C. 1996, c. 138, s. 43. Financial Administration Act, S.B.C. 1981, c. 15, s. 36. Funds Investment and Management Agreement Between British Columbia Investment Management Corporation and the Teachers’Pension Board of Trustees, ss. 1.1.22, 2.1, 2.2, 2.4.3, 5.1, 8, 8.2, 9.1.2, 12.1.1, Sch. A, ss. 2 to 4, 5. Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 104(1).

Interpretation Act, R.S.B.C. 1996, c. 238, ss. 14(1), 29.

Interpretation Act, R.S.C. 1985, c. I-21, ss. 8.1, 17. Ministry of Intergovernmental Relations Act, R.S.B.C. 1996, c. 303, s. 4. Pooled Investment Portfolios Regulation, B.C. Reg. 84/86, ss. 3, 4, 11. Pooled Investment Portfolios Regulation, B.C. Reg. 447/99, ss. 1, 2, 4, 5, 6(2), 10(1), (2), (3), (4), (5), 11, 14. Public Sector Pension Plans Act, S.B.C. 1999, c. 44,

Part 3, ss. 15, 16(5), (6), 17, 18(2), (3), (4), 18.1, 20, 21(2)(b), 24(1), 25.1. Public Service Pension Plan Joint Trust Agreement, recitals C(c), (d),

preamble, ss. 3, 7.2, 7.3, 10.3, 13. Reciprocal Taxation Agreement (Canada — British Columbia),

preamble, ss. 1, 3, 4, 6(d), 9, 15, Sch. A. Tax Court of Canada Act, R.S.C. 1985, c. T-2, s. 12(1).

Authors Cited Bale, Gordon. “Reciprocal Tax Immunity in a Federation —

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Owen. lnterjurisdictional Issues in Canadian Water Management . Calgary: Canadian Institute of Resources Law, 1988. Value-Added Taxation in Canada: GST, HST, and QST , 5th ed. Toronto: Wolters Kluwer, 2015. Waters’ Law of Trusts in Canada , 4th ed. by Donovan W. M. Waters, Mark R. Gillen and Lionel D. Smith. Toronto: Carswell, 2012. APPEAL and CROSS-APPEAL from a judgment of the British Columbia Court of Appeal (Smith, Willcock and Goepel JJ.A.), 2018 BCCA 47 , 5 B.C.L.R. (6th) 237, 37 C.C.P.B. (2nd) 163, [2018] 7 W.W.R. 235, [2018] G.S.T.C. 11, [2018] B.C.J.

No. 190 (QL), 2018 CarswellBC 227 (WL Can.), affirming a decision of Weatherill J., 2016 BCSC 1803 , 90 B.C.L.R. (5th) 126, 28 C.C.P.B. (2nd) 169, 401 D.L.R. (4th) 729, [2017] 1 W.W.R. 589, [2016] G.S.T.C. 90, [2016] B.C.J. No. 2061 (QL), 2016 CarswellBC 2749 (WL Can.). Appeal and cross-appeal dismissed, Wagner C.J. dissenting in part. Michael Taylor and Ian Demers , for the appellant/respondent on cross-appeal the Attorney General of Canada. Craig A. B. Ferris , Q.C. , Lisa A.

Peters , Q.C. , Gordon Brandt and Michael Sobkin , for the respondent/appellant on cross-appeal the British Columbia Investment Management Corporation . Sointula Kirkpatrick and David Poore , for the respondent/respondent on cross-appeal Her Majesty The Queen in Right of the Province of British Columbia . Padraic Ryan and Robin K. Basu , for the intervener the Attorney General of Ontario. Written submissions only by L. Christine Enns , Q.C. , for the intervener the Attorney General of Alberta.

The judgment of Abella, Moldaver, Karakatsanis, Brown, Rowe and Martin JJ. was delivered by [ 1 ] Karakatsanis J. — This appeal and cross-appeal consider when the activities of a provincial Crown corporation may be taxed by the federal government.

It requires this Court to evaluate the scope of the intergovernmental immunity from taxation set out in s. 125 of the Constitution Act, 1867 , and whether agreements entered into by two levels of government to pay the equivalent of “taxes” may be binding on other Crown entities. [ 2 ] In 1999, the legislature of British Columbia created the British Columbia Investment Management Corporation (BCI) to provide investment management services to the province’s public sector pension plans and other Crown entities.

On its creation, BCI assumed ownership and management of the investment assets held in pooled investment Portfolios. At the same time, the legislature modernized its public sector pensions by creating a joint trusteeship structure whereby employers and employees would assume greater control over the management of pension monies.

Both of these changes were intended to create a degree of separation between the government and the management of its investment funds and the public sector pensions. [ 3 ] The Attorney General of Canada submits that these structural changes require BCI to collect and remit federal Goods and Services Tax [1] (GST) on the costs it incurs in making investments in the Portfolios on behalf of the public sector pension boards and other Crown entities.

Because the investment assets are beneficially owned by private entities (the pension boards), they are not provincial “property” and are not constitutionally immune from federal taxation. Even if BCI is constitutionally immune, it must nevertheless pay GST pursuant to reciprocal taxation agreements signed by the federal and provincial governments. [ 4 ] BCI argues that the provisions of the Excise Tax Act , R.S.C. 1985, c. E-15 ( ETA ), do not capture the investment management activities it provides.

As a provincial Crown agent, it claims constitutional immunity from taxation with respect to the property that it legally owns, including the investment assets.

And even if the Province is bound by the agreements, BCI is not a party to the agreements and is not subject to them. [ 5 ] The Attorney General of British Columbia largely agrees with BCI, except on the applicability of the intergovernmental agreements, taking the position that the agreements apply to BCI. [ 6 ] Like the courts below, I have concluded that the ETA cannot apply to BCI’s activities in managing the Portfolios because it is constitutionally immune under s. 125 . The ETA cannot impose GST on property legally owned by a Crown agent.

Nevertheless, I also agree that both the Province and BCI are subject to the obligations set out in the intergovernmental agreements. [ 7 ] I would dismiss the appeal and the cross-appeal. I. Background [ 8 ] This matter involves a myriad of statutory and contractual relationships. I begin by summarizing the statutory framework governing BCI, the nature of the intergovernmental agreements, and the events leading up to the present appeal and cross- appeal. After reviewing the approaches taken by the courts below, I consider the three substantive issues raised by the parties. A.

General Statutory Framework and History

(1) BCI and the Pooled Investment Portfolios [ 9 ] BCI was established in 1999 by

Part 3 of the Public Sector Pension Plans Act , S.B.C. 1999, c. 44 ( PSPPA ). [2] BCI’s purpose is “to provide funds management services, including the making of investments and loans, for funds placed with [it]”: s. 18(2). In fulfilling this purpose, BCI receives and invests monies on behalf of various authorized entities. [ 10 ] Prior to the enactment of the PSPPA , large sums of money, including the public sector pension fund, were held and managed by British Columbia’s Minister of Finance through the office of the chief investment officer.

Beginning in 1984, s. 36 of the Financial Administration Act , S.B.C. 1981, c. 15 ( FAA ), [3] empowered the Minister to establish and operate “pooled investment portfolios” (Portfolios). The Portfolios’ structure allowed the Minister to combine money from a variety of sources and invest it in a diversified group of assets. Originally, money held in a Portfolio could only be invested in low-risk debt securities.

But in an effort to increase the rate of return of the Portfolios, the FAA was amended in 1989 to allow investment in a variety of financial instruments, including equities, options, and futures. [ 11 ] The operation of the Portfolios was governed by the Pooled Investment Portfolios Regulation , B.C. Reg. 84/86. The Minister was responsible for investing, managing and controlling all of the assets of the Portfolios: s. 3(2). [4] When money from a “fund” (e.g. the public sector pension fund) was placed with the Minister for investment in a Portfolio, the fund was issued units of participation in the Portfolio.

Ownership of any investment assets purchased by the Minister was not attributable to any of the unit holders: s. 3(4). [5] Rather, the value of a unit of participation reflected the fund’s proportionate investment in the Portfolio: s. 4 . [6] However, all of the assets of a Portfolio were “held in trust by the minister” and had to be identified separately from the other property of the government: ss. 3(1) and 3(3). [7] If the Minister decided to terminate a Portfolio, the net proceeds realized were to be distributed to the unit holders: s. 11 . [8] [ 12 ] In the early 1990s, concerns arose over potential conflicts of interest because the Minister supervised investment in companies with ties to British Columbia and made policy decisions which could affect their profitability.

At the same time, the provincial and municipal governments, the province’s four public sector pension plans and the major public sector unions discussed at length how to modernize British Columbia’s pension legislation. These events culminated in the introduction of the PSPPA , which established the framework for joint trusteeship of the public sector pension plans.

[ 13 ] The purpose of joint trusteeship was to allow both pension plan members and their employers to participate in the management of the public sector pension plans. The PSPPA created infrastructure necessary to support the newly created boards of trustees of the pension plans. This included two new Crown entities: (1) the British Columbia Pension Corporation, tasked with providing administration services to the boards of trustees; and

(2) BCI. BCI is a statutory agent of the government and the Minister of Finance is its only shareholder: ss. 16(5) and 17 . At the second reading of the bill, the Minister of Finance explained the PSPPA ’s goals: The second purpose of the bill is to provide an option for joint trusteeship of pension plans. Joint trusteeship is based on the premise that plan members should share in the responsibility for and control over the pension plans in which they participate. . . .

The bill provides for the possibility of transferring full responsibility for the operation of each of the public sector pension plans to a board of pension trustees, which would have equal representation from plan members and plan employers. The transfer of this responsibility will result in the pension plans being operated at arm’s length from government. . . . . . . An arm’s-length relationship to government is necessary, since the pension trustees must have the unfettered ability to determine the quality and timeliness of the service provided to plan members in order to carry out their responsibilities. . . .

The British Columbia Investment Management Corporation will be the successor organization to the office of the chief investment officer. It will provide investment management services to the public sector pension plans and other non-pension clients. [Emphasis added.] (British Columbia, Official Report of Debates of the Legislative Assembly (Hansard) , vol. 16, No. 25, 3rd Sess., 36th Parl., July 14, 1999, at p.14409 (Hon. J. MacPhail)) [ 14 ] With the enactment of the PSPPA , BCI assumed the investment management responsibilities which formerly belonged to the Minister.

According to s. 18(4), BCI “has the same powers, functions and duties in the provision of funds management services for funds placed with it . . . as the Minister of Finance would have if the funds had been placed with that minister under

Part 5 of the Financial Administration Act as it read on April 1, 1999”. As part of this transfer of responsibilities, the previously established Portfolios were continued under the PSPPA : s. 18.1 . The unit holders continued to hold the same units as they did before and all assets of a Portfolio previously held by the Minister continued to be held by BCI. Under the updated Pooled Investment Portfolios Regulation , B.C.

Reg. 447/99 ( Regulation ), the Portfolios operate in substantially the same manner as when the Minister managed them. [ 15 ] In 2013, BCI was the fourth largest pension fund manager in Canada, managing $102.8 billion in gross assets for 39 institutional clients. A significant portion of these funds are managed on behalf of British Columbia’s four public sector pension plans. BCI uses two different structures to manage the assets placed with it for investment. Investments are either held in the Portfolios or as segregated funds, separate and apart from the assets of the Portfolios.

Only the Portfolios are at issue in this appeal. [ 16 ] Section 20(2) (

d) of the PSPPA requires BCI’s board of directors to “have in place an equitable fee system based on the user pay principle”. Section 24(1) stipulates that BCI must recover its operating costs from one of three sources: (

a) amounts charged to the funds for operating costs and capital expenditures necessarily incurred by the investment management corporation on behalf of the funds it manages; (

b) amounts charged to persons, organizations and other clients for services provided by the investment management corporation; (

c) income accruing from investments made by the investment management corporation on its own behalf. For investments held in segregated funds, BCI charges investment management fees to its clients and collects and remits GST on these amounts. But for the Portfolios, BCI recovers the costs of managing them from the income realized on the assets held in the Portfolios and does not collect GST on these amounts. This aligns with the previous practice of the Minister, who recovered management costs from the assets of the Portfolios and did not collect or remit GST.

(2) Intergovernmental Tax Agreements [ 17 ] By virtue of two separate agreements (the Agreements), the governments of British Columbia and Canada agreed to pay the other’s sales taxes in certain circumstances. The relevant Reciprocal Taxation Agreement (RTA), versions of which have been in place since before BCI was formed in 1999, came into effect in July 2010. Under the RTA, Canada agrees to pay certain provincial taxes and fees and the Province agrees to pay the taxes imposed under the federal ETA . Provincial entities listed in

Schedule A of the RTA may apply for a rebate of any GST paid — these entities would pay GST on their purchases of goods and services but would be entitled to a rebate of those amounts. BCI was added to

Schedule A in November 1999 but was removed in April 2003.

[ 18 ] In November 2009, British Columbia and Canada also entered into the Comprehensive Integrated Tax Coordination Agreement (CITCA). This agreement was part of the Province’s decision to replace the provincial sales tax and the federal GST with a Harmonized Sales Tax regime. Under the CITCA, the Province and Canada agreed to pay HST on supplies purchased by their respective governments and agents. Similar to the RTA, the CITCA sets out a “pay and rebate” scheme whereby amounts of HST paid by provincial entities that would otherwise be constitutionally immune are rebated.

The CITCA allows the Province to determine whether any rebate is paid either to the government entity that paid the tax or to the Province directly. The CITCA was in effect until April 2013, when the Province withdrew from the HST regime and returned to a GST/PST model.

(3) BCI’s Petition for Declaratory Relief [ 19 ] Following BCI’s removal from

Schedule A of the RTA in 2003, Canada Revenue Agency (CRA) began to question whether BCI was entitled to claim immunity from GST in respect of the expenses it incurred in managing the Portfolios. From 2006 onwards, BCI, the Province and Canada engaged in discussions about BCI’s GST status with respect to its management of the Portfolios. [ 20 ] Unable to reach an agreement, CRA opened a “supplier compliance” audit file in September 2013, covering the GST reporting periods of April 1, 2010 to March 31, 2013.

The audit began in January 2014. [ 21 ] On December 20, 2013, BCI filed the petition that gave rise to this matter in the Supreme Court of British Columbia, seeking the following declarations:

a) as a statutory Crown agent, BCI is immune from taxation in respect of the assets it holds in the Portfolios; and

b) BCI is not bound by either the RTA or the CITCA or the payment obligations found in those agreements. [ 22 ] Canada sought to strike BCI’s petition, arguing that the dispute should be heard by the Tax Court of Canada, not the Supreme Court of British Columbia. Wong J. dismissed the motion, concluding that BCI’s pleadings raised a “plausible argument which ought to be heard”: British Columbia Investment Management Corp. v. Canada (Attorney General) , 2014 BCSC 1296 , [2014] G.S.T.C. 93, at paras. 5-7 .

Wong J.’s ruling was affirmed on appeal: 2015 BCCA 373 , 80 B.C.L.R. (5th) 316. [ 23 ] In November 2015, the Minister of National Revenue issued notices of reassessment to BCI. BCI was assessed as owing $40,498,754.94 of GST and HST, plus interest and penalties, in respect of taxable supplies provided to the Portfolios.

In February 2016, BCI filed notices of objection to the reassessments without prejudice to its position that the Portfolios are immune from taxation, preserving its rights to challenge the assessments under the ETA ’s appeal provisions. [ 24 ] BCI’s petition was heard by Weatherill J. in April and June of 2016. B. Supreme Court of British Columbia, 2016 BCSC 1803 , 90 B.C.L.R. (5th) 126 ( Weatherill J. ) [ 25 ] Weatherill J. first held that he had jurisdiction to decide the petition.

He then proceeded to issue the following declaratory order: Although by virtue of being a provincial Crown agent [BCI] is immune from taxation by Canada under the ETA in respect of assets it holds in pooled investment portfolios pursuant to the Pooled Investment Portfolios Regulation, B.C. Reg 447/99 , it is nevertheless bound by the provisions of the RTA and CITCA respecting those assets. [para. 173] [ 26 ] With respect to jurisdiction, Weatherill J. observed that while the Tax Court had concurrent jurisdiction over the immunity issue, it would not have jurisdiction to determine whether the Agreements bind BCI.

Because the two issues are linked and the dispute had been going on for 10 years, judicial economy and fairness militated in favour of deciding the issues together. [ 27 ] The chambers judge then held that BCI, as a statutory agent mandated to manage the Portfolios, enjoys the same tax immunity under s. 125 as the Province does. Because the PSPPA states that BCI legally owns the Portfolio assets, the ETA trust provisions “cannot change the trust into something it is not”: paras. 132-133. When the PSPPA was enacted, BCI “simply stepped into the Minister of Finance’s shoes”: para. 135.

Finally, Weatherill J. concluded that s. 16(6) of the PSPPA places a specific obligation on BCI to pay the same tax as the province pays, including the tax due under the Agreements. [ 28 ] Canada appealed the holding that BCI is immune from taxation and BCI cross-appealed with respect to the binding nature of the Agreements. C. Court of Appeal for British Columbia, 2018 BCCA 47 , 5 B.C.L.R. (6th) 237 ( Smith, Willcock and Goepel JJ.A. ) [ 29 ] The Court of Appeal for British Columbia dismissed Canada’s appeal and BCI’s cross-appeal.

Writing for the court, Willcock J.A. held that there was no reason to interfere with Weatherill J.’s decision to take jurisdiction and consider the claim for declaratory relief. [ 30 ] On the question of constitutional immunity, Willcock J.A. pointed out that as an agent of the Crown, BCI itself is immune from taxation. Thus, the question is whether a non-Crown entity receives services when BCI manages the Portfolios. While a tax that applies to a private, beneficial interest in property legally owned by the Crown is not barred by s. 125 , two distinguishing factors arise in this case.

First, there is no clear beneficial interest in the Portfolios that is distinct from BCI’s legal interest. Second, absent the ETA deeming rules, there would be no taxable transaction as BCI would be both supplying and receiving the services as trustee. In Willcock J.A.’s view, the ETA deeming rules cannot apply to the statutory trust because a federal statute cannot reduce the scope of provincial immunity from taxation. [ 31 ] Willcock J.A. also agreed that the Agreements are binding on BCI.

While some intergovernmental agreements are merely political, the RTA and CITCA were intended to create mutually binding obligations. Section 16(6) of the PSPPA establishes that

the extent of BCI’s immunity from taxation is no greater than that of the provincial Crown. The phrase “liability to taxation” is broad enough to capture the contractual liability assumed by the Province under the RTA (para. 155). II. Analysis [ 32 ] My analysis proceeds as follows. First, I conclude that the chambers judge did not err in exercising his jurisdiction. Next, I consider the operation of the ETA and determine that s. 125 renders the ETA inapplicable with respect to the costs BCI recovers from the Portfolios.

Finally, I conclude that the Agreements are binding on the Province and BCI is subject to the obligations set out in them by virtue of s. 16(6) of the PSPPA . A. A Superior Court’s Discretion to Decline Jurisdiction in Favour of the Tax Court [ 33 ] Before the chambers judge, the Attorney General of Canada argued that the constitutional immunity claim fell within the exclusive jurisdiction of the Tax Court.

But on appeal, the parties accepted that the superior court had inherent jurisdiction over all aspects of BCI’s petition. [ 34 ] Nevertheless, Canada submits that the chambers judge erred when he chose to exercise his jurisdiction. In doing so, he usurped the jurisdiction of the Tax Court and effectively determined BCI’s challenge to the reassessments. In Canada’s view, a superior court should decline to exercise its jurisdiction when another court with expertise in the core issues of a claim has concurrent jurisdiction.

Canada also submits that the chambers judge erred in considering the judicial economy of deciding the immunity and Agreements issues together. Because CRA did not rely on the Agreements in reassessing BCI, the petition is premature. [ 35 ] The parties agree that the chambers judge’s discretionary decision to exercise his jurisdiction is entitled to deference. Unless the chambers judge misdirected himself or came to a decision that is so clearly wrong that it resulted in an injustice, a reviewing court should not interfere: Canada (Attorney General) v.

Fontaine , 2017 SCC 47 , [2017] 2 S.C.R. 205, at para. 36 ; Sattva Capital Corp. v. Creston Moly Corp. , 2014 SCC 53 , [2014] 2 S.C.R. 633, at para. 95 ; Hryniak v. Mauldin , 2014 SCC 7 , [2014] 1 S.C.R. 87, at para. 83 ; see also Canadian Imperial Bank of Commerce v. Green , 2015 SCC 60 , [2015] 3 S.C.R. 801, at para. 95 ; MiningWatch Canada v. Canada (Fisheries and Oceans) , 2010 SCC 2 , [2010] 1 S.C.R. 6, at para. 43 . [ 36 ] In deciding whether to exercise its jurisdiction, a court must determine the essential nature of the claim.

A superior court may decline to exercise its jurisdiction if it concludes a party is using “artful pleading” to bring a claim in an inappropriate forum: Windsor (City) v. Canadian Transit Co. , 2016 SCC 54 , [2016] 2 S.C.R. 617, at paras. 25-27 ; Canada (Attorney General) v. TeleZone Inc. , 2010 SCC 62 , [2010] 3 S.C.R. 585, at para. 78 . However, a party is also entitled to make genuine strategic choices about how to pursue a claim.

If the pleadings disclose a reasonable basis for pursuing a valid claim in a provincial superior court, the party advancing the claim is generally entitled to pursue it: Windsor (City) , at para. 27 ; TeleZone , at para. 76. [ 37 ] Any challenge to the correctness of a tax assessment under the ETA falls within the exclusive jurisdiction of the Tax Court: Tax Court of Canada Act , R.S.C. 1985, c. T-2, s. 12(1) ; ETA , ss. 306 , 309(1) ; see Johnson v. Minister of National Revenue , 2015 FCA 51 , 469 N.R. 326, at paras. 21-23 , citing JP Morgan Asset Management (Canada) Inc. v.

Canada (National Revenue) , 2013 FCA 250 , [2014] 2 F.C.R. 557, at para. 82 ; Sorbara v. Canada (Attorney General) , 2009 ONCA 506 , 98 O.R. (3d) 673, at paras. 7-11 ; see generally Aboriginal Federated Alliance Inc. v. Canada Customs and Revenue Agency , 2002 ABCA 104 , 303 A.R. 304, at paras. 16-18 ; Smith v. Canada , 2006 BCCA 237 , 61 B.C.L.R. (4th) 231. [ 38 ] Even where a claim does not challenge an assessment, a superior court may decline to exercise its jurisdiction in recognition of the specialization of the Tax Court: Canada v.

Addison & Leyen Ltd. , 2007 SCC 33 , [2007] 2 S.C.R. 793, at para. 11 ; see also D. Jacyk, “The Dividing Line Between the Jurisdictions of the Tax Court of Canada and Other Superior Courts” (2008), 56 Can. Tax J. 661, at pp. 685-86. In Addison , this Court cautioned against allowing “incidental litigation” to circumvent the tax appeal mechanisms established by Parliament: para. 11.

But this does not mean an otherwise valid claim cannot proceed in superior court simply because it may impact a Tax Court proceeding. [ 39 ] In this case, the chambers judge determined that the core of BCI’s petition was not an attack on the GST assessments but rather Canada’s ability to tax BCI in the first place. He also concluded that the constitutional immunity and Agreements issues were linked — if the immunity claim was successful, the Agreements were the only way BCI could be required to pay GST. [ 40 ] Like the Court of Appeal, I see no reversible error in the chambers judge’s analysis.

Both the scope and the timing of the petition support the chambers judge’s characterization of BCI’s claim and his decision to exercise his jurisdiction. [ 41 ] First, the issues raised in BCI’s petition go beyond the assessment of tax under the ETA . Fundamentally, this case is about the rights, obligations and duties of a Crown agent, under the Constitution and at common law. While BCI may have raised constitutional immunity during a Tax Court appeal, the petition concerns Canada’s taxation authority over BCI more generally. BCI’s status under the Agreements is also undoubtedly a live issue between the parties.

While other disputes related to their operation may arise, declaratory relief — which the Tax Court cannot grant (see Pintendre Autos Inc. v. The Queen , 2003 TCC 818 , 2004 D.T.C. 2596, at para. 43 ; Whitford v.

The Queen , 2008 TCC 359 , 2008 G.T.C. 638, at paras. 13-14 ) — would provide the answer to a long-standing disagreement about whether BCI is subject to the Agreements. [ 42 ] Second, at the time BCI filed its petition, the reassessments had not yet been issued (indeed the audit had not yet begun) so the Tax Court had no jurisdiction over the dispute: Tax Court of Canada Act , s. 12(1) ; ETA , ss. 306 , 309(1) . I recognize that an assessment was issued before the petition was heard. But this does not change the fact that BCI filed its petition in the only forum capable of dealing with it at the time.

The history of this dispute also predates CRA’s decision to audit BCI. BCI’s entitlement to constitutional immunity and its status under the Agreements has been disputed since at least 2006. In my view, the chambers judge did not err in concluding that judicial economy favoured resolving both issues together. B.

Part IX of the Excise Tax Act and Constitutional Immunity From Taxation

[43] The courts below focussed primarily on BCI’s claim to constitutional immunity and did not consider the operation ofthe ETA in detail. Obviously, such analysis would likely lie at the centre of any Tax Court proceedings challenging the reassessments.The record is also incomplete — it identifies only some of the Portfolio unit holders and contains only some of the Funds Investment andManagement Agreements between BCI and a unit holder. Further, it is not strictly necessary to examine how the ETA operates in order todetermine whether constitutional immunity applies.

However, some discussion will assist in addressing arguments made by the partiesand understanding the mechanism by which Canada argues that the costs BCI recovers from the Portfolios are taxable.

(1) Applying

Part IX of the Excise Tax Act to a Statutory Trust [44]

Part IX of the ETA governs the payment, collection and remittance of the federal GST (and HST, where applicable).According to s. 165, every recipient of a “taxable supply” must pay GST on the consideration paid for the supply. Various other rulesdefine the types of commercial activities that constitute a taxable supply.

Suppliers registered under the ETA are required to collect GSTand periodically remit it to the federal government: ss. 221(1), 225(1), 228(1) and 228(2). [45] There is no dispute that the investment management services BCI provides outside the context of the Portfolios (i.e.,in managing the segregated funds) are taxable supplies for GST purposes.

Thus, the issue under the ETA does not relate to the nature ofBCI’s investment management activities but rather involves whether the Portfolios can be considered a “recipient” of a taxable supply. [46] Section 123(1) of the ETA defines a “recipient” with reference to either the person who is liable to pay considerationfor a supply of services or, if no consideration is payable, the person to whom a service is rendered.

However, to fall within thisdefinition, a recipient must also be a “person.” At common law, only natural persons and corporations have legal personalities; a trustdoes not: Waters’ Law of Trusts in Canada (4th ed. 2012), by D. W. M. Waters, M. R. Gillen and L. D. Smith, at pp. 614-42. To capturetransactions involving a wide range of entities, s. 123(1) broadly defines “person” as “an individual, a partnership, a corporation, theestate of a deceased individual, a trust, or a body that is a society, union, club, association, commission or other organization of anykind”.

The definition of “person” in s. 123(1) thus confers upon a trust “a separate, artificial legal identity for tax purposes”: Value-Added Taxation in Canada: GST, HST, and QST (5th ed. 2015), at ¶12,030. [47]

Section 267.1(5) contains further trust rules, which deem a trustee’s activities to have been done by the trust and, incertain circumstances, deem a trustee to have supplied services to the trust: Activities of a trustee

(5) For the purposes of this Part, where a person acts as trustee of a trust, (

a) anything done by the person in the person’s capacity as trustee of the trust is deemed to have been done by the trust and not by theperson; and (

b) notwithstanding paragraph (a), where the person is not an officer of the trust, the person is deemed to supply a service to the trust ofacting as a trustee of the trust and any amount to which the person is entitled for acting in that capacity that is included in computing, forthe purposes of the Income Tax Act, the person’s income or, where the person is an individual, the person’s income from a business, isdeemed to be consideration for that supply.

The combined effect of ss. 123(1) and 267.1(5) is to impose GST collection, remittance and payment obligations on trusts and trustees incertain circumstances. [48] Applying the ETA to BCI and the Portfolios is further complicated by the fact that BCI is a provincial Crown agent.According to a long-standing rule of statutory

interpretation, the Crown is not bound by statute except by express words or necessaryimplication: R. v. Eldorado Nuclear Ltd., (SCC), [1983] 2 S.C.R. 551, at pp. 556-57, citing Province of Bombay v. Cityof Bombay, [1947] A.C. 58 (P.C.); see also P. W. Hogg, P. J. Monahan and W. K. Wright, Liability of the Crown (4th ed. 2011), at pp. 397-406. For federal enactments,[9] this rule is codified in s. 17 of the

Interpretation Act, R.S.C. 1985, c. I-21: Her Majesty not bound or affected unless stated 17 No enactment is binding on Her Majesty or affects Her Majesty or Her Majesty’s rights or prerogatives in any manner, except asmentioned or referred to in the enactment. The Crown’s immunity from statute extends to both the Crown in right of a province as well as Crown agents, when the agent actswithin the scope of its statutory purposes: Alberta Government Telephones v. Canada (Canadian Radio-television andTelecommunications Commission), (SCC), [1989] 2 S.C.R. 225, at p. 274; Eldorado Nuclear, at pp. 565-66. [49] In this case, s. 16(5) of the PSPPA declares BCI to be an agent of the government.

Section 29 of the

InterpretationAct, R.S.B.C. 1996, c. 238, defines “government” as Her Majesty in right of British Columbia, such that an agent of the government is anagent of the provincial Crown. Section 18(2) of the PSPPA states that BCI’s purpose is to manage the funds placed with it forinvestment. Thus, BCI enjoys the benefit of Crown statutory immunity when it manages the Portfolios: see Nova Scotia Power Inc. v.Canada, 2004 SCC 51, [2004] 3 S.C.R. 53, at paras. 13-18.

[50] For a statute to be binding on the Crown, the Crown’s immunity from statute must be “clearly lifted”: Canada(Attorney General) v. Thouin, 2017 SCC 46, [2017] 2 S.C.R. 184, at para.

Section 122 of the ETA expressly sets out the Crown’sobligations in relation to the GST rules found in

Part IX: Application 122 This

Part is binding (

a) on Her Majesty in right of Canada; and (

b) on Her Majesty in right of a province in respect of obligations as a supplier to collect and to remit tax in respect of taxable suppliesmade by Her Majesty in right of the province. While

Part IX applies in its entirety to the federal Crown, the provincial Crown’s obligations are limited to collecting and remitting GST.The provincial Crown must therefore collect and remit GST when it makes taxable supplies to private parties: Reference re Goods andServices Tax, (SCC), [1992] 2 S.C.R. 445 (GST Reference), at pp. 478-81. [51] The parties disagree about whether the language of the ETA captures BCI’s activities in managing the Portfolios. [52] Canada submits that there are no statutory impediments to requiring BCI to collect and remit GST on the costs itrecovers from the Portfolios. Canada’s analysis proceeds in two steps. First, ss. 123(1) and 267.1(5)(

a) operate to separate the statutorytrust from BCI (the trustee) for tax purposes. Thus, when BCI provides investment management services to the Portfolios, a taxabletransaction occurs. Second, when the Province created BCI to provide investment management services, it “cast itself as a serviceprovider through its agent”. As such, BCI is required by s. 122(

b) of the ETA to collect and remit GST on the investment managementservices it supplies to the Portfolios (A.F., at para. 60). [53] There are two potential obstacles to Canada’s approach to the Portfolios. First, the respondents submit that becausethe ETA does not expressly state that ss. 123(1) and 267.1(5) apply to the provincial Crown, those provisions do not operate with respectto the Portfolios. Second, it is not clear that the Portfolios are “a trust” within the meaning of ss. 123(1) and 267.1(5).

If not, thePortfolios are not persons for the purposes of the ETA and cannot be liable to pay GST as the recipient of services. If this is the case, notaxable transaction exists as BCI would simply be managing the assets it legally owns, rather than supplying a service to another“person”. I consider each of these potential hurdles in turn. (

a) Do Sections 123(1) and 267.1(5) of the ETA Apply to BCI? [54] Turning first to the applicability of ss. 123(1) and 267.1(5) to BCI, I disagree with the respondents that theseprovisions do not apply to the provincial Crown. While ss. 122(

b) states that only collection and remittance obligations are imposed onthe provincial Crown, it may be necessary to refer to ss. 123(1) and 267.1(5) to determine the scope of these obligations. For example, s.221(1) imposes an obligation to collect GST on “[e]very person who makes a taxable supply”. The only way to understand the provincialCrown’s obligations under this provision is by referring to the

definitions of “person” and “taxable supply” in s. 123(1).

Section 122(b)also states that the provincial Crown’s obligations arise from “[t]his Part” (Part IX) as a whole. There is no need to list specifically everyprovision that may apply to the provincial Crown in determining its obligations as a supplier. [55] The central question in this appeal — whether the taxing mechanism created by the ETA has the effect of requiring aprovince or its agent to pay tax out of its property — is properly viewed as a matter of characterization under s. 125 of the ConstitutionAct, 1867.

The ETA makes the recipient of services, not the supplier, liable to pay GST: GST Reference, at p. 480. In this case, Canadaargues that the property held in trust is receiving services from BCI. Thus, if the Portfolio assets are not characterized as property of theCrown for the purposes of s. 125, then they do not enjoy statutory immunity under the ETA either. In such a case, the provincial Crown’sobligations would be limited to collecting and remitting GST for services provided to that private property, as expressly required by s.122(b). (

b) Are the Portfolios “a Trust” for the Purposes of

Part IX of the ETA? [56] The second question under the ETA is whether the Portfolios fall within the meaning of “a trust” in ss. 123(1) and267.1(5). During oral arguments, counsel for Canada argued that even though the Portfolios do not appear to have all the qualities of aprivate law trust, they nonetheless are captured by the ETA. Counsel emphasized that because the PSPPA and the Regulation state thatthe Portfolio assets are “held in trust,” the Portfolios must be treated as a trust for the purposes of the ETA. [57] I disagree. The term “trust” is not defined in the ETA.

Absent express direction to the contrary, undefined terms in ataxation statute must be interpreted according to their established and accepted legal meaning: Will-Kare Paving & Contracting Ltd. v.Canada, 2000 SCC 36, [2000] 1 S.C.R. 915, at paras. 29-33; see also Backman v. Canada, 2001 SCC 10, [2001] 1 S.C.R. 367, at para.17; R. v. D.L.W., 2016 SCC 22, [2016] 1 S.C.R. 402, at para. 20. In the case of a federal statute like the ETA, s. 8.1 of the

InterpretationAct provides that, “unless otherwise provided by law, if in interpreting an enactment it is necessary to refer to a province’s rules,principles or concepts forming part of the law of property and civil rights, reference must be made to the rules, principles and concepts inforce in the province at the time the enactment is being applied”. Since the ETA does not define the term “trust” and the concept of atrust undoubtedly forms part of the law of property and civil rights, reference must be made to the concept as its exists in BritishColumbia law.

On this basis, unless the Portfolios would be considered a trust at private law, they cannot be a “person” within themeaning of s. 123(1).

[58] The fact that the word “trust” is used, either in a statute or in a legal document, does not mean that an arrangementnecessarily constitutes a private law trust. At private law, a trust exists where there has been (1) an express or implied declaration of trust,with (2) an alienation of property to a trustee (3) to be held for a specified beneficiary (alternatively, these requirements are described asthe three “certainties” — certainty of intention, certainty of subject matter, and certainty of objects): Schmidt v.

Air Products CanadaLtd., (SCC), [1994] 2 S.C.R. 611, at p. 655; Waters’ Law of Trusts in Canada, at p.140. [59] In British Columbia v. Henfrey Samson Belair Ltd., (SCC), [1989] 2 S.C.R. 24, this Courtconsidered whether a provincial statutory trust constituted “property held . . . in trust” for the purposes of s. 47(

a) of the Bankruptcy Act,R.S.C. 1970, c. B-3 (a predecessor to s. 67(1) of the current Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3). Despite the fact thatthe provincial statute stated that the property was deemed to be held “in trust,” McLachlin J. concluded that it was not a “true trust”because the property impressed with the trust was not identifiable (it lacked certainty of subject matter): pp. 34-36; see also GuaranteeCompany of North America v.

Royal Bank of Canada, 2019 ONCA 9, 144 O.R. (3d) 225. [60] In other cases, courts have held that the Crown may assume trust-like obligations without creating a “true trust” inthe private law sense: see Ermineskin Indian Band and Nation v. Canada, 2009 SCC 9, [2009] 1 S.C.R. 222, at paras. 72-79; Guerin v.The Queen, (SCC), [1984] 2 S.C.R. 335, at pp. 375, 378-79 and 386; Attorney-General of British Columbia v. Esquimaltand Nanaimo R.

Co., (UK JCPC), [1950] 1 D.L.R. 305 (P.C.), at p. 314; Waters’ Law of Trusts in Canada, at pp. 31-33; Hogg, Monahan and Wright, at pp. 370-72. [61] Similarly, even where private parties purport to create a trust, those relationships may be scrutinized to determinetheir true nature for tax purposes. For example, a “bare trust” — where a trustee’s only obligation is to convey property to the beneficiaryupon demand — is generally disregarded for tax purposes: see De Mond v. The Queen (1999), (TCC), 99 D.T.C. 893(T.C.C.); M. C. Cullity, “Legal Issues Arising Out of the Use of Business Trusts in Canada”, in T. G.

Youdan, ed., Equity, Fiduciariesand Trusts (1989), 181, at pp. 187-188; Canada Revenue Agency, GST/HST Technical Information Bulletin B-068: Bare Trusts, January20, 1993 (online); Canada Revenue Agency, GST/HST Policy Statement P-015: Treatment of Bare Trusts under the Excise Tax Act, July20, 1992 (online); Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), s. 104(1). [62] In the present case, it is not clear whether the PSPPA and the Regulation contain sufficient language to satisfy thethree certainties.

For example, the statutory framework does not identify a beneficiary for the Portfolio assets. [63] Canada argues that the existence of a beneficiary is implied by the words “held in trust” in s. 4(1) of the Regulation.In its view, a trust relationship cannot exist unless an entity other than BCI holds beneficial title to the Portfolio assets. Canada furthersubmits that the statutory framework makes clear that neither the Crown nor BCI is the beneficial owner of the assets.

Canada alsodescribes the Portfolios as “conceptually similar to a mutual fund trust”, a recognized form of a common law trust which appears to betaxable under the ETA: A.F., at para. 78; Waters’ Law of Trusts in Canada, at pp. 578-602; C.I. Mutual Funds Inc. v. Canada, [1997]G.S.T.C. 84 (T.C.C.), at pp. 84-20 to 84-21, var’d (FCA), [1999] 2 F.C. 613 (C.A.). [64] The problem with these arguments is that Canada interprets the legislature’s use of the words “held in trust” asnecessarily requiring the existence of a private law trust relationship.

However, a statutory trust is not bound by ordinary trust principles:First Vancouver Finance v. M.N.R., 2002 SCC 49, [2002] 2 S.C.R. 720, at para. 34. It may well be that the Province modelled thePortfolios after a private law structure. And it would certainly be open to the Province to bind BCI to a trust relationship in the privatelaw sense. However, such a conclusion requires an evaluation of whether the three certainties are met, not simply a reference to thephrase “held in trust.” [65] To summarize, in order for the Portfolios to fall within the meaning of “a trust” in

Part IX of the ETA, they mustmeet the common law requirements. If the Portfolios are not common law trusts, and they are not captured by any other provision of theETA, then BCI is simply managing the assets it owns and no taxable transaction exists. Whether a private law trust exists here is beyondthe scope of this appeal. The shared assumption of the parties in this appeal was that the Portfolios were a “trust” for the purposes ofETA. Therefore, no submissions were made as to this specific issue.

Given the incomplete record as well as my conclusion that s. 125 ofthe Constitution Act, 1867, immunizes the Portfolios from taxation, it is unnecessary to decide the issue in this case. Nevertheless, forthe purpose of determining the main issue in this appeal — whether BCI enjoys constitutional immunity — I will proceed as if thePortfolios are “a trust” within the meaning of

Part IX of the ETA. On this assumption, BCI would hold the Portfolio assets in trust for thebenefit of the unit holders.

(2) Section 125: Constitutional Immunity From Taxation [66]

Section 125 of the Constitution Act, 1867, states: 125. No Lands or Property belonging to Canada or any Province shall be liable to Taxation. [67]

Section 125 exists “to prevent one level of government from appropriating to its own use the property of the other, orthe fruits of that property”: Reference re Exported Natural Gas Tax, (SCC), [1982] 1 S.C.R. 1004, at p. 1078.Intergovernmental immunity from taxation grants each level of government operational space to govern without interference. It alsoprevents one group of elected representatives from dictating how another legislative body should allocate the financial resources underits control: Westbank First Nation v. British Columbia Hydro and Power Authority, (SCC), [1999] 3 S.C.R. 134, atparas. 17-19.

In addition, s. 125 seeks to maintain the federal-provincial distribution of property set out in the Constitution Act, 1867: G.V. La Forest, The Allocation of Taxing Power Under the Canadian Constitution (2nd ed. 1981), at pp. 182-83. [68]

Section 125 grants constitutional immunity from taxation when two requirements are met. First, the pith andsubstance of the impugned charge must constitute “taxation” within the meaning of ss. 91(3) or 92(2) of the Constitution Act, 1867.Regulatory charges or user fees fall outside the scope of s. 125: Westbank, at para. 31; Exported Natural Gas, at p. 1068. Second, thesubject matter of the tax must be property belonging to the federal Crown in the case of a tax imposed by the provincial legislature and tothe provincial Crown in the case of a tax imposed by Parliament: Exported Natural Gas, at pp. 1078-79.

Where these two prerequisitesare met, s. 125 applies and renders otherwise valid taxation provisions inapplicable in respect of Crown property: Constitution Act, 1982,

s. 52(1); Exported Natural Gas, at p. 1067. [69] For the reasons that follow, I conclude that the ETA’s mechanism for imposing GST on the Portfolios would resultin Crown property being subject to taxation. Therefore, s. 125 of the Constitution Act, 1867, renders the relevant provisions of

Part IX ofthe ETA inapplicable in respect of the Portfolios. [70] There is no question that the federal GST falls squarely within the meaning of “taxation” in s. 91(3) of theConstitution Act, 1867: GST Reference, at pp. 467-71. For the second requirement, as a statutory Crown agent, BCI enjoys the sameconstitutional immunity in respect of its property as the provincial Crown does: Westbank, at para. 1; see also City of Halifax v. HalifaxHarbour Commissioners, (SCC), [1935] S.C.R. 215; Re Canadian Broadcasting Corp. Assessment, (ON SC), [1938] 4 D.L.R. 591 (Ont. Co. Ct.), aff’d (ON SC), [1938] 4 D.L.R. 764 (Ont.

C.A.). As such, this appealturns on whether the property made liable for tax under the ETA is property “belonging to” BCI within the meaning of s. 125. [71] Courts have long held that s. 125 does not protect private interests from being taxed, even if the Crown also has aninterest in the property: see, e.g., Calgary & Edmonton Land Co. v. Attorney-General of Alberta (1911), (AB CA), 45S.C.R. 170 (purchaser of federal lands liable for provincial tax despite the fact that Canada still held bare legal title because the patenthad not yet been issued); Smith v. Rur.

Mun. of Vermillion Hills (1916), (UK JCPC), 30 D.L.R. 83 (P.C.) (lessee offederal lands liable for provincial tax levied on his leasehold); City of Vancouver v. Attorney-General of Canada, (SCC),[1944] S.C.R. 23 (legal owner of land taxed despite the fact that the Crown leased the land and erected buildings on it); Phillips andTaylor v. City of Sault Ste.

Marie, (SCC), [1954] S.C.R. 404 (federal employees living in houses owned by Canada wereliable for provincial tax payable by tenants of Crown property). [72] However, the common thread in all these cases is that the taxing statute successfully captured a private interest in theproperty that was distinct from the Crown’s interest. For example, in Calgary & Edmonton Land Co., the provincial statute imposed taxon “any person who has any right, title or estate whatsoever or any interest other than that of a mere occupant in any land”.

The privatepurchaser’s interest in the land indisputably fell within this definition: pp. 185-86. In the words of Davies J., “[t]he interest of the Crownwhatever it might have been could not be taxed, but the beneficial interest of the appellants certainly was not exempted under [s. 125]”:p. 179 (emphasis added). [73] The legislation in Smith contained similar comprehensive

definitions which captured the lessee’s interest in Crownland: see (1913), 6 Sask. L.R. 366 (S.C. en banc). And in Phillips and Taylor, s. 32 of The Assessment Act, R.S.O. 1950, c. 24, imposedtax liability on “the tenant of land owned by the Crown” — “tenant” was further defined as “any person who uses land belonging to theCrown as or for the purposes of, or in connection with his residence”: p. 406.

Because the “tenant” was the one who was liable to pay thetax, s. 125 was not engaged. [74] Canada submits that Calgary & Edmonton Land Co. and Smith (S.C. en banc) demonstrate that s. 125 only applies ifthe provincial Crown (or BCI) is the beneficial owner of the Portfolio assets. Since the statutory framework makes clear that BCI is notthe beneficiary, Canada says s. 125 does not apply. [75] With respect, this asks the wrong question. Rather, the issue is whether the taxing statute seeks to tax the Crown’sinterest in the property.

In the cases relied on by Canada, the tax was levied on the interest of the beneficiary, not the interest of theCrown. These cases stand for the proposition that a private beneficial interest can be taxed despite the existence of legal title in theCrown. But if the tax is imposed on the Crown’s interest in the property, then constitutional immunity applies. [76] Pursuant to s. 4(1) of the Regulation and s. 18.1(3) of the PSPPA, BCI, as trustee, legally owns the assets held in thePortfolios. In this case, the ETA places the burden of the tax on the Portfolio assets to which BCI holds legal title.

BCI, a Crown agent,has thus successfully shown that it has an ownership interest in the property which bears the federal tax. I recognize that the beneficiariesof the trust may also be seen as bearing the burden of the tax. However, the key point is that the provincial Crown’s interest is beingtaxed under federal law, which is not permitted by s. 125. [77]

Section 125 is directly engaged when one level of government attempts to require the other to use what is legallyCrown property to pay tax. This is the case even if the Crown holds the property as trustee unless there is another distinct privatebeneficial ownership interest that is the subject of the tax. Accordingly, I agree with the intervener the Attorney General of Alberta thatunless the tax is imposed directly on the beneficiaries or their beneficial interest, the protection of s. 125 extends to the Crown when itacts as a trustee. [78] This conclusion is consistent with the early case of Quirt v.

The Queen (1891), 1891 CanLII 9 (SCC), 19 S.C.R. 510.In that case, the property of an insolvent bank was vested in the federal Crown as trustee. This Court unanimously held that the propertyvested in the Crown could not be taxed: at pp. 514 (per Ritchie C.J.), 518 (per Strong J.), and 525 (per Patterson J.). While the Crownalso had a beneficial interest in the bank’s assets as its largest creditor, both Strong J. and Osler J.A. at the Court of Appeal held that theCrown’s interest as trustee was sufficient for Crown immunity to apply: see Regina v.

County of Wellington (1890), 17 O.A.R. 421, at p.444. [79] In Exported Natural Gas, the majority of this Court wrote, “[t]he fundamental constitutional protection framed by s.125 cannot depend on subtle nuances of form”: p. 1078. Relying on this statement, Canada maintains that Portfolio assets purchased withmonies from the pension boards (which Canada says are private, not public, bodies) do not belong to the Crown within the meaning ofs. 125. While I agree with the general principle that constitutional protections should not turn on legal formalities, I di

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