On November 15, 2011, the Supreme Court of Canada is scheduled to hear its second GST appeal in The City of Calgary v. The Queen. The first GST appeal was heard in 2009 in United Parcel Service Canada Ltd. v. Canada where it was unanimously decided that a customs broker was entitled to a rebate for overpaying GST.

In this case, the City of Calgary constructed a transit system for the use of Calgary residents pursuant to obligations imposed on it by the City Transportation Act, R.S.A 2000, c. C-14 (the CTA).  In the course of constructing that system, the City entered into funding agreements with the Province of Alberta as contemplated in the CTA.  The City paid GST with respect to purchases made for the construction of the transit system.

Since the provision of a municipal transit service is an exempt supply for purposes of the Excise Tax Act, R.S.C. 1985, c. E-15 (the ETA), the City would not be entitled to claim input tax credits (ITCs) with respect to purchases made for the purpose of providing that exempt supply.

The City took the position that the construction of the transit system (as opposed to its operation) was a separate supply to the Province of Alberta, pursuant to its contracts with the Province, for which the Province paid consideration, pursuant to those contracts.  The City took the position that this separate supply was not an exempt supply and claimed ITCs with respect to that supply.  The Minister rejected the City’s position.

The Tax Court of Canada decided in favour of the City, however, this decision was overturned by the Federal Court of Appeal.

The main issue for the Supreme Court of Canada is whether the City was entitled to an ITC in respect of approximately $6.3 million in GST paid in relation to the construction of a municipal transit system.  In answering this question, the Supreme Court of Canada may provide guidance on the meaning of “supply” for purposes of the ETA.

For the written submissions of the appellant, see the factum of the City of Calgary.

For the written submissions of the respondent, see the factum of the Crown.