Section 141.1

In settling a dispute between the appellant and another insurance company, Canadian Group Underwriters Insurance Company ("Underwriters") as to the ownership of two trademarks, Underwriters' interest in the trademarks was first transferred under ITA s. 85 to an affiliated corporation ("NN Life") in order to access NN Life losses, and then sold on the same day by NN Life to the appellant for $5 million in cash. The appellant applied for a refund of the GST under s. 261 on the basis that the trademark had not been sold to it in the course of a commercial activity.

After finding that the sale by NN Life was not an adventure in the nature of trade or a business, and noting (at para. 53), that s. 141.1(2)(a) "seems to describe a purchase and resale that is not in the ordinary course of business," Woods J stated (at para. 54):

Although the scope of paragraph 141.1(2)(a) may be uncertain, it is clear that the provision does not apply unless the transaction has some connection to a business or an adventure in the nature of trade. The same is also true for paragraph 141.1(1)(a). There is no such connection in this case.

Accordingly, the purchase of the trademarks was not subject to GST.

Starting in 2002, St-Joseph incurred costs in converting the 1^st and 2^nd floors of a 12-storey mixed-use tower from commercial rental use into rental seniors’ residences (RSRs).

St-Joseph argued based on the QSTA equivalent of ETA s. 141.1(3)(a) that it had incurred the costs “in connection with the … termination of a commercial activity” of it, so that such costs were deemed to have been incurred in the course of its commercial activity. Thus, as noted in the Court of Appeal (at para. 4, TaxInterpretations translation) the effect of its argument was “to link the work undertaken to the termination of the previous commercial activity (commercial rental) rather than to the provision of the future activity (RSRs), which, not being a commercial activity within the meaning of the QSTA, would not give rise to ITRs."

In rejecting this position and before dismissing St-Joseph’s appeal, the Court stated (at paras. 4-5):

[Its] argument … fails to explain how the transformation aimed at a new activity is, in itself, related to the termination of the previous activity.

… [T]he expenses for the renovation and transformation into an RSR were not related to the termination of the commercial rental activity, and the judge's conclusion that they could not be linked to it is free of error.

In 1984, the plaintiff (St-Joseph) acquired a 12-storey tower used only for commercial rentals, and between 1997 and 2002, converted four of the upper floors to seniors’ residences (giving rise to exempt rentals). Starting in 2002, it incurred costs in converting the 1^st and 2^nd floors into seniors’ residences.

Regarding QSTA s. 199(c) (similar to ETA s. 169(1) – B(c)), St-Joseph argued based on QSTA s. 42.5 (similar to ETA s. 141.1(3)(a)) that it had incurred the costs “in connection with the … termination of a commercial activity” of it, so that such costs were deemed to have been incurred in the course of its commercial activity. In rejecting this submission, and in confirming the denial of the ITRs, Lachapelle JCQ stated (at paras. 93, 103, TaxInterpretations translation):

[T]he intention of St-Joseph was that the work carried out on the first and second floors of the Building was to adapt the Building for the residential or lodging use of individuals. …

The Court concludes that the concept of the cessation of an activity does not include the transformation of the activity.

The Appellant used a condo unit for the first nine years after purchase for long-term residential rentals and then listed it on Airbnb and rented it out for a succession of short-term rentals (under 60 days and sometimes for only one night) before its sale.

D’Arcy J found that the change-in-use rule in s. 206(2) applied, by virtue of s. 141.1(3)(a), when the property was first listed on Airbnb. He stated (at para. 46):

[T]he first step that the Appellant took to establish the commercial activity of leasing the Condominium on short-term leases was the listing of the Condominium on the Airbnb website on February 25, 2017. Under paragraph 141.1(3)(a), the Appellant was deemed to have listed the Condominium in the course of its commercial activities. By offering the Condominium for short‑term lease on February 25, 2017, the Appellant began to use the Condominium in the course of its commercial activities on that date.

Thus, there was a deemed acquisition of the property at the time of the listing pursuant to s. 206(2).

The appellant, which had been operating a Boston Pizza restaurant on leased premises since 2008, was ordered by the new owner of the land to vacate the premises on February 28, 2011, which it did. The taxpayer moved the equipment into storage, and found a purchaser for only a portion of the equipment eight months’ later (at a price of $57,500). In the meantime, its GST and QST registration numbers were cancelled at its request effective April 1, 2011. The ARQ assessed the appellant under ss. 171(3)(b) and 200(2) based on it having ceased to be a registrant on April 1, 2011.

In finding that the appellant had continued to be a “registrant,” so that ss. 171(3)(b) and 200(2) did not apply, Favreau J referenced s. 141.1(3) and stated (at paras 57- 60, TaxInterpretations translation):

The sale of equipment following the cessation of normal daily activities is … part of what the ETA terms "commercial activity".

The appellant (“Look”), which had been carrying on a telecommunications business, sold its licences (including its “Spectrum” licence) , which were its principal asset, in September 2009 for gross proceeds of $80 million, and ceased providing services to its customers in November 2009. Approximately 25% of the proceeds was paid to the executives as bonuses, and option or SAR cancellation payments. In 2011, Look commenced an action which resulted in a portion of these amounts being returned to it as having been misappropriated.

In finding on a Rule 58 determination that Look was not entitled to input tax credits for the GST on its related legal fees pursuant to s. 141.1(3)(a), C. Miller J stated (at para 17, 19 and 21):

“[I]n connection with”… is a broad expression but does not…, even on a textual reading allow for the remotest of links, such as a link only arising by way of the “but for” test. …

[T]he cost of legal services to chase after directors, who the Appellant claims have absconded with its money, is a need that would have been fulfilled regardless of where the funds emanated from. …

[T]here is no commercial expectation that directors on winding up a corporation will abscond with funds and that the cost of such contingency is somehow worked into the cost of the supply. … The business of Look was effectively wound up before there was any activity necessitating the acquisition of legal services. …

He added (at para. 26):

[T]his is not an issue of timing. For example, had the Board discovered two years after the Spectrum sale that a competitor had wronged Look in some fashion, diminishing sales, and the Board commenced a lawsuit, I would see no difficulty in finding such litigation activity was connected with commercial activity, notwithstanding some considerable time had passed since the termination of the business. Similarly, if Look had to sue the purchaser of Spectrum long after the completion of the sale for breach of a confidentiality provision, again timing would not preclude a finding of a connection.

The trustee in bankruptcy for a company ("Castor") which had essentially only engaged in investing in high-yield loans brought an action in its capacity of trustee for the Castor estate against the former auditors ("C&L") for $40 million in damages for breach of contract, and also began a "litigation support business" of providing assistance to most of the creditors (the "Participating Creditors"), including hiring professionals and experts, in connection with their action sounding in negligence against C&L for $800 million in damages. Archambault J stated (at para. 38):

Given that Castor's main activities involved making exempt supplies, the activities of the Trustee would be deemed [by s. 141.1(3)(b)] not to be carried on in the course of commercial activities. Therefore, the costs of the litigation support services that the Estate enjoyed in prosecuting its own claim against C&L would not qualify for ITCs. … However, the portion of the services and properties in question that was acquired for the purpose of prosecuting the claims of the Participating Creditors would be considered to have been acquired in the course of commercial activities.

See summary under s. 141.01(2).