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Federal Tax - Input Tax Credits. Amex Bank of Canada v. Canada
In Amex Bank of Canada v. Canada (Fed CA, 2026) the Federal Court of Appeal dismissed a Tax Court appeal, this involving "input tax credits (ITCs) claimed by Amex for GST/HST paid on expenses to operate Amex’s rewards program related to its credit card operation".
Here the court considers the 'input tax credit' regime, here in particular 'single composite supplies':A. Introduction
[7] The ETA generally permits suppliers of goods and services to claim deductions from tax, ITCs, with respect to their inputs, that is, property or services acquired for consumption, use or supply in the course of the supplier’s commercial activities. As described by the Tax Court, commercial activities do not include the provision of exempt supplies. Further, financial services are generally exempt supplies. Accordingly, ITCs typically cannot be claimed with respect to GST/HST paid on inputs to provide financial services.
[8] This section outlines the main statutory provisions relied on by Amex—subsections 169(1), 181(5) and 141.01(4) of the ETA. The section also briefly describes the leading jurisprudence regarding single composite supplies. I begin with the jurisprudence as it provides the foundation for the statutory analysis.
B. Jurisprudence regarding single composite supplies
[9] In the infancy of the GST, the Tax Court of Canada in O.A. Brown Ltd. v. The Queen, [1995] G.S.T.C. 40 [O.A. Brown] adopted principles developed in England to provide a commonsense approach to applying the ETA where an arrangement involves the provision of several properties or services. These principles were more recently adopted by the Supreme Court of Canada in Calgary (City) v. Canada, 2012 SCC 20 [City of Calgary]. The relevant excerpt from City of Calgary is set out below:[35] O.A. Brown established the following test to determine whether a particular set of facts revealed single or multiple supplies for the purposes of the ETA:The test to be distilled from the English authorities is whether, in substance and reality, the alleged separate supply is an integral part, integrant or component of the overall supply. One must examine the true nature of the transaction to determine the tax consequences. [36] When reaching his decision, Justice Rip made the following observation:... one should look at the degree to which the services alleged to constitute a single supply are interconnected, the extent of their interdependence and intertwining, whether each is an integral part or component of a composite whole. [37] Justice Rip also noted the importance of common sense when the determination is made. McArthur T.C.J. made a similar observation in Gin Max Enterprises Inc. v. R., 2007 TCC 223, [2007] G.S.T.C. 56, at para. 18:From a review of the case law, the question of whether two elements constitute a single supply or two or multiple supplies requires an analysis of the true nature of the transactions and it is a question of fact determined with a generous application of common sense. [10] Accordingly, the provision of multiple interconnected properties or services is generally considered to be a single supply for GST purposes. This is sometimes referred to as a single composite supply.
[11] This Court subsequently addressed how a single composite supply that includes a financial service may be characterized as an exempt or taxable supply for GST purposes: Global Cash Access (Canada) Inc. v. Canada, 2013 FCA 269 [Global Cash Access]. In that decision, the Court concluded that the nature of the composite supply may be determined for purposes of the ETA by the supply’s predominant element. In determining the predominant element, one must identify all the elements of the single composite supply and then identify the element that is predominant (Global Cash Access at para. 26).
[12] In connection with determining the essence or nature of the supply, the Tax Court noted that the parties agree that one must take into account the perspective of the recipient of the supply (reasons at para. 66). This principle was enunciated by this Court in Canadian Imperial Bank of Commerce v. Canada, 2021 FCA 96 at para. 33 [CIBC].
[13] For completeness, I note that the Tax Court made the very same comment for purposes of determining whether there is a single composite supply or multiple supplies in accordance with O.A. Brown (reasons at para. 37). However, this was not addressed in CIBC where there was no dispute the supply was a single composite supply.
[14] This is a useful reminder that the inquiries in City of Calgary and Global Cash Access are quite different. As illustrated above, the Tax Court’s reasons appeared to blur the distinction at times, but that does not affect the outcome of this appeal. In order to limit further confusion, in these reasons I adopt the following defined terms—the "“""O.A. Brown test”" and the "“Characterization test”".
C. Statutory provisions
[15] As mentioned, Amex mainly relied on three provisions in the ETA: ss. 169(1), 181(5) and 141.01(4).
[16] Subsection 169(1) provides the general method for calculating ITCs. It reads in relevant part, with emphasis added:"Input Tax Credits"
"Crédit de taxe sur les intrants"
"General rule for credits"
"Règle générale"
169 (1) Subject to this Part, where a person acquires or imports property or a service or brings it into a participating province and, during a reporting period of the person during which the person is a registrant, tax in respect of the supply, importation or bringing in becomes payable by the person or is paid by the person without having become payable, the amount determined by the following formula is an input tax credit of the person in respect of the property or service for the period:
A × B
169 (1) Sous réserve des autres dispositions de la présente partie, un crédit de taxe sur les intrants d’une personne, pour sa période de déclaration au cours de laquelle elle est un inscrit, relativement à un bien ou à un service qu’elle acquiert, importe ou transfère dans une province participante, correspond au résultat du calcul suivant si, au cours de cette période, la taxe relative à la fourniture, à l’importation ou au transfert devient payable par la personne ou est payée par elle sans qu’elle soit devenue payable :
A × B
where
où:
A is the tax in respect of the supply, importation or bringing in, as the case may be, that becomes payable by the person during the reporting period or that is paid by the person during the period without having become payable; and
A représente la taxe relative à la fourniture, à l’importation ou au transfert, selon le cas, qui, au cours de la période de déclaration, devient payable par la personne ou est payée par elle sans qu’elle soit devenue payable;
B is
B :
…
"…"
(c) in any other case, the extent (expressed as a percentage) to which the person acquired or imported the property or service or brought it into the participating province, as the case may be, for consumption, use or supply in the course of commercial activities of the person.
c) dans les autres cas, le pourcentage qui représente la mesure dans laquelle la personne a acquis ou importé le bien ou le service, ou l’a transféré dans la province, selon le cas, pour consommation, utilisation ou fourniture dans le cadre de ses activités commerciales. [17] Accordingly, in order to qualify for ITCs under subsection 169(1), the inputs must be "“for consumption, use or supply in the course of commercial activities.”"
[18] "“Commercial activity”" generally includes a business, broadly defined, except to the extent that the business involves the making of exempt supplies, including financial services. The definition in subsection 123(1) of the ETA reads in relevant part:Interpretation
Définitions et interprétation
Definitions
Définitions
123 (1) In section 121, this Part and Schedules V to X,
"123 (1)"" Les définitions qui suivent s’appliquent à l’article 121, à la présente partie et aux annexes V à X."
…
"[…]"
commercial activity of a person means
"activité commerciale"" Constituent des activités commerciales exercées par une personne :"
(a) a business carried on by the person (other than a business carried on without a reasonable expectation of profit by an individual, a personal trust or a partnership, all of the members of which are individuals), except to the extent to which the business involves the making of exempt supplies by the person,
"a)"" l’exploitation d’une entreprise (à l’exception d’une entreprise exploitée sans attente raisonnable de profit par un particulier, une fiducie personnelle ou une société de personnes dont l’ensemble des associés sont des particuliers), sauf dans la mesure où l’entreprise comporte la réalisation par la personne de fournitures exonérées;"
…
"[…]" [19] Therefore, the GST/HST paid on inputs acquired in the course of providing financial services generally does not qualify for ITCs.
[20] Subsection 181(5) of the ETA, commonly known as the "“notional ITC rule”", is another ITC provision relied on by Amex. It provides for the calculation of ITCs relating to a redemption of a coupon. The definition of "“coupon”" in subsection 181(1) of the ETA would include the Travel Certificates. Subsection 181(5) reads, with emphasis added:"Coupons and Rebates"
"Bons et remises"
"Redemption of coupon"
"Rachat"
181 (5) For the purposes of this Part, where, in full or partial consideration for a taxable supply of property or a service, a supplier who is a registrant accepts a coupon that may be exchanged for the property or service or that entitles the recipient of the supply to a reduction of, or a discount on, the price of the property or service and a particular person at any time pays, in the course of a commercial activity of the particular person, an amount to the supplier for the redemption of the coupon, the following rules apply:
181 (5) Pour l’application de la présente partie, lorsqu’un fournisseur qui est un inscrit accepte, en contrepartie, même partielle, de la fourniture taxable d’un bien ou d’un service, un bon qui est échangeable contre le bien ou le service ou qui permet à l’acquéreur de bénéficier d’une réduction ou d’un rabais sur le prix du bien ou du service, et qu’une autre personne verse dans le cadre de ses activités commerciales un montant au fournisseur pour racheter le bon, les règles suivantes s’appliquent :
(a) the amount shall be deemed not to be consideration for a supply;
a) le montant est réputé ne pas être la contrepartie d’une fourniture;
(b) the payment and receipt of the amount shall be deemed not to be a financial service; and
b) le versement et la réception du montant sont réputés ne pas être des services financiers;
(c) if the supply is not a zero-rated supply and the coupon entitled the recipient to a reduction of the price of the property or service equal to a fixed dollar amount specified in the coupon (in this paragraph referred to as the “coupon value”), the particular person, if a registrant (other than a registrant who is a prescribed registrant for the purposes of subsection 188(5)) at that time, may claim an input tax credit for the reporting period of the particular person that includes that time equal to the tax fraction of the coupon value, unless all or part of that coupon value is an amount of an adjustment, refund or credit to which subsection 232(3) applies.
c) lorsque la fourniture n’est pas une fourniture détaxée et que le bon permet à l’acquéreur de bénéficier d’une réduction sur le prix du bien ou du service égale au montant fixe indiqué sur le bon (appelé « valeur du bon » au présent alinéa), l’autre personne, si elle est un inscrit (sauf un inscrit visé par règlement pour l’application du paragraphe 188(5)) au moment du versement, peut demander, pour sa période de déclaration qui comprend ce moment, un crédit de taxe sur les intrants égal à la fraction de taxe de la valeur du bon, sauf si tout ou partie de cette valeur représente le montant d’un redressement, d’un remboursement ou d’un crédit auquel s’applique le paragraphe 232(3). [21] Subsection 141.01(4) of the ETA, often referred to as the free supply rule, is also relied on by Amex. The provision generally operates to recharacterize a taxable supply that is a free supply to take into account the purpose of another supply. It provides:
Free supplies
"Fournitures gratuites"
141.01 (4) Where
"141.01 (4)"" "Lorsqu’un fournisseur effectue, dans le cadre de son initiative, la fourniture taxable (appelée « fourniture gratuite » au présent paragraphe) d’un bien ou d’un service sans contrepartie ou pour une contrepartie symbolique et qu’il est raisonnable de considérer que la fourniture gratuite a pour objet notamment de faciliter, de favoriser ou de promouvoir soit une initiative, soit l’acquisition, la consommation ou l’utilisation d’autres biens ou services par une autre personne, les présomptions suivantes s’appliquent :
(a) a supplier makes a taxable supply (in this subsection referred to as a “free supply”) of property or a service for no consideration or nominal consideration in the course of a particular endeavour of the supplier, and
a) pour l’application du paragraphe (2), le fournisseur est réputé, dans la mesure où il a acquis ou importé un bien ou un service, ou l’a transféré dans une province participante, afin d’en effectuer la fourniture gratuite ou afin de le consommer ou de l’utiliser dans le cadre de pareille fourniture, avoir acquis ou importé ce bien ou ce service, ou l’avoir transféré dans la province, selon le cas, à la fois :
BLANK
(i) afin de l’utiliser dans le cadre de son initiative,
BLANK
(ii) aux fins auxquelles la fourniture gratuite est effectuée et non pas afin d’effectuer cette fourniture;
(b) it can reasonably be regarded that among the purposes (in this subsection referred to as the “specified purposes”) for which the free supply is made is the purpose of facilitating, furthering or promoting
b) pour l’application du paragraphe (3), le fournisseur est réputé, dans la mesure où il a consommé ou utilisé un bien ou un service afin d’effectuer la fourniture gratuite, avoir consommé ou utilisé ce bien ou ce service aux fins auxquelles la fourniture gratuite est effectuée et non pas afin d’effectuer cette fourniture.
(i) the acquisition, consumption or use of other property or services by any other person, or
"VIDE"
(ii) an endeavour of any person,
"VIDE"
the following rules apply:
"VIDE"
(c) to the extent that the supplier acquired or imported a particular property or service or brought it into a participating province for the purpose of making the free supply of that property or service or for consumption or use in the course of making the free supply, the supplier shall be deemed, for the purposes of subsection (2), to have acquired or imported the particular property or service or brought it into the province, as the case may be,
"VIDE"
(i) for use in the course of the particular endeavour, and
"VIDE"
(ii) for the specified purposes and not for the purpose of making the free supply, and
"VIDE"
(d) to the extent that the supplier consumed or used a particular property or service for the purpose of making the free supply, the supplier shall be deemed, for the purposes of subsection (3), to have consumed or used the particular property or service for the specified purposes and not for the purpose of making the free supply. ....
B. O.A. Brown test
[27] In applying the O.A. Brown [SS: O.A. Brown Ltd. v. The Queen, [1995] G.S.T.C. 40] test, the judge made the following findings:(a) When the credit card is accepted by a merchant, Amex extends credit to the Cardholder. This is a supply of a financial service (reasons at para. 45).
(b) After considering the links between the MRP and the status as a Cardholder, the judge concluded that it was hard "“to imagine a supply where the different elements and components of a supply are more closely intertwined and linked”" (para. 47).
(c) There is a link between the discount revenue that Amex received from merchants and a Cardholder’s use of a credit card (para. 44).
(d) Amex incurred the MRP Expenses to increase the volume of credit card transactions (para. 50).
(e) Becoming a Member does not have commercial efficacy on its own (para. 53).
(f) As for transactions between Amex and merchants, the Court characterized these as a supply of financial services by Amex to merchants (para. 44). ....
VI. Analysis
[40] The issue in this appeal is whether the Tax Court erred in disallowing Amex’s claim for ITCs with respect to the MRP Expenses. Amex submits that the judge made legal and factual errors in disallowing the claim.
[41] The analysis below [SS: at paras 42-77] is organized under the statutory provisions that Amex relies on, subsections 169(1), 181(5) and 141.01(4) of the ETA.
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