Digests

Corp. de l'École Polytechnique v. Canada

A-452-03

2004 FCA 127, Décary and Létourneau JJ.A.

26/3/04

24 pp.

Appeal from Tax Court of Canada decision ([2003] G.S.T.C. 138) that appellant supplying licence to exploit intellectual property not exempt supply within meaning of Excise Tax Act, Sch. V, Part VI, s. 2(c)--Judge dismissed appeal from assessment of October 1998--Assessment included penalty imposed pursuant to Act, s. 280--In dismissing appeal, judge implicitly affirmed imposed penalty --Appellant university- level public education institution affiliated with University of Montréal--Qualified as "charity" within meaning of Act, s. 123--In fall 1991, appellant signed research agreements with four Quebec business investment companies--Undertook to carry out research projects for companies--Standard research agreement provided intellectual property rights associated with research results entirely property of investment company--Appellant paid goods and services tax (GST) when intellectual property was purchased--On account of "public sector body" status, appellant subsequently obtained only partial reimbursement representing 67% of GST paid--Only provision of Act appellant could hope to rely on s. 2(c) in question--This provision assumes at outset that charity may engage in commercial activity and allows such body to recover full amount of GST paid if conditions met for application of section--Those conditions of application are: (1) supply of property, (2) not acquired for purpose of making supply, (3) and used otherwise than in making supply, (4) in appellant's commercial activities--On first point, property acquired not intellectual property in general sense but part of intellectual property represented by licencing exploitation and marketing rights--Follows that property acquired (intellectual property, including exploitation and marketing rights) distinct from property supplied (licence of rights to exploit and market)--In case at bar, property acquired and supplied at issue licence of rights to exploit and market--On second point, exploitation and marketing rights never used by appellant between time acquired and time assigned--These rights clearly acquired for purpose of supply, without any form of use whatever by appellant intervening between time of acquisition and time of supply--On third point, not possible to say that property (licence) used by appellant in any way or at any time whatsoever other than in making supply--Appellant does not meet second and third requirements of s. 2(c) and accordingly Minister's assessment in this regard correct--No bar to defence argument of due diligence, on which person may rely against charges involving strict liability, being put forward in opposition to administrative penalties--In particular, Act, s. 280 by wording and content gives rise to that defence--Due diligence defence allows person to avoid imposition of penalty if evidence presented that not negligent--Due diligence excuses person making reasonable error of fact--Person relying on reasonable mistake of fact must meet twofold test: subjective and objective--Person must first establish that mistaken as to factual situation (subjective test)--Defence fails if no evidence that person relying on it in fact misled and that mistake led to act committed--Must then establish that mistake reasonable in circumstances (objective test)--In case at bar, only proof of due diligence offered by appellant at trial hearing amounted to reply by witness Blais--This evidence does not meet due diligence requirements--Evidence of events subsequent to preparation of draft assessment cannot be relevant in establishing due diligence, which must be determi-ned at time property supplied--Review of contracts indicates that when contracts concluded appellant aware of fact that probably not entitled to 100% rebate--Taxpayer knowing that position vulnerable, not seeking to confirm from proper authorities when time comes, and inserting clauses in contracts to have others bear responsibility accruing to it for paying GST not acting with due diligence--Appeal dismissed-- Excise Tax Ac, R.S.C., 1985, c. E-15, s. 123 (as enacted by S.C. 1990, c. 45, s. 12), 280 (as enacted idem; S.C. 1997, c. 10, s. 235), Sch. V. Part VI, s. 2(c) (as enacted by S.C. 1990, c. 45, s. 18; 1997, c. 10, s. 104).