Below is a history and overview of the club’s appeal over Canada Revenue Agency’s decision to charge GST on the club’s annual fee. It is accompanied by a GST flowcharts.
In 2009, the Canada Revenue Agency (CRA) assessed the club, requesting GST payment on our annual fees for the period 2002-2008. The CRA argued that the club was providing a service to members on an annual basis. Their argument was founded in the idea that the club was a stand-alone entity, with beneficial ownership of the properties held in trust (by the club, the developer and the trustee), selling an annual service to members, who had bought points from the developer. They argued that the annual fee was a condition of use, allowing members to book room nights in properties held in trust for the club (not the members directly).
The club paid $1.9M in GST payments for the years 2002-2008 in 2010 (as indicated in our financial statements), which represented GST applied only on the operating costs of the Canadian resorts.
At the same time, the CRA reassessed the amount upwards, arguing that the method used to calculate the GST was incorrect. Instead of just applying GST on the Canadian resort operations, the GST was to be calculated by determining the percentage of Canadian resort points to the total resort points (around 55 to 60%), thereby increasing the amount due to about $4 million (from $1.9M) for the years 2002-2008. (Note that the years 2009 to 2105 have yet to be dealt with.)
As indicated in our financial statements, the board explained that they were appealing the CRA’s reassessment, but did not indicate the potential material impact. The notes suggested that the appeal was on the $1.9M, not on the additional reassessed amount for 2002-2008, or the impact of this formula on years 2009-2015.
The club’s appeal to the Tax Court of Canada argued two points: (1) that the club was simply acting as an agent of the members (using the principal-agent argument) and therefore no GST was due; and (2) that if GST was due, it was only on the operating costs of the Canadian resort locations.
The board presented their arguments to the Tax Court of Canada on November 24 to 26, 2014.
On June 9, 2016, the Tax Court of Canada denied the appeal and ordered the club to pay the outstanding GST amount, along with the costs of the respondent (the Tax Court of Canada lawyers etc…). The judge argued that (1) the club is not an agent of the members and (2) GST should be paid on the entire operating budget. The judgement can be found at: http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/145454/index.do
Notably, the judge also mentioned (repeatedly) that he saw no evidence of a trust that indicated that members had beneficial ownership. The original trust documents established between the club and the members were never provided. These documents have been requested from the board on numerous occasions (i.e. all documents produced since club inception) but the board has indicated that they will not provide them.
On July 5, 2016, the Board filed an appeal with the Federal Court of Appeal, arguing against the Tax Court’s decision. The Club’s appeal was heard on May 15, 2017, in Vancouver. The judge agreed with the Tax Court opinion that members do not have beneficial interest in the properties, based on the evidence provided. The judge also ruled that GST was due, but only on the Canadian properties. This ruling was based on the agreement that the club does not act on behalf of members (i.e. no principal agent relationship).
The judgement is available here: http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/232795/index.do