{"id":128794,"date":"2025-03-12T16:56:47","date_gmt":"2025-03-12T16:56:47","guid":{"rendered":"https:\/\/peraltafinancing.com\/business\/legal\/bell-canada-decision-finds-itemized-electricity-charges-to-be-a-single-supply\/"},"modified":"2025-03-12T16:56:47","modified_gmt":"2025-03-12T16:56:47","slug":"bell-canada-decision-finds-itemized-electricity-charges-to-be-a-single-supply","status":"publish","type":"post","link":"https:\/\/fivemor.com\/?p=128794","title":{"rendered":"Bell Canada Decision Finds Itemized Electricity Charges To Be A Single Supply"},"content":{"rendered":"


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Bell was denied favourable goods and services tax (\u201cGST\u201d) treatment of its purchase of electricity, which was determined to be a single supply for the purpose of claiming input tax credits (\u201cITCs\u201d) under the <\/span>Excise Tax Act<\/span><\/em>, <\/span>RSC 1985, c E-15<\/span><\/a> [<\/span>ETA<\/span><\/em>]. In <\/span>Bell Telephone Company of Canada v. Canada<\/span><\/em>, <\/span>2025 FCA 27 <\/span><\/a>[<\/span>Bell Canada<\/span><\/em>], The Federal Court of Appeal (\u201cFCA\u201d) upheld the Minister\u2019s assessments of Bell. These assessments recaptured an excessive amount of ITCs claimed in respect of the provincial portion of the tax the appellant paid on the consideration for the supply of electricity by local distribution companies (\u201cLocal Distributors\u201d) pursuant to s 236.01(2) of Part IX of the <\/span>ETA<\/span><\/em>.<\/span><\/p>\n

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Background<\/strong><\/p>\n

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The ETA<\/em> taxes consumption in the form of GST, which arises on any \u201ctaxable supply\u201d as defined under s 123(1) made within the relevant period. GST is meant to be borne by the final consumer of a product or service provided in the course of commercial activity. To promote efficiency and avoid double taxation, s 169(1) of the <\/span>ETA<\/span><\/em> permits registrants to claim ITCs on the taxes paid on inputs used in producing a supply. The registrant uses ITCs to reduce the amount of GST remitted to the government by the amount of tax already remitted to the government at an earlier stage in the supply chain. This scheme operates so that the registrant only remits the net tax which is owed at that stage of the supply chain pursuant to s 225(1) of the <\/span>ETA<\/span><\/em> (<\/span>Bell Canada<\/span><\/em>, para 8).<\/span><\/p>\n

The Government of Ontario and the Government of Canada agreed to harmonize the 5% GST and 8% provincial sales tax (\u201cPST\u201d) together, to form a 13% harmonized sales tax (\u201cHST\u201d). Parliament enacted s. 236.01 of the <\/span>ETA<\/span><\/em> to recapture the ITCs claimed by large businesses on the 8% PST portion of the HST on specific property or services, including the supply of electricity pursuant to the<\/span> New Harmonized Value-added Tax Systems Regulations<\/span><\/em>, <\/span>No 2, SOR\/2010-151<\/span><\/a> (<\/span>Bell Canada<\/span><\/em>, para 9).<\/span><\/p>\n

Bell, a GST registrant, was engaged in commercial activities relating to telecommunications equipment and services. Bell entered into electricity supply contracts with Local Distributors in the course of its commercial activities. The Local Distributors itemized the various charges related to the supply of electricity as: \u201cElectricity, Delivery, Regulatory charges, and Debt retirement charge\u201d in accordance with <\/span>O Reg 275\/04<\/span><\/a>: <\/span>Information on Invoices to Low-volume Consumers of Electricity<\/span><\/em> [<\/span>Invoice Regulations<\/span><\/em>]. Bell claimed that the recapture of ITCs under s. 236.01 only applied to the \u201cElectricity\u201d charges and that the portion of the ITCs that related to the \u201cDelivery\u201d and \u201cRegulatory\u201d charges did not fall under s. 236.01 (<\/span>Bell Canada<\/span><\/em>, paras 8-10).<\/span><\/p>\n

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Judicial History<\/strong><\/p>\n

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In <\/span>Bell Telephone Company of Canada v. The King<\/span><\/em>, <\/span>2023 TCC 45<\/span><\/a> [<\/span>TCC Decision<\/span><\/em>], D\u2019Arcy J. of the Tax Court of Canada (\u201cTCC\u201d) concluded that the provisions at issue required a determination on whether the Local Distributors made a single supply of multiple constituent elements which included electricity, or multiple supplies of separate goods\/services. D\u2019Arcy J. followed the test in <\/span>O.A. Brown Ltd. v. Canada<\/span><\/em>, [1995] GSTC 40 [<\/span>O.A. Brown<\/span><\/em>] adopted by the Supreme Court of Canada\u00a0 in <\/span>City (Calgary) v Canada<\/span><\/em>, <\/span>2012 SCC 20<\/span><\/a> [<\/span>City of Calgary<\/span><\/em>] to make a factual determination as to whether the alleged separate supply is \u201c\u2026in substance and reality\u2026an integral part, integrant, or component of the overall supply\u201d (<\/span>Bell Canada<\/span><\/em>, para 11).<\/span><\/p>\n

D\u2019Arcy J. concluded that in applying the <\/span>O.A Brown<\/span><\/em> test to the record, the \u201cDelivery\u201d and \u201cRegulatory\u201d services were components of the overall supply of electricity, and as a result constituted a single supply (<\/span>TCC Decision<\/span><\/em>, para 123).<\/span><\/p>\n

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Issues on Appeal<\/strong><\/p>\n

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  1. Did the judge err in law by applying the <\/span>O.A. Brown<\/span><\/em> test to determine the nature of the supply?<\/span><\/li>\n
  2. Did the judge commit a palpable and overriding error in his application of the <\/span>O.A. Brown<\/span><\/em> test to the facts? (<\/span>Bell Canada<\/span><\/em>, para 17).<\/span><\/li>\n<\/ol>\n

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    Decision<\/strong><\/p>\n

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    Boivin J.A. wrote for a unanimous court, which dismissed the appeal and held that the TCC correctly identified the <\/span>O.A. Brown <\/span><\/em>test as the applicable test and did not err in its application to the purchase of electricity from Local Distributors (<\/span>Bell Canada<\/span><\/em>, paras 30, 41, 43).<\/span><\/p>\n

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    The Applicability of the O.A. Brown Test<\/strong><\/em><\/p>\n

    The <\/span>O.A. Brown <\/span><\/em>test was created to ascertain whether certain itemized costs related to the temporary care of livestock after its sale formed part of the supply of livestock, or were to be considered separate supplies. In that case, the TCC found that there was only a single supply of livestock and the taxpayer itemizing the charges did not change the true nature of the supply \u2013 the relevant question is whether the alleged separate supply could be omitted from the overall supply (<\/span>Bell Canada<\/span><\/em>, paras 19-21).<\/span><\/p>\n

    Bell argued that the TCC did not undertake a proper interpretation of the relevant statute before resorting to applying the <\/span>O.A. Brown <\/span><\/em>test. Boivin J.A. rejected Bell\u2019s argument, and held that the TCC considered the relevant statutory and regulatory provisions relating to the recapture of ITCs and Ontario\u2019s electricity market. The <\/span>ETA<\/span><\/em>\u2019s broad definitions within the provisions necessitated the application of the <\/span>O.A. Brown <\/span><\/em>test (<\/span>Bell Canada<\/span><\/em>, paras 22-23).<\/span><\/p>\n

    Further, Boivin J.A. rejected Bell\u2019s argument that the Court should follow the FCA\u2019s approach in <\/span>Canada v. Dr. Kevin L. Davis Dentistry Professional Corporation<\/span><\/em>, <\/span>2023 FCA 76<\/span><\/a> [<\/span>Davis Dentistry<\/span><\/em>]. In <\/span>Davis Dentistry<\/span><\/em> the FCA upheld the TCC\u2019s determination that the <\/span>O.A. Brown<\/span><\/em> test was not applicable for the purposes of determining the tax treatment of orthodontic services. The Federal Court of Appeal held that Parliament had clear legislative intent to override the <\/span>O.A. Brown<\/span><\/em> test with respect to the tax treatment of orthodontic services under the <\/span>ETA<\/em> <\/span>(<\/span>Bell Canada<\/span><\/em>, paras 25-27).<\/span><\/p>\n

    Boivin J.A. distinguished <\/span>Bell Canada<\/span><\/em> from <\/span>Davis Dentistry<\/span><\/em> as the Invoice Regulations<\/em> which separated the supplies of \u201cElectricity\u201d, \u201cDelivery\u201d, and \u201cRegulatory\u201d charges on an invoice were outside of the <\/span>ETA<\/span><\/em> and did not provide for distinct tax treatments. On the other hand, the <\/span>ETA <\/span><\/em>and its Schedules separated the various orthodontic supplies at issue in <\/span>Davis Dentistry <\/span><\/em>and explicitly provided different tax treatments for each. Thus, the TCC did not err in resorting to the <\/span>O.A. Brown<\/span><\/em> test to properly characterize the nature of the supply in light of the broad definitions within the statute (<\/span>Bell Canada<\/span><\/em>, paras 26-28, 30).<\/span><\/p>\n

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    The Application of the O.A. Brown Test to the Facts<\/strong><\/em><\/p>\n

    Boivin J.A. held that the TCC did not make a palpable or overriding error in applying the <\/span>O.A. Brown<\/span><\/em> test to the facts of <\/span>Bell Canada<\/span><\/em> (<\/span>Bell Canada<\/span><\/em>, para 41).<\/span><\/p>\n

    The Local Distributors structured the invoice in accordance with the <\/span>Invoice Regulations<\/span><\/em> and was not a reflection of what the Local Distributors believed was being supplied. There were various discrepancies in the invoices which made it impossible to definitively determine what was being supplied under the various itemized charges. The TCC rightfully determined that there was insufficient evidence to support a determination that the charges were separate supplies, including in instances where the invoice did not list any charges for electricity (<\/span>Bell Canada<\/span><\/em>, paras 32-35).<\/span><\/p>\n

    Boivin J.A. noted that the TCC considered whether it was possible to purchase \u201cElectricity\u201d from a retailer and separately purchase \u201cDelivery\u201d and \u201cRegulatory\u201d services from Local Distributors, but found that such a possibility was inconsequential for the supply at issue (<\/span>Bell Canada<\/span><\/em>,<\/span><\/i> paras 40-41).<\/span><\/p>\n

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    Analysis<\/strong><\/p>\n

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    Bell Canada<\/span><\/em> demonstrates that a taxpayer\u2019s decision to list the itemization of charges related to a supply does not in itself separate a single supply into multiple smaller supplies. Both the TCC and FCA affirmed the application of the <\/span>O.A. Brown<\/span><\/em> test in circumstances where there is no clear indication from Parliament that certain components of a supply should be treated distinctly for tax purposes. In <\/span>Bell Canada<\/span><\/em>, the <\/span>Invoice Regulations<\/span><\/em> which treated \u201cElectricity\u201d, \u201cRegulatory\u201d, and \u201cDelivery\u201d services differently were not related to the <\/span>ETA<\/span><\/em> and did not provide for a distinct tax treatment for each component. Thus the court must resort to the <\/span>O.A. Brown <\/span><\/em>test to determine whether the components were a single or separate supply.<\/span><\/p>\n

    The <\/span>O.A. Brown<\/span><\/em> test looks at the nature of the transaction in both \u201csubstance and reality\u201d which creates an inherently fact-driven determination of whether a purchase was for a single or multiple supplies. The TCC applied the test in a similar manner as the Supreme Court of Canada in <\/span>City of Calgary<\/span><\/em>, <\/span><\/i>where \u201cpreparatory\u201d work required to make a supply was not considered to be a separate supply. The supply of \u201cDelivery\u201d or \u201cRegulatory\u201d services are incidental to the supply of electricity, especially where there is only a single supplier.<\/span><\/p>\n

    Overall, the taxpayer attempted to avoid recapture of the ITCs by treating the itemized charges as piecemeal supplies as reflected on the invoice rather than based on the substance or reality of the transaction. Bell was receiving electricity from Local Distributors. There was no separate receipt of \u201cDelivery\u201d or \u201cRegulatory\u201d services from a third party to which those expenses related. Both courts determined that such an arrangement only constituted a single taxable supply.\u00a0<\/span><\/p>\n

    A taxpayer must demonstrate that the itemized charges represent separate transactions which are not incidental to one another, but are merely performed by the same party. The courts appear to imply from <\/span>O.A. Brown<\/span><\/em>, <\/span>City of Calgary<\/span><\/em>,<\/span><\/i> and <\/span>Bell Canada<\/span><\/em>,<\/span><\/i> that additional charges which necessarily arise from the undertaking in the process of providing the original supply will be treated as a single supply.\u00a0<\/span><\/p>\n

    To separate a supply into multiple smaller supplies, the taxpayer must be able to show that the supplies can, or are, made independently from one another. If preparatory or ancillary work is required to make a supply, it is likely that both the work and the final supply will be treated as components of a single supply. If two supplies are frequently bundled but do not enable each other, there may be multiple smaller supplies. The distinction is especially important where a supply is subject to recapture such as in <\/span>Bell Canada<\/span><\/em>, or where a supply attracts a different tax treatment such as a zero-rated or exempt supply.<\/span><\/p>\n

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