Intrawest Ruling: Annual Timeshare Fees For Vacation Homes Both Inside And Outside Canada Are Fully GST/HST-Taxable

In Intrawest v. The Queen1, the Tax Court of Canada, under the pen of Justice Steven K. D'Arcy, ruled against a favourable Canada Revenue Agency ("CRA") administrative policy and determined that Goods and Services Tax/Harmonized Sales Tax ("GST/HST") is applicable to 100% of the annual resort fee invoiced by a timeshare club for services rendered to its members even if those services relate, in part, to vacation resorts located outside of Canada.

The 72-page decision examines at length the so-called "made-in-Canada" rules contained in section 142 of the Excise Tax Act ("ETA").

Facts

Club Intrawest ("Intrawest") is a Canadian resident non-profit, non-stock corporation created to facilitate the administration and operation of vacation homes in connection with a timeshare ownership program ("Intrawest Program"). Members of the Intrawest Program hold timeshare points that entitle them to stay at vacation homes owned by Intrawest ("Points"). The vacation homes are located in Canada, the United States and Mexico. Members of the Intrawest Program pay an annual resort fee ("Annual Resort Fee") to cover such costs as property taxes, insurance coverage and salaries and benefits of Intrawest's employees. The amount of the Annual Resort Fee depends on the number of Points that a member holds.

Intrawest never collected GST/HST on the Annual Resort Fee on the ground that it was merely acting as agent on behalf of its members when it acquired the various goods and services in connection with the Intrawest Program. On this analysis, the Annual Resort Fee was simply a reimbursement of the expenses incurred by Intrawest and, as such, could not be construed as consideration for a taxable supply.

The CRA disagreed. It assessed Intrawest for uncollected GST/HST for its monthly periods between 2002 and 2007. Intrawest appealed this assessment, principally on the basis of the agency analysis. Intrawest also argued (in the alternative) that, to the extent that it might be found to have made a supply, the Annual Resort Fee should then be allocated between taxable supplies made within Canada (subject to GST/HST) and taxable supplies made outside of Canada (not subject to GST/HST) based on the Points issued with respect to Canadian vs. non-Canadian vacation homes.

Decision

1. Was Intrawest acting as an agent? As noted above, the CRA's response to Intrawest's agency argument was that the Annual Resort Fee was in fact consideration for a taxable supply of intangible personal property on the part of Intrawest. In deciding this issue, the Tax Court considered the three generally...