Feds appealing decision in $40M tax dispute with bcIMC

The federal government is appealing a B.C. court ruling in a dispute over whether the British Columbia Investment Management Corp. (bcIMC) owes it more than $40 million in taxes in relation to its pooled investment portfolios.

The appeal follows a Sept. 30 ruling from the the Supreme Court of British Columbia that dealt with bcIMC’s bid for a declaration that it’s immune from the federal goods and services and harmonized sales taxes under the Excise Tax Act in relation to the management services it provides for several public sector pension plans. In the ruling, Justice Gary Weatherill noted the parties had been disputing the issue for more than a decade.

Before creating bcIMC in 1999, the B.C. minister of finance handled the investment portfolios for the province’s public sector pension plans. “When the minister of finance managed the portfolios, it recovered its costs and expenses associated with managing the portfolios from the portfolios’ assets, without tax being collected or remitted,” Weatherill noted in his ruling.

Read: Taming the complexities in GST/HST rules for pension plans

As Jack Silverson, a tax lawyer at Osler Hoskin & Harcourt LLP, points out, the Constitution provides governments with immunity from each other’s taxes. Governments can, however, reach reciprocal agreements to pay each other’s taxes. In this case, two agreements were at issue: the reciprocal taxation agreement reached with the federal government in 2010 and the comprehensive integrated tax co-ordination agreement entered into in 2009. “By signing the [reciprocal taxation agreement], the province committed itself, its agents and provincial entities (such as Crown corporations), which would otherwise be immune, to pay the tax,” wrote Weatherill.

According to Weatherill’s ruling, Canada assessed the tax owing by bcIMC at about $40.5 million late last year.

At issue in the case was whether bcIMC is immune from the federal tax and, even if that’s the case, the agreements bind it to paying the levy. On the first question, Weatherill found in bcIMC’s favour. “Because bcIMC is statutorily mandated by the province to provide investment management services to the portfolios, bcIMC constitutionally enjoys the same tax immunity as the province . . .,” wrote Weatherill, who noted bcIMC has the same powers, functions and duties previously held by the minister of finance.

Read: Confusion over pension GST/HST

When it came to the agreements, bcIMC argued it wasn’t a party to them and that, as a result, they’re not binding on it absent specific legislation to the contrary. Weatherill, however, found there was legislation authority to that effect under the Public Sector Pension Plans Act. The judge, referring to a section in the legislation that says bcIMC “is not liable for taxation except as the government is liable for taxation,” found the organization is subject to tax under the agreements. “That language, in my view, is the specific legislative authority required to bind bcIMC to the agreements and should be interpreted accordingly,” he wrote.

It’s not clear what happens now as a result of the ruling. The bcIMC declined to comment, other than to say it was happy with the decision on the immunity issue. Shannon Ker, a spokesperson for the Canada Revenue Agency, confirmed the federal government is appealing the decision to the B.C. Court of Appeal. On the question of collecting the tax it alleges bcIMC owes, she said the CRA can’t take collection action while an assessment is in dispute. “Once a tax dispute is finally concluded, the CRA will take all steps possible to collect any amount owing to the Crown,” she said.