On June 8, 2023, the Federal Court of Appeal upheld a Tax Court of Canada decision that, by allowing a supplier of Automated Teller Machines ("ATMs") to place and operate ATMs throughout its casino resort, a casino operator was making GST/HST taxable supplies. The casino operator was paid a fee for each ATM transaction that took place on its premises.

Summary

The case, River Cree Resort Partnership v. The King, 2023 FCA 130, raised issues similar to those considered previously by the Tax Court of Canada (hereafter, "TCC") in Mac's Convenience Stores Inc. v. The Queen, 2012 TCC 393. In Mac's, the TCC made a distinction between leased or owned (by Mac's Convenience Stores) ATMs. With respect to supplies made by Mac's to the ATM supplier regarding the leased ATMs, the TCC concluded that such supplies were tantamount to taxable supplies of real property (i.e., making space for an ATM) rather than exempt supplies of financial services. On the other hand, it was clear that Mac's supplied financial services to its own customers insofar as the ATMs it owned were concerned.

In the case at hand, River Cree, the casino operator, tried to recharacterize the main issues at the Federal Court of Appeal (hereafter, "FCA") level by asking the court to make its own determination of the facts. Essentially, River Cree wanted the FCA to determine which party (it or Access Cash, the ATM supplier) was the actual operator of the ATMs. Following the similar reasoning in Mac's, if River Cree were determined to be the operator of the ATMs, its supplies (to its own patrons rather than to Access Cash) would have been exempt financial services.

However, as this was not an appeal de novo, the FCA refused to reframe the issues as suggested by River Cree. Instead, it concluded that the TCC had made no palpable and overriding errors in finding that: (1) the predominant element of the single compound supplies made by River Cree to Access Cash (as the sole ATM owner and operator) were taxable supplies of "the exclusive right to place and operate ATMs" at River Cree's resort and casino, and (2) the parties did not intend to create a joint venture relationship with respect to the ATM operations.

Detailed Analysis

Background

River Cree operates a resort and casino in Alberta. During the relevant period, all ATMs located at the resort were supplied by Access Cash. Between September 1, 2011, and May 31, 2015, River Cree was paid over $8 million in fees by Access Cash in connection with the operations of those ATMs, for which River Cree did not collect GST. For each ATM transaction, River Cree was paid by Access Cash an amount equivalent to the "surcharge fee" charged to the cardholder by the ATM operator as well as another amount equivalent to a pre-determined portion of the "intercharge fee" payable to the ATM operator by the Interac network member who received such fee directly from the cardholder's bank.

River Cree's position was that amounts received from Access Cash for each ATM transaction were earned in connection with the provision of financial services, and thus were GST exempt supplies for the purposes of Part IX of the Excise Tax Act.

The Minister of National Revenue reassessed River Cree on the basis that the payments received from Access Cash were in connection with taxable supplies made to Access Cash and that River Cree should have therefore collected GST.

Tax Court of Canada decision

In the TCC decision, the key issue for the trial judge was to determine the nature of the supplies made by River Cree. This required the court to analyze River Cree's role in the ATM transactions. In the case of a "white label" ATM (one not owned by a bank or other financial institution), there are typically five parties to a transaction:

  • a cardholder (usually wanting to withdraw cash);
  • a card issuer;
  • the operator of the network that the ATM is connected to;
  • an ATM provider (which provides and operates the machine as part of a network, such as Interac in this case, with which it has an agreement); and
  • a cash provider (which provides the cash that is loaded into the ATM) (para. 8).

When a cardholder withdraws money from a white label ATM, a surcharge fee is imposed (para. 10). Depending on the contractual arrangements that apply to the particular ATM, the ATM provider and ATM cash provider can be either one or two entities (para. 9). Where two distinct entities take on these roles, the court must determine which of them the cardholder contracts with – the cash provider for transferring the cash or the ATM provider for arranging for the transfer of money (para. 135).

The issues before the TCC were therefore (1) to determine who, as between River Cree and Access Cash, was the cash provider and who was the ATM provider and (2) what this implied in terms of GST liability. Because the arrangements surrounding the ATMs changed during the period in question, the TCC divided the reporting periods into two stages: the "Initial Periods" (September 2011-May 2014), and the "Subsequent Periods" (June 2014-May 2015) (paras. 23-24).

Initial periods

The TCC found that during the "Initial Periods", Access Cash was both the cash provider and ATM provider, meaning that it earned the surcharge fees (para. 84). During those periods, Access Cash borrowed cash from River Cree, which it loaded into the ATMs (para. 28). Given that Access Cash's cash was loaded in the ATMs, it was the cash provider. Access Cash was also the ATM provider, as it owned the ATMs, operated them, and arranged for the transfer of money to the cardholders (paras. 46-47).

Considering that River Cree was neither cash provider nor ATM provider, the TCC found that it played no role in the series of financial supplies (para. 88). Rather, River Cree provided Access Cash with a physical location in which to place its ATMs – free of any competitors – as well as support and maintenance services (paras. 107-108). The TCC therefore ruled that River Cree made a single compound supply, the predominant element of which was the "exclusive right to place and operate ATMs at the resort and to process all transactions arising therefrom" (para. 124). As this supply was taxable, River Cree should have been collecting GST.

Subsequent periods

In the "Subsequent Periods", the TCC concluded that River Cree was the cash provider. That was because after mid-2014, it loaded the ATMs with its own money (para. 128). After this point, Access Cash was just the ATM provider (para. 133). Typically, as a standalone supply, providing cash would be an exempt supply of financial services, but River Cree also provided other supplies to Access Cash.

Given that the roles of cash provider and ATM provider were held by different entities, the TCC had to determine who the cardholder contracted with (para. 135). The TCC found that it is more likely that the cardholders paid the surcharge fee to Access Cash. The cardholders were not looking for someone to lend them money but rather to allow them to access their own money (para. 138). Access Cash did that; it arranged for the transfer of money by connecting the cardholders with the Interac network. The TCC therefore found that the cardholders paid the surcharge fee to Access Cash (para. 141).

The pleadings forced the trial judge to consider that the supply made by River Cree was a single compound supply even though he believed that the supplies were distinct (paras. 152-153). Therefore, as was the case for the Initial Periods, the TCC found that the predominant element of the single compound supply made by River Cree to Access Cash during the Subsequent Periods was the exclusive right to place and operate ATMs in its resort and casino – which was a taxable supply (para. 158).

Joint venture argument

River Cree also argued that the parties intended to create a joint venture relationship and that such joint venture provided the financial services to the cardholders (para. 159). The TCC rejected this argument as there was no evidence that the parties intended to create a joint venture in either of the two agreements between them (para. 160).

Federal Court of Appeal ruling

On appeal to the FCA, River Cree asked the court to recharacterize the main issues by making its own determination of the facts. In particular, River Cree wanted the FCA to determine which party was the actual operator of the ATMs. However, the FCA refused to reframe the issues as this was not an appeal de novo (para. 34).

Rather, to reflect the proper role of the FCA in a GST/HST appeal, the court identified two key questions:

  • Did the trial judge err in finding that River Cree did not make supplies of a financial service, but rather that River Cree made taxable supplies to Access Cash?
  • Did the trial judge err in finding that River Cree and Access Cash were not carrying on a joint venture in providing financial services? (para. 35)

The standard of review for any question of fact is palpable and overriding error and the standard of review for any question of law (including any extricable question of law) is correctness (para. 36).

Finding that River Cree made taxable supplies

River Cree's appeal to the FCA pertained to the factual finding by the TCC that the predominant element of the single compound supply was the exclusive right to place and operate ATMs at the resort and to process all transactions arising therefrom (para. 30).

Therefore, absent a palpable and overriding error, the finding about the predominant element of the single compound supply made by River Cree will stand (para. 41).

The FCA found that River Cree did not establish that the TCC made a palpable and overriding error in determining the predominant element of the supply (para. 44).

Finding that there was no joint venture agreement

River Cree argued that the TCC erred in not properly determining whether the legal relationship between River Cree and Access Cash was a joint venture. The alleged error was the failure to cite the six factors identified in a specific Nova Scotia Supreme Court case (para. 45).

According to the FCA, since the intention to create a joint venture is also to be determined based on the contracts between the parties, it is a question of mixed fact and law. As a result, the standard of review for a finding that the parties did not intend to create a joint venture relationship is palpable and overriding error (para. 47).

The FCA determined that absent the intention to create a joint venture, there was no need to consider any of the other factors mentioned in the Nova Scotia Supreme Court case. The TCC therefore did not err by not referring to all of the factors identified in such decision. The FCA also stated that River Cree did not establish that the TCC made any palpable and overriding error in finding that River Cree and Access Cash did not intend to operate the ATMs as a joint venture (para. 49).

For all the reasons set out above, the FCA dismissed River Cree's appeal with costs.

Key Takeaways

  • As was the case in the TCC's 2012 Mac's decision, granting an ATM supplier a right of exclusivity for the placement and operation of ATMs in the grantor's commercial premises in consideration for a fee is a taxable supply subject to GST/HST.
  • This decision underlines the fact that any specific financial component related to a supply may not be sufficient on its own to classify the compound supply as a financial service. It is crucial to verify the terms of the commercial agreement and the circumstances in which the supplies are made before reaching the conclusion that any single supply is exempt as a financial service or otherwise.
  • In a situation where one of the contracting parties insists that sales taxes do not apply to the supplies made to them, the supplier may seek appropriate advice from tax counsel and/or obtain an advance ruling from the tax authorities, as the case may be.

The author would like to acknowledge the support and assistance of Danielle Maor and Chrystophe Simard, students at law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.