The TCC applied fundamental principles of statutory interpretation to conclude that the supply of police services by the Ontario Provincial Police (“OPP”) to the 407 ETR Concession Company Limited (“407 ETR”) constituted an exempt supply of a “municipal service” under section 21.


407 ETR operates Highway 407 (the “Highway”), a toll highway north of Toronto. The land on which the Highway is located is leased by 407 ETR from the Ontario Government. The Highway is deemed to be a King’s Highway for purposes of the paragraph 19(1)(3) of the Police Services Act, which makes the OPP responsible for the maintaining a traffic patrol on the Highway.


The lease agreement required that police services on the Highway by provided by the OPP and that 407 ETR pay the Province for these services.  To determine the cost of these services the OPP used the same cost structure it used in providing police services to smaller municipalities throughout the province.  The province initially did not charge GST to the 407 ETR for these services; however, with the implementation of the Ontario HST in July 2010, it began charging HST.  407 ETR claimed a rebate on the basis that the policing services provided by the OPP constituted an exempt “municipal service...made by a government.”


The TCC concluded that “the words municipal service must be interpreted in a way that allows for the service to be supplied by either a government or a municipality” and agreed with 407 ETR that the term “municipal service” should be interpreted to include “a service that is in the nature of services typically provided by municipalities”.


The TCC observed that this interpretation is consistent with the purpose of section 21, which aims to exempt supplies of services provided by a government authority and which the owner or occupant of land has no option but to receive.


Applying this conclusion to the facts, the TCC found that the OPP policing services provided to 407 ETR were in the nature of services typically provided by municipalities and, in fact, are one of the core services provided by a municipality.


In our view, the TCC’s interpretation of the term “municipal services” flows directly from the wording of section 21, which contemplates services provided by government as well as municipalities themselves. In fact, section 21 also exempts supplies of municipal services made on behalf of a government or a municipality. 


In addition, the TCC’s interpretation accords with the underlying policy rationale of the exempting provisions, which is to exempt supplies by government authorities that are not in the commercial stream, regardless of what level of government provides or has the authority to provide them.  It also ensures a more uniform application of the exempting provisions across Canada since the range of services within the mandate of municipalities vary province by province.  For example, responsibility for policing in Newfoundland and Canada’s Territories is not delegated to municipalities. If the TCC had accepted the Minister’s position, non-optional police services provided in those jurisdictions would be taxable whereas, in provinces where police services are delegated to the municipalities, the same services would be exempt.


We are advised that the Crown is appealing this decision to the Federal Court of Appeal.


Robert G. Kreklewetz and Kathryn Walker

Millar Kreklewetz LLP


A version of this article appeared in the November 2016 issue of Thomson Reuter’s GST & Commodity Tax