THE GST APPEAL
 

Questions on this analysis? Email Gwyneth Edwards

UPDATE JUL 17, 2017
The Federal Court of Appeal decision in the case of Club Intrawest v. Canada (A-249-16) has been released. The documents are listed below.
Read the CIOG press release
The decision can also be found on the Federal Court of Appeal website: 
http://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/232795/index.do
UPDATE JUN 6, 2017
The Club's appeal was heard on May 15, 2017, in Vancouver. The judges reserved their decision. We are monitoring the Federal Court of Appeal website for the publication of the decision.
The Board also held a meeting on May 30, 2017, indicating that if the appeal wins, the GST collected in the past will be directed towards the capital reserves (not returned to members). Member? Look on the member portal to obtain a copy of the minutes, under: 
Association Information/Embarc Members Association/Board-Committee/Meeting Minutes 
We have also created two flow charts that help explain the GST situation and the relationship between DRI and the members.
UPDATE DEC 4, 2016
We have obtained key public documents from the Federal Court of Appeal, all of which are worth reading.
BACKGROUND OF THE CI OWNERS GROUP ACTIVITY
 
Although the Board has, on numerous occasions, indicated that they have been advised not to discuss the matter in detail, all appeal documents from both the Tax Court of Canada and the Federal Court of Appeal are public and can be ordered by anyone. And so we ordered them to share with the members.
 
We provide all of the GST appeal documents produced for and by the Tax Court of Canada and the Federal Court of Appeal at the bottom of this page.
The CI Owners Group continues to analyze all of these documents to learn not only about the financial impact of the GST issue but also the club's creation (by Intrawest) and management (by Intrawest/DRI).
The financial impact of the GST assessment could be, according to our financial analysis, about $12 to $15 million Canadian (maybe more).
 
Regardless of the exact amount, the notes to the club's financial statements have never clearly articulated this. How do we know? We analyzed all of the club documents that were shared with members since 2009 and extracted all references to the GST issue. We observed that the information provided by the Board and released by PWC (as the club's auditors) never discusses the potential liability in terms of financial figures.
You can review all of the documented GST references published by the board here.
 
Over the past few months, some members have challenged the board (and PWC) on the lack of disclosure around the GST issue, and the board has subsequently stated that the potential liability is ~$12M. They have also put in writing that they believe that the CRA can only reassess back to 2012, due to CRA tax regulation. However, the CRA website states that exceptions can be applied (and we imagine that a Federal Court of Appeal action qualifies as an exception).
 
We also note that, although requests for further information have been made specifically to our official independent Board director, Mr Kenneth Smith, accountant and head of the club's finance committee, and also co-owner of the firm that performs the club's taxes, he has since requested (through Kasey Hansel, DRI employee) that any queries to the board be directed to the generic board email address, and not to him personally (as he is a "volunteer").
 
As a member, this issue may encourage you to consider: when looking at the club financials over the years, the club has appeared to be cash and capital rich. You may have purchased your points during this period and/or you may have purchased additional points, all under the assumption that the club was financially healthy. The GST issue was never indicated in either the developer's disclosure statement or any of the club instruments. 
So what is this all about?
HISTORY OF THE GST ISSUE
 
In 2009, the Canada Revenue Agency (CRA) assessed the club, requesting GST payment on our annual fees for the period 2002-2008. The CRA argued that the club was providing a service to members on an annual basis. Their argument was founded in the idea that the club was a stand-alone entity, with beneficial ownership of the properties held in trust (by the club, the developer and the trustee), selling an annual service to members, who had bought points from the developer. They argued that the annual fee was a condition of use, allowing members to book room nights in properties held in trust for the club (not the members directly).
 
The club paid $1.9M in GST payments for the years 2002-2008 in 2010 (as indicated in our financial statements), which represented GST applied only on the operating costs of the Canadian resorts.
At the same time, the CRA reassessed the amount upwards, arguing that the method used to calculate the GST was incorrect. Instead of just applying GST on the Canadian resort operations, the GST was to be calculated by determining the percentage of Canadian resort points to the total resort points (around 55 to 60%), thereby increasing the amount due to about $4 million (from $1.9M) for the years 2002-2008. (Note that the years 2009 to 2105 have yet to be dealt with.)
As indicated in our financial statements, the board explained that they were appealing the CRA's reassessment, but did not indicate the potential material impact. The notes suggested that the appeal was on the $1.9M, not on the additional reassessed amount for 2002-2008, or the impact of this formula on years 2009-2015. 
 
The club's appeal to the Tax Court of Canada argued two points: (1) that the club was simply acting as an agent of the members (using the principal-agent argument) and therefore no GST was due; and (2) that if GST was due, it was only on the operating costs of the Canadian resort locations.
 
The board presented their arguments to the Tax Court of Canada on November 24 to 26, 2014. We (the members) funded this legal action (i.e. we paid for the lawyers' and managers' time, etc...) and continue to fund the action. 
 
(Note: The documents from the Tax Court proceedings are listed below. They can be hard to digest, as it's a complex issue. We have flagged certain documents that you might want to focus on. Notably, the proceedings - specifically Thompson's testimony is very telling.)
 
On June 9, 2016, the Tax Court of Canada denied the appeal and ordered the club to pay the outstanding GST amount, along with the costs of the respondent (the Tax Court of Canada lawyers etc...). The judge argued that (1) the club is not an agent of the members and (2) GST should be paid on the entire operating budget, implying that the club may have an outstanding bill in the order of $12 to $15M, or more. 
Notably, the judge also mentioned (repeatedly) that he saw no evidence of a trust that indicated that members had beneficial ownership. The original trust documents were never provided. The CI Owners Group has requested these documents from the board on numerous occasions (i.e. all documents produced since club inception) but the board has indicated that they will not provide them.
 
On July 5, 2016, the Board filed an appeal with the Federal Court of Appeal, under file A-249-16, arguing against the Tax Court's decision. You can track the activities of this file here (put in the file number): http://cas-cdc-www02.cas-satj.gc.ca/fca-caf/DocketQueries/dq_queries_e.php
The documents filed for the Federal Court of Appeal are all worth reading:
As indicated, we ordered all of the available documents from both the Tax Court and Federal Court of Appeal, and have listed them below. Note that the "Appellant" is Club Intrawest (now Embarc) and the "Respondent" is the court.
Main Documents from the Federal Court of Appeal
Main Documents from the Tax Court of Canada Appeal
Exhibits

FILES / DOCUMENTS