Ryan Tax Review

A Rule with Many Interpretations

Interpreting sales tax legislation is not always easy. It can be difficult to write laws that will easily apply to all types of products sold in the marketplace. In addition, there are frequently differing views on the objective of a particular provision and how it may apply to various business transactions. Arguably, it is the lawmaker that should make this determination; however, it is also the lawmaker’s responsibility to ensure its intentions are effectively captured and communicated through the words used in the legislation. Failing to do so may mean that the interpretation is left up to the courts, which will apply the most plausible interpretation of the words used, “…read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.”1

The interpretation of an energy conservation exemption in the British Columbia Provincial Sales Tax Act was the issue in the caseof Thermo Design Insulation Ltd. v. The Queen.2  Specifically, whether the exemption applied to insulated metal wall panels (“IMPs”) purchased by Thermo Design Insulation Ltd. (“Thermo”) was considered by the Supreme Court of British Columbia, resulting in a favourable decision for the petitioner.


In 2013 and 2014, Thermo purchased IMPs from a supplier in British Columbia. These panels consist of polyisocyanurate insulated foam, sprayed between thin top and bottom layers of steel. The panels attach to the exterior steel frame of a building to form an internal or external wall. Each panel contains an interlocking joint for easy installation and fastening to adjacent panels. The panels are not load-bearing and do not support any significant extraneous loads from other building elements, such as windows, doors, signage or lights. Based on the nature of their construction, the IMPs contribute to the thermal envelope of the building by providing protection from weather, air tightness and rigid insulation.

At the time of purchase, Thermo self-assessed British Columbia Provincial Sales Tax ("PST") on the panels, but then applied for a refund of the self-assessed tax in November of 2014 based on the energy conservation exemption. The refund was denied by the province and, after going through the appeals process, the case was brought before the Court for consideration of almost $140,000 in PST to be refunded.

Under section 30 of the Provincial Sales Tax Exemption and Refund Regulation to the British Columbia Provincial Sales Tax Act, a PST exemption is granted to purchasers of certain products that are obtained to conserve energy. This provision includes the following wording:

[30] The following tangible personal property is exempt from tax imposed under Part 3 of the Act […] if the tangible personal property is obtained for use to conserve energy:

(a) thermal insulation material that is

(i) a batt, a blanket, a roll, a panel, loose fill or cellular plastic material, and

(ii) designed primarily to prevent heat loss from a building,

but not including vapour barrier or any other material incorporated into or attached to a building and serving a structural or decorative function;[…] 3[Emphasis added.]

Thermo’s position was that the IMPs are comprised of thermal insulation materials that are designed primarily to prevent heat loss from a building. In addition, the panels could not serve a structural function because they are not load-bearing and are not decorative “as that phrase was intended by legislature.”

The province, on the other hand, believed that the IMPs are not thermal insulation material, but only contain such material. Although the province acknowledged that the panels prevent heat loss from a building, it argued that it is only an important function and not the primary function of the panels. Load-bearing or not, the province suggested that the panels are essentially walls used in commercial and industrial buildings and, once installed, become a fundamental part of the building’s fabric or structure. The province also believed that, since the IMPs are offered with different finishes and colours for aesthetic purposes, the panels serve a decorative function which excludes them from the exemption.


The Court evaluated the characteristics of the IMPs by asking the following questions:

  • Are the panels considered to be thermal insulation material?

  • Are they designed primarily to prevent heat loss from a building?

  • Do they serve a structural function?

  • Do they serve a decorative function?

Do the IMPs qualify as thermal insulation material?

The province appeared to have narrowly defined what is considered to be thermal insulation material, focusing on whether the IMPs, as a whole, are thermal insulation material, as opposed to items containing such material. In the province’s view, just because the panels include a foam core that is thermal insulation material, it doesn’t make the IMPs thermal insulation material. On that basis, the province argued that the IMPs are not eligible for the exemption and characterized the panels as functioning more like walls than thermal insulation material.

The Court disagreed on the basis that the province’s position appeared to be outside the proper context of the term “material” as used for the exemption in question. Although material in the manufacturing industry generally refers to raw materials or substances used to manufacture a product, in the (more relevant) construction industry, this term also describes many different components that may be installed during construction, such as windows and doors. Putting different materials together does not mean, in the Court’s view, that the final product is no longer considered a material, such as when glass and aluminum are used to build a window. 

The Court also referred to other language in the exemption provision as proof that the legislature’s intention in exempting thermal insulation materials was consistent with the Court’s interpretation. The phrase “cellular plastic material” is used to describe a type of thermal insulation material that would be exempt of PST. If the term “thermal insulation material” was not meant to broadly apply to all items used for thermal insulation purposes, and instead only apply to raw materials or substances, then the provision should have read “thermal insulation material that is…cellular plastic”, rather than “thermal insulation material that is…cellular plastic material”. Based on the province’s interpretation, including the word “material” at the end of “cellular plastic” would have been redundant (i.e., cellular plastic is a raw material or substance). However, the Court found that this word was required in order to convey the legislature’s intent to include, among other materials, raw materials and substances.  

As a result, the Court found that it is reasonable to define a wall panel as a material and, therefore, the IMPs in question as well. 

Are the IMPs designed primarily to prevent heat loss?

Although both Thermo and the province agreed that the IMPs are designed to prevent heat loss from buildings, whether that is the primary function of the panels was in dispute. According to the province, the IMPs were designed primarily for use as a wall.

The Court, based on the definition of the word “primarily” in the Oxford dictionary, reviewed the supplier’s promotional material on the IMPs to help determine the primary function of the panels. Defined as “for the most part: mainly”, it was clear to the Court that the supplier promoted the insulating qualities of the IMPs as the most prominent feature of the panels. The fact that the IMPs are specifically designed to interconnect and form a thermal envelope for a building is the very reason that they are effective at preventing heat loss. Hence, the Court concluded that the design of the IMPs is primarily to prevent heat loss from a building.

Do the IMPs serve a structural function?

The province’s view was that the IMPs serve as a fundamental part of a building’s fabric or structure, based on the definition of “fabric” in relation to a building in the Oxford dictionary. This definition includes walls, floors, and the roof as parts of the fabric of a building. Thus, despite these items not being load-bearing, the IMPs could be considered a part of the building’s structure. 

However, the Court noted that the terms “fabric” or “structure” are not the words used in the provision for the exemption. Rather, the Court pointed out that the word “structural” is used to describe the function of the material. The dictionary definition of the word “structural”, which also leads to the word “structure”, proved too broad to effectively apply to the case, so the Court turned to case law to obtain an interpretation of these words. Through a number of court cases related to the construction industry, it was determined that the word “structural” referred to the load-bearing components of a building, a load-bearing aspect of a construction, or a product that contributes substantially to a building’s strength and solidarity, permitting it to resist the various forces created by man and nature to which it may be subjected.4 Based on these interpretations, the Court found that the IMPs do not serve a structural function as they are not load-bearing panels.

Are the IMPs decorative?

The IMPs are sold by the supplier in a variety of colours and finishes to make its products more attractive to the purchaser. According to the province, this supports the argument that the panels serve a decorative function and, therefore, are not eligible for the exemption.

A review of the definition “decorative” by the Court found that the IMPs do serve a decorative function, since they are made to adorn, embellish and enhance attractiveness.5 However, the Court did not believe that the intention of the provision was to provide the exemption only for products that serve no decorative function, but rather to exclude materials that have no function other than decoration. The Court found it “inconceivable” that the legislature intended, for example, that purchasers of hideous-looking IMPs would benefit from the exemption while purchasers of aesthetically pleasing IMPs would not. Indeed, a comparison was made to asphalt roofing shingles, where the Court pointed out that such shingles do not become ornamental just because they can be purchased in various colours. To the Court, this exemption was clearly written to promote the policy of energy conservation and, as such, should be interpreted using this perspective, versus an overly literal and restrictive interpretation, which would have the effect of counteracting such policy. As a result, the Court concluded that, although the IMPs serve a decorative function, it wasn’t sufficient to exclude the panels from the exemption.

Decision and Summary

The Court determined that the IMPs qualified for the exemption since the panels are thermal insulation material designed primarily to prevent heat loss from a building, and do not serve a structural or decorative function, as those terms were intended by the legislature. The province’s interpretation of the law was not found to be reasonable, nor was it consistent with the scheme and object of the Provincial Sales Tax Act and the intention of legislature. This was evident through the many discrepancies noted by the Court in analyzing the province’s interpretation of key parts of the legislation. 

The decision rendered by the Court in this case may not have resulted in one of the intended applications of the exemption; however, in my opinion, the conclusion is fair. The key functionality of the IMPs was examined, as opposed to the mere appearance of the panels, and this was then compared to the overall purpose of the exemption by the Court. Almost unquestionably, the IMPs were materials used to provide thermal insulation, and it shouldn’t matter that they also functioned as walls or incorporated decorative elements into the design. In addition, since the exemption in question commonly applies to activities in the construction industry, it seems appropriate that this perspective was heavily relied upon to interpret the meaning of the terms “material” and “structural” in the legislation. Indeed, this perspective may have been pivotal in turning the case in Thermo’s favour. 

While the legislators likely didn’t count on thermal insulating materials taking on a form or secondary function that is quite different from the type of materials typically eligible for the exemption, that fact shouldn’t preclude otherwise eligible materials with those characteristics from qualifying for exemption.

This case demonstrates one of the challenges faced by both legislators and tax authorities in today’s business world. With the introduction of new and complex products to the marketplace, it can sometimes be difficult to determine whether a product with multi-faceted design features is captured by the legislation as drafted, regardless of the legislative intent. This issue is not limited to PST exemptions. It can also impact determinations on whether an item is subject to a specific tax, eligible for a rebate, or qualifies for zero-rating. The Court’s analysis also reminds us that a fine line sometimes needs to be drawn when making such determinations.   

What remains clear is that, when in doubt, tax authorities may be quick to apply the strictest interpretation of the law, especially where it will benefit the taxing jurisdiction. However, as confirmed by this decision, the fairest approach is often the one that will lead to the most plausible interpretation of the law.

Lisa McIntosh
Senior Tax Advisor

1 Thermo Design Insulation Ltd. v The Queen, 2017 BCSC 2371, para. 10.

2 Ibid.

3 Thermo Design Insulation Ltd. v The Queen, 2017 BCSC 2371, para. 9.

4 Rose v. Edell (1986), 1986 CanLII 2560 (ON SC), 57 O.R. (2d) 89 (Dist. Ct.) noted at 95, Brennan v. Brennan Educational Supply Ltd., 2004 SKQB 468 (CanLII) at para. 12 and Canada v. Monarch Steelcraft Ltd., [1977] 2 F.C. 560 (Trial Div.) at para. 4.

5 Oxford Dictionary, p. 392.