Tax Court of Canada Judgments

Docket: 2003-2663(GST)G

BETWEEN:

DAN MILLER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeal heard on June 22, 2005, at Toronto, Ontario, by

The Honourable Justice Campbell J. Miller
Appearances:
For the Appellant:	The Appellant himself
Counsel for the Respondent:	Michael Ezri and Richard Gobeil

____________________________________________________________________

JUDGMENT

          The appeal from the assessment of tax made under the Excise Tax Act, notice of which is dated December 23, 2002 and bears number 02323070412370003 is dismissed, without costs.

Signed at Ottawa, Canada, this 30th day of June, 2005.

"CampbellJ. Miller"

Miller J.

Citation: 2005TCC419

Date: 20050630

Docket: 2003-2663(GST)G

BETWEEN:

DAN MILLER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Miller J.

[1]      For the period May 1, 2002 to September 11, 2002, the Appellant, Mr. Dan Miller, was charged goods and services tax (GST) of $1.25 on the $17.87 "Debt Retirement Charge" (DRC) portion of his Toronto Hydro electricity bill. Mr. Miller claims GST does not apply to the DRC. He sought a rebate of his $1.25, which the Minister of National Revenue (the Minister) denied. Mr. Miller has brought his appeal of that decision under the General Procedure, believing that, while his claim is small, the ramifications to the Province could be significant, and therefore this decision should have precedential value. I find the GST does apply to the DRC.

[2]      The parties supplied an Agreed Statement of Facts and Joint Book of Documents. No other evidence was presented. The facts are as follows.

[3]      Prior to April 1, 1999, Ontario Hydro, a provincially-owned Crown corporation, held a monopoly over the supply of electricity in Ontario. Ontario Hydro owned most of Ontario's electrical generating capacity and owned the high voltage transmission grid that carried electricity from the generating facilities to the municipalities where it was needed. The low voltage infrastructure for the distribution of electricity within municipalities and rural areas was owned partly by Ontario Hydro but mostly by local utilities. Thus Ontario Hydro would sell electricity to a local utility and deliver the electricity to that utility's distribution network. From there the local utility would sell, deliver and bill the electricity to the consumer.

[4]      Ontario Hydro incurred substantial debts in the course of carrying out its business. As of April 1, 1999, the total debt of Ontario Hydro was approximately $38.1 billion.

[5]      In 1996 and 1997, the Government of Ontario commissioned a series of reports and white papers. The essential recommendations of these policy documents were as follows:

(a)       the electricity market in Ontario should be deregulated so that other electricity providers could supply electricity;

(b)      Ontario Hydro should be broken up into a generating company and a transmission company;

(c)      it was recognized that the debt of Ontario Hydro was too large to be passed on, in its entirety, to its successor companies; therefore only that portion of the debt that each successor company could reasonably bear having regards to the assets and market capitalization of that successor company would be passed on to that company; the remaining "stranded debt" would be held by a finance company which would be a provincial Crown corporation established for the purpose of selling the assets of Ontario Hydro and managing the stranded debt;

(d)      the responsibility for paying the debt of Ontario Hydro would be borne by electricity consumers;

(e)       each successor company would service the debt that it inherited from Ontario Hydro; each successor company would also pay an amount in lieu of provincial income and property taxes to the finance company to be used by the finance company to service part of the stranded debt;

(f)       it was anticipated that the revenues from the successor companies would not be sufficient to service all of the stranded debt of the former Ontario Hydro; thus a special charge was to be imposed and was to form part of the price of electricity;

[6]      On April 1, 1999, Ontario Hydro was reorganized along the lines contemplated by the provincial government. Ontario Hydro was continued as the Ontario Hydro Financial Corporation, and then renamed as the Ontario Electricity Financial Corporation (OEFC). OEFC was at all times an agent of the Ontario Government.

[7]      The generating assets of Ontario Hydro were transferred to Ontario Power Generation Corporation Inc. (OPG), a new Crown corporation in return for which OPG assumed $8.5 billion of the debt of Ontario Hydro.

[8]      The transmission and distribution assets of Ontario Hydro were transferred to Hydro One. Hydro One assumed debts of $4.8 billion that had once belonged to Ontario Hydro.

[9]      After the generating and distribution assets of Ontario Hydro and the associated debts were transferred as described above, the OEFC was left with $20.9 billion of Ontario Hydro debt that could not be assumed by OPG or Hydro One if they were to operate as viable businesses. This $20.9 billion constitutes the "Stranded Debt" of Ontario Hydro. OPG and Hydro One make payments to OEFC in lieu of property and income taxes, however, these revenue streams service only $13.1 billion of Stranded Debt. The remaining $7.8 billion of Stranded Debt (Residual Stranded Debt) is serviced by the imposition of a special charge on consumers of electricity.

[10]     The special charge imposed on consumers of electricity is the DRC. The DRC is imposed by subsection 85(4) of the Electricity Act[1] which provides that:

Every user shall pay to the Financial Corporation a debt retirement charge in respect of the amount of electricity consumed in Ontario, to be calculated at the prescribed rate or rates.

[11]     The DRC is imposed at a rate of 0.7 cents per kilowatt hour. The rate is set under the Debt Retirement Charge Regulation.

[12]     The DRC was intended to service the Residual Stranded Debt held by the OEFC. The provincial government, in announcing the DRC, in 2000, stated that the charge was not a new charge. In particular, it asserted that:

This is not a new charge. Up to 40% of every electricity bill today goes towards servicing the debt. ...[2]

[13]     Under the Electricity Act, the provincial Minister of Finance may assess collectors and consumers in respect of the DRC, impose interest and penalties for failing to pay or collect DRC, collect unpaid amounts on behalf of OEFC, require collectors to file returns, and assess the directors of corporations that are required to act as DRC collectors; the Electricity Act incorporates by reference the objection and appeal provisions in respect of assessments, that are found in Ontario's Retail Sales Tax Act[3] as well as the collection enforcement mechanisms therein; finally, the Electricity Act creates offences that are punishable by fines and by imprisonment.

[14]     Initially, the province of Ontario did not record the revenue generated by the DRC in its financial statements and did not treat the Stranded Debt of OEFC as a provincial liability. However, in 2003 it re-stated its financial statements back to 1999-2000, to include the revenues, expenses and debt of the OEFC in the province's consolidated financial statements. This restatement was made on the recommendation of the Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants.

[15]     The Appellant was supplied with, and billed for, electricity by Toronto Hydro, a local utility company. In turn, Toronto Hydro acquired electricity and distribution services from OPG and Hydro One.

[16]     On May 1, 2002, the new debt retirement regime came into force. Toronto Hydro was required to charge the Appellant the DRC of 0.7 cents per kilowatt hour of electricity consumed. The Appellant received a transitional bill dated July 10, 2002, for the period from April 16 to June 18. That bill contained two items each labelled "Wholesale Energy Surcharges". The first of these Wholesale Energy Surcharges was a charge that had been imposed by Toronto Hydro for approximately a year and is not part of the DRC. The GST levied on this surcharge, though originally contested by the Appellant, is no longer in dispute. The second of these Surcharges, the DRC, was computed at 0.7 cents per kilowatt hour of electricity consumed after May 1. The Appellant's next bill, dated September 11, 2002, correctly labelled this charge as the "Debt Retirement Charge".

[17]     The Appellant filed a GST Rebate application for $4.12 with the Minister on November 12, 2002. The claim breaks down as follows:

CHARGE	AMOUNT	GST
Wholesale Energy Charge to Apr. 30, 2002	$41.04	$2.87 (no longer in dispute)
DRC from May 1, 2002	$17.87	$1.25 (disputed)
TOTAL	$58.91	$4.12

Legislation

[18]     The relevant Excise Tax Act provisions are found in section 123 and subsections 154(1) and (2). They are reproduced as follows:

123(1) In section 121, this Part and Schedules V to X,

            ...

            "consideration" includes any amount that is payable for a supply by operation of law;

...

154(1) In this section, "provincial levy" means a tax, duty or fee imposed under an Act of the legislature of a province in respect of the supply, consumption or use of property or a service.

    (2)     For the purposes of this Part, the consideration for a supply of property or a service includes

(a)         any tax, duty or fee imposed under an Act of Parliament that is payable by the recipient, or payable or collectible by the supplier, in respect of that supply or in respect of the production, importation, consumption or use of the property or service, other than tax under this Part that is payable by the recipient;

(b)         any provincial levy that is payable by the recipient, or payable or collectible by the supplier, in respect of that supply or in respect of the consumption or use of the property or service, other than a prescribed provincial levy that is payable by the recipient; and

(c)         any other amount that is collectible by the supplier under an Act of the legislature of a province and that is equal to, or is collectible on account of or in lieu of, a provincial levy, except where the amount is payable by the recipient and the provincial levy is a prescribed provincial levy.

Issues

[19]     The parties agreed the DRC is not a prescribed provincial levy. There are therefore two issues. First, is the DRC a provincial levy caught by section 154 of the Act? Second, if not, is it simply captured by the definition of "consideration" in section 123 of the Act?

Analysis

[20]     With respect to section 154, the Appellant submits, firstly, that the DRC is not a tax, duty or fee; and, secondly, if it is, it is not in respect of the supply, consumption or use of property or a service.

[21]     Mr. Miller's argument on the first point is that the DRC is not a tax as it is specifically excluded by section 62 of the Electricity Act from the province's Consolidated Revenue Fund. Section 62 of the Electricity Act reads:

62         Despite the Financial Administration Act, the revenues received by the Financial Corporation do not form part of the Consolidated Revenue Fund and shall be used by the Corporation for the purpose of carrying out its objects.

[22]     Mr. Miller suggests the "raison d'être" for section 62 is to specifically remove the DRC from categorization as a tax; it is simply a debt repayment, nothing more. He supports this view by the fact that DRC is nowhere called a tax and even invoices are required to refer to it solely as a debt payment. Further, due to a 1982 amendment to the Constitution Act, 1982,[4] specifically subsection 92A(4), the province could have readily imposed an electricity tax, which it chose not to do. Neither did it choose to have the DRC form part of the price - it was segregated as a debt repayment.

[23]     Mr. Miller's argument on the second point is that, even if the DRC was considered a tax, duty or fee, it was not imposed in respect of the consumption or use of property or a service. He attempted to draw a distinction between the wording of subsection 85(4) of the Electricity Act, which reads:

85(4)     Every user shall pay to the Financial Corporation a debt retirement charge in respect of the amount of electricity consumed in Ontario, to be calculated at the prescribed rate or rates.

and section 154 of the Excise Tax Act. I fail to appreciate the distinction; both are "in respect of" consumption. It has been held by the Supreme Court of Canada in Nowegijick v. R.[5] that "in respect of" is "probably the widest of any expression intended to convey some connection between two related subject matters". If the DRC is a tax, fee or duty, I find it is clearly "in respect of" the consumption of electricity, as it is based on a 0.7 cents per kilowatt hour charge.

[24]     The section 154 issue therefore becomes just the one question - is the DRC a tax, fee or duty? The Respondent relies upon the Supreme Court of Canada cases of Lawson v. British Columbia(Interior Tree Fruit & Vegetable Committee of Direction[6] and Eurig Estate v. Ontario (A.G.) [7] to set the criteria for a tax. The Respondent lists the essential elements of a tax as:

          -         enforceable by law;

          -         imposed under the authority of legislature;

          -         binding without requiring individual consent;

          -         imposed by a public body;

          -         made for a public purpose.

The Respondent argues the DRC meets all these criteria. I agree.

[25]     The DRC is enforceable by law. As stated in the facts, the Electricity Act incorporates by reference the objection and appeal provisions in respect of assessments that are found in Ontario's Retail Sales Tax Act as well as the collection enforcement mechanisms therein. The levy is also imposed under the authority of the Ontario legislature, in particular under subsection 85(4) of the Electricity Act. It is certainly binding without the consumer's consent. It is paid over to OEFC, a corporation designated by the Electricity Act as an agent of the Crown.

[26]     Finally, is the DRC made for a public purpose? This element appears to be the crux of Mr. Miller's argument that, as the levy is specifically to retire the debt, and pursuant to section 62 of the Electricity Act, is not to fall under the Consolidated Revenue Fund as would normally be required by the Financial Administration Act, it is not being made for a public purpose, and therefore it is not a tax. With respect, I disagree with this approach.

[27]     Section 62 of the Electricity Act states what it states. It does not, as Mr. Miller suggests, say the levy is not a tax. Mr. Ezri suggests section 62 is there to effectively allow the Government to keep these funds away from public scrutiny, a manoeuvre he points out failed, given recent requirements to report such funds on a consolidated basis in the province's public financial records. I read section 62 as explicitly stating that the debt retirement funds are not to be used for anything else; they are not to be commingled with the Consolidated Revenue Fund - that is all. I do not accept Mr. Miller's argument that section 62 is unnecessary to achieve that objective. He referred me to other provisions of the Electricity Act, but none of them specifically override the Financial Administration Act as does section 62. The key question arising from this provision is whether removal of funds from the Consolidated Revenue Fund implies the levy was not paid for a public purpose. I draw no such implication.

[28]     The Supreme Court of Canada in Lawson dealt with a levy imposed by the province of British Columbia pursuant to the Produce Marketing Act.[8] In finding such levy constituted a tax the Court stated at paragraph 10:

... The levy is also made for a public purpose. When such compulsory, not to say dictatorial, powers are vested in such a body by the legislature, the purposes for which they are given are conclusively presumed to be public purposes. Indeed, when one considers the number of people affected by the orders of this Committee, and the extent of the territory over which it executes its orders and directions, it becomes evident that, in point of their potential effect upon the population of the territory and of the interest of the population in the Committee's activities, the operations of the Committee, as contemplated by the statute, greatly surpass in public importance many municipal schemes, the levies for the support of which nobody could dispute, would come under the head of taxation.

[29]     A levy imposed by a public authority on electricity consumption, something that affects all Ontarians can likewise be "for purposes" conclusively presumed to be "public purposes". The fact that the monies raised from the levy do not fall into the Consolidated Revenue Fund does not remove them from the public purpose. Hamlyn J. in Kempe v. R.[9] adopted similar reasoning. This was a case involving the nature of a German church tax. He wrote at paragraph 10:

The enforceable church tax levied against the Appellant was imposed under the authority of the German legislature. German constitutional law sanctions the tax and the German legislature (a public body) grants the Lutheran Church the right to impose a church tax on its members. The constitutional approval and the legislative action together are conclusively presumed to be for public purposes.

[Emphasis added]

[30]     Apart from circumstances justifying such a conclusive presumption, I step back and look at the history of what the DRC is intended to cover, that is the Ontario Hydro debt incurred to provide electricity to Ontarians, and I find a common sense answer is that this is indeed for a public purpose. Mr. Miller has directed me to no case that suggests a levy is only for a public purpose if it falls into the Consolidated Revenue Fund. I conclude that the DRC is a tax for purposes of section 154 of the Excise Tax Act.

[31]     I note the British Columbia Superior Court dealt with a similar issue in Edmondsv. Actton Super-Save Gas Stations Ltd.[10] It took a slightly different approach but also found that GST was applicable to a charge on electricity imposed under the Transit Act[11] of British Columbia. The Court stated at paragraph 36:

            However, in my view, the plaintiff has not addressed the correct issue. In my view it is not relevant as to why the provincial government decided to impose a transit levy or indeed how the revenues raised by that levy may ultimately be used. The language of s. 154 is concerned with whether a tax such as the transit levy is imposed in respect of the supply of the property or service and in my view the fatal flaw in the plaintiff's submission is the overlooking of the key word 'imposed".

[32]     Having concluded that the DRC is a tax, it is unnecessary to address whether it is a fee or duty. It is a provincial levy captured by subsection 154(2) of the Excise Tax Act and it is not excepted out of section 154, as it is not a prescribed provincial levy. GST therefore does apply to the DRC.

[33]     It is also unnecessary to review section 123 of the Excise Tax Act, though, had I not concluded that the DRC is a provincial levy, I would have had no difficulty in finding it was caught by the definition of "consideration" in section 123. It is too closely linked to the supply of electricity to find otherwise. The DRC must be paid to consume the supply of electricity.

[34]     I dismiss Mr. Miller's appeal. Both he and Mr. Ezri addressed the matter of costs. Mr. Miller argued that, because he considered this a test case, it would be inappropriate to order costs against him as it would discourage taxpayers from pursuing important issues such as this. Mr. Ezri was not of the same view. He does not see this as a test case, but as a dispute of a point of law no different from any other case. He cited Chief Justice Bowman's comments in RMM Canadian Enterprises Inc. v. R.[12] that costs should follow the cause, notwithstanding a case is difficult or important or that it raises novel points of law. Yet, I have some admiration for Mr. Miller who took it upon himself to raise an issue, albeit for him a $1.25 issue, which has affected all Ontarians. This is an issue which can so readily leave taxpayers seeing red; that is, the dreaded tax on a tax. Mr. Miller's pleadings were thoughtful and well-drafted. He presented his case ably, eloquently and cooperatively. This was by no means a frivolous matter.

[35]     I exercise my discretion by making no award of costs.

Signed at Ottawa, Canada, this 30th day of June, 2005.

"CampbellJ. Miller"

Miller J.

CITATION:

2005TCC419

COURT FILE NO.:

2003-2663(GST)G

STYLE OF CAUSE:

Dan Miller and Her Majesty the Queen

PLACE OF HEARING:

Toronto, Ontario

DATE OF HEARING:

June 22, 2005

REASONS FOR JUDGMENT BY:

The Honourable Justice Campbell J. Miller

DATE OF JUDGMENT:

June 30, 2005

APPEARANCES:

For the Appellant:

The Appellant himself

Counsel for the Respondent:

Michael Ezri and Richard Gobeil

COUNSEL OF RECORD:

For the Appellant:

Name:

N/A

Firm:

N/A

For the Respondent:

John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada

---