Date: 19990407

Docket: 96-3731-GST-I

BETWEEN:

EVERGREEN FORESTRY SERVICES LTD.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for judgment

BOWIE J.T.C.C.

[1] This appeal is brought from an assessment made under Part IX of the Excise Tax Act (the Act), which levies a tax upon the supply of goods and services (the GST). The Appellant was assessed on the basis that it was obliged by the Act to collect and remit GST upon the meals and accommodation supplied by it to its workers between August 1, 1991 and July 31, 1995. The computation of the tax is not disputed. What is in dispute is whether the tax is exigible at all.

facts

[2] During the period covered by the assessment, the Appellant was engaged in reforestation of tracts of land previously logged in northern Alberta and British Columbia. It did this work under contracts which it acquired by tender, either from the logging companies, or from the provincial governments. The areas where the work was done are all extremely remote. Access can be gained only by four-wheel drive vehicles, all-terrain vehicles, or in some cases by helicopter. The work was done almost entirely by students, working for periods of six weeks at a time, in camps where the conditions were, at best, difficult. The workers were organized in crews, each consisting of between 15 and 25 planters, supervised by a leader or foreman. Each crew also had its own cook.

[3] The planters were paid on a piece-work basis, at the rate of $.909 per tree planted, with a bonus payable at the end of the season, provided that they planted more than 25,000 seedlings. Each planter entered into a written contract with the Appellant on the Appellant's printed form. It required the planters to provide their own accommodations, clothing and equipment, including planting equipment, and it made provision for the cost of food and the cost of the camp to be deducted from their pay. I shall return to the precise wording of the contract.

[4] Mr. Robert Vincent owned a 50% interest in the Appellant company at its inception in 1980, and was the principal shareholder during the period covered by the assessment. He described the way in which the teams were formed. For each camp the Appellant hired experienced people to be the crew leaders. These crew leaders then selected the planters who would form their crew, and they were hired by the Appellant. Each planter was required to sign the planter's employment contract, which is styled “tree planting agreement”. There were two such camps each year.

[5] For the first two or three years of the Appellant’s operations, the planters each purchased their own food, and prepared it themselves. This was not a very satisfactory system; cooking skills no doubt varied a lot, and it would be difficult for any individual to prepare satisfactory meals for one person each day under the conditions in which the planters lived. This led to a system whereby the crew members appointed one of the crew to cook for them all, and the other members of the crew collectively did some planting for the cook to make up for the time lost from work. By the mid-1980s the system which was in place during the years of the assessment had evolved. Under this system, the members of each crew met before the camp began, and decided whether they wanted to eat as cheaply as possible, or to pay more, and have better fare. They then decided on the person whom they wished to have as their cook, and that person was engaged to cook for that crew. Each cook was required to sign a document called the "cook and helper agreement".

[6] At the beginning of each camp, the Appellant made arrangements for the supply of food with all the grocery stores in the closest community. These arrangements included opening charge accounts in the Appellant’s name, and arranging for the cooks to place orders by telephone against these accounts, for pickup by a company employee. Throughout each planting season the cooks prepared menus and ordered the food required to feed their crews. The orders were placed by the cooks directly with the stores, by telephone, and were picked up by an employee of the Appellant and transported to the camp by truck, ATV or helicopter, depending on the location. When the cooks received their orders they checked the contents and took charge of the food, storing it, and preparing the meals for the planters in their crew. The cooking was done in tents supplied by the Appellant, and the crews ate their breakfast and dinner in the camp. The cooks prepared lunches, or laid out food from which the crews prepared their own, to be eaten at their work-sites. Menus, purchasing, storing, and preparation were entirely within the discretion of the cooks, whose practical responsibility was to carry this out in a way that pleased their crews.

[7] The cooks' remuneration was $5.00 per day per crew member. It was paid to them by the company, by cheque, and subject to deduction for their meals. As with the planters, if any adjustment was required then it was made at the at the end of the season. The company recovered the amounts paid to the cooks from the crews for whom they cooked, in the form of their deductions for meals.

[8] The following are the relevant provisions of the agreements signed by each planter and each cook:

TREE PLANTING AGREEMENT

This agreement made this the "sixth" day of "May" "1993" between:

EVERGREEN FORESTRY SERVICES LTD. of the CITY OF GRANDE PRAIRIE in the PROVINCE OF ALBERTA (hereinafter called the Company)

- and –

"CEDRIC PENNER"

of the City of "The Pas"

in the Province of "Manitoba" (hereinafter called the planter.)

Whereas the Company has entered into tree planting contracts and whereas the Company is desirous of employing the Planter in the execution of these contracts, and whereas the Planter is prepared to assist in the performance of these contracts it is agreed that: the Planter is responsible to:

1. Prove all accommodations suitable to the conditions of the planting area.

2. Provide and maintain all personal clothing and equipment suitable to planting in bush conditions.

3. Provide and maintain planting equipment in good working condition.

...

1. PAY RATES: shall be minimum wage or piece rate, whichever is greater.

i) Unit prices may vary between projects based on terrain conditions.

ii) Total remuneration includes base rate, holiday pay, and statutory holiday pay. As an example:

base rate : .909 / credit tree

4%: .036 / credit tree

6%: .055 / credit tree

Total .10 / credit tree

iii) Those individuals working to the completion of the season (as determined by the Company), planting 25,000 trees, and fulfil planting quality requirements may qualify for a season bonus at the discretion of the company. The maximum amount of bonus will be $500.00. Those planting more than 25,000 credit trees may qualify for an additional discretionary bonus provided quality requirements have been met. This additional bonus will be a maximum of .01818 per credit tree plus applicable holiday pays for each tree in excess of 25,000.

2. DEDUCTIONS

i) The Company recognizes its obligation to make various deductions from gross payroll as required by law. Consequently appropriate deductions will be made for Canada Pension Plan, Unemployment Insurance, and Federal and Provincial income taxes.

ii) In addition, deductions will be made from gross income expenses incurred by the Company on behalf of the Planter for any equipment, clothing, sundry items, etc. purchased at their request.

iii) Food costs will be totalled over the plant and the average man day cost will be deducted for each day or partial day in camp.

iv) An additional charge of 8.50 per man day will be deducted for camp overhead cost for each day or partial day in camp.

...

I have read, understand, and will comply with the above conditions of employment. I hereby authorize deductions from may pay as outlined in 2i) 2ii) 2iv) 4i) 4v).

Signed: "Cedric Penner"

...

COOK AND HELPER AGREEMENT

This agreement made this the ............... day ................ 199... between Evergreen Forestry Services Ltd. of the City of Grande Prairie in the Province of Alberta (hereinafter called the Company)

- and –

______________________________________________

of the City of .................................................

in the province of ............................................

(hereinafter called the cook/helper).

1. It is agreed that the cook/helper will:

i) Maintain the kitchen and camp to the standards as specified by the Minister of Health.

ii) Maintain the kitchen, appliances, foodstuffs, and dining area in a clean and sanitary condition.

iii) Maintain an inventory and order groceries on a basis such that restocking is not more frequent than every five days.

iv) Provide meals of sufficient quantity and quality.

v) Ensure that all equipment and foodstuffs to be moved to the next contract location are packed in such a manner as to eliminate damage or spoilage.

vi) Ensure that orders placed with grocery suppliers are properly coded to that camp.

vii) Retain grocery order packing slips and send in to the head office weekly.

viii) Meet with the foreman at least once weekly to determine the man days in camp and submit the proper documentation to the head office for payroll purposes.

x) Ensure that at season end all appliances, utensils, boxes, coolers, etc. are clean and sanitary when returned to the head office.

2. PAY RATES: shall be minimum wage or piece rate, whichever is greater.

i) The cook shall be paid $5.00 per man, per each full day in camp. Half days will be paid at $2.50

ii) Those cooks completing the season, and in the sole discretion of the Company meeting all of the criteria above may be paid additional monies up to the amount represented by their camp cost.

3. DEDUCTIONS

i) The Company recognizes its obligation to make various deductions from gross payroll as required by law. Consequently, appropriate deductions will be made for Canada Pension Plan, Unemployment Insurance and Federal and Provincial income taxes.

ii) Food costs will be totalled over the plant and the average man day cost will be deducted for each day or partial day in camp.

iii) An additional charge of 8.50 per man day will be deducted for camp overhead costs for each day or partial day in camp.

4. CAMP

i) Any cook with a dog in camp must assume full responsibility and liability in event of damage caused by the animal.

ii) Abuse of alcohol and drugs will not be tolerated.

iii) In the event of any damage to hotels caused by the cook, costs will be deducted from pay.

iv) Company accepts no responsibility for personal property in transport.

v) Company will not store personal equipment.

vi) Vehicles will not be stored at the warehouse.

...

I have read, understand, and will comply with the above conditions of employment. I hereby authorize deductions from my pay as outlined in 3i) 3ii) 3iii) 4i) 4iii)

Signed: ___________________________________

[9] In order to implement paragraphs 2(iii) and (iv) of the planter's contract, the Appellant deducted $23.00 from the pay of each planter for each day that the planter was in camp. This amount was arrived at in the following way:

Cook’s pay $ 5.00

Camp overhead 3.50

Assumed cost of groceries 14.50

$23.00

The Appellant kept meticulous records of each crew’s expenditures for food, and of the days spent in camp by each of the planters, and also of any meals eaten in camp by the management personnel. From these it computed at the end of the season the actual cost of food per person per day for each crew. An adjustment was then made in the final pay of each planter to provide a credit for any days that the planter was out of camp during the season, and to account for the difference between the assumed cost of food and the actual cost pertaining to that planter’s crew, as averaged over the season. Any waste or spoilage of food, including loss through damage in transportation in the company's vehicles, was the crew's loss; they were charged the full cost of the food that was bought for them, whether they ate it or not. They were not charged for the cost of meals eaten in camp by the company's management personnel, however. If there was any non-perishable food left over at the end of the camp it was sent to a local charity.

[10] The evidence satisfies me that the accounting system was intended to, and did, ensure that the planters and the cooks paid, through the deductions from their pay, for the services of the cook and the cost of the food for their own crew, divided among the members of the crew on the basis of the number of meals they each ate in camp. On the evidence before me, I cannot determine whether the same is true of the overhead component of the deduction.

positions of the parties

[11] Counsel for the Appellant, in a carefully prepared written argument, advanced three alternative propositions:

a) The Appellant submits that it was the agent of the piece-work employees in purchasing the groceries and hiring the cooks and that section 178 as it read for the audit period excludes these transactions from being taxable supplies.

b) Alternatively, the Appellant merely received funds from the piece-work employees in the course of supplying accommodation at a remote work site. Since no taxable benefit arises under the Income Tax Act with respect to these transactions, it is contrary to the spirit and intent of subsection 173(1) for GST to arise on these reimbursements.

c) In the further alternative, if the Appellant did make supplies to the piece-work employees, then the supplies involve zero-rated groceries and residential accommodation and are not subject to the GST in any event. This is dealt with in paragraphs 20 and 22 of the Notice of Appeal.

Counsel, wisely, did not press the latter two points. Whatever may be the treatment of meals at remote work sites under the Income Tax Act, I am bound to apply the provisions of the Excise Tax Act, as they appeared at the relevant time, in deciding the case before me. Subsection 173(1) has no application here, as the employees were required to pay the cost of both the food and the services of the cooks.

[12] The amounts in question here, other than the camp overhead charge, were paid by the planters either to reimburse the Appellant for sums that it had paid as their agent to the suppliers of food and to the cooks, or else for meals prepared by the cooks, using food owned by the Appellant. The result must therefore turn on whether the Appellant acted as principal, or as agent for the planters, in purchasing the food and paying the cooks.

[13] The Notice of Appeal asserts that the assessment includes GST on amounts paid by the planters and the cooks for residential accommodation, which is an exempt supply. I take this to be a reference to the amount deducted for camp overhead. However, the evidence did not establish that any of the amount deducted for camp overhead related to residential accommodation, as opposed to the use of cooking and dining facilities.

[14] It is not open to dispute that if the company sold meals to the planters, whether on a non-profit basis or otherwise, then those meals were taxable supplies under the Act, and it was required to collect and remit GST at 7% in respect of them: see subsections 165(1), 221(1), and the definition of "taxable supply" in subsection 123(1).

[15] During the relevant time period, section 178 of the Act read:[1]

178 For the purposes of this Part, where in making a supply of a service a person incurs an expense for which the person is reimbursed by the recipient of the supply, the reimbursement shall be deemed to be part of the consideration for the supply of the service, except to the extent that the expense was incurred by the person as an agent of the recipient.

The issue before me must therefore turn on whether the company acted as agent for the planters in engaging the cooks and in purchasing groceries. If so, then each planter and cook was, as principal, paying wages and buying zero-rated supplies, and so no GST would be exigible: see subsection 123(1) definition of "service", schedule VI, Part III, and subsection 165(3). In this event, of course, the cooks would, through their agent, have been paying wages to themselves. The Appellant's argument does not accommodate this anomaly.

[16] Counsel for the Appellant canvassed the law of agency at some length in his written argument. The Minister of National Revenue has issued a draft policy document[2] on the subject. Much of counsel's argument comes from that document, and both rely heavily on Professor Fridman's standard text.[3] There is no disagreement between the parties as to the applicable principles of law. The issue is simply whether the facts of this case support a finding that an agency relationship existed between the Appellant and the planters. I have reached the conclusion that they do not, for a number of reasons.

[17] The members of each crew made a joint decision before the start of each planting season as to the type of meals they wished to eat, and as to who they wished to have hired to cook those meals, but they did not employ those cooks, either as a collectivity or otherwise. The written contract of employment between the Appellant and the cooks (Exhibit R-1) admits of no ambiguity. Not only does it not contain any language tending to show that the Appellant entered into it as agent for its planter employees, but the language is inconsistent with anyone other than the Appellant company being the employer. Nothing in that document, or elsewhere in the evidence, suggests that the planters were in a position to give orders to the cooks, or that they would, for example, be vicariously responsible for any acts done by the cooks in the course of their employment. In saying this, I do not ignore the evidence that the cooks were there to keep the planters happy, and that their mandate was to produce meals that were in keeping with the expressed wishes of the planters. That was simply a matter of practical common sense and sound management on the part of the Appellant. Its interests were best served by having happy crews of planters. One way of keeping the planters happy was to see that they were well fed, according to their own tastes. However, this did not require that they be the employers of the cooks, only that they be permitted to give general directions as to the type of meals they preferred.

[18] It is at least a theoretical possibility that the cooks could be employed by the Appellant as principal, and the food bought by it as agent for the planters. Neither counsel advanced this in argument. Again, such a conclusion would be contrary to the evidence. The cooks took possession of the food when it arrived in camp, and kept it under their control. Planters were not allowed to go to the storage area and help themselves. This fact alone negates the possibility that the planters were the real purchasers of the food from the stores. If it had been theirs, then they could surely have dealt with it as they wished.

[19] Counsel for the Appellant placed much reliance on the fact that the Appellant in its accounting did not take the amounts deducted from the planters wages for meals and accommodation into its revenues, and did not charge the cooks' wages or the food costs as expenses. In my view, this does nothing to demonstrate a relationship of principal and agent, although it does support the Appellant's position that it did not intend to, and in fact did not, make any profit from these amounts charged to the employees. Nothing in the excerpts from the Appellant's accounts which were made exhibits at the trial suggests that either the payment of the cooks' wages or the purchase of groceries was treated by the Appellant as creating a debt owing by the planters, or a group of them, to the Appellant. It appears that the amounts were simply charged to a contra account, and later set-off against the wages payable. I make no comment on the appropriateness of the Appellant's system of bookkeeping, other than to say that it does not resolve the question before me one way or the other.

[20] A further obstacle to the Appellant's characterization of the relationship as one of agency is the fact that planters, who it is argued were the principals, were several groups of 20 or more individuals. They were neither corporations nor partnerships, and it is difficult to conceive of the individuals who made up each team as being collectively the employer of their cook or the owner of the grocery supplies. This, combined with the evidence that I have referred to as to control of the supplies, and the evidence of the cooks' written contracts, leads me to conclude that the Appellant was acting as principal rather than as agent.

[21] Since the hearing of this appeal, the Federal Court of Appeal has delivered its judgment in The Queen v. Glengarry Bingo Association.[4] Both counsel have now acted on my invitation to make submissions in writing as to the impact of that decision on this case.

[22] The Glengarry case raised the question whether a relationship of agency existed between Glengarry Bingo Association and the various charitable organizations which were members of it, in the context of an assessment for GST in connection with the furnishing by Glengarry to its members of the services of certain staff, and the provision to them of supplies, both for use in the operation of bingo events. As in this case, it was argued for Glengarry that it was simply acting as an agent for the members, both in the employment of the staff and in purchasing the supplies. Also as in the present case, no profit was involved, the members simply reimbursing Glengarry for the amounts that it expended. The ratio of the decision is found in paragraph 12 of the unanimous Reasons for Judgment, which were delivered by Sexton J.A.:

In my view, the evidence is clear that GBA was not acting as an agent to its Members in its dealing with its Paid Staff. First, GBA and not its Members was the employer of the Paid Staff. Second, GBA, did not hold itself out to the Paid Staff that it was acting as an agent for its Members. Third, the Members were not at risk for the obligations owed by GBA to its Paid Staff. These three facts demonstrate that GBA was contracting as principal and not on behalf of its Members.

[23] I have already dealt with the first of these three points. As to the second, the evidence before me does not show that the Appellant held out to the cooks that it was not their employer, but was simply acting as agent for their real employer, the planters. Counsel suggests that this can be inferred from the fact that they were, in effect, hired, supervised, and subject to discipline, should that ever be necessary, by the crew leaders. I do not agree. This submission ignores the obvious fact that the crew leaders were employees of the Appellant, at the lowest level of management. A corporation can only act through its officers and its employees. In respect of these matters, the Appellant acted through the crew leaders. As I have already found above, the written contract simply does not admit of the conclusion that it is between the cooks and the planters.

[24] As to the third of these points, the evidence does not support the view that either the cooks or the planters considered that there was a relationship of employee and employer between them, and that if, for example, the company were to become insolvent, the cooks could look to the planters individually or collectively for any unpaid wages. Nor was there evidence that the stores which supplied the groceries were under the impression that their contracts were with the planters. The submission of counsel for the Appellant in this regard fails to distinguish between an obligation as principal to pay the cooks and the grocers, which did not exist, and the obligation which did exist, pursuant to the tree planting agreement, to reimburse the Appellant for the amounts that it expended for cooking services and for groceries. The planters’ obligation to reimburse the Appellant does not equate to primary liability on their part to the cooks and the suppliers.

[25] No doubt this result works some hardship on the Appellant, which neither sought to profit from the supply of meals and accommodation, nor collected GST from the planters. I agree with the approach adopted by Rip J. of this Court in O. A. Brown v. Canada,[5] that the Court should take a common-sense approach to questions arising in connection with this legislation. However, that does not give me a mandate to decide cases other than in accordance with the evidence, the Act, and settled legal principles. If there is to be any relief from the provisions of the Act for reasons of hardship, then it must come from the Governor-in-Council through the power of remission, not from the Court.

[26] The appeal is dismissed.

Signed at Ottawa, Canada, this 7th day of April, 1999.

"E.A. Bowie"

J.T.C.C.

---