Tax Court of Canada Judgments

Date: 19990203

Docket: 98-178-GST-I; 98-319-GST-I; 98-321-GST-I; 98-333-GST-I

BETWEEN:

PEACH HILL MANAGEMENT LTD., JABEL IMAGE CONCEPTS INC. (O/A ACADEMY OF LEARNING), OTTER TRAINING SCHOOL LIMITED, COASTAL PACIFIC FLIGHT CENTRE LTD. O/A COASTAL PACIFIC AVIATION,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for judgment

Bowie J.T.C.C.

[1] These appeals were heard together. In three of them the facts were agreed to. In the appeal of Peach Hill Management Ltd. (Peach Hill), I heard evidence which established, so far as is relevant, the same factual matrix agreed to in the others. The substantive point in issue, which is common to them all, could not be narrower. It concerns the construction to be given to the expression "funded by a government", which is found in the definition of the expression "public college" in subsection 123(1) of the Excise Tax Act (the Act). That Act[1] imposes a tax on the supply of goods and services (the GST). A second issue was raised in the pleadings, but counsel advised me at the opening of the trial that the parties had resolved it.

[2] The Appellants are all post-secondary educational institutions. Each of them has applied for rebates of GST paid, pursuant to subsection 259(3) of the Act. That subsection authorizes the payment of rebates, in certain circumstances, to what are called "selected public service bodies". It is not disputed that the Appellants qualify for these rebates if they can bring themselves within this expression, which is defined in section 259(1)of the Act. Before I deal with this question, however, I turn to a preliminary issue raised by counsel for the Respondent in relation to the appeals of Peach Hill.

[3] Counsel submitted that Peach Hill was barred from appealing the rebate issue, because it had failed to file proper notices of objection in respect of it. It is therefore necessary to set out the history of the assessments, objections and appeals in the Peach Hill case. The first notice of assessment is dated October 18, 1996; it assessed Peach Hill for $65,947.09 GST, plus interest and penalties, for the period between July 1, 1992 and June 30, 1996. Peach Hill delivered a notice of objection on November 22, 1996. As a result of this objection, the Minister of National Revenue (the Minister) reassessed Peach Hill on January 15, 1998, reducing the amount of tax to $56,246.31, and making consequential reductions in the interest and penalties. On January 22, 1998, Peach Hill filed a Notice of Appeal in this Court. The Notice of Appeal clearly purported to raise as an issue the right of Peach Hill to the rebates. In the meantime, Peach Hill had, on January 29, 1997, filed five separate rebate applications with the Minister, one for each of the calendar years 1992 to 1996. The Minister responded to each of these by issuing five separate notices of assessment, all dated February 25, 1997, denying the rebate applications. Peach Hill did not file notices of objection to these assessments.

[4] The Respondent takes the position that notices of objection referable to the five notices of assessment dated February 25, 1997 are, by reason of section 306, pre-requisites to a valid appeal in respect of the rebate issue. Those sections read:

306 A person who has filed a notice of objection to an assessment under this Subdivision may appeal to the Tax Court to have the assessment vacated or a reassessment made after either

(a) the Minister has confirmed the assessment or has reassessed, or

(b) one hundred and eighty days have elapsed after the filing of the notice of objection and the Minister has not notified the person that the Minister has vacated or confirmed the assessment or has reassessed,

but no appeal under this section may be instituted after the expiration of ninety days after the day notice is sent to the person under section 301 that the Minister has confirmed the assessment or has reassessed.

[5] Richard Tung, the Revenue Canada Appeals Officer who dealt with the Peach Hill objections, gave evidence on this issue, as did Mr. Heitzman, the accountant who acted as advisor for Peach Hill in filing the notices of objection and the Notices of Appeal. I am satisfied by Mr. Tung's evidence that the notices of objection did not specifically refer to any claim by Peach Hill that it was entitled to receive rebates, and also that the subject was never raised by Mr. Heitzman, or anyone else on behalf of Peach Hill, during the 14 months that the objections were under consideration, although there were several opportunities for him to do so. Mr. Heitzman's recollection is that he did raise the issue with Mr. Tung, but I think Mr. Tung's evidence is more reliable, considering that he took notes of their conversations.

[6] Counsel for the Appellant argues that Peach Hill has a right to appeal the rebate issue under the shelter of the original notice of objection filed on November 22, 1996, because the rebate issue should have been dealt with by the original assessor, and therefore was properly before the appeals officer. Subsection 296(2.1)[2] was enacted in 1977,[3] but was deemed to have come into force on July 1, 1996, prior to the original assessment of Peach Hill. That subsection requires the Minister, when assessing, to take into account any rebate to which the taxpayer is entitled, and to give effect to it, even though no rebate application has been made.[4] The assessor, he argues, was therefore bound to consider the question of entitlement to a rebate in making the original assessment, even though none had been applied for, and the question was therefore a live one at the objection stage.

[7] I agree with this view. Section 301(1.1) reads:

301(1.1) Any person who has been assessed and who objects to the assessment may, within ninety days after the day notice of the assessment is sent to the person, file with the Minister a notice of objection in the prescribed form and manner setting out the reasons for the objection and all relevant facts.

The requirement in this subsection to set out "the reasons for the objection and all relevant facts" is language borrowed from the section 165 of the Income Tax Act, where it remains unchanged since section 69A was added to the Income War Tax Act in 1946.[5] I know of no case, nor did counsel refer me to one, in which this language has been applied to bar an Appellant from raising an issue on an appeal from an assessment to income tax because it was not set out in the notice of objection as a "reason for the objection". The universal practice has been to permit any and all issues to be raised on appeal, whether set out in the notice of objection or not. If it were otherwise, then Parliament would not have found it necessary to add subsections 165(1.11) and 169(2.1), applicable to large corporations, to the Income Tax Act, in 1995.[6] As the provisions relating to objection and appeal in the Excise Tax Act are cast in essentially the same language as has been used for more than 50 years in the Income Tax Act, I can see no reason to apply any more restrictive approach here than prevails under that Act. I am reinforced in this view by the fact that the 1977 amendments to the Excise Tax Act added provisions analogous to subsections 165(1.11) and 169(2.1) of the Income Tax Act, applicable to "specified persons", as there defined.[7] Peach Hill is entitled to raise the rebate issue within these appeals. The rebate applications filed in January 1997 are, so far as the appeal process is concerned, redundant, and the Appellant's failure to object to the assessments rejecting them is therefore not fatal.

[8] I should add that I do not, by this conclusion, intend to express any approval of the practice of remaining mute as to an issue throughout the objection process, and then raising it for the first time in the Court. The process of objection and appeal is designed to facilitate the resolution of issues prior to litigation, if possible. Achievement of this purpose is hindered, not helped, by the approach taken by Mr. Heitzman in this case. That said, it is preferable, unless the statutory language permits of no alternative, that genuine issues of fact and law should be determined on their merits, and not foreclosed by procedural objections.

[9] I turn now to the substantive issue in these appeals.

[10] All the Appellants are corporations which carry on business for profit, instructing pupils in vocational courses. Jabel Image Concepts Inc. (Jabel) teaches secretarial and office administration courses in London, Ontario. It is registered under the Private Vocational Schools Act of Ontario, but is not a college of applied arts and technology established by the Ontario government under the Ministry of Colleges and Universities Act. Peach Hill, Coastal Pacific Flight Centre Ltd. (Coastal), and Otter Training School Limited (Otter) all carry on their businesses in British Columbia, where they are registered with the Private Post-Secondary Education Commission. They are not colleges or provincial institutes designated under the College and Institute Act.

[11] None of the Appellants received money during the relevant time period from any government or municipality in the form of grants or subsidies. All of them, however, received a significant amount of income, directly or indirectly, from one or more government agencies, as fees paid for the education of students. In the case of Peach Hill, it was for the fees of members of Indian bands who enrolled in courses of instruction in hairdressing and esthetics, their fees being paid by the band councils, and for fees of students attending under the auspices of the Canada Employment and Immigration Commission, the British Columbia Workers Compensation Board (WCB), and the Department of Education of the Yukon Territory. Coastal provided flight training courses to Air Cadets, whose fees were paid by the Department of National Defence under an arrangement with the Air Transport Association of Canada (ATAC). Jabel provided courses to persons who were sponsored by, and whose fees were paid by, the Ontario Workers Compensation Board, the Ontario Ministry of Social Services, and the Canada Employment and Immigration Commission. Otter provided instruction in the operation of certain construction equipment, and some of its students were sponsored by, and had their fees paid by, the Canada Employment and Immigration Commission, the WCB, and the British Columbia Ministry of Advanced Education, Training, and Technology - Vocational Rehabilitation Services.

[12] During the relevant period, Otter received more than 80% of its gross revenue in the form of fees paid by these government bodies. In the case of Jabel it was as high as 90% during one of the claim periods. The evidence in respect of Peach Hill was that about 10% of the students paid their own fees, from which I take it that about 90% of the school's revenues were derived directly or indirectly from some government source. Coastal obtained only about 5% of its revenues from its contract with ATAC. Students paying their own fees had recourse to government guaranteed student loan programs.

[13] As I have said, the entitlement to rebates turns upon whether the Appellants can bring themselves within subsection 259(3) of the Act. It is common ground that the answer to this question for each Appellant depends upon whether it qualifies as a "public college". At the relevant time, the definition of this expression read:

"public college" means an organization or that part of an organization that operates a post-secondary college or post-secondary technical institute	« collège public » Institution ou partie d'institution qui administre un collège d'enseignement postsecondaire ou un institut technique d'enseignement postsecondaire qui, à la fois :
(a) that is funded by a government or a municipality, and (b) the primary purpose of which is to provide programs of instruction in one or more fields of vocational, technical or general education.	a) reçoit des subventions d'un gouvernement ou d'une municipalité, b) a pour principal objet d'offrir des programmes de formation professionnelle, technique ou générale.

[14] The Appellants take the position that because significant portions of their revenues come from various government bodies in the form of fees, they are "funded by a government". The Respondent's position is that revenues received in the form of fees for services do not constitute funding; to be "funded by a government" the Appellants would have to receive revenue from a government in the form of grants or subsidies, and not for valuable consideration. Apart from this difference of views, the parties are in agreement that the requirements of subsection 259(3) are met.

[15] This issue has been before this Court on two prior occasions. In Academy of Learning Niagara v.Canada,[8] Sobier J. held that the definition was satisfied in a situation identical to the present ones, where the Appellant received fees from government bodies as consideration for giving courses to specific students. His decision is based upon the view that to be funded by a government simply means to receive funds from a government, for consideration or otherwise.

[16] Less than two months later, the same question arose in identical circumstances before Archambault J. in Murch v. Canada.[9] He does not appear to have been made aware of Sobier J.'s earlier decision. Archambault J. reached the opposite conclusion, for reasons which he summarized in these words:

I believe that it is the students whose fees were paid by government agencies who were being funded by the government, not the institute. The government paid the tuition fees that were owing by a particular student. The fact that the amount was paid directly to the institute does not change the reality that it was the student who was being subsidized. I believe that an organization would be funded by a government if the latter subsidized all or a portion of the former's operating expenses not financed by the tuition fees paid by the students. This was not the case here.

[17] I agree with Archambault J. Indeed, neither the English version, "funded by a government", nor the French, "reçoit des subventions d'un gouvernement", seems to me capable of bearing the broader interpretation for which the Appellants contend.[10] The suggestion that every person and corporation with which a government does business is "funded" by that government simply does not accord with ordinary usage. The same is true of the French noun "subvention", and its derivative verb "subventionner". Sobier J. seems to have been unduly influenced by the fact that Parliament amended this definition in 1977,[11] introducing language which could leave no doubt that it referred only to payments in the nature of a grant or subsidy. Such an amendment, however, does not necessarily signify any change in meaning.[12]

[18] The present case is governed by the rule, recently reaffirmed by the Supreme Court of Canada,[13] that the courts must give effect to words in a statute where their meaning is clear and plain. Counsel for the Appellants could point to nothing in the telos of the statute which might derogate from that principle in the present case.

[19] The appeals are dismissed.

Signed at Ottawa, Canada, this 3rd day of February, 1999.

"E.A. Bowie"

J.T.C.C.

APPENDIX A

[Omitted]

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