Date: 20011025
Docket: 2001-1579-GST-I
BETWEEN:
JAMES G. ALVEBERG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED Reasons for Judgment
Miller, J.T.C.C.
[1] Mr. Alveberg is the proud owner of a rather unique vehicle - a 1935 Ford wooden station wagon. He took the chassis of this vehicle to California where Heiden's Woodworking of Carlsbad, California ("Heiden's") constructed the wooden body. In bringing the vehicle back to Canada, Mr. Alveberg was assessed goods and services tax ("GST") of $2,519.36 (CDN) based on the value of the car of $24,477.57 (US), which represented the amount paid by Mr. Alveberg to Heiden's for materials ($3,012.07 (US)) and labour ($21,465.50 (US)). Mr. Alveberg appeals the assessment on the basis the labour portion is excepted out of the definition of "imported taxable supply" pursuant to subparagraph 217(a)(iv) of the Excise Tax Act ("Act"). The Minister contends the materials and labour constitute "goods" subject to section 212 of the Act.
[2] Mr. Alveberg acquired the remains of a 1935 Ford station wagon sometime in 1996. He completed the chassis, installed an engine, transmission and steering and built the floor. In March 2000 he transported the chassis of the vehicle to Heiden's. Mr. Alveberg testified that he used Heiden's as he had used their services previously and was happy with the result. He also indicated he was unable to find any organization in Canada that could perform the same work. Prior to transporting the vehicle to California he had disassembled the vehicle by taking out the steering, engine and transmission. Between March and October, 1996 Heiden's constructed a wooden body on the chassis. From the photographs provided by Mr. Alveberg it appears the wooden body extends only from the front windshield to the rear of the car. Heiden's worked from patterns of original parts for the 1935 vehicle. Heiden's charged Mr. Alveberg $3,012.07 (US) for the wood, varnish and parts and $21,465.50 (US) for labour. Mr. Alveberg brought the vehicle back to Canada on October 8, 2000 by trailer. At the border in Osoyoos, British Columbia he was assessed $2,519.36 on the value for duty of the vehicle of $35,993.83 (the Canadian conversion of $24,477.57). He argued that based on past experience GST was not exigible but the Customs officer insisted on payment, which Mr. Alveberg made. The value for duty under section 215 of the Act was based on the transaction value determined in accordance with section 47 and 48 of the Customs Act, being in this case the price paid and payable.
[3] The Appellant had gone through a similar exercise in 1993 when Heiden's had performed work on a 1939 Ford. At that time he appealed the GST assessment and was ultimately only taxed on the value of the materials. The Minister maintains that the previous refund in 1993 was made in error.
[4] The issue is whether the cost of labour conducted in California falls within the value of goods as set out in subsection 215(1) of the Act or whether, as the Appellant argues, it is an exception to "imported taxable supplies" in accordance with subparagraph 217(a)(iv). Section 215 is part of Division III of Part IX of the Act as is section 212. They read as follows:
212. Subject to this Part, every person who is liable under the Customs Act to pay duty on imported goods, or who would be so liable if the goods were subject to duty, shall pay to Her Majesty in right of Canada tax on the goods calculated at the rate of 7% on the value of the goods.
215.(1) For the purposes of this Division, the value of goods shall be deemed to be equal to the total of
(a) the value of the goods, as it would be determined under the Customs Act for the purpose of calculating duties imposed on the goods at a percentage rate, whether the goods are in fact subject to duty, and
(b) the amount of all duties and taxes, if any, payable thereon under the Customs Tariff, the Special Import Measures Act, this Act (other than this Part) or any other law relating to customs.
[5] Clearly these provisions deal with "goods": goods subject to duty under the Customs Act or goods on which a person would be liable under the Customs Act if the goods were subject to duty. For this case Canada Customs determined the goods were subject to duty under the Customs Act but relieved from that duty pursuant to United States tariff treatment. The Crown argued that the "goods" in question was the motor vehicle. She referred me to the Customs Tariff Act, specifically section 19 which reads:
19 (1) Subject to this Act and the Customs Act and any regulation or order made thereunder, there shall be levied and collected on all goods enumerated or referred to in Schedule 1, when such goods are imported, and paid in accordance with the Customs Act, customs duties at the rates set out in Schedule 1 or section 46 that are applicable to those goods.
(2) The rates of customs duty set out in Schedule 1 and section 46 and the customs duties imposed by this Act are subject to such increases, reductions, removals or other exceptions as may be specified in this or any other Act of Parliament, or in any regulation or order made thereunder.
[6] She also referred me to Schedule 1, item 87.03 which refers to "motor cars and other motor vehicles principally designed for the transport of persons including station wagons and racing cars".
[7] From this I am asked to draw the conclusion that the chassis returned to Mr. Alveberg now with a wooden body on part of it, but without the mechanical innards, hood and finished roof amongst other missing elements, falls within the category of "motor cars, including station wagons". I believe it had a long way to go to be considered in such a category. It was at best partially completed: it was certainly not a finished product. It could not be driven, and from the photographs it does not appear one could even sit in it. I find that the vehicle in the shape in which it returned to Canada did not fall under item 87.03 of Schedule 1. It is still necessary to address whether the wooden body is "goods" subject to duty even though the Crown referred me to no other section of Schedule 1 to assist me.
[8] In reviewing Schedule 1 to the Customs Tariff Act there is a section, 87.08, which refers to parts and accessories of the motor vehicle including other parts and accessories of bodies. Although the chassis with the wooden body on it was not, as I have determined, a motor vehicle for purposes of section 87.03 of Schedule 1, there is no doubt it was to become a motor vehicle once returned to Canada and subjected to reassembly. The wooden body does therefore fall within this classification of parts including parts of bodies. This was not the basis upon which Mr. Alveberg was assessed however.
[9] Section 217 of the Act is part of Division IV of Part IX. Section 218 of the Act is also part of Division IV and it reads:
218. Subject to this Part, every recipient of an imported taxable supply shall pay to Her Majesty in right of Canada tax calculated at the rate of 7% on the value of the consideration for the imported taxable supply.
[10] Subparagraph 217(a)(iv) of the Act reads as follows:
217. In this Division, "imported taxable supply" means
(a) a taxable supply (other than a zero-rated or prescribed supply) of a service made outside Canada to a person who is a resident in Canada, other than a supply of a service that is
...
(iv) a service (other than a custodial or nominee service in respect of securities or precious metals of the person) in respect of tangible personal property that is
(A) situated outside Canada at the time the service is performed ...
[11] Clearly this is dealing with supply of services. So where does the labour cost of the wooden element of the car more appropriately belong: as "imported goods" or as an exception to an "imported taxable supply" in accordance with section 217 of the Act? As indicated earlier, I am not satisfied that the goods in question can be described as a motor car. The goods are simply the wood in the form of a body of part of a car, more appropriately caught by section 87.08 of Schedule 1. "Goods" is defined in the Act as having the same meaning as set forth in the Customs Act, which is of little further assistance as it states goods includes conveyances and animals. Nothing in the definition or the ordinary understanding of goods as tangible personal property requires a breakdown of goods into its component elements of materials and labour. If a new vehicle is purchased the price paid covers both materials and labour: the purchaser is not advised how much is being paid for labour. However, this was not a new vehicle: this was, to use a home improvement analogy, a major renovation. A homeowner does not buy a new kitchen, but buys component parts and pays separately for the services of a kitchen designer and installer to have those parts installed in a certain, unique arrangement to complete the kitchen. This is more a supply of services than supply of goods. In this case Mr. Alveberg provided a chassis, bought materials and then spent a considerable sum for the expertise of wooden car manufacturers, an expertise that was not available in Canada. I find his payment for labour was for the supply of a service.
[12] Notwithstanding my finding that the cost of labour was in connection with the supply of a service, I wish to work through the sections dealing with the determination of the value of goods to satisfy myself the wording does not capture labour costs in this type of situation. So, assuming the wooden part of the vehicle as opposed to the vehicle itself does fall within the classification of "goods" subject to certain duty, then I must in accordance with subsection 215(1) of the Act turn to the Customs Act to determine the value against which the GST is attached and if such value includes the cost of labour. Section 47 of that Act indicates the value for duty is the transaction value as determined pursuant to subsection 48(4) of the Customs Act, which reads:
48(4) The transaction value of goods shall be determined by ascertaining the price paid or payable for the goods when the goods are sold for export to Canada and adjusting the price paid or payable in accordance with subsection (5).
[13] Subsection 48(4) of the Customs Act refers to the price paid or payable which is defined in subsection 45(1) as follows:
45 (1) ...
"price paid or payable", in respect of the sale of goods for export to Canada, means the aggregate of all payments made or to be made, directly or indirectly, in respect of the goods by the purchaser to or for the benefit of the vendor;
...
[14] Is the amount paid for labour a payment made "directly or indirectly in respect of the goods"? As I have determined, only the wooden part of the vehicle is considered "goods". I find that payment for labour costs is not in respect of the goods. The labour costs went into the assembly of the goods as a part of the vehicle but the payment was made in respect of the specialized labour not the goods. Suppose Mr. Alveberg was driving an old wooden car badly in need of repairs in California and came across a wooden car repair specialist. He takes the opportunity to have extensive repairs completed there and eventually continues his journey back to Canada. This is a service in respect of tangible personal property that is situated outside Canada at the time the service is performed. This is not the purchase of a car by a purchaser from a vendor. I have difficulty in portraying Heiden's as the vendor of a vehicle as opposed to simply a vendor of parts that went into a vehicle. Heiden's true value was in the provision of expert labour. Mr. Alveberg was really buying expertise he could not get in Canada, not goods. The cost of the materials was incidental to the supply of the specialized service, rather than the cost of the specialized labour being an integral element of the cost of goods. I find that the cost of labour in this case is not caught indirectly by sections 45 and 48 of the Customs Act.
[15] I conclude that the labour cost is not a component part of the cost of goods, but is more appropriately viewed in relation to a supply of a service. Is it then an exception falling within subparagraph 217(a)(iv) of the Act, which requires that:
(i) it be a service,
(ii) in respect of tangible property; and
(iii) the property is situated outside of Canada at the time the service is performed.
[16] On the face of it, the circumstances of Mr. Alveberg's wooden car appear to fit squarely within this exception. The labour in constructing the wooden body was a service, the property was tangible property, and at the time the service was performed the property was certainly situated outside of Canada.
[17] Crown counsel argued that if I accept the Appellant's position that the payment for the specialized labour is an exception pursuant to subparagraph 217(a)(iv) of the Act I will be encouraging Canadians to get work done in the United States on a GST free basis, that if performed in Canada would be subject to GST. Mr. Alveberg was adamant that he only went to the United States, as he could not find a Canadian capable of performing the work. This situation is certainly limited to that of foreign expertise not available in Canada.
[18] I find the cost of specialized labour more appropriately falls under the category of a supply of a service, as opposed to being in respect of a supply of goods. As such I look to section 217 of the Act and find it falls within the exception set forth in subparagraph 217(a)(iv) of the Act. The cost of materials was not put in issue before me and I therefore make no ruling in that regard. I allow the appeal and refer the matter back to the Minister of National Revenue for reassessment on the basis that no GST is exigible on the cost of the labour of $21,465.50 (US).
Signed at Ottawa, Canada this 25th day of October, 2001.
"Campbell J. Miller"
J.T.C.C.
COURT FILE NO.: 2001-1579(GST)I
STYLE OF CAUSE: James G. Alveberg v. The Queen
PLACE OF HEARING: Kelowna, British Columbia
DATE OF HEARING: September 6, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge Campbell J. Miller
DATE OF AMENDED
JUDGMENT: October 25, 2001
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Kristy Foreman-Gear
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-1579(GST)I
BETWEEN:
JAMES G. ALVEBERG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on September 6, 2001 at Kelowna, British Columbia,
by the Honourable Judge Campbell J. Miller
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Kristy Foreman-Gear
AMENDED JUDGMENT
The appeal from the Canada Customs-Detailed Adjustment Statement made under the Excise Tax Act, dated April 11, 2001 and bears number 00000620567716, is allowed and the matter is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Amended Reasons for Judgment.
This Amended Judgment and Amended Reasons for Judgment are issued in substitution for the Judgment and Reasons for Judgment issued September 18, 2001.
Signed at Ottawa, Canada this 25th day of October, 2001.
|
"Campbell J. Miller" |
J.T.C.C.