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Docket: 2001-3075(GST)G
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BETWEEN:
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AGENCE DE SÉCURITÉ MAURICIENNE (1983) INC., |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
_______________________________________________________________
Appeal heard on January 31, 2003 at Trois-Rivières, Quebec
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Before: The Honourable Judge Alain Tardif |
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Appearances: |
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Counsel for the Appellant: |
François Daigle |
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Counsel for the Respondent: |
Ghislaine Thériault |
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[OFFICIAL ENGLISH TRANSLATION]
JUDGMENT
The appeal from the assessment made under Part IX of the Excise Tax Act, the notice of which bears number 02305300 and which is dated May 25, 2000, covering the period from February 1, 1996 to October 31, 1999, is allowed in that the Notice of Assessment and the penalties set out in it are cancelled, all with costs in favour of the appellant, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 16th day of May 2003.
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"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 28th day of January 2004.
Carol Edgar, Translator
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Citation: 2003TCC284 |
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Date: 20030516 |
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Docket: 2001-3075(GST)G
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BETWEEN:
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AGENCE DE SÉCURITÉ MAURICIENNE (1983) INC., |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This appeal is from a Notice of Assessment bearing number 02305300 and dated May 25, 2000, covering the period from February 1, 1996 to October 31, 1999, in the amount of $28,312.44 including the interest and penalties.
[2] In issuing the Notice of Assessment, the Quebec Deputy Minister of Revenue ("the Deputy Minister") relied on the following assumptions of fact:
[TRANSLATION]
(a) the appellant is a registrant for the purposes of the application of the G.S.T.;
(b) the appellant was incorporated under Part IA of Quebec's Companies Act, as is shown by Exhibit I-4;
(c) the appellant operates a canine patrol service, and negotiates its services and fees by means of contracts for services with the various municipalities, as is shown by Exhibit I-5;
(d) during the period covered by the assessment, Agence de Sécurité Mauricienne (1983) Inc. provided the following services in particular:
(1) sale and issuance of dog licences,
(2) issuance of kennel permits,
(3) animal pickup,
(4) issuance of tickets, and
(5) euthanasia,
all as is shown by Exhibit I-5;
(e) in consideration for the services provided, Agence de Sécurité Mauricienne (1983) Inc. collects from citizens, and occasionally from the municipalities with which it has contracts for services, the fees set out in the said contracts, as is shown by Exhibit I-5, which it manages as it sees fit, without reporting to the other contracting parties;
(f) during the period from February 1, 1996 to October 31, 1999, this corporation was audited regarding tax not collected on the supply of services it provided;
(g) the appellant failed to collect the G.S.T. payable on the commissions on the sale of dog licences;
(h) as a result, the appellant failed to remit to the Deputy Minister the amount of $22,836.11, not including the interest and penalties.
[3] The above-noted assumptions of fact were set out in the Reply to the Notice of Appeal; the Notice of Appeal reads as follows:
[TRANSLATION]
...
1. the appellant received an assessment for the taxation period from February 1, 1996 to October 31, 1999 on the basis of failure to collect and remit on the income from animal attendant services, as is shown by the Notice of Assessment dated May 25, 2000;
2. on May 25, 2000, in response to the Notice of Assessment issued by the department, the appellant filed a Notice of Objection;
3. on May 30, 2001, relying on a memorandum from Bernard Blanchet (an objections officer), the Deputy Minister confirmed the Notice of Objection;
4. the appellant wishes to be heard by this Court for the following reasons;
5. the appellant operates a dog patrol business, providing in particular:
(a) sale of dog licences,
(b) reception of citizen complaints about stray or howling dogs,
(c) issuance of tickets, and
(d) patrols;
6. the appellant's economic activity is regulated by Quebec's Cities and Towns Act;
7. the appellant signs written contracts with the towns it represents, as is shown by the contracts with the following towns:
(a) St-Jean-des-Piles;
(b) Grandes Piles;
(c) Lac-à-la-Tortue;
(d) Shawinigan-Sud;
(e) Grand-Mère;
8. in light of the above, therefore, the appellant is exempt from collecting any tax under the GST or the QST;
9. indeed, under Quebec's Cities and Towns Act, it appears that municipalities are authorized to manage certain activities within their boundaries;
10. given this management authorization granted to municipalities, the government has authorized municipalities to assess and collect fees, dues, taxes, permits and licences for the said activities;
11. in this regard, municipalities choose one management method in order to control the problem of animals and to collect fees and issue licences within their boundaries, specifically:
(a) a public offer of employment, or
(b) a contract.
12. Thus it is manifestly clear that a municipality that has chosen to obtain the services of an employee in order to do the same work the appellant does is not required to collect the GST or the QST on the licences issued through its representative;
13. this principle is also applicable to municipalities that choose to contract out this activity;
14. in this regard, the other contracting party, in this case the appellant, becomes a mandatary representing the town for these activities, since under section 412 of Quebec's Cities and Towns Act that party is deemed to be a municipal officer;
15. in summary, the activities as a whole are not different depending on the management method;
16. in particular, under the Excise Tax Act, a supply by a municipality of a licence, permit or similar right is tax exempt;
17. issuing an assessment to the appellant for tax not collected on supplies of services made to municipalities would be contrary to the economy of the Excise Tax Act, since municipalities are tax exempt;
18. as well, the municipalities of St-Georges-de-Champlain, St-Mathieu-du-Parc, Grand-Mère and Lac-à-la-Tortue refused to pay the amounts of the taxes allegedly not collected on their behalf, as is shown in the resolutions by these municipalities;
19. since under the law the appellant is deemed to be an officer of the town it represents, it correctly self-assessed by not collecting or remitting any tax;
20. these assessments have caused enormous inconvenience to the taxpayer, which has lost a number of contracts as a result of these clearly erroneous assessments;
21. the present Notice of Appeal is founded in fact and in law;
...
[4] The facts are quite simple to summarize. The appellant obtained a number of contracts from municipalities (Exhibits A-3, A-4, A-5, A-6, A-7 and A-8). The appellant, Agence de Sécurité Mauricienne (1983) Inc., was a company registered for the purposes of the application of the Goods and Services Tax ("the GST"). It operated a security services and security guards business. With a number of municipalities, it had obtained contracts authorizing it to provide services to the citizens served by the signatory municipalities. These services included in particular:
(1) sale and issuance of dog licences;
(2) reception of citizen complaints about stray dogs;
(3) euthanasia of unclaimed dogs;
(4) issuance of tickets; and
(5) patrols.
[5] The various contracts were reached in accordance with Quebec's Cities and Towns Act and with the Municipal Code of Québec, specifically division XI.1, section 412, subsection 19.1 of the former, concerning animals, which reads as follows:
(19.1)
(a) To regulate or prohibit the keeping of animals, or categories of animals, and limit the number of animals that a person may keep in or on any immovable;
(b) To require the owner or keeper of an animal to hold a licence entitling him to keep the animal;
(c) To prohibit owners or keepers of animals from letting their animals stray in the territory of the municipality and authorize their elimination in a summary manner or their impounding and sale for the benefit of the municipality;
(d) To require the owner or keeper of any animal to remove its excrement from any property, public or private, determine the manner of disposing thereof and require the owner or keeper to have the necessary implements for that purpose;
(e) To enable the municipality to enter into agreements with any person or body to authorize the person or body to collect the cost of animal licences and enforce any municipal by-law concerning animals.
The person or body with whom or which the municipality enters into an agreement and his or its employees are deemed to be municipal officers or employees for the purposes of collecting the cost of licences and enforcing the municipal by-law.
Any by-law made under this paragraph applies only in a sector of the territory of the municipality determined by the council. Prescriptions of the by-law may differ according to the sectors of the territory of the municipality and the categories of animals determined by the council.
...
As well, sections 553 and 554 of the Municipal Code of Québec read as follows:
553. Every local municipality may make, amend or repeal by-laws to order dogs to be kept muzzled or tied up; to prevent them from being at large without their masters or other persons to take charge of them; to impose a tax on the owner of every dog kept in the territory of the municipality; to authorize any officer appointed for such purpose to destroy any unmuzzled dog at large and considered dangerous by such officer.
554. Every local municipality may make, amend or repeal by-laws to
(1) regulate or prohibit the keeping of animals, or categories of animals, and limit the number of animals that a person may keep in or on any immovable;
(2) require the owner or keeper of an animal to hold a licence entitling him to keep the animal;
(3) prohibit owners or keepers of animals from letting their animals stray in the territory of the municipality and authorize their elimination in a summary manner or their impounding and sale for the benefit of the municipality;
(4) require the owner or keeper of any animal to remove its excrement from any property, public or private, determine the manner of disposing thereof and require the owner or keeper to have the necessary implements for that purpose;
(5) enable the municipality to enter into agreements with any person or body to authorize the person or body to collect the cost of animal licences and enforce any by-law of the municipality concerning animals.
The person or body with whom or which the municipality enters into an agreement and his or its employees are deemed to be officers or employees of the municipality for the purposes of collecting the cost of licences and enforcing the by-law of the municipality.
Any by-law made under the first paragraph applies only in a sector of the territory of the municipality determined by the municipality. Prescriptions of the by-law may differ according to the sectors and the categories of animals determined by the municipality.
Every by-law made under the first paragraph prevails over any inconsistent provision of this Code or of the Agricultural Abuses Act (chapter A-2).
[6] From the outset of the hearing, the respondent admitted that the licences sold by the appellant were tax exempt supplies under section 20 of Part VI of Schedule V to the Excise Tax Act ("the Act"), which reads as follows:
20. The following supplies made by a government or municipality or by a board, commission or other body established by a government or municipality:
(a) a supply of a service of registering any property or filing any document in a property registration system,
...
(e) a supply of a service of providing information, or of any certificate or other document, in respect of
(i) the title to, or any right or estate in, property,
...
[7] In the course of an analysis, Jacques Bourassa, a tax audit technician, noted that the appellant had not collected taxes on certain amounts collected from taxpayers under the contracts obtained from the municipalities.
[8] Under examination, Mr. Bourassa expressed himself as follows:
[TRANSLATION]
Examination with counsel Ghislaine Thériault
A. Before doing a full assessment on that, I did an analysis on the invoices, of the invoices. I realized that on every $20 amount, there were no taxes.
Q. Every $20 amount?
A. On every $20 amount, there were no taxes.
Q. What were those amounts, the $20 amounts; were they permits, or taxes ... were they permits, or licences?
A. On the invoice was written, as I recall ... I don't remember, it's been a long time, probably we have an invoice in the file; as I recall, it'll be marked "licence".
Q. And do you remember any other elements that, in your opinion, should have been subject to taxes and were not taxed? You said "every $20 amount". Were there other things?
A. No, everything else was taxed.
Q. Everything else was taxed?
A. As I recall, everything else was taxed.
[9] In order to justify the assessment, the respondent has argued that the proceeds from the sale of licences constitute fees or a commission in the appellant's hands, in consideration for services rendered to the municipalities concerned by means of the sale of licences. Still according to the respondent, these services would be a taxable supply that forms the basis of the Notices of Assessment and the penalties.
[10] The respondent would like to tax indirectly something that is not taxable directly. A supply is taxable or tax exempt. In this case, on the one hand the respondent has acknowledged that the licences sold are tax exempt supplies under the Act, but on the other hand she has argued that the proceeds from the sale of the same licences constitute a taxable supply since, according to her interpretation, the proceeds from the sale are remuneration.
[11] The respondent has created from the whole cloth a transaction that is nonetheless fictitious, under which the proceeds from the sale of the licences have been transformed into remuneration for services rendered.
[12] Being unable to tax the transaction directly, the respondent has concluded that the proceeds from the sale of the licences (a sale that is tax exempt) have become taxable, arguing that the money collected has become remuneration, a commission or consideration for services rendered. The auditor, Mr. Bourassa, clearly expressed this allegation:
[TRANSLATION]
Cross-examination with counsel François Daigle
A. The point I want to make there is that those $20 amounts are not taxed. O.K. But, ultimately, those amounts aren't called "dog licences" any longer; they become remuneration for services rendered: those amounts there are converted. Those $20 amounts ...
A. They become commission income. Because, to us there, our mandatary is in business for himself. He is acting for the municipality because he is bound under contract, but he is in business for himself. He's his own employer. You know, Mr. Marineau there, his employer is Agence de sécurité mauricienne, not the municipality. And how is he paid? By the income he gets from the licences. Those $20 amounts are his income, his remuneration for services rendered. He keeps it all. And he has to run his office; he has to pay his operating expenses. That's what those $20 amounts are used for.
(Emphasis added.)
[13] In order to justify the assessment, the respondent has also argued that there is a taxable supply, which she has defined as a commission, remuneration for services rendered, or fees. In fact, that is not at all the case, since essentially the respondent taxed something that on its face was not taxable, that is, the licences.
[14] Under the provisions of both Quebec's Cities and Towns Act and the Municipal Code of Québec, there is no doubt that, when certain acts provided for or described in the legislation are carried out, the legislature has expressly made any person or organization an official or an employee.
[15] In other words, any person or organization having a contract with a municipality for the purposes of certain legislative provisions does indeed become an official or an employee of that municipality.
[16] I do not consider it necessary to refer to any treatise on the interpretation of legislation in order to understand and grasp the scope of these provisions, which to me appear quite clear, particularly since the legislature itself has enacted specific, express provisions concerning the status of collectors of licence fees.
[17] On that basis, I fail to see why or how the respondent can justify the Notice of Assessment. Agreeing with the logic put forward by the respondent would mean that any municipal employees who generated revenue in the course of their duties might claim the GST and the QST from their employer, since their remuneration could come from revenue or from their work.
[18] The respondent has claimed that neither the appellant nor its employees were genuine officials or employees of the municipalities, arguing that the employer made no deductions from their pay and that they did not make payments to the Quebec Pension Plan or to the Quebec workers' compensation board or pay any of the fringe benefits usually paid by the employer. Would the legislature have enacted frivolous and meaningless provisions?
[19] The respondent would like to collect indirectly taxes that it may not collect directly because the supplies forming the basis for her calculations are expressly tax exempt under the Act.
[20] In order to justify the assessment, the respondent has shifted it from one plane to another; what was initially a tax exempt licence that was not a taxable supply would suddenly become a non-tax exempt, taxable service, commission or allocation; what is more, the respondent has completely obscured the status conferred by the legislation on collectors of licence fees by making them comparable to professionals to whom the municipality would give a mandate.
[22] Furthermore, one would have to assume that the amount paid to obtain a licence (a tax exempt supply) was paid as the consideration for a service rendered (a taxable supply).
[23] The main legal bases for the appeal are the provisions that make the appellant an employee or an official of the municipalities that signed the contracts. As well, the provisions governing exemption are equally clear. In addition, the respondent has acknowledged that the licences, the proceeds from the sale of which formed the main basis for the assessment, were tax exempt supplies under the Act.
[24] In order to justify the validity of her assessment, the respondent has relied on all sorts of hypotheses, including the fact that the municipalities paid no benefits to the appellant or to its employees, in comparison with the benefits it was required to pay for its own employees, thus completely altering the appellant's status for the purpose of performing the duties described in the various contracts.
[25] I do not accept the respondent's interpretation, and I rely simply on the letter of the law, which defines the appellant as an employee of the municipality on behalf of which the licences were sold.
[26] The appeal is therefore allowed in that the Notice of Assessment and the penalties set out in it are cancelled, all with costs in favour of the appellant.
Signed at Ottawa, Canada, this 16th day of May 2003.
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"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 28th day of January 2004.
Carol Edgar, Translator