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Docket: 2003-2895(GST)I |
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BETWEEN: |
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STEVE MORAN, |
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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 with the appeal of The International Boaters Exchange Ltd. (2003-2896(GST)I), on May 17, 2004, at Victoria, British Columbia,
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By: The Honourable Justice A.A. Sarchuk |
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Appearances: |
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Counsel for the Appellant: |
D. Laurence Armstrong |
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Counsel for the Respondent: |
Stacey Michael Repas |
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under the Excise Tax Act, notice of which is dated October 8, 1999, and bears number 11CU0301798, for the period January 1, 1997 to December 31, 1997 is dismissed.
Signed at Ottawa, Canada, this 10th day of March, 2005.
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"A.A. Sarchuk" |
Sarchuk J.
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Docket: 2003-2896(GST)I |
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BETWEEN: |
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THE INTERNATIONAL BOATERS EXCHANGE LTD., |
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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 with the appeal of Steve Moran (2003-2895(GST)I),
on May 17, 2004, at Victoria, British Columbia,
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By: The Honourable Justice A.A. Sarchuk |
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Appearances: |
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Counsel for the Appellant: |
D. Laurence Armstrong |
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Counsel for the Respondent: |
Stacey Michael Repas |
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under the Excise Tax Act, notice of which is dated September 30, 1999, and bears number 11CU0301791 for the period January 1, 1998 to December 31, 1998, is dismissed.
Signed at Ottawa, Canada, this 10th day of March, 2005.
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"A.A. Sarchuk" |
Sarchuk J.
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Citation:2005TCC185 |
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Date: 20050310 |
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Docket: 2003-2895(GST)I |
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2003-2896(GST)I |
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BETWEEN: |
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STEVE MORAN and THE INTERNATIONAL |
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BOATERS EXCHANGE LTD., |
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Appellants, |
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And |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Sarchuk J.
[1] The appeal of Steve Moran (Moran) is from an assessment dated October 8, 1999, whereby the Minister if National Revenue assessed him for additional net tax of $12,632.30, penalties of $1,005.56 and interest of $739.05 for the period January 1, 1997 to December 31, 1997.
[2] The International Boaters Exchange Ltd. (Boaters Exchange) appeals from an assessment dated September 30, 1999, whereby the Minister assessed it for additional net tax of $13,187.27, penalties of $517.61 and interest of $414.81 for the period January 1, 1998 to December 31, 1998.
[3] Moran carried on business as a sole proprietorship under the name of the Boaters Exchange. It was incorporated as The International Boaters Exchange Ltd. and continued to carry on the business as of January 1, 1998. Both were involved in the selling of new marine goods on their own behalf and used goods on behalf of other parties. The Minister's assessment was in each case based on the premise that the Appellants were acting as an agent in making the supplies of goods on behalf of the owners and as a result, was properly deemed to be making a taxable supply of the goods to third parties and required to collect and remit goods and services tax on the sale of the goods.
Facts
[4] Moran testified that the primary function of the business was to bring together buyers and sellers of marine goods. For this matching service, a fee equal to one-third of the sale price of the goods was charged and GST was remitted on the full amount so charged. When a seller with an item of marine equipment for sale comes into the store, the process was explained to him in detail. In the course of this initial briefing, Moran would show him a copy of the standard agreement used by the Boaters Exchange,[1] advise him of the service fee charged and of the fact that at all times the goods remain his property. The seller is asked if he has a price in mind with respect to the article in issue which is considered and if the price if unreasonable, the seller is advised to that effect and that Boaters Exchange would not accept the gear. Moran was quite clear that each seller sets the sale price of the goods although he might provide some guidance on the appropriateness of the price based on sale of similar goods or available for sale in the store. If the seller is satisfied, a written agreement is executed and he is given an account number which identifies him as the seller. The goods left for sale are marked with that seller's account number and he is advised that if he wishes to retrieve his equipment or gear he can do so at any time with no charge or fee.
[5] The agreement stipulates that the seller is to keep in touch with the Boaters Exchange and he is advised that he can call or drop by as often as he wishes. If the seller does check, the Appellants inform him whether the goods have been sold and will answer any questions relating to the degree of interest in the goods. However, if the seller does not personally attend or call during the six-month period, no periodic reports are made. The Appellants display the goods for up to six months at which time if the goods have not been sold, there is usually a discussion regarding a reduction in the proposed sale price. Moran conceded that the agreement which must be signed before the owner is permitted to display his goods at the store provides for a 10% leeway on the price and as such, it is open to the Appellants to sell the goods for less than the posted price. Moran added that there have been occasions where a seller chose not to permit the 10% discount and that clause was struck from the contract.
[6] When the goods are sold, the Appellants give a purchase receipt to the buyer[2] and a cash payment receipt to the seller.[3] Both receipts have the name, The Boaters Exchange, and its address and telephone number stamped at the top. The buyer's receipt contains the seller's account number, but not his name, and it is not signed by the seller. Furthermore, he is not provided with a copy of the buyer's receipt which the Appellants keep on file. The seller's receipt contains a customer number that corresponds to the "individual who owns the property". As a rule this is the only receipt the seller will receive. A further document referred to as a "Payout Sheet" is also created and is kept on file by the Appellants for accounting purposes. Both this document and the copy of the buyer's receipt would be made available to the seller if he asked for it. In most instances, the seller was a non-GST registrant and the Appellants collect GST only with respect to the service fee they charged. On the odd occasion when the seller was a GST registrant the Appellants charged GST on the full sale price of the goods.
[7] Moran made specific reference to the fact that the Appellants are not liable for any damage that occurs to the goods while they are in their possession. Furthermore, the goods are not insured, are held in the store at the seller's risk, and are not included in the Appellants' inventories. No guarantees are provided to the buyers with respect to the goods but the Appellants did allow five days within which to return them for a refund. That, he said, arises out of the fact that when the seller brings a piece of equipment in, he is asked about its age and whether it is functional. The five-day grace period permits the buyer to make sure it does work and if not, the property is to be returned. Moran was quite clear in that in this context, he was "at the mercy of the seller. If the seller says this sounder is working, I don't have the facility to test it. So we give the buyer a chance, five days, to make sure it does work. So I can't guarantee it works or doesn't". The upshot is that if the item is returned the amount paid is refunded to the purchaser and the seller is contacted and advised of the situation. In the event that the goods are returned, they are sent back to the seller and the Appellants do not attempt to fix or make other use of the goods.
Appellants' submissions
[8] Counsel for the Appellants made reference to the following definition of agency:
"agency is the relationship that exists between two persons when one, called the agent, is considered in law to represent the other, called the principal, in such a way as to affect the principal's legal position in respect of strangers to the relationship by the making of contracts or the disposition of property".[4]
and observed that Fridman made clear that agency is not a simple term and relates to a very complicated relationship and to any number of different types of agency. The one characteristic that must exist is that an agent has the authority or capacity to create legal relations between another person and a third party. Furthermore, there is no agency relationship unless there is an agreement between the parties as a result of which the principal confers upon the agent the right to affect this legal relationship. Applying these propositions to the evidence, counsel argued that the Appellants had no ability to affect a legal relationship with the principal. They merely display the goods and effectively do no more than provide counter space within The Boaters Exchange. Although Moran does facilitate the transaction, it is the seller that sets the terms in each instance, but if the seller's price is not met, the Appellants had no authority whatsoever to bind the seller to a transaction outside of the scope of their instructions. Counsel further noted that the Appellants do not and cannot insure the goods nor do they account for them in their inventories. The agreement with the owner is subject to amendment and although the Appellants can provide some guidance, the decision rests with the seller. They do not fix, repair or improve the goods and it is the seller who bears all the risks. Thus, section 177 of the Excise Tax Act does not apply and indeed was not intended to apply to a broker who provides a facility in which others can buy and sell goods as was the case in these appeals.
[9] With respect to the decision in Caravane Taschereau Inc. v. Canada,[5]counsel argued that it was readily distinguishable on its facts. Unlike the present case, Caravane Taschereau had a different degree of involvement in the making of the transaction. Here the Appellants maintain that, unlike the company in Caravane Taschereau, they are an exchange agent and their role is closer to that of broker than of agency. Counsel further noted that in the decision of Dick Irwin Group Ltd. v. Canada[6] referred to by the Respondent, the Court had discussed the nature of the transaction and the person making the supply on behalf of the principal in the following words:
"that is not what a broker does, nor is it what the Appellant did in this case. The Appellant could accept an offer for the exact terms of the listing, but such an offer need not even be accepted. Rather, in such a case, the listing principal is making a general offer which the purchaser merely accepts".
Counsel contends this is precisely what happens in this case, i.e. the seller in setting a price makes an offer to the world generally and, more specifically, to the buyers coming to the Boaters Exchange. As well in the present case, the buyer does not make an offer but rather accepts the seller's offer. Thus the Appellants could not be said to be accepting the buyer's offer on behalf of the seller. If a different price is desired, the buyer and seller negotiate directly and they are brought together by the Appellants. With respect to the remaining factors that indicate agency referred to by counsel for the Respondent, the Appellants maintain that none existed in the present case.
Respondent's submissions
[10] Counsel for the Respondent made reference to the Canada Revenue Agency policy statement with respect to the meaning of agency and noted that the essential aspects to be considered are:
(a) the existence of consent of both the principal and the agent;
(b) the authority of the agent to effect the principal's legal position; and
(c) the principal's control of the agent's actions.
Certain factors set out the essential qualities of agency. In particular, these include: the consent of both parties; the authority of the agent to effect the other party's legal position; the other party's control of the person's actions; the assumption of risk; accounting practices; efforts; the alteration of property acquired; the use of property or service; and the ownership of property. Counsel observed that these principles were accepted by the Court in Glengarry Bingo Assn. v. R.[7] and a test for agency that included consent, authority and control was adopted. Consent exists where the other party agreed to have the person act as his agent. In the present case, the sales were made pursuant to an agreement between the Appellants and the seller. There is no issue that the sales were carried out through the Boaters Exchange. The authority for that is found in the agreement which essentially permits the Appellants "to sell my goods" and sets out the parameters within which that sale can be made. That authority further indicates that if you have an offer that is beyond the parameters agreed to, the goods may not be sold. Counsel observed that the Appellants at all times had control of the goods as they were kept at the shop and the sales were conducted there. In assigning goods to the premises, the seller has given his authority to sell and the Appellants have agreed to accept the goods and effect the sale. Thus according to counsel, control is found in the authorizations under the agreement which clearly sets out the rules that each party must follow with respect to the sale of the goods.
[11] It is the Respondent's position that the Dick Irwin case referred to by counsel for the Appellants is distinguishable on its facts. There, the owners retained authority to accept and reject any amount including the list price. As well, the boats were usually left at the owner's slip and not at a central marina, a fact which affects the application of section 177. Furthermore, the broker had never signed any sales agreement on behalf of the owners. These facts are all in direct contrast to the evidence adduced by the Appellants which, inter alia, established that the goods were kept at the Boaters Exchange premises under the Appellants' control and where an agreement had been signed between the parties allowing the Appellants to effect a legal relationship. All of the foregoing as well as the accounting practices utilized by the Appellants clearly establish that they were effecting a sale on behalf of third parties which is consistent with an agency relationship.
Issue
[12] The sole issue before the Court, pertaining to both Appellants, is whether each acted as agent for the other parties in making the supplies of the used goods and is therefore liable for additional taxes. The provisions of the Excise Tax Act relevant to these appeals are as follows:
123(1) In section 121, this Part and Schedules V to X,
"supply" means, subject to sections 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, license, rental, lease, gift or disposition.
165(1) Subject to this Part, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the rate of 7% on the value of the consideration for the supply.
177(1) Where
(a) a person (in this subsection referred to as the "principal")makes a supply (other than by exempt or zero-rated supply) of tangible personal property to a recipient (otherwise than by auction),
(b) the principal is not required to collect tax in respect of the supply except as provided in this subsection, and
(c) a registrant (in this subsection referred to as the "agent"), in the course of a commercial activity of the agent, acts as agent in making the supply on behalf of the principal,
the following rules apply:
(d) ...
(e) in any other case, the supply of the property to the recipient is deemed, for the purposes of this part, to be a taxable supply made by the agent and not by the principal and the agent is deemed, for the purpose of the is Part other than section 180, not to have made a supply to the principal of services relating to the supply of the property to the recipient.
[13] Counsel for the Appellants made specific reference to and relied on the decision in the Dick Irwin case. However, that decision provides little assistance to the Appellants. I make specific reference to the following comments of Beaubier J.
11 In this case the Appellant is a broker. A broker is a restricted form of agency. In The Law of Agency, 7th Ed. Butterworths, Toronto, 1996, G.H.L. Fridman, Q.C. described a broker as follows:
Brokers. Brokers, like factors, are mercantile agents. There is, however, a distinction between these classes of agents in that brokers are agents who are not given possession of goods or documents of title. A broker is:
'an agent employed to make bargains and contracts between persons in matters of trade commerce and navigation. Properly speaking, a broker is a mere negotiator between other parties ... He himself... has no possession of the goods, no power actual or legal of determining the destination of the goods, no power or authority to determine whether the goods belong to buyer or seller or either'.
He is not entrusted with the possession of the goods he sells. ...
...
14 All of these exceptions to an agency are as envisioned by Section 177 to take the Appellant outside of the Section. That is so because the Section envisages the Appellant to receive payment for the supply so as to pay the tax. That is perfectly logical respecting an agent who has possession of the goods and receives the payment of consideration for the sale of goods. It is not logical respecting a broker such as the Appellant who is not "instructed" to fix terms, to have possession, to receive payment for, and to execute a transfer of the goods, which is what a fully qualified "agent" could and would do. That is the kind of agent envisaged by Section 177. In other words, a broker is not an agent within the meaning of paragraph 177(1)(c), because he does not make a supply.
(Emphasis added)
[14] As was the case in Caravane Taschereau, the Appellants in this case received the exclusive right to sell the goods in issue until such time as the owner thereof repossessed it. Furthermore, the Appellants' argument falls short because they were not merely putting a buyer and a seller together and collecting a commission, rather in each case, they were able to, and did, complete a sale on their own without obtaining any approval from the owner. To succeed in the present case, the Appellants would have to establish that each sale had taken place directly by the seller to the buyer. In our particular case, however, invoices demonstrate that in each instance there was a consignment contract signed by the owner which clearly gave the Appellants the right to sell the goods as agents of the owner and that in fact, in each case it was the Appellants who sold the respective property to the buyer.
[15] In Glengarry Bingo, the Federal Court of Appeal stated:
31 ... Although not determinative of the meaning of "agency" in section 178, the draft policy statement P-182 referred to, although not binding, is a useful tool in determining whether an agency relationship exists.
32 P-182 identifies three essential qualities of agency. These are the consent of both the principal and agent, the authority of the agent to affect the principal's legal position and the principal's control of the agent's action. ...
33 The most common example of how an agent might affect the legal position of its principal is by entering a contract on the principal's behalf. ...
This is precisely what occurred in these appeals. The evidence is clear that the Appellants had possession of the goods, received payment therefor, executed a transfer of the goods, all acts that a fully qualified agent would normally do. Accordingly, I have concluded that the Appellants acted as agents in making the supplies of goods on behalf of the owners and their appeals are dismissed.
Signed at Ottawa, Canada, this 10th day of March, 2005.
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"A.A. Sarchuk" |
Sarchuk J.
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CITATION: |
2005TCC185 |
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COURT FILE NO.: |
2003-2895(GST)I and 2003-2896(GST)I |
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STYLE OF CAUSE: |
Steve Moran and The International Boaters Exchange Ltd. and Her Majesty the Queen |
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PLACE OF HEARING: |
Victoria, British Columbia |
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DATE OF HEARING: |
May 17, 2004 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice A.A. Sarchuk |
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DATE OF JUDGMENT: |
March 10, 2005 |
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APPEARANCES: |
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Counsel for the Appellants: |
D. Laurence Armstrong |
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Counsel for the Respondent: |
Stacey Michael Repas |
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COUNSEL OF RECORD: |
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For the Appellants: |
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Name: |
D. Laurence Armstrong |
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Firm: |
Armstrong Nikolich |
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For the Respondent: |
John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada |