Citation: 2008TCC348
Date: 20080812
Docket: 2004-3932(GST)G
BETWEEN:
J. HUDON ENTERPRISES LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Margeson J.
[1]
This appeal is from an
assessment under Part IX of the Excise Tax Act for the period January 1,
1999 to December 31, 2001 (the “Period”), and notice of reassessment number
08GP-GL0328 0093 0485 dated July 6, 2004.
[2]
In general the Minister
takes the position that the amounts received by the Appellant during the Period
were in respect of driver and training income.
[3]
The Appellant contends
that the amounts in question were not subject to GST as they are amounts that
were received as prizes given to a competitor and, thus, are not subject to GST
pursuant to subsection 188(2) of the Act.
Evidence
[4]
The parties introduced
as part of the evidence, Exhibit A-1, which is a Joint Trial Book of
Documents. This document was introduced without limitations.
[5]
Hugh Mitchell testified
that he was the Chief Executive Officer of the Western Fair Association. He had
three tenures with the Western Fair Association. April 2005 was his last one.
He has been involved in the industry since 1982. He said that the Ontario
Racing Commission (“ORC”) manages and controls racing in Ontario and that the Ontario Harness Horse Association (“OHHA”)
requires an agreement with the various tracks as to how they share purses.
[6]
He referred to Exhibit
A-1, Tab 23, Rule 18 on page 65 of the rules of standardbred racing with
respect to the placing and money distribution. In each separate race the
distribution of purse money goes to the first five places. He referred to Rule
18.11 which he said provided that drivers’ and trainers’ fees may be deducted
and paid to them. Where there is an agreement between a recognized horse harness
participants association and a racing association, it must be filed with the
Commission. Western Fair has an agreement with OHHA. Such a rule has been in
place for 20 years.
[7]
He referred to Exhibit
A-1, Tab 3 which is an Agreement between the OHHA and Hiawatha Horse Park Inc.
This is a typical agreement between horse people “and the race track”. Article
9.02 authorized the Company to withhold five percent of all purse money won by horses
driven by each driver. The sums were to be paid once per month. Article 3.05 is
an agreement with respect to the establishment of a separate purse or trust
account, satisfactory to the OHHA, as a safeguard against unpaid purses. The
monies go into a special purse account to protect “horse people”.
[8]
Out of this account,
the morning after according to the order of finish, the owners and drivers are
paid their entitlement with respect to how they finish the race. The agreement
was with OHHA which represents the trainers and drivers. This agreement has
been in place for 20 years.
[9]
He identified the
agreement in Exhibit A‑1, Tab 3 as an agreement between the OHHA and
Hiawatha Horse Park Inc. He said that this is an agreement between the horse
people and the race track. It was registered by OHHA. Article 9.02 of that
agreement said that:
The Company shall, as authorized, by the Ontario Racing Commission
Rule 18.11, withhold on behalf of all drivers competing at Hiawatha Horse Park five (5) percent of all purse money won by horses driven by each
driver. All sums shall be paid within one month.
[10]Article 9.01 provided that “Purse cheques shall be
made available to horse owners by the Company weekly on a specified day”. He
said that all monies would go into a special purse account to protect the horse
people. Out of this account, the morning after, based on the finish, the owners
and drivers are to be paid. The first place horse would receive 50 percent
which would be paid to the owner, less five percent to the driver and five
percent to the trainer.
[11]
Rule 18.08 provided
that if a horse was disqualified, all monies would go back to the OHHA within
15 days and be redistributed. If the horse was disqualified, the owner, the
driver and the trainer received nothing.
[12]
He referred to the
document located in Exhibit A-1, Tab 22 as a Memorandum of Agreement between
the Ontario Jockey Club and the OHHA. It is similar to
the Hiawatha Horse Park Agreement. He said that Woodbine is the only track in Ontario that has thoroughbred racing and standardbred racing
and has set up an account for each horse owner and deposits the money into
their account. Only their share went into the owners’ account and the trainers’
and drivers’ share was paid directly to them by Woodbine. He referred to Exhibit
A-1, Tab 5 which were the Auditor’s Working Papers with respect to the present
matter which said that these conclusions are wrong with respect to standardbred
horses. He did not know the procedure with respect to jockeys who rode
thoroughbred horses.
[13]
He referred to Exhibit
A-1, Tab 2 which he described as an apparent ruling letter for Revenue Canada. On page 2 of that document it referred to the
practice of depositing the money for the jockeys and drivers directly into
their own account and therefore the payment would not be taxable. At that time
they would have followed the same procedure – drivers and trainers, 5%
directly. He added that they account to the owners for the deductions.
[14]
The trainer is
responsible for care and custody of the horse at all times. There is training
required and a trainer is also paid a daily rate as well as a share of the
prize money. The trainer is responsible for entering a race horse in the race.
He also selects the driver. The trainer must declare the horse and driver
eligible. If the driver is selected for more than one horse, he selects which
horse he would like to ride.
[15]
In cross-examination he
said that a groom is a caretaker of the horse. To a much lesser extent he has
an effect on the success of a horse in a race. He was familiar with the
document at Exhibit A-1, Tab 26 which is a document of the Ontario Racing
Commission. It is a directive. He was also familiar with the directive at
Exhibit A-1, Tab 25 as to rule changes. He said the grooms were added but it
was not mandated unless the OHHA has such an agreement.
[16]
He considered the
trainer to be a competitor but a blacksmith was not a competitor. Further, the
veterinarian, the groom and the blacksmith do not get a share of the purse
money.
[17]
A percentage of the fee
is mandated by the Ontario Racing Commission but it is not in the rules.
However, that is the way it works.
[18]
He agreed that rule
9.02 of the agreement between the OHHA and Hiawatha Horse Park Inc. did not
refer to the trainer having his percentage withheld by the Company. He agreed
that there was no reference to the drivers’ and trainers’ percentage in the
Memorandum of Agreement between Ontario Jockey Club and the OHHA found in
Exhibit A-1, Tab 22. Agreements vary although the Ontario Racing Commission
mandates it and they all pay it.
[19]
He confirmed that
Woodbine is the largest racetrack in Ontario and does 65%
of the para-mutual betting. He referred to the document in Exhibit A-1, Tab 28,
between J. Hudon Enterprises Ltd. and Her Majesty the Queen, which was the
Affidavit of Bruce Murray and agreed that Woodbine treats these amounts as
coming out of the owners’ account, and not paid to the driver or owner and
trainer separately.
[20]
In response to
questions by the Court, he said that Western Fair gets 50% of the purse and
sends cheques to the driver and trainer for five percent and the balance to the
owner. He also referred to Exhibit A-1, Tab 20 and, in particular, Rule 2.10
and he said that the OHHA deducts five percent for the trainer and five percent
for the driver. This is standard in the business.
[21]
He referred to Exhibit
A-1, Tab 28, paragraph 4. It said:
During the Period, drivers and trainers of a horse who placed fifth
or better in a given race received a payment equal to 5% of the portion of the
purse awarded to the owner of the horse who competed.
[22]
Joseph Phillip Hudon
testified that he was a horse trainer, owner and driver and was involved in
harness racing for 46 years. He breeds four to five mares, trains harness
racing horses and races them. Most of the work is done at his farm. He has 25
to 30 horses at any one time. His wife works at the farm as well. He charges so
much a day for his services, this is a standard fee. He is familiar with the
Ontario Racing Commission rules and regulations that were followed. He held a
licence as an owner, trainer and driver. He is also a member of the OHHA and
participates in standardbred racing. He never received a challenge from CRA
with respect to his position as an owner. He never collected and paid GST. He is
paid five percent for training and five percent for driving from the race track
itself.
[23]
For a disqualification,
he notified the Racing Commission and was told to give the money back.
[24]
The trainer is
responsible at all time for the horse. The trainer needs a licence but the
owner has nothing to do with the eligibility of a horse. That is for the
trainer and he usually picks the driver. The drivers pick the best horse that
will earn the most money.
[25]
He said that paragraph
7(c) in the assumptions in the Reply is incorrect. The Minister admitted that
this was an incorrect assumption. The assumption provided that the Appellant
was entitled to be paid a fee by the owner of a horse whenever the Appellant
drove a horse in a race or trained a horse driven in a race. A jockey gets paid
a fee if the horse wins or not. A flat rate. The owner pays the jockey. This
witness only did standardbred racing.
[26]
In cross-examination he
agreed that one of the reasons for the method of distribution of the money is
to ensure that the trainers and drivers get paid without chasing the owner
around. It did not matter to him where the money came from except for GST
purposes. He admitted that he did not know who owned the purse.
[27]
Karen Rose Hudon
testified that she was involved in harness racing since she was 12 years old.
She trained and drove horses but now she just helps her husband out at the
farm. She is a co-owner or helper, not the trainer of record. She is a licensed
trainer, owner and racer. She is a member of the OHHA. She is familiar with the
Ontario Racing Commission rules and said that a five percent payment to the
driver and the trainer is not in the rules, but they are paid five percent
each. Some tracks mail them out and sometimes she picks them up. Some tracks mail
a separate fee for the driver and trainer and some issue a cheque with the
breakdown. Some tracks show GST and some do not, for drivers and trainers.
[28]
Lona Linda Moffatt
testified that she was a Commission Official with the Ontario Racing
Commission. She does the licensing, finger-printing and collection of fines.
She worked in that aspect of racing for 24 years. She had 42 years experience
in horse racing. She is familiar with the rules of standardbred racing and is
familiar with the OHHA. When the GST first came in Western Fair Racing was
deducting five percent for trainers, and five percent for drivers and GST.
[29]
In October they no
longer paid GST and so she wrote to Revenue Canada.
She received the response from the District Excise Office found in Exhibit A‑1,
Tab 2, regarding liability for GST for the amounts payable to drivers and
trainers. Their letter indicated that if the monies were paid directly to them
from purse winnings, there was no GST.
[30]
Purse money is money
put up by the race track for that race. It is prize money. They have to finish
in the first five in order to be entitled to any of the money. It is put in a
purse account for the top five horses. The trainer and driver are listed. This
money is split. The first place horse gets 50%. Western Fair gets the
information at their bookkeeping department. The amount of five percent is
deducted for the trainer, five percent for the driver and 90% goes to the
owner.
[31]
The money comes from
each race track. Cheques go out each month and it lists the names of the horses
and their finished position. The sum of five percent is paid to each. If the
owner was also the trainer and driver, then he received three cheques. It has
been the same since 1985.
[32]
A trainer has the horse
in his possession at the track at all times. He brings the horse in, unloads
it, has a groom with him and warms him up before the race. There is no invoice
for the efforts of the trainer at the track.
[33]
She referred to the
letter dated April 8, 1992, in Exhibit A-1, Tab 29, which is a letter
she received from the District Excise Office in response to her request for
information. Several portions of the letter are blackened out. Revenue Canada was changing its position that they had earlier taken
on December 20, 2000 which said that there was no GST for drivers and trainers.
[34]
She identified Exhibit
A-2 which is a letter written to her from the Rulings Department of Revenue Canada dated November 23, 2005. It was a letter in which
Revenue Canada was changing their stance that they had earlier taken with
respect to the amounts paid to trainers and drivers.
[35]
In cross examination she
said that the Ontario Racing Commission takes no position as to who is the
owner of the purse money because it is dealt with by individual tracks.
[36]
In re-direct she said
that the Rulings letter found in Exhibit A-1, Tab 2, was never revoked.
Further, Exhibit A-2 was never revoked.
[37]
The Respondent called
Bruce Edward Barbour, who was the Executive Director for Great Canadian Gaming,
Georgian Downs and Flamboro Downs. This was a public traded company. He spent
two and one-half years in that position. He ran racetracks in British Columbia. He was involved in the racetrack business for
23 years. He knew the Appellant for 23 years.
[38]
He was responsible for
both racetracks and for the amount of profit or loss generated at the tracks.
He was familiar with the document found in Exhibit A-1, Tab 20, which was an
agreement between the OHHA and Flamboro Downs Holdings Limited. They had a
contract with the OHHA about conditions at any of the tracks. Any driver or
trainer can bring a horse to the track if they are a member or not. He referred
to Article 2.10 and said that we “cut three cheques”. The money comes in from
betting and from the slot machines and goes into a purse pool account. Cheques are
drawn on the purse account.
[39]
Steven Leslie Lehman
was an accountant and chief executive officer of the Ontario
Racing Commission. He had been at that position for one year. He spent two
years with the OHHA. The Ontario Racing Commission governs horse racing in Ontario. It governs licensing, racing rules and judging,
fines, penalties, etc.
[40]
He was familiar with
the purses and he oversees the purse money. With respect to the distribution of
the prize money – he said that 90% goes to the owner, five percent to the
driver and five percent to the trainer. He referred to Exhibit A‑1,
Tab 23, Rule 18.11 which provided that “Where an agreement exists between
a recognized harness participants’ association and a racing association,
drivers’ and/or trainers’ fees may be deducted from the purses payable to
owners and paid to the drivers and/or trainers within 30 days.” This
should not be interpreted too literally. He did not agree that a fair reading
would be that the purse belongs to the horse owner.
[41]
His association does
have some input into laws which provides that they deduct five percent drivers’
fees and five percent trainers’ fees from purses payable to owners and pay the
monies deducted in a manner satisfactory to both parties.
[42]
They do not insist that
such a clause be in an agreement. Rule 18.11 was in effect at the time of this
case.
[43]
Counsel for the
Appellant read in questions 100 and 101 from the discovery transcripts.
Argument on Behalf of the Appellant
[44]
Counsel for the
Appellant argued that the only issue was whether or not money that was received
as “purse money” was subject to GST. It was not subject to GST because it was a
prize under GST provisions and is exempt under subsection 188(2) of the Excise Tax Act
(“Act”). The situation at bar falls squarely within this section.
Evidence given in Court supports this.
[45]
Subsection 188(2) of
the Act provides as follows:
Prizes in competitive events – Where, in the course of an activity
that involves the organization, promotion, hosting or other staging of a
competitive event, a person gives a prize to a competitor in the event,
Legislation
(a)
the giving of the prize shall be deemed, for the
purposes of this Part, not to be a supply;
(b)
the prize shall be deemed, for the purposes of
this Part, not to be consideration for a supply by the competitor to the
person; and
(c)
tax payable by the person in respect of
any property given as the prize shall not be included in determining any
input tax credit of the person for any reporting period.
[46]
There was an activity.
Horse racing is an activity. The racing takes place at various hosting clubs.
The Appellant falls within this provision.
[47]
The driver and the
trainer are competitors in an event. Witnesses testified about the Rules in
this regard. Without the driver, the horse cannot compete. The driver is a
competitor.
[48]
The trainer is also a
competitor according to the evidence of Mr. Mitchell and Ms. Moffatt. The trainer
is responsible for the care of the horse. He enters the horse in the race, he
selects the driver and he selects the race in order to increase his chances of
winning. All of the things that he does impacts directly on where the horse
places in the race or event.
[49]
Other evidence showed
that only the top five places paid. Five percent goes to the driver and five
percent to the trainer. The Rules set out how the prize money is to be divided.
This is standard in the industry. This is a competition. Race and industry
standards reflect the fact that the driver and the trainer are competitors. The
Respondent submits that the owner of the horse pays the drivers and trainers.
If so, why do the competitors from sixth place on get nothing? There is no fee
for their service.
[50]
She referred to the
definition of “prize” found in Black’s Law Dictionary, 5th edition,
West Publishing Co., St. Paul Minn. 1979, p. 1080
which says:
Anything offered as a reward of contest. A reward offered to the
person who, among several persons or among the public at large, shall first (or
best) perform a certain undertaking or accomplish certain conditions. An award
or recompense for some act done; some valuable thing offered by a person for
something done by others. It is distinguished from a “bet” or “wager” in that, it
is known before the event, who is to give either the premium or the prize, and
there is but one operation until the accomplishment of the act, thing, or
purpose for which it is offered.
[51]
Generally, the purse
money is clearly a prize. According to Mr. Langdon’s evidence, the purse
is the prize for winning. Books are kept of the winners. The owner gets 90%,
the trainer gets five percent and the driver gets five percent. The track
is administering the horsepersons’ money to owners, drivers and trainers. Rule
18 cannot be read literally.
[52]
The Respondent contends
that the prize is given to the owner who then pays the driver and trainer for a
service. But the Appellant receives its share from the track and not from the
owner. Rule 18.11 was introduced many years ago. The drivers and trainers had
to chase around to obtain their money. This was indicative that the drivers and
trainers were entitled to a share of the prize.
[53]
If it is a service, why
do only the top five finishers have to give the money back if the horse is
disqualified? If it was a service, why would the Commission be involved? The
Commission gets involved because it is a part of the prize and those entitled should
get their share of it.
[54]
Alternatively, even if
the prize was given by the owner to the drivers and trainers, it is not subject
to GST. The legislation does not require that the prize be given by the person
hosting the event.
[55]
Counsel referred to the
Government Publications, Technical Notes with respect to subsection 188(2).
That Technical Note indicates that the awarding of the prize is not considered
to be a supply, nor is the prize itself considered to be consideration for any
supply.
[56]
In the case of R. v.
Savage, [1983] C.T.C. 393, the Court referred to the case of The Queen
v. McLaughlin, [1979] 1 F.C. 470 where it said
In my opinion, the word “prize” connotes something striven for in a
competition, in a contest, and I do not think that there can be a competition
or a contest in the real sense without the participants being aware that they
are involved.
[57]
The Court went on to
say as follows:
The word “prize”, in ordinary parlance, is not limited to a reward
for superiority in a contest with others. A “prize” for achievement is nothing
more nor less than an award for something accomplished. There is no need to
pluck the word “prize” out of context and subject it to minute philological
examination or to think of “prize” in the context of the medal or book one may
have won at an earlier date on a field day or at school or in a music
competition.
[58]
In that case the Court
was considering a section of the Income Tax Act, but in the case at bar
we are not considering the Income Tax Act we are merely considering the
provisions of subsection 188(2) of the Excise Tax Act.
[59]
The owner of the prize
does not have to be the stager of the event. Counsel referred to the Rulings
letters dating back to 1992 in support of the argument that the Minister even
considered these amounts not to be taxable but then changed his mind.
[60]
The facts of this case
fall squarely within the provision of subsection 188(2). The appeal should be
allowed with costs.
Argument on Behalf of the Respondent
[61]
Counsel argued that
this case comes down to, who has the legal obligation to pay for the “services”
of the trainer and driver. If the obligation is owed by the race track,
subsection 188(2) applies. If the obligation is owed by the owner and only
administratively by the track, subsection 188(2) does not apply.
[62]
Counsel put forward
that the trainer and the driver are not competitors although he did not put
forward this argument with a great deal of zeal or obvious conviction.
[63]
The payment is owed to
the Appellant by the owner of the horse and is consideration for the supply of the
driver and training services. As a result the GST must be charged on the
payments to the driver and the trainer.
[64]
The racetracks who organize
the harness races are not personally liable to pay anything to the drivers and
trainers. They simply administer what is owed by the owners to avoid repetition
of past problems in the harness racing industry, that the drivers and trainers
had to chase after the owners to get paid. The track does not take on liability
for driver and trainer payments. They simply become conduits to which the
payments flowed. The purse awarded for the race continued to belong to the
owner of the horse.
[65]
In support of his
argument counsel referred to the fact that Woodbine Raceway, the largest
raceway in Ontario, transferred all purse money payable as a
result of a race from the purse account to the account of the owner. The driver
and trainer payments were drawn on the account of the owners and not on the
purse account. Woodbine’s position is consistent with the contract entered into
between themselves and OHHA. That contract contains no requirements that
Woodbine make payments of any kind to the drivers and trainers. The cheques are
made by custom in the industry and that same custom dictates that the payments
are owed by the owners.
[66]
He referred to the
agreement in Exhibit A-1, Tab 20, which is an agreement between the OHHA and
Flamboro Downs Holdings Limited which states that driver and trainer fees are
to be deducted, “from the purses payable to the owners”. Flamboro did not
contemplate the assumption of any liability to the driver or trainer.
[67]
The agreement in
Exhibit A-1, Tab 21 between the OHHA and Woolwich Agricultural Society is
equally clear as to whom the purse money belongs. Paragraph 6.7 provides that
the drivers’ and trainers’ fees are deducted from the “purses payable to
owners”. The agreement in Exhibit A-1, Tab 3 between the OHHA and Hiawatha
Horse Park Inc. also describes the purse amounts as money won by the horses
driven by each driver. That agreement makes no mention of withholding for the
trainers.
[68]
Mr. Mitchell testified
on direct examination and confirmed on cross-examination that the purse money
was owed to the owner of the horse. Consistent with that testimony, he
explained that his race track accounted to the owner for deductions made from
the purse.
[69]
At trial Mr. Hudon
testified that he did not know who the owner of the purse was prior to its
distribution. The position of Mr. Leeman of the ORC was that ORC takes no
position as to whom a purse belongs and has no involvement in setting the
amounts payable to drivers and trainers. He opined that it is equally clear
from Rule 18.11 of the Rules of racing that the purses are initially payable to
the owners. It is noteworthy that section 18.11 has since been amended to
provide for the deduction and payment of fees to grooms out of purse amounts.
There is no suggestion that the grooms are directly entitled to a share of the
purse.
[70]
He submitted that the
payments are not a prize given by the race tracks to the drivers and trainers.
The race tracks simply administer the payment of driver and trainer fees owed
by the owners of the horses. He took the position that the combined affect of
the provisions of the Excise Tax Act is that the person who is liable to
pay the driver and trainer fees, either by the custom of the harness racing
industry and/or pursuant to a specific contract, is a recipient of a supply and
is also liable to pay GST on the fees. Under section 188 of the Excise Tax
Act, it would make no difference whether the payment was owed by the owner
or the race track; GST would be payable.
[71]
Subsection 188(2) does
not apply to the driver or trainer payments here. In this case, the only persons
who can award a prize that qualifies under subsection 188(2) are the race
tracks. However, it is the owners and not the race tracks who pay the driver
and trainer fees.
[72]
The race track awards
the purse to the owner of the horse and to no one else. The purses belong to
the owners who are in turn obligated to pay the drivers and trainers.
[73]
The Appellant’s
argument that the race tracks award part of the purse to the drivers and
trainers runs afoul of the Criminal Code. He referred to paragraph 202(1)(c)
of the Code which makes it an offence to have under one’s control “money or
property relating to a betting transaction”. Subparagraph 204(1)(a)(ii)
creates an exception for amounts to be paid to the owner of a horse. This
assumption is not extended to amounts to be paid to drivers or trainers. The
owners of the horses are the persons who are liable to make good the driver and
trainer payments. However, the owners are not the organizers of the race so
section 188 has no further application. The payments are taxed as consideration
for the driver and trainer services.
[74]
He also argued that
drivers and trainers are not competitors, nor is skill and ability an important
element in determining the outcome of the race. Numerous other licensed
participants in a harness race will also contribute to the outcome of the
races.
[75]
The essence of the
harness race is that the true competitors are the horses rather than the
drivers and trainers.
[76]
In conclusion, the
driver and trainer payments have historically been owed by the owners to the
drivers and trainers. The administration of those payments by race tracks has
not altered this historic relationship. The purse belongs to the owner and the
payments out of the purse discharge the owner’s liability to the drivers and
trainers and not the liability of the race track. This analysis is most
consistent with the agreements and rules that have been placed into evidence
and with the exception of section 204 of the Criminal Code which permits
payments to the owner of the horses and not to the drivers and trainers.
[77]
The Respondent requests
that this appeal be allowed, but only to the extent of $741.58 in 2000 and $3,563.03
for 2001 and further that the penalty imposed under section 280 of the Excise
Tax Act be vacated.
Analysis and Decision
[78]
Although not germain to
the decision in this case, it is noteworthy that the Minster on two occasions
made two different rulings. Firstly, the Minister decided that if the monies
received by the trainers and drivers were paid by the race track they did not
attract GST and the second ruling was that the GST was payable, immaterial of
whether the money was paid by the racetrack or the owner.
[79]
One can appreciate the
confusion that these two rulings must have created in this racing business and
one can see the Appellants here throwing up their hands in despair wondering
which way they should go.
[80]
However, whatever the
Minister decided with respect to the rulings, they are not binding on this
Court. This Court has to decide whether or not payments made to the owners and
drivers were exempt under the provisions of subsection 188(2) of the Act.
[81]
The Court is satisfied
that the answer to this question does not lie in the determination of who pays
the money. It is satisfied that the payments might be taxable or non-taxable,
immaterial of whether they were paid by the race track operators or by the
owner of the horses.
[82]
The real question
before the Court is who is the “owner” of the purse out of which come the
amounts paid to the drivers and trainers.
[83]
In answering the
question in this case the Court must look closely at the wording in subsection
188(2). There are a number of constituent elements of this section that the
Appellant must satisfy if he is to be successful in satisfying the Court that
these funds received by the trainers and drivers are exempt from GST.
[84]
One of these terms is
“activity”. That activity must involve the organization, promotion, hosting or
other staging of a competitive event where a person gives a prize to a
competitor in the event.
[85]
Without question, on
the basis of evidence in this case, there was an activity that involved the
organization, promotion and hosting or staging of a competitive event. There
can be no doubt that all of these factors have been met.
[86]
According to the
argument of counsel for the Respondent, the Appellant runs afoul of the provisions
of subsection 188(2) because there is no prize given to a competitor in the
event. His argument is that the trainer and driver are not competitors in the
event.
[87]
But in accordance with the
evidence given, and any reasonable conclusions that the Court is entitled to
draw from the evidence, it is satisfied that this was a competitive event and the
Appellant was a competitor in the event whether it be as an owner, driver or trainer.
[88]
Furthermore it is
noteworthy that according to the witness Hugh Mitchell, it was the trainer who
was responsible for the care and custody of the horse at all times. He also
indicated that the trainer was also paid a daily rate as well as a share of the
prize money. This daily rate is not the subject matter of this hearing.
[89]
The witness said that
the trainer is responsible for entering a race horse in the race. He also
selects the driver. The trainer must declare the horse and driver eligible. It
was obvious that the trainer is a very important part of the whole racing
process, more so than a groom, who is really a caretaker of the horse, and to a
much lesser extent has an effect on the success of the horse.
[90]
One can readily
conclude from the evidence of this witness that the driver as well as the
trainer is a very important part of the process and has a great deal of effect on
the outcome of the race and the success of a horse, consequently the amount of
money to be earned by the parties.
[91]
The Court does not
believe that it makes any difference whether grooms are added to the list of
persons where agreements mandate that they should be paid what they are entitled
to. The Association has such an agreement. This witness said “the trainer is a
competitor”, however a blacksmith is not and a veterinarian is not. He did
consider that they received a portion of the purse.
[92]
Joseph Philip Hudon
testified that he was a participant in standardbred racing and he participated
as an owner, a driver and a trainer. He also distinguished his position from
that of a jockey. He was paid a fee if the horse runs or not whereas the driver
and trainer get no fee unless the horse runs and wins. The jockey has a flat
fee and is paid by the owner. This is part of the situation of the trainer and
driver in standardbred racing.
[93]
This witness was
prepared to admit that he did not know who owned the purse. There was no
question in his mind that he was a part of the competition and that he received
a part of the prize (purse).
[94]
It is obvious from the
evidence alone of Lona Moffatt, a very knowledgeable person in the horse racing
industry, that the money was put up by the race track. Each trainer and driver
is listed for each race and that the “purse money” is split (here she obviously
was referring to a split between the owner, the trainer and the driver). As
indicated, she also said that the ORC takes no position as to who was the owner
of the purse as this money is dealt with by individual tracks.
[95]
The evidence of Bruce
Edward Barber was that it was his understanding that the money payable to the
trainer, driver and owner was drawn on the purse account set up by the track
from monies that comes in from betting, the slots and other sources of income.
He referred to it as the “purse pool account”. This evidence was corroborated
by that of Stephen Leaham, who in his direct examination said that he did not
agree that a fair reading of the rule would be that the purse belongs to the
horse owner. He obviously believed otherwise.
[96]
The Court is satisfied
that the Appellant has successfully rebutted some of the significant
assumptions that the Minister made in the Reply. One such assumption was found
in paragraph 7 (c) where it said that “the Appellant was entitled to be paid a
fee by the owner of a horse whenever the Appellant drove a horse in a race or
trained a horse driven in a race”. That is obviously incorrect and was refuted outright.
The assumption obviously played an important part in the position that the
Minister took in making this assessment.
[97]
The Court is further
satisfied that the Appellant has successfully rebutted the assumption that money
won in a race (the “purse”) was won by, and belonged to, the owner of the horse
and not to the Appellant. In a fair interpretation of the evidence of all of
the witnesses given in this case, and the Court drawing the appropriate conclusions
that it is entitled to draw from the evidence; that is not the case.
[98]
The Court is satisfied
that the purse belonged to the owner, the driver and the trainer in this instance.
This finding is immaterial of how the money is distributed or who distributed
it.
[99]
The Court is satisfied
that from the beginning to the end the purse belonged to the owner, the driver
and the trainer in the proportions that have already been referred to from many
of the witnesses.
[100]
The Court is satisfied
that the Appellant has successfully rebutted the assumption found in paragraph
7 (e) of the Reply that the Appellant is entitled to be paid a commission that
is equal to five percent of the purse for driving and/or five percent for
training. The Court is satisfied that the Appellant has successfully rebutted
the assumption contained in paragraph 7 (f) of the Reply that “The Commission
was owed to the Appellant by the Owner and never by the racetrack where the
race was held, or by anyone else responsible for organizing, promoting, hosting
or otherwise staging the race”. The Court is satisfied that the amount was not
a commission as indicated above firstly, and secondly, that the amount payable
to the driver and the trainer was payable by the race track where the race was
held. These are the people who were responsible for organizing, promoting,
hosting or otherwise staging the race.
[101]
With respect to the argument
of counsel for the Respondent with respect to paragraph 202(1)(c) of the
Criminal Code, the Court is satisfied that this can have no effect on the issue
which is before this Court. If someone else, at some other time, offends that
legislation then the action that has to be taken is by the appropriate
authorities.
[102]
The Court is not
deciding whether or not there was a violation of this Criminal Code section nor
will it speculate as to why, if there was such a violation, no actions have
been taken by any parties. Suffice it to say the Court is not prepared to
conclude that because there was a possible violation of the Criminal Code if
the monies were paid to anyone but the owner, then the monies must have been
owed to the owner of the horse.
[103]
At the end of the day,
the Court is satisfied that the Appellant has rebutted the necessary
presumptions contained in the Reply and has satisfied the Court on the balance
of probabilities that it is entitled to the exemption provided under
subsection 188(2) of the Act.
[104]
The appeal is allowed
and the matter is remitted to the Minister for reconsideration and reassessment
on the basis of the Court’s finding that the amounts in issue, at this time,
are not subject to taxation under the GST provisions of the Act.
[105]
It follows that the
penalties will be deleted.
[106]
The parties have agreed
that in the event that the appeal is allowed, the sum of $3,591.03 that was
actually collected as GST by Appellant from Woodbine Race Track is remittable
with $2,263.78 allocated to 1999, $604.03 allocated to 2000 and $723.22
allocated to 2001.
[107]
The Appellant is
entitled to its costs of this action, to be taxed.
Signed at New Glasgow, Nova Scotia, this 12th
day of August 2008.
“T.E. Margeson”
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