Citation: 2008TCC341
Date: 20080613
Docket: 2005-472(IT)G
BETWEEN:
BBM CANADA
(formerly
BBM BUREAU OF MEASUREMENT)
Appellant,
and
THE MINISTER OF NATIONAL REVENUE,
Respondent.
REASONS FOR JUDGMENT
Boyle, J.
[1] The issue in this
case is whether the Appellant is a not-for-profit entity that is exempt from
tax under Part I of the Income Tax Act.
[2] The Appellant is a
non-share capital corporation set up to provide impartial and accurate audience
measurement data to its members. Its voting members are Canadian television and
radio broadcasters, advertising agencies, and representative advertisers. Its
non-voting members are other entities wanting access to this data. The
Appellant’s income is virtually all derived from its members. Member fees are
set in advance on a cost recovery basis having regard to the annual budget set
for the upcoming year. Any surpluses realized as a result of actual performance
in the year, or which are budgeted for, were reasonable in amount in the
circumstances and were used or held for purposes related to the Appellant’s
activities. None of the Appellant’s income was directly or indirectly
distributed to, or available for distribution to, any of its members.
[3] The above paragraph
summarizes the key facts upon which the Appellant and the Respondent agree. The
parties disagree on whether the Appellant is a tax‑exempt not-for-profit
entity described in paragraph 149(1)(l) of the Income Tax Act.
Canada Revenue Agency reassessed the Appellant’s 1996 taxation year denying
that exemption.
[4] Specifically, the
only issue between the parties is whether BBM was organized and operated
exclusively “for any other purpose except profit”. Prior to the hearing CRA and
the Crown had also been of the view that (i) the Appellant’s surpluses were, at
the time in question, unreasonably high and thus evidenced an unstated profit
purpose of the Appellant, and (ii) that there had been indirect distributions
to at least one of the Appellant’s members. However, the Crown abandoned these
two arguments completely at the outset of trial. Simply put the Crown’s
position is that an organization cannot be considered to be organized and
operated exclusively for a purpose other than profit if the establishment or
operations of the entity are related to the commercial or business activity of
its members or of others. This is not how this provision has been applied (by CRA
and the courts) to date. In its written submissions the Crown says that time
has come for the Court to recognize such an objective requirement.
I. Law
[5] Paragraph 149(1)(l)
reads as follows:
|
149(1) No tax is payable under this
Part on the taxable income of a person for a period when that person was
[…]
Non-profit organizations
(l) a club, society or
association that, in the opinion of the Minister, was not a charity within
the meaning assigned by subsection 149.1(1) and that was organized and
operated exclusively for social welfare, civic improvement, pleasure or
recreation or for any other purpose except profit, no part of the income of
which was payable to, or was otherwise available for the personal benefit of,
any proprietor, member or shareholder thereof unless the proprietor, member
or shareholder was a club, society or association the primary purpose and
function of which was the promotion of amateur athletics in Canada;
|
149(1) Aucun impôt n’est payable en vertu de la
présente partie, sur le revenu imposable d’une personne, pour la période où
cette personne était :
[…]
Organisations à but non lucratif
l) un cercle ou une association qui, de l’avis du
ministre, n’était pas un organisme de bienfaisance au sens du paragraphe 149.1(1)
et qui est constitué et administré uniquement pour s’assurer du bien-être
social, des améliorations locales, s’occuper des loisirs ou fournir des
divertissements, ou exercer toute autre activité non lucrative, et dont aucun
revenu n’était payable à un propriétaire, un membre ou un actionnaire, ou ne
pouvait par ailleurs servir au profit personnel de ceux-ci, sauf si le
propriétaire, le membre ou l’actionnaire était un cercle ou une association
dont le but premier et la fonction étaient de promouvoir le sport amateur au
Canada;
|
[6] While the French
and English versions of paragraph 149(1)(l) differ in that the
French version no longer expressly uses the concept of “fins”, and does
not use the word “but”, the parties were in agreement that implicitly
the French “… qui est constitué et administré uniquement pour… exercer toute
autre activité non lucrative…” was the equivalent of the English “… organized and
operated exclusively… for any other purpose except profit...”. The word “but”
appears in the French marginal notes. I agree with the parties that there is no
relevant inconsistency or difference between the two versions of paragraph
149(1)(l).
[7] This exemption
first appeared, with essentially the same wording, as paragraph 5(g) of
the Income War Tax Act of 1917.
II. Facts
[8] The parties filed a
Partial Agreed Statement of Facts at the outset of trial, a copy which is
attached as an appendix to these reasons. The Appellant called two witnesses.
The Chief Executive Officer and the Chief Financial Officer of BBM testified
over a period of two days. In addition, more than 250 documents were entered as
exhibits.
[9] The Bureau of
Broadcast Measurement was founded in 1944. BBM was incorporated as a federal
non-share capital corporation in 1945 to carry on the activities of the Bureau
of Broadcast Measurement. As described below, it was set up by representatives
of the radio and television broadcast industry, together with advertisers and
advertising agencies. Prior to the establishment of the Bureau of Broadcast
Measurement, the Canadian broadcasting sector was faced with conflicting or
inconsistent claims of listening or viewing audience or, in some markets,
without any measure of listening or viewing audience. BBM was established as a
research organization that would provide impartial, high quality and trusted
audience estimates to its members. Many Canadians are familiar with BBM through
their participation over the years in completing research survey cards tracking
their actual television viewing or radio listening habits over a period of a
week or more. Each year hundreds of thousands of such surveys are completed by
Canadians of all ages from across the country. In recent years, paper diaries
for television surveys have been replaced in major Canadian cities with
electronic monitoring tools. The traditional paper diaries remain in use in
smaller centres and for radio research surveys. Canadians participate in these
surveys on a voluntary basis, receiving a nominal $2 or $5 by way of thanks.
BBM recruits volunteers from call centres it operates in Moncton, Montreal and Toronto where they have 200 to
400 part-time and full-time employees.
[10] The purposes and
objects of BBM set out in its Letters Patent are:
(a) to
design and conduct surveys, to assemble statistical and other data, to do
marketing research and other studies relating to radio and television
broadcasting and other forms of advertising media and particularly relating to
the number, distribution and listening, viewing and reading habits of persons
who are or may be listening to or viewing programs of the various radio and
television broadcasting stations or who are exposed to or may be influenced by
other forms of advertising media at different times and from time to time;
(b) to
prepare reports, charts and other forms of information based on surveys and
statistical and other data assembled as aforesaid and to print, publish and
distribute the same to members.
[11] The Letters Patent
also provide:
And it is further ordained and declared
that the business of the Corporation shall be carried on without pecuniary gain
to its members and that any profits or other accretions to the Corporation
shall be used in promoting its objects.
[12] BBM has several
classes of members and each are represented in a balanced fashion in its
governance structures. BBM’s Board of Directors and operating committees are
filled by volunteers from its more than 600 members. BBM’s three classes of
voting members are Broadcasters, Advertisers and Advertising Agencies. The
names are self-descriptive. In addition, there is an Associate Member
non-voting class.
[13] BBM’s survey
information and results are only available to its members. Its data is not
offered for sale or otherwise available to non-members. BBM’s data is used by
its members for a number of purposes. Broadcasters use it to make programming
decisions and for program creation decisions. This includes both private and
public broadcasters. BBM’s broadcast members include non-commercial public
broadcasters such as CBC Radio, TVO and TVQ. Private broadcasters also use the
data for pricing advertising. Broadcasters also use the data to account to
broadcast regulators like the Canadian Radio-television and Telecommunications
Commission or CRTC to demonstrate they are fulfilling their licence
requirements, as well as to measure their performance and reach against actual
ratings. Public broadcasters use the data to determine the extent to which they
are fulfilling their publicly-funded mandate to Canadians. By way of example,
BBM data contributed to getting local news back on CBC radio in recent years.
Advertisers and advertising agencies use the information in making their
advertising decisions concerning stations and pricing.
[14] Non-voting Associate
Members are not broadcasters, advertisers or advertising agencies but need or
want access to BBM’s data. They include government agencies and departments,
and colleges and universities. For example, Statistics Canada uses BBM’s data
for its Culture Statistics Program and publications. The CRTC uses the data for
its public policy purposes of ensuring broadcasters are reflective of Canada as
a whole, as well as to monitor the entry of unregulated “grey market” channels.
The Canadian Television Fund provides direct funding to encourage the creation
of Canadian programming and has BBM data available to evidence whether the type
of programs produced are what Canadians choose to watch. Heritage Canada is an associate member,
presumably for similar reasons. University and college members want to be able
to use BBM data for educational research purposes.
[15] In the past two
decades, competitive commercial businesses have only entered the television
viewing survey business and only in select large Canadian city markets. Thus
far the Canadian broadcast industry and BBM’s other members have favoured BBM
for its all markets, same pricing approach, which goes so far as to include any
remote market with a broadcaster who wants or needs dependable measurement
data.
[16] In 1992 BBM began
doing custom research for members and non-members. This custom research work
was pursued as part of a plan to utilize what would otherwise be down time at
the call centres. This division was transferred to a taxable subsidiary
corporation by the end of 1996. It had generated a loss in each of its years to
1996.
III. Positions of the Parties
[17] The Appellant’s
argument is that it meets all of the requirements of the exemption found in
paragraph 149(1)(l), in particular:
(a)
In
the opinion of the Minister, it is not a charity. This has been agreed to.
(b)
None
of the income of BBM is available for distribution to its members. This has
also been agreed to.
(c)
BBM
was established and is operated “for any other purpose except profit”. The
Appellant points out that the phrase “any other purpose except profit” is
disjunctive from the list of specifically enumerated objects such as community
improvement, recreation and social welfare. This is evidenced from the
repetition of the word “for” in the phrase “or for any other purpose”. The
Appellant maintains that, being disjunctive and given the use of the words “any
other”, the phrase should not be read ejusdem generis, that is in a
manner restricted to similar kinds of purposes. The Crown agrees that it should
be read disjunctively and should not be interpreted ejusdem generis. However,
the Crown does not agree that BBM was established or operated for any other
purpose except profit.
[18] The Appellant argues
that the absence of a profit purpose to BBM’s establishment and its activities
are evident from the fact that it operates on a cost recovery basis and that
its revenues are received from its members.
[19] In addition, BBM
relies significantly on the decision of this Court in Canadian Bar Insurance
Association v. H.M.Q., 99 DTC 653. In that case
Justice Mogan held that the CBIA qualified for the paragraph 149(1)(l)
exemption for non-profit entities. It is clear from the reasons that CBIA made
a broad range of insurance products available to the Canadian legal community
at reasonable and stable rates and within the commercial and competitive
insurance industry.
[20] The Respondent
argues that the phrase “any other purpose except profit” means that the
establishment and operations of the entity cannot be related to any commercial
or business activity. Applying such a requirement, the Crown argues that the
Appellant cannot meet it since it undertakes its audience measurement
activities for the benefit of its members who use that information in their
commercial businesses. The Crown stresses that it is not advocating that the
phrase “or for any other purpose except profit” be read ejusdem generis
with the preceding enumerated activities. Indeed to do so would ignore the
words “any other”. The Crown’s proffered interpretation is not the basis that
has been applied by CRA or the courts to date in considering this provision. The
Crown argues however that virtually all of the reported cases to date have
considered situations where the purpose for which the organization was
established and operated had some public benefit component and the activities
in question were carried on to fund the social, community or public benefit
purpose of the organization. The Crown acknowledges it is somewhat difficult to
reconcile the Canadian Bar Insurance Association case with this newly proffered
theory. As discussed later, I think it is also somewhat difficult to fully
reconcile the decision of this Court in Gulf Log Salvage Co-operative
Association v. M.N.R., 60 DTC 239 with such an interpretation.
IV. Analysis
[21] The expression “…
organized and operated exclusively… for any other purpose except profit...”
must be read in context, according to its ordinary sense, harmoniously with the
scheme of the Act, its object and the intention of Parliament. In other
words, this Court should apply the exception as it is worded, provided that is
consistent with the provision read in context and does not frustrate or do
injustice to the purpose of the provision. See A.Y.S.A. Amateur Youth Soccer
Association v. Canada Revenue Agency, 2007 DTC 5527 (S.C.C.) at
paragraph 16 and Klassen v. H.M.Q., 2007 DTC 5612 (F.C.A.) at
paragraph 17.
[22] In considering
whether the term profit can be read in such a way as the Crown suggests, I am conscious
of the fact that profit has an ordinary commercial meaning and a meaning under
the Income Tax Act that, as described below, in each case generally
means net income realized after expenses are deducted.
[23] The Canadian
Oxford Dictionary defines the noun “profit” as “1 financial gain;
excess of returns over outlay. 2 an advantage or benefit.” The Compact
Oxford English Dictionary defines it as “1 a financial gain, especially
the difference between an initial outlay and the subsequent amount earned. 2 advantage;
benefit.” The Larousse de poche defines “lucratif-ive” as “qui procure
un gain”, that is which procures a gain. Le Petit Robert defines it as
“qui procure un gain, des profits, des bénéfices”, that is which procures a gain,
profits or benefits. These dictionary definitions do not make express reference
to the gain being from an activity related to commerce or business.
[24] The most notable use
of the term “profit” in the Act is in subsection 9(1) wherein a
taxpayer’s income for a year from a business or property is defined to be his
profit therefrom for the year, or in French “le bénéfice”. Profit is not
defined in the Act but has been consistently interpreted by the courts
to mean the difference between the receipts in a period and the expenditures
laid out to earn those receipts. See for example the Supreme Court of Canada in
Canderel Ltd. v. H.M.Q, 98 DTC 6100 and in M.N.R. v. Irwin,
64 DTC 5227, the Judicial Committee of the Privy Council in M.N.R.
v. Anaconda American Brass Ltd., 55 DTC 1220, and the Exchequer Court in Associated
Investors of Canada Ltd. v. M.N.R., 67 DTC 5096. In Woodward’s
Pension Society v. M.N.R., 62 DTC 1002 it is clear (at 1004) that
the Supreme Court of Canada gave profit just such a meaning in considering the
predecessor of paragraph 149(1)(l). This is also evident from
President Thorson’s reasons in the Exchequer Court, 59 DTC 1253 at 1260.
[25] The commercial and
accounting meaning of the term profit is to the same effect.
[26] Another textual
consideration is that the Crown’s suggestion that profit means for a
non-commercial or non-business purpose, would also be using the term “business”
in a different sense than as it is defined for purposes of the Income Tax
Act in subsection 248(1). Business is defined to include an undertaking of
any kind whatever. Thus, many tax-exempt entities have a business as defined.
[27] The final textual
consideration is that the Crown’s attempt to reconcile the existing
paragraph 149(1)(l) jurisprudence with its position in this case by
arguing that the decided cases all involved organizations having at least some
public benefit would require an odd interpretation of the word “exclusively” in
paragraph 149(1)(l) which clearly qualifies the purpose for which
the entity is established and operated.
[28] Turning to a
contextual consideration of the Crown’s argument that “for any other purpose except
profit” means unrelated to any commercial or business activity, I am mindful of
the fact that the tax exemptions set out in section 149 and those for registered
charities in section 149.1 contemplate tax exemptions for entities that
are to some extent involved in commerce or business.
[29] Section 149.1
is clear and express when it wants to prohibit or restrict business activities.
Section 149.1 permits a charitable organization to carry on a related business.
A related business for this purpose is defined to include a business that is
unrelated to the objects of the charity in certain circumstances.
[30] Similarly tax-exempt
entities listed in subsection 149(1) include some whose activities relate to
commerce or business. These include agricultural organizations, boards of trade
and chambers of commerce, housing corporations, labour organizations, mutual
insurance corporations, farmers’ and fishers’ insurance corporations, trusts to
provide business compensation or vacation pay, and fraternal benefit societies
providing life insurance.
[31] There are at least
two decisions of this Court that would be inconsistent with the Crown’s
position in this case that the purpose of an organization cannot include a
purpose that is not for the public good or that is related to commerce or
business.
[32] In Canadian Bar Insurance
Association the organization was engaged in selling various insurance
products to lawyers. These included life insurance and disability insurance,
including coverage for business expenses during disability. It did this in a
sector populated with commercial insurance companies and Justice Mogan said
there was no doubt the CBIA engaged in a high level of commercial activity but
held “that high level of commercial activity, by itself, does not prove that
the Appellant operated for profit.” He went on to conclude that the CBIA’s
attempt to provide insurance products at cost to the legal community was not a cloak
to avoid payment of tax on a commercial enterprise but was the real purpose of
the CBIA. In BBM’s case there was no evidence to suggest its members were
trying to create a scheme to avoid taxation on their commercial enterprises by
paying deductible member fees or dues, nor on the operations of BBM itself.
BBM’s true purpose was as set out in its Letters Patent.
[33] In Gulf Log Salvage
it is clear that one of the purposes for which the entity was established was
to deter private profiteers from salvaging logs that had gone astray from log
booms owned by mill companies and sell them for their own profit at the expense
of the owners.
[34] In these two cases,
there is no suggestion that in order for the “any other purpose except profit”
requirement to be met, the entity cannot be engaged in an activity that is for
a purpose that is related to a commercial or business activity of its members.
Clearly that could not be met in either the Canadian Bar Insurance Association
or Gulf Log Salvage cases.
[35] I am unable to give
profit the strained and unnatural meaning advanced by the Crown when (i) there
is no ambiguity or inconsistency in the language used, (ii) to do so would
be contextually inappropriate, and (iii) the language used is capable of a
reasonable application based on its ordinarily understood meaning as is
evidenced by such cases as Canadian Bar Insurance Association and Gulf
Log Salvage.
[36] The Crown questions
why the Income Tax Act should provide an exemption for taxes for a non-profit
entity whose purpose is related to the commercial business activities of its
members. That may be a valid question to consider if the provision’s language were
ambiguous, inconsistent or unclear and, as a result, incapable of reasonable
application. That is not the case here so I am unable to read a public purpose
requirement into the provision that is not there. If the tax authorities are
unable or unwilling to persuade the Department of Finance to propose a
legislative change to Parliament, it should not come looking to this Court
hoping that, in the guise of interpretation, this Court will usurp Parliament’s
sole jurisdiction to write the law.
[37] The Supreme Court of
Canada consistently cautions against courts, under the guise of statutory
interpretation, relying on or developing unexpressed notions of policy or
principle when called upon to apply provisions of the Income Tax Act. To
do so would lead to intolerable uncertainty in the application of the Act
and should be left to Parliament. See, for example, 65302 British Columbia
Ltd. v. H.M.Q., 99 DTC 5799 (S.C.C.) and Shell Canada Limited
v. H.M.Q., 99 DTC 5669 (S.C.C.). More recently in Canada
Trustco Mortgage Co. v. Canada, 2005 DTC 5523, the Supreme Court
of Canada wrote unanimously at paragraph 11:
Where Parliament has specified precisely
what conditions must be satisfied to achieve a particular result, it is
reasonable to assume that Parliament intended that taxpayers would rely on such
provisions to achieve the result they prescribe.
[38] In short, the
Crown’s position that it is time for this Court to adopt a new and different “interpretation”
of the term “organized and operated exclusively… for any other purpose except
profit” because the Crown does not think the Court’s application of the
provision makes good sense given the Crown’s view of the purpose of the
provision, faces a very high threshold which, in my view, it is unable to meet.
The words used in the provision, especially “profit”, are clear, have well-accepted
meanings and the Courts have been able to apply them in similar cases.
[39] The Crown argues
that the Appellant only finds itself subject to Part I tax under the Act
for 1996 because it chooses to budget on an anticipated cost recovery basis. If
instead, the Crown goes on, the Appellant could ensure it was operating on an
exact cost recovery basis, effectively recouping costs in arrears, or on a loss
basis, it would not have any Part I tax payable even if it should not qualify
for the paragraph 149(1)(l) exemption. I do not see how this
observation helps the Crown’s position. To some extent it underscores why the
Court should not be attracted to the Crown’s position that the Court should
undertake or mandate a significant revision of how the non-profit organization
exemption has been applied over the last 90 years by the Canadian revenue
authorities and tax courts. The Crown’s suggestion is that the Court should
take a whole new approach even though it would make little if any difference to
the Appellant or to the non-profit sector if they just do their budgeting and
accounting differently.
[40] The Crown’s position
is that an entity will be established and operated for a purpose other than
profit only if its income is used to advance a public purpose of some sort. It
does not seem appropriate for the Court to add a destination of funds test or
requirement to discern purpose as advocated by the Crown. The Federal Court of
Appeal rejected a destination of funds test for discerning qualifying purposes
of charitable organizations in Earth Fund v. M.N.R., 2003 DTC 5016
(F.C.A.). Justice Bowman, as he then was, rejected a destination of funds
test in Otineka Development Corporation Limited v.
H.M.Q., 94 DTC 1234 (T.C.C.), at 1237, for
discerning qualifying purposes of not-for-profit entities. The Supreme Court of
Canada had earlier done the same in M.N.R. v. St. Catharines Flying
Training School Ltd., 55 DTC 1145. See also Gull Bay
Development Corporation v. H.M.Q., 84 DTC 6040 (F.C.T.D.), and Tourbec
(1979) Inc. v. M.N.R., 88 DTC 1439 (T.C.C.). If a destination of
funds test is not a bright line test to qualify for charitable purposes or to
qualify for not-for-profit tax-exempt status, it is not obvious to me why it
should be for disqualifying non-profit entities of tax-exempt status.
[41] There are a number
of other Canadian non-profit organizations that operate in areas that relate in
some way to business or commerce. Further, essentially the same meaning is
given to “non-profit organization” under the GST legislation in the Excise
Tax Act. I note that in the recent decision of Chief Justice Bowman in
Canadian Medical Protective Association v. Canada, 2008 TFCC 33,
[2008] T.C.J. No. 162 (QL), it is clear that the CMPA is an entity whose
activities relate to business or commercial activities of others, yet the
Crown’s Agreed Statements of Facts in that case acknowledged it to be a
“non-profit organization” for GST purposes and this is not questioned. Similarly,
I see confirmation from the Federal Court of Appeal’s recent decision in M.N.R.
v. Greater Montreal Real Estate Board, 2007 DTC 5740 of the fact
that real estate boards are also commonly set up as non-profit, non-share
capital entities. I suspect numerous business improvement associations are
similarly set up. All of this confirms that it would be unwise at this stage
and in this case to undertake such a significant revision to the law as is requested
by the Crown. If the Crown believes such a revision is needed it should be left
to a possible legislative change which would only be done after a review of the
need for such a change was done by persons responsible for tax policy, aware of
the depth and breadth of the sector beyond just a snapshot of this Appellant’s
1996 taxation year, aware of all of the fiscal impacts beyond the application
of paragraph 149(1)(l) of the Income Tax Act, and which
would allow for the possibility of consultation. Canadians, Canadian society, the
provinces and the non-profit sector deserve as much.
[42] While I do not
accept the Crown’s position that “profit” essentially means related to commerce
or business, I do need to turn to deciding whether, on the facts of this case
in evidence and agreed to by the parties, the Appellant meets the requirements
of paragraph 149(1)(l). There are two key requirements set out in
paragraph 149(1)(l). The first is that the organization be organized and
operated exclusively for any purpose except profit. The second is that no part
of its income be paid to or available for the personal benefit of any member,
proprietor or shareholder. The Crown acknowledges that this second requirement
is satisfied.
[43] The first
requirement that the purposes for which it was established and is operated be exclusively
non-profit sets a high threshold. Similarly, the provision requires a focus on
the entity’s purposes and not merely its activities.
[44] While these are very
strict and rigid requirements, and potentially permit a very broad review or
inquiry into an organization’s purposes, the analysis can be considerably
abbreviated by the fact that the statutory language does not mandate a
qualifying purpose but permits the organization to have any purpose or purposes
other than the one disqualifying purpose of profit.
[45] The jurisprudence to
date is largely very consistent on when an entity will not satisfy the first
requirement. It is clear from such cases as Woodward’s Pension Society, Otineka,
and Tourbec that an entity cannot qualify for the paragraph 149(1)(l)
exemption if it is unable to accomplish the objectives for which it was
established unless it realizes profits with which to do that. In Woodward’s
Pension Society, the entity could not help fund pension benefits unless it
made a profit on its trading in securities. In Tourbec, the entity could
not provide travel for students at less than cost unless it made a profit on
its sales to others. In Otineka, the entity could not fund other native
organizations unless it made profits on its real estate development activities.
BBM is not in such a position and does not fail this threshold test.
[46] It has long been
CRA’s view, published in Interpretation Bulletin IT-496 “Non-Profit
Organization”, that some things, such as the realization of significant profits
or the accumulation of unreasonable reserves can be evidence of an unstated
profit purpose. Other relevant considerations set out in the Bulletin are
whether the entity’s activities are operated in a normal commercial manner,
whether goods and services are sold to non-members, whether it is operated on a
profit basis rather than a cost recovery basis and whether it operates in
competition with taxable entities carrying on the same trade or business. I
agree that, in appropriate cases, these may be reasonable and relevant considerations,
though they cannot all be requirements, they must be weighed appropriately in
the circumstances of each case, and none will be determinative. However, in
this case their consideration does not lead me to conclude BBM has an unstated
profit purpose.
[47] The Crown has
conceded BBM’s reserves over the years were reasonable in amount relative to
the needs of their operations.
[48] BBM operates on a cost
recovery basis over the medium and long term even though it does not operate on
a cost recovery basis each year. If its reserves are reasonable in relation to
its needs, this means the reserves will be spent within a reasonable period.
[49] If its reserves are
reasonable and it operates on a cost recovery basis, it would be hard to say an
organization realizes significant profits.
[50] BBM only sells its
data to its members. It would be difficult to impute a profit purpose to an
organization that only sells to members on a cost recovery basis.
[51] While there is
evidence of some competitive commercial participants entering some markets after
BBM’s presence was already fully established, they have not ever tried to
compete with BBM’s truly national focus.
[52] Caution needs to be
taken with the Bulletin’s consideration of whether the operations are operated
in a normal commercial manner. In this case the Crown emphasized BBM had
produced several internal reports and memoranda in the 1990s that stressed the
need to create a business environment within BBM and to conduct its activities
in a business-like manner. With respect, that is not what I would consider
sufficient to put an organization offside. This is the language of strategic
planning reports and action plans. More recently the phrase “accountable to our
stakeholders” would be expected to be used. This is not language that is unique
to business or commerce. Indeed, businesses rarely need to be reminded to be
business-like in their practices. This is the language of government
departments and agencies as well as court administrators. It is the public
sector, governments and quasi-governments, and the non-profit and charitable
sectors that need to be reminded they should be business-like in their operations
and delivery of services.
[53] The operations of
not-for-profit entities like BBM lack a significant attribute of commercial
businesses. There is no opportunity for their shareholders, members or
controlling persons to benefit financially by way of profits, distributions, unrestricted
salaries, capital appreciation of the undertaking or its assets, or in similar
fashion.
[54] Notwithstanding my
rejection of the Crown’s position in this case, it is not surprising or unusual
to see some degree of public benefit or purpose from the operations of many
organizations that are exempt from tax under paragraph 149(1)(l).
In the case of BBM, the value of its national measurement data to
non-commercial, quasi-government and government members in particular
identifies its significance to the proper implementation and regulation of
Canadian broadcast policy objectives for Canada’s public airwaves. However, a
public benefit or purpose is not a prerequisite to qualifying for the
paragraph 149(1)(l) exemption. The existence of public purpose or
benefit is at best debatable in the case of golf clubs and sports clubs, social
and dining clubs, many of which are private, condominium corporations and
homeowners’ associations, advocacy organizations and the myriad of similar
Canadian organizations that rely on this exemption.
[55] I will be allowing
the appeal with costs.
[56] The facts of the
proceeding raise an interesting question of onus and burden upon which I should
comment even though my decision has been reached without needing to give either
party the benefit of the onus or burden on the other party. This appeal is from
a reassessment of BBM’s 1996 taxation year. BBM objected to that assessment and
CRA confirmed it. BBM proceeded to file its Notice of Appeal in this
proceeding. CRA later reassessed several of BBM’s later taxation years. When
BBM objected, CRA allowed its objections. Since the evidence in this case
indicated nothing had changed in those years, one is left wondering what CRA is
doing. It is common for CRA to assess a taxpayer favourably for years and then
reassess unfavourably and there is no estoppel or other principle to prevent
this, nor would one normally be appropriate. Similarly, it would not be
surprising to find CRA returns to assessing later years favourably since the
issue may not be flagged for later years of the taxpayer. But here, CRA has assessed
the later years unfavourably, and after considering the objections, allowed the
objections and recognized BBM’s not-for-profit tax exemption. It is my view
that, at least as a practical matter, this can significantly shift the burden
of persuasion or explanation on the Crown.
Signed at Ottawa, Canada, this 13th day of June
2008.
"Patrick Boyle"
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