Citation: 2011 TCC 403
Date: August 26, 2011
Docket: 2010-611(GST)G
BETWEEN:
SYDNEY
MINES FIREMEN'S CLUB,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Campbell J.
[1]
The Appellant is
seeking an Input Tax Credit (“ITC”) in the amount of $15,759.90 in relation to
the purchase of a Rosborough Rough Water Boat (the “Boat”) on September 30,
2008. The Respondent believes the Boat was purchased to make exempt supplies
and has denied the claim.
[2]
The Appellant is a
non-profit society incorporated within the Province of Nova Scotia pursuant to
the Societies Act, Chapter 435 RSNS 1989 amended 1993, c. 42. It is also
a Goods and Services Tax (“GST”) registrant.
[3]
The Appellant is
comprised of volunteer members who are either active or retired firefighters.
The active firefighters are members of another related but separate and
distinct entity known as The Sydney Mines Volunteer Fire Department (the “Fire
Department”). Like the Appellant, it has always been a fully volunteer
department of unpaid firefighters.
[4]
The Fire Department
holds a unique position among the fire departments within the Cape Breton Regional Municipality (the “Municipality”) because
its fire station and equipment are owned by the Appellant. The fire stations
and equipment used by all other fire departments within industrial Cape Breton are owned by the Municipality.
[5]
A long-standing
practice has existed between the Appellant and the Fire Department whereby the
Appellant purchases and holds title to all equipment while making those items
available for the Fire Department’s use. The Fire Department provides firefighting,
rescue and emergency services in the Sydney Mines community. The Appellant is
able to retain control over those assets by retaining legal title. The
Appellant itself provides no emergency services. To assist the Fire Department
in this manner, the Appellant earns revenue primarily through its operation of
a bar and community hall.
[6]
When the Boat was
purchased in 2008, the Appellant retained title. Since the Appellant does not
provide rescue or emergency services, the Boat is made available to the Fire
Department for rendering emergency services, including water search and rescue.
[7]
In deciding whether the
Appellant may claim the ITC of $15,759.90 in respect to the Boat purchase,
the following two items must be addressed:
a) as
a preliminary matter, what is the effect of new documentation and new
information that the Appellant’s witness, Wayne Young, introduced during the
hearing without notice or prior disclosure to the Respondent; and
b) can
the Appellant’s activities and, in particular, the supply of the Boat, be
considered commercial activities within the meaning of subsection 123(1) of the
Excise Tax Act (the “Act”).
[8]
The Appellant agreed
with all of the assumptions of fact relied upon by the Respondent in the Amended
Reply to the Notice of Appeal except the following five assumptions:
9. e) the sole
purpose of the Appellant’s operations was to raise money to fund the Sydney
Mines Volunteer Fire Department;
…
r) the boat was
not used in the course of commercial activities or the business of the
Appellant during the taxation year;
s) the boat was
not purchased for the purpose of the Appellant’s consumption, use or supply in
the course of the commercial activities of raising funds;
…
u) the Appellant
maintains title to the boat for the purpose of securing unilateral use of the
boat by the Sydney Mines Volunteer Fire Department and to prevent the Cape Breton Regional Municipality from having care and control
over the boat;
…
9A. b) at all material
times, the Appellant provided the boat to the Sydney Mines Volunteer Fire
Department for its use for no consideration.
[9]
The Appellant submits
that its relationship with the Fire Department is not simply to raise funds for
the Fire Department but is “…tantamount to a managerial or directorship role”
(Appellant’s Submissions, paragraph 15). More specifically, at paragraph 19 of
its submissions, the Appellant submits that the supply of the Boat was made in
the course of its commercial activities because:
…it provides, in addition to its other
commercial activities, a service of acquiring and managing equipment for the
benefit of the Department for consideration in the form of grants it receives
from, in this case, the Province and Municipality.
The Appellant’s other revenue-producing
endeavours include catering, entertainment services and food and alcohol sales.
In addition, the Appellant argued that the supply of the Boat was not an exempt
supply because the Province of
Nova Scotia, by providing some of the funding for the
Boat purchase through the Emergency Service Provider Fund (the “EPF”), became
the recipient of the supply instead of the Fire Department. The Appellant submits
that the EPF funding should be viewed as the consideration for the supply of
the Boat to the Fire Department.
[10]
The Respondent relies
on the initial evidence of Wayne Young given during the examinations for
discovery. Mr. Young admitted to all of the facts in dispute in this appeal
(Discovery Evidence of Wayne Young, pages 45 to 49), including his admission that
the supply of the Boat was not made in the course of the Appellant’s commercial
activities and that the Appellant, being a public sector body, made the supply
for no consideration. Consequently, the Respondent submits that the supply is
an exempt supply.
[11]
Subsection 169(1) of
the Act permits registrants to claim an ITC for the GST paid on property
and services that are used, consumed or supplied in the course of their
commercial activities. The term “commercial activity” is defined in subsection
123(1) of the Act as follows:
“commercial activity” of a person means
(a) a business carried on by the person (other than a
business carried on without a reasonable expectation of profit by an
individual, a personal trust or a partnership, all of the members of which are
individuals), except to the extent to which the business involves the making of
exempt supplies by the person,
(b) an adventure or concern of the person in the nature
of trade (other than an adventure or concern engaged in without a reasonable
expectation of profit by an individual, a personal trust or a partnership, all
of the members of which are individuals), except to the extent to which the
adventure or concern involves the making of exempt supplies by the person, and
(c) the making of a supply (other than an exempt
supply) by the person of real property of the person, including anything done
by the person in the course of or in connection with the making of the supply.
[12]
Before determining
whether the supply of the Boat was made in the course of the Appellant’s
commercial activities, the preliminary issue of the introduction of new
documentation and information during the hearing must be addressed. The new
document consisted of one page of undated and unsigned handwritten notes
authored by Robert Bonnar, a former member of the Appellant and former dive
master with the Fire Department. This document was initially introduced through
Mr. Young, but he was not the document’s author and had no first-hand knowledge
of it. However, I provided the Appellant an opportunity to locate and call
Mr. Bonnar as a witness. This document lists the various sources of funding
used in the Boat purchase, including the EPF and was attached to the
Appellant’s financial statement for the period January 1, 2008 to December 31,
2008.
[13]
The second piece of new
information consisted of the contradictory testimony of Mr. Young compared to
the responses he gave during the examinations for discovery.
[14]
The Respondent
submitted that, since there was no notice of either the new document or the
contradictory testimony until after the commencement of the hearing, no weight
should be given to the document if the Court admitted it into evidence. The
Respondent also argued that Mr. Young’s responses during his examination for
discovery are more accurate and, therefore, preferable to his contradictory
statements made at the hearing.
[15]
Two rules of the Tax
Court of Canada Rules (General Procedure) (the “Rules”) are applicable:
Use at Hearing
89. (1) Unless the Court otherwise
directs, except with the consent in writing of the other party or where discovery
of documents has been waived by the other party, no document shall be used in
evidence by a party unless
(a) reference to it appears in the
pleadings, or in a list or an affidavit filed and served by a party to the
proceeding,
(b) it has been produced by one of the
parties, or some person being examined on behalf of one of the parties, at the
examination for discovery, or
(c) it has been produced by a witness
who is not, in the opinion of the Court, under the control of the party.
…
Information Subsequently Obtained
98. (1) Where a party has been examined
for discovery or a person has been examined for discovery on behalf or in place
of, or in addition to the party, and the party subsequently discovers that the
answer to a question on the examination,
(a) was incorrect or incomplete when
made, or
(b) is no longer correct and complete,
the party shall forthwith provide the
information in writing to every other party.
…
(3) Where a party has failed to
comply with subsection (1) or a requirement under paragraph (2)(a), and
the information subsequently discovered is,
(a) favourable to that party’s case,
the party may not introduce the information at the hearing, except with leave
of the judge, or
(b) not favourable to that party’s
case, the Court may give such direction as is just.
[16]
Although there was no
prior notice of the introduction of the new document and examinations were
completed months prior to the hearing, I permitted the document into evidence,
subject to the appropriate weight to be eventually assigned to it. Appellant’s
counsel advised the Court that this document had come to his and his client’s knowledge
only days before the hearing. In addition, Mr. Bonnar, the author of the
document, was able to appear and identify the document, which was only a short
one-page document that had been prepared sometime in 2008 when the Boat was
purchased.
[17]
The relevant rules
provide the Court with a discretionary power to permit such new information
into evidence despite the appropriate procedural steps not being followed. In
determining whether new documents and new information should be admitted, there
must be a balancing of the competing interests of both parties so there will be
no resulting miscarriage of justice.
[18]
Considering a rule very
similar to Rule 98 of the Rules, Justice Richard in Doiron v Haché,
2005 NBCA 75, [2005] N.B.J. No. 347, at paragraph 57, stated the following:
… The degree of freedom afforded a court in
procedural matters under the “discretion” umbrella is significant but not unfettered.
The discretion must be exercised judicially, that is “according to the rules of
reason and justice, not according to private opinion”, “according to law” and
it must not be “arbitrary, vague and fanciful, but legal and regular”: as
stated by Lord Halsbury in Sharp v. Wakefield, [1891] A.C. 173 at 179
and quoted by Kellock J. in Wrights Canadian Ropes Ltd. v. Canada (Minister
of National Revenue), [1946] S.C.R. 139 at p. 166, varied at [1947]
A.C. 109 (P.C.). To exercise discretion means to choose between two or more
reasonable options. The choice must be made considering the applicable law and
guiding principles and on a proper understanding of the facts. Where the facts
are misapprehended and the error is an overriding factor in the exercise of the
discretion such that the foundation for the option chosen no longer exists,
then an injustice has been done. …
[19]
There is not an
abundance of case law addressing the acceptance of new documents and
information without notice at trial. However, it appears that decisions have
both allowed the admission of new information (see Lacroix v The Queen,
2006 TCC 558, 2008 D.T.C. 3761) and prevented its introduction (see Walsh v
The Queen, 2009 TCC 557, 2009 D.T.C. 1372).
[20]
Neither of the
Appellant’s witnesses had a personal stake in the outcome of this appeal. In
fact, Mr. Bonnar, who authored the new document, is a retired firefighter who
is no longer involved with the activities of the Appellant or the Fire
Department.
[21]
In the interests of
justice and the overriding importance of having all of the information before
the Court to enable me to arrive at a proper and just determination of the
Appellant’s appeal, I permitted the introduction into evidence of the new
document and new information given by Mr. Young. At the end of the day, with
all of the information and evidence before me, it is nonetheless in my
discretion to assign the appropriate weight, if any, to the evidence.
[22]
If the new evidence has
merit and is not designed to prolong the proceedings, the policy reflected in
subrule 4(1) also supports the admission of the new information, in the
circumstances of this appeal, to enable me to arrive at a just determination. Subrule
4(1) of the Rules requires a liberal interpretation to secure the just,
most expeditious and least expensive determination of the proceeding on its
merits.
[23]
To successfully claim
an ITC pursuant to subsection 169(1) of the Act, the Appellant must have
acquired the Boat in the course of its commercial activities. In determining
whether the Appellant was engaged in commercial activities, two sub‑issues
need to be addressed:
(a)
Was the Appellant
carrying on a “business” pursuant to the definition in subsection 123(1) of the
Act?
(b)
Even if the Appellant
was carrying on a business, was it making an exempt supply as a public sector
body to the Fire Department for no consideration?
[24]
Subsection 123(1) of
the Act defines the term “business” to include:
…a profession, calling, trade, manufacture or undertaking of any
kind whatever, whether the activity or undertaking is engaged in for profit,
and any activity engaged in on a regular or continuous basis that involves the
supply of property by way of lease, licence or similar arrangement, but does
not include an office or employment.
There is a strong association between
conducting a business and the underlying intent to make a profit within the
business activity. However, case law has held that while the profit motive may
be an influencing factor, it is not determinative when deciding if activities
are conducted as a business. Since the Appellant is incorporated as a non‑profit
society, the issue is whether the Appellant’s supply of the Boat to the Fire
Department is an undertaking that falls within the “business” definition.
[25]
At paragraph 22 in Glengarry
Bingo Association v Her Majesty the Queen, [1995] T.C.J. No. 690, this Court held that “… a business includes an undertaking,
whether it is engaged in for profit [sic]. That undertaking is defined
to be a ‘commercial activity’.” Although
appealed to the Federal Court of Appeal, this portion of the decision was
unaffected.
[26]
The wording in
subsection 123(1) assigns the definition of business a wide scope to include an
“undertaking of any kind whatever”. Since the scope is broad and the Appellant
conducts its business activities as a non-profit society, it is reasonable to
apply a liberal interpretation to the Appellant’s activities. The Appellant
frequently purchases equipment and supplies that equipment to the Fire
Department to support its emergency and rescue services within the community of
Sydney Mines. On cross-examination, Mr. Young testified that the Appellant did:
“… a lot of other things in the community
besides raise money for the Fire Department. I would say it is our main
purpose to raise money for the Fire Department but not the only reason that we
raise money. We also -- we do things to help out other organizations. We have
put on a number of things to help mentally handicapped in the area. We have
donated our hall for funerals …
(Transcript, page 55, lines 11
to 18)
Mr. Young also referenced fundraising
through ticket sales, bingo and catering events.
[27]
When reviewed in their
entirety, I believe the Appellant’s activities can be considered a business.
Although the Appellant’s members are entirely volunteer, the evidence and the
standards of ordinary commercial common sense support the conclusion that they
approach their activities in an orderly and businesslike manner.
[28]
The definition of
commercial activity recognizes that any business activity that involves making an
exempt supply must be notionally severed for GST purposes. (398722 Alberta
Ltd. v Her Majesty the Queen, [2000] F.C.J. No.644 (F.C.A.)) A business may
be engaged in mixed-purpose activities, that is, several portions of the
activities may be used in the commercial activities of the business while the
balance of the activities may be exempt supplies. An ITC cannot be claimed in
respect to the exempt supply portion of a business under subsection 169(1) of
the Act.
[29]
On this point, the
Respondent argues that the supply of the Boat by the Appellant to the Fire
Department is an exempt supply captured by section 10, Part VI, Schedule V and as
a result, not a commercial activity of the Appellant. Therefore the ITC should
be denied.
[30]
Exempt supply in
subsection 123(1) means, “a supply included in Schedule V”. When a business makes an exempt
supply it cannot be engaged in a commercial activity.
[31]
Section 10 states:
10. A supply made by a public sector body of any property or
service where all or substantially all of the supplies of the property or
service by the body are made for no consideration, but not including a supply
of blood or blood derivatives.
[32]
The Appellant admitted
that it is a public sector body as defined in subsection 123(1) of the Act,
but denies that it is engaged in the making of exempt supplies. The question
therefore is whether the supply was made by the Appellant for no consideration.
[33]
The Appellant argues
that approximately $80,000 of the purchase price of the Boat came from the Province of Nova Scotia through an EPF grant. In addition, this
grant was specifically made for the purpose of acquiring the Boat for the Fire
Departments’ use. Therefore the Appellant submits that those funds constituted
consideration for the supply. (Appellant’s Submissions, paragraph 28).
[34]
The Respondent’s
position is that the Appellant’s evidence respecting the funding was
insufficient to enable the Court to support a conclusion that any consideration
was ever paid. In addition, since the Appellant’s evidence changed between
discovery and the hearing and the new document at the hearing was submitted
without notice, the evidence to support the Appellant’s consideration argument
should be given no weight.
[35]
In Regina (City) v Her Majesty the Queen, [2001] T.C.J. No. 315, Justice Rip
(as he was then), discussed the “direct link test” adopted in Technical
Information Bulletin B-067. At paragraphs 28 and 29, he stated the following:
[28] The author of Part I of T.I. Bulletin
B-067 explains that "if there is a direct link between a transfer payment
received by a person and a supply provided by that person, either to the
grantor of the transfer payment or to third parties, the transfer payment will
be regarded as consideration for the supply". The Bulletin emphasizes that
"[a] direct link may not always be apparent and therefore it will be
necessary to consider the circumstances surrounding each case". Relevant
circumstances may include: the agreement between the parties; the conduct of
the parties; the objectives or policy statements of the grantor; and the
legislation, by-laws and any applicable regulation under which the payment is
made.
[29] Part II of T.I. Bulletin B-067 states
policy guidelines to clarify whether a direct link exists between a transfer
payment and a supply and, therefore, whether the transfer payment is
consideration. According to these guidelines, where a supply takes place in
respect of a transfer payment, there will be a direct link between the supply
and the transfer payment if the supply is provided to the grantor for a
"purchase purpose" as opposed to a "public purpose". The
Bulletin refers to a "purchase purpose" as "one which benefits
the grantor or a specific third party and may be of a commercial nature"
and to a "public purpose" as "one which benefits the general
public or a particular segment of the general public".
[36]
In an earlier decision,
the Federal Court of Appeal in Commission scolaire Des Chênes v The Queen,
[2001] F.C.J. No. 1559, 2001 FCA 264, found that a subsidy for transportation
purposes was consideration although it did not fully cover the cost of the
goods or services for which the subsidy is given. Justice Noël determined that
there was a sufficient link between the subsidy paid by the Province of Quebec and the services provided by the school
board for students. A subsequent decision by the Federal Court of Appeal in Calgary
(City) v The Queen, 2010 FCA 127 (CanLII), 2010 FCA 127, appears to narrow Des
Chênes to the terms of the written agreements that exist between the province
and a public sector body. However, neither Des Chênes nor Calgary (City) considered section 10.
[37]
The Appellant’s primary
argument is based upon its submissions that the grant it received from the EPF is
consideration for the supply of the Boat. This argument has merit based upon
the Federal Court of Appeal decision in Des Chênes. However, the
Appellant failed to adduce sufficient evidence to establish that “direct link”
between the EPF funds and the purchase of the Boat. This evidence is required
if the Appellant is to succeed. To prove that the EPF grant constituted payment
for the supply of the Boat, the Appellant submitted one page of undated,
unsigned handwritten notes (Exhibit A-11). There were no other documents put
into evidence. Mr. Bonnar explained that it contained a breakdown of the origin
of the accounts, where the money came from to purchase the Boat. However, on
cross-examination, he was unable to give any information on one of these
sources of funds, the Centennial grant. In addition, no evidence was submitted
that would confirm actual receipt of those funds. I assume that other documents
exist besides the one page of handwritten notes. They may have been in the form
of agreements, applications, or correspondence between the parties. The
appropriate person on behalf of the Province could have been called to assist
in establishing a direct link between the supply and the transfer payment.
Evidence concerning the applicable legislation could have also been produced.
[38]
The onus was upon the
Appellant to adduce such evidence to establish that a direct link exists
between the subsidy funds and the supply to the Fire Department. The Appellant
failed to adduce sufficient evidence to determine whether the subsidy was made
to fund a particular supply. In other words and unfortunately, the direct link
was not established. The Boat is not the only asset owned by the Appellant,
therefore the subsidy funds given by the Province to the Appellant could have
been intended for a number of uses. In these circumstances, it is imperative
that the Appellant adduce evidence to establish a direct link between the
supply of the Boat and the subsidy funds. Had this link been established, the
consideration argument would have succeeded.
[39]
At the end of his
submissions, Appellant’s counsel made an alternative argument. Although
unclear, if I am correct in my understanding, the argument is that less than
“all or substantially all” of its supplies are made for no consideration. Interpreting
“all or substantially all” in section 10 to mean 90 per cent or greater, the Appellant
contends that its GST liability of $15,759 respecting the Boat is less than 90
per cent of its total GST burden of $35,268 in 2008. In order for a supply to
constitute an exempt supply under section 10, at least 90 per cent of all the
Appellant’s activities must be made for no consideration. If I understand the
argument correctly, it fails because it is directly contradicted by case law.
[40]
In North Vancouver School
District No. 44 (North Vancouver) v The Queen, [2008] T.C.J. No. 354, 2008
TCC 475, Justice Woods reviewed the language of section 10 and, at paragraph
31, determined that the exemptions should be given a narrow scope, based on the
wording in the section:
[31] An important
consideration in the interpretation of section 10, in my view, is the language
used in the section, which implies that the exemption is to have narrow scope.
This is inferred from both the words “the” and “property” in the phrase “the
property or service.” These words suggest that the properties or services that
qualify for the exemption must be the very same properties or services that are
provided for no consideration.
[41]
I agree with the
conclusion of Justice Woods respecting the language contained in section 10.
Using the same narrow interpretation which Justice Woods applied, only the
supply of the Boat must be considered while the Appellant’s other taxable
supplies will not. Consequently, the Appellant’s alternative argument must
fail.
[42]
The Appellant and the
Fire Department provide an invaluable service to their community. They
constantly risk their lives to perform emergency and rescue services. All of
this is provided on a volunteer basis. Unfortunately, the Appellant did not
adduce the necessary evidence regarding the EPF funding which was required to
establish its direct link argument on consideration.
[43]
For these reasons, the
appeal is dismissed. Neither Appellant counsel nor Respondent counsel addressed
costs in their written or oral submissions. In addition, the Reply to the
Notice of Appeal makes no claim for costs. In these circumstances, I am making
no award respecting costs.
Signed at Summerside, Prince Edward Island, this 26th day of August 2011.
“Diane Campbell”
Email this Content