AMENDED
REASONS FOR JUDGMENT
C. Miller J.
[1]
Tele-Mobile Company (“Telus”)
is a partnership between Telus Communications Inc. and 3817873 Canada Inc.
Telus appeals the Goods and Services Tax (“GST”)
assessment in which the Minister of National Revenue (the “Minister”) assessed GST on the telecommunication
service provided by Telus of roaming airtime services (“RAT”)
in the United States. The Minister applied paragraph 142.1(2)(b)
of the Excise Tax Act (the “Act”)
on the basis that the RAT was part of a single supply of telecommunication
services by Telus, which services included long distance calls from the
United States to Canada. Telus’ position is that the RAT was a separate
supply for a telecommunication service taking place entirely in the United
States and therefore not captured by paragraph 142.1(2)(b) of the
Act.
[2]
The Parties most helpfully provided an Agreed
Statement of Facts which is reproduced in its entirety and attached as Appendix
A: a careful reading of those facts is essential to appreciate the technical
machinations of making a cellular long distance call from the United States to
Canada as a Telus subscriber.
[3]
I add the following to the evidence contained in
the Agreed Statement of Facts: first, attached as Appendix B are excerpts from
an invoice for a subscriber, illustrating the breakdown between RAT charges and
long distance charges.
[4]
What is clear from a review of the invoice is
that often the RAT was based on a call that would have been a minute longer
than the roaming long distance charge, presumably as it could take up to a
minute to connect to the toll switch at the MTSO (as those terms are described
in the Agreed Statement of Facts).
[5]
Next, I attach as Appendix C part of a CHARM 781
monthly expense report for Telus. This simply shows that the roaming airtime
was greater than the toll or long distance time. To put this in simple terms,
this means a Canadian subscriber not only used the cell phone while travelling
in the United States to make long distance calls back to Canada, but also used
it to make local calls, for example making a local dining reservation.
[6]
I was also provided in the Joint Book of
Documents with a copy of part of Telus’ website entitled “Coverage and Travelling” which stated in part:
Traveling in the
United States?
With our
automatic U.S. roaming service, you can take your TELUS Mobility PCS* 1X phone
or data device to hundreds of cities across the United States, and access all
the great PCS phone and data features you enjoy at home.
What you pay
We’ve made U.S.
voice and data roaming simple. You don’t have to sign up, just take your phone
and go. Just like at home, airtime and long distance are billed in Canadian
dollars so there’s no need to worry about U.S. exchange rates.
Airtime (within the Long Distance
(within U.S. Data
U.S. and to Canada the U.S. and to
Canada Roaming
95¢ per minute Additional 50¢
per minute Charged by the
Megabyte
in 1X areas. See our PCS US Data Roaming FAQs for details
[7]
In the agreement with its customer, under the
heading “Roaming”, Telus stipulated:
Roaming: When
roaming outside of TELUS Mobility’s area, Customer is responsible for all
applicable charges, and is subject to the terms and conditions of service
(including limitations of liability) imposed by the wireless service provider
providing the roaming services. …
[8]
Finally, in an agreement with a United States
carrier (the example provided by the Parties was an agreement with Alaska
Digitel LCC), Telus and the U.S. carrier agreed in part as follows:
2. The Home Carrier shall be liable to the Serving Carrier
in accordance with Paragraph 2.1 of Appendix II for all of the service and
pass-through charges for all calls chargeable to the Home Carrier’s customers
(including the customers of its resellers) and invoiced by the Serving Carrier
to the Home Carrier as specified in Appendix III. “Home
Carrier” and “Serving Carrier” are defined in
Appendix II.
…
4.1 Each Home Carrier shall be
responsible for billing to, and collecting from, its own customers all charges
that are incurred by such customers as a result of service provided to them as
Authorized Roamers by the Serving Carrier. The Home Carrier shall also be
responsible for billing its customers for, and remitting to, the Federal
Government all federal excise tax that may be due in connection with the
service being billed by it to its customers. While the Serving Carrier will be
responsible for the computation and remittance of all state and local taxes,
each Home Carrier shall be liable to the Serving Carrier for all such state and
local taxes billed by the Serving Carrier, regardless of whether these amounts
are paid to the Home Carrier by its customers.
…
9. Billing Invoice Summary.
The minimum information needed for an invoice issued with non-clearinghouse
documentation must include the following:
- Billing Period (To/From Dates)
- Batch Sequence Number
- Batch Date
- Serving and Home SID’s (the five digit
numeric corresponding to the FCC designation of the Carrier)
- Total Airtime Charges
- Total Intra-State Toll
- Total Inter-State Toll
- Other Charges and Credits
- Total Taxes
- Total Charges
Issue
[9]
The issue is whether GST is exigible on the RAT charges
incurred on long distance calls made by a subscriber to Canada while travelling
in the United States. The answer depends on whether the RAT charge is for
a single supply of that telecommunication service (being the transmission from
the cell phone in the United States to the MTSO) or whether that supply, to
which the RAT charge relates, is part of an overall supply of telecommunication
services that includes both the long distance element (being the transmission
from the MTSO to the Canadian recipient of the call) and the RAT element. In
other words, was Telus supplying, and the subscriber receiving, two separate
supplies:
a)
the transmission between the cell phone and a toll
switch (MTSO) in the United States where the transmission is then transferred
to a cross-border transmission; and
b) the transmission from there to the Canadian recipient of the call.
To be clear, GST
was charged and collected on (b), the second supply, but not on (a) the charge
for the transmission from the cell phone to the toll switch at the MTSO. It is
only the latter that is in dispute.
Legislation
[10]
I start with a review of the applicable
provisions of the Act.
[11]
“Supply” as defined in section 123 of the Act means:
subject to sections 133 and 134, the provision of property or a
service in any manner, including sale, transfer, barter, exchange, licence,
rental, lease, gift or disposition;
[12]
“Telecommunication
service” is defined in
section 123 of the Act as:
(a) the service of emitting,
transmitting or receiving signs, signals, writing, images or sounds or
intelligence of any nature by wire, cable, radio, optical or other
electromagnetic system, or by any similar technical system, or
(b) making available for such
emission, transmission or reception telecommunications facilities of a person
who carries on the business of supplying services referred to in paragraph (a);
[13]
Telecommunication
service is broadly defined and is a supply for purposes of the Act. Pursuant
to subsection 165(1) of the Act a person who pays consideration for a
taxable supply made in Canada is required to pay GST. Further, pursuant
to section 221 of the Act the supplier is obliged to collect the GST.
[14]
Section 142 of
the Act sets out principles to determine whether a supply is made in
Canada and consequently caught by the GST charging and collecting provisions.
Section 142.1 of the Act specifically addresses this issue in relation
to a telecommunication service. It reads:
142.1(1) For the purposes of this section, the billing
location for a telecommunication service supplied to a recipient is in Canada
if
(a)
where the consideration payable for the service
is charged or applied to an account that the recipient has with a person who
carries on the business of supplying telecommunication services and the account
relates to a telecommunications facility that is used or is available for use
by the recipient to obtain telecommunication services, that telecommunications
facility is ordinarily located in Canada; and
(b)
in any other case, the telecommunications
facility used to initiate the service is located in Canada.
(2) Notwithstanding section 142 and subject to section 143,
for the purposes of this Part, a supply of a telecommunication service is
deemed to be made in Canada where
(a) in the case of a telecommunication service of
making telecommunications facilities available, the facilities or any part
thereof are located in Canada; and
(b) in any other case,
(i) the telecommunication is emitted and received in Canada, or
(ii) the telecommunication is emitted or received in Canada and the
billing location for the service is in Canada.
[15]
It is agreed that Telus has a billing location
in Canada as described in subsection 142.1(1) of the Act. It is
subsection 142.1(2) of the Act, however, where the dispute arises, and
specifically the application of subparagraph 142.1(2)(b)(ii) of the
Act. With respect to a cellular call from the United States to Canada
made by a Telus customer: (i) if the telecommunication service is viewed as a
single supply of the entirety of the transmission (that is from the cell phone
in the United States to a phone (cell or landline) in Canada) then because it
is received in Canada it is subject to GST, or (ii) if the telecommunication
service is viewed as two separate telecommunication services or supplies, one
being the transmission from the cell phone in the United States to the toll
switch at the border for which there is a RAT charge and the other from the
toll switch at the border to the Canadian recipient for which there is a long
distance charge, then only the latter transmission is received in Canada and
therefore considered a supply made in Canada and the RAT charge would relate to
a supply neither emitted nor received in Canada and therefore not subject to
GST.
Analysis
[16]
So, a single supply of a telecommunication
service or separate supplies of telecommunication services? Given the
definition of telecommunication service in the Act is in the
disjunctive, that is, the emission, transmission or reception of a
signal, can each be considered a telecommunication service? Yes, under the Act
I readily conclude that the RAT transmission to the MTSO could be a supply
and the long distance transmission from the MTSO to the Canadian recipient could
be a supply. The question is however whether, pursuant to the development of
the jurisprudence on single supply versus multiple supplies, these
transmissions are separate supplies for purposes of the Act or integral
components of a single supply.
[17]
There has been considerable case law addressing
this issue. I start with the principle set out by Chief Justice Rip in O.A.
Brown Ltd. v R,
to which both Parties referred me:
…The test to be
distilled from the English authorities is whether, in substance and reality,
the alleged separate supply is an integral part, integrant or component of the
overall supply. Once must examine the true nature of the transaction to
determine the tax consequences…
…one should look
at the degree to which the services alleged to constitute a single supply are
interconnected, the extent of their interdependence and intertwining, whether
each is an integral part or component of a composite whole…
[18]
I note with interest, as did Justice Rothstein
in the Supreme Court of Canada’s decision in the Calgary (City) v R. that Chief Justice Rip cited
the importance of common sense in making this determination. Indeed, common
sense is my starting point and common sense suggests to me that when I use my
cell phone in the United States to phone Canada and Telus charges me for that
service, I am being supplied a phone call, regardless of the inner machinations
of the various transmissions. A review of the case law may assist in
determining whether there is support for that common sense approach or not. The
Parties cited several cases all of which acknowledge the overriding principles
set out in O.A. Brown. I am going to rely on just a handful, as I
believe they best reflect the factors Courts have considered in dealing with
the single versus multiple supply issue.
Global Cash Access (Canada) Inc. v Canada
[19]
This case referred to the commercial efficacy,
or lack thereof, of supplies of: (i) allowing kiosks on casino premises, (ii)
providing support services at the cashier cages and (iii) cashing Global’s
cheques, finding that these elements constituted a single supply. The Federal
Court of Appeal stated:
25. It is clear from the contract and from the undisputed
facts that none of the three elements of the supply as identified by Justice
Woods had commercial efficacy on its own. More importantly, there is no
evidence that Global would have been prepared to pay consideration to the
Casinos for any of the three elements on its own. Since the three elements are
integrally connected and there is a single consideration, there is a single
supply.
BC Ferry Services Inc. v HMQ
[20]
This case dealt with the supply of staterooms to
passengers travelling on ferries. The appellants indicated that the use of
staterooms during the voyage was not included in the purchase of the ticket for
the transportation. BC Ferry Services was assessed on the basis that the
supply of staterooms was part of the single supply of the ferry service.
Justice Campbell decided otherwise, finding that rental staterooms was a
separate supply from the supply of ferry services. She indicated:
65. I am of the view that the provision of stateroom rentals
is a separate supply. Common sense dictates that the provision of ferrying
services remains a useful and valuable supply minus the rental of staterooms. Staterooms
are not an essential component to the overall supply of transportation
services. In fact, there are insufficient numbers of staterooms to accommodate
every passenger, even if all of the passengers on any route wished to purchase
a stateroom. The provision of staterooms can be, and frequently is, omitted
from the supply of ferry services. It is only logical to conclude that it must
be a separate supply. It can be purchased separately and still result in a
useful service for a particular passenger. It is a “stand alone” product
independent of the ferrying service. There is such a lack of interconnectedness
that it is very easy to identify these stateroom supplies as distinct
components from the supply of transportation services that get a passenger from
Point A to Point B. The rental of staterooms falls within the Act’s definition
of short-term accommodations and, in any event, can easily be separated from
the overall supply, leaving a useful product or service intact.
Jema International Travel Clinic Inc. v Canada
[21]
In this case, the health clinic provided travel
health advice which was required before determining which vaccination the
customer needed, and the clinic would then supply and administer the
vaccination. No vaccination was given without first having a consultation,
which could in fact result in no vaccination being necessary. Justice D’Arcy
stated:
33. After reviewing the evidence, I have concluded that the
Appellant made two supplies, i.e. the supply of the consultation and the supply
of a vaccine.
34. The consultation between the nurses and the clients
involved a determination of what vaccines the latter was required to have and
what vaccines he or she could elect to have before travelling to a specific
country. The consultations also resulted in the determination of whether the
client, based upon his or her current health and medications, could receive the
vaccines. The consultations could result in the client receiving no vaccines
(if for example he/she has previously received all required or recommended
vaccines), a single vaccine or numerous vaccines. Further, the actual number
and type of vaccines administered by the nurses at the clinic would vary from
client to client.
35. This, in my view, evidences that the supply of the
consultations was separate from the supply of the vaccines. For example, a
person may attend at the clinic and the nurse may determine that he or she does
not require any vaccines. The supply of the consultation has been made, but
there is no supply of a vaccine. In other words, a supply of the vaccine is not
required to make a supply of the consultation. This supports a finding that the
supply of the consultation was separate from the supply of any vaccines.
36. In addition, the supply of the consultation is a useful
service even if a supply of a vaccine is not made. If the client elects not to
receive a required vaccination then he/she knows that he/she cannot travel to
the country that requires the vaccine. Alternatively, if the consultation
results in a determination that the client can travel safely to a specific
country without having received any vaccinations, then he/she has still
received useful information.
Cie de Gestion Alger inc. v R
[22]
This case dealt with home delivered pizza. Justice
Paris found that the delivery person, albeit self-employed, was an agent of the
pizza parlour itself and notwithstanding the cost of pizza and the cost of
delivery were separately itemized, he found one single supply. He indicated:
31. When the various elements of a supply are an integral part
of said supply and they are inextricably linked, or when each loses its
independence and must be supplied jointly, the supply will usually be
considered as being a single supply. Conversely, when a number of elements of a
supply are reasonably severable or separable, the supply will usually be
considered as being a multiple supply. In that regard, it would be prudent not
to artificially split, for business purposes, a supply that is clearly a single
supply.
…
36. In the case at bar, it is necessary to determine whether
the property (the food) and the service provided (the delivery) constitute a
single supply, or whether they are two separate supplies. One must ask, in the
light of the evidence adduced:
- Is it possible to separate each of the
elements and end up with a useful and functional service or property?
- What is the degree to which the
food and the delivery service are interconnected?
- Is the delivery service an integral
part of the supply of food?
- Are separate charges made?
37. On the one hand, the evidence reveals that the cost of
food and the cost of delivery were itemized separately on the invoice provided
to the customer. However, when the customers paid their invoice, they paid the
delivery person the total amount, without distinction between food and
delivery. As for the food and delivery services being interconnected, the
evidence shows that there were two ways of obtaining the food: go to the
appellant’s establishment in person or place an order for delivery. In the first
case, the food was made available to the customers while at the restaurant. In
the second, the food was made available to the customers upon delivery. What
differs is the manner in which the supply was made available to the customers.
As for the interconnection and separation of elements, it is clear that it was
possible to obtain the food without delivery. However, to obtain delivery
without food is simply illogical. By separating the two elements, such that all
that remains is the delivery, a viable and useful service or property cannot be
obtained.
[23]
It is also helpful to consider the Government’s
policy on this issue. In Policy Statement P-077R2 entitled “Single and Multiple Supplies” the Canada Revenue
Agency indicates:
Is the recipient
made aware of the elements (in detail) that are part of the package?
If the recipient
is not made aware of the specific elements, there is likely only a single
supply.
When the
recipient is made aware of the elements that make up a package of property
and/or services, this information may help to establish the relationship
amongst the individual elements and the importance of each element. A detailed
indication of specific elements might include the quantity of the particular
elements being supplied, their physical characteristics, or the steps to be
followed in providing a particular element. If the recipient is made aware of
the specific elements, there may be multiple supplies or there might only be a
single supply.
[24]
The Appellant, in presenting a review of this
case law, suggests there are five criteria to be applied in the determination
of whether there is a single or multiple supply:
a)
Do each of the supplies have commercial
efficacy?
b) Is the recipient aware of the specific elements of each of the
supplies?
c)
Are there separate fees for each of the
supplies?
d) Are any of the supplies an optional component?
e)
Are any of the supplies useful on their own?
[25]
I am prepared to review the facts before me
addressing each of these factors, but it is important to distinguish at the
outset the difference between viewing two alleged separate supplies in context
versus viewing them unattached to one another. For example, it is of no
assistance to point to the pizza parlour and say that because a customer can
buy pizza directly from that place, it must be a separate supply. The analysis
should not be centered on a different circumstance: the circumstance in that
case was the purchase of home delivered pizza. Likewise, with respect to the
telecommunication service it is faulty analysis to look just at the RAT and say
that because a customer can simply buy that, it must be a separate supply. No,
it must be viewed in context of the end result to the recipient of the overall
supply. In effect, you cannot have one without the other to achieve the result.
So you cannot have pizza without delivery nor delivery without pizza for home
delivered pizza. You can, however, have a ferry service without the
stateroom though, as you can have health advice without the vaccination.
Commercial efficacy
[26]
Does the RAT have commercial efficacy on its
own? Only, I would suggest, if you consider it out of context of the long
distance charges. Clearly, the plans bought by a subscriber permitted use of
roaming airtime for purposes of making local calls, while roaming in the United
States, but that is not the service at issue. I recognize it is not required of
the subscriber that he or she use the long distance element of the package,
though presumably that is partly the reason for acquiring such a Telus plan.
Appellant’s counsel pointed out, even in the context of traditional telephone
communication,
Yet, even in this
traditional context, an individual making a long distance call does absolutely
nothing different in picking up a phone to call either a local or long distance
number. The phone is simply being used to make the call.
[27]
The evidence of the invoices and the CHARM
summary suggest that the RAT can be used independently of long distance
charges, and therefore has a commercial efficacy as a standalone supply. But
again, I would emphasize that is only in the context of locally made calls. The
subscriber may or may not make long distance calls from the United States. But
by paying for the RAT the subscriber has access to the system allowing it to
make that long distance call, and the two (RAT and long distance service) work
hand-in-hand to provide the overall long distance service.
Awareness of specific elements
[28]
In Telus’ advertising it markets the seamless
nature of phoning from the United States, though it also makes clear that the
customer pays for access to United States RAT and then pays again for long
distance.
[29]
This arrangement is also confirmed in the
service plan the subscriber ultimately subscribes to, which again separates
charges for the RAT versus the long distance service. It is clear though the
subscriber avails him or herself of both services for a Telus long distance
call. The invoices themselves also set out the separate charges.
[30]
While I do not view this as an artificial
separation, as the Respondent might suggest, I see it more as an internal tool
for the providers of the service.
Separate fees
[31]
Yes, the fees are separate for the RAT
transmission from the cell phone to the MTSO and for the long distance charge
from the MTSO to the Canadian recipient. I agree with the Appellant that this too
is not an artificial separation. This does suggest two separate supplies but it
is not determinative.
Optional Component
[32]
The Appellant argues that when one or more
elements of the supplies are optional it supports a finding of separate
supplies. Given subscribers had different options regarding the provision of
United States Long Distance Service (calling card or collect for example), it
follows the United States Long Distance element was optional and therefore a
separate supply. I do not view the optional nature of the service this way.
This is not the same as having an option to buy the use of a stateroom on a
ferry. The option in that case is with the same supplier – the ferry service.
With the Telus long distance call, using only Telus, there are no other
options. The RAT and long distance service must work together.
Useful supply
[33]
I again agree with the Appellant that the RAT
service is a useful standalone service, for example, in making local calls
while travelling in the United States. But the point is that is not the service
at issue. It is the service of a Telus cellular long distance call from the
United States to Canada. Are either the RAT or long distance service useful by
themselves in making the long distance call through Telus? The answer is no.
[34]
In summarizing a review of the factors suggested
by the Appellant, I understand why the Appellant believes case law could
support separate supplies. Yet, with respect, these criteria are not as helpful
as they might be. For example, in applying these criteria to the delivered
pizza case as opposed to the vaccination case, it is difficult to discern any
bright line test based on commercial efficacy, separate billing, optional
component or useful supply. I harken back to the words of Chief Justice
Rip in O.A. Brown:
…integral part, integrant or component of
overall supply.
[35]
This integration approach, I believe, remains
the essence of the single versus multiple supply. And this, I suggest,
distinguishes a delivered pizza from the vaccination or from the stateroom on
the ferry. With the delivered pizza, the recipient is simply getting a pizza.
With the ferry ride, the recipient is getting more than the ride as he or she
is also getting a stateroom and all that entails. With the vaccination, the
recipient gets more than just a vaccination, it gets valuable health advice.
[36]
The delivery of the pizza is integrated into the
supply of the pizza. The stateroom and the health advice are not integrated
into the ferry ride and the vaccination respectively. Viewing the
telecommunication service offered by Telus as a service of communication for
customers to talk to another person, how that service is delivered is more akin
to the delivery of pizza than provision of a separate stateroom service or vaccination
service. The customer is simply paying to be able to make a call from his cell
phone to Canada. The RAT and long distance service are fully and seamlessly
integrated into making that happen. For the delivery of a long distance call
from the United States to Canada by cell phone, you cannot have the RAT without
long distance nor can you have long distance without the RAT for a Telus made
call. They are totally interdependent: integral components of an overall supply.
[37]
Finally, I wish to address the Appellant’s
argument that “two very distinct and separate services
are being provided”. The Appellant presents the analogy of a transaction
at a dry cleaner, where a customer takes in a shirt to be cleaned and to be
mended, tasks completed by different subcontractors and identified and billed
separately by the dry cleaner.
The Appellant
argues:
124. In the example each of the cleaning and mending services
has commercial efficacy on its own, the customer is aware of the separate
elements, separate fees and charged for each service, either of the services is
an optional component and both services are useful on their own. The mending
and cleaning services are accordingly separate supplies.
125. In contrast, the opposite conclusion would arise in a
situation where the customer came in to have the shirt cleaned and the dry
cleaner told the customer that he would be charged $2 for cleaning solution and
$8 for the cleaning service. This situation is an example of the type of
artificial transaction the Courts have ruled must be considered as a single
supply. (For example, the minimal quantity of cleaning solution used had no
commercial efficacy on its own, and it is an integral and non-optional part of
the cleaning service). In this example a single supply of a cleaning service is
being rendered with an artificial separation of an integral non-optional
element that does not alter the nature of the supply.
[38]
This analogy does not work for me. The Telus
customer is looking to Telus for one thing – the ability to phone Canada by
cell phone while travelling in the United States. The ferry passenger has two
distinct objectives – the transportation and the comfort of a stateroom. The
dry cleaner customer has two distinct objectives – the clean shirt and the
repaired shirt. The telephone customer has one objective – the phone call. How
Telus provides that and charges for it does not turn it into multiple distinct
and separate supplies.
[39]
Appellant’s counsel has done a masterful job of
gleaning tests from the case law to support her client’s position. It has not
been enough though to overcome my common sense view that the interdependence of
the RAT service and the long distance service is such that there is a single
supply of a transmission from cell phone in the United States to recipient in
Canada, and as that transmission is received in Canada it is caught by
subparagraph 142.1(2)(b)(ii) of the Act.
[40]
The Appeal is dismissed with costs to the
Respondent.
These Amended Reasons for Judgment are issued in
substitution of the Reasons for Judgment dated August 6, 2015.
Signed at Vancouver,
British Columbia, this 25th day of August 2015.
“Campbell J. Miller”
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