Neutral citation: 2001 FCA 159
CORAM: DESJARDINS J.A.
VANEX TRUCK SERVICE LTD.
- and -
HER MAJESTY THE QUEEN
Heard at Vancouver, British Columbia, on Wednesday, May 9, 2001.
JUDGMENT delivered at Ottawa, Ontario, on Tuesday, May 29, 2001.
REASONS FOR JUDGMENT BY: MALONE J.A.
CONCURRED IN BY: DESJARDINS J.A.
Neutral citation: 2001FCA 159
CORAM: DESJARDINS, J.A.
VANEX TRUCK SERVICE LTD.
- and -
HER MAJESTY THE QUEEN
REASONS FOR JUDGMENT
This is an appeal by Vanex Truck Service Ltd. ("Vanex") from a judgment of the Tax Court of Canada rendered on November 12, 1999  G.S.T.C. 101 (T.C.C.). The Tax Court Judge upheld the Minister's assessment of goods and services tax ("GST") against Vanex for the reporting period January 1, 1991 to July 31, 1994. He concluded that the Appellant made a taxable supply of insurance, fuel, oil and licences for which it failed to collect and remit GST under Part IX of the Excise Tax Act, R.S.C. 1985, c. E-15 (the "Act").
There are two issues before us: first, whether the Tax Court Judge erred in concluding that Vanex made a "taxable supply" within the meaning of the Act; and second, whether he erred in allowing the Minister to rely, in the alternative, upon section 178 of the Act to justify his assessment.
The relevant facts are easily summarized. The Appellant is a British Columbia corporation involved in the freight transportation business, and required approximately twenty-four truckers to transport goods solely for its customers. A trucker was either a regular employee or an owner-operator. A regular employee was paid either by the hour or by mileage, and drove a tractor which was owned, operated and maintained by Vanex. An owner-operator supplied and drove his own tractor or tractor and trailer. An owner-operator received 75% of the gross revenue if he or she supplied only the tractor, and approximately 86% of the gross revenue if he or she supplied both the tractor and trailer.
The expense arrangement between Vanex and the owner-operators was oral. The Appellant provided owner-operators the option of acquiring insurance, motor vehicle and motor carrier licences ("licences"), as well as oil and fuel at discounted rates. If an owner-operator declined this option, he or she was personally responsible for acquiring these items. Most chose the discount option through Vanex in which case the cost of these items was deducted on a monthly basis from the 75% of the gross revenue owed to the owner-operator by Vanex. It is the manner in which the Appellant provided these discounted items to the owner-operators which is at the heart of this appeal.
The Appellant was able to obtain licences at a discounted rate from the Insurance Corporation of British Columbia ("ICBC") for all of the tractors and trailers in its fleet. However, these units had to be registered in the Vanex name. Owner-operators were required to sign the registration of their tractors or tractors and trailers over to the Appellant using a government transfer of vehicle ownership form which was filed with ICBC. No provincial sales tax was payable as a transfer tax form was also completed indicating that the transfer was occurring for licencing and insurance purposes only. Vanex also agreed to transfer title back to an owner-operator once their business relationship came to an end. This understanding was reduced to writing.
Axa Pacific Insurance ("Axa") issued a fleet insurance policy to Vanex to cover the tractors while ICBC issued a fleet policy to cover the trailers. These fleet policies afforded the Appellant a premium that was 20% lower than an ordinary individual policy. To be covered by these fleet policies, an owner-operator was also required to transfer title to his tractor or tractor and trailer to Vanex, because the policies were non-transferable. All of the insurance premiums were paid by the Appellant to Axa. In the event of an accident, Axa was bound to pay any proceeds directly to Vanex who would, in turn, pay the proceeds to the owner-operator.
Vanex had fuel supply agreements with Shell and Petro Canada and a number of credit cards were issued to the Appellant. All of the monthly supply statements were sent to Vanex who was legally responsible for paying what was owed. The Appellant recorded the credit card numbers and personal identification numbers ("PIN numbers") and distributed the cards to both its employees and the owner-operators.
The dispute with revenue authorities arose because Vanex did not charge GST on the deductions for licences, insurance, oil and fuel. The Minister took the position that the Appellant was making a taxable supply to the owner-operators, and was therefore responsible for collecting and remitting GST.
I am of the opinion that there was clear evidence before the Tax Court Judge upon which to base his conclusion that the insurance, fuel, oil and licences were taxable supplies made from Vanex to the owner-operators, and taxable under the Act. Central to his decision was the credibility finding that the evidence of the Minister's witnesses Bob Cleland and Frank Koozer was preferable and more credible than that of Ruth Hall, Vanex's comptroller on any crucial issue. He accepted their evidence over hers when there was conflict.
Also of importance was the observation made by the Tax Court Judge that if Vanex disputed the evidence of Mr. Cleland, who had formerly been an owner-operator with Vanex, it failed to call any of the other owner-operators to show that Mr. Cleland's version of their oral relationship was incorrect.
Turning then to the issues on appeal, under the general scheme of the Act, subsection 165(1) subjects every transaction to GST unless it is exempt under other provisions of the statute. Counsel for the Appellant acknowledged that if there was a "supply" under subsection 123(1) of the Act, then the items in issue would be taxable. Subsection 123(1) provides the following definitions which are germaine to this appeal:
"taxable supply" means a supply that is made in the course of a commercial activity, but does not include an exempt supply;
"supply" means ... the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition;
"property" means any property, whether real or personal, movable or immovable, tangible or intangible, corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money [emphasis added].
« fourniture taxable » Fourniture, sauf une fourniture exonérée, effectuée dans le cadre d'une activité commerciale.
« fourniture » ... livraison de biens ou prestation de services, notamment par vente, transfert, troc, échange, louage, licence, donation ou aliénation.
« bien » À l'exclusion d'argent, tous biens - meubles et immeubles - tant corporels qu'incorporels, y compris un droit quelconque, une action our une part. [Je souligne]
It must also be noted at the outset that there is no requirement in the definition of supply that there be a sale or that legal or beneficial interest in the supplies must pass: see Carlton Lodge Club v. Customs and Excise Commissioners  3 All E.R. 799 (Q.B.) at pages 800 and 801.
With respect to the licence issue, Vanex argued that it had to provide an owner-operator with licences in order to have created a taxable supply under the Act. Only the licensor, that is, the Motor Carrier Commission and the British Columbia Ministry of Transport, had the power to grant such licences: Motor Carrier Act, R.S.B.C. 1979, c. 286, section 5; Commerical Transport Act, R.S.B.C. 1979, c. 55, section 2. Accordingly, the Appellant argued that, as a matter of law, it could not have granted licences to the owner-operators.
In my view, the Tax Court Judge did not have to find that the Appellant granted or supplied a licence per se. Rather, he simply had to be satisfied that the licencing arrangements between the Appellant and the owner-operators would qualify as a "supply" under the Act. While an owner-operator could not operate without proper permits, and the Appellant could not issue actual licences, Vanex could and did supply the owner-operators with a right to use the licences issued in its own name thus falling within the definition of "property" under subsection 123(1).
The uncontradicted evidence relied on by the Tax Court Judge is that valid consideration flowed from the owner-operators to Vanex on which GST should have been charged and remitted. According to Mr. Cleland, the economic reality was that the Vanex charges were first taken from the trip revenues, while the discounted items were among various items purchased by the owner-operators from Vanex, and separately deducted from the remaining 75% of the revenues. This was apparent by the owner-operator monthly pay statements prepared by Vanex and entered into evidence. In addition, Ms. Zita Leung, a licensing supervisor with ICBC, confirmed that the government was not concerned with whether the licensing charges were passed on to owner-operators by Vanex. That was a matter said to be between the parties.
The evidence in relation to fleet insurance leads to the same conclusion. Again, the Appellant was of the view that it had to supply insurance to be taxable under the Act, and argued that since the right to be indemnified vested, at all material times, in Vanex and not in the owner operators, it could not have supplied insurance to any owner-operator within the meaning of the Act.
The uncontradicted evidence before the Tax Court Judge was that the Appellant collected from the owner-operators the insurance premiums owed to its insurance carriers under the fleet insurance policies in the amount of 4.25% of the monthly revenue generated by the tractor or tractor and trailer units. This amount coincided exactly with the Appellant's policy rate of $4.25 per $100.00 of receipts. Most importantly, if there was an accident, the Appellant's practice was to place the insurance proceeds from insurers into a separate account from which the owner-operator would be paid.
The owner-operators were also obliged to pay the Appellant the deductible amount if their tractors were in accidents, and had set up their own accident fund to which they each contributed monthly payments. These arrangements can point only to the conclusion that the Appellant made a taxable supply upon which GST should have been charged and remitted. As pointed out by the Tax Court Judge, it was the right to the protection offered by the fleet policies which constituted a taxable supply of service under the provision of section 123.
As to the oil and fuel issue, counsel for Vanex contended that there was no contract for the sale of the fuel and oil between Vanex and the owner-operators, since Vanex did not agree to transfer property in the fuel to the owner-operators. This, supposedly, was because Vanex retained legal possession in the goods, and restricted the owner-operators to servicing only Vanex customers.
This submission is not supported by the evidence. According to Mr. Cleland, the amount of fuel needed to complete a specific job varied from day to day and could not be estimated. That is why Vanex charged the owner-operators the cost of the fuel and oil which was being consumed. If these costs were final to Vanex, then there would have been no reason to issue credit card PIN numbers to the owner-operators or to send them copies of the monthly statements from the suppliers of fuel. These statements showed consumption by owner-operators on an individual basis, thereby allowing an owner-operator to verify that the correct fuel charge was being deducted by Vanex. Moreover, by claiming input tax credits ("ITCs") on the oil and fuel which it purchased, the Appellant was acknowledging that it purchased these items, not as agent, but on its own behalf, and was re-supplying these items to the owner-operators whom it charged. Therefore, in my analysis, it was required to collect GST on that re-supply.
The Appellant relied on the case of Imperial Drywall Contracting Ltd. v. The Queen,  ETC 2951 (T.C.C.) to argue that it did not make a taxable supply with respect to the oil and fuel. I am satisfied that the facts in this case are distinguishable from those in the Imperial Drywall case. Here the Tax Court Judge made a factual finding to the effect that an owner-operator acquired ownership in these items, whereas in Imperial Drywall, no such proprietary rights were found to vest in the subcontractors.
The Minister also relied on section 178 of the Act. That section provides that where in making a supply of a service a person incurs an expense for which the person is reimbursed by the recipient of the supply, the reimbursement shall be deemed to be part of the consideration for the supply of the service, except to the extent that the expense was incurred by the person as an agent of the recipient.
The Appellant maintains that the Minister is precluded from relying on section 178 in light of the Supreme Court of Canada decision in The Queen v. Continental Bank of Canada,  2 S.C.R. 358. The Supreme Court in that case addressed the question whether the Minister is entitled to advance positions in the course of a tax controversy which he never relied on in issuing a reassessment. Justices McLachlin and Bastarache in separate reasons both held that the Minister could not advance a new basis after the limitation period had expired, and appear to have adopted the view that the Minister could be prohibited from advancing this new basis in court because it did not form part of the original reassessment. The question here is whether the Minister is advancing a new basis by relying on section 178.
Section 178 contemplates the making of a supply of a service. The Appellant insists that the respondent cannot now rely on this section because the Minister, in his pleadings, did not assume that the Appellant supplied a service to its owner-operators. I am not persuaded by this argument nor do I think that the Tax Court Judge erred in rejecting it. The basis of the reassessment is that the Appellant made a taxable supply to its owner-operators. Again, subsection 123(1) of the Act defines a "supply" as the provision of a property or service in any manner. While the Minister, in his pleadings, did not assume that the Appellant supplied a service, he also did not assume that the Appellant supplied property. In my view what is important is that the Minister based his reassessment on the argument that the Appellant was making a supply. Allowing the Minister to rely on section 178 does not alter this original basis whatsoever, since section 178 contemplates the making of a supply.
I would dismiss the appeal with costs.
Julius A. Isaac
DATED AT OTTAWA, ONTARIO, ON MAY 29, 2001
PRESENT: DESJARDINS J.A.
VANEX TRUCK SERVICE LTD.
- and -
HER MAJESTY THE QUEEN
This appeal is dismissed with costs.
FEDERAL COURT OF CANADA APPEAL DIVISION
NAMES OF SOLICITORS AND SOLICITORS ON THE RECORD COURT FILE NO.: A-831-99
STYLE OF CAUSE: VANEX TRUCK SERVICE LTD. -and
HER MAJESTY THE QUEEN
PLACE OF HEARING: Vancouver, British Columbia DATE OF HEARING: May 9, 2001 REASONS FOR JUDGMENT OF MALONE J.A. CONCURRED IN BY: DESJARDINS J.A. ISAAC J.A.
DATED: May 29, 2001
Mr. Timothy ClarkeFOR APPELLANT
Ms. Patricia BabcockFOR RESPONDENT
SOLICITORS OF RECORD:
Bull, Housser & Tupper FOR APPELLANT Vancouver, British Columbia
Mr. Morris Rosenberg FOR RESPONDENT Deputy Attorney General of Canada
Vancouver, British Columbia