Blue Mountain Resorts Limited v. The Queen, docket 1999-4930(IT)G

Date: 20020703

Docket: 1999-4930-IT-G

BETWEEN:

BLUE MOUNTAIN RESORTS LIMITED,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

Beaubier, J.T.C.C.

[1]            This appeal pursuant to the General Procedure was heard at Toronto, Ontario on June 10, 2002. The Appellant called its Vice President, Finance, Harold Abbotts and an expert witness, James Saloman, C.A., who qualified as an expert to testify respecting the Appellant's treatment under Canadian Generally Accepted Accounting Principles of the revenue which the Appellant received from sales of passes which are the subject of this appeal.

[2]            Paragraphs 1, 2, 3, 4, 6, 7, 8, 9, 12 and 13 of the Notice of Appeal were admitted. They read:

The Appellant

1.              The Appellant is a corporation existing under the laws of the Province of Ontario whose principal place of business is County Road 19, Town of the Blue Mountains, R.R. 3, Collingwood, Ontario, L9Y 3Z2.

Assessment Under Appeal

2.              The assessment under appeal was made by Notice of Reassessment under the Income Tax Act (Canada) (the "Act") dated May 1, 1998 in respect of the Appellant's taxation year ending October 31, 1994.

Determination Under Appeal

3.              The determination of non-capital loss under appeal was made by Notice of Determination of a Loss made under the Act dated October 8, 1998 in respect of the Appellant's taxation year ending October 31, 1995.

Facts

4.              At all relevant times, the business of the Appellant included the provision of recreational services, including ski runs and indoor tennis courts.

...

6.              In computing its income for 1994, the Appellant:

(i)             included the amount of $1,175,055 as revenue from the sale of season passes entitling the holder of those passes to services rendered by the Appellant after the end of the taxation year, namely, the use of its ski and indoor tennis facilities, under paragraph 12(1)(a) of the Act; and

(ii)            deducted the amount of $1,175,055 as a reserve in respect of such services to be rendered after the end of the year under paragraph 20(1)(m) of the Act.

7.              In computing its non-capital loss for 1995, the Appellant:

(i)             included the amount of $1,211,913 as revenue from the sale of season passes entitling the holders of those passes to services to be rendered by the Appellant after the end of the taxation year, namely, the use of its ski and indoor tennis facilities, under paragraph 12(1)(a) of the Act; and

(ii)            deducted the amount of $1,211,913 as a reserve in respect of such services to be rendered after the end of the year under paragraph 20(1)(m) of the Act.

8.              In his reassessment for 1994, the Minister of National Revenue (the "Minister") added in computing income the amount of $1,175,055 in respect of the sale of season passes but did not allow the Appellant any reserve.

9.              In his reassessment for 1995, the Minister included the amount of $1,211,913 in respect of the sale of season passes in computing the Appellant's loss, but did not allow the Appellant any reserve.

...

12.            The Appellant duly objected to the reassessment referred to in paragraph 2 above and the Minister confirmed the reassessment by Notice of Confirmation dated September 17, 1999.

13.            The Appellant duly objected to the determination of loss referred to in paragraph 3 above and the Minister confirmed the determination by Notice of Confirmation dated September 17, 1999.

[3]            Paragraphs 3 to 7 inclusive of the Amended Reply to the Notice of Appeal read:

3.              He admits the facts as stated in paragraphs 10 and 11 of the Notice of Appeal, except that he says that the amount of the non capital loss initially carried back by the Appellant from its 1995 taxation year to its 1994 taxation year was $117,609 and not $117,639.

4.              In reassessing the Appellant for its 1994 taxation year and determining the Appellant's non capital loss for its 1995 taxation year as described in paragraphs 8, 9 and 11 of the Notice of Appeal and confirming the reassessment of the 1994 taxation year and loss determination for the 1995 taxation year as described in paragraphs 12 and 13 of the Notice of Appeal, the Minister of National Revenue (the "Minister") made, inter alia, the following assumptions:

a)              the Appellant is a corporation existing under the laws of Ontario;

b)             the Appellant's taxation year end is October 31;

c)              the Appellant is in the business of providing recreation, food and lodging and other services, including ski and tennis facilities in Collingwood, Ontario;

d)             generally, the ski season is four months long, from the December of one calendar year to the end of March of the next calendar year;

e)              during and up to the end of its 1994 taxation year, the Appellant sold season passes for the immediately upcoming 1994-1995 ski season (the "1994 Season Passes");

f)              during and up to the end of its 1995 taxation year, the Appellant sold season passes for the immediately upcoming 1995-1996 ski season (the "1995 Season Passes");

g)             included in the "Season Pass Application" and "Application and Contract" offered to customers during the Appellant's 1994 and 1995 taxation years for its 1994 Season Passes and 1995 Season Passes, respectively, were the following limitation clauses ("Limitation Clauses"):

"Blue Mountain does not provide refunds or credits for any reason on Seasons Passes. If you wish to have insurance protection, we have enclosed a Season Pass Insurance Plan offered by Creighton and Company Insurance Brokers."

"The length of the ski season is dependent on weather and snow conditions, but generally Blue Mountain is open from December to end of March";

Resort Facilities will operate daily at the discretion of management. There shall be no refunds in case of cancellation of operations on account of weather, conditions or mechanical failure of equipment."

h)             the "Season Pass Application" and "Application and Contract" also included the following the term:

"The purchaser herein acknowledges he/she has read the terms and conditions of the APPLICATION AND CONTRACT FOR [the upcoming] SEASON PASSES printed on the back of the application form and agrees to be governed and abide by them.";

i)               during the relevant period, the Limitation Clauses and other clauses contained in the "Season Pass Application" and "Application and Contract" were valid and binding on the Appellant and its customers;

j)               in its 1994 taxation year and from the sale of 1994 Season Passes, the Appellant earned income in the amount of $1,175,055 ("1994 Season Passes Income");

k)              in its 1995 taxation year and from the sale of 1995 Season Passes, the Appellant earned income in the amount of $1,211,913 ("1995 Season Passes Income");

l)               the Appellant was under no restriction, contractual or otherwise, as to its disposition, use or enjoyment of the 1994 Season Passes Income and 1995 Season Passes Income, respectively;

m)             the Appellant was under no obligation to return the 1994 Season Passes Income and the 1995 Season Passes Income to its customers, nor was the Appellant under any restrictions as to the manner in which it used the 1994 Season Passes Income and the 1995 Season Passes Income;

n)             the 1994 Season Passes Income and the 1995 Season Passes Income was income that was earned by the Appellant in its 1994 and 1995 taxation years, respectively;

o)             the amount of the Appellant's non capital loss for its 1995 taxation year was $332,728 and not $369,586;

p)             the amount of the Appellant's non capital loss available from its 1995 taxation year to be carried back to its 1994 taxation year is $80,751 and not $117,609;

q)             in the alternative, if the 1994 Season Passes Income and the 1995 Season Passes Income are included in the Appellant's income in its 1994 and 1995 taxation years, respectively, pursuant to paragraph 12(1)(a) of the Income Tax Act, R.S.C. 1985, (5th Suppl.) c. 1, as amended (the "Act") on account of services rendered by the Appellant after those years and are properly deductible as a reserve under paragraph 20(1)(m) of the Act, (which is not admitted but denied), then the amount of the Appellant's paragraph 20(1)(m) reserve for its 1994 and 1995 taxation years, respectively, is not more then [sic] a nominal amount.

B.             ISSUES TO BE DECIDED

5.              The issue is whether the 1994 Season Passes Income and the 1995 Seasons Passes Income was income earned by the Appellant in its 1994 and 1995 taxation years, respectively.

6.              In the alternative, if the 1994 Seasons Passes Income and the 1995 Seasons Passes Income are properly included in the Appellant's income in its 1994 and 1995 taxation years, respectively, under paragraph 12(1)(a) of the Act on account of services rendered after those years and are properly deductible as a reserve under paragraph 20(1)(m) of the Act, (which is not admitted but denied), then the issue is whether the amount of the Appellant's paragraph 20(1)(m) reserve for its 1994 and 1995 taxation years, respectively, is not more then [sic] a nominal amount.

C.             STATUTORY PROVISIONS, GROUNDS RELIED ON , AND RELIEF SOUGHT

7.              He relies, inter alia, on subsections 9(1) and 111(8) and paragraphs 12(1)(a), 18(1)(e), 20(1)(m), 111(1)(a) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended (the "Act").

[4]            Assumptions 4 a) to m) inclusive were not refuted. In particular, having regard to the matters at issue, attention is drawn to assumption 4 c) which describes the Appellant as being in the business of providing "services".

[5]            The provisions of the Income Tax Act ("Act") in dispute read as follows:

1.              The definition of "property" in subsection 248(1), which includes -

(a)            a right of any kind whatever, a share or a chose in action,

2.              Paragraph 12(1)(a) -

12 (1)       There shall be included in computing the income of a taxpayer for a taxation year as income from a business or property such of the following amounts as are applicable:

(a)            any amount received by the taxpayer in the year in the course of a business

(i)             that is on account of services not rendered or goods not delivered before the end of the year or that, for any other reason, may be regarded as not having been earned in the year or a previous year, or

(ii)            under an arrangement or understanding that it is repayable in whole or in part on the return or resale to the taxpayer of articles in or by means of which goods were delivered to a customer;

3.              Paragraph 20(1)(m) -

20 (1) Notwithstanding paragraphs 18(1)(a), (b) and (h), in computing a taxpayer's income for a taxation year from a business or property, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

...

(m)           subject to subsection (6), where amounts described in paragraph 12(1)(a) have been included in computing the taxpayer's income from a business for the year or a previous year, a reasonable amount as a reserve in respect of

(i)             goods that it reasonably anticipated will have to be delivered after the end of the year,

(ii)            services that it is reasonably anticipated will have to be rendered after the end of the year,

(iii)           periods for which rent or other amounts for the possession or use of land or chattels have been paid in advance, or

(iv)           repayments under arrangements or understandings of the class described in subparagraph 12(1)(a)(ii) that it is reasonably anticipated will have to be made after the end of the year on the return or resale to the taxpayer of articles other than bottles;

[6]            Paragraph 12(1)(a) assumes the existence of a contract, or right to claim, for the provision by the vendor of future goods or services. Otherwise the money the Appellant received would have been a gift from the payor.

[7]            In this case the contract is for the provision of future services namely, the use of the tennis and ski facilities. Ultimately, in law, if those services could not be provided in the future, the contract would be frustrated and the fee would be refundable by the Appellant.

[8]            Evidence was led respecting a number of discretionary refunds of fees by the Appellant and the restrictive clauses in the Appellant's form "Season Pass Application for the 1994 - 95 Ski Season" together with the clause referring an applicant to a broker for a season pass insurance plan. Despite these clauses, the law could require reimbursement in some instances.

[9]            However, the answer to the issue in dispute lies in the provisions of the Act itself. Using the words of paragraph 12(1)(a), the fee received by the Appellant in the year in the course of business was on account of services not rendered before the end of the year. Therefore, pursuant to subparagraph 20(1)(m)(ii), the Appellant may deduct a reasonable amount as a reserve where amounts described in paragraph 12(1)(a) have been included in computing the taxpayer's income from a business for the year in respect of services that it is reasonably anticipated will have to be rendered after the end of the year.

[10]          All of the services would be rendered after October 31 since the passes could only be picked up after November 7. Thus it is reasonable that the entire amount of the fees should be a reserve.

[11]          The appeals are allowed. The Appellant is awarded party and party costs.

                Signed at Saskatoon, Saskatchewan, this 3rd day of July, 2002.

"D. W. Beaubier"

J.T.C.C.

COURT FILE NO.:                                                 1999-4930(IT)G

STYLE OF CAUSE:                                               Blue Mountain Resorts Limited v.

Her Majesty the Queen

PLACE OF HEARING:                                         Toronto, Ontario

DATE OF HEARING:                                           June 10, 2002

REASONS FOR JUDGMENT BY:      The Honourable Judge D. W. Beaubier

DATE OF JUDGMENT:                                       July 3, 2002

APPEARANCES:

Counsel for the Appellant: Colin Campbell

Counsel for the Respondent:              Margaret J. Nott

COUNSEL OF RECORD:

For the Appellant:                

Name:                                Colin Campbell

Firm:                  Davies Ward Phillips & Vineberg LLP

                                                                                                Toronto, Ontario

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

1999-4930(IT)G

BETWEEN:

BLUE MOUNTAIN RESORTS LIMITED,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on June 10, 2002 at Toronto, Ontario, by

the Honourable Judge D. W. Beaubier

Appearances

Counsel for the Appellant:                             Colin Campbell

Counsel for the Respondent:                         Margaret J. Nott

JUDGMENT

          The appeal from the assessment made under the Income Tax Act for the 1994 taxation year is allowed and the matter is referred to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.

          The appeal from the determination made under the Income Tax Act for the 1995 taxation year is allowed and the matter is referred to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.

          The Appellant is awarded party and party costs.

Signed at Saskatoon, Saskatchewan, this 3rd day of July, 2002.

"D. W. Beaubier"

J.T.C.C.