Robertson v. The Queen, docket 2000-1562(GST)G

Date: 20020124

Docket: 2000-1562-GST-G

BETWEEN:

GREGORY ROBERTSON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

Margeson, J.T.C.C.

[1]            This is an appeal pursuant to section 306 of the Excise Tax Act, R.S.C. 1985, c. E-15 (hereinafter referred to as the "ETA") from a notice of reassessment dated June 18, 1999 pertaining to the Appellant's 1996 and 1997 calendar years and from a notice of reassessment dated June 22, 1999 pertaining to the period from January 1, 1998 to December 31, 1998 (collectively called the "reassessments").

[2]            The parties submitted an Agreed Statement of Facts and Law (Partial). It provided as follows:

1.      The Appellant is an individual who resides in Yellowknife, Northwest Territories ("NWT"). At all material times, the Appellant operated a taxidermy business under the name "Robertson's Taxidermy".

2.      In his taxidermy business, the Appellant prepares approximately 300 animals per year. While more than half of these animals are caribou and polar bear, the Appellant has performed work on almost every species of animal indigenous to the NWT.

3.      In his taxidermy business, the Appellant receives from a hunter a bird, pelt, hide, skin, head, antlers etc. (the "Wildlife Part"). The Appellant performs certain processes to preserve the Wildlife Part and, where the customer requests, proceeds to prepare the Wildlife Part for display as a life-size mount, a rug mount, shoulder mount or an antler or skull mount (the "Processed Wildlife Part").

4.      In conducting his taxidermy business, the Appellant employs talent, skill and artistic ability. The Appellant is a renowned taxidermist who has won international awards.

5.      During all material times, the Appellant's typical customer was a hunter that did not reside in the NWT (the "Hunter").

6.      The Appellant performed his taxidermy work in accordance with a Hunter's specifications.

7.      The Appellant's peak seasons are the periods from March through April and August through September.

8.         In addition to incurring the expense of travelling to the NWT, non-resident Hunters must necessarily pay for the services of a licensed outfitter or guide in respect of the hunt, pursuant to section 44 of the Wildlife Act (Northwest Territories) (the "Wildlife Act"). As well, non-resident Hunters must incur the cost of obtaining a license and permit or tag to hunt a particular species of animal and, in some cases, to export the "trophy".

        Sections 8 and 44 of the Wildlife Act                                         Tab 1

9.      Both Canadian and non-Canadian residents come to the NWT for the purpose of hunting and must acquire a licence and permit pursuant to the Wildlife Act. This licence and permit allow the individual (the "Hunter") to hunt a species of wildlife located within the NWT.

        Section 31 of the Wildlife Act                                                     Tab 2

10.        For the purposes of the Wildlife Act, a "non-resident" is defined as a person who does not reside in the NWT. This includes any and all persons who would be residents of Canada for the purposes of the Excise Tax Act ("ETA"), but are not residents of the NWT. "Wildlife" is defined in the Wildlife Act to include a vertebrate that, in its nature range, is found in nature and is naturally occurring in the NWT, and any part of that vertebrate.

            Subsection 1.3(1) of the Wildlife Act.                                        Tab 3

11.        Once the Hunter kills the animal for which he or she has purchased a licence and permit, he or she contacts the Appellant. The animal is then either shipped to or picked up by the Appellant. Pursuant to subsection 59(1) of the Wildlife Act, the animal does not leave Canada before the taxidermy process commences.

            Subsection 59(1) of the Wildlife Act                                          Tab 4

12.        Before performing the taxidermy process, the Appellant usually requests a 30% deposit on the total cost for the Processed Wildlife Part.

13.        Upon receipt of the animal and deposit, the Appellant fleshes out the animal skin and usually sends the hide to be tanned and processed by an unrelated, arm's length third party. Upon completion, the tanner returns the tanned head and hide to the Appellant and invoices the Appellant for the services rendered plus the applicable GST. The Appellant may also tan a hide himself if the animal is small.

14.        The Appellant either creates or purchases the mannequins upon which the head and hide are mounted. The materials involved in the creation include fibreglass and clays for shaping, and glue for mounting. Glass eyes, teeth, etc. are also utilized in the taxidermy process.

15.        The total cost of basic supplies and materials accounts for approximately 15% to 25% of the total cost of the Processed Wildlife Part to the customer. The Appellant provides all of the supplies. The remainder of the consideration for the Processed Wildlife Part is accounted for in the labour required to create and manufacture the Processed Wildlife Part.

16.        The taxidermy process usually takes a day to mount a caribou head, and three to four days to mount a life-size polar bear. Depending on the size of the animal, it may take several days for the pelt to dry before work can be completed on same.

17.        Any excess hide not used in the taxidermy process is discarded; however, if the Hunter wants the trimmings from a polar bear hide, the Appellant will provide them to the Hunter. Otherwise, the Appellant may sell the trimmings of polar bear hide to fishermen in British Columbia. GST is charged on sales of the polar bear trimmings to Canadian residents.

18.        Once the Processed Wildlife Part is completed, it is then crated. As noted above, some of the Appellant's customers are non-resident American Hunters. For an "export sale", a U.S. transportation carrier is retained to ship the Processed Wildlife Part to the non-resident U.S. customer.

19.        Prior to shipment to the customer, the Appellant requires payment in full of the remaining sale price. If such funds are not forthcoming, the Appellant notifies the customer that the finished product will be sold by auction.

20.        Pursuant to subsection 49(3) of the Wildlife Business Regulations a taxidermist may sell any Wildlife Part that he or she has processed if the person from whom the Wildlife Part was obtained fails to collect the Processed Wildlife Part for a period of one year. In such a case, the Appellant sells the Processed Wildlife Part by auction and collects the proceeds on his own account. In the last 10 years the Appellant has sent for auction three Processed Wildlife Parts.

                                        Subsection 49(3) of the Wildlife Business Regulations                           Tab 5

21.        In order to export from the NWT the non-edible parts of a dead animal, the parts must meet the definition of a "manufactured product" under the Wildlife Act. The Wildlife Act defines a "manufactured product' as wildlife that is:

            (a) prepared for use as or in an article to be sold as a garment, or

            (b) preserved or prepared by a tanning or taxidermy process.

            As well, pursuant to the Wildlife Act, a person who is not a resident of the Northwest Territories can export non-edible parts of a manufactured product if that person first obtains an export permit.

            Subsection 1.3(1) of the Wildlife Act                                         Tab 3

            Section 60 of the Wildlife Act                                                     Tab 4

22.        In respect of shipment of Processed Wildlife Parts for certain animal species to the United States, most notably polar bears, wolf, lynx, black bear and grizzly bear, an export permit has to be obtained pursuant to the provisions of the Export and Import Permits Act. Prior to the Processed Wildlife Parts being shipped from Canada, such a permit must be obtained and affixed to the animal. If this process is not followed, a criminal sanction may apply.

            Sections 7 and 19 of the Export and Import Permits Act                                                                                                                                       Tab 6

23.        By Notice of Reassessment No. 10120200 dated June 18, 1999, the Respondent reassessed the Appellant for his 1996 and 1997 calendar years on the basis that the taxidermy process described above constituted a supply of a service to a non-resident in respect of tangible personal property situated in Canada, and hence was subject to the GST. The Appellant was assessed net tax in the amount of $6,580.49 and $14,314.03 for 1996 and 1997, respectively.

24.        By a Notice of Reassessment dated June 22, 1999, the         Respondent reassessed the Appellant for the period January 1,                1998 to December 31, 1998 on the same basis as the 1996              and 1997 Reassessments. The total amount of net GST                eassessed for the period was $16,002.71.

25.        The Appellant filed Notices of Objection to the Reassessments on August 25, 1999.

26.        The Respondent issued a Notice of Decision to the Reassessments on February 4, 2000.

Also referred to:            Tab 1 - Consolidation of Wildlife Act

                                                          R.S.N.W.T. 1988, c. W-4

                                                          at subsection 8(1) and section 44.

                                        Tab 2 - Consolidation of Wildlife Act

                                                          R.S.N.W.T. 1988, c. W-4

                                                          at section 31.

                                        Tab 3 - Consolidation of Wildlife Act

                                                          R.S.N.W.T. 1988, c. W-4

                                                          Definitions of "manufactured product",

                                                          "non-resident" and "wildlife".

                                        Tab 4 - Consolidation of Wildlife Act

                                                          R.S.N.W.T. 1988, c. W-4

                                                          Subsections 59.(1) and 60.(1).

                                        Tab 5 - Consolidation of Wildlife

                                                          Business Regulations

                                                          R-069-97

                                                          Subsections 49.(1) & 49.(3).

                Tab 6 - Chapter E-19 - An Act respecting the                                           export and import of strategic and other                              goods. Section 7 and subsections 19.(1)                                     and 19.(2).

[3]            In his opening remarks counsel for the Appellant introduced Exhibits A-1 and A-2 by consent and indicated that the issue in this case is whether or not the Appellant provided zero-rated supplies in the years in question, or taxable services or a multiple supply of zero-rated goods and taxable services. He said that this issue has not been decided by any Court and that the particular facts in the case at bar are significant. The Court must have regard to the taxidermy scheme in place in the Northwest Territories.

[4]            The Appellant provided a zero-rated sale of tangible personal property to U.S. residents and not taxable services as argued by the Respondent. The ultimate product is a new supply or good provided to American hunters and not a taxable service.

[5]            In opening remarks counsel for the Respondent said that the facts in this case show that taxable services were provided under the common law and under statutory law. He asked the question, "What does Mr. Robertson supply, a good or a service?" He answered that the Wildlife Part that the Appellant receives is a good and he attaches something to it through a service. He contracts for work and goods and he does not provide a new supply (good).

[6]            The question is "what is the correct amount of tax to be charged?" The Minister assessed on the basis of what was reported as income in the years in question at the applicable rate. The Appellant is now arguing that the amounts should be reduced. The Minister says that it may be more although he is not arguing that the Court is entitled to increase the amount of tax it was assessed.

[7]            Exhibit A-2 does not show that the amounts that the Appellant will refer to as being capable of reducing the amount of tax have been added into income.

[8]            Counsel submitted that at all material times, the Appellant did not supply tangible personal property to non-residents for export which would constitute a "zero-rated supply", by virtue of Schedule VI, Part V, section 7 of the ETA but rather provided a service related to tangible property located in Canada pursuant to section 7 of Part V of Schedule VI, particularly, subsections 7(a) and 7(e).

[9]            In oral evidence the Appellant told the Court that he is 35 years of age and has been a resident of the Northwest Territories for 26 years. He obtained a grade 12 education and in the past has acted as a postal clerk for seven years, performed janitorial services while he was attending high school and commenced doing part-time taxidermy work in the years 1987 and 1988. He commenced working at the taxidermy full-time in 1990.

[10]          As far as his training was concerned he described himself as being self-trained or having received indirect training. His family was involved in hunting and fishing for many years and he also took a correspondence course which was provided to him through a friend. This course teaches one the bare basics of taxidermy.

[11]          The rest of his training was trial and error. He could not afford the expenses of taxidermy supplies so in many instances he had to create them himself. It was a long process. The most expensive item in taxidermy is the commercial mannequin so he created his own in order to save money. Through his own experience, he determined what a live animal actually looked like and tried to create the commercial mannequin to satisfy these qualities. He indicated that he has received many awards through the years for his work and he described them to the Court. This has included awards of both lifesize mammals and small mammals. His desire was to create something which would show life even though there was no movement in the creation itself. At one time he took first place in the International Grand Master of the Art Competition.

[12]          He referred to Exhibit A-1 at Tab 17 which was the U.S. pricing schedule for 1999. His father and himself prepared this price list. There was no price list for the years between 1996 and 1998 because they were disposed of. He did not want to keep them on hand for customers to see for commercial reasons.

[13]          He described the different categories of his work including a lifesize mount, which is a full animal; shoulder mount, which included just the shoulders and the head; a rug mount, head, teeth and face done as a display mount; the skull, which included the bleached bear skull only. He also described Tab 16 which was the base and habitat which was included with the mount.

[14]          All charges were in US funds in order to avoid confusion with the exchange rates which they experienced over the years. He said that at the present time 90 per cent of the customers were from the United States ("U.S."). In 1996, during the period in issue, 40 per cent of the customers were from the U.S. In 1997, 60 per cent were from the U.S. and in 1998, 65 per cent were from the U.S. The customers, other than the U.S. customers, outside of Canada amount to 1 per cent of his clientele.

[15]          He described the process by which an American hunter goes about obtaining a polar bear and taking it back to the U.S. First of all he has to book with a licensed hunter. He comes to Canada, buys a licence, buys a tag, obtains the services of a guided hunter and if successful obtains the polar bear. The animal is skinned in the field and the hide is brought to the taxidermist either personally or by way of shipment.

[16]          With respect to the meat on the animal it is kept by the Inuit guide and consumed by them or it is fed to the huskies. Wolf meat is not edible but Caribou and Muskox meat must not be wasted. With respect to the smaller animals such as ptarmigan or rabbits, they come to the taxidermist whole because it is not necessary that the meat be consumed and they are quite delicate to handle. Polar Bear, Grizzly, Wolfe, Caribou and Muskox are primary targets of the American hunters.

[17]          Before the hunt occurs the taxidermist may have contact with the hunters from the U.S. They may write to him three to four months prior to the hunt and provide information with respect to their prices and what they provide. They want to check out the situation before leaving their skin in Canada. The time of the hunt is anywhere between four days to two weeks.

[18]          Often times the taxidermist receives the animal by freight from an outfitter or by freight from the hunter himself who leaves it with them. A full grown polar bear might weigh anywhere between 600 to 1000 pounds. The hide weighs 50 pounds to 150 pounds. If the article is sent collect by the outfitter the taxidermist pays the bill and rebills it to the client. They must first confirm that the animal is legally taken and to do that they must have the licence and the tag number. No contract is signed between the taxidermist and the client. It is verbal over the telephone when they get home. The taxidermist sends a letter saying that they have received the animal and the client advises them to proceed with the trophy preparation.

[19]          He was referred to Exhibit A-1, Tab 17 at page 2 with respect to mounting information and instructions. He said that this was completed by himself or his father when they meet the hunter or they talk to him on the telephone. Sometimes the clients may take two months to decide which way they wish to proceed, particularly with respect to polar bears. The Appellant asks for a deposit and later on they discuss details of the fee. He normally receives a 30 per cent deposit.

[20]          It may take six to nine months for a polar bear trophy to be completed (including the time it takes to get it back from the tanner). To prepare the mount itself may take three to four days; drying takes three to four weeks,then it must be painted and the habitat must be constructed.

[21]          He was asked to describe the process that he uses with respect to the polar bear mount. He said that they receive the hide, they remove the meat, fat and flesh. They wash it two to three times. The hide is salted and this requires 50 to 100 pounds of salt. This cures the skin and removes moisture. When the skin is dried it is perfectly preserved. The hide is then sent to the tannery where it may stay for six months. After its return from the tannery they soak it again. This loosens up the fibres and it can be restretched to its natural size. The article is then placed into the freezer.

[22]          He researches for the proper supply company to obtain the mannequin. When it is received it has to be altered. It takes two to four days to alter it and shape it. It has to fit the skin perfectly. The teeth and eyes are put into the article. The skin is stretched over the mannequin. They use approximately 20 pounds of glue to affix it to the mannequin and put it in place. The skin is then sewed up and the mount is groomed. It takes two to three weeks to dry before the finishing work is done.

[23]          With respect to the charges for tanning, this was paid by them and is charged to the hunter in the price of the mount. The price of a polar bear hide before tanning, if it is in good quality, would be approximately $1,200. After tanning, it would be worth about $1,500 to $1,600 without the mark-up. With respect to the prices charged by the taxidermist that they charged about $3,000 in their early years. In 1997 this went up to US$3,700 and the same price was used for in 1998. At the present time it is about $4,200. This does not include any habitat. Charges may be added as well. He does not know specifically what they charged in the years in question but they are constantly changing and improving their work. Most of their mannequins were designed by themselves in the shop. He was referred to Tab 18 of Exhibit A-1 which was a display of clay sculptures. He created them. From these sculptures they make a fibreglass mold and then the mannequin.

[24]          With respect to the polar bear mannequin, they purchased them and then they are customized. They take all the measurements of the head, make the plastic cast of the head with the meat on then make a mold of it and fashion it as to what they believe the head should look like. They do this for almost all regular sized bears. They use commercial mannequins for sheep but they alter them. The same thing applied to wolves and muskox during the years in question.

[25]          Between the years 1996 and 1998 they used more commercial mannequins than they do today. Eyes and teeth are bought from supply companies although the Appellant has developed some of their own teeth. Clay, glue, epoxy, artificial noses and wire rods are the basic parts of the trophy. Ninety nine per cent of the time the trophy goes out with a habitat and base.

[26]          The habitat is mainly made from moss, gravel, driftwood, rocks, branches and sometimes manmade rocks. Sometimes they use a snow base for which they use artificial snow glued on to the painted surface. He was referred to paragraph 15 of the Agreed Statement of Facts and Law (Partial) and he said that the total cost of the basic supplies and materials would vary according to the size of the animal. The most difficult aspect of his work was to try to show life, expression and movement in a lifeless article and to show a balance between a base, mount and habitat.

[27]          Shoulder mounts take less time. The head is the most important part of the mount. He tried to obtain realism in the face. A rug mount is less difficult than a lifesize mount because you are only dealing with the head. The skull mount is the easiest of all. The lifesize mount is the most difficult. With respect to the weight of the article, the tanned hide would weigh about 40 to 50 pounds. A lifesize polar bear mount and habitat could go up to 200 to 250 pounds. With respect to volume, the hide alone could go into a box 3 by 2 by 2 but when it is mounted it would take a box 12' by 6 1/2' by 5'. Apart from the mounts they also sold other articles to American hunters such as wolves, foxes etc.

[28]          He referred to a typical invoice which was shown at Exhibit A-2, Tab 3 but they did not separate labour from the other items. The base and habitat are listed separately. The tanning is built into the price of the mount. Freight and crating are separate unless there is a flat rate agreed upon beforehand. He was asked why they did not separate all of the different items. He said that was not the practice. It was unheard of in the industry.

[29]          With respect to the accounting for his business, his brother Randy Robertson was most familiar with that. He did the GST returns in the years in question. He indicated gross revenues from all sources of $214,945.91 in 1996; $340,055.07 in 1997 and $395,258.63 in 1998. In 1996 sales to Canadians amounted to $119,922.11. This included the Government of the Northwest Territories contracts. In 1996, grants and interest amounted to $1,903.53; Northwest Territories Government grants amounted to $18,986.25; sales to Americans amounted to $88,250.19; sales to Americans of animals not killed by Americans in Canada amounted to $11,871.12. He also referred to the figures for the 1997 and 1998 as contained in Exhibit A-3.

[30]          Between 1996 and 1998, 65 per cent of the revenue came from lifesize and shoulder mounts. Skulls, antlers, rug mounts and birds accounted for 35 per cent of the revenue. Ninety per cent of the lifesize and shoulder mounts go to the U.S.

[31]          He was referred to Exhibit A-1 at Tab 1, which was his Goods and Services Tax Registration Form, which he said he completed on October 19, 1990. During the years in question, his understanding was that only Canadian sales attracted GST. Government sales were not taxable. His brother researched it and consulted with Revenue Canada. Revenue Canada said that the residents of the U.S. were zero-rated. He was audited in February and March of 1999.

[32]          He was referred to Tab 2 of Exhibit A-1 which was the assessment for GST purposes and he said that Revenue Canada took the gross revenue, multiplied it by 7 per cent and deducted what he had remitted on Canadian sales. They went through the various processes which led to the appeal before this Court. They telephoned many taxidermists about the question of tax and they concluded that their product was zero-rated.

[33]          In cross-examination he said that he was not in the accountant's office when the accountant spoke to Revenue Canada and he was not privy to the conversation. There is approximately a five year waiting list to obtain a licence to hunt for a polar bear. There are less than a hundred tags available. They would never be able to buy a polar bear from an American because they always want the trophies. In order to export the bear the American must hunt it himself.

[34]          The hunt costs about $25,000 but if they were successful in shooting a bear the total cost would be over US$30,000. To hunt a caribou would be about $4,200, for the outfitter's charge for the hunt alone.

[35]          They usually meet their clients after the hunt, but the initial contact with the hunters is made by telephone before the hunt. Ninety nine per cent of their mounts were on bases. You cannot sell meat in the Northwest Territories and the Americans cannot take the meat out of Canada and into the U.S. because they need an import permit which would cost over $1,000. Caribou and muskox meat is often kept. They never switch hides.

[36]          It takes six months for them to get the hide back from the tanner although the process itself only takes about two to three weeks. The tanneries are backed up. Some clients only want to have their hides scraped, salted and sent directly out. They try to avoid that because it backs up the tanneries. They deal with tanneries in Winnipeg, British Columbia and Edmonton. They mark-up the tanning part of the process by about 50 per cent because there is prep work to be done on it. When they purchase the mannequins from suppliers they have to put the mannequin back together because they are shipped in parts. They have to make changes to it to accommodate the individual animal. They employ a contractor to build the bases.

[37]          He was referred to Exhibit A-2 at Tab 3 and said that from looking at the invoice one might not be able to tell whether the cost of the fox was built into the larger habitat. He knew that particular one was because he was familiar with it. He was referred to a series of invoices as it appeared to show that some were missing. To the best of his knowledge they were all there. He knew that the government money went into their income because it was in their invoices. He was referred to Exhibit A-2 at Tab 2 which was an invoice for training on the job for Pierre Berubé in the amount of $690. He admitted that they were paid that amount when he was asked how he knew that it went into income. He said, "it was all deposited".

[38]          The financial statements for the period ending December 31, 1996 were admitted by consent at Exhibit R-1. Using the Exhibit A-1 and the Exhibit R-1, counsel questioned the witness with respect to the receipt of monies from the Government of the Northwest Territories for training purposes. It was suggested to him that the amount did not seem to be included and he said that his brother looked after that.

[39]          They did not charge GST for work done for the Prince of Wales Northern Heritage Centre because it was government. The same thing applied to the Royal Saskatchewan Museum. Normally if someone said that they were not taxable, then they accepted that as it was a government department. They took it at face value.

[40]          He was unable to give a breakdown of the total grants and interest in the years in question. He was referred to his T1 General returns shown at Exhibit A-1, Tab 20 and asked whether the return showed that he had received interest of $378.48 for the business that is shown in Exhibit R-1 and he did not know.

[41]          They did not sell many of the eyes to the U.S. and he did not retail the mannequins. They have never sold any to the United States. They keep the nose and teeth sometimes but not the skull. They do not normally use the teeth except in the case of a beaver. He did not prepare the T4s for the workers trained on the job but his brother probably did.

[42]          He was shown Tab 5 of Exhibit A-1, which was invoice number 665395 with respect to one Sharman Kollmeyer who was a U.S. client. He had shot a caribou. He admitted that he had charged him GST. He was also shown Exhibit R-2 which was an Analysis of GST Collected from U.S. Clients for 1996. He was referred to the discrepancy of $1,294 as shown at page 4 of Exhibit R-2 and said that he did not know if the GST for the U.S. clients was remitted or not. He does not do GST returns. His brother does them.

[43]          In re-direct, he was asked whether or not there was any reason why he would not have charged GST to U.S. clients. He said that there was only one time that he believed that they had to charge 3 1/2 per cent GST to these clients. This had something to do with the fact that the outfitters had to charge GST and were entitled to collect back 3 1/2 per cent so they just started charging 3 1/2 per cent but then he said, "it was stupid on our part". In general he said they did not charge GST.

[44]          He referred to the financial statements found at Exhibit R-1 and he said that they were just draft statements prepared by his brother. He asked his brother to use the categories of revenue as set out in the exhibit. He believed that the money for the on-the-job training was in the statements somewhere.

[45]          Randall Robertson was a bookkeeper and accountant who lived in Yellowknife, Northwest Territories. He has lived there for 26 years. He was 32 years of age. He had a grade 12 education. In 1993 he was a file clerk, then he became a cash clerk, a payroll clerk, an assistant accountant and then a bookkeeper for the Coca Cola franchise. He became involved with his brother's taxidermy business in 1997 and 1998. He was his bookkeeper. He did the quarterly GST returns, the year-end statements and the income tax returns. He took an income tax course through Athabaska College by correspondence. The only training that he had in GST was obtained before the tax became effective in 1981. He took a full day course which was offered by Revenue Canada. It basically indicated on what items GST would be charged.

[46]          He was asked as to how he calculated his brother's gross revenue for the years in question. He said that he received the receipts quarterly and did the GST returns. He went through all deposits and income. He was asked if there was any difference between American and Canadian deposits and he said that they wrote down whether it was a Canadian deposit or an American deposit. It was hard to tell sometimes.

[47]          He was referred to the answers to undertakings found in Exhibit A-3, particularly answers to undertaking no. 4 with respect to gross income during the years in question. He confirmed the amounts as set out in the answer, then he was asked what amount was received from Canadian sources in the year 1996. He said that it was $119,922.11. He was asked how he knew that this was correct. He said that his brother brought over all of his invoices and he had to separate them for all three years. It was reported on his income tax return. He was asked how he knew that this was the case and he said that he did it.

[48]          He was referred to an item in Exhibit R-2 which was referred to as "unaccounted for revenue" in the amount of $6,773.61. He said that this came about due to the exchange rate difference. Sometimes it was recorded in U.S. currency when it should have been Canadian and vice versa. There were invoice errors that they could not agree upon. He put them over into a general income account which might have partly been caused by missed deposits.

[49]          He also referred to the figure of $12,458.71 as unaccounted for revenue in the year 1997. He responded, "I told him (the Appellant) that I could not bottom line these amounts". He could not balance them out. With respect to undertaking no. 3, he was asked how he knew that the figure of $1,903.53 was correct for the total grant and interest revenue during the year 1996. He said that most of the interest came from a security (MacKenzie funds) and the rest was put into a deferred income account. The government income was calculated from all of the invoices. He identified a cheque in Exhibit A-2 as being one of such invoices. He would have put it into income. He knew that you never charge the government of the Northwest Territories GST because of this work.

[50]          He was asked how he determined the amounts in undertaking no. 2 and he said that they went through all of the invoices. He was referred to the series of invoices found in Exhibit A-2 where the numbers of invoices were not sequential and where there appeared to have been missing invoices. He was asked why there was such a space in between the invoices. He said that these were just generic invoice books, they are not in sequence. He was then asked how he knew if there was any missing and he said he compared his and those that his brother brought in and went over them. He was referred to Exhibit A-2 at Tab 2 with respect to the amount of $690 which was indicated as "training on the job" amount. He was asked where this item was contained in Exhibit R-1 as revenue and he said he did not know. He prepared the financial statements for the Appellant and he completed the statement of activities for income tax purposes. These may not have been filed. Most of the information was put into his income tax return. He said: "there are probably other more final documents than these. These are pretty close".

[51]          When asked why the Appellant did or did not charge the U.S. customers GST, he stated that he was asked by his brother to call Revenue Canada and he did so and he asked a lady there about the problem and she said no. She said that all exports are zero-rated and there is no tax. Then he said he checked this out with Hawkins (their toughest competitor), looked at their brochure and received the information that you do not charge GST. He was referred to invoice number 254137 at Exhibit R-2 which showed that GST was charged and he said he did not know why. Again, invoice number 254141 was questioned. He said "it looks like it was 3 1/2 per cent". He was asked why this was so and he said that his dad heard something about it through the outfitters. "I knew it was not correct." Then he said that the statements in Exhibit R-2 are not accurate that there was a small margin of error. Then he said it could have been an adding machine error.

[52]          In cross-examination he was again referred to Exhibit A-2 at Tab 2 regarding the $690 and he said that he could not say where it was included in income. He was asked what was the rationale for the 3 1/2 per cent and he said that he did not know. He was then asked why the Appellant remitted less than he had collected in GST and left a shortfall of $1,294.90 as seen in Exhibit R-2 at page 4 and he said that he did not know. There were no T5s in the return.

[53]          When referred to the invoices, he said that Exhibit R-1 constituted the invoices but there may have been others. He did not know where they were but the amount of income on the Appellant's T1 return matches the amount of the income in the financial statement for the year 1996 which was $214,945.91. In the financial statement the grant money was included under other income in the $1,525.05. In 1997, the figure of $2,121.20 listed under other income for the current month as grant money is the rest of the other income but he did not know what it was. They did not include deposits in the invoices in Exhibit A-2 at Tab 2. Therefore, some invoices might be missing. They used some of the invoices as receipts and that could have been the explanation. He had no information on the deposits. The financial statements were created every year.

[54]          The Respondent called one Daniel Pintaric who was a GST auditor in the Appeals Division for Canada Customs and Revenue Agency. In January he will have been at this agency for four years. Before that he spent four months in an accounting firm and before that he was a partner with his father. This GST audit was assigned to him. He was in the credit/refunds department and he was attempting to find out what gave rise to the refunds. He might ask for documents and decide if a refund was valid or not. Here, the GST claimed on the expenses exceeded the GST collected.

[55]          In this case, after the initial contact was made of the Appellant, the focus shifted from verifying the expenses to the amount of GST that should have been paid. They determined that it should be assessed. They asked for documentation to enable them to determine whether goods were sold or services were provided. He had no invoices to go on. He used the T1 tax returns only. He decided that the Appellant was providing a service and that he should have collected GST. He was taxed on his T1 reported income.

[56]          He perused the invoices found in Exhibit A-1, for the Canadian and U.S. clients and noticed some had GST and others did not. It was difficult to determine what served or good was being provided by just looking at the income.

[57]          He prepared Exhibit R-2 based on his review of the invoices. With respect to the Canadian clients, more was remitted than collected and with respect to the U.S. clients, it was under remitted. The documents at Tab 2 appear to be invoices to government agencies or monies received for training purposes. He prepared Exhibit R-3 which was based on the invoices in Tab 2. The Government of the Northwest Territories would not pay GST but the Prince of Wales and the Royal Saskatchewan Museum would because they were not government agencies. He did not know about the labour and how it was provided. He just knew that provincial governments do not pay GST but federal government agencies do.

[58]          In cross-examination he said that he was not familiar with taxidermy at least not until he became involved in this case. He concluded that a non-resident would bring the item to the Appellant and it would be the whole animal or the part that he wanted mounted. He never considered the restricted number of tags that were available. He had to decide whether or not it was a good or a service. He did not think that any other statutes were relevant.

[59]          He was asked why the Appellant did not provide any invoices to him and he said that the Appellant's wife had told him that they were zero-rated. He needed more information and talked to Mr. Robertson about the invoices and searched documents which he needed in order to determine what the Appellant was doing. Mr. Robertson told him that he had difficulty in finding all of the invoices as they were dealing with four prior years. He did not give any time limit to the Appellant to provide these source documents. The Appellant then retained legal counsel and this witness could not talk to him any longer. No GST was calculated on the $8,160 received from the Government of the Northwest Territories in 1996; $1,539.50 in 1997 and another $12,744.78 in 1998.

[60]          Some discussion took place between the witness and counsel with respect to how he would determine whether or not an amount received from the Prince of Wales and the Royal Saskatchewan Museum would be taxable or not and he said that the important thing was who the work was supplied to and who paid for it. It would not be enough to escape GST that the provincial government paid for it if they did not receive the supply. The Appellant invoiced GST to a very small portion of his customers in 1996, 1997 and 1998.

[61]          In re-direct he said that he saw no invoices or evidence that proved that the amounts charged to the government were included in income in the years in question.

Argument on behalf of the Appellant

[62]          The Appellant was a long time resident of the Northwest Territories. He spent his life hunting and fishing. He was self-trained in the art of taxidermy through competition and experience. He received many awards. Hunters seek out his services in advance or bring hides to his place of business for treatment. Some contacts were made by telephone or in person. A large amount of his revenues were earned from his U.S. clients.

[63]          His income was from retail sales to the U.S. The Appellant perused his invoices in Court and was able to identify one of them where an American had killed an animal in Canada and also received an animal in Canada that was not killed by the hunter. It is not strange that he could remember some of these cases.

[64]          The Appellant entered into no formal contracts with the American hunters, perhaps a telephone call, some mounting instructions and an invoice. He had testified that it was rare to have a commercial mannequin that did not have to be altered. The most taxing aspect was to give life and motion to something dead and to provide a balance between the mount and the habitat. Ninety per cent of the work was in lifesize mounts for Americans. Materials amounted to 15 to 25 per cent out of the amount and the rest was mostly labour.

[65]          He said that the issues are whether or not we have a zero-rated good or a taxable service with respect to tangible personal property located in Canada. Basically it has to do with an animal killed by an American and then exported. This case has nothing to do with goods supplied from Canada to the U.S. to a non-hunter. These amounts are not taxable. There should be no tax on services or goods sold to the Government of the Northwest Territories in 1996, 1997 and 1998. These are not taxable amounts.

[66]          With respect to training on the job amounts, these are not taxable either. On the question of whether or not they were added into income, the Appellant and the bookkeeper thought that they had been. They had reported income exceeding the amounts on the invoices. The Court should consider the viva voce evidence that it was given with respect to the invoices. The invoices referred to represented most of the invoices in issue. The Court should decrease the amount upon which tax should be charged by the amount that was paid by the Government of the Northwest Territories.

[67]          However, the main issue is related to the export to the American hunters. What proprietary interest did the hunter have in the animal shot? They agreed that the dead animal was the hunter's property. He questioned the use of the property, the question of alienation and the question of the destruction of the property. He referred to the Consolidation of Wildlife Act, supra, which provides a scheme where the hunter has the feasible title in the dead animal. He may lose his title. He referred to section 59(1) of the same Act which provides:

        No person shall export or receive for export any wildlife other than a manufactured product to a place outside the Territories unless the shipment has attached to it an export permit issued under this Act that contains a true statement of the species and quantities of wildlife being exported.

Subsection 60(1) reads as follows:

        An export permit for the exportation of the meat of game may be issued to

        (a) the person who has lawfully killed the game by other than under the authority of a commercial tag; or

        (b) a person licensed to deal in the meat of game.

Counsel asked the question, what happens to it when the taxidermist commences his work? Is it a new good, a new sale to the U.S. or is title the same as it started? Is it the hunter's? Was there an accession of materials to the original good by way of service or a "contract for services"?

[68]          He referred to a number of authorities in support of his position.

[69]          He submitted that there should be a more inclusive definition of sale and not a more restrictive one. At the end of the day, do you have tangible personal property that is sold? If you do, then you have the sale of a good. You must go back to the nature of the contract.

[70]          The nature of the contract has to be established by evidence of what was done because they had not agreed specifically that they were creating something new or that they were merely providing a service. There are a number of factors to consider such as: the relative value of the hunter's material versus the Appellant's material. The hunter's material in the case of a large animal would have been about $1,200 or US$700. The taxidermist provided 25 per cent of the material and 75 per cent labour. What do you get at the end of the day as compared to before? At the beginning of the day you had nothing more than a dead animal but at the end of the day it was something real, something lifelike, something with realism. The artistic skill and ability of the taxidermist is incorporated into the article and this is very relative. Counsel suggested that when considering the relative value question, one should not consider the value of the hunt which was in the nature of $25,000.

[71]          On the single and multiple supply issue, counsel took the position that we have a single supply at the end of the day which was zero-rated. Ninety nine per cent of these lifesize mounts are sent out with the base and habitat. He referred to a number of administrative authorities and considering these authorities, at the end of the day, he submitted that GST is not exigible on (1) monies received from the Government of the Northwest Territories; (2) investment income from the MacKenzie fund if it were included in income; (3) retail sales of animals sold to the U.S. and mounted in Canada.

[72]          With respect to the main issue, the completed trophy sold to the U.S. was the sale of a good and not a service and the single supply rule should apply. There should be no tax on the whole amount.

[73]          Alternatively, the Court could find that the whole polar bear and the shoulder mounts could be supplies and the remainder could be services because of the amount of materials embodied into the completed product and the artistic ability of the taxidermist. Some would be taxable and some would not.

[74]          This is not a clear cut case but the appeal should be allowed with costs. The Appellant asked to speak to costs after the merits of the case are decided.

Argument of the Respondent

[75]          In written and oral argument, counsel for the Respondent said that the Supreme Court of Canada decision in Will-Kare Paving & Contracting Ltd. v. R., 2000 S.C.C. 36, may be conclusive and possibly fatal to the Appellant's case. It is recent, conclusive and balances both sides of the argument. It is determinative of the issue of whether a contract is one of providing materials, services or for the sale of goods. It is clear that the Appellant was supplying a service in his taxidermy business in the case at bar.

[76]          Supplies of service to non-residents can be zero-rated; however, section 7 of Part V of Schedule VI of the ETA provides exceptions and it is clear that the services provided by the Appellant in his taxidermy business in this case fall within two of those exceptions: (a) a service to individuals who were in Canada at the time when the individual had contact with the Appellant in relation to the supply of the taxidermy service, (subsection 7(a)) and (b) a service in respect of tangible personal property that was situated in Canada at the time the service was performed (subsection 7(e)). This subsection is the crux of the case at bar.

[77]          Accordingly, the Appellant supplied a taxidermy service that is not a zero-rated supply and GST is exigible on the supply of the service pursuant to subsection 221(1) of the ETA.

[78]          With respect to the amounts of money received from the Northwest Territories Government, it is admitted that GST would not normally be exigible upon the supplies made to government bodies that pay for those supplies, but the evidence showed that the amounts allegedly received were not included in gross income upon which the GST was assessed but rather on the amount that the Appellant reported on his 1996 T1 General.

[79]          Further, the invoices found in Exhibit A-2 show that amounts were invoiced to the Northwest Territories Government in 1996 for "training on the job" for Pierre Berubé and Neville Jacklin. Neither Gregory Robertson nor Randy Robertson could testify that any of these amounts were included in revenue. It appears likely that these amounts were not so included for two reasons: (i) training on the job is not one of the categories referred to in the financial statements and it is unlikely that such amounts would have been included in the other categories; (ii) these amounts would have been for the worker, therefore, it is possible that any cheques received on behalf of these workers would have been signed over to them without being deposited to the Appellant's general revenue account. (There is no evidence to support this submission).

[80]          If the Court finds that the Appellant was supplying a service to American hunters then it should not reduce the gross revenue amounts upon which GST was exigible.

[81]          With respect to the amounts paid to the Prince of Wales Northern Heritage Centre and The Royal Saskatchewan Museum, the Appellant has not proven that GST would not be exigible on these amounts. The evidence of the Appellant in this regard was unsatisfactory and little weight should be attached to his memory for something that happened five years ago.

[82]          There are obviously missing invoices and consequently there may be missing revenue. The explanation offered by the Appellant and his brother may account for some of the missing invoices but it is also likely that there were some invoices with respect to revenue amounts which were not included.

[83]          The beginning of the series commencing 441700 is missing and as well there are pockets of missing invoices, sometimes with a week passing without a single invoice. It was submitted that the Court ought not to reduce the amount of revenue on which GST was exigible.

[84]          On the basis of the Appellant's evidence it is clear that he charged GST to a portion of his American clients, primarily in 1996. His explanation was that he may have charged only 3 1/2 per cent extra because outfitters were charging that amount. He also admitted that sometimes he would charge a full 7 per cent GST. He did not remit all of the GST that he collected from the American clients.

[85]          Resident-killed animals sold to non-residents - In Exhibit A-3, in answer to undertaking no. 2, the Appellant contended that some amounts were sold directly to non-residents and therefore, should be zero-rated under section 12 of Part V of Schedule VII of the ETA.

[86]          During his evidence he stated that amounts under this heading ($11,871.12 for 1996), were determined through a review of the invoices based upon his own personal memory of such. From a view of that invoice he would conclude that the fox, lynx or hare would have been sold separately to a non-resident. Yet, on cross-examination he admitted that some of these mounts or smaller pieces could have been incorporated into the habitat for larger species. In such cases there would be a "single supply" and GST would be exigible on the entire display.

[87]          Counsel reiterated his position that some services to non-residents can be zero-rated under section 7 of Part V, Schedule VI of the ETA. If the Court finds that the Appellant provided a service then there is no basis for the Court to reduce the gross revenue amount upon which GST was exigible because the supply of the service in this case falls within the exception found in subsections 7(a) and (e) of section 7, Part V of Schedule VI of the ETA.

[88]          The crucial remaining question to be determined is whether the Appellant, in the course of carrying on his taxidermy operation in relation to hunters, was making a supply of a service with respect to tangible personal property? Section 12 of Part V of Schedule VI of the ETA zero-rates supplies of tangible personal property where the supplier delivers the property to a common carrier, or mails the property for export. This is the section upon which the Appellant relies for his position that GST was not exigible on the taxidermy operations of the Appellant in the years in question.

[89]          Before addressing the crucial issue counsel dealt with the question as to the ownership over the wildlife part. It was his position that according to the common law the hunter obtains a validly issued licence, permit and tag to hunt a particular species of animal and kills the animals specified in the licence, permit or tag. The hunter acquires absolute ownership of the animal. He referred to the cases of Fitzgerald v. Furbank, [1897] 2 C.H. 96 (C.A.) 102; "Polar Star" (The) v. Arsenault, (1964), 43 D.L.R. (2d) 354 (P.E.I. Supreme Court); affirmed at Denker v. "Polar Star", 51 M.P.R. 152, P.E.I. C.A.; Pammant v. Tompson, (1920) 200WN89 (C.A.); R. v. Lancour & Bunn, (1979) 13 B.C.L.R. 179; affirmed at (1979) 18 B.C.L.R. 71.

[90]          According to subsections 49(1) and (2) of the Wildlife Business Regulations, the Appellant was required to keep each hunters wildlife part separate from other wildlife parts and maintain specific information to identify the hunter's particular Wildlife Part. This ensures that the hunter receives ownership of the Wildlife Part that they gain from the hunt, particularly where they engage the services of people like the Appellant for preparing the Wildlife Part to be displayed as a trophy. The hunter values the finished product because it displays the Wildlife Part of the particular animal that he killed. The hunter's chief prize is a Wildlife Part. Consequently, in such an arrangement, the hunter does not transfer ownership of the Wildlife Part to the Appellant, rather, the Appellant assumes possession of that Wildlife Part as a "bailiff". See Crawford v. Kingston, [1952] O.R. 714 (C.A.).

[91]          Pursuant to subsection 49(3) of the Wildlife Business Regulations, if the person from whom the Wildlife Part was obtained fails to collect it after a period of one year the tanner or taxidermist may sell it and recover his fees and expenses. However, this does not mean that the ownership of the Wildlife Part is transferred to the Appellant.

[92]          Counsel submitted that the recent case of Will-Kare Paving, supra, the Supreme Court of Canada reviewed the Canadian Jurisprudence with respect to manufacturing and processing goods for sale. It acknowledged two divergent lines of cases in their interpretations of the activities that constitute manufacturing and processing of goods for sale.

[93]          One interpretation is expressed in Crown Tire Service Ltd. v. The Queen, (1983) [1984] 2 F.C. 219 (Fed. T.D.) where it relied on common law and statutory sale of goods principles to decide whether the contract was for "work and materials" or for the "sale of goods". This case related to the application of treads manufactured by the taxpayer to tires brought in by the customer for repair. The Court held that the treads were supplied through a contract for work and material and this did not constitute the manufacture or processing of goods for sale. During the process, the Court held that the customers retained ownership throughout the process.

[94]          A second interpretation departs from the point of view in Crown Tire, supra, and claims to apply statutory law and the common law sale of goods principles in delineating whether the contract was for "work or materials" or for "the sale of goods". Instead, these cases advocate a literal construction of "sale" such that the provision of a service incidental to the supply of the manufactured or processed good does not preclude the transaction from being a contract for sale. On these occasions, the Courts found that the form of the contract entered into between the parties to be irrelevant. Instead, the Courts adopted an alternative test based upon the source of the taxpayer's profit.

[95]          The Supreme Court of Canada, in Will-Kare Paving, supra, preferred the principles enunciated under the first line of authority (Crown Tire, supra), and concluded by stating:

        For the taxation years in issue, approximately 75 per cent of the asphalt produced by the Will-Kare's plant was supplied in connection with Will-Kare's paving services. Thus the plant was used primarily in the manufacturing or processing of goods supplied through contracts for work and materials, not through sale. Property in the asphalt transferred to Will-Kare's customers as a fixture to real property.

In the case at bar 100 per cent of the materials produced or purchased by the Appellant were supplied in connection with his taxidermy services. The Appellant did not retail his mannequins or any material separately. Instead, he affixed material that he either made or bought to a Wildlife Part that belonged to the non-resident hunter. Accordingly, the Will-Kare Paving case is authority for the proposition that such materials were transferred to the customer by "accession" and not under a contract of sale.

[96]          Cases in support of the proposition that where a person provides property to another person and that other person affixes materials to the property, the contract between the parties will be one for work and materials and the affixed materials pass to the first person by "accession" and not under a contract of sale are as follows: Rolls Royce (Canada) Ltd. v. The Queen, 93 DTC 5031; Sterling Engine Works Ltd. v. Red Deer Lumber Company, [1920] 2 W.W.R. 194 (C.A.). When Scott Maritimes Pulp Limited v. B.F. Goodrich Canada Limited, 72 D.L.R. (3d) 680 (N.S.C.A.) and The Queen v. Coopers & Lybrand Limited, 94 DTC 6541.

[97]          Further, the Appellant cannot supply something that he does not own. Subsection 123(1) of the ETA defines "supply" as:

"Supply" 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.

[98]          The Appellant cannot say that he provides property by way of a "sale", as he only owns a minor amount of materials that comprise the processed Wildlife Part. As discussed above, the Wildlife Part is not the Appellant's to sell. It is trite law that a person cannot sell property unless that person owns the property or otherwise has the right to sell the property. Accordingly, the Appellant cannot make a "supply" of the Wildlife Part. See the definition of "contract of service" and "sale", section 1, Sale of Goods Act, Revised Statutes of the Northwest Territories 1988, ch.S-2 and subsection 25(1) of the Sale of Goods Act.

[99]          Consequently, in the context of the Act when the Appellant returns the Wildlife Part to the hunter, the Appellant is not providing "property" within the meaning of subsection 123(1) of the Act, to the hunter. The "supply" within the meaning of subsection 123(1) of the Act, from the Appellant to the hunter, is not of property, rather it is the supply of a "service", within the meaning of subsection 123(1) of the Act.

[100]        Even if the Court preferred the second line of authorities discussed in Will-Kare Paving, supra, which looks to the taxpayer's source of profit, it is clear that the contract between the Appellant and the non-resident hunters would be for services, not for the sale of goods. This is the case because in the Agreed Statement of Facts and Law (Partial), it was agreed that:

15.            The total cost of basic supplies and materials accounts for approximately 15% to 25% of the total cost of the Processed Wildlife Part to the customer. The Appellant provides all of the supplies. The remainder of the consideration for the Processed Wildlife Part is accounted for in the labour required to create and manufacture the Processed Wildlife Part.

[101]        Accordingly, the primary source of the Appellant's profit is clearly from the service he provides (75 per cent to 85 per cent of the total cost of the final product comes from the Appellant's labour); therefore, under the second line of authority the contract would be for services.

[102]        Counsel also submitted that the contract in the case at bar was for services even if the Court accepts the old common law cases which relied upon the "substance of the contract" principle.

[103]        This principle was not specifically considered by the Supreme Court of Canada in Will-Kare Paving, supra. It is clear, that the Appellant is an extremely talented taxidermist who enjoys an enviable reputation in the industry. He has won numerous high level awards and continues to improve his craft. The Appellant acknowledged that his growing reputation has led to more work in recent years (income from non-residents rose from $88,250.19 in 1996 to $261,475.31 in 1997). Clearly, customers hire the Appellant for his talent, skill and artistic ability, not for the materials that are incidentally provided during his service. Counsel also referred to the following cases on this issue: Robertson v. Graves, [1935] All E.R. Reports 935 (C.A.) at 940, 941; Borek v. Hooper, (1984), 18 O.R. (3d) 470 (Ontario District Court) at 472; Industrial Forestry Service Limited et al. v. M.N.R., 92 DTC 1060 (T.C.C.) and Stowe-Woodward Inc. v. The Queen, 92 DTC 6149.

[104]        The significance is that the cost of the materials that the Appellant fixes to Wildlife Part is insignificant to the total cost of other expenses to obtain the final amount. An American hunter would spend approximately US$30,000, to travel to the Northwest Territories, kill a bear and have it mounted. The cost of supplies and materials according to the evidence for the basic materials would account for only US$575 on the total cost of a lifesize polar bear. Accordingly, the basic supplies and materials amount for only 3 per cent of the hunter's total cost.

[105]        Clearly a polar bear hide is a highly prized item given the evidence before the Court. However, for an American hunter to obtain a polar bear "trophy", he must incur the cost of killing the bear himself. Consequently, bearing all of the foregoing in mind, it is clear that the value of a "trophy" is derived primarily from the Wildlife Part and not from the materials affixed to the Wildlife Part during the taxidermy process. Accordingly, the substance of the contract between the Appellant and a non-resident hunter is clearly one for services and not one for the sale of goods.

[106]        Counsel referred to other factors in support of the proposition that the Appellant was providing a service to non-resident hunters in this taxidermy operation and not a supply. He referred to the broad definition of "service" in subsection 123(1) of the ETA. Further, he referred to the various services that the taxidermist provides on the hides such as fleshing, salting, soaking, tacking and trimming. Further, he may tan the hide if it is a small animal or otherwise would send it to a tannery.

[107]        He referred to other jurisdictions where taxidermists were considered as persons engaged in rendering a service such as Kentucky, U.S.A., Virginia, U.S.A. and South Africa. It was also significant to counsel for the Respondent that under the Wildlife Act, supra, a service must be performed before the Wildlife Part leaves the Northwest Territories. To him this indicates that the intention was that some business must occur before the hide leaves the N.W.T. although acknowledging that the Court is not bound by the Minister's administrative policy referable to subsection 7(e) of Part VII of Schedule VI of the ETA where a service will be "in respect of" tangible personal property if the service is "physically performed on the tangible personal property", it should be given weight in the interpretation of the legislation. The provision of the taxidermist services certainly enhances the value of the property.

[108]        The term "tangible personal property" is not defined in the ETA although in subsection 123(1) "personal property" means property that is not real property. It is clear that the definition of "tangible personal property" is very broad and would undoubtedly include a Wildlife Part.

[109]        It is clear that the Appellant performs his taxidermy services in Yellowknife, N.W.T. and therefore provides "a service in respect of tangible personal property that is situated in Canada at the time the service is performed". It is submitted that the taxidermist's services fall squarely under subsection 7(e) of Part V, Schedule VI of the ETA. Therefore, the Appellant's supply of taxidermy services to non-resident hunters is not zero-rated.

[110]        He addressed the issue of material and supplies in the context of the argument of counsel for the Appellant that there may be a provision of a "service" as the provision of a "supply", the "supply" not being taxable and the "service" being taxable. However, it was his position that the practice of taxidermy involves various components that are all interconnected, interdependent and intertwined: basic supplies and materials such as eyes, teeth, glue, paint and epoxy which are essential to the finished mount and are in every sense interconnected and intertwined with the finished mount and bases and habitats which are being marketed to the public is an integral part of the taxidermy service. There was no evidence that the Appellant sells such bases or habitats to non-residents separate from the mounted animal. Indeed he testified that he refused to sell a mannequin to a taxidermist in the United States and that he did not retail materials such as eyes, teeth and claws. Therefore, the entire process of Wildlife Part would be a single supply.

[111]        Further the ETA provides a compelling reason to view the entire processed wildlife part as a single supply. Subsection 4(b) of Part V of Schedule VI of the ETA prescribes that the supply of tangible personal property, which is supplied, in conjunction with a service can be zero-rated. However, it must meet the conditions under subsection 4(a) of Part V, Schedule VI of the ETA in that the tangible personal property must be (a) ordinarily situated outside of Canada, (b) temporarily imported for the sole purpose of having the service performed, and (c) exported as soon as it is practical for the services performed.

[112]        This is not what happened in the present case according to the evidence. Therefore, the materials used in performing the taxidermy service are not zero-rated. The services in this case are not zero-rated under subsection 4(b). They are not zero-rated under subsection 7(e) because the property was located in Canada when the taxidermy service was supplied.

[113]        Should the Court find that there were multiple supplies, then section 138 of the ETA operates to treat these supplies as a single supply. That section provides, under the heading "Incidental Supplies": for the purpose of this part [Part IX of the ETA], where (a) a particular property or service is supplied together with any other property or service for a single consideration, and, (b) it may be reasonable be regarded that the provision of the other property or services of incidental to the provision of particular property or service, "the other property or service shall be deemed to form part of the particular property or service or supply."

[114]        The Appellant provided his taxidermy services for a single consideration and it may reasonably be concluded that the materials provided in the taxidermy process were incidental to the provision of the service. Accordingly, pursuant to section 138 of the Act, the fact that the Appellant used materials in the taxidermy process does not detract from the taxidermy process being the provision of a service.

[115]        In conclusion, counsel submitted that the Appellant supplied his service to individuals who were in Canada at a time when the individual had contact with the Appellant in relation to the supply of the taxidermy service. Also, he provided a service in respect of tangible personal property that was situated in Canada at the time the service was performed.

[116]        Accordingly, pursuant to section 7 of Part V, Schedule VI of the ETA, the Appellant's provision of the taxidermy service was not a zero-rated supply; and therefore, GST is exigible on the supply of this service, pursuant to section 221 of the ETA.

[117]        This appeal should be dismissed, with costs.

Analysis and Decision

[118]        In the case at bar there is one main issue and there are several auxiliary issues. All of these have been defined by both counsel. The main issue in this case is whether or not, in the context of the evidence in this case, the Appellant was supplying a service in his taxidermy business (a contract for services) or whether the contract was for the sale of goods. In essence, counsel for the Appellant said that the taxidermist entered into a contract for the sale of goods whereas counsel for the Respondent says that in essence the taxidermist provided his services and that was what he was paid for. At the end of the day it will be necessary to determine whether it was one or the other before seeking to apply the various provisions of the Act which have already been referred to.

[119]        Since the provision of services to non-residents can be zero-rated, under Schedule VI, Part V, section 7 of the Act, providing they fall within the requisite exceptions, the Appellant might be successful even if the contract were for the supply of services rather than a contract for the sale of goods as he proposed.

[120]        There are several ancillary matters which the Court has to decide in this case as well due to the nature of the evidence given. These ancillary matters include:

        (1)      Whether or not tax was exigible on amounts received from               Prince of Wales Northern Heritage Centre and the World            Saskatchewan Museum?

(2)            Whether the amounts determined by the Minister on which GST should be calculated were the proper amounts or whether these                amounts should be reduced in light of the evidence given by the                 Appellant, the bookkeeper for the Appellant, who was his brother            and the witness called by the Respondent who raised the      assessment in this matter?

(3)            Whether or not the Appellant has established that some goods were           sold directly to non-residents and therefore, should be zero-rated             under section 12 of Part V of Schedule VII of the Act, immaterial              of the decision on the main issues? If the Court finds that this was           so, then the issue would be a determination of the proper quantum        to which tax was exigible and whether or not that amount is lower             than that which was determined by the Minister.

        (4)        Whether or not there was a single supply or multiple supplies? If there were multiple supplies, what amounts, if any, should be deducted from the totals used by the Minister in determining the appropriate tax?

        (5)        If the Court should find that there were multiple supplies (supply of services and supply of materials) does section 138 of the Act operate to treat these supplies as a single supply?

[121]        On the basis of the submissions made by counsel, having due regard to the common law and statute law referred to, the Court is satisfied that the hunters in the case at bar did not transfer ownership of the Wildlife Part to the Appellant. Rather, the Appellant assumed possession of that Wildlife Part on behalf of the hunter. There is no doubt that in accordance with subsection 49(3) of the Wildlife Business Regulations, supra, the holder of a tanner or a taxidermist licence obtains a proprietory interest, akin to a lien, against the Wildlife Part and was entitled to recover his costs by selling the Wildlife Part, if it was not picked up for a period of one year. This does not mean, even by the operation of law, that the taxidermist or the tanner would obtain ownership of the Wildlife Part but merely would obtain the right to sell the part as a means of recovering his fees. Consequently, the most that the taxidermist could obtain by way of a proprietory interest would be a minor amount of the materials that make up the finished article. When the Appellant returns the Wildlife Part to the hunter, in its final form, he is not providing "property" within the meaning of subsection 123(1) of the Act, to the hunter, at least in respect of that part of the final product which is composed of the Wildlife Part.

[122]        As agreed to in the Statement of Facts, the total cost of basic supplies and materials accounted for approximately 15 to 25 per cent of the total cost of the processed Wildlife Part to the customer. The remainder of the consideration was in the labour required to create the finished article.

[123]        The case of Will-Kare Paving, supra, at paragraph 36 is of some assistance on this point. It said:

        For the taxation years in issue, approximately 75 per cent of the asphalt produced by the Will-Kare's plant was supplied in connection with Will-Kare's paving services. Thus the plant was used primarily in the manufacturing or processing of goods supplied through contracts for work and materials, not through sale. Property in the asphalt transferred to Will-Kare's customers as a fixture to real property.

[124]        In the case at bar, property in the total cost of the basic supplies and materials was transferred to the hunter as an addition to the Wildlife Part.

[125]        As set out in Will-Kare Paving, supra, at page 13:

        Canadian jurisprudence to this point has adopted two divergent interpretations of the activities that constitute manufacturing and processing goods for sale. Without canvassing these authorities exhaustively, it may be helpful to outline briefly those cases which delineate these two distinct approaches.

        One point of view is expressed in Crown Tire Service Ltd. v. R. (1983), [1984] 2 F.C. 219 (Fed. T.D.), where the court imports common law and provincial sale of goods law distinctions in defining the scope of the manufacturing and processing incentives' application. Only capital property used to manufacture or process goods to be furnished through contracts purely for the sale of such goods qualifies. Property used to manufacture or process goods to be supplied in connection with the provision of a service, namely through a contract for work and materials, is not viewed as being used directly or indirectly in Canada primarily in the manufacturing or processing of goods for sale, and as such, does not qualify for either the accelerated capital cost allowance or the investment tax credit.

[126]        The case at bar is not the same type of factual situation as was involved in Crown Tire Service Ltd., supra, however, the analogy is still a good one.

[127]        Further, of use in the present case, is a quotation from the Crown Tire case in reference to the text, Benjamin's Sale of Goods (London, 1974), in considering the distinction between a contract for the sale of goods and a contract for work and materials, where it is stated:

Where work is to be done on the land of the employer or on a chattel belonging to him, which involves the use or affixing of materials belonging to the person employed, the contract will ordinarily be one for work and materials, the property in the latter passing to the employer by accession and not under any contract of sale.

Again, the analogy to the present case, although the facts are different, is still an apt one. This Court is satisfied that the situation in the case at bar fits within the general principle as referred to in Benjamin, supra. There can be no doubt in the Court's mind that in the present case that the hunter retained ownership of the dead animal part throughout the process as indicated by Will-Kare Paving, supra.

[128]        At page 14 of that case, the Court said:

        A second line of authority departs from the point of view in Crown Tire and declines to apply statutory and common law sale of goods rules in delineating that capital property to which the manufacturing and processing incentives apply. Rather, these cases advocate a literal construction of "sale" such that the provision of a service incidental to the supply of a manufactured or processed good does not preclude receiving the benefit of the incentives. Any transfer of property for consideration would suffice. See Halliburton Services Ltd. v. R. (1985), 85 D.T.C. 5336 (Fed. T.C.), aff'd (1990), 90 D.T.C. 6320 (Fed. C.A.), and Nowsco Well Service Ltd. v. Canada (1990), 90 D.T.C. 6312 (Fed. C.A.).

[129]        Halliburton and Nowsco, supra, considered the form of the contract to be irrelevant and suggested an alternative test based upon the source of the taxpayer's profit.

[130]        The Court finally held at page 16:

        The principles enunciated in Crown Tire and Hawboldt Hydraulics, to the extent they dictate reference to a common law and statutory definition of sale, offer a guide preferable to the broader interpretation of sale described in Halliburton and Nowsco.

[131]        Counsel for the Respondent argued that even if the Court accepted the old common law cases on the basis that, of significance was the "substance of the contract" principle, the case at bar still dealt with the provision of services rather than a contract for the sale of goods. To that end he highlighted the high degree of talent possessed by the taxidermist in this case and the reputation that he enjoyed in the industry. Therefore, it was his position that customers hired the Appellant for his talent, skill and artistic ability, not for the materials that were incidentally provided during his service.

[132]        The cost of the material that the Appellant affixed to the Wildlife Part was insignificant compared to the total cost that a hunter expends to obtain the final amount. The value of the trophy was derived principally from the Wildlife Part and not from the materials that the Appellant affixed to the part during the taxidermy process. Consequently, he argued, that the substance of the contract between the Appellant and the non-resident hunter was clearly one for services, not one for the sale of goods.

[133]        The treatment of taxidermists in other jurisdictions is not determinative of the issues in this case but the majority of the other jurisdictions would appear to have treated the taxidermist as a person engaged in rendering a service.

[134]        The Minister's administrative policy, with respect to section 7 of Part V of Schedule VI of the Act, provides that a service will be "in respect of" tangible personal property if the service is "physically performed on the tangible personal property" or if the service "enhances the value of the property". Again this interpretation is not binding on the Court, but it is indicative of the Minister's treatment of the matter.

[135]        On the basis of the cases referred to, the common law and having due regard to the able arguments made, this Court is satisfied that the Appellant supplied a service to individuals who were in Canada at the time when the individual had contact with the Appellant in relation to the supplies of the taxidermy services and the contract was not one for the sale of goods as argued by counsel for the Appellant.

[136]        Further, the Court is satisfied that in accordance with subsection 7(e) of Part V of Schedule VI of the Act, during the appropriate period of time, the Appellant made a supply of a service to a non-resident person, which was, "a service in respect of tangible personal property that was situated in Canada at the time the service is performed" and consequently this subsection prevents the supply of that service from being zero-rated.

Ancilliary Issues

[137]        On the issue as to whether or not GST should be exigible on supplies made to the Northwest Territory Government, the Court is satisfied that supplies made to such a body would not normally attract GST but in order for the Court to reduce the amounts upon which the Minister based the tax in accordance with the assessment, the Court would have to be satisfied that such amounts were included in the gross income upon which GST was assessed.

[138]        The evidence in that regard was both unsatisfactory and insufficient. Since the Appellant is attacking the basis of the assessment it is his duty to establish on the balance of probabilities that this assessment was based upon an incorrect amount. The evidence of the Appellant himself and of his accountant was anything but stellar on that issue. Financial statements of the Appellant were referred to, but after a fair consideration of those statements on the basis of the evidence given by the two witnesses referred to and upon the cross-examination of those witnesses, the Court is anything but satisfied that those amounts were included in the gross income upon which GST was assessed.

[139]        It should have been an easy matter for the Appellant and his accountant to establish, by acceptable evidence, what amounts were included in the gross income in the years in question. However, this they failed to do on any satisfactory basis and consequently the Appellant has not met the burden in that regard. The Court is not satisfied that no GST should be exigible on these amounts raised by the Minister.

[140]        With respect to the amounts paid to "Prince of Wales Heritage Centre" and "Royal Saskatchewan Museum" there was insufficient evidence provided by the Appellant or any other witness to satisfy the Court on a balance of probabilities that GST would not be exigible on these amounts. Again it should have been an easy matter for the Appellant and his accountant to establish that these amounts were received from a government body and were not taxable. The Appellant did not produce any satisfactory evidence to establish that fact and the viva voce evidence that he and his accountant gave were incapable of providing this proof.

[141]        With respect to the issues raised as to whether or not the Minister used the wrong amounts in assessing GST, again the Court is not satisfied that the Appellant has established on a balance of probabilities that this was so. The Minister is entitled to rely upon the presumptions contained in the Reply that the assessment was correct until the contrary is established on the balance of probabilities. There was unsatisfactory evidence presented in this regard by the Appellant and his accountant. There was no satisfactory explanation offered with respect to the problems encountered with the invoices and some appeared to be missing. The Court has not heard any satisfactory evidence which would cause it to question the accuracy of the figures upon which the Minister based this assessment. Consequently, the Appellant's argument in this regard fails.

[142]        It is clear on the basis of the evidence that the Appellant did charge GST on a portion of the charges made to his American clients, particularly in 1996. There was little or no explanation offered as to why this may have been the case except to suggest that it had something to do with the fact that the outfitters were charging only 3½ per cent instead of 7 per cent because they were entitled to get a rebate. The Appellant did admit that sometimes he charged the whole 7 per cent to the Americans. Further, the Appellant did appear to collect more GST in 1996 than he remitted for the year. This again raises a real issue as to the accuracy of the records of the Appellant, but in any event this is not evidence upon which the Court could reduce the figures that the Minister used as a basis for the assessment.

[143]        With respect to the issue of resident-killed animals sold to non-residents which the Appellant argues should reduce the figures upon which GST was charged, because they were sold directly to non-residents and should be zero-rated under section 12 of Part V, Schedule VII of the Act, the evidence in this regard was very unsatisfactory. Most of the evidence in this regard was based upon the memory of the Appellant and he had little or no documentation which would convince the Court that his memory was correct.

[144]        As well, the argument made by counsel for the Respondent is well taken, where he submitted that the Appellant in cross-examination admitted that some of the charges for smaller pieces could have been incorporated into a habitat for a larger species. In such an event it would be subject to the "single supply" rule and attract GST on the entire display.

[145]        With respect to the multiple supply argument, taking into account the evidence of all of the witnesses as a whole, the Court is satisfied that the taxidermy services provided by the Appellant were for a single consideration and it would be more reasonable to conclude that the materials were only incidental to the provision of the main service. Such materials included the eyes, teeth, base, habitat, mannequin, glue and other materials incidental to the completion of the final article. As argued by counsel for the Respondent, all of the photographs referred to in the evidence showed all of the animals displayed on a base or in a habitat. It appears that the bases and habitats were marketed to the public as an integral part of the taxidermy service. The evidence of the Appellant himself was that 99 per cent of the time a mounted animal was sent to the client on a base or habitat. There was no evidence that such bases or habitats were sold separately and the evidence was quite clear that the Appellant refused to sell a mannequin to a taxidermist in U.S.A. nor did he retail such things as eyes, teeth, claws.

[146]        The Court is satisfied that it is only reasonable that the entire completed Wildlife Part should be considered to be a single supply.

[147]        The Appellant has a further problem because of the provisions of subsection 4(a) of Part V, Schedule VI of the Act which puts forth three requirements in order for such tangible personal property, supplied in conjunction with a service to be zero-rated. It must be, "(a) ordinarily situated outside Canada, (b) temporarily imported for the sole purpose of having the service performed, and (c) exported as soon as practical after the service is performed.

[148]        The materials in question here do not meet those requirements.

[149]        Further, the Appellant has a problem because of the provisions of section 138 of the ETA which provides as follows:

For the purposes of this Part, where

(a) a particular property or service is supplied together with any other property or service for a single consideration, and

(b) it may reasonably be regarded that the provision of the other property or service is incidental to the provision of the particular property or service,

the other property or service shall be deemed to form part of the particular property or service so supplied.

There can be no doubt that, as indicated above, the Appellant provided his taxidermy services for a single consideration and the materials supplied were certainly incidental to the provision of these services.

[150]        As a result, the Appellant cannot be successful in this argument.

[151]        In the end result, the Court is satisfied that the Appellant provided a service to individuals who were in Canada at the time when the individual had contact with the Appellant in relation to the provision of those services. Further, the Appellant provided a service in respect of tangible personal property situated in Canada at the time the service was performed. Accordingly, pursuant to section 7 of Part V, Schedule VI of the Act, the Appellant's supply of taxidermy services was not a zero-rated supply. GST was exigible on the supply of this service, pursuant to subsection 221(1) of the Act, on the amounts as calculated by the Minister in the assessment raised in this case.

[152]        The appeal is therefore dismissed, with costs, and the Minister's assessments are confirmed.

Signed at Ottawa, Canada, this 24th day of January 2002.

"T.E. Margeson"

J.T.C.C.

COURT FILE NO.:                                                 2000-1562(GST)G

STYLE OF CAUSE:                                               Gregory Robertson

and Her Majesty the Queen

PLACE OF HEARING:                                         Edmonton, Alberta

DATE OF HEARING:                                           November 20, 2001

REASONS FOR JUDGMENT BY:                      the Honourable Judge T.E. Margeson

DATE OF JUDGMENT:                                       January 24, 2002

APPEARANCES:

Counsel for the Appellant:                  Tim Hay

Counsel for the Respondent:              John O'Callaghan

COUNSEL OF RECORD:

For the Appellant:

Name:              Tim Hay

                                        Firm:                Felesky Flynn

                                                                Barrister & Solicitor

                                                                2250, 10104 - 103 Avenue

                                                                Edmonton, Alberta T5J 0H8

For the Respondent:                             Morris Rosenberg

                                                                Deputy Attorney General of Canada

                                                                                Ottawa, Canada

2000-1562(GST)G

BETWEEN:

GREGORY ROBERTSON,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeal heard on November 20, 2001, at Edmonton, Alberta, by

the Honourable Judge T.E. Margeson

Appearances

Counsel for the Appellant:                             Tim Hay

Counsel for the Respondent:                         John O'Callaghan

JUDGMENT

          The appeal from the assessments made under Part IX of the Excise Tax Act, notice of which is dated June 18, 1999 and bears number 10120200 for the audit period January 1, 1996 through December 31, 1997, and to the GST assessment dated June 22, 1999, for the audit period January 1, 1998 through December 31, 1998 is dismissed, with costs, and the Minister's assessments are confirmed.

Signed at Ottawa, Canada, this 24th day of January 2002.

"T.E. Margeson"

J.T.C.C.