Citation: 2010TCC222
Date: 20100427
Docket: 2000-4164(GST)G
BETWEEN:
ROGER OBONSAWIN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb, J.
[1]
The Appellant is an
Indian as defined in section 2 of the Indian Act. In carrying on his
sole proprietorship business under the name “Native Leasing Services” (“NLS”),
the Appellant did not collect (and did not remit) GST on the taxable supplies
that he made in carrying on this business. There are two assessments of the
Appellant that are in issue in this appeal. The first assessment (dated May 12,
1995) was for the period from February 1, 1991 to January 31, 1993 and the
amount of GST that was assessed was $759,877. The second assessment (dated
August 20, 1998) was for the period from February 1, 1993 to December 31, 1996
and the amount of GST that was assessed was $3,304,715. Interest and penalties
were also assessed.
[2]
Counsel for the
Appellant described the grounds for the appeal in his written submissions as
follows:
2. The grounds for his appeal are identical in
respect of each of the tax years under consideration. They are:
a.
the GST assessed against the appellant
constitutes a tax on the property of the appellant (a Status Indian) situated
on a reserve, and/or a tax on him in respect of that property, contrary to s.
87 of the Indian Act, and the assessments are therefore void;
b.
Further, or in the alternative, the CRA chose to
raise notional GST assessments against the appellant based on income reported
for income tax purposes, notwithstanding that CRA had available to it complete
financial records of Mr. Obonsawin’s sole proprietorship.
[3]
Subsections 87(1) and (2) of the Indian
Act provided, during the period under appeal, as follows:
87. (1) Notwithstanding any other Act of
Parliament or any Act of the legislature of a province, but subject to section
83, the following property is exempt from taxation, namely,
(a) the interest of an Indian or a band in reserve lands or
surrendered lands; and
(b) the personal property of an Indian or a band situated
on a reserve.
(2) No Indian or band is subject to taxation in
respect of the ownership, occupation, possession or use of any property
mentioned in paragraph (1)(a) or (b) or is otherwise subject to taxation in respect of any
such property.
[4]
The business that the
Appellant carried on as NLS was employee leasing. The Appellant would hire the
staff of a client (whom the Appellant referred to as a placement organization)
and then “lease” the employees back to the placement organization. The
Appellant became the employer and was responsible for source deductions. The placement
organizations would still retain control over the individual workers who would
still report for work at the premises of the placement organization. The
Appellant (or his employees) would also recruit employees at the request of placement
organizations. Such individuals would also be employees of the Appellant and
leased to the placement organization that made the request. The Appellant’s
clients were native not-for-profit organizations but none of the Appellant’s
clients were Indians or bands (as defined in the Indian Act). None of
the placement organizations were located on any reserve. The Appellant was not
arguing that GST should not apply because any of his clients were entitled to
claim an exemption pursuant to section 87 of the Indian Act.
[5]
Prior to establishing
NLS, the Appellant had formed a corporation, OI Employee Leasing Inc., to
carry on the employee leasing business. This company carried on the business
for approximately three years before the Appellant established NLS in 1991. The
Appellant described the formation of NLS as follows:
Q. You talked a little bit at the outset about the formulation of
Native Leasing Services?
A. Yes.
Q. In 1991?
A. Yes.
Q. Can you tell me a little bit, to the extent you remember, about
the circumstances of the formation of NLS, and I'm going to ask you why you
formed NLS?
A. Well, we'd been operating for a while, and then the Goods and
Services Tax, the GST was applied. Indians were exempt from the manufacturing
sales tax, and it replaced the manufacturing sales tax.
So without any changes to the Indian Act, the government said you
now have to pay the GST or collect the GST, and I didn't see myself as a tax
collector for the GST and I refused to collect that from people that are just barely
getting by and finally getting out of poverty.
Q. That's helpful to talk about the history of the introduction of
GST. Can you help us with how establishing Native Leasing Services fit into
that concern and that insight you had?
A. Well, we went to our employees,
all of our employees, and gave them a choice that they could start paying the
GST, and if they agreed to pay the GST, we would collect it ‑‑
and some of them did ‑‑ and remit it.
And for those who wanted to exercise their aboriginal treaty rights,
then we would not collect. We would honour their rights and not collect it, and
that was our position.
Q. Okay, I understand that, and that's helpful. And so this
option you offered your employees, did that relate in some way to the formation
of Native Leasing Services?
A. Yes. Those employees that agreed to ‑‑ that they
did not want us to collect the tax we put under Native Leasing Services. Those
that wanted to pay it, we put under the OI Employee Leasing ‑‑ we
left under OI Employee Leasing.
[6]
With the introduction
of the GST in 1991, the Appellant created two streams – OI Employee Leasing
Inc. would provide the services to those placement organizations from whom GST
would be collected and NLS would provide services to those placement organizations
from whom GST would not be collected. The decision of whether GST would be
collected was not based on any provisions of the Excise Tax Act but only
on whether the placement organizations wanted to pay GST.
[7]
OI Employee Leasing
Inc. provided the same services to its clients as NLS did to its clients using
the same staff as NLS. OI Employee Leasing Inc., however, did collect and remit
the GST in relation to the amounts that were received (or receivable) for its
services.
[8]
It is clear that the
Appellant made a conscious choice to not collect and remit the GST in relation
to the taxable supplies that were being made by him in carrying on business as NLS.
There is no dispute that the supplies that were being made by him in carrying
on business as NLS were taxable supplies, for the purposes of the Excise Tax
Act, and that none of the supplies were zero rated supplies. In the
Appellant’s Notice of Appeal, he had indicated that some of the supplies were
exempt supplies for the purposes of the Excise Tax Act. At the
commencement of the hearing counsel for the Appellant stated that the Appellant
was no longer taking the position that some of the supplies were exempt
supplies for the purposes of the Excise Tax Act and an Amended Notice of
Appeal (which was the Amended Amended Amended Notice of Appeal) was filed in
which the references to some of the supplies being exempt supplies for the
purposes of the Excise Tax Act were deleted.
[9]
As noted by counsel for
the Appellant, the first ground of appeal relates to section 87 of the Indian
Act. Both the exemption from taxation on personal property provided in paragraph
87(1)(b) and the exemption provided to an Indian in subsection 87(2) in
respect of personal property, are limited to taxation in relation to the
personal property of an Indian situated on a reserve. Therefore the first
questions that arise are:
(a)
is any personal
property of the Appellant being taxed; or
(b)
is the Appellant being
taxed in respect of the ownership, occupation, possession or use of any of his
personal property or is otherwise being subjected to taxation in respect of any
such property?
[10]
If the answer to either
of these questions is yes, then the next question that must be answered is
whether such personal property is situated on a reserve. If no personal
property of the Appellant is being taxed and the Appellant is not being taxed
in respect of the ownership, occupation, possession or use of any of his
personal property and is not otherwise being subjected to taxation in respect
of any such property, then the provisions of section 87 of the Indian Act
do not apply.
[11]
Counsel for the
Appellant, in his written submissions, stated that:
97. the Crown has admitted in its pleadings
that the services Obonsawin offers through his sole proprietorship constitute
property for the purposes of this appeal.
[12]
There is no statement
in the pleadings of the Crown that the Crown has admitted that services would
be property for the purposes of the Indian Act. During oral argument,
counsel for the Appellant acknowledged that he had overstated the Crown’s
position. In any event it seems to me that this would be a question of law (or
a mixed question of fact and law).
[13]
It seems clear that the
Appellant was providing services. In the Amended Amended Amended Notice of
Appeal, paragraph 4 provides that:
4. Commencing in 1992 the Appellant entered
into contracts (the “Service Contracts”) with numerous native organizations
throughout Canada (the
“Placement Organisations”) pursuant to which the Appellant provided various
services to the Placement Organisations (the “Services”) on the terms expressed
in the Service Contracts.
[14]
In the written
arguments submitted on behalf of the Appellant, paragraphs 26 and 27 provide in
part that:
26. NLS is a sole proprietorship of Roger
Obonsawin.
27. It was formed in 1991 to provide employee
leasing services to native organizations.
[15]
The typical Placement
Agreement between NLS and a placement organization provided in Schedule “A”
that:
The placement organization agrees to the timely remittance of all
fees applicable to the purchase of services described as follows: …
[16]
It is also clear that
the administrative fee charged by NLS was a percentage of the amount payable
for the services rendered.
[17]
It is clear that the Excise
Tax Act draws a distinction between property and services. “Supply” and “service”
are defined in section 123 of the Excise Tax Act as follows:
“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;
“service” means anything other than
(a) property,
(b) money, and
(c) anything that is supplied to an employer
by a person who is or agrees to become an employee of the employer in the
course of or in relation to the office or employment of that person;
[18]
During oral argument
counsel for the Appellant was unable to refer to any cases that dealt with the
issue of whether services could be property for the purposes of the Indian
Act. At the conclusion of the oral argument, counsel for the Appellant
indicated that he would submit additional written representations with respect
to the issue of why services should be included as property for the purposes of
the Indian Act.
[19]
In the supplemental
written argument submitted by the counsel for the Appellant, he stated that:
1. The essence of the contractual relationship
between Obonsawin and a placement agency is that the placement agency agrees to
pay for, and Obonsawin agrees to provide, services to the placement agency
(which services are to be provided by Obonsawin’s employees).
2. Obonsawin, pursuant to his agreements with
his employees, has the contractual right to call upon them to perform those
services, and it is these contractual rights of Obonsawin’s – as distinct from
the services – that are the personal property of Obonsawin for purposes of s.
87.
[20]
It appears that the
Appellant is abandoning his argument that services are property for the
purposes of the Indian Act. His argument is now that the contractual
right that the Appellant has with his employees is the property for the
purposes of the Indian Act. Counsel for the Appellant cites two cases in
support of this proposition – Phillips v. The Queen 2006 TCC 24,
[2006] 2 C.N.L.R. 112, 2006 G.T.C. 171 and Metlakatla Ferry Service Ltd.
v. The Queen in Right of British Columbia,
[1987] 2 C.N.L.R. 95.
[21]
In Phillips the organizer
of certain conferences had been assessed GST that the Crown was alleging he
should have collected on registration fees charged to bands and band entities.
The fees were paid so that individuals determined by the bands could attend
conferences that were held off the reserve. In that case Justice Paris stated
that:
31 However, I believe that under the
contract between the Appellant and his customers, the payment of the conference
registration fees gave the latter a right to attend the conference at a future
date. Although the conferences themselves would be the provision of a service,
at the point in time when the bands or band entities made payments to the
Appellant they acquired a right to the performance of a service in the future.
32 The conference fees were paid by
participants or (in this case) by their employers in order to attend the
conferences or workshops put on by the Appellant on a scheduled day or days.
The fees were set according to the particular workshops that the participant
wished to attend and were paid in advance. According to the Appellant, the
various Indian bands or band entities would often pay for more than one place
at a conference and decide afterwards who would attend. Thus it appears that
the right to attend the conference was transferable from one person to another.
The registration forms provided that no refund would be given if a registrant did
not attend and had not made a request for a refund more than a week prior to
the conference. Therefore the payment was not conditional on receipt of the
service.
33 I find that, in this case at the
time the supply was made, the supply consisted of a right to attend the
conference.
[22]
In seems to me that there
is a difference between a right to attend a conference and any right that the
Appellant may have as the employer under his employment contract to “call upon
[the employee] to perform … services”. It also seems to me that the Appellant
was paid for services that were actually rendered and not for any right that he
might have to “call upon [his employees] to perform … services”.
[23]
In Metlakatla Ferry
Service Ltd. the British Columbia Court of Appeal held that the lease of a
vessel and the payments made under the lease were personal property. In that
case, the band was leasing a vessel and the tax, if applicable would have been
payable by the band. It also seems to me that a distinction can be drawn between
a lease or a right to use property (a vessel) and employment contracts. A
person can enforce a lease of property if the owner of the property should
refuse to allow the lessee access to the property but the employer does not
have the right to force an individual to work if that person should choose to
quit his or her job.
[24]
It does not seem to me
that the Appellant had any significant property interest (if he had any
property interest at all) in his employment contracts with his employees. As noted by Justice McIntyre
in Reference Re Public Service Employee Relations Act (Alberta) [1987] 1 S.C.R. 313, 38 D.L.R. (4th) 161:
[25]
The Appellant would not
have any right to force any employee to work who did not want to work. Any
interest that the Appellant had in his contracts with his employees would not
be a significant interest and would not be the reason his clients paid him. His
clients paid him because services were rendered by his employees.
[26]
It seems to me that the
Appellant was providing services to his clients and the reason that GST would
be payable, subject to the arguments related to the Indian Act, is
that these services were provided. The Appellant did not receive the payments
from his clients because he was supplying property but because he was supplying
services. The clients would submit payment in advance based on an estimate of
the number of hours that the leased employees would work. The leased employees
would complete time sheets to reflect the hours that they worked. Once the
actual number of hours that the individuals had worked was determined, the
amount payable, based on the actual hours worked would be reconciled with the
payment based on the estimated hours and any difference would be adjusted in a
subsequent payment. Although the agreements did not specify what would happen
if no services were rendered and payment in advance had already been made, it
seems to me that it was more likely than not that the client would have been
entitled to a refund. I find that the Appellant’s right to payment (or his
right to retain amounts paid in advance) was conditional on the services
actually being rendered.
[27]
Therefore, unlike in Phillips
where the payment was not conditional on receipt of a service, in this case the
payments were conditional on providing services. If the Appellant (through his
employees) did not provide services, the Appellant was not entitled to payment.
The Appellant was providing services to his clients and it is the supply of
these services that is subject to GST.
[28]
Section 133 of the Excise
Tax Act provides that:
133. For the purposes of this Part, where an agreement is entered
into to provide property or a service,
(a) the entering into of the agreement shall
be deemed to be a supply of the property or service made at the time the
agreement is entered into; and
(b) the provision, if any, of property or a
service under the agreement shall be deemed to be part of the supply referred
to in paragraph (a) and not a separate supply.
[29]
When the Appellant entered
into agreements with the various organizations to provide services (that would
be provided by the employees of the Appellant), this would be deemed to be a
supply of the service. This section does not convert services into property, as
seemed to be suggested during the hearing.
[30]
Section 87 of the Indian
Act only refers to property. This provision was implemented long before the
Excise Tax Act imposed a tax on services. In Nowegijick v. The
Queen, [1983] C.T.C. 20, [1983] 1 S.C.R. 29, [1983] 2 C.N.L.R. 89, 46 N.R.
41, 144 D.L.R. (3d) 193, 83 D.T.C. 5041, Justice Dickson (as he then was)
writing on behalf of the Supreme Court of Canada stated that:
25 It is legal lore that, to be valid,
exemptions to tax laws should be clearly expressed. It seems to me, however,
that treaties and statutes relating to Indians should be liberally construed
and doubtful expressions resolved in favour of the Indian. If the statute
contains language which can reasonably be construed to confer tax exemption
that construction, in my view, is to be favoured over a more technical
construction which might be available to deny exemption. In Jones v. Meehan,
175 US 1, it was held that
“Indian treaties must be construed, not according to the technical meaning of
their words, but in the sense in which they would naturally be understood by
the Indians”.
[31]
It does not seem to me,
however, that this case turns on whether the exemption in section 87 of the Indian
Act can be interpreted as exempting a tax on services. It seems to me that
even if the Appellant were clearly supplying property that he still would not
succeed. Therefore it is not necessary to decide whether the exemption in
section 87 of the Indian Act can be interpreted to include services.
[32]
The liability for tax
under the Excise Tax Act is imposed by section 165 of that Act
which, during the period under appeal, provided as follows:
165. (1) Subject to this Part, every recipient of a taxable supply
made in Canada shall pay to Her Majesty in right of Canada tax in respect of
the supply calculated at the rate of 7% on the value of the consideration for
the supply.
[33]
The rate of tax has
since been reduced to 5% but the tax is still imposed on the recipient of the
supply not on the person making the supply. The Appellant was the person making
the supply of services - he was not the recipient of this supply. Therefore, he
is not the person upon whom the tax was imposed.
[34]
Subsection 221(1) of
the Excise Tax Act provides that:
221. (1) Every
person who makes a taxable supply shall, as agent of Her Majesty in right of
Canada, collect the tax under Division II payable by the recipient in respect
of the supply.
[35]
The Appellant, as the
person who was making the taxable supplies, was obligated to collect the tax.
[36]
In his written submissions,
counsel for the Appellant stated after the heading “The Minister’s
Assessments Against Obonsawin Amount to Taxation Under s.87” that:
108. The appellant’s submission is twofold:
a.
Requiring third parties to pay GST in respect of
purchases of his property amounts to taxation of his property for purposes of
s. 87(1)(a) of the Indian Act;
b.
Imposing liability on him to collect and remit
GST amounts to both taxation of his property contrary to s. 87(1)(a) of the Indian
Act, and to a tax in respect of the use of his property pursuant to s.
87(2) of the Indian Act.
[37]
Counsel for the
Appellant referred to the decision of Justice Bowie in Pictou v. The
Queen, 2000 G.T.C. 826, [2000] G.S.T.C. 39. Justice Bowie held that
individuals who were Indians for the purposes of the Indian Act and who
operated stores on a reserve, were obligated to collect GST from their
customers who were not Indians, as defined for the purposes of the Indian
Act. In that case it was clear that property was being supplied. Justice
Bowie stated that:
45 I turn now to the arguments based upon the
Indian Act. The Appellants' position is that the provisions of the Act
in question impose a tax upon a retail merchant, because they require the
merchant to collect and remit the GST exigible upon a retail sale, and, upon
failing to do so, to remit an amount equal to the tax not collected. If this is
so, then section 87 exempts an Indian from its operation.
46 In my view this argument is
effectively foreclosed by the judgment of the Supreme Court of Canada in Reference
re Excise Tax Act (Canada).* That case began with a reference by the
Lieutenant-Governor of Alberta to the Alberta Court of Appeal as to the
constitutional validity of the Act. The third constitutional question posed
reads:
Having regard to s. 103 of the Constitution Act, 1867 and the
common law, are suppliers entitled to charge and to collect from the
Consolidated Revenue Fund of Canada all costs, charges and expenses incidental
to collecting and paying a remittance under the GST Act?
On the appeal from the Alberta Court of Appeal to the Supreme Court,
the Attorney General of Alberta advanced the argument that the Act, by
requiring vendors of taxable supplies to collect and remit the tax, imposed a
forcible taking by the Crown of the property of the vendor, and so gave rise to
a right in the vendor to be compensated under the principle in Manitoba
Fisheries.* Lamer, C.J., for the majority of the Court, disposed of this
argument, both as it applied to the administrative burden imposed on a
retailer, and as to any amount the retailer might have to pay in respect of GST
not collected. At pages 474-5 he said:
...Alberta's
suggestion that in collecting and remitting the GST the vendor of a taxable
supply has had his property “taken” is difficult to understand. It is the
purchaser, not the supplier, who is obliged to pay the GST. The supplier is
simply the agent of the Crown in right of Canada for the purposes of collection. Even in those cases where the
vendor is obliged to absorb the GST in order to maintain sales, the resulting
reduction in revenue cannot reasonably be characterized as a “taking” of the
supplier's property by the federal government. Were such reasoning to prevail,
virtually any governmental policy which resulted directly or indirectly in the
reduction of a supplier's revenue could be characterized as a “taking” of
property which would give rise to a right to compensation. In truth, since no
property of the supplier is “taken” by the imposition of the GST collection and
remittance obligations, a right to compensation cannot be supported on this
basis.
Since there is no “taking” from the vendor by the operation of the
statute, it cannot be said that there is a tax imposed on the vendor, because a
tax by its very nature is an involuntary taking by the state of property of the
subject. Section 87 of the Indian Act, therefore, cannot have any
application.
(* denotes footnotes that were inserted by Justice Bowie)
[38]
On the appeal from the
decision of Justice Bowie to the Federal Court of Appeal (which was not
successful), the argument related to section 87 of the Indian Act was
not pursued. Counsel for the Appellant argued that the decision in Pictou
should not be applied. He stated that:
116. In the appellant’s respectful submission,
however, the question of whether a “taking” arose on the facts of that case is
plainly distinguishable from the question of whether 1) the assessment raised
against this appellant amounts to a tax upon his personal property, or 2) the
assessment raised against this appellant amounts to taxation in respect of the
use (or ownership, occupation or possession) of his property.
117. Expropriation jurisprudence is extremely far
removed from the context of legislation aimed at the plight of aboriginal
peoples of Canada. The
principle enunciated in Nowegijick does not apply, obviously, and the
Court in this case is faced with a statute, rather than common law
construction.
[39]
The passage quoted by
Justice Bowie from the decision of the Supreme Court of Canada in Reference
re Excise Tax Act (Canada) (which is also cited as Reference re: Goods
and Services Tax (GST)(Can.)), [1992] 2 S.C.R. 445, was in relation to the
following constitutional question:
3 Having regard to s. 103 of the Constitution Act, 1867 and the
common law, are suppliers entitled to charge and to collect from the
Consolidated Revenue Fund of Canada all costs, charges and expenses incidental
to collecting and paying a remittance under the GST Act?
[40]
Chief Justice Lamer,
writing on behalf of the majority of the Justices of the Supreme Court of
Canada, described this question as follows:
37 According
to the Attorney General for Alberta, registered suppliers under the GST Act
have the right to be reimbursed from the consolidated revenue fund of Canada
for all expenses and charges incurred in collecting the GST. This argument is
based on s. 103 of the Constitution Act, 1867, and on the common law of
agency.
[41]
The conclusion of the
Supreme Court of Canada was that the constitutional question as stated above
must be answered in the negative. While this question was based on the common
law of agency and was related to compensation, the Supreme Court of Canada also
addressed the following question:
4 Having regard to s. 125 of the Constitution Act, 1867,
(a)
is the imposition of obligations under the GST Act on the Government of
Alberta as a supplier to collect and pay a remittance on a taxable supply that
is Alberta property ultra vires the Parliament of Canada,
(b)
does the imposition of a remittance under the GST Act on a recipient
from the Government of Alberta of a taxable supply that is Alberta property or
that generates revenue to the Government of Alberta constitute taxation of
Alberta property that is ultra vires the Parliament of Canada, and
(c)
does the imposition of a remittance that is computed under s. 154 of the
GST Act on the basis of consideration for a taxable supply that includes an
amount of provincial tax constitute taxation of Alberta property that is ultra
vires the Parliament of Canada?
[42]
Chief Justice Lamer
stated, in relation to this question, as follows:
52 Section
125 of the Constitution Act, 1867 provides as follows:
125. No Lands or Property belonging to Canada or any Province
shall be liable to Taxation.
…
54 Canada
does not contend that a province is liable to pay the GST as a purchaser of
taxable supplies. Instead, it claims simply that the province is under an
obligation to collect and remit the GST from purchasers of taxable supplies
when the province acts as supplier. The Attorney General for Alberta's position
is that this amounts to taxation of the property of the province.
[43]
This is the same
position being taken by the parties in this case. The Respondent’s position is
that the Appellant “is under an
obligation to collect and remit the GST from purchasers of taxable supplies
when the [Appellant] acts as supplier” and the Appellant is taking the position
“that this amounts to taxation of the property of the” Appellant.
[44]
In determining that the
obligations of the Province of Alberta to collect (and remit) GST on taxable
supplies made by the province of Alberta of its property did not constitute a
tax on the property of Alberta, Chief Justice Lamer stated, in part, that:
58 The GST, in contrast,
does not apply to exports. It applies to the domestic provision of taxable
supplies, and it is the purchaser, rather than the supplier, which is liable to
pay the tax. Indeed, the tax only becomes payable by virtue of transactions in
which some property interest has left the supplier and become vested in the
purchaser. Clearly, therefore, it is the purchaser, not the vendor, which is
taxed.
59 Nor
can it plausibly be said that the imposition of the GST on sales of provincial
property amounts to a tax on the fruits of provincial property in that, due to
their liability to pay the GST, purchasers will purchase less of such property,
resulting in lost sales and diminished revenues to the province. The fact that
a federal tax renders provincial property less commercially attractive than it
would be if the tax did not apply does not render that tax a tax upon
provincial property. In Phillips v. City of Sault Ste. Marie,
[1954] S.C.R. 404, this Court considered the case of a municipal tax levied on
tenants of land owned by the Crown in right of Canada. The tax was assessed on
the basis of the value of the premises occupied as assessed by the city. This
Court found that the tax was not levied upon the land, but upon the occupants;
the value of the land was simply the measure by which the liability of the
occupants to pay the tax was to be assessed. Consequently, the tax did not
violate s. 125 of the Constitution Act, 1867, notwithstanding that, de facto,
its collection might lower the returns that the Crown in right of Canada could
realize from rental of the land.
60 Clearly,
a practical consequence of the collection and remittance responsibilities
imposed by the GST Act may result in a cost to the province, but neither the
true aim and purpose of the scheme nor its incidental effects runs contrary to
the spirit of s. 125. As the majority of this Court clearly stated in Reference
re Exported Natural Gas Tax, supra, at pp. 1053-54, in order to violate s.
125 the impugned measure must in pith and substance constitute taxation. The
possibility that the GST may have the effect of reducing provincial revenues
from the sale of provincial property does not render the GST a
"taxation" of provincial property. Nor does the calculation of the
GST as a fraction of a price a portion of which is provincial tax amount to the
federal taxation of provincial tax. Rather, the price paid for a taxable
supply, including a component that is provincial tax, is the measure chosen by
Parliament by which the liability of the purchaser to pay the GST is
calculated.
61 Since
the obligation of a province to collect and remit the GST when it acts as
supplier does not amount to a taxation of the province's property, s. 125 of
the Constitution Act, 1867 has no application in these situations.
Consequently, the fourth constitutional question must be answered in the
negative.
[45]
Since “the obligation
of a province to collect and remit the
GST when it acts as supplier does not amount to a taxation of the province's
property”, the obligation of the Appellant to collect and remit GST when he
acts as a supplier does not amount to a taxation of his property. Since the
obligation to collect the GST is the obligation to collect the GST from the
third party purchasers, requiring the third parties to pay GST in respect of
purchases of the property of the Appellant does not amount to taxation of his
property.
[46] The Appellant argued that:
113. … s. 87(1)(a) of the Indian Act, on a plain reading, does
not deal with the taxation of an Indian per se. Section 87(2), …, deals
with tax imposed on the Indian, but s. 87(1) exempts the property of an
Indian from taxation. The appellant submits that taxation of his property
situated on a reserve, even in the context of a transaction where a purchaser
acquires the primary tax liability, is subject to the exemption in that
section.
114. In this
regard he relies of the principle enunciated in Nowegijick, concerning
the interpretation of statutes dealing with native persons. In this instance,
where the statute is silent concerning the identity of the primary taxpayer,
that principle favours an interpretation of the Indian Act which
enlarges and protects the exemption.
[47]
The Appellant’s argument is that
anyone who purchases his property that is situated on the reserve should not
have to pay GST in relation to the purchase of this property. If the Appellant
were to succeed with this argument, then any person who would not qualify for
an exemption from taxation under the Indian Act, could purchase the
Appellant’s property without paying GST. This would effectively “enlarge” the
exemption to include persons who were not intended to benefit from the Indian
Act. It does not seem to me that this is the correct result.
[48]
Justice Gonthier, writing on behalf of the Supreme Court
of Canada, stated in Williams v. The Queen, [1992] 1 S.C.R. 877 that:
16 The
question of the purpose of ss. 87, 89 and 90 has been thoroughly addressed by
La Forest J. in the case of Mitchell v. Peguis Indian Band,
[1990] 2 S.C.R. 85. La Forest J. expressed the view that the purpose of these sections
was to preserve the entitlements of Indians to their reserve lands and to
ensure that the use of their property on their reserve lands was not eroded by
the ability of governments to tax, or creditors to seize. The corollary of this
conclusion was that the purpose of the sections was not to confer a general
economic benefit upon the Indians (at pp. 130-31):
[49]
Since the GST was not
imposed on the Appellant but on the Appellant’s clients, the GST did not erode
the Appellant’s property. The Appellant had the obligation to collect the GST
from his clients and therefore the GST would have eroded his client’s property,
not the Appellant’s property. Imposing the GST on the customers of the
Appellant does not thwart the purpose of section 87 of the Indian Act.
[50]
As a result the
Appellant cannot succeed in relation to his arguments related to paragraph
87(1)(b) of the Indian Act.
[51]
The Appellant also
raised an argument related to subsection 87(2) of the Indian Act. This
subsection provides that:
(2) No Indian or band is subject
to taxation in respect of the ownership, occupation, possession or use of any
property mentioned in paragraph (1)(a) or (b) or is otherwise subject to taxation in respect of any
such property.
[52]
In order for this
provision to be applicable in this case, the Appellant would have to be subject
to taxation. As noted by the Supreme Court of Canada in Reference Re: Goods
and Services Tax (GST) (Can.):
58 …
it is the purchaser, rather than the supplier, which is liable to pay the tax.
Indeed, the tax only becomes payable by virtue of transactions in which some
property interest has left the supplier and become vested in the purchaser.
Clearly, therefore, it is the purchaser, not the vendor, which is taxed.
[53]
Since the purchaser is
liable to pay the tax, the Appellant, as the supplier, is not taxed and
therefore subsection 87(2) of the Indian Act does not apply.
Justice Bowie, as noted above, reached the same conclusion in Pictou.
[54]
In this case the
Appellant clearly chose to not collect the GST. On December 20, 1990
(which was shortly before the GST was effective), the Appellant, as the
principal of O.I. Employee Leasing Inc., wrote to Vince Hill, who was the
Executive Director of the Niagara Regional Native Centre. In this letter (which
the Appellant indicated was typical of the letters that he sent to clients
around this time) the Appellant stated:
We have recently been advised by our lawyers that our employee
leasing service is subject to the new Goods and Services Tax (GST). Accordingly
we would be required to add the tax to the entire invoice amount for our
service.
It is our understanding that some services have been exempted from
the GST and are given a 0% rating. This means that they do not have to collect
the GST from their clients when they provide a service.
We feel that the lack of a similar exemption to Native businesses is
completely unacceptable. It represents a dangerous precedent in relation to the
Native community if it is allowed to proceed without amendment. This tax may
very well open the door to further taxation of Indian people and the erosion of
rights. In addition, it imposes an unfair burden on the non-profit sector at a
time when they are already suffering from cutbacks in funding.
As of January 1st, the federal government will be expecting you to
pay the GST on our services. Some of our clients have informed us that they
will not be paying the tax even though they may be liable for it. We will be
initiating court action and are asking the Assembly of First Nations (AFN) to
help us fight the tax. While this process is in place, we will not be
collecting the tax from those clients who wish to withhold it.
[55]
As noted above, the
Appellant commenced to carry on business as NLS for those clients who did not
want to pay the GST. Clearly the Appellant knew that his clients were liable
for the GST and that the GST was a tax that was being imposed on his clients.
By the Appellant agreeing to not collect the tax he cannot shelter his clients
from the application of the GST by claiming an exemption under section 87 of
the Indian Act. If the Appellant were to succeed in this argument, then
the Appellant could effectively pass on his exemption as an Indian under
section 87 to any person who was not an Indian or a band (as defined in the Indian
Act). As noted above, none of the clients of the Appellant were Indians or
bands (as defined in the Indian Act).
[56]
The Appellant was
assessed for the GST that he should have collected from his clients. Section
296 of the Excise Tax Act
provides as follows:
296. (1) The
Minister may assess
(a) the net
tax of a person under Division V for a reporting period of the person,
[57]
Subsection 225(1) of the Excise
Tax Act provides in part as follows:
225. (1) Subject to this Subdivision, the net tax for a particular
reporting period of a person is the positive or negative amount determined by
the formula
A – B
where
A is the total of
(a) all amounts that became collectible and all other amounts
collected by the person in the particular reporting period as or on account of
tax under Division II, and
(b) all amounts that are required under this Part to be added in
determining the net tax of the person for the particular reporting period; and
B is the total of
(a) all amounts each of which is an input tax credit for the
particular reporting period or a preceding reporting period of the person
claimed by the person in the return under this Division filed by the person for
the particular reporting period, and
(b) all amounts each of which is an amount that may be deducted by
the person under this Part in determining the net tax of the person for the
particular reporting period and that is claimed by the person in the return
under this Division filed by the person for the particular reporting period.
[58]
The Appellant was assessed for the
GST amounts that became collectible by him. This does not mean that the Appellant is now being taxed.
This is simply the consequence of the Appellant failing to collect the GST from
his clients. If the Appellant would have collected the GST from his clients and
remitted the GST (as O.I. Employee Leasing Inc. did) then he would not have
been assessed. The Appellant is granted, as any supplier is granted, pursuant
to section 224 of the Excise Tax Act, the right to recover from any
recipient, the GST that has been remitted in respect of the supply made to that
recipient, provided that the Appellant has satisfied the disclosure
requirements as set out in subsection 223(1) of the Excise Tax Act.
[59]
In Tseshaht Indian
Band v. British Columbia, 94 D.L.R. (4th) 97, 69 B.C.L.R.
(2d) 1, the British Columbia Court of Appeal addressed the application of taxes
imposed by the Province of British Columbia on tobacco and gasoline. The
Tseshaht Band operated a store on the reserve. When the Band purchased
cigarettes and gasoline it had to pay to the person from whom it purchased
these products, an amount equal to the amount of tax that would be collected
from consumers when they purchased the cigarettes and gasoline. The applicable
legislation for each product imposed the tax on the consumer. The majority of
the British Columbia Court of Appeal held that the requirement of the Band to
pay an amount equal to the tax that would ultimately be paid by the consumers
when the cigarettes and gasoline were purchased, did not result in the Band
paying a tax for the purposes of section 87 of the Indian Act.
[60]
As a result the
Appellant cannot succeed in relation to his claim that the supply of his
services results in a tax on him for the purposes of subsection 87(2) of the Indian
Act.
[61]
In this case the
Appellant was assessed an amount as determined by Revenue Canada (which later became the Canada Customs and Revenue
Agency and then the Canada Revenue Agency) based on his sales or estimated
sales. “CRA” will be used herein to refer to Revenue Canada,
the Canada Customs and Revenue Agency and the Canada Revenue Agency. The
Appellant did not file any GST returns and did not allow the CRA to audit his
books and records. The Appellant did not introduce any evidence at the hearing to
challenge the amount of the GST assessed (he was only challenging his liability
for the payment of the amount). The Appellant also did not introduce any
evidence in relation to any amounts that he might have been entitled to claim
for input tax credits. The Appellant’s position was clear that he failed to
collect the GST and both counsel for the Appellant and counsel for the Respondent
submitted that, if GST was applicable, it was to be determined as 7% and not as
7/107 of the amount paid (or payable) as consideration for the services
rendered.
[62]
The final ground as
raised by the Appellant is that:
… the CRA chose to raise notional GST assessments against the
appellant based on income reported for income tax purposes, notwithstanding
that CRA had available to it complete financial records of Mr. Obonsawin’s sole
proprietorship
[63]
This is not consistent
with the evidence presented at the hearing. During direct examination the
Appellant testified as follows:
Q. So let me just ask you, then. I mean, what was your
position with respect to, at that time, disclosing financial statements to CRA?
Did you have an objection to numbers going to CRA?
A. Regarding the GST?
Q. Well, I think, if I understand it, CRA was asking for
certain numbers to be provided?
A. Yes.
Q. And they were provided at this meeting. And I was
wondering, maybe you don't remember, but if you can recall what your position
was, as the proprietor of Native Leasing Services, about providing financial
data like this to CRA?
A. Yes. Well, we were very concerned about providing that
information because, as it states here, it really is ‑‑ to me, it
really goes against the fiduciary obligation of the federal government, and to
provide the information, I really wasn't ‑‑ I wasn't comfortable
with it.
There was a lot of discussion those days about the
Indian Act and revising the Indian Act, and people were always concerned about
revising the Indian Act, not that it doesn't need to be revised, but it needs
to be revised with native input and this was done without native input.
Q. Let me ask you this. Do you recall in the course of
dealings with CRA in respect of disclosure of details of NLS's business?
A. Yes, I remember the ‑‑ well, they wanted to
audit our files ‑‑
Q. Right.
A. ‑‑ and come to our office, and we wouldn't
agree to it.
Q. And do you recall a lengthy exchange of correspondence?
A. Yes. There was quite an exchange.
[64]
As noted by the
Appellant there were a lot of letters written by each side and there were also
meetings. The theme remained the same. The Appellant consistently maintained
the position that he would not allow the CRA full access to his books and
records. In effect he left the CRA with no alternative but to prepare an
assessment based on the limited information that was provided by the Appellant.
During cross examination the CRA auditor stated as follows:
A. Well, we've asked your client over and over again if he'd
like to provide the records ‑‑
Q. Yes.
A. ‑‑ so that we could perform our audit and
actually get to a more complete, if we're going to call it that, assessment,
and we're refused at every turn. So we used our next best alternative.
[65]
It is clear that
certain financial information was not provided by the Appellant until after
this appeal had commenced.
[66]
The Appellant argued
that he did propose that he would allow a third party to review his records.
However it is the role of the CRA to audit the documents to determine if there
has been compliance with the Excise Tax Act. The authorization to
conduct an audit under section 288 of the Excise Tax Act is given to an
“authorized person” as defined in section 287 of the Excise Tax Act. An
“authorized person” is a person who is authorized by the Minister. It is clear
that the Appellant was not prepared to allow any person who was an “authorized
person” as defined in section 287 of the Excise Tax Act to audit his
books and records.
[67]
The Appellant also
argued that he had offered to provide the financial information to the CRA
prior to the litigation. However the offer was not unconditional. The
Appellant’s proposal was that information would be provided but he would delete
or redact “certain identifying information for clients and employees to
preserve confidentiality and anonymity”.
[68]
The Appellant stated in
his letter dated February 11, 1992 to Revenue Canada
that:
The clientele served by Native Leasing Services is predominately
composed of native groups providing services to the Native Community, and
mandated by Indian Governments of various descriptions. As such, these
organizations are viewed by the Native Community as extensions of these Native
Governments and, therefore, exempt from GST.
[69]
James Fyshe, who was
the lawyer acting for the Appellant, stated in a letter to Revenue Canada dated February 22, 1993 that:
As you know, Mr. Obonsawin supplies employees pursuant to placement
agreements to various native agencies on and off reserve.
[70]
The proposal to provide
information without the identifying information for clients and employees was
not accepted by the CRA. Without the identifying information how could the CRA
verify the accuracy of the Appellant’s claims that his clients were “extensions
of Native Governments” or located on reserves? It seems to me that the
Appellant had an obligation to collect the tax and an obligation to allow the
CRA to audit his books and records. Providing information without revealing the
identity of his clients is not providing CRA with the information that it needs
to conduct an audit when the Appellant is claiming that he is not obligated to
collect GST because of the identity or location of his clients.
[71]
The Appellant also
argued that the Crown has a fiduciary duty to the Appellant. In Wewaykum
Indian Band v. The Queen, [2002] S.C.J. No. 79, [2002] 4 S.C.R. 245,
Justice Binnie writing on behalf of the Supreme Court of Canada stated that:
80 This
sui generis relationship had its positive aspects in protecting the
interests of aboriginal peoples historically (recall, e.g., the reference in Royal
Proclamation, 1763, R.S.C. 1985, App. II, No. 1, to the "great Frauds
and Abuses [that] have been committed in purchasing Lands of the Indians"
), but the degree of economic, social and proprietary control and discretion
asserted by the Crown also left aboriginal populations vulnerable to the risks
of government misconduct or ineptitude. The importance of such discretionary
control as a basic ingredient in a fiduciary relationship was underscored in
Professor E. J. Weinrib's statement, quoted in Guerin, supra, at p. 384,
that: "the hallmark of a fiduciary relation is that the relative legal
positions are such that one party is at the mercy of the other's
discretion." See also: Lac Minerals Ltd. v. International Corona
Resources Ltd., [1989] 2 S.C.R. 574, per Sopinka J., at pp. 599-600;
Hodgkinson v. Simms, [1994] 3 S.C.R. 377, per La Forest J., at p.
406; Frame v. Smith, [1987] 2 S.C.R. 99, per Wilson J.,
dissenting, at pp. 135-36. Somewhat associated with the ethical standards
required of a fiduciary in the context of the Crown and Aboriginal peoples is
the need to uphold the "honour of the Crown": R. v. Taylor
(1981), 34 O.R. (2d) 360 (C.A.), per MacKinnon A.C.J.O., at p. 367,
leave to appeal refused, [1981] 2 S.C.R. xi; Van der Peet, supra, per
Lamer C.J., at para. 24; Marshall, supra, at paras. 49-51.
81 But
there are limits. The appellants seemed at times to invoke the "fiduciary
duty" as a source of plenary Crown liability covering all aspects of the
Crown-Indian band relationship. This overshoots the mark. The fiduciary duty
imposed on the Crown does not exist at large but in relation to specific Indian
interests. In this case we are dealing with land, which has generally played a
central role in aboriginal economies and cultures. Land was also the subject
matter of Ross River ("the lands [page287] occupied by the
Band"), Blueberry River and Guerin (disposition of existing
reserves). Fiduciary protection accorded to Crown dealings with aboriginal
interests in land (including reserve creation) has not to date been recognized
by this Court in relation to Indian interests other than land outside the
framework of s. 35(1) of the Constitution Act, 1982.
…
83 I
offer no comment about the correctness of the disposition of these particular
cases on the facts, none of which are before us for decision, but I think it
desirable for the Court to affirm the principle, already mentioned, that not
all obligations existing between the parties to a fiduciary relationship are
themselves fiduciary in nature (Lac Minerals, supra, at p. 597), and that
this principle applies to the relationship between the Crown and aboriginal
peoples. It is necessary, then, to focus on the particular obligation or
interest that is the subject matter of the particular dispute and whether or
not the Crown had assumed discretionary control in relation thereto sufficient
to ground a fiduciary obligation.
…
85 I
do not suggest that the existence of a public law duty necessarily excludes the
creation of a fiduciary relationship. The latter, however, depends on identification
of a cognizable Indian interest, and the Crown's undertaking of discretionary
control in relation thereto in a way that invokes responsibility "in the
nature of a private law duty", as discussed below.
[72]
In Nowegijick v. The Queen, [1983] C.T.C. 20,
[1983] 1 S.C.R. 29, 144 D.L.R. (3d) 193, 83 D.T.C. 5041, Justice Dickson (as he
then was) stated that:
24 Indians are citizens and, in affairs
of life not governed by treaties or the Indian Act, they are subject to all of
the responsibilities, including payment of taxes, of other Canadian citizens.
[73]
Since, as noted above,
in my opinion the provisions of the Indian Act do not apply to the
application of GST to the services provided by the Appellant, the Appellant
would have the same responsibility to comply with the audit requests of the CRA
as would any other person carrying on business in Canada. It does not seem to
me that the Crown had any fiduciary duty to the Appellant in relation to the
obligation imposed on the Appellant to collect and remit GST in relation to the
services that he was providing and to comply with the audit requests of the
CRA. In order for the duties imposed by the Excise Tax Act to create a
fiduciary relationship, there must be “a cognizable Indian interest, and the
Crown’s undertaking of discretionary control in relation thereto in a way that
invokes responsibility ‘in the nature of a private law duty’”. Since, as noted
above, the provisions of the Indian Act do not apply to the application
of GST to the services provided by the Appellant, there is no cognizable Indian
interest of the Appellant, let alone any undertaking by the Crown as described
by Justice Binnie. The fiduciary duty does not exist simply because the
Appellant is an Indian, since as noted by Justice Binnie “[t]he fiduciary duty imposed
on the Crown does not exist at large but in relation to specific Indian
interests”.
[74]
The Appellant had also
argued that the fiduciary duty jurisprudence should be used as an aid in
determining whether the assessments should be vacated. Since, in my opinion, no
fiduciary duty arises in this case, the jurisprudence does not assist the
Appellant.
[75]
The Appellant, having
failed to comply with the requests by the CRA to allow the CRA to conduct an
audit, cannot now complain that a more accurate amount may have been determined
if an audit would have been done. The Appellant could have raised the issue of
the amount that the Appellant believed was his net tax for the periods under
appeal (as an alternative argument) in his Notice of Appeal and led evidence at
the hearing to challenge the accuracy of the amounts assessed but he chose to
not do so.
[76]
The only evidence
related to the accuracy of the amounts assessed for GST was provided by the
auditor for the CRA. As part of his direct examination the following exchange
took place:
Q. Thank you, Mr. Brown. And in preparation
for this litigation, were you made aware of source documentation that were
provided to the Crown, to the respondent, by Mr. Obonsawin?
A. Yes, I was.
Q. What was those documents? What were those documents?
A. It's my understanding that we became in
contact or aware or provided with financial statements for those missing years,
that a copy of a general ledger for certain years was obtained, and certain
other sales or source‑type documents, contracts, were obtained.
Q. And did you review the key information?
A. Yes, I did. I did a quick synopsis on some; a more
detailed type calculation on others.
Q. And what did you conclude by reviewing the information?
A. Well, I looked at the financial statements
for 1994, '95, '96 and '97 and did a calculation, as assessment number 1 had
been done, to see how close I was in using this methodology, and I will say
that assessment number 1 is actually under‑valued compared to using the financial
statement amounts.
So I feel reasonably comfortable and confident that our
method was correct.
[77]
Although the penalty is
not specifically identified in the Reply as a penalty imposed pursuant to
section 280 of the Excise Tax Act as it read during the periods under
appeal, it appears that this is the penalty that was imposed. The Appellant did
not raise any argument specifically related to the assessment of the penalty
and in particular the Appellant did not raise any argument based on a due diligence
defence to the assessment of the penalty.
In any event, as noted above, the Appellant made a conscious decision to not collect
the GST in relation to the services provided to his clients when he was
carrying on business as NLS and he was clearly aware of the provisions of the Excise
Tax Act as evidenced by the letters that the Appellant wrote when the GST
was introduced and by the fact that OI Employee Leasing Inc. did collect and
remit GST on the services it was providing (which were the same services as the
Appellant was providing through NLS, although to different clients). The
conscious decision to not collect the GST would preclude the Appellant from
relying on a due diligence defence in this case.
[78] As a result the appeals are dismissed with
costs.
Signed at Ottawa,
Canada, this 27th day of April, 2010.
“Wyman W. Webb”
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