Citation: 2010 TCC 358
Date: 20100702
Docket: 2008-1253(GST)G
BETWEEN:
9056-2059 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1]
This is an appeal from
an assessment made under the Excise Tax Act (hereinafter the “ETA”).
[2]
The assessment and
inherent penalty are appealed from by means of a Notice of Appeal of which the content
is as follows:
[Translation]
1.
The Appellant operates an agri-business and
specializes more particularly in apiculture.
2.
Indeed, Jean-Pierre Binette, the Appellant’s majority
shareholder, has been an apiculturist since he was 19 years old.
3.
To operate its business, the Appellant uses
various methods to stimulate, facilitate and promote the sale of a variety of its
products.
4.
More specifically, with the purchase of a farm
product, the Appellant grants admission to its trails so as to permit outdoor
activities.
5.
In the winter, the Appellant’s customers, who
purchase a farm product, can use the farm estate to ice skate on dedicated trails
and in the summer, they can use those same trails to hike and walk trails and engage
in berry picking.
6.
The Appellant’s customers cannot access the trails
without purchasing of a farm product.
7.
The Appellant’s trails were originally meant for
the shareholders’ family members and it was not until later that the family
came up with the idea of using the land to promote the sale of farm products.
8.
A lengthy approval process by the Commission de
la protection du territoire agricole (hereinafter the “Commission”) was
therefore undertaken to be able to plan the development of trails on the
Appellant’s land that would attract a regular customer base for the disposition
of products from the Appellant's farming business.
9.
Following the Appellant’s submissions, the
Commission authorized the development of trails aimed at attracting customers
for farm products, insofar as the use of the Appellant’s land did not constitute
a commercial use not associated with agriculture.
10.
By that decision, the Commission confirmed the development
of walking trails was an accessory to the promotion of the Appellant’s farm products
and the commercial use of that land would thus constitute a statutorily
prohibited use as farm land cannot be used for commercial purposes.
11.
In 2006, the Appellant objected to an assessment
by the respondent.
12.
A notice of assessment was issued on November 30,
2006, for the period from February 1, 2002, to December 31, 2005.
13.
The respondent argues that the Appellant did not
collect and remit the Goods and Services Tax (hereinafter the “GST”) on certain
reported income.
14.
More precisely, the respondent argues that the
Appellant provided a right of access to its land and that such supply constitutes
a taxable supply.
15.
In addition, the respondent disallowed the amount of its input tax credits on the basis
that it related to personal
expenditures of the shareholders rather than expenses
incurred as part of the Appellant's commercial activities.
16.
The Appellant filed a notice of objection in due
and proper form within the prescribed time period against the notice of
assessment issued by the respondent.
17.
A decision on the objection was rendered on
January 23, 2008, dismissing the notice of objection filed by the Appellant. Hence
the present appeal.
[3]
To establish and justify the
merits of said assessment, the respondent relied
on the following assumptions of fact listed
in paragraph 18 of the Reply to the
Notice of Appeal, which reads as follows:
[Translation]
(a) The Appellant is a GST registrant and an agent of the Minister
for purposes of collecting and remitting GST;
(b) During the period, the Appellant operated an agri‑tourism
business;
(c) During that period, the Appellant made taxable supplies by
allowing access to a labyrinth within a pine forest used as a skating rink during
the winter and for in-line skating during the summer;
(d) The supplies made by the Appellant in the operation of this
touristic and recreational business did not benefit from any tax exemptions;
(e) During the period, the Appellant failed to collect and
remit to the Minister any taxes
that were payable;
(f) During the period, the input tax credits (ITCs) were
disallowed;
|
Year
ending on
December 31
|
Taxable supplies
|
Taxable reported income
|
Uncollected and unremitted GST
|
ITCs
|
|
2002
|
$
34,896
|
$ 21,130
|
$ 1,486.59
|
($110.25 )
|
|
2003
|
$138,697
|
$ 9,186.48
|
$1,553.26
|
|
2004
|
$155,349
|
$ 34,317
|
$ 8,472.24
|
$ 514.82
|
|
2005
|
$277,646
|
$ 50,839
|
$15,876.47
|
$
684.32
|
|
TOTAL
|
$606,588
|
$106,286
|
$35,021.78
|
$2,642.15
|
(g) The taxable supplies provided by the
Appellant, namely admission to the trails (labyrinth) constituted admissions to
a "place of amusement;"
(h) Incident to admission fees, farm products were also
obtained;
(i) Seeing as what we have here is a multiple supply subject
to a single consideration, the supply incidental to the taxable supply, which
is admission, also constitutes a taxable supply;
(j) With respect to the ITCs, the so-called
"personal" transactions of the Appellant's majority shareholder were
disallowed;
(k) In the absence of a clear and detailed accounting, the bank
deposits method was used to reconstruct the taxable supplies;
[4]
The issues in dispute have been defined
by the respondent as follows:
[Translation]
19.
The first issue in dispute is whether the respondent was justified in assessing
the Appellant for the uncollected and unreported net GST in the amount of
$34,34+.93 as well as for the disallowed ITCs in the amount of $2,642.15 as
a result of the tax audit;
20.
The second issue is whether the respondent was justified in imposing on the
Appellant the penalty in the amount of $4,211.04 provided for in section 280 of
the ETA.
[5]
First, Madeleine Courchesne provides
some background information by detailing how she became a shareholder holding 20%
shares in the Appellant, owner of the land. She also described in detail her
husband's passion for bees and his highly meritorious investment of time,
energy, and money, understandably, but also for developing great expertise in
this agri-food sector to the point of becoming an important producer, an
exemplary producer even, in the Province of
Quebec.
[6]
She also mentioned the significant
limitations and numerous problems related not only to the production of bees, but
also to the business operated by her spouse.
[7]
She related the various steps
taken by her spouse in the world of apiculture in the early 1970s, when he was
in his twenties.
[8]
Starting with about thirty hives
primarily as a hobby, he gradually increased that number to 300, which still
did not lead to financial
self-sufficiency. When she met Mr. Binette
in 1984, the number of hives was reduced to about twenty.
[9]
Very precise and detailed about
why and how the business was created and developed, she became very unspecific,
and even uninformative, about the facts that led to the assessment under
appeal, particularly with respect to how access to the trail was developed and,
more specifically, on the mechanism used which consisted in a ticket-based
system.
[10]
Mrs. Courchesne also provided some
background on the trails, whose origin lies in the creation of a rink on a
little pond next to a retirement home.
[11]
Following an unfortunate accident,
Mr. Binette had the idea of having nature trails, which he resurfaced and maintained
in the winter using an old zamboni he had modified himself.
[12]
In the beginning, it was an
activity that very few people were aware of, until a media personality visited
and discovered the site in 1993 and called it exceptional. After that, things
were never the same and the activity became very popular, highly appreciated
and sought after; indeed, it became necessary to fit out a parking lot able to hold
several hundreds of cars in order to meet expectations.
[13]
Following the large number of
readers who read the laudatory newspaper article, the Courchesne-Binette couple
said it saw an opportunity to capitalize on the exceptional readership in order
to sell farm products, and more specifically, honey.
[14]
The evidence also
revealed Mr. Binette’s exceptional determination and tenacity.
[15]
Having very little
education, Mr. Binette has been credited with having learned, understood and
developed a difficult business, overcome all sorts of difficulties, specifically
the disease that killed a significant portion of the livesock in Quebec and the
fierce competition from external, or foreign markets.
[16]
The evidence was completed with
the testimony of Madeleine Courchesne, Thérèse Deslauriers and Jean
Guilbeau.
[17]
As for Mrs. Courchesne, she
testified on the method used and required to access the trails. She explained
the practice of using tickets for admission to the trails. She also explained
the price policy on tickets, various products and quantities. She stated that
the business had also put in place a special register allowing people or
families to become members and benefit from better prices.
[18]
As for Mr. Binette, he confirmed
the substance of the other witnesses' testimonies. His testimony revealed his
tenacity, determination and skill at selling the project that led to the facts
that the assessment under appeal was based on.
[19]
A number of elements and
components of the evidence offered by the Appellant involved subjects or topics
not relevant to the sole issue in dispute, namely, whether access to the rink
designed in the form of a labyrinth was, for the period covered by the
assessment, an exempt supply or rather a taxable supply?
[20]
Thus, all things pertaining to
public interest in the products from the land, her husband's passion for honey production
and his dynamism in promoting it are elements that give colour to the case, and
make hearing the case even enjoyable, but that cannot however be taken into
consideration in addressing the issue in dispute.
[21]
The only relevant facts in the appeal
are those pertaining to the mechanism put in place that allowed customers
access to the trails during the summer season and to the frozen paths, the so-called
"labyrinth."
[22]
In the winter, the same paths are maintained
and resurfaced using a zamboni, thereby forming a long and very popular skating
rink. Furthermore, any publicity generated primarily during the winter season ascribed
particular importance to the skating component. The farm products played a more
marginal role.
[23]
The evidence revealed that traffic
volume was considerably higher during the winter period than during the other
periods of the year.
[24]
In order to access the trails transformed
into a skateway and the labyrinth, customers were required to purchase tickets that
would grant them not only admission but also access to very small quantities of
honey, maple syrup or by-products.
[25]
They came in a very small sample size
of 50 grams. The small quantity of product was purchased not by money but with
the sale of a $12.50 ticket. In other words, any person wishing to benefit
from nature and have access to the trails was required to purchase a ticket in
consideration for which the purchaser was granted a small quantity of honey and
also access to the skateway, as a promotional device.
[26]
It was also possible to purchase several
tickets and exchange them for products from the land. The evidence did not make
it possible to establish whether the only way of purchasing products from the
land was by means of tickets. It was however mentioned that several tickets
could be used to purchase products from the land.
[27]
The real issue is whether the
ticket price served as consideration for the purchase of the very small quantity
of honey or other product or admission to the trails. In other words, was the
price or amount paid to purchase the ticket a scheme to water down, if not conceal,
the actual consideration for admission to the trails?
[28]
Despite the numerous attempts
aimed at providing a detailed clarification of the ticket-based system, things
remain relatively unclear. Since access to the trails was defined by the
Appellant as being incidental, an incentive or compensation for having
purchased the exempted product, it became important to determine and, most of
all, to understand whether the price paid was equivalent to the value of the
exempt supply purchased with a view to establishing whether access to the
trails was a promotional offer to increase the production and sale of honey or a
way of commercializing access to the trails.
[29]
The evidence offered as to the
various advertising and promotional activities used revealed a strong emphasis on
the trails versus agri-foods, which played a very small and marginal role in
said advertisement.
[30]
Mr. Binette's wife testified in a
very cautious manner so as not to patently undermine the scenario provided as
to the substance of the line of the business: its primary purpose was the
production, transformation and marketing of exempted agri-foods.
[31]
Since marketing conditions were
difficult, the company created a particular way of promoting and also, and
above all, of selling its products. Up to that point, its practice was above
reproach and commercially entirely sound.
[32]
The tax dispute occurred when the
Appellant's directors put in place a procedure or system whereby the asking price
for the exempt supply was not commensurate, according to the Respondent, with fair
value. In other words, the
formula used was such that the exempt supply was not the main subject of the subjected
transaction but incidental to it, as the main subject was access to the
labyrinth's trails, a taxable supply.
[33]
A number of documents were
offered in support of the testimonies particularly in respect of the
difficulties encountered not only with the municipality, but also and primarily
with the Commission de la protection des territoires agricoles, which, at first,
and on two occasions, concluded that the use of the trails was incompatible with
the premises' agricultural purposes, and consequently should be prohibited and
sanctions imposed in case of violation.
[34]
During the first two
attempts, the Commission de la protection des territoires agricoles (CPTAQ) considered
such commercial activity as being incompatible with the premises' agricultural purposes.
[35]
Following the two
unsuccessful attempts, the Appellant submitted a third request, represented by
new counsel, maintaining that the use of the trails would serve as a tool for
increasing awareness of the premises' agri-food nature and an effective means
of developing agri-tourism, as well as an educational and an excellent means of
promoting the sale of farm products, particularly honey.
[36]
In paragraphs (aa) and (bb),
at page 3 of its submissions, the Appellant reproduces an excerpt from the last
decision of the Commission de la protection des territoires agricoles:
[Translation]
100-
Following an in-depth analysis of all of the decisions previously
rendered by the CPTAQ, the following decision was rendered by the Commission:
Considering the forgoing
decisions, it is appropriate to examine whether the present request is based on
new elements.
Indeed, it is clear that, since
then, the applicant has undertaken considerable efforts and that the new project
does not include any buildings used for
purposes other than agricultural production within the enclosed
area provided for the keeping of animals in captivity, the only accommodations
required, that is to say, kiosks, access and parking, shall be provided next to
the public road over a surface area of approximately 3,200 square feet in
addition to the existing residential area.
The applicant wishes to organize,
within the trails it installed throughout its pine plantation, activities that meet
that requirement and which make it possible to attract a regular customer base
for the disposition of farming products, that is, fish, berries, honey and by-products,
wild mushrooms and others.
At the end of the day, all the
applicant is asking is that existing trails that are also necessary for
pick-your-own activities be used on a need-by-need basis for purposes other
than agricultural, either during the summer months for educational and sightseeing
purposes, or during the winter months to allow for ice fishing, as with the use
of farm land or back-country trails for the installation of snowmobile trails or
cross-country skiing.
However, the Commission could
not certainly permit authorize a commercial use not related to agriculture in
that area. Nevertheless, taking into account the context of the request and
the type of usage sought, it is the Commission's view that the agricultural
surroundings will not be detrimentally affected.
[Emphasis added.]
Furthermore, the Commission cannot
ignore the fact that granting the request would promote the sale of part of the
applicant's farm production, which would in turn be beneficial to the
development of this agricultural sector's farming activities. Considering the
foregoing, the Commission considers that the realization of the project would
not result in an agricultural loss and will not limit the exercise of the farming
activities performed or that could be performed on surrounding parcels.
At the time of the last two decisions,
Ms. Courchesne has begun to implement the project. Such requests were perhaps
premature.
Thus, considering the alleged
facts and the documents produced in support of the request, the Commission
considers that it can granting it without causing major prejudice to the area, even
more so since it will contribute to the development of agri-tourim in the
region.
An authorization by the Commission
would meet the objectives of the Étude sur le tourisme rural au Québec relié
au monde agricole prepared in collaboration with the MAPAQ, Tourisme Québec
and the UPA, which reads as follows:
[Translation]
"It is
essential that we succeed in attracting people beyond the summer peak
season."
. . .
FOR THESE REASONS, THE
COMMISSION:
AUTHORIZES use for purposes other
than agricultural, specifically the use of already existing trails, of part of Lot
41 of the cadastre of the parish of Notre‑Dame-Du-Mont-Carmel, of the Land Registry District of Champlain, of
an area of 1.5 hectare.
[37]
The Appellant continues as follows:
[Translation]
(iii) Application
of the decisions of the CPTAQ to the qualification of the supply made by the
Appellant
102-
The Appellant respectfully submits that the decisions of the CPTAQ must
be considered by the Tax Court of Canada in the light of the following aspects:
a. The
Appellant has, in the past, segregated sales for honey and admission to his
trails;
b. This
was formally prohibited by the CPTAQ on October 26 1994, as it was contrary to An Act to preserve agricultural land;
c. In
a decision rendered on April 25, 1997, the CPTAQ reiterated that the use of the
farm land in question for commercial purposes other than agricultural was
prohibited;
d. In
fact, following the decisions rendered by the CPTAQ, the Appellant is formally
prohibited from selling to its customers admission to its trails as such use of
the land would constitute a commercial use not related to agriculture.
[Emphasis added.]
103-
The Appellant submits that the supply of apiarian
products providing admission to its trails is a single supply and not a
multiple supply as argued by Revenu Québec as access to the trails and the sale
of apiarian products are interdependent and inextricably linked, each
constituting an integral part of whole.
104-
The Appellant submits that the supply of
apiarian products and access to the trails granted to its customers are two elements
of a single and same supply for the following reasons:
e.
To understand the Respondent's position that the
Appellant's operations consist in multiple supplies, it is necessary to
completely exclude the factual context in which the Appellant operates;
f.
In fact, in a free market, it is possible to separately
obtain apiarian products and have access to centres providing walking trails;
g.
However, O.A. Brown, a Federal Court of
Appeal case, held that the Court must assess the operations in question within
the context of their reality and not take into account possible operations made
up of similar or identical elements;
h.
According to the Federal Court of Appeal, the
issue is whether it would be possible to purchase each of the elements separately;
i.
With respect to that issue, the Appellant's
position is that when supplied together, the supply of apiarian products and
the sale of honey are inextricably
linked.
j.
A customer may choose to obtain a jar of honey without
visiting the Appellant's trails, but the converse is not possible;
k.
Indeed, owing to the agricultural nature of the
land on which the business is operated, the Appellant is formally prohibited
from only selling admission to its trails;
l.
In that context, the supply that consists in selling
admission to the Appellant's trails cannot be made as a single supply to the
customer;
m.
In its decisions rendered in 1994, 1995 and
1997, the CPTAQ clearly pointed out to the Appellant that the farm land could
not be used for commercial use for purposes other than agricultural;
n.
The Appellant understands from the decisions
rendered by the CPTAQ that it is formally prohibited from selling admission to
its trails without selling farm products;
o.
In that context, the Respondent's position that
what we have here is a multiple supply is unrealistic, as it does not take
into account An Act to preserve
agricultural land or the
decisions rendered by the CPTAQ;
p.
The Appellant's commercial and legal reality is
such that the sale of apiarian products and admission to its trails constitute an
integral part of a complete whole and cannot be reasonably considered as being
two distinct supplies;
q.
The Appellant therefore submits that the
Respondent's position that what we have here are multiple supplies is unfounded
in fact and law.
105-
Similarly, in the light of the administrative position
adopted by the CRA, cited earlier,
the following facts appear to weigh in favour of the qualification of the
supply as constituting a single supply:
r.
The supply is made by a sole provider, the Appellant (when a supply is
made by more than one provider, it usually constitutes a multiple supply);
s. The
supply is acquired by a sole recipient (when a supply is acquired by a sole
recipient, it usually constitutes a multiple supply);
t.
The Appellant supplied honey for consideration received from its
customers;
i.
In fact, the testimonies heard before the Court revealed that the
Appellant's directors have always
been very passionate about the world of apiculture;
ii. They
have long sought to enter the honey market to no avail;
iii. Indeed,
the marketing of apiarian products was very difficult;
iv. The
testimonies of the Appellant's directors leave no doubt as to the product they
sell to their customers, honey;
v. From
that observation, there is no doubt that the Appellant's intention is to sell its
customers honey and not admission to its trails;
vi.
The issue as to what exactly customers acquire
when they visit the Appellant's premises is however much more difficult to
address;
vii. Each customer can come with completely different intentions, which
makes reference to the recipients' needs uncertain;
u.
The recipient knows what specific elements are part
of the whole (this weighs in favour of categorizing the supply as a multiple
supply);
v.
The recipient cannot separately acquire the elements
or substitute the elements (this weighs in favour of characterizing the supply
as a single supply).
(iv)
Characterization of the single supply
106-
If the Court agrees that the Appellant made a single supply, it is also
necessary to determine the dominant or primary element of such supply.
107-
The Appellant submits that the dominant element of the supply must be
established based on a number of factors, namely the following:
w. The
supplier's primary motivations and primary objective from an operational
standpoint;
x. The
economic reality of the Appellant's operations;
y. The
value of the elements constituting the supply.
[38]
The Appellant's arguments are
quite surprising as they substantiate not its own submissions but, rather than the
submissions of the Respondent. Fiscal laws would quickly become inapplicable if
it were necessary to take into account the personality or character traits or
even the very subjective interpretation of individuals subject to such laws and
multiples factors specific to each case when those laws are applied.
[39]
The work, tenacity, determination and
communication skills of Jean-Pierre Binette, in terms of his passion for the production
and sale of honey and its by-products, enabled him to overcome a number of difficulties
and obstacles, not least of which were those under An Act to preserve agricultural
land.
[40]
In fact, after two consecutive
failed attempts, the Appellant managed to show that access to the trails was part
of the premises’ agricultural activities. Building on that success, the
Appellant devised a structure and/or a scheme to comply with all the legal
provisions affecting the activity concerned, and thus argues that the use is
incidental, secondary, and that it is essentially a promotional and development
tool for agricultural activity, whose production is an exempt supply.
[41]
After being successful before the Commission
de la protection des territoires agricoles, the Appellant relies on the decision
to argue that its appeal is well-founded. The Commission’s decision, of which an
excerpt is reproduced in paragraph 35 of this judgment, brings to light
the problem that the Appellant faced.
[42]
In its Notice of Appeal, the
Appellant writes as follows:
[Translation]
9. Following the Appellant’s submissions, the Commission
authorized the placement of trails aimed at attracting a customer base for farm
products, insofar as such use of the Appellant’s and did not constitute a commercial
use not related to agriculture.
10. In that decision, the Commission confirms that
the placement of walking trails is incidental to the promotion of the Appellant's
farm products and, by that very fact, the commercial use of the land would constitute
a use prohibited by law as farm land cannot be used for commercial purposes.
[43]
Since all commercial
activity is prohibited on land defined as farm land, after its two failed
attempts the Appellant proposed to otherwise define the nature of the rather
straightforward, real and completely autonomous and independent activity.
[44]
Selling a farm product
is considered to be an acceptable commercial activity under An Act to preserve agricultural land. It was an assumption made by the Appellant, which
decided to overcome constraints by submitting that access to the trails it
installed on its farm, bound under An Act to
preserve agricultural land, constituted a real activity merged with one
or more farm products available and sold on the premises; in other words, according
to the Appellant, access to the trails constituted a farm activity by association,
and consequently an exempt commercial farming activity.
[45]
According to the
Appellant, access to the trails was incidental, marginal and secondary, completely
integrated not only with the activity but also with the premises’ purpose.
[46]
The Appellant was
obviously able to convince the competent authorities over agricultural land
preservation. Such a decision or authorization, to the effect that the activity
is consistent with agricultural purpose, is of no effect and not enforceable in
matters pertaining to GST matters.
[47]
In other words, using trickery
and imagination, the Appellant convinced the Commission that it took an
essentially commercial activity and made it into a promotional exercise for
farm products, thereby establishing an effective development tool for the agri-food
sector.
[48]
I have absolutely no
interest or desire even to intervene in a case over which the Tribunal Administratif
du Québec has exclusive jurisdiction; however, conversely,
the Commission’s decision cannot be used or form the basis for arguments about changing,
amending or even defining the nature of a supply under the ETA.
[49]
The fact that the Commission
accepted to make the use of a part of land acceptable and consistent with
agricultural purpose is irrelevant in determining whether or not a supply is
exempt.
[50]
When two consumer
products are subject to a single transaction subject to the exclusive control
of the seller or when two supplies are associated, and rendered inseparable by the
seller’s choice, it becomes necessary to analyze the seller’s with a view to determining
the true nature of the content or the object of the possible if not actual transaction.
[51]
It would have been
quite interesting to hear what the users of the trails who were party to the transaction
had to say about why they agreed to purchase the ticket. Was it because they
wanted to sample the honey, support the Appellant’s production of honey or
simply benefit from the ingenious set up, from the pure air of the country and
make exercising more enjoyable in an exceptional environment?
[52]
Allowing or accepting that
a supply be included in the exempt category by virtue of its decision or the
vendor’s use of creativity in associating such a supply to another would exempt
thousands of supplies from the application of the ETA.
[53]
One could therefore
very easily evade the provisions of the ETA by claiming that a supply that is
normally subject to the Act is not covered by that legistlation when one
associates it with an exempt supply under the guise of promoting it for the
sake of increased production.
[54]
With very little
imagination required, it would be possible to create an infinity of very crazy
possibilities that would make it possible to evade the provisions of the ETA. It
is therefore essential to conduct a specific analysis when there is a group or association
of supplies considered and defined by the registrant as a single supply.
[55]
This is even more
critical where there are one or more tax consequences under the ETA. Indeed,
the Act makes it possible to sell or associate exempt property with a taxable
supply, as in the case of the honey; in other words, this is in some way
incidental to the primary property taxed as forming part of the exempt supply.
[56]
In that respect, counsel
for the Respondent provided a very pertinent example of the possible surprise, bonus
or small toy included in a cereal box that is not taken into consideration. The
cereal box being the exempt supply, the supply associated with it loses its
usual taxable quality thereby receiving the same treatment as the primary exempt
supply.
[57]
It is easy to grasp the
logic and reasonableness of that approach as more often than not a taxable supply
groups together several components for determining the sale price subject to the
GST. Thus, there are the components, but also components related to provision, advertisement,
development, etc.
[58]
Generally speaking, those
inseparable things or components are often intangible. Nevertheless, when
dealing with, as in the case bar, individual goods that have absolutely nothing
in common, this instantly raises a number of questions for the purposes of
identifying what is primary as opposed to incidental.
[59]
Although there are a
number of decisions in this area, there is no objective formula or magic recipe
with various criteria making it possible to obtain a decisive and reliable result.
[60]
I am of the view that
the process and analysis must be guided by a basic common sense approach within
a context of reasonableness. As prescribed by section 138 of the Excise Tax
Act,
“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.”
[61]
In the case at bar, the
Appellant conceals in its analysis the supply presented as incidental and
focuses on the exempt supply; on that basis, first it defines itself by stating
the company’s mission and purpose; then, it ignores the nature of the property
it defines as a means or way of promoting the sale, production and marketing of
the exempt product, namely, honey and other farm products.
[62]
To accept or subscribe to the
Appellant’s approach would lead to aberrations and/or completely spurious
results. Furthermore, it would allow anyone with a fertile imagination, to set
up a multitude of scenarios that are entirely inconsistent with the letter and
spirit of the law.
[63]
In the case at bar, there
is no doubt that the so-called promotional part of the supply, that is, access to
the trails granted, provided or made available for free, must be specifically
analyzed. What is it? Is it
something secondary, incidental or marginal? Is it something very minor with respect to the
consideration taken into account at the time of purchase of the supply?
[64]
It involves a series of
trails that form a long path that winds its way through the forest where it is possible
to see, hear and appreciate nature and observe deer; the icy runway was
regularly maintained with a zamboni. The installation of the trails required a
significant injection of funds as well maintenance costs. The huge number of people
who flock here to skate are users of the on-site parking area, which accommodates
several hundreds of cars.
[65]
When two or more goods,
or two or more services, are highly interconnected, they can form a single
supply and be subject to a single transaction. Generally speaking, the consideration
taken into account and which is at the basis of the transaction involves either
a specific object or a whole of which the parts or components are inseparable. The
analysis must take into account three broad principles:
·
Each supply must be
considered separate and independent.
·
The supply should not
be artificially split.
·
Where the single supply
is made up of several elements or components, the element that raises one or
more issues must be used to enhance the supply.
[66]
It would appear that
the present dispute stems from the application of An Act to preserve agricultural land. Under that act, it is prohibited to
operate any non-agricultural commercial business on the land defined as the so-called “agricultural
zone.”
[67]
On two occasions, the Commission
de protection des territoires agricoles prohibited the conduct of the commercial
activity at the centre of this dispute at the place chosen by the Appellant, considering
that it was located in a protected area, and therefore in an area reserved exclusively
for agricultural activities.
[68]
Drawing on that reality
and owing to this major and completely unavoidable obstacle, it became
imperative to create a project within which the activity related to the use of
forest trails (walking and skating) could ultimately be defined as an element
or component of an exempt supply; in other words, it was necessary that a whole
other definition be established, not on the basis of the nature of the good but
on the basis of its use and most of all on the basis of the essentially
self-serving and subjective determination.
[69]
On the Appellant’s
third attempt, the matter submitted to the Commission de protection de
protection des territoires agricoles was prepared in such a way that the Commission
authorized the use. The authorization was granted following the presentation of
a definition of the trails not as an economic and independent activity, but as
a measure benefiting the production and sale of farm products.
[70]
The authorization of
the Commission de protection des territoires agricoles or compliance of the
activity with the provisions of An Act to preserve agricultural
land does not modify the nature of a good, an activity and/or
a service subject to the ETA.
[71]
In other words, a decision
of the Commission de protection des territoires agricoles cannot determine or
decide whether or not a supply is exempt; that is, an issue that falls within
the exclusive scope of the ETA. Although ideally consistency is desirable for
the application of statutes, the same set of circumstances may lead to different
treatments under relevant statutes.
[72]
Thus, the fact that the
Commission accepted that the supply in dispute be defined as being part of an
activity that is consistent with An Act to preserve agricultural
land does not impact or affect the assessment made by the
Respondent under the ETA.
[73]
That is a unique situation
in that the Appellant wished to operate a business by complying with the provisions
of legislation governing the preservation of agricultural land which has power over life and death in respect of certain economic activities performed on
the agricultural land over which the Commission has jurisdiction.
[74]
At page 17 of their
written submissions, the Appellant write as follows, and I quote:
[TRANSLATION]
Multiple supplies occur when one or more of the elements
can sensibly or realistically be broken out.
Conversely, two or more elements are part of a single
supply when the elements are integral components; the elements are inextricably
bound up with each other; the elements are so intertwined and interdependent
that they must be supplied together; or one element of the transaction is so
dominated by another element that the first element has lost any identity for
fiscal purposes.
When conducting an analysis, it is important that the
analysis be confined to the transaction at issue, rather than referring to
other possible transactions containing the same or similar elements. This
process should not involve artificially splitting something that commercially
is a single supply. Moreover, when examining an agreement, it should not be
viewed in isolation. Rather, it must be examined in the context of other
factors such as the intent of the parties, the circumstances surrounding the
transaction, and the supplier's usual business practices.
[Emphasis added.]
[75]
It is difficult for me
to reconcile the content of that submission with the relief sought by the
Appellant. The Appellant sells tickets that can be used for a very small
quantity of honey and access to trails.
[76]
To argue that such a
practice is a single supply that should not be artificially split is an approach
which I do not accept. The Appellant makes reference to the parties’ intention
but the evidence only referred to the Appellant’s self-serving intention.
[77]
To subscribe to such an
interpretation or analysis would allow parties to a transaction to determine
the nature of a supply, at arm’s length of the Respondent, but also, and above
all, the authority to unilaterally decide whether a supply is taxable, not
taxable or exempt.
[78]
In the case at bar, it would
have been interesting to know the percentage of trail users interested exclusively
in accessing the trails when referring to the intention of the parties to a transaction
in which a supply is traded. That aspect is certainly a pertinent one that,
however, requires the contribution of the parties to the transaction in dispute.
[79]
Eligibility under the single
supply category requires that the elements that are grouped together, associated,
linked or fused be, in principle, related. It seems to me somewhat reckless to associate
elements with no degree of commonality and of a totally different nature. The property
or service supplied may group together various elements which, once provided,
become practically inseparable.
[80]
In the case at bar, the
least that can be said is that the two elements of the supply, referred to as
single by the Appellant, are neither related or of the same family; it is
obviously easy to isolate or separate them. It is not the process that is
artificial but the association, the correlation. At page 18 of their
written submissions, the Appellant emphasize the following issue:
In the context of the particular
transaction, does the recipient have the option to acquire the elements
separately or to substitute elements?
[81]
The issue raises a very
important aspect that the Appellant completely concealed in its analysis; in fact,
such a possibility requires an ability and freedom to choose. In the case at
bar, that choice is simply non-existent. Access to the trails requires an acceptance
to pay consideration that has absolutely nothing to do with the supply
described as the primary supply. In other words, the supplier requires consideration
for a supply they deem as primary or dominant, whereas, for its part, the purchaser
essentially accepts to pay the amount required for the element defined as
secondary or incidental. As for the method used, that is, the ticket, it was
essentially an indirect way of doing something that clearly could not be done directly.
[82]
Common sense and
reasonability lead to a determination that does not at all correspond with the
Appellant’s interpretation.
[83]
The concept of
reasonability can be subjective, arbitrary even, from which it is wise to
validate, when the facts permit, a finding as to reasonability. The Respondent’s
procedure, illustrated in her submissions, was as follows:
[Translation]
In order to fully understand the marketing strategy
chosen by the Appellant to grant access to the trails, one example is worth a
thousand words:
E.g.: family of 4: 2 adults and 2 children
$12 x 4 admissions = $48 =
4 tickets
·
In the light of pages 2, 3 and 4 of Exhibit
R-14, the family of 4 would be entitled to
1.
1 jar of 500 g or;
2.
1 jar of 350 g and 1 pot of 55 g (or 50 ml of
maple syrup or buckwheat flour) or;
3.
4 jars of 55 g (or 50 ml of maple syrup or
buckwheat flour)
·
For better value, the jar of 500 g remains the
best choice;
·
Thus, according to the Appellant’s position, the
purpose of that transaction is to sell honey and the result is absurd: the 500
g jar, sold as a bar for close to $8 per jar, costs this family $48.
[84]
The Respondent submits
that access to the trails is the primary element and the product (honey, maple
syrup or other) is incidental; she concludes as follows:
[Translation]
17.
Faced with a multiple supply with a single
consideration, access to the trails (primary element) and the product (incidental
element) constitute a taxable supply in accordance with the ETA.
[85]
In paragraphs 18 and
20, she refers to two decisions, Robertson v. The Queen (2002 CanLII
46712(TCC)) and Triple G Corporation Inc. v. The Queen (2008 TCC 181) to
conclude that the multiple supply must be the subject of a single taxable
supply.
[86]
In my view, the two
decisions in question are not as pertinent as suggested; in fact, both decisions
involve related elements that merge, and even blend together, even though they
could be the subject of an individual supply.
[87]
In the case at bar, although
no real combination or merging of elements exists, there is an artificial grouping
formed by virtue of the constraints and prohibitions provided for by An Act to preserve agricultural land. Also, the fact that it is a multiple supply by means
of a single consideration is somewhat unsound.
[88]
In clear terms, the main
intent of the buyers is to access the trails, not to purchase the honey, which,
given the quantity, has only symbolic value. I am also convinced that, if given
the choice or if the admission price were lowered by the equivalent of the real
value of the product supposedly purchased with the ticket, the majority of
customers would not buy the exempt supply.
[89]
The purpose or goal is
to turn a physical activity into an awareness session or a way of connecting
with nature. In other words, the Appellant
does indirectly what An Act to preserve agricultural land prohibits it
from doing directly.
[90]
On this basis alone, I cannot but
conclude that the element of multiple supply other than access to the labyrinth
should not be included or form part of the taxable supply which is the value of
the admission itself.
[91]
As for the question as to whether the
Appellant provides apiarian products to its customers, or rather admission to
its trails, I believe the answer is simple and clear. The Appellant sells admission to its trails in the
hopes of earning a return on the various products sold.
[92]
The Appellant concludes
at page 65 of its submissions as follows:
[Translation]
152. The Appellant respectfully submits that one or the other of
the following hypotheses justify the qualification of the supply made by the
Appellant as being a zero-rated supply:
a.
The sale of honey and admission to the trails both form an integral part
of a single supply. The principle set out in O.A. Brown is applicable and
determinative. The dominant element of the supply is the sale of honey;
b.
In the alternative, even if access to the Appellant's trails were to constitute
a separate supply, it is incidental to the sale of honey and the two supplies were
made for a single consideration. Access
to the trails is therefore deemed to form part of the sale of honey under section
138 ETA;
c.
Alternatively, the Appellant submits that the Respondent's assessment is
ill-founded in fact and in law as the sale of honey is not a supply incidental
to admission to the trails, thereby rendering section 138 ETA inapplicable;
d.
Finally, the Appellant submits that it was always diligent in the
circumstances and that the imposition of a penalty under section 280 ETA is
unnecessary.
[93]
The evidence strongly suggest that
the honey, its by-products, maple syrup and other products, were not the dominant
elements; rather, they were secondary, as the dominant, primary and/or
determining element was admission to the trails.
[94]
There is no doubt that
the vast majority of customers visit the premises to use the frozen paths
within the infrastructure, the honey and
other farm products being the equivalent of the surprises found in cereal boxes.
[95]
Although that is a mere interpretation,
it is supported and substantiated by a number of elements: the disproportionate
gap between the required price of a ticket and the real value of the farm
product obtained; the content of the advertisements, in which the emphasis is
clearly on the enjoyment derived from the use of its trails and not the honey
or other products; parking capacity; and, the large number of visitors
depending on the time of the year, with winter being the peak season.
[96]
Had it not been for the legislation
on the preservation of agricultural land, this matter would have undoubtedly
never been at issue; nothing in the evidence makes it possible to conclude that
the Appellant was imprudent and did not exercise due diligence.
[97]
The Appellant put in place a very
popular and ingenious recreational and tourism destination; its initiative was
however brought to a halt, and prohibited even by the Commission de la
protection du territoire agricole.
[98]
Tenacious, determined and
astute, the Appellant found a way to obtain the required authorization from the
Commission. The initiative was legitimate
and is beyond reproach. The decision has
no effect on the quality and nature of the supplies under the ETA, except for
the fact that it makes it possible to better understand the situation of the
Appellant, who wished to operate a sound, popular and profitable business. That
reality and the very unique context are such that, in my view, the penalty is
completely inappropriate, which is why it is vacated.
[99]
For these reasons, the appeal is
allowed in part, in that the
penalty is vacated; as for the other aspects, the assessment shall remain unchanged. Without costs.
Signed at Ottawa, Canada, this 2nd day of July 2010.
"Alain Tardif"
Translation certified true
on this 16th day of December 2010.
François Brunet, Revisor
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