Citation: 2007TCC545
Date: 20070913
Docket: 2007-890(GST)I
BETWEEN:
JAMES WOOTTON and ANN WOOTTON,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1] The issue in this case is whether the
Appellants should have charged HST in relation to certain services that they
provided during the period of January 1, 2004 to December 31, 2005 or whether
such services were exempt supplies of child care services under paragraph 1 of
Part IV of Schedule V to the Excise Tax Act (“Act”).
[2] The Appellants operated a recreational
farm known as “Boulderwood Stables” during the period under appeal.
[3] The Appellants offered various services including
horseback riding, business parties and catered parties, trail rides, horse
arena rentals, pool facilities, and sales of various items such as pop, juice,
water and t-shirts. The issue in this case relates to a day camp program that
was offered by the Appellants.
[4] The day camp program was offered to school
age children which would include children who are over 14 years of age as well
as those 14 years of age and under. However, the Appellants treated supplies of
the day camp program differently depending on the age of the participant and
whether the participant was left in their care. If a child was over 14 years of
age, HST was charged in relation to the amount paid for the day camp program.
If a child was 14 years of age or under, and the parents or whoever was
dropping the child off left the child for the day, then HST was not charged. If
the parent or other person dropping the child off remained with the child
during the day, then HST was charged.
[5] The day camp program started around 9:00 a.m.
although some parents, because they had to get to work, would drop the child
off earlier. The scheduled completion time was 4:00 p.m. but in some cases
parents would pick their child up later because of their work schedule. As part
of the day camp program, the children were involved in various activities
related to the horses. They would help to bring the horses in from the field,
check the horses over, brush them down and be involved in other activities
related to the care of the horses. They would participate in a trail ride in the
morning and a trail ride in the afternoon. Each trail ride would last for
approximately one hour. They would also receive some instructions and lessons
in relation to the horses. They would have a lunch break where the children
would eat the lunch that they brought with them. If a child lost his or her
lunch, then lunch would be provided to that child. The children would also have
time when they could swim in the pool that was available on the property.
[6] The issue in this case is whether the day
camp services on which no HST was charged were exempt supplies under the Act.
Paragraph 1 of Part IV of Schedule V of the Act provides that the
following services are exempt supplies for the purposes of the Act:
1. A supply of child care services, the primary purpose
of which is to provide care and supervision to children 14 years of age or
under for periods normally less than 24 hours per day, but not including a
supply of a service of supervising an unaccompanied child made by a person in
connection with a taxable supply by that person of a passenger transportation
service.
[7] Therefore, the first issue to be
determined is whether these services that were being provided were child care
services. Child care service is not defined in the Act. However, this
expression also appears in the Income Tax Act. In Bailey v. The Queen,
2005 TCC 305, 2005 DTC 673, [2005] 3 C.T.C. 2170, Justice Rip (as he then was)
made the following comments in relation to child care expenses under the Income
Tax Act:
7 Subsection 63(3) of the Income Tax Act
provides the following definition of "child care expense":
"child care expense" means an expense
incurred in a taxation year for the purpose of providing in Canada, for an eligible child of the taxpayer, child care services including
baby sitting services, day nursery services or services provided at a boarding
school or camp if the services were provided
(a) to enable the taxpayer, or the supporting
person of the child for the year, who resided with the child at the time the
expense was incurred,
(i) to perform the duties of an office or
employment,
. . .
except that
. . .
(d) for greater certainty, any expenses
described in subsection 118.2(2) and any other expenses that are paid for
medical or hospital care, clothing, transportation or education or for board
and lodging, except as otherwise expressly provided in this definition, are not
child care expenses;
8 To determine what is meant by a child
care expense it is helpful to consider the definition of the word "care".
The Canadian Oxford English Dictionary defines care as "the process
of looking after or providing for someone or something; the provision of what
is needed for health or protection".
9 The French version confirms the
importance of protecting the child as the phrase for child care expenses is «
frais de garde d'enfants » which literally means costs of minding the children.
[8] In Jones v. The Queen, 2006 TCC
501, 2006 DTC 3531, [2007] 1 C.T.C. 2137, Justice Woods made the following
comments:
14 In many of these cases, it was not clear
from the evidence that the recreational activity was really required to enable
the parents to work. But the courts also noted that recreational activities
such as piano lessons and gym classes generally lack an essential
characteristic of child care, which is to "watch over" or
"protect" the child.
15 To determine whether an activity is a
"child care service" in a particular case, I agree with the test
recently described by Rip J. in Bailey v. R., 2005 D.T.C. 673 (Eng.).
The essential question is what is the primary reason for enrolling the child in
the activity.
[9] In Bell v. The Queen, [2001] 1 C.T.C. 2308, Justice Campbell
quoted from a decision of Justice Archambault in Levine as follows:
11 Both the appellant and
respondent submitted the case of Levine v. R. (1995), [1996] 2 C.T.C.
2147 (T.C.C.) to support their respective positions. At page 2151 of that
decision Justice Archambault of this court stated, and I quote:
These expenses were not incurred for the purpose
of watching over the children to protect them, and therefore enable the parents
to earn income from employment. They were incurred to develop the physical,
social and artistic abilities of the children. These expenses would have been
incurred whether or not the parents were working... The fact that these
activities were for a limited period of time, one hour to one-and-a-half hours
per week, sometimes just for a few weeks, also supports this conclusion.
Attending a one-hour lesson can hardly be considered an effective way of
watching over the children to protect them. It is, however, a very effective
means of teaching children new physical and artistic abilities.
[10] Justice Campbell then concluded that:
16 I agree with the Keefer decision wherein it was stated
that expenses, to be deductible child care expenses must relate to the
overwhelming component of guardianship, protection and child care. Recreational
activities were never intended to be included as such an expense by Parliament,
as these recreational activities do not have as their aim, providing care for
the children. I believe that if one were to ask a volunteer hockey coach of
young children if his primary duty was to be guardian or caregiver of these
children, I do not believe his or her response would be in the affirmative. The
protection and care giving are certainly a part of this activity but it is only
secondary and incidental to the primary function that a hockey coach would view
himself as having and that is to teach the basic skills of playing hockey.
[11] A distinguishing feature in this case is that the
Appellants had the responsibility of looking after the children for at least
seven hours. While the program was scheduled to run from 9:00 a.m. until 4:00 p.m.,
the evidence was that parents would drop off the children on their way to work
before 9:00 a.m. and may not always be able to pick the children up by 4:00 p.m.
The only day camp services for which no HST was charged were those where the
parent (or whoever drove the children to the Appellants’ premises) would leave
the children in the Appellants’ care. Since the Appellants had the children for
this period of time without the parents being present, the Appellants must have
been responsible for the protection and care of the children during this time. This
is too long of a period of time for the children to be in the Appellants’ care
and custody and not to conclude that the overwhelming component of this program
was the guardianship, protection and care of the children during this period of
time.
[12] The fact that the Appellants had activities for the children
to participate in is only reasonable and to be expected since they had the children
for such a long period of time. Any supply related to the activities for the children,
including the supply of horseback rides, would be part of the supply of child
care services, as provided in section 138 of the Act, as they were
supplied for a single consideration and were incidental to the supply of child
care services. Anyone who has the care and custody of children who are 14 years
of age or under for seven hours would be expected to have activities planned
for the children and it would be unreasonable to suggest that this paragraph of
Part IV of Schedule V to the Act only applies in situations where the
only service provided is care and custody and no activities are planned for the
children. That could not have been the intention of Parliament. As well, it
should be noted that the technical notes issued in May 1990 in relation to paragraph
1 of Part IV of Schedule V provide as follows:
This section exempts daycare services provided primarily to children
14 years of age and under. This exemption covers day camps and other daycare
services for children which are eligible for the childcare expense tax
deduction of the Income Tax Act.
[13] Therefore it was clearly contemplated that
day camps would be included in this section. In Silicon Graphics Ltd. v. The
Queen, 2002 FCA 260, 2002 DTC 7112, [2002] 3 C.T.C. 527, the
Federal Court of Appeal made the following comments on the use of technical
notes:
50 Of course, Technical Notes are not
binding on the courts, but they are entitled to consideration. See Ast
Estate v. R., [1997] F.C.J. No. 267 (Fed. C.A.), para. 27:
Administrative interpretations such as technical
notes are not binding on the courts, but they are entitled to weight, and may
constitute an important factor in the interpretation of statutes. Technical
Notes are widely accepted by the courts as aids to statutory interpretation.
The interpretive weight of technical notes is particularly great where, at the
time an amendment was before it, the legislature was aware of a particular
administrative interpretation of the amendment, and nonetheless enacted it.
[14] Counsel for the Respondent had submitted
that the Canada Revenue Agency (“CRA”) no longer relies on this technical note.
However, since the technical note was released when the legislation was
introduced and since the legislation has not been amended in relation to this
aspect of the paragraph, it is not clear how the CRA could change what was in
the technical note which was intended to reflect the intention of Parliament in
drafting this section. It is Parliament’s intention in enacting this paragraph
of Part IV of Schedule V to the Act that must be interpreted not the
intention of the CRA.
[15] Since, as noted above, the only supplies
in issue are supplies of day camp services on which the Appellants did not
charge HST and hence were supplies of the day camp services to children 14
years of age and under who were left unsupervised with the Appellants, clearly
in relation to these supplies the primary purpose was to provide care and
supervision to children 14 years of age and under. As well, since the day camp
lasted from approximately 9:00 a.m. until approximately 4:00 p.m., the
periods were normally less than 24 hours per day and therefore the day camp
services on which no HST was charged satisfied the requirements under paragraph
1 of Part IV of Schedule V of the Act and since these were exempt
supplies, HST should not have been charged in relation to these supplies.
[16] As a result, the appeal is allowed, with
costs, and the assessment of HST in relation to the day camp services provided
by the Appellants on which the Appellants had not charged HST is vacated.
Signed at Toronto,
Ontario, this 13th day of September 2007.
“Wyman W. Webb”
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