Citation: 2007TCC651
Date: 20071024
Docket: 2006-3283(GST)I
BETWEEN:
FLEMING SCHOOL OF DANCE
LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1] The Appellant has
operated a dance school in Oakville, Ontario since 1977. The Appellant was assessed for
unremitted GST in 2005 in relation to the period from January 1, 1995 to June
30, 2003. The total amount of net tax that was assessed against the Appellant under
the Excise Tax Act (“Act”) was $123,597.38 which was assessed on
the basis that the Appellant should have collected GST on the amount charged
for all of its classes. The issue in this case is whether the Appellant was a
vocational school for the purposes of paragraph 1 of Part III of Schedule
V to the Act and therefore could have relied on the exemption for exempt
supplies made by vocational schools as provided in Part III of Schedule V to
the Act.
[2] Section I of Part
III of Schedule V to the Act defines “vocational school” as follows:
“vocational school” means an organization
that is established and operated primarily to provide students with correspondence
courses, or instruction in courses, that develop or enhance students’
occupational skills.
[3] For supplies made
prior to 1997, the definition of “vocational school” included “an educational
institution that is certified by the Minister of Employment and Immigration for
the purposes of subsection 118.5(1) of the Income Tax Act”. The Appellant was
so certified by a letter dated February 25, 1992 from Employment and
Immigration (Canada) and therefore was a vocational school throughout 1995 and 1996 without
having to consider the establishment and operation of the Appellant. For the
other periods under appeal the issue in this case is whether the Appellant was
not only established but also operated primarily to provide students with instruction
in courses that developed or enhanced the students’ occupational skills. The
occupational skills in question were the skills of professional dancers, dance
teachers or theatre performers.
[4] The school had
students of various ages. For most of the years in question the youngest
students would be age 4. The Appellant started teaching 3 year olds in 2002.
The graduating level for the Appellant was when students would be leaving high school
at age 18. Each year there would be approximately 400 to 500 students
taking classes with the Appellant.
[5] The types of dance
that were taught by the Appellant were classical ballet, modern dance,
jazz and tap and as well the Appellant had classes in musical theatre, singing
and acting. The school followed the syllabus of the Imperial Society of
Teachers of Dancing and the Royal Academy of Dance in its classical ballet
program. For the modern dance, jazz and tap program the school followed the
syllabus prepared by the Imperial Society of Teachers of Dancing. Each of these
societies had various levels and would issue certificates when the students passed
the examinations for a particular level. Passing the examination for a
particular level would confirm that the student had attained that level.
Approximately 80 to 90 percent of the students at the school
would take the examinations set by either the Imperial Society of Teachers of
Dancing or the Royal Academy of Dance. Students would start taking the
examinations when they were 6 years old and, depending upon the student, it
could take two years before a student would be prepared to take an examination
for a particular level.
[6] Students who
attended the school have gone on to have careers as professional dancers. As
noted in the brochure published by the Appellant:
Currently students trained at the school
are with the National Ballet of Canada, Frankfurt Ballet, Anne of Green Gables
in Charlottetown and have also performed in major London,
New York and Toronto productions.
[7] Two of the former
students who are now working as dance teachers testified during the hearing.
One of the former students had taken classes for 12 years with the
Appellant and the other one had taken classes for 15 years with the Appellant.
[8] The test for
determining whether the Appellant was a vocational school for the purposes of
paragraph 1 of Part III of Schedule V to the Act is whether the
Appellant was established and operated primarily to provide
students with instruction in courses that developed or enhanced the students’
occupational skills.
[9] In the Canadian
Oxford Dictionary, second edition, the word “primary” is defined as follows:
Of the first importance; chief
[10] In Burger King
Restaurants of Canada Inc. v. The Queen 2000 DTC 6061, [2000] 2 C.T.C.
1, the Federal Court of Appeal made the following comments in relation to the
test that should be used to determine whether the buildings in that case were
“used primarily for the purpose of manufacturing or processing goods for sale”:
14 In accordance with Mother's
Pizza, use of the space in the buildings is the most important consideration in
determining the use primarily made of the buildings. However, that does not
exclude other considerations and we are prepared to assume, without deciding,
that in a case such as this, a qualitative assessment is also relevant. See Gulf
Canada Resources Ltd. v. R.
15 However, the qualitative
evidence must be sufficiently persuasive and must be capable of being analysed
in such a way as to cause the Court to displace the result of the quantitative
space test.
[11] The issue in this
case is not the use of a particular property but the establishment and
operation of an organization. This case does suggest that qualitative factors
could displace quantitative factors in determining if a building is used
primarily for a particular purpose and presumably also to determine if an
organization is operated primarily in a certain manner.
[12] Counsel for the
Respondent had submitted that the Appellant did not qualify as a vocational
school since only a very small percentage of the students who were attending
the course actually were employed as professional dancers or as dance teachers.
The Respondent had submitted that although the school had been operating since
1977 the schedule produced by the Appellant only showed that less than 30
students had gone on to either dance professionally or to teach dance. This is
a quantitative analysis based on the success of the graduates in finding
employment. However, in my opinion, the test of whether the Appellant was
established and operated primarily to provide students with instructions in
courses that develop or enhance students’ occupational skills cannot be
determined based on success of its graduates in finding employment. Whether any
particular graduate would be able to obtain employment in this particular
occupation is beyond the control of the Appellant. It is based on the demands
of the market place and the skill of the particular student. It could not have
been intended that a particular school could only determine whether it was a
vocational school after it was able to determine how many of its graduates had
obtained employment. The Appellant would be a vocational school if it was
established and operated primarily to provide the students with the required
courses and the success of its students in obtaining employment in the field of
study is not a requirement of this provision.
[13] As well since the
test is applied to both the establishment and the operation of the
organization, any test based on numbers would not be relevant in the application
of the part of the test related to the establishment of the school. When the
organization is established there are no students and hence no relevant numbers
to determine the reason for the establishment of the school. The test related
to the establishment of the school would have to be based on the primary reasons
as stated by the individual or individuals founding the school.
[14] The Appellant was
founded by Virginia Fleming who was an extremely credible witness and I find
that her testimony was entirely credible. She has an extensive background in
dance. She started when she was 7 years old although she did not start serious
training until she was 14. She studied at dance schools in England. She is a Fellow and an
Examiner of the Imperial Society of Teachers of Dancing and a Member of and a
Registered Teacher with the Royal Academy of Dance. She did some professional
dancing and teaching before she started her own school.
[15] Virginia Fleming,
who was also the Director and the President of the Appellant, stated in her
testimony that:
Every child that came into the school was
trained as if she was going to perform or teach or use dance in some way in a
profession. That would depend very much eventually on her ability or her
ultimate desire.
[16] Therefore the school
was operated as if every person attending would eventually use the skills
acquired in some occupation. As well, Virginia Fleming testified that the
school was promoted as “a serious training school that encourages children to
go into the profession if they desire that”. The brochure published by the
Appellant confirms this by stating that:
The Fleming School of Performing Arts
(formerly the Fleming School of Dance) was founded in 1977 to provide students
with a solid foundation in various forms of dance under the direction of highly
qualified teachers. Courses in acting and musical theatre were added later to
round out the training required for a professional career in Theatre.
The brochure, as noted above, then
cites the professional accomplishments of some of its former students. The
brochure also states that:
Students will be encouraged to take
examinations in the ISTD and RAD work. This enables a child to work toward a
goal, and so continually improve his or her standard. Theses examinations also
lead to a professional qualification in dance for those wishing to pursue the
higher levels.
It is clear from this that the
school was operated as a serious school and was operated primarily to provide
the students with the skills that they would need to be professional dancers.
In a short three page brochure, most of the text of which is devoted to
describing the qualifications of the teachers, to emphasize professional
careers in the opening paragraph and in the paragraph on Examinations, strongly
suggests that this was a serious school that was operated primarily to educate
serious dancers who wanted to pursue a profession in dancing.
[17] A majority of the
classes that were taught by the Appellant were classes that related to the
curriculum of either the Imperial Society of Teachers of Dancing or the Royal
Academy of Dance and hence were courses that would lead to certificates or
similar documents that would attest to the competence of the students to practise
or perform a certain level of dance. Since dance is a vocation, this would
attest to their competence levels to practice or perform a vocation. Approximately
80 to 90 percent of the students would take these examinations.
[18] In determining whether
the Appellant was a vocational school, the classes in musical theatre, singing
and acting would also be relevant as theses were courses that would develop or
enhance a student’s occupational skills for a professional career in theatre.
In determining whether the Appellant is a vocational school, there is no
requirement that these courses lead to a certificate of any kind. The courses
only need to be courses that develop or enhance a student’s occupational
skills.
[19] Counsel for the
Respondent emphasized the young age of many of the students. However, as Bowman
J. (as he then was) stated in Sandford v. The Queen, [1998] T.C.J.
No. 934:
As was pointed out in one letter to the Department of National
Revenue, children must begin ballet training at a very young age. ...
[20] It is simply the
nature of the vocation that dictates that those who wish to dance
professionally must start at a very young age.
[21] The school that was
operated by the Appellant in this case is substantially similar to the school
that was referred to in Forever Dance Inc. v. The Queen,
2003 TCC 661, [2003] G.S.T.C. 152. In that case Bonner J. held that the school
was a vocational school.
[22] As a result I find
that the qualitative factors related to the establishment and operation of the
school, mainly the motivation of the owner and her clear statement that “[e]very
child that came into the school was trained as if she was going to perform or
teach or use dance in some way in a profession” and the way in which the school
was promoted and operated, with a strong emphasis on the courses that developed
or enhanced the students’ occupational skills and the emphasis on preparing
students for a professional career, strongly support a finding that the
Appellant was a vocational school for the purposes of paragraph 1 of Part
III of Schedule V to the Act throughout the period in issue.
[23] As a result I find
that the Appellant was a vocational school for the purposes of paragraph 1
of Part III of Schedule V to the Act throughout the period in issue.
[24] Counsel for the
Respondent, following the submission of all of the evidence, attempted to raise
a second issue with respect to whether GST should have been charged in relation
to some of the courses that were provided as not all the courses that were
provided would lead to the certificate referred to in paragraph 8 of Part III
of Schedule V to the Act. This is the section that provides that the
supply of certain courses provided by vocational schools are exempt supplies. However
this section was not referred to in the Reply. The issue to be decided, based
on the Reply, is as follows:
The issue is whether the Minister was
justified in assessing the Appellant’s net tax for the Period.
Paragraph 6 of the Tax Court of
Canada Rules Respecting the Excise Tax Act (Informal Procedure)
provides in part as follows:
6 (1) Every reply to a notice of
appeal shall contain a statement of
...
(f) the issues to be decided,
[25] In my opinion the
statement of the issue as described above is not an adequate statement of the
issue as contemplated by section 6 of the Rules. This statement of
the issue is simply a very broad generic description of the issue that could be
used in every single reply filed under the Act and does not provide any
notice or guidance to the taxpayer or the Court of the real issue in the case.
The Respondent cannot rely on this statement of the issue to raise any issue
that the Respondent chooses during the hearing. As well in paragraph 14 of the
Reply the Respondent has listed the sections upon which the Respondent is
relying. The sections that are listed are the following:
sections 123, 165, 169, 221, 225, 228,
280, 296, 298 and 299 of the Act, section 1 of Part III of Schedule V to
the Act, GST/HST Policy Statement P229 and the Input Tax
Credit Information Regulations.
[26] This is a long list
of sections under the Act itself (which do not provide any assistance in
relation to determining the real issue in this case) and the only section that
is identified in this list that is in Part III of Schedule V to the Act
is section 1 which includes the definition of “vocational school”. There is no
reference in this list to section 8 of Part III of Schedule V to the Act
and there are no assumptions of fact that are made in relation to the amounts
that the Appellant had collected in relation to the courses leading to
certificates and those that did not lead to certificates. Since no assumptions
of fact are made in relation to this matter the onus of proof in establishing
the facts would lie with the Respondent.
[27] In Pollock v. R. (1993), [1994] 1
C.T.C. 3, 94 DTC 6050 (Fed. C.A.),
Hugessen J.A., on behalf of the Federal Court of Appeal, made the following
comments:
Where, however, the Minister has pleaded no
assumptions, or where some or all of the pleaded assumptions have been
successfully rebutted, it remains open to the Minister, as defendant, to
establish the correctness of his assessment if he can. In undertaking this
task, the Minister bears the ordinary burden of any party to a lawsuit, namely
to prove the facts which support his position unless those facts have already
been put in evidence by his opponent. This is settled law.
[28] In Loewen v. R., 2004 FCA 146
(F.C.A.), Sharlow J.A., on behalf of the Federal Court of Appeal, made the
following comments:
11 The constraints on the Minister that apply
to the pleading of assumptions do not preclude the Crown from asserting,
elsewhere in the reply, factual allegations and legal arguments that are not
consistent with the basis of the assessment. If the Crown alleges a fact
that is not among the facts assumed by the Minister, the onus of proof lies
with the Crown. This is well explained in Schultz v. R. (1995), [1996]
1 F.C. 423, [1996] 2 C.T.C. 127, 95 D.T.C. 5657 (Fed. C.A.)
(leave to appeal refused, [1996] S.C.C.A. No. 4 (S.C.C.)).
(emphasis added)
[29] Leave to appeal the decision of the
Federal Court of Appeal in Loewen v. R. to the Supreme Court of
Canada was refused (Loewen v. R., 338 N.R. 195 (note) (S.C.C.)).
[30] Since this issue of
whether amounts should have been charged for some courses was not raised in the
Reply and since no assumptions of fact were made in relation to this matter and
no evidence was led in relation to the amount collected for the different courses,
the Respondent cannot succeed in relation to this issue.
[31] As a result of the
application of section 18.3009 of the Tax Court of Canada Act no costs
can be awarded in favour of the Appellant as the amount in dispute, even on an
annual basis, exceeds $7,000.
[32] Therefore the appeal
is allowed, without costs, and the assessment is vacated.
Signed at Halifax, Nova Scotia, this 24th day of October 2007.
“Wyman W. Webb”
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