Citation: 2007TCC371
Date: 20070620
Docket: 2005-3858(GST)I
BETWEEN:
BEUTLER HANDS ON MASSAGE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant,
Beutler Hands On Massage, is appealing the assessments of the Minister of
National Revenue under the Excise Tax Act for Goods and Services Tax for
massage services provided in 2002 and 2003.
[2] Leah Beutler,
the sole proprietor of Beutler Hands On Massage, testified at the hearing. She
is a registered massage therapist who, prior to starting her own business of
selling massage products and providing massage services, had worked as a
massage therapist in a chiropractic clinic.
[3] The Appellant
does not dispute the facts contained in the Minister's assumptions in paragraph
7 of the Reply to the Notice of Appeal:
(a) the Appellant was registered in October 1998 and was
assigned GST registration number 867118465 RT0001;
(b) the Appellant was a partnership of Linda and Leah;
(c) Linda was a "silent partner";
(d) During 2002 and 2003 the Appellant operated the Business
making supplies of therapeutic massage services and products;
(e) the Appellant was required to file GST returns on an annual
basis with a business year end of December 31;
(f) the Appellant filed GST returns for the reporting periods
assessed declaring tax collected/collectible and claiming input tax credits as
follows:
|
Reporting
Period
|
tax
collected
reported
|
Input
tax
credits
Claimed
|
net tax
reported
|
|
31-Dec-02
|
677.58
|
-1,121.21
|
-443.63
|
|
31-Dec-03
|
662.27
|
-1,263.11
|
-600.84
|
|
|
1,339.85
|
-2,384.32
|
-1,044.47
|
(g) Leah reported the revenues of the Business as a sole
proprietor on her T-1 income tax returns for 2002 and 2003;
(h) at all relevant times the Appellant's supplies were made in
the Province of Saskatchewan;
(i) therapeutic massage services are not an insured service
under the Provincial Healthcare plan of Saskatchewan;
(j) at all relevant times the supplies of therapeutic message
services and products were taxable at 7%;
(k) for the reporting period ending December 31, 2002;
(i) the Appellant made supplies of massage therapy products
and therapeutic massage services of $9,536.85 and $54,556.15 respectively for a
total of $64,093.00 on which the Appellant was required to report tax
collectible of $4,486.51;
(ii) the Appellant failed to report tax
collected/collectible of $3,808.93;
(l) for the reporting period ending December 31, 2003;
(i) the Appellant made supplies of massage therapy products
and therapeutic massage services of $10,073.00 and $58,796.00 respectively for
a total of $68,859.00 on which the Appellant was required to report tax
collectible of $4,820.13;
(ii) the Appellant failed to report tax collected/collectible
of $4,157.86;
(m) the Appellant failed to report the tax collectible on supplies
of the therapeutic massage services provided by the Business in 2002 and 2003.
[4] The only issue
in this appeal is whether the Appellant was required by the Excise Tax Act
to collect and remit GST in respect of the massage services it provided to its
clients.
[5] Counsel for the Respondent presented very ably an
analysis of the applicable provisions of the Excise Tax Act and the
relevant Saskatchewan legislation. The starting point is subsection 221(1) of the Excise
Tax Act which imposes on every person who makes a "taxable supply"
a duty to collect GST for that "supply".
[6] Both "supply"
and "taxable supply" are defined in subsection 123(1) of the Act:
"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;
...
"taxable
supply" means a supply that is made in the course of a commercial
activity;
[7] Necessary to the
understanding of "taxable supply" is the relevant portion of the
definition of "commercial activity":
123(1) "commercial
activity" of a person means
(a) business
carried on by the person (other than a business carried on without a reasonable
expectation of profit by an individual, a personal trust or a partnership, all
of the members of which are individuals), except to the extent to which the
business involves the making of exempt supplies by the person,
(b) an
adventure or concern of the person in the nature of trade (other than an
adventure or concern engaged in without a reasonable expectation of profit by
an individual, a personal trust or a partnership, all of the members of which
are individuals), except to the extent to which the adventure or concern
involves the making of exempt supplies by the person, and
(c) the making
of a supply (other than an exempt supply) by the person of real property of the
person, including anything done by the person in the course of or in connection
with the making of the supply;
[8] To this point,
the evidence is clear that the Appellant was making a supply of massage
services in the course of carrying on its business. Accordingly, a massage
service was a "taxable supply" – unless it can be shown that the
business of Beutler Hands On Massage involved the making of "exempt
supplies".
[9] An "exempt
supply" is defined in subsection 123(1) as "a supply included in
Schedule V" of the Act.
[10] In "Part II,
Health Care Services" of Schedule V, the following are exempt supplies:
7. [Non-medical
health care] – A supply of any of the following services when rendered to
an individual, where the supply is made by a practitioner of the service:
(a) optometric
services;
(b) chiropractic
services;
(c) physiotherapy
services;
(d) chiropodic
services;
(e) podiatric
services;
(f) osteopathic
services;
(g) audiological
services;
(h) speech
therapy services;
(i) occupational
therapy services; and
(j) psychological
services.
...
9. [Covered
by provincial health insurance] – A supply (other than a zero-rated supply)
of any property or service but only if, and to the extent that, the
consideration for the supply is payable or reimbursed by the government of a
province under a plan established under an Act of the legislature of the
province to provide for health care services for all insured persons of the
province.
[11] Item 7 of
Schedule V is of no assistance to the Appellant since a massage service is not
listed as an exempt service; further, a registered massage therapist is not
included in the Part II definition of "practitioner":
in respect of
a supply of optometric, chiropractic, physiotherapy, chiropodic, podiatric,
osteopathic, audiological, speech therapy, occupational therapy, psychological
or dietetic services, means a person who
(a) practises
the profession of optometry, chiropractic, physiotherapy, chiropody, podiatry,
osteopathy, audiology, speech therapy, occupational therapy, psychology or
dietetics, as the case may be,
(b) where
the person is required to be licensed or otherwise certified to practise the
profession in the province in which the service is supplied, is so licensed or
certified, and
(c) where
the person is not required to be licensed or otherwise certified to practise
the profession in that province, has the qualifications equivalent to those
necessary to be so licensed or otherwise certified in another province.
(d) [Repealed].
[12] The more general provisions of item 9 of Schedule V are equally inapplicable to the
Appellant's situation. Briefly summarized, item 9 exempts the supply of a
service to the extent payment for that service is covered by a provincial
medical plan for "insured persons". An "insured person" is
defined in Part II of Schedule V as:
has the
meaning as in the Canada Health Act;
Section 2 of
the Canada Health Act provides:
"insured
person" means, in relation to a province, a resident of the province other
than
(a) a
member of the Canadian Forces,
(b) a
member of the Royal Canadian Mounted Police who is appointed to a rank therein,
(c) a
person serving a term of imprisonment in a penitentiary as defined in the Penitentiary
Act, or
(d) a
resident of the province who has not completed such minimum period of residence
or waiting period, not exceeding three months, as may be required by the
province for eligibility for or entitlement to insured health service;
[13] In the present
case, to determine whether a service is provided to an "insured person",
it is necessary to consult subsections 14(1) and (2) of the Saskatchewan Medical Care Insurance Act[1]
which defines "insured services" as:
14(1) Subject
to sections 15 and 24, services that are medically required services provided
in Saskatchewan by a physician are insured services.
(2) Subject
to section 15 and 24, the following services that are prescribed in the
regulations and provided in Saskatchewan are insured services:
(a) services
of an optometrist;
(b) services
of a dentist;
(c) services
of a chiropractor;
(d) other
services that are prescribed in the regulations.
[14] Accordingly, the
services of a registered massage therapist are not included in the definition
of "insured services". Nor are they among the services listed in the Regulations,
as could be the case pursuant to subsection 14(2) of the Saskatchewan
Medical Care Insurance Act. Indeed, subsection 10(h) of the Regulations
specifically excludes from the definition of "insured services", the "services
rendered by a person other than a physician, optometrist, dentist or
chiropractor". Thus, the services rendered by a registered massage therapist
are not paid for by the Province of Saskatchewan
and item 9 of Part II, Schedule V does not apply to the Appellant's massage
services.
[15] Consequently, nothing in the Saskatchewan legislation or the Excise Tax
Act serves to preclude the Appellant's
supply of a massage service from being a "taxable supply" and the
Appellant was required to collect and remit GST in respect of such services in
2002 and 2003.
[16] While correct in
law, in the present circumstances, the result is a harsh one. Ms. Beutler and
her accountant, Mr. Waldner, were very compelling witnesses. They both
impressed me as responsible and conscientious in their attention to their
respective obligations.
[17] I accept their
evidence that Ms. Beutler made every effort to inform herself and to fulfill
her duties under the Excise Tax Act. In an effort to ensure that she was
correct in her understanding that GST had to be remitted and collected for
massage products, but not for massage services (based on her prior work at the
chiropractic clinic and the answers she received from Canada Revenue Agency
officials during the course of her research of her legal obligations), she took
the further step of consulting Mr. Waldner. He, in turn, sought his own
verification from the GST officials at the CRA who confirmed Ms. Beutler's
understanding of the law. Having taken these precautions, she felt confident
that she was not required to collect GST for the massage services. Meanwhile,
she collected and remitted GST for the massage products sold by the Appellant. All
went well until suddenly, she was informed the Appellant would be audited – an
audit which, ironically, seems to have been triggered by Ms. Beutler's compliance
with another aspect of the Act's requirements. It was after she
contacted CRA officials to see about changing the Appellant's GST registration from
a partnership to a sole proprietorship that she received a very different
opinion from CRA officials in respect of her obligations to remit and collect
GST in respect of massage services.
[18] It goes without
saying that the legislation must be applied as it is, not as incorrectly
interpreted by the officials upon whom Ms. Beutler relied. This, however, is of
little comfort to Ms. Beutler whose fledgling business now faces a significant
liability for GST which, but for the misstatements of the Minister's officials,
would have been collected and remitted along with the GST the Appellant had duly
and diligently collected and remitted throughout the relevant period for
massage products. I have no alternative but to dismiss the appeal but remain hopeful
that in enforcing this decision, the Minister will take into account the
unusual circumstances of this case.
Signed at Ottawa,
Canada, this 20th day of June, 2007.
"G. Sheridan"
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