Citation: 2006TCC336
Date: 20060720
Docket: 2004-1427(GST)G
BETWEEN:
LA BANQUE CANADIENNE IMPÉRIALE DE COMMERCE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers, J.
[1] The appellant,
the Canadian Imperial Bank of Commerce (“CIBC”), is appealing from an
assessment by the Minister of National Revenue (the "Minister") dated
July 14, 2003, made under the Excise Tax Act (“ETA”) with respect to the
period from June 1, 2000, to May 30, 2002. The amount involved in the
assessment was $2,663,662.00. That amount represents a rebate claim for goods
and services tax (GST) paid in error by CIBC. Before trial, the parties
informed the Court that an agreement had been reached on the amount of the
rebate claim which is now $2,468,451.47. All the other assumptions of fact
relied upon by the respondent in the Reply to the Notice of Appeal were
admitted by the appellant.
[2] The appellant is a diversified financial
institution governed by the Bank Act, [1991, c. 46]. As part of its
business, the appellant makes loans, grants credit and issues credit cards.
During the period covered by the assessment, certain borrowers, credit card
holders and other debtors (collectively the “debtors”) defaulted on the
agreements which they had with the appellant. After several attempts to recover
the money owed by these debtors, the appellant contracted with various
collection agencies in order to collect amounts owing on loans, credit cards
and other forms of credit (collectively the “amounts owing”). These amounts
were deposited in the collection agencies’ trust accounts on behalf of the
appellant whereas other amounts were paid directly to the appellant. The
agencies were paid a fee when amounts owing were collected, and payment
included GST on that fee. The agencies also had authority to settle a claim at
an amount lower than that sought through collection, but within the limit
stated in the directives given by the appellant.
[3] On June 25, 2002, the appellant filed a general rebate
claim for tax remitted in error on the fees paid to the collection agencies
during the period in question for the collection of amounts owing. The
respondent disallowed the rebate.
[4] The only issue in this appeal is whether the services
provided to the appellant by collection agencies qualify as “financial
services” under subsection 123(1) of Part IX of the ETA.
[5] In summary, the appellant’s position is that the services
provided by the collection agencies qualify as financial services, which are
exempt services; therefore, GST paid on those services was paid in error.
Conversely, the respondent’s position is that the services in question do not
qualify as financial services; therefore, the appellant did not pay the GST on
those services in error.
[6] The only witness who testified in this matter was
Jonathan Goodman, Vice-President, Recovery, Support and Portfolio Management,
for CIBC. Mr. Goodman performed various functions for the appellant and
all were related to the collection process and strategies. He testified that
CIBC’s collection procedure when accounts become delinquent is to first
transfer these accounts to one central collections group; CIBC employees with
that group will then contact customers in order to arrange payment of the
arrears or the amount that is delinquent. Once all possibilities have been
exhausted at that level, CIBC will issue a letter of demand asking for payment
in full. If there is no response, the account is then sent to the recovery
centre, which then sends the delinquent accounts out to collection agencies
approved or selected by the appellant and licensed to act as such.
[7] CIBC dealt with about twenty different
collection agencies during the period at issue. They were all paid on a contingency
basis in percentages varying from 20% to 50%, depending on the types of
accounts they were receiving. The different types of accounts are identified in
terms of classification based on the degree of difficulty in collecting that
they represent. The relationship between CIBC and the collection agencies is
governed by standard contracts and standard directives, many samples of which
were produced in evidence (see Tab 28 of Exhibit A‑1). Under those
contracts and directives, the collection agencies receive remuneration only
when they succeed in collecting an amount owing. They are not compensated for
their work or activities unless they do collect.
[8] Mr. Goodman also testified as to the types of
delinquent accounts that the collection agencies were hired to collect. These
accounts included principal and interest owing on personal lending products,
which include credit cards, loans, instalment loans, demand loans, lines of
credit, overdraft accounts and residual balances after securities have been disposed
of.
[9] In his testimony, Mr. Goodman acknowledged that of the
accounts recovered by the collection agencies about 15% represent payments in
full. In other cases, the collection agencies have the ability to settle the
accounts, or to make arrangements with the customer to extend the time for
payment of principal plus interest. Payment of recovered amounts can be made
in one of two ways: to the collection agency or directly to the bank. The
collection agency would still receive its fee regardless of who received
payment.
[10] In cross-examination, Mr. Goodman testified that CIBC
turns to the collection agencies because they possess collection skills that
the bank does not. He acknowledged that they are more specialized and better
equipped to recover delinquent accounts than CIBC. In fact, he agreed that the
collection agencies do more than, for example, collect hydro payments, which
the bank does through its clients’ bank accounts. The appellant requires that
the collection agencies keep track of their activities in the collection
process, including taking notes of various conversations, and reserves the
right to monitor accounts turned over to the collection agencies. CIBC also
requires that a certain minimum of work be done by the collection agencies
within 5 days of receipt of the accounts, with other minimum activities to
be performed during the process. Mr. Goodman acknowledged that the higher
commissions paid to collection agencies with respect to certain accounts
reflect the fact that those accounts are more difficult to collect and require
more work.
[11] The relevant provisions of the ETA and the Financial
Services (GST/HST) Regulations (the “Regulations”) are the following:
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123. (1) Definitions —
In section 121, this Part and Schedules V to X,
"commercial activity" of a person means
(a) 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,
. . .
"commercial service", in respect of tangible personal property, means any service in respect
of the property other than
(a) a service of shipping the property supplied by
a carrier, and
(b) a financial service;
"exempt supply"
means a supply included in Schedule V;
"financial instrument" means
(a) a debt security,
(b) an equity security,
(c) an insurance policy,
(d) an interest in a partnership, a trust or the
estate of a deceased individual, or any right in respect of such an interest,
(e) a precious metal,
(f) an option or a contract for the future supply
of a commodity, where the option or contract is traded on a recognized
commodity exchange,
(g) a prescribed instrument,
(h) a guarantee, an acceptance or an indemnity in
respect of anything described in paragraph (a), (b), (d), (e) or (g), or
(i) an option or a contract for the future supply
of money or anything described in any of paragraphs (a) to (h);
"financial service" means
(a) the exchange, payment, issue, receipt or transfer
of money, whether effected by the exchange of currency, by crediting or
debiting accounts or otherwise,
(b) the operation or maintenance of a savings,
chequing, deposit, loan, charge or other account,
(c) the lending or borrowing of a financial
instrument,
(d) the issue, granting, allotment, acceptance,
endorsement, renewal, processing, variation, transfer of ownership or
repayment of a financial instrument
(e) the provision, variation, release or receipt
of a guarantee, an acceptance or an indemnity in respect of a financial
instrument,
(f) the payment or receipt of money as dividends
(other than patronage dividends), interest, principal, benefits or any
similar payment or receipt of money in respect of a financial instrument,
(f.1) the payment or receipt of an amount in full
or partial satisfaction of a claim arising under an insurance policy,
(g) the making of any advance, the granting of any
credit or the lending of money,
(h) the underwriting of a financial instrument,
(i) any service provided pursuant to the terms and
conditions of any agreement relating to payments of amounts for which a
credit card voucher or charge card voucher has been issued,
(j) the service of investigating and recommending
the compensation in satisfaction of a claim where
(i) the claim is made under a marine insurance
policy, or
(ii) the claim is made under an insurance policy
that is not in the nature of accident and sickness or life insurance and
(A) the service is supplied by an insurer or by a person
who is licensed under the laws of a province to provide such a service, or
(B) the service is supplied to an insurer or a
group of insurers by a person who would be required to be so licensed but for
the fact that the person is relieved from that requirement under the laws of
a province,
(j.1) the service of providing an insurer or a person
who supplies a service referred to in paragraph (j) with an appraisal of the
damage caused to property, or in the case of a loss of property, the value of
the property, where the supplier of the appraisal inspects the property, or
in the case of a loss of the property, the last-known place where the property
was situated before the loss,
(k) any supply deemed by subsection 150(1) or
section 158 to be a supply of a financial service,
(l) the agreeing to provide, or the arranging for,
a service referred to in any of paragraphs (a) to (i), or
(m) a prescribed service,
but does not include
(n) the payment or receipt of money as consideration
for the supply of property other than a financial instrument or of a service
other than a financial service,
(o) the payment or receipt of money in settlement
of a claim (other than a claim under an insurance policy) under a warranty,
guarantee or similar arrangement in respect of property other than a financial
instrument or a service other than a financial service,
(p) the service of providing advice, other than a service
included in this definition because of paragraph (j) or (j.1),
(q) the provision, to an investment plan (as
defined in subsection 149(5)) or any corporation, partnership or trust whose
principal activity is the investing of funds, of
(i) a management or administrative service, or
(ii) any other service (other than a prescribed
service),
if the supplier is a person who provides
management or administrative services to the investment plan, corporation,
partnership or trust,
(r) a professional service provided by an
accountant, actuary, lawyer or notary in the course of a professional
practice,
(r.1) the arranging for the transfer of ownership
of shares of a cooperative housing corporation,
(s) any service the supply of which is deemed
under this Part to be a taxable supply, or
(t) a prescribed service.
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123. (1)
Définitions -- Les définitions qui suivent
s'appliquent à l'article 121, à la présente partie et aux annexes V à X.
« activité commerciale » Constituent des activités commerciales exercées
par une personne :
a) l'exploitation d'une entreprise (à
l'exception d'une entreprise exploitée sans attente raisonnable de profit par
un particulier, une fiducie personnelle ou une société de personnes dont
l'ensemble des associés sont des particuliers), sauf dans la mesure où l'entreprise
comporte la réalisation par la personne de fournitures exonérées;
. . .
« service
commercial » Service relatif à un bien meuble
corporel, sauf un service d'expédition du bien fourni par un transporteur et
un service financier.
« fourniture
exonérée » Fourniture figurant à l'annexe V.
« effet financier »
a) Titre de créance;
b) titre de participation;
c) police d'assurance;
d) participation dans une société de
personnes ou une fiducie ou droit dans une succession, ou droit y afférent;
e) métal précieux;
f) option ou contrat, négocié dans une
bourse de commerce reconnue, pour la fourniture à terme de
marchandises;
g) effet visé par règlement;
h) garantie, acceptation ou indemnité
visant un effet visé à l'alinéa a), b), d), e) ou g);
i) option ou contrat pour la fourniture à
terme d'argent ou d'un effet visé à l'un des alinéas a) à h).
« service financier »
a) L'échange, le paiement, l'émission, la
réception ou le transfert d'argent, réalisé au moyen d'échange de monnaie,
d'opération de crédit ou de débit d'un compte ou autrement;
b) la tenue d'un compte d'épargne, de
chèques, de dépôt, de prêts, d'achats à crédit ou autre;
c) le prêt ou l'emprunt d'un effet
financier;
d) l'émission, l'octroi, l'attribution,
l'acceptation, l'endossement, le renouvellement, le traitement, la
modification, le transfert de propriété ou le remboursement d'un effet
financier;
e) l'offre, la modification, la remise ou
la réception d'une garantie, d'une acceptation ou d'une indemnité visant un effet
financier;
f) le paiement ou la réception d'argent à
titre de dividendes sauf les ristournes, d'intérêts, de principal ou
d'avantages, ou tout paiement ou réception d'argent semblable, relativement à
un effet financier;
f.1) le paiement ou la réception d'un montant
en règlement total ou partiel d'une réclamation découlant d'une police
d'assurance;
g) l'octroi d'une avance ou de crédit ou
le prêt d'argent;
h) la souscription d'un effet financier;
i) un service rendu en conformité avec les
modalités d'une convention portant sur le paiement de montants visés par une
pièce justificative de carte de crédit ou de paiement;
j) le service consistant à faire des
enquêtes et des recommandations concernant l'indemnité accordée en règlement
d'un sinistre prévu par :
(i) une police d'assurance maritime,
(ii) une police d'assurance autre qu'une
police d'assurance-accidents, d'assurance-maladie ou d'assurance-vie, dans le
cas où le service est fourni :
(A) soit par un assureur ou une personne
autorisée par permis obtenu en application de la législation d'une province à
rendre un tel service,
(B) soit à un assureur ou un groupe
d'assureurs par une personne qui serait tenue d'être ainsi autorisée n'eût
été le fait qu'elle en est dispensée par la législation d'une province;
j.1) le service consistant à remettre à un
assureur ou au fournisseur du service visé à l'alinéa j) une évaluation des
dommages causés à un bien ou, en cas de perte d'un bien, de sa valeur, à
condition que le fournisseur de l'évaluation examine le bien ou son dernier
emplacement connu avant sa perte;
k) une fourniture réputée par le
paragraphe 150(1) ou l'article 158 être une fourniture de service financier;
l) le fait de consentir à effectuer un service
visé à l'un des alinéas a) à i) ou de prendre les mesures en vue de
l'effectuer;
m) un service visé par règlement.
La présente définition exclut :
n) le paiement ou la réception d'argent en
contrepartie de la fourniture d'un bien autre qu'un effet financier ou d'un service
autre qu'un service financier;
o) le paiement ou la réception d'argent en
règlement d'une réclamation (sauf une réclamation en vertu d'une police
d'assurance) en vertu d'une garantie ou d'un accord semblable visant un bien
autre qu'un effet financier ou un service autre qu'un service financier;
p) les services de conseil, sauf un
service visé aux alinéas j) ou j.1);
q) l'un des services suivants rendus soit
à un régime de placement, au sens du paragraphe 149(5), soit à une personne
morale, à une société de personnes ou à une fiducie dont l'activité
principale consiste à investir des fonds, si le fournisseur est une personne
qui rend des services de gestion ou d'administration au régime, à la personne
morale, à la société de personnes ou à la fiducie :
(i) un service de gestion ou
d'administration,
(ii) tout autre service (sauf un service
prévu par règlement);
r) les services professionnels rendus par
un comptable, un actuaire, un avocat ou un notaire dans l'exercice de sa
profession;
r.1) le fait de prendre des mesures en vue
du transfert de la propriété des parts du capital social d'une coopérative
d'habitation;
s) les services dont la fourniture est
réputée taxable aux termes de la présente partie;
t) les services visés par règlement.
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Financial Services(GST/HST) Regulations,
SOR/91-26, as amended by SOR/2001-61
4. (1) In this section,
"instrument" means
money, an account, a credit card voucher, a charge card voucher or a financial
instrument;
"person at risk",
in respect of an instrument in relation to which a service referred to in
subsection (2) is provided, means a person who is financially at risk by
virtue of the acquisition, ownership or issuance by that person of the instrument
or by virtue of a guarantee, an acceptance or an indemnity in respect of the instrument,
but does not include a person who becomes so at risk in the course of, and
only by virtue of, authorizing a transaction, or supplying a clearing or
settlement service, in respect of the instrument.
(2) Subject to subsection (3),
the following services, other than a service described in section 3, are prescribed
for the purposes of paragraph (t) of the definition "financial
service" in subsection 123(1) of the Act:
(a) the transfer, collection or processing of
information, and
(b) any administrative service, including an
administrative service in relation to the payment or receipt of dividends,
interest, principal, claims, benefits or other amounts, other than solely the
making of the payment or the taking of the receipt.
(3) A service referred to in
subsection (2) is not a prescribed service for the purposes of paragraph (t)
of the definition “financial service” in subsection 123(1) of the Act where
the service is supplied with respect to an instrument by
(a) a person at risk,
(b) a person that is closely related to a person
at risk, where the recipient of the service is not the person at risk or
another person closely related to the person at risk, or
(c) an agent, salesperson or broker who arranges
for the issuance, renewal or variation, or the transfer of ownership, of the instrument
for a person at risk or a person closely related to the person at risk.
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Règlement sur les services financiers (TPS/TVH), DORS/91-26, modifié par DORS/93-242 et DORS/2001-61
4. (1) Les
définitions qui suivent s'appliquent au présent article.
« effet » Argent, compte, pièce justificative de carte de
crédit ou de paiement, ou effet financier.
« personne à risque » Personne exposée à un risque financier du
fait de la propriété, de l'acquisition ou de l'émission par la personne d'un
effet à l'égard duquel un service mentionné au paragraphe (2) est offert, ou
à cause d'une garantie, d'une acceptation ou d'une indemnité se rapportant à
l'effet, à l'exclusion de la personne qui s'expose à un tel risque dans le
cadre et du seul fait de l'autorisation d'une opération relative à l'effet ou
de la fourniture d'un service de compensation ou de règlement relativement à
l'effet.
(2) Sous réserve du
paragraphe (3), pour l'application de l'alinéa t) de la définition de
« service financier », au paragraphe 123(1) de la Loi, sont visés
les services suivants, sauf ceux mentionnés à l'article 3 :
a) la communication, la collecte ou le
traitement de renseignements;
b) les services administratifs, y compris
ceux reliés au paiement ou au recouvrement de dividendes, d'intérêts, de
capital, de créances, d'avantages ou d'autres montants, à l'exclusion des
services ne portant que sur le paiement ou le recouvrement.
(3) Pour l'application
de l'alinéa t) de la définition de « service financier », au
paragraphe 123(1) de la Loi, ne sont pas visés les services mentionnés au
paragraphe (2) et fournis relativement à un effet par :
a) la personne à risque;
b) la personne étroitement liée à la
personne à risque, si l'acquéreur du service n'est ni la personne à risque,
ni une autre personne étroitement liée à celle-ci;
c) le mandataire, le vendeur ou le
courtier qui prend des mesures en vue de l'émission, du renouvellement, de la
modification ou du transfert de propriété de l'effet pour le compte de la
personne à risque ou d'une personne étroitement liée à celle-ci.
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[12] Before I address the issue in this case, I will
attempt to summarize the mechanics of the definition of “financial service” contained in section
123(1) of the ETA.
[13] In order for a supply to qualify as a financial service, the supply
needs to qualify under any one of paragraphs (a) to (m) of the
definition of “financial service”. Once it is established that it falls under
any one of these paragraphs, one must then determine whether any of paragraphs
(n) to (t) exclude the supply from the definition of “financial
service”.
[14] Paragraph
(t) of the definition provides that a service that is prima facie a
financial service will be excluded from the definition if it is a “prescribed
service”. Paragraph 4(2)(b) of the Regulations provides that “any
administrative service . . . other than solely the making of the payment or the
taking of the receipt” of any of the amounts referred to is a prescribed
service. Therefore, if a supply qualifies as an administrative service it does
not constitute a financial service and is therefore taxable.
[15] However, there are several exceptions to the
exclusion, which have the effect of re-including the supply in the definition
of financial service. The relevant exception for the purposes of this appeal is
also contained in paragraph 4 (2)(b) of the Regulations: “other than
solely the making of the payment or the taking of the receipt”. Therefore, if a
supply is an administrative service that is “solely the making of the payment or
the taking of the receipt”, it qualifies as a financial service.
[16] The appellant submits that the supplies provided by
the collection agencies constitute a “financial service” as defined in
paragraphs (a), (d), (f) and (l) of the definition
of “financial service” in subsection 123(1) of the ETA, namely:
(a) “the . . .
payment . . . receipt or transfer of money . . . by crediting or debiting
accounts or otherwise”;
(d) “the . . .
variation . . . or repayment of a financial instrument”;
(f) “the payment
or receipt of money as . . . interest, principal . . . or any similar payment
or receipt of money in respect of a financial instrument”.
(l) “arranging
for” any of the services referred to in paragraphs (a), (d) and (f);
[17] Examples of services falling under paragraph (a)
of the definition include cashing cheques, converting currency, exchanging
money and the simple debiting and crediting of accounts (see Elgin Mills
Leslie Holdings Ltd. v. Canada, [2000] G.S.T.C. 8 (TCC), and Drug
Trading Co. v. R., [2001] G.S.T.C. 48, 2001 G.T.C. 382 (TCC)). In the fact
situation here, the collection agencies do much more than just credit and debit
accounts. They do not provide the same service as a financial institution
providing credit or debit card services. The collection agencies’ services
involve finding delinquent debtors, contacting them and getting them to pay
their debts. The supply (service) is the use of their skill and ability to
collect or obtain payments.
[18] Paragraph (d) usually applies to transactions involving
financial instruments, such as those done by stockbrokers or those involved in
factoring. In the present case, it cannot be said that a financial instrument
is varied when the collection agency negotiates a settlement or accepts part
payment. Collection agencies are hired to collect the entire amount that is
owed to the bank and it is only when the collection agencies are unable to
collect the entire amount that they can negotiate a part payment or settlement.
Should a debtor fail to live up to his undertakings under the negotiated
settlement, the full amount is still recoverable. In my opinion, such a
settlement does not constitute a variation of a financial instrument. As for
the repayment of a financial instrument, that is done by the debtor and not the
collection agencies.
[19] The following opinion provided in GST/HST Interpretation
11590-5, 11590‑2, dated November 19, 2002, concerning the “GST Status of
Third Party Collection Agency Services” is very useful and apropos for a better
appreciation of the meaning of “arranging for” with respect to any of
paragraphs (a) to (i) of the definition of “financial service” in
subsection 123(1) of the ETA.
The Bank suggests that the collection
Agency/Company is "arranging for" a financial service listed in
paragraphs (a) through (i) as defined in paragraph (l) of the definition of
"financial service" in subsection 123(1) of the ETA. In our opinion,
the collection Agency/Company is not "arranging for" the supply of a
financial service referred to in paragraphs (a) to (i) of the definition of
"financial service" found in subsection 123(1) of the ETA.
The concept of "arranging
for" is clarified in our GST/HST Policy Statement P-239, "Meaning Of
The Term "Arranging For" As Provided In The Definition Of
"Financial Service" as follows:
In general, an "arranging
for" service can be described as the activities of one or more
intermediaries as "go-betweens" in bringing together two (or more)
persons for the supply of a financial service by one person to the other. There
must be a clear nexus between the activities of the intermediary and the supply
of the financial service. Whether the intermediary's service can be considered
to be a service of arranging for a supply of a financial service is a question
of fact depending on the degree of involvement of the intermediary in each
particular case.
In the present situation, the
issuance of the "debt security" (the supply of the financial service)
has already taken place. Therefore, the Agency/Company is not
"bringing" the lender and the debtor together to facilitate the
supply of the financial service. The collection on the "debt
security" does not result in the supply of a new financial instrument
rather it is a taxable, administrative service that facilitates the collection
of overdue accounts. The examples referred to in the Arranging for Policy
P-239, referenced above refer to situations where the person "arranging
for" the service is involved in the supply of the financial service such
as the completion of a loan agreement, the issuance of shares or facilitating
the completion of a credit card application. These examples indicate that to
qualify under paragraph (1) of the definition of "financial service"
in subsection 123(1) of the ETA the intermediary should be involved in the
supply of the financial service. The collection Agency/Company is not
"arranging for" the supply of a "debt security" as the
relationship between the debtor and the Bank already exists.”
[20] For the above reasons, I do not find that the services
provided by the collection agencies in the present case qualify as a “financial
service” under any of paragraphs (a) to (m) of subsection 123(1)
of the ETA.
[22] In my opinion, even if I were to agree with the appellant
that the supply provided by the collection agencies was a financial service
under any of paragraphs (a) to (m) of the definition of that term
in subsection 123(1) of the ETA, the services would be excluded from the
definition by paragraph (t), since they are prescribed services under
the Regulations.
[23] The appellant submitted that subsection 4(2) of
the Regulations does not exclude the services provided by the collection
agencies from the definition of financial service for one of two reasons.
First, the appellant submitted that the supply by the collection agencies does
not constitute an administrative service. Second, the appellant submitted that
even if the service is administrative, it constitutes “solely the making of the
payment or the taking of the receipt”.
[24] The appellant submitted in argument that a
distinction must be made between management services and administrative
services. According to the appellant, administrative services are limited to
clerical and simple administrative support, while management services include
decision making and exercising judgment. In the appellant’s opinion, the fact
that the collection agencies have the power to settle accounts, to reduce the
amount of capital and interest payable or to extend payment arrangements
signifies that they are providing more than just administrative services.
[25] However, what the appellant fails to take into
consideration is the fact that even if a distinction must be made between
management services and administrative services, the collection agencies still
only provide administrative services.
[26] The evidence reveals that
the principal tasks of the
collection agencies are to verify or obtain contact information about the
debtor, send out letters advising the debtor that the account has been assigned
to a collection agency, call and write the debtor until contact is made,
persuade the debtor to make payments on the account, perform financial capacity
assessments and make recommendations with respect to settlement of debts
outside the guidelines set out in the contracts between CIBC and the collection
agencies. They also maintain a running calculation of accrued interest on the
debt, monitor the payment arrangement to make sure that payments are made,
provide weekly collection reports to CIBC, operate and maintain access systems
so that CIBC can perform remote monitoring of the status of accounts, and take
legal action with the consent of CIBC.
[27] Thus, the collection agencies implement the managerial
decision taken by Recovery, Support and Portfolio Management at CIBC. Any
decision that the collection agencies take in the process of fulfilling their
collection duties is ancillary to the collection service and does not
constitute a management decision. The collection service remains an
administrative service.
[28] Therefore, in my opinion, the services provided by the
collection agencies are administrative in nature. However, the appellant and
respondent differ in their submissions as to whether the “solely the making of
the payment or the taking of the receipt” exception applies so as to exclude
the collection agencies’ services from the definition of “prescribed services”
in the Regulations.
[29] It is worth noting that the English and French versions
of paragraph 4(2)(b) of the Regulations are not the same:
(b) any administrative service . . . other than solely the making of
the payment or the taking of the receipt.
b) « les services administratifs . . . à
l'exclusion des services ne portant que sur le paiement ou le recouvrement.
»
[Emphasis added.]
[30] The appellant submits that even if the collection
services are administrative in nature, they constitute “solely the making of
the payment or the taking of the receipt”, mainly because the French version of
the Regulations uses the word “recouvrement” which means
“collection” in English. However, the English version of the legislation uses
the word “receipt”. Since there seems to be a difference in meaning between the
two versions, the principles of interpretation regarding bilingual legislation
must be considered.
[31] The Supreme Court of Canada has had occasion to discuss
the principles of bilingual statutory interpretation in several recent cases.
In particular, in Medovarski v. Canada (Minister of Citizenship and
Immigration), 2005 SCC 51, at paragraphs 24 - 26, the Court stated the
following:
24
In interpreting bilingual statutes, the
statutory interpretation should begin with a search for the shared meaning
between the two versions: P.-A. Côté, The Interpretation of Legislation in
Canada (3rd ed. 2000), at p. 327. In Daoust, Bastarache J. held for
the Court that the interpretation of bilingual statutes is subject to a
two-part procedure.
25 First, one must apply the rules of statutory
interpretation to determine whether or not there is an apparent discordance,
and if so, whether there is a common meaning between the French and English
versions. "[W]here one of the two versions is broader than the other, the
common meaning would favour the more restricted or limited meaning": Schreiber,
at para. 56, per LeBel J. . . .
Given the conflict between the two provisions [in
question in Schreiber] the Court adopted the clearer and more
restrictive French version. The common meaning is the version that is plain and
not ambiguous. If neither version is ambiguous, or if they both are, the common
meaning is normally the narrower version: Daoust, at paras. 28-29.
26
Second, one must determine if the
common meaning is consistent with Parliament's intent: Daoust, at para.
30.
[32] When bilingual legislation is being interpreted,
the shared meaning between the two versions must be sought in order to resolve
ambiguities. Usually, the shared meaning is the narrower version.
[33] In the present case, the English version of subsection 4(2) of
the Regulations uses the word “receipt”, while the French version uses the word
“recouvrement”. Thus, “receipt” is limited to the act or process of
receiving the money, while “recouvrement” (collection) includes not only
the receipt but also the process of collection of money owed. The English
version is the narrower of the two versions and is therefore the text that
establishes the shared meaning. Therefore, the activity that is to remain
exempt from taxation is the “the making of the payment or the taking of the
receipt” of money and not the actual collection of money.
[34] The appellant brought to the attention of the
Court the recent case of Royal Bank of Canada v. The Queen, 2005 TCC 802,
arguing that it supports its position. In that case, the Court found that the
supply made by RBC was the arranging for the distribution of mutual funds, with
customer service being a subordinate element of that supply, and that the
branch services were therefore not administrative services within the meaning
of section 4 of the Regulations.
[35] In the fact situation here, there is no evidence to support a finding
that the collection agencies had a non-administrative function in respect of
CIBC’s business. On the contrary, the evidence shows that CIBC had an elaborate
management structure in place and that the collection agencies operated within
well-defined and tightly controlled parameters. Management is all about being
able to control how a business is run and the collection agencies had no voice
in how CIBC ran its business.
[36] In conclusion, it is my opinion that the services provided
by the collection agencies do not qualify as a “financial service” under any of
paragraphs (a) to (m) of the definition of that term in
subsection 123(1) of the ETA. However, even if I were to conclude that the
services do constitute financial services under any of those paragraphs, they
would be excluded from the definition by paragraph (t), since they are
“prescribed services” under the Regulations. Furthermore, neither one of the
exceptions to exclusion found in paragraph 4(2)(b) and subsection 4(3)
of the Regulations applies in this case. The services provided to the appellant
are therefore taxable supplies. Accordingly, no tax was remitted by it in
error.
[37] The Respondent brought
to the attention of the Court the fact that on June 22, 2006, Bill C-13
received Royal Assent as S.C. 2006, c. 4. Section 136 of c. 4 amends the
definition of “financial service” to specifically exclude debt collection
services. The Respondent believes that the decision in this case should be
based on this enactment. However, this enactment does not change the law but
only clarifies the position of the law as it stood before the amendments. The
decision is therefore based on the law as it was written at the time of the
transactions and there is no need to have the hearing reopened or to decide
whether the amendments apply retroactively.
[38] The appeal is therefore dismissed with costs.
Signed at Edmundston, New Brunswick, this 20th day of
July 2006.
“François
Angers”
CITATION: 2006TCC336
COURT FILE NO.: 2004-1427(GST)G
STYLE OF CAUSE: La
Banque Canadienne Impériale de Commerce and Her Majesty the Queen
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: November 30, 2006
REASONS FOR JUDGMENT BY: The Honourable Justice François Angers
DATE OF JUDGMENT: July 20, 2006
APPEARANCES:
|
Counsel
for the Appellant:
|
Jacques
Bernier and
|
|
Counsel
for the Respondent:
|
Martin
Sorensen
Richard
Gobeil and
Michael
Ezri
|
COUNSEL OF RECORD:
For the Appellant:
Name: Jacques Bernier and Martin Sorensen
Firm: Bennett
Jones LLP
Toronto,
Ontario
For the Respondent: John
H. Sims, Q.C.
Deputy
Attorney General of Canada
Ottawa,
Ontario
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