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Citation: 2005TCC144
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Date: 20050217
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Docket: 2003-4248(GST)I
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BETWEEN:
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IBERO TOURS INC.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Woods J.
[1] This is an appeal by Ibero Tours
Inc. in respect of an assessment under the Excise Tax Act
for the period from September 8, 2000 to August 31, 2001. Ibero
Tours was assessed GST in the amount of $11,842.50, a penalty of
$832.11 and interest of $400.77 in respect of transportation
services that it provided to a tour company.
[2] The appellant's representative
raised the following three issues:
1) Is the assessment
invalid on procedural grounds?
2) Are the transportation
services provided by Ibero Tours during the assessment period
zero-rated?
3) Should the penalty of
$832.11 be vacated?
I. Is the assessment invalid on procedural grounds?
[3] The notice of assessment contained
the following reference to the period that was being assessed:
"(RE) ASSESSMENT PERTAINING TO: 2000-12-31 TO
2001-08-31." The parties agree that the actual period that
was assessed was from September 8, 2000 to August 31, 2001.
The representative for Ibero Tours submits that the notice of
assessment contains an error with respect to the assessment
period that is fundamental to the assessment and should
invalidate it.
[4] I do not agree with the
appellant's submission. Assuming for purpose of this analysis
that the notice of assessment does contain an error, subsection
299(4) of the Act is intended to prevent assessments from
being invalidated by errors of this type. Subsection 299(4)
reads:
(4) Assessment
deemed valid - An assessment shall, subject to being
reassessed or vacated as a result of an objection or appeal under
this Part, be deemed to be valid and binding, notwithstanding any
error, defect or omission therein or in any proceeding under this
Part relating thereto.
[5] According to the case authorities,
subsection 299(4) is not a complete bar to invalidating an
assessment on procedural grounds but an assessment is not
invalidated unless the error has caused the taxpayer to be misled
(Friedberg v. The Queen, [2000] 2 C.T.C. 370 (F.C.A.);
Papa v. The Queen, [2000] G.S.T.C. 74 (T.C.C.) at para.
11).
[6] The appellant has not introduced
any evidence to suggest that it has been misled by the error in
the notice of assessment. I would note that it is clear from the
detailed calculation in the Minister's Reply that the actual
period assessed was from September 8, 2000 to August 31,
2001.
[7] This procedural issue was not
raised by the parties until I had asked for clarification as to
the proper assessment period during the first day of the hearing.
At that time, the appellant's representative suggested that
it was only fair to have a proper determination of GST for the
entire assessment period, September 8, 2000 to August 31, 2001.
It was only when the hearing was resumed at a later date that the
representative suggested that an error should invalidate the
assessment.
[8] In these circumstances, I see no
evidence to support a finding that the appellant has been misled
by an error on the face of the notice of assessment. Accordingly,
I would conclude that the assessment is not invalid on grounds of
fundamental error.
II. Are services zero-rated?
Facts
[9] Gina Ledesma, the president and
founder of Ibero Tours, testified on behalf of the appellant. She
stated that she incorporated Ibero Tours for the purpose of
providing airport transfer services for a United States tour
company called City Tours USA. Apparently Ms. Ledesma was
familiar with City Tours because she had previously worked with
them as a tour guide.
[10] Under a verbal contract with City
Tours, Ibero Tours picks up its Spanish and Portuguese speaking
customers at the Toronto airport and arranges van or bus
transport for them to various local hotels. Ibero Tours
does not own the vans or buses that are used but contracts for
their use. Ibero Tours is paid directly by City Tours for these
services and it is this charge that is the subject of this
appeal.
[11] Ms. Ledesma described her specific
duties in the following manner. Customers are met at the
Torontoairport. They are identified by a list of passengers that
City Tours provides to Ms. Ledesma and she verifies this
information by a "voucher" that customers show to her.
Ms. Ledesma does not keep the "vouchers" because the customers
need them throughout their tours. The customers are then
transported by van or bus to various local hotels and Ms. Ledesma
provides a list of the passengers to reception clerks at the
hotels. That is the end of her duties. Occasionally Ibero
Tours transported customers who were late for their tours to a
hotel in Niagara Falls but this did not happen very often.
[12] Although Ms. Ledesma's testimony
clearly set out the operations of Ibero Tours, she provided
little information regarding the tours offered by City Tours.
It appears that City Tours sells multi-city bus excursions
and that customers purchase air transportation separately.
The airport transfer provided by Ibero Tours presumably is either
included in the tour package or otherwise purchased through City
Tours.
[13] Throughout the assessment period, GST
was not collected by Ibero Tours from City Tours and the Minister
of National Revenue accordingly assessed Ibero Tours for GST,
interest and penalties.
Analysis
[14] Ibero Tours takes the position that its
services are zero-rated supplies and therefore are exempt from
tax under subsection 165(3) of the Act. Zero-rated
supplies, as defined in subsection 123(1), are listed in Schedule
VI of the Act. Ibero Tours takes the position that its
services are zero-rated under Part VII (Transportation Services)
of Schedule VI.
[15] The appellant did not make any
submissions regarding Part VI (Travel Services) of Schedule VI,
which zero-rates certain supplies provided as part of tour
packages. I do not propose to analyze Part VI in detail, but I
would note that the services provided by Ibero Tours appear not
to be zero-rated under this provision. Specifically, it appears
that Part VI does not include domestic transportation that is
provided as part of a tour package. This describes the services
provided by Ibero Tours.
[16] I turn now to Part VII (Transportation
Services) of Schedule VI which is the provision that the
appellant relies on. The relevant provisions, sections 2 and 3,
apply to supplies of passenger transportation services. Section 2
is entitled "International travel with no air" and section 3 is
entitled "International travel including air." These
provisions, along with related definitions, are reproduced in an
appendix to these reasons.
[17] The representative of Ibero Tours
submits that section 2, which applies to international travel
with no air, applies in this case. For the reasons that follow, I
do not agree.
[18] In general, section 2 zero-rates
certain transportation services where the journey is partly
outside Canada and does not include any air transportation.
I will focus my analysis on the following three requirements in
section 2:
1) the services must be
part of a continuous journey,
2) the continuous journey
must not include transportation by air, and
3) either (a) the
origin or termination of the continuous journey must be outside
Canada, or (b) there must be a stopover outside
Canada.
[19] The terms "continuous journey,"
"stopover," "origin," and "termination" are defined in Part
VII.
[20] "Continuous journey" is
defined as a set of all transportation services provided to an
individual or group of individuals. Because the continuous
journey must not include air transportation, the services to be
considered for purposes of this section are only the
transportation services provided by City Tours (including the
services provided by Ibero Tours). The air transportation to
Toronto should not be included, nor should any other air
transportation as part of the journey.
[21] The questions to be considered for the
purposes of section 2 are whether the origin or termination of
the transportation services provided by City Tours is outside
Canada, and whether there is a stopover outside Canada.
[22] I will first consider whether the
origin or termination of the transportation services provided by
City Tours is outside Canada. The terms "origin" and
"termination" are defined in the Schedule as being, in essence,
the start or end of the continuous journey. There is no evidence
in this appeal that any of the relevant services provided by City
Tours or Ibero Tours are provided outside Canada. Therefore
the origin or termination of any continuous journey is not
outside Canada.
[23] It remains to be considered for the
purpose of section 2 whether there is a stopover outside Canada.
A "stopover" is defined in relation to a continuous journey and
it is a place of embarkation or disembarkation of a conveyance
used in the provision of the services included in the continuous
journey. Again, there is no evidence that any of the
transportation services provided by City Tours are provided
outside Canada. Accordingly, I would conclude that there is no
stopover outside Canada.
[24] For these reasons, I would conclude
that the services provided by Ibero Tours are not zero-rated
under section 2.
[25] Ibero Tours acknowledged that section
3, which applies to transportation services that include air,
does not apply to it. For the following reasons, I would
agree with that conclusion.
[26] In general, section 3 zero-rates
certain transportation services where the journey is partly
outside Canada and includes some air transportation. I will focus
my inquiry on the following three requirements of section 3:
1) the services must be
part of a continuous journey,
2) the continuous journey
must include transportation by air, and
3) either (a) the
origin or termination of the continuous journey, or (b) a
stopover in respect of the continuous journey, must be outside
Canada.
[27] In this case, it has not established
that there is a continuous journey that includes transportation
by air. The key to this analysis is the definition of
"continuous journey" and I will consider clauses
(a) and (b) of that definition separately.
[28] Clause (a) applies if there is a
single ticket or voucher for all the transportation services. The
representative for Ibero Tours acknowledged in argument that the
air transportation was not included in the same ticket or voucher
with the transportation services provided by City Tours.
Ms. Ledesma's testimony was not clear on this point but this
acknowledgement seems consistent with the overall testimony.
Accordingly, clause (a) does not apply.
[29] Clause (b) applies if all
tickets or vouchers in the continuous journey are issued by the
same supplier or agent. Ms. Ledesma stated that her
impression was that some passengers purchased all their tickets
through one travel agent. Ms. Ledesma's limited knowledge
of how the tickets were purchased is insufficient to establish
that clause (b) applies.
[30] This is sufficient to dispose of clause
(b). However, I will comment briefly on another
part of clause (b) because of the focus on it at the
hearing.
[31] In order to have a "continuous
journey" under clause (b), there must not be any
stopovers between legs for which separate tickets or vouchers are
issued. The evidence in this case falls far short of establishing
that there were no stopovers between legs for which separate
tickets or vouchers were issued. Specifically, the evidence
does not establish whether or not, or when, there were stopovers,
and also whether or not, or when, there were separate tickets or
vouchers issued for the City Tours' excursions.
[32] Ms. Ledesma testified that City Tours
issued just one voucher for the entire trip. The only vouchers
that were introduced into evidence, however, were inconsistent
with this. There were at least three vouchers entered in evidence
that provided for, and only for, an airport transfer by Ibero
Tours. Ms. Ledesma testified that she was not able to obtain any
vouchers that comprised the whole tour from the relevant
assessment period because City Tours had destroyed them in the
course of moving offices. She did not explain, however, why
vouchers could not be obtained that relate to a later period.
[33] The representative of Ibero Tours
suggests that the Crown should have the burden of establishing
the City Tours' vouchers because these were not in Ibero
Tours' possession. While there may be circumstances in which
it would be unfair to impose a burden on the taxpayer to
establish facts that are not in the taxpayer's control
(Redash Trading Inc. v. The Queen, [2004] G.S.T.C.
82 (T.C.C.)), in my view this is not such a case. Ibero Tours had
an ongoing business relationship with City Tours and could have
obtained this information from them. Indeed City Tours did
provide assistance for purposes of this appeal because Ibero
Tours introduced into evidence an affidavit from someone at City
Tours regarding the destruction of vouchers from the relevant
assessment period. Accordingly, I do not think that it is
appropriate to conclude that Ibero Tours should not have to
introduce evidence regarding ticketing and vouchers issued by
City Tours.
[34] For these reasons, I would conclude
that it has not been established that section 3 applies in this
case.
III. Penalty
[35] The final question to be determined is
whether it is proper for the Minister to impose a penalty of
$832.11. A defence of due diligence is available to avoid
the imposition of administrative penalties under the Act.
In order to take advantage of this defence, the taxpayer must
demonstrate that it took reasonable precautions to comply with
the Act (Corp. de l'Ecole Polytechnique v. The
Queen, [2004] G.S.T.C. 102 (F.C.A.)).
[36] Ms. Ledesma testified that she took
steps to determine that Ibero Tours did not have to collect GST.
She indicated that City Tours advised her that they do not
collect GST and she also stated that she had spoken to her
accountant.
[37] In my view it is far from clear from
Ms. Ledesma's brief testimony on this point that she took
reasonable steps to comply with the Act. It is not
sufficient to simply state that one consulted a professional
adviser, or a corporation in a similar type of business.
There is no indication what the nature of these consultations
were and what the basis of the advice provided by the accountant
was. A consultation with a professional adviser may constitute
due diligence but there should be detailed evidence regarding the
scope of the adviser's engagement and an explanation of why
the adviser concluded that GST was not owing. Without more
detailed information regarding the consultations that Ibero Tours
had, I cannot conclude that Ibero Tours took reasonable steps to
determine its obligations under the Act.
[38] For all these reasons, the appeal is
dismissed.
Signed at Ottawa, Canada this 17th day of February,
2005.
Woods J.
APPENDIX
Excerpts from Excise Tax Act, R.S.C. 1985, c. E-15,
Schedule VI, Part VII.
"continuous journey" of an individual or a group
of individuals means the set of all passenger transportation
services provided to the individual or group
(a) and for
which a single ticket or voucher in respect of all the services
is issued, or
(b) where 2
or more tickets or vouchers are issued in respect of 2 or more
legs of a single journey of the individual or group on which
there is no stopover between any of the legs of the journey for
which separate tickets or vouchers are issued, and all the
tickets or vouchers are issued by the same supplier or by 2 or
more suppliers through one agent acting on behalf of all the
suppliers where
(i) all such tickets are supplied
at the same time and evidence satisfactory to the Minister is
maintained by the supplier or agent that there is no stopover
between any of the legs of the journey for which separate tickets
or vouchers are issued, or
(ii) the tickets or vouchers are
issued at different times and evidence satisfactory to the
Minister is submitted by the supplier or agent that there is no
stopover between any of the legs of the journey for which
separate tickets or vouchers are issued;
"origin" means
(a)
in respect of a continuous freight movement, the place where the
first carrier that engaged in the continuous freight movement
takes possession of the property being transported, and
(b)
in respect of a continuous journey, the place where the passenger
transportation service that is included in the continuous journey
and that is first provided begins;
"stopover", in respect of a continuous journey of an
individual or a group of individuals, means any place at which
the individual or group embarks or disembarks a conveyance used
in the provision of a passenger transportation service included
in the continuous journey, for any reason other than transferring
to another conveyance or to allow for servicing or refuelling of
the conveyance;
"termination" of a continuous journey means the place
where the passenger transportation service that is included in
the continuous journey and that is last provided ends.
2. [International travel
with no air] - A supply of a passenger transportation service
that is provided to an individual or a group of individuals and
that is part of a continuous journey of the individual or group,
other than a continuous journey that includes transportation by
air, where
(a)
the origin or termination of the continuous journey is outside
Canada, or
(b)
there is a stopover outside Canada,
but not including a passenger transportation service that is
part of a continuous journey if both the origin and the
termination of the journey are in Canada and, at the time the
journey begins, the individual or group is not scheduled to be
outside Canada for an uninterrupted period of a[t] least
24 hours during the course of the journey.
3. [International travel
including air] - A supply of a passenger transportation
service that is provided to an individual or a group of
individuals and that is part of a continuous journey of the
individual or group that includes transportation by air,
where
(a)
the origin or termination of the continuous journey, or any
stopover in respect thereof, is outside the taxation area;
(b)
the origin and termination of the continuous journey, and all
stopovers in respect thereof, are outside Canada;
(c)
the origin of the continuous journey is within the taxation area,
but outside Canada; or
(d)
all places at which the individual or group embarks or disembarks
an aircraft are outside Canada and the origin or termination of
the continuous journey, or any stopover in respect thereof, is
outside Canada.
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