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Citation:2005TCC185
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Date: 20050310
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Docket: 2003-2895(GST)I
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2003-2896(GST)I
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BETWEEN:
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STEVE MORAN and THE INTERNATIONAL
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BOATERS EXCHANGE LTD.,
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Appellants,
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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
Sarchuk J.
[1] The appeal of Steve Moran (Moran)
is from an assessment dated October 8, 1999, whereby the
Minister if National Revenue assessed him for additional net tax
of $12,632.30, penalties of $1,005.56 and interest of $739.05 for
the period January 1, 1997 to December 31, 1997.
[2] The International Boaters Exchange
Ltd. (Boaters Exchange) appeals from an assessment dated
September 30, 1999, whereby the Minister assessed it for
additional net tax of $13,187.27, penalties of $517.61 and
interest of $414.81 for the period January 1, 1998 to December
31, 1998.
[3] Moran carried on business as a
sole proprietorship under the name of the Boaters Exchange. It
was incorporated as The International Boaters Exchange Ltd. and
continued to carry on the business as of January 1, 1998. Both
were involved in the selling of new marine goods on their own
behalf and used goods on behalf of other parties. The
Minister's assessment was in each case based on the premise
that the Appellants were acting as an agent in making the
supplies of goods on behalf of the owners and as a result, was
properly deemed to be making a taxable supply of the goods to
third parties and required to collect and remit goods and
services tax on the sale of the goods.
Facts
[4] Moran testified that the primary
function of the business was to bring together buyers and sellers
of marine goods. For this matching service, a fee equal to
one-third of the sale price of the goods was charged and GST was
remitted on the full amount so charged. When a seller with an
item of marine equipment for sale comes into the store, the
process was explained to him in detail. In the course of this
initial briefing, Moran would show him a copy of the standard
agreement used by the Boaters Exchange,[1] advise him of the service fee charged
and of the fact that at all times the goods remain his property.
The seller is asked if he has a price in mind with respect to the
article in issue which is considered and if the price if
unreasonable, the seller is advised to that effect and that
Boaters Exchange would not accept the gear. Moran was quite clear
that each seller sets the sale price of the goods although he
might provide some guidance on the appropriateness of the price
based on sale of similar goods or available for sale in the
store. If the seller is satisfied, a written agreement is
executed and he is given an account number which identifies him
as the seller. The goods left for sale are marked with that
seller's account number and he is advised that if he wishes
to retrieve his equipment or gear he can do so at any time with
no charge or fee.
[5] The agreement stipulates that the
seller is to keep in touch with the Boaters Exchange and he is
advised that he can call or drop by as often as he wishes. If the
seller does check, the Appellants inform him whether the goods
have been sold and will answer any questions relating to the
degree of interest in the goods. However, if the seller does not
personally attend or call during the six-month period, no
periodic reports are made. The Appellants display the goods for
up to six months at which time if the goods have not been sold,
there is usually a discussion regarding a reduction in the
proposed sale price. Moran conceded that the agreement which must
be signed before the owner is permitted to display his goods at
the store provides for a 10% leeway on the price and as such, it
is open to the Appellants to sell the goods for less than the
posted price. Moran added that there have been occasions where a
seller chose not to permit the 10% discount and that clause was
struck from the contract.
[6] When the goods are sold, the
Appellants give a purchase receipt to the buyer[2] and a cash payment receipt to
the seller.[3] Both
receipts have the name, The Boaters Exchange, and its address and
telephone number stamped at the top. The buyer's receipt
contains the seller's account number, but not his name, and
it is not signed by the seller. Furthermore, he is not provided
with a copy of the buyer's receipt which the Appellants keep
on file. The seller's receipt contains a customer number that
corresponds to the "individual who owns the property".
As a rule this is the only receipt the seller will receive. A
further document referred to as a "Payout Sheet" is
also created and is kept on file by the Appellants for accounting
purposes. Both this document and the copy of the buyer's
receipt would be made available to the seller if he asked for it.
In most instances, the seller was a non-GST registrant and the
Appellants collect GST only with respect to the service fee they
charged. On the odd occasion when the seller was a GST registrant
the Appellants charged GST on the full sale price of the
goods.
[7] Moran made specific reference to
the fact that the Appellants are not liable for any damage that
occurs to the goods while they are in their possession.
Furthermore, the goods are not insured, are held in the store at
the seller's risk, and are not included in the Appellants'
inventories. No guarantees are provided to the buyers with
respect to the goods but the Appellants did allow five days
within which to return them for a refund. That, he said, arises
out of the fact that when the seller brings a piece of equipment
in, he is asked about its age and whether it is functional. The
five-day grace period permits the buyer to make sure it does work
and if not, the property is to be returned. Moran was quite clear
in that in this context, he was "at the mercy of the seller.
If the seller says this sounder is working, I don't have the
facility to test it. So we give the buyer a chance, five days, to
make sure it does work. So I can't guarantee it works or
doesn't". The upshot is that if the item is returned the
amount paid is refunded to the purchaser and the seller is
contacted and advised of the situation. In the event that the
goods are returned, they are sent back to the seller and the
Appellants do not attempt to fix or make other use of the
goods.
Appellants' submissions
[8] Counsel for the Appellants made
reference to the following definition of agency:
"agency is the relationship that exists between two
persons when one, called the agent, is considered in law to
represent the other, called the principal, in such a way as to
affect the principal's legal position in respect of strangers
to the relationship by the making of contracts or the disposition
of property".[4]
and observed that Fridman made clear that agency is not a
simple term and relates to a very complicated relationship and to
any number of different types of agency. The one characteristic
that must exist is that an agent has the authority or capacity to
create legal relations between another person and a third party.
Furthermore, there is no agency relationship unless there is an
agreement between the parties as a result of which the principal
confers upon the agent the right to affect this legal
relationship. Applying these propositions to the evidence,
counsel argued that the Appellants had no ability to affect a
legal relationship with the principal. They merely display the
goods and effectively do no more than provide counter space
within The Boaters Exchange. Although Moran does facilitate the
transaction, it is the seller that sets the terms in each
instance, but if the seller's price is not met, the
Appellants had no authority whatsoever to bind the seller to a
transaction outside of the scope of their instructions. Counsel
further noted that the Appellants do not and cannot insure the
goods nor do they account for them in their inventories. The
agreement with the owner is subject to amendment and although the
Appellants can provide some guidance, the decision rests with the
seller. They do not fix, repair or improve the goods and it is
the seller who bears all the risks. Thus, section 177 of the
Excise Tax Act does not apply and indeed was not intended
to apply to a broker who provides a facility in which others can
buy and sell goods as was the case in these appeals.
[9] With respect to the decision in
Caravane Taschereau Inc. v. Canada,[5]counsel argued that it
was readily distinguishable on its facts. Unlike the present
case, Caravane Taschereau had a different degree of
involvement in the making of the transaction. Here the Appellants
maintain that, unlike the company in Caravane Taschereau,
they are an exchange agent and their role is closer to that of
broker than of agency. Counsel further noted that in the decision
of Dick Irwin Group Ltd. v. Canada[6] referred to by the
Respondent, the Court had discussed the nature of the transaction
and the person making the supply on behalf of the principal in
the following words:
"that is not what a broker does, nor is it what the
Appellant did in this case. The Appellant could accept an offer
for the exact terms of the listing, but such an offer need not
even be accepted. Rather, in such a case, the listing principal
is making a general offer which the purchaser merely
accepts".
Counsel contends this is precisely what happens in this case,
i.e. the seller in setting a price makes an offer to the world
generally and, more specifically, to the buyers coming to the
Boaters Exchange. As well in the present case, the buyer does not
make an offer but rather accepts the seller's offer. Thus the
Appellants could not be said to be accepting the buyer's
offer on behalf of the seller. If a different price is desired,
the buyer and seller negotiate directly and they are brought
together by the Appellants. With respect to the remaining factors
that indicate agency referred to by counsel for the Respondent,
the Appellants maintain that none existed in the present
case.
Respondent's submissions
[10] Counsel for the Respondent made
reference to the Canada Revenue Agency policy statement with
respect to the meaning of agency and noted that the essential
aspects to be considered are:
(a) the existence of consent of
both the principal and the agent;
(b) the authority of the agent to
effect the principal's legal position; and
(c) the principal's control of the
agent's actions.
Certain factors set out the essential qualities of agency. In
particular, these include: the consent of both parties; the
authority of the agent to effect the other party's legal
position; the other party's control of the person's
actions; the assumption of risk; accounting practices; efforts;
the alteration of property acquired; the use of property or
service; and the ownership of property. Counsel observed that
these principles were accepted by the Court in Glengarry Bingo
Assn. v. R.[7] and a test for agency that included
consent, authority and control was adopted. Consent exists where
the other party agreed to have the person act as his agent. In
the present case, the sales were made pursuant to an agreement
between the Appellants and the seller. There is no issue that the
sales were carried out through the Boaters Exchange. The
authority for that is found in the agreement which essentially
permits the Appellants "to sell my goods" and sets out
the parameters within which that sale can be made. That authority
further indicates that if you have an offer that is beyond the
parameters agreed to, the goods may not be sold. Counsel observed
that the Appellants at all times had control of the goods as they
were kept at the shop and the sales were conducted there. In
assigning goods to the premises, the seller has given his
authority to sell and the Appellants have agreed to accept the
goods and effect the sale. Thus according to counsel, control is
found in the authorizations under the agreement which clearly
sets out the rules that each party must follow with respect to
the sale of the goods.
[11] It is the Respondent's position
that the Dick Irwin case referred to by counsel for the
Appellants is distinguishable on its facts. There, the owners
retained authority to accept and reject any amount including the
list price. As well, the boats were usually left at the
owner's slip and not at a central marina, a fact which
affects the application of section 177. Furthermore, the broker
had never signed any sales agreement on behalf of the owners.
These facts are all in direct contrast to the evidence adduced by
the Appellants which, inter alia, established that the
goods were kept at the Boaters Exchange premises under the
Appellants' control and where an agreement had been signed
between the parties allowing the Appellants to effect a legal
relationship. All of the foregoing as well as the accounting
practices utilized by the Appellants clearly establish that they
were effecting a sale on behalf of third parties which is
consistent with an agency relationship.
Issue
[12] The sole issue before the Court,
pertaining to both Appellants, is whether each acted as agent for
the other parties in making the supplies of the used goods and is
therefore liable for additional taxes. The provisions of the
Excise Tax Act relevant to these appeals are as
follows:
123(1) In section 121, this Part and Schedules V to
X,
"supply" means, subject to sections 133 and 134, the
provision of property or a service in any manner, including sale,
transfer, barter, exchange, license, rental, lease, gift or
disposition.
165(1) Subject to this Part, every recipient of a
taxable supply made in Canada shall pay to Her Majesty in right
of Canada tax in respect of the supply calculated at the rate of
7% on the value of the consideration for the supply.
177(1) Where
(a) a person
(in this subsection referred to as the
"principal")makes a supply (other than by exempt or
zero-rated supply) of tangible personal property to a recipient
(otherwise than by auction),
(b) the
principal is not required to collect tax in respect of the supply
except as provided in this subsection, and
(c) a
registrant (in this subsection referred to as the
"agent"), in the course of a commercial activity of the
agent, acts as agent in making the supply on behalf of the
principal,
the following rules apply:
(d) ...
(e) in any
other case, the supply of the property to the recipient is
deemed, for the purposes of this part, to be a taxable supply
made by the agent and not by the principal and the agent is
deemed, for the purpose of the is Part other than section 180,
not to have made a supply to the principal of services relating
to the supply of the property to the recipient.
[13] Counsel for the Appellants made
specific reference to and relied on the decision in the Dick
Irwin case. However, that decision provides little assistance
to the Appellants. I make specific reference to the following
comments of Beaubier J.
11 In this case the
Appellant is a broker. A broker is a restricted form of agency.
In The Law of Agency, 7th Ed. Butterworths, Toronto, 1996,
G.H.L. Fridman, Q.C. described a broker as follows:
Brokers. Brokers, like factors, are mercantile agents. There
is, however, a distinction between these classes of agents in
that brokers are agents who are not given possession of goods or
documents of title. A broker is:
'an agent employed to make bargains and contracts between
persons in matters of trade commerce and navigation. Properly
speaking, a broker is a mere negotiator between other parties ...
He himself... has no possession of the goods, no power actual or
legal of determining the destination of the goods, no power or
authority to determine whether the goods belong to buyer or
seller or either'.
He is not entrusted with the possession of the goods he sells.
...
...
14 All of these
exceptions to an agency are as envisioned by Section 177 to take
the Appellant outside of the Section. That is so because the
Section envisages the Appellant to receive payment for the supply
so as to pay the tax. That is perfectly logical respecting an
agent who has possession of the goods and receives the payment of
consideration for the sale of goods. It is not logical respecting
a broker such as the Appellant who is not "instructed"
to fix terms, to have possession, to receive payment for, and to
execute a transfer of the goods, which is what a fully qualified
"agent" could and would do. That is the kind of agent
envisaged by Section 177. In other words, a broker is not an
agent within the meaning of paragraph 177(1)(c), because he does
not make a supply.
(Emphasis added)
[14] As was the case in Caravane
Taschereau, the Appellants in this case received the
exclusive right to sell the goods in issue until such time as the
owner thereof repossessed it. Furthermore, the Appellants'
argument falls short because they were not merely putting a buyer
and a seller together and collecting a commission, rather in each
case, they were able to, and did, complete a sale on their own
without obtaining any approval from the owner. To succeed in the
present case, the Appellants would have to establish that each
sale had taken place directly by the seller to the buyer. In our
particular case, however, invoices demonstrate that in each
instance there was a consignment contract signed by the owner
which clearly gave the Appellants the right to sell the goods as
agents of the owner and that in fact, in each case it was the
Appellants who sold the respective property to the buyer.
[15] In Glengarry Bingo, the Federal
Court of Appeal stated:
31 ... Although
not determinative of the meaning of "agency" in
section 178, the draft policy statement P-182 referred to,
although not binding, is a useful tool in determining whether an
agency relationship exists.
32 P-182 identifies
three essential qualities of agency. These are the consent of
both the principal and agent, the authority of the agent to
affect the principal's legal position and the principal's control
of the agent's action. ...
33 The most common
example of how an agent might affect the legal position of its
principal is by entering a contract on the principal's behalf.
...
This is precisely what occurred in these appeals. The evidence
is clear that the Appellants had possession of the goods,
received payment therefor, executed a transfer of the goods, all
acts that a fully qualified agent would normally do. Accordingly,
I have concluded that the Appellants acted as agents in making
the supplies of goods on behalf of the owners and their appeals
are dismissed.
Signed at Ottawa, Canada, this 10th day of March, 2005.
Sarchuk J.
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