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Citation: 2004TCC709
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Date: 20041027
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Dockets: 2001-3392(GST)G
2001-4061(GST)G
2002-345(GST)G
2002-1843(GST)G
2002-1845(GST)G
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BETWEEN:
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LES CENTRES JEUNESSE DES LAURENTIDES,
CENTRE JEUNESSE DE L'ESTRIE,
LES CENTRES JEUNESSE DE LA MONTÉRÉGIE,
CENTRE JEUNESSE DE L'ABITIBI TÉMISCAMINGUE,
CENTRE JEUNESSE GASPÉSIE/LES ÎLES,
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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
Lamarre J.
[1] These
are appeals from the assessments established by the Minister of National
Revenue (“Minister”) under sections 174 and 259 of the Excise Tax Act
(“ETA”) through which the Appellants were denied a partial rebate of a
tax deemed paid, according to them, on the allowance they paid to foster
families taking charge of children in difficulty, under the Act respecting
health and social services, R.S.Q., c. S‑4.2 (“AHSS”) and the related
Regulation, R.R.Q. c. S‑4.2, r. 0.001 (“Regulation”).
[2] Section 174
of the ETA provides that a charity that pays an allowance to a volunteer for
supplies all or substantially all of which are taxable supplies of property or
services acquired in Canada by the volunteer in relation to
activities engaged in by the charity is deemed to have received a supply of the
property or service. Also, under the same conditions, any consumption or use of
the property or service by the volunteer is deemed to be consumption or use by
the charity and not by the volunteer, and the charity is also deemed to have
paid, at the time the allowance is paid, tax in respect of the supply on a
percentage of the allowance. Subsection 259(3) of the ETA provides that a
charity can claim partial rebate of the non-creditable tax charged in respect
of property or a service.
[3] It
is under those two provisions of the ETA that the Appellants (which are
charities within the meaning of the ETA) are claiming a partial rebate of the
tax, which they say they are deemed to have paid, on the portion of the
allowance paid to foster families (who are volunteers within the meaning of the
ETA) and which was related to the taxable supplies acquired with that
allowance.
[4] Those
provisions of the ETA read as follows:
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174. Travel and other
allowances — For the purposes of this Part, where
(a) a person
pays an allowance
(i) to an employee of
the person,
(ii) where the person
is a partnership, to a member of the partnership, or
(iii) where the person
is a charity or a public institution, to a volunteer who gives services to
the charity or institution
for
(iv) supplies all or
substantially all of which are taxable supplies (other than zero‑rated
supplies) of property or services acquired in Canada by the employee, member
or volunteer in relation to activities engaged in by the person, or
(v) the use in Canada, in relation to
activities engaged in by the person, of a motor vehicle,
(b) an amount
in respect of the allowance is deductible in computing the income of the
person for a taxation year of the person for the purposes of the Income
Tax Act, or would have been so deductible if the person were a taxpayer
under that Act and the activity were a business,
(c) in the case
of an allowance to which subparagraph 6(1)(b)(v), (vi), (vii) or
(vii.1) of that Act would apply
(i) if the allowance
were a reasonable allowance for the purposes of that subparagraph, and
(ii) where the person
is a partnership and the allowance is paid to a member of the partnership, if
the member were an employee of the partnership, or, where the person is a
charity or a public institution and the allowance is paid to a volunteer, if
the volunteer were an employee of the charity or institution,
the person considered,
at the time the allowance was paid, that the allowance would be a reasonable
allowance for those purposes and it is reasonable for the person to have
considered, at that time, that the allowance would be a reasonable allowance
for those purposes,
the following rules apply:
(d) the person
is deemed to have received a supply of the property or service,
(e) any
consumption or use of the property or service by the employee, member or
volunteer is deemed to be consumption or use by the person and not by the
employee, member or volunteer, and
(f) the person
is deemed to have paid, at the time the allowance is paid, tax in respect of
the supply equal to the amount determined by the formula
A x B
where
A is the amount of the
allowance, and
B is
(i) 15/115 where
(A) all or
substantially all of the supplies for which the allowance is paid were made
in participating provinces, or
(B) the allowance is
paid for the use of the motor vehicle in participating provinces, and
(ii) in any other
case, 7/107.
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174. Indemnités pour déplacement
et autres — Pour l'application de la présente partie, une personne est
réputée avoir reçu la fourniture d'un bien ou d'un service dans le cas où, à
la fois :
a) la personne verse une
indemnité à l'un de ses salariés, à l'un de ses associés si elle est une
société de personnes ou à l'un de ses bénévoles si elle est un organisme de
bienfaisance ou une institution publique :
(i) soit pour des
fournitures dont la totalité, ou presque, sont des fournitures taxables, sauf
des fournitures détaxées, de biens ou de services que le salarié, l'associé
ou le bénévole a acquis au Canada relativement à des activités qu'elle
exerce,
(ii) soit pour
utilisation au Canada d'un véhicule à moteur relativement à des activités
qu'elle exerce;
b) un montant au titre de
l'indemnité est déductible dans le calcul du revenu de la personne pour une
année d'imposition en application de la Loi de l'impôt sur le revenu,
ou le serait si elle était un contribuable aux termes de cette loi et
l'activité, une entreprise;
c) lorsque l'indemnité
constitue une allocation à laquelle les sous-alinéas 6(1)b)(v), (vi),
(vii) ou (vii.1) de la Loi de l'impôt sur le revenu s'appliqueraient
si l'indemnité était une allocation raisonnable aux fins de ces sous-alinéas,
les conditions suivantes sont remplies :
(i) dans le cas où la
personne est une société de personnes et où l'indemnité est versée à l'un de
ses associés, ces sous-alinéas s'appliqueraient si l'associé était un salarié
de la société,
(ii) si la personne est
un organisme de bienfaisance ou une institution publique et que l'indemnité
est versée à l'un de ses bénévoles, ces sous-alinéas s'appliqueraient si le
bénévole était un salarié de la personne,
(iii) la personne
considère, au moment du versement de l'indemnité, que celle-ci est une
allocation raisonnable aux fins de ces sous-alinéas,
(iv) il est raisonnable
que la personne l'ait considérée ainsi à ce moment.
De plus :
d) toute consommation ou
utilisation du bien ou du service par le salarié, l'associé ou le bénévole
est réputée effectuée par la personne et non par l'un de ceux-ci;
e) la personne est réputée
avoir payé, au moment du versement de l'indemnité et relativement à la
fourniture, une taxe égale au résultat du calcul suivant :
A x B
où
A représente le montant
de l'indemnité,
B :
(i) 15/115 si, selon le
cas :
(A) la totalité, ou
presque, des fournitures relativement auxquelles l'indemnité est versée ont
été effectuées dans les provinces participantes,
(B) l'indemnité est
versée en vue de l'utilisation du véhicule à moteur dans les provinces participantes,
(ii) dans les autres cas,
7/107.
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259(3) Rebate for persons other
than designated municipalities [Public service body rebate] — Where a
person (other than a listed financial institution, a registrant prescribed
for the purposes of subsection 188(5) and a person designated to be a
municipality for the purposes of this section) is, on the last day of a claim
period of the person or of the person's fiscal year that includes that claim
period, a selected public service body, charity or qualifying non‑profit
organization, the Minister shall, subject to subsections (4.1), (4.2) and
(5), pay a rebate to the person equal to the prescribed percentage of the non‑creditable
tax charged in respect of property or a service (other than a prescribed
property or service) for the claim period.
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259(3) Remboursement aux
personnes autres que des municipalités désignées — Sous réserve des
paragraphes (4.1), (4.2) et (5), le ministre rembourse la personne (sauf
une personne désignée comme municipalité pour l'application du présent
article, un inscrit visé par règlement pris en application du
paragraphe 188(5) ou une institution financière désignée) qui, le
dernier jour de sa période de demande ou de son exercice qui comprend cette
période, est un organisme de bienfaisance ou un organisme à but non lucratif
admissible. Le montant remboursable est égal au pourcentage réglementaire de
la taxe exigée non admise au crédit relativement à un bien ou à un service,
sauf un bien ou un service visés par règlement, pour la période de demande.
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Issue
[5] The
only issue is whether the allowance paid by the Appellants to the foster
families meets the criterion of section 174 of the ETA, namely, whether the
allowance in question was paid to the foster families for supplies all or
substantially all of which are taxable supplies of property or services
acquired in Canada by the volunteer in relation to activities engaged in by the
Appellants.
Facts
[6] Before
more clearly explaining the issue raised by the parties in the case at bar, it
is useful at this stage to explain the Appellants’ roles. They are responsible,
under the AHSS, for using the services of family-type resources such as foster
families, to place children who are in difficulty. The Appellants receive a
grant from the provincial government for their operation and pay, with that
grant, basic compensation to the foster families. That basic compensation is
set by Quebec’s Ministère de la Santé et des Services
Sociaux based on the classification of services offered by the foster families
and the rates of compensation applicable to each type of service. The
classification of services offered by foster families is itself based on the
degree of support and assistance required by the children. Thus, foster
families are entitled, for the services they offer, to a daily basic
compensation set by regulation and which varies depending on the age of the
children (see sections 303, 304 and 314 of the AHSS and section 4 of the
Regulation). To be entitled to that basic compensation, the foster family must
have obtained the placement of the child or children and must indicate the
number of days in the month where the child (or children) are present in the
foster family. Other than that information, no vouchers are required.
[7] Section
6 of the Regulation provides that foster families may also be entitled, in
addition to the basic compensation, to special compensation to help maintain
and foster the quality of services offered to the children. However, that
special compensation requires prior authorization and the presentation of
vouchers. Thus, for example, a foster family is entitled to special
compensation for the purchase of clothing for the child, based on the child’s
age, as established in section 19 of the Regulation. Similarly, the foster family
may be entitled to a reimbursement of costs related to the child’s sports and
cultural activities, education, bussing or other expense set out in the
Regulation (section 20 et seq. of the Regulation).
[8] At
the hearing, Richard Caron, director of financial and technical resources and
chief accountant of one of the Appellants, Les centres de jeunesse des
Laurentides, referred to the Interpretation Guide Respecting the Contract, its
General Rules and Appendices: Foster Families (“Guide”), prepared by the
Ministère de la Santé et des Services Sociaux in collaboration with various
organizations including the Association des centres de services sociaux du
Québec and the Fédération des familles d'accueil du Québec (Exhibit A‑1,
Tab 2). The preamble indicates that the Guide is designed to ensure that
contracts between a foster family taking charge of children and a social
service centre are uniformly applied.
[9] With
respect to the allowances for compensation granted to foster families taking
charge of children, the Guide indicates that the social services centres will
ensure that the basic compensation (called the basic scale in the Guide) is
used to help cover certain expenses. Accordingly, it is suggested in the Guide
that a percentage of the basic scale paid to foster families with respect to
child beneficiaries be applied to various expenses for clothing, recreational
activities, spending money, education and transportation. It is also indicated
that it is incumbent on each social service centre to inform the foster
families in their territory of the amounts to be allocated, according to the
basic scale paid, to the different categories of expenses mentioned above. It
is even suggested that those amounts be recorded on compensation cheque stubs.
When another method of payment is used, frequent reminders of the recommended
use is suggested. However, in the Guide it is recognized that foster families
must be informed that the amounts indicated with regard to various types of
expenses are provided as “an indication only and must not be construed as
rights or obligations.” (see the Interpretation Guide, Exhibit A-1, Tab 2,
Basic Scale Pertaining to Children: suggested percentages to be allocated to
certain support measures (“basic scale”), p. 1).
[10] Therefore, according to the basic scale, it is suggested that families
devote 18% to clothing for children up to the age of 4 and 15% for children
between the ages of 5 and 18. For recreational activities and spending money,
it is suggested that 4% of the basic scale be allocated for children up to the
age of 4 and 7% for children between the ages of 5 and 17. The Guide also sets
out a percentage to be devoted to education. Finally, the Guide states that a
provincial table indicating the amounts to be devoted to different categories
of expenses is sent to the social services centres each time the basic scales
are indexed. The application of the suggested percentages to the basic scale in
January 1999 was submitted into evidence under Exhibit R-1, Tab 4, page 4. I understand
that the social service centres send this indexed document to the foster
families. Those percentages correspond to those suggested in the Guide.
[11] During his testimony, Richard Caron explained that those percentages
were only suggestions and that the foster families could not be required to
follow that scale. No receipts are required to verify whether the foster
families spent the basic compensation on the types of expenses suggested in the
proportion recommended in the basic scale. Mr. Caron said that the youth
centres (which are, as I understand, social service centres within the meaning
of the AHSS) do not control the foster families’ spending but assume that the
basic compensation is used wisely.
[12] Furthermore, a report submitted in May 2000 to the Quebec Minister for
Health, Social Services and Youth Protection by a working group on the policy
for placements in foster families, and which analyzed the policy for placements
in family-type resources (“Cloutier Report”) was submitted into evidence as
Exhibit A-2. At page 71 of the Report, it is indicated that, out of the
basic compensation, the foster family should set aside a certain amount for
clothing, recreational activities, spending money and education, those amounts
varying depending on the age of the children. It is also indicated that those
different amounts set aside correspond to what is generally called an “itemized
scale.” In the Report, it is noted that once those budgetary items are taken
care of, the balance of the basic compensation is normally used to pay the
costs incurred by the foster family to feed, wash and house the children, as
well as for expenses related to the child’s integration into the normal family
life and thereby avoiding his or her exclusion through, for example, outings to
the cinema, restaurants, public transportation and Christmas and birthday
presents. The Report indicates that foster families taking charge of children
are the only ones that pay the costs associated with the itemized scale out of
their basic compensation. In the case of foster families taking charge of
elderly persons or adults with a physical or intellectual disability, the costs
associated with the itemized scale are not attributed to the basic scale but
covered by independent budgets. The Cloutier Report refers to an iniquity that
must be corrected. Accordingly, at page 72, the Report recommends that the
Ministère de la Santé et des Services Sociaux unblock the necessary funds so
that the costs associated with the itemized scale can be covered by a budget
independent of the basic scale given to the foster family.
Development of
the issue
[13] Counsel for the Appellants maintains that the basic compensation paid
to the foster families must be subdivided into several distinct categories based
on the percentage of the basic scale allocated to each of the suggested
expenses. In his view, although the basic compensation is paid to the foster
families in a single monthly payment, it must be kept in mind that in reality
the Appellants do not pay only one allowance to the foster families but rather
several allowances under the AHSS. If that is the case, the percentage of the
basic scale allocated to clothing, recreational activities and spending money
would constitute a separate allowance for each type of expense. Thus, each
allowance paid to the foster families for supplies all or substantially all of
which are taxable supplies within the meaning of section 174 of the ETA would
make the Appellants entitled to a partial rebate of the tax paid by the foster
families on those taxable supplies (clothing, recreational activities and
spending money).
[14] Counsel for the Respondent feels that the basic allowance paid to the
foster families is not divisible. It is not a question of several allowances but
rather just one. Consequently, since, according to the evidence, the percentage
of the basic allowance to be allocated to the taxable supplies (clothing,
recreational activities and spending money) only represents 22% of the basic
allowance during the periods in question, it cannot be said that the basic
allowance was used to acquire supplies all or substantially all of which are
taxable supplies of property or services within the meaning of section 174 of
the ETA. As one of the criterion of section 174 was not met, counsel for the
Respondent maintains that the Appellants cannot be deemed to have paid the tax
on the part of the allowance to be allocated to the taxable supplies in
question and they are therefore not eligible for the partial rebate of the tax
under section 259 of the ETA.
[15] The parties agree that the only issue is whether the basic allowance
is divisible and whether it can be deemed that the Appellants paid several
allowances instead of just one to the foster families.
Parties’ arguments
[16] In support of his argument that the Appellants paid several allowances
and not just one, counsel for the Appellants refers to the analysis of the word
“allowance” in Gagnon v. The Queen, [1986] 1 S.C.R. 264. It should be
noted that the term “allowance” is used in the English version of section 174
while the word “indemnité” is used in the French version. In Gagnon, the
Court defined the term “allowance” within the meaning of paragraph 60(b)
of the Income Tax Act (“ITA”) or “allocation” in the French version. The
Supreme Court of Canada summarized the requirements of paragraph 60(b)
as follows in paragraph 4:
4 This provision thus makes the
deduction authorized by it subject to four conditions. First, the amount paid
by the taxpayer has to be paid pursuant to a decree, order or judgment of a
competent tribunal or pursuant to a written agreement. Second, the amount paid
has to be paid as alimony or other allowance payable for the maintenance of the
recipient, children of the marriage or both the recipient and children of the
marriage. Third, the amount has to be paid on a periodic basis. Fourth, at the
time the payment was made and throughout the remainder of the year, the
taxpayer had to be living apart from, and be separated pursuant to a divorce,
judicial separation or written separation agreement from, his spouse or former
spouse to whom he was required to make the payment.
[17] The Supreme Court of Canada then analyzed the term “allowance”
(“allocation” in French) at paragraphs 21 to 23, 26 to 30 and 38 as follows:
VI--Definition of
"allowance"
21 According to the definition in Pascoe, for a sum of money to be regarded as an
"allowance" it must meet three conditions: (1) the amount must be
limited and predetermined; (2) the amount must be paid to enable the recipient
to discharge a certain type of expense; (3) the amount must be at the complete
disposition of the recipient, who is not required to account for it to anyone.
22 The first two conditions may be
understood by inference from s. 60(b) of the Income Tax Act. The
amount must be limited and predetermined in accordance with the judgment, order
or written agreement setting it. It must be paid to enable the recipient to
discharge a certain type of expense, namely an expense incurred for the maintenance
of the recipient.
23 But what is the reason for the Pascoe judgment imposing the third condition,
which clearly cannot be inferred from s. 60(b)?
...
26 It is important to specify what is
meant in requiring that, to be an allowance, an amount must be "at the
complete disposition of the recipient".
27 According to Pascoe, this condition means that the recipient
must be able to apply this amount to certain types of expense, but at her
discretion and without being required to account for it.
28 However, the condition could also
mean that the recipient must be able to dispose of the amount completely, and
that, provided she benefits from it, it is not relevant that she has to account
for it and that she cannot apply it to certain types of expense at her complete
discretion.
29 It seems to me, with respect, that
the second interpretation is the correct one, in light of the earlier decisions
which Pascoe appears to have misinterpreted.
30 What matters is not the way in
which a taxpayer may dispose of, or be required to dispose of, the amounts he
receives, but rather the fact of whether he can dispose of them or not.
...
38 Seen in this context, the third
condition imposed by Pascoe must be corrected: for an amount to be an allowance
within the meaning of s. 60(b) of the Income Tax Act, the
recipient must be able to dispose of it completely for his own benefit,
regardless of the restrictions imposed on him as to the way in which he
disposes of it and benefits from it.
[18] Counsel for the Appellants feels that the percentage of the basic
scale to be allocated to the taxable supplies (clothing, recreational
activities and spending money) meets the requirements cited by the Supreme
Court of Canada in Gagnon to be considered an allowance (“allocation”).
In fact, he says that the percentage of the basic scale (1) is limited and
predetermined; (2) is paid to enable foster families to
discharge a certain type of expense; and (3) the foster families are able to
dispose of it completely for their own benefit, regardless of the restrictions
imposed on them as to the way in which they dispose of it and benefit from it.
[19] Furthermore, counsel for the Appellants also referred to the GST
Policy Statement P-075, Allowances and Reimbursements, on the meaning of the
term “allowance” for the purposes of section 174 of the ETA. That Policy
Statement is cited in an administrative decision rendered by the Direction des
lois sur les taxes, le recouvrement et l’administration [translation] (Administrative Decision
00-0109892 – Allowances for monthly expenses – Employees assigned to projects
outside their regular place of work, dated March 29, 2001, which can be found
in Tab 6 of the Appellants’ book of authorities). That administrative decision
indicates that, according to the Policy Statement P-075, an allowance paid by
an employer to the employee must include the following characteristics: it must
be a predetermined amount and it must be paid to enable
the employee to discharge a certain type of expense. The administrative
decision also indicates that in order to establish if an amount was
predetermined for a certain type of expense in particular, it is necessary to
refer to the employer’s administrative documents (policy on allowances,
memorandums, etc.). In the specific case submitted for review in the
abovementioned administrative decision, the following is stated:
[translation]
Our understanding of the facts are
as follows. A company (“the Registrant”) pays expense allowances to its
employees assigned to projects outside their regular place of work. In that
regard, the amounts are determined by the Registrant to cover, during a given
period which is normally one month, three types of expenses, namely,
accommodation, transportation and meals. The transportation part of the
allowance is determined based on the number of kilometres between the
employee’s regular place of work and his or her assignment. As the
accommodations are rented for several months, the rental of those
accommodations is generally an exempt supply. The meals paid by the Registrant
are the meals taken in restaurants while the employee is outside the regular
place of work. All employees assigned to a given project receive the same
allowances, as long as the assignment period is the same.
To obtain an allowance, the
employee must produce an expense report. In most cases, when they fill out the
report the employees only indicate a total amount that covers all of the costs
for accommodations, transportation and meals.
...
You asked
us the following:
h when the employee only
indicates a single total amount on his or her expense report for an “assignment
allowance,” should it be considered that, for the purposes of section 174
of the federal Act and section 211 of the Act, the Registrant only paid
one allowance rather than three separate allowances for meals, accommodations
and transportation?
h if only one “assignment
allowance” was paid to cover the three types of expenses (meal, accommodation,
transportation), could the Registrant obtain ITCs and ITRs with regard to that
allowance?
...
Thus, in response to your first
question, it is our view that although the expense report produced by an
employee of the Registrant only indicates an overall amount for the “assignment
allowance,” it cannot be concluded that, for the purposes of section 174
of the federal Act, the employer only paid one allowance. To answer that
question, it is necessary to first refer to the Registrant’s administrative
documents to determine if an amount was predetermined for each of the three
types of expenses and if those amounts possess the other characteristics of an
allowance. In order for an employer to be able to claim an ITC with respect to
the allowance paid to an employee, the requirements of section 174 of
the federal Act must be met. In the case at bar, it is our view that although
only one payment was made, the Registrant must be considered to have paid three
separate allowances for meals, accommodation and transportation. Accordingly,
the Registrant may claim an ITC with respect to each of the allowances that
meet the requirements set out in section 174 of the federal Act and
apply the 7/107 factor to the amount of the allowance.
Question 2:
In response to your second
question, we are of the view that if the analysis of the administrative
documents established that the Registrant only paid one allowance rather than
three, the Registrant would not be entitled to the ITC. In fact, since the
supply of long-term accommodations is an exempt supply, one of the requirements
of section 174 of the federal Act would not have been met because all or
substantially all (90%) of the allowance would not have been paid for the
taxable supplies.
The preceding comments constitute
our general opinion on the subject of your letter. Our interpretation could
differ if proposed or future amendments were made to the Excise Tax Act.
These comments are not decisions and, in accordance with the guidelines in the
GST/HST Memoranda Series section 1.4, they do not have the effect of
binding the Department with regard to a given situation.
[20] Counsel for the Appellants argues that the fact that Appellants issued
only one cheque or made only one monthly electronic deposit for the foster
families does not change the fact that they paid several allowances which are
all grouped together in one payment (in that regard, see section 9 of the
Interpretation Bulletin TVQ. 211-4/R1 at Tab 4 of the Appellants’ book of
authorities).
[21] Counsel for the Appellants also suggests that denying the Appellants
the right to the partial rebate would violate the principle that double
taxation must be avoided. He refers to a comment cited by the Federal Court of
Appeal in London Life Insurance Co. v. Canada, [2000] F.C.J.
No. 2121 (Q.L.), at paragraph 35, which reads as follows:
¶ 35 ... David M. Sherman, author of the Canada
GST Service, noted in his editorial comment on the Tax Court decision in
this case:
[A]llowing the ITCs [in this case] is appropriate on
policy grounds. Otherwise the GST gets "locked in" and becomes
unrecoverable merely because the payment flows through an entity that makes
exempt supplies. If the landlord has paid for the improvements directly, or
London Life paid for them as the landlord's agent, the ITCs would clearly have
been allowed.
[22] In that decision, London Life leased
commercial office space for its regional sales offices. Under the terms of its
leases, London Life received a certain amount in tenant improvement allowances
from its landlords. London Life collected the Goods and Services Tax (“GST”)
from the landlords. Then, in accordance with the terms of its leases, London
Life undertook leasehold improvements to the leased premises. As it acquired
various construction property and services, it paid GST to its contractors and
suppliers. London Life then claimed input tax credits (“ITC”) as an offset to
the GST it was required to remit to the Minister in respect of the tenant
improvement allowances that it had received. The Minister disallowed the ITC
claim on the ground that London Life was engaged in the business of supplying
“financial services” (exempt supplies), which did not constitute “commercial
activity” giving rise to entitlement to ITCs. The Federal Court of Appeal
agreed to allow London Life the ITCs primarily on the ground that double taxation
would be imposed in respect of the same items if London Life was not entitled
to those ITCs. The Court stated the following at paragraph 35:
¶ 35 Allowing ITCs in this case is consistent
with the principle underlying the Act that double taxation ought to be avoided.
GST is payable on the tenant improvement allowances received by London Life as
consideration for improving the leased premises. If ITCs are not allowed with
respect to GST paid in relation to the construction inputs for the leasehold improvements
as an offset to the GST payable on the tenant improvement allowances, double
taxation will be imposed in respect of the same items.
[23] Just as David M. Sherman pointed it out in his comments on London
Life Insurance Co., counsel for the Appellants states that the Appellants
should not be adversely affected by the fact that the taxable supplies were
acquired directly by the foster families. He states that if those taxable
supplies had been acquired directly by the Appellants, they would have been
entitled to the rebate.
[24] Counsel for the Respondent submits that the foster families were not
required to use the basic allowance for the recommended purposes according to
the suggested percentages. In his view, it is not a question of several allowances.
Furthermore, the Regulation (section 4) sets out the amount of a single
allowance to be paid to the foster families. The Regulation does not provide
for any breakdown of the items making up the basic allowance. The youth
centres’ internal documents that suggest the use of the allowance for certain
purposes were not drawn from the AHSS or the Regulation. They are merely
suggestions. There are no requirements as to how to spend the basic allowance.
The foster families only have to justify the number of children and their
presence during the month to be entitled to that overall basic allowance.
Counsel for the Respondent concludes that nothing is provided for in the AHSS
or the Regulation for the subdivision of the allowance. The foster families receive
one single allowance and it was not shown that the allowance was used to
acquire supplies all or substantially all of which are taxable supplies of
property or services, as required by section 174 of the ETA.
Analysis
[25] With respect to the double taxation argument raised by counsel for the
Appellants, I will say right now that I do not accept that argument. Section
174 specifically provides that the taxable supplies will be deemed consumed or
used by the charity if certain conditions are met. I find it difficult to see
how the Appellants can get around the application of section 174 by submitting
that if they had acquired the taxable supplies directly, they would have been
entitled to a rebate. If that was the case, we would not have to deal with the
interpretation of section 174 because it simply would not apply. In addition, I
am not of the view that there was double taxation in the current case. The tax
was only paid once. The foster families pay the tax when they acquire the
taxable services. No tax was imposed on the Appellants for the allowance that
they paid to the foster families to acquire the taxable supplies in part.
Therefore, there was no double payment of the tax as was the case in London
Life Insurance Co., supra. In fact, in that case, the tenant, London
Life, deducted the tax on the allowances that it received from the owner for
the purpose of making leasehold improvements, and then itself paid a tax on the
leasehold improvements that it made with those allowances. It is clearly not the
same situation here and it is not a case of double taxation. Moreover, section
313 of the AHSS specifically provides that “activities
and services provided by a family-type resource are deemed not to be a
commercial enterprise or a means to make profit.” In any case, since the foster
families do not operate a commercial activity, they are not entitled to the
ITCs (section 169 of the ETA). Consequently, it cannot be said that the tax
gets “locked in” and becomes unrecoverable because it is paid by the foster
families. To quote David M. Sherman, allowing the ITCs is appropriate on policy
grounds. In the present case, those policy grounds do not allow the recovery of
the tax other than through the application of section 174. I therefore do not
accept the double taxation argument raised by counsel for the Appellants.
[26] As to the issue of the divisibility of the allowance, to support his
theory counsel for the Appellants relies primarily on the definition of the
word “allowance” found in Gagnon, supra. In his book of
authorities, he also produced some court decisions rendered under the ITA
dealing with the concept of an allowance and which I will look at later.
However, I would like to note that although the term “allowance” used in the
English version of section 174 of the ETA is the same as that which was
analyzed by the above-mentioned case law, the term “indemnité” used in the
French version of section 174 of the ETA does not correspond to the term
“allocation” used in the French version of the provisions of the ITA at issue
in those decisions. Also, the analysis of the terms “allowance” and
“allocation” is cited by the Supreme Court of Canada in Gagnon, supra,
in the specific context of paragraph 60(b) of the ITA, which is, in my
view, more restrictive than section 174 of the ETA. In fact, the paragraph 60(b)
requirement that the amount be paid pursuant to a
decree, order or judgment of a competent tribunal or pursuant to a written
agreement does not exist in section 174.
[27] That being said, the French version of the above-mentioned Policy
Statement (P-075) issued on July 22, 1993, deals with the meaning of the term
“indemnité” for the purposes of section 174 of the ETA. The Policy Statement
indicates that an “indemnité” must
have the following characteristics, namely: the amount must be predetermined
and it must be paid to enable the recipient to discharge a certain type of expense.
Also, the amount must be at the complete disposition of the recipient, who is
not required to account for it. Thus, that Policy Statement seems to give the
term “indemnité” the same meaning that the courts have generally given the term
“allocation.” Furthermore, Policy Statement P-075R dated July 6, 2004, which
replaces Policy Statement P-075, indicates that for the purposes of sections
174 and 259 of the ETA in particular, the term “indemnité” has the same meaning as the
term “allocation” for the purposes of the ITA. I also note that counsel for the
Respondent did not address the possible difference between the two terms.
[28] Furthermore, if we refer to the common meaning of the word “indemnité,” which is defined in Le Nouveau Petit
Robert (1994 edition) as follows:
1. Ce qui est attribué à qqn en
réparation d'un dommage, d'un préjudice, ou de la perte d'un droit. ⇒ compensation,
dédommagement, dommage (dommages‑intérêts), indemnisation,
vx récompense, réparation. [...] 2. Ce qui est attribué en compensation
de certains frais. ⇒ allocation, défraiement.
[translation] 1. That which is granted to
someone in reparation of damage, harm or loss of a right. ⇒
compensation,
restitution, damages, indemnification, vb recompense, reparation. …
2. That which is granted in compensation of certain costs. ⇒ allowance, payment
of expenses.
[29] Thus, although
“indemnité” can refer to a more general concept that includes compensation for
damages, that term also refers to a more specific concept, meaning the
compensation of certain costs, which can also be defined as an “allocation.”
Accordingly, the concept of “indemnité” would include the concept of
“allocation.” This
seems even more apparent after reading paragraph 174(c) which states
“lorsque l'indemnité constitue une allocation à laquelle les sous‑alinéas 6(1)b)(v),
(vi), (vii) ou (vii.1) de la LIR s'appliqueraient si l'indemnité
était une allocation raisonnable aux fins de ces sous-alinéas, les
conditions suivantes sont remplies ...” [in the case of an allowance to
which subparagraph 6(1)(b)(v), (vi), (vii) or (vii.1) of that Act would
apply (i) if the allowance were a reasonable allowance for the purposes of that
subparagraph, and … the following rules apply … ]” It is interesting to note
that the English version of paragraph 174(c) simply repeats the word
“allowance” without making any distinction like in the French version.
[30] When interpreting the two versions of bilingual legislation that do
not appear to be identical, it is necessary to find the meaning common to both
versions. R. Sullivan in his book Sullivan and Driedger on the
Construction of Statutes, (4th Ed.) explains the following:
The basic rule governing the
interpretation of bilingual legislation is known as the shared or common
meaning rule. Where the two versions of bilingual legislation do not say the
same thing, the meaning that is shared by both ought to be adopted unless that
meaning is for some reason unacceptable.
__________________
1 (Butterworths:
Markham 2002), p. 80.
[31] Moreover, as P. A. Côté states in The Interpretation of Legislation
in Canada, 3rd edition:
But the task of interpretation is not completed by
deciding upon the meaning shared by the two versions. This interpretive
hypothesis must be verified with reference to the statute's context as a whole.
The shared meaning must be compatible with the intention of the legislature, as
determined by the ordinary rules of interpretation. 2
_____________
2 (Toronto: Carswell, 2000), p.
328.
[32] It is also interesting to note that section 211 of the Act
respecting the Québec sales tax (“AQST”), which is the counterpart
to section 174 of the ETA, uses the word “allocation” and not “indemnité.”
[33] In view of the above, it can certainly be said that the legislature
would consider that an “indemnité” encompassed an
“allocation.” It may also have been a reference to an “indemnité” in the compensatory
sense of the term, i.e. a reimbursement of costs. However, such a case would
not be covered by the issue that concerns us because the basic compensation is
paid without any verification as to the way in which foster families use that
money. Thus, it is not a question of the reimbursement of costs actually
incurred. That basic compensation as such is an allowance, which is not
contested by any of the parties. What is contested is whether that allowance
can be divided into several allowances. I will therefore consider the question
so raised in light of the tests developed by the courts in order to determine
if this basic allowance can be divided into several separate allowances.
[34] In MacDonald v. Canada, [1994] F.C.J. No. 378 (Q.L.), cited by
counsel for the Appellants, Linden J.A. of the Federal Court of Appeal
summarizes the courts’ approach as to the meaning to give the concept of an
allowance. The issue in this case was to determine whether a housing subsidy
received by the taxpayer constituted a taxable allowance within the meaning of
paragraph 6(1)(b) of the ITA. After recognizing that Gagnon, supra,
analyzed the concept of an allowance within the limited context of paragraph
56(1)(b) [and paragraph 60(b)] of the ITA, and that paragraph
6(1)(b) referred to a broader concept of an allowance (as is the case,
in my opinion, in section 174 of the ETA), Linden J.A. first referred to
certain common sense aspects of the concept of an allowance mentioned by the
courts. He cited Ransom v. M.N.R., 67 DTC 5235, where the Exchequer Court stated that an allowance implies an amount paid in
respect of some possible expense without any obligation to account (page 5243).
Linden J.A., while approving of that approach, added that an allowance could be
defined as “an arbitrary amount in that the allowance is not normally
calculated to cover a specific expense.” (MacDonald, supra,
paragraph 9). After also citing The Queen v. Pascoe, 75 DTC 5427
(F.C.A.) and Gagnon, supra, Linden J.A. finally accepted that the
general principal defining an “allowance” for the purposes of paragraph 6(1)(b)
of the ITA, is composed of three elements. He states the following in that
regard:
... First, an
allowance is an arbitrary amount in that it is a predetermined sum set without
specific reference to any actual expense or cost. … [H]owever, the amount of the allowance may be set through a process of
projected or average expenses or costs. Second, … an allowance will usually be
for a specific purpose. Third, an allowance is in the discretion of the
recipient in that the recipient need not account for the expenditure of the
funds towards an actual expense or cost. [MacDonald, supra, paragraph 14.]
[35] That definition, inter alia, was cited by Noël J. in Beauport (Ville) v. Canada, [2001] F.C.J. No. 949 (Q.L.).
[36] In the case at bar, counsel for the Appellants maintains that the
portion of the basic allowance to be allocated to clothing, recreational
activities and spending money is a predetermined amount for a certain type of
expense and is at the complete disposition of the
recipients (the foster families).
[37] I do not agree with that claim. It is the amount of the basic
allowance that is predetermined under the AHSS and the Regulation. Those
legislative and regulatory provisions do not provide for the division of the
basic allowance. Counsel for the Appellants relies on certain administrative
documents ( the Guide and the basic scale as well as the Cloutier Report), to
argue that the basic allowance is divided into several predetermined amounts.
In those various documents, it is suggested that foster families apply a
certain portion of the basic compensation to different categories of expenses
including clothing, recreational activities and spending money. Counsel for the
Appellants referred to Rosenberg v. Canada, [2003] F.C.J. No. 1427
(Q.L.), to state that it is not necessary for the exact dollar amount to be
specified in the document providing for the payment of the compensation in
order for it to be said that the amount is predetermined. The Federal Court of
Appeal stated the following at paragraph 9:
... Amounts
payable can be said to be both predetermined and limited if the agreement
defines the enumerated expenses in respect of which they are paid to the
recipient in a way that renders the amounts certain. To require that an agreement specify the
exact amount would put parties to the expense and inconvenience of having
continually to amend the agreement whenever the expenses to be covered
increased or decreased.
[38] It is important to note that to conclude that an amount is
predetermined, it is necessary to be able to define the expenses listed with
regard to which those amounts must be paid to the recipient in a way that makes
those amounts certain. In the instant case, as much as the amount of the basic
compensation is certain under the legislation and applicable regulations, there
is no certainty created by the administrative documents as to the allocation of
that basic compensation to different types of expenses.
[39] Foster families are paid a basic allowance so that they can respond to
the child’s needs and afford the child living conditions fostering a
parent-child relationship. That is what is reflected in section 312 of the
AHSS, which reads as follows:
312. One or two persons receiving in their home
a maximum of nine children in difficulty entrusted to them by a public
institution in order to respond to their needs and afford them living
conditions fostering a parent-child relationship in a family-like environment may
be recognized as a foster family.
[40] Therefore, neither the AHSS or the Regulation impose specific expenses
on foster families. Their legal responsibility is limited to responding to the
children’s needs. Although the administrative documents suggest a manner in
which to spend the basic compensation for the children, foster families are in
no way bound by those suggestions. They are only suggestions and it cannot be
said that the percentage suggested for this or that expense is a predetermined
amount to discharge a certain type of expense that renders the amount
corresponding to the suggested percentage an allowance in itself.
[41] As seen earlier in MacDonald, the concept of an allowance
refers to a predetermined sum set without specific
reference to any actual expense which is intended for a specific purpose and
which is
in the discretion of the recipient in that the recipient need not account for
the expenditure of the funds towards an actual expense or cost. Accordingly, as
the concept of an allowance implies that it is not necessary to account for the
expenses incurred to anyone, it is difficult to argue in the same breath that
an allowance is divisible and can be allocated to several specific expenses. That is why, in
my opinion, the concept of an allowance does not permit divisibility.
[42] Furthermore, the Regulation specifically provides, in addition to the
basic compensation, special compensation for the purchase of clothing or for
the reimbursement of costs related to the child’s sports and cultural
activities. Foster families can therefore be reimbursed directly for costs
related to those different types of expenses if they obtain prior authorization
and present vouchers. I infer from this that although it was suggested that
foster families pay some of those expenses with the basic compensation, that basic compensation does not have
to be divided up and is not necessarily for the purpose of allowing foster
families to discharge the type of expenses specified in the administrative
documents.
[43] I therefore consider that the basic allowance, which itself is an
allowance within the meaning of the ETA, cannot be divided into several
allowances. The Appellants seem to accept that only 22% of the basic allowance
would in theory be used to acquire taxable supplies by the foster families. It
therefore cannot be said that the Appellants paid an allowance for the supplies
all or substantially all of which are taxable supplies.
[44] As that condition of section 174 of the ETA was not met, the Appellants
are not therefore deemed to have paid a tax on the allowances that they paid
during the period in question and they are not entitled to the partial rebate
of the tax under subsection 259(3) of the ETA.
[45] For those reasons, the appeals are dismissed with costs.
Signed at Ottawa, Canada, this 27th day of October 2004.
Lamarre
J.
Translation
certified true
on this 1st day of
February 2005
Aveta Graham,
Translator
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