Citation: 2003TCC35
Date: 20030227
Docket: 2000-4129(GST)G
BETWEEN:
THE CORPORATION OF THE CITY OF ST.
CATHARINES,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier,
J.T.C.C.
[1] This appeal
pursuant to the General Procedure was heard at
Kitchener, Ontario on January 22, 2003. The parties filed
books of Exhibits and a Partial Agreed Statement of Facts
(Exhibit A-1).
[2] The Appellant
applied for a rebate of Goods and Services Tax ("GST")
of $24,072.25 on the basis that it paid the Ontario Retail Sales
Tax ("PST") on the supply to it by contractors of work
and material contracted for the repair and maintenance of St.
Catharine's municipal roads, sewers and water lines. The
application was denied by the Respondent on the basis that the
PST allegedly included in the value of the consideration for the
contracts is not a prescribed tax for the purposes of section 154
of the Excise Tax Act ("ETA").
[3] The Partial
Agreed Statement of Facts reads:
PARTIAL AGREED STATEMENT OF
FACTS
For the purposes of this proceeding only the
following facts are agreed to by the Appellant and the
Respondent:
1. The Appellant
is a municipal corporation situate in the Province of
Ontario.
2. During the
period from June 1, 1994 to December 31, 1998, the
Appellant entered into a number of contracts for work and
materials. These contracts related to the repair, and maintenance
of municipal roads, sewers and water lines.
3. The contracts
marked Exhibit "A2" to this Agreed Statement of
Facts (hereinafter, "the Contracts") are representative
of all the contracts relevant to the Appellant's Notice of
Appeal.
4. GST was not to
form part of the tender price for any Contract, but was
separately charged to the Appellant by each contractor.
5. Provincial
retail sales tax (PST) was not itemized in any Contract, in any
invoice issued by a contractor, or in any progress payment
document, certificate or cheque relating to a Contract.
6. Each
contractor was required to specify a unit price for each element
of the Contract. That unit price reflected the contractor's
cost of materials and labour as well as its profit (or loss as
the case may be).
7. In some of the
Contracts, contractors were warned to make allowance for the
impact of PST in setting their unit prices.
8. In order to
carry out the Contracts, the contractors either purchased or
manufactured materials to be supplied, or subcontracted out the
work and materials to be supplied.
9. The contractor
was required to pay PST on the price of any materials purchased
or manufactured by it for installation on the Appellant's
property, but the amount of PST payable or paid on these
materials by the contractor is unknown to the Appellant and
Respondent.
10. The
contractor paid no PST on the sub-contracts. The subcontractor
paid PST on the cost of any materials purchased or manufactured
by it for installation on the Appellant's property, but the
amount of PST payable or paid on these materials by the
subcontractor is unknown to the Appellant and Respondent.
11. The
Appellant filed a General Application for Rebate of Goods and
Services Tax on the basis that the price of each Contract
incorporated PST.
12. The
Appellant estimated the amount of PST as 3% of each Contract
price, including GST.
13. The
3% figure used by the Appellant is based on the percentage rebate
that is given by the Government of Ontario to religious,
charitable and benevolent organizations in respect of
construction contracts for labour and materials for capital
investment projects. The procedure for calculating the rebate is
summarized in a document entitled, "Ontario Sales Tax Guide
No. 806: Religious Charitable and Benevolent Organizations".
This rebate is not available to municipalities.
14. The
parties agree that the amount of the rebate claimed by the
appellant is not the subject of any admission, the parties
moreover having agreed that, before complying with any final
judgment that may eventually be rendered in the appellants'
favour, the Minister of National Revenue will have the
opportunity to review the remaining contracts and supporting
documents referred to in the Appellant's Notice of Appeal in
order to validate diligently and within a reasonable time, the
accuracy of the amounts claimed, including but not limited to,
the manner in which those amounts were calculated.
15. The
Parties agree that they shall be entitled to adduce additional
evidence or to ask the Tax Court of Canada to draw inferences
from the evidence presented, provided that such additional
evidence or inferences are not inconsistent with this Partial
Agreed Statement of Facts.
16. The
Appellant and Respondent agree to file copies of the following
documents with the Court as exhibits for the purposes of this
proceeding:
A1. This
Partial Agreed Statement of Facts
A2.
Contract documents in respect of contracts:
97-71,
98-002,
98-080
97-200/97-64,
96-66,
95-105,
96-94;
R1.
Respondent's Book of Documents comprising:
1.
Appellant's Application for GST/HST Rebate;
2. Fax from
Appellant enclosing supporting Documentation for GST/HST Rebate
Application;
3. Letter from
Revenue Canada enclosing Statement of Audit Adjustments;
4. Notice of
Assessment;
5. Notice of
Objection;
6. Notice of
Decision.
...
[4] Examples of the
various contracts were filed in Exhibit A-2. None of the
contracts contained a separate amount of PST charged to the
Appellant. Thus, none of the contracts complied with subsection
40.(1) of the Ontario Retail Sales Tax Act (R.S.O. 1990,
c. R. 31), which reads:
40. (1) No vendor shall advertise or
post or otherwise quote a price that includes the tax imposed by
this Act unless the vendor specifies separately the amount of the
tax payable under this Act, and no vendor shall hold out or state
to the public or to any purchaser, directly or indirectly, that
the tax or any part thereof imposed by this Act will be assumed
or absorbed by such vendor or that it will not be considered as
an element in the price to the purchaser or, if added, that it or
any part thereof will be refunded.
[5] Moreover the
contracts (using Contract 97-71 contained in Exhibit A-2, Tab A
between Alfred Beam Excavating Ltd. and the Appellant as an
example) were not for the sale of material or of services
separately. Paragraph 9, "Description of Work"
states:
This contract is for the supply of all
labour, equipment and material necessary for the installation of
525 mm diameter storm sewers on Lincoln Avenue and Almond Street
... "
[6] The Appellant has
claimed a rebate of the GST on the PST which each contractor paid
on the material (the tangible personal property) it purchased and
incorporated into the contract it had with the Appellant to
supply and install roads, sewers and water lines. The Respondent
denied the claim in Court on the basis that:
1. The
contractors were the "consumers" of the tangible
personal property.
2. The
Appellant did not become liable for PST payable to the
contractors or anyone else for tangible personal property.
[7] The Appellant
placed great reliance on the decision of Bowman, J. in
J. A. Porter Holdings (Lucknow) Ltd. v. Canada,
[1996] G.S.T.C. 25 which virtually describes the Appellant's
argument. However in that case the Appellant was specifically
invoiced for PST in compliance with subsection 40(1) of the
Ontario Retail Sales Tax Act. That did not occur in this
case. Paragraph G8 of Exhibit A-2, Tab A states:
G8
Provincial Sales Tax
Tenderers are specifically requested to
obtain clarification with respect to Provincial sales tax from
the Provincial Retail Sales Tax District Office. Tenderers should
make due allowance for impact by the Provincial retail sales tax
in effect at time of tendering, in the unit prices bid
accordingly.
[8] Moreover,
referring to a contract such as the ones in question
Martland, J., of the Supreme Court of Canada said in
Cairns Construction Ltd. v. Saskatchewan, [1960] S.C.R.
619 at 629:
In my
opinion, the appellant was a "user" of the goods in
question here and was made liable for payment of tax under s.
5(2) of the Act. I would agree that the intention of the Act is
to impose the tax upon the final consumer or user of the personal
property purchased. It was upon that basis that the Privy Council
upheld the New Brunswick legislation under consideration in the
Conlon case. But it also appears to me that a person who
purchases personal property and incorporates it into something
else, in the process of which it loses its own identity as
personal property, is the final user of that personal property so
incorporated. The nails which were hammered into the structure,
the paint placed on the walls, or the shingles on the roof were
finally used for the purposes for which they were created when
they became a part of the building. Equally, the prefabricated
parts were finally used when they were incorporated into the
houses which the appellant constructed. The purchaser of a house
would not thereafter use them as component parts. He would make
use of the completed house.
[9] This approach was
echoed by the Supreme Court of Canada in
Will-Kare Paving & Contracting Limited v. The
Queen, [2000] 1 S.C.R. 915 at paragraphs 20 and 21 in
which Major, J. for the majority, stated:
20 One point of
view is expressed in Crown Tire Service Ltd. v. The
Queen, [1984] 2 F. C. 219 (Fed T.D.), where the
court imports common law and provincial sale of goods law
distinctions in defining the scope of the manufacturing and
processing incentives' application. Only capital
property used to manufacture or process goods to be furnished
through contracts purely for the sale of such goods qualifies.
Property used to manufacture or process goods to be supplied in
connection with the provision of a service, namely through a
contract for work and materials, is not viewed as being used
directly or indirectly in Canada primarily in the manufacturing
or processing of goods for sale, and as such, does not qualify
for either the accelerated capital cost allowance or the
investment tax credit.
21 The Crown
Tire case related to whether the application of treads
manufactured by the taxpayer to tires brought in by customers for
repair constituted the manufacture or processing of goods for
sale. Strayer J. (later J.A.) disallowed the
taxpayer's claim to the s. 125.1 manufacturing and processing
profits deduction as the manufactured tread was supplied through
a contract for work and materials, a characterization based upon
the method through which property transferred to the
buyer. See p. 223:
In
Benjamin's Sale of Goods (London, 1974), in
considering the distinction between a contract of sale of goods
and a contract for work and materials, it is stated:
Where work is to be done on the land of the
employer or on a chattel belonging to him, which involves the use
or affixing of materials belonging to the person employed, the
contract will ordinarily be one for work and materials, the
property in the latter passing and not under any contract of
sale.
...
I believe
that the situation here fits within the general principle as
stated in Benjamin. With respect to the
retreading of tires owned by customers, it appears to me that the
customers retain ownership throughout the process.
Will-Kare was decided after the
decision of Bowman, J. in J. A. Porter.
[10] For these reasons, the
Court finds that the Appellant was not a "consumer" or
"user" of the material in question. The contractors
were. Nor did the Appellant incur tax payable under a prescribed
tax for tangible personal property within the provisions of
section 154 of the Act. The contractors did.
[11] The appeal is
dismissed. The Respondent is awarded costs in the cause.
Signed at
Calgary, Alberta, this 27th day of February, 2003.
J.T.C.C.
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