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Citation: 2003TCC103
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Date: 20030307
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Docket: 2002-1777(GST)I
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BETWEEN:
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S.K. MANAGEMENT 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
Campbell, J.
[1] The Appellant was
audited for the reporting periods ending between August 1, 1999
and January 31, 2001 (the relevant period). By notice of
assessment dated April 27, 2001 the Minister assessed the
Appellant net tax of $8,456.08 together with a penalty and
interest for the reporting periods ending during the relevant
period. The penalty and interest assessed were later cancelled.
The Respondent argues that all of the supplies made by the
Appellant were taxable and that the Appellant was required to
collect and account for the tax of 7% on those supplies. The
Appellant agreed that there was no dispute respecting the amount
of net tax calculated but argued that it should not be liable for
this tax as the Appellant was acting as an agent of a the
Downtown Bingo Association ("the Association").
[2] Kevin Sandy,
President of the Appellant and Sherry Peters, an officer of the
Appellant, gave evidence.
[3] The assumptions
upon which the Respondent relies are as follows:
12. In so assessing the
Appellant, the Minister made the following assumptions of fact,
with respect to the relevant period:
(a) 622047
Saskatchewan Limited changed its name to S K Management
Inc.;
(b) the Appellant
was engaged in commercial activities;
(c) the Appellant
made supplies of property and services that were taxable at
7%;
(d) the Appellant
has been a registrant for the purposes of the Act since
August 1, 1999;
(e) the Appellant
filed returns reporting tax collectible, input tax credits and
net tax as follows:
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Period End
Date
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Due Date
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Date Filed
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Tax
Collected
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Input Tax
Credits
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Net Tax
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1999-12-31
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2000-03-31
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2000-04-17
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0.00
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6,068.82
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(6,068.82)
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2000-01-31
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2000-02-29
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2000-04-17
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0.00
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89.20
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(89.20)
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2000-04-30
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2000-05-31
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2000-06-09
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0.00
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1,687.20
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(1,687.20)
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2000-07-31
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2000-08-31
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2000-09-27
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0.00
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6,506.78
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(6,506.78)
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2000-10-31
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2000-11-30
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2001-03-16
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0.00
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0.00
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0.00
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2001-01-31
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2001-02-28
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2001-03-16
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0.00
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0.00
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0.00
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0.00
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14,352.00
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(14,352.00)
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(f) the
Appellant carried on a business as a management company;
(g) the Association
had a licence from the Authority to run bingos;
(h) each of the
Association's members obtained a licence from the Authority
when that member was operating, sponsoring or conducting a
bingo;
(i) the
Appellant has a Gaming Supplier licence from the Authority to
provide paper and services to the Association and its
members;
(j) the
Appellant entered into an agreement with the Association as of
July 10, 1999;
(k) the Appellant
entered into a subsequent agreement which modified the
July 10, 1999 agreement on or about December 1, 2000;
(l) pursuant
to the terms of the 1999 Agreement and the 2000 Agreement, the
Appellant provided property and services to the Association to
enable the Association to conduct bingo events on the
Association's behalf and on behalf of its members;
(m) the property and
services provided by the Appellant to the Association included,
but was not limited to:
(i) promoting
and supervising the development of bingo programs and
operations;
(ii) ensuring that
the bingos were operated in accordance with all laws and
regulations;
(iii) leasing the bingo
hall premises from Voyageur Club of Saskatoon Inc.;
(iv) resupplying the bingo
hall premises to the Association;
(v) providing all
furniture, fixtures, bingo equipment and other equipment and
accessories required to conduct bingos;
(vi) providing all the
paper and supplies that are required to conduct bingos;
(vii) maintaining all of the
bingo equipment in good repair;
(viii) employing sufficient
personnel to operate the bingos;
(ix) training
representatives of the Association's members;
(x) maintaining and
supervising adequate floats and petty cash;
(xi) assisting the
Association to correctly calculate the payout of prizes; and
(xii) assisting the Association
in the preparation of financial statements;
(n) the Appellant
was the employer of the personnel it provided to operate the
bingos (the "Employees");
(o) the Appellant
hired the Employees after receiving the Association's
approval;
(p) the Appellant
paid the remuneration and the benefits, if any, of the
Employees;
(q) the Appellant is
registered as an employer, with its own business number, with the
Canada Customs and Revenue Agency for remitting source
deductions;
(r) the source
deductions for the Employees were paid by the Appellant;
(s) the Appellant
prepared the T4 slips and other employment documentation for the
Employees;
(t) the
Appellant trained the Employees;
(u) the Association
could only remove one of the Employees from the bingo hall if it
had reasonable grounds for believing that the Employee was
fraudulent, dishonest or deceitful;
(v) the Appellant
also made supplies through a concession stand, which included but
was not limited to supplies of food and beverages from a limited
menu, supplies of cigarettes and supplies of dabbers;
(w) the Appellant was not
acting as an agent for the Association or its members;
(x) the Appellant
received consideration of at least $378,833.84 for the supplies
it made during the relevant period;
(y) the Appellant
did not account for tax on the consideration it received from the
Association;
(z) the Appellant
failed to report tax of at least $26,518.37 in respect of the
supplies it made during the relevant period;
(aa) the Appellant claimed input
tax credits on its returns with respect to the supplies of
property and services that it acquired in order to make the
supplies to the Association and its members;
(bb) the Appellant was entitled
to and had documentation to support input tax credits of no more
than $18,062.29; and
(cc) the Appellant's net tax
remittable for the reporting periods ending during the relevant
period was at least $8,456.08.
[4] During the
relevant period the Appellant conducted bingo games for the
Association. The members of this association were various
charitable organizations. According to Sherry Peters, she was
working for the Association when it began experiencing problems
in operating these bingos. As a result, on June 10, 1999, the
Appellant submitted a proposal, Exhibit A-1, to manage the Bingo
Hall on behalf of the Association. The proposal was accepted and
on July 10, 1999, the parties entered into their first
management agreement (Exhibit R-1). Pursuant to this
agreement, the Appellant, at its own expense, was to provide the
following services to the Association and I quote from
paragraph 1.02:
1.02 The
Contractor's Responsibilities
Without limiting the generality of section 1.01 the types of
services which the Contractor shall perform, in accordance with
any directions and policies of the Association, and at the
Contractor's own expense include the following:
(a) promotion and
supervision of the development of bingo programs and operations
for bingo events and advise the Association before the
implementation of major promotions or programs;
(b) provide all
furniture, fixtures, bingo equipment and other equipment and
accessories (hereinafter collectively called "Bingo
Equipment"), paper and other supplies which are required to
conduct Bingo Events in the Bingo Hall in a proper and efficient
manner;
(c) maintenance of
all Bingo Equipment in good repair and working order;
(d) ensure that all
bingo events conducted in the Bingo Hall are conducted in a
lawful manner and in full compliance with all governmental laws
and regulations and in accordance with the rules, terms,
conditions, specifications and directives of any authority having
jurisdiction including, without limitation, the Liquor and Gaming
Authority;
(e) promote and
assist in the training and instruction of the representatives of
the members of the Association;
(f) provide
and maintain sufficient personnel registered pursuant to The
Alcohol and Gaming Regulation Act for the purpose of
operating bingo events in the Bingo Hall in an efficient and
proper manner;
(g) maintain and
supervise adequate floats for the proper and efficient operation
of bingo events in the Bingo Hall;
(h) assist the
Association in the preparation of such operating or other
financial statements as may be required:
(i) to enable
the Association to properly calculate the payout of prizes and
other payments to be made by the Association;
(ii) to enable the
Association to provide the Liquor and Gaming Authority with all
such financial statements and reports as it requests from time to
time;
(i) deposit
daily into specified accounts of the Association, all revenue
earned in the conduct of that day's bingo events;
(j) comply
with lawful and reasonable instructions as may be given by the
Association;
(k) to obtain a 5
year lease with an option to renew for a further 1 to 5 years of
the bingo hall premises with Voyageur Club of Saskatoon Inc.;
(l) to enter
into a lease with the Association of the bingo hall on the terms
and conditions more specifically set out in the Lease document
attached hereto as Schedule "A";
(m) in the event the
Association contracts with Western Canada Lottery Association to
conduct bingo events at the bingo hall, provide and accommodate
all requirements of the Western Canada Lottery Association with
respect to the operation of such bingo events.
The parties later entered into another
agreement which contained the same wording at paragraph 1.02 of
this second agreement with the following exceptions:
(1) The opening
paragraph of 1.02 of the second agreement reads as follows:
Without limiting the generality of section
1.01 the types of services which the Contractor shall perform, in
accordance with any directions and policies of the Association
include the following:
...
and
(2) Paragraph 1.02(g) now reads as
follows:
(g)
maintain and supervise adequate floats and petty cash in the
amount of $1,300.00 (1,000.00 petty cash) (the 300.00 club floats
and petty cash have been provided by the Association), for the
proper and efficient operation of bingo events in the Bingo
Hall;
[5] At paragraph 1.05
of the first agreement, the hiring of personnel was further dealt
with as follows:
1.05
Personnel
The Contractor agrees that all persons
employed by it in the Bingo Hall to provide the services to be
provided by the Contractor under this agreement must be first
approved by the Association. The Contractor further agrees
that:
(a) the Association
shall have the right to remove any such person employed by the
Contractor from the Bingo Hall if the Association reasonably
believes that such person was fraudulent, dishonest or deceitful
in working or providing any services at bingo events conducted by
the Association, and upon receiving notice of the same from the
Association, the Contractor shall provide, subject to the
approval of the Association as aforesaid, a person to replace the
person so removed; and
(b) it shall replace any of
its employees at the Bingo Hall in whom the Association has
reasonably lost confidence within three (3) days after receiving
notice thereof from the Associaiton.
This same wording was also included in the
second agreement at paragraph 1.05.
[6] Pursuant to the
first agreement, the Appellant was paid compensation for the
services rendered to the Association in the monthly sum of
$53,000.00 (which, however, could not exceed 16% of the gross
revenues generated by each bingo event). This was referred to as
a management fee and was to be "... inclusive of all taxes,
of whatsoever nature and kind, including without limitation, the
Goods and Services Tax pursuant to the Excise Tax Act
(Canada), which may be payable in connection with such fee by the
Association". From this fee the Appellants paid all the
expenses incurred in providing these services to the
Association.
[7] The second
management agreement (Exhibit R-2) was really an amendment to the
first agreement and was backdated to December 2000. The Appellant
had again contacted their GST office in an attempt to get
clarification on tax liability and based on what they were told,
the Appellant and the Association agreed to amend the agreement
so it would reflect their actual relationship. One of the major
changes in this second agreement was that the Association was now
to pay all expenses incurred by the Appellant, including paying
the employees. The Association paid the Appellants each month 10%
of the "net dollars to split", inclusive again of taxes
including the Goods and Services Tax. Although the Association
now paid the employees, the Appellant was still responsible,
according to paragraph 1.02(f), to:
(f) provide and
maintain sufficient personnel registered pursuant to The
Alcohol and Gaming Regulation Act for the purpose of
operating bingo events in the Bingo Hall in an efficient and
proper manner;
[8] In addressing GST
returns, at paragraph 2.02(e) it states:
The parties acknowledge and agree that all
expenses incurred in operating the Bingo Hall are incurred in the
name of the Contractor and that the Contractor is therefore
entitled to file GST Returns on such expenses and entitled to the
refund (if any) of GST on such expenses.
[9] Both the first
and second agreements contained the same provisions concerning
indemnification and insurance. The Appellant was to maintain
insurance in respect to and be responsible for the acts of its
officers and employees. The Appellant was to indemnify the
Association under both agreements for damages and injuries
resulting from any breach of the agreements.
[10] Both agreements also
contained the following provision which referred to the
party's relationship as one of principal and independent
contractor. It states at paragraph 7.02 (Exhibit R-2):
7.02
Independent Contractor
The parties hereto intend that the
relationship between them created by this agreement is that of
principal and independent contractor. No agent, employee or
servant of the Contractor shall be or shall be deemed to be the
employee, agent or servant of the Association. The Association is
interested only in the result obtained under this agreement. The
Association shall not have the right to direct the contractor to
devote any fixed or minimum hours in respect of the performance
of the services to be provided by the Contractor hereunder. The
Contractor shall be solely and entirely responsible for its acts
and for the acts of its directors, officers, agents, employees,
servants and subcontractors during the performance of this
agreement.
[11] The issue to be
decided here is whether the Appellant is an agent of the
Association in supplying the various services to the Association.
If the Appellant is an agent it will be exempt from collecting
and remitting GST for the services and equipment supplied to the
Association.
[12] Respondent counsel
referred me to the case of Glengarry Bingo Assn. v.
Canada, [1999] F.C.J. No. 316. Glengarry is similar to
the present case except, that in this case, the Appellant is
supplying services to the Association that represents its
members. In Glengarry, the Bingo Association was itself
supplying the services to its members. The Federal Court in
Glengarry found that the Appellant was not acting as an
agent in dealing with its various members.
[13] The Appellant agreed
at the hearing that the contract provisions clearly state that
the Appellant is not an agent but that these contracts were
"in error". They contended that they received the
incorrect information from CCRA officials, were unable to obtain
a ruling on their position with respect to tax liability and that
if the Appellant had received the correct information, the
contracts would never have been signed.
[14] While I appreciate the
frustration which the Appellant experienced because it felt the
correct information had not been supplied, I am still left with
two legally binding contracts which purport to establish the
proper legal relationship between the parties and the admission
of the representative of the Appellant that the contracts do not
reflect the relationship as one of agency.
[15] Both agreements refer
to the relationship as that of Principal and Independent
Contractor. There is no mention of an agency relationship.
Although the Association has the right to first approve employees
before they are hired and the right to remove employees for
fraudulent, dishonest or deceitful behaviour, in all other
respects, the relationship between the Appellant and those hired
to staff bingo events is an employer/employee relationship. The
contracts go on to call for removal of those employees "in
whom the Association has reasonably lost confidence".
However this provision must be referenced back to the prior
provision in the same paragraph in which the Association may
interfere for fraudulent, dishonest or deceitful behaviour. It
does not further extend the rights of the Association, as argued
by the Appellant. There is no other specific indication of
control by the Association over the employees, except in these
limited circumstances. In all other respects the staff were the
employees of the Appellant. Under the first contract, the
Appellant paid the staff but in the second contract all monies
were paid to the Association and the Association paid the staff.
This however is not sufficient to change the basic essence of
this relationship. Certainly one of the telling aspects of the
contract is the indemnity provision that clearly establishes that
the Association was not to be liable for the acts of the
Appellant's employees. There was no evidence before me that
would suggest that the Appellant was acting as or holding itself
out as an agent when hiring and dealing with its employees. It
was the Appellant who issued the T4's. The Appellant was the
legal employer of the staff and responsible for their acts.
Paragraph 7.02 of both agreements clearly support this
conclusion where it states that no employee of the Appellant was
to be deemed an employee of the Association.
[16] According to the
Glengarry case, risk is a significant factor in
determining whether an agency relationship exists. In this
regard, both agreements contain the same provision on
indemnification. It is clear that the intention of both parties
was to completely indemnify the Association and its member
charities from all damages and injuries. In fact this provision
actually went one step further with the requirement that the
Appellant maintain insurance on its directors, officers,
employees and servants. These provisions are clearly intended to
insulate the Association and its members from any risk related to
operating the bingo events. This is another indication that there
is no agency relationship.
[17] The manner in which
expenses were paid was changed in the second agreement. Although
all money is deposited to an account belonging to the
Association, from which it now pays all expenses, it is paying
directly those expenses which have been incurred by the
Appellant. This alone is not determinative of the agency
issue. This did not change the basic agreement that the
Appellant was liable for expenses. The second agreement merely
changed the payment source. As stated in the Glengarry
case, at paragraph 30, "... the reimbursement of an
expense alone will not lead inexorably to a finding of
agency".
[18] In the
Glengarry case, the Court referred to three essential
qualities of agency. Although these were contained in CCRA draft
policy Statement P-182 and are not determinative of
"agency", I agree with that Court's finding that
they are a useful tool. These three qualities are referred to at
paragraph 32 of the decision:
... 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 ...
[19] There is no evidence
in this case nor anything express or implied in the agreements
that could lead one to conclude that the Appellant had consent or
authority to legally bind the Association. There is nothing in
the relationship that hints that the Association is in any way
responsible for the acts of the Appellant. The Appellant did not
purport to act as an agent of the Association nor was there
exposure of the Association to any potential risk. It is clear
from the contracts that the Appellant could not affect the
liability of the Association. In fact the agreements contained
broad indemnity clauses which maintained the Association safe and
harmless from all liability. All risk involved with supplying the
services to the Association are incurred by the Appellant
alone.
[20] With the provisions of
the agreements and the facts before me, I am unable to infer any
type of agency relationship between the parties. The Association
maintained some control over the Appellant's employees but it
was not sufficient to change the essential nature of the overall
relationship between the Appellant and the employees. There were
general rights of supervision reserved to the Association but
again these are insufficient to infer an agency relationship. The
onus is on the Appellant to establish that an agency relationship
exists and that onus has not been met.
[21] The appeal is
therefore dismissed.
Signed at Ottawa, Canada, this 7th day of
March 2003.
J.T.C.C.
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