|
Citation: 2003TCC33
|
|
Date: 20030210
|
|
Docket: 2000-4186(GST)I
|
|
BETWEEN:
|
|
CANASIA INDUSTRIES LIMITED,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
GARON, C.J.T.C.C.
[1] This is an appeal
from a reassessment made on June 16, 2000 for Goods and Services
Tax (GST/HST) and for penalties and interest relating thereto for
the period of August 1, 1996 to June 30, 1998, whereby the
Minister of National Revenue reassessed the Appellant net tax in
the amount of $28,862.99 along with $1,733.09 in interest and
$2,550.06 in penalties.
[2] An Agreed
Statement of Facts dated April 11, 2002 was filed with the Court
and is hereinafter reproduced:
TAKE NOTICE that Canasia Industries Limited and Her Majesty the
Queen, as represented by the Minister of National Revenue, agree
that the facts of the dispute are as follows:
1. Canasia
Industries Limited ("Canasia") was incorporated under
the Nova Scotia Companies Act on August 31, 1993;
2. The reporting
periods at issue in respect of the assessment of Canasia's
Goods and Services Tax ("GST") liability made by the
Minister of National Revenue (the "Minister") pursuant
to subsections 165(1), 221(1) and section 228 of the Excise
Tax Act commenced on August 1, 1996, and concluded on June
30, 1998;
3. During all
relevant periods, the sole director and officer of Canasia was
Brian Wales;
4.
During the reporting periods at issue, Canasia was registered
pursuant to section 240 of the Excise Tax Act, with GST
Registration Number 136462579;
5. During the
reporting periods at issues, one of the businesses of Canasia
involved the resale of travel certificates, a true copy of a
sample of which is attached hereto as Exhibit "A" (the
"Certificates");
6. The
Certificates were purchased by Canasia from The Travel Card
Center, Inc., a body corporate, incorporated pursuant to the laws
of the State of Delaware;
7. The
Certificates were sold by Canasia through various live and silent
charity auctions;
8. Canasia did
not have to account to The Travel Card Center, Inc. for the
proceeds from the auction of the Certificates;
9. Proceeds
realized from the sale of the Certificates through the charity
auctions were split in prearranged proportions between Canasia
and the relevant charity, which proportions varied from charity
to charity;
10. The
advertising of the auction indicated that the best offer over
$199.00 would receive airfare travel for two (2) people round
trip to Hawaii or any destination of the successful bidders
choosing;
11. The
Certificate offered twenty (20) possible destinations to
successful bidders but offered the possibility of travel to
additional destinations not listed in the Certificate;
12. Ten
(10) of the destinations enumerated in the Certificate were in
the United States or under the jurisdiction of the United States,
one (1) outside the United States but in North America and nine
(9) outside North America;
13. None
of the destinations enumerated in the Certificates are in
Canada;
14. On
the redemption of the Certificate, the successful bidder is
required to complete a reservation request form indicating
inter alia the travel destination of choice from those
offered or that sought outside the enumerated destinations.
15. The
Certificates required that the bearer pay a US $39.95
registration fee to The Travel Card Center, Inc.;
16. The
Certificate was not transferable by sale;
17. One
of the requirements of the Certificates was a minimum stay period
of seven (7) or more days depending on the destination;
18. One
of the requirements of the Certificates was that the bearer
purchase accommodation in a selected hotel at the destination of
choice from The Travel Card Center, Inc.;
19. If
the requirements of the Certificates were met, The Travel Card
Center, Inc. issued tickets for air travel to the travel
destination of choice to the bearer;
20. The
Certificates contained, inter alia, the following term:
"The bearer agrees that any resort/hotel or travel expense,
not included in this offer, in order that the described ad
proposed service may be fulfilled completely, are the sole
responsibility of the bearer and accompanying traveler(s),
including but not limited to any taxes...";
21. The
Certificates have no stated monetary value;
22. The
Certificates have no intrinsic value;
23.
Canasia did not charge purchasers of the certificates tax
pursuant to Part IX of the Excise Tax Act, nor did it
remit any such tax to the Receiver General of Canada on account
of GST payable;
24. In or
about July, 1998, Canasia filed a GST return with the Minister
claiming that it was owed a net tax refund pursuant to subsection
228(3) of the Excise Tax Act;
25. By
Notice of Assessment No. 01CB0303919 dated December 22, 1998 (the
"Assessment"), the Minister reassessed Canasia net tax
in the amount of $34,163.17, $1,936.44 in interest and $2,842.62
in penalties with a total amount owing of $50,076.44;
26.
Canasia filed a Notice of Objection in respect of the
Assessment;
27. By
Notice of Decision dated June 16, 2000, the Minister allowed the
Objection in part and by Notice of Reassessment (bearing the same
No. 01CB0303919) dated June 16, 2000 (the
"Reassessment"), the Minister reassessed Canasia net
tax in the amount of $28,862.99, $1,733.09 in interest and
$2,550.06 in penalties, with a total amount owing of
$44,280.35.
[3] A copy of a
sample of a gift certificate was also filed with the Court.
[4] No further
evidence was adduced by the parties.
Appellant's submissions
[5] The main
proposition put forward by the Appellant is that the sale of a
travel certificate constitutes a supply of a gift certificate and
is deemed not to be a supply pursuant to section 181.2 of the
Excise Tax Act. He went on to add that the phrase
"gift certificate" is undefined in any federal or
provincial legislation or by case law.
[6] Counsel for the
Appellant referred to the policy statement P.202 issued by the
Canada Customs and Revenue Agency (CCRA) on February 20, 1996 and
indicated that he disagrees with certain parts of the definition
of what constitutes a gift certificate. More specifically, he
disputed the requirement set out in the policy statement of CCRA
to the effect that a gift certificate must have a stated monetary
value and that consideration must be given in the amount of the
stated value.
[7] In support of his
position that the expression "gift certificate" should
be given the broadest possible meaning, he relied on the decision
of Judge Mogan of this Court in the case of William E. Coutts
Co. (c.o.b. Hallmark Cards) v. Canada, [1999] T.C.J. No. 278.
He also mentioned that gift certificates are issued frequently by
businesses without stated values.
[8] Counsel for the
Appellant also referred to a document dated July 25, 2000 issued
by CCRA dealing with "Donations of Gift Certificates"
for purposes of certain provisions of the Income Tax Act.
The endnote of the document was referred to:
In this respect, it needs to be kept
in mind that "gift certificate" is not a defined legal
concept, but a colloquial term that potentially encompasses any
variety of documents evidencing any variety of entitlements,
enforceable or otherwise. The terms of any "gift
certificate" should be understood on a case by case basis in
applying this analysis.
[Appellant's Book of Authorities, Tab 4, page 6.]
[9] Commenting on the
dictionary definitions, in reply to the Respondent's argument
at the hearing of this appeal, counsel for the Appellant points
out that these definitions do not require that there be a stated
monetary value on the certificate and adds that the requirement
that the gift can be redeemed at the establishment of the issuer
is met here since, in its view, the issuer is not the Appellant
but The Travel Card Center, Inc.
[10] With regard to the
negotiability of the gift certificate, the Appellant remarked
that although the certificate cannot be sold, it can be gifted to
anyone. Also, he adds, the "vacation package is completely
transferable", as appears from the terms and conditions of
the certificate.
Respondent's submissions
[11] The Respondent submits
that the travel voucher in issue offered the bearer complimentary
round trip airfare for two to any 12 destinations provided the
bearer complied with the terms and conditions set out in the
travel voucher.
[12] In the
Respondent's view, this is a right, a contingent right to a
travel portion of an overall travel package that has been offered
by The Travel Card Center, Inc.
[13] Counsel for the
Respondent referred to dictionary definitions of the term
"gift certificate" and argued from these definitions
that there are two characteristics. One is that the gift
certificate must have essentially a stated monetary value. The
second characteristic is that the gift certificate must be
redeemable at the establishment that issued the gift
certificate.
[14] Counsel for the
Respondent further submitted that the intent of
section 181.2 of the Excise Tax Act is to defer the
exigibility of the GST from the point of sale to when it is
redeemed or, in other words, to the point where there is actually
an acquisition of property or a service.
[15] According to the
Respondent, gift certificates are normally freely negotiable and,
as it appears in the Agreed Statement of Facts, the certificates
herein cannot be transferred by sale.
[16] The Respondent
recognizes that if the type of certificate in issue constitutes a
gift certificate GST would be attracted on its redemption.
Section 181.2 of the Excise Tax Act treats a gift
certificate as money on its redemption. Section 165.1 of the same
statute is triggered and there is an imposition of 7% on the
value of the consideration or with respect to participating
provinces, such as Nova Scotia, the Harmonized Sales Tax is
exigible at 15%. Since, in the particular case of this
certificate, there is no stated value, the value of the
consideration, according to the Respondent, would be the fair
market value of the particular certificate or "what the
successful bidder paid for that particular certificate."
[17] It is the
Respondent's position that what the Appellant was offering
was the air travel portion of an overall travel package, which in
turn is tied to "the successful bidder buying on to the
remaining package."
[18] The Respondent's
counsel went on to add that Canasia was acting as agent for The
Travel Card Center, Inc. and that in his view of subsection
177(1.2) of the Excise Tax Act, which deals with a supply
by an auctioneer, the Appellant is made the supplier of that
particular package and is accordingly responsible for collecting
Goods and Services Tax on the particular transaction.
Accordingly, in the Respondent's view, the Appellant must pay
tax on only that portion of the tour package on which tax is
exigible in Canada, that is, the air travel portion of that
package, as supplier. Portions of the tour package that are
supplied outside Canada, namely hotel services, would not attract
GST, according to the Respondent.
Analysis
[19] The question in issue
is whether the sale by the Appellant of a travel certificate of
the type described above constitutes a supply of a gift
certificate within the purview of section 181.2 of the Excise
Tax Act.
[20] Section 181.2 of the
Excise Tax Act reads as follows:
For the purposes of this Part, the issuance
or sale of a gift certificate for consideration shall be deemed
not to be a supply and, when given as consideration for a supply
of property or a service, the gift certificate shall be deemed to
be money.
[21] In construing this
enactment and more particularly the phrase "gift
certificate" it is useful, as has been mentioned many times
by the courts, to bear in mind the modern rule of statutory
interpretation formulated by E.A. Driedger in Construction of
Statutes (2nd ed., 1983) at p. 87:
Today there is only one principle or
approach, namely, the words of an Act are to be read in their
entire context and in their grammatical and ordinary sense
harmoniously with the scheme of the Act, the object of the Act,
and the intention of Parliament.
[22] The term "gift
certificate" is not defined in the Excise Tax Act. It
is therefore necessary to refer to dictionary definitions.
[23] In the Canadian Oxford
Dictionary, Oxford University Press 1998, the expression
"gift certificate" is defined thus:
gift certificate n. N Amer. a
certificate or voucher presented as a gift and exchangeable for a
specified value of goods, usu. at a specific store.
[24] In the Ninth New
Collegiate Dictionary, A Merriam-Webster, 1986, the definition of
the phrase "gift certificate" is as follows:
gift certificate n (1942) : a
certified statement entitling the recipient to select merchandise
in the establishment of the issuer to the amount stated
thereon
[25] In ascertaining the
import of section 181.2 of the Excise Tax Act, it is
useful to keep in view the provisions of section 13 of the
Official Languages Act, which reads:
Any journal, record, Act of Parliament,
instrument, document, rule, order, regulation, treaty,
convention, agreement, notice, advertisement or other matter
referred to in this Part that is made, enacted, printed,
published or tabled simultaneously in both languages, and both
language versions are equally authoritative.
[Emphasis mine.]
[26] It is therefore useful
to refer to the French version of section 181.2 of the Excise
Tax Act, which is couched in the following terms:
Pour l'application de la présente
partie, la délivrance ou la vente d'un
certificat-cadeau à titre onéreux est
réputée ne pas être une fourniture.
Toutefois, le certificat-cadeau donné en contrepartie de
la fourniture d'un bien ou d'un service est
réputé être de l'argent.
[27] It is apparent from
the French version of section 181.2 of the Excise Tax Act
that the phrase corresponding to "gift certificate" is
"certificat-cadeau".
[28] The term
"certificat-cadeau" is not found in the well-known
French dictionaries such as Grande Encyclopédie Larousse
1971, Quillet 1975, Grand Larousse Universel 1989, Nouveau
Larousse Encyclopédique 2001 and Le Grand Robert de la
langue française 2001. On the other hand, in the
Multidictionnaire des difficultés de la langue
française, by Marie-Eva de Villers, a Canadian
publication, this locution is commented upon as follows:
"Calque de l'anglais "gift certificate" pour
chèque-cadeau." In the same dictionary,
"chèque-cadeau" is defined as follows: "Bon
autorisant une personne à recevoir un produit, un
service" which could be loosely translated as follows: a
voucher authorizing a person to receive a product, a service. In
Le Robert & Collins Super Senior, the phrases "gift
token, gift voucher" are translated by the compound
"chèque-cadeau".
[29] In the course of
argument, counsel for both parties referred to a number of
commercial situations involving the use of the term "gift
certificate". No evidence has been adduced as to the various
types of gift certificates. However, it seems commonly accepted
that a gift certificate is a very broad term for a voucher which
entitles the bearer to redeem it according to its governing terms
for goods or services or for a value towards the purchase price
of goods or services. It is common ground here that the term
"gift certificate" is a colloquial term that
encompasses any variety of documents evidencing any variety of
entitlements.
[30] There seems to be two
types of usual situations where it is recognized by counsel by
both parties that we are dealing with gift certificates. In one
type of situation, a firm provides to an interested person a
voucher with a stated monetary value, say $100 for a price of
$100. The purchaser of the voucher in turn generally makes a gift
to a third party by handing over the voucher for no
consideration. In this situation, section 181.2 of the Excise
Tax Act has the effect of deferring GST to the second
transaction when the certificate is returned to the issuer in
exchange for goods or services. It is admitted that in such a
case, the first transaction involving the purchase of the
certificate for its stated value does not attract tax. In the
second situation, the issuer of the gift certificate simply gives
the voucher for free to a customer or a prospective customer. The
certificate does not have a stated value. This operation is not
covered by section 181.2 of the Excise Tax Act
because it is not issued for a consideration.
[31] From these examples,
the wording of section 181.2 of the Excise Tax Act
and the dictionary definitions, it should be ascertained what are
the constituent elements of a gift certificate.
[32] As I have just
indicated, a gift certificate must have been issued for
consideration in view of the requirement laid down in section
181.2 of the Excise Tax Act. It is not necessary that the
consideration be equal to the stated value if one appears on the
certificate since the requirement in the latter section is simply
that there must be a consideration.
[33] What is essential is
that the bearer of the certificate who could be anyone to whom
the certificate was transferred by the original purchaser of the
certificate or by a subsequent bearer, is entitled to receive
free of charge from the issuer of the certificate either a
product or a service or the stated value towards a product or
service. I do not think it is important that the bearer of the
certificate may have paid something or given consideration for
securing the gift certificate from the original purchaser of the
certificate or some subsequent intermediary. In my view, the
concept of "gift certificate" in the context of a
situation contemplated by section 181.2 of the Excise Tax
Act necessarily implies that the product or service referred
to in the certificate is provided free of charge to the
certificate holder when the certificate is redeemed by its
issuer. Otherwise, the reference to the "gift" portion
in the phrase "gift certificate" is meaningless.
[34] In the present case,
the bearer of the certificate who acquired it from the purchaser
of the certificate or from a subsequent holder is not entitled to
receive free of charge from the issuer The Travel Card Center,
Inc. the air travel portion of the certificate because he must
have previously satisfied the following conditions:
1. He
must pay the registration fee of $39.95 U.S. to The Travel Card
Center, Inc. I think that it can reasonably be inferred that this
amount represents in reality the cost of processing the request.
Also, the amount in question is referred to in the certificate as
a "registration fee". This condition probably does not
preclude the travel certificate from being a gift certificate. On
balance, I am inclined to disregard this condition.
2. The
second condition is that the bearer of the certificate, as
appears from paragraphs 17 and 18 of the Agreed Statement of
Facts, has a minimum stay period of seven or more days depending
on the destination in a selected hotel at the destination of
choice from The Travel Card Center, Inc. The bearer of the
certificate is required to pay for the accommodation selected by
the issuer of the certificate.
[35] In my view, the second
condition is a substantial element of the overall travel package.
It cannot obviously be said that the bearer is entitled to
receive from the issuer of the certificate free of charge the air
travel portion of the package because of the existence of this
second condition, which carries with it a substantial expenditure
for the bearer of the certificate. In this regard,
David M. Sherman in Canada GST Service appears to have
adopted a similar approach with respect to the application of
section 181.2 of the Excise Tax Act to a factual
situation. His following observations regarding the distinction
between a discount coupon and a gift certificate are especially
instructive:
The distinction between a coupon and a gift
certificate may not always be obvious. Suppose a clothing store
sells a regular client, for 1 ¢ , a document that says
"GIFT CERTIFICATE-Worth $50 on any purchase of $75 or
more". Is this document a gift certificate or a discount
coupon? If there were no requirement for a purchase of $75 or
more, it would clearly be a gift certificate. If the purchase
requirement were, say, $1,000, it would almost certainly be a
discount coupon despite its title. In this case, the certificate
clearly has a value of its own and is not being used purely as a
marketing device to sell $75 worth of clothes.
[36] I therefore conclude
that the travel certificate herein is not a gift certificate
within the ambit of section 181.2 of the Excise Tax
Act.
[37] It has not been
suggested by counsel for the Appellant that the reassessment is
wrong in law, if I were to conclude that section 181.2 of the
Excise Tax Act is not applicable to the subject travel
certificate.
[38] Before concluding, I
wish to comment on the application of subsection 177(1.2) of
the Excise Tax Act in view of the additional written
submissions made, with leave of the Court, by counsel for both
parties sometime after the hearing of this appeal. Subsection
177(1.2) reads as follows:
Where a registrant (in this subsection
referred to as the "auctioneer"), acting as auctioneer
and agent for another person (in this subsection referred to as
the "principal") in the course of a commercial activity
of the auctioneer, makes on behalf of the principal a supply by
auction of tangible personal property to a recipient, the supply
is deemed, for the purposes of this Part, to be a taxable supply
made by the auctioneer and not by the principal and the
auctioneer is deemed, for the purposes of this 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.
[39] First, subsection
177(1.2) of the Excise Tax Act in its current form,
referred to below as the new enactment, applies only to a supply
by auction of tangible personal property to a recipient. As
pointed out by counsel for the Appellant, the phrase
"tangible personal property" is not defined in the
Excise Tax Act. The same counsel, in my view, correctly
relied on the definition found in Dukelow & Nuse, The
Dictionary of Canadian Law (2ed.) (Thomson Canada Limited:
Barrie: 1995), where the term tangible personal property is
defined as being "... personal property that can be seen,
weighed, measured, felt or touched or that is in any way
perceptible to the senses." The travel certificates in issue
represent intangible personal property since they grant certain
rights if specific conditions are met. Consequently the new
enactment is not applicable here.
[40] Subsection 177(1.2) of
the Excise Tax Act, the new enactment, was amended by S.C.
1997, c. 10, s. 26. The amending legislation was assented to on
March 20, 1997, that is, some time after August 1, 1996 the
commencement of the periods in issue in this appeal, as set out
in paragraph 2 of the Agreed Statement of Facts. The
retrospective operation of subsection 177(1.2) must therefore be
considered.
[41] Subsection 26(2) of
the amending legislation provides that the new enactment, but for
two exceptions, "applies to any supply made after April 23,
1996 by a registrant to a recipient on behalf of another person
and to any supply made by the registrant to the other person of
services relating to the supply to the recipient ...".
Accordingly, the new enactment, subject to the two exceptions to
be discussed hereinafter, applies to the totality of the
Appellant's reporting periods in issue.
[42] One of the exceptions,
which is set out in paragraph 26(2)(a) of the amending
legislation, is not applicable here since it refers to supplies
made prior to July 1, 1996, therefore prior to the commencement
of the reporting periods in issue, being
August 1, 1996.
[43] The second exception
is referred to in paragraph 26(2)(b) of the amending
legislation and applies to supplies by auction of tangible
personal property made before April 1997. The second exception
has no bearing on the present matter because the sale of travel
certificates does not constitute a supply of tangible personal
property but rather a supply of intangible personal property, as
explained earlier.
[44] From the above, it
follows that the two exceptions referred to in paragraphs
26(2)(a) and 26(2)(b) of the amending legislation
do not have to be taken into account in applying the new
enactment to the totality of the periods in issue in this
appeal.
[45] Also, for subsection
177(1.2) of the Excise Tax Act and the opening paragraph
of subsection 26(2) of the amending legislation to apply, the
auctioneer must act as agent for another person. Here, it is
clear that the Appellant who was the auctioneer was not the agent
of The Travel Card Center, Inc. The soundness of this conclusion
is apparent from the nature of transactions referred to in
paragraphs 5, 6, 7 and 8 of the Agreed Statement of Facts, which
are reproduced below for sake of convenience:
5. During the
reporting periods at issues, one of the businesses of Canasia
involved the resale of travel certificates, a true copy of a
sample of which is attached hereto as Exhibit "A" (the
"Certificates");
6. The
Certificates were purchased by Canasia from The Travel Card
Center, Inc., a body corporate, incorporated pursuant to the laws
of the State of Delaware;
7. The
Certificates were sold by Canasia through various live and silent
charity auctions;
8. Canasia did
not have to account to The Travel Card Center, Inc. for the
proceeds from the auction of the Certificates.
[46] The Appellant was, on
its own account, purchasing and selling the travel certificates
in question. Also, the Appellant did not have to account to The
Travel Card Center, Inc. in respect of these transactions.
[47] I am therefore of the
view that subsection 177(1.2) of the Excise Tax Act is not
applicable in the present instance.
[48] For these reasons, the
appeal is dismissed.
[49] Bearing in mind
section 18.3007 of the Tax Court of Canada Act, I make no
order as to costs.
Signed at Ottawa, Canada, this 10th day of
February 2003.
C.J.T.C.C.
Email this Content