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Citation: 2003TCC537
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Date: 20030805
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Docket: 2002-4366(GST)I
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BETWEEN:
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DICK IRWIN GROUP LTD.,
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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
Beaubier, J.
[1] This appeal pursuant to the
Informal Procedure was heard at Vancouver, British Columbia, on
July 21, 2003. Richard Irwin was the only witness; he is the Vice
President of the Appellant.
[2] Paragraphs 5 to 13 of the Reply to
the Notice of Appeal read:
5. With
respect to paragraph 4 of the Notice of Appeal, he:
a) admits that
the Appellant entered into an agreement with each vendor called
an "Exclusive Yacht Listing and Sales Authorization"
(the "Sales Authorization"); and
b) under the
Sales Authorization the Appellant was authorized to contract and
sell the particular vessel for a specified price; but
c) denies the
facts alleged in the remainder of the paragraph.
6. By Notice
of Assessment numbered 11BU0601953, dated January 10, 2002, the
Minister of National Revenue (the "Minister")
assessed the Appellant for under-reported Goods and Services Tax
("GST") of $106,622.29, plus penalty and interest of
$7,481.28 and $6,418.33, respectively, for the reporting periods
from September 1, 1999 to September 30, 2001, (the
"Assessment Period").
7. The
Appellant objected to the assessment by serving on the Minister a
Notice of Objection dated April 5, 2002.
8. By Notice
of Decision dated August 6, 2002, the Minister confirmed the
assessment.
9. In so
assessing and confirming, the Minister relied on the following
assumptions of fact:
a) the
Appellant was registered under Part IX of the Act
effective January 1, 1991, and was assigned GST registration
number 10520 7880RT0001;
b) effective
January 1, 1991, the Appellant elected to have Blackfish file
separate GST returns in respect of its commercial activity, under
section 239 of the Act;
c) Blackfish
was assigned GST registration number 10520 7880RT0007, and for
the Canada Customs and Revenue Agency's internal purposes,
Blackfish was assigned branch account number 128139029;
d) Blackfish
was required to file its GST returns on a monthly basis;
e) during the
Assessment Period, the Appellant entered into 10 Sales
Authorizations with potential vendors (the "Vendors")
of 10 boats and yachts (the "Vessels");
f) under
the Sales Authorizations, the Appellant:
i) was
required to use due diligence to find purchasers for the
Vessels;
ii) had the
sole and exclusive right to sell the Vessels during the listing
period; and
iii) had the
right to board and show the Vessels to prospective
purchasers;
g) the Vessels
were sold during the Assessment Period;
h) the boat
owners (the "Owners") authorized the Appellant to
represent them in the sales of the Vessels;
i) the
Appellant was acting as the Owner's agent in selling the
Vessels on behalf of the Owners;
j) the
Owners were not required to collect GST in respect of the sales
of the Vessels; and
k) during the
Assessment period, the Appellant under-reported GST collectible
in the amount of $106,622.60, in respect of the sale of the
Vessels.
B. ISSUES
TO BE DECIDED
10. The issue is whether
the Appellant acted as an agent on behalf of the Principal in
making the supplies of the Vessels.
C.
STATUTORY PROVISIONS RELIED ON
11. He relies on
subsections 123(1) sections 165, 177, 221, 222, 225, 228, 238,
239, 280 and 296 of the Act, as amended.
D.
GROUNDS RELIED ON AND RELIEF SOUGHT
12. He respectfully
submits that the Minister properly assessed the Appellant under
subsection 177(1) of the Act as the stipulated conditions were
met as follows:
i) the
Owners made supplies (other than an exempt or zero-rated supply)
of tangible personal property to a recipient;
ii) the Owners
were not required to collect GST in respect of the sale of the
Vessels; and
iii) the
Appellant was acting as an agent in making the supplies of the
Vessels on behalf of the Owners.
13. He further submits
that under paragraph 177(1)(e) of the Act, the Appellant,
as an agent of the Owners is deemed to be making a taxable supply
of the Vessels to third parties and required to collect and remit
GST on the sale of the Vessels.
[3] The only assumptions remaining in
dispute are 9 i) and k). Respecting them:
9 i) The Appellant states that despite
the terms of the listing, it was only a broker and not an agent
for the sellers. It has never signed a sales agreement on behalf
of an owner.
9 k) Only 7 vessels' sales remain under,
assessment. The other three vessels originally under assessment
were sold in the United States involving alleged gross GST
of:
1.
Allsop
$6,300
2.
Allsop
$16,380
3.
Freightliner
$6,160
The Appeals respecting these, and their associated penalties
and interest, are allowed, if they have not already been.
[4] The Appellant's own form of
"Exclusive Yacht Listing Agreement and Sales
Authorization" contains the following introduction and
paragraphs 1 and 2:
IN CONSIDERATION OF the Broker using due diligence to
find a purchaser for the Vessel, the Owner hereby grants to the
Broker the sole and exclusive right to sell the Vessel during the
Exclusive Listing Period (as defined below), on the following
terms and conditions:
1. EXCLUSIVE RIGHT: The Owner hereby grants to the Broker the
exclusive right to sell or to contract to sell the Vessel
for the Listing Price (as defined below), or such other price as
may be accepted by the Owner (herein called the "Selling
Price"), for a period of ninety days and thereafter until
either party shall give the other fifteen days written notice
of termination of this Agreement (herein called the
"Exclusive Listing Period"). If a sale of the Vessel is
pending at the conclusion of the Exclusive Listing Period, then
this Agreement shall be extended to allow for the completion of
the sale.
2. PRICE/COMMISSION: During the Exclusive Listing Period the
Owner shall accept a price for the Vessel of $260,000.00
(herein called the "Listing Price"), and shall pay the
Broker a commission of 10% of the Selling Price of the Vessel,
or $1,000.00 whichever is greater, plus applicable Goods and
Services Tax, (herein called the "Commission")
upon;
a. the closing date of a binding contract of sale or exchange
of the Vessel entered into during the Exclusive Listing Period,
whether or not the sale was brought about by the Broker, or,
b. a subsequent sale of the Vessel by or on behalf of the
Owner to any party to whom the Broker has shown the Vessel during
the Exclusive Listing Period or with whom the Broker has
negotiated to sell the Vessel during the Exclusive Listing
Period.
(A-1, Tab 2)
[5] The "Yacht Purchase and Sale
Agreement" form of this Appellant contained these words in
the bottom area signed by the Vendor respecting the commission to
the Appellant:
"paid to the Broker as my / our agent"
(A-1, Tab 3)
[6] Respecting each yacht sale in
appeal and respecting the Appellant's customary practice:
1. The yacht remained in the
owner's berth.
2. The Appellant telephoned the owner
to enter the yacht before showing it to a prospective
purchaser.
[7] At times a listing owner has sold
its yacht privately. The Appellant has then tried to collect its
commission, but not through a legal process. It has not
succeeded.
[8] The evidence is that, despite the
listing contract and its own forms, the Appellants practice has
been to act as a broker and it has never signed a sales agreement
for an owner or incurred a yacht expense for an owner. Nor has it
contracted for anything for an owner (at the owners expense)
without first obtaining the owner's permission.
[9] In further support of this,
"Blackfish Marine's" forms describe themselves as
being the "Standard Form of the British Columbia Yacht
Brokers Association".
[10] Subsection 177(1) of the Excise Tax
Act reads as follows:
Supply on behalf of person not required to collect tax
- Where
(a) a person (in this subsection referred to as the
"principal") makes a supply (other than an exempt or
zero-rated supply) of tangible personal property to a recipient
(otherwise than by auction),
(b) the principal is not required to collect tax in respect of
the supply except as provided in this subsection, and
(c) a registrant (in this subsection referred to as the
"agent"), in the course of a commercial activity of the
agent, acts as agent in making the supply on behalf of the
principal,
the following rules apply:
(d) where the principal is a registrant and the property was
last used, or acquired for consumption or use, by the principal
in an endeavour of the principal, within the meaning of
subsection 141.01(1), and the principal and agent jointly
elect in writing, the supply of the property to the recipient is
deemed to be a taxable supply for the following purposes:
(i) all purposes of this Part, other than determining whether
the principal may claim an input tax credit in respect of
property or services acquired or imported by the principal for
consumption or use in making the supply to the recipient, and
(ii) the purpose of determining whether the principal may
claim an input tax credit in respect of services supplied by the
agent relating to the supply of the property to the recipient,
and
(e) in any other case, the supply of the property to the
recipient is deemed, for the purposes of this Part, to be a
taxable supply made by the agent and not by the principal and the
agent is deemed, for the 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.
[11] In this case the Appellant is a broker.
A broker is a restricted form of agency. In The Law of
Agency, 7th Ed. Butterworths, Toronto, 1996, G.H.L. Fridman,
Q.C. described a broker as follows:
Brokers. Brokers, like factors, are mercantile agents.
There is, however, a distinction between these classes of agents
in that brokers are agents who are not given possession of
goods or documents of title. A broker is:
'an agent employed to make bargains and contracts between
persons in matters of trade commerce and navigation. Properly
speaking, a broker is a mere negotiator between other parties ...
He himself... has no possession of the goods, no power actual or
legal of determining the destination of the goods, no power or
authority to determine whether the goods belong to buyer or
seller or either'.11
He is not entrusted with the possession of the goods he
sells.12 Unlike a factor13 he may not sell
in his own name. 'The principal therefore who trusts a broker
has a right to expect that he will not sell in his own
name'.14 Both brokers and factors negotiate sales.
However, the difference between these two classes of agents in
respect of the possession of goods may stem from the fact that
brokers also negotiate other contracts, not involving the
handling of goods by the broker himself. For example,
stockbrokers deal with the sale of stock or shares (which are not
goods within the meaning of the Sale of Goods Act
1979).15 Insurance brokers arrange policies of
insurance. Other brokers deal in the hiring of ships on
charterparties. A more recent growth is that of the
credit-broker, whose function is to arrange credit for those who
wish to purchase goods. Some of these different types of brokers
have given rise to special legal problems, or may be governed by
particular legislation.
[12] Gale, C.J.H.C. described a broker as
follows in Royal Securities Corp. Ltd. v. Montreal Trust Co.
et al 59 DLR 2d, 666 at 686 and 687.
It seems to me that Royal's capacity in this transaction
may best be described as that of a broker. Story, in his work on
Agency, 9th ed., p. 31, describes a broker as:
... an agent, employed to make bargains and contracts between
other persons, in matters of trade, commerce or navigation, for a
compensation, commonly called brokerage.
Lord Chief Justice Tindal referred to this type of agent in
Pott v. Turner (1830), 6 Bing, 702 at p. 706, 130 E.R.
1451: "A broker is one who makes bargains for another, and
receives a commission for so doing; as, for instance, a
stockbroker."
The breadth of the definitions admits of many types of brokers
- mortgage brokers, real estate brokers, insurance brokers, and
ship brokers, being some of those most frequently encountered in
modern business. To this list may be added the investment broker
- an agent engaged in the placing of funds, the sale of
securities and similar transactions involving money. It is my
opinion that Royal, in its dealings with S.F.C.I., acted as an
investment broker and as such it would have been competent to act
as the agent for both parties. Such an arrangement is described
by Story at pp. 33-4, s. 31, as follows:
It has been already suggested that, a broker is for some purposes
treated as the agent of both parties. But primarily he is deemed
merely the agent of the party by whom he is originally employed;
and he becomes the agent of the other party only when the bargain
or contract is definitively settled, as to its terms, between the
principals; for as a middle-man, he is not intrusted to fix the
terms, but merely to interpret (as it is sometimes phrased)
between the principals.
[13] Paragraphs 117(1)(c) of the
Excise Tax Act describes a person who "is making the
supply on behalf of the principal". That is not what a
broker does, nor is it what the Appellant did in this case. The
Appellant could accept an offer for the exact terms of the
listing, but such an offer need not even be accepted. Rather, in
such a case, the listing principal is making a general offer
which the purchaser merely accepts. In any other case, the
Appellant had to take an offer back to the lister for acceptance,
all as set forth in the brokerage agreement. Moreover a broker
does not have possession and the Appellant did not have
possession.
[14] All of these exceptions to an agency
are as envisioned by Section 177 to take the Appellant outside of
the Section. That is so because the Section envisages the
Appellant to receive payment for the supply so as to pay the tax.
That is perfectly logical respecting an agent who has possession
of the goods and receives the payment of consideration for the
sale of goods. It is not logical respecting a broker such as the
Appellant who is not "intrusted" to fix terms, to have
possession, to receive payment for, and to execute a transfer of
the goods, which is what a fully qualified "agent"
could and would do. That is the kind of agent envisaged by
Section 177. In other words, a broker is not an agent within the
meaning of paragraph 177(1)(c), because he does not make a
supply.
[15] The appeal is allowed, the assessment
is vacated. The amount in dispute in this appeal exceeds the
limit within which costs may be awarded under the Informal
Procedure and therefore, no costs are awarded.
Signed at Saskatoon, Saskatchewan, this 5th day of August
2003.
Beaubier, J.
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