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Citation: 2003TCC284
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Date: 20030516
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Docket: 2001-3075(GST)G
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BETWEEN:
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AGENCE DE SÉCURITÉ MAURICIENNE
(1983) 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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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This appeal is from a Notice of
Assessment bearing number 02305300 and dated
May 25, 2000, covering the period from
February 1, 1996 to October 31, 1999, in the
amount of $28,312.44 including the interest and penalties.
[2] In issuing the Notice of
Assessment, the Quebec Deputy Minister of Revenue ("the
Deputy Minister") relied on the following assumptions of
fact:
[TRANSLATION]
(a) the appellant is
a registrant for the purposes of the application of the
G.S.T.;
(b) the appellant
was incorporated under Part IA of Quebec's Companies
Act, as is shown by Exhibit I-4;
(c) the appellant
operates a canine patrol service, and negotiates its services and
fees by means of contracts for services with the various
municipalities, as is shown by Exhibit I-5;
(d) during the
period covered by the assessment, Agence de
Sécurité Mauricienne (1983) Inc. provided the
following services in particular:
(1) sale and
issuance of dog licences,
(2) issuance of
kennel permits,
(3) animal
pickup,
(4) issuance of
tickets, and
(5) euthanasia,
all as is shown by Exhibit I-5;
(e) in consideration
for the services provided, Agence de Sécurité
Mauricienne (1983) Inc. collects from citizens, and
occasionally from the municipalities with which it has contracts
for services, the fees set out in the said contracts, as is shown
by Exhibit I-5, which it manages as it sees fit,
without reporting to the other contracting parties;
(f) during the
period from February 1, 1996 to
October 31, 1999, this corporation was audited
regarding tax not collected on the supply of services it
provided;
(g) the appellant
failed to collect the G.S.T. payable on the commissions on the
sale of dog licences;
(h) as a result, the
appellant failed to remit to the Deputy Minister the amount of
$22,836.11, not including the interest and penalties.
[3] The above-noted assumptions of
fact were set out in the Reply to the Notice of Appeal; the
Notice of Appeal reads as follows:
[TRANSLATION]
...
1. the
appellant received an assessment for the taxation period from
February 1, 1996 to October 31, 1999 on the
basis of failure to collect and remit on the income from animal
attendant services, as is shown by the Notice of Assessment dated
May 25, 2000;
2. on
May 25, 2000, in response to the Notice of Assessment
issued by the department, the appellant filed a Notice of
Objection;
3. on
May 30, 2001, relying on a memorandum from Bernard
Blanchet (an objections officer), the Deputy Minister confirmed
the Notice of Objection;
4. the
appellant wishes to be heard by this Court for the following
reasons;
5. the
appellant operates a dog patrol business, providing in
particular:
(a) sale of dog
licences,
(b) reception of
citizen complaints about stray or howling dogs,
(c) issuance of
tickets, and
(d) patrols;
6. the
appellant's economic activity is regulated by Quebec's
Cities and Towns Act;
7. the
appellant signs written contracts with the towns it represents,
as is shown by the contracts with the following towns:
(a)
St-Jean-des-Piles;
(b) Grandes
Piles;
(c)
Lac-à-la-Tortue;
(d)
Shawinigan-Sud;
(e)
Grand-Mère;
8. in light of
the above, therefore, the appellant is exempt from collecting any
tax under the GST or the QST;
9. indeed,
under Quebec's Cities and Towns Act, it appears that
municipalities are authorized to manage certain activities within
their boundaries;
10. given this management
authorization granted to municipalities, the government has
authorized municipalities to assess and collect fees, dues,
taxes, permits and licences for the said activities;
11. in this regard,
municipalities choose one management method in order to control
the problem of animals and to collect fees and issue licences
within their boundaries, specifically:
(a) a public offer
of employment, or
(b) a contract.
12. Thus it is manifestly
clear that a municipality that has chosen to obtain the services
of an employee in order to do the same work the appellant does is
not required to collect the GST or the QST on the licences issued
through its representative;
13. this principle is also
applicable to municipalities that choose to contract out this
activity;
14. in this regard, the
other contracting party, in this case the appellant, becomes a
mandatary representing the town for these activities, since under
section 412 of Quebec's Cities and Towns Act that
party is deemed to be a municipal officer;
15. in summary, the
activities as a whole are not different depending on the
management method;
16. in particular, under
the Excise Tax Act, a supply by a municipality of a
licence, permit or similar right is tax exempt;
17. issuing an assessment
to the appellant for tax not collected on supplies of services
made to municipalities would be contrary to the economy of the
Excise Tax Act, since municipalities are tax exempt;
18. as well, the
municipalities of St-Georges-de-Champlain, St-Mathieu-du-Parc,
Grand-Mère and Lac-à-la-Tortue refused to pay the
amounts of the taxes allegedly not collected on their behalf, as
is shown in the resolutions by these municipalities;
19. since under the law
the appellant is deemed to be an officer of the town it
represents, it correctly self-assessed by not collecting or
remitting any tax;
20. these assessments have
caused enormous inconvenience to the taxpayer, which has lost a
number of contracts as a result of these clearly erroneous
assessments;
21. the present Notice of
Appeal is founded in fact and in law;
...
[4] The facts are quite simple to
summarize. The appellant obtained a number of contracts from
municipalities (Exhibits A-3, A-4, A-5, A-6, A-7 and
A-8). The appellant, Agence de Sécurité
Mauricienne (1983) Inc., was a company registered for the
purposes of the application of the Goods and Services Tax
("the GST"). It operated a security services and
security guards business. With a number of municipalities, it had
obtained contracts authorizing it to provide services to the
citizens served by the signatory municipalities. These services
included in particular:
(1) sale and issuance of dog
licences;
(2) reception of citizen complaints
about stray dogs;
(3) euthanasia of unclaimed dogs;
(4) issuance of tickets; and
(5) patrols.
[5] The various contracts were reached
in accordance with Quebec's Cities and Towns Act and
with the Municipal Code of Québec, specifically
division XI.1, section 412, subsection 19.1 of the
former, concerning animals, which reads as follows:
(19.1)
(a) To
regulate or prohibit the keeping of animals, or categories of
animals, and limit the number of animals that a person may keep
in or on any immovable;
(b) To
require the owner or keeper of an animal to hold a licence
entitling him to keep the animal;
(c) To
prohibit owners or keepers of animals from letting their animals
stray in the territory of the municipality and authorize their
elimination in a summary manner or their impounding and sale for
the benefit of the municipality;
(d) To
require the owner or keeper of any animal to remove its excrement
from any property, public or private, determine the manner of
disposing thereof and require the owner or keeper to have the
necessary implements for that purpose;
(e) To enable
the municipality to enter into agreements with any person or body
to authorize the person or body to collect the cost of animal
licences and enforce any municipal by-law concerning animals.
The person or body with whom or which the municipality enters
into an agreement and his or its employees are deemed to be
municipal officers or employees for the purposes of collecting
the cost of licences and enforcing the municipal by-law.
Any by-law made under this paragraph applies only in a sector
of the territory of the municipality determined by the council.
Prescriptions of the by-law may differ according to the sectors
of the territory of the municipality and the categories of
animals determined by the council.
...
As well, sections 553 and 554 of the Municipal Code of
Québec read as follows:
553. Every local municipality may
make, amend or repeal by-laws to order dogs to be kept muzzled or
tied up; to prevent them from being at large without their
masters or other persons to take charge of them; to impose a tax
on the owner of every dog kept in the territory of the
municipality; to authorize any officer appointed for such purpose
to destroy any unmuzzled dog at large and considered dangerous by
such officer.
554. Every local municipality may
make, amend or repeal by-laws to
(1) regulate or
prohibit the keeping of animals, or categories of animals, and
limit the number of animals that a person may keep in or on any
immovable;
(2) require the
owner or keeper of an animal to hold a licence entitling him to
keep the animal;
(3) prohibit owners
or keepers of animals from letting their animals stray in the
territory of the municipality and authorize their elimination in
a summary manner or their impounding and sale for the benefit of
the municipality;
(4) require the
owner or keeper of any animal to remove its excrement from any
property, public or private, determine the manner of disposing
thereof and require the owner or keeper to have the necessary
implements for that purpose;
(5) enable the
municipality to enter into agreements with any person or body to
authorize the person or body to collect the cost of animal
licences and enforce any by-law of the municipality concerning
animals.
The person or body with whom or which the municipality enters
into an agreement and his or its employees are deemed to be
officers or employees of the municipality for the purposes of
collecting the cost of licences and enforcing the by-law of the
municipality.
Any by-law made under the first paragraph applies only in a
sector of the territory of the municipality determined by the
municipality. Prescriptions of the by-law may differ according to
the sectors and the categories of animals determined by the
municipality.
Every by-law made under the first paragraph prevails over any
inconsistent provision of this Code or of the
Agricultural Abuses Act (chapter A-2).
[6] From the outset of the hearing,
the respondent admitted that the licences sold by the appellant
were tax exempt supplies under section 20 of Part VI of
Schedule V to the Excise Tax Act
("the Act"), which reads as follows:
20. The following supplies
made by a government or municipality or by a board, commission or
other body established by a government or municipality:
(a) a supply
of a service of registering any property or filing any document
in a property registration system,
...
(e) a supply
of a service of providing information, or of any certificate or
other document, in respect of
(i) the title
to, or any right or estate in, property,
...
[7] In the course of an analysis,
Jacques Bourassa, a tax audit technician, noted that the
appellant had not collected taxes on certain amounts collected
from taxpayers under the contracts obtained from the
municipalities.
[8] Under examination,
Mr. Bourassa expressed himself as follows:
[TRANSLATION]
Examination with counsel Ghislaine Thériault
A. Before doing a
full assessment on that, I did an analysis on the invoices, of
the invoices. I realized that on every $20 amount, there were no
taxes.
Q. Every $20
amount?
A. On every $20
amount, there were no taxes.
Q. What were those
amounts, the $20 amounts; were they permits, or taxes ... were
they permits, or licences?
A. On the invoice
was written, as I recall ... I don't remember, it's been
a long time, probably we have an invoice in the file; as I
recall, it'll be marked "licence".
Q. And do you
remember any other elements that, in your opinion, should have
been subject to taxes and were not taxed? You said "every
$20 amount". Were there other things?
A. No, everything
else was taxed.
Q. Everything else
was taxed?
A. As I recall,
everything else was taxed.
[9] In order to justify the
assessment, the respondent has argued that the proceeds from the
sale of licences constitute fees or a commission in the
appellant's hands, in consideration for services rendered to
the municipalities concerned by means of the sale of licences.
Still according to the respondent, these services would be a
taxable supply that forms the basis of the Notices of Assessment
and the penalties.
[10] The respondent would like to tax
indirectly something that is not taxable directly. A supply is
taxable or tax exempt. In this case, on the one hand the
respondent has acknowledged that the licences sold are tax exempt
supplies under the Act, but on the other hand she has
argued that the proceeds from the sale of the same licences
constitute a taxable supply since, according to her
interpretation, the proceeds from the sale are remuneration.
[11] The respondent has created from the
whole cloth a transaction that is nonetheless fictitious, under
which the proceeds from the sale of the licences have been
transformed into remuneration for services rendered.
[12] Being unable to tax the transaction
directly, the respondent has concluded that the proceeds from the
sale of the licences (a sale that is tax exempt) have become
taxable, arguing that the money collected has become
remuneration, a commission or consideration for services
rendered. The auditor, Mr. Bourassa, clearly expressed this
allegation:
[TRANSLATION]
Cross-examination with counsel François Daigle
A. The point I want
to make there is that those $20 amounts are not taxed. O.K.
But, ultimately, those amounts aren't called "dog
licences" any longer; they become remuneration for services
rendered: those amounts there are converted. Those $20 amounts
...
A. They become
commission income. Because, to us there, our mandatary is in
business for himself. He is acting for the municipality because
he is bound under contract, but he is in business for himself.
He's his own employer. You know, Mr. Marineau there, his
employer is Agence de sécurité mauricienne, not the
municipality. And how is he paid? By the income he gets from the
licences. Those $20 amounts are his income, his remuneration for
services rendered. He keeps it all. And he has to run his office;
he has to pay his operating expenses. That's what those
$20 amounts are used for.
(Emphasis added.)
[13] In order to justify the assessment, the
respondent has also argued that there is a taxable supply, which
she has defined as a commission, remuneration for services
rendered, or fees. In fact, that is not at all the case, since
essentially the respondent taxed something that on its face was
not taxable, that is, the licences.
[14] Under the provisions of both
Quebec's Cities and Towns Act and the Municipal
Code of Québec, there is no doubt that, when certain
acts provided for or described in the legislation are carried
out, the legislature has expressly made any person or
organization an official or an employee.
[15] In other words, any person or
organization having a contract with a municipality for the
purposes of certain legislative provisions does indeed become an
official or an employee of that municipality.
[16] I do not consider it necessary to refer
to any treatise on the interpretation of legislation in order to
understand and grasp the scope of these provisions, which to me
appear quite clear, particularly since the legislature itself has
enacted specific, express provisions concerning the status of
collectors of licence fees.
[17] On that basis, I fail to see why or how
the respondent can justify the Notice of Assessment. Agreeing
with the logic put forward by the respondent would mean that any
municipal employees who generated revenue in the course of their
duties might claim the GST and the QST from their employer, since
their remuneration could come from revenue or from their
work.
[18] The respondent has claimed that neither
the appellant nor its employees were genuine officials or
employees of the municipalities, arguing that the employer made
no deductions from their pay and that they did not make payments
to the Quebec Pension Plan or to the Quebec workers'
compensation board or pay any of the fringe benefits usually paid
by the employer. Would the legislature have enacted frivolous and
meaningless provisions?
[19] The respondent would like to collect
indirectly taxes that it may not collect directly because the
supplies forming the basis for her calculations are expressly tax
exempt under the Act.
[20] In order to justify the assessment, the
respondent has shifted it from one plane to another; what was
initially a tax exempt licence that was not a taxable supply
would suddenly become a non-tax exempt, taxable service,
commission or allocation; what is more, the respondent has
completely obscured the status conferred by the legislation on
collectors of licence fees by making them comparable to
professionals to whom the municipality would give a mandate.
[22] Furthermore, one would have to assume
that the amount paid to obtain a licence (a tax exempt supply)
was paid as the consideration for a service rendered (a taxable
supply).
[23] The main legal bases for the appeal are
the provisions that make the appellant an employee or an official
of the municipalities that signed the contracts. As well, the
provisions governing exemption are equally clear. In addition,
the respondent has acknowledged that the licences, the proceeds
from the sale of which formed the main basis for the assessment,
were tax exempt supplies under the Act.
[24] In order to justify the validity of her
assessment, the respondent has relied on all sorts of hypotheses,
including the fact that the municipalities paid no benefits to
the appellant or to its employees, in comparison with the
benefits it was required to pay for its own employees, thus
completely altering the appellant's status for the purpose of
performing the duties described in the various contracts.
[25] I do not accept the respondent's
interpretation, and I rely simply on the letter of the law, which
defines the appellant as an employee of the municipality on
behalf of which the licences were sold.
[26] The appeal is therefore allowed in that
the Notice of Assessment and the penalties set out in it are
cancelled, all with costs in favour of the appellant.
Signed at Ottawa, Canada, this 16th day of May 2003.
J.T.C.C.
Translation certified true
on this 28th day of January 2004.
Carol Edgar, Translator
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