Date: 20011025
Docket: 2001-1579-GST-I
BETWEEN:
JAMES G. ALVEBERG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED Reasons for Judgment
Miller, J.T.C.C.
[1]
Mr. Alveberg is the proud owner of a rather unique vehicle
- a 1935 Ford wooden station wagon. He took the chassis of
this vehicle to California where Heiden's Woodworking of
Carlsbad, California ("Heiden's") constructed the
wooden body. In bringing the vehicle back to Canada, Mr. Alveberg
was assessed goods and services tax ("GST") of
$2,519.36 (CDN) based on the value of the car of $24,477.57 (US),
which represented the amount paid by Mr. Alveberg to
Heiden's for materials ($3,012.07 (US))
and labour ($21,465.50 (US)).
Mr. Alveberg appeals the assessment on the basis the labour
portion is excepted out of the definition of "imported
taxable supply" pursuant to subparagraph 217(a)(iv) of
the Excise Tax Act ("Act"). The Minister
contends the materials and labour constitute "goods"
subject to section 212 of the Act.
[2]
Mr. Alveberg acquired the remains of a 1935 Ford station wagon
sometime in 1996. He completed the chassis, installed an engine,
transmission and steering and built the floor. In March 2000 he
transported the chassis of the vehicle to Heiden's. Mr.
Alveberg testified that he used Heiden's as he had used their
services previously and was happy with the result. He also
indicated he was unable to find any organization in Canada that
could perform the same work. Prior to transporting the vehicle to
California he had disassembled the vehicle by taking out the
steering, engine and transmission. Between March and
October, 1996 Heiden's constructed a wooden body on the
chassis. From the photographs provided by Mr. Alveberg it appears
the wooden body extends only from the front windshield to the
rear of the car. Heiden's worked from patterns of original
parts for the 1935 vehicle. Heiden's charged Mr. Alveberg
$3,012.07 (US) for the wood, varnish and parts and $21,465.50
(US) for labour. Mr. Alveberg brought the vehicle back to
Canada on October 8, 2000 by trailer. At the border in Osoyoos,
British Columbia he was assessed $2,519.36 on the value for duty
of the vehicle of $35,993.83 (the Canadian conversion of
$24,477.57). He argued that based on past experience GST was not
exigible but the Customs officer insisted on payment, which Mr.
Alveberg made. The value for duty under section 215 of the
Act was based on the transaction value determined in
accordance with section 47 and 48 of the Customs Act,
being in this case the price paid and payable.
[3]
The Appellant had gone through a similar exercise in 1993 when
Heiden's had performed work on a 1939 Ford. At that time he
appealed the GST assessment and was ultimately only taxed on the
value of the materials. The Minister maintains that the previous
refund in 1993 was made in error.
[4]
The issue is whether the cost of labour conducted in California
falls within the value of goods as set out in subsection 215(1)
of the Act or whether, as the Appellant argues, it is an
exception to "imported taxable supplies" in accordance
with subparagraph 217(a)(iv). Section 215 is part of Division III
of Part IX of the Act as is section 212. They read as
follows:
212. Subject
to this Part, every person who is liable under the Customs
Act to pay duty on imported goods, or who would be so liable
if the goods were subject to duty, shall pay to Her Majesty in
right of Canada tax on the goods calculated at the rate of 7% on
the value of the goods.
215.(1) For the purposes of this Division,
the value of goods shall be deemed to be equal to the total
of
(a)
the value of the goods, as it would be determined under the
Customs Act for the purpose of calculating duties imposed
on the goods at a percentage rate, whether the goods are in fact
subject to duty, and
(b)
the amount of all duties and taxes, if any, payable thereon under
the Customs Tariff, the Special Import Measures
Act, this Act (other than this Part) or any other law
relating to customs.
[5]
Clearly these provisions deal with "goods": goods
subject to duty under the Customs Act or goods on which a
person would be liable under the Customs Act if the goods
were subject to duty. For this case Canada Customs determined the
goods were subject to duty under the Customs Act but
relieved from that duty pursuant to United States tariff
treatment. The Crown argued that the "goods" in
question was the motor vehicle. She referred me to the
Customs Tariff Act, specifically section 19
which reads:
19 (1) Subject to this
Act and the Customs Act and any regulation or order
made thereunder, there shall be levied and collected on all goods
enumerated or referred to in Schedule 1, when such goods are
imported, and paid in accordance with the Customs Act,
customs duties at the rates set out in Schedule 1 or section 46
that are applicable to those goods.
(2)
The rates of customs duty set out in Schedule 1 and section 46
and the customs duties imposed by this Act are subject to such
increases, reductions, removals or other exceptions as may be
specified in this or any other Act of Parliament, or in any
regulation or order made thereunder.
[6]
She also referred me to Schedule 1, item 87.03 which refers to
"motor cars and other motor vehicles principally designed
for the transport of persons including station wagons and racing
cars".
[7]
From this I am asked to draw the conclusion that the chassis
returned to Mr. Alveberg now with a wooden body on part of it,
but without the mechanical innards, hood and finished roof
amongst other missing elements, falls within the category of
"motor cars, including station wagons". I believe it
had a long way to go to be considered in such a category. It was
at best partially completed: it was certainly not a finished
product. It could not be driven, and from the photographs it does
not appear one could even sit in it. I find that the vehicle in
the shape in which it returned to Canada did not fall under item
87.03 of Schedule 1. It is still necessary to address whether the
wooden body is "goods" subject to duty even though the
Crown referred me to no other section of Schedule 1 to assist
me.
[8]
In reviewing Schedule 1 to the Customs Tariff Act there is
a section, 87.08, which refers to parts and accessories of the
motor vehicle including other parts and accessories of bodies.
Although the chassis with the wooden body on it was not, as I
have determined, a motor vehicle for purposes of section 87.03 of
Schedule 1, there is no doubt it was to become a motor vehicle
once returned to Canada and subjected to reassembly. The wooden
body does therefore fall within this classification of parts
including parts of bodies. This was not the basis upon which Mr.
Alveberg was assessed however.
[9]
Section 217 of the Act is part of Division IV of Part IX.
Section 218 of the Act is also part of Division IV and it
reads:
218. Subject
to this Part, every recipient of an imported taxable supply shall
pay to Her Majesty in right of Canada tax calculated at the rate
of 7% on the value of the consideration for the imported taxable
supply.
[10]
Subparagraph 217(a)(iv) of the Act reads as follows:
217. In this
Division, "imported taxable supply" means
(a) a
taxable supply (other than a zero-rated or prescribed supply) of
a service made outside Canada to a person who is a resident in
Canada, other than a supply of a service that is
...
(iv) a
service (other than a custodial or nominee service in respect of
securities or precious metals of the person) in respect of
tangible personal property that is
(A)
situated outside Canada at the time the service is performed
...
[11] Clearly
this is dealing with supply of services. So where does the labour
cost of the wooden element of the car more appropriately belong:
as "imported goods" or as an exception to an
"imported taxable supply" in accordance with section
217 of the Act? As indicated earlier, I am not satisfied
that the goods in question can be described as a motor car. The
goods are simply the wood in the form of a body of part of a car,
more appropriately caught by section 87.08 of Schedule 1.
"Goods" is defined in the Act as having the same
meaning as set forth in the Customs Act, which is of
little further assistance as it states goods includes conveyances
and animals. Nothing in the definition or the ordinary
understanding of goods as tangible personal property requires a
breakdown of goods into its component elements of materials and
labour. If a new vehicle is purchased the price paid covers both
materials and labour: the purchaser is not advised how much is
being paid for labour. However, this was not a new vehicle: this
was, to use a home improvement analogy, a major renovation. A
homeowner does not buy a new kitchen, but buys component parts
and pays separately for the services of a kitchen designer and
installer to have those parts installed in a certain, unique
arrangement to complete the kitchen. This is more a supply of
services than supply of goods. In this case Mr. Alveberg provided
a chassis, bought materials and then spent a considerable sum for
the expertise of wooden car manufacturers, an expertise that was
not available in Canada. I find his payment for labour was for
the supply of a service.
[12]
Notwithstanding my finding that the cost of labour was in
connection with the supply of a service, I wish to work through
the sections dealing with the determination of the value of goods
to satisfy myself the wording does not capture labour costs in
this type of situation. So, assuming the wooden part of the
vehicle as opposed to the vehicle itself does fall within the
classification of "goods" subject to certain duty, then
I must in accordance with subsection 215(1) of the Act
turn to the Customs Act to determine the value against
which the GST is attached and if such value includes the cost of
labour. Section 47 of that Act indicates the value for
duty is the transaction value as determined pursuant to
subsection 48(4) of the Customs Act, which reads:
48(4) The transaction
value of goods shall be determined by ascertaining the price paid
or payable for the goods when the goods are sold for export to
Canada and adjusting the price paid or payable in accordance with
subsection (5).
[13]
Subsection 48(4) of the Customs Act refers to the price
paid or payable which is defined in subsection 45(1) as
follows:
45 (1) ...
"price paid or payable", in respect of the sale of
goods for export to Canada, means the aggregate of all payments
made or to be made, directly or indirectly, in respect of the
goods by the purchaser to or for the benefit of the vendor;
...
[14] Is the
amount paid for labour a payment made "directly or
indirectly in respect of the goods"? As I have determined,
only the wooden part of the vehicle is considered
"goods". I find that payment for labour costs is not in
respect of the goods. The labour costs went into the assembly of
the goods as a part of the vehicle but the payment was made in
respect of the specialized labour not the goods. Suppose Mr.
Alveberg was driving an old wooden car badly in need of repairs
in California and came across a wooden car repair specialist. He
takes the opportunity to have extensive repairs completed there
and eventually continues his journey back to Canada. This is a
service in respect of tangible personal property that is situated
outside Canada at the time the service is performed. This is not
the purchase of a car by a purchaser from a vendor. I have
difficulty in portraying Heiden's as the vendor of a vehicle
as opposed to simply a vendor of parts that went into a vehicle.
Heiden's true value was in the provision of expert labour.
Mr. Alveberg was really buying expertise he could not get in
Canada, not goods. The cost of the materials was incidental to
the supply of the specialized service, rather than the cost of
the specialized labour being an integral element of the cost of
goods. I find that the cost of labour in this case is not caught
indirectly by sections 45 and 48 of the
Customs Act.
[15] I
conclude that the labour cost is not a component part of the cost
of goods, but is more appropriately viewed in relation to a
supply of a service. Is it then an exception falling within
subparagraph 217(a)(iv) of the Act, which requires
that:
(i)
it be a service,
(ii)
in respect of tangible property; and
(iii)
the property is situated outside of Canada at the time the
service is performed.
[16] On the
face of it, the circumstances of Mr. Alveberg's wooden car
appear to fit squarely within this exception. The labour in
constructing the wooden body was a service, the property was
tangible property, and at the time the service was performed the
property was certainly situated outside of Canada.
[17] Crown
counsel argued that if I accept the Appellant's position that
the payment for the specialized labour is an exception pursuant
to subparagraph 217(a)(iv) of the Act I will be
encouraging Canadians to get work done in the United States on a
GST free basis, that if performed in Canada would be subject to
GST. Mr. Alveberg was adamant that he only went to the
United States, as he could not find a Canadian capable of
performing the work. This situation is certainly limited to that
of foreign expertise not available in Canada.
[18] I find
the cost of specialized labour more appropriately falls under the
category of a supply of a service, as opposed to being in respect
of a supply of goods. As such I look to section 217 of the
Act and find it falls within the exception set forth in
subparagraph 217(a)(iv) of the Act. The cost of materials
was not put in issue before me and I therefore make no ruling in
that regard. I allow the appeal and refer the matter back to the
Minister of National Revenue for reassessment on the basis that
no GST is exigible on the cost of the labour of
$21,465.50 (US).
Signed at Ottawa, Canada this 25th day of
October, 2001.
"Campbell J. Miller"
J.T.C.C.
COURT FILE
NO.:
2001-1579(GST)I
STYLE OF
CAUSE:
James G. Alveberg v. The Queen
PLACE OF
HEARING:
Kelowna, British Columbia
DATE OF
HEARING:
September 6, 2001
REASONS FOR JUDGMENT
BY:
The Honourable Judge Campbell J. Miller
DATE OF AMENDED
JUDGMENT:
October 25, 2001
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Kristy Foreman-Gear
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-1579(GST)I
BETWEEN:
JAMES G. ALVEBERG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on September 6, 2001 at Kelowna,
British Columbia,
by the Honourable Judge Campbell J. Miller
Appearances
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Kristy Foreman-Gear
AMENDED JUDGMENT
The appeal from the Canada Customs-Detailed Adjustment
Statement made under the Excise Tax Act, dated April 11,
2001 and bears number 00000620567716, is allowed and the matter
is referred back to the Minister of National Revenue for
reconsideration and reassessment in accordance with the attached
Amended Reasons for Judgment.
This Amended Judgment and Amended Reasons for Judgment are
issued in substitution for the Judgment and Reasons for Judgment
issued September 18, 2001.
Signed at Ottawa, Canada this 25th
day of October, 2001.
J.T.C.C.
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