Date: 20010824
Docket: 2000-4443-GST-I
BETWEEN:
LA BRASSERIE LABATT LIMITÉE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Teskey, J.
[1]
The Appellant appeals an assessment of excise tax pursuant to the
goods and services provisions ("GST") of the Excise
Tax Act (the "Act"), where the Minister
of National Revenue (the "Minister") denied the
Appellant's claim for the remaining fifty percent of the
reimbursement of input tax credits ("ITCs") on the
basis that section 236 of the Act effectively limited
the Appellant's entitlement to ITCs to fifty percent, in
respect of the Appellant's reporting period of May 1,
1998 to May 31, 1998.
Issue
[2]
The issue in this appeal is whether subsection 236(1) of the
Act applies to input tax credits for the period of May 1,
1994 to May 31, 1998 and claimed by the Appellant in its return,
for the reporting period May 1, 1998 to May 31, 1998, in
respect of reimbursements paid to certain of its employees for
supplies of food, beverages and entertainment contracted for,
paid for and received by these employees.
[3]
It is common ground that section 236 of the Act
applies expenses incurred for food, beverages and entertainment
contracted for by the Appellant directly and those contracted for
by employees who are given an allowance by the Appellant. This
appeal deals with the expenses reimbursed to employees who had
contracted for food, beverages and entertainment.
Facts
[4]
The parties agreed to a statement of facts that was filed as
Exhibit A-1. There are four exhibits to the statement
that I am not reproducing herein. This statement has
17 paragraphs which read as follows:
1.
The Appellant carries on the business of brewing and selling beer
(the "Business") in the province of Quebec and its
principal place of business is 50 Avenue Labatt, Lasalle,
Quebec.
2.
During the period May 1, 1994 to May 31, 1998 (the "Relevant
Period"), in the ordinary course of its Business, the
Appellant contracted for, paid for and received supplies of food,
beverages and entertainment to which subsection 67.1(1) of
the Income Tax Act (Canada) (the "ITA")
applied.
3.
During the Relevant Period, the Appellant's employees in
carrying out their employment duties also contracted for, paid
for and received supplies of food, beverages and entertainment to
which subsection 67.1(1) of the ITA applied.
4.
The Appellant either paid allowances to or reimbursed its
employees for the food, beverage and entertainment expenses
incurred by its employees as described in paragraph 3, above.
Attached hereto as Exhibit "A" is a blank sample
expense claim form used by the Appellant's employees to claim
reimbursement for, inter alia, food, beverage and
entertainment expenses.
5.
Pursuant to section 169 of the Excise Tax Act
(the "ETA"), the Appellant was entitled to claim
input tax credits for GST it paid on supplies of food, beverages
and entertainment for which it contracted
(the "Employer ITCs").
6.
By operation of section 169 together with section 174 and 175 of
the ETA, the Appellant was also entitled to claim input tax
credits in respect of the GST paid by its employees on meals,
beverages and entertainment expenses in respect of which the
Appellant paid an allowance (the "Allowance ITCs") or a
reimbursement (the "Reimbursement ITCs"),
respectively.
7.
Pursuant to section 236 of the ETA, as it read for the Relevant
Period, following the end of each fiscal year a registrant was
required to add back to its net tax 50% of the total of all
amounts, each of which is an ITC claimed in a return for a
reporting period in the fiscal year, in respect of a supply of
food, beverages and entertainment for which the registrant was
the recipient or for which it paid an allowance.
8.
Pursuant to an administrative policy (the "Policy") of
Revenue Canada (now the Canada Customs and Revenue Agency) as set
out in GST Memorandum 400-3-3, in lieu of registrants claiming
through the year 100% of eligible ITCs in respect of food,
beverages and entertainment and adding back 50% of the ITCs
claimed after the end of their fiscal year, a registrant could
claim only 50% of the eligible ITCs through the year with no
requirement of recapture or claw-back after year end.
9.
During the relevant period the Appellant, on the basis of the
Policy, claimed only 50% of the Employer ITCs, Allowance ITCs and
Reimbursement ITCs (which amounts have not been audited) that the
Appellant believed itself to be otherwise entitled to through
each year.
10.
There is no dispute that section 236 of the ETA applied to in
effect limit the Appellant's Employer ITCs and Allowance ITCs
entitlement to 50%.
11.
While the Appellant initially thought that section 236 of
the ETA also applied to the Reimbursement ITCs, it subsequently
concluded that during the Relevant Period section 236 of the ETA
had no application to the Reimbursement ITCs.
12.
Accordingly, in its GST return for the reporting period May 1,
1998 to May 31, 1998 the Appellant claimed an input tax credit in
the amount of $210,442.99 (which amount has not been audited),
being an amount equal to the remaining 50% of the Reimbursement
ITCs in respect of the Relevant Period to which the Appellant
believed it was entitled if section 236 of the ETA was not
applicable to the Reimbursement ITCs. The Appellant's GST/QST
return for the reporting period May 1, 1998 to May 31 1998
together with the Appellant's covering letter dated
June 30, 1998 are attached hereto as Exhibit
"B".
13.
By Notice of Assessment No. DGMET-885 dated October 26, 1998
(the "Assessment"), the Appellant was assessed the sum
of $210,442.99 for the May 1, 1998 to May 31, 1998
reporting period. A copy of the Assessment is attached hereto as
Exhibit "C".
14.
In making the Assessment, the Minister of National Revenue
(the "Minister") denied the Appellant's claim
for the input tax credits in the amount of $210,442.99 (being the
Appellant's determination of the remaining 50% of the
Reimbursement ITCs) on the basis that section 236 of the ETA
effectively limited the Appellant's ITC entitlement to the
Reimbursement ITCs to the 50% originally claimed, as it did for
the Employer ITCs and the Allowance ITCs.
15.
The Appellant objected to the Assessment by Notice of Objection
dated January 25, 1999.
16.
By Notice of Decision dated July 28, 2000 (the
"Decision"), the Minister confirmed the Assessment. A
copy of the Decision is attached hereto as Exhibit
"D".
17.
The Parties agree that the input tax credits claimed by the
Appellant in this appeal are not the subject of any admission,
the parties having agreed that, before complying with any final
judgement that may eventually be rendered in the Appellant's
favour, the Minister will have the opportunity to audit, within a
reasonable time, each and every application for input tax credits
in order to assess the accuracy of the amounts claimed by the
Appellant.
Appellant's Argument
[5]
Counsel for the Appellant began his argument by summarizing the
three possible situations which involve the payment of GST for
food, beverages and entertainment. They are as follows:
(1)
The Appellant incurs expenses for food, beverages and
entertainment and pays for them. In this situation, the parties
agree that section 67.1 of the Income Tax Act
("ITA") applies and section 236 of the
Act reduces the ITCs claimed to fifty percent (the fifty
percent claw back);
(2)
The Appellant pays an allowance to its employees who then incur
expenses for food, beverages and entertainment. In this
situation, the parties agree that section 67.1 of the ITA
again applies and section 236 of the Act reduces the
ITCs claimed to fifty percent (the fifty percent claw back);
and
(3)
The Appellant's employees incur expenses for food,
beverages and entertainment after which they are reimbursed by
the Appellant for such expenses. The Appellant submits that
section 67.1 of the ITA does not apply to this
situation.
[6]
The dispute in the present appeal arises with the third
situation. The Appellant's counsel submitted that section
236 of the Act, as it then read, is not applicable to
reimbursements. As a result, the Appellant claimed the remaining
fifty percent balance that it had not claimed with respect to
reimbursements for the relevant period of May 1, 1994 to May 31,
1998.
[7]
It is worth mentioning that one hundred percent of ITCs will
normally be claimed pursuant to sections 169, 174 and 175 of the
Act and that fifty percent of expenses for food, beverages
and entertainment is repaid at the end of the fiscal year
pursuant to subsection 236(1). However, pursuant to an
administrative policy, taxpayers are given the option of claiming
only fifty percent of the food, beverages and entertainment
expenses initially and, as a result, removing the need for a claw
back at the end of the year. The Appellant acted on this policy
and, when it believed that subsection 236(1) did not apply
to the reimbursements, claimed the balance of the other fifty
percent in relation to these amounts.
[8]
Counsel for the Appellant submitted that when interpreting taxing
statutes, regard must be had for the plain and ordinary meaning.
For this proposition, counsel referred to three cases of the
Supreme Court of Canada dealing with the ITA: Canada v.
Antosko, 94 DTC 6314, Friesen v. The Queen,
95 DTC 5551 and Shell Canada Ltd. v. Canada,
99 DTC 5669.
[9]
In the most recent of these three decisions, McLachlin J. stated
in Shell, at page 5676:
Second, it is well established in this Court's tax
jurisprudence that a searching inquiry for either the
"economic realities" of a particular transaction or the
general object and spirit of the provision at issue can never
supplant a court's duty to apply an unambiguous provision of
the Act to a taxpayer's transaction. Where the
provision at issue is clear and unambiguous, its terms must
simply be applied. ...
She further stated, at p. 5676:
Second, it is my respectful view that the Federal Court of
Appeal's misplaced reliance on "economic
realities" caused it to stray from the express terms of
s. 20(1)(c)(i) and supplement the provision with
extraneous policy concerns that were said to form part of its
purpose. The Act is a complex statute through which
Parliament seeks to balance a myriad of principles. This Court
has consistently held that courts must therefore be cautious
before finding within the clear provisions of the Act an
unexpressed legislative intention. ...
And then, at p. 5677:
... The courts' role is to interpret and apply the
Act as it was adopted by Parliament. Obiter
statements in earlier cases that might be said to support a
broader and less certain interpretive principle have therefore
been overtaken by our developing tax jurisprudence. ...
[10] Counsel
also referred to The Queen v. MacMillan Bloedel Limited,
3 TCT 5359 (F.C.T.D) and The Queen v. The Maritime
Life Assurance Company, 2000 G.T.C. 4157 (F.C.A.), for the
proposition that the plain and ordinary meaning rule applies to
the Act. In the Maritime Life case, Maritime Life
is an insurer and the issue was whether investment administration
fees which it charged in respect of segregated funds maintained
by it under the deferred annuity life insurance contracts where
subject to GST.
[11] In
section 131 of the Act, the segregated fund was deemed to
be a separate person for purposes of the Act, but nothing
more. The Minister took the position that certain conclusions
could be drawn or extensions could be made under the Act
because of that provision, namely that there was a supply between
the segregated fund and the insurance company and that there was
a fee charged for the supply, namely the IAF, and thus it would
be subject to GST.
[12] Sharlow
J.A. concluded that section 131 of the Act did not deem as
much as was advanced by the Minister and that the wording had to
be interpreted as it was found. Paragraph 29 of Maritime
Life reads:
Thus, I do not accept that there is any legal basis for
reading section 131 as necessarily implying that an insurer that
creates a segregated fund must be deemed to receive fees from the
fund for managing the segregated fund. I see nothing in section
131 that requires or permits the Crown to treat the investment
administration fees as anything other than what they are in fact,
which as explained above is the portion of Maritime Life's
premium revenues that is not retained in the segregated
funds.
[13] Counsel
for the Appellant alleged that subsection 236(1) applies to
situations where the registrant is a recipient of food, beverages
or entertainment or where the registrant pays an allowance in
respect of the food, beverages or entertainment. Counsel then
referred to the definition of "recipient" in
subsection 123(1) of the Act. It provides:
"recipient" of a supply of property or a service
means
(a)
where consideration for the supply is payable under an agreement
for the supply, the person who is liable under the agreement to
pay that consideration,
(b)
where paragraph (a) does not apply and consideration is
payable for the supply, the person who is liable to pay that
consideration, and
(c)
where no consideration is payable for the supply,
(i)
in the case of a supply of property by way of sale, the person to
whom the property is delivered or made available,
(ii)
in the case of a supply of property otherwise than by way of
sale, the person to whom possession or use of the property is
given or made available, and
(iii) in
the case of a supply of a service, the person to whom the service
is rendered,
and any reference to a person to whom a supply is made shall
be read as a reference to the recipient of the supply;
[14] Counsel
asserted that the Appellant is the recipient in the first
category where it receives the food, beverages and entertainment
directly. Moving on to the second category, where the Appellant
pays an allowance to its employees for food, beverages and
entertainment which the employee contracted for, counsel stated
that the Appellant is not the recipient. In his
opinion, the employee is the recipient of the supply. However,
the allowance is, in his opinion, brought in pursuant to
subsection 236(1). For the third category, being the
reimbursements by the Appellant to its employees, counsel again
stated that the Appellant is not the recipient. Subsection 236(1)
does not provide for the situation of reimbursements and in
counsel for the Appellant's view, this is fatal to the
Respondent's position.
[15] Counsel
for the Appellant then referred to subsection 175(1) of the
Act, which was amended in 1997. For all intents and
purposes, the provision is essentially the same and reads as
follows:
175(1) Where an employee of an
employer, a member of a partnership or a volunteer who gives
service to a charity or public institution acquires or import
property or a service or brings it into a participating province
for consumption or use in relation to activities of the employer,
partnership, charity or public institution (each of which is
referred to in this subsection as the "person"), the
employee, member or volunteer paid the tax payable in respect of
that acquisition, importation or bringing in and the person pays
an amount to the employee, member or volunteer as a reimbursement
in respect of the property or service, for the purposes of this
Part,
(a)
the person is deemed to have received a supply of the property or
service;
(b)
any consumption or use of the property or service by the
employee, member or volunteer in relation to activities of the
person is deemed to be consumption or use by the person and not
by the employee, member or volunteer; and
(c)
the person is deemed to have paid, at the time the reimbursement
is paid, tax in respect of the supply equal to the amount
determined by the formula
A X B
where
A
is the tax paid by the employee, member or volunteer in respect
of the acquisition, importation or bringing into a particular
province of the property or service by the employee, member or
volunteer, and
B is the lesser of
(i)
the percentage of the cost to the employee, member or volunteer
of the property or service that is reimbursed, and
(ii)
the extent (expressed as a percentage) to which the property or
service was acquired, imported or brought into the province, as
the case may be, by the employee, member or volunteer for
consumption or use in relation to activities of the person.
[16] Counsel
for the Appellant asserted that section 175 deems three
things:
· That
the employer paying the reimbursement has received a supply;
· The
consumption of the employee is the consumption of the employer;
and
· The
employer has paid tax calculated according to a formula.
[17] The
purpose of section 175, in his opinion, and which he stated
is confirmed by the Explanatory Notes, is to allow the employer
to claim ITCs in accordance with subsection 169(1). He referred
to the words "where ... tax is payable ... or is
paid by the person" in subsection 169(1) which go on to
say that in those circumstances you may claim an ITC based on the
formula provided, to the extent that the property was used in
commercial activities. Accordingly, counsel submitted that
sections 174 and 175, which are worded similarly, were
solely intended to permit a person to claim ITCs pursuant to
subsection 169(1). He also reasoned that were it not for section
174 and 175, the Appellant could only have claimed ITCs on the
food, beverages and entertainment expenses incurred by it
directly.
[18] Further,
counsel for the Appellant stated that subsection 236(1) will
apply where subsection 67.1(1) of the ITA applies. He
submitted that the deeming transactions resulting from sections
174 and 175 of the Act do not exist for purposes of
section 67.1 of the ITA. Moreover, reimbursements are not
included in subsection 236(1). Counsel then referred the Court to
subsection 236(1), as amended by S.C. 2000, c. 30, s. 64,
applicable after October 8, 1998, which now refers to an
allowance and a reimbursement.
[19] Returning
to the definition of "recipient" in subsection
123(1), counsel referred to the Respondent's argument that
the closing words broaden the scope of the definition. In the
Minister's view, recipient includes any person who is
deemed to have received the supply or to whom a supply is made.
Counsel for the Appellant stated that this contention is
untenable as it replaces paragraphs (a) through (c)
and renders them useless. In other words, the Respondent's
position is that a mere reference to a person who is receiving a
supply deems that person to be a recipient. Counsel stated that
the Respondent's argument has been rejected in
Commission Scolaire des Chênes v. The Queen,
[2000] T.C.J. No. 71 (T.C.C.), under appeal (hearing date set for
September 12, 2001). In his opinion, the Court concluded that the
closing words of the definition do not deem who a recipient is
and that one must still look to paragraphs (a) through
(c) to arrive at a determination. Counsel also referred to
the Explanatory Notes to support his contention that the closing
words do not displace paragraphs (a) through
(c).
[20] Counsel
states that subsection 175(1) of the Act does not deem the
Appellant to be a recipient or to have paid consideration for any
supply. He contends that it is solely and clearly directed to the
claiming of ITCs and only deems the elements necessary for
subsection 169(1). This interpretation, he states, is clearly
supported by the Explanatory Notes for subsection 175(1).
[21]
Appellant's counsel referred to the Minister's
argument that it is a logical necessity that the Appellant is a
recipient because subsection 175(1) deems him to have received a
supply. Counsel again referred the Court to the Maritime
Life case which dealt with section 131 of the Act
and in his opinion, the Court concluded that that section could
not be found to deem more than the language permitted.
Sharlow J.A. stated at paragraphs 21 and 23:
The Crown says that this provision creates a statutory fiction
solely for purposes of the GST. That is undoubtedly so. The issue
is how far this statutory fiction extends. The Crown is reading a
number of consequences into section 131 that are not stated.
Whether those consequences are necessarily implied by section 131
is the principal dispute in this case.
...
It would seem that the combined effect of these two provisions
is that if Maritime Life receives anything that might be
construed as consideration for acting as trustee of the deemed
trust, GST would be payable on that consideration. However, the
Crown is not arguing, and could not argue, that subsection
267.1(5) has any application to the facts of this case, because
the deemed trust exists only for purposes of the GST. There is no
contractual or other arrangement that could possibly be construed
as an arrangement by which Maritime Life is receiving
consideration for acting as a trustee. Nor is there any provision
of the Excise Tax Act that deems Maritime Life to have
received consideration from its segregated funds that would fit
within subsection 267.1(5). Certainly the deeming rule in section
131 cannot be read as extending that far.
Counsel for the Appellant stated that such a conclusion should
apply to the present appeal and that section 175 should be taken
at face value. He submitted that the section should only have the
effect of deeming what the language found in it expressly
deems.
[22]
Additionally, counsel argued that there can only be one recipient
per supply. In this case, there is no supply of which the
Appellant was the recipient other than the supplies it received
directly itself.
[23] He
further submitted that the Minister agrees in his argument that
section 236 includes reimbursements, thus rendering the
mention of allowance redundant. Counsel then cited Morguard
Properties Ltd. et al. v. City of Winnipeg, [1983]
2 S.C.R. 493, for the proposition that Courts must strive to
attribute meaning to every word employed by the Legislature in a
statute. At page 504, Estey J. stated:
... Some meaning must be attributed to the word
"level" as otherwise it is mere surplusage, and courts
in the application of the principles of statutory construction
endeavour, where possible, to attribute meaning to each word
employed by the Legislature in the statute. ...
[24] Counsel
for the Appellant advanced that "recipient" is used in
section 165 in order to determine who must pay the tax. Sections
175 and 169 do nothing to change that and they rather direct one
to another purpose, namely, who can claim an ITC since another
person actually paid the tax.
Respondent's Argument
[25] Counsel
for the Respondent stated that his argument is simple and that
the appeal can be resolved by determining whether a person who is
deemed to have received a supply is a person to whom a supply has
been made and, therefore, a recipient.
[26] Counsel
stated that the closing words of the definition of
"recipient" are to be applied throughout the
Act. He stated that regardless, if you fit within one of
paragraphs (a), (b) or (c), wherever you see
a reference to a person to whom a supply is made in the
Act, you are to consider that person to be a recipient.
Moreover, he suggested that the words are not limited to the
specific combination of words found in the closing words and that
any similar combination will suffice. He alleges that "to a
person to whom a supply is made" is a concept and that any
broad reference to a person to whom a supply is made or a person
who received the supply is enough to qualify one as a recipient.
Counsel for the Respondent agreed, however, that the Explanatory
Notes provides that the closing words only refer to paragraph
(c).
[27] Counsel
then referred the Court to the French definition of
"recipient" being "acquéreur".
Firstly, he noted that a period separates paragraph (c)
from the closing words and, secondly, he noted that the closing
words begin with "par ailleurs" which means: moreover
or otherwise.
[28] Counsel
for the Respondent advanced that the wording of subsection 169(1)
is a reference to a recipient. Accordingly, he stated that if you
are not a recipient, you cannot claim an ITC under section 169.
Counsel then submitted that section 175 of the Act
does not deem the employer to be the recipient but in his
opinion, such a deeming is not necessary. By deeming a person to
have received a supply, section 175 makes reference to a
person to whom a supply is made and, as such, he is a recipient.
He stated that even if section 175 does not deem the
employer to be a recipient, the Minister still wins because the
Appellant could not have claimed an input tax credit to begin
with if it was not a recipient.
[29] After
undertaking to evaluate other sections of the Act in the
light of the Appellant's argument that when Parliament
wishes to deem recipients it does so in express terms, counsel
for the Respondent states that this conflicts with the way the
Act works.
[30] Counsel
then tried to explain why section 236 contains the redundant
terms "or pays an allowance" since sections 174
and 175 deem the Appellant to be a recipient. Counsel suggested
that although sections 174 and 175 may be worded similarly
now, that was not always the case. He stated that the initial
wording of section 174 required the inclusion of
"allowance" in section 236. This initial wording was,
however, amended retroactively to the introduction of the GST.
Numerous amendments were then made to sections 174 and 175 and
the reference to "allowance" in section 236 was
retained.
[31] He stated
that in the ideal world, it would be nice to give meaning to
every word. However, he says that doing so in the present appeal
might do violence to the intent of Parliament. Referring to Ruth
Sullivan's text on Construction of Statutes, counsel
distinguished between legislative gaps and drafting errors. He
stated that the Court can do nothing if it finds a legislative
gap whereas if a simple drafting error exists, the removal of the
meaningless phrase or word is acceptable.
[32] Counsel
for the Respondent admitted that the Commission Scolaire Des
Chênes case runs counter to his position. He states,
however, that those statements were made in obiter.
Counsel then advanced that he had not located the reasons in
French and that the judge had perhaps not looked at the French
version of the definition of "recipient", in which the
closing words are separated from paragraph (c) by a
period. (It is noted that the original reasons for judgment were
in French and the English version is the translation.)
[33] Counsel
then stated that the Appellant's argument that
sections 174 and 175 create artificial supplies that are not
caught by section 67.1 of the ITA and, therefore,
section 236 could not apply to reimbursements only, is
nonsensical and that Parliament could not have intended that
result.
Appellant's Argument in Reply
[34] Counsel
for the Appellant stated that no contortions are necessary and
that the Court should simply read section 236 and apply it as it
reads. He stated that unless the Respondent has successfully
established that the Appellant is the recipient, the Appellant
must succeed under section 236.
[35] Counsel
submitted that the Respondent's argument that the closing
words of the definition of "recipient" are very
flexible and apply to a number of phrases and not just the phrase
found in the closing words is untenable. He stated that one
cannot look at a provision of the Act and automatically
assume that a person is a recipient as soon as certain words are
present. He stated that this Court has rejected that view in the
Des Chênes case and that the statement was not made
in obiter.
[36] Counsel
submitted that it is up to Parliament to correct the perceived
problem and, moreover, he stated that they have amended section
236 to include a reference to reimbursements.
Analysis
[37] The main
issue in the present appeal is whether the Appellant is caught by
section 236 of the Act, as it then read, with regards to
amounts it reimbursed to its employees for food, beverages and
entertainment and claimed full ITCs.
[38]
Subsection 236(1) read as follows during the relevant period:
236(1) Where a registrant is
the recipient of, or pays an allowance in respect of, a supply of
food, beverages or entertainment and subsection 67.1(1) of the
Income Tax Act applies, or would apply if the registrant
were a taxpayer under that Act, in respect of the supply or
allowance, 50% of the total of all amounts, each of which is an
input tax credit claimed in a return for a reporting period in a
fiscal year of the registrant in respect of the supply or
allowance, shall be added in determining the net tax
(a)
where the registrant ceases in or at the end of that fiscal year
to be registered under Subdivision d, for the last reporting
period of the registrant in that fiscal year;
(b)
where the reporting period of the registrant in that fiscal year
is that fiscal year, for that reporting period; and
(c)
in any other case, for the reporting period of the registrant
that begins immediately after the end of that fiscal year.
This appeal arises from the omission to include
"reimbursement" in the above provision or, in the
alternative, from the redundant terms "or pays an
allowance".
[39] This
problem flows from the third of three possible situations which
arise:
(1)
the Appellant incurs expenses for food, beverages and
entertainment directly;
(2)
the Appellant pays an allowance to employees who then incur
expenses for food, beverages and entertainment; and
(3)
the Appellant's employees incur expenses for food,
beverages and entertainment after which they are reimbursed by
the Appellant.
[40] The
Appellant could not claim ITCs pursuant to subsection 169(1) of
the Act in the second and third situations if it were not
for sections 174 and 175 of the Act. Sections 174 and
175 are very similar although the former deals with allowances
while the latter with reimbursements. The Technical Notes (July
1997) to these sections help enlighten us on their purpose:
The purpose of section 174 is to enable a person who is an
employer, partnership, charity or public institution to claim an
input tax credit or rebate in respect of allowances paid for
certain expenses to the same extent as would have been the case
had the person incurred the expense directly. ...
And for section 175:
... The purpose of the provision is to enable the person to
claim an input tax credit or rebate in respect of the reimbursed
expense to the same extent as would have been the case had the
person incurred the expense directly. ...
[41] These
provisions essentially deem three things to happen:
(1)
the employer is deemed to have received a supply;
(2)
the consumption of the employee is deemed to be the
employer's consumption; and
(3)
the employer is deemed to have paid tax according to a specific
formula.
What this Court must determine, however, is whether sections
174 and 175, together with the definition of
"recipient" in subsection 123(1), have the effect of
deeming the Appellant to be a recipient. The definition of
recipient provides:
"recipient" of a supply of property or a service
means
(a)
where consideration for the supply is payable under an agreement
for the supply, the person who is liable under the agreement to
pay that consideration,
(b)
where paragraph (a) does not apply and consideration is
payable for the supply, the person who is liable to pay that
consideration, and
(c)
where no consideration is payable for the supply,
(i)
in the case of a supply of property by way of sale, the person to
whom the property is delivered or made available,
(ii)
in the case of a supply of property otherwise than by way of
sale, the person to whom possession or use of the property is
given or made available, and
(iii) in
the case of a supply of a service, the person to whom the service
is rendered,
and any reference to a person to whom a supply is made shall
be read as a reference to the recipient of the supply;
Counsel for both parties have debated the significance to be
attributed to the closing words of the definition. It is
important to note that the closing words of the French version
"acquéreur" provide:
(iii) personne à qui un service est rendu.
Par ailleurs, la mention d'une personne au profit de
laquelle une fourniture est effectuée vaut mention de
l'acquéreur de la fourniture.
[42] Although
the words "person to whom a supply is made" seem to
refer to the concepts dealt with in subparagraphs
123(1)(c)(i) through (iii), the period in the French
version would seem to indicate that the closing words encompass
the definition as a whole. It is interesting to note that the
Technical Notes (February 1993) indicate that the closing words
refer to paragraph (c) of the definition:
... Further, the definition in the case where there is no
consideration for the supply is clarified by specifying what is
meant by the words "the person
to whom a
supply is made"
in the existing definition. As well, it clarifies that where the
latter phrase is used elsewhere in Part IX of the Act or in
Schedule V, VI or VII, it is a reference only to the recipient of
the supply as defined in subsection 123(1).
[43] In
Commission Scolaire Des Chênes, Lamarre Proulx J.
gave a similar interpretation to the closing words in paragraph
28 of her Reasons for Judgment, and this notwithstanding the
period separating those words from paragraph (c) in the
French version of the definition:
The last clause of the definition is somewhat ambiguous. Does
it amend the definition of "recipient" to mean a
person to whom a supply is made, when these words appear in
the Act, or does it merely refer to the definition of
"recipient"? It should be noted that the description of
a service of transporting students in section 5, Part III,
Schedule V of the Act uses precisely this same expression:
A supply made by a school authority to [...]
students. According to the explanatory notes to Bill C-112
of February 1993, this expression, where used elsewhere in Part
IX of the Act or in Schedules V, VI or VII, refers solely
to the recipient of the supply as that term is defined in
subsection 123(1) of the Act. I believe this is how this
clause must be interpreted because, in order for it to be
considered as being broad enough in scope to amend, as it were,
the definition of "recipient", it would have to be
contained in a paragraph dealing specifically with the definition
of "recipient", not in the paragraph concerning cases
in which no consideration is payable in respect of the supply. It
therefore remains to be determined whether a consideration was
paid to the appellant for the transportation service.
[44] Counsel
for the Respondent argued that the closing words not only refer
to the entire definition but that any mention of the words
"person to whom a supply is made" or similar wording in
the Act is replaced by the word recipient. To accede to
this interpretation would distort the Act and render
paragraphs (a) through (c) of the definition
completely useless and redundant. Anyone coming within one of the
sections of the Act would automatically become a recipient
for the purposes of the Act and, as a result, liable for
tax pursuant to section 165. This cannot be the result that
Parliament intended in drafting the definition of recipient in
subsection 123(1) of the Act.
[45] The
"recipient" concept is relevant for determining who is
liable to pay tax pursuant to subsection 165(1) of the Act
and has no bearing on the claiming of ITCs pursuant to subsection
169(1). Subsection 169(1) in no way necessitates the claimant of
an ITC to be a "recipient". Although, this may have
been assumed by this Court in other decisions[1], the Court has never pronounced
itself on this specific point. This recognizes that the person
claiming the ITC may, in some circumstances, not be the person
who actually paid the tax on the supply. Moreover, in Les
Immeubles Sansfaçon Inc. (supra), my colleague,
Tardif J., concluded that there could not be two recipients
pursuant to the definition of "recipient".
[46] In the
present appeal, the recipient of the supply in the second and
third situations dealing with allowances and reimbursements are
clearly the employees. Not only have they paid for the supply,
they have received it and they have used it up. Only then does
one go to sections 174 and 175 and see that Parliament intended
that the employer be able to claim ITCs in relation to those
supplies by deeming three specific things to happen, all the
while never deeming the employer to be the recipient. To deem the
employer to be the recipient would also have the absurd effect of
making the employer liable for tax pursuant to subsection 165(1),
being tax which the employees have already paid.
[47] Having
concluded that the Appellant is not the recipient under either of
sections 174 and 175 or the definition of "recipient"
in subsection 123(1), we must lastly look to section 236. Counsel
for the Respondent spent a great deal of time explaining why
section 236 reads as it does and that main reason is because
sections 174 and 175 initially had different wording.
Regardless of the past wording of those provisions, they were
subsequently amended and subsection 236(1) could have been
amended in consequence. I should add that the section was amended
by S.C. 2000, c. 30, s. 64, applicable for reporting periods
ending after October 8, 1998. Oddly enough, and this is not
determinative[2],
but rather than amending the provision by deleting the redundant
mention of allowance, as the Minister's argument goes,
Parliament chose to leave allowance in and include an additional
reference to "reimbursement".
[48] The clear
and plain meaning of this section, as it then read, provides that
"where a registrant is the recipient of, or pays an
allowance in respect of". This language clearly limits ITCs
for food, beverages and entertainment to fifty percent in respect
of recipients and allowances paid.
[49] In GST
Memorandum 400-3-11 - Allowances and Reimbursements
(February 7, 1992), allowances and reimbursements are defined and
distinguished as follows, in paragraph 7:
An allowance is any periodic or other payment that an employee
or partner receives from an employer or partnership, in addition
to salary or wages, without having to account for how it is
spent. This is in contrast to a reimbursement of actual expenses
incurred by an employee or partner.
[50] It is
trite law that allowance and reimbursement do not have the same
meaning. One is not the synonym of the other. In The Queen
v. Pascoe, 75 DTC 5427 (F.C.A.), Pratte J. distinguished
allowance and reimbursement as follows, at page 5428:
... An allowance is, in our view, a limited predetermined sum
of money paid to enable the recipient to provide for certain
kinds of expense; its amount is determined in advance and, once
paid, it is at the complete disposition of the recipient who is
not required to account for it. A payment in satisfaction of an
obligation to indemnify or reimburse someone or to defray his or
her actual expenses is not an allowance; it is not a sum allowed
to the recipient to be applied in his or her discretion to
certain kinds of expense.
[51] In the
present appeal, reimbursements, either by accident or
intentionally were not included and to read in the intention to
include them would not be in accord with the clear and plain
meaning of this provision. I would adopt the comments of
Major J., in Friesen, at p. 5553:
I accept the following comments on the Antosko case in
P.W. Hogg and J.E. Magee, Principles of Income Tax Law
(1995), Section 22.3(c) ‘Strict and purposive
interpretation', at p. 453-454:
It would introduce intolerable uncertainty into the Income
Tax Act if clear language in a detailed provision of the
Act were to be qualified by unexpressed exceptions derived
from a court's view of the object and purpose of the
provision...[The Antosko case] is simply a
recognition that "object and purpose" can play only a
limited role in the interpretation of a statute that is as
precise and detailed as the Income Tax Act. When a
provision is couched in specific language that admits of no doubt
or ambiguity in its application to the facts, then the provision
must be applied regardless of its object and purpose. Only when
the statutory language admits of some doubt or ambiguity in its
application to the facts is it useful to resort to the object and
purpose of the provision.
Decision
[52] For the
above reasons, the appeal is allowed with costs and the
assessment is referred back to the Minister for reconsideration
and reassessment on the basis that the Appellant is entitled to
one hundred percent of the ITCs in respect of food, beverages and
entertainment contracted for by its employees who were reimbursed
for the actual expense, provided that the Minister shall have the
opportunity to audit, within a reasonable time, each and every
application for these types of input tax credit in order to
assess the accuracy of the amount claimed by the Appellant.
Signed at Edmonton, Alberta, this 24th day of August,
2001.
"Gordon Teskey"
J.T.C.C.
COURT FILE
NO.:
2000-4443(GST)I
STYLE OF
CAUSE:
La Brasserie Labatt Limitée and The Queen
PLACE OF
HEARING:
Toronto, Ontario
DATE OF
HEARING:
June 21, 2001
REASONS FOR JUDGMENT BY: The Honorable
Judge Gordon Teskey
DATE OF
JUDGMENT:
August 24, 2001
APPEARANCES:
Counsel for the Appellant: Thomas B. Akin
Jason Vincze
Counsel for the
Respondent:
Michael Ezri
Harry Erlichman
COUNSEL OF RECORD:
For the
Appellant:
Name:
Thomas B. Akin
Firm:
McCarthy Tétrault
Toronto, Ontario
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2000-4443(GST)I
BETWEEN:
LA BRASSERIE LABATT LIMITÉE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on June 21, 2001 at Toronto,
Ontario by
the Honourable Judge Gordon Teskey
Appearances
Counsel for the
Appellant:
Thomas B. Akin
Jason Vincze
Counsel for the
Respondent:
Michael Ezri
Harry Erlichman
JUDGMENT
The appeal from the assessment made under the Excise Tax
Act, notice of which bears number DGMET-885 and is
dated October 26, 1998 is allowed, with costs, and the
assessment is referred back to the Minister of National Revenue
for reconsideration and reassessment on the basis that the
Appellant is entitled to one hundred percent of the ITCs in
respect of food, beverages and entertainment contracted for by
its employees who were reimbursed for the actual expense,
provided that the Minister shall have the opportunity to audit,
within a reasonable time, each and every application for these
types of input tax credit in order to assess the accuracy of the
amount claimed by the Appellant, in accordance with the attached
Reasons for Judgment.
Signed at Edmonton, Alberta, on the 24th day of August,
2001.
J.T.C.C.
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