Date: 19990203
Docket: 98-178-GST-I; 98-319-GST-I; 98-321-GST-I;
98-333-GST-I
BETWEEN:
PEACH HILL MANAGEMENT LTD., JABEL IMAGE CONCEPTS INC. (O/A
ACADEMY OF LEARNING), OTTER TRAINING SCHOOL LIMITED, COASTAL
PACIFIC FLIGHT CENTRE LTD. O/A COASTAL PACIFIC AVIATION,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for judgment
Bowie J.T.C.C.
[1] These appeals were heard together. In three of them the
facts were agreed to. In the appeal of Peach Hill Management Ltd.
(Peach Hill), I heard evidence which established, so far as is
relevant, the same factual matrix agreed to in the others. The
substantive point in issue, which is common to them all, could
not be narrower. It concerns the construction to be given to the
expression "funded by a government", which is found in
the definition of the expression "public college" in
subsection 123(1) of the Excise Tax Act (the Act).
That Act[1]
imposes a tax on the supply of goods and services (the GST). A
second issue was raised in the pleadings, but counsel advised me
at the opening of the trial that the parties had resolved it.
[2] The Appellants are all post-secondary educational
institutions. Each of them has applied for rebates of GST paid,
pursuant to subsection 259(3) of the Act. That subsection
authorizes the payment of rebates, in certain circumstances, to
what are called "selected public service bodies". It is
not disputed that the Appellants qualify for these rebates if
they can bring themselves within this expression, which is
defined in section 259(1)of the Act. Before I deal with
this question, however, I turn to a preliminary issue raised by
counsel for the Respondent in relation to the appeals of Peach
Hill.
[3] Counsel submitted that Peach Hill was barred from
appealing the rebate issue, because it had failed to file proper
notices of objection in respect of it. It is therefore necessary
to set out the history of the assessments, objections and appeals
in the Peach Hill case. The first notice of assessment is dated
October 18, 1996; it assessed Peach Hill for $65,947.09 GST,
plus interest and penalties, for the period between July 1, 1992
and June 30, 1996. Peach Hill delivered a notice of objection on
November 22, 1996. As a result of this objection, the Minister of
National Revenue (the Minister) reassessed Peach Hill on
January 15, 1998, reducing the amount of tax to $56,246.31,
and making consequential reductions in the interest and
penalties. On January 22, 1998, Peach Hill filed a Notice of
Appeal in this Court. The Notice of Appeal clearly purported to
raise as an issue the right of Peach Hill to the rebates. In the
meantime, Peach Hill had, on January 29, 1997, filed five
separate rebate applications with the Minister, one for each of
the calendar years 1992 to 1996. The Minister responded to each
of these by issuing five separate notices of assessment, all
dated February 25, 1997, denying the rebate applications.
Peach Hill did not file notices of objection to these
assessments.
[4] The Respondent takes the position that notices of
objection referable to the five notices of assessment dated
February 25, 1997 are, by reason of section 306, pre-requisites
to a valid appeal in respect of the rebate issue. Those sections
read:
306 A person who has filed a notice of objection to an
assessment under this Subdivision may appeal to the Tax Court to
have the assessment vacated or a reassessment made after
either
(a) the Minister has confirmed the assessment or has
reassessed, or
(b) one hundred and eighty days have elapsed after the
filing of the notice of objection and the Minister has not
notified the person that the Minister has vacated or confirmed
the assessment or has reassessed,
but no appeal under this section may be instituted after the
expiration of ninety days after the day notice is sent to the
person under section 301 that the Minister has confirmed the
assessment or has reassessed.
[5] Richard Tung, the Revenue Canada Appeals Officer who dealt
with the Peach Hill objections, gave evidence on this issue,
as did Mr. Heitzman, the accountant who acted as advisor for
Peach Hill in filing the notices of objection and the Notices of
Appeal. I am satisfied by Mr. Tung's evidence that the
notices of objection did not specifically refer to any claim by
Peach Hill that it was entitled to receive rebates, and also that
the subject was never raised by Mr. Heitzman, or anyone else on
behalf of Peach Hill, during the 14 months that the objections
were under consideration, although there were several
opportunities for him to do so. Mr. Heitzman's recollection
is that he did raise the issue with Mr. Tung, but I think Mr.
Tung's evidence is more reliable, considering that he took
notes of their conversations.
[6] Counsel for the Appellant argues that Peach Hill has a
right to appeal the rebate issue under the shelter of the
original notice of objection filed on November 22, 1996,
because the rebate issue should have been dealt with by the
original assessor, and therefore was properly before the appeals
officer. Subsection 296(2.1)[2] was enacted in 1977,[3] but was deemed to have come into
force on July 1, 1996, prior to the original assessment of Peach
Hill. That subsection requires the Minister, when assessing, to
take into account any rebate to which the taxpayer is entitled,
and to give effect to it, even though no rebate application has
been made.[4] The
assessor, he argues, was therefore bound to consider the question
of entitlement to a rebate in making the original assessment,
even though none had been applied for, and the question was
therefore a live one at the objection stage.
[7] I agree with this view. Section 301(1.1) reads:
301(1.1) Any person who has been assessed and who objects to
the assessment may, within ninety days after the day notice of
the assessment is sent to the person, file with the Minister a
notice of objection in the prescribed form and manner setting out
the reasons for the objection and all relevant facts.
The requirement in this subsection to set out "the
reasons for the objection and all relevant facts" is
language borrowed from the section 165 of the Income Tax
Act, where it remains unchanged since section 69A was added
to the Income War Tax Act in 1946.[5] I know of no case, nor did counsel
refer me to one, in which this language has been applied to bar
an Appellant from raising an issue on an appeal from an
assessment to income tax because it was not set out in the notice
of objection as a "reason for the objection". The
universal practice has been to permit any and all issues to be
raised on appeal, whether set out in the notice of objection or
not. If it were otherwise, then Parliament would not have found
it necessary to add subsections 165(1.11) and 169(2.1),
applicable to large corporations, to the Income Tax Act,
in 1995.[6] As the
provisions relating to objection and appeal in the Excise Tax
Act are cast in essentially the same language as has been
used for more than 50 years in the Income Tax Act, I
can see no reason to apply any more restrictive approach here
than prevails under that Act. I am reinforced in this view
by the fact that the 1977 amendments to the Excise Tax Act
added provisions analogous to subsections 165(1.11) and 169(2.1)
of the Income Tax Act, applicable to "specified
persons", as there defined.[7] Peach Hill is entitled to raise the rebate issue
within these appeals. The rebate applications filed in January
1997 are, so far as the appeal process is concerned, redundant,
and the Appellant's failure to object to the assessments
rejecting them is therefore not fatal.
[8] I should add that I do not, by this conclusion, intend to
express any approval of the practice of remaining mute as to an
issue throughout the objection process, and then raising it for
the first time in the Court. The process of objection and appeal
is designed to facilitate the resolution of issues prior to
litigation, if possible. Achievement of this purpose is hindered,
not helped, by the approach taken by Mr. Heitzman in this
case. That said, it is preferable, unless the statutory language
permits of no alternative, that genuine issues of fact and law
should be determined on their merits, and not foreclosed by
procedural objections.
[9] I turn now to the substantive issue in these appeals.
[10] All the Appellants are corporations which carry on
business for profit, instructing pupils in vocational courses.
Jabel Image Concepts Inc. (Jabel) teaches secretarial and office
administration courses in London, Ontario. It is registered under
the Private Vocational Schools Act of Ontario, but is not
a college of applied arts and technology established by the
Ontario government under the Ministry of Colleges and
Universities Act. Peach Hill, Coastal Pacific Flight Centre
Ltd. (Coastal), and Otter Training School Limited (Otter) all
carry on their businesses in British Columbia, where they are
registered with the Private Post-Secondary Education Commission.
They are not colleges or provincial institutes designated under
the College and Institute Act.
[11] None of the Appellants received money during the relevant
time period from any government or municipality in the form of
grants or subsidies. All of them, however, received a significant
amount of income, directly or indirectly, from one or more
government agencies, as fees paid for the education of students.
In the case of Peach Hill, it was for the fees of members of
Indian bands who enrolled in courses of instruction in
hairdressing and esthetics, their fees being paid by the band
councils, and for fees of students attending under the auspices
of the Canada Employment and Immigration Commission, the British
Columbia Workers Compensation Board (WCB), and the Department of
Education of the Yukon Territory. Coastal provided flight
training courses to Air Cadets, whose fees were paid by the
Department of National Defence under an arrangement with the Air
Transport Association of Canada (ATAC). Jabel provided courses to
persons who were sponsored by, and whose fees were paid by, the
Ontario Workers Compensation Board, the Ontario Ministry of
Social Services, and the Canada Employment and Immigration
Commission. Otter provided instruction in the operation of
certain construction equipment, and some of its students were
sponsored by, and had their fees paid by, the Canada Employment
and Immigration Commission, the WCB, and the British Columbia
Ministry of Advanced Education, Training, and Technology -
Vocational Rehabilitation Services.
[12] During the relevant period, Otter received more than 80%
of its gross revenue in the form of fees paid by these government
bodies. In the case of Jabel it was as high as 90% during one of
the claim periods. The evidence in respect of Peach Hill was that
about 10% of the students paid their own fees, from which I take
it that about 90% of the school's revenues were derived
directly or indirectly from some government source. Coastal
obtained only about 5% of its revenues from its contract with
ATAC. Students paying their own fees had recourse to government
guaranteed student loan programs.
[13] As I have said, the entitlement to rebates turns upon
whether the Appellants can bring themselves within subsection
259(3) of the Act. It is common ground that the answer to
this question for each Appellant depends upon whether it
qualifies as a "public college". At the relevant time,
the definition of this expression read:
|
"public college" means an organization or that
part of an organization that operates a post-secondary
college or post-secondary technical institute
|
« collège public » Institution ou
partie d'institution qui administre un collège
d'enseignement postsecondaire ou un institut technique
d'enseignement postsecondaire qui, à la fois
:
|
|
(a) that is funded by a government or a
municipality, and
(b) the primary purpose of which is to provide
programs of instruction in one or more fields of
vocational, technical or general education.
|
a) reçoit des subventions d'un
gouvernement ou d'une municipalité,
b) a pour principal objet d'offrir des
programmes de formation professionnelle, technique ou
générale.
|
[14] The Appellants take the position that because significant
portions of their revenues come from various government bodies in
the form of fees, they are "funded by a government".
The Respondent's position is that revenues received in the
form of fees for services do not constitute funding; to be
"funded by a government" the Appellants would have to
receive revenue from a government in the form of grants or
subsidies, and not for valuable consideration. Apart from this
difference of views, the parties are in agreement that the
requirements of subsection 259(3) are met.
[15] This issue has been before this Court on two prior
occasions. In Academy of Learning Niagara v.Canada,[8] Sobier J. held
that the definition was satisfied in a situation identical to the
present ones, where the Appellant received fees from government
bodies as consideration for giving courses to specific students.
His decision is based upon the view that to be funded by a
government simply means to receive funds from a government, for
consideration or otherwise.
[16] Less than two months later, the same question arose in
identical circumstances before Archambault J. in Murch v.
Canada.[9] He
does not appear to have been made aware of Sobier J.'s
earlier decision. Archambault J. reached the opposite conclusion,
for reasons which he summarized in these words:
I believe that it is the students whose fees were paid by
government agencies who were being funded by the government, not
the institute. The government paid the tuition fees that were
owing by a particular student. The fact that the amount was paid
directly to the institute does not change the reality that it was
the student who was being subsidized. I believe that an
organization would be funded by a government if the latter
subsidized all or a portion of the former's operating
expenses not financed by the tuition fees paid by the students.
This was not the case here.
[17] I agree with Archambault J. Indeed, neither the English
version, "funded by a government", nor the French,
"reçoit des subventions d'un gouvernement",
seems to me capable of bearing the broader interpretation for
which the Appellants contend.[10] The suggestion that every person and
corporation with which a government does business is
"funded" by that government simply does not accord with
ordinary usage. The same is true of the French noun
"subvention", and its derivative verb
"subventionner". Sobier J. seems to have been unduly
influenced by the fact that Parliament amended this definition in
1977,[11]
introducing language which could leave no doubt that it referred
only to payments in the nature of a grant or subsidy. Such an
amendment, however, does not necessarily signify any change in
meaning.[12]
[18] The present case is governed by the rule, recently
reaffirmed by the Supreme Court of Canada,[13] that the courts must give effect to
words in a statute where their meaning is clear and plain.
Counsel for the Appellants could point to nothing in the
telos of the statute which might derogate from that
principle in the present case.
[19] The appeals are dismissed.
Signed at Ottawa, Canada, this 3rd day of February, 1999.
"E.A. Bowie"
J.T.C.C.
APPENDIX A
[Omitted]
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