BETWEEN:
TRIPLE M METAL LP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bocock J.
I. Introduction,
Background and Issues
a)
Harmonization of
Provincial Retail Sales Tax and Federal goods and service tax
[1]
In July of 2010, the Province of Ontario (“Ontario”)
integrated its provincial retail sales tax (“RST”) with the federal goods and
services tax (“GST”). The two systems were not symmetrical. This required
coordination and compromise within the two merging regimes. This coordination
was effected through a comprehensive integrated tax coordination agreement
between Canada and Ontario (the “Agreement”). The compromises included forbearance
of certain RST revenues by Ontario. Recoverable input tax credits (“ITCs”)
within the GST regime, per se a consumption tax ultimately exigible
upon the final consumption of goods and services, meant certain RST previously
collected by Ontario disappeared within the chain of production. This occurred
because within the chain of production, a registrant GST taxpayer could deduct
from GST owing on goods and services sold during a reporting period, the GST
paid by it on goods and services acquired. Such GST paid by a supplier on goods
and services it acquires is aggregated into a total ITCs for the reporting
period. The RST regime knew no such tax credit. Integration and compromise were
required when the two tax systems met to form the harmonized sales tax regime (“HST”).
b)
Preserving
Short-term Provincial RST Revenue through Recapture
[2]
To the extent Ontario wanted to preserve its
revenue from RST on certain sales within the new HST (and its component newly renamed
provincial value added tax (“PVAT”)), Ontario denied ITCs to certain large
businesses (“prescribed persons”) on a certain basis (“prescribed manner”) for
certain properties or services (“specified property or service”). Instead, it
required those prescribed persons to recapture (or add back) a calculated
amount (“specified provincial input tax credit or “SPITC”) for a certain time
(“ITC Repayment Period”). This complicated process was the compromise which ultimately
allowed ITCs on HST in respect of all goods and services acquired, but only
after Ontario preserved a portion of its former RST revenue for 5 years.
[3]
Some of these defined terms were further specifically
refined: (i) Annex C of the Agreement defined “specified property or services” as
energy if not purchased by farms or used to produce goods for sale; (ii) “prescribed
persons” were businesses with annual taxable sale in excess of $10 million; and,
(iii) “specified production energy”, was not subject to SPITCs and the related
recapture.
[4]
It is within this last exemption that certain
“selected persons” were not required to recapture the ITCs on energy used in
production (the “production exemption”), thereby reducing the mandated
inclusion of the SPITC (the “SPITC Reduction”) and thereby increasing the total
ITCs which could be claimed for such users. This production exemption forms a
primary topic in this appeal because, although selected persons must consume or
use the energy in production, there is a further exception which states that
selected persons means, among others, a person “that is not a scrap
metal dealer” (the “scrap metal dealer exception”).
[5]
A further constraint on the scope of the denial
of the production exemption was enacted. The Agreement incorporated by
reference a “cap” on the specified persons, specified property and specified
services. Annex C of the Agreement limited this scope of persons, property and
services, to those denied input tax refunds (“ITRs”) in the Province of Quebec
as at a certain date.
c)
Issues
[6]
The Appellant (“Triple M”) asserts that certain
of its operations are not that of a scrap metal dealer. The Respondent says it
is a scrap metal dealer, period. The general issue within this appeal is
whether Triple M is subject to the temporary recapture of the full provincial
portion (8/13) of the HST in respect of all its energy costs used in the
processing of scrap metal for the reporting periods from August 1, 2010 to
September 30, 2010 (the “reporting periods”). In short, does the scrap metal
dealer exception apply to Triple M to deny the “production exemption” it
utilized in respect of certain electricity purchased in its business?
II. The
Appellant’s Business
a)
Generally
[7]
Triple M’s undertaking primarily relates to the
collection, sorting, compacting and rendering of scrap metal for use in the
production of steel. Within the rendering process, after sorting, shearing and
compacting (the “aggregating activities”) Triple M undertakes various baling
and shredding processes which very effectively further separate, re-form, pulverize
and collate ferrous and non-ferrous components of scrap metal (the “processing
activities”). The ferrous, iron bales or “fill” are then sent to steel mills
who use the compacted, pulverized and sorted iron in production. The
non-ferrous or non-iron residue is sold to Triple M’s other non‑steel
producing customers for various purposes. Triple M’s primary undertaking
remains the rendering of discarded automobiles, white goods and other machinery
into ferrous and non-ferrous units for sale to distinct groups of subsequent
producers who use the goods in two distinctly sorted ferrous and non-ferrous
states for further production. As a complete business, this requires both
aggregating activities and processing activities.
b)
Specific Recycling
Activities
[8]
Triple M asserts that it is not required to
recapture the SPITCs in respect of the energy costs solely for its baling and
shredding operations because these processing activities make it a recycler. Such
processing activities fall within the production exemption. Consistently, it
has recaptured the SPITCs with respect to the balance of its other activities
which include the mere aggregating activities. There is no dispute with respect
to the quantum of the allocation between the processing activities comprising the
baling and the shredding operations and the other activities in respect of
which the SPITCs have been recaptured. The dispute is whether the ITCs related
solely to the processing activities are or are not subject to recapture as
SPITCs.
III. Legislative
Background and Regime
[9]
The legislative regime requires examination
among legislation, regulations and agreements spanning three jurisdictions:
Canada, Ontario and Quebec. Any decision in this appeal requires an
incorporation of these source references, highlighted by underscoring below for
emphasis.
a)
ETA and the Regulations
[10]
A main provision at issue in this case is
subsection 236.01(2) of the ETA. It provides that:
(2) If a sales
tax harmonization agreement with the government of a participating province
relating to the new harmonized value-added tax system allows for the
recapture of input tax credits, in determining the net tax for the reporting
period of a large business that includes a prescribed time, the large
business shall add all or part, as determined in a prescribed manner, of a
specified provincial input tax credit of the large business.
[11]
In turn, the key terms (and specifically the
SPITC) are further defined in subsection 236.01(1) of the ETA and
relevant provisions in the Regulations as follows:
236.01 (1) The
following definitions apply in this section.
large
business means a prescribed person or a person of a prescribed class. (grande entreprise)
specified
property or service means a prescribed
property or service, or property or a service of
a prescribed class. (bien ou service déterminé)
specified provincial input tax credit means
(a) the
portion of an input tax credit of a large business in respect of a specified
property or service that is attributable to tax under subsection 165(2) [provincial
portion of the HST], section 212.1 or 218.1 or Division IV.1 in respect of
the acquisition, importation or bringing into a participating province of the
specified property or service; and
(b) a
prescribed amount in respect of an input tax credit of a large business that is
attributable to tax under subsection 165(2), section 212.1 or 218.1 or
Division IV.1 or in respect of an amount that would be such an input tax credit
if prescribed conditions were satisfied in prescribed circumstances. (crédit de taxe sur les intrants provincial déterminé).
[12]
A “prescribed person” for the purpose of the
definition of a “large business” in subsection 236.01(1) of the ETA relevant
to this appeal, in general, is “a registrant whose recapture input tax credit
threshold amount in respect of the recapture period exceeds $10,000,000”
pursuant to subsection 27(1) of the Regulations.
[13]
The term “specified property or service” is
further defined in paragraph 28(1)(e) of the Regulations:
28(1) For the
purposes of the definition of specified property or service in
subsection 236.01(1) of the Act, the following property and services are
prescribed:
…
(e) specified
energy that is acquired in, or brought into, a specified province
other than qualifying heating oil, as defined in section 1 of the Deduction
for Provincial Rebate (GST/HST) Regulations;
…
[14]
The amount of the “specified provincial input
tax credit” (the “SPITC”) subject to recapture refers to, in this case,
the amount of the provincial portion of the HST, i.e. the 8/13 Ontario portion
of the HST (tax under subsection 165(2) of the ETA) pursuant to
subsection 29(1) of the Regulations, which states that:
29 (1) For the
purposes of paragraph (b) of the definition specified provincial input tax
credit in subsection 236.01(1) of the Act, a prescribed amount in
respect of an amount that would be an input tax credit of a person in respect
of a specified property or service attributable to tax under subsection
165(2) or section 212.1 or 218.1 of the Act or Division IV.1 of Part IX of
the Act is all of the amount that would be such an input tax credit if
(a) in the
case where the specified property or service is acquired, or brought into a
specified province, by the person for consumption, use or supply exclusively
in the course of commercial activities and, as a result of the consumption,
use or supply exclusively in the course of commercial activities, no tax under
section 218.1 of the Act or Division IV.1 of Part IX of the Act is payable in
respect of the acquisition or bringing in, tax under that section or that
Division had been payable in respect of the acquisition or bringing in;
…
[15]
Subsection 31(3) of the Regulations sets
out the “prescribed manner” pursuant to which a person who is a large business
must add or recapture the SPITC under subsection 236.01(2) of the ETA in
respect of “specified energy” consumed by the person in the course of
commercial activities. The relevant portions of subsection 31(3) of the Regulations
are as follows:
(3) If, at any
time during a reporting period of a person, the person is a large business, the
particular time prescribed by section 30 in respect of a specified provincial
input tax credit of the person in respect of specified energy is in the
reporting period and the person is a large business at the particular time, for
the purposes of subsection 236.01(2) of the Act, the amount to be added to the
net tax of the person for the reporting period in respect of the specified
provincial input tax credit is determined by the formula
A ×
B
where A is
…
(d) in any other
case, the amount that would be the specified provincial input tax credit in
respect of the specified energy if the specified energy did not include specified
production energy and specified research energy; and
B is the recapture rate applicable
at the specified time in respect of the specified provincial input tax credit.
[16]
In turn, the term “specified energy” is defined
pursuant to section 26 of the Regulations: specified energy means (a)
electricity, gas and steam; and (b) anything (other than fuel for use in a
propulsion engine) that can be used to generate energy (i) by way of combustion
or oxidization, or (ii) by undergoing a nuclear reaction in a reactor for the
generation of energy. (forme d’énergie déterminée).
[17]
Subsection 31(1) of the Regulations sets
out the following definitions in respect of the application of the
above-mentioned formula which the Minister argues excludes Triple M:
selected person means a person that is not
(a) a financial
institution;
(b) a hotel, bar,
coffee shop or restaurant;
(c) an auto repair
shop; or
(d) a scrap
metal dealer. (personne désignée)
specified
production energy means the part of
specified energy acquired in, or brought into, a
specified province by a selected person for consumption or use by the selected
person in the production of tangible personal property intended for sale or
in the production of production equipment used to produce such tangible
personal property, but does not include the part of the specified energy
acquired in, or brought into, the specified province for consumption or use by
the selected person in equipment for the air conditioning, lighting, heating or
ventilating of the production premises or in other equipment if that
consumption or use is not integral to that production. (énergie déterminée pour
la production)
[18]
The term “production” is defined in section 26
of the Regulations:
production means an activity (other than the
assembling, processing or manufacturing of tangible personal property in a
retail establishment or the storage of finished products) that is
(a) the
assembling, processing or manufacturing of particular tangible personal
property to create other tangible personal property that is different in nature
or character from the particular tangible personal property;
...
b)
Comprehensive
Integrated Tax Coordination Agreement (the “Agreement”)
[19]
The Agreement is an example of a “sales tax
harmonization agreement” contemplated under subsection 123(1) of the ETA
and subsection 2(1) of the Federal-Provincial Fiscal Arrangements Act,
RSC 1985, c F-8.
[20]
The relevant provisions of the Agreement are as
follows:
PART I
Interpretation
1.
In this Agreement,
…
“PVAT”, in
respect of a participating province, means the provincial component of tax
payable under Part IX of the Excise Tax Act that is imposed, in addition to the
CVAT, in respect of the participating province;
…
3. The following
are the Annexes that are attached to, and that form an integral part of, this
Agreement:
Annex “A” - Revenue Allocation
Annex “B” - Provincial Flexibility in respect of Rebates
Annex “C” - Transitional Measures in respect of the Province
PART II
Implementation
4. Subject to the requisite legislative approvals,
the Parties agree:
(a) to work collaboratively and in a timely manner
towards the imposition of the PVAT in respect of the Province;
(b) that Canada will make best efforts to introduce,
on or before March 31, 2010, the necessary legislative amendments to give
effect to the Agreement;
(c) that the PVAT in respect of the Province will be
implemented on July 1, 2010;
…
PART XVII
Province-Specific & Transitional Measures
55. The agreement
of the Parties in respect of transitional assistance is set out in Annex “C”.
56. The agreement
of the Parties in respect of input tax credit recapture for PVAT in
respect of the Province, including transitional revenues from such recapture,
and in respect of other transitional measures, is set out in Annex “C”.
…
ANNEX “C”
TRANSITIONAL MEASURES IN RESPECT OF THE PROVINCE
…
Input Tax Credit
Recapture for PVAT in respect of the Province
17. Where the
Province provides Canada, prior to the date this Agreement is entered into,
with a defined class of specified persons in respect of whom, and a
select list of specified property and specified services in respect of which,
the Province desires a payment by each of those specified persons of an
amount equivalent to input tax credits of the specified person, at a specified
percentage, relating to PVAT in respect of the Province on the specified
property and specified services, the Parties agree that, for a period of
five years commencing on the Implementation Date (referred to as the “ITC
Repayment Period”), an amount equivalent to those input tax credits will be
paid at the specified percentage of 100% by those specified persons in respect
of that specified property and those specified services if, with all the
necessary changes that the circumstances may require, the scope of those
specified persons, that specified property and those specified services,
captured during the ITC Repayment Period, does not exceed the scope of the
persons, property and services that are denied input tax refunds in respect of
the Quebec Sales Tax, pursuant to An Act Respecting the Quebec Sales Tax, R.S.Q
c. T-0.1, as it read on March 10, 2009.
…
22. On and from the
Implementation Date, subject to the definitions mutually agreed upon between
the Parties and unless otherwise amended in accordance with the Agreement, the
Parties agree that in general terms the items on the select list of specified
property and specified services will be:
(a) energy, except where purchased by farms or
used to produce goods for sale;
(b) telecommunication services other than internet
access or tollfree numbers;
(c) road vehicles weighing less than 3,000 kg (and
parts and certain services) and fuel to power those vehicles; and
(d) food, beverages and entertainment.
23. On and from the Implementation Date, subject to the definitions
mutually agreed upon between the Parties and unless otherwise amended in
accordance with the Agreement, the Parties agree that in general terms the
defined class of specified persons will be businesses with annual taxable sales
in excess of $10 million and financial institutions.
c)
Quebec ITR
Restriction Regime
[21]
The relevant provisions relating to the
restriction of ITRs, as stated in section 17 of Annex “C” to the Agreement,
supra, are set out in Part V, An Act Respecting the Quebec Sales Tax,
RSQ, T-0.1 (“QSTA”) as it read on March 10, 2009. In particular,
section 206.1 of the QSTA[4]
sets out the relevant ITR restriction:
206.1. In determining an
input tax refund of a registrant, no amount shall be included in respect of
the tax payable by the registrant in respect of the supply or bringing
into Québec of the following property or services:
…
(3) electricity, gas, combustibles
or steam;
…
[22]
However, section 206.3 of the QSTA provides for certain
exemptions to the restriction stipulated under the above-mentioned paragraph 3
of section 206.1:
206.3 Paragraph 3 of section 206.1 does not apply to the portion of
electricity, gas, combustibles or steam that is,
without reference to sections 43 and 44, used for a purpose such that the
exemption provided for in paragraph aa of section 17 of the
Retail Sales Tax Act (chapter I-1) would apply in respect thereof but for
section 49 of that Act.
For the purposes of the first
paragraph, the expressions “sales of electricity, gas or fuel” and “other than
meals and services including telephone service” in paragraph aa of section 17
of the Retail Sales Tax Act (RSQ, chapter I-1) shall read as “sales of
electricity, gas, combustibles or steam” and “other than property intended to
be incorporated in an immovable by that person, meals, mobile homes and
services including telephone service”, respectively.
[23]
Paragraph (aa) of section 17 of the Quebec Retail
Sales Tax Act, c I‑1 (“QRSTA”)[5] provides a retail
sales tax exemption in respect of the acquisition of certain energy used in the
production of movable goods intended for sale (the “RST Exemption”):
17. The
tax provided for by this chapter does not apply to the following:
…
(aa) … sales of
electricity, gas or fuel which a person of a category other than those
determined by the Minister under section 20 uses to produce movable property
other than meals and services including telephone service, intended for sale or
for the design or production of production equipment or conditioning materials
used for the production of such movable property, either as an agent of
production or to operate production equipment; this exemption does not apply to
sales of electricity, gas or fuel used in equipment for the air conditioning,
lighting, heating or ventilation of the production site;
...
[24]
Section 20 of the QRSTA further provides
that:
20. For the purposes of paragraphs z and aa of section 17,
the categories of persons which the Minister may determine are those whose
activities consist mainly of:
(a) rendering personal or professional services, or
(b) selling movable
property they have not produced but to which they may have made certain changes
before delivery to the consumer.
The determination provided for in
the first paragraph shall be effected by publication of a notice in the Gazette
officielle du Québec and shall have effect from the day of such
publication.
[25]
“Scrap metal dealers” were determined by the Minister of Revenue
as an entity that falls within the confines of paragraph (b) of section 20 of
the QRSTA pursuant to a notice published in the Gazette officielle du
Québec in 1983 (the “1983 Notice”):[6]
Notice
Categories of persons whose
principal activity is furnishing services or selling movable property
Retail Sales Tax Act (RSQ, c I-1, s. 20)
Under section 20 of the Retail
Sales Tax Act, the Minister of Revenue has decided that:
(1) The categories of persons whose activities consist principally of
supplying personal or professional services are the following:
…
financial institutions;
…
(2) That the categories of persons whose activities consist
principally of selling movable property that they have not produced, but to
which they may have made changes before delivery to the consumer are the
following:
Operators of establishments within
the meaning of the Meals and Hotels Tax Act (RSQ, c T-3);
…
Garage operators;
…
Scrap metal dealers;
…
A person who
is in any of the categories mentioned may not enjoy the exemption prescribed by
paragraphs z and aa of section 17 of the Retail Sales Tax Act.
[26]
Pursuant to paragraph 23 of section 2 of the QRSTA, the
term “consumer” under the QRSTA has the same meaning as that assigned by
section 123 of the ETA, which states that:
“consumer”
of property or a service means a particular individual who acquires or
imports the property or service for the particular individual's personal
consumption, use or enjoyment or the personal consumption, use or enjoyment of
any other individual at the particular individual's expense, but does not
include an individual who acquires or imports the property or service for
consumption, use or supply in the course of commercial activities of the
individual or other activities in the course of which the individual makes
exempt supplies.
IV.
Parties’ Positions
a)
Respondent
[27]
The Respondent takes the position that Triple M was
obligated, pursuant to subsection 236.01(2) of the ETA to recapture or
repay the full provincial portion of the ITCs, i.e. 8/13 of the HST paid
in respect of its electricity costs incurred in the course of its scrap metal
processing activities because of the following:
a. The
Agreement between Canada and Ontario, a participating HST province, is a “sales
harmonization agreement … [which] allows for the recapture of input tax
credits”
pursuant to section 56 of the Agreement as well as Annex “C” to the Agreement.
b. Triple
M is a “large business” within the meaning of subsections 236.01(1) and (2) of
the ETA since the “total of all consideration that was paid or became
due to Triple M in the fiscal year ending before the periods at issue for the
sale of scrap metal is over $10 million” and therefore Triple M met the
required recapture input tax credit threshold amount for the purposes of the
definition of “large business” in the Regulations.
c. The
electricity acquired and used by Triple M in Ontario falls within the
definition of “specified property or service” under subsection 236.01(1) of the
ETA.
d. The
provincial portion of the ITCs claimed by Triple M in respect of the
electricity acquired in or attributable to Ontario is a SPITC within the
parameters of subsection 236.01(1) of the ETA and subsection 29(1) of
the Regulations.
[28]
Therefore, pursuant to subsection 236.01(2) of
the ETA, the SPITC in respect of the Triple M’s ITCs claimed in relation
to its electricity costs in Ontario “shall” be added, or recaptured by the Triple
M in determining its net tax for the reporting periods.
[29]
Section 31 of the Regulations prescribed
that Triple M must add the full amount of the SPITC in respect of its
electricity costs in its net tax as follows:
a. … the
amount of SPITC in respect of the Triple M’s use of electricity shall be added
is determined by the formula set out in paragraph 31(3)(d) of the Regulations.
The formula is A x B, where A is the amount of
SPITC in respect of specified energy that does not include “specified
production energy” and B is the recapture rate applicable at the
specified time in respect of the SPITC, i.e. 100%, as set out in section 26 of
the Regulations.
b. Pursuant
to subsection 31(1) of the Regulations, “specified production energy”,
which reduces A in the above-mentioned formula, is “the part of
specified energy acquired … by a selected person for consumption or use by the
selected person in the production of tangible personal property intended for
sale …” (the “SPITC Reduction”).
c. By its
very definition, only a “selected person” can make use of the benefits of the
SPITC Reduction in respect of “specified production energy”. Pursuant to
subsection 31(1) of the Regulations, a “selected person means a person
that is not (a) a financial institution; (b) a hotel, bar, coffee
shop or restaurant; (c) an auto repair shop; or (d) a scrap metal dealer.”
d. Since Triple
M is a scrap metal dealer, it is not a “selected person” under subsection 31(1)
of the Regulations, and therefore it could not avail itself to the SPITC
Reduction in respect of “specified production energy”. In other words, Triple M
must include or recapture the full amount of the SPITC in respect of its
electricity costs.
[30]
The term “scrap metal dealer” is not defined
under the ETA or the Regulations. In alleging that Triple M is a
“scrap metal dealer”, and therefore not a “selected person”, the Respondent
relies on the ordinary definition of the term and makes the following factual
assumptions regarding the Triple M’s business activities as a “scrap metal
dealer”:
(d) Triple M operates
many scrap metal yards in Ontario;
(e) As part of
its operations, Triple M acquires scrap metal;
(f) The scrap
metal is usually processed (shredded, baled or shorn) before it is sold as
scrap metal;
(g) The
processing of shredding, baling and torching are part of the normal operations
of a scrap metal dealer.
[31]
Lastly, in response to Triple M’s argument,
described below, that the Agreement incorporating the QSTA regime
is applicable in this context, the Respondent takes the position that the terms
of the Agreement were “subject to legislative approval” which is found
in the dispositions of the Ontario Act and the Regulations”, and
the Agreement itself cannot supersede the language of the ETA and
the Regulations to the extent that these particular terms of the
Agreement were not enacted.
b)
Appellant
[32]
It should be noted that Triple M takes no issue
with the way the provisions of the ETA and the Regulations
operate to require the temporary recapture of ITCs for a large business. The
central issue in dispute is the Minister’s factual characterization of Triple M
as a “scrap metal dealer” to the extent of its processing activities and,
consequently, not a “selected person” under subsection 31(1) of the Regulations
who can avail itself of the SPITC Reduction in respect of the cost of
“specified production energy”.
[33]
Triple M relies on the interpretation limitation
contained within the Agreement, which incorporates by reference the
regime set out in the QSTA. Triple M submits that pursuant to section 17
of Annex “C” to the Agreement, the scope of “specified person”,
“specified property” and “specified services” that are subject to the temporary
full ITC recapture for the Ontario portion of the HST “cannot exceed the scope
of the persons, property and services that are denied input tax refunds (“ITRs”)
in respect of the QSTA as it read on March 10, 2009.” Therefore, the
Appellant would only be subject to the full recapture treatment under
subsection 236.01(2) of the ETA if it would be similarly denied ITRs in
respect of its electricity costs under the QSTA as it read on March 10,
2009.
[34]
Pursuant to paragraph 3 of section 206.1 of the QSTA,
a registrant that is a large business would normally be denied ITRs in respect
of the supply of electricity, gas, combustibles or steam.
[35]
However, pursuant to section 206.3 of the QSTA,
the above-mentioned restriction of the ITRs for a large business in respect of
its electricity costs does not apply if that same registrant can claim
an exemption from the Quebec retail sales tax (the “QRST Exemption”) as
provided in paragraph aa of section 17 of the QRSTA.
The QRST
Exemption under paragraph aa of section 17 of the QRSTA applies to:
(aa) … sales of
electricity, gas or fuel which a person of a category other than those
determined by the Minister under section 20 uses to produce movable property other
than meals and services including telephone service, intended for sale or for
the design or production of production equipment or conditioning materials used
for the production of such movable property, either as an agent of production
or to operate production equipment…[underlining added]
[36]
In other words, the QRST Exemption in respect of
the electricity or energy usage in a production process is available to persons
who (i) produce movable property intended for sale; and (ii) do not fall within
the scope of section 20 of the QRSTA as determined by the Quebec
Minister of Revenue.
[37]
In this case, Triple M submits that pursuant to
a ministerial order issued by the Minister of Revenue, a “scrap metal dealer”
was determined by the Minister to fall within paragraph (b) of section 20 of
the QRSTA, as a person “whose activities consist mainly of … (b) selling
movable property they have not produced but to which they may have made certain
changes before delivery to the consumer” (“Aggregators”).
[38]
Therefore, a “scrap metal dealer” or mere Aggregator
cannot avail itself of the QRST Exemption under section 17 of the QRSTA,
and would be denied ITRs under paragraph 3 of subsection 206.1 of the QSTA,
and, consequently, be subject to full SPITC recapture pursuant to section 17 of
Annex “C” to the Agreement and section 236.01 of the ETA.
[39]
However, Triple M argues that it, as a recycler
(“Recycler”), does not fall within the class of Aggregators because:
a. Triple M is a Recycler
to the extent of baling and shredding (“proceesing” activities). Through baling
and shredding, Triple M produces recycled metal, a product that is
substantially changed in form and character as compared to the metal it has
acquired. The precise submissions made by Triple M are stated as follows:
i) to be subject
to the restrictions, Triple M must be selling movable property that it has not
produced, and must be delivering same to consumers (i.e. an Aggregator);
ii) the recycled
metal products which Triple M sells to the steel mills and foundries are
movable property produced as opposed to simply altered;
iii) the movable
property is not sent to the steel mills in a form purchased by the Triple M.
Through the shredding and baling process, substantively different movable
property is created, one which is then, but which was not previously useable by
the steel mills;
iv) the
activities undertaken by the Triple M are substantial and alter the character
of the commingled scrap, producing substantially different products sold to two
distinct groups of customers.
b. Triple M does
not deliver its products to a “consumer” as defined under section 123 of the ETA.
It only sells to steels mills and foundries along the supply chain or its
discarded material to other manufacturing.
[40]
Triple M submits that, as a Recycler, it would
otherwise be entitled to the RST Exemption under section 17 of the QRSTA.
Consequently it would not have been denied the ITRs in respect of
electricity costs related to its processing activities under the QSTA
regime. By incorporating this limitation of scope language through reference, within
section 17 of Annex “C” to the Agreement, Triple M is removed from the scope of
the persons required to recapture 100% of the SPITCs. As a result, Triple M is
therefore a “selected person” under subsection 31(1) of the Regulations,
not required to recapture 100% of the SPITCs under section 236.01 of the ETA
because it is entitled to the SPITC Reduction in respect of “specified
production energy” in the manner prescribed under section 31 of the Regulations.
V. Analysis
and Decision
Is Triple M a scrap metal dealer?
[41]
The words scrap metal dealer are embedded with
ambiguity from the outset; neither the ETA nor the Regulations define
the term “scrap metal dealer”. To assist, the modern general interpretation of
statutes is embodied within Canada Trustco Mortgage v. R..
Specifically at paragraph 10, the Court stated:
It has been long established as a
matter of statutory interpretation that “the words of an Act are to be read in
their entire context and in their grammatical and ordinary sense harmoniously with
the scheme of the Act, the object of the Act, and the intention of Parliament”:
see 65302 British Columbia Ltd. v. Canada, [1999] 3 S.C.R. 804, at
para. 50. The interpretation of a statutory provision must be made
according to a textual, contextual and purposive analysis to find a meaning
that is harmonious with the Act as a whole. When the words of a provision
are precise and unequivocal, the ordinary meaning of the words play a dominant
role in the interpretive process. On the other hand, where the words can
support more than one reasonable meaning, the ordinary meaning of the words
plays a lesser role. The relative effects of ordinary meaning, context and
purpose on the interpretive process may vary, but in all cases the court must
seek to read the provisions of an Act as a harmonious whole.
[42]
For taxing statutes, Canada Trustco was
adopted by virtue of Placer Dome Canada Ltd. v. Ontario (Minister of Finance), when the Court wrote:
23 The
interpretive approach is thus informed by the level of precision and clarity
with which a taxing provision is drafted. Where such a provision admits of
no ambiguity in its meaning or in its application to the facts, it must simply
be applied. Reference to the purpose of the provision “cannot be used to create
an unexpressed exception to clear language”: see P. W. Hogg, J. E. Magee
and J. Li, Principles of Canadian Income Tax Law (5th ed. 2005), at p. 569;
Shell Canada Ltd. v. R., [1999] 3 S.C.R. 622 (S.C.C.). Where, as in this case, the
provision admits of more than one reasonable interpretation, greater emphasis
must be placed on the context, scheme and purpose of the Act. Thus, legislative
purpose may not be used to supplant clear statutory language, but to arrive at
the most plausible interpretation of an ambiguous statutory provision.
[underlining added]
[43]
The Court further noted the mandatory
examination of statutory provisions from this perspective when it stated:
Any doubt about the meaning of a
taxation statute must be reasonable, and no recourse to the presumption lies
unless the usual rules of interpretation have been applied, to no avail, in an
attempt to discern the meaning of the provision at issue.[11]
(i) Textual meaning of “scrap
metal dealer”
[44]
The most favourable definition is Webster’s Third New
International Dictionary, in which a “dealer” is defined as:
… one who divides, distributes,
or delivers; Negotiator, agent, go-between; One that acts or conducts
himself in some specified way toward others; One that does business :
TRADER, TRAFFICER, MIDDLEMAN: a person who makes a business of buying and
selling goods esp. without altering their condition. [emphasis added]
In conjunction with definitions found in other
dictionaries, the common theme within these sources is that a dealer must be
engaged in the buying and selling of goods, but not in changing their
condition. A scrap metal dealer therefore must be engaged in the buying and
selling of scrap metal without materially changing the condition of the scrap
metal it acquires.
[45]
As such, these dictionary authorities do not necessarily resolve
the ambiguity inherent in the term. First, within the very Webster definition
cited above, a “dealer” may be interpreted narrowly or it may be interpreted
quite broadly as someone who either “divides, distributes, or delivers”, or someone
that simply “does business”. The question remains as to which definition ought
to be used in the context of the SPITC recapture regime. Second, by focusing
only on the term “dealer”, there exist substantial differences between the
activities of a dealer in one industry as compared to another. Every industry
is different. A scrap metal dealer may be required to do much more than just
the buy and sell scrap metal in order to be competitive in that particular
industry. There is no clear answer based merely on these dictionary
definitions, which contain both broad and narrow interpretations.
[46]
Several authorities referenced by the parties dealt with
different industries and activities than those of scrap metal dealers or
recyclers. In Canbra Foods Ltd v Westersund (1977),[12] the Alberta Supreme Court
Appellate Division considered, inter alia, the meaning of a “grain
dealer” in the context of the licensing requirements pursuant to the Canadian
Grain Act (“CGA”).[13]
Under the CGA, a “grain dealer” was required to be licenced
before it made any contract in respect of the purchase and sale of grain. The
Court used a narrow definition similar to the Webster definition to find that
the ordinary meaning of a “dealer” applied in that situation. A grain dealer
was simply an entity that engaged in the buying and selling of goods, but not
the alteration of their condition. As such, the Court would find that taxpayer,
which used a process elevator, a crusher, and other industrial machinery to
turn grapeseed into vegetable oil, margarine and other derivative products, was
not merely a “grain dealer” because it purchased grapeseed as a raw material
for processing into various other products.
[47]
In Vancouver Art Metal Works Ltd v Canada,[14] the Federal Court of
Appeal dealt with the term “traders or dealers in securities” in the context of
the Income Tax Act, R.S.C., 1985, c. 1 (5th supp.), as amended,
and found that the ordinary meaning of the term should apply. Not only is the
present situation a completely different industry, but the parties agree that the
ordinary meaning of the term “scrap metal dealer” should apply, but only to the
extent that an unambiguous ordinary meaning can be discerned.
[48]
Regrettably, even more factually proximate case law does not
assist. Triple M submitted two additional cases in support of the
proposition that a scrap metal “recycler” should be distinguished from a scrap
metal “dealer”, Triple M arguing that it is factually the former. Neither
of the cases grappled with the issue in dispute to the case at bar. In SNF
LP v R,[15]
Justice Rip (as he then was) referenced a distinction between scrap metal
recyclers, and its suppliers which included pedlars, pedlar-dealers, dealers
and industrial suppliers. However, Justice Rip was actually simply citing
a witness who made that distinction during testimony.[16] The main issue in the case was
whether SNF LP was entitled to claim ITCs if these suppliers did not remit the
GST and to that extent, the testimony of the witness was unrelated to the issue
of whether a scrap metal “dealer” should be legally distinguished from a scrap
metal “recycler” in the context of the SPITC recapture regime.
[49]
Similarly, in Budget Steel Limited v Canada,[17] the taxpayer was in
the scrap metal recycling business. The primary issue was whether the automobile
scrap constituted “inventory” within the meaning of section 120(3)(b) of the ETA,
as amended. If so, the taxpayer would qualify for the ITCs in respect of their
acquisition in the course of its commercial activities. The Federal Court of
Appeal confirmed the factual finding of the trial judge that the automobile
scrap acquired by the taxpayer was distinct from the product that the taxpayer
produced:
… these hulks were not being held
for sale "separately", but rather as the raw material for production
of distinctly different end products, namely ferrous and non-ferrous material,
for which there was obviously a demand in the United States. Further, we agree
with the Trial Judge that the conversion of the hulks into a mass of shredded
ferrous and non-ferrous materials involved the consumption of scrap automobiles
and not their resale as such. Their identities as distinct hulks containing a
mixture of materials were lost in this process.[18]
The factual finding as to inventory is therefore of only limited
use to the Court in the present case.
[50]
It was also submitted by Triple M that there is a general
consensus or understanding within the scrap metal industry that a scrap metal
dealer is different from a scrap metal recycler. The evidence in this regard is
not convincing.
[51]
First, Triple M’s Vice-President of Engineering,
Mr. Anderson, testified that there is an industry-wide distinction that is
endorsed by the Canadian Association of Recycling Industries (“CARI”). A scrap
metal dealer is different from a scrap metal recycler. A scrap metal dealer
would buy, sort and sell scrap metal, but does not engage in any processing. A
scrap metal recycler, on the other hand, would process scrap metal into some
more saleable form to be used by downstream steel mills for further processing.
However, no publications or trade journals from CARI were introduced in support
of that distinction in order to show that such a demarcation was well known or
commonplace. It appears more likely, according to the testimonies of Mr. Anderson
and also from the witness in SNF LP, that there may well be a tacit and
informal understanding within the industry of such a distinction, but assigning
any considerable weight to it overstates its importance in the determination of
specified energy, since the distinction between dealer and recycler, just as
plausibly relates to size and scale rather than materially different activities.
[52]
Second, Triple M indicated in its tax return that its North America
Industry Classification System (NAICS) code used within CRA information returns
corresponded to “primary metal manufacturing”. This classification is again
indeterminative. There was no evidence to show how this classification was determined
or if other more specific classifications were even available, such as “metal
recycling” or “scrap metal dealing”. No evidence suggested this classification
was anything other than self‑selected from a pull‑down computer
menu. Even the party so selecting it remains uncertain. Little weight can be
attached to this.
[53]
Lastly, Triple M indicated in its tax returns and in
numerous places on its website that it was self‑described as a scrap
metal “recycler”. Fundamentally, the distinction between a scrap metal
recycler and a dealer is not particularly helpful, absent a definitive and
official demarcation. There is no red line prohibiting Triple M from or
authorizing it to carry on both functions or from simply saying it does. As the
evidence suggested, a business such as Triple M must necessarily engage in
pedlar/dealer activities as well as processing activities. To Triple M’s
business, the aggregation and dealing activities are every bit as integral as
the processing activities. In fact, without the former, Triple M lacks materials
for processing activities.
[54]
Based on a textual reading of the term “scrap metal dealer” in
accordance with its ordinary meaning as shown from the dictionary definitions,
the case law, and the available industry descriptions, there is one common
theme that may be extracted. That is, a scrap metal dealer, or a dealer in any
type of goods, engages in little processing and production in the ordinary
course of its buying and selling activities. However, these distinctions do not
conclusively resolve the ambiguity inherent in the term in the context and the scheme
of the SPITC recapture regime. The question in the case at bar remains whether
Triple M, who is in the business of recycling scrap metal, is also a “scrap
metal dealer” as contemplated under subsection 31(1) of the Regulations.
Did Parliament and the Ontario legislature intend to make that fine distinction
by using the word “dealer” instead of “recycler”, not providing a definition
and otherwise structuring the legislation in the fashion chosen? A textual
reading of the provision provides two reasonable interpretations, one narrow
and one broad. Resolution of that ambiguity requires an examination of the
context and the purpose of the relevant provisions.
(ii) Context of the Statutory
Regime and “scrap metal dealer” exception
[55]
The surrounding provisions in respect of the “specified
production energy” exemption, under subsection 31(1) of the Regulations,
informs the statutory context. It defines specified production energy as
energy acquired in “the production of tangible personal property intended for
sale”.
[56]
For the purposes of this appeal, the definition of “specified
production energy” suggests two main characteristics: (i) there must be a
“selected person” who uses the energy; and (ii) the energy must be used in the
“production of tangible personal property intended for sale”. Both conditions
must be met for the SPITC Reduction to apply. One condition puts the emphasis
on the person or entity that uses the energy. The other condition puts the
emphasis on the function or operation carried out with the energy by the user.
[57]
As to the first quality, the term “selected person” is defined in
the negative so as to exclude “a scrap metal dealer”.”[19] With the exception of a
“financial institution”,[20]
none of these enumerated entities are defined elsewhere in the Regulations or
the ETA.
[58]
As to the second, the term “production” is defined under section
26 of the Regulations to encompass the notion of “assembling, processing
or manufacturing” to create other property that “is different in nature on
character” from the original. While this is the general statutory context of
the exclusion of a “scrap metal dealer” from the SPITC Reduction, it does not
assist with the meaning of this exclusion.
[59]
In the contextual analysis, the presumption against tautology
must be considered to the extent that the term “scrap metal dealer” would be
rendered redundant or meaningless in the context of the surrounding statutory
provisions. While possibly true in this case, this presumption may be rebutted
where tautological definitions are used throughout in order to add clarity and
certainty to the exclusions.
[60]
In Placer Dome,
supra, Lebel J. stated:
45. Under the presumption
against tautology, “[e]very word in a statute is presumed to make sense and to
have a specific role to play in advancing the legislative purpose”: see R.
Sullivan, Driedger on the Construction of Statutes (3rd ed. 1994), at p.
159. To the extent that it is possible to do so, courts should avoid adopting
interpretations that render any portion of a statute meaningless or redundant: Hill
v. William Hill (Park Lane) Ltd., [1949] A.C. 530 (U.K. H.L.), at p. 546, per
Viscount Simon.
46. … the presumption is rebuttable where it can be
shown that the words do serve a function, or that the words were added for
greater certainty…[22]
[61]
Imputing the ordinary definition as suggested by paragraph (b) of
section 20 of the QRSTA into the definition of a “scrap metal dealer”
would create a redundancy in the legislation and would seem to run afoul of the
presumption against tautology. Any “scrap metal dealer” who merely buys or
sells scrap metal without changing their condition (dictionary definition) or
whose “activities consist mainly of … (b) selling movable property they have
not produced but to which they may have made certain changes before delivery to
the consumer” cannot be engaged in the kind of qualifying “production”
activities that create “tangible personal property that is different in nature
or character”[23]
beyond the scrap metal it acquires. In fact, according to testimony, this is
the precise distinction between a dealer and a recycler that is tacitly
understood in the scrap metal industry in that a dealer carries out only aggregating
activities.
[62]
Moreover, the presumption against tautology carries little weight
in this case. It is rebutted as it appears that Parliament intended to both clarify
and emphasize that certain excluded entities cannot avail themselves of the
“specified production energy” exemption even when they undertake processing
activities. To that extent, the fact that tautological definitions appear deliberately
used in this statutory context helps to rebut the presumption.[24] For example, it is indisputable
that other excluded entities under the definition of the “selected person” such
as a hotel, bar, coffee shop or restaurant, or an auto repair shop are “retail
establishments” that sell tangible personal property (e.g. coffee, food, drinks
or repaired automobiles) directly to consumers. However, the definition of
“production” as defined under section 26 of the Regulations expressly excepts
an activity that is the “assembling, processing or manufacturing of tangible
personal property in a retail establishment” from qualifying production.
To the extent that large national and multi-national coffee shop chains incur
electricity costs in the course of making coffee and food for sale directly to
consumers, the provincial portion of the ITCs in respect of the electricity
costs must be recaptured as such activities are not considered “production”
within the meaning of section 26 of the Regulations. This would arguably
apply even if, hypothetically, there were no exclusion of a coffee shop by
virtue of the definition of the “selected person” under subsection 31(1) of the
Regulations. Again, tautological drafting is prevalent.
[63]
This deliberate emphasis on excepted entities, despite clear
tautological language, in relation to the exceptions to the SPITC Reduction in
respect of “specified production energy”, can be contrasted with the other
SPITC recapture exemption relating to “specified research energy”.[25] This is also
defined under subsection 31(1) of the Regulations, but without reference
to any excluded entity. In fact, the latter is available to any “person”
provided that other conditions are met:
specified research energy means
(a) in the case of specified energy acquired in or brought into
Ontario by a person, the part of the specified energy for consumption or
use by the person in the course of activities in Ontario that are eligible
scientific research and experimental development activities for the purposes of
the Taxation Act, 2007, S.O. 2007, c. 11, Sch. A, and in respect of
which the person deducts an amount in computing the person’s tax payable under
that Act;
… [emphasis added][26]
[64]
Several additional observations may be made within
the statutory context to support the conclusion that Parliament did not
implicitly intend: (i) that the qualifications under paragraph (b) of section
20 of the QRSTA into the definition of “scrap metal dealer” and (ii) that
the ETA and the Regulations per se, would represent
a complete code through which Parliament gave effect to the Agreement.
Firstly, numerous terms, other than a “scrap metal dealer”, are defined
throughout the ETA. In particular in sections 26 and 31 of the Regulations
such terms effect the temporary recapture of ITCs as agreed between Ontario
and Canada in the Agreement. Secondly, where existing legislation needed
to be referenced in the Regulations, Parliament did not hesitate to do
so. For example, section 8 of the Regulations states that “(f) or the
purposes of paragraph (d) of the definition specified provincial tax in
section 220.01 of the Act, in the case of a vehicle registered in the province
of Ontario, a prescribed tax is the tax imposed under the Retail Sales
Tax Act, R.S.O. 1990, c. R.31, as amended from time to time” [italics
added].
[65]
This statutory contextual analysis surrounding the undefined term
“scrap metal dealer” does not adequately resolve the ambiguity at issue, as the
presumption against tautological legislation is most likely rebutted given its
deliberate use in the same immediate context. The redundant language is as
likely a drafting technique to highlight and to add certainty to the excluded
entities under the definition of the “selected person” despite being wholly
unnecessary in light of the definition of “production”.
(iii) Purposive
Analysis of the legislative as a whole and the “scrap metal dealer” exception
[66]
Even if the Agreement, the QSTA
and the QRSTA do not form part of the statutory context of the provision
at issue under the Regulations, they do certainly provide extrinsic aids
in interpreting the purpose or the policy rationale for excepting a “scrap
metal dealer” in relation to the “specified production energy” exemption. This
is particularly so in light of the language of subsection 236.01(2) of the ETA,
which expressly mentions “a sales tax harmonization agreement with the
government of a participating province relating to the new harmonized
value-added tax system [that] allows for the recapture of input tax credits”.
Within this Agreement, section 17 of Annex “C” specifically allows for
the recapture of ITCs, to the equivalent extent of the ITR restrictions under
the QSTA as it read on March 10, 2009.
[67]
Viewed in light of the Quebec regime, and
particularly in light of the 1983 Notice, the ambiguity surrounding the term
“scrap metal dealer” may be resolved.
[68]
Based upon the evidence, Triple M cannot be an
entity which falls within the scope of a “scrap metal dealer” under the QRSTA
and, consequently, under the Regulations that pertain to the SPITC recapture. Under
section 20 of the QRSTA and the related 1983 Notice, “scrap metal
dealers” are explicitly listed as a category of persons who are not eligible
for the RST Exemption relating to the acquisition of energy for use in the
production of “movable property … intended for sale” pursuant to paragraph (aa)
of section 17 of the QRSTA. The policy rationale for this scrap metal
dealer exception appears to be that such persons are engaged in activities that
“consist principally of selling movable property that they have not produced,
but to which they may have made changes before delivery to the consumer”. Scrap
metal dealers are excepted because they are not manufacturers or producers, but
are rather Aggregators or entities that make some inconsequential changes to
the scrap metal before re-sale. Factually this does not describe the processing
activities of Triple M, but likely its aggregating activities. Factually,
Triple M through its processing activities recycles discarded, waste or
unusable scrap it acquires into a useable form through its processing
activities: baling and shredding. The processing activities are necessary in
order for its customers, steel mills, to deploy the useable scrap metal in
producing steel, iron or some other kind of useable metal product. The
consequence of the processing activities is transformative to the goods.
[69]
The 1983 Notice, which not only lists “scrap
metal dealers” but also all of the other entities that are excluded from the scope
of the “selected person” under subsection 31(1) of the Regulations is
meaningful to this determination. Pursuant to the 1983 Gazette, a financial
institution is excluded as its activities “consist principally of supplying
personal or professional services”. “Operators of establishments within the
meaning of the Meals and Hotels Tax Act (RSQ, c T-3)”, which would include a
hotel, bar, coffee shop or restaurant, and “garage operators” which in turn, would include
an auto repair shop, and “scrap metal dealers” were also all excluded because their
activities “consist principally of selling moveable property that they have not
produced, but to which they may have made changes before delivery to the
consumer.”
[70]
This could not be a mere coincidence. Rather, this
should be viewed as a deliberate attempt by Parliament and Ontario to exclude
these entities from qualifying for the SPITC Reduction in relation to
“specified production energy” based on the same purpose and rationale as
established by the 1983 Notice and section 20 of the QRSTA. In the case
at bar, the combined operation of the presumption of knowledge and the
presumption of consistent expression would suggest that this is the proper
approach to take. The presumption of knowledge is largely implicit and is explained
by Professor Sullivan as follows:
§8.9 presumed
knowledge. The legislature is presumed to know all that is necessary to
produce rational and effective legislation. This presumption is very
far-reaching. It credits the legislature with the vast body of knowledge
referred to as legislative facts and with mastery of existing law, common law
and the Civil Code of Quebec as well as ordinary statute law, and the
case law interpreting statutes. The legislature is also presumed to have
knowledge of practical affairs. It understands commercial practices and the
functioning of public institutions, for example, and is familiar with the
problems its legislation is meant to address. In short, the legislature is
presumed to know whatever facts are relevant to the conception and operation of
its legislation. [footnotes omitted, emphasis added]
[71]
The presumption of consistent expression was
explained as follows:
§8.32 It is
presumed that the legislature uses language carefully and consistently so that
within a statute or other legislative instrument the same words have the same
meaning and different words have different meanings. Another way of
understanding this presumption is to say that the legislature is presumed to
avoid stylistic variation…
§8.33 The
presumption of consistent expression applies not only within statutes but
across statutes as well, especially statutes or provisions dealing with the
same subject matter. [emphasis added]
[72]
With the first presumption, Parliament and the
Ontario Legislature are presumed to have requisite knowledge and competence, at
the time of entering into the Agreement which explicitly referenced the QSTA
and by enacting the “selected person” and “specified production energy”
provisions in the Regulations. Therefore, both knew and appreciated (i)
the commercial practices and the business carried out by “scrap metal dealers”
and these other excluded entities, (ii) the fact that such entities were
excluded from the ITR regime under the QSTA which referenced the QRSTA,
(iii) the numerous intricacies associated with the legislative amendments and
notices published under the Quebec Gazette relating to section 20 of the QRSTA,
including the important 1983 Notice; and (iv) that these entities listed under
the 1983 Notice were excluded on the basis of either paragraph (a) or (b) of
section 20 of the QRSTA. That is to say, such entities were excluded
because they were mainly engaged in non-production activities, whether it be
personal or professional services, or insignificant collection activities that made
only superficial or packaging changes to the final product: aggregating
services. This presumption is implied and since no evidence to the contrary was
adduced, this presumption is not rebutted.
[73]
With this unrebutted presumption of knowledge,
the presumption of consistent expression would suggest that the “scrap metal
dealer” excluded under the scope of the “selected person” should have the same
or ascribed a similar meaning as the “scrap metal dealer” excluded under
section 20 of the QRSTA and the 1983 Notice. The same term is used in
the English versions of the Regulations and the 1983 Notice. The French
versions are not exactly the same, but exhibit largely the same meaning. In the
French version of the Regulations, scrap metal dealers are translated
into “les commerçants en ferraille”. In the French version of the 1983 Notice,
scrap metal dealers are translated as “les marchands de ferraille”. Both are
essentially scrap metal merchants or re-sellers, with no material etymological
difference. While the 1983 Notice is clearly not a statute, Parliament and
Ontario are presumed to have turned their minds to the scope for the purposes
of the SPITC Reduction. In deciding to use the same term “scrap metal dealer”
to describe an entity that would be excepted from the scope of the “selected
person”, Parliament and Ontario are presumed to have intended that the same or
a similar meaning be ascribed to the term “scrap metal dealer” under the Regulations.
[74]
The term “scrap metal dealer” under the Regulations
may have a similar but not identical meaning as the “scrap metal dealer”
determined under section 20 of the QRSTA, based on a fundamental
difference between the schemes of the QRSTA and the ETA. The QRSTA
is a retail level sales tax that is levied on the final consumer. The second
component of the definition under paragraph (b) of section 20 of the QRSTA
speaks of “delivery to the consumer” and the entities excluded from the RST
exemption pursuant to section 20 of the QRSTA and the 1983 Notice are all
direct suppliers to consumers of the goods that they supply, e.g. florists,
operators of pet shops. As such, a scrap metal dealer contemplated under the QRSTA
is necessarily limited in that regard. On the other hand, the ETA and,
for that matter, the QSTA are both much broader sales tax regimes. They
each imposed a value-added tax levied at every stage along the supply chain.
Consequently, a “scrap metal dealer” under the ETA and the Regulations
must necessarily be interpreted more broadly so as to ignore the second
component of paragraph (b) of section 20 of the QRSTA that is simply anachronistically
redundant for the purposes of the ETA.
[75]
As well, ultimately there is reconciliation, which
settles some consistency upon this multi‑sourced, multi‑jurisdictional
legislative regime as a harmonious whole. This is rendered through: (i) the
1983 Notice, (ii) the QRSTA being consistent with the narrower
interpretation offered by the dictionaries; and (iii) the case law, to the
extent that such authorities are relevant. As well, the tacit industry
understanding that a dealer in scrap metal is considered to engage only in the
buying, selling and sorting of scrap metal comprising aggregating activities,
regardless of whether it supplies directly to consumers or to other downstream processors
or producers.
[76]
Moreover, this interpretation is also consistent
with the bi‑lateral Agreement in respect of the SPITC Reduction. It
accords with the “ceiling” on the increase in the scope of tax liability imposed
by the QSTA/QRSTA regime in respect of the ITR restrictions, in turn
referenced by section 17 of Annex “C” to the Agreement. Within this
interpretation, the scope of entities excepted under the scope of “selected
persons” is indeed not more expansive than the number of entities in the 1983
Notice that would not qualify for the RST Exemption under the QRSTA and the
number that would not, consequently, qualify for the exemption in respect of
the ITR restrictions as set out in the QSTA. The incorporation by
reference ultimately has a harmonious purpose.
[77]
In conclusion, the 1983 Notice and the QRSTA
play a key role in informing the purpose of the exclusion of a “scrap metal
dealer” under the SPITC recapture regime set out in the ETA and the Regulations.
The ambiguity that remained after considering the ordinary definitions of the
phrase, which may be narrow or broad, is resolved by preferring the narrower
interpretation contained in the 1983 Notice. Purposively, this is more likely
than not what Parliament and Ontario intended for Triple M as a scrap
metal recycler and their entitlement to the SPITC Reduction relating to the
identifiable and limited processing activities.
VI.
Summary and Conclusion
[78]
The forgoing interpretation is not without some
challenges. However, such challenges, to the extent same exist, cannot be used
to overcome referential evidence directed to the scope of the “selected person”
under the Regulations, as informed by the ordinary definitions and the
1983 Notice and the rationale embodied therein. Moreover, any latent unresolved
ambiguity after the foregoing textual, contextual and purposive analysis, commands
invocation of the residual presumption in favour of the taxpayer since none of Parliament,
the legislature or the Minister provided an express definition of the ambiguous
“scrap metal dealer”. The dispute before this Court has been caused by that
omission within the SPITC recapture regime. In the circumstances, as stated in Placer
Dome, the residual presumption should apply in favour of a taxpayer such as
Triple M, where the ordinary principles of statutory interpretation fail
the resolve the issue.
Triple M, after all, engaged in no sort of complicated tax planning in order to
gain the SPITC Reduction.
[79]
Therefore, the appeal is allowed on the basis
that Triple M is entitled to the SPITC Reduction in respect of its
processing activities relating to baling and shredding for the reporting
periods. This is because, during the reporting periods, it was a selected
person within the meaning of section 236.01 of the ETA, the relevant
regulations and referenced agreements. As such, its processing activities
constituted production activity employing specified production energy, thereby
falling within the production exemption for such processing activities.
[80]
In light of the complicated legislative regime
comprising Triple M’s entitlement to the SPITC Reduction, given that no
material facts were in dispute and while Triple M ought to be entitled to its full
costs, the Court will entertain brief submissions in respect of same within 30
days of this judgment.
Signed at Ottawa, Canada, this 23rd day of December 2016.
“R.S. Bocock”
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