Tremblay T.C.J.:
1 This appeal was heard at Québec City, Quebec, on January 15, 1997. The last written argument was filed on April 14, 1997.
1. Point at Issue
2 According to the Notice of Appeal and the Reply to the Notice of Appeal, the point at issue is whether the appellant was correct in not paying the sum of $59,320.27 that the respondent claimed from it in respect of excise tax (GST) for the period from January 1, 1991, to June 30, 1994.
3 According to the respondent, the appellant made taxable supplies from coin-operated devices of the single coin type (“single-coin devices”). The appellant contends inter alia that single-coin vending machines cannot collect the tax from the consumer and that they cannot be modified in order to do so using existing technology. Consequently, the appellant cannot collect the tax from the consumer. The appellant maintains that it cannot be imposed this direct cost increase of 25 to 35 percent by Parliament.
2. Amended Notice of Appeal
4 The appellant's Amended Notice of Appeal reads as follows:
[TRANSLATION]
The appellant is appealing a goods and services tax (GST) assessment dated October 26, 1994, and bearing number 01EE0100661, and states the following:
(A) Statement of Facts
1. The appellant is a company having its place of business at P.O. Box 1167, Grand-Sault, New Brunswick;
2. The appellant received a notice of assessment on October 26, 1994, bearing number 01EE0100661, whereby a tax payable in the amount of $59,320.27 was assessed for the period from January 1, 1991, to June 30, 1994;
3. In response to this assessment, the appellant filed a notice of objection on November 22, 1994;
4. On July 18, 1995, the respondent sent the appellant her decision on the objection confirming the assessment in issue in accordance with the Excise Tax Act;
(B) Points at Issue
5. The point for determination is whether the GST had to be collected and remitted by the appellant in its capacity as an agent of the respondent for the period concerned by the notice of assessment dated October 26, 1994;
(C) Statutory Provisions and Reasons Invoked
6. The appellant is appealing the respondent's decision, which is based on sections 160, 165 and 221 of Part IX of the Excise Tax Act (R.S.C. 1985, c. E-15), as amended, for the following reasons:
(a) the appellant is actively involved in the operation of vending machines known as single-coin devices;
(b) the respondent has not considered the technical limitations of the appellant's devices in that the vending machines cannot collect the tax from the consumer;
(c) the appellant's single-coin devices cannot be programmed or their mecanisms altered and, unlike multi-coins electronic devices, it cannot collect the tax;
(d) to comply with the tax, the appellant will have either to increase its prices substantially or modify its devices, which is not the objective of taxation and which, in any case, cannot be done using existing technology;
(e) the appellant alone thus bears the burden of a mandate that technically it cannot perform, which means that it must pay out of its own revenue the tax which it cannot collect from the consumer;
(f) when Parliament imposes taxes, permits or licences, the amounts involved result in direct cost increases of 25 to 35 percent, which is discriminatory and intolerable for the appellant;
(g) collection of the sales tax in respect of this industry is discriminatory and unfair and results in improper taxation by imposing an enormous financial burden on that industry;
(h) there are two substantial difficulties with the principle of taxation: the question whether it is possible for the agent to collect the tax and the fact that the agent only has an obligation to collect what would be paid by the consumer;
(i) the appellant is unable to collect the amounts claimed by the respondent;
(j) furthermore, on January 8, 1997, the respondent granted a credit of $28,582.27 to the appellant for the period from July 1, 1994, to June 30, 1996;
(k) in the circumstances, in the event the assessment in issue is well-founded, it is imperative that the parties agree on the amount of the assessment covering the period from January 1, 1991, to June 30, 1994;
7. The assessment in issue is ill-founded in fact and in law;
(D) Relief Sought
8. The appellant concludes that the appeal, which is well-founded in fact and in law, should be allowed;
FOR THESE REASONS, the appellant requests that the assessment be set aside and referred back to the respondent for reassessment, restoring the appellant to its original position;
The appellant requests that the appeal be allowed with costs against the respondent;
ALTERNATIVELY, in the event the assessment is well-founded, the appellant requests that the parties agree on the amount of the assessment covering the period from January 1, 1991, to June 30, 1994, and that, failing an agreement, the parties be ordered to reappear before the Court to present arguments on the figures.
3. Respondent's Reply to the Notice of Appeal
5 The facts assumed by the respondent are described as follows:
[TRANSLATION]
3. In assessing the appellant, the Minister of National Revenue relied on the following findings and assumptions of fact:
(a) during the period concerned by this assessment, the appellant made taxable supplies from coin-operated devices of the single-coin type;
(b) the appellant is an agent of the respondent for the purposes of collecting and remitting the GST;
(c) during the period concerned by the assessment, the appellant failed to collect and remit to the respondent the GST payable when it made taxable supplies from the aforementioned devices;
Points at Issue
4. The point at issue is whether the GST had to be collected and remitted by the appellant in its capacity as an agent of the respondent for the period concerned by the notice of assessment dated October 26, 1994;
Statutory Provisions and Reasons Invoked
5. The Deputy Attorney General of Canada relies inter alia on sections 160, 165 and 221 of Part IX of the Excise Tax Act (R.S.C. 1985, c. 15), as amended;
6. Considering the facts in issue, he makes the following contentions:
(a) when a supply is made and the consideration is paid by means of a coin-operated device, the recipient shall be deemed to have received the supply and paid the consideration for the supply and paid any tax payable in respect of the supply and the supplier shall be deemed to have made the supply, received the consideration for the supply and collected any tax payable in respect of the supply;
(b) consequently, the appellant had to remit the GST payable included in the value of the coins withdrawn from the coin-operated devices by means of which it made the taxable supplies;
7. The assessment in issue is well-founded in fact and in law;
Relief Sought
8. He concludes that the appeal, which is ill-founded in fact and in law, should be dismissed;
FOR THESE REASONS, the Deputy Attorney General of Canada requests that the appeal be dismissed with costs against the appellant.
4. Facts Adduced in Evidence
6 Testimony was given by Denise Woodworth, Réjean Landry, Bernard Renaud and Daniel Renaud.
4.01 Denise Woodworth's Testimony
7 4.01.1 Ms. Woodworth has been employed by the federal government as a GST auditor since 1990.
8 In October 1994, she was instructed to audit the appellant's business in response to a request by the appellant for a refund, particularly since this was the second request for a refund of more than $10,000.
9 4.01.2 The audit lasted two or three days. According to the witness, the books were kept on computer and were very well kept. She inspected the warehouse and the single-coin vending machines used for selling peanuts, gumballs and other items. These machines had been operating solely with quarters since 1976 instead of dimes as had previously been the case.
10 Mr. Landry complained to her that he could not collect the GST. Seven percent of 25 cents is 1.7 cents, and the machine cannot collect an additional two cents. A child pays his 25 cents and goes away. Mr. Landry told her: “It's the same thing as for pay telephones, which are exempt.”
11 Mr. Landry also explained to her the steps he had taken with the government authorities. The association of single-coin vending machine owners was also trying to have the Act amended.
12 4.01.3 House of Commons Issue no. 20 dated March 14, 1994, was filed as Exhibit A-1.
13 Mr. Bernard Renaud, Director of Communications of Les Entreprises ACME, provided a lengthy explanation of the problem of the coin-operated devices in issue:
...Since then we have proven without a doubt that technically we cannot collect GST from the consumer, so we therefore have to support the GST in place of the consumer, which is an exception to the GST law because the GST law says the consumer should pay GST. (pp. 20:4-5)
...These accept a single coin, neither two different coins nor two different varieties of coins. They accept one single denomination. They don't give change. So we have a problem with collecting GST from the consumer.
On December 31, 1990, a gumball was sold for 25¢ On January 1, 1991, what could we do? We had certain possibilities or alternatives. (p. 20: 7)
14 Mr. Renaud also stated that one of the options might be to ask the Royal Mint to strike a new 29-cent coin, an “unrealistic solution”, he concluded:
An alternative would be that we could change our machines so that we could take more than one coin and give change. These selectors cost $700 apiece. They operate with electricity. For us to insert one of these selectors in one of these machines, we'd first of all need electrical infrastructure. That costs approximately $1,000 to bring, because our machines are normally located in hallways or entries where there is no electricity. We'd have to expand the size of our machines substantially. The cost of a selector is $700. So we'd need $2,000 of investment on each $200-machine we have there.
We could ask the government to give us a subsidy or a grant of $2,000 multiplied by 70,000 machines. That would be $150 million in grants for a $10-million industry, per year. Again, it's unrealistic. (p. 20: 7)
15 The Minister of Finance, the Honourable Paul Martin, has stated the following:
[TRANSLATION]
Vendors making supplies by means of vending machines designed to accept only one coin may not pass on the sales tax to the consumer. (Exhibit A-2, p. 3)
16 4.01.4 Parliament solved the problem in issue by means of the amendment of April 25, 1996, respecting the definition of “appareil à sous” instead of “appareil automatique” (“coin-operated devices” in both English versions) and the exemption of tax where the amount is less than $0.025.
4.02 Réjean Landry's Testimony
17 4.02.1 In his testimony, Réjean Landry referred inter alia to the testimony given during debate in the House of Commonson April 19, 1994, (Exhibit A-5) respecting the exemption granted to telephone companies under subsection 165(3) of the Act. He referred to page 35:63:
My confrère Mr. Renaud mentioned to you article 165(3), which is a special tariff classification that was given to the telephone companies. How come they received that special classification and we cannot receive it?
One reason might be — and I speak honestly here — these telephone companies make millions and are very important in the economy, but we who are involved in bulk vending are considered sometimes second-class citizens; we just operate peanut and candy machines.
Let me tell you we work hard at this business from 9 a.m. to 9 p.m. almost every day, Saturdays as well. We pay our taxes. It is unfair to treat us differently from somebody else, even if it is a telephone company or an individual making $30,000 or less and doing this business on the side.
The GST system has created a two-tier economy. I'll leave it to your imagination to name them as you see fit.
18 4.02.2 He also referred to the remarks by Chairman Peterson at pages 35:63 and 35:64:
The Chairman: Thank you, Mr. Landry.
For the benefit of members who may not have been at the national association's presentation to us in Ottawa, the problem is the customer puts a 25¢ coin into the machine to get the gum, the peanuts or the hard candy. The industry has no way of collecting the 1.7¢ from the consumer. The only way they could do it would be very, very expensive machines that would never be profitable for them. Of course, the Royal Mint does not issue a 1.7¢ coin.
So the solution that's been adopted by the government to date is that the vendor, the operator of this machine, must pay the tax himself or herself to the government.
19 4.02.3 The witness referred to the comments by Mr. Discepola at page 35:65:
Mr. Discepola: I support your last statement totally because I'm a small businessman myself. It hasn't gone on deaf ears.
I find it reprehensible that such a ruling was imposed and that you've been bandied about for almost two years for a solution. I think the weakness of the ruling is that you are unable to collect the tax. Unless the government gives you a way to collect the tax, you should be treated the same way as the coin-operated telephone companies are.
I think it's a dual standard again, but it's symptomatic of the problems we've experienced with the GST. We will do all we can to make sure that it's an equitable system.
20 And the following comments appear at page 35:66:
Mr. Landry: The problem is that we're taxed on the retail and have to absorb it. We cannot pass this tax along to the consumer.
Mr. Discepola: That's what I said. The government implies that the vendor is assumed to have collected the tax in his price, and you have no way of collecting the amount.
Mrs. Stewart: I'd like to take this opportunity to recognize the concern and difficulties you've had with the GST appeals process.
Many of my constituents have indicated that they've had difficulty managing appeals, and I'm not sure the Minutes of Proceedings and Evidence show that in fact that's one aspect of this tax we must consider as well.
21 4.02.4 In their testimony, Réjean Landry, Bernard Renaud and Daniel Renaud in fact provided information on various aspects of the problem by referring to excerpts of the debates in the House of Commonsand of letters received from the Chairman of the House of Commons Standing Committee on Financeand the Minister of Finance Paul Martin.
22 They also mentioned meetings held since 1990, thus even before the Act was implemented, to prevent the problems and then to try to correct them.
5. The Act - Case Law and Authorities - Analysis
5.01 The Act
23 The provisions of the Excise Tax Act (the “Act”) involved in the instant appeal are as follows.
5.01(a) Respecting Coin-operated Devices
24
160. Appareils automatiques.
Dans le cas où une fourniture est effectuée, et la contrepartie y afférente payée, au moyen d'un appareil automatique, les présomptions suivantes s'appliquent aux fins de la présente partie:a) l'acquéreur est réputé, le jour où la contrepartie de la fourniture est insérée dans l'appareil, avoir reçu la fourniture et payé la contrepartie y afférente ainsi que la taxe payable qui y est relative;
b) le fournisseur est réputé, le jour où la contrepartie de la fourniture est retirée de l'appareil, avoir effectué la fourniture, reçu la contrepartie y afférente et perçu la taxe payable qui y est relative.
160. Coin-operated devices.
Where a supply is made, and the consideration therefor is paid, by means of a coin-operated device, the following rules apply for the purposes of this Part:- a) the recipient shall be deemed to have
(i) received the supply,
(ii) paid the consideration for the supply, and
(iii) paid any tax payable in respect of the supply,
- b) the supplier shall be deemed to have
(i) made the supply,
(ii) received the consideration for the supply, and
(iii) collected any taxe payable in respect of the supply,
5.01(b) Respecting the Rate
25
165 (1) Imposition of tax Subject to this Part, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada a tax in respect of the supply equal to 7% of the value of the consideration for the supply.
26 On April 23, 1996, the Act was amended to include in the Act subsection 165(3.1), which reads as follows:
165(3.1) Appareils à sous.
La taxe payable relativement à la fourniture d'un bien meuble corporel ou d'un service distribué ou rendu au moyen d'un appareil à sous mécanique qui est conçu pour n'accepter, comme contrepartie totale de la fourniture, qu'une seule pièce de monnaie est égale au montant suivant:
a) si le montant calculé en application du paragraphe (1) est inférieurà 0,025 $, zéro;
b) si le montant calculé en application du paragraphe (1) esté gal ou supérieur à 0,025 $ mais inférieur à 0,05 $, 0,05 $;
c) dans les autres cas, le montant calculé en application du paragraphe (1).
165(3.1) Coin-operated devices.
The tax payable in respect of a supply of tangible personal property dispensed from, or a service rendered through the operation of, a mechanical coin-operated device that is designed to accept only a single coin as the total consideration for the supply is equal to(a) zero where the amount computed in accordance with subsection (1) is less than $0.025;
(b) five cents where the amount computed in accordance with subsection (1) is equal to or greater than $0.025 but less than $0.05; and
(c) in any other case, the amount computed in accordance with subsection (1).
5.01(c) Respecting an Agent
27
221 (1) Collection of tax Every person who makes a taxable supply shall, as agent of Her Majesty in right of Canada, collect the tax under Division II payable by the recipient in respect of the supply.
123(1) Definitions
“supply” means, subject to sections 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition;
“taxable supply” means a supply that is made in the course of a commercial activity, but does not include an exempt supply;
5.02 Case Law and Authorities
28 The parties cited the following case law and authorities:1. Québec (Communauté urbaine) c. Notre-Dame de Bonsecours (Corp.), [1994] 3 S.C.R. 3 (S.C.C.);
2. Constitution Act, 1982 (excerpts);
3. Farn v. R. (1995), 95 D.T.C. 5426 (Fed. T.D.);
4. Amendments to the Excise Tax Act, Income Tax Act and related acts (excerpts);
5. David M. Sherman — Canada GST Service, pp. 160-101 to 160-103 and 165-101 to 165-106(b);
6. Keir Estate v. Minister of National Revenue (1965), 65 D.T.C. 679 (Can. Tax App. Bd.);
7. Havlik Enterprises Ltd. v. Minister of National Revenue (1989), 89 D.T.C. 159 (T.C.C.);
8. Reference re Excise Tax Act (Canada), [1992] 2 S.C.R. 445 (S.C.C.);
9. Stubart Investments Ltd. v. R., [1984] 1 S.C.R. 536 (S.C.C.);
10. Pierre-André Côté, The Interpretation of Legislation in Canada, 2nd edition;
11. G. Lord, J. Sasseville, D. Bruneau, Les principes de l'imposition au Canada, 11th edition (Wilson & Lafleur, September 1995).
5.03 Analysis
29 5.03.1 With respect to the interpretation of tax legislation, the Court agrees with the parties that the words of an act are to be read in their entire context, as the Supreme Court of Canada has stated in a number of decisions, including inter alia Québec (Communauté urbaine) c. Notre-Dame de Bonsecours (Corp.) (5.02: 1), at page 17, where Gonthier J. writes as follows:
...there is no longer any doubt that the interpretation of tax legislation should be subject to the ordinary rules of construction. At page 87 of his text Construction of Statutes (2nd ed. 1983), Driedger fittingly summarizes the basic principles: “...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”. The first consideration should therefore be to determine the purpose of the legislation, whether as a whole or as expressed in a particular provision.
30 5.03.2 If the purpose of the Act (spirit, object, intention) is considered in the instant case, the Act provides that the tax is payable by “the recipient of the supply”, not by “every person who makes a taxable supply, as an agent” (s. 221).
31 In the instant case, because of the mechanism of the device, it was not possible in practice to charge the tax and collect it unless staggering expenses were incurred (4.01.3). Applying section 160 as it read in 1991 would have the effect of forcing someone to pay the tax for the consumer. This was not Parliament's intent and this causes injustice.
32 Furthermore, in 1990, before the Act was even implemented, Parliament was aware of the problem that this kind of machine raised (4.02.4, last sentence). It could therefore have amended the Act in 1990. In 1996, it could also have provided for the amendment to be deemed to have come into force on December 17, 1990, as it did for pay telephones in 1993 (paragraph 165(3)(c)). Parliament preferred to leave it to the judicial system to settle the problem.
33 5.03.3 With respect to the definitions of section 160, the respondent emphasized that there was some ambiguity between the meanings of the two versions. To solve the problem, the respondent invoked the “shared meaning rule” of interpretation referred to in Farn v. R. (5.02: 3) at page 5433:
Indeed it is well established that for bilingual legislation an ambiguity in the meaning of a provision in one of the official languages may be resolved by recourse to the parallel provision in the other official language. This so-called «shared meaning rule», as stated by Driedger, has been adopted in numerous cases to resolve ambiguities in one or both language versions or to clarify the scope of vague terms.
(Our emphasis.)
34 The respondent contended that the English version of section 160 should be applied:
[TRANSLATION]
It [the English version] clearly states that this provision applies to “coin-operated devices” regardless of the types or models of devices concerned. The only requirement set by Parliament is that the machine be a coin-operated device, mechanical or otherwise, and that the device be used to make a taxable supply upon the inserting of coins.
35 The issue is precisely whether the device may be used to make a taxable supply.
36 5.03.4 The appellant referred to the author Pierre-André Côté, who writes as follows on the interpretation of bilingual enactments in his work entitled The Interpretation of Legislation in Canada, 2nd ed., 1990, at pages 272-273:
Unless otherwise provided, differences between two official versions of the same enactment are reconciled by educing the meaning common to both. Should this prove to be impossible, or if the common meaning seems to violate the intention of the legislator as indicated by the ordinary rules of interpretation, the meaning arrived at by the ordinary rules should be retained.
37 The rule is thus to adopt the clearer version.
38 In addition, he writes as follows further on at pages 275-276:
...There is a third possibility: one version may have a broader meaning than another, in which case the shared meaning is the more narrow of the two.
39 Is it possible to apply the French version to the appellant in the instant case? It is rather my view that an “appareil monosélecteur” (“monoselector device”) is not an “appareil automatique” (“coin-operated device”). We must therefore rely on the rules of interpretation in order to confirm Parliament's intention.
40 On this point, Pierre-André Côté states at page 276:
But the task of interpretation is not completed by deciding upon the meaning shared by the two versions. The interpretative hypothesis must be verified with reference to the statute's context as a whole. The shared meaning must be compatible with the intention of the legislator, as determined by the ordinary rules of interpretation.
41 It is precisely this task that the Court has performed above (5.03.2) and it has come to the conclusion that a single-coin device could not be used to make a taxable supply upon the inserting of coins.
42 5.03.5 The Court subscribes to the following two arguments by the appellant, which are consistent with those cited above:
[TRANSLATION]
1. Applying the French version to the appellant would result in injustice and an unfair situation. We submit that the entire context of the Act runs counter to such an application.
We rely inter alia on subsection 165(3.1) of the Act, which came into force on April 23, 1996, and which refers to an “appareilà sous mécanique” in its French version and “a mechanical coin-operated device” in its English version and exempts the appellant from collecting GST.
As we find the term “mechanical” expressly stated in both versions and as the appellant is expressly contemplated by the amendment, we submit that Parliament's intention was always to exempt mechanical single-coin devices from the time the Act came into force in 1991.
2. Parliament recognizes that it is impossible to collect the GST for the future; it must be concluded that it implicitly acknowledges that impossibility for the past. The opposite reasoning leads to an absurd situation for the appellant because it would be required to remit a tax that is impossible to collect. The objectives of the Act are not met because the GST was never passed on to the consumer and it is not the agent's role to pay the tax, but rather to remit what he has collected. In the instant case, the appellant did not collect the tax because the mechanical single-coin device does not permit this transaction. It is the nature of the equipment that does not permit it and research in this field has not resulted in a change to the system that would foster a scientific adjustment.
6. Conclusion
43 For the aforementioned reasons, the appeal is allowed with costs and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment.
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