Citation: 2012 TCC 256
Date: 20120813
Docket: 2009-2959(GST)G
BETWEEN:
TELE-MOBILE COMPANY PARTNERSHIP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR JUDGMENT
C. Miller J.
[1]
Tele-Mobile Company
Partnership ("TELUS") appeals the assessment by the Minister of
National Revenue (the "Minister") denying input tax credits
("ITCs") in 2005 and 2006, which TELUS claims arise as a result of Billing
Credits and mail‑in rebates provided to customers in 2001 and 2002.
Facts
[2]
In 2001 and 2002, TELUS
ran a couple of promotional programs to attract subscribers to long-term
wireless cellular phone service contracts. One program was a mail-in rebate
program, the other a Billing Credit arrangement.
Billing Credit
[3]
While I heard testimony
from Ms. Mellett, a Director of Products and Services for TELUS, who was in
charge of phone pricing in 2001 and 2002, and Mr. Doug McCall, a Tax
Director of TELUS, regarding the promotional programs, I find the letter from
TELUS to Canada Revenue Agency ("CRA") on September 14, 2005 most
succinctly describes the Billing Credit arrangement:
TM
Billing credits
Billing
credits are given to customers mainly in respect of contract term discounts. A
contract term discount is given by TM in order to persuade the customer to
enter into a longer term contract, either at the time of purchase of a new
cellular phone or when the customer is switching from a month to month plan to
a contract term plan. For example, when a customer purchases a cellular phone
and signs up for a three year contract, the customer would receive a discount
of $150 off the price of the phone. The discount is sometimes given at point of
sale and reduces the price of the phone. Alternatively, a billing credit would
be given where:
·
The customer is purchasing the phone at a retail
store which cannot sign the customer up to the TM service and therefore cannot
give a point of sale discount,
·
The customer renews a contract with TM without
purchasing a new phone
·
The customer switches from a month-to-month plan
to a contract term
·
Corporate clients receive additional acquisition
credits as part of a corporate agreement involving the purchase of handsets for
corporate use.
GST
is applied to the invoice charges to the customer without reference to the
billing credits. Input tax credits have previously not been claimed on the
billing credits.
[4]
TELUS’ witnesses
clarified that the discount at the time of sale was a discount towards the
price of a phone. Such discounts apply to the price of a phone prior to GST
being applied. Such amounts are not at issue before me, only the Billing
Credits. I am satisfied that the summary of Billing Credits upon which the ITCs
are in dispute, found in Tab 2 of Exhibit A-1, do not include these phone discounts,
but only the subsequent Billing Credits which appear on a customer’s first
invoice from TELUS, after the contract is entered into or renewed. There is no
dispute with respect to the numbers found in Tab 2 of Exhibit A-1.
[5]
The amount of credit
will depend on the length of service contract for which the customer
subscribes. In this regard, I was referred to a page from TELUS’ website that
appears to be dated in 2005: it was unclear whether the website page was
available in 2001 and 2002 but Ms. Mellett, who was in charge of promotions in
2001 and 2002, testified that the one, two and three-year credits of $50,
$100 and $150, were the same at that time and were widely advertised. The
webpage describes the program thus:
PCS
phone discounts*
1
Year Term 2 Year Term 3
Year Term
$50
credit $100 credit $150
credit**
§
FAQ – click here
for more information on our PCS term contracts offering
§
Service terms and conditions
§
PCS rate plans –
click here for more information on our PCS rate plans
*Above
discounts available to new clients activating a PCS term contract account.
**The
lowest price for a PCS handset will be $24.00. (i.e.: a $149.99 retail handset
on a 3-year term will receive a maximum discount of $125)
…
When
will my contract term start?
Your
contract term will commence upon TELUS Mobility’s acceptance of a completed
contract form.
…
When
and how is the phone credit applied?
Based
on the successful activation of a contract term account, you can receive your
phone credit through one of two methods:
§
If you purchase your PCS phone at a TELUS
Mobility Independent Dealer, you will receive an instant rebate on the purchase
price of your phone.
§
If your purchase your PCS phone at a TELUS
Mobility third party retailer or through any other TELUS Mobility Channel
Partner location, you will be charged full price for your PCS phone at time of
purchase, but will receive the PCS phone rebate as a credit on your first
invoice.
[6]
It is also helpful to
reproduce one of the invoices from 2002 which illustrates the application of
the Billing Credit (see Appendix A). Note that the credit, described as
"Contract Handset Cred 3Yr", in this case $125, is taken off the
total amount of charges including the applicable GST and PST, although the
credit appears in the invoice before the GST charges. So, all the charges add
up to $127.35 plus $8.91 GST and $8.91 PST for a total $145.17. The Billing
Credit of $125 is deducted from the $145.17 leaving an amount owing of $20.17.
If a phone was bought at the TELUS store, the immediate discount would be
applied before GST, but that does not appear to be the case with respect to the
Billing Credit. Mr. McCall could not explain why the TELUS in-store
discount attached before GST, while a subsequent Billing Credit attached after
GST, other than to suggest their system had limitations.
[7]
TELUS did not claim
ITCs with respect to these Billing Credits, which related to 2001 and 2002,
until reporting periods in 2005 and 2006. No explanation was given for this
delay. ITCs claimed for the Billing Credits for 2001 and 2002 were $80,730.63
and $391,175.01 respectively.
Mail-in Rebates
[8]
Again, it is helpful to
reproduce TELUS’ description of this program from the September 14, 2005 letter
to CRA:
…
Periodically,
TM runs a mail-in rebate promotion to rebate a sum of money, for example $50,
to purchasers of particular cellular telephones. The phones are sold by TM to
the various sales channels from which the customer purchases the phones. The
customer can purchase the phones from a TELUS corporate store (part of the TM
entity), from a dealer (an independent store affiliated with TM, but not part
of the TM entity) or from a retailer, (such as Future Shop or London Drugs).
The
transaction is as follows: The customer purchases the phone, is charged GST on
the retail price of the phone, fills out the coupon and mails it to TM. A third‑party,
PPFD ensures the customer is eligible based on whether they have signed up for
cellular service with TM, and then processes the mail-in rebate by issuing a
cheque for $50 to the customer. The rebates processed are aggregated on a
monthly basis, and a report and invoice is issued to TM. TM then reimburses
PPFD for the mail-in rebate paid, and also pays them a processing fee.
TM
phones are specifically wired for use only with the TM cellular phone network.
When a customer purchases one of TM’s phones at a corporate store, dealer ore
retailer, the customer can only activate the phone with TM and receive cellular
phone service from TM (without internally rewiring the phone).
…
Ms. Mellett had a slightly different explanation for
one aspect of this arrangement as described in the September 14, 2005 letter.
She testified that the third party, PPFD, who actually ensures customer
eligibility and then issues a cheque, is fronted with the money from TELUS to
pay the rebates, along with a service fee from TELUS.
[9]
Attached as Appendix B
to these Reasons is a copy of the mail-in rebate coupon. This coupon relates to
the 2004 year, though Ms. Mellett testified that she developed the
template for the coupon so it was basically the same in 2001 and 2002.
[10]
I will highlight a few
points from the coupon:
a) it is for new activations of the
phone;
b) the rebate is based on
the purchase price of the phone and the term activation;
c) the rebate arises
even if there is no term contract as long as a contract is activated (that is,
there could be a month-to–month contract rather than a term contract);
d)
the contract must be
activated for a minimum of 31 days;
e)
nothing in the coupon
indicates the rebate amount included GST.
[11]
I was provided with a
copy of a $50 rebate cheque which was branded "TELUS Mobility" though
care of PPFD. There was no reference to GST on the cheque.
[12]
The ITC’s in issue for
the mail-in rebate relating to the 2001 and 2002 years are $15,921.10 and
$76,063.26 respectively.
Legislation
[13]
Before identifying the
Parties’ positions, I will set out the two pertinent Excise Tax Act ("ETA")
provisions:
181. (1) The definitions in this subsection
apply in this section.
“coupon” includes a voucher, receipt, ticket or other
device but does not include a gift certificate or a barter unit (within the
meaning of section 181.3).
“tax fraction” of a coupon value or of the discount or exchange
value of a coupon means
(a) where the coupon is accepted in full or partial
consideration for a supply made in a participating province the fraction
A/B
where
A is the total of the rate set out in subsection
165(1) and the tax rate for that participating province, and
B is the total of 100% and the percentage
determined for A; and
(b) in any other case, the fraction
C/D
where
C is the rate set out in subsection 165(1), and
D is the total of 100% and the percentage
determined for C.
Acceptance of non-reimbursable coupon
(3) Where at any time a registrant accepts, in full
or partial consideration for a taxable supply of property or a service (other
than a zero-rated supply), a coupon that entitles the recipient of the supply
to a reduction of the price of the property or service equal to a fixed dollar
amount specified in the coupon or a fixed percentage, specified in the coupon,
of the price (the amount of which reduction is, in each case, referred to in
this subsection as the “coupon value”) and the registrant can reasonably expect
not to be paid an amount for the redemption of the coupon by another person,
(a) the registrant shall, for the purposes of this
Part, treat the coupon as
(i) reducing the value of the consideration for the
supply as provided for in subsection (4), or
(ii) a partial cash payment that does not reduce the
value of the consideration for the supply; and
(b) where the registrant treats the coupon as a
partial cash payment that does not reduce the value of the consideration for
the supply, paragraphs (2)(a) to (c) apply in respect of the supply and the
coupon and the registrant may claim an input tax credit for the registrant's
reporting period that includes that time equal to the tax fraction of the coupon
value.
Acceptance of other coupons
(4) For the purposes of this Part, if a registrant accepts,
in full or partial consideration for a supply of property or a service, a
coupon that may be exchanged for the property or service or that entitles the
recipient of the supply to a reduction of, or a discount on, the price of the
property or service and paragraphs (2)(a) to (c) do not apply in respect of the
coupon, the value of the consideration for the supply is deemed to be the
amount, if any, by which the value of the consideration for the supply as
otherwise determined for the purposes of this Part exceeds the discount or
exchange value of the coupon.
Redemption of coupon
(5) For the purposes of this Part, where, in full or
partial consideration for a taxable supply of property or a service, a supplier
who is a registrant accepts a coupon that may be exchanged for the property or
service or that entitles the recipient of the supply to a reduction of, or a
discount on, the price of the property or service and a particular person at
any time pays, in the course of a commercial activity of the particular person,
an amount to the supplier for the redemption of the coupon, the following rules
apply:
(a) the amount shall be deemed not to be
consideration for a supply;
(b) the payment and receipt of the amount shall be
deemed not to be a financial service; and
(c) if the supply is not a zero-rated supply and the
coupon entitled the recipient to a reduction of the price of the property or
service equal to a fixed dollar amount specified in the coupon (in this
paragraph referred to as the “coupon value”), the particular person, if a
registrant (other than a registrant who is a prescribed registrant for the
purposes of subsection 188(5)) at that time, may claim an input tax credit for
the reporting period of the particular person that includes that time equal to
the tax fraction of the coupon value, unless all or part of that coupon value
is an amount of an adjustment, refund or credit to which subsection 232(3)
applies.
…
Rebates
181. 1 Where
(a) a registrant makes a taxable supply in Canada of property or a service (other than a zero-rated supply),
(b) a particular person acquires the property or
service, either from the registrant or from another person,
(c) the registrant pays, at any time, a rebate in
respect of the property or service to the particular person and therewith
provides written indication that a portion of the rebate is an amount on
account of tax, and
(d) subsection 232(3) does not apply to the rebate,
the following rules apply:
(e) the registrant may claim an input tax credit for
the reporting period of the registrant that includes that time equal to the
product obtained when the amount of the rebate is multiplied by the fraction
(in this section referred to as the “tax fraction in respect of the rebate”)
A/B
where
A is
(i) if tax under subsection 165(2) was payable in
respect of the supply of the property or service to the particular person, the
total of the rate set out in subsection 165(1) and the tax rate of the
participating province in which that supply was made, and
(ii) in any other case, the rate set out in
subsection165(1), and
B is the total of 100% and the percentage
determined for A, and
(f) where the particular person is a registrant who
was entitled to claim an input tax credit, or a rebate under Division VI, in
respect of the acquisition of the property or service, the particular person
shall be deemed, for the purposes of this Part, to have made a taxable supply
and to have collected, at that time, tax in respect of the supply equal to the
amount determined by the formula
A × B/C × D
where
A is the tax fraction in respect of the rebate,
B is the input tax credit or rebate under Division
VI that the particular person was entitled to claim in respect of the
acquisition of the property or service,
C is the tax payable by the particular person in
respect of the acquisition of the property or service, and
D is the amount of the rebate paid to the particular
person by the registrant.
Parties’
Positions
[14]
With respect to the
ITCs connected to the Billing Credits, the Appellant argues:
a) The Billing Credit
arrangement is a coupon (device) as defined in s.181(1) of the ETA
entitling the customer to a reduced price for TELUS’ services equal to a fixed
amount specified in the coupon (device) and thus bringing into play s.181(3) of
the ETA entitling TELUS to the ITCs (181(3)(b)) of the ETA).
b) In the alternative, if
the Billing Credit arrangement is not a coupon subject to s.181(3) of the ETA
then it is a rebate pursuant to s.181.1 of the ETA entitling TELUS
to ITCs, as TELUS paid it in respect of its services and there was written
indication that a portion of the rebate was an amount on account of tax.
[15]
The Respondent replies
to the Appellant’s position with respect to the Billing Credits as follows:
a) The Billing Credit
arrangement is not a coupon that invokes s.181 of the ETA as:
i) it was a rebate on
the price of the phone not a coupon presented to TELUS for its services;
ii)
it does not meet the
definition of coupon;
iii)
even if the Billing
Credit is considered a coupon, it was not based on "a fixed dollar
amount", nor was it in a form that could be "accepted" by TELUS.
b)
In the alternative,
s.181.1 of the ETA is not applicable as:
i)
the rebate relates to
the supply of the phone (not a supply by TELUS) and not the supply of TELUS’
services; and
ii)
there is no written
indication that a portion of the rebate is an amount on account of tax.
[16]
With respect to the ITCs
connected to the mail-in coupon or rebate, the Appellant argues that the
mail-in coupon constitutes a non-reimbursable coupon for a fixed dollar amount
entitling the customer to a reduction of the price for TELUS’ services engaging
s.181(3) of the ETA, as TELUS effectively refunded part of the price
paid by the customer for TELUS’ services.
[17]
The Appellant does not
argue that s.181.1 of the ETA applies.
[18]
The Respondent replies
to TELUS’ position vis-à-vis the ITCs in connection with the mail-in coupons by
arguing the mail-in coupon was not a coupon as defined, but a rebate on the
price of the phone, which was not supplied by TELUS and therefore could not be
accepted as consideration for that supply. Even if it was, there was no one
fixed price as required by 181(3) of the ETA. The Respondent
acknowledged that had the refund cheque indicated that the refund was GST
included, the Appellant could have availed itself of s.181.1 of the ETA.
Analysis
[19]
Before starting my
analysis of the ETA, it is not lost on me that TELUS took several years
before claiming the ITCs in dispute: as no explanation was put forward as to
why, I am left to speculate that someone eventually realized that TELUS had
made a mistake. How to rectify it? S.261 of the ETA, at that time (prior
to 2007), might have been a route to such a rebate, but TELUS had already
passed the two‑year time restriction. S.181 and 181.1 of the ETA
offered perhaps the next best solution, but it is clear to me that neither
provision provides an elegant solution, but requires some tortured, though
maybe not totally unfeasible, interpretive bending of the sections. Do I do
that, or do I simply tell TELUS to lick its wounds and get it right going
forward?
A. Billing Credits
[20]
The first hurdle to get
over is to determine to which supply the credit attaches. The Respondent says
that the Billing Credits are given with respect to the handsets, the phones,
while the Appellant claims the Billing Credits are for TELUS’ services. What
confuses the issue is the fact that if a customer acquires a handset at a TELUS
outlet, the customer will get an immediate reduction on the price of the
handset, but if that is not available, the customer gets a credit on the first
TELUS invoice, the invoice being for TELUS’ services, not the handset. It is
the credits in the latter situation that are at issue.
[21]
The situation is best
described by way of example. Assume a customer buys a handset from a non-TELUS
outlet and pays $300 plus 5% GST or $315. The customer has either read on
TELUS’ website, or is advised by the vendor of the handset, that if you agree
to a two-year service contract with TELUS you are entitled to a $100
"phone rebate as a credit" (to make the numbers easier to understand,
I will say it was a $105 credit, rather than the $100 credit) on your first
TELUS invoice. From a GST perspective this is awkward wording as the first
TELUS invoice is not for the phone but for the service contract.
[22]
What happens on that
first invoice? Continuing with the example, let us say the first invoice is for
$100. Based on the TELUS invoices in evidence, TELUS charges $100, subtracts
the $105 credit, calling it "contract handset Cred 2Yr", and applies
GST of $5.00. The invoice will show $5 GST to be remitted by TELUS, but $0 for
the total current charges owing by the recipient of the services. Using the
language and set-up in the TELUS invoice attached as Appendix A, the invoice
would look something like this:
Service Charge $100
Contract handset
Cred 2 Yr -
$105 -$5
GST
$5
Total current charge owing 0
Presume that the first service charge was for $300,
rather than $100. The invoice would then look as follows:
Service Charge $300
Contract handset
Cred 2Yr -
$105 $195
GST $
15
Total current charge owing $210
[23]
I conclude that,
notwithstanding the language in TELUS’ promotional materials that leave an
impression the credit applies to the phone or handset, the commercial reality
is that it did not apply to the handset, it applied to the TELUS services. This
was the only supply referenced on the invoice and it has to have been those services
against which the credit was applied.
i. Billing Credits as a Coupon: Section 181
of the ETA
[24]
I turn now to the
application of s.181 of the ETA to these facts. Is the Billing Credit
arrangement a coupon? Recall that a coupon includes a device, and in accordance
with s.181(3) of the ETA, a device entitling the recipient to a
reduction of the price of the service equal to a fixed dollar amount specified
in the device, and accepted by TELUS as consideration.
[25]
The Appellant suggests
that I take an open-textured approach to the interpretation of coupon, relying
on the Supreme Court of Canada’s comments in the case of R. v. Perka
which suggested that an open-textured approach supports an interpretation
that the statutory categories are to be held to include things unknown when the
statute was enacted.
[26]
The Respondent argues
that the arrangement lacks any of the characteristics of a coupon and following
the ejusdem generis rule, "device" should share
similar characteristics to voucher, receipt and ticket. Referring to dictionary
definitions, the Respondent concludes that each of voucher, receipt and ticket
contemplate some thing used by a customer during the transaction, not after the
transaction, entitling the customer to a price reduction. So, if the credit
applied to the handset, not the TELUS service, it is more of a rebate than an
acceptance of a coupon for a current transaction. But, as I have concluded from
the evidence, the credit goes to reduce the TELUS service charge, not the
amount paid for the handset. In that respect, the billing credit arrangement
does meet the characteristic of immediacy to the transaction shared by a
voucher, receipt and ticket in that it is granted simultaneously with the
charge of the service, being the first TELUS invoice. What it does not share,
however, and basic to the definition, is that it is not some thing entitling
the customer to the reduction – it is the reduction itself. This is a significant
distinction.
[27]
The generic term
"device" defined in Webster’s On-line Dictionary as "a mechanism
designed to serve a special purpose or perform a special function…an electronic
device" broadens considerably any notion that "coupon" must be
limited to any traditional view. The use of device suggests that the
legislators acknowledged commerce has entered a technological age where paper
may indeed become completely outdated. As the Appellant suggested, the standard
commercial practice has evolved with the advent of e-commerce and instead of
issuing a paper coupon, a customer’s entitlement to a reduction in purchase
price can be effected electronically. I do not see how this approach, however,
helps the Appellant, as it has pointed to nothing held by the customer,
electronically or otherwise, entitling the customer to the credit. The customer
simply gets it.
[28]
The Appellant also argued that the
exclusion of a "barter unit" from the definition of coupon suggests a
broad sweep of what must be included in a coupon, so broad that it would pick
up TELUS’ Billing Credits. I agree with the Appellant that a barter unit is not
the traditional view of coupon, but it does still represent some thing, like
points, that a customer can take to someone in the barter network to reduce the
price of the service or product. It does not broaden the definition to pick up
what is just a discount offered by a Registrant.
[29]
The Appellant’s counsel
also took me through the general principles of interpretation (the textual,
contextual and purposive approach), as well as s.12 of the Interpretation
Act to argue that a broader definition of coupon is not just warranted
textually and contextually, but also best serves meeting the purpose of the
provision. While I agree with this approach, it again does not help the
Appellant, as I find the purpose of s.181 relates to the treatment of a coupon
not a straightforward discount.
[30]
Once it is accepted the
credit relates to the TELUS service, then yes the denial of ITCs result in GST
being exigible on the amount of the credit with no offset. This may well breach
the spirit of sections such as s.181, 181.1 and 232 of the ETA, which
maintain the integrity of a system that imposes tax on a recipient on the value
of the consideration for the supply, ensuring tax is exigible on the net
consideration an end consumer pays. I am troubled by the result that the
Government may have got a windfall in this situation. But the purpose is not
met by torturing the language to, as one of my favourite expressions puts it,
fit a round peg into a square hole: TELUS cannot make the square hole big
enough. S.181 of the ETA is a recognition that while tax is collectible
on the price charged by a vendor for a service or supply, if that price is
partially covered by the vendor, it would be unreasonable to consider that
portion as part of the value of the consideration from the recipient for the
supply: but only if the Registrant plays by the rules and can point to a coupon
or device. I suggest the Registrant, in this case, is attempting to bend the
rules to overcome a result brought on by itself by establishing a program
without due consideration of GST ramifications.
[31]
Even if I took an
overly expansive view of "coupon", the Respondent goes on to raise
two more objections to the application of s.181(3) of the ETA to the
Billing Credits. First, that the coupon or device does not have a fixed amount
specified in it, and, second, that there was no acceptance as such by TELUS of
anything remotely looking like a coupon as partial payment.
[32]
Before exploring these
objections, let us be clear what the coupon or device is. Initially, TELUS’
counsel argued that it is the credit itself on the invoice. As I have already
indicated this cannot be the coupon, the thing entitling the customer to the
reduction, as it is the reduction itself. No, if there is a coupon or device it
can only be viewed as the mechanism whereby TELUS promotes to its customers a
credit of a certain dollar amount against TELUS service charges, conditional on
the activation of a one, two or three-year service contract and realizable upon
the issuance of the invoice.
[33]
So, with respect to the
requirement for a fixed amount on the coupon the Respondent rightfully asks,
where do we look for the fixed amount to ensure this requirement is met. The
Appellant relies on the case of President’s Choice Bank v. Her Majesty the
Queen to argue that the requirement that
the coupon have a fixed value related solely to the time of redemption. It
therefore suggests that the invoice showing the credit amount meets this
requirement. The President’s Choice case, however, dealt with s.181(5)
of the ETA which is worded quite differently from s.181(3) of the ETA.
The Appellant quotes Justice Lamarre:
75. The February 1993 Technical Notes issued by the Department
of Finance describe the policy rationale which informs subsection 181(5) of the
ETA:
…
Subsection 181(5) also entitles the issuer [PC Bank] of
a reimbursable, fixed dollar value coupon to claim an input tax credit equal to
7/107ths of that value when the issuer redeems the coupon from the vendor
[Loblaw]. By allowing the issuer an input tax credit, subsection 181(5) ensures
that the correct overall net amount of GST is remitted to the government in
respect of the supply by the vendor…
76. It can be inferred from these Technical Notes that the
fixed dollar value has to be established at the time the issuer (PC Bank)
redeems the coupon from the vendor (Loblaw). Even though the respondent is
right in saying that the coupon does not have any cash value when it is issued,
this is not what is required by subsection 181(5). What we need to determine is
whether a fixed dollar value exists at the time of redemption. There is a cash
value at that time: there is a paper coupon or an electronic device showing a
fixed dollar amount for the points redeemed; that amount is applied as a
discount on the price of groceries purchased and is recorded on the customer’s
invoice.
[34]
This does not stand for
the proposition that a reduction under s.181(3) of the ETA can be
considered a fixed amount at the time the credit is granted on the invoice. It
stretches Justice Lamarre’s finding well beyond its limited application.
[35]
Yet, even in viewing
the device used by TELUS as a combination of the promotion, the activation of
the contract and the invoice, it is clear that, apart from the invoice, the
only place that clearly shows a fixed credit is the website, and we do not know
if that website even existed in 2001 and 2002. I do not read the requirement so
narrowly as to require that only if TELUS is presented with a written coupon
with a fixed dollar amount on it is the requirement met. In this day and age of
electronic commerce and the use of purchase and sale devices not contemplated
20 years ago, I am of the view that where the fixed amount is clearly known to
both sides, and is evidenced in writing, as hard copy or electronically, that
can be offered by a customer as partial consideration, the requirement has been
met. But that is not what happened here. TELUS merely advertised its discount.
[36]
While I need not
address the Respondent’s argument that there cannot be options but only a single
fixed amount in a coupon, for completeness’ sake I will do so. The Respondent
relies on the Government’s Interpretation Bulletin B-002:
GST-included Coupons
These are coupons issued by a
retailer and for which the retailer is not reimbursed by another person.
Retailers will have the option of including GST in the face value of these
coupons. However, if this option is chosen, retailers must ensure that all of
the coupons they issue include the GST.
For example, if a retailer
issues a coupon worth $10, $0.70 GST ($10 x 7%) will be added so that the face
value of the coupon would be $10.70. The coupon must also state that GST has
been included in the face value.
When retailers accept their own
GST-included coupons, they will treat them in the same way as coupons that are
reimbursable for a specific single monetary discount (i.e., as cash offered by
the customer). Refer to EXAMPLE A which illustrates how GST-included coupons
will be treated.
When retailers prepare their GST
returns, they will calculate the tax to be collected without taking the value
of these coupons into account.
Retailers will also be able to
claim 7/107ths of the face value of these coupons as a tax credit adjustment.
This adjustment is claimed when retailers file their GST returns for the
reporting period in which they redeemed the coupon.
…
Other types of coupons:
Coupons that are not for a
specific single monetary discount will be treated in the same way as coupons
that do not include the GST. These coupons will reduce the selling price of an
item before the GST is calculated (as illustrated in EXAMPLE B).
Therefore, retailers will deduct the value of the coupon from the selling price
prior to calculating any GST payable.
These coupons may:
·
offer a
certain percentage off the price of an item (for example, a coupon to receive
10% off the next purchase);
·
offer an
item for no charge if another item is purchased (for example, two-for-one
coupons);
·
contain
more than one monetary discount (for example, 50 cents off a 250 ml bottle of
pop, or $1 off a 500 ml bottle of pop); and
·
be used for
goods and services that are taxable, as well as zero-rated or exempt.
[37]
While Interpretation Bulletins
are not binding on the Court, this illustrates the Government’s thinking and a suggested
treatment of the type of offer TELUS is making to its customers, something akin
to the different bottles of pop. However, TELUS, rather than following the
suggested approach in this Interpretation Bulletin of reducing the price before
GST, maintains it reduced the GST included price.
[38]
Does the wording of
s.181 of the ETA make it clear there must be a single fixed amount? No.
It simply refers to a reduction of a fixed dollar amount of the price of the
service. If the service is a two-year contract that fixed dollar amount is
$100. At the time TELUS issues the credit both TELUS and the customer know that
the service purchased is a two-year term contract, and they both know that the
fixed amount attaching to that is $100. I would accept that if the fixed amount
varied for the same product or service then a multiple option coupon or device
would run afoul of s.181(3) of the ETA, but here the supply being
purchased is different – one, two or three-year contracts and the amount
attached to each of them is fixed. If I had to decide this question, I would
reject the Respondent’s argument that a coupon could not have more than one
option, provided each fixed amount applied to a separate supply.
[39]
I turn now to the
requirement of "acceptance" of the coupon by TELUS. The opening words
of s.181(3) of the ETA require the Registrant to "accept" the
coupon or device. The Respondent argues that nothing in the nature of a coupon
or device has been presented to TELUS for acceptance. I agree. Certainly there
has been no acceptance of the traditional written coupon or voucher. What the
customer has given TELUS is a contract on the understanding that, true to its
promotion, TELUS will credit the customer with a reduction of its service
charge on the first invoice. The contract itself makes no reference to a fixed
amount, though does stipulate: "all service use and access fees and other
charges, including taxes, are due and payable as specified by TELUS Mobility on
invoices to you or the person or company paying the bill or as otherwise
arranged with you by TELUS Mobility." I have two points to make on this.
First, that this term is under the heading “Service Terms and Conditions”: it
represents what TELUS is offering to the customer, not something the customer
is offering to TELUS. Second, the reference to the charges to include taxes as
specified on invoices is not sufficient to constitute a fixed amount, as I find
s.181 of the ETA requires.
[40]
There is simply nothing
TELUS has accepted from the customer that entitled the customer to the
reduction.
[41]
The Appellant referred
me to William E. Coutts Co. (c.o.b. Hallmark Cards) v. Canada
as being analogous to the TELUS situation before me. I disagree. There has been
no short-circuiting here, as Justice Mogan put it in the Coutts decision,
where he found a rebate had been paid. To analogize to the situation before me
would truly be writing the term coupon out of s.181(3) of the ETA and
interpreting s.181(3) of the ETA to apply to Registrants to allow them to
choose a GST included or excluded approach on any discount. That is not the purpose
of s.181(3) of the ETA.
[42]
In summary, TELUS
offered a discount. You buy a three-year term contract, you get $150 off your
charges. That is it. That is the promotion. There was no coupon or device or
anything like airline points, for example. It was just a discount on the price
of the charges: nothing was presented by the customer and accepted by TELUS in
anything that could under even the broadest definition of coupon or device be
viewed as such. I agree with the Respondent that if I found this discount
offered by TELUS was a coupon, I am in effect writing the word coupon out of
the provision. I cannot do that.
ii. Billing Credits as a Rebate: Section 181.1
of the ETA
[43]
To successfully claim
the ITCs under this provision TELUS must show:
a) it made a taxable
supply: yes, as I have already found, TELUS has made a taxable supply of
services;
b) a particular person
acquires a service from TELUS (or someone else): yes, a customer acquired
TELUS’ services;
c)
TELUS paid, at any time,
a rebate in respect of the service: yes, I find the credit in the invoices is equivalent
to the payment of a rebate;
d)
with the rebate TELUS
provides a written indication that a portion of the rebate is an amount on
account of tax. Here, agree the Parties, is the issue.
[44]
TELUS argues that, from
a review of its invoice, it is clear the rebate has been paid to cover the price
and GST, and this is sufficient to meet the requirement of a written
indication. The Respondent argues that a recipient ought not to have to resort
to a calculator to be put on notice of the tax consequences of a rebate. The
recipient should know there has been a refund of tax: this is especially
important if the recipient is a Registrant and has to determine its own GST
responsibilities (s.181.1(f) of the ETA).
[45]
The dilemma is best
illustrated by my earlier example of the $105 credit on a $100 service charge.
Looking at that invoice, I would agree with the Appellant that the $105 rebate
appears to cover both price and GST, notwithstanding the offsetting of the
credit shown against the price. But what if the credit was only $100, the TELUS
invoice would then look like this:
Service Charge $100
Credit $100 0
GST $5
Current charge owing
$5
[46]
To take the Appellant’s
view, the $100 credit would represent approximately $4.76 GST and $95.24
service charge, and any Registrant worth its salt could quickly figure that
out.
[47]
The Appellant argues
that a written indication is something less than a written statement, referring
to the use of those words in the Credit Note and Debit Note information
(GST/HST) Regulations, s.3 (the "Regulations"):
3. For
the purpose of paragraph 232(3)(a)
of the Act, the following information is prescribed information that is to be
contained in a credit note or a debit note, as the case may be, relating to one
or more supplies:
(a) a statement or
other indication that the document in question is a credit note or a debit
note;
(b) the name of the
supplier or an intermediary in respect of the supply, or the name under which
the supplier or the intermediary does business, and the registration number
assigned under subsection 241(1) of the Act to the supplier or the
intermediary, as the case may be;
(c) the recipient’s
name, the name under which the recipient does business or the name of the
recipient’s duly authorized agent or representative;
(d) the date on which the credit note is
issued;
(e) if the note is
issued in respect of a patronage dividend in circumstances in which subsection
233(2) of the Act applies, the amount of the adjustment, refund or credit of
tax that the issuer of the dividend is deemed under paragraph 233(2)(b) of the Act to have made
in respect of the supplies to which the dividend relates; and
(f) except when paragraph (e) applies,
(i) if
the note is issued for a total amount that includes the amount by which the
consideration for one or more taxable supplies (other than zero-rated
supplies), and the tax calculated thereon, have been reduced,
(A) the
amount of the adjustment, refund or credit of tax that is included in that
total, or
(B) all
of the following, namely,
(I) a statement to
the effect that that total includes the adjustment, refund or credit of tax,
(II) the
total (in this clause referred to as the “total tax rate”) of the rates at
which tax was paid or payable in respect of each of the taxable supplies that
is not a zero-rated supply and for which there is a reduction in tax, and
(III) either
the total reduction of consideration and tax in respect of each such supply or
the total reduction of consideration and tax in respect of all such supplies to
which the same total tax rate applies, and
(ii) in
any other case, the amount of the adjustment, refund or credit of tax for which
the note is issued.
[48]
I agree that a “statement”
requires greater specificity, and had Parliament wanted to be specific it would
have used language similar to that contained in these Regulations.
"Indicate" is defined in Webster On-line Dictionary to mean "to
be a sign of, evidence, show". Again, taking an expansive view of
"written indication that a portion of the rebate is an amount on account
of tax", I find it does not require the specificity of a statement that
clearly shows a rebate broken down into its two component parts, reflecting
price and GST, as required by the Regulations, but surely it requires some
clarity so that the recipient with minimum effort can discern that the rebate
must include a GST element. In my earlier example of the $105 credit the math
would suggest that the rebate includes an amount of tax and also that the
amount is $5, given nothing is left owing. But rarely, if ever, I imagine,
will the numbers so readily reflect that position: it is easy to provide
theoretical examples.
[49]
So, let us use the $100
credit (not the $105 credit). It is then not nearly as clear that the rebate is
actually $95.25 to price and $4.75 to tax. Is there enough written evidence
though to realize that the rebate must contain some element of tax? If there is
sufficient evidence, then it is simply up to the recipient to figure out the
breakdown with or without a calculator. The recipient of concern, of course, is
a Registrant recipient who must determine its own GST responsibilities pursuant
to s.181.1(f) of the ETA. The end user recipient is not concerned
whether the $5 he or she has had to pay is all GST, all price or some
combination, although even an unsophisticated (GST-wise) end user might
question why one would have to pay $5 GST on something obtained for free.
The more knowledgeable Registrant recipient, who must determine the GST impact
on the transaction, would realize that it would not make any commercial sense
if the $5 charge left owing on the invoice in my example of the $100 credit was
as GST. But the positioning of the credit in TELUS’ invoice works greatly
against them, and a recipient could be forgiven for thinking that TELUS may
have mistakenly charged $5 GST. Had TELUS positioned the credit after
all the charges and after the GST had been applied, then I would
have less difficulty finding the "written indication" test had been
met, but that is not what TELUS did. Their invoice would read:
Charges $100
Credit -$100 0
GST $5
Amount owing
$5
It did not read:
Charges $100
GST $ 5
Total $105
Credit $100
Amount owing $ 5
[50]
The Respondent argues
that this section should not require a recipient to have to use a calculator to
figure it out. I do not read the requirement as requiring a written indication
of the specific breakdown between price and GST, but only that some amount of
GST is included in the rebate, and yes it then may well be necessary to take
out a calculator. But as long as the invoice is sufficiently clear that the
rebate has to have included GST, I believe the "written indication"
test has been met. Yet here, the calculator is not necessary to figure out the
breakdown, but may be necessary to figure out whether the GST has been included
in the rebate or not. One simply has to review Appendix A to appreciate the
dilemma. There is not sufficiently clear "written indication".
[51]
What is difficult about
determining how clear a "written indication" must be is whether to do
so on the basis a recipient has, or has not, an understanding of how the GST
legislation is intended to work. I have no doubt the reasonable commuter on the
Toronto subway might struggle with sorting out the GST implications of the
TELUS invoice but does a Registrant recipient of hundreds of thousands of
dollars worth of phone charges also struggle, as it is the Registrant recipient
whose view of the invoice should be most relevant for purposes of s.181.1(f)
of the ETA. The TELUS invoice is confusing. A "written
indication" should be clear. It is not – to anyone. It invites the
recipient to assume the credit has been offset against the price, yet then goes
on to calculate the GST as though the credit was applied after the GST attached
to the price. It takes too much sorting out to figure this out and falls well short,
I find, of "written indication".
[52]
I conclude that the
invoice, as formatted by TELUS, is insufficient "written indication"
and is not therefore covered by s.181.1 of the ETA. This dilemma could
have easily been avoided by simply writing "GST included" next to the
credit.
B. Mail-in Rebate Coupons
[53]
To reiterate, the
Appellant does not argue that s.181.1 of the ETA, the section that on
its face appears to deal with rebates, applies to TELUS mail-in rebate coupons.
It relies entirely on s.181(3) of the ETA, that the mail-in rebate
coupon is a coupon entitling the customer to a reduction of the price of TELUS
services as defined in s.181, bringing that provision into play. Again, the
first question to determine is whether the mail-in rebate relates to the
handset or to the TELUS service charges. Unlike the Billing Credit, the rebate
is a payment by cheque, not shown to be credited against specific service
charges. The Appellant argues that TELUS’ business is providing services, not
selling phones, so the rebate can only relate to that. I disagree. It is clear
from TELUS’ own letter of September 14, 2005, that "the phones are sold by
TM (TELUS) to the various sales channels from which the customer purchases the
phones". Part of TELUS’ business clearly is a sale of phones to retail
suppliers.
[54]
What do customers have
to do to get rebate? They must:
a) buy certain phones and pay
GST on the full purchase price;
b) activate the phones for a
minimum 31-day period;
c) send the coupon and proof of
purchase of the phones to TELUS.
[55]
What does TELUS do: it
retains PPFD to ensure a customer’s eligibility and send a TELUS branded cheque
to the customer. I conclude that the rebate coupon and the process itself can
leave no doubt in the customer’s mind that what he or she receives pertains to
the phone, not to services. Just as the name of the coupon says, it is a
"$50 rebate". It is indeed a classic example of a rebate for
something already paid for, and the something paid for can only be the phone.
[56]
The Appellant argues
that the 31-day condition in the rebate coupon means that the customer will
have to have received at least one invoice from TELUS for service charges, so
that it is those charges against which the rebate applies. With respect, this
is a stretch, leaving far too much to implication and little to concrete proof.
[57]
So, how would s.181(3)
of the ETA apply in these circumstances? The first requirement is that
TELUS accept as full and partial consideration for a taxable supply (the phone)
a coupon entitling the recipient of the supply to a price reduction of the
phone. But the recipient of the supply, the phone, from TELUS is not the
ultimate customer holding the coupon, but is the retail supplier of the phone
to the customer. The coupon does not entitle the retail supplier to the rebate.
This provision simply does not fit.
[58]
Further, the coupon has
not been accepted by TELUS as consideration for anything: as indicated in my
reasons on the Billing Credits, the coupon, ticket, voucher or device shares
the characteristic of immediacy with the purchase transaction; that is, it is
presented during the purchase transaction as consideration. That is not the
case here: the customer paid full price for the phone and subsequently seeks a
rebate. That is not a s.181(3) of the ETA situation, but is a rebate,
something that Webster’s On-line Dictionary defines as "money that is paid
back".
[59]
I do not find the
Appellant’s argument that the words "at any time" in s.181(3) of the ETA,
accommodates such a broad interpretation as to bring a classic rebate into its
net. The words must be read in context with the words that follow, and in doing
so, it is clear a rebate is not what is being addressed, especially as there is
specific provision in s.181.1 of the ETA in place to deal with rebates.
S. 181(3) of the ETA does not apply.
Conclusion
[60]
To answer the question
I asked at the outset of my analysis, I am left to tell TELUS to lick its
wounds. Appellant’s counsel made as strong and well thought out an argument as
possible in an effort to save TELUS from its GST fate, but to accept it would
do an injustice not only to the words of the provisions but to their particular
purpose. I recognize that the result may seem contrary to the spirit of the
overarching GST system. Perhaps this is a result of legislation that is too
complex combined with marketing promotions that do not sufficiently reflect on
those complexities prior to implementation.
[61]
The Appeal is dismissed
with costs.
This Amended Reasons for Judgment
is issued in substitution of the Reasons for Judgment dated July 17, 2012.
Signed at Ottawa, Canada, this 13th day of August 2012.
"Campbell J. Miller"
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