Date:
20021112
Docket:
2002-201-GST-I
BETWEEN:
NELSON
CONSULTING SERVICES LIMITED,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasons
for Judgment
Bowie
J.
[1]
This appeal is from an assessment under Part IX of the Excise
Tax Act (the Act) for harmonized sales tax (HST). The
Appellant is a small family business built up over a period of
about twenty years by Mr. and Mrs. Blinn of Lunenburg, Nova
Scotia. In April 2000 they found themselves confronted with an
assessment for outstanding HST in the amount of $70,500, to which
were added interest and penalties to make a debt in excess of
$75,000. It is no exaggeration to say that what was a modestly
successful retirement business has been turned into a nightmare
for them. Much, although certainly not all, of their problem
arises from a little-publicized amendment to an obscure
definition in one of the many schedules that form part of the
Act, which is the statute that imposes the HST in Atlantic
Canada and the GST in the rest of the country.
[2]
The facts are not in dispute. Mr.
Blinn retired in about 1980 from a position in which he had
gained knowledge and experience relating to the application of
information systems. He began a small consulting business in the
field. In time it developed into the areas of sales and service
of computer hardware and software, and later still into teaching
computer skills. It is important, and not disputed by the
Appellant, that teaching was neither the original purpose for
which the Appellant company was founded, nor did it ever become
its principal activity. Most of the students who enrolled for
courses were there by virtue of a retraining program established
and financed by the department of the federal government known as
Human Resources Development Canada. Their tuition was paid for by
that department, either directly to the school, or indirectly by
reimbursing the students for the amounts that they paid to the
school. It is also important, and not disputed, that the school
was careful to ensure that at all times it remained qualified as
an institution approved by the Minister of Human Resources
Development for the purposes of the tax credit afforded to
students by section 118.5 of the Income Tax
Act.
[3]
At this point I must refer to the
applicable provisions of the Act which govern the
incidence of GST and HST on tuition fees. Section 165 provides
for the imposition of tax on commercial transactions; that is the
general rule. Many goods and services are made exempt from this
general rule, however. It is well known that most tuition falls
into the exempt category of services. This is found in Schedule
V, part III section 8, which reads:
A
supply, other than a zero-rated supply, made by a school
authority, vocational school, public college or university of a
service of instructing individuals in, or administering
examinations in respect of, courses leading to certificates,
diplomas, licences or similar documents, or classes or ratings in
respect of licences, that attest to the competence of individuals
to practise or perform a trade or vocation where
(a) the
document, class or rating is prescribed by federal or provincial
regulation;
(b) the
supplier is governed by federal or provincial legislation
respecting vocational schools; or
(c)
the supplier is a non-profit organization or a
charity.
This
exemption must be read in conjunction with the definition of the
expression "vocational school" which appears in section 1,
Schedule V part III. As it was originally enacted that definition
read:
"vocational school' means an organization that is
established and operated primarily to provide students
with
(a)
correspondence courses, or
(b)
instruction in courses
that
develop or enhance students' occupational skills and includes
an educational institution that is certified by the Minister of
Employment and Immigration for the purposes of subsection
118.5(1) of the Income Tax Act.
It
remained in that form until it was amended by S.C. 1997, c. 10 s.
97 to delete the words "... and includes an educational institution that is certified
by the Minister of Employment and Immigration for the purposes of
subsection 118.5(1) of the Income Tax Act". Although
the amending statute did not
receive royal assent until March 20, 1997, and was not published
in Part III of the Canada Gazette until May 9, 1997,
it was made applicable to supplies made after 1996. Beginning in
January 1997, therefore, the Appellant no longer qualified as a
"vocational school", and so HST became exigible on the tuition
that it provided.
[4]
Mrs. Blinn acted as the
administrator of the school at the relevant time. She testified
that she inquired frequently, in fact at the beginning of each
course, through the telephone inquiry line of Revenue Canada (or
more recently the Canada Customs and Revenue Agency) whether the
school should be collecting HST along with its tuition fees;
unfailingly the answer was "no". An audit was conducted by
Revenue Canada in 1995, and of course, no issue arose with
respect to GST (as it then was), as the Appellant at that time
qualified as a vocational school by reason of its certification
by the Minister of Human Resources Development. Not until another
audit was carried out in 2000 did Mr. and Mrs. Blinn learn
that they should have begun to collect and remit HST at the
beginning of 1997. By this time the Appellant's liability arising
out of uncollected HST in respect of tuition fees amounted to
$24,417.40. Penalties and interest were initially assessed along
with the uncollected tax; these have since been waived by the
Respondent, and so are not in issue now. Nor are the other
aspects of the assessment contested.
[5]
Mr. and Mrs. Blinn, understandably,
feel that they did everything that they could to comply with the
law. This case certainly demonstrates the danger inherent in
operating even a modest business in this country without the
benefit of ongoing professional advice. I have no doubt that the
Blinns had every intention of complying with the Act, and
felt that they were being careful to do so. Unfortunately, their
frequent inquiries of Revenue Canada are to no avail; I am bound
by the decision of the Supreme Court of Canada in Inland
Industries, which held that having relied
upon bad advice from agents of the Minister cannot relieve a
taxpayer from the application of the law. There is no ambiguity
in the legislation; HST was exigible, and the Appellant failed to
collect and remit it. The appeal must be dismissed.
[6]
The Minister has already recognized
that this is a case of peculiar hardship; in May 2000, he
exercised his power under section 281.1 of the Act to
waive the penalties and interest pertaining to the tax on the
tuition fees. Considering that the Blinns sought advice from
Revenue Canada's officials, and that 34 of the 39 students whose
fees give rise to the uncollected tax were attending the school
at the expense of the Government of Canada, I would suggest that
this is a case in which the Minister should consider recommending
to the Governor-in-Council that the HST on the fees, or at least
that proportion of it that is attributable to fees paid by the
government of Canada, should be remitted under section 23 of the
Financial Administration Act. Section 224 of the Excise
Tax Act entitles a supplier, in
some circumstances, to bring an action for tax that it has failed
to collect, but it is doubtful that the Appellant in this case
could meet the preconditions in that section. Even if it could,
it should not have to sue the government to recover tax that it
should have collected from that government for the purpose of
remitting it to the same government. It is not entirely
irrelevant that if the Appellant had collected the tax along with
the tuition fees then to the extent that they were paid by a
department of the federal government that tax would have been
remitted, for the benefit of that department's operating budget,
by the operation of the GST Federal Government Departments
Remission Order, P.C. 1990-2854 which reads as
follows:
His
Excellency the Governor General in Council, considering that it
is in the public interest to do so, on the recommendation of the
Treasury Board, pursuant to section 23 of the Financial
Administration Act, is pleased hereby to remit the tax that
is paid or payable by a department under Part IX of the Excise
Tax Act.
Signed at
Ottawa, Canada, this 12th day of November, 2002.
J.T.C.C.
COURT FILE
NO.:
2002-201(GST)I
STYLE OF
CAUSE:
Nelson Consulting Services Limited and
Her Majesty
the Queen
PLACE OF
HEARING:
Halifax, Nova Scotia
DATE OF
HEARING:
October 31, 2002
REASONS FOR
JUDGMENT BY: The Honourable Judge E.A.
Bowie
DATE OF
JUDGMENT:
November 12, 2002
APPEARANCES:
Agent for
the
Appellant:
Thelma Blinn
Counsel
for the
Respondent:
Christa Mackinnon
COUNSEL OF
RECORD:
For the
Appellant:
Name:
--
Firm:
--
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2002-201(GST)I
BETWEEN:
NELSON
CONSULTING SERVICES LIMITED,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Appeal heard
on October 31, 2002, at Halifax, Nova Scotia, by
the
Honourable Judge E.A. Bowie
Appearances
Agent for
the
Appellant:
Thelma Blinn
Counsel
for the
Respondent:
Christa Mackinnon
JUDGMENT
The appeal from the assessment made under the Excise Tax
Act, notice of which is dated February 1, 2000, and bears
number 01CB0304852, for the period from June 1, 1997 to August
31, 1999 is dismissed.
Signed at
Ottawa, Canada, this 12th day of November, 2002.
J.T.C.C.
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