Citation: 2007TCC421
Date: 20070727
Docket: 2006-2934(GST)I
BETWEEN:
613259 SASKATCHEWAN LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The
Appellant, 613259 Saskatchewan Ltd., operating as Handyman Connection, is
appealing the reassessment of the Minister of National Revenue for Goods and
Services Tax that the Appellant failed to collect and remit for the periods
ending March 31, 2001 and March 31, 2002. Following an audit, the Minister
reassessed the Appellant’s tax liability on the assumptions of fact
set out below:
(a) the Appellant is an incorporated company;
(b) the Appellant was a registrant;
(c) at all material times the
Appellant was required to file its returns annually, with a year end of March
31st;
(d) at all material times 100% of the
issued and outstanding shares of the Appellant were owned by Mr. Lindsay
Brooks;
(e) at all material times Lindsay Brooks operated
the Appellant;
(f) at all material times the
Appellant carried on business under the trade name "Handyman
Connection";
(g) during the Audit Period the
Appellant was a general contractor and was involved in the business of home
repairs and renovations;
(h) the Appellant specialized in completing
small to medium sized home repairs and remodelling jobs;
(i) the Appellant did drywalling,
plastering/stippling, painting, electrical, plumbing, ceramic tile, carpentry,
basement renovations, bathroom renovations, heating/air conditioning, doors and
windows, telephone jacks and general handyman jobs;
(j) all of the supplies made by the Appellant are
taxable at 7%;
(k) during the Audit Period a
homeowner who wanted work done contacted the Appellant;
(l) the Appellant entered into a
subcontract with a tradesman (the "Subcontractor") to do the work
requested by the homeowner;
(m) the Appellant arranged for the
Subcontractor to prepare an estimate of the cost of supplying the work
requested by the homeowner;
(n) the Subcontractor wrote up the
estimate on a form provided by the Appellant;
(o) the form used for the written estimate was in
the Appellant's name;
(p) the homeowner then decided if he/she would
accept or reject the estimate;
(q) if the homeowner accepted the
estimate the Subcontractor performed the work;
(r) the Subcontractor bought any
materials that were necessary to perform the work, if the materials were not
provided by the homeowner;
(s) the Subcontractor resupplied the materials
he/she bought to the Appellant;
(t) upon completion of the job an invoice was
issued to the homeowner;
(u) the Appellant provided the
Subcontractor with the form that was used to prepare the invoice;
(v) the invoice was in the Appellant's name;
(w) the invoice issued to the
homeowner included any materials that were consumed in performing the work
requested by the homeowner;
(x) the invoice issued to the
homeowner showed the consideration for the materials separate from the
consideration for the labour;
(y) the homeowner paid the Appellant the total
amount on the invoice;
(z) the amount the Appellant charged
the homeowner for materials was included in its sales when the amounts were
entered into the Appellant's general ledger;
(aa) the materials supplied by the
Appellant to its customers was 22.6% and 27.4% of its total sales in 2001 and
2002, respectively;
(bb) the Appellant paid the
Subcontractor 45-55% of the consideration paid by its customers with respect to
the labour and 100% of the consideration paid by its customers with respect to
the materials;
(cc) not all of the Appellant's subcontractors are
registrants;
(dd) each of the Appellant's
subcontractors, if registered, are eligible to claim input tax credits with
respect to the materials he/she purchased;
(ee) until 2 of the Appellant's
subcontractors were audited and assessed, the Appellant had refused to pay GST
to the Subcontractors;
(ff) in the reporting period ending
March 31, 2001, the Appellant invoiced its customers $76,289.84 with respect to
the materials that were supplied to them;
(gg) in the reporting period ending
March 31, 2001, the Appellant failed to account for tax collected or
collectible of $5,340.29 with respect to the materials it supplied to its
customers;
(hh) in the reporting period ending
March 31, 2002, the Appellant invoiced its customers $63,939.22 with respect to
the materials that were supplied to them;
(ii) in the reporting period ending
March 31, 2002, the Appellant failed to account for tax collected or
collectible of $4,475.75 with respect to the materials it supplied to its
customers; and
(jj) the Appellant did not obtain any
documentation from its subcontractors with respect to the purchases of the
material.
[2] The Appellant
was represented by its owner, Lindsay Brooks, the only witness to testify at
the hearing. While he accepted many of the Minister’s factual assumptions, he challenged
certain others as being either incomplete or inaccurate.
[3] It is common
ground that the Appellant was in the business of providing home renovation services
for homeowners. The labour for such services was provided by subcontractors
hired by the Appellant. The Appellant properly collected and remitted GST for
the labour services as required by the Excise Tax Act.
[4] The only dispute
in this appeal is whether the Appellant ought also to have collected and
remitted GST on certain materials which were purchased by the Appellant (or its
subcontractors) and used in the homeowners’ renovations. While, at first blush,
it may seem self-evident that the Appellant would be obliged to do so, in the
particular context of the Appellant’s business, I am not convinced this is so.
[5] I accept Mr.
Brooks’ evidence that the “Handyman Connection” franchise is in the business of
selling “labour only” to its customers. Part of its marketing strategy is to
attract customers by leaving the acquisition of the materials used in the
renovations to the homeowners themselves, thus avoiding builders’ mark up or
permitting them to take advantage of existing or cheaper materials they may have.
Mr. Brooks put in evidence certain Handyman Connection promotional material
emphasizing this aspect of its business,
as well as the pre-printed Handyman Connection forms used for homeowner
estimates and invoices which contain a specific notation that the homeowner is
responsible for buying materials. I also accept his testimony that it was his business
practice to advise his customers that it was up to them to buy their own
materials.
[6] In spite of his
efforts and their good intentions, on occasion, homeowners did not manage to
have the materials on hand in a timely fashion.
Consistent with its policy and practice of requiring homeowners to purchase
their own materials, the Appellant did not maintain an inventory of building
supplies. Thus, in such circumstances, the Appellant’s subcontractors would
purchase the needed materials at retail prices. The receipts for such
purchases were left with the homeowner for return or warranty purposes; it was
for this reason such documentation was not obtained by the Appellant from subcontractors,
as assumed in paragraph 11(jj) of the Reply to the Notice of Appeal. The subcontractor’s
out-of-pocket expenses for the materials were reimbursed by the Appellant along
with its payment for his labour services; the amounts reimbursed (with no
mark-up or other charges) were then charged back to the homeowner. These
amounts were shown separate from the labour costs in the Appellant’s final
invoice to the homeowner.
No input tax credits were claimed by the Appellant for
these materials; nor, to Mr. Brooks’ knowledge, did the subcontractors (most of
whom were not, in any case, GST registrants)
claim ITC's.
[7] Nonetheless, in
reassessing the Appellant the Minister treated the materials as a “taxable
supply” in respect of which the Appellant ought to have collected and remitted
GST. In support of the Minister’s position, counsel for the Respondent referred
the Court to Imperial Drywall Contracting Ltd. v. Her Majesty the Queen and Vanex Truck
Service Ltd. v. Her Majesty the Queen.
In my view, however, these cases are readily distinguishable.
[8] In Imperial
Drywall, supra, the taxpayer company maintained its own inventory of
drywalling supplies which it supplied to its subcontractors. Unused materials
were returned to the taxpayer or kept by the subcontractor for use in the
taxpayer’s next project. Not only did the Appellant not maintain an inventory
of building materials, it specifically marketed its labour services on the basis
that the purchase of materials was the homeowner’s responsibility.
[9] The issue in the
Vanex case was whether the trucking company Vanex ought to have charged
GST on the licence, insurance and fuel provided to its owner-operators. The
complex contractual arrangements between Vanex and its owner-operators for the
furnishing of these items are not in any way analogous to the simple chain of transactions
between the Appellant, the subcontractors and the homeowners for the materials
purchased.
[10] In view of the
evidence before me and having carefully reviewed the Minister’s assumptions
(many of which are supportive of the Appellant’s position), it seems to me that
the basis upon which the reassessment was made ignores the reality of what the Appellant
was in the business of supplying. This ought to be the starting point for the
analysis as to whether a “supply” has, in fact, been made. Though not cited at
the hearing, I am mindful of the approach taken by Bowie J. in Drug Trading
Company Limited (formerly Northwest Drug Company Limited) v. Her Majesty the
Queen:
[16] In an early value-added tax case Lord Denning
pointed out the importance of asking, and answering, the question "what
did the [supplier] supply in consideration of the 1.50 they received?"[3] Soon after, Lord Widgery C.J. added this:[4]
I
would only wish to repeat what I said in one of the earlier cases, and that is
to hope that when answering Lord Denning MR's question in the future in this
type of case people do approach the problem in substance and reality. I think
it would be a great pity if we allowed this subject to become over-legalistic
and over-dressed with legal authorities when, to my mind, once one has got the
question posed, the answer should be supplied by a little common sense and
concern for what is done in real life and not what is, as Cumming-Bruce L.J.
put it, too artificial to be recognized in any context.
In the present case the assessor seems not to have
asked, or answered, Lord Denning's question. Nor did either the oral or the
written arguments of counsel provide an answer. This is unfortunate because, in
my view, when the question is asked the answer is, as Lord Widgery suggests,
supplied by the application of a little common sense.
[11] Applying a little
common sense to the case at bar, I am satisfied that what the Appellant
supplied in the course of its business was labour services for home
renovations. For such services, the Appellant duly collected and remitted GST
as required by the Excise Tax Act. The Appellant was not in the
business of supplying materials; rather, these were to be purchased by the
homeowner. On those certain occasions where the homeowner failed to do so, some
materials were purchased on behalf of the homeowner by the Appellant through
its subcontractors. The Appellant reimbursed the subcontractors for such
purchases and then billed the amount directly back to the homeowner in the
final invoice. By reimbursing the Appellant in this fashion, the homeowner
effectively purchased the materials, just as if he had personally gone to the
home renovation store himself.
[12] Part of the basis
of the Minister’s assessment was that in paying their invoices, homeowners
wrote only one cheque for the total of the labour services and the materials
supplied. I attach no significance to this as it would be
unreasonable, if not completely nonsensical, to expect homeowners (whose minds
are untroubled by the nuances of the Excise Tax Act) to write
separate cheques to the Appellant for each amount shown in the invoice.
[13] For all of these
reasons, I am satisfied that the materials purchased by the Appellant on behalf
of the homeowners were not a “taxable supply” within the meaning of the Excise
Tax Act. The appeal is allowed and referred back to the Minister for
reassessment on that basis. It should be noted that decisions under the
Informal Procedure are without precedential value; the decision in the present
appeal is based on the persuasive evidence of the Appellant’s business
practices and procedures on the particular facts of this appeal.
Signed at Ottawa,
Canada, this 27th day of July, 2007.
“G.A. Sheridan”
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