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Citation: 2005TCC612
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Date: 20051025
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Docket: 2003-1293(GST)G
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BETWEEN:
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GREAT CANADIAN TROPHY HUNTS INC.,
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Appellant,
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And
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HER MAJESTY THE QUEEN,
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Respondent.
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AMENDED REASONS FOR JUDGMENT
(Corrections indicated in bold print.)
HershfieldJ.
[1] Great Canadian Trophy Hunts Inc. (the "Appellant") operates an elk hunting ranch in Saskatchewan, Canada. Its supplies of hunting packages were assessed for the period of April 20, 2000 to September 30, 2001, under the provisions of the Excise Tax Act (the "Act") that require Goods and Services Tax ("GST") to be collected and remitted for such supply. The Appellant was further assessed for interest and penalties.
[2] The Appellant, a corporation with its registered office in Lloydminster, Alberta, had neither collected nor remitted any tax relating to these supplies because it categorized the supply as a zero-rated single supply of farm livestock pursuant to Part IV of Schedule VI.
[3] The Respondent assumes that the Appellant failed to collect and account for GST of at least $39,429.62 in respect of hunting packages during the assessment period.
[4] At trial Mr. Raymond Paul Ference was the only witness to testify. He is a co-owner of the Appellant and its related sister corporation, Elk Valley Ranches Inc. ("Valley Ranches"). Mr. Ference testified that Valley Ranches carries on the business of farming elk. Valley Ranches was a large operation which supplied high quality, high standard elk as breeding stock throughout North America. The animals were regulated by the Canadian Food Inspection Agency ("CFIA").
[5] Mr. Ference testified that in the late 1990s or early 2000s chronic waste disease became prevalent in the elk industry. As a result, the federal and provincial governments placed significant restriction on the transportation of elk in the province and Valley Ranches was unable to sell breeding stock in Canada. Similarly, in the United States each state increased its own regulations which made it difficult for it to sell its stock abroad.
[6] Valley Ranches initially attempted to increase sales by increasing advertising; however, ultimately the shareholders decided to start a trophy hunt operation to dispose of the elk. On the advice of its accountant, Valley Ranches incorporated the Appellant for that purpose. The trophy hunt operation was subject to a number of regulations, including those of the CFIA.
[7] Mr. Ference testified that the market price of trophy elk permitted Valley Ranches to sell elk to the Appellant at a price higher than what breeding stock would otherwise sell for at the time. The Appellant releases the elk on a large block of rented land which acts essentially as a private hunting reserve. The Appellant charges customers a fee for the right to enter the land and kill an elk. Although the hunt is advertised as that - a hunt - it is clear from the deposit agreement and invoice submitted at the hearing that the hunter is acquiring an elk "taken" during the hunt. The invoice prices the elk separately and the charge is based on the size of the elk antlers which is the trophy sought by the hunter. Each elk brought to the reserve or hunting area is essentially inventoried by the size of its antlers so that a particular size trophy can be, and generally is, determined at the time the contract is entered into before the hunt starts. The hunt then is generally for a particular animal or category of animal. If the customer decides they do not want to purchase an elk, prior to shooting one, no fee is charged.
[8] In addition to providing the elk, the Appellant arranges for a third party to provide customers (who are mainly non-residents of Canada) with accommodation, home-cooked meals and a hunting guide.
[9] It should be noted that prior to the incorporation of the Appellant, Valley Ranches, in the course of selling breeding stock, often would provide accommodation and meals for prospective purchasers due to the remote location of the property where the stock was bred and kept. The Appellant's lands were also remotely located. The hunting areas were 45-50 minutes away from Lloydminster.
[10] Mr. Ference testified that the guide services are required so the customer can hunt safely. One would also be required to help hunters find and identify the trophy contracted for, to ensure animals were not left wounded and to ensure that the customer was accountable for animals shot. As to meals and accommodation, Mr. Ference testified that they were a reasonable, if not necessary, part of the service given the remoteness of the hunting area and that customers often require two days to kill an elk. He testified that the accommodations were approximately 20 minutes from the hunting areas and that they cannot be purchased without purchasing an elk; however, a separate fee for food and accommodation of $75.00 or $100.00 a day is charged if the customer brings a companion. If no animal was shot, no fee was charged.
[11] The elk meat belonged to the hunter and was available to the hunter. If requested, it was transported to a butcher and butchered at an extra charge. Taxidermy services were available on a similar basis.
[12] Since the fee charged is a single fee for the package there was some enquiry at the hearing as to the breakdown. Mr. Ference testified that 60% of the selling price was attributable to the elk, 17% to the guides and outfitters, 10% was profit and the remaining 13% was for advertising and other costs.[1] These were estimates at best.
Submissions:
[13] Both parties approached the issue, essentially, as if there was a single supply. The Respondent, having assessed the Appellant on the basis that it provided a "tour package" under section 163, acknowledged supplies such as meals and accommodation, that could have been separately provided, as separate supplies for the purpose of analysing them as "portions" of the tour package under section 163. However, the critical supplies, namely the elk and the hunt, were argued to be both a single supply and a distinct "portion" of the tour package that could not be subdivided. Following that line, the single supply was argued to be the hunt, not the supply of elk. This position allowed the Respondent to argue that all portions of the tour package were taxable portions so that section 163 offered no relief. While the single supply question is a live one, the suggestion that the elk cannot be separated from the hunt for the purposes of section 163 prejudges the very operation of that section. Separating the elk from the hunt is not breaking up elements of a supply ad infinitum, as suggested by the Respondent, but is at the very heart of the question addressed by section 163.
[14] The Appellant's position is that there is a single supply, namely the supply of elk, and that section 163 cannot apply as it only operates where there are multiple supplies, each capable of being seen as a separate portion of the tour package. If there is a single supply of elk, the Appellant submitted that that is a supply of livestock which is "zero-rated" and subject to a 0% tax rate pursuant to subsection 165(3).
[15] Section 123 of the Act defines a "zero-rated" supply to be a supply included in Schedule VI. Section 1 of Part IV of Schedule VI includes farm livestock that is "ordinarily raised, or kept to produce, or to be used as, food for human consumption or to produce wool" as a zero-rated supply. That section reads as follows:
1. Livestock - a supply of farm livestock (other than rabbits), poultry or bees that are ordinary raised or kept to produce, or to be used as, food for human consumption or to produce wool.
[16] Subsection 123(1) of the Act defines "supply" in the following manner:
123(1) "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;
[17] The Respondent admitted at the hearing and in the Reply that elk are "farm livestock" but denied that the Appellant makes a supply of "elk". The Respondent's position was that the supply was of a hunting package. This was to suggest, in my view, that the elk were not the principal aspect of the trophy/hunt package supplied yet the Respondent in its written submission acknowledged that the elk were an integral part of the hunt.[2] The Appellant argued that elk are the supply made. If that is correct, that is the end of the matter given the Respondent's acceptance that elk are animals ordinarily raised or kept to produce food regardless that the particular use of the subject elk by the Appellant was not as food.[3] That the animals are, as admitted, ordinarily raised to be used as food is apparently sufficient. Cattle are ordinarily kept or raised for food so they are livestock even if the particular animal is a bull kept for breeding or rodeo work. The actual use of livestock, for human consumption or not, does not affect it being zero-rated. As well, the Appellant relied heavily on Justice Sarchuk's decision in The Cookie Florist Canada Ltd. v. Canada,[4] for the proposition that a product is a zero-rated supply simply by virtue of being within the meaning of a defined product in Schedule VI.
Analysis:
[18] If the Appellant's view of zero-rating particular items by virtue of being listed in Part IV of Schedule VI, regardless of use, is correct, the Respondent's concession may be fatal if the listed item is the supply or part of a supply that section 163 requires to be segregated.
Livestock
[19] Before considering that question I note as a preliminary matter that in written submissions made subsequent to the hearing, the Respondent submitted that the elk provided would not qualify as livestock because the Appellant was not supplying live elk but elk carcasses. The Respondent submitted that the purchaser was not supplied with the elk unless and until there was a successful kill. The Respondent submitted this led to a determination that it was not the elk that was supplied but the elk carcass.
[20] The testimony of Mr. Ference was clear: property passes from the Appellant to the purchaser once the purchaser shot the elk. This was not to suggest that the elk was dead. In fact, the guide was there to ensure the kill was complete which often required tracking and killing an elk wounded by the hunter. The consideration for the elk was payable when the elk was shot, not when it was killed. That being said, I note that the Respondent's position is difficult to understand on this point. If a farmer were allowed to butcher an animal raised to be butchered and then sold the meat directly, would the animal not be livestock? Given the Respondent's concession that elk are raised for human consumption, it should not matter when title passes. In any event the issue in this case is not about elk meat which would presumably be zero-rated as a basic grocery item under Part III of Schedule VI of the Act. The issue concerns the elk as the central aspect of the supply. The issue is whether section 163 applies regardless of whether the supply is the supply of elk per se or the supply of a trophy hunt centred around elk.
[21] As stated, the Appellant relies on Cookie Florist. In that case the appellant supplied a decorative cookie bouquet, which was comprised of eight cookies each with a green wire (stem) baked into it. A leaf was taped to the stem and then the cookies were tied with ribbon into a bouquet and placed in a box filled with green cellophane fluff. The box is sealed with a plastic wrap and delivered to the customer.
[22] The respondent in that case submitted that although a portion of the bouquet was edible, it was not marketed as a grocery item, but rather as a novel or unusual gift. They noted that the cost of the cookies represented about 30% of the ultimate selling price of the bouquet, that the bouquet was not available in grocery stores and that it was usually bought to be given as a gift.
[23] In determining that the cookie bouquets should be zero-rated as basic groceries Justice Sarchuck stated:
... If the legislators intended to exclude from the zero-rated basic grocery category supplies which are a combination of food for human consumption and other material, decorative or otherwise, they could have done so in clear and unambiguous language.
[24] Justice Sarchuk's approach is indicative of a broad literal approach taken when dealing with GST. Applying similar reasoning to the supply of livestock supports both the Respondent's concession that elk, being ordinarily raised for human consumption, are "livestock" and the Appellant's view that, being livestock, elk are a zero-rated supply no matter how marketed or used. If this case were simply one of how the elk in question were marketed by the Appellant and used by the recipient of the supply, then the Cookie Florist decision would clearly support the Appellant's appeal. However, in the case at bar it is not so clear that the supply is of elk even though the elk is central to the supply. In Cookie Florist the supply was the sale of tangible goods - there were no other material elements or aspects to the supply. Only the relevance of the end use, for consumption or not, needed to be considered. In the case at bar, the supply has more elements or components to it. Only one component of the supply is the sale of livestock. Accordingly, the issue of single versus multiple supplies must be considered. That analysis, however, must ultimately be considered in the context of section 163.
Single Supply or Multiple Supplies:
[25] There are a number of inputs being supplied. The two principal inputs are, on the one hand, trophy category elk are sold for their antlers[5] and, on the other hand, a guided hunting experience on stocked lands is supplied. These, in my view, are the only relevant distinct supplies to consider. All else: food, accommodation, elk meat and taxidermy, can be treated as "incidental" supplies to one or both of these principal elements of the supply.[6] The parties argued that these two principal inputs were interdependent supplies that would properly be considered as a single supply.[7]
[26] The first question then is whether the single supply rule applies here. If it does I should be able to, indeed would have to, identify which of the two supplies identified above is the principal supply. To do this the substance or essence of the supply must be determined.
[27] I have recently considered this question in a case which required determining which elements of a single supply defined it as the supply of a service as opposed to a supply of goods where both components were an integral part of a single supply.[8] To find the essence of the supply, the relative importance of each component had to be assessed and one component had to be found to be the principal component. In the case at bar, the most compelling argument seems to be that the value of everything derives from the value of the elk. The consideration payable for the package recognizes that there is no value to the entire supply if no elk is shot which is to say there is no GST or effectively no supply without elk. This tends to suggest that if there is only a single supply, that supply is of elk. However, that suggestion might underplay the importance to the hunter of the sport/hunting experience in the only cases we are concerned with here - namely cases where elk is shot and consideration is payable.
[28] In cases that I considered in Hawkins, factors to consider such as the relative value of inputs and the source of profit were identified. I did not place emphasis on any such factors in that case as they derived from income tax cases (distinguishing between manufacturing and processing from a sale of goods) in the context of specific provisions of the Income Tax Act that gave relevance to such factors. However, Justice Margeson did consider such factors in Robertson v. Canada.[9] In a difficult case such as this, resort to such factors might be helpful. On that basis, considering source of profit and relative value of inputs, elk are the principal supply.
[29] I note that taking the source of profit as a factor in determining the principal supply, raises the question of whose perspective determines the nature of the supply. From the supplier's prospective, the supply is elk. It acquires elk to turnover to others. The means by which the turnover is accomplished is nothing but "packaging" the sale of elk. Packaging is contracted out and might even be said to be "incidental" to the supply.
[30] However, the supply is a contract between buyer and seller. Neither party's perspective can be ignored. The analysis is ultimately an objective one.[10] There is more than elk paid for in the contract. There is a sport/recreational component with access to a hunting reserve and guide. From the sportsman's perspective that is of substantial relevance. That some part of the supply is contracted out to third parties for the convenience of the supplier does not change the nature of the contract. Still, objectively, the Appellant's argument has merit. The principal element of the supply is the elk. Nothing happens without the elk. If no elk is shot, no consideration is payable.
[31] The case at bar illustrates the difficulty that arises from time to time. Two components may be of such materiality that finding a principal component is somewhat of an artificial exercise. In such cases it might be best to acknowledge that there are two supplies that must be separated for GST purposes. In the case at bar there is the supply of elk, treasured for its antlers, as one supply; as well, there is the supply of a hunting experience which includes accommodation and food and more importantly, the supply of a guide and access to a hunting reserve. Taking this approach, an allocation of the consideration paid would be required. Based on the Appellant's estimates, the consideration for the elk would be 60% of the consideration charged for the elk as per the Appellant's invoices. Some apportionment of marketing costs and of the profit component might also be added to the consideration attributable to the supply of elk. This supply would be zero-rated. The balance of the consideration would be attributable to the supply of the hunt and would be taxed at 7%. The charge for food and accommodation might attach, as an incidental supply, to the hunt.
[32] While I might be attracted to such approach in the case at bar, it is not necessary, in my view, to make such a finding. Section 163 effects a similar result and applies, on its express terms, to the case at bar. The supply of elk as a zero-rated supply is separated under section 163 and must be treated as a distinct supply for GST purposes. The supplies of accommodation, food and guide and access to the hunting reserve are non-taxable portions of the tour package and would not form part of the zero-rated supply.
Section 163: Tour Packages
[33] Section 163 deals with situations where a "tour package" is supplied for an all inclusive price. Subsection 163(3) defines "tour package" as follows:
"tour package" means a combination of two or more services, or of property and services, that includes transportation services, accommodation, a right to use a campground or trailer park, or guide or interpreter services, where the property and services are supplied together for an all-inclusive price. (emphasis added)
[34] Subsection 163 (3) defines the "taxable portion" of tour package as:
... all property and services included in the tour package and in respect of which tax under Division II would be payable if the property or service were supplied otherwise than as part of a tour package;
[35] Subsection 163(2) provides as follows:
Taxable and non-taxable portions - For the purpose of determining tax payable in respect of a tour package ... the provision of ... and the provision of the part of the tour package that is not included in the taxable portion of the tour package are each deemed to be a supply separate from, and not incidental to, the provision of the remaining parts of the tour package.[11]
[36] Subsection 163(2) stipulates that non-taxable portions of a "tour package" be deemed to be a "separate" part of the "tour package". That is, non-taxable portions of a "tour package" are deemed to be a separate supply. It is important to note that the provision does not say that portions of a "supply" (a single supply or multiple supplies deemed to be a single supply under section 138) are deemed to be separated. It casts that distinction aside. It looks to "services" and "property" that comprise a "tour package" and separates services and property (not supplies) into distinct supplies. Further, it does not matter which of the services or property is the principal supply. Indeed, not only is the non-taxable portion of a tour package deemed to be a separate supply (whether or not that portion is the principal aspect of the supply), but the taxable portion of a tour package is deemed in subsection 163(2.1) to be a separate supply (whether or not that portion is the principal aspect of the supply).
[37] While the foregoing observations as to the application of section 163 seem clear, it is important to note that neither party argued for that position. Both parties, in argument at least, took the position that if I found that the hunt and elk were a single supply, section 163 could not apply.[12] I concede that it might be argued that section 163 only applies where there are multiple supplies that could be supplied separately and are only lumped together by the pricing format or under the "incidental" supply rule contained in section 138. In that case, section 163 ensures that the multiple supply principle applies and/or undoes the deeming provision in section 138.
[38] While the subject provision clearly prescribes that separated services in a touring package cannot be lumped together under the incidental supply rule, there can be no necessary inference in my view that the separation of services included in a tour package only occurs where there are multiple supplies that have been lumped together as a single supply under section 138 or by virtue of a "package" pricing format. Aside from the language of the tour package provision not requiring such inference, drawing such inference would frustrate the clear purpose of the provision.[13]
[39] As well, it is important to note that it is hard to imagine that the language in section 163 dictates against its own application where a number of tour services can constitute a "single supply". The Act has no concept of "single supply". The single supply principle is a common law approach adopted by this Court from United Kingdom jurisprudence in the context of value-added (VAT) legislation that did not have a section 138 type deeming provision. In O.A. Brown Ltd. v. Canada,[14] Justice Rip relied on the test formulated in U.K. VAT case authorities. From the perspective of the Act, which could not foresee the adoption of such test, complimentary component services would only be regarded as a single service if section 138 caused that result. That the common law concept of single supply, which has been adopted in Canada, has largely replaced the incidental supply rule in Canada[15], should not frustrate the required separation of services and property dictated by section 163. Section 163 treats tour package services uniquely and casts aside distinctions that otherwise might cause services or property to be merged as a single supply. The adoption of the common law approach to single versus multiple supplies cannot in my view override the necessary implications of an express provision in the Act that separates two or more services into separate component supplies to ensure that a zero-rated supply is not subjected to a 7% rate by being subsumed into a 7% rated supply.
[40] The supply in the case at bar is clearly a tour package. That is, since a guide and accommodation, with access to a private reserve stocked with elk to hunt and purchase, are all provided for an all-inclusive price, section 163 applies on its face to the case at bar. Regardless then of the single supply analysis, or whether or not elk are the principal supply, section 163 creates multiple supplies which cannot be brought together under section 138. Accordingly, the proper tax imposed on the Appellant's supplies must be computed as required under that section.
[41] For the purposes of determining the tax imposed on tour packages under subsection 163(1), tour package services are broken down into portions. Excluding references necessary to reflect HST, that subsection provides that the consideration for the taxable portions of a tour package be deemed to be the amount determined by the formula:
A × B
where
A is the taxable percentage in respect of the relevant portion at the time the supply is made, and
B is the total consideration for the entire tour package; ...
[42] The taxable percentage in respect of the relevant portion in the case at bar is simply the percent of the total price that is reasonably attributable to the relevant portion.[16] If 60% of the tour package supply relates to a zero-rated portion, 60% of the consideration paid for the tour package is zero-rated.
[43] The supply of the elk then as a separate zero-rated supply (zero-rated by virtue of being farm livestock as acknowledged by the Respondent and by virtue of the principles set out in Cookie Florist), should not be subjected to tax other than at 0%. This portion of the tour package is the non-taxable portion. I accept the Appellant's evidence that such portion was 60% of the consideration paid for elk (which excludes nightly charges shown separately on invoices). I note however that contrary to the approach mentioned in paragraph 31 of these Reasons, I am not inclined, in this case at least, to factor into this separated supply, inputs such as marketing or advertising costs since, once segregated (as they must be to determine how they might be apportioned between the taxable and non-taxable portions), they arguably stand alone as "incidental" supplies expressly excluded in the context of this section. On the other hand, not all inputs to a price constitute supplies and making an apportionment of such inputs between two supplies would not, in most cases, be unreasonable. However, in this case I will not make such apportionment. Nor will I apportion the "profit" element of the price as between the hunt and the elk. The evidence in this case has not convinced me, even on a balance of probability, that such finite calculations are justified. That is, given that the Appellant's apportionment was an estimate at best, offered without corroborating evidence, and given that it did not include some inputs/supplies (such as the rental cost of the lands used to stock the elk), I accept the 60% apportionment as sufficient recognition of the non-taxable amount attributable to the supply of elk.
[44] Lastly, I note that the Respondent's concern of breaking up supplies ad infinitum is not a concern in this case. Appreciating the elk as a separate supply of property does not require a microscope. Even treating the supply of food and accommodation as a separate supply, the provision of the guide, priced as part of the supply of the elk, makes the supply a tour package. The distinct taxable and non-taxable components of this package can be, and were, readily identified.
[45] Accordingly the appeal is allowed, with costs, on the basis that 60% of the consideration paid for the elk, as invoiced, is zero-rated and on the basis that penalties be vacated.
Signed at Ottawa, Canada, this 25th day of October 2005.
Hershfield J.
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