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Citation: 2004TCC406
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Date: 20040610
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Docket: 2003-2489(GST)I
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BETWEEN:
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THE OWNERS: CONDOMINIUM PLAN NO. 9422336,
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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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REASONS FOR JUDGMENT
McArthur J.
[1] This is an appeal from an
assessment of goods and services tax (GST) by the Minister of
National Revenue (the Minister) under the Excise Tax Act
(the Act) for $19,860 tax, $3,193 penalty and $2,478
interest for the period May 1, 1998 to April 1, 2000. The
Appellant was represented by a unit owner, Mr. Gordon
McIntosh, who was also a director of the condominium board.
[2] The Appellant is a corporation
constituted according to the Condominium Property Act
(CPA)[1] of
Alberta. It managed a commercial condominium in the Strathcona
Business Park in Edmonton. It collected condominium fees from the
132 unit-owners including $136,058 for the one-year period ending
April 30, 1999 and $147,666 for the period ending April 30, 2000,
for a total of $283,724. Residential condominiums are
specifically exempt from GST under the Act, but commercial
condominiums are not.
[3] At the outset of trial, the
Respondent requested that an adjournment be granted to permit the
Respondent to review the Appellant's documentation with
respect to an application for input tax credits (ITCs) pursuant
to subsection 169(4) of the Act. The Appellant's
agent was not interested in that approach and at his request the
hearing proceeded. Further, the Respondent asked for an
adjournment to permit the Appellant to notify the Attorney
General of each province with respect to a possible
constitutional challenge in that it appeared the Appellant is
stating that the CPA, Alberta legislation (section 65),
takes precedence over the Excise Tax Act. Again, I decided
not to grant such adjournment before hearing the Appellant's
argument.
[4] The Appellant made taxable
supplies of administrative and management services to the owners
of the units in the condominium complex for consideration equal
to at least the amount of the condominium fees it received of
$136,058 for the reporting period ending April 30, 1999 and
$147,666 for the reporting period ending April 30, 2000. The
Appellant was required to collect and report 7% of both amounts
being $9,524 for the period ending April 30, 1999 and $10,336 for
the period ending April 30, 2000 pursuant to subsection 165(1)
and insufficient information was provided for ITCs in accordance
with subsection 169(4).
[5] The Appellant's primary
position is that it is strictly an agent for the owners, its
principals, and acted as such at all times and was never engaged
in a "commercial activity". It adds that it provides
administrative services as directed by the owners in helping with
the CPA and its own by-laws. In this vein, the
Appellant's principal (the owners) can by resolution,
dissolve the Appellant (section 60 of the CPA) and can
acquire or dispose of any of the Appellant's interest in real
property. Upon terminating the Appellant condominium corporation,
the owners can transfer ownership of the real property previously
retained by the Appellant.
[6] Mr. McIntosh presented secondary
arguments including: (a) pursuant to section 65 of the
CPA, the Appellant is not liable for GST; and (b) the
Appellant did not provide "taxable supplies" as defined
in the Act and does not meet the definition of
"commercial activity" (section 123).
Analysis
[7] The Appellant's agency
argument is, by far, its strongest position and I will deal with
it first. If the Appellant can establish that its relationship
with the owners was one at law of principal and agent then the
payment of condominium fees does not attract GST because the
owners remained the beneficial owners of the condominium fees
simply directing their agent (the Appellant) to pay for the
maintenance of their units and their common elements.
[8] Mr. James Thomas Clarke was the
only witness and he represented himself together with all the
other owners. Through him several documents were entered
including the Appellant's by-laws, correspondence with Canada
Customs and Revenue Agency (CCRA), the Appellant's financial
statements for the years in question, and title documents. I
allowed these documents over counsel for the Respondent's
objections. As an owner and director of the Appellant, he had
personal knowledge of all entries. Mr. Clarke testified that the
Appellant managed the real property, keeping its own separate
bank account, repairing and maintaining the real property and
paying the maintenance bills. He admitted the Appellant could
borrow funds, employ personnel, hire a management firm and
generally take all the actions necessary to manage and maintain
the common elements. For practical purposes, what the owners
maintained exclusively was the interior of their unit from the
paint inward.
[9] Pursuant to subsection 6(2) of the
CPA title to the common property is held by the owners.
Subsections 6(1) and (2) provide:
6(1) The Registrar, in issuing a
certificate of title for a unit, shall certify on it the
owner's share in the common property.
6(2) The common property
comprised in a registered condominium plan is held by the owners
of all the units as tenants in common in shares proportional to
the unit factors for their respective units.
(emphasis added)
Subsections 25(1), (2) and (3) provide:
25(1) On the registration of a condominium
plan, there is constituted a corporation under the name
"Condominium Corporation No. ___" and the number to be
specified is the number given to the plan registration.
25(2) A corporation consists of all those
persons
(a) who are
owners of units in the parcel to which the condominium plan
applies, or
(b) who are
entitled to the parcel when the condominium arrangement is
terminated pursuant to section 60 or 61.
25(3) Without limiting the powers of the
corporation under this or any other Act, a corporation may
(a) sue for
and in respect of any damage or injury to the common property
caused by any person, whether an owner or not, and
(b) be sued
in respect of any matter connected with the parcel for which
the owners are jointly liable.
(emphasis added)
Subsection 28 provides:
28(1) A corporation shall have a board of
directors that is to be constituted as provided by the bylaws of
the corporation.
28(2) Every member of a board shall exercise
the powers and discharge the duties of the office of member of
the board honestly and in good faith.
28(3) Where a member of the board has a
material interest in any agreement, arrangement or transaction to
which the corporation is or is to become a party, that person
(a) shall
declare to the board that person's interest in the agreement,
arrangement or transaction,
(b) shall not
vote in respect of any matter respecting that agreement,
arrangement or transaction, and
(c) shall not
be counted when determining whether a quorum exists when a vote
or other action is taken in respect of the agreement, arrangement
or transaction.
28(4) Subsection (3) does not apply to an
agreement, arrangement or transaction in which the member of the
board has a material interest if that material interest exists
only by virtue of that member of the board owning a unit.
28(5) A corporation shall, within 30 days
from the conclusion of the corporation's annual general
meeting, file at the land titles office a notice in the
prescribed form stating the names and addresses of the members of
the board.
28(6) Notwithstanding subsection (5), a
corporation may at any time following a change in
(a) the
membership of the board,
(b) the name
of a member of the board, or
(c) the
address of a member of the board,
file at the land titles office a notice in the prescribed form
stating the change.
28(7) The powers and duties of a corporation
shall, subject to any restriction imposed or direction given in a
resolution passed at a general meeting, be exercised and
performed by the board of the corporation.
28(8) A person who
(a) is a bona
fide third party dealing at arm's length with the
corporation, and
(b) does not
have notice of a restriction or direction referred to in
subsection (7),
is not liable for or otherwise affected or bound by any breach
of or failure to follow that restriction or direction by the
corporation.
28(9) All acts done in good faith by a board
are, notwithstanding that it is afterwards discovered that there
was some defect in the election or appointment or continuance in
office of any member of the board, as valid as if the member had
been properly elected or appointed or had properly continued in
office.
28(10) At least 2/3 of the membership of the board of
directors of the corporation shall be unit owners or mortgagees
unless the bylaws provide otherwise.
Subsections 32(1) and (2) provide:
32(1) The bylaws shall regulate the
corporation and provide for the control, management and
administration of the units, the real and personal property of
the corporation and the common property.
32(2) The owners of the units and anyone in
possession of a unit are bound by the bylaws.
Subsections 37 and 65 provides:
37(1) A corporation is responsible for the
enforcement of its bylaws and the control, management and
administration of its real and personal property and the common
property.
37(2) Without restricting the generality of
subsection (1), the duties of a corporation include the
following:
(a) to keep
in a state of good and serviceable repair and properly maintain
the real and personal property of the corporation and the common
property;
(b) to comply
with notices or orders by any municipal authority or public
authority requiring repairs to or work to be done in respect of
the parcel.
37(3) A corporation may by a special
resolution acquire or dispose of an interest in real
property.
65 The corporation
is not liable in relation to a unit and the share in the common
property assigned to the unit for any rate, charge or tax levied
by the Crown, a local authority as defined in the Municipal
Government Act or any other authority that has the power to
assess and levy rates, charges or taxes on land or in respect of
the ownership of land.
[10] The Appellant had the onus of
establishing, on a balance of probabilities, that it was an agent
for the individual owners. CCRA, in the GST/HST Policy
Statement,[2] sets
out a range of tests to assist in determining whether an agency
relationship exists. I find these helpful and in keeping with
established case law. The essential qualities of an agency
relationship include the following: (i) consent of both the
principal and the agent; (ii) authority of the agent to affect
the principal's legal position; and (iii) the principal's
control of the agent's actions. I will apply some of these
tests to the present situation starting with the first three
"essential qualities".
[11] Consent of both the principal and
the agent. The condominium corporation consists of all the
unit owners (subsection 25(2) of CPA). They appoint
or elect a Board of Directors that is answerable to all the
owners. The directors operate the condominium corporation as the
owners' representatives or agents. They report directly to
the owners. They are not in business for themselves. I find
nothing in the documentation that provides for compensation for
their efforts other than being reimbursed for their out-of-pocket
expenses. Paragraph 28(1)(7) of the CPA provides that the
directors are subject to restrictions or directions imposed by
the owners at an annual general meeting. I infer that the owners
and the Appellant (which operates through the directors)
consented to a principal and agent relationship. The first
essential quality is answered in favour of the Appellant's
position.
[12] Authority of the agent to affect the
principal's legal position. The by-laws of the Appellant
provide for the control, management of all the property and the
owners are bound by these by-laws (subsections 32(1) and (2) of
the CPA). The Appellant has consent and authority to
legally bind the owners. Section 25 of the CPA states that
the owners are jointly liable. This indicates that the owners are
responsible for the acts of the Appellant and that the owners are
exposed to potential risks. In addition, the Appellant can enter
into contracts with third parties on behalf of the owners.
Counsel for the Respondent points out that the corporation can
sue or be sued (subsection 25(3)) but the condominium corporation
is made up of the owners. The corporation cannot be separated
from the owners. It is not an independent legal entity. Paragraph
25(3)(b) states that the corporation can be sued with respect to
the parcel of land and the owners are jointly liable. This second
essential quality of an agency relationship exists.
[13] The principal's control of the
agent's actions. The powers of the Appellant are vested
in the board and subject to restrictions and directions imposed
at general meetings of the owners. Further, several sections of
the Bylaws and the CPA place requirements on the
Appellant. For example, By-law 3.02(b) requires the owners'
consent to borrow monies; subsection 37(3) requires a special
resolution of the owners in order for the Appellant to acquire an
interest or dispose of an interest in real property; section 63
of the CPA provides that the owners, by special
resolution, can transfer the ownership of the Appellant's
bare land units; and section 78 of the CPA states that
contractors retained by the Appellant can register a lien against
units in the complex.
[15] The condominium corporation is not an
independent entity. It exists because of the owners and on behalf
of the owners. It does not carry on business on its own. It is a
creature of the owner who, for conveniency and efficiency, elect
a board of directors at the pleasure and under the control of the
owners. The owners, by majority vote, have complete control over
the corporation. The corporation assumes no risks, it can effect
the liability of the owners in respect of strangers to the
relationship by the making of contracts or the disposition of
property. The following is the classic definition of agency found
in The Law of Agency:[3]
Agency is the relationship that exists between two persons
when one, called the agent, is considered in law to
represent the other, called the principal, in such a way
as to be able affect the principal's legal position in
respect of strangers to the relationship by the making of
contracts or the disposition of property.
The relationship between the Appellant and the unit owners
easily fits within this definition. The corporation (agent)
exists for the owners (principal) and the owners' legal
position in the respect of strangers is affected by the Appellant
entering into contracts.
[17] The Federal Court of Appeal in
Glengarry Bingo Assn. v. R.[4] held that risk is a significant
factor in determining whether an agency relationship exists. The
Court further sets out three essential qualities of agency:
P-182 identified three essential qualities of agency. These
are the consent of both the Principal and Agent, the authority of
the Agent to Affect the Principal's Legal Position and the
Principal's Control of the Agent's Action. Since I find
that GBA did not have the capacity to affect the legal position
of its Members, I find it unnecessary to address the other
factors which Revenue Canada has indicated are required for a
finding of agency.
In contrast to this, I have no difficulty concluding that the
present Appellant corporation had the capacity to affect the
legal position of the unit owners. Another indication of an
agency relationship is that a portion of the condominium fees is
held by the Appellant in a reserve or trust fund for the owners.
Clearly, the corporation was the unit owners' agent. The
corporation is not a separate entity from the owners. Pursuant to
the CPA, the owners are obligated to operate through a
corporation which exists solely because of them and for them. The
Appellant being an agent of the owners, no GST is payable unless
the Act provides differently.
[18] A brief review of the relevant sections
follows. Subsection 221(1) of the Act provides that every
person who makes a taxable supply shall collect GST. The
definition of "taxable supply" in
subsection 123(1) includes "... a supply that is
made in the course of a commercial activity".
[19] Subsection 123(1) of the Act
defines "commercial activity" to include "a
business carried on ... other than a business carried on
without a reasonable expectation of profit ...". The
corporation carried on a non-profit business and does not
meet the definition of commercial activity because it had no
expectation of profit. Counsel for the Respondent argues that the
Minister gets over this hurdle by the definition of
"business" in subsection 123(1), which is very broad
and states:
"business" includes ... undertaking of any kind
whatever, whether the activity or undertaking is engaged in for
profit, and any activity engaged in on a regular or continuous
basis that involves the supply of property by way of lease,
licence or similar arrangement, but does not include an office or
employment;
[20] The brief reference by both parties to
ITCs is not sufficient to make a finding. Finally, it is not
necessary to consider the Appellant's section 65 submission
but I have no difficulty in agreeing with the Respondent's
position and it was unnecessary to notify the Attorneys General
of the provinces.
[21] The appeal is allowed.
Signed at Ottawa, Canada, this 10th day of June, 2004.
McArthur J.
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