|
Citation: 2003TCC71
|
|
Date: 20030225
|
|
Docket: 2001-3127(GST)I
|
|
BETWEEN:
|
|
PLANT HOPE ADJUSTERS LTD.,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
Angers, J.T.C.C.
[1] This is an appeal
from an assessment dated June 14, 2001, under Part IX of the
Excise Tax Act (the "Act") in
which the Appellant was assessed for the Goods and Services Tax
("GST") and Harmonized Sales Tax
("HST") returns in the amounts of $66,364.10 in
tax and $5,135.96 in interest for the period from
January 1st, 1998 to March 31st, 2000. Input
Tax Credits have been allowed and credited and the quantums are
not in issue. The assessment is in respect of services provided
by the Appellant company to various insurance companies and law
firms in which the Appellant acted on their behalf for the period
in question. The services were not deemed to fall within the
definition of "financial services" in subsection 123(1)
of the Act. If it is determined that the services do fall
within the definition, they are exempt from the charging
provisions by reason of the exclusion of "financial
services" in Schedule V, Part VII. If they do not qualify as
"financial services", they are subject to tax.
[2] At the trial, the
Appellant company was represented by its President Frederic
Plant. Mr. Plant testified that his company has been an
independent adjusting firm in New Brunswick since 1930. It merged
with another similar business in 1997 and in the process acquired
a brand name known as Atlantic Investigations. The brand name was
used on letterheads and other documents. In some cases, the brand
name was identified as a wholly owned subsidiary of the Appellant
while in other cases, as a division. In any event, the evidence
disclosed that the brand name was not registered with Corporate
Affairs for New Brunswick, and the Appellant was using it
simply to improve business and have an advantage over its
competitors.
[3] The Appellant
employs approximately 48 persons to provide its services to its
clients but not all employees are licensed adjusters under the
Insurance Act of New Brunswick. The Appellant
offers a broad range of services from the simple process of
interviewing people to conducting more intricate investigations.
The employees make assessments of claims, providing regular
reports, which include recommendations and, at times, conduct
negotiations of the claims. Occasionally, they also advise on
whether a particular claim was made under an insurance
policy.
[4] In the early
1980s, the Appellant began to carry out more detailed
investigations which consisted in surveilling claimants in order
to determine the validity of their claims. It is that part of its
services that is at issue in this appeal.
[5] Mr. Plant
outlined his company's involvement when the GST legislation
was introduced and how because of the company's services, it
was eventually exempt from collecting the tax. Employees/staff
did not consider the specific wording of the legislation but
understood it to mean that the services they provided to
insurance companies were exempt and that their work had always
included the investigative and surveillance elements.
[6] On cross
examination, Mr. Plant acknowledged that 25 to 30% of the
Appellant's work consists of the entire process in the
investigation of a claim and the remainder consists of more
specific requests or piece meal work, including conducting
surveillance work alone.
[7] In order to be an
adjuster in New Brunswick, one must be licensed under the
Insurance Act of New Brunswick. Mr. Plant testified that
the two employees who performed strictly the investigative and
surveillance elements were not licensed adjusters. They merely
reported on what they saw and observed; despite this, their
services were billed by the Appellant and in most cases cheques
were made out to the Appellant. An example of the invoicing using
Atlantic Investigations letterhead was produced by the
Respondent. One of the investigators employed by the Appellant is
not licensed under the Private Investigators and Security
Services Act of New Brunswick since, according to
Mr. Plant, there was no need for him to be.
[8] Mrs. Maria Large
testified for the Respondent. Her report was produced in evidence
and confirms that the assessment dealt solely with the supply of
investigative services alone and did not include services
recommending the compensation in satisfaction of a claim. In
these situations, the Appellant provided surveillance of
claimants' activities to insurance companies or lawyers
representing them and reported on those activities. The
investigator provided nothing more than a report and therefore
the services do not fall within the definition of "financial
services" under paragraph (j) of the Act.
[9] The
Appellant's position is that although the reports by
investigators conducting surveillance do not include
recommendations per se, the content of the report in itself
indicates a course of conduct to follow. Mr. Plant further
adds that the wording of the definition of an adjuster under the
New Brunswick Act would not be broad enough for the work
performed by the Appellant's employees to fall within the
definition of the Act in terms of its exemption. That definition
limits the work of an adjuster to a right to negotiate the
settlement of a loss under a contract of insurance and as such it
would not comply with the definition under the Act in which the
service provided must consist in investigating and recommending
the compensation in satisfaction of a claim. Mr. Plant
submits that despite this contradiction in the nature of the
service provided, his company has been exempt from collecting the
tax. Since the government's intent was to exempt these
services notwithstanding the contradiction in the definitions,
the position favourable to the Appellant that the services
assessed in this appeal be exempt should be taken.
[10] The Respondent's
position is that the services the Appellant provided were not
performed by adjusters. Although the Appellant operated an
adjusting firm, part of the services it supplied did not fall
under that heading. The Act refers to investigating and
recommending the compensation in satisfaction of a claim. In this
appeal, the activity that was solely investigative was not
carried out by an insurance adjuster. The supply is important and
therefore the entire scope of the business is not exempt. Since
the investigators are not insurance adjusters, they cannot make
recommendations.
[11] The Insurance Act of
New Brunswick defines "adjuster" as follows:
"Adjuster means a person who, for
compensation, not being a barrister or solicitor acting in the
usual course of his profession or a trustee or an agent of the
property insured, directly or indirectly solicits the right to
negotiate the settlement of a loss under a contract of insurance
on behalf of the insured or the insurer, or holds himself out as
an adjuster of losses under such contracts:
[12] The exemption referred
to is found under the definition of "financial service"
in Section 123(1)(j) of the Act. It reads:
... the service of investigating and
recommending the compensation in satisfaction of a claim
where
(i) ...
(ii) the claim is made under an insurance
policy that is not in the nature of accident and sickness or life
insurance and
(A) the service is supplied by an insurer or
by a person who is licensed under the laws of a province to
provide such a service, or ....
[13] In this particular
situation, the service for which an assessment was issued relates
to the investigative and surveillance element of the
Appellant's business. Those services were not performed by
its staff's licensed adjusters but by trained employees who
were not required by the Appellant to be licensed under the
Private Investigators and Security Services Act. In
Mitchell Verification Services Group Inc. v. R., [2001]
G.S.T.C. 45, the Federal Court of Appeal stated that to qualify
as a "financial service" within the definition, the
supplier of such service must both investigate and recommend the
compensation in settlement of an insurance claim and be licensed
under the law of a province to provide both the investigatory and
recommendatory functions. In addition, the Appellant must be
licensed to provide such service.
[14] In the Mitchell
case the Appellant was an investigation company and not an
adjuster. While in this matter the Appellant is an adjusting
firm, it is providing services that are investigative in nature
and, based on the evidence heard, do not include the
recommendations an insurance company would be expected to receive
regarding the compensation in the settlement of a claim. I agree
with the Appellant that, under the definition of an adjuster in
the New Brunswick Act, it would not qualify for exemption from
collecting the HST under the Act; however, services it has
provided from the outset have included those that are exempt
under the Act and therefore it has not been required to remit the
tax.
[15] The surveillance
report found in tab 3 of Exhibit R-1 does not include any
recommendations by the Appellant and is purely a report on what
the investigator observed. The Appellant therefore did not
exercise any judgment but merely provided information, whereas an
adjuster is expected to make recommendations, which involves the
exercise of judgment, to its clients. The fact that the employees
are not licensed investigators does not make them adjusters.
Judge Bowie, who wrote the decision that was upheld by the
Federal Court in the Mitchell case, said at
paragraphs 18 and 19:
18. It is not by chance that Parliament used
the form of words that it did to define the function that is
described in paragraph (j) of the definition. The roles of the
private investigator and the insurance adjuster are distinct
ones, notwithstanding that there may be some degree of overlap in
what they do in practice. What separates one from the other is
the element of negotiating and recommending the settlement of
claims, which is part of the function of the adjuster, but not of
the private investigator. This is made clear by the evidence of
Mr. Riddles to which I referred earlier. See also Atlas
Assurance Company v. Brownell.
19. The provincial legislation does not use
the verb "recommend". It does, however, recognize the
different functions of the private investigator and the insurance
adjuster, and provide for two separate licencing systems for
them. This is so not only in Ontario, where the present case
arises, but in all ten provinces. [See Note 6 below] Parliament
chose its words carefully, to ensure that the services of
provincially licenced insurance adjusters, and not those of
provincially licenced private investigators, would be exempt from
the charging provisions of the Act.
[16] In my opinion, the
services qualifying as "financial services" that were
provided by the Appellant as an adjuster are exempt. The
investigative element carried out by Atlantic Investigation,
which consists of a report outlining its observations, would not
constitute services qualifying for exemption. Since the
assessment involves these services in particular, they are not
exempt. The appeal is therefore dismissed.
Signed at Edmundston, New Brunswick, this
25th day of February 2003.
J.T.C.C.
Email this Content