Date: 20000713
Docket: 98-9051-GST-I
BETWEEN:
O'CONNOR GROUP REALTY INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
McArthur J.T.C.C.
[1] The issue in this appeal is whether the Appellant should
be assessed goods and services tax (GST) pursuant to the
provisions of the Excise Tax Act for the period March 1,
1993 to December 31, 1995. The Appellant operated a real estate
brokerage business with a difference. In addition to the
traditional real estate sales business, the Appellant carried on
another business which is the subject of this appeal.
[2] To accommodate real estate agents who wished to merely
retain their real estate license (keep it alive) but did not
intend to actively sell real estate, the Appellant, a registered
real estate broker, would complete the requirements to have the
agents registered under the Real Estate and Business Brokers
Act. For this service, the Appellant charged the real estate
agent $150. During the relevant years, the Appellant annually
registered over 150 inactive agents. It did not collect or remit
GST on the membership fees which are summarized as follows:
|
Calendar Year End Date
|
Taxable Supplies
|
GST
|
|
December 31, 1993
|
$25,448.27
|
$1,781.38
|
|
December 31, 1994
|
28,490.65
|
1,994.35
|
|
December 31, 1995
|
29,558.41
|
2,069.09
|
|
Total
|
$83,497.33
|
$5,844.35
|
[3] The Appellant's position as contained in Exhibit A-1
is as follows:
1. Firstly, these "dues" are for membership in the
brokerage only ... and do not include any service from
O'Connor Group. No forms or office materials are included, no
desk, office space or telephone is included. It is held that
these sales people are not employees but sub-contractors and as
such responsible for their own expenses.
2. Secondly, the "dues" are in essence a vehicle for
these sales people to maintain their license while they are
inactive. In the event that they become active in real estate
sales or leasing, that is earn commissions, the full fee is
refunded at the time that the "trade record sheet" is
processed for payment of commissions earned ... Normally
active agents would not pay these "dues", but
occasionally an inactive agent would get back into active
sales.
3. Thirdly, in order to maintain their real estate license,
sales people must be a member of the brokerage, as prescribed by
the Real Estate and Business Brokers Act of Ontario. The
acquisition of a real estate license is both expensive and time
consuming, so these inactive agents consider it an asset worth
holding onto. Under Sec. 189(c) this would make these
membership dues exempt per par. 16-150 of C.C.H. "exemption
extends to dues paid to a party or advisory committee where
payment was required under provincial law in respect to an
individual's employment. Sect. 18 of Part VI of Schedule V
(p.108-455) provides for memberships paid to an organization
where the membership is required to maintain a professional
status recognized by statute" (emphasis added).
In the decision rendered on the Notice of Objection, the appeals
division disallowed the objection based on "although
the real estate and business brokers Act may require membership
on a brokerage, it does not require the payment of a
"membership fee" to a broker". It is our
contention that, as per the highlighted section, no mention is
made as to whether the payment of the fee is required but rather
the exemption is for fees if the membership in the organization
is required.
There are some other issues such as the definition of
"service" and the fact that we were not allowed to
reduce the GST owing for the dues that were refunded. Hereto I
would like to touch on one more consideration. O'Connor Group
Realty has held from the beginning that these dues were exempt,
like those of the Canadian Legion, and as such they were never
collected. At the time of the original audit, Revenue Canada (now
CCRC) deemed everything in their favour and as such assessed GST,
penalties and interest unabated. It is to redress this that we
appeal to this Court for a favourable ruling.
[4] The position of the Respondent is that the Appellant
failed to report and include in net tax GST in the amount of
$5,844.35. The late remittance penalty and interest were properly
applied on that amount of net tax the Appellant failed to remit.
The Respondent is of the opinion that the membership fees are
taxable supplies.
Analysis
[5] I have no difficulty finding that the Minister's
position is correct. Membership fees are not required by the
Real Estate and Business Brokers Act for the agent to
maintain his or her license. There is a requirement under that
Act for the agents to maintain an existing license. The
Appellant took care of this requirement for a service fee of
$150. It is not an exempt supply pursuant to section 18, Part VI
of Schedule V of the Excise Tax Act. This part sets out
exemptions for supplies made by public sector bodies. The
Appellant does not come within the definition of "public
sector bodies"[1] which includes governments and charities. The
Appellant's service is a "commercial activity"[2]. Section 18 reads
as follows:
18. A supply of a membership made by an organization
membership in which is required to maintain a professional status
recognized by statute, except where the supplier has made an
election under this section in prescribed form containing
prescribed information.
[6] The Appellant submitted that a small percentage of the
agents (perhaps 4% or 5%) become active and upon payment of a
commission to the Appellant, the Appellant would refund the $150
fee to the agent. The possible refund of membership fees to an
agent is not a refundable deposit pursuant to
subsection 168(9). I agree with the Respondent's
position that this is a separate transaction resulting in a lower
commission to the Appellant on the particular transaction between
the Appellant and its agent.
[7] For the dues or payments to be exempt from goods and
services tax, the amount paid must be made to an organization
described in section 189 which reads in part:
189 For the purposes of this Part, where an amount is paid by
a person to an organization as
(a) a membership due paid to a trade union ...
(b) a due that was, pursuant to the provisions of a
collective agreement, ...
(c) a due ... required under the laws of a
province ...
The $150 payment in question was not made to an organization
described in section 189 which is required if it is to be exempt
from GST.
[8] I believe this case can be summarized as simply as this.
By virtue of subsection 165(1) of the Act, GST is payable
by the recipient of a "taxable supply" which is a
supply made in the course of commercial activity. The transaction
between the agents and the Appellant comes within the definition
of "commercial activity". The Appellant offered the
agents a supply or service that assisted them in retaining their
licenses. The payment by the agents to the Appellant is subject
to GST unless specifically exempted in the Act. It is
clear that no exemption is applicable.
[9] In conclusion, I find that the Appellant failed to report
taxable supplies and remit GST as set out in paragraph 6(g) of
the Reply to the Notice of Appeal and pursuant to subsections
165(1) and 221(1) of the Act. The Minister correctly
assessed penalty and interest pursuant to section 280 of the
Act. The Appellant cannot benefit from a due diligence
defence as described in Pillar Oilfield Projects Ltd. v.
Canada.[3] The
Appellant took no or insufficient efforts to determine whether
GST was applicable. The Appellant, through its bookkeeper agent
decided on its own that GST did not apply. The appeal is
dismissed.
Signed at Ottawa, Canada, this 13th day of July, 2000.
"C.H. McArthur"
J.T.C.C.
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