Inlet Navigation (1985) Ltd. v. British Columbia

2024 BCSC 1240 Inlet Navigation (1985) Ltd. v. British Columbia

IN THE SUPREME COURT OF BRITISH COLUMBIA Citation: Inlet Navigation (1985) Ltd. v. British Columbia, 2024 BCSC 1240 Date: 20240712 Docket: S15102 Registry: Campbell River Between: Inlet Navigation (1985) Ltd. Petitioner And His Majesty the King in Right of the Province of British Columbia Respondent Corrected Judgment: The text of the judgment was corrected at paragraph 11 on July 17, 2024. Before: The Honourable Mr. Justice Baird Reasons for Judgment Counsel for the Petitioner: H. Wenngatz Counsel for the Respondent: C. Pagé S. Kay Place and Date of Hearing: Campbell River, B.C. March 26, 2024 Place and Date of Judgment: Campbell River, B.C. July 12, 2024

INTRODUCTION [1] This is an appeal taken by the petitioner Inlet Navigation (1985) Ltd. pursuant to s. 51 of the Motor Fuel Tax Act, R.S.B.C. 1996, c. 317 ("MFTA") against tax penalties and interest assessed against it ("the assessment") by the respondent after a 2018 audit ("the 2018 audit") of its retail motor fuel sales. The amount originally assessed, $488,176.23, was substantially reduced after the petitioner appealed to the Minister of Finance under s. 50 of the MFTA ("the appeal decision"). In its pleadings before me the respondent has recommended a further reduction to $172,830.63.

BACKGROUND [2] The MFTA taxes fuel at different rates depending on the type of fuel sold, where it is sold, and how it is to be used. The statute draws a distinction between clear and coloured fuel, which are taxed at substantially different rates. At the time of the 2018 audit clear gasoline and diesel fuel in the areas where the petitioner conducted its business were subject, respectively, to taxes of 14.5 cents and 15 cents per litre, whereas the tax payable on coloured fuel was only 3 cents per litre. [3] Starting on July 1, 2015, the provincial government required all authorised coloured fuel dealers, including the petitioner, to obtain a formal declaration from each of their purchasers, at or before the time of sale, confirming that the coloured fuel they proposed to buy would be used only for purposes authorised by s. 15 of the MFTA. It amounts, essentially, to the customer's lawfully binding declaration that coloured fuel will not be used in motor vehicles - with an exception for farm vehicles - for travel on public roads and highways. This mandatory declaration is made by completing a government issued form called a Coloured Fuel Certificate (the "FIN 430 Certificate"). [4] The regulatory framework is pretty simple. Under the MFTA, coloured fuel dealers are permitted to collect the lower rate of 3 cents per litre only if they first obtain a completed FIN 430

Certificate from each of their purchasers. Without it they are required to collect tax at the much higher clear fuel rates. The FIN 430 Certificate has multiple purposes. First, it provides documentary evidence that the seller is not obligated to collect clear fuel taxes from the purchaser. Second, and as I have just said, it constitutes the purchaser's written commitment only to use coloured fuel for an authorised purpose. Third, it gives notice to the purchaser of the significant fines payable for the unauthorised use of coloured fuel, and of the penalties, which include a period of imprisonment for up to two years, for making a false declaration under the MFTA. [5] Before July 1, 2015, the coloured fuel purchaser's declaration was a Coloured Fuel Account Certificate (the "FIN 438 Certificate"), which was similar in appearance and effect but not identical to the FIN 430 Certificate, most notably in its omission of a detailed notice to the purchaser of the consequences for unauthorised use of coloured fuel and for making false declarations under the MFTA. From July 1, 2015 to September 30, 2015, there was a "grace period" permitting dealers to continue selling coloured fuel at the lower tax rate to purchasers who had previously provided a signed FIN 438 Certificate, but starting on October 1, 2015, dealers were required to obtain FIN 430 Certificates from all of their

customers without exception. [6] The petitioner does not dispute that, on May 20, 2015, it received notice of the changes to the MFTA regulatory scheme, including the transition to the FIN 430 Certificate, that were to take effect on July 1, 2015. Notice was sent by email in a package containing the following documents: a) a Notice of Program Change letter; b) a new "Authorization to Sell Coloured Fuel" ("the Authorization"); c) a Schedule 1 - Location Listing; d) a Notice to Retail Dealers Tax Notice; and e) a blank FIN 430 Certification Form. [7] On June 5, 2015, the petitioner's principal, Mr. Stuart Johnson, signed and returned all of the required documentation, including the Authorization, which was counter-signed on June 16, 2015 by a Director authorised by the respondent under the MFTA. By signing the Authorization, the petitioner confirmed its knowledge and understanding of the new obligation to collect FIN 430 Certificates for coloured fuel sales. The Authorization included the following terms at para. 4: 4. Sale of Coloured Fuel 4.1 The Applicant must not sell coloured fuel if the circumstances are such that a reasonable person would believe that the fuel will be used for a purpose that is not authorized under section 15 of Motor Fuel Tax Act. 4.2 The Applicant must not sell any fuel as coloured fuel unless the fuel has been coloured in accordance with the Motor Fuel

Tax Act and regulations, before it is sold. 4.3 The Applicant must not sell coloured fuel to another business for resale purposes unless that business is also authorized in accordance with section 14.1 of the Motor Fuel Tax Act. 4.4 Where coloured fuel, marine diesel, and locomotive fuel, is: a) Sold at manned locations such as a self-serve and full service pumps or delivered directly to purchasers, the Applicant must ensure no person places coloured fuel, marine diesel or locomotive fuel in a supply tank of a motor vehicle licensed for highway use, such as a car, truck, van or recreational vehicle. The only exception is coloured fuel for use in a licensed farm vehicle with "A" or "G" farm truck plates when operated by or on behalf of a farmer, for farm purposes. In addition, where the volume of fuel sold is more than 45 litres, a completed copy of the Coloured Fuel Certification (FIN 430) must be obtained from purchasers in accordance with the Motor Fuel Tax Act and regulations. b) Sold at cardlocks (including at a terminal rack or bulk plant), a completed copy of the Coloured Fuel Certification (FIN 430) must be obtained from purchasers in accordance with the Motor Fuel Tax Act and regulations. If the Applicant does not obtain a Coloured Fuel Certification (FIN 430) from a purchaser when it is required, the Applicant must collect motor fuel tax on the sale of coloured fuel,

marine diesel or locomotive fuel at the clear motor fuel tax rate [i.e. the same rate as clear gasoline or clear diesel], not at the 3 cents per litre rate. If the tax collected by the Applicant is greater than the security paid on the fuel, the Applicant must remit the additional tax to the Ministry of Finance. [Emphasis added.] [8] On March 2, 2017, a Ministry of Finance ("the Ministry") inspector visited the petitioner's place of business in Campbell River, B.C. to confirm that it had obtained the required FIN 430 Certificates for all its coloured fuel sales after July 1, 2015. The inspector discovered that the petitioner had failed to do this across the board. They had sold millions of litres of fuel to their customers without collecting FIN 430 Certificates from any of them. As I mentioned at the outset, this resulted in the 2018 audit of the petitioner's sales between July 1, 2015 and February 28, 2017 ("the audit period"). [9] It comes down to this. Without completing and returning their FIN 430 Certificates, by operation of s. 5.1 of the MFTA, all of the petitioner's customers were legally obliged to pay tax at clear fuel rates whenever they purchased 45 litres or more of coloured fuel. As for the petitioner, s. 44(1) of the MFTA provides that, if a fuel dealer sells coloured fuel in excess of 45 litres to a purchaser without first obtaining a FIN 430 Certificate, and

fails to charge the higher clear fuel tax rates, the fuel dealer will be assessed a penalty equal to the amount of the clear fuel taxes payable less the amount of tax that was actually paid by the purchaser ("the equivalent tax penalty"). [10] Many of the petitioner's customers eventually filled out FIN 430 Certificates, and the auditor took this into consideration. He assumed that these customers would have been entitled to a refund of the difference between the clear and coloured fuel tax rates on purchases from the petitioner if they had paid the clear fuel tax rates at the time of sale, and having done so, he exercised his discretion under s. 44(1.1)(b) of the MFTA to reduce the s. 44(1) equivalent tax penalty payable by the petitioner to an amount equal to that of the refund to which he assumed each purchaser would have been entitled. But he applied the additional s. 45(1)(c) MFTA discretionary penalty of ten percent of the tax that the petitioner ought to have collected at the time of sale (the "ten percent penalty") and added it to the reduced equivalent tax penalty. [11] As a result of the audit, as I have said, the petitioner was assessed $488,176.23 in applicable penalties and interest. The petitioner launched an appeal under s. 50 of the MFTA on October 16, 2018. By that time, it had received more FIN 430 Certificates from its customers, and these were accepted and

considered by Associate Deputy Minister of Finance Heather Wood, leading to a determination in the appeal decision that the equivalent tax penalty and interest on sales to those customers should be canceled. However, because the FIN 430 Certificates were not collected in advance, and the clear fuel tax was not paid, Ms. Wood applied an increase to the ten percent penalty payable by the petitioner on those sales. [12] In the appeal decision, Ms. Wood made the following assumptions which the petitioner concedes were fair and accurate: a) The petitioner was an authorised coloured fuel dealer and a tax collector under the MFTA; b) The petitioner was able to provide the invoices for every coloured fuel sale to its customers during the audit period; c) The petitioner, though in business for over 30 years, had not previously been audited or penalised under the MFTA; d) On May 20, 2015 the Ministry sent an information package to the petitioner which included: (i) a Notice of Program Change letter; (ii) the Authorization; (iii) a Schedule 1 - Location Listing; (iv) a Notice to Retail Dealers Tax Notice; and (v) a blank FIN 430 Certification Form. e) The information package sent to the petitioner on May 20, 2015 explained its obligation to collect a FIN 430 Certificate from each purchaser of coloured fuel over 45 litres before selling fuel at the coloured fuels tax rate and explained the

consequences of failure to comply with this obligation. f) On June 5, 2015, Stuart Johnson, the petitioner's principal, signed and returned to the Ministry the Authorization and other documentation confirming, on behalf of the petitioner, his understanding and acceptance of the obligations explained in the documentation. g) During the audit period, the petitioner sold coloured fuel in excess of 45 litres at the coloured fuels tax rate without first obtaining completed FIN 430 Certificates from its purchasers. h) Shortly after an initial inspection by the Ministry's inspector on March 1, 2017, the petitioner provided seven FIN 438 Certificates from fuel purchasers which were signed in 2004 and 2005. i) The petitioner could not provide any FIN 430 Certificates signed by fuel purchasers prior to March 1, 2017 and denied having any more FIN 438 Certificates. j) After the initial inspection but before the audit process was complete, the petitioner obtained FIN 430 Certificates from fuel purchasers which were signed after March 1, 2017. k) The purchasers from whom the petitioner eventually obtained FIN 430 Certificates would have been entitled to a refund of the additional amount of clear fuel taxes if they had paid these taxes at the time they purchased coloured fuel. l) The petitioner could not provide FIN 430 Certificates or any other declaration or exemption certificate from 19

purchasers of coloured fuel in excess of 45 litres during the audit period. m) None of the sales of coloured fuel in excess of 45 litres during the audit period was to a farmer. n) None of the sales of coloured fuel in excess of 45 litres during the audit period was of marine diesel fuel or locomotive fuel. o) None of the sales of coloured fuel in excess of 45 litres during the audit period was transferred to the supply tank or supplemental supply tank of a ship that was in or on water at the time of the transfer to be used in the operation of the ship. p) The total amount of coloured fuel sold by the petitioner during the audit period to purchasers who later provided FIN 430 Certificates was: (i) for sales of coloured gas, 2,604,079 litres; and (ii) for sales of coloured diesel / motive fuel 12,770,343 litres; totalling 15,374,422 litres on which the s. 45(1)(c) MFTA ten percent could be applied. q) The total amount of coloured fuel sold by the petitioner during the audit period to purchasers who did not provide any FIN 430 Certificates was: (i) for sales of coloured gas, 48,089 litres; and (ii) for sales of coloured diesel / motive fuel, 383,277 litres; r) The petitioner's failure to collect FIN 430 Certificates was not deliberate. s) The interest of $252,948.57 initially applied to the ten percent penalty amount was applied in error. [13] Based on these assumptions, on March

12, 2020, the appeal decision reduced the assessment of penalties and interest to $188,097.73. Ms. Wood also canceled the ten percent penalty on purchases made during the "grace period" between July 1, 2015 and September 30, 2015, which further reduced the assessment by $15,267.10. The adjusted amount of the cumulative ten percent penalty was therefore $167,923.92, resulting in a revised total assessment amount of $172,830.63. The parties agree that this revised assessment was correctly calculated, and the petitioner has paid this amount subject to the outcome of this proceeding. [14] The present appeal is a new hearing that is not limited to the evidence and issues considered by Ms. Wood: MFTA s. 51(4.1). The respondent has argued, and the petitioner has not disputed, that the applicable standard of review is correctness: Housen v. Nikolaisen, 2002 SCC 33 at para. 8; Voroney v. British Columbia, 2020 BCSC 853 at paras. 15-17.

DISCUSSION [15] The petitioner submits, essentially, that the assessment of penalties and interest in this case is unduly onerous, unfair, and disproportionate to a failure, merely, to require its customers to complete paperwork confirming that their coloured fuel purchases will be used for purposes authorised by the MFTA. This is especially so, the petitioner argues, since the respondent accepts that most of those customers actually qualified for the coloured fuel rate and would have been eligible for a refund had they paid the clear fuel rate on their purchases from the petitioner after July 1, 2015. [16] The petitioner argues that no additional tax revenue was determined to have been payable by those customers who eventually completed and returned their FIN 430 Certificates. It seeks an order that the penalties and interest charged in the assessment be "extinguished" and replaced with the sort of "warning" referred to in the Taxpayer Fairness and Service Code for first-time inadvertent non-compliance with statutory tax collection obligations. The appeal decision is incorrect, the petitioner says, because its non-compliance was not conscious or "wilful", a term referred to in a Ministry tax bulletin in effect at the relevant time (CTB 005). [17] The respondent argues that, well in advance of the changes to the MFTA effective on July 1, 2015, the petitioner was provided with

clear and precise information regarding its new obligations and of the consequences for failing to comply. The petitioner's principal, Stuart Johnson, signed and submitted all of the documentation signifying acknowledgment, on the petitioner's behalf, of the statutory duty to collect FIN 430 Certificates at or before the sale of coloured fuel to each of its customers. The signed Authorization was clear in its terms, and the petitioner acknowledges that the accompanying documentation it received included a tax notice to all retail fuel dealers setting out the new requirements in plain and accessible language. The respondent says that these requirements were binding upon every fuel dealer in the Province and the petitioner is not entitled to special treatment. [18] I agree with the respondent. The Taxpayer Fairness and Service Code and the iteration of CTB 005 in effect at the relevant time were policy documents amounting to the respondent's commitment to transparent and even-handed dealings with taxpayers who were making their best efforts to comply with the law, which is sometimes a little complicated. Neither document suggests, however, that wilful or negligent failure to comply with basic statutory requirements will be overlooked, and, in any event, neither can act as a fetter on the respondent's public duty to enforce the statute: see Toronto Dominion Bank v. British Columbia (Commissioner of Income Tax), 2017 BCCA 159 at para.

55. The petitioner, in its pleadings, claims to have misunderstood its obligations under the 2015 MFTA amendments, but at the hearing it was conceded that complacency had been at the root of it. Quite simply, Mr. Johnson signed and returned documentation that he could readily have understood, but that he did not read. This was the very opposite of due diligence and, in the context of a highly-regulated commercial activity where there are strict rules and heavy penalties for breaking them, his conduct was negligent, unreasonable and inadmissible. [19] There is nothing more that the respondent could have done to inform the petitioner of its lawful obligations, and the petitioner has no tenable excuse for its non-compliance. The equivalent tax penalty imposed on sales where purchasers never provided a FIN 430 Certificate is mandatory. The respondent was required to impose it. As I have said, the petitioner agrees that the amount assessed is correct. I have been provided with no lawful authority to reduce or cancel it. As for the ten percent penalty, Ms. Wood's appeal decision states that it is Ministry policy to apply it to all coloured fuel sales over 45 litres where the purchaser has failed to provide a FIN 430 Certificate. The petitioner has not challenged this assertion, and has referred me to no precedent cases in which exceptions have been made. [20] I am satisfied on all of

the evidence that the MFTA penalties under discussion are intended to be applied to all motor fuel dealers equally and uniformly. They are a compliance tool designed to ensure that all taxes due to the provincial government under the statute are paid and remitted in full and on time. They are part of a graduated scale of deterrent and corrective measures that can culminate in the revocation of a non-compliant dealer's authorisation to sell fuel. Ignorance of legal requirements is no excuse. The respondent's assessment in the present case followed the letter of the MFTA, conformed with publicly available policies regarding compliance and penalties, and was the same as would be imposed on every retail fuel dealer caught in a similar situation.

CONCLUSION [21] The appeal decision was correct. There is no lawful basis to overturn it. Subject to the downward adjustment of the amount payable set out in the respondent's pleadings, the petition is dismissed with costs to the respondent on Scale B. "Baird J."