The Corporation of the City of St.Catharines v. The Queen

The Corporation of the City of St.Catharines v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2003-02-27 Neutral citation 2003 TCC 35 File numbers 2000-4129(GST)G Judges and Taxing Officers David W. Beaubier Subjects Part IX of the Excise Tax Act (GST) Decision Content 2000-4129(GST)G BETWEEN: THE CORPORATION OF THE CITY OF ST. CATHARINES, Appellant, and HER MAJESTY THE QUEEN, Respondent. Appeal heard on January 22, 2003 at Kitchener, Ontario, by the Honourable Judge D. W. Beaubier Appearances Counsel for the Appellant: Sherry A. Currie Counsel for the Respondent: Richard Gobeil and Michael Ezri JUDGMENT The appeal from the assessment made under the ExciseTax Act, notice of which is dated August 27, 1999 for the period June 1, 1994 to December 31, 1998 is dismissed, with costs, in accordance with the attached Reasons for Judgment. Signed at Calgary, Alberta, this 27th day of February, 2003. "D. W. Beaubier" J.T.C.C. Citation: 2003TCC35 Date: 20030227 Docket: 2000-4129(GST)G BETWEEN: THE CORPORATION OF THE CITY OF ST. CATHARINES, Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR JUDGMENT Beaubier, J.T.C.C. [1] This appeal pursuant to the General Procedure was heard at Kitchener, Ontario on January 22, 2003. The parties filed books of Exhibits and a Partial Agreed Statement of Facts (Exhibit A-1). [2] The Appellant applied for a rebate of Goods and Services Tax ("GST") of $24,072.25 on the basis that it paid the Ontario Retail Sales Tax ("PST") on the supply to it by contractors of work and material contracted for the repair and maintenance of St. Catharine's municipal roads, sewers and water lines. The application was denied by the Respondent on the basis that the PST allegedly included in the value of the consideration for the contracts is not a prescribed tax for the purposes of section 154 of the Excise Tax Act ("ETA"). [3] The Partial Agreed Statement of Facts reads: PARTIAL AGREED STATEMENT OF FACTS For the purposes of this proceeding only the following facts are agreed to by the Appellant and the Respondent: 1. The Appellant is a municipal corporation situate in the Province of Ontario. 2. During the period from June 1, 1994 to December 31, 1998, the Appellant entered into a number of contracts for work and materials. These contracts related to the repair, and maintenance of municipal roads, sewers and water lines. 3. The contracts marked Exhibit "A2" to this Agreed Statement of Facts (hereinafter, "the Contracts") are representative of all the contracts relevant to the Appellant's Notice of Appeal. 4. GST was not to form part of the tender price for any Contract, but was separately charged to the Appellant by each contractor. 5. Provincial retail sales tax (PST) was not itemized in any Contract, in any invoice issued by a contractor, or in any progress payment document, certificate or cheque relating to a Contract. 6. Each contractor was required to specify a unit price for each element of the Contract. That unit price reflected the contractor's cost of materials and labour as well as its profit (or loss as the case may be). 7. In some of the Contracts, contractors were warned to make allowance for the impact of PST in setting their unit prices. 8. In order to carry out the Contracts, the contractors either purchased or manufactured materials to be supplied, or subcontracted out the work and materials to be supplied. 9. The contractor was required to pay PST on the price of any materials purchased or manufactured by it for installation on the Appellant's property, but the amount of PST payable or paid on these materials by the contractor is unknown to the Appellant and Respondent. 10. The contractor paid no PST on the sub-contracts. The subcontractor paid PST on the cost of any materials purchased or manufactured by it for installation on the Appellant's property, but the amount of PST payable or paid on these materials by the subcontractor is unknown to the Appellant and Respondent. 11. The Appellant filed a General Application for Rebate of Goods and Services Tax on the basis that the price of each Contract incorporated PST. 12. The Appellant estimated the amount of PST as 3% of each Contract price, including GST. 13. The 3% figure used by the Appellant is based on the percentage rebate that is given by the Government of Ontario to religious, charitable and benevolent organizations in respect of construction contracts for labour and materials for capital investment projects. The procedure for calculating the rebate is summarized in a document entitled, "Ontario Sales Tax Guide No. 806: Religious Charitable and Benevolent Organizations". This rebate is not available to municipalities. 14. The parties agree that the amount of the rebate claimed by the appellant is not the subject of any admission, the parties moreover having agreed that, before complying with any final judgment that may eventually be rendered in the appellants' favour, the Minister of National Revenue will have the opportunity to review the remaining contracts and supporting documents referred to in the Appellant's Notice of Appeal in order to validate diligently and within a reasonable time, the accuracy of the amounts claimed, including but not limited to, the manner in which those amounts were calculated. 15. The Parties agree that they shall be entitled to adduce additional evidence or to ask the Tax Court of Canada to draw inferences from the evidence presented, provided that such additional evidence or inferences are not inconsistent with this Partial Agreed Statement of Facts. 16. The Appellant and Respondent agree to file copies of the following documents with the Court as exhibits for the purposes of this proceeding: A1. This Partial Agreed Statement of Facts A2. Contract documents in respect of contracts: 97-71, 98-002, 98-080 97-200/97-64, 96-66, 95-105, 96-94; R1. Respondent's Book of Documents comprising: 1. Appellant's Application for GST/HST Rebate; 2. Fax from Appellant enclosing supporting Documentation for GST/HST Rebate Application; 3. Letter from Revenue Canada enclosing Statement of Audit Adjustments; 4. Notice of Assessment; 5. Notice of Objection; 6. Notice of Decision. ... [4] Examples of the various contracts were filed in Exhibit A-2. None of the contracts contained a separate amount of PST charged to the Appellant. Thus, none of the contracts complied with subsection 40.(1) of the Ontario Retail Sales Tax Act (R.S.O. 1990, c. R. 31), which reads: 40. (1) No vendor shall advertise or post or otherwise quote a price that includes the tax imposed by this Act unless the vendor specifies separately the amount of the tax payable under this Act, and no vendor shall hold out or state to the public or to any purchaser, directly or indirectly, that the tax or any part thereof imposed by this Act will be assumed or absorbed by such vendor or that it will not be considered as an element in the price to the purchaser or, if added, that it or any part thereof will be refunded. [5] Moreover the contracts (using Contract 97-71 contained in Exhibit A-2, Tab A between Alfred Beam Excavating Ltd. and the Appellant as an example) were not for the sale of material or of services separately. Paragraph 9, "Description of Work" states: This contract is for the supply of all labour, equipment and material necessary for the installation of 525 mm diameter storm sewers on Lincoln Avenue and Almond Street ... " [6] The Appellant has claimed a rebate of the GST on the PST which each contractor paid on the material (the tangible personal property) it purchased and incorporated into the contract it had with the Appellant to supply and install roads, sewers and water lines. The Respondent denied the claim in Court on the basis that: 1. The contractors were the "consumers" of the tangible personal property. 2. The Appellant did not become liable for PST payable to the contractors or anyone else for tangible personal property. [7] The Appellant placed great reliance on the decision of Bowman, J. in J. A. Porter Holdings (Lucknow) Ltd. v. Canada, [1996] G.S.T.C. 25 which virtually describes the Appellant's argument. However in that case the Appellant was specifically invoiced for PST in compliance with subsection 40(1) of the Ontario Retail Sales Tax Act. That did not occur in this case. Paragraph G8 of Exhibit A-2, Tab A states: G8 Provincial Sales Tax Tenderers are specifically requested to obtain clarification with respect to Provincial sales tax from the Provincial Retail Sales Tax District Office. Tenderers should make due allowance for impact by the Provincial retail sales tax in effect at time of tendering, in the unit prices bid accordingly. [8] Moreover, referring to a contract such as the ones in question Martland, J., of the Supreme Court of Canada said in Cairns Construction Ltd. v. Saskatchewan, [1960] S.C.R. 619 at 629: In my opinion, the appellant was a "user" of the goods in question here and was made liable for payment of tax under s. 5(2) of the Act. I would agree that the intention of the Act is to impose the tax upon the final consumer or user of the personal property purchased. It was upon that basis that the Privy Council upheld the New Brunswick legislation under consideration in the Conlon case. But it also appears to me that a person who purchases personal property and incorporates it into something else, in the process of which it loses its own identity as personal property, is the final user of that personal property so incorporated. The nails which were hammered into the structure, the paint placed on the walls, or the shingles on the roof were finally used for the purposes for which they were created when they became a part of the building. Equally, the prefabricated parts were finally used when they were incorporated into the houses which the appellant constructed. The purchaser of a house would not thereafter use them as component parts. He would make use of the completed house. [9] This approach was echoed by the Supreme Court of Canada in Will-Kare Paving & Contracting Limited v. The Queen, [2000] 1 S.C.R. 915 at paragraphs 20 and 21 in which Major, J. for the majority, stated: 20 One point of view is expressed in Crown Tire Service Ltd. v. The Queen, [1984] 2 F. C. 219 (Fed T.D.), where the court imports common law and provincial sale of goods law distinctions in defining the scope of the manufacturing and processing incentives' application. Only capital property used to manufacture or process goods to be furnished through contracts purely for the sale of such goods qualifies. Property used to manufacture or process goods to be supplied in connection with the provision of a service, namely through a contract for work and materials, is not viewed as being used directly or indirectly in Canada primarily in the manufacturing or processing of goods for sale, and as such, does not qualify for either the accelerated capital cost allowance or the investment tax credit. 21 The Crown Tire case related to whether the application of treads manufactured by the taxpayer to tires brought in by customers for repair constituted the manufacture or processing of goods for sale. Strayer J. (later J.A.) disallowed the taxpayer's claim to the s. 125.1 manufacturing and processing profits deduction as the manufactured tread was supplied through a contract for work and materials, a characterization based upon the method through which property transferred to the buyer. See p. 223: In Benjamin's Sale of Goods (London, 1974), in considering the distinction between a contract of sale of goods and a contract for work and materials, it is stated: Where work is to be done on the land of the employer or on a chattel belonging to him, which involves the use or affixing of materials belonging to the person employed, the contract will ordinarily be one for work and materials, the property in the latter passing and not under any contract of sale. ... I believe that the situation here fits within the general principle as stated in Benjamin. With respect to the retreading of tires owned by customers, it appears to me that the customers retain ownership throughout the process. Will-Kare was decided after the decision of Bowman, J. in J. A. Porter. [10] For these reasons, the Court finds that the Appellant was not a "consumer" or "user" of the material in question. The contractors were. Nor did the Appellant incur tax payable under a prescribed tax for tangible personal property within the provisions of section 154 of the Act. The contractors did. [11] The appeal is dismissed. The Respondent is awarded costs in the cause. Signed at Calgary, Alberta, this 27th day of February, 2003. "D. W. Beaubier" J.T.C.C. CITATION NO.: 2003TCC35 COURT FILE NO.: 2000-4129(GST)G STYLE OF CAUSE: The Corporation of the City of St. Catharines v. The Queen PLACE OF HEARING Kitchener, Ontario DATE OF HEARING January 22, 2003 REASONS FOR JUDGMENT BY: The Honourable Judge D. W. Beaubier DATE OF JUDGMENT February 27, 2003 APPEARANCES: Counsel for the Appellant: Sherry A. Currie Counsel for the Respondent: Richard Gobeil and Michael Ezri COUNSEL OF RECORD: For the Appellant: Name: Sherry A. Currie Firm: Gowling, Lafleur & Henderson For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada