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.