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Docket: 2000-4186(GST)I |
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BETWEEN: |
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CANASIA INDUSTRIES LIMITED, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN,
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Respondent. |
____________________________________________________________________
Appeal heard on April 16, 2002 in Halifax, Nova Scotia and by way of
conference call on May 24, 2002 in Ottawa, Ontario,
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Before: The Honourable Alban Garon, Chief Judge |
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Appearances: |
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Counsel for the Appellant: |
Raymond G. Adlington |
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Counsel for the Respondent: |
Ifeanyichukwu Nwachukwu |
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JUDGMENT
The appeal from the reassessment made under the Excise Tax Act, notice of which is dated June 16, 2000 and bears number 01CB0303919, is dismissed.
Signed at Ottawa, Canada, this 10th day of February 2003.
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"Alban Garon" |
C.J.T.C.C.
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Citation: 2003TCC33 |
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Date: 20030210 |
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Docket: 2000-4186(GST)I |
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BETWEEN: |
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CANASIA INDUSTRIES LIMITED, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN,
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Respondent. |
REASONS FOR JUDGMENT
GARON, C.J.T.C.C.
[1] This is an appeal from a reassessment made on June 16, 2000 for Goods and Services Tax (GST/HST) and for penalties and interest relating thereto for the period of August 1, 1996 to June 30, 1998, whereby the Minister of National Revenue reassessed the Appellant net tax in the amount of $28,862.99 along with $1,733.09 in interest and $2,550.06 in penalties.
[2] An Agreed Statement of Facts dated April 11, 2002 was filed with the Court and is hereinafter reproduced:
TAKE NOTICE that Canasia Industries Limited and Her Majesty the Queen, as represented by the Minister of National Revenue, agree that the facts of the dispute are as follows:
1. Canasia Industries Limited ("Canasia") was incorporated under the Nova Scotia Companies Act on August 31, 1993;
2. The reporting periods at issue in respect of the assessment of Canasia's Goods and Services Tax ("GST") liability made by the Minister of National Revenue (the "Minister") pursuant to subsections 165(1), 221(1) and section 228 of the Excise Tax Act commenced on August 1, 1996, and concluded on June 30, 1998;
3. During all relevant periods, the sole director and officer of Canasia was Brian Wales;
4. During the reporting periods at issue, Canasia was registered pursuant to section 240 of the Excise Tax Act, with GST Registration Number 136462579;
5. During the reporting periods at issues, one of the businesses of Canasia involved the resale of travel certificates, a true copy of a sample of which is attached hereto as Exhibit "A" (the "Certificates");
6. The Certificates were purchased by Canasia from The Travel Card Center, Inc., a body corporate, incorporated pursuant to the laws of the State of Delaware;
7. The Certificates were sold by Canasia through various live and silent charity auctions;
8. Canasia did not have to account to The Travel Card Center, Inc. for the proceeds from the auction of the Certificates;
9. Proceeds realized from the sale of the Certificates through the charity auctions were split in prearranged proportions between Canasia and the relevant charity, which proportions varied from charity to charity;
10. The advertising of the auction indicated that the best offer over $199.00 would receive airfare travel for two (2) people round trip to Hawaii or any destination of the successful bidders choosing;
11. The Certificate offered twenty (20) possible destinations to successful bidders but offered the possibility of travel to additional destinations not listed in the Certificate;
12. Ten (10) of the destinations enumerated in the Certificate were in the United States or under the jurisdiction of the United States, one (1) outside the United States but in North America and nine (9) outside North America;
13. None of the destinations enumerated in the Certificates are in Canada;
14. On the redemption of the Certificate, the successful bidder is required to complete a reservation request form indicating inter alia the travel destination of choice from those offered or that sought outside the enumerated destinations.
15. The Certificates required that the bearer pay a US $39.95 registration fee to The Travel Card Center, Inc.;
16. The Certificate was not transferable by sale;
17. One of the requirements of the Certificates was a minimum stay period of seven (7) or more days depending on the destination;
18. One of the requirements of the Certificates was that the bearer purchase accommodation in a selected hotel at the destination of choice from The Travel Card Center, Inc.;
19. If the requirements of the Certificates were met, The Travel Card Center, Inc. issued tickets for air travel to the travel destination of choice to the bearer;
20. The Certificates contained, inter alia, the following term: "The bearer agrees that any resort/hotel or travel expense, not included in this offer, in order that the described ad proposed service may be fulfilled completely, are the sole responsibility of the bearer and accompanying traveler(s), including but not limited to any taxes...";
21. The Certificates have no stated monetary value;
22. The Certificates have no intrinsic value;
23. Canasia did not charge purchasers of the certificates tax pursuant to Part IX of the Excise Tax Act, nor did it remit any such tax to the Receiver General of Canada on account of GST payable;
24. In or about July, 1998, Canasia filed a GST return with the Minister claiming that it was owed a net tax refund pursuant to subsection 228(3) of the Excise Tax Act;
25. By Notice of Assessment No. 01CB0303919 dated December 22, 1998 (the "Assessment"), the Minister reassessed Canasia net tax in the amount of $34,163.17, $1,936.44 in interest and $2,842.62 in penalties with a total amount owing of $50,076.44;
26. Canasia filed a Notice of Objection in respect of the Assessment;
27. By Notice of Decision dated June 16, 2000, the Minister allowed the Objection in part and by Notice of Reassessment (bearing the same No. 01CB0303919) dated June 16, 2000 (the "Reassessment"), the Minister reassessed Canasia net tax in the amount of $28,862.99, $1,733.09 in interest and $2,550.06 in penalties, with a total amount owing of $44,280.35.
[3] A copy of a sample of a gift certificate was also filed with the Court.
[4] No further evidence was adduced by the parties.
Appellant's submissions
[5] The main proposition put forward by the Appellant is that the sale of a travel certificate constitutes a supply of a gift certificate and is deemed not to be a supply pursuant to section 181.2 of the Excise Tax Act. He went on to add that the phrase "gift certificate" is undefined in any federal or provincial legislation or by case law.
[6] Counsel for the Appellant referred to the policy statement P.202 issued by the Canada Customs and Revenue Agency (CCRA) on February 20, 1996 and indicated that he disagrees with certain parts of the definition of what constitutes a gift certificate. More specifically, he disputed the requirement set out in the policy statement of CCRA to the effect that a gift certificate must have a stated monetary value and that consideration must be given in the amount of the stated value.
[7] In support of his position that the expression "gift certificate" should be given the broadest possible meaning, he relied on the decision of Judge Mogan of this Court in the case of William E. Coutts Co. (c.o.b. Hallmark Cards) v. Canada, [1999] T.C.J. No. 278. He also mentioned that gift certificates are issued frequently by businesses without stated values.
[8] Counsel for the Appellant also referred to a document dated July 25, 2000 issued by CCRA dealing with "Donations of Gift Certificates" for purposes of certain provisions of the Income Tax Act. The endnote of the document was referred to:
In this respect, it needs to be kept in mind that "gift certificate" is not a defined legal concept, but a colloquial term that potentially encompasses any variety of documents evidencing any variety of entitlements, enforceable or otherwise. The terms of any "gift certificate" should be understood on a case by case basis in applying this analysis.
[Appellant's Book of Authorities, Tab 4, page 6.]
[9] Commenting on the dictionary definitions, in reply to the Respondent's argument at the hearing of this appeal, counsel for the Appellant points out that these definitions do not require that there be a stated monetary value on the certificate and adds that the requirement that the gift can be redeemed at the establishment of the issuer is met here since, in its view, the issuer is not the Appellant but The Travel Card Center, Inc.
[10] With regard to the negotiability of the gift certificate, the Appellant remarked that although the certificate cannot be sold, it can be gifted to anyone. Also, he adds, the "vacation package is completely transferable", as appears from the terms and conditions of the certificate.
Respondent's submissions
[11] The Respondent submits that the travel voucher in issue offered the bearer complimentary round trip airfare for two to any 12 destinations provided the bearer complied with the terms and conditions set out in the travel voucher.
[12] In the Respondent's view, this is a right, a contingent right to a travel portion of an overall travel package that has been offered by The Travel Card Center, Inc.
[13] Counsel for the Respondent referred to dictionary definitions of the term "gift certificate" and argued from these definitions that there are two characteristics. One is that the gift certificate must have essentially a stated monetary value. The second characteristic is that the gift certificate must be redeemable at the establishment that issued the gift certificate.
[14] Counsel for the Respondent further submitted that the intent of section 181.2 of the Excise Tax Act is to defer the exigibility of the GST from the point of sale to when it is redeemed or, in other words, to the point where there is actually an acquisition of property or a service.
[15] According to the Respondent, gift certificates are normally freely negotiable and, as it appears in the Agreed Statement of Facts, the certificates herein cannot be transferred by sale.
[16] The Respondent recognizes that if the type of certificate in issue constitutes a gift certificate GST would be attracted on its redemption. Section 181.2 of the Excise Tax Act treats a gift certificate as money on its redemption. Section 165.1 of the same statute is triggered and there is an imposition of 7% on the value of the consideration or with respect to participating provinces, such as Nova Scotia, the Harmonized Sales Tax is exigible at 15%. Since, in the particular case of this certificate, there is no stated value, the value of the consideration, according to the Respondent, would be the fair market value of the particular certificate or "what the successful bidder paid for that particular certificate."
[17] It is the Respondent's position that what the Appellant was offering was the air travel portion of an overall travel package, which in turn is tied to "the successful bidder buying on to the remaining package."
[18] The Respondent's counsel went on to add that Canasia was acting as agent for The Travel Card Center, Inc. and that in his view of subsection 177(1.2) of the Excise Tax Act, which deals with a supply by an auctioneer, the Appellant is made the supplier of that particular package and is accordingly responsible for collecting Goods and Services Tax on the particular transaction. Accordingly, in the Respondent's view, the Appellant must pay tax on only that portion of the tour package on which tax is exigible in Canada, that is, the air travel portion of that package, as supplier. Portions of the tour package that are supplied outside Canada, namely hotel services, would not attract GST, according to the Respondent.
Analysis
[19] The question in issue is whether the sale by the Appellant of a travel certificate of the type described above constitutes a supply of a gift certificate within the purview of section 181.2 of the Excise Tax Act.
[20] Section 181.2 of the Excise Tax Act reads as follows:
For the purposes of this Part, the issuance or sale of a gift certificate for consideration shall be deemed not to be a supply and, when given as consideration for a supply of property or a service, the gift certificate shall be deemed to be money.
[21] In construing this enactment and more particularly the phrase "gift certificate" it is useful, as has been mentioned many times by the courts, to bear in mind the modern rule of statutory interpretation formulated by E.A. Driedger in Construction of Statutes (2nd ed., 1983) at p. 87:
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
[22] The term "gift certificate" is not defined in the Excise Tax Act. It is therefore necessary to refer to dictionary definitions.
[23] In the Canadian Oxford Dictionary, Oxford University Press 1998, the expression "gift certificate" is defined thus:
gift certificate n. N Amer. a certificate or voucher presented as a gift and exchangeable for a specified value of goods, usu. at a specific store.
[24] In the Ninth New Collegiate Dictionary, A Merriam-Webster, 1986, the definition of the phrase "gift certificate" is as follows:
gift certificate n (1942) : a certified statement entitling the recipient to select merchandise in the establishment of the issuer to the amount stated thereon
[25] In ascertaining the import of section 181.2 of the Excise Tax Act, it is useful to keep in view the provisions of section 13 of the Official Languages Act, which reads:
Any journal, record, Act of Parliament, instrument, document, rule, order, regulation, treaty, convention, agreement, notice, advertisement or other matter referred to in this Part that is made, enacted, printed, published or tabled simultaneously in both languages, and both language versions are equally authoritative.
[Emphasis mine.]
[26] It is therefore useful to refer to the French version of section 181.2 of the Excise Tax Act, which is couched in the following terms:
Pour l'application de la présente partie, la délivrance ou la vente d'un certificat-cadeau à titre onéreux est réputée ne pas être une fourniture. Toutefois, le certificat-cadeau donné en contrepartie de la fourniture d'un bien ou d'un service est réputé être de l'argent.
[27] It is apparent from the French version of section 181.2 of the Excise Tax Act that the phrase corresponding to "gift certificate" is "certificat-cadeau".
[28] The term "certificat-cadeau" is not found in the well-known French dictionaries such as Grande Encyclopédie Larousse 1971, Quillet 1975, Grand Larousse Universel 1989, Nouveau Larousse Encyclopédique 2001 and Le Grand Robert de la langue française 2001. On the other hand, in the Multidictionnaire des difficultés de la langue française, by Marie-Eva de Villers, a Canadian publication, this locution is commented upon as follows: "Calque de l'anglais "gift certificate" pour chèque-cadeau." In the same dictionary, "chèque-cadeau" is defined as follows: "Bon autorisant une personne à recevoir un produit, un service" which could be loosely translated as follows: a voucher authorizing a person to receive a product, a service. In Le Robert & Collins Super Senior, the phrases "gift token, gift voucher" are translated by the compound "chèque-cadeau".
[29] In the course of argument, counsel for both parties referred to a number of commercial situations involving the use of the term "gift certificate". No evidence has been adduced as to the various types of gift certificates. However, it seems commonly accepted that a gift certificate is a very broad term for a voucher which entitles the bearer to redeem it according to its governing terms for goods or services or for a value towards the purchase price of goods or services. It is common ground here that the term "gift certificate" is a colloquial term that encompasses any variety of documents evidencing any variety of entitlements.
[30] There seems to be two types of usual situations where it is recognized by counsel by both parties that we are dealing with gift certificates. In one type of situation, a firm provides to an interested person a voucher with a stated monetary value, say $100 for a price of $100. The purchaser of the voucher in turn generally makes a gift to a third party by handing over the voucher for no consideration. In this situation, section 181.2 of the Excise Tax Act has the effect of deferring GST to the second transaction when the certificate is returned to the issuer in exchange for goods or services. It is admitted that in such a case, the first transaction involving the purchase of the certificate for its stated value does not attract tax. In the second situation, the issuer of the gift certificate simply gives the voucher for free to a customer or a prospective customer. The certificate does not have a stated value. This operation is not covered by section 181.2 of the Excise Tax Act because it is not issued for a consideration.
[31] From these examples, the wording of section 181.2 of the Excise Tax Act and the dictionary definitions, it should be ascertained what are the constituent elements of a gift certificate.
[32] As I have just indicated, a gift certificate must have been issued for consideration in view of the requirement laid down in section 181.2 of the Excise Tax Act. It is not necessary that the consideration be equal to the stated value if one appears on the certificate since the requirement in the latter section is simply that there must be a consideration.
[33] What is essential is that the bearer of the certificate who could be anyone to whom the certificate was transferred by the original purchaser of the certificate or by a subsequent bearer, is entitled to receive free of charge from the issuer of the certificate either a product or a service or the stated value towards a product or service. I do not think it is important that the bearer of the certificate may have paid something or given consideration for securing the gift certificate from the original purchaser of the certificate or some subsequent intermediary. In my view, the concept of "gift certificate" in the context of a situation contemplated by section 181.2 of the Excise Tax Act necessarily implies that the product or service referred to in the certificate is provided free of charge to the certificate holder when the certificate is redeemed by its issuer. Otherwise, the reference to the "gift" portion in the phrase "gift certificate" is meaningless.
[34] In the present case, the bearer of the certificate who acquired it from the purchaser of the certificate or from a subsequent holder is not entitled to receive free of charge from the issuer The Travel Card Center, Inc. the air travel portion of the certificate because he must have previously satisfied the following conditions:
1. He must pay the registration fee of $39.95 U.S. to The Travel Card Center, Inc. I think that it can reasonably be inferred that this amount represents in reality the cost of processing the request. Also, the amount in question is referred to in the certificate as a "registration fee". This condition probably does not preclude the travel certificate from being a gift certificate. On balance, I am inclined to disregard this condition.
2. The second condition is that the bearer of the certificate, as appears from paragraphs 17 and 18 of the Agreed Statement of Facts, has a minimum stay period of seven or more days depending on the destination in a selected hotel at the destination of choice from The Travel Card Center, Inc. The bearer of the certificate is required to pay for the accommodation selected by the issuer of the certificate.
[35] In my view, the second condition is a substantial element of the overall travel package. It cannot obviously be said that the bearer is entitled to receive from the issuer of the certificate free of charge the air travel portion of the package because of the existence of this second condition, which carries with it a substantial expenditure for the bearer of the certificate. In this regard, David M. Sherman in Canada GST Service appears to have adopted a similar approach with respect to the application of section 181.2 of the Excise Tax Act to a factual situation. His following observations regarding the distinction between a discount coupon and a gift certificate are especially instructive:
The distinction between a coupon and a gift certificate may not always be obvious. Suppose a clothing store sells a regular client, for 1 ¢ , a document that says "GIFT CERTIFICATE-Worth $50 on any purchase of $75 or more". Is this document a gift certificate or a discount coupon? If there were no requirement for a purchase of $75 or more, it would clearly be a gift certificate. If the purchase requirement were, say, $1,000, it would almost certainly be a discount coupon despite its title. In this case, the certificate clearly has a value of its own and is not being used purely as a marketing device to sell $75 worth of clothes.
[36] I therefore conclude that the travel certificate herein is not a gift certificate within the ambit of section 181.2 of the Excise Tax Act.
[37] It has not been suggested by counsel for the Appellant that the reassessment is wrong in law, if I were to conclude that section 181.2 of the Excise Tax Act is not applicable to the subject travel certificate.
[38] Before concluding, I wish to comment on the application of subsection 177(1.2) of the Excise Tax Act in view of the additional written submissions made, with leave of the Court, by counsel for both parties sometime after the hearing of this appeal. Subsection 177(1.2) reads as follows:
Where a registrant (in this subsection referred to as the "auctioneer"), acting as auctioneer and agent for another person (in this subsection referred to as the "principal") in the course of a commercial activity of the auctioneer, makes on behalf of the principal a supply by auction of tangible personal property to a recipient, the supply is deemed, for the purposes of this Part, to be a taxable supply made by the auctioneer and not by the principal and the auctioneer is deemed, for the purposes of this Part other than section 180, not to have made a supply to the principal of services relating to the supply of the property to the recipient.
[39] First, subsection 177(1.2) of the Excise Tax Act in its current form, referred to below as the new enactment, applies only to a supply by auction of tangible personal property to a recipient. As pointed out by counsel for the Appellant, the phrase "tangible personal property" is not defined in the Excise Tax Act. The same counsel, in my view, correctly relied on the definition found in Dukelow & Nuse, The Dictionary of Canadian Law (2ed.) (Thomson Canada Limited: Barrie: 1995), where the term tangible personal property is defined as being "... personal property that can be seen, weighed, measured, felt or touched or that is in any way perceptible to the senses." The travel certificates in issue represent intangible personal property since they grant certain rights if specific conditions are met. Consequently the new enactment is not applicable here.
[40] Subsection 177(1.2) of the Excise Tax Act, the new enactment, was amended by S.C. 1997, c. 10, s. 26. The amending legislation was assented to on March 20, 1997, that is, some time after August 1, 1996 the commencement of the periods in issue in this appeal, as set out in paragraph 2 of the Agreed Statement of Facts. The retrospective operation of subsection 177(1.2) must therefore be considered.
[41] Subsection 26(2) of the amending legislation provides that the new enactment, but for two exceptions, "applies to any supply made after April 23, 1996 by a registrant to a recipient on behalf of another person and to any supply made by the registrant to the other person of services relating to the supply to the recipient ...". Accordingly, the new enactment, subject to the two exceptions to be discussed hereinafter, applies to the totality of the Appellant's reporting periods in issue.
[42] One of the exceptions, which is set out in paragraph 26(2)(a) of the amending legislation, is not applicable here since it refers to supplies made prior to July 1, 1996, therefore prior to the commencement of the reporting periods in issue, being August 1, 1996.
[43] The second exception is referred to in paragraph 26(2)(b) of the amending legislation and applies to supplies by auction of tangible personal property made before April 1997. The second exception has no bearing on the present matter because the sale of travel certificates does not constitute a supply of tangible personal property but rather a supply of intangible personal property, as explained earlier.
[44] From the above, it follows that the two exceptions referred to in paragraphs 26(2)(a) and 26(2)(b) of the amending legislation do not have to be taken into account in applying the new enactment to the totality of the periods in issue in this appeal.
[45] Also, for subsection 177(1.2) of the Excise Tax Act and the opening paragraph of subsection 26(2) of the amending legislation to apply, the auctioneer must act as agent for another person. Here, it is clear that the Appellant who was the auctioneer was not the agent of The Travel Card Center, Inc. The soundness of this conclusion is apparent from the nature of transactions referred to in paragraphs 5, 6, 7 and 8 of the Agreed Statement of Facts, which are reproduced below for sake of convenience:
5. During the reporting periods at issues, one of the businesses of Canasia involved the resale of travel certificates, a true copy of a sample of which is attached hereto as Exhibit "A" (the "Certificates");
6. The Certificates were purchased by Canasia from The Travel Card Center, Inc., a body corporate, incorporated pursuant to the laws of the State of Delaware;
7. The Certificates were sold by Canasia through various live and silent charity auctions;
8. Canasia did not have to account to The Travel Card Center, Inc. for the proceeds from the auction of the Certificates.
[46] The Appellant was, on its own account, purchasing and selling the travel certificates in question. Also, the Appellant did not have to account to The Travel Card Center, Inc. in respect of these transactions.
[47] I am therefore of the view that subsection 177(1.2) of the Excise Tax Act is not applicable in the present instance.
[48] For these reasons, the appeal is dismissed.
[49] Bearing in mind section 18.3007 of the Tax Court of Canada Act, I make no order as to costs.
Signed at Ottawa, Canada, this 10th day of February 2003.
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"Alban Garon" |
C.J.T.C.C.
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CITATION: |
2003TCC33 |
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COURT FILE NO.: |
2000-4186(GST)I |
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STYLE OF CAUSE: |
Canasia Industries Limited and Her Majesty the Queen |
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PLACE OF HEARING |
Halifax, Nova Scotia and Ottawa, Ontario |
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DATE OF HEARING |
April 16, 2002 and May 24, 2002 |
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REASONS FOR JUDGMENT BY: |
The Honourable Alban Garon Chief Judge |
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DATE OF JUDGMENT |
February 10, 2003 |
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APPEARANCES: |
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Counsel for the Appellant: |
Raymond G. Adlington |
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Counsel for the Respondent: |
Ifeanyichukwu Nwachukwu |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
Raymond G. Adlington |
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Firm: |
Patterson Palmer Barristers and Solicitors Halifax, Nova Scotia |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |