Tax Court of Canada Judgments

Docket: 2003-2567(GST)I

BETWEEN:

ROBIN AEROSPACE PRODUCTS LTD.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

____________________________________________________________________

Appeal heard on June 8, 2004, at Toronto, Ontario,

By: The Honourable Justice A.A. Sarchuk
Appearances:
Counsel for the Appellant:	Marvin Barkin, Q.C.
Counsel for the Respondent:	James Gorham

____________________________________________________________________

JUDGMENT

          The appeal from the assessment of goods and services tax made under the Excise Tax Act, notice of which is dated May 31, 2001 and bears number 04BP0100149, for the period January 1, 1998 to October 31, 2000 is allowed and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that one-third of the services provided by the subcontractors, Whittome, Lorencz and Thickson are not subject to relevant sections of the Act.

Signed at Ottawa, Canada, this 14th day of February, 2005.

"A.A. Sarchuk"

Sarchuk J.

Citation: 2005TCC128

Date: 20050214

Docket: 2003-2567(GST)I

BETWEEN:

ROBIN AEROSPACE PRODUCTS LTD.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

Sarchuk J.

[1]      In reassessing the Appellant under the Excise Tax Act for the period January 1, 1998 to October 31, 2000, the Minister of National Revenue (the Minister) assessed additional goods and services tax (GST) in the amount of $97,822.22, denied input tax credits claimed in the amount of $50,205.78 and assessed penalties and interest of $16,419.36 and $14,622.11, respectively. The Appellant appeals from this assessment on the basis that the services provided were zero-rated and are not subject to GST.

[2]      Bruce F.J. Cossar was the owner and chief executive officer of Robin Aerospace Products Ltd. (Robin) during the relevant years. He described it as a brokerage company which provided technical services in aerospace, engineering and marketing fields. Robin's clientele included American manufacturers of airplane components who wished to be represented in Canada. In some instances, Robin acted as an agent "where we would bring a company into Canada" which subsequently formed a contract directly with a manufacturer such as Bombardier Canada (Bombardier). In other instances, Robin would buy product from its offshore client for resale to the military, aircraft operators or repair shops in Canada. Cossar made specific reference to two facts: first, Robin provided technical consulting support as part of the service and most usually so with respect to contracts with the Canadian Air Force; second, Robin itself does not make or adjust, manufacture, repair or otherwise work on "hardware". This, he said, stemmed from a "liability issue and problems in obtaining insurance as a result of which the decision was taken that Robin was not to be in the repair, warranty or any business in which we would require tools or technicians who actually worked on aircraft".

[3]      Leach International of California (Leach) and Sundstrand Corporation (Sundstrand) were competitors. Both were corporations resident in the United States that manufactured electrical power distribution systems and components. The Appellant was the sole Canadian sales representative of Leach. Its role was to introduce Leach to manufacturers of aircraft worldwide and to obtain for Leach contracts for the supply of parts in respect of which it was paid a commission. This relationship had existed for some time and, as a result, Leach had been providing electronic products to Bombardier since approximately 1981. During the early part of the 1990s, Bombardier was in the process of developing a new aircraft referred to as the "Global Express" which was to be Bombardier's flagship business jet. Cossar described the development of this aircraft as rather a unique concept. Bombardier had decided to build an aircraft per year and according to Cossar, the only way it would be done was if it brought in partners. As a result it asked the suppliers to:

"actually design an entire part of the airplane. So the airplane was broken up into nine bits, and Leach bid on the power distribution system; Parker Hannifin, who we also represented, did the hydraulics, flight controls; Bombardier built part of the airplane structure in Ireland; BMW/Rolls Royce did the engines in Germany. It was truly a global product."

The bidding began in 1993 and the formal bid occurred in 1994. In that year, Leach and Bombardier entered into a parts contract for the supply of an electrical power distribution system and components (the electrical system) for that aircraft. Robin, as part of the services it provided to Leach, was involved in the negotiations but was not a party to the contract. The next step, according to Cossar, was that:

"All of these companies came together in Montreal and sent the engineers to Montreal to design the aircraft together. And that had never been done before and was the reason we ended up getting into the situation we were in in providing assistance for onsite support ..."

By onsite support, the Appellant meant that it was necessary for the partners involved to have staff at Bombardier's facilities while the product was being designed since it was necessary to communicate with each other to ensure that each of their respective systems would be compatible. As a result Leach found itself flying people to Montreal, which was where the program commenced. Leach was aware that Robin had access to aerospace technicians and made an arrangement in which Robin agreed to hire on Leach's behalf two technicians, James Whittome and Robert Lorencz, specifically for the Global Express project. Their functions were to be onsite and to attend and record meetings where decisions of interface were being considered. When the design was completed in 1996, production of the aircraft began in Toronto. Whittome and Lorencz remained on staff since both had the technical knowledge required to report to Leach if there were any problems such as a defect in the product, improper installation or improper testing.

[4]      During the 1996-2000 period, the construction of the aircraft was carried on by Bombardier in Toronto. Leach's contract was to provide a certain number of components each week during the production cycle. In 1996, Leach had begun to deliver the first hardware to the program but at some point in that year, it became apparent that it was in financial difficulty and was substantially over its planned budget. As a result, it sold the technology and the Bombardier contract to Sundstrand and it continued to deliver the electrical system. When delivered by Sundstrand, it became Bombardier's "responsibility to take the product, put it in the aircraft, hook it up, test it, and decide whether it's acceptable for use". The Bombardier contract was very specific with respect to the delivery process. Cossar described it as follows:

"They would physically accept the product into their facility, and they set up a line here in Toronto at DeHavilland to build these aircraft, and you would get a crib where your product would get delivered to. But Bombardier was not accepting the product; they were just allowing you to deliver it in a crib. And then, when they drew that product out of the crib and installed it on an airplane, they would then do what's called an 'Acceptance Test Procedure', which is a formal document which is part of the contract which says when I turn this piece of machinery on, it's going on, it's going to react in the following way which we can observe. And having passed the Acceptance Test Procedure then the Quality Assurance people would sign off on the document which would end up somewhere in the administrative system and you'd get paid. So a sale occurred whenever Bombardier accepted the product as having met specification."

As the supplier of the electrical system, Sundstrand set out the Acceptance Test Procedures (ATPs) for the system and submitted them to Bombardier. These documents meant that if the product was subjected to the test outlined therein and was accepted by Bombardier as sufficient for its purposes, that would constitute compliance with the contract terms. All responsibility for following the prescribed testing procedures was that of Bombardier. If the test was satisfactory, Bombardier's Quality Assurance people would sign off on the contract and at that point would accept the product. If a part failed the test, a Bombardier technician removed it from the aircraft and wrote up a report. Whittome or Lorencz would also write a report and forward it to Sundstrand. They were not authorized by Sundstrand and they were not authorized by Sundstrand to work on the aircraft or on any of the components being installed. In fact, Cossar stated they would be fired if "they ever touched someone else's product because our liability was too much. In addition to which they were not authorized to work on any of the parts".

[5]      The Whittome and Lorencz contracts were with Robin because it had a contract to represent Leach in Canada and thus if Leach wanted to do anything here, it was necessary for it to work through Robin or it "would be in breach of that contract". Cossar maintained that the original arrangement was nothing more than a service to accommodate Leach and was done solely because Robin had a substantial revenue stream from it and agreed to provide the two individuals on the basis that Leach would decide "what you want to pay them and you can interview them and you can direct them". Robin invoiced Leach for the subcontractors for their hourly wages plus expenses and other direct costs including Worker's Compensation and overhead charges. When Sundstrand took over the project, it asked Robin whether they could keep Whittome and Lorencz and, Cossar said, "I was going to lose them in any case, so I said, fine". According to Cossar, the arrangement did not change when Sundstrand took over and although it was invoiced for the services of Whittome and Lorencz, Robin was merely recovering its costs. He described the arrangement as

"basically it was they got paid an hourly wage, there was a consideration for overtime, and there was a per diem if you were out of the country, and there was expenses if you had lunch, whatever, and Whittome and ... would submit their expense claims to us and their timesheet, and we would raise an invoice based on the hours they worked, and then we would back-charge the expenses."[1]

and maintained that Robin received no commissions from Sundstrand but was only paid for its overhead costs relating to the services of Whittome and Lorencz.

[6]      The testimony of the Respondent's auditor with respect to Thickson and Manojlovic was not anticipated by the Appellant and counsel was granted leave to re-examine Cossar. He testified that Thickson, an engineer, was employed by Robin in the marketing department assisting another member of the Bombardier consortium, Parker Hannifin (Parker), a company based in Kalamazoo, Michigan. Thickson worked for Parker which was successful in its bid for the contract to produce the "flight controls" for the Bombardier project. He noted that Thickson initially worked in Canada as a "marketing person" for Parker until "we finally got him whatever the requirement was so he could work full-time in the States. He is now an employee of ABEX/Parker Hannifen".[2] With respect to Manojlovic, Cossar testified that he had been taken on to assist Leach during the design period of 1995 and 1996 and noted that most of his work was performed in the Leach factory in California when the prototype electrical system was being constructed. He maintained that Manojlovic spent approximately 95% of his time in California "writing the ATPs and learning about the hardware and design". To the best of his recollection, Cossar stated that Manojlovic never worked in Montreal at any time because Whittome and Lorencz had been retained for that specific task. His engagement with the Appellant was terminated at some point of time in 1998.

[7]      Evidence was adduced on behalf of the Respondent from D.M. Hutchison, an auditor with Canada Revenue Agency. She conducted the audit in Montreal because it was her understanding that all of the books and records were maintained there. One of the specific items in the audit agenda was what she described as the "Subcontract Revenue or Management Revenue" issue. This related to transactions that took place between Lorencz and Whittome and Robin as well as the subsequent rebilling by Robin to Sundstrand. She testified that "the auditor did not have general ledger printouts for each account. Therefore, she is assuming that all credit accounts are revenue and expenses are debits. She is also forced to allocate the GST for the year by dividing the total GST for 1998 by 12 months". A document captioned "Subcontract Revenue" was prepared with the objective of separating the management revenue from the management expense and in order to do so, she examined the general ledger accounts pertaining thereto. In the course of the review of the 1998 year, she noted subcontract revenue for a number of different accounts including those of Whittome and Lorencz and two other subcontractors, Thickson and Manojlovic.[3] All were taken into account in the Minister's determination of the tax liability of the Appellant.[4] Hutchison made specific reference to invoices from R. Lorencz Consulting Services and James Whittome Consulting in which GST was charged to Robin for services provided by them. She also noted that Robin claimed input tax credits with respect to the GST paid to these two subcontractors. These invoices also formed basis for her conclusion that, absent any proof to the contrary, all of the services in issue were performed in Canada.[5] In the course of cross-examination, Hutchison conceded that she had no knowledge as to where the services of the four individuals mentioned in her working papers[6] were provided and finding no evidence to indicate otherwise, "simply assessed the taxpayer for services rendered to a non-resident in respect of property in Canada as an assumption".

Appellant's submissions

[8]      The Appellant contends that two issues are before the Court. The first is whether the supply of manpower to Sundstrand, Leach and Parker was the supply of an advisory, consulting or professional service to a non-resident person that is zero-rated. The second is whether the invoices issued were for services rendered or whether they were invoices for reimbursement of expenses incurred on behalf of non-resident manufacturers.

[9]      With respect to the first issue, counsel argued that at all relevant times, the main aspect of the Appellant's business was the provision of consulting and marketing services to manufacturers of aircraft parts who wished to sell their product in Canada. In offering such services, Robin deliberately excluded any involvement in the manufacturing, adjusting, repair or other work on the client's products. This was the case with respect to the services provided by Whittome and Lorencz which were entirely of an advisory, professional or consulting nature. Although both were highly trained technicians, the services they provided had absolutely nothing to do with the development or construction of the electrical system itself nor were they ever required to perform any technical, mechanical or other work in relation to the installation of the system into the aircraft. Counsel noted that only licensed mechanics were permitted to work on aircraft or on aircraft parts in Canada and neither Whittome or Lorencz were licensed. As technical experts, they were the individuals who were onsite specifically to ensure that there was technical compliance with the detailed test procedures which were part of the contract between Leach/Sundstrand and Bombardier. If either one determined that the test was not done correctly, a report was completed and forwarded directly to the manufacturer and not to Bombardier. Furthermore, counsel noted, these two and indeed all of the employees of Robin in this category were not allowed to perform any work on hardware or on the aircraft upon threat of dismissal. They had been specifically instructed that due to ever-increasing insurance costs and the fact that the Worker's Compensation Board did not cover them in working on aircraft components, they were not permitted to take on any work of any nature or do any warranty work.

[10]     With respect to Thickson and Manojlovic, counsel noted that the evidence established that, during the relevant period of time, Thickson was working virtually full-time in the United States and that on the occasions when he was in Toronto, his function was marketing and nothing more. With respect to Manojlovic, Cossar's testimony was that he spent approximately 95% of his time in California and his trips to Canada reflected the necessity to attend meetings as a trouble-shooter. Given these facts, counsel argued that there appeared to be no basis upon which a conclusion could be drawn that either one performed any services in respect of tangible personal property in Canada.

[11]     In support of the Appellant's position, counsel made reference to a CRA GST Policy Statement[7] in which several sample rulings were discussed. In the first, a Canadian GST-registered public accounting firm was retained by a non-resident company that was the parent of a Canadian subsidiary. The supply in issue related to an external audit of the financial statements of the subsidiary. This audit procedure required and included an inventory account. The GST ruling was that the supply of the financial audit service was zero-rated pursuant to Schedule VI, Part V, section 23 of the Act because "the public accountant's responsibility was to attest to the fairness, objectivity and comparability of the financial statements and their conformity with generally accepted accounting principals for the benefit of the owners ...". Counsel for the Appellant emphasized that the ruling stated "that the service was undertaken, at least in part, to fill a need or requirement related to property. Therefore, a connection existed between the service and the property". Notwithstanding that fact, the ruling issued was that the service was zero-rated because "the examination of inventory was just a part of the process. Also, the purpose of the service was to express an opinion on the company's financial statements, based on generally accepted accounting principals. Therefore, the relationship between the service and the property in inventory was not direct". Reference was also made to a second ruling in which an accounting firm had been retained by a non-resident parent of a Canadian subsidiary to perform a "managerial audit". As was the case in the previous example, this audit included an inventory count and the ruling indicated that it was zero-rated because the relationship between the audit service and the property was not direct. Counsel submitted that the evidence adduced on behalf of the Appellant clearly indicates that the four individuals involved had never provided any services in respect of tangible personal property related to the aircraft, the electrical system or the flight controls. Their sole responsibility was to determine whether test procedures which formed part of the contract with Bombardier were properly carried out.

[12]     In the event the Court concluded that there was a service in respect of tangible property relating to the electrical system components or any part of the aircraft situated in Canada, then the Appellant's alternative submission is that Robin was "nothing more than a conduit between Whittome and Lorencz and Sundstrand, who might just as easily have contracted with them or placed them directly on its payroll". The Appellant concedes that it facilitated Sundstrand by taking on the responsibility for the paperwork, etc. in relation to these individuals but contends that Sundstrand was not Robin's client and it did not earn commissions from Sundstrand's sales of the electrical system to Bombardier. Rather, they were facilitating Sundstrand with the object of obtaining work from it in the future. In addition, counsel noted, all Robin was doing was recovering the wages that were being paid and additional expenses such as insurance-related costs, overhead costs, travel, living expenses, automobile, accommodation, etc., and the invoices for services rendered were solely for the recovery of the actual out-of-pocket expenses incurred on behalf of Sundstrand.

Respondent's submissions

[13]     At the commencement of his submission, counsel for the Respondent observed that the only period of time relevant to this appeal was January 1, 1998 to December 31, 1999.[8] Although a great deal of testimony was introduced with respect to the relationship between Whittome, Lorencz and Robin as well as the relationship between Robin and Leach and Sundstrand, it was important to keep in mind that during the relevant period of time, the relationship was solely between Robin and Sundstrand and relates specifically to services provided during the production stage. Furthermore, the evidence was clear that it was an absolute requirement for the subcontractors, Whittome and Lorencz, to be onsite during the period of time that the equipment in issue was being installed to ensure that it was done and tested correctly because Sundstrand maintained ownership of the electrical system until these procedures were carried out and Bombardier signed off. Counsel referred to the Offer of Employment from Robin[9] that sets out in clear and unambiguous language the duties that the individuals are required to perform. Reference was made to subparagraph (b) which reads: "application of technical knowledge to help solve problems, specifically malfunctions of Principals' equipment onsite prior to delivery to client;". Counsel argued that in order to do that, the subcontractors may not have had to handle the tangible personal property, i.e. the electrical system, but nonetheless they were onsite providing a service to Sundstrand to ensure that its interests were being represented and that the product was being installed properly.

[14]     Counsel, relying on the provisions of paragraphs 7(b), 21 and 23(c) of Schedule VI, Part V, "Exports", contends that in entering into contracts with each of the four subcontractors for the provision of their services to Sundstrand, Robin provided a service in respect of tangible personal property situated in Canada and for that reason, the assessment was correct.

[15]     Statutory provisions:

Goods and Service Tax, Part IX, Division I

123(1) In this Part,

"service" means anything other than

(a)         property,

(b)         money, and

(c)         anything that is supplied to an employer by a person who is or agrees to become an employee of the employer in the course of or in relation to the office or employment of that person;

"zero-rated supply" means a supply included in Schedule VI.

Division II, Subdivision a

165(1) Subject to this Part, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the rate of 7% on the value of the consideration for the supply.

165(2) ...

165(3) The tax rate in respect of a taxable supply that is a zero-rated supply is 0%.

Schedule VI, Part V, Exports

7           A supply of a service made to a non-resident person, but not including a supply of

...

(a)         an advisory, consulting or professional service;

23         A supply of an advisory, professional or consulting service made to a non-resident person, but not including a supply of

(a)         ...

(c)         a service in respect of tangible personal property that is situated in Canada at the time the service is performed; ...

Conclusion

[16]     The issue before the Court is whether Robin provided services to Sundstrand or to Parker in respect of tangible personal property situated in Canada at the relevant time. In this context, it is appropriate to consider the contractual relationship which existed between the parties. During the early stage of the Global Express project, the Appellant represented Leach and Parker in Canada and on their behalf, directed an "Offer of Employment"[10] to, in the case of Leach, individuals with the necessary skills such as

"engineering level knowledge of primary and secondary electrical power distribution systems for modern aircraft, including solid state devices. (Eng. degree with three years' related experience, or senior technician with a minimum ten years' experience)"

The offers clearly indicate that their services would be provided as subcontractors who would report administratively to the Appellant but would take day-to-day directions from the Principal with respect to duties which included but were not restricted to the following:

(a)         technical knowledge of Principal's products through factory training on schedule to be set by the Principal (at their expense);

(b)         application of technical knowledge to help solve problems, specifically, malfunctions of principal's equipment on-site, prior to delivery to client;

(c)         assisting in onsite development test plans to be reported back to the factory;

(d)         attending planning and co-ordinating meetings representing Principal and reporting action items arising;

(e)         while subcontractor is specifically prohibited from adjusting, modifying, repairing or otherwise on Principals' equipment while under agreement with RA, a hands-on knowledge of similar equipment would be highly valuable in establishing credibility; and

(f)          providing effective on-site troubleshooting as directed, by Principal (within overall T & C's).

As a result, Whittome, Lorencz, Manojlovic and Thickson were hired by Robin to provide assistance to its clients, Leach and Parker. When Sundstrand entered the picture, Robin agreed to provide it with the services of Whittome and Lorencz. Cossar also noted that the Sundstrand agreement although signed in September 1998, had been in place continuously since the Leach exit, and that the original Leach arrangement with the personnel was documented by the Sundstrand agreement following its takeover from Leach.[11]

[17]     As a further example of the services required of the subcontractors, reference can be made to Sundstrand documents dated July 25, 1999 captioned "Statement of Work for Jim Whittome/Bob Lorencz at Lucas Aerospace".[12] In addition to confirming that one of them would be scheduled to travel in mid-August 1999 to the Lucas plant in England to assist with the "Global Express electrical system test rig set up and associated efforts", the document sets out the responsibility of the individual attending to support the following:

·         Installation of the Hamilton Sundstrand EPDS equipment which is made up by two Cockpit Display Units (CDU's), AC Power Center (ACPC), DC Power Center (DCPC), APU Start Contractor Assembly, Cockpit Circuit Breaker assembly and four Secondary Power distribution assemblies (SPDA).

·         Acceptance test of the Hamilton Sundstrand equipment.

·         Test support.

·         Repair of equipment that results from test failures.

·         Incorporation of any field re-work orders directed by Hamilton Sundstrand.

·         Installation of software into the CDI's, ACPC, DCPC and SPDA's.

·         Program and install Field Programmable Gate Arrays (FPGA's) as necessary in the CDI's, ACPC, DCPC and SPDA's.

·         Configuration management of the Hamilton Sundstrand EPDS equipment.

·         Write field problem reports.

·         Coordinate with Hamilton Sundstrand manufacturing, Hamilton Sundstrand program office Rockford, Bombardier Inc. design office Montreal, Canada and bombardier Inc. flight test facility at Wichita, Kansas.

Although Cossar maintained that the subcontractors were limited strictly to observation and reporting to the Principal, these documents suggest a much wider role.

[18]     In the course of his testimony, Cossar on several occasions, observed that Sundstrand's electrical system was a very expensive product and that if the procedures were not properly followed there could be damage both to Bombardier's equipment as well as damage to the equipment of the other partners and the resulting liability could be huge. He emphasized that since Sundstrand was "doing power, absolutely everyone of the other partners had an issue with the power we were delivering, so you needed someone there daily to be answering questions and going back to the factory and say, OK, what can we do about this, how does this impact the schedule?". While it is understandable that because of the liability issue, the installation of the system would have been carried out by Bombardier employees, it is equally clear that, as Cossar noted, if the Sundstrand equipment was being installed incorrectly, the subcontractor "might jump up and say, don't do that". In fact, in this context he later said:

"No. I meant they are going to offer advice, and their job is to try and help - I mean, they are trying to sell the product. So if it doesn't work and they say if you dust off the cover and plug it in backwards then it might work, they would try that. But, I mean, they're not there to take it apart and rewire it or do any work on it."

What is quite evident from all of the testimony is that it was necessary for Sundstrand, as well as the other partners in the construction of the Global Express, to have personnel onsite throughout the whole program because, as Cossar observed, during the production period it was necessary "to have someone onsite that could resolve an issue who wasn't just a totally junior person that was just assisting. You needed someone there that could actually make a decision".

[19]     The Appellant also argued that it was not Sundstrand's representative in Canada and furthermore, that it was merely accommodating it in the hope of acquiring further business and did not do so for the purpose of making a profit. Whether that is correct or not is irrelevant. The requisite services of Lorencz and the other three referred to in the agreements as "contract employees" were provided by Robin, as the "independent contractor" to Sundstrand[13] and with respect to each of the employees in issue, a compensation schedule was signed by Cliff Squires, Robin's president.[14] Furthermore, Robin was quite careful to bill Sundstrand for amounts greater than the subcontractors' remuneration and expenses. Cossar referred to this as "a cost of doing business". When asked whether there was a profit, he indicated that there may have been, "but it wasn't - it was happenstancial". None of the foregoing alters the fact that throughout the process, Robin as contractor, was supplying the services for the subcontractors in issue to Sundstrand and Parker.

[20]     The Appellant's position is that the services provided to Leach and Sundstrand are zero-rated supplies as defined in the relevant provisions of the Act. More specifically, it was argued that no such service was performed in respect of tangible personal property situated in Canada as a result of which the services provided are zero-rated and therefore not subject to GST. Acceptance of this submission would require the Court to give the words "services in respect of" a markedly restricted meaning. As was noted by counsel for the Respondent, the Supreme Court of Canada in Nowegijick v. The Queen stated:[15]

            The words "in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", "with reference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters.

I have concluded that there was substantially more than an indirect or incidental nexus between the service provided by Robin to Sundstrand and the tangible personal property. I refer specifically to the role of Whittome, Lorencz and Thickson during the Acceptance Test Procedures in respect of which Cossar's evidence clearly established that they provided an advisory service by way of expressing an opinion or recommending a plan or course of action when necessary in relation to the installation of the property in issue. The Contract Services Agreement required the Appellant to provide services "as may be requested in writing by the company", i.e. Sundstrand. I make specific reference to the statement of work with respect to the services provided by a Robin subcontractor at Lucas in England which sets out a very substantial advisory role and could have involved Whittome or Lorencz in the repair of equipment, installation of software and "configuration management of the Hamilton-Sundstrand EPDS Equipment". The purpose or objective of the service as reflected in both the contractual agreement with Sundstrand and the statement of work which flows from that contract must be taken into consideration in determining whether the consideration paid to Robin for the service was or was not zero-rated. In my view, it is evident that the service provided by the subcontractors was entirely related to ensuring the acceptability of the electrical system in the case of Sundstrand and the flight controls in the case of Parker and thereby effecting acceptance by Bombardier. This service was aimed at effecting the transfer of ownership of the personal property in issue and for the foregoing reasons, is excluded from the zero-rating provisions.

[21]     One further issue remains, that being whether the totality of the service provided by the subcontractors was in Canada. Cossar initially testified that the subcontractors, Whittome and Lorencz, spent approximately two-thirds of their time out of Canada, either in the United States at the Sundstrand or Parker plants or in England. He subsequently qualified that by stating that was the case in the earlier stages and conceded that they probably spent "more time in the period of the audit" in Canada, but noted as well that Sundstrand required their attendance at Lucas in England to support it in the course of the process of certification testing necessary to demonstrate design compliance of the Global Express electrical system. Notwithstanding the lack of additional documentation, I accept Cossar's testimony that Whittome and Lorencz spent substantial periods of time in both the United States and in England. Accordingly, I propose to allocate one-third of the services as not subject to the provisions of the relevant sections of the Excise Tax Act. Thickson had the same responsibilities as Whittome and Lorencz and the same allocation is appropriate. With respect to the fourth subcontractor, Manojlovic, Cossar's testimony provided very little assistance. Manojlovic was hired at the design stage and initially worked in California at the Leach plant where according to Cossar he spent 95% of his time. However, this appears to have related to the period of time prior to the years in issue. The only other information before the Court was that at some point of time in 1998 Manojlovic was fired. With respect to this employee, there is simply insufficient evidence to warrant any adjustment of the Minister's assessment.

[22]     The appeal is allowed to this limited extent. Since the Respondent's witness, Hutchison, indicated that the original assessment period for the 1999 year in the amount of $45,844.16 was based on an erroneous exchange rate between Canadian and American currency and as a result, the amount was revised to $44,177.99, this will form the basis for the necessary calculation.

Signed at Ottawa, Canada, this 14th day of February, 2005.

"A.A. Sarchuk"

Sarchuk J.

CITATION:

2005TCC128

COURT FILE NO.:

2003-2567(GST)I

STYLE OF CAUSE:

Robin Aerospace Products Ltd. and Her Majesty the Queen

PLACE OF HEARING:

Toronto, Ontario

DATE OF HEARING:

June 8, 2004

REASONS FOR JUDGMENT BY:

The Honourable Justice A.A. Sarchuk

DATE OF JUDGMENT:

February 14, 2005

APPEARANCES:

Counsel for the Appellant:

Marvin Barkin, Q.C.

Counsel for the Respondent:

James Gorham

COUNSEL OF RECORD:

For the Appellant:

Name:

Marvin Barkin, Q.C.

Firm:

Basman Smith LLP

For the Respondent:

John H. Sims, Q.C. Deputy Attorney General of Canada Ottawa, Canada

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