Date: 20000615
Docket: 1999-3238-GST-I
BETWEEN:
DOMENIC BATTISTA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Rowe, D.J.T.C.C.
[1] The appellant - pursuant to section 261 of the Excise Tax Act (the "Act") - applied for a rebate of Goods and Services Tax (GST) in the sum of $40,734.17 paid by him for the period commencing February 1, 1993 and ending January 31, 1997 on the basis it had been remitted by him, in error. The appellant, a registrant pursuant to Part IX of the Act reported and remitted the GST in said amount for the period on the basis of a taxable supply having been provided in the form of accommodation and administrative services to Dr. D. Buchanan, an associate. Following the filing of a Notice of Objection by the appellant - in relation to assessment No. 140966 dated December 9, 1997 for the period from January 2, 1993 to January 31, 1997 by which the appellant's application for rebate had been refused - the Minister of National Revenue (the "Minister") issued a Notice of Decision dated April 15, 1999 and the relevant portion is reproduced below:
"Your objection is disallowed and the assessment is confirmed.
The substance of your position is that you are entitled to a rebate of the GST which you remitted based on your share of billings for services rendered by the associate in your dental practice. Your position is that this amount is not subject to the GST and was remitted in error.
The evidence indicates that you and your associate jointly issue billings, i.e., statements are rendered to patients in both of your names. Where the dental services were rendered by your associate, the patient is directed on the statement to "remit to" the associate. You indicated that all amounts for services rendered by the associate are first deposited in a bank account held jointly by yourself and the associate; then, each of you receives a cheque on a weekly basis drawn on that account, calculated based on 60% to the associate and 40% for you.
It is considered that the amount withheld (i.e., the 40% of the billing for the services rendered by the associate) are for services provided by your established dental practice, i.e., administration, support staff, premises and facilities. Accordingly, it is considered that this amount was properly subject to the GST as consideration for a taxable supply and is not eligible for rebate."
[2] The issue in the within appeal is whether the Minister was correct in denying the appellant the rebate.
[3] Domenic Battista (Battista) testified he is a dentist and has carried on a practice in Mississauga, Ontario at the same location for 23 years. In 1982, he entered into a verbal agreement with Dr. Douglas Buchanan (Buchanan), a dentist, on the basis Buchanan would come into Battista's practice, provide dental services to patients and receive 50% of the resulting revenue. Battista agreed to provide all supplies, pay the office and dental staff and all other costs of operation. The arrangement has continued throughout the years and the only difference is that Buchanan now receives 60% of the amount billed for work done by him instead of the 50% rate in effect at the beginning of their association, later increased to 55%. Battista stated that while Buchanan has a patient base of his own, the patients receiving treatment from him - while in Battista's office - are patients of Battista. All the equipment is owned by Battista and he owns the building in which the dental practice is located. All staff during the relevant period were employees of Battista and were paid by him. He was responsible for operating the practice including processing all of the paperwork and Buchanan had no input - at all - into the administration of the practice. The appellant explained that if work is done on a patient and if payment is forthcoming from a third party pursuant to insurance coverage or another plan, then the amount due must be invoiced in the name of the practitioner who actually performed the work. Battista stated he and Buchanan opened up an account in a financial institution in order to deposit all revenue flowing from services provided by Buchanan while working in Battista's office. The account was in their joint names and either one could sign a cheque. The method utilized by the appellant and Buchanan was to deposit all revenue attributable to the efforts of Buchanan into the special joint account. Patients were billed on statements containing both their names and where the dental services had been rendered by Buchanan, the patient was directed to "remit to" Buchanan. There were occasions upon which a patient on whom Buchanan had performed services wished to pay by means of the Interac machine which was linked only to the bank account of Battista. In this event, Battista's staff noted the amount so paid by the patient and at the end of the day a cheque - signed by Battista and payable to Buchanan - to account for those funds was then deposited into the special joint account. On occasion, a payment for dental services from a third party or directly from a patient might be directed - in error - to Battista when the services had been provided by Buchanan. Again, the appellant would correct the error by writing a cheque to Buchanan and it would be deposited into the special account. Every week, Battista's staff calculated the amount due to Buchanan by totalling the fees generated by him during the relevant period and then deducting the direct laboratory costs attributable to those fees since they had been charged by the laboratory to Battista's account. The remaining portion was then divided on the basis of 60% to Buchanan and 40% to Battista. In order to explain the method by which Buchanan's revenue was recorded, Battista referred to a day sheet which was filed as Exhibit A-1. He also filed - as Exhibit A-2 - an extract of a One-Rite accounting system used in his office. In 1997, Buchanan bought into a cost-sharing arrangement with another dentist at a different location. As a result, Battista stated he began interviewing dentists on the basis of becoming an associate in his office. During the interviews, the prospective associates informed Battista there was no GST payable on the 40% of revenue retained by him because dental services were zero-rated and that they were familiar with other similar arrangements between the owner of a practice and an associate and no GST was ever remitted under those circumstances. Battista explained that when GST came into force with tax payable on taxable supplies commencing in 1991, the division of Buchanan-generated revenue was 55-45 in favour of Buchanan. At that time, the issue of remitting GST on the portion of an associate's revenue being retained by the owner of the practice was unclear and no assistance on that issue had been forthcoming in any publications issued by the Ontario Dental Association (ODA). All third-party billings were done in the name of the dentist actually performing the service and the number used by the practitioner was the one assigned by the ODA and it was included in any billing. Professional liability insurance is provided automatically to all members of the ODA as part of the annual membership fee. Following the introduction of GST, Battista stated he and Buchanan both believed GST had to be remitted on the 45% of revenue retained by Battista after paying Buchanan 55% of the fees earned by him. In order to compensate for the new tax of 7% payable on the amount resulting from the calculation of Battista's 45% share - and then deducted from Buchanan's 55% share - the division of revenue was revised and thereafter the split was 60-40 in favour of Buchanan. The dental hygienist was paid a salary by Battista and produced revenue by working on Battista's patients while Buchanan - personally - performed the teeth cleaning on patients for whom he provided dental services. Referring to the method of billing patients, Battista referred to a statement - Exhibit A-3 - used for billing purposes - with his name and Buchanan's at the top of the page. Later, a computer-generated form was used - Exhibit A-4 - and after the words "Remit to", Battista's office staff would write in the name of Dr. Buchanan if he had provided the service for which the bill was being sent. Battista stated he owned all of the patient charts and the practice he had built up over 25 years belonged to him. He became extremely busy and was not able to properly service the patient-load so Buchanan was brought in to provide services to Battista's patients and - over the years - built up a clientele that continued to see him even though all appointments continued to be made through Battista's staff and administrative procedures.
[4] In cross-examination, Battista stated no deductions for income tax or other usual source deductions were ever made from the payments issued to Buchanan. During the period under appeal, Buchanan retained 60% - less direct laboratory costs - of the fees generated by him and was not entitled to any portion of the fees generated by Battista. Since most insurance policies, government or other group plans do not provide 100% coverage, there was a need to send a separate invoice to the patient for the remaining 15-20% of the account. In explaining the method used by himself and Buchanan, Battista provided the following example: if Buchanan generated the sum of $11,000.00 during a billing period - after deduction of laboratory costs in the sum of $1,000.00 - the remaining sum of $10,000.00 was subject to the 60-40 split. Therefore, Buchanan's share was $6,000 and Battista would retain $4,000.00. However, GST at a rate of 7% was calculated on that retained sum of $4,000.00 - amounting to $280.00 - and it would be remitted - in due course - to the Receiver General. That sum of $280.00 representing GST was then deducted from Buchanan's $6,000.00 share so the net amount ultimately paid to him - by means of a cheque drawn on the joint account - would be $5,720.00. Battista stated there was never any supervision - by him - of Buchanan who was free to set his own hours of work and to carry on a dental practice elsewhere and there were never any restrictions placed upon him.
[5] Counsel for the respondent called Douglas Buchanan as a witness. Buchanan testified he had been a dentist since 1982 and was practising in Oakville, Ontario. He entered into an arrangement - in 1982 - with Battista whereby he was paid on the basis of revenue generated by him, payments for which were deposited into a joint account. He stated he had never regarded himself as an employee of Battista. There was no control over his working hours but he corresponded with the office hours of Battista because the services of Battista's staff were utilized. He did not undergo any training from Battista nor was he supervised. He did not participate in any share of the profits or losses from Battista's practice. In 1991, after GST had come into force, Buchanan stated he was concerned about the matter of tax being paid but there was no clear answer as to the status of practitioners such as himself working under similar circumstances referred to within the dental profession as "associates". He was aware there would be no GST payable with respect to the dental services provided by him - represented by the 60% of the revenue retained as his share - but he requested GST be calculated based on the 40% share of the revenue retained by Battista. Buchanan stated he worked two and one-half days a week in Battista's office while maintaining his own practice between 1982 and 1987. In 1997, he purchased a share in another practice. He was aware that third party payors insisted the provider of the dental service issue the statement of account but that it was not any requirement of the ODA. He stated the operation of the joint account and related accounting system - in effect for 18 years - worked satisfactorily for himself and Battista.
[6] In cross-examination, Buchanan agreed his share of the revenue was increased from 55% to 60% in order to account for the effect of the GST payment. He also agreed that - since 1982 - the appellant's office staff was responsible for all billing, administration and collection of accounts.
[7] The appellant submitted he is entitled to the rebate in the sum of $40,734.17 - as claimed - on the basis the GST was remitted - in error - during the relevant period. In his view, there is no difference between the arrangement between himself and Buchanan and that of a professional who is performing a locum in which case the established medical practitioner bills the patient for services provided by the locum and gives the locum a percentage of the fee and the payment to the locum is not subject to GST. The fact the arrangement endured for 18 years on the basis of Buchanan working in his office 2 1/2 days a week did not change the nature of the payment, especially in view of the fact that for five years Buchanan maintained his own practice and - in 1997 - had purchased an interest in a practice. In the appellant's submission, the evidence clearly demonstrated Buchanan was employed as an associate entitled to a share of revenue generated by him but was never operating his own practice. The appellant's position is that the practice, including the equipment and furnishings, were owned by him and he was responsible for payment of the salaries of office staff who were his employees.
[8] Counsel for the respondent submitted there was no error in remitting the GST because the tax was properly charged in relation to a taxable supply of accommodation and administrative services provided by Battista to Buchanan, a dentist operating his own dental practice out of the office owned by Battista. In the alternative, counsel submitted that if I were to hold that Battista did not provide a taxable supply of accommodation and administrative services to Buchanan, that it is Buchanan - and not Battista - who can apply for the rebate pursuant to subsection 261(1) of the Act on the basis of a payment made in error because the money remitted for GST was actually deducted from the remuneration paid to him. Unfortunately, there is a limitation period of two years - pursuant to subsection 261(3) - and the time has expired so the Minister would not be able to entertain any rebate application filed by Buchanan.
[9] The issue is whether the Minister is required to pay a rebate on the basis the GST was paid in error and, if so, whether the appellant is the person entitled to make the claim pursuant to subsection 261(1) of the Act. The first position of the respondent is that the GST was properly remitted on the basis Buchanan was carrying on his own dental practice and the fees - represented by the 40% share on the revenue paid to the appellant - clearly represented payment for use of the facilities, equipment and staff. It is necessary to analyze the evidence in order to determine the status of Buchanan.
[10] In Wiebe Door Services Ltd. v. M.N.R., [1986] 2 C.T.C. 200, the Federal Court of Appeal approved subjecting the evidence to the following tests, with the admonition that the tests be regarded as a four-in-one test with emphasis on the combined force of the whole scheme of operations. The tests are:
1. The Control Test
2. Ownership of Tools
3. Chance of Profit or Risk of Loss
4. The integration test
Control:
[11] Because Buchanan was a qualified dentist there was no need for training or supervision by Battista. The control over his work - at the beginning of their relationship - flowed from the assignment to Buchanan of certain patients to be worked on by him because Battista was too busy. Since the office was owned and operated by Battista, it was practical for Buchanan to conform with the regular office hours because all of the assistance in the form of booking patients, answering queries and billing was handled by Battista's staff and there was no input by Buchanan into the office management or procedures.
Tools:
[12] All of the tools were owned by Battista including the dental equipment, office machines, furniture, fixtures, supplies and the building in which the practice was located. Buchanan provided only his personal skills.
Chance of Profit and Risk of Loss:
[13] Buchanan had no chance of profit or risk of loss in the sense it is used in determining the status of an individual within a working relationship. He received 60% of the revenue generated by him after deduction of laboratory costs attributable to the patients to whom he provided service. The account was in the appellant's name and he was responsible for payment in the event the fee was not forthcoming or was subject to delay. All billing and collection procedures were undertaken by Battista's staff. If Buchanan did no work then he had no income and no expense. If he produced more revenue, then he received additional money but the division of revenue was still 60-40 in his favour. He was not entitled to any revenue generated by Battista or his hygienist. One does not usually think in terms of piece work or salary by commission under these circumstances but - in effect - that is what it was and the relationship endured for 18 years.
Integration:
[14] Between 1982 and 1987, Buchanan had his own practice while he worked in Battista's office two and one-half days a week. In 1997, he purchased an interest in another practice and continued to work - as before - at Battista's office. It is clear that there was a segregation between his own practice and that of Battista. During those years when he did not have his own practice, it does not seem logical to assume that he was operating his own business while working more days at Battista's office when his only compensation was based on a fixed percentage of revenue he was able to generate - from working on Battista's patients. The entire infrastructure surrounding the practice was owned by Battista. At p. 206 of his judgment in Wiebe, supra, MacGuigan, J.A. stated:
"Of course, the organization test of Lord Denning and others produces entirely acceptable results when properly applied, that is, when the question of organization or integration is approached from the persona of the "employee" and not from that of the "employer," because it is always too easy from the superior perspective of the larger enterprise to assume that every contributing cause is so arranged purely for the convenience of the larger entity. We must keep in mind that it was with respect to the business of the employee that Lord Wright addressed the question "Whose business is it?"
Perhaps the best synthesis found in the authorities is that of Cooke, J. in Market Investigations, Ltd. v. Minister of Social Security, [1968] 3 All. E.R. 732 at 738-39:
The observations of Lord Wright, of Denning L.J., and of the judges of the Supreme Court in the U.S.A. suggest that the fundamental test to be applied is this: "Is the person who has engaged himself to perform these services performing them as a person in business on his own account?" If the answer to that question is "yes", then the contract is a contract for services. If the answer is "no" then the contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors, which may be of importance, are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk be taken, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task. The application of the general test may be easier in a case where the person who engages himself to perform the services does so in the course of an already established business of his own; but this factor is not decisive, and a person who engages himself to perform services for another may well be an independent contractor even though he has not entered into the contract in the course of an existing business carried on by him."
[15] On the evidence, I find Buchanan - during the relevant period - was not an independent contractor in the sense he was carrying on his own practice. In return for working on patients in Battista's office, while utilizing the appellant's equipment, office space and staff services, he was entitled to receive 60% of the fees billed by him. The 40% retained by Battista was not an amount paid to him by Buchanan for the provision of accommodation, utilities, equipment, secretarial and receptionist services, supplies or administration. Buchanan had no opportunity to profit from any sound management in the performance of his task and had no investment or responsibility for any management or administration relating to the patients for whom he provided dental services. While this is not an appeal concerning the correctness of a determination made by the Minister as to the status of a worker, in my view - for the purposes of the within appeal - Buchanan was clearly an employee of the appellant who was paid on a commission basis. As such, the money remitted for GST could not have been his money because he was an employee. Counsel for the respondent pointed to the discussion between the appellant and Battista at the time the GST came into force which led to Buchanan's percentage of fees being increased from 55% to 60% as an indication that it had been done in order to permit the deduction of 7% GST as a taxable supply on the 40% split to Battista without greatly reducing Buchanan's income. Indeed, that was the reason for the increase in the percentage attributable to Buchanan but the person thereafter receiving less money was Battista since he was now paying Buchanan remuneration based on 60% of the fees billed instead of 55%, thereby reducing his net return. The parties carried on a relationship for 18 years and invented a workable mechanism - using the special joint account - to track with precision the revenue generated by Buchanan which would entitle him to receive his percentage thereon as a salary by way of commission. I realize the parties never had any need to characterize their working relationship by assigning status to themselves in that they were both professionals engaged in a similar pursuit and were governed by their own ethics and the rules and regulations of the ODA. Within the dental profession, it appears these kinds of relationships are covered by the term, "associate" without assigning any specific characteristics to the process by which revenue is divided between an associate and the owner of the practice. Since it is highly probable most dentists do not spend a lot of time considering the day when they would be lined up applying for benefits from a national program designed to assist unemployed persons, it is understandable the appellant and Buchanan carried out their association on the basis of being professional colleagues in the course of a long-lasting collaboration without devoting time to determining the precise nature of their working arrangement and definitely without concerning themselves about defining a formal employer-employee relationship. What the parties thought their relationship was will not change the facts. In the case of The Minister of National Revenue v. Emily Standing, 147 N.R. 238, Stone J.A. at pages. 239-240 stated:
"...There is no foundation in the case law for the proposition that such a relationship may exist merely because the parties choose to describe it to be so regardless of the surrounding circumstances when weighed in the light of the Wiebe Door test."
[16] In the event that I am incorrect in finding that Buchanan was an employee of Battista and that - for other reasons - the money remitted, as GST, can somehow be considered to have been the property of Buchanan, I would still permit the appellant to receive the rebate, as claimed. The wording of subsections 261(1) and 261(3) of the Act are as follows:
"261(1) Rebate of payment made in error - Where a person has paid an amount
(a) as or on account of, or
(b) that was taken into account as,
tax, net tax, penalty, interest or other obligation under this Part in circumstances where the amount was not payable or remittable by the person, whether the amount was paid by mistake or otherwise, the Minister shall, subject to subsections (2) and (3), pay a rebate of that amount to the person.
(3) Application for rebate - A rebate in respect of an amount shall not be paid under subsection (1) to a person unless the person files an application for the rebate within two years after the day the amount was paid or remitted by the person."
[17] As I discussed in GKO Engineering (A Partnership) and Her Majesty The Queen, 1999-2503(GST)I, the plain wording of subsection 261(1) indicates it refers to an amount that was paid on account of tax that was then "remittable" by the person who collected it. It seems to me Battista was a person who paid an amount that was taken into account as tax under the relevant part of the Act under circumstances where the amount was not payable or remittable by him and the amount was paid by mistake. Once the GST had been collected - pursuant to the method in effect between the parties - and it had been identified and labelled as such - albeit in error - Battista was under a duty imposed by subsection 225(1) of the Act to remit the amount. The fact the amount was deducted from money paid to Buchanan from the sum arrived at by using the 60% formula did not make it his money that was being sent in as GST. The introduction of GST - beginning in 1991 - was a significant factor leading to a re-negotiation of the split of revenues produced as a result of Buchanan's work but it did not mean payment - thereafter - of certain amounts of GST was made with his money any more than an increase in rent, taxes or other overhead expense leading to a revision in an employee's salary - based on a percentage of revenue generated - can, thereafter, be said to be paid by the employee as a result of the amendment to the pay structure. As noted earlier, Buchanan's share of the revenue was actually increased by 5%. I cannot see why the GST remitted is not subject to rebate of payment made in error. Certainly, the appellant paid much more than the sum of $40,734.17 now sought in the rebate application since it only covers the period from January 2, 1993 to January 31, 1997. He had been sending in GST since 1991 and to that extent - due to the limitation period imposed by the legislation - the fisc received a windfall of an amount probably equal to the one at issue in the within appeal. If the Act imposes a duty on a person who has collected tax to remit it in accordance with the provisions of the legislation as agent for Her Majesty, then if the remittance has been made in error it strikes me the person having remitted the tax should be able to apply for a rebate. The Minister seems to be concerned - as expressed by counsel in the GKO Engineering, supra, appeal - that people will collect tax for non-taxable supplies, remit the money and then apply for rebate of tax paid in error and keep the money themselves rather than repaying it to the consumer from whom the tax was collected, initially. The answer to that conduct is found in the Criminal Code of Canada which contains certain prohibitions against fraud and theft by a trick or by persons required to account. In addition, there would be a right in people who paid - in error - an amount attributable to tax to assert a constructive trust in their favour on the part of the person receiving the rebate. In a self-assessing system - premised on the overwhelming majority of the country being honest taxpayers - it does not logically follow that the person obtaining a rebate would not undertake procedures to rebate the money collected in error to the persons from whom it had been received. In the within appeal, if the money paid in GST belonged to Buchanan in the sense it had been paid by him, then the person remitting the GST - in error - was Battista and he still should have the right to obtain the rebate and to then deal with Buchanan. However, I only engage in this discussion as an alternative should there be another view of Buchanan's status other than that of an employee. On the evidence before me, I cannot think of one but there may be some concept of the appellant and Battista as co-venturers jointly engaged in gaining revenue from a severable patient pool - distinct and apart from Battista's regular well-established practice - that could seem plausible in the course of submissions made during any review of this decision.
[18] The decision of the Minister that the appellant was providing a service to Buchanan of "administration, support staff, premises and facilities" which constituted a taxable supply is not correct. The appeal is allowed and the assessment denying the appellant a rebate of tax paid in error in the amount of $40,734.17 is hereby referred back to the Minister for reconsideration and reassessment on the basis the appellant is entitled to the rebate, as claimed.
[19] Since the amount in dispute for the purposes of section 18.3009 of the Tax Court of Canada Act is not less than $7,000.00, no costs may be awarded to the appellant.
Signed at Sidney, British Columbia, this 15th day of June 2000.
"D.W. Rowe"
D.J.T.C.C.