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Docket: 2002-4366(GST)I |
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BETWEEN: |
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DICK IRWIN GROUP LTD., |
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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 July 21, 2003 at Vancouver, British Columbia
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Before: The Honourable Justice D.W. Beaubier |
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Appearances: |
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Counsel for the Appellant: |
Kimberley L.D. Cook |
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Counsel for the Respondent: |
Nadine Taylor Pickering |
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JUDGMENT
The appeal from the assessment made under the Excise Tax Act, notice of which is dated January 10, 2002 and bears number 11BU0601953, is allowed and the assessment is referred to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Saskatoon, Saskatchewan, this 5th day of August 2003.
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"D.W. Beaubier" |
Beaubier, J.
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Citation: 2003TCC537 |
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Date: 20030805 |
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Docket: 2002-4366(GST)I |
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BETWEEN: |
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DICK IRWIN GROUP LTD., |
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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
Beaubier, J.
[1] This appeal pursuant to the Informal Procedure was heard at Vancouver, British Columbia, on July 21, 2003. Richard Irwin was the only witness; he is the Vice President of the Appellant.
[2] Paragraphs 5 to 13 of the Reply to the Notice of Appeal read:
5. With respect to paragraph 4 of the Notice of Appeal, he:
a) admits that the Appellant entered into an agreement with each vendor called an "Exclusive Yacht Listing and Sales Authorization" (the "Sales Authorization"); and
b) under the Sales Authorization the Appellant was authorized to contract and sell the particular vessel for a specified price; but
c) denies the facts alleged in the remainder of the paragraph.
6. By Notice of Assessment numbered 11BU0601953, dated January 10, 2002, the Minister of National Revenue (the "Minister") assessed the Appellant for under-reported Goods and Services Tax ("GST") of $106,622.29, plus penalty and interest of $7,481.28 and $6,418.33, respectively, for the reporting periods from September 1, 1999 to September 30, 2001, (the "Assessment Period").
7. The Appellant objected to the assessment by serving on the Minister a Notice of Objection dated April 5, 2002.
8. By Notice of Decision dated August 6, 2002, the Minister confirmed the assessment.
9. In so assessing and confirming, the Minister relied on the following assumptions of fact:
a) the Appellant was registered under Part IX of the Act effective January 1, 1991, and was assigned GST registration number 10520 7880RT0001;
b) effective January 1, 1991, the Appellant elected to have Blackfish file separate GST returns in respect of its commercial activity, under section 239 of the Act;
c) Blackfish was assigned GST registration number 10520 7880RT0007, and for the Canada Customs and Revenue Agency's internal purposes, Blackfish was assigned branch account number 128139029;
d) Blackfish was required to file its GST returns on a monthly basis;
e) during the Assessment Period, the Appellant entered into 10 Sales Authorizations with potential vendors (the "Vendors") of 10 boats and yachts (the "Vessels");
f) under the Sales Authorizations, the Appellant:
i) was required to use due diligence to find purchasers for the Vessels;
ii) had the sole and exclusive right to sell the Vessels during the listing period; and
iii) had the right to board and show the Vessels to prospective purchasers;
g) the Vessels were sold during the Assessment Period;
h) the boat owners (the "Owners") authorized the Appellant to represent them in the sales of the Vessels;
i) the Appellant was acting as the Owner's agent in selling the Vessels on behalf of the Owners;
j) the Owners were not required to collect GST in respect of the sales of the Vessels; and
k) during the Assessment period, the Appellant under-reported GST collectible in the amount of $106,622.60, in respect of the sale of the Vessels.
B. ISSUES TO BE DECIDED
10. The issue is whether the Appellant acted as an agent on behalf of the Principal in making the supplies of the Vessels.
C. STATUTORY PROVISIONS RELIED ON
11. He relies on subsections 123(1) sections 165, 177, 221, 222, 225, 228, 238, 239, 280 and 296 of the Act, as amended.
D. GROUNDS RELIED ON AND RELIEF SOUGHT
12. He respectfully submits that the Minister properly assessed the Appellant under subsection 177(1) of the Act as the stipulated conditions were met as follows:
i) the Owners made supplies (other than an exempt or zero-rated supply) of tangible personal property to a recipient;
ii) the Owners were not required to collect GST in respect of the sale of the Vessels; and
iii) the Appellant was acting as an agent in making the supplies of the Vessels on behalf of the Owners.
13. He further submits that under paragraph 177(1)(e) of the Act, the Appellant, as an agent of the Owners is deemed to be making a taxable supply of the Vessels to third parties and required to collect and remit GST on the sale of the Vessels.
[3] The only assumptions remaining in dispute are 9 i) and k). Respecting them:
9 i) The Appellant states that despite the terms of the listing, it was only a broker and not an agent for the sellers. It has never signed a sales agreement on behalf of an owner.
9 k) Only 7 vessels' sales remain under, assessment. The other three vessels originally under assessment were sold in the United States involving alleged gross GST of:
1. Allsop $6,300
2. Allsop $16,380
3. Freightliner $6,160
The Appeals respecting these, and their associated penalties and interest, are allowed, if they have not already been.
[4] The Appellant's own form of "Exclusive Yacht Listing Agreement and Sales Authorization" contains the following introduction and paragraphs 1 and 2:
IN CONSIDERATION OF the Broker using due diligence to find a purchaser for the Vessel, the Owner hereby grants to the Broker the sole and exclusive right to sell the Vessel during the Exclusive Listing Period (as defined below), on the following terms and conditions:
1. EXCLUSIVE RIGHT: The Owner hereby grants to the Broker the exclusive right to sell or to contract to sell the Vessel for the Listing Price (as defined below), or such other price as may be accepted by the Owner (herein called the "Selling Price"), for a period of ninety days and thereafter until either party shall give the other fifteen days written notice of termination of this Agreement (herein called the "Exclusive Listing Period"). If a sale of the Vessel is pending at the conclusion of the Exclusive Listing Period, then this Agreement shall be extended to allow for the completion of the sale.
2. PRICE/COMMISSION: During the Exclusive Listing Period the Owner shall accept a price for the Vessel of $260,000.00 (herein called the "Listing Price"), and shall pay the Broker a commission of 10% of the Selling Price of the Vessel, or $1,000.00 whichever is greater, plus applicable Goods and Services Tax, (herein called the "Commission") upon;
a. the closing date of a binding contract of sale or exchange of the Vessel entered into during the Exclusive Listing Period, whether or not the sale was brought about by the Broker, or,
b. a subsequent sale of the Vessel by or on behalf of the Owner to any party to whom the Broker has shown the Vessel during the Exclusive Listing Period or with whom the Broker has negotiated to sell the Vessel during the Exclusive Listing Period.
(A-1, Tab 2)
[5] The "Yacht Purchase and Sale Agreement" form of this Appellant contained these words in the bottom area signed by the Vendor respecting the commission to the Appellant:
"paid to the Broker as my / our agent"
(A-1, Tab 3)
[6] Respecting each yacht sale in appeal and respecting the Appellant's customary practice:
1. The yacht remained in the owner's berth.
2. The Appellant telephoned the owner to enter the yacht before showing it to a prospective purchaser.
[7] At times a listing owner has sold its yacht privately. The Appellant has then tried to collect its commission, but not through a legal process. It has not succeeded.
[8] The evidence is that, despite the listing contract and its own forms, the Appellants practice has been to act as a broker and it has never signed a sales agreement for an owner or incurred a yacht expense for an owner. Nor has it contracted for anything for an owner (at the owners expense) without first obtaining the owner's permission.
[9] In further support of this, "Blackfish Marine's" forms describe themselves as being the "Standard Form of the British Columbia Yacht Brokers Association".
[10] Subsection 177(1) of the Excise Tax Act reads as follows:
Supply on behalf of person not required to collect tax - Where
(a) a person (in this subsection referred to as the "principal") makes a supply (other than an exempt or zero-rated supply) of tangible personal property to a recipient (otherwise than by auction),
(b) the principal is not required to collect tax in respect of the supply except as provided in this subsection, and
(c) a registrant (in this subsection referred to as the "agent"), in the course of a commercial activity of the agent, acts as agent in making the supply on behalf of the principal,
the following rules apply:
(d) where the principal is a registrant and the property was last used, or acquired for consumption or use, by the principal in an endeavour of the principal, within the meaning of subsection 141.01(1), and the principal and agent jointly elect in writing, the supply of the property to the recipient is deemed to be a taxable supply for the following purposes:
(i) all purposes of this Part, other than determining whether the principal may claim an input tax credit in respect of property or services acquired or imported by the principal for consumption or use in making the supply to the recipient, and
(ii) the purpose of determining whether the principal may claim an input tax credit in respect of services supplied by the agent relating to the supply of the property to the recipient, and
(e) in any other case, the supply of the property to the recipient is deemed, for the purposes of this Part, to be a taxable supply made by the agent and not by the principal and the agent 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.
[11] In this case the Appellant is a broker. A broker is a restricted form of agency. In The Law of Agency, 7th Ed. Butterworths, Toronto, 1996, G.H.L. Fridman, Q.C. described a broker as follows:
Brokers. Brokers, like factors, are mercantile agents. There is, however, a distinction between these classes of agents in that brokers are agents who are not given possession of goods or documents of title. A broker is:
'an agent employed to make bargains and contracts between persons in matters of trade commerce and navigation. Properly speaking, a broker is a mere negotiator between other parties ... He himself... has no possession of the goods, no power actual or legal of determining the destination of the goods, no power or authority to determine whether the goods belong to buyer or seller or either'.11
He is not entrusted with the possession of the goods he sells.12 Unlike a factor13 he may not sell in his own name. 'The principal therefore who trusts a broker has a right to expect that he will not sell in his own name'.14 Both brokers and factors negotiate sales. However, the difference between these two classes of agents in respect of the possession of goods may stem from the fact that brokers also negotiate other contracts, not involving the handling of goods by the broker himself. For example, stockbrokers deal with the sale of stock or shares (which are not goods within the meaning of the Sale of Goods Act 1979).15 Insurance brokers arrange policies of insurance. Other brokers deal in the hiring of ships on charterparties. A more recent growth is that of the credit-broker, whose function is to arrange credit for those who wish to purchase goods. Some of these different types of brokers have given rise to special legal problems, or may be governed by particular legislation.
[12] Gale, C.J.H.C. described a broker as follows in Royal Securities Corp. Ltd. v. Montreal Trust Co. et al 59 DLR 2d, 666 at 686 and 687.
It seems to me that Royal's capacity in this transaction may best be described as that of a broker. Story, in his work on Agency, 9th ed., p. 31, describes a broker as:
... an agent, employed to make bargains and contracts between other persons, in matters of trade, commerce or navigation, for a compensation, commonly called brokerage.
Lord Chief Justice Tindal referred to this type of agent in Pott v. Turner (1830), 6 Bing, 702 at p. 706, 130 E.R. 1451: "A broker is one who makes bargains for another, and receives a commission for so doing; as, for instance, a stockbroker."
The breadth of the definitions admits of many types of brokers - mortgage brokers, real estate brokers, insurance brokers, and ship brokers, being some of those most frequently encountered in modern business. To this list may be added the investment broker - an agent engaged in the placing of funds, the sale of securities and similar transactions involving money. It is my opinion that Royal, in its dealings with S.F.C.I., acted as an investment broker and as such it would have been competent to act as the agent for both parties. Such an arrangement is described by Story at pp. 33-4, s. 31, as follows:
It has been already suggested that, a broker is for some purposes treated as the agent of both parties. But primarily he is deemed merely the agent of the party by whom he is originally employed; and he becomes the agent of the other party only when the bargain or contract is definitively settled, as to its terms, between the principals; for as a middle-man, he is not intrusted to fix the terms, but merely to interpret (as it is sometimes phrased) between the principals.
[13] Paragraphs 117(1)(c) of the Excise Tax Act describes a person who "is making the supply on behalf of the principal". That is not what a broker does, nor is it what the Appellant did in this case. The Appellant could accept an offer for the exact terms of the listing, but such an offer need not even be accepted. Rather, in such a case, the listing principal is making a general offer which the purchaser merely accepts. In any other case, the Appellant had to take an offer back to the lister for acceptance, all as set forth in the brokerage agreement. Moreover a broker does not have possession and the Appellant did not have possession.
[14] All of these exceptions to an agency are as envisioned by Section 177 to take the Appellant outside of the Section. That is so because the Section envisages the Appellant to receive payment for the supply so as to pay the tax. That is perfectly logical respecting an agent who has possession of the goods and receives the payment of consideration for the sale of goods. It is not logical respecting a broker such as the Appellant who is not "intrusted" to fix terms, to have possession, to receive payment for, and to execute a transfer of the goods, which is what a fully qualified "agent" could and would do. That is the kind of agent envisaged by Section 177. In other words, a broker is not an agent within the meaning of paragraph 177(1)(c), because he does not make a supply.
[15] The appeal is allowed, the assessment is vacated. The amount in dispute in this appeal exceeds the limit within which costs may be awarded under the Informal Procedure and therefore, no costs are awarded.
Signed at Saskatoon, Saskatchewan, this 5th day of August 2003.
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"D.W. Beaubier" |
Beaubier, J.
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CITATION: |
2003TCC537 |
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COURT FILE NO.: |
2002-4366(GST)I |
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STYLE OF CAUSE: |
Dick Irwin Group Ltd. v. Her Majesty the Queen |
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PLACE OF HEARING: |
Vancouver, British Columbia |
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DATE OF HEARING: |
July 21, 2003 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice D.W. Beaubier |
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DATE OF JUDGMENT: |
August 5, 2003 |
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APPEARANCES: |
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Counsel for the Appellant: |
Kimberley L.D. Cook |
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Counsel for the Respondent: |
Nadine Taylor Pickering |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
Kimberley L.D. Cook |
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Firm: |
Thorsteinssons |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |