C.A. No. 113697
NOVA SCOTIA COURT OF APPEAL
Cite as: Survival Systems Ltd. v. Nova Scotia (Finance), 1995 NSCA 165
Hallett, Bateman and Flinn, JJ.A.
BETWEEN:
SURVIVAL SYSTEMS LIMITED, ) George M. Clarke
a body corporate ) for the Appellant
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Appellant )
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- and - )
) Leanne Hayes
) for the Respondent
THE MINISTER OF FINANCE )
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Respondent ) Appeal Heard:
) September 12, 1995
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) Judgment Delivered:
) September 27, 1995
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THE COURT: Appeal allowed per reasons for judgment of Hallett, J.A.; Bateman and Flinn, JJ.A. concurring.
HALLETT, J.A.:
This is an appeal by a taxpayer from an Order of Commissioner Allan Green, Q.C. sitting as a one-man Board pursuant to the Utility and Review Board Act, S.N.S. 1992, c. 11 on an appeal from an assessment for tax made against the appellant under the Health Services Tax Act, R.S.N.S. 1989, c. 198, as amended. The latter Act imposes a tax on purchases of tangible personal property in the Province unless the purchase comes within one of the exemptions provided in the Act.
The issue raised on the appeal to Commissioner Green was whether or not the Provincial Tax Commissioner under the Health Services Tax Act erred in failing to exempt from health services tax certain goods purchased by the appellant for use in its business. Commissioner Green found that certain of the articles purchased qualified for the exemption claimed but rejected the claim made for exemption of many articles. The Health Services Tax Act provides for numerous classes of exemption including an exemption for the purchase of "school supplies" as defined in the Act. The appellant claimed the articles in question were school supplies.
The appellant's business has two divisions. One a training school for employees in certain industries and, in particular, for the training of such employees to survive following ocean disasters, be they an accident on an ocean oil rig or the foundering of a ship or a crash of an aircraft at sea. The other division is a manufacturing facility which produces a training simulator being the simulation of the cabin of a helicopter; these are sold internationally. This simulator is also used in the school to train students how to survive accidents at sea.
While the appellant has two divisions it maintains only one set of books. The question in issue was whether the articles for which the appellant claimed exemption were purchased for school purposes so as to fall within the definition of school supplies and therefore exempt.
The scheme of the Health Services Tax Act provides a comprehensive system for a taxpayer to object to assessments made requiring a purchaser of tangible personal property to pay health services tax on the purchase. Under the Act a decision of the Provincial Tax Commissioner imposing a tax may be appealed to the Utility and Review Board pursuant to s. 20(5) of the Health Services Tax Act. This is done by filing a notice of appeal with the Board (s. 20L). The power of the Board on an appeal from a decision of the Provincial Tax Commissioner under the Health Services Act is set out in s. 20L (5) of the Health Services Tax Act; the said section provides:
20L (5) After a hearing held pursuant to this Section the Board shall consider the matter and within sixty days of the hearing shall affirm, vary or reverse the decision of the Commissioner and shall forthwith give the appellant and the Minister written notice of the decision of the Board by registered mail or by personal delivery."
Pursuant to s. 38 of the Utility and Review Board Act a provision in the Health Services Tax Act which had provided for an appeal to the Appeal Division of the Supreme Court of Nova Scotia upon a "point of law" was repealed. The main purpose of enacting the Utility and Review Board Act was to combine the Board of Commissioners of Public Utilities, the Expropriations Compensation Board, the Nova Scotia Municipal Board and the Nova Scotia Tax Review Board to be continued as the Nova Scotia Utility and Review Board.
There is no express provision in the Health Services Tax Act for an appeal to this Court from a decision of the Board relating to a tax matter under this Act; such appeals are now governed by the Utility and Review Board Act.
Under that Utility and Review Board Act the Board has the function described in s. 4:
"4 (1) The Board has those functions, powers and duties that are, from time to time, conferred or imposed on it by
(a) this Act, the Assessment Act, the Deed Transfer Tax Act, the Expropriation Act, the Gasoline and Diesel Oil Tax Act, the Health Services Tax Act, the Heritage Property Act, the Insurance Act, the Motor Carrier Act, the Municipal Boundaries and Representation Act, the Planning Act, the Public Utilities Act, the School Boards Act, the Shopping Centre Development Act, the Tobacco Tax Act, the Village Service Act or any enactment; and
(b) the Governor in Council."
Therefore, the Board's jurisdiction covers a very wide range of subject matters; it does not function as a narrowly specialized tribunal. As noted, its jurisdiction includes the jurisdiction to hear appeals from decisions of the Provincial Tax Commissioner made under the Health Services Tax Act. Pursuant to s. 16 of the Utility and Review Board Act, "in a matter over which the Board has jurisdiction the Board and each member has all the powers, privileges and immunities of a commissioner appointed pursuant to the Public Inquiries Act". In addition, the Legislature has given the Board extensive powers to compel the attendance of witnesses, conduct investigations, take evidence from witnesses and consider evidence and information that might assist it in dealing with matters before the Board whether or not such evidence is given or produced under oath or would be admissible as evidence in a court of law (ss. 17, 18 and 19).
Section 22 of the Utility and Review Board Act provides that the Board has exclusive jurisdiction in all cases and in respect of all matters in which jurisdiction is conferred on it. The Board, as to all matters within its jurisdiction, pursuant to the Utility and Review Board Act may hear and determine all questions of law and fact. Pursuant to s. 26 of the Utility and Review Board Act the findings or determinations of the Board upon a question of fact within its jurisdiction are binding and conclusive.
Section 27 of the Act is particularly relevant to the appeal before us. It provides that a final decision of the Board shall be in writing and shall set forth reasons for the decision and that those reasons shall include any agreed findings of fact; the findings of fact on the evidence and the conclusion of law based on those facts.
Section 30 of that Act provides for an appeal to this Court. The words of s. 30(1) and (4) are relevant and are as follows:
"30 (1) An appeal lies to the Appeal Division of the Supreme Court from an order of the Board upon any question as to its jurisdiction or upon any question of law, upon filing with the Court a notice of appeal within thirty days after the issuance of the order.
(4) Where there is a conflict between this Section and another enactment, that enactment prevails."
In May of 1994 the appellant was assessed health services taxes on a number of purchases; the total tax assessed was $17,838.29 plus interest and penalty. The appellant objected to the assessment but, in the objection, admitted before the Provincial Tax Commissioner that some of the articles in question were used in support of the commercial activity, that is, the manufacturing side of its business as opposed to the training school. Counsel for the appellant, in the objection heard by the Provincial Tax Commissioner, asserted that certain of the purchases which were in issue were used 70-75% of the time for educational purposes, namely the school, and, therefore, ought to be exempt under the definition of school supplies. The Provincial Tax Commissioner agreed that some of the purchases related to both school purposes and the manufacturing activities of the appellant and, as there was no definite allocation of such purchases on the appellant's books, estimated that 75% of the total cost of the purchases in issue represented goods purchased for school purposes. As a result, the initial tax assessment of $7,556.14 respecting these items was reduced by the amount of $5,667.18 representing 75% of the tax on certain of the articles used in both divisions of the appellant's operations.
The ruling of the Provincial Tax Commissioner was not satisfactory to the appellant and it appealed that decision to the Utility and Review Board. The Notice of Appeal provided:
"That the Provincial Tax Commissioner erred in determining that the purchases in question do not fall within the parameters of the definition of "school supplies" as contained in S. 2(c) of the regulations enacted pursuant to the Health Services Tax Act, R.S., c. 198 s. 1, and in so doing interpreted the Act and the Regulations in an unreasonably restrictive manner by failing to give proper consideration to the nature of the trade school operated by Survival Systems Ltd., and by failing to give proper consideration to the nature of the supplies and materials required to carry out such operation in the provision of its educational training."
The reference in the Notice of Appeal to the "purchases in question" relates to some sixty-three (63) purchases as set forth in an exhibit which was identified before the Board as Exhibit S-3 and so referred to in Commissioner Green's decision.
After hearing evidence and the representations of counsel Commissioner Green rendered his decision in writing. The operative part of his decision is as follows:
"The issues with reference to this assessment are:
1) Is the 75% figure reasonable as far as the assessment is concerned; and
2) Are all of the items set forth in Exhibit S-3 essential for the operation of the trade school.
The assessor met with Mr. LaBrie and was informed that not all the Appellant's records were available. He worked from what records were available in consultation with the comptroller. He admits that the trade school and its classes are unique and came to his conclusions on the assessment after going over what records were available, including those dealing with the METS [the training simulator].
The Board heard conflicting evidence as to the percentage of the revenues and expenses which were involved with the operation of the trade school in relation to the manufacture of the METS and in relation to research and development. Mr. Crowe indicated that 65% of the revenues could very well be in relation to the trade school. Mr. Bohemier [the principal shareholder of the appellant] did not agree with this figure and said it could be as high as 90%. He ultimately felt 75% was a fair figure. The auditor arrived at 75%.
The other question to be answered is should all the items set out in Exhibit S-3 be exempt from the assessment.
Section 12(1) of the Health Services Tax Act states in part:
The following classes of tangible personal property are specifically exempted from the provisions of this Act:
(ae) school text books; and
(ag) school supplies;
Section 2(c) of the Health Services Tax Act Regulations states:
"School supplies" means goods which students or scholars use in exercising their functions as students or scholars, such as pencils, pens, blank paper books, book bags, rulers, drawing instruments, drawing books, when sold for the above mentioned purposes to pupils or the parents or guardians of pupils or to the school authorities, and includes articles for school purposes, such as desks, chairs, benches, tables, blackboards, office equipment and supplies, when sold to school authorities.
The Tax Information Vendor Guide as issued by the Department of Finance, being Guide No. G1077 dated May 5, 1994, deals with "Trade School Exemptions" and states as follows:
"Section 12(1)(ae) and (ag) of the Health Services Tax Act provides for the exempt purchase of certain goods by trade schools 'school text books, school supplies, classroom furniture and equipment, teaching aids, office equipment and supplies.'
Exemption is not extended to motor vehicle purchases or rentals, office equipment or supplies used for a commercial activity, telephone or electrical services, building maintenance or repair. Tax must be paid at time of purchase of these items."
Section 2(c) of the Act states:
"consumption" or "use" includes the provision by way of promotional distribution of any tangible personal property and the incorporation into any structure, building or fixture, of tangible personal property including those manufactured by the consumer or further processed or otherwise improved by him.
As indicated by Mr. Wood on behalf of the Commission in argument on page 50, line 9 of the transcript:
"The scheme of the Health Services Tax Act is quite relevant to this appeal because the scheme of the whole Act is that the purchase of any tangible personal property attracts tax at the rate now which is 11 percent, formerly 10 percent, under s. 5. Every time you purchase tangible personal property, you have to pay the tax on it. That's the given. Then there are exemptions provided in s. 12. And clearly the responsibility and the burden is on the purchaser to prove that he clearly comes within the exemption provision."
Mr. Wood admitted that some of the items included in Exhibit S-3 should be exempt for they relate to the functioning of the school.
The Board has perused the items in Exhibit S-3 and exempts the following items from the assessment:
Accurate security locks (items 1, 2 and 3)
One half of item 4 (pool vacuum)
Display unit model (item 5)
Slides (item 8)
Vehicle lease (item 9)
Supply door frame (10)
Rental car (item 12)
Rental car (item 13)
Backboard (item 36)
Sabre lights (item 47)
As for the other items in Exhibit S-3, the Board finds that they are not exempt under "School Supplies". The only reason the Board exempts the motor vehicle leases is because of the nature of the curriculum of the school and how it conducts its classes. The school transports its students during the day from one area to another as part of its teaching. Students, after reporting to class, may have to be transported to Sackville for fire fighting, to locations for off-shore marine work or ditching exercises. The Board finds that as part of the school curriculum it is the school's duty to move these students during teaching hours. If that were not the case then the Board would not permit these exemptions.
The Board finds that further exemptions of the tangible personal property as listed in Exhibit S-3 total $16,875.78 and reduces the overall amount of the assessment by $1,856.33.
The Board also finds that the percentages set by the assessor should be 80% and not 75% as was used. The Board orders that the Commission revise its figures to permit the Appellant the 80% exemption and also reduces the amount of the assessment by the figure as indicated above.
An Order will issue accordingly." {Emphasis by the Court of Appeal}
It would appear that Commissioner Green determined that of the articles he identified on Exhibit S-3 as being exempt, he granted a full exemption rather than an exemption of 75%. He also found that those articles for which the Provincial Tax Commissioner had allowed an exemption of 75% of the tax that would have been paid on the purchase price be increased to an exemption equal to 80% of the tax had the articles not been exempt.
The appellant has argued before this Court that the question before Commissioner Green was whether or not all the items in Exhibit S-3 are school supplies. Counsel submits that Commissioner Green did not answer this question and, in so doing, he committed an error of jurisdiction. More specifically, he asserts that the Board erred in jurisdiction in either considering or failing to consider "issues, facts and circumstances that were not before the Board and were not relevant to the application" and erred in determining that the purchases in question did not fall within
the definition of school supplies as contained in s. 2(c) of the Regulations enacted pursuant to the Health Services Tax Act.
Disposition of the Appeal
The function of a court of appeal in reviewing a decision of an administrative tribunal has been summarized by the Supreme Court of Canada in Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557 and in CBC v. Canada (Labour Relations Board), [1995] 1 S.C.R. 157.
An appeal court conducting such a review must look to the relevant legislation, in this case the Health Services Tax Act and the Utility and Review Board Act, to determine: (i) the scope of the function assigned by the Legislature to the tribunal whose decision is under review by an appellate court; and (ii) the degree to which the Legislature intended such decisions should be subject to the scrutiny of the courts. Pursuant to the Utility and Review Board Act the Board's findings of fact are binding and conclusive if made within jurisdiction. However, findings of fact are not immunized from judicial interference if such findings are so irrational as to result in a patently unreasonable decision (Canada (Attorney General) v. Public Service Alliance of Canada, [1993] 1 S.C.R. 941 (P.S.A.C. No. 2); United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316, 102 D.L.R. (4th) 402 and Dayco (Canada) Ltd. v. C.A.W.-Canada, [1993] 2 S.C.R. 230, 102 D.L.R. (4th) 609). There is an appeal to this Court on questions of jurisdiction and questions of law. The Board's decisions are not protected by a full privative clause but are open to an appellate review by this Court on the two questions indicated in the Act. It is apparent that the Legislature intended this Court to play a significant appellate role in reviewing the Board's decisions. In view of the extensive jurisdiction conferred on the Board as a result of the combining of the four predecessor Boards, this would appear to be a prudent policy decision by the Legislature.
Pursuant to s. 27 of the Utility and Review Board Act the Board is required to set forth reasons for its decisions. This makes good sense, otherwise, how can a decision be adequately reviewed on appeal? With respect to the only issue before the Board, whether or not the articles in question as enumerated on Exhibit S-3 were "school supplies" as defined in the Act, Commissioner Green gave no reasons for finding that most of the articles for which exemption was claimed were not exempt. Such a failure is a serious jurisdictional error as Commissioner Green failed to do what the Legislature directed him to do. It is clear from a review of his decision that he gave no reasons for finding the articles were not exempt; he simply made a finding that they were not. Nor can one infer from other parts of the decision the basis for refusing the exemption claimed.
Commissioner Green also exceeded his jurisdiction in deciding to increase, from 75% to 80%, the allocation of use to the training school of certain other purchases dealt with by the Provincial Tax Commissioner, as that issue was not raised in the Notice of Appeal from the decision of the Provincial Tax Commissioner.
The following comments are obiter dicta; however, it might be of assistance to the Board to make them. The definition of 'school supplies' is very broad. It
includes "articles purchased for school purposes such as desks, chairs, benches, tables, blackboards, office equipment and supplies when sold to school authorities". So long as the goods purchased by a school authority, (the appellant in this case) are purchased for school purposes they are exempt.
By way of further obiter, I do not agree with the appellant's counsel that the Board did not have authority to determine what percentage of the goods purchased were used for school purposes. Such a power is implicit if the Board is to perform its duty in these circumstances. Obviously certain supplies purchased by the appellant might be used in both of its divisions. It is appropriate that only the percentage of those purchases that was actually used for school purposes be exempt. This is a determination that can be made by the Provincial Tax Commissioner or on appeal by the Board on the basis of the evidence adduced.
I would allow the appeal and remit the matter to the Board for re-hearing before a differently constituted Board. The Board constituted to rehear this matter has the power to determine what purchases on Exhibit S-3 fall within the definition of school supplies and of such articles, determine whether they were used solely for the operation of the school and, if not, what percentage of the respective articles so purchased were for school purposes and what percentage were used in connection with the operation of the manufacturing division.
Hallett, J.A.
Concurred in:
Bateman, J.A.
Flinn, J.A.
C.A. No. 113697
NOVA SCOTIA COURT OF APPEAL
BETWEEN:
SURVIVAL SYSTEMS LIMITED
a body corporate )
Appellant )
- and - ) REASONS FOR
) JUDGMENT BY:
THE MINISTER OF FINANCE )
) HALLETT, J.A.
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Respondent )
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