COURT FILE NO.: 11-52108 DATE: 2016/11/07 ONTARIO SUPERIOR COURT OF JUSTICE
IN THE MATTER of the Retail Sales Tax Act, R.S.O. 1990, c.R.31, as amended
BETWEEN:
CAPCORP PLANNING (2003) INC. Appellant – and – THE MINISTER OF REVENUE Respondent
Counsel: Gregory Sanders, for the Appellant Lori E. J. Patyk and Jason Del Freitas for the Respondent
HEARD: February 10, 2016
REASONS FOR JUDGMENT McLean J.
Introduction
[1] This is an appeal of an assessment of the Ontario Sales Tax on certain premiums that were paid to the Appellant. The Appellant was in the business of providing a type of health care insurance benefits that would supplement the health care insurance benefits that were already available through the provincial scheme. The Respondent Crown audited the Appellant and found that they had not been collecting tax on the amounts paid by purchasers of their Plans and therefore the Respondent had invoked a penalty under the Retail Sales Tax Act, R.S.O. 1990, c. R.31 (“Act”) for non-remittance of sale taxes on these amounts.
[2] The main part of the appeal is the claim by the Appellant that the funds it received from purchasers of their product are not subject to tax given the definitions in the Ontario Act. Thus, there was no need to collect tax on funds paid to them and in turn that there should be no penalty levied against them for not collecting tax.
Facts
[3] The Appellant sold a type of extended health care product to cover various health, dental costs above those paid under the Ontario Health Insurance. The nature of the product was that the Appellant would enter into a contract with a Corporation who employed the person to be covered. The Appellant would manage the health care costs for key employees or owners. The level of coverage depended on the type of product that the Corporation wished to buy. After the contract was entered into between the Corporation and/or business and the Appellant, the employee or person covered would submit the claim to the Appellant.
[4] If the claim was found to be covered under the Plan, the Appellant would then forward it to the Corporation who had purchased the Plan. The Corporation would then issue a cheque to the Appellant for the amount of the claim and the Corporation would in turn remit the funds to the claimant, in other words the person who was covered. There would, of course, be a service charge above the amount of the claim that would be payable to the Appellant as a fee for the Plan.
[5] An audit took place on a business that was a customer of the Appellant. The Respondent found that the Plan was in place and claimed sales tax on the amounts that was paid to the Appellant. This caused the Respondent to audit the Appellant. The audit revealed that there were numerous purchasers that availed themselves of this health product, and that the Appellant had never collected any sales tax on the amount that they had received from purchasers of this product.
[6] The Respondent, in turn, levied a penalty in the form of an assessment against the Appellant in the amount of tax it considered that should have been collected from the purchasers of the Plan. The Appellant has appealed this assessment.
[7] There are several bases for this appeal. Primarily, that the arrangement under these Plans should not be subject to tax, and hence no penalty should be incurred. The Appellant also argues that if the tax is properly imposed, the basis for the penalty is not explained and consequently the discretion to level a penalty by the Respondent was not properly exercised.
[8] The Appellants also argue that they had used due diligence to consider the issue of tax collection and that their use of due diligence, properly exercised, therefore exempts them from liability and is a defence to the claim of penalty.
[9] The Respondent, on the other hand, argues that the tax was properly collectable and therefore a penalty is exigible. They also claimed that under this appeal, none of the other defences were included in the Notice of Appeal and, therefore, it is not proper for the Court to consider them.
Analysis
[10] The Notice of Assessment is found in Exhibit 1 at Tab 20. It claims a total adjustment of $234,773,27 plus interest to December 2, 2009 in the amount of $43,852.04 totalling $278,625.31. The Court notes from the Notice of Assessment itself that it is unclear what provisions of the Act are applied. In the notices heading, the notice states that pursuant to sections 18, 19, 24 and 43 of the Act, however, the basis for the assessment is not stated with precision. It is clear from the facts before the Court that the particulars were not provided until the reply of the Respondent dated March 6, 2013. This was some three years after the Notice of Assessment itself.
[11] Various “Plans” are considered in the Act. In this particular case, the Respondent argues that this particular Plan is within s. 2.1(1)(c) which reads:
2.1(1)(c) Every person who is resident in Ontario, or who carries on business in Ontario, and who,
(c) is a planholder or member of a benefits plan; or
shall pay to Her Majesty in right of Ontario a tax at the rate of 8 per cent of the premium payable.
[12] In section 1(1)(b),(d)(i)(ii) and (e)(i)(ii) of the Act, Premium is defined as:
(b) any charge made by the holder of group insurance to any person whose risk is covered by the policy,
(d) in respect of an unfunded benefits plan,
(i) any amounts, other than an amount that would be included in the total Ontario remuneration of the planholder under the Employer Health Tax Act, paid by the planholder by reason of the occurrence of a risk, less any amounts paid to the planholder by members in order to receive benefits under the plan, and
(ii) any amounts paid by members in order to receive benefits under the plan, and includes dues, assessments, or administrative costs and fees paid for the administration or servicing of the plan to the vendor,
(e) in respect of a funded benefits plan,
(i) any amounts paid into the plan by the planholder, including amounts paid to an administrator, but not including amounts that would be included in total Ontario remuneration of the planholder under the Employer Health Tax Act when paid out of the benefits plan, less any amounts paid to the planholder by members in order to receive benefits under the plan, and
(ii) any amounts paid by members in order to receive benefits under the plan,
and includes dues, assessments, or administrative costs and fees paid for the administration or servicing of the plan to the vendor,
[13] Funded benefits and unfunded benefits are also defined in section 1(1) as:
“funded benefits plan” means a plan,
(a) that provides protection against risk to an individual that could otherwise be obtained by taking out a contract of insurance, whether the benefits are partly insured or not, and
(b) that comes into existence when the premiums paid into a fund out of which benefits will be paid exceed amounts required for the payment of benefits that are foreseeable and payable within 30 days after payment of the premium,
and includes a multi-employer benefits plan but not a qualifying trust; (“regime d’avantages sociaux par capitalisation”)
“unfunded benefits plan” means a plan which gives protection against risk to an individual that could otherwise be obtained by taking out a contract of insurance, whether the benefits are partly insured or not, and where payments are made by the planholder directly to or on behalf of the member of the plan or to the vendor upon the occurrence of the risk; (regime d’avantage sociaux sans capitalisation”).
[14] Planholder is defined also in that definition section as:
“planhoder” means, in relation to a benefits plan, the person who provides the plan, including an employer under a multi-employer benefits plan and the trustee of a qualifying trust; (“titulaire du regime”).
[15] Group Insurance is defined in that definition section as:
“group insurance” means a policy of insurance that covers, under a master policy, the participants of a specified group or of a specified group and other persons; (“assurance collective”).
[16] Finally at s. 2.1(8)(a)(c) regarding certain exemptions:
Despite this section, no tax is payable on premiums for:
(a) contracts of reinsurance;
(c) contracts of insurance (other than contracts of group insurance or trip cancellation insurance) for the life, health or physical well-being of insured individuals.
[17] When we consider these various sections it would seem that if this particular Plan was to be considered under the Act it would be most appropriately termed as an unfunded benefits plan. Clearly, it is not group insurance as there is no question that it is “not a policy of insurance” in the normal course, covering a group. The Plan, itself, covered individuals or members but does not cover a group. It would seem that the product is not a “funded benefits plan” in the sense that there is no general fund created. This seems to be the definitional part of such a Plan. There is no fund here set up for general coverage and from which fund the coverage would be payable. We determine that the plan itself or product is essentially an unfunded benefits plan. Therefore, the issue becomes whether the Plan is exempted under the provisions of the Act.
[18] The Respondent argues that this is clearly not health insurance. It has cited a similar case: Rojas v. Manufacturers Life Insurance Co., 2014 ONSC 7240, 2014 CarswellOnt 17784, at Tab 14 of the Respondent’s Book of Authorities wherein it is stated that an arrangement such as this in another context is not a policy of insurance. However with regard to the nature of the litigation in that case, it was based on the interpretation of a Collective Agreement and certain liabilities that were controlled by that Collective Agreement. Therefore, this Court does not find that decision particularly helpful on these particular facts.
[19] The issue as I have said is the exemption contained in the definition of unfunded benefits plan. I quote:
“unfunded benefits plan” means a plan which gives protection against risk to an individual that could otherwise be obtained by taking out a contact of insurance, whether the benefits are partly insured or not, and where payments are made by the planholder directly to or on behalf of the member of the plan or to the vendor upon the occurrence of the risk; (regime d’avantage sociaux sans capitalisation”).
[20] This, indeed, is the real issue. The Appellant’s evidence before the Court is that the main purchasers of this Plan are those who could not obtain alternative health insurance. The uncontradicted testimony was that the main purchasers for coverage were those who could not obtain extended health insurance because of a pre-existing condition or other insurance impediments. The evidence was that they (the purchasers) were, otherwise rejected from extended health care coverage under an independent private plan on the basis that they already had a pre-existing condition that rendered them uninsurable or, that there was another reason why they were not eligible for health care coverage.
[21] The Respondent argued that the meaning of this particular section is simply that the Plan is for coverage that is otherwise obtainable. The Respondent also argued that the rules of interpretation of statutes clearly set forth that a consideration should be given to the whole of the Act and that the meaning of each word must be considered against that background. They have cited numerous cases where that approach is taken.
[22] As of particular interest the Respondent has cited Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54, 2005 S.C.C. 54, [2005] 2 S.C.R. 601 at para. 10 wherein the Court explains that:
…The interpretation of a statutory provision must be made according to a textual, contextual and purposive analysis to find a meaning that is harmonious with the Act as a whole … The relative effects of ordinary meaning, context and purpose on the interpretative process may vary, but in all cases the court must seek to read the provisions of an Act as a harmonious whole. [emphasis added]
[23] They also cite the Court of Appeal decision in IBM Canada Ltd. v. Ontario (Minister of Finance), 2008 ONCA 216, 235 O.A.C 161, at para. 28 wherein it is found:
… If the words are precise and unequivocal then the words used will dominate, and may well determine, the interpretive exercise. No statutory text is, however, an island to be considered in isolation. The purpose animating the legislation and the context in which the statutes operate may assist in identifying the meaning of the text …[emphasis added]
[24] Clearly, the issue here is that portion of the definition of an “unfunded benefits plan” that deals with “a risk to an individual that could otherwise be obtained by taking out a contract of insurance.” It is clear that the exception to this particular section in the legislation is whether the risk could be covered by a policy of insurance. It does not seem that there is any great interpretational problem with this. An exception to the general import of this section is created. The evidentiary issue, therefore, is the following: “could the risk in the Plan be covered by a policy of insurance?” The evidence led, here, is that it could not be. The wording suggests that if such insurance is not available, the risk could not be otherwise covered. The wording is clear. It would seem unnecessary to otherwise interpret the statute. The legislature deemed that an exemption was necessary and it is this Court’s view that the wording in the exemption is clear.
[25] There is, however, an issue here as to the factual basis of obtaining insurance. The uncontradicted evidence is that the users of this plan in most cases could not obtain health insurance that would supplement their coverage under the Ontario Health Plan. There is no evidence to contradict this. The Court notes that the Respondent called evidence with respect to the particular individuals that had purchased this Plan with a view to finding out whether the purchasers had in fact paid the retail sales tax and, therefore, that amount would be deductible from the penalty.
[26] The Respondent, however, did not call any evidence to contradict the fact that in most cases, the purchasers of this Plan were using it to provide health coverage for those who could not obtain health coverage in a different manner from an insurer.
[27] It, therefore, seems to this Court that those persons who would not be able to obtain coverage by insurance would not be required to pay retail sales tax on the amount they paid to the Appellant. As stated in their factum at para. 66, the Respondent takes the position that:
In order for Capcorp to “demolish” the assumptions upon which an assessment is made, it must make out at least a prima facie case. Only then, will the onus of proving the assumptions be shifted to the Minister, and the onus will not be “lightly or capriciously or casually shifted.”
[28] As set out in the decision of Orly Automobiles Inc. v. Canada, 2005 FCA 425, 345 N.R. 284, the onus to establish a prima facie case “will not be lightly or capriciously or casually shifted.” However, here, a prima facie case has been made out with regard to whether health insurance for this risk was otherwise available in regard to this Plan which is an unfunded benefits plan. Here the evidence is uncontradicted and indicates that insurance for this type of risk would not be available. There is no contradictory evidence. Therefore, it seems that a prima facie case has been made out. Thus, it is the Court’s view that the onus has shifted to the Respondent Crown and that burden has not been met by the Respondent. At the very least, the Respondent should have provided some evidence statistically or otherwise indicating what portion of these persons would not be covered. This is particularly key in the face of the evidence that was called. It is impossible for the Court on the basis of the record to distinguish those who were using this Plan for convenience only and those who actually required the Plan in the sense that they could not obtain health coverage otherwise.
[29] That being the case, with no evidence to the contrary being called by the Respondent, the Court is of the view that the assessment in total has not been justified on the basis of the evidence presented. Therefore, for those reasons the assessment is quashed.
[30] The other arguments by the Appellant do not need to be dealt with, except for the one dealing with completeness. There was lengthy argument made with respect to the issue of the rationale for the penalty or the amount that was assessed against the Appellant on the basis that the Appellant did not collect the tax.
[31] This argument made was that there was no rationale or no basis indicated for the discretion to levy a penalty. However, when the Court considers the matter as a whole, it must reject that argument because the nature of this penalty is implicit in the Act. It is the amount of the taxes that should have otherwise been collected. It is not an additional amount assessed on the uncollected tax. It is simply the amount of the tax that is otherwise payable but from a putative collector.
[32] With regard to the defence of due diligence, it seems that due diligence is a matter that really has little application. As said, the amount of the assessment and in fact, the penalty, are those prescribed by the Act itself. Therefore, if there was some other calculation to be made with regard to the tax itself, due diligence would be of little help. The issue here is an interpretation of the statute itself. Due diligence with regard to this type of matter would simply give a general defence, not a specific defence that is required with a factual basis.
[33] The Appellant’s argument seems to be that if there are two interpretations of a statute: one interpretation was preferred by a party over the other, then simply put, a defence was made out. This is not the nature of the due diligence defence itself. If that were the case, a contrary interpretation of any statute would always provide a defence. This is not the due diligence defence.
[34] Likewise, there is the issue of double taxation. This issue is based on the fact that with regards to one particular payer, that is the payer audited by the Respondent, which gave rise, in turn, to the audit of the Appellant. It is alleged that this particular payer had paid the tax. This amount was deducted from the assessment otherwise provided. Simply put, the Court is not satisfied that there is a factual basis made out by the Appellant for double taxation. Clearly, the Appellant did not collect the tax. It is therefore highly unlikely that any tax was paid. If, on the other hand, this was the case on a prima facie basis then that should have been made out by the Appellant. It was not.
[35] In summary, the Court finds that the product sold that is in issue was an unfunded benefits plan.
[36] The Court also finds that the persons who purchased it were those who could not, otherwise, obtain insurance coverage. Therefore, the amounts paid by such persons were not taxable. In turn there is no evidence by the Appellant that some of those persons could have obtained other insurance and were using this simply for another purpose than insurance coverage itself. Therefore, for these reasons, the assessment is set aside and the parties may have a day to argue the issue with regard to whom the fund should be repaid to and to also argue the issue of costs.
McLean J.