DATE: 20050215
DOCKET: C41861
COURT OF APPEAL FOR ONTARIO
McMURTRY C.J.O., CATZMAN and LANG JJ.A.
APPLICATION UNDER Rule 14.05(3)(d) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194
B E T W E E N :
TORONTO BLUE JAYS BASEBALL CLUB and MAPLE LEAF SPORTS & ENTERTAINMENT LTD.
Lori E.J. Patyk and Frank S. Stopar for the appellant
Applicants (Respondents in appeal)
- and -
THE MINISTER OF FINANCE
Joseph M. Steiner and Chia-yi Chua, for the respondents
Respondent (Appellant)
Heard: January 13, 2005
On appeal from the judgment of Justice T. Matlow of the Superior Court of Justice dated April 27, 2004.
McMURTRY C.J.O.:
[1] The appellant Minister of Finance for Ontario (“Minister”) appeals from a decision of Matlow J. of the Ontario Superior Court of Justice dated April 27, 2004.
[2] The respondents Toronto Blue Jays Baseball Club and the Maple Leaf Sports & Entertainment Ltd. own and operate professional baseball, hockey and basketball teams respectively known as the Blue Jays, Maple Leafs and Raptors (hereinafter referred to collectively as “the Teams”).
[3] The Teams brought an application to obtain a declaration that each of the venues in which the Teams play pre-season, regular season and post-season games, as well as their training venues, constitute a “permanent establishment” as defined by the Ontario Employer Health Tax Act, R.S.O. 1990, c. E.11 (the “Act”).
[4] The application judge held that the locker rooms and coaches’ rooms occupied by the Teams in playing venues outside Ontario constituted a “permanent establishment” for the purposes of the Act. For the reasons that follow, I disagree with the decision of Matlow J. and find that these facilities do not constitute a “permanent establishment”.
Overview
[5] The principal issue in this appeal is therefore the proper interpretation of the words “permanent establishment” contained in subsection 1(2) of the Act. From a factual perspective, the issue is whether dressing rooms and other facilities utilized by the Teams during “away games” played outside of Ontario constitute “permanent establishments” of the Teams. The Teams are required to play approximately 50% of their games at venues located outside of Ontario.
[6] The Teams had submitted refund requests for employer health tax on the basis that remuneration paid to their players and other employees should be excluded from total Ontario remuneration to the extent that the players and other employees reported to non-Ontario locations.
[7] To determine whether these locker rooms and other facilities utilized by the Teams in the non-Ontario venues constitute “permanent establishments”, a determination must be made as to whether these locations are “fixed places of business”. A second issue raised was as to whether the Teams use such substantial machinery and equipment outside of Ontario so as to deem them to have permanent establishments in the non-Ontario venues under s.1(2)(e) of the Act.
Facts
[8] The Minister and the Teams provided this court with a “partial statement of agreed facts” which states (not verbatim), in part, the following:
(a) The Teams’ professional sports businesses consist of activities including: playing pre-season games, regular season games and post-season games, training camps for players, the negotiation and signing of agreements and contracts, hiring and firing of players, coaches or managers, entering into agreements with sponsors or suppliers, reviewing advance scouting reports, reviewing past games, preparing and analyzing injury reports and administering medical treatment to players.
(b) The Teams’ head offices and home arenas or stadiums are located in Toronto.
(c) The Raptors’ and the Toronto Maple Leafs’ training camps are generally held in Ontario but they have held training camps outside the province. The Toronto Blue Jays’ training camp is held in Dunedin, Florida and constitutes a “permanent establishment” in accordance with the Act.
(d) Pre-season games are played both inside and outside of Ontario.
(e) The Teams play their home and away games in accordance with their respective league schedules.
(f) Approximately one-half of the Teams’ regular season games are played in Ontario and the other half in non-Ontario locations. The only exception is the Toronto Maple Leafs who play certain away games in Ottawa, Ontario.
(g) The Teams’ payroll departments are located in Toronto. With respect to the Blue Jays, Florida-based employees are paid through the Florida offices and Toronto-based employees through the Toronto office.
(h) The General Manager, Equipment Manager and the individual responsible for sponsors and supplies all have offices located at the respective head offices of the Teams in Toronto.
(i) Designated space at away games:
(i) While at an away stadium, the Teams are provided with designated space. The desig-nated space generally consists of a main dressing room for the players, a coaches’ room and a training room.
(ii) The designated space is a secured area. To enter the designated space, the Teams must pass security provided by the host team. Teams also provide their own security personnel.
(iii) The limits on the use of designated space at the non-Ontario locations is comparable to what an individual can or cannot do while in possession of a hotel room.
(iv) The Teams share some training facilities with the host teams at the non-Ontario venues including equipment, playing fields or surfaces and other common areas.
[9] The Minister agrees that Dunedin, Florida is a permanent establishment of the Blue Jays located outside of Ontario.
[10] Other than Dunedin, the Teams do not own or lease other non-Ontario venues. There is no other basis upon which the Teams assert any ability to use the away stadiums for any other use or at any other time other than as permitted by the playing schedule and the applicable governing agreement and the rules of each league.
[11] The responsibility for selling game tickets and licensing the concessions in any out of Ontario venue is that of the host team.
The Legislation
Employer Health Tax Act, R.S.O. 1990, c. E.11
Section 1(1)
“Total Ontario remuneration”, in respect of an employer, means the total remuneration paid,
(a) to or on behalf of all of the employees of the employer who report for work at a permanent establishment of the employer in Ontario…
Section 1(2)
Permanent establishment,
In this Act, “permanent establishment” in respect of an employer, includes any fixed place of business, including an agency, a branch, a factory, a farm, a gas well, a mine, an office, an oil well, timberland, a warehouse and a workshop and, without limiting the generality of the foregoing,
(e) an employer shall be deemed to have a permanent establishment in the place where and at the time when the employer has substantial machinery or equipment.
Information Bulletins Issued by the Minister
[12] The Minister has issued Information Bulletins as a guide to employers to determine whether or not they have a permanent establishment in Ontario for the purpose of the Act. It is agreed by the Parties that while not decisive in interpreting the legislation, the Information Bulletins can be used by the court for guidance in interpreting the legislation.
[13] The Information Bulletins state that a fixed place of business “does not mean the place must exist for a long time”, nor “that it must be located in a durable building”. The place of business need not exist for the whole year. The Information Bulletins offer as an example, a temporary office at a construction site which could be a fixed place of business during the period that business is conducted from that location. See Ontario Ministry of Finance, Information Bulletin 1-97, “Employer Health Tax Act Permanent Establishment” (March 2003).
Principles of Statutory Interpretation
[14] In Stubart Investments Ltd. v. Canada, 1984 20 (SCC), [1984] 1 S.C.R. 536, Estey J. at 578 states as follows:
Professor Willis, in his article, supra, accurately forecast the demise of the strict interpretation rule for the construction of taxing statutes. Gradually, the role of the tax statute in the commentary changed, as we have seen, and the application of strict construction to it receded. Courts today apply to this statute the plain meaning rule, but in a substantive sense so that if a taxpayer is within the spirit of the charge, he may be held liable.
While not directing his observations exclusively to taxing statutes, the learned author of Construction of Statutes (2nd ed. 1983) at p. 87, E.A. Dreidger put the modern role succinctly:
Today there is only one principle or approach, namely the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.
Legal Analysis
[15] The Supreme Court of Canada decision in Sunbeam Corp. (Canada) v. Canada (Minister of National Revenue), 1962 86 (SCC), [1963] S.C.R. 45, deals with the interpretation of the term “permanent establishment” under a section of the Income Tax Regulations. That section stated that “permanent establishment” included branches, mines, oil wells, farms, timberlands, factories, workshops, warehouses, offices, agencies and other fixed places of business” which was, in essence, identical to the definition of “permanent establishment employer” in the Ontario Employer Health Tax Act s. 1(2). In Sunbeam Corp., the issue was whether the office of a sales representative in Quebec represented a permanent establishment in that province when the head office and manufacturing plant of the employer was in Ontario.
[16] At page 50, Martland J. stated as follows:
On this evidence, I am not prepared to hold that the appellant had a “permanent establishment” in the Province of Quebec in the year in question. Interpreting these words, apart from the provisions of s. 411(1)(c) of the Regulations, my opinion is that the word establishment contemplates a fixed place of business of the corporation, a local habitation of its own. The word “permanent” means that the establishment is a stable one, and not of a temporary or tentative character.
[17] In Syntex Ltd. v. Sous-Ministre du revenu du Quebec, [1981] R.D.F.Q.1, the Quebec Court of Appeal dealt with the term “establishment” in the context of a health tax assessed with respect to an employer’s payroll. At page 6, Bernier J.A. stated that it is insufficient for given offices to be used for the employer’s business. Rather, in Bernier J.A.’s view, there is a requirement that the establishment belong to the employer. This involves an element of ownership, management and authority over the establishment.
[18] Bernier J.A. went on to state that this case was very similar to that of Sunbeam Corp., supra, where the Supreme Court sought to define the term establishment.
[19] The report of the Organizations for Economic Co-operation and Development dealt with the Model Double taxation convention in 1977. In its commentary, the OECD considered the “fixed place of business” requirement as follows:
Since the place of business must be fixed, it also follows that a permanent establishment can be deemed to exist only if the place of business has a certain degree of permanency, i.e. if it is not of a purely temporary nature.
[20] In Dudney v. Canada, [2000] F.C.J. No. 230 (C.A.), the issue was whether the appellant had “a fixed base regularly available to him in Canada”. Sharlow J. stated at para 19 that:
The factors to be taken into account would include the actual use made of the premises that are alleged to be his fixed base, whether and by what legal right the person exercised or could exercise control over the premises, and the degree to which the premises were objectively identified with the person’s business. This is not intended to be an exhaustive list that would apply to all cases, but it is sufficient for this case.
In this case, the Tax Court Judge was correct to consider these factors to be relevant and determinative. The evidence as a whole gives ample support for the conclusion that the premises of PanCan were not a location through which Mr. Dudney carried on his businesses. Although Mr. Dudney had access to the offices of PanCan and he had the right to use them, he could do so only during PanCan’s office hours and only for the purpose of performing services for PanCan that were required by his contract. He had no right to use PanCan’s offices as a base for the operation of his own business. He could not and did not use PanCan’s offices as his own. [Emphasis added].
[21] The respondents rely on Fowler v. M.N.R, [1998] 2 C.T.C. 2351 (T.C.C.) for the assertion that a permanent establishment can be found to exist even if it exists for an extremely short duration. In the case of Fowler, the taxpayer was found to have a permanent establishment at the Pacific National Exhibition although only in attendance for a three week period each year.
[22] In Fowler, Kempo T.C.J. stated at p. 2354:
Conceptually the Vancouver sales were actually being conducted at, or from, a place of business having the same attributes as that of a “place of management” as a “branch” of the whole operation, or as an “office”. The matters of mobility and the three-week time period are not in themselves overly material when taken into context. Indeed, it was the very nature of the business itself that mandated these aspects. The appellant had attempted, unsuccessfully in my view, to somehow turn it around on the premise that the Canadian business must have been wholly itinerant and insignificant because of its mobility and brief time periods. This approach is not in accord with the facts and cannot stand.
[23] The Fowler case has not been followed by any other Court. The appellant submits that the analysis in Fowler is inconsistent with the balance of jurisprudence that does not find a permanent establishment to exist in circumstances where the use of the location was so temporary in nature.
[24] In my view, the Fowler case is not particularly helpful to the respondents when I consider the context in which the Teams utilize the home team premises in their out of Ontario games. I am of the opinion that the away venues do not have the characteristics of “a place of management”, or a “branch of the whole operation”, or as an “office” as was found to be the situation in Fowler. Furthermore, the use of the out-of-town venues of the Teams do not have the element of ownership, management and authority over the establishment as in Syntex Ltd.
[25] In his reasons, the application judge stated, in part, as follows:
Each team depends on every other team to provide competition and whatever else [is] necessary to enable it to perform and produce income. It follows that even when a team plays in an away venue and may not actually share in the gate revenue, it is then nevertheless carrying on its business in that venue.
More important, I am persuaded that when it plays in an away venue, its business headquarters and, specifically, its “fixed place of business” is at the place assigned to it in that venue.
[26] It is my opinion that the material before him does not support his findings of a “fixed place of business”. Fundamental to any professional sports business are the contracts entered into with its players, the selling of tickets, the licensing of concessions, the negotiations of sponsorships and advertising, television and radio broadcasting rights. The only findings or reasonable inferences that can be drawn from the material before the application judge is that these business activities were conducted in the home venue of the Teams.
[27] In the partial statement of agreed facts, it was agreed that the limits on the use of designated space at the non-Ontario locations are comparable to what is possession of a hotel room.
[28] In his examination under oath, Paul Godfrey, the Chief Executive Officer of the Toronto Blue Jays, testified as follows:
Q. What business activities are carried on in Toronto?
A. It is the home of the Major League Club, and all activities related to the Major League Club take place at the headquarters…
[29] In testifying about the control that a team would enjoy in relation to the premises occupied by the teams at an away venue, Mr. Godfrey testified as follows:
A. As I said, I would sort of compare it to what you could and couldn’t do in a hotel room, very similar.
[30] In conclusion, I am in agreement with the appellant’s submissions that the Teams connections with non-Ontario venues and the control of these venues is relatively so transitory that they cannot be considered to be fixed places of business.
Issue as to Whether Teams Use Substantial Machinery or Equipment at the Non-Ontario Venues
[31] The respondents also submit that Matlow J. should have also found that the Teams have “permanent establishments” at the non-Ontario venues in that the Teams use “substantial machinery or equipment” at those venues. Under s. 1(2)(e) of the Act, an employer is “deemed to have a permanent establishment in the place where and at the time when the employer uses substantial machinery or equipment”.
[32] It is not disputed that the Teams bring a wide variety of equipment to non-Ontario playing venues.
[33] The respondents largely rely on the decision in Club de Baseball de Montréal Ltée v. Québec (Sous-Ministre du Revenue), [1995] R.D.F.Q. 322, where the Court, on virtually identical facts, found that the Montreal Expos used “substantial machinery or material” at their away game venues and therefore could take advantage of the deeming provisions in the Quebec legislation. It is submitted that the “substantial machinery or material” provision is almost identical to the use of “substantial machinery or equipment” in the Ontario statute.
[34] In Sunbeam, the Supreme Court of Canada considered the expression “substantial machinery or equipment” contained in the Income Tax Regulations which deem a taxpayer to have a permanent establishment where the taxpayer uses “substantial machinery or equipment”. Martland J. at p. 5 for the Court stated as follows:
I agree with Cameron J. that, as used in this subsection, the adjective “substantial” is intended to mean substantial in size and that the subsection was intended only to apply to machinery and equipment such as is used by contractors or builders in the course of their operations.
[35] I am further of the opinion that Martland J.’s use of the words “intended only to apply” combined with the words “machinery and equipment such as is used by contractors or builders” clearly indicates that the “machinery and equipment” must be very much more substantial than equipment transported by the Teams to the out of Ontario playing venues.
[36] I also agree with the appellant’s submission that the use of sports equipment and sport related machinery is only incidental to the raising of revenue by the playing of games between the Teams and their opponents.
Information Bulletins
[37] The respondents submit that the Information Bulletins published by the Ministry in February 1997 and March 2003 list criteria used to determine “whether machinery or equipment can be described as substantial”. Specifically, they rely on the following statement:
Whether machinery or equipment can be described as substantial depends upon the context of the employer’s business (i.e. could the job be performed without the machinery or equipment, no matter what the size or cost).
[38] The respondents submit that the equipment used by the Teams meets the description of “substantial” as the playing of games could not be performed without the machinery or equipment. The reference in the Information Bulletin is with respect to the employer’s equipment related to the construction industry which, in my view, is not in any way comparable to the nature and character of the equipment used by professional athletes.
[39] In any event, the Information Bulletins are clearly provided only as a guide and could not have been intended to be determinative when a particular interpretation would conflict with a decision of the Supreme Court of Canada, such as Sunbeam.
Conclusion
[40] For the above reasons, the appeal is allowed and it is ordered that the decision of Matlow J. dated April 27, 2004 be set aside.
[41] The appellant Minister is entitled to his costs fixed in the amount of $25,000.00 inclusive of disbursements and Goods and Services Tax.
“R. Roy McMurtry C.J.O.”
“I agree. M. A. Catzman J.A.”
“I agree. Susan Lang J.A.”