Court of Appeal for Ontario

Date: 2018-04-30

Docket: C63074

Judges: Watt, Pepall and Miller JJ.A.

Between

Capcorp Planning (2003) Inc. Appellant (Respondent)

and

The Minister of Revenue Respondent (Appellant)

Counsel

Lori Patyk and Jason DeFreitas, for the appellant

Gregory Sanders and Christopher Morris, for the respondent

Heard

October 23, 2017

On Appeal

On appeal from the judgment of Justice Hugh R. McLean of the Superior Court of Justice, dated November 7, 2016, with reasons reported at 2016 ONSC 5041.

Endorsement

Watt J.A.:

Introduction

[1] Capcorp Planning (2003) Inc. ("Capcorp") sold a health and welfare plan ("HWP"). Some employers found the HWP attractive, especially owner/manager operations where the owner or manager of the corporation was the only employee seeking coverage.

[2] Under Capcorp's HWP, a participating employer agreed to pay specified expenses incurred by participating employees. When an employee incurred an expense said to be covered by the HWP, the employer submitted a claim and a cheque to Capcorp for the expense claimed and an administrative fee for Capcorp. After a review of the claim, Capcorp determined whether the expense claimed was covered by the HWP. If the claim was covered, Capcorp reimbursed the employee for the expense.

[3] Capcorp did not charge retail sales tax ("RST") on any amounts employers paid and it received in respect of claims made under the HWP. The Minister of Revenue ("the Minister") considered that RST was exigible for these amounts, assessed Capcorp accordingly and required Capcorp to pay a penalty plus interest for failure to collect and remit the RST the Minister considered applicable.

[4] The issues assigned to us for determination are whether RST was exigible on the amounts paid by employers under the HWP and, if so, whether Capcorp is liable to a penalty for having failed to collect and remit the RST.

[5] As I will explain, I agree with the appellant Minister that Capcorp was required to charge, collect and remit RST and is subject to penalty for having failed to do so.

The Background Facts

[6] The underlying circumstances are largely uncontroversial and require only brief elaboration beyond what has already been said.

The Plan and Its Participants

[7] Capcorp provides insurance solutions to business owners. A typical client is the owner/manager of a small or medium-sized business with insurance needs. Capcorp determines the client's needs for life, disability, critical illness and health insurance and then offers a range of individual and group plans including third party insurance products and the HWP.

[8] Individual and group plans from insurance companies supplement provincial health coverage by covering services or items not covered by OHIP, including dental and vision care and some prescription drugs. But these plans often require medical prerequisites and limit the scope of coverage for dependants, and may offer little beyond coverage provided by provincial health care.

[9] The HWP, by contrast, contained less demanding medical prerequisites and offered more generous coverage for the dependants of plan members. Accordingly, it found favour with individuals who had been rejected from extended health care coverage under independent private plans.

Participation in the HWP

[10] To participate in the HWP, an employer agreed to pay specified expenses incurred by a participating employee and an administrative fee to Capcorp. Since most involved in the HWP were individuals, the HWP functioned as an alternative to an individual health insurance plan for an employee.

[11] To enrol in the HWP, an employer completed a Notice of Participation which identified the participating employee, any dependants, the type of benefits covered and the extent of the coverage. The relationship between Capcorp and a participating employer was governed by the Notice of Participation and the HWP Master Plan. Capcorp constantly reviewed the insurance marketplace to make better options available to its clients.

The Claims Reimbursement Procedure

[12] When an employee asserted a claim for a covered expense under the HWP, the employer submitted the claim, together with a cheque for the amount of the claim and the administrative fee to which Capcorp was entitled. Capcorp reviewed the claim to determine whether it fell within the coverage provided. Where the claim related to a covered expense, Capcorp sent a cheque to the employee for the amount of the claimed expense.

The Audit and Assessment

[13] An auditor from the Ministry of Revenue reviewed the records of Capcorp and found that the company had not charged, collected or remitted RST on any amounts paid by employers to Capcorp for claims under the HWP from August 1, 2005 until March 31, 2009. Capcorp was assessed a penalty of $278,625.31, including interest. The assessment was based on the auditor's determination that the HWP was a "benefits plan" subject to taxation under the Retail Sales Tax Act, R.S.O. 1990, c. R. 31, as amended. Capcorp, by extension, was required to charge, collect and remit RST. Failure to do so rendered the company liable to the penalty assessed.

The Objection

[14] Capcorp objected. The Minister affirmed the assessment and penalty.

The Appeal

[15] After the Minister confirmed the assessment, Capcorp appealed to the Superior Court of Justice under s. 25 of the RSTA. Capcorp contended that:

i. payments made by employers under the HWP were exempt from RST;

ii. the Notice of Assessment did not properly explain the basis for the penalty imposed on Capcorp; and

iii. Capcorp had exercised due diligence in determining its obligations to collect RST.

[16] A brief summary of the relevant provisions of the RSTA will help illuminate the appeal judge's analysis. Further detail is provided later in these reasons, where necessary.

[17] Section 2.1(1) of the RSTA, in relevant part, requires that "[e]very person who is resident in Ontario, or who carries on business and Ontario and who:

(a) enters into a contract of insurance with an insurer;

(b) is a person whose risk is covered by group insurance;

(c) is a planholder or member of a benefits plan;

shall pay … a tax at the rate of 8 percent of the premium payable" (emphasis added).

[18] A "benefits plan" is defined under s. 1(1) of the RSTA as a funded benefits plan, an unfunded benefits plan or a qualifying trust. The term "unfunded benefits plan" is exhaustively defined in s. 1(1) to mean:

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. [Emphasis added.]

[19] The appeal judge concluded that the HWP was not a policy of insurance, group insurance, or a funded benefits plan. In his view, the HWP was most akin to an "unfunded benefits plan" for the purposes of the RSTA. The judge then focused on the language "a risk to an individual that could otherwise be obtained by taking out a contract of insurance" in the exhaustive definition of "unfunded benefits plan". He accepted the evidence adduced by Capcorp that most of the employers who enrolled in the HWP could not obtain health insurance that would supplement their OHIP coverage. In the absence of evidence from the Minister to contradict the testimony about the HWP constituency, the appeal judge concluded that since those who enrolled in the HWP would not be able to obtain insurance coverage, they were not required to pay RST on the amount they paid to Capcorp.

[20] The essentials of the appeal judge's analysis appear in three paragraphs of his reasons:

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."

As set out in the decision of Orly Automobiles Inc. v. Canada, 2005 FCA 425, 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.

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. [Emphasis Added.]

[21] The appeal judge considered and rejected two further grounds of appeal advanced by Capcorp. He held that the nature of the penalty imposed – the amount of tax that should have been collected – was implicit in the RSTA. He also decided that the defence of due diligence had no application to the Minister's assessment.

The Grounds of Appeal

[22] The Minister advances two grounds of appeal, the second, an alternative to the first. The Minister submits that the appeal judge erred:

i. in his interpretation of the definition of an "unfunded benefits plan" under the RSTA; and

ii. in the alternative, in his consideration of the evidence, by prematurely shifting the burden of proof to the Minister, in failing to consider relevant evidence and in misapprehending the nature and sufficiency of Capcorp's evidence.

Ground # 1: The Interpretation of "Unfunded Benefits Plan"

[23] In earlier paragraphs I have canvassed relevant features of the HWP including enrolment and administration and attempted to set out the essence of the appeal judge's reasoning that underpinned his interpretation of the term "unfunded benefits plan" in s. 1(1) of the RSTA. No useful purpose will be achieved by their repetition here.

[24] Preliminary to a summary of the arguments advanced on this issue of statutory interpretation, it is helpful to set down a more extensive outline of some of the statutory definitions that have a say in our interpretation.

The Definitions

[25] For convenience, I will repeat the definition of the term "unfunded benefits plan" in s. 1(1) of the RSTA:

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.

[26] Among the component parts of this definition, the terms "protection against risk to an individual", "contract of insurance", "insurance" and "planholder" are also defined, some exhaustively, others expansively. The definitions are these:

"protection against risk to an individual" includes any undertaking to pay on death, or disability, or for supplemental health care, drugs, dental care, vision care, hearing care, or for protection against loss of income due to illness or accident or that provides any other similar benefit to an individual.

"contract of insurance" includes a policy, a certificate, an interim receipt, a renewal receipt, a writing evidencing the contract, whether sealed or not, and a binding oral agreement.

"insurance" means the undertaking by one person to indemnify another person against loss or liability for loss in respect of a certain risk or peril to which the object of the insurance may be exposed, or to pay a sum of money or other thing of value upon the happening of a certain event, and includes life insurance;

"planholder" 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

[27] In connection with unfunded benefits plan, the term "premium" means:

(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.

The Arguments on Appeal

[28] The Minister begins his submissions with a reminder about the applicable standards of review: correctness for the appeal judge's interpretation of the term "unfunded benefits plan", and palpable and overriding error for the assessment of the evidence adduced and findings of fact, except for extricable errors of law or principle.

[29] The Minister says that the appeal judge erred in his interpretation of the term "unfunded benefits plan". An unfunded benefits plan is simply an alternative to a contract of insurance for the purpose of obtaining protection against specified risks to an individual. Provided the protections extended by the plan could be obtained under an insurance contract, it is immaterial that a particular individual under the plan cannot get alternative insurance coverage, whether because of a pre-existing condition or otherwise.

[30] The Minister submits that the appeal judge's interpretation of the term "unfunded benefits plan" is flawed for several reasons.

[31] First, the appeal judge's interpretation undermines the consistency, predictability and workability of the RSTA. Tax statutes must be interpreted to achieve consistency, predictability and fairness. Interpretations that interfere with efficient administration and enforcement or result in pointless hardship and inconvenience must be rejected. Interpretations that bring about a more workable and practical result are preferable, providing the words of the enactment can reasonably bear that interpretation.

[32] According to the Minister, the appeal judge's interpretation would result in parties' obligations under the Act changing, depending on the state of the insurance marketplace at a particular time. In a similar way, the judge's interpretation would create significant enforcement difficulties. To determine whether tax was exigible on a plan, the Minister would have to determine the historical state of the insurance market for the entire period of the audit and assess medical information about each member of the plan for the same period.

[33] Second, the Minister continues, the appeal judge's interpretation creates irrational and arbitrary distinctions between those who use an unfunded benefits plan for convenience, on the one hand, and those who do so out of necessity, on the other.

[34] Third, the Minister submits the appeal judge's interpretation is at odds with the statutory definition of an "unfunded benefits plan". The definition is ostensive, that is to say, it relies on the concept of a contract of insurance to explain the concept of an unfunded benefits plan. Such a plan is an alternative to a contract of insurance. The HWP is not excluded from the definition simply because it can provide a level of coverage to some individuals above and beyond what they could have obtained through a contract of insurance. After all, the legislature used the term "could", not "can", which suggests the definition focuses on the hypothetical not the actual availability of insurance to planholders.

[35] Fourth, according to the Minister, the broad definition of "protection against risk to an individual" supports this interpretation. The definition suggests that an unfunded benefits plan provides a wide basket of benefits otherwise available under a contract of insurance. But it does not exclude plans that provide additional coverage for a particular expense or a greater percentage of reimbursement.

[36] Finally, the Minister says, the legislative history demonstrates that where an employer "self-insures" the cost of its employee benefits, as in the HWP, RST is exigible. The legislative history also confirms that unfunded benefits plans are provided in lieu of contracts of insurance and should therefore receive similar tax treatment.

[37] Capcorp says that the appeal judge correctly interpreted the term "unfunded benefits plan" by assigning to it a meaning supported by the plain language of the phrase. In addition, the judge properly found on the uncontradicted evidence adduced that protection against risk to individuals covered by the HWP could not otherwise be obtained by taking out a contract of insurance. This was so because there were material differences in the benefits offered under the HWP and those available under contracts of insurance.

[38] Capcorp also relies on general principles of statutory interpretation to support its position. The argument it advances is grounded in a textual, contextual and purposive analysis of the plain meaning of the statutory definition, harmonious with the legislation as a whole. The actual words of the taxation statute are critical to determine its meaning. Where ambiguity arises, courts must adopt the construction that favours the taxpayer.

[39] In the end, Capcorp says, the appeal judge properly interpreted the applicable provisions of the RSTA. He relied on the precise language in the definition of "unfunded benefits plan" and rightly rejected the Minister's reliance on policy considerations to displace the plain meaning of the unambiguous language chosen by the legislator.

The Governing Principles

[40] Determination of this ground of appeal requires us to interpret the term "unfunded benefits plan" as exhaustively defined in s. 1(1) of the RSTA. This requires a consideration not only of the general principles informing statutory interpretation, but also those specific to the interpretation of taxation statutes.

[41] It has been long established that there is but one principle or approach to statutory interpretation and that is that the words of the statute 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 the enacting legislative body: Agraira v. Canada (Minister of Public Safety and Emergency Preparedness), 2013 SCC 36, at para. 64; Canada Trustco Mortgage Co. v. R., 2005 SCC 54, at para. 10.

[42] When we consider the written words of a statute, context inevitably plays an important role. Context involves the presumption of consistent expression, that is to say, that when different terms are used in a single piece of legislation, they must be understood to have different meanings. When the same terms are used, the same meaning should be assigned: Agraira, at paras. 80-81.

[43] In the interpretation of tax statutes, understandably we are required to place an emphasis on textual interpretation. And this is so because of the particularity and detail of many tax provisions. Where the legislature has specified the precise conditions that must be satisfied to achieve a particular result, it is reasonable to assume that taxpayers would rely on those provisions to achieve the result they prescribe: Canada Trustco, at para. 11; A.Y.S.A. Amateur Youth Soccer Assn. v. Canada Revenue Agency, 2007 SCC 42, at para. 16; Aubrey Dan Family Trust v. Ontario (Finance), 2017 ONCA 875, at para. 13.

[44] Where the words of a tax statute are precise and unequivocal, the ordinary meaning of the words predominates in the interpretive process. On the other hand, where the words can support more than one reasonable meaning, the ordinary meaning of the words plays a lesser role with greater emphasis bestowed on the context, scheme and purpose of the Act. In such a way, legislative purpose may not be used to supplant clear statutory language, but may assist in arriving at the most plausible explanation of an indeterminate statutory provision: Canada Trustco, at para. 10; Placer Dome Canada Ltd. v. Ontario (Minister of Finance), 2006 SCC 20, at para. 23; Craig v. R., 2012 SCC 43, at para. 38.

[45] It is also well established that in resolving doubt about the meaning of a tax provision, the administrative practice and interpretation adopted by the Minister are important factors to be weighed, although they are not dispositive of the interpretation to be accorded to the provision: Placer Dome, at para. 10.

[46] Another principle to keep in mind where the wording of a statute may give rise to more than one interpretation is that where one interpretation can be placed on a statutory provision that would bring about a more workable and practical result, such an interpretation is preferable if the words the legislator has chosen can reasonably bear that interpretation: Berardinelli v. Ontario Housing Corp., at para. 19; Markevich v. Canada, 2003 SCC 9, at para. 34; Camp Development Corp. v. Greater Vancouver Transportation Authority, 2010 BCCA 284, at para. 52.

[47] Two further points will round out this brief canvass of governing principles.

[48] First, the provisions of a tax statute should be interpreted in such a way as to achieve consistency, predictability and fairness so that taxpayers may manage their affairs intelligently: Canada Trustco, at paras. 11-12; Placer Dome, at para. 21.

[49] Second, in a dispute about the proper interpretation of a tax statute, there is a residual presumption in favour of the taxpayer. But this residual presumption applies only in the exceptional case in which application of the ordinary principles of interpretation does not resolve the issue. Doubts about the meaning of a taxation statute must be reasonable. The residual presumption may not be enlisted unless the usual rules of statutory interpretation have been applied and are unavailing in an attempt to determine the meaning of the provision: Placer Dome, at para. 24. As I will explain, there is no need to resort to the residual presumption because the principles of statutory interpretation allow us to ascertain the meaning of the statutory provisions in issue.

The Principles Applied

[50] For the following reasons, I would give effect to this ground of appeal and hold that the HWP is an "unfunded benefits plan" as the term is defined in s. 1(1) of the RSTA, and thus subject to RST.

[51] In its essence, the dispute fastens upon the meaning to be accorded to the clause "that could otherwise be obtained by taking out a contract of insurance" within the exhaustive definition of the term "unfunded benefits plan" in s. 1(1) of the RSTA. The appeal judge concluded that since most employers who enrolled in the HWP would not be able to obtain insurance coverage, they were not required to pay RST on the amount they paid to Capcorp.

[52] The parties occupy common ground on two of the essential ingredients of the definition of "unfunded benefits plan":

i. that the HWP is a plan; and

ii. that the HWP is a plan "which gives protection against risk to an individual".

[53] I am persuaded that the HWP falls within the sweep of the definition of "unfunded benefits plan" and thus is subject to the RST assessment levied by the Minister. I will begin by examining the plain language of the definition, before assessing the broader context of the Act and policy considerations relevant to Capcorp's proposed interpretation.

Plain Meaning

[54] In my view, the plain meaning of the definition of an "unfunded benefits plan" in s. 1(1) is ambiguous. I agree with the Minister that the definition is ostensive, in that it explains the concept of an "unfunded benefits plan" by reference to a contract of insurance. A contract of insurance protects a policy holder against defined risks. Healthcare costs beyond those covered by a provincial healthcare plan. Prescription drug costs. Dental care. Vision care. Hearing care. Protection against income loss due to illness or accident.

[55] These examples illustrate the types of "protection against risk" that may be provided through both contracts of insurance and unfunded benefits plans. The question before us is whether the term "unfunded benefits plan" includes a plan that provides protections generally available under contracts of insurance, but unavailable to specific participants because of their pre-existing medical conditions, or some other reason.

[56] This question is not resolved by the plain language used to define an unfunded benefits plan in s. 1(1), contrary to Capcorp's submission. If anything, the statutory definition supports the Minister's proposed interpretation. I agree that the use of the auxiliary verb "could" in the phrase "could otherwise be obtained by taking out a contract of insurance" refers to a possibility, to potential rather than actual. What matters, it would appear, is the potential availability of a contract of insurance to protect against the risk, not congruency between the plan and contract in terms of enrolment requirements and extent of coverage.

[57] Moreover, the phrase "could otherwise be obtained…" can be reasonably read as referring to the "protection against risk" provided by a benefits plan, and not the specific individual to whom protection is being provided. Put differently, what counts is whether the protection against risk "could otherwise have been obtained through a contract of insurance", and not whether the specific individual being insured could have obtained the coverage. It also bears mentioning that the expansive definition of "protection against risk to an individual" does not exclude from its reach a plan that provides more extensive coverage than a contract of insurance, either in terms of benefits paid or eligibility requirements.

[58] For these reasons, the plain language within s. 1(1) does not resolve the interpretive issue before us.

Legislative Purpose and Efficient Administration

[59] The legislative purpose for taxing benefits plans supports the interpretation advanced by the Minister. Benefits plans became subject to RST following an amendment to the RSTA: Bill 138, An Act to amend the Retail Sales Tax Act, 3rd Sess., 35th Leg., Ontario, 1994. The explanatory notes accompanying Bill 138 make clear that the legislature decided to tax benefits plans because they were adjudged to be a substitute for insurance:

As well, those providing funded and unfunded benefits plans, in lieu of insurance, that cover risks to an individual, such as death, disability, loss of income due to illness or accident, and payments for supplemental health care, drugs, dental and other expenses, will be liable to pay tax on contributions into a funded plan or on net benefits paid out of an unfunded plan. Those who are covered under either type of plan will be liable to pay tax on the contributions they made [Emphasis Added].

[60] Excerpts from the legislative debate on Bill 138 also suggest that benefits plans can be viewed as a form of self-insurance:

Bill 138 says a benefit plan is a plan that gives protection against risk to an individual that could otherwise be obtained through insurance. Such plans would typically cover payment on death or disability, supplement health care, drugs, dental care, vision care, hearing care or protection from loss of income due to illness or accident.

What's interesting about this definition, and I mentioned it just a few moments ago, is that where an employer self-insures and doesn't go out and purchase the plan but offers this benefit to their employee, the tax applies.

What's really interesting about this is that it clearly defines what happens when an employer self-insures. It defines what a plan is, and it's very clear that they were attempting to close any loophole that might give any flexibility [Emphasis Added].

[61] Therefore, benefits plans – funded or unfunded – are taxed because the legislature has determined that such plans are substitutes for insurance, and should therefore receive similar tax treatment to contracts of insurance. Crucially, a plan does not cease to be a substitute for a contract of insurance simply because it provides protections above and beyond those that specific plan members could have obtained in the marketplace. To hold otherwise would arbitrarily exclude some benefits plans from the scope of s. 1(1), unduly restricting the provision's reach.

[62] Additionally, the interpretation by the appeal judge of the term "unfunded benefits plan" undermines the consistency, predictability and workability of the provision, an essential ingredient of the interpretation of tax legislation: see Canada Trustco, at paras. 11-12; Placer Dome, at para. 21. For example, the appeal judge's interpretation would require the Minister to determine the historical state of the insurance market for the entire period of an audit before determining whether a benefits plan should be taxable. Where an individual plan member's insurability is a deciding factor, the Minister would have to get medical information about each member to effectively audit the plan. Absent clear statutory wording, I do not accept that the legislature intended to introduce such difficulties into the process of taxing unfunded benefits plans.

[63] For these reasons, I am satisfied that the appeal judge erred in his interpretation of the definition of "unfunded benefits plan" in s. 1(1) of the RSTA. My discussion of the second ground of appeal explains why, under the proper interpretation, the Minister's assessment must be restored.

Ground # 2: The Burden of Proof Issue

[64] The second ground of appeal asserts that the appeal judge erred by prematurely shifting the onus of proof to the Minister in the absence of any evidence dislodging the initial obligation on Capcorp to "demolish" the assumptions on which the Minister relied in his assessment.

[65] A brief reference to the evidence adduced before the appeal judge and his reasons will help to situate this claim of error in its appropriate surroundings.

The Evidentiary Foundation

[66] On the appeal in the Superior Court of Justice, Andrew Noseworthy, the Chief Executive Officer of Capcorp, testified that the HWP was intended to replace an "individual" contract of insurance and serve as an alternative to such a contract for a certain constituency. He said that "individual" contracts of insurance do provide coverage for the costs of various services, such as prescription drugs, semi-private hospital accommodation, and vision, hearing and dental care. However, the benefits under "individual" contracts of insurance are more limited and the insured is generally required to pass a medical examination. But where there are enough employees to enter into a contract for group insurance, an individual employee's medical history will not necessarily prevent that employer from obtaining group coverage.

[67] Mr. Noseworthy gave evidence that the HWP could provide unlimited coverage for all health and dental expenses, did not require a medical examination and could cover any dependent who satisfies the eligible dependent criteria for the medical expense tax credit under the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.). According to Mr. Noseworthy, owner-managers generally chose unlimited coverage under the HWP.

[68] Mr. Noseworthy and an audit manager with the Ministry of Finance testified that, as a general rule, the health, dental and vision care covered by the HWP could be obtained by taking out a contract of insurance.

The Reasons of the Appeal Judge

[69] In a passage excerpted earlier the appeal judge concluded that the evidence of Mr. Noseworthy on behalf of Capcorp established a prima facie case that planholders – individual owner/managers – could not obtain insurance coverage for the same risks covered by the HWP. Since the Minister had failed to adduce any contrary evidence, the appeal judge quashed the Minister's assessment.

The Arguments on Appeal

[70] The Minister begins with an uncontroversial submission. In tax cases, the burden of proof rests on the taxpayer who contests an assessment to demolish the assumptions on which the assessment is grounded. The standard of proof required is a prima facie case. This means that the case for the taxpayer must be supported by evidence which raises such a degree of probability in its favour that it must be accepted, if believed, unless it is rebutted or the contrary is proven.

[71] In this case, the Minister continues, the evidence adduced by Capcorp fell short of the prima facie case standard. There was no evidence about the insurability of specific persons during the assessment period and no evidence about the state of the insurance marketplace during that same time. Said differently, in the absence of evidence to support a prima facie case that HWP subscribers could not obtain equivalent insurance coverage, Capcorp failed in its burden. The assessment should stand.

[72] Capcorp accepts not only that the initial burden of proof settles upon it, but also the standard of proof required to discharge that burden. But a taxpayer may rebut that burden in a variety of ways. And one way is by demonstrating that the Minister's assumptions on which the assessment is grounded, that participants in the HWP could get insurance to protect against the same risks, is wrong.

[73] In this case, Capcorp says, its evidence before the appeal judge demonstrated the incorrectness of the Minister's assumption. Participants in the HWP could not obtain the same coverage under an insurance policy. Limitations were imposed. Insurability. Extent of coverage. The failure of the Minister to adduce contrary evidence left the Minister's assumptions demolished and the assessment invalid.

The Governing Principles

[74] Under s. 18(1) of the RSTA, where a vendor has failed to make a return or a remittance as required under the Act, the Minister may make an assessment of the tax collected by the vendor for which the vendor has not accounted and the assessed amount is deemed to be the tax collected by the vendor. Subject to being varied or vacated on an objection or appeal and subject to a reassessment, the Minister's assessment is deemed to be valid and binding on the taxpayer or vendor: RSTA, s. 18(8).

[75] It follows from these statutory provisions that the taxpayer bears the burden of establishing that the factual findings (or assumptions) on which the Minister grounded the assessment are wrong: Placer Dome, at para. 25.

[76] In taxation, the standard of proof is proof on a balance of probabilities: Hickman Motors Ltd. v. R., at para. 92. In making assessments, as we have already seen, the Minister proceeds on assumptions. And so it is that the initial burden settled upon the taxpayer is to "demolish" the assumptions that underpin the assessment. To do this, the taxpayer must make out at least a prima facie case that the Minister's assumptions are wrong: Hickman Motors, at paras. 92-93. It is only where this prima facie case has been made out, that the burden shifts to the Minister. Where the burden shifts in this way and the Minister adduces no evidence whatsoever, the taxpayer succeeds and the assessment is vacated: Hickman Motors, at para. 95.

The Principles Applied

[77] I agree with the Minister and would give effect to this ground of appeal.

[78] In large measure, the appeal judge's error in finding that Capcorp's evidence constituted a prima facie case that rebutted the assumptions underlying the Minister's assessment followed from the judge's error in interpreting the term "unfunded benefits plan" under s. 1(1) of the Act. Capcorp's evidence was general in nature. It revealed a lack of congruency or equivalency between the HWP and insurance coverage. In a requirement of insurability for individuals, but maybe not for groups. In the extent of coverage afforded. But the definition of "unfunded benefits plan" is not so exacting, requiring only that the protection against risk to an individual afforded by the plan "could otherwise be obtained by taking out a contract of insurance". And "protection against risk to an individual" includes any undertaking to pay, among other things, "for supplemental healthcare, drugs, dental care, vision care, hearing care or for protection against loss of income due to illness or accident…". Capcorp's evidence fell short of establishing a prima facie case that these types of protections could not "otherwise be obtained through contracts of insurance", on the proper construction of the phrase.

Other Grounds of Appeal

[79] Capcorp sought to uphold the result reached by the appeal judge – setting aside the Minister's assessment – on four additional grounds. None are availing.

[80] First, Capcorp argued that each Notice of Participation submitted to it by participating employers was a "contract of insurance … for the life, health or physical well-being of insured individuals". The HWP, the argument goes, was therefore exempt from taxation under s. 2.1(8)(c) of the RSTA.

[81] This submission must fail. The RSTA clearly distinguishes between benefits plans and contracts of insurance, at multiple points. As the HWP constitutes an "unfunded benefits plan", it would be incongruous if it also qualified as a "contract of insurance" for the purposes of the RSTA. Indeed, Capcorp's position would render any employer benefits plan for the health and well-being of individual employees exempt from the RSTA, contrary to the clear indicia of legislative intent outlined above at paras. 59-60.

[82] Second, Capcorp submitted that it is not liable to pay RST under s. 2.1(1) of the RSTA, as it is not an insurer or a planholder. This submission does not assist Capcorp. Even if Capcorp were not required to pay RST under s. 2.1(1) of the RSTA, it was required to collect and remit it as a vendor under s. 10 of the Act.

[83] Third, Capcorp argued, as it did before the appeal judge, that it exercised reasonable diligence in determining not to pay RST. I disagree. Capcorp was only assessed for amounts of RST it should have collected. These were obligations that endured despite Capcorp's contrary interpretation of the requirements of the RSTA.

[84] Fourth, Capcorp renewed its submission before the appeal judge that the Minister's Notice of Assessment failed to set out the grounds on which a penalty had been imposed. Like the appeal judge, I reject this submission. I agree with the appeal judge that the nature of the penalty was implicit in the Notice of Assessment; specifically, the amount of RST that Capcorp should have been collecting from employers.

Conclusion

[85] For these reasons, I would allow the appeal, set aside the decision of the appeal judge and affirm the assessment of the Minister.

[86] The Minister is entitled to costs of this appeal and the proceedings at the Superior Court. I would fix costs at $176,000, inclusive of disbursements and all applicable taxes.

Released: April 30, 2018

"David Watt J.A."

"I agree. S.E. Pepall J.A."

"I agree. B.W. Miller J.A."

Footnotes

[1] Ontario Legislative Assembly, Official Report of Debates (Hansard), 35th Parl., 3rd Sess., No. 110 (11 April 1994), at pp. 5508-5509 (Elinor Caplan).

[2] Most significantly, in s. 1(1) and s. 2.1(1).