http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/66883/index.do
Compagnie de Gestion Alger Inc. v. The Queen (February 17, 2014 – 2014 TCC 53, Paris J).
Précis: The taxpayer operated a restaurant which included a home delivery service. It did not collect GST on the delivery charge (which was itemized on its bills). It also provided free meals to employees which it treated as taxable benefits but did not collect GST on the amount of the meals. The taxpayer claimed that the delivery charges were those of the delivery people who were independent contractors. The amount was printed on the bill only for convenience. The taxpayer claimed the meals were provided to keep its business running smoothly at rush hours, not to benefit the employees. The Tax Court rejected both arguments and held GST was exigible on both the delivery charges and the employee meals.
Decision: The facts at issue were straight forward:
[2] From 1974 to 2011, the appellant operated the fast-food restaurant Dixie Lee in Baie-Comeau. The restaurant’s main products were fried chicken, pizza and fried seafood.
[3] The appellant offered home-delivery service. Delivery charges were paid by the customer, and no GST was collected by the appellant on the amount paid by the customer for delivery.
[4] Also, the appellant offered some of its employees discounts on meals while at work. The appellant did not remit any GST for the meals.
[5] The Minister of National Revenue (the Minister) determined that the appellant should have collected and remitted the GST on the delivery income because delivery services were performed in the course of the appellant’s business and that the supply of food and the supply of delivery services constituted a single supply. The Minister also determined that the meals provided to the employees were taxable under section 173 of the ETA, which pertains to supplies that constitute taxable benefits under the Income Tax Act (the ITA).
[6] Accordingly, the Minister assessed the appellant in the amount of $14,346.28 with respect to the GST for the period from July 1, 2003, to February 28, 2007.
[7] The appellant challenges the assessment. It submits that it had no obligation to collect and remit the GST on the amount paid by customers for delivery services because the services were performed by delivery persons who were self-employed under a contract for services. The appellant claims, however, that it never received any money for the deliveries because the amounts were paid directly to the delivery persons by the customers.
[8] The appellant also submits that it did not have to collect and remit the GST in respect of meals purchased by the employees because the appellant offered meals primarily for its own benefit and not for the employees’ benefit. Thus, in its opinion, the meals were not a taxable benefit for the employees under the ITA.
[Footnote omitted]
The Court held that the home-delivery was a single supply and that the delivery persons acted as agents of the taxpayer in making the deliveries:
[37] On the one hand, the evidence reveals that the cost of food and the cost of delivery were itemized separately on the invoice provided to the customer. However, when the customers paid their invoice, they paid the delivery person the total amount, without distinction between food and delivery. As for the food and delivery services being interconnected, the evidence shows that there were two ways of obtaining the food: go to the appellant’s establishment in person or place an order for delivery. In the first case, the food was made available to the customers while at the restaurant. In the second, the food was made available to the customers upon delivery. What differs is the manner in which the supply was made available to the customers. As for the interconnection and separation of elements, it is clear that it was possible to obtain the food without delivery. However, to obtain delivery without food is simply illogical. By separating the two elements, such that all that remains is the delivery, a viable and useful service or property cannot be obtained.
[38] I conclude that delivery is intrinsically connected to the food and that the supply of food at the customer’s home was a single supply.
[39] Contrary to the appellant’s submissions, the fact that the delivery persons were self-employed, as far as the appellant is concerned, is irrelevant. In light of Manship Holdings, the determining factor is whether the delivery persons supplied delivery service in their own name or as agents of the appellant. At paragraph 2 of Manship Holdings, the Federal Court of Appeal wrote:
The fact that the masseuses were independent contractors rather than employees does not preclude a finding that they performed their services on behalf of the appellant. The question in this regard is whether the masseuses, as self-employed persons, supplied their services in their own name or as agents of the appellant?
If the services were provided as agents, the appellant is the sole provider of these services and is responsible for the collection and remittance of the HST on the full amount paid by the customers. [Emphasis added.]
[40] I am of the view that, in this case, the delivery persons acted as agents of the appellant when they performed the deliveries. I do not accept, as alleged by the appellant, that the delivery persons acted as agents of the customers who ordered the appellant’s food. The evidence shows that the appellant’s flyers advertised the delivery service provided. Furthermore, when customers wished to place a food order with delivery, they simply had to call the appellant. The customers were not required to both place their food order with the appellant and make arrangements for delivery with the delivery persons. Indeed, the customers did not know the identity of the delivery persons. Finally, the evidence shows that if customers had issues with the delivery service, they contacted the appellant to resolve them.
The Court also rejected the argument that the provision of free meals was not an employee benefit:
[48] In the case at bar, the appellant submits that it provided the meals to the employees primarily for its benefit and not for the benefit of the employees. Thus, the appellant bore the onus of proof on a balance of probabilities that it was the appellant and not the employees who benefitted from the meal scheme. However, the explanations provided by Mr. Gervais in his testimony were insufficient to meet that burden. It seems more likely to me that the reason the employees chose to stay at the restaurant during their 30-minute meal breaks was that in that case they were paid, and not that they were entitled to a discount on meals. In any event, there was no evidence showing when the appellant began to offer these meals to its employees, or that before that, it had difficulty enticing them to remain on the premises during their breaks. Finally, I draw an adverse inference from the appellant’s failure to call one of its employees as a witness to corroborate the testimony of Mr. Gervais on that issue.
[49] While this is not determinative, I also note that for income tax purposes, the appellant included, in its employees’ taxable income for the relevant years, an amount as taxable benefits each time one of them received a free meal. The evidence, therefore, shows that the appellant, for purposes of its obligations under the ITA, treated the meals as taxable benefits. I have difficulty believing that the appellant would have done so had it not believed that the meals were in fact a benefit it conferred on the employees.
As a result the appeal was dismissed with costs.