Order UT96-03 - UT95102 - Sales Tax Appeal - Charlottetown Driving Park Association and The Hillsboro Trotting Club Inc. v. Provincial Tax Commissioner (Jun 7, 1996)

Docket UT95102
Order UT96-3

IN THE MATTER of an appeal by the Charlottetown Driving Park and Provincial Exhibition Association and the Hillsboro Trotting Club Inc. against a decision of the Provincial Tax Commissioner, dated June 20, 1995.

BEFORE THE COMMISSION

on Friday, the 7th day of June, 1996.

Linda Webber, Chair
Anne McPhee, Commissioner
Emmett Kelly, Commissioner

Order

Contents

Appearances & Witnesses

Reasons for Order

Introduction

Jurisdiction

Introduction

Trial de Novo

New Issues

Admission Fees at the Top of the Park

Services Provided by United Tote of Canada Ltd. and the United States Trotting Association

Disposition

Order

Appearances & Witnesses

1. For the Charlottetown Driving Park and Provincial Exhibition Association and the Hillsboro Trotting Club Inc. - The Appellants

Counsel:
Kevin Kiley

Witness:
Jack Hynes

2. For the Provincial Tax Commissioner - The Respondent

Counsel:
Roger B. Langille, Q.C.
Ruth DeMone

Witness:
Heather Doyle

3. For the Island Regulatory and Appeals Commission

Counsel:
Thomas A. Matheson

Staff:
Donald G. Sutherland
Director, Technical Services Division

Heather Walker
Recording Secretary

Reasons for Order

1. Introduction

The Charlottetown Driving Park and Provincial Exhibition Association is a corporate entity that operates the harness racetrack in Charlottetown. The Hillsboro Trotting Club Inc. is another corporate entity that operates the part of the racetrack known as the Top of the Park. These corporations are the appellants herein and, for the purposes of these reasons, will be collectively referred to as the "CDP" or "Appellants" .

The racetrack facilities include seating areas of various types. On the ground level are benches that occupy a space in front of the first level of the main building. On the second level there is an open-air section of the grandstand and some box seating. There is also a glassed-in area. On the third level is the Top of the Park, which is glassed-in and seven tiers high. One general admission fee at the entrance to the track area enables patrons to access all but the Top of the Park facilities. An additional fee is charged for access to the Top of the Park.

Appeals were filed by the Appellants in connection with certain items contained in the assessments raised under audit reports numbered 6840 and 6842, both dated January 27, 1995.

The Provincial Tax Commissioner-by letter dated June 20, 1995-upheld the assessments, referred to as "regarding Notices of Assessment #1012 and 1014 (Audit Reports #6842 and 6843)". By letter dated July 18, 1995, a Notice of Appeal was filed with this Commission on July 19, 1995. In the letter of appeal, two matters are identified as in issue:

admission fees to the Top of the Park Club, and

services provided by United Tote of Canada Ltd. and the United States Trotting Association.

The Commission heard argument on jurisdictional questions raised by the Provincial Tax Commissioners on February 22, 1996. Evidence and argument on the issue of admission fees to the Top of the Park Club were heard on April 15, 1996. The remaining issue-services provided by United Tote of Canada Ltd. and the United States Trotting Association-is scheduled to be heard later this month.

2. Jurisdiction

2.1 Introduction

By letter dated January 10, 1996, the Provincial Tax Commissioner notified the Commission that he would be arguing, as a preliminary objection, that the Commission has no jurisdiction to consider issues which are not raised before the Provincial Tax Commissioner. Argument on this issue was heard by the Commission on February 22, 1996.

The Respondent takes the position that new grounds have been filed in the appeal to the Commission and that the Commission lacks jurisdiction to deal with any grounds of appeal not raised before the Provincial Tax Commissioner. The Appellants argue that there are no new grounds raised and, alternatively, that the appeal hearing is in the nature of a trial de novo and as such not limited to issues raised before the Provincial Tax Commissioner. Both parties filed authorities on this issue.

2.2 Trial de Novo

The first question that must be answered is: What is the nature of the appeal pursuant to the Revenue Tax Act? "The nature and scope of the 'appeal' or 're-hearing' must be determined from the language used and a reading of the Act as a whole." This was the principle cited in Re Newterm Ltd. (1988), 70 Nfld. & P.E.I.R. 216 (Nfld. S.C. - T.D.), where it was held that an appeal from a decision of the Assessment Review Court to the Supreme Court of Newfoundland, Trial Division, was a hearing de novo.

Section 5 of the Island Regulatory and Appeals Commission Act, R.S.P.E.I. 1988, Cap. I-11, provides that:

5. The functions of the Commission are
. . .

(c) to hear and decide appeals from decisions of
. . .

(iii) the Provincial Tax Commissioner under the Revenue Tax Act, R.S.P.E.I. 1988, Cap. R-14. [Emphasis added.]

The word "appeals" is not defined in the legislation.

Provisions regarding the appeal process are found in the Revenue Administration Act, R.S.P.E.I. 1988, Cap. R-13.2 and amendments thereto. Sections 9 and 10 of that legislation provide as follows:

OBJECTION AND APPEAL

9. (1) Where a person considers that he is not liable to taxation under a revenue Act or disputes liability for the amount assessed against him, he may, within sixty days of the date of service or mailing of the notice of assessment serve on the Commissioner a notice of objection setting out the reasons for the objection and all relevant facts.

(2) A notice of objection is sufficiently served if delivered to the office of the Commissioner or sent by registered mail addressed to the Commissioner.

(3) The Commissioner shall, within sixty days of receipt of the notice of objection, reconsider the assessment or estimate and vacate, confirm or vary it, and he shall thereupon notify the objector of his decision by registered mail.

10. (1) If the taxpayer or collector is dissatisfied with the decision of the Commissioner under subsection (3), he may, within thirty days from the date of mailing of the decision, appeal to the Island Regulatory and Appeals Commission hereafter referred to as the "Commission."

(2) Any appeal shall be commenced by serving upon the Commission a notice of appeal in writing setting out the grounds of the appeal and stating briefly the facts relative thereto.

(3) A notice of appeal is sufficiently served if delivered to the office of the Commission or sent by registered mail addressed to the Commission.

(4) On the hearing of the appeal both the appellant and the Commissioner are entitled to appear and be heard and to submit further evidence.

(5) The Commission may, in writing, designate a person to act on its behalf and hear an appeal under this section and any reference in this section or section 11 to the Commission includes a person so designated.

(6) Upon any appeal, the Commission may affirm, vary or reverse the decision of the Commissioner and shall give the appellant written notice of its decision by registered mail.
[Emphasis added.]

The word "appeal" is not defined in the legislation.

What the authorities make quite clear is that the use of the word appeal in and of itself does not signify any particular form of hearing. In the words of Reid and David in Administrative Law and Practice, 2^nd ed. (Toronto: Butterworths, 1978) at pp. 449-51:

A warning has already been sounded against the unfounded assumption that there is some general state or quality with objective existence called 'appeal jurisdiction' that invests appeal and review tribunals with uniform powers. There is not. The only appeal jurisdiction that any tribunal, be it a court or tribunal, and be it high or low, can have is that given to it by some statute. It must be provided by express statutory language or by necessary implication. … It follows that the existence, scope, and nature of appeal jurisdiction are really matters of the construction of statutes. All these issues may be clouded by the inadequacy of statutory language.

. . .

VARIOUS KINDS OF APPEAL

Rights of appeal conferred by statute from administrative tribunals are common. These may be to law-courts, to other administrative tribunals, to ministers of the Crown, or their deputies, or even to federal or provincial cabinets. Apart from problems of interpretation, there are other difficulties inherent in the creation of such appeals. The provinces are under a disability in conferring rights of appeal in that they are constitutionally incapable of investing tribunals of their own creation with appellate jurisdiction equivalent to that of the law Courts.
[Emphasis added.]

This latter point-the constitutional implications of limiting the Commission's role to appellate jurisdiction equivalent to that of the law Courts-was one referred to in Stafford v. Newfoundland Milk Marketing Board (1987), 67 Nfld. & P.E.I.R. 198 (Nfld. S.C. - T.D.), where the court considered the scope of review on administrative appeals involving an appeal from an order of the Milk Marketing Board to an Appeal Tribunal:

Aside from the constitutional implications of concluding that the function of the Appeal Tribunal was the same as a court, the effect of limiting the role of the Appeal Tribunal would be contrary to the legislative scheme of the Act. If one examines the scheme created by the Natural Products Marketing Act, 1973 and the regulations, it is clear that the Appeal Tribunal must have been intended to exercise its own discretion though it may choose to give weight to the decision of the Milk Marketing Board.
(Cameron, J. at p. 202)

The emphasis, however, in that case-as in many others-is on the character of the proceeding envisioned by the legislation. Whether or not the statute provides that the appellate forum can hear witnesses and compel the production of documents is an important factor in determining the nature of the appeal-usually supporting the procedure as a trial de novo:

Considering the make-up and constitution of the Appeal Board, its powers to call witnesses, to order production of documents, to compel attendance of witnesses and to compel the production of documents, only a rehearing can be contemplated. Particularly this is so where there is no requirement for making a record nor for the forwarding of the 'record' to the Board. (Calgary General Hospital Board v. Williams (1982), 42 A.R. 1 (C.A.), per Moir, J.A., C. J. at p. 5).

These points were also referred to in Superintendent of Real Estate v. Harder (1980), 28 A.R. 210 (Alta. Q.B.), where the respondent was denied a salesman's license by the Superintendent of Real Estate. The Appeal Board there had refused to consider certain additional evidence the superintendent had wanted to introduce. Miller, J. stated at p. 219:

It seems apparent from this section that the legislators intended to ensure that a majority of the members of the Appeal Board would be persons knowledgeable in the real estate industry who could bring to any hearing the benefit of their special expertise. This was undoubtedly designed to make certain that the rights of an individual, either in the industry or wishing to become part of it, would be largely judged by his peers rather than by outsiders.

If the form of the appeal to the Appeal Board were restricted only to a consideration of the record from the Superintendent's decision, it seems apparent that such a record could be either almost non-existent or, at best, might only contain material supporting the Superintendent's view of the situation. This form of appeal would tend to negate the desire of the legislators to provide access to the special expertise of the Appeal Board, especially if the record is incomplete.

I am of the view that the fairest and best procedure designed to make the fullest use of the Appeal Board's special expertise is to have the hearing before it in the form of a de novo procedure. In this way both sides will have a full opportunity to present all of the evidence which they think is applicable up to the date of the hearing and neither side will be proscribed by what took place, or didn't take place, before the Superintendent. This will then enable the Appeal Board to conduct the fullest examination and to be appraised [sic] of all relevant facts in order to be able to protect, not only the individual applicant, but also to protect the public interest.
[Emphasis added.]

One distinguishing factor between that case and the case before the Commission is the composition of the board-other persons knowledgeable in the industry who could bring to the hearing the benefit of their special expertise. While, in the instant case, the Commission does not have the same characteristics, there is an element of similar public interest in the appointments made, pursuant to the Island Regulatory and Appeals Commission Act, of persons with qualifications in certain areas:

3. (1) The Commission shall be composed of

. . .

(d) not more than five part-time Commissioners who shall be knowledgeable in one or more of the following areas:

accounting, agriculture, municipal planning, engineering, business, environmental matters, finance, economics, law, utilities, taxation, consumer protection.

An element of similar public interest also exists in the powers of the Commission to hire such experts as may be required to obtain the special expertise necessary to deal with specific statutory responsibilities:

7. (1) The Commission may

(a) appoint such staff and define their duties;

(b) engage such consultants or other assistants,

as it considers necessary to perform its functions.

Of similar importance is the issue of how one could hear an appeal on the "record" when there is no record, or where the record is from one point of view only. The latter point brings out another issue: The appeal to the Commission is, in fact, the first opportunity for a taxpayer to present his argument before an independent third party. Not only is the Provincial Tax Commissioner not independent, there is no obligation upon him to hold any kind of hearing. All these points support the argument that the appeal to the Commission must have been intended by the legislature to be in the nature of a trial de novo.

A number of Prince Edward Island cases have dealt with this issue and provide guidance on this point. They show that the court here has specifically recognized an "appeal" jurisdiction to be that of trial de novo in relation to both the Highway Traffic Act (Smith v. Registrar of Motor Vehicles (1980), 30 Nfld. & P.E.I.R. 215 (P.E.I.S.C.)) and the Civil Service Act (Jenkins v. Government of Prince Edward Island (1983), 43 Nfld. & P.E.I.R. 114 (P.E.I.C.A.)). The court sustained appellate tribunals that exercised "appeal" functions by way of trial de novo (Re Milk Marketing Board (P.E.I.) (1993), 109 Nfld. & P.E.I.R. 296 (P.E.I.S.C.-T.D.)) relating to the Natural Products Appeals Tribunal, and Re Butler (1977), 20 Nfld. & P.E.I.R. 469 (P.E.I.S.C.) and Dennis Construction Limited v. P.E.I. Land Use Commission et al. (1984), 48 Nfld. & P.E.I.R. 342 (P.E.I.S.C.) relating to the Land Use Commission.

The Supreme Court of Prince Edward Island, in considering whether its own powers under appeal were that of a trial de novo, reviewed, in Jenkins, supra, sections of the Civil Service Act. Some of those sections were as follows, (pp. 116-117):

52. (5) A permanent employee who was dismissed by Order of the Lieutenant Governor in Council has the right to appeal to the Supreme Court of Prince Edward Island in the following manner

. . .

(c) at the time and place appointed the Supreme Court may hear the evidence and allegations presented on behalf of the appellant and on behalf of the Executive Council and the procedure shall be informal, and the order of proceedings shall be in the discretion of the Supreme Court,

. . .

MacDonald, J. then concluded that the appeal to the Supreme Court was in the form of a trial de novo and went on to say, at p. 121:

. . . the jurisdiction given to the Supreme Court on appeal is very wide. The jurisdiction of the court on appeal is equivalent to that of a trial by way of a hearing de novo. That the Legislature intended the appeal would be by way of a de novo hearing is evident from the fact that the court may hear the 'evidence and allegations' presented on behalf of both parties (s.53(5)(c)). These wide powers given to the court hearing the appeal satisfy me that a full and fair hearing on the merits is possible under the Civil Service Act. Of course, if the court hearing the appeal were not to give the widest interpretative scope of the Act to the appellant, these could well be grounds for stating the appeal did not provide a fair hearing to the appellant.

Further, clause (c) of s.53(5) provides that the order of proceedings shall be in the discretion of the Supreme Court. This discretion enables the court to place the burden of proving the correctness of the decision upon the respondent thereby overcoming the disadvantage that factor would have upon the appellant receiving a fair hearing on the appeal if he were to have the burden of proving the incorrectness of the first decision.
[Emphasis added.]

Further support for considering the hearing before the Commission to be by way of trial de novo is indirectly found in the case of Eastisle Restaurants (1986) Ltd. v. Prince Edward Island (Minister of Finance) (1990), 82 Nfld. & P.E.I.R. 48 (P.E.I.S.C. - T.D.). In that case, McQuaid, J. found that the changes to the Revenue Tax Act-which repealed the detailed provisions regarding the appeal to the court-altered the process from a trial de novo to one where the evidence was restricted to that before the Minister, except that evidence arising after the Minister's ruling could be adduced without leave and other evidence could be adduced with leave. After citing the earlier provisions (found in the Revenue Tax Act, R.S.P.E.I. 1974, c.R.-14) at pp. 50-51, McQuaid, J. stated his reasoning at p. 51:

It is obvious to me that what was contemplated at the judicial appeal level was a full trial de novo, having regard particularly to subsections (1), (8), and (9) of s.30. Not only was evidence taken before the Minister to be deemed to be evidence taken before the appeal judge, but additional evidence as well, arising out of discovery or otherwise, was to be receivable under those enabling provisions.

In 1987, however, those sections above noted were massively repealed. What appeared as s.30 above, was totally repealed; 31 is the present 33; 32 is now 34; and 33 is now 35. All of those provisions which provided for, by implication if not in so many words, a trial de novo before the judge on appeal no longer formed a part of the legislation.

It was argued, and possibly with some validity, that the intended affect of the amending legislation was to require the appellant to bring his full case before the Minister (assuming that he had the constitutional authority to conduct such an appeal) and to permit the Minister to arrive at a fully informed opinion based on all the evidence which either party was able to muster, rather than expect him to act on selective evidence only, which, if it should prove to be insufficient, enabled the aggrieved party to have a second go at it, this time employing all of his evidentiary resources.
[Emphasis added.]

The relevance to the instant case is that, subsequently, the Revenue Tax Act was again amended, this time to put the Commission in the place of the Minister. The above comments, therefore, fully support a hearing de novo at the Commission's level.

The Respondent relied heavily upon comments made in the case of McKenzie v. Mason (1992), 96 D.L.R. (4th) 558 (B.C.C.A.), a case involving an appeal to the court from a decision of the Chief Gold Commissioner. In that case, as in the case of Sherman v. Abbotsford School District No. 34 (1987), 47 D.L.R. (4th) 106 (B.C.C.A.)-upon which it relies-the statutory rights of appeal referred to are: (1) to the court and (2) make no reference to the right to hear evidence, call witnesses, or demand the production of documents. These are significant distinctions from the instant case.

While there is certainly not a general rule that can resolve all cases of interpretation of statutory rights of appeal, the fundamental requirement that the "character" of the appeal may well be evident from the wording of the statute is of great importance. In the McKenzie case, supra, there were no such statutory indications of a hearing de novo. Other distinctions, such as the potential for constitutional problems and the more independent position of the Chief Gold Commissioner-who adjudicates between competing parties and not on a matter of interest to himself-simply reaffirm the view that such a case cannot be considered authority for the proposition the Respondent is trying to support.

A brief summary of the points made by the above cases reveals the following factors in support of the conclusion that the appeal to the Commission is by way of a trial de novo:

1. The appellate jurisdiction of the Commission includes the power to compel witnesses and the production of documents;

2. There are potential constitutional problems in attempting to argue that the Commission is of the same nature as an appellate court;

3. This is the first opportunity being awarded the Appellant to be heard by an independent third party;

4. If a broad interpretation is not placed upon the Act, the Appellant might be able to argue he was not awarded a fair hearing; and

5. The Minister, previously given the responsibility to hear appeals, had power to hold hearings by way of trial de novo and the Commission now has the responsibility previously given to the Minister to hear appeals.

All of this leads the Commission to conclude that the appeal, pursuant to s.10 of the Revenue Administration Act, is an appeal by way of trial de novo.

2.3 New Issues

While the court is generally-but not always-reluctant to allow the hearing of new issues before a court of appeal, the situation is different for trials de novo. The principle reason for the difference is that, on an appeal on the record, the opposing party may be prejudiced by the raising of a new issue, since that party did not have the opportunity of introducing all of the evidence that may have been relevant to that new issue. On a trial de novo, however, any new evidence required can be heard at that level, since all of the evidence is being introduced on the appeal.

Cases involving the Federal Court on appeals under the Income Tax Act appear to have resolved this matter. In Midwest Oil Production Ltd. v. The Queen, [1982] 2 F.C. 357 (Federal Court - T.D.), Mahoney, J. found that an appeal to the Federal Court from the Tax Review Board is a trial de novo and that a taxpayer cannot be estopped from raising any issue the taxpayer wishes in an appeal to the Federal Court under subsection 172(2) of the Income Tax Act solely because an issue is raised for the first time by the pleadings. He states at pp. 362-64:

The Act provides:

165. (1) A taxpayer who objects to an assessment under this Part may, within 90 days from the day of mailing of the notice of assessment, serve on the Minister a notice of objection in duplicate in prescribed form setting out the reasons for the objection and all relevant facts.

172. . . .

(2) Where a taxpayer has served a notice of objection under section 165, he may, in place of appealing to the Tax Review Board under section 169, appeal to the Federal Court of Canada at a time when, under section 169, he could have appealed to the Tax Review Board.

Section169 prescribes an identical condition precedent to the right to appeal to the Tax Review Board and there are a number of decisions by that tribunal to the effect that it has no jurisdiction to hear an appeal on an issue not raised in the notice of objection. For example, and it is extreme, in Spence v. M.N.R., the issue raised in the notice of objection was whether a company of which he was a shareholder had conferred a benefit on a taxpayer by paying the amount of a settlement of a damage action against him as well as the incidental legal expenses. The taxpayer sought, before the Board, to claim as a deduction from income certain alleged farm losses which he had not claimed in his original return and in respect of which he had sought to file an amended return only after his original return had been assessed and the appeal taken. Another example, certainly less extreme, is Rosenberg v. M.N.R., where the Minister had disallowed the taxpayer's deduction of a $3,550 loss on a loan to a company of which he was a shareholder and also disallowed the deduction of $2,450 he had paid under his guarantee of the company's bank loan. The taxpayer dealt only with the $3,550 item in his notice of objection and the Board refused, for want of jurisdiction, to hear him on the $2,450 item.

This Court appears not to have dealt with this question directly. In Goldman v. M.N.R., Thorson P. was concerned with whether an appeal to the Exchequer Court from a decision of the Income Tax Appeal Board was a trial de novo. After a lengthy review of the legislation then in effect and that which it had replaced, he concluded:

All these considerations lead to the conclusion that the appeal to this Court from a decision of the Income Tax Appeal Board, whether by the taxpayer or by the Minister, is a trial de novo of the issues involved, that the parties are not restricted to the issues either of fact or of law that were before the Board but are free to raise whatever issues they wish even if different from those raised before the Board and that it is the duty of the Court to hear and determine such issues without regard to the proceedings before the Board and without being affected by any findings made by it.

[Emphasis added.]

The Supreme Court of Canada, in dismissing an appeal from that judgment, did not deal with that particular issue. The relevant provisions of the Act have since been extensively amended; however, the conclusion that an appeal to this Court from a decision of the Tax Review Board is a trial de novo remains valid. That being so, I do not see that this Court can be without jurisdiction to deal with an issue not raised in the notice of objection when the appeal is brought directly to the Court under subsection 172(2).

I do not think that a taxpayer can be estopped, in any technical sense of that term, from raising any issue it wishes in an appeal to this Court under subsection 172(2) of the Act only because the issue was not raised in its notice of objection or, if applicable, before the Tax Review Board. It is to be emphasized that it is the Minister's assessment, not his reasons for it, that is the subject-matter of the appeal.

[Emphasis added.]

There are revenue cases from New Brunswick and Nova Scotia that support this same proposition.

In Zellers Inc. v. New Brunswick (Minister of Finance) (1993), 16 C.P.C. (3d) 312 (N.B.Q.B.), the appellant filed a notice of appeal to the court from a tax assessment under the Revenue Administration Act (N.B.) after having been unsuccessful in appeals at the commissioner and ministerial levels. The notice of appeal set out various grounds attacking the validity of the assessment and, alternatively, the method used in determining the fair value of the items in question. The respondent applied to have struck from the notice of appeal certain grounds of appeal, inter alia, the validity of the assessment itself, which he contended had not been raised at earlier stages of the appeal process. The application was dismissed. At pp. 314-15, Dickson, J. stated:

On behalf of the minister it is contended essentially that the sole issue in dispute in regard to the objection to the Commissioner and at the ministerial appeal related to the determination of 'fair value' as defined in the Social Services and Education Tax Act and did not concern the validity of the assessment itself, and that consequently it would be 'contrary to the rules of natural justice' to permit the appellant to raise new grounds on the present appeal.

In my view the application by the minister must fail. Section 18 of the Act [Revenue Administration Act] provides:

18. The judge shall hear the appeal and the evidence adduced before him by the appellant and Her Majesty in a summary manner, and shall decide the matter of the appeal.

This section together with procedural provisions contained within s.15 of the Act providing for discovery of documents, examination for discovery, the taking of evidence and depositions of witnesses before hearings, etc., clearly connotes that the hearing of the appeal before the judge is in fact intended to be a hearing de novo. It would be remarkable indeed that a taxpayer could be prohibited at the [sic] stage from raising a question as to the validity of an assessment. Furthermore, there is nothing whatever in the relevant statutory provisions to impose any impediment on raising new grounds of appeal at the level of the judicial appeal.

The same principle appears to have been applied or endorsed in Campbell v. Prince Edward Island (Minister of Finance), 24 Nfld. & P.E.I.R. 345 (P.E.I. T.D.); Eastisle Restaurants (1986) Ltd. v. Prince Edward Island (Minister of Finance) 3 T.C.T. 5140; Goldman v. Minister of National Revenue, [1951] C.T.C. 241; DeConnick v. R. (1985), 1 C.T.C. 36 (Fed. T.D.); and Midwest Oil Production Ltd. v. R., [1982] C.T.C. 107. In all of these cases the appeal procedures were substantially similar to those pertaining here.

As a general principle it may also be said that a party may raise additional issues and arguments at any stage of the proceedings as long as they were relevant to the issue to be decided by the court and do not prejudice the other party.

[Emphasis added.]

In Continental Seafoods Ltd. v. Nova Scotia (Minister of Finance) (1993), 121 N.S.R. (2d) 176 (N.S.C.A.), reversing (1992), 112 N.S.R. (2d) 361 (N.S.S.C. - T.D.), the plaintiff's application for a refund of health services tax on refrigeration equipment was denied in part by the Provincial Tax Commissioner. The plaintiff appealed and the Minister of Finance allowed a partial exemption. The plaintiff appealed to the Nova Scotia Supreme Court - Trial Division. At that stage of the proceedings, counsel for the Minister argued that the plaintiff was not entitled to the exemption because the tax had been paid directly by contractors who installed the equipment, and so they would be the only parties entitled to a refund. The plaintiff protested that this was a new matter-not presented by the parties or considered by the Commissioner or the Minister-and so it was not a proper consideration on an appeal. The trial judge agreed. He was overruled by the Court of Appeal, where, at p. 179, Clark, C.J.N.S. stated:

The issue of Continental's noneligibility for a refund was argued before the Chambers judge. Continental was put on notice that it would be. The Chambers judge decided that it was a new ground that had not been submitted to the Provincial Tax Commissioner, or to the Minister of Finance; therefore, he refused to consider it. He considered his status was the same as a Court of Appeal. With respect, we do not agree in the circumstances that exist here. Although s.19(4) refers to the judge hearing 'the appeal', it quite clearly provides that a judge shall hear the evidence adduced before him by the appellant and Her Majesty in summary manner and then decide the issue. Thus the scope of the proceeding before the judge of the Supreme or County Court is very broad. The judge may hear evidence unlike the traditional function of an appeal court. The word 'appeal' in s.19(4) is a misnomer in the traditional appeal court sense because the breadth and thrust of the section empowers the judge to conduct a proceeding more akin to a trial de novo. The submission of the appellant that the Act does not permit Continental to seek a refund was raised before the Chambers judge, as it could be. That he rejected the submission does not prohibit the appellant from advancing it as a ground of appeal to this Court.

[Emphasis added.]

All of the above cases support the position taken by the Appellant in this matter. The Commission therefore finds that, as the appeal before the Commission is in the nature of a trial de novo, the Appellant is free to raise issues before the Commission that were not raised in the objection to the Provincial Tax Commissioner. Therefore, all of the issues raised on behalf of the Appellant are properly before the Commission.

The Commission's conclusion on this issue means that it is not necessary to decide whether or not, in fact, new issues have been raised by the Appellant in his Notice of Appeal to the Commission. The Commission makes no finding on that point.

3. Admission Fees at the Top of the Park

Section 4 of the Revenue Tax Act, R.S.P.E.I. 1988, Cap. R-14, as amended, (the "Act") states that:

4. Every consumer of goods consumed in the province shall, at the time of taking delivery, pay to the Minister for the raising of revenue for provincial purposes, a tax at the rate of ten per cent of the fair value of the goods.

"Goods" are defined in Section 1.(e) of the Act as:

1.(e) "goods" includes

. . .

(ii) admission charges and . . .

However, there are exemptions from tax and these are set out in Section 12. They include:

12. (1) A consumer is not liable to pay the tax in respect of the consumption of the following goods:

. . .

(z.1) admission charges to any of the following:

. . .

(viii) harness racing.

As well, Section 1.(1) of the Revenue Tax Act Regulations states as follows:

1. (1) In the Act or these regulations

. . .

(b.01) "admission charges" includes entrance fees, cover charges or other fees charged for admission to a place of entertainment;

The Provincial Tax Commissioner interprets the above as indicating that the overall admission fee to the racetrack is exempt from tax, but that the fee for entering the Top of the Park ("TOP") is not. The Appellants, on the other hand, take the position that the fee to the TOP is as much an admission fee as the fee paid to enter the racetrack premises generally. The Appellants therefore submit that the admission fee is tax exempt.

A considerable amount of time was spent at the hearing describing the TOP facility-its physical layout, services, benefits-and how these compared with the other viewing areas for the racetrack. Those who pay the general $2.00 admission fee to the track can view the race from a variety of areas-trackside, on the outside benches, in the open-area grandstand, or in the glassed-in part of the grandstand. All of these people have general access to canteen services and betting areas but they must access these from one general area and the food and beverages are take-out only. There are alcoholic beverages available year-round at the first level, and this area is accessible only by those 19 years of age or older. Another bar-enclosed so the public cannot see it-is opened as required for special events. All areas have video monitors that show the race in progress.

Those who pay the extra $1.50 for admission to the TOP have access to served food and beverages-including alcoholic beverages-as well as take-out. There is elevator access to this area but not to other seating areas of the track. There is seating around tables and a small standing area at the back of the TOP. Bets can be placed within the TOP.

Both the track, generally, and the TOP have annual membership fees: $35 for general, $65 for the TOP. Additionally, the TOP has available a $325 fee for a table reservation that includes two annual admission fees and some special fees relating to Old Home Week.

While some people prefer to watch the races trackside, there appears to be general agreement that the view of the races improves the higher one is seated. In the lower areas, the central part of the track-with its tote boards and judges' stand-blocks the view of the horses as they round the track. From the TOP, one can view the horses at all points on the track.

Jack Hynes, general manager of the CDP, testified that it is not unusual for tracks to have a variety of seating areas, with higher fees the higher you sit. Usually, he indicated, the fees reflect the services one receives. He also stated that, while the fee for both general admission and the TOP could be collected at the booth at the entrance to the track, the better practice is to allow patrons to enter the general area first and then decide if they want to pay more for the TOP. He stated that, since the track attracts many visitors who are unfamiliar with the layout, the visitors don't know, until they see the facilities, whether they are satisfied with general admission. He also mentioned that trying to explain the options to them at the front booth would create lineups at the entrance.

Mr. Hynes also commented upon what he felt was the need to have an area like the TOP-with its nicer decor and services-available for those who would not otherwise go to the racetrack. He testified that the track does receive calls asking if they have a "club" area. He suggested that the TOP fits what these people are looking for. Finally, Mr. Hynes pointed out that the only time the TOP is open is when the rest of the track is open.

The Provincial Tax Commissioner's position is that the TOP is similar to any other bar or lounge charging a cover charge. Since under the Revenue Tax Act the admission fees for places of entertainment are generally taxable, the argument is made that the fees paid to enter the TOP are taxable.

The Provincial Tax Commissioner referred to the corporate structure of the track's operation. He notes that the financial statement for the Charlottetown Driving Park and Provincial Exhibition Association lists "admissions" on its financial statement as a separate item, while the statements for the Hillsboro Trotting Club Inc.-which operates the TOP-include the admission fees within the category "membership dues, door receipts, season table reservations and sundry" under the general heading "Other Income - Related to Lounge". The Provincial Tax Commissioner's position is that this distinction in some way supports the argument that the admission fee to the TOP is taxable.

Overall, the Provincial Tax Commissioner's argument appears to be that, since a person does not need to pay the $1.50 to see the harness racing, the admission charge to the TOP cannot be said to be an admission fee for harness racing. Since the racing can be seen from other parts of the track- albeit not as well-there must be some other "entertainment" reason for entering the TOP.

With respect, the Commission is unable to accept the arguments put forward by the Provincial Tax Commissioner. For the reasons set out below, these arguments do not, in our view, reflect the intention of the Legislature in enacting the specific exemption in the Act for harness racing.

The Commission notes that the TOP is open only when harness racing can be seen-either through the monitors or through the glassed viewing area. While the racing can be seen from other areas of the track premises, there is agreement that the TOP affords a better view of the races. Moreover, while it is true that the services and amenities available at the TOP are undoubtedly a feature that attracts racing patrons, we cannot see how these amenities can be separated from the harness racing. Harness racing is, in our view, the raison d'etre for the TOP.

Finally, on this point, we accept the evidence of Mr. Hynes that there are certain racetrack patrons who prefer the amenities offered by the TOP for the viewing the races. The question to be put is: would these patrons attend at the TOP if they were unable to directly view the races (e.g. if all of the windows were boarded up)? We do not believe so. The main feature of the TOP is its viewing area.

Both parties to the appeal referred to the case of CUQ v. Corp. Notre-Dame de Bon Secours, [1994] 3 R.C.S. 3 (S.C.C.). It is helpful in its enunciation of a fairly common-sense approach to interpreting taxing statutes. That case concludes by enumerating a number of rules to be followed.

These are outlined at p. 20 by Gonthier, J. as follows:

The rules formulated in the preceding pages, some of which were relied on recently in Symes v. Canada, [1993] 4 S.C.R. 695, may be summarized as follows:

The interpretation of tax legislation should follow the ordinary rules of interpretation;
A legislative provision should be given a strict or liberal interpretation depending on the purpose underlying it, and that purpose must be identified in light of the context of the statute, its objective and the legislative intent: this is the teleological approach;
The teleological approach will favour the taxpayer or the tax department depending solely on the legislative provision in question, and not on the existence of predetermined presumptions;

Substance should be given precedence over form to the extent that this is consistent with the wording and objective of the statute;
Only a reasonable doubt, not resolved by the ordinary rules of interpretation, will be settled by recourse to the residual presumption in favour of the taxpayer.

Two of these factors are of particular relevance to this case. The first is the reference to legislative purpose. The second is the giving of precedence to substance over form.

With respect to legislative purpose, Gonthier, J. states, at p. 18:

With respect, adhering to the principle that taxation is clearly the rule and exemption the exception no longer corresponds to the reality of present-day tax law. Such a way of looking at things was undoubtedly tenable at a time when the purpose of tax legislation was limited to raising funds to cover government expenses. In our time it has been recognized that such legislation serves other purposes and functions as a tool of economic and social policy. By submitting tax legislation to a teleological interpretation it can be seen that there is nothing to prevent a general policy of raising funds from being subject to a secondary policy of exempting social works. Both are legitimate purposes which equally embody the legislative intent and it is thus hard to see why one should take precedence over the other.

The CDP argued that the purpose of the exemption of admission fees to harness racing is one of the social purposes referred to by Gonthier, J. and that the admission fees to the TOP are in the same category. The Commission agrees. The only purpose that one can find in the section is the encouragement and support of the harness racing industry. The Commission accepts the evidence put forward on behalf of the CDP that there are a number of people who would not attend the races if they did not have a facility similar to the TOP. Encouragement of the harness racing industry would reasonably include encouragement for the development of facilities that attract a variety of patrons. If differing admission fees are appropriate towards this end, then they are all exempt.

Referring to the change in the interpretation of taxing statutes from a strict construction approach to a more general intent approach, Gonthier, J. then went on to state, at p. 16:

Such a rule also enabled the Court to direct its attention to the actual nature of the taxpayer's operations, and so to give substance precedence over form, when so doing in appropriate cases would make it possible to achieve the purposes of the legislation in question… It is important, however, not to conclude too hastily that this latter rule (giving substance precedence over form) should be applied mechanically, as it only has real meaning if it is consistent with the analysis of legislative intent. As Kickson, C.J. noted in Bronfman Trust v. The Queen, [1987] 1 S.C.R. 32, at pp. 52-53:

'I acknowledge, however, that just as there has been a recent trend away from strict construction of taxation statutes…so too has the recent trend in tax cases been towards attempting to ascertain the true commercial and practical nature of the taxpayer's transactions. There has been, in this country and elsewhere, a movement away from tests based on the form of transactions and towards tests based on what Lord Pearce has referred to as a "common sense appreciation of all the guiding features" of the events in question…'

This is, I believe, a laudable trend provided it is consistent with the text and purposes of the taxation statute. Assessment of taxpayers' transactions with an eye to commercial and economic realities, rather than juristic classification of form, may help to avoid the inequity of tax liability being dependent upon the taxpayer's sophistication at manipulating a sequence of events to achieve a patina of compliance with the apparent prerequisites for a tax deduction.

This, we believe, is the response to the Provincial Tax Commissioner's suggestion that the manner in which the taxpayer's financial statements are drawn up should be evidence of the taxable nature of the item in question. Just as a person's determination of his or her own taxable status cannot determine the correctness of that taxability, a taxpayer's written report such as this financial statement cannot determine the taxability of an item.

In addition, the Provincial Tax Commissioner's witness, auditor Heather Doyle, was asked whether her decision on taxability would have been different if the admission fee had been collected at the entrance booth to the racetrack, along with the general admission fee. While she did not say it would have, she did state that she would have had to give the matter some consideration. In our view, this is exactly what the Supreme Court of Canada had in mind when it concluded that the form in which the taxpayer has set up the item in question is no longer relevant in taxing matters. The Supreme Court of Canada has stated that the overall commercial purpose and the economic reality of the situation is to be analyzed, not the form of the transaction.

In looking at the overall commercial transaction in question, we find that the intent of the CDP and HTC is to have two distinct admission fees for patrons wishing to attend a harness racing event. A higher fee is to be charged to those who wish to have the best view with the greatest comfort. The place of payment is designed to enable patrons to assess the available facilities before paying for admission to the better viewing area. Both areas exist for the purpose of viewing harness racing. Therefore, admission fees to both areas are admission fees to harness racing and exempt under the Revenue Tax Act.

The appeal on this issue is allowed.

4. Services Provided by United Tote of Canada Ltd. and the United States Trotting Association

The parties agreed to defer the hearing of this matter until the Commission rendered its decision on the preliminary objection.

Evidence and argument on this matter can now be heard.

5. Disposition

An Order allowing the appeal on the admission fees portion of this case will therefore issue.

Order

UPON the appeal by the Charlottetown Driving Park and Provincial Exhibition Association and the Hillsboro Trotting Club Inc. against a decision of the Provincial Tax Commissioner, dated June 20, 1995;

AND UPON hearing the evidence adduced as well as what was alleged by Counsel at hearings conducted in Charlottetown on February 22, 1996 and April 15, 1996;

NOW THEREFORE, for the reasons given in the annexed Reasons for Order;

IT IS ORDERED THAT

1. The appeal on the issue of admissions fees to the Top of the Park Club is allowed;

2. The portion of the decision of the Provincial Tax Commissioner, dated June 20, 1995, relating to admissions fees to the Top of the Park is reversed; admissions fees to this facility are exempt from tax pursuant to Section 12.(1)(z.1)(viii) of the Revenue Tax Act; and

3. The hearing on issues related to services provided by United Tote of Canada Ltd. and the United States Trotting Association will be heard, as currently scheduled, commencing June 18, 1996.

DATED at Charlottetown, Prince Edward Island, this 7th day of June, 1996.

BY THE COMMISSION:

Linda Webber, Chair

Anne McPhee, Commissioner

Emmett Kelly, Commissioner

NOTICE

Section 12 of the Island Regulatory and Appeals Commission Act reads as follows:

12. The Commission may, in its absolute discretion, review, rescind or vary any order or decision made by it or rehear any application before deciding it.

Parties to this proceeding seeking a review of the Commission's decision or order in this matter may do so by filing with the Commission, at the earliest date, a written Request for Review, which clearly states the reasons for the review and the nature of the relief sought.

Subsections 13.(1) and 13(2) of the Act provide as follows:

13.(1) An appeal lies from a decision or order of the Commission to the Appeal Division of the Supreme Court upon a question of law or jurisdiction.

(2) The appeal shall be made by filing a notice of appeal in the Supreme Court within twenty days after the decision or order appealed from and the Civil Procedure Rules respecting appeals apply with the necessary changes.