



COURT OF APPEAL FOR ONTARIO

CITATION: Capcorp Planning (2003) Inc. v. Ontario (Finance),
    2018 ONCA 406

DATE: 20180430

DOCKET: C63074

Watt, Pepall and Miller JJ.A.

BETWEEN

Capcorp Planning (2003) Inc.

Appellant (Respondent)

and

The Minister of Revenue

Respondent (Appellant)

Lori Patyk and Jason DeFreitas, for the appellant

Gregory Sanders and Christopher Morris, for the
    respondent

Heard: October 23, 2017

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.

Watt J.A.:


[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 Capcorps 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
    liabile 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 clients 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 auditors 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 judges 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 judges 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, 345 N.R. 284, the onus to establish a
prima
    facie
case will not be lightly or capriciously or casually shifted.
However,
    here, a
prima facie
case has been made out with regard to whether
    health insurance for this risk was otherwise available in regard to this Plan
    which is an unfunded benefits plan. Here the evidence is uncontradicted and
    indicates that insurance for this type of risk would not be available. There is
    no contradictory evidence. Therefore, it seems that a
prima facie
case
    has been made out.
Thus, it is the Courts 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 Ministers 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 Capcorps
    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
    judges 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 judges
    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 judges interpretation of the term
    unfunded benefits plan is flawed for several reasons.

[31]

First, the appeal judges 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 judges 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
    judges 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 judges 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 judges 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 Ministers 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, [2013] 2 S.C.R. 559, at para. 64;
Canada Trustco Mortgage
    Co. v. R.
, 2005 SCC 54, [2005] 2 S.C.R. 601, 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, [2007] 3 S.C.R. 217, at para. 16;
Aubrey Dan Family
    Trust v
.
Ontario (Finance)
, 2017 ONCA 875, 2017 D.T.C. 5128, 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, [2006] 1 S.C.R. 715, at para. 23;
Craig v. R.
,
    2012 SCC 43, [2012] 2 S.C.R. 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.,
[
1979] 1 S.C.R. 275, at para. 19;
Markevich
    v. Canada
, 2003 SCC 9, [2003] 1 S.C.R. 94, at para. 34;
Camp Development
    Corp. v. Greater Vancouver Transportation Authority
, 2010 BCCA 284, 7
    B.C.L.R. (5th) 1, 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 Capcorps 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 Capcorps submission. If
    anything, the statutory definition supports the Ministers 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
.



Whats really interesting about this is that it
    clearly defines what happens
when an employer self-insures. It defines what
    a plan is, and its very clear that they were attempting to close any loophole
    that might give any flexibility [Emphasis Added]
.
[1]


[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 provisions
    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 judges 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 members 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 Ministers 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 employees 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 Ministers 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 Ministers 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 Ministers 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 Ministers 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 Ministers 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.
, [1997]
    2 S.C.R. 336
,
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 Ministers
    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 judges error in finding that Capcorps
    evidence constituted a
prima facie
case that
    rebutted the assumptions underlying the Ministers assessment followed from the
    judges error in interpreting the term unfunded benefits plan under s. 1(1)
    of the Act. Capcorps 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. Capcorps 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 Ministers 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.
[2]
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, Capcorps
    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 Capcorps contrary interpretation of the
    requirements of the
RSTA
.

[84]

Fourth, Capcorp renewed its submission before the appeal judge that the
    Ministers 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: DW Apr 30 2018

David Watt J.A.
I agree. S.E. Pepall J.A.
I agree. B.W. Miller J.A.





[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).


