The TCC in Andrews (2017 TCC 23) distinguished between transportation services that transport vehicles by towing them and those that transport vehicles by driving them, subjecting only the latter to GST/HST. The TCC thus narrowed freight transportation services to mean only services that involve a mode of transportation that is separate from what is transported.
Andrews concerned an automobile transportation company, Canadian Auto Transport, which delivered vehicles from the United States to Canada. The majority of Canadian Auto’s business came from insurance companies, because a policy holder was unable to drive his or her vehicle back to Canada following a medical emergency.
The issue before the TCC was whether the services provided by Canadian Auto were freight transportation services or driving services. Canadian Auto took the position that its services were “freight transportation services” – which are zero rated – and thus did not charge or collect GST/ HST.
The TCC’s decision to dismiss Canadian Auto’s appeal depended on two points:
First, the TCC noted that Canadian Auto only assumed liability for small dents or scrapes and did not assume complete responsibility for the vehicles. In light of this fact, the TCC found that Canadian Auto’s services were not freight transportation services, but driving services as defined by Guide RC4080 – GST/HST Information for Freight Carriers.
Second, the TCC also observed that part VII of schedule VI of the Excise Tax Act defines a freight transportation service as a “particular service of transporting tangible personal property.” The TCC adopted a “textual, contextual and purposive” analysis of the legislation and concluded that transporting property means a particular service of carrying personal property by a mode of transportation. The TCC emphasized that Canadian Auto’s interpretation was not sound because a vehicle cannot at the same time be both the personal property and the means of carrying it. Thus, Canadian Auto’s services could not be characterized as those of transporting vehicles that were themselves the mode of transportation.
By way of commentary, it is curious that the TCC concluded that Canadian Auto only assumed liability for small dents and scrapes. When in fact, the evidence showed that Canadian Auto assumed liability for up to $250,000, which is not an insignificant amount per vehicle.
In our view, the TCC’s reading of freight transportation services is too narrow, as it leads to the odd result that if Canadian Auto had pushed the cars over the border, thus himself becoming the mode of transportation, the service would have been zero-rate.
While the window for appeal has not yet been closed, no appeal has been filed to date (as at the finalization of our article). One hopes that the Appellant will see fit to appeal this judgment as in some respects, the conclusion does not seem to fit with the underlying policy of the Excise Tax Act, which is that charges related to most international transportation and freight movements be zero-rated.
Kathryn Walker and Rob G. Kreklewetz
Millar Kreklewetz LLP, Toronto
A version of this article appeared in the April 2017 issue of Canadian Tax Highlights.