2017 QCCA 1507, 2017 QCCA 1507

Services de sécurité ADT Canada inc. c. Agence du revenu du Québec 2017 QCCA 1507 COURT OF APPEAL CANADA PROVINCE OF QUEBEC REGISTRY OF MONTREAL No: 500-09-025393-158 (500-80-011561-082) MINUTES OF THE HEARING DATE: September 28, 2017 CORAM: THE HONOURABLE MARIE ST-PIERRE , J.A. MARK SCHRAGER , J.A. PATRICK HEALY , J.A. APPELLANT COUNSEL SERVICES DE SÉCURITÉ ADT CANADA INC. MTRE LOUIS-FRÉDÉRICK CÔTÉ (Spiegel Sohmer inc.) RESPONDENT COUNSEL L’AGENCE DU REVENU DU QUÉBEC MTRE MICHEL ROSSIGNOL (Larivière Meunier) (Revenu Québec) On appeal from a judgment rendered on May 25, 2015 by the Honourable Justice Gatien Fournier of the Quebec Court, District of Montreal

DESCRIPTION : Fiscality – Quebec sales tax – Reimbursement – Input tax – Taxable supplies – Surveillance and protection services – Telecommunication services Clerk: Claire Le Guerrier Courtroom: Antonio-Lamer HEARING 9:30 Commencement of the hearing.

Identification of counsel. 9:35 Representations by Mtre Côté 9:45 Exchanges between the Court and Mtre Côté 10:02 Exchanges between the Court and Mtre Côté 10: 07 End of representations by Mtre Côté 10:08 Suspension of hearing 10:11 Resumption of hearing 10: 11 Representations by Mtre Rossignol 10:30 End of representations by Mtre Rossignol 10:31 Suspension of hearing 10: 37 Resumption of hearing 10:38 Comments by the Honorable Marie St-Pierre, j.c.a. Conclusion of the hearing 10:38 By the Court: judgment ̶ see page 3. (

s) Clerk BY THE COURT JUDGMENT [ 1 ] Services de sécurité ADT Canada inc. (“Appellant”) seeks the reversal of the judgment rendered on May 25, 2015 by the Court of Quebec, District of Montreal (the Honourable Gatien Fournier), dismissing its appeal of two notices of assessment in virtue of which the Agence du Revenu du Québec (“Respondent”) disallowed Appellant’s claim for the reimbursement of certain input credits. [ 2 ] The two notices of assessment totalling $1,008,603.53 pertain to the period of January 1, 2001 to September 30, 2005.

The input credits comprised payments of sales tax made by Appellant with respect to telecommunication services it purchased for the conduct of its business. Appellant provides security services to monitor the business premises and homes of its customers. [ 3 ] Sections 206.1(5) and 80.2 of An Act Respecting the Québec Sales Tax [1] (“ RSTA ”) applicable to the case were repealed in 1995.

Suffice to say that the combined effect of these two provisions is to permit Appellant to claim credit of sales tax paid by it to acquire telecom services for its business, if such services were acquired “directly and solely” to supply telecommunication services to its customers. To this end, Appellant claims that it supplies telecommunication services within the meaning of the RSTA :

1. (…) “telecommunication” means any transmission, emission or reception of signs, signals, writing, images, sounds or intelligence of any nature by any wire, cable, radio, optical or other electromagnetic system, or by any similar technical system; 1 […] « service de télécommunication » signifie: 1° le service qui consiste à émettre, à transmettre ou à recevoir des signes, signaux, écrits, images, sons ou renseignements de toute nature par fil, câble, système radio ou optique ou autre système électromagnétique ou par tout procédé technique semblable; “telecommunication service” means (1) the service of emitting, transmitting or receiving signs, signals, writing, images or sounds or intelligence of any nature by wire, cable, radio, optical or other electromagnetic system, or by any similar technical system, or 2° le fait de mettre à la disposition pour une telle émission, transmission ou réception des installations de télécommunication d’une personne qui exploite une entreprise qui consiste à fournir des services visés au paragraphe 1°; […] (2) making available for such emission, transmission or reception telecommunications facilities of a person who carries on the business of supplying services referred to in paragraph 1; « télécommunication » signifie la transmission, l’émission ou la réception de signes, signaux, écrits, images, sons ou renseignements de toute nature soit par système électromagnétique, notamment par fil, câble ou système radio ou optique, soit par tout procédé technique semblable; [ 4 ] The judge agreed with the parties that the Appellant provides a single service (albeit comprised of several constituent elements) according to the principles enunciated by the Supreme Court in Calgary (City) v.

Canada . [2] It does not provide multiple services to which more than one sales tax treatment could potentially be applicable for the treatment of input credits. [ 5 ] However, the judge disagreed with Appellant that the single service was the provision of telecommunication services within the statutory definition set forth above. Rather and based on the evidence, he applied the ruling of this Court in Sous-ministre du Revenu du Québec v.

Barnes Security Services Ltd. [3] to conclude that Appellant provides a security service to its clients (as reflected in its own publicity) a major component of which is monitoring which is effected by means of telecommunication. [ 6 ] The judge’s conclusion is not erroneous. [ 7 ] The evidence demonstrates that Appellant monitors the premises of its clients for various occurrences such as fire, break-in and low temperature.

The information (e.g. smoke, open door, temperature) is gathered by a sensor, sent to the control box (described as a mini-computer) installed in the premises from where it is communicated over a telephone line or by internet to Appellant’s monitoring station. An employee on duty observing the signal on a computer screen will take action according to the nature of the signal and the instructions in the customer’s file.

For example, in Montreal, where the police will cease responding to a location after four false burglar alarms, the employee will telephone the premises to verify whether the forced entry signal seems genuine, before alerting the police. However, for a fire signal the employee will immediately notify the fire department.

If the signal received at the monitoring station is low temperature in a residence, the employee will telephone the contact person whose name is on file to alert such individual to the problem. [ 8 ] Based on the evidence presented by Appellant describing the service offered by it, the judge correctly characterized this service as that of security, albeit using and indeed consuming in large measure, telecommunications to furnish such service.

The fact that approximately 25% of Appellant’s gross revenue arises from the sale, leasing and maintenance of equipment would not alter the single service of security provided by Appellant.

The gist of the judgment is that the single service provided by Appellant is not telecommunications but rather security comprised of an ensemble of elements of which telecommunications is one part. [ 9 ] That which constitutes an input credit, as an exception to the general rule requiring tax on the supply of service in the scheme of the RSTA should be restrictively interpreted. [4] [ 10 ] Given our opinion that the judge correctly held that Appellant does not provide telecommunication services to its clients within the meaning of the RSTA , it is not necessary to address Appellant’s second point to the effect that it satisfies the other requirements necessary for the application of

Section 80.2 RSTA – i.e. that the telecommunication services acquired by Appellant “are used directly and solely” for the supply of telecom services to its customers. FOR THESE REASONS, THE COURT: [ 11 ] DISMISSES the appeal with legal costs. MARIE ST-PIERRE, J.A.

MARK SCHRAGER, J.A. PATRICK HEALY, J.A. 206.1. In determining an input tax refund of a registrant, no amount shall be included in respect of the tax payable by the registrant in respect of the supply or bringing into Québec of the following property or services: 206.1. Dans le calcul du remboursement de la taxe sur les intrants d’un inscrit, aucun montant ne doit être inclus à l’égard de la taxe payable par celui-ci relativement à la fourniture, ou à l’apport au Québec, des biens ou des services suivants: (…) […] (5) a telecommunication service or any telecommunication in respect of which the tax prescribed by the Telecommunications Tax Act (chapter T-4) would apply but for

section 14 of that Act; 5° un service de télécommunication ou une télécommunication à l’égard duquel la taxe prévue par la Loi concernant la taxe sur les télécommunications (chapitre T - 4) s’appliquerait si ce n’était de l’article 14 de cette loi; 80.2. No tax is payable in respect of the supply of a telecommunication service to a person operating a telecommunication service if the service is to be used directly and solely for the purpose of making a taxable supply of another telecommunication service by that person. 80.2.

Aucune taxe n’est payable à l’égard de la fourniture d’un service de télécommunication effectuée à une personne qui exploite un service de télécommunication si ce service doit servir directement et uniquement à effectuer la fourniture taxable, autre que la fourniture détaxée, d’un autre service de télécommunication par cette personne.