An Oakville, Ont. investment advisor has won a GST appeal in the Tax Court of Canada, despite the court’s ruling that his branch office, and services provided in that office, were two separate businesses.

The appeal involved Andrew Blanchard’s claim to credits to be applied against payable GST. Blanchard is licensed to sell securities in Ontario. In 1993 he entered into an agreement with Financial Concept Group and became the owner, operator and manager of the Oakville branch of FCG. He recruited sales staff that sold securities, GICs, insurance and other financial products for which they were paid commission by FCG. Blanchard was paid commissions on his own sales, and an override commission on the sales made by his staff. The staff members-advisors were independent contractors, not employees.

Blanchard provided office space, furnished it, installed telephones, and provided a receptionist and other administrative staff to operate the office. Blanchard attracted new business for the advisors by setting up an income tax preparation service. The advisors were not paid for giving this service. It was used as an enticement opportunity to sell other financial products.

Blanchard’s business also collected fees payable annually to the trustees of self-directed Registered Retirement Savings Plans. Cheques payable to FCG were collected from the clients and delivered to FCG to be transmitted to the trustees of the self-directed RRSPs. The funds did not go through the accounts of Four Pillar Financial.

Blanchard gave evidence to the tax court that if he ceased to provide these various services and facilities to the sales staff they would simply go and work elsewhere.

Blanchard stated that he personally was the recipient of his commission income from FCG, and that Four Pillar Financial is a partnership made up of himself, his wife, and, during 1996, the office manager, Ms. Pimm. The business of Four Pillar consists of the tax preparation operation, the collection of RRSP fees, and providing office facilities, without remuneration, to the sales staff.

“The Appellant, his wife and Ms. Pimm have apparently filed income tax returns on a partnership basis, and there is evidence before me that the Minister has assessed them on that basis,” stated Judge E.A. Bowie. “However, it is trite that the Minister is not bound to perpetuate error, and he is not precluded from asserting in this litigation that the Four Pillar business is not a partnership.”

Blanchard did not produce any written partnership agreement amongst himself, Ms. Pimm and his wife, or any of them. And in the appeal documents filed with the tax court, Blanchard described himself as “a self employed independent contractor.”

“Aside from the filing of income tax returns, to which I have referred already,” stated Judge Bowie in his decision, “there is no suggestion by Mr. Blanchard prior to giving evidence in this appeal that Four Pillar Financial, after September 22, 1994, was anything other than a proprietorship owned by him. More important for purposes of this appeal is that prior to the hearing of the appeal there was no suggestion that there were two separate businesses being conducted — one earning commission income on the sale of securities, and one earning fees for the preparation of income tax returns.”

“I conclude that in 1996 and 1997 Four Pillar Financial was a sole proprietorship owned by Andrew Blanchard. From the evidence of Mr. Blanchard and Ms. Pimm as to the operations, I find that the earning of commissions, both direct and override, by Mr. Blanchard, and the earning of fees for income tax preparation were completely interconnected and interdependent activities. The same staff worked on both the FCG business and the income tax preparation. The same premises and equipment were used. There were no separate accounts, and no effort has apparently ever been made to allocate expenses between the two types of income. I conclude that there was only one business, and that Mr. Blanchard was the proprietor of it.”

In the case of a financial institution, an allocation of GST credits is required under the Excise Tax Act, said Judge Bowie. He ruled that Blanchard business, Four Pillar Financial qualified as a financial institution and is deserving of some tax credits. Therefore, he allowed Blanchard’s appeal and sent his claim back to the tax department for reassessment.