REASONS
FOR JUDGMENT
Masse D.J.
[1]
This is an appeal from a
Notice of Reassessment dated October 22, 2008 for the reporting period of May
13, 2005 to December 31, 2005 (the “period”).
Factual Context
[2]
The Appellant is an individual who operates a
restaurant located at 1070 Stonechurch Rd. E., in Hamilton, as a sole
proprietorship under the name of MTM Chinese Food Restaurant.
[3]
The Appellant became a registrant for purposes
of the Goods and Services Tax (the “GST”) effective May 13, 2005. However, she had been
operating the restaurant prior to that date. During the time that she operated
the restaurant prior to her registration date, the Appellant collected GST and
remitted the GST collected to the Minister of National Revenue (the “Minister”).
[4]
On May 23rd 2006, the Minister
assessed the Appellant’s initial GST return for the period under review wherein
she claimed a net tax refund of $4,330.22. On October 22nd 2008, the
Minister reassessed the Appellant’s GST return for the period so as to deny
input tax credits (“ITCs”)
totalling $2,533.22. Interest and penalties were also assessed. The Appellant
filed a Notice of Objection dated October 24, 2013, but the Minister confirmed
the reassessment on the basis that the Appellant claimed ITCs on operating
expenses that were either incurred prior to the date of business registration
or on the basis that the supporting documents did not meet the prescribed
requirements of s. 169(4) of the Excise Tax Act, RSC 1985, c. E-15 (the “Act”) as amended,
and s. 3 of the Input Tax Credit Information (GST/HST) Regulations,
SOR/91-45 (the “Regulations”) as amended. Consequently, the Appellant appeals to this Court.
[5]
Initially, the issue to be determined was
whether or not the Minister properly disallowed ITCs totalling $2,533.22.
However, at the beginning of the hearing counsel for the Minister and Mr. Lenny
Tam, the representative for the Appellant, spent a fair bit of time going over
documents produced by the Appellant (Exhibit R-1). As a result of this collaborative
effort, the Minister concedes that the Appellant is entitled to additional ITCs
in the amount of $819.25. The number of documents in dispute have also been
greatly reduced as described in the paragraphs that follow.
[6]
Lisa Griffith is a tax auditor with the Canada Revenue
Agency (henceforth, the “CRA”). she was assigned
this file with the mandate of ensuring the eligibility of the GST return filed
for the period. This was the first filing for the Appellant. She produced her
working papers to the Court (see Exhibit R-2). As a result of agreement between
the Minister and the Appellant, the following items for which the Appellant
claimed ITCs are to be litigated:
a)
Item #3 on page 2 of Ms. Griffith’s working
paper refers to what appears to be capital expenditures in the amount of
$10,450 for the installation of a burner, walk-in cooler, a dishwasher, woks,
chopping block, steam table, etc. These expenditures are evidenced by simple
receipts purported to be issued by the supplier, Superior Restaurant Equipment,
on August 21st 2004, September 11th 2004 and October 25th
2004; one of them seems to bear Chinese characters. These documents do not
indicate the GST number of the supplier nor do they indicate that any GST was
paid on the invoice.
b)
Items #12 and #14 on page 2 of Ms. Griffith’s
working paper references work done installing a kitchen range hood and an
entire exhaust system. This expenditure is evidenced by a cheque #006 dated Nov
5th 2004 payable to Kem Sheet Metal in the amount of $5,000 and two
receipts – one dated August 30th 2004 in the amount of $5,000 and
the other dated November 2nd 2004 in the amount of $5,000, both
signed by Kem Mahmut, owner of Kem Sheet Metal Co.. None of these documents
bear the name or address of the supplier. None of these documents bear the name
or address of the supplier. None of these documents bear the GST number of the
supplier and none state that the GST has in fact been paid or is collectible.
c)
Related to (b) above is item #17 on page 2 of
Ms. Griffith’s working papers also referencing work done installing the kitchen
range hood and exhaust system. This expenditure is evidenced by a cheque #0009
dated December 13th 2004 in the amount of $4,000, and a receipt
dated December 10th 2004 in the amount of $4,000 signed by Hussein
Mahmut on behalf of Kem Sheet Metal Co. None of these documents bear the GST
number of the supplier and none state that the GST has in fact been paid or is
collectible.
[7]
The Appellant produced Exhibit R-3 which is an
agreement dated August 28th 2004, between Kem Sheet Metal and
MTM Restaurant regarding the installation of the aforementioned range hood and
exhaust system. The contract price is $19,000. It is specifically indicated
that this price includes all applicable taxes. The Appellant argues that s.
233(1)b) of the Act permits a contract price to include the GST. Even if
I give effect to this argument, it does not change the fact that the supplier’s
GST number does not appear on any of the documents evidencing the contract for
services between the parties.
[8]
The Appellant also put into issue two other
expenditures. One is in the amount of $320.02 paid to Brabant Newspapers for
the production of promotional flyers. This invoice does have the supplier’s GST
number; however, from the invoice it is seen that these services were rendered
before the Appellant obtained her business number and therefore, pursuant to s.
171(2) of the Act, cannot be the subject of a claim for ITCs. The other
expenditure is in the amount of $160.52 paid to ABP Recyling Inc. for disposal
of grease. This invoice is dated December 7th 2004. The Appellant
suggests that this service extended into the time period after she obtained her
business number; however, there is no evidence to support this contention and
so this expenditure also cannot form the basis of a claim for ITCs.
[9]
The only issue remaining is the absence of the
GST number of the Appellant’s suppliers on the various documents relied upon by
her in support of her claim for Input Tax Credits.
Legislative Provisions
[10]
The
relevant provisions of the Excise Tax Act, RSC 1985, c. E-15, as amended, are as
follows:
169. (4) A registrant
may not claim an input tax credit for a reporting period unless, before
filing the return in which the credit is claimed,
(a) the
registrant has obtained sufficient evidence in such form containing such
information as will enable the amount of the input tax credit to be determined,
including any such information as may be prescribed;
[…]
171. (1) […]
(2) Subject to this Division, where at any time a person becomes a
registrant, in determining the input tax credits of the person for the first
reporting period of the person ending after that time,
(a) there
may be included the total of any tax that became payable by the person before
that time, to the extent that the tax was payable in respect of services to be
supplied to the person after that time for consumption, use or supply in the
course of commercial activities of the person or was calculated on the value of
consideration that is a rent, royalty or similar payment attributable to a
period after that time in respect of property that is used in the course of
commercial activities of the person; and
(b) there
shall not be included any tax that becomes payable by the person after that
time, to the extent that the tax is payable in respect of services supplied to
the person before that time or is calculated on the value of consideration that
is a rent, royalty or similar payment attributable to a period before that
time.
223. (1) If a registrant makes a taxable supply, other than a
zero-rated supply, the registrant shall indicate to the recipient, either in
prescribed manner or in the invoice or receipt issued to, or in an agreement in
writing entered into with, the recipient in respect of the supply,
(a) the
consideration paid or payable by the recipient for the supply and the tax payable
in respect of the supply in a manner that clearly indicates the amount of the
tax; or
(b) that
the amount paid or payable by the recipient for the supply includes the tax
payable in respect of the supply.
[…]
(2) A person
who makes a taxable supply to another person shall, on the request of the other
person, forthwith furnish to the other person in writing such particulars of
the supply as may be required for the purposes of this Part to substantiate a
claim by the other person for an input tax credit or rebate in respect of the
supply.
295. (2) Except as authorized under this section, no official
or other representative of a government entity shall knowingly
(a) provide,
or allow to be provided, to any person any confidential information;
[…]
(5) An official
may
(a) provide
such confidential information to any person as may reasonably be regarded as
necessary for the purpose of the administration or enforcement of this Act,
solely for that purpose;
(b) provide
to a person confidential information that can reasonably be regarded as
necessary for the purposes of determining any liability or obligation of the
person or any refund, rebate or input tax credit to which the person is or may
become entitled under this Act;
[…]
(6) An
official or other representative of a government entity may provide
confidential information relating to a person
(a) to
that person; and
(b) with
the consent of that person, to any other person.
[My emphasis]
[11]
The relevant provisions
of the Input Tax Credit Information (GST/HST) Regulations, SOR/91-45, as
amended provide:
3. For the
purposes of paragraph 169(4)(a) of the Act, the following information is
prescribed information:
[…]
(b) where
the total amount paid or payable shown on the supporting documentation in
respect of the supply or, if the supporting documentation is in respect of more
than one supply, the supplies, is $30 or more and less than $150,
(i) the name of the supplier or
the intermediary in respect of the supply, or the name under which the supplier
or the intermediary does business, and the registration number assigned
under section 241 of the Act to the supplier or the intermediary, as
the case may be,
(c) where
the total amount paid or payable shown on the supporting documentation in
respect of the supply or, if the supporting documentation is in respect of more
than one supply, the supplies, is $150 or more,
(i) the information set out in
paragraphs (a) and (b),
(ii) the recipient’s name, the
name under which the recipient does business or the name of the recipient’s
duly authorized agent or representative,
(iii) the terms of payment, and
(iv) a description of each
supply sufficient to identify it.
[My emphasis]
Theory of the Appellant
[12]
The Appellant argues that the only thing that is
missing on the disputed documents is the GST number of her suppliers. The
Appellant submits that she has met all other requirements of s. 169(4) of the Act.
However, it is argued that the Minister, being the entity that issues the GST
numbers, already has knowledge of the GST numbers of the various suppliers. The
Appellant therefore asks why should it be the responsibility of the Appellant
to make sure that the supplier’s GST number is on the supplier’s invoice if the
Minister already has that information? The Appellant affirms that she has put
forth every effort after the fact to obtain the required information from her
suppliers but to no avail. She also submits that she has sought out that
information from the Minister pursuant to s. 295 of the Act but the
Minister has refused, citing reasons of confidentiality. It is the position of
the Appellant that the suppliers have implicitly given their consent to the
disclosure of this information and does not understand why the Minister will
not disclose this information. The Appellant submits that she has done
everything that the Act and the Regulations require of her other
than provide the GST number of the suppliers, which the Minister already has,
and therefore prays that her appeal be allowed.
Theory of the
Respondent
[13]
The
Respondent argues that, in order for the Appellant to be able to claim any
ITCs, she must obtain all of the information required pursuant to s. 169(4) of
the Act and s. 3 of the Regulations, before
making a claim for ITCs. These provisions are mandatory and cannot be sidestepped
or ignored. It matters not that the Minister is presumed to have knowledge of
the GST number of every registered supplier. It is the responsibility of the
Appellant to obtain this information for each transaction with her suppliers
and not that of the Minister to track down the GST numbers of a claimant’s
suppliers. None of the documents here under consideration bear the suppliers’
GST numbers and therefore the Appellant has not met the requirements of s.
169(4) of the Act and s. 3 of the Regulations.
[14]
In addition, the documents do not indicate that
any GST was in fact paid.
[15]
The Respondent therefore
asks that the appeal be allowed in part and that the assessment
be referred back to the Minister for reconsideration and reassessment on the
basis that Appellant is only entitled to additional input tax credits of
$819.25.
Analysis
[16]
In my view, the Appellant’s arguments must fail.
[17]
In the matter
of Systematix Technology Consultants Inc. v. The Queen, 2006 TCC 277
(CanLII), the Minister disallowed ITCs on the basis that invoices provided by
Systematix’s suppliers did not contain all the prescribed information required
under subsection 169(4) of the Act and subparagraph 3(b)(i) of the
Regulations. It was common ground between the parties that the only
issue before the Court was whether a proper GST registration number was
provided on the questioned invoices. Justice Archambault of this Court dismissed
the appeal stating that he was of the view that these provisions were mandatory
and the requisite information had to be obtained before a
claim for ITCs could be made. He stated as follows:
[10]
In my view, these provisions [subsection 169(4) of the Act and
subparagraph 3(b)(i) of the Regulations] make it clear that a registrant
may not claim an ITC unless, before filing the return, he has obtained
the prescribed information, which includes the registration number of the
supplier. This interpretation has been adopted by many of my
colleagues. In Helsi Construction Management Inc. v. R., [2001] G.T.C.
396, Associate Chief Judge Bowman (as he then was), observing that GST
registration numbers were not shown on the invoices, said in paragraph 11:
[...] This is a requirement
under section 3 of the Input Tax Credit Information Regulations. While
there may be some justification in certain cases for treating technical or
mechanical requirements as directory rather than mandatory (for example
see Senger-Hammond v. R. (1996), [1997] 1 C.T.C. 2728 (T.C.C.) that is
not so in the case of the GST provisions of the Excise Tax Act.
[My emphasis.]
[11]
Judge McArthur in Alexander Nix Group Inc. v. R., [2002] G.T.C. 334,
[2002] G.S.T.C. 100, basically stated at paragraph 6 that he agreed with this
conclusion. He cited this additional portion of Bowman A.C.J.'s decision, taken
from paragraph 13 thereof : "Moreover, it [meeting technical requirements]
is the foundation of a self-assessing system that operates in the commercial
world."
[Emphasis
added]
[18]
On further appeal to the Federal Court of
Appeal, (see 2007 FCA 226), Justice Sexton expressed agreement with Justice
Archambault that the provisions here under consideration are mandatory and not
merely directory. The Appellant had not met the technical requirements which
the Act and the Regulations placed upon him as a member of a self-assessing
system. These mandatory requirments must be strictly enforced and so the appeal
by Systematix was dismissed.
[19]
In the case of Comtronic
Computer Inc. v. R., 2010 TCC
55 (CanLII) Justice Boyle of this Court was dealing with the issue of whether a
taxpayer was entitled to ITCs in respect of inputs
where the GST registration number of the supplier shown on the invoice was not
that of the suppliers but was a validly issued number belonging to someone
else. The taxpayer was blameless in all respects. Comtronic paid for these
supplies together with GST but the suppliers had never remitted the GST to the Minister.
Justice Boyle held that not only did s. 169(4) of the Act require that
the registrant have obtained the GST registration number of the supplier, but
that it was a valid number that was assigned to that specific supplier. He
observed at paragraph 24:
[24] Subsection 169(4) is clear that an
ITC cannot be claimed unless the claimant has obtained prescribed
information. Section 3 of the Regulations is clear that the prescribed
information must include the name of the supplier or the name under which the
supplier does business, and the registration number assigned to the supplier.
[25] The Federal Court of Appeal in
Systematix Technology Consultants Inc. v. Canada, 2007 FCA 226 (CanLII),
[2007] G.S.T.C. 74, had occasion to consider this very issue in circumstances
where an ITC claim had been made in similarly unfortunate circumstances where,
for various reasons, the suppliers did not have valid GST registration numbers.
The Court of Appeal wrote:
4
We are of the view that the legislation is mandatory in that it
requires persons who have paid GST to suppliers to have valid GST registration
numbers from those suppliers when claiming input tax credits.
[Emphasis
added.]
[26] Given the wording of paragraph 169(4)(a), as well as the Reasons for Judgment of Archambault J. in
the Tax Court ( 2006 TCC 277 (CanLII), [2006] G.S.T.C. 120) with which the Federal Court of Appeal
agreed, I take the court’s reference to “valid GST registration numbers from
those suppliers” to mean GST registration numbers validly assigned to those
suppliers.
[…]
[33] … I am unable to see how the broad
wording of the relevant provisions and the interpretation thereof by the
Federal Court of Appeal that the wording is mandatory and should be strictly
enforced, and which requires that the ITC claimant have the registration number
assigned to the supplier, should result in any different outcome in this case
[38] While
there was not an online verification system available to purchasers in the
years in question maintained by the CRA for purposes of confirming supplier
names and registration numbers, there was a CRA telephone inquiry service for
this purpose.
[20]
It is clear that it is the duty of a claimant of
Input Tax Credits to obtain the information required by s. 169(4) of the Act
and s. 3 of the Regulations, from its suppliers before
making any claim for the ITCs, not after the fact. It is undoubted that these
requirements are mandatory. The information required includes the GST number of
the claimant’s suppliers. It is not up to the Minister to track down this
information as suggested by the Appellant. This would put too heavy a burden on
those who are charged with the administration of the Excise Tax Act.
Conclusion
[21]
For all of the foregoing reasons, and giving
effect to the concession made by counsel for the Respondent, this appeal is
allowed in part. The assessment will be referred back
to the minister for reconsideration and reassessment on the basis that the
Appellant is entitled to an additional input tax credit of $819.25.
Signed at Kingston,
Ontario, this 12th day of May 2015.
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