Citation: 2011 TCC 203
Date: April 7, 2011
Docket: 2010-710(GST)I
BETWEEN:
PAY LINX FINANCIAL CORPORATION,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Little J.
A. FACTS
[1]
The Appellant was
incorporated on or about May 27, 2004.
[2]
The Reporting Period
(“the Period”) was January 1, 2008 to March 31, 2008. Sometime prior
to the Period, the Appellant changed its name from OHS Capital Corp. to Pay
Linx Financial Corporation.
[3]
The Appellant was
registered under the Excise Tax Act (the “Act”) on or about May
5, 2004.
[4]
The Appellant was
required to file its GST tax returns on an annual basis until December 31,
2007. After January 1, 2008, the Appellant was required to file its GST returns
on a quarterly basis.
[5]
The Minister of
National Revenue (the “Minister”) maintains that the only income earned by the
Appellant at all material times was interest income. The Agent for the
Appellant said during the hearing that he is not sure that this statement is
correct.
[6]
During the hearing, the
Agent for the Appellant agreed that the following facts were correct: (Note:
This information is taken from the Respondent’s Reply.)
(a) at all material
times, the Appellant had no sales and did not collect any tax;
(b) at all material
times, the Appellant’s only activities were holding the shares of Pay Linx
Corporation and publicly trading its shares;
(c) in or about March,
2007, the Appellant acquired 100 per cent of the issued and outstanding shares
of Pay Linx Corporation;
(d) the amounts the
Appellant sought to deduct as input tax credits related to supplies of property
and services that were consumed or used by the Appellant in the course of its
activities;
(e) the amounts the
Appellant sought to deduct as input tax credits related to the acquisition of:
(i)
property and services
to maintain the registry of the Appellant’s shareholders;
(ii)
property and services
to facilitate trades of the Appellant’s shares on the TSX;
(iii)
legal services; and
(iv)
wire services to issue
press releases;
(f) the amounts the
Appellant sought to deduct as input tax credits related to transactions that
occurred in the Period; (Note: The input tax credits claimed by the
Appellant for the Period was approximately $980.00) (Transcript, page 65, lines
23 to 24)
(g) the amounts the
Appellant sought to deduct as input tax credits related to supplies of property
and services that were acquired after the Appellant’s take-over of Pay Linx
Corporation;
(h) Pay Linx Corporation
was incorporated in 2005;
(i) Pay Linx
Corporation received clearance from the Canadian Payments Association in
December, 2005 (the Agent for the Appellant said that he is not sure that this
date is correct);
(j) Pay Linx
Corporation received clearance from Interac in February, 2006 (the Agent
for the Appellant said that he is not sure that this date is correct);
(k) prior to the Period,
Pay Linx Corporation developed software which included, among others, Paylinx
and e-fund applications;
(l) at all material
times, Pay Linx Corporation owned the software that it developed;
(m) at all material
times, Pay Linx Corporation used its software to provide services to the Alberta government and/or The Royal Bank;
(n) on or about August
15, 2005, Pay Linx Corporation entered into a contract with the Province of
Alberta, which had a term of August 15, 2005 to March 31, 2006 that
was extended to March 31, 2008 (the “Alberta Contract”);
(o) pursuant to the
Alberta Contract, Pay Linx Corporation supplied on behalf of Bank West, prepaid,
reloadable debit cards to individuals who received certain payments from the
Province of Alberta (the “Value Cards”);
(p) some of the
individuals who received the Value Cards did not have a bank account (the Agent
for the Appellant said that he does not agree with this statement);
(q) Pay Linx Corporation
utilized the software that it had developed to manage the accounts connected to
the Value Cards which included, among other things, recording transactions and
maintaining a record of the balance on the Value Card;
(r) pursuant to the
Alberta Contract, the Province of Alberta paid Pay Linx Corporation a fee to
rent PIN units, as well as transaction fees that were based on
Interac/point-of-sale and ATM transactions made/attempted by the individuals
who held the Value Cards;
(s) at all material
times, Pay Linx Corporation provided similar services to the Province of
British Columbia (the Agent for the Appellant said that he does not agree with
this statement);
(t) at all material
times, Pay Linx Corporation also supplied Bank West with an inventory of
prepaid, reloadable debit cards and provided processing and other services to
manage the movement of funds, which included:
(i) client set-up;
(ii) cardholder account
management, which included recording day‑to‑day transactions;
(iii) management of fund
allocation and movement between card records and bank accounts of the
cardholder;
(iv) balance and reconcile
the accounts daily;
(v)
disburse funds to the
cardholder;
(vi)
issue payment
instructions electronically to the bank to ensure all cardholder accounts were
correctly funded;
(vii)
make pay/no pay
decisions; (Note: The Agent for the Appellant said that the Appellant
did not make these decisions.)
(u) the services
provided by Pay Linx Corporation also gave the holders of the Value Cards and
the debit cards that it issued access to the cardholder’s account to check the
balance and to check the transactions that had been posted.
ISSUE
[7]
The issue to be decided
is whether the Appellant is entitled to deduct any of the amounts it sought to
deduct as input tax credits and, if so, the amount deductible.
ANALSYSIS AND DECISION
[8]
Counsel for the
Respondent said that this appeal concerns input tax credits with respect to
legal fees, other fees and brokerage fees paid by a parent corporation to
purchase its subsidiary corporation. The subsidiary corporation was involved in
financial services.
[9]
Counsel for the
Respondent said that subsection 169(1) of the Act sets out what is
required for a person to claim input tax credits. He said:
So, the property or service,
I’m paraphrasing a bit, must be acquired:
“… for consumption, use or
supply in the course of commercial activities of the person.”
Sir, commercial activity is the
key concept. If there is no commercial activity or not exclusive commercial
activity, there are no input tax credits allowed.
(Transcript, page 69, lines 8
to 16)
[10]
In support of his
position, Counsel for the Respondent referred to the decision of the Tax Court in
Stantec Inc. v The Queen, 2008 TCC 400. At paragraph 30, Justice
Campbell Miller said:
[30] … The only activities that would take a
corporation’s activities outside the realm of commercial activity would be
activities of a personal nature or the making of exempt supplies. …
[11]
In other words, the
parent corporation (i.e., the Appellant) paid the fees in question to purchase
the shares of the subsidiary, and the business of the subsidiary was involved
in financial services which is an exempt supply.
[12]
The Agent for the
Appellant said that the subsidiary was not allowed to provide a financial
service. He said that the subsidiary was only allowed to provide computer services.
CONCLUSION
[13]
I have concluded that
all or substantially all of the supplies made by Pay Linx Corporation were exempt
supplies of financial instruments and financial services pursuant to the
definition of those terms in section 123 of the Act and Schedule V, Part
VII of the Act. It therefore follows that Pay Linx Corporation was not
involved in a commercial activity, as that term is defined in subsection 123(1)
of the Act.
[14]
I have also concluded
that, at all material times, the only activities that the Appellant was
involved in were holding the shares of Pay Linx Corporation and publicly
trading its shares. It therefore follows that the Appellant was not involved in
a commercial activity, as that term is defined in subsection 123(1) of the Act.
[15]
Finally, the amounts
that the Appellant sought to deduct as input tax credits related to tax that
became payable by it during the Period on supplies of property and services
that it acquired to carry on its activities, not the activities of the
subsidiary.
[16]
I have therefore
concluded that the Appellant is not entitled to claim any input tax credits
pursuant to subsections 169(1) and 186(1) of the Act.
[17]
The appeal is
dismissed, without costs.
Signed at Vancouver, British Columbia, this 7th day of April 2011.
“L.M. Little”
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