[ENGLISH TRANSLATION]
Citation:
2016 TCC 260
Date: 20161125
Docket: 2015-4762(GST)I
BETWEEN:
RESTAURANT
LOUPY’S INC.,
Appellant,
and
HER
MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Favreau J.
[1]
This is an appeal from a reassessment made under
Part IX of the Excise Tax Act, R.S.C., 1985, c. E-15, as amended
(the “ETA”) by Quebec’s Minister of Revenue, as the Minister of National
Revenue’s agent, hereinafter (the “Minister”), notice of which is dated August
27, 2013, and bears no number for the reporting period from January 1, 2011, to
March 31, 2011 (the “Period”).
[2]
The August 27, 2013, reassessment was based on
two separate lots of equipment when the sale occurred in the fall of 2011:
•
The capital property “taken” by the buyer for
which it paid $57,500; and
•
The capital property “not taken” by the buyer. Its
fair market value (the “FMV”) was $222,934.06.
[3]
Consequently, the Minister calculated the
amounts of goods and services taxes (the “GST”) as follows:
• Taxable supply on the sale price of the capital property “taken” =
$2,875.00
• Deemed taxable supply on the FMV of the capital property “not taken”
= $11,134.26
Total amount of unpaid taxes = $14,009.26 (plus
interest and the late-filing penalty).
[4]
The Minister made the reassessment at issue
based, inter alia, on the following conclusions and assumptions of fact stated
in paragraph 23 of the Reply to Notice of Appeal:
b) Throughout the relevant period, the appellant worked in the
restaurant business;
c) Throughout the relevant period, the appellant was a registrant
for the purposes of Part IX of the ETA;
d) On or about April 1, 2011, the appellant cancelled its tax
numbers;
e) On that date, the appellant’s balance sheet showed assets of
$533,166.00;
f) The appellant was deemed to have disposed of its assets on the
date that its tax numbers were cancelled;
g) The appellant sold part of its assets to “Boston Pizza” in
Lévis (hereinafter the “buyer”) for a sum of $57,500.00;
h) In this regard, the appellant produced a list of suppliers
that did not provide any details on the equipment;
i) The appellant also provided a list of suppliers annotated by
the buyer;
j) The annotated list indicated the equipment taken (sold) and
not taken (not sold);
k) Based on the appellant’s list and the list annotated by the
buyer, the Minister divided the equipment into two (2) groups, the equipment
acquired by the buyer and the equipment that was not acquired;
l) For the equipment acquired by the buyer, the Minister used a
$57,500.00 sale price as the fair market value (hereinafter “FMV”) of these
assets;
m) The tax was therefore assessed on the amount of $57,500.00;
n) With respect to the equipment not acquired by the buyer, the
Minister used 50% of the acquisition value as FMV to consider the amortization
of these assets;
o) The FMV used for the equipment not acquired by the buyer was
therefore $222,685.22 and the tax was assessed on this amount;
p) The appellant therefore owes the amount of the adjustments
made to its net tax reported for the Period in the amount of $14,009.26, plus
interest and penalties.
[5] At the opening of the hearing, the appellant recognized that the
sale of the capital property to the Boston Pizza franchisee in Lévis was a
taxable supply and that the amount of GST on the $57,500 sale price had not
been collected nor remitted to the Minister by the appellant. The appellant
also recognized that the only penalty imposed by the Minister was a late-filing
penalty whose amount is not contested.
Gilles Lupien’s testimony
[6]
Gilles Lupien, a former professional hockey
player, testified at the hearing to explain the circumstances surrounding the
February 27, 2011, closure of his Boston Pizza restaurant.
[7]
Restaurant Loupy’s Inc. was incorporated on
March 9, 2007, under Part IA of the Quebec Companies Act and
subsequently under the Quebec Business Corporations Act.
[8]
A registration number for purposes of the ETA
was issued to the appellant on May 25, 2008, and the appellant started to
operate its restaurant business on November 27, 2008, at the intersection of
Autoroute 40 West and Des Sources Boulevard. The appellant had a 22-year
Boston Pizza franchise and had also signed a 22-year lease with the Broccolini
construction company to occupy the lot where the restaurant was located.
[9]
Although it was not in arrears on the rent, on
February 28, 2011, the appellant received a visit from a bailiff with a
document ordering it to close the restaurant and empty the premises within 24
hours, leaving only the roof, the four walls and the floor. The reason cited
for this forced closure of the restaurant was that the land on which the
restaurant was located had been sold to a third party who did not want to have
a restaurant operating there.
[10] Mr. Lupien initiated legal proceedings against Broccolini to be
compensated for the losses caused by the closure of the restaurant.
[11] Forced to comply with the order, the appellant hired AMJ Campbell, a
professional moving company, to remove all the contents of the restaurant,
including everything fastened to the walls, all the kitchen equipment, the
furniture, bar, safe, advertising sign and the cold room. The moving company
provided the packaging material, labour (the movers and workers to dismantle
the facilities and disconnect the computer equipment), handling and protection
equipment, three tractor trailers with drivers and warehousing of the property.
The move cost $9,490.00 plus taxes.
[12] According to Mr. Lupien, AMJ Campbell did not make an inventory of
the property placed in the trucks. However, Mr. Lupien determined the value
of the equipment based on the suppliers’ sales invoices. The value of the
equipment was $962,285.90 (including taxes) and the book value of the equipment
was $533,761.39 (not including taxes) on the date the restaurant was closed.
[13] After the restaurant closed, Mr. Lupien sought a buyer for all the
equipment. He first received a ridiculously low offer of $25,000 from a
friend, Marc Dupré. Another potential buyer was only interested in half the
equipment. Finally, Mr. Lupien accepted a $57,500 offer for all the equipment
from the owners of Boston Pizza in Lévis. The sale was finalized based on a
verbal agreement about eight months after the restaurant closed. The purchase
price of the equipment was deposited in the Stikeman Elliott law firm’s trust
account.
[14] Mr. Lupien explained that the appellant’s existence in law was
maintained in order to settle the proceedings resulting from the closure of the
restaurant and that the application to cancel the company’s tax numbers had
been filed in error by the company’s accountant. The cancellation of the tax
numbers came into effect on April 1, 2011. An application to re-register for
taxes was filed and a new registration certificate was issued by the Agence du
Revenu du Québec for the Quebec Sales Tax on June 19, 2013, with a May 25, 2008,
effective date, the registration date initially provided. With respect to the
Goods and Services Tax / Harmonized Sales Tax (GST/HST), the GST/HST registry
search results on various dates between May 25, 2008, and August 1, 2016,
showed that the appellant always kept its original registration number without
any references to the application to cancel its registration number or the
re-registration.
Jonathan Delarosbil’s testimony
[15] Jonathan Delarosbil testified as a representative of the purchaser
of the appellant’s equipment. He explained that the owners of the Boston Pizza
in Lévis already owned six businesses in the Québec area, three resto-bars and
three Boston Pizzas. André Savard, a former National Hockey League player, and
an acquaintance of Mr. Lupien, was a member of the group that owned the Boston
Pizza in Lévis. Mr. Savard was the individual who negotiated with Mr. Lupien
the $57,500 sale price for the appellant’s equipment.
[16] Mr. Delarosbil explained that the Boston Pizza in Lévis had gone
bankrupt a few years before and had been converted to a “Fish Bowl” restaurant,
which also went bankrupt a little later. The group that he represents
repurchased the business from the bankruptcy trustee in order to convert it to
a Boston Pizza, hence the interest in the appellant’s equipment.
[17] Mr. Delarosbil contacted the AMJ Campbell moving company to
transport the appellant’s equipment to Lévis. The transportation cost $12,900
plus taxes. In the fall of 2011, AMJ Campbell delivered the equipment to Lévis
with three secure 53-foot tractor trailers, the same tractor trailers that were
used when the restaurant was dismantled. These tractor trailers contained the
component parts of an entire restaurant. An inventory was completed on site in
Lévis when the trailers were unloaded. The equipment was properly packed and
was not damaged.
[18] Mr. Delarosbil explained that not all of the appellant’s equipment
could be installed in the Boston Pizza in Lévis because the dimensions of this
restaurant were not the same as the appellant’s restaurant. Consequently, some
of the equipment was installed in the Boston Pizza in Lévis while some of the
other equipment was kept because it could potentially be used in the other
Boston Pizzas in the Québec area. The unused equipment was simply discarded. Mr.
Delarosbil confirmed that he had informed the appellant of the equipment that
had not been used by the owners of the Boston Pizza in Lévis and that it was
the appellant who should have sent the information to the Agence du Revenu du
Québec.
[19] Finally, Mr. Delarosbil said that the cost of renovating the Boston
Pizza in Lévis was about $300,000 and that fire destroyed the restaurant after
it had been in operation for one year.
Noël Ki’s testimony
[20] Noël Ki is the Agence du Revenu du Québec auditor who performed the
audit of the appellant’s business. The audit was completed on August 7, 2013,
and was conducted with his manager, whose name he did not mention. He never
personally spoke to Mr. Delarosbil, but his manager allegedly had several
telephone conversations with Mr. Delarosbil.
[21] During his testimony, Mr. Ki confirmed that he knew that the
appellant’s tax numbers had been cancelled on April 1, 2011, but he did not
know that the tax numbers had been re-registered. In addition, he did not know
that all the equipment from the appellant’s restaurant had been delivered to
the buyer in Lévis.
[22] Mr. Ki said he had made the assessment at issue based on the
annotated list of the equipment sent by the appellant. Based on this list, he
divided the equipment into two groups, those taken by the buyer (the equipment
sold) and the equipment not taken by the buyer (the equipment not sold).
[23] The auditor found that the value of the property sold to the Boston
Pizza in Lévis was $57,500 and that the value of the property not sold to the
Boston Pizza in Lévis was $222,934.06, 50% of the purchase cost of the property
paid by the appellant. Although the appellant’s Boston Pizza franchise
operated for only 27 months, from November 28, 2008, to February 27, 2011, the
auditor considered that 50% of the purchase cost of the property had been
amortized by the appellant, which was clearly to the appellant’s benefit. The
taxes were calculated based on the value of each category of property.
Positions of the parties
A.
A. Position of the respondent
[24]
The position of the respondent is essentially
based on subsection 171(3) of the ETA, which stipulates that following the
cancellation of its GST number, a registrant is deemed to have disposed of its equipment
immediately before the effective date of this cancellation, in this case March
31, 2011.
[25] Consequently, the respondent maintains that on March 31, 2011, the
appellant is deemed to have disposed of its equipment for an amount equivalent
to its fair market value.
[26]
The respondent argues that the appellant had, on
that date, assets totalling $533,166 on its accounting ledgers and that the
fair market value of the property sold was $57,500 and the fair market value of
the property not sold was $222,934.06.
[27]
According to the method used by the Minister to
calculate the GST, the appellant failed to pay $14,009.26 of GST, plus interest
and applicable penalties.
[28]
The respondent maintains that on February 27,
2011, the date when the appellant stopped operating its restaurant, it was no
longer engaged in any commercial activities and that its registration was no
longer necessary for purposes of the ETA. The respondent maintains that the
deemed disposition of subsection 171(3) had to be applied, hence the notice
of reassessment.
[29]
In addition, the respondent maintains that the
re-registration did not reverse the legal effects of the transactions performed
in 2011 after its tax number was cancelled and that the appellant was
nevertheless required to remit the amounts of GST to the Receiver General for
Canada.
A.
B. Position of the appellant
[30]
The appellant suggests that throughout the
Period, it was registered under the ETA and consequently there was never a
deemed disposition of the appellant’s property, as alleged by the respondent.
[31]
The position of the appellant is that the
Minister never had the power to cancel its GST number because it had never
stopped conducting its business activities. This legal principle applies even
in the case where the taxpayer has filed the cancellation application in error
or prematurely.
[32]
The appellant also maintains that the
re-registration for purposes of the ETA reverses all deemed supply of the
equipment at issue, thereby eliminating the rationale for the reassessment made
by the Minister.
[33]
Subsidiarily, the appellant maintains that if
the Court were to find that a deemed disposition had actually occurred, the
fair market value used by the Minister in the case of the lot of property “not
taken” is grossly overvalued and should be revised downward to take into
consideration the actual market in which the appellant was attempting to resell
the equipment, most of which bore Boston Pizza’s BP logo.
Issues
[34]
The three issues are as follows:
(i)
Does the cancellation of the appellant’s registration
number engage section 171 of the ETA, and therefore, the deemed
disposition of the capital property held by it immediately before the
cancellation date of the registration?
(ii)
If so, did the appellant’s re-registration
reverse all deemed supply of the appellant’s equipment?
(iii)
If the Court were to apply the deemed
disposition rule, what should the fair market value of the equipment be for
purpose of calculating the GST?
Analysis
A.
Effects of cancelling the GST registration
number
[35]
The rule underpinning the dispute is in
subsection 171(3) of the ETA, which reads as follows:
[…]
(3) Properties
on ceasing to be registrant − For the purposes of this Part, where a
person ceases at any time to be a registrant,
(a) the person shall be deemed
(i) to have made,
immediately before that time, a supply of each property of the person (other than
capital property) that immediately before that time was held by the person for
consumption, use or supply in the course of commercial activities of the person
and to have collected, immediately before that time, tax in respect of the
supply, calculated on the fair market value of the property at that time, and
(ii) to have
received, at that time, a supply of the property by way of sale and to have
paid, at that time, tax in respect of the supply equal to the amount determined
under subparagraph (i); and
(b) where the person was, immediately before that time,
using capital property of the person in commercial activities of the person,
the person shall be deemed to have, immediately before that time, ceased using
the property in commercial activities.
[36]
Cancellation of the registration has two
important consequences. First, property, other than capital property held by
the registrant for consumption, use or supply in the course of its commercial
activities is deemed to have been supplied immediately before the registration
was cancelled and the tax in respect of that supply is deemed to have been
collected immediately before that time, calculated on the fair market value of
each property of the person at that time. The person must then remit the GST
that the person is deemed to have collected. In addition, the person is deemed
to have received, at that time, a supply of each property of the person by way
of sale and to have paid, at that time, GST in respect of the supply under
subparagraph 171(3)(a)(i). Since, at that time, the person is no longer a
registrant, the person is not entitled to the input tax credit in respect of
the GST deemed to have been paid in respect of this deemed supply.
[37]
Paragraph 171(3)(a) does not apply to
capital property held by the registrant immediately before the registration is
cancelled. Paragraph 171(3)(b) stipulates that where the person was using
capital property of the person in commercial activities of the person, the
person shall be deemed to have ceased using the property in commercial
activities. This deemed disposition engages the rules concerning changes in
use under sections 195 to 211 of the ETA. Under these rules, the person
is deemed to have sold its capital property immediately prior to the
cancellation of the registration and to have collected the amount of GST equal
to the amount of tax paid to acquire the capital property. Generally, the
input tax credit amounts claimed in respect of this capital property must be
reimbursed.
[38]
Section 171 of the ETA sets out the
following applicable deemed dispositions: “For the purposes of this Part, where
a person ceases at any time to be a registrant, the person shall be
deemed:”
[39]
The term “registrant” is defined in
subsection 123(1) of the ETA:
“registrant” means a person who is registered, or who is
required to be registered, under Subdivision d of Division V.
[My emphasis]
[40]
This broader definition of the term “registrant”
means that a person can be registered for the purposes of the ETA without
necessarily having been registered with the tax authorities. This is a point
that the appellant raises in its arguments.
[41]
In this case, can we conclude that the appellant
was required to be registered when its equipment was sold in the fall of 2011?
[42]
The terms and conditions of registration are set
out in sections 240 et seq. of the ETA. The following criteria
apply to mandatory registration:
240(1) Registration required − Every person who makes
a taxable supply in Canada in the course of a commercial activity
engaged in by the person in Canada is required to be registered for the
purposes of this Part, except where
a)
the person is a small supplier;
b)
the only commercial activity of the person is
the making of supplies of real property by way of sale otherwise than in the
course of a business; or
c)
the person is a non-resident person who does not
carry on any business in Canada.
[My emphasis.]
[43]
The deemed disposition of the equipment is not
contested, but the Court needs to determine whether the sale of the equipment
by the appellant constituted a taxable supply in the course of a commercial
activity engaged in by the appellant in Canada. The parties’ submissions
diverge in this regard. The respondent argues that the appellant had ceased to
engage in a commercial activity at the same time as the restaurant ceased
operations, but the appellant counters that the sale of the equipment was one
of the final stages of the real cessation of the restaurant’s operations.
[44]
For purposes of the ETA, the term “commercial
activity” is defined as follows under subsection 123(1):
“commercial activity” of a person means
a)
a business carried on
by the person (other than a business carried on without a reasonable
expectation of profit by an individual, a personal trust or a partnership, all
of the members of which are individuals), except to the extent to which the
business involves the making of exempt supplies by the person,
b)
an adventure
or concern of the person in the nature of trade (other than an adventure or
concern engaged in without a reasonable expectation of profit by an individual,
a personal trust or a partnership, all of the members of which are
individuals), except to the extent to which the adventure or concern involves
the making of exempt supplies by the person, and
c)
the
making of a supply (other than an exempt supply) by the person of real property
of the person, including anything done by the person in the course of or in
connection with the making of the supply.
[45]
In March 2011, when the appellant applied to
have its tax number cancelled, the appellant implied that its commercial
activities had ceased.
[46]
The application for cancellation of its GST
number cannot be interpreted as an admission by the appellant that its
commercial activities had ceased since the application for cancellation was
filed prematurely by an inexperienced representative.
[47]
In support of its submissions, the appellant
maintains that the sale of the equipment following the closure of the
restaurant was in fact an act done on the occasion of the cessation of its
regular daily commercial activities and is therefore deemed to have been
completed in the course of its commercial activities.
[48]
In this regard, it is appropriate to refer to
subsection 141.1(3) of the ETA, which reads as follows:
Acquisition,
etc., of activities − For the purposes of this Part,
(a)
to the extent that a person does anything (other than make a supply) in
connection with the acquisition, establishment, disposition or determination of a commercial activity of the person, the person shall be deemed to have done that
thing in the course of commercial activities of the person; and
(b) to the extent that a person does anything (other
than make a supply) in connection with the acquisition, establishment,
disposition or termination of an activity of the person that is not a
commercial activity, the person shall be deemed to have done that thing
otherwise than in the course of commercial activities.
[My emphasis.]
[49]
In Perfection Dairy Group Ltd. v. Canada, [2008]
T.C.J. No. 252, Justice Webb applied this deemed disposition of the ETA:
“42 […] As a result, to the extent that PFL does anything in
relation to the termination of its business, it is deemed to have done that
thing in the course of commercial activities. Therefore
the claim under the Legal Action (which was acquired in connection with the
termination of the business) will be deemed to have been acquired in the course
of commercial activities of PFL.
43 As a result all of the assets of PFL in 1998 would have been assets
last acquired by PFL for consumption or use by PFL exclusively in the course of
its commercial activities and the conditions of paragraph 186(1)(b) of the
Act are satisfied.
44 The Appellant is therefore
deemed to have acquired the professional fees for use in the course of
commercial activities of the Appellant to the extent that the Appellant can
reasonably be regarded as having so acquired the professional services for
consumption or use in relation to the shares or indebtedness of PFL.”
[My emphasis]
[50]
Two years later, Webb J. rendered a second
decision referring to the deemed disposition of section 141.1 of the ETA.
In 614730 Ontario Inc. v. Canada, [2010] T.C.J. No 55, Webb J. made the following comments:
21 Since the Appellant was assessed on the basis that it did not
“acquire a property or service for consumption, use or supply in the course of
commercial activities of the appellant”, in order to qualify for the ITCs the
Appellant simply needs to show that the property or service was acquired for
consumption, use or supply in
the course of a commercial activity of the Appellant. If
section 141.01 of the Act would have formed the basis for the assessment,
then the Appellant would have to show how the property or services were
acquired for the purpose of making taxable supplies and not just that they were
acquired for consumption, use or supply in the course of commercial activities
of the Appellant. Subsection 141.1(3) of the Act broadens the scope of
what is considered to be in the course of commercial activities to anything
done in connection with the acquisition, establishment, disposition or
termination of a commercial activity.
[…]
36 The making of
a supply (which would include a lease or sale) of real property (provided that
it is not an exempt supply) will be a commercial activity regardless of whether that supply was part of an activity
that could qualify as a business. As well
activities that relate to the termination of a commercial activity will be
included as part of commercial activities.
[My emphasis.]
[51]
The respondent counters that the appellant was
no longer engaged in commercial activities at the time of the sale of its
equipment because there was a change in use of the property as provided in
subsection 200(2) of the ETA:
Ceasing use of
personal property − For the purposes of this
Part, where a registrant last acquired or imported personal property for use as
capital property primarily in commercial activities of the registrant and the
registrant begins, at a particular time, to use the property primarily for
other purposes, the registrant shall be deemed:
a)
to have made, immediately before the particular
time, a supply of the property by way of sale and to have collected, at the
particular time, tax in respect of the supply equal to the basic tax content of
the property at the particular time; and
b) to have received, at the particular time, a supply of the property
by way of sale and to have paid, at the particular time, tax in respect of the
supply equal to the basic tax content of the property at the particular time.
[52]
Although the intended use of the equipment was
for the operation of the restaurant, the respondent argues that this reality
nevertheless changed when this use was no longer possible. Consequently,
subsection 200(2) of the ETA must apply.
[53]
According to the respondent, the fact that the
appellant requested to have its GST number cancelled confirms the view that
there was a change in use.
[54]
In support of its position, the respondent
referred to Wiley v. The Queen, [2005] T.C.J. No. 492, in which Justice
Miller made the following comment at paragraph 33 of his decision:
[…] The Respondent did not raise subsection 200(2) and I simply
raise it to illustrate to Mr. Wiley that it is still necessary to consider his actual use, not simply intended use. In so doing, I reach the same result.
[My emphasis.]
[55]
In this decision, Miller J. dismissed Mr. and
Mrs. Wiley’s appeal in respect of a motorhome they had purchased and used in
their business. Mr. Wiley argued that he had acquired the property exclusively
for use in his business, however, the evidence at trial demonstrated a
completely different reality, a significant personal use. Miller J. therefore
denied the input tax credits claimed in connection with this sale, as well as
several expenses relating to this property, such as gasoline and maintenance
expenses.
[56]
Although the principle that the Minister cannot
assess taxpayers on what they had planned but never actually happened is valid,
this principle cannot be applied in this appeal. There is nothing in the
evidence to indicate that by storing and attempting to sell its equipment, the
appellant used the property for purposes other than the operation of its
restaurant. The sale of a company’s equipment is certainly not a normal daily
activity, but the fact remains that the sale was carried out in the course of
operating a company.
[57]
The sale of equipment following the cessation of
normal daily activities is also part of what the ETA calls a “commercial
activity.”
[58]
The appellant was therefore still engaged in a
commercial activity when it sold its equipment to the representative of Boston
Pizza in Lévis and there was never a change in use of the property at issue.
[59]
Also, because the appellant was a person who
made a taxable supply in the course of a commercial activity when it sold its
equipment, it was required to be registered under the ETA, as stipulated in
section 240 of the ETA.
[60]
Since under section 123 of the ETA, the
appellant was required to be registered under the ETA, it was still a
registrant for the purposes of the ETA during the Period, and therefore never
lost its status as a registrant for the purposes of the ETA. Subsection 171(3)
of the ETA cannot apply to the appellant, and there was no change in use of the
appellant’s capital property.
Effects
of the cancellation application filed by the applicant
[61]
The appellant’s submission is that the Minister
did not have the legal capacity to cancel the appellant’s registration, even
though the appellant itself filed the application.
[62]
To support its argument, the appellant referred
to Harris v. Canada, [2000] F.C.J. No. 729 of the Federal
Court of Appeal regarding the discretionary authority of government officials.
[63]
With respect, I cannot agree with the appellant’s
argument because this does not involve a discretionary decision of the Minister.
Subsection 242(1) of the ETA expressly grants the Minister the power to
cancel the registration of a person who is registered:
Cancellation – The Minister may, after
giving a person who is registered under this Subdivision reasonable written
notice, cancel the registration of the person if
the Minister is satisfied that the registration is not required for the
purposes of this Part. […]
[My emphasis.]
[64]
The cancellation of the registrant’s number by
the Minister is not a matter of discretion but rather of a power conferred on
the Minister by the Act. As such, the Minister was entitled to issue a notice
of cancellation because he had every reason to believe that the appellant’s
registration was no longer necessary since the restaurant was no longer in
operation.
[65]
The Minister was therefore right in cancelling
the appellant’s GST number pursuant to the power vested in him by subsection
242(1) of the ETA.
[66]
On the date the cancellation came into force,
the appellant was no longer formally registered for the purposes of the ETA but
was nevertheless required to be registered because it was still engaged in a
commercial activity. The appellant therefore remained a registrant within the
meaning of section 123 of the ETA even though it no longer had a GST
number pursuant to the cancellation set out in section 242 of the ETA.
[67]
The consequences normally resulting from the
cancellation of this GST registration did not occur in the appellant’s case
because it continued to engage in commercial activity after the cancellation.
Effects of re-registration
[68]
Although the foregoing conclusions are that the
appellant has never ceased to be a registrant under the ETA, I think it is
nevertheless important to analyze the effects of the appellant’s
re-registration.
[69]
Prior to 2013, the Canada Revenue Agency (the
“CRA”) routinely denied retroactive registrations for purposes of the ETA. This
administrative policy has been changed and the CRA now automatically approves a
retroactive registration for a maximum period of 30 days, with proof that the
business was engaged in a commercial activity, in the course of which it
collected applicable taxes.
[70]
The following comments of author David Sherman’s
analysis of section 241 clearly illustrate the CRA’s position:
48. − GST/HST
Retroactive Registration
Facts /
Background
We understand that the Canada Revenue Agency
(“CRA”) has recently changed its administrative policy around the timelines for
GST/HST registrations. Generally, practitioners have relied on a
long-standing, informal CRA administrative policy to permit retroactive
registrations back 30 days with no questions asked.
We further understand that the new practice
makes a voluntary registration effective on the date the CRA receives the
application via telephone, fax or letter. We understand that if a prior
effective date is requested and is within 30 days, the CRA enquires whether the
entity has collected tax, but will not request further documentation to support
a positive response. If the response is negative, the retroactive registration
is denied. If an effective date is requested beyond 30 days, the CRA will
require evidence showing that the entity collected tax as early as the
requested date.
...
If a person who is registering voluntarily
requests that a registration be backdated beyond a 30-day period, documentation
must be presented to support the date requested. The person must provide
evidence that GST/HST had been collected from the date requested on a regular
and consistent basis. Copies of the sales journal or the earliest three to
five invoices are generally sufficient for this purpose.
[My emphasis.]
[71]
Despite the CRA’s policy that a retroactive
application backdated beyond a 30-day period is approved in special cases, it
appears that on February 19, 2013, the Minister agreed to re-register the
appellant as of May 25, 2008, for the purposes of the Act Respecting the
Québec Sales Tax.
[72]
For the purposes of the ETA, various GST/QST
registry searches conducted on dates between May 24, 2008, and August 1, 2016,
confirmed that the appellant retained its GST/HST number throughout the Period.
The searches showed a November 27, 2014, amendment date, but did not provide
any indication as to the exact nature of the amendment.
[73]
The issue at this stage is whether this
re-registration can remedy the legal effects that resulted from the
cancellation of the appellant’s registration.
[74]
The respondent argues that despite the
retroactive re-registration, the effects of the cancellation of the appellant’s
registration cannot be remedied.
[75]
In support of its position, the respondent
submitted a number of decisions denying certain tax consequences based on the
non-retroactivity of subsequent events.
[76]
These decisions include:
•
Côté (Estate of) v. Canada, [1995] T.C.J. No. 25, [1996] 1 C.T.C. 2862, 96 D.T.C. 20157
(TCC);
•
Bronfman Trust v. The Queen, [1987] 1 S.C.R. 32 (Supreme Court of Canada), [1987] S.C.J. No. 1; and
•
Beverly Dorcas v. The Minister of National
Revenue, 91 D.T.C. 350, [1991] 1 C.T.C. 2312 (Tax
Court of Canada).
[77]
There is no need for a thorough review of these
decisions because none of them really support the respondent’s position. In
this case, it is not a matter of rewriting history advantageously, but rather
of correcting the defects in the appellant’s record so that its registration
accurately represents reality.
[78]
The fact that the appellant applied to be
re-registered and that its application was approved by the Minister indicates
that the appellant did “what could have been done” to remedy the problem with
its record. We should bear in mind that this is a purely theoretical problem
since the appellant never ceased to be a registrant for purposes of the ETA.
[79]
The appellant used a provision of the ETA to
ensure that the existing legislation at the time of the sale of the equipment
was properly applied.
[80]
For its part, the appellant submitted the
decision in Westborough Place Inc. v. The Queen, 2007 TCC 155, in
which Justice Paris ruled in favour of the appellant regarding its claim for
input tax credits, because, in his view, the claim met the regulatory
requirements of section 169 of the ETA.
[81]
In Westborough Place Inc., supra, the
main issue was that on December 23, 2005, the Minister had closed the GST
account of one of the appellant’s suppliers retroactive to June 30, 2001. As a
result, the input tax credits claimed by the appellant in respect of this
company were denied on the pretext that the supplier’s registration number was
invalid.
[82]
Paris J. found that the Minister did not show,
on the balance of probabilities, that the supplier’s registration number was
invalid. He said the appellant did not have anything to do with this supplier’s
registration and did not have the knowledge required to verify the accuracy of
the supplier’s registration number beyond the online tools posted by the tax
authorities.
[83]
Since the supplier’s GST number was valid
throughout the Period, Paris J. agreed to allow the appellant’s input tax
credits, even though the supplier’s tax number had been cancelled retroactively.
[84]
This decision essentially confirmed that it is
possible to remain a registrant without necessarily being formally registered,
as previously found. Moreover, Paris J. was able to rule in the appellant’s
favour based on this principle.
[85]
In Westborough, supra, Paris J. stated
that if the respondent argues that the tax numbers were invalid, the respondent
bears the onus of proof, and it is the same in this case.
[86]
Based on the analysis of
the decisions submitted by the parties and the evidence on the record, I am of
the opinion that the respondent was unable to prove that the retroactivity of
the registration did not cover the defects in the appellant’s GST file. Therefore,
the registration number was actually valid throughout the Period.
[87]
Given that the appellant
demonstrated that it never ceased to be a registrant for purposes of the ETA,
sections 171 and 200 of the ETS are not applicable in this case. It is
therefore not necessary to analyze the fair market value of the equipment sold
(taken and not taken) by the appellant to Boston Pizza in Lévis.
Conclusion
[88]
For these reasons, the
appeal from the reassessment dated August 27, 2013, is allowed and said
assessment is referred back to Quebec’s Minister of
Revenue for redetermination and a reassessment based on the concession made by
the appellant that the GST is payable in respect of the $57,500 sale price of
the assets sold to Boston Pizza in Lévis, in the amount of $2,875.00.
Signed at
Ottawa, Canada, this 25th day of November, 2016.
“Réal Favreau”
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