Date:
20020904
Docket:
2001-4518-GST-I
BETWEEN:
RAIF
HOLDINGS LTD.,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Reasonsfor Judgment
Little,
J.
A.
FACTS
[1]
The Appellant is a company incorporated under the laws of the
Province of British Columbia.
[2]
The Appellant purchased a parcel of land located in Winfield,
British Columbia on August 27, 1993 (the "Winfield
Property"). The Winfield Property was acquired by the
Appellant pursuant to an Order Absolute in foreclosure
proceedings in the Supreme Court of British Columbia. The
previous owner of the Winfield Property, Lake Country Motor Inn
Ltd. had declared bankruptcy under the Bankruptcy
Act.
[3]
On the 25th day of May 1995, Leonard Melnyk commenced a legal
action against the Appellant, Raif Fleihan, the principal
shareholder of the Appellant, and against other unrelated
parties.
[4]
In the Statement of Claim Mr. Melnyk claimed that he was entitled
to payment of $45,038.70 in connection with the supply of
equipment, labour and materials to the Winfield Property. The
Statement of Claim indicates that the equipment, labour and
materials supplied are summarized in an invoice (the
"Invoice") issued by Can Pro Diving Services in 1993 to
Heinz Strege (See Exhibit R-1). Heinz Strege was the principal
shareholder of Lake Country Motor Inn Ltd.
[5]
Mr. Fleihan testified that he and the Appellant had filed a
Statement of Defence to the legal action commenced by Mr. Melnyk.
Mr. Fleihan also testified that the legal action was heard by a
Judge of the Supreme Court of British Columbia within the past
four months and that at the conclusion of the hearing the Judge
reserved his decision.
[6]
Mr. Lotoski, Chartered Accountant, was called as a witness for
the Appellant. Mr. Lotoski said that he has prepared tax returns
for the Appellant for a number of years. Mr. Lotoski testified
that when he prepared the tax returns for the period August 1,
1996 to July 31, 1999 (the "Period") he determined that
the Appellant had a Goods and Services Tax liability
("G.S.T.") under the Excise Tax Act (the
"Act"). Mr. Lotoski testified that the
Appellant's tax returns for the period were filed on the
basis that the Appellant was entitled to an input tax credit of
$2,946.46 in connection with the Invoice submitted by Can Pro
Diving Services. (Note: The amount of $2,946.46 is equal to 7% of
the $45,038.70 referred to in the Invoice. Mr. Lotoski also
testified that he was under the impression that if he did not
record the claim made by Leonard Melnyk as a liability of the
Appellant, the Appellant would be precluded from ever claiming an
input tax credit in respect of the G.S.T. payable on the
Invoice.
[7]
The Minister of National Revenue (the "Minister")
maintains that the Appellant is not entitled to the input tax
credit of $2,946.46 in respect of the Can Pro Diving
Services invoice because the Appellant did not pay the G.S.T. or
become liable to pay the G.S.T.
B.
ISSUE
[8]
The issue is whether the Appellant is entitled to an input tax
credit of $2,946.46 in relation to the Invoice issued by Can Pro
Diving Services.
C.
ANALYSIS
[9]
Subsection 169(1) of the Act provides, in part, as
follows:
169. (1)
General rule for input tax credits − Subject to this Part,
where a person acquires or imports property or a service or
brings it into a participating province and, during a reporting
period of the person during which the person is a registrant, tax
in respect of the supply, importation or bringing in becomes
payable by the person or is paid by the person without having
become payable, the amount determined by the following formula is
an input tax credit of the person in respect of the property or
service for the period . . .
[10] It will be
noted that in order for a person to obtain an input tax credit
the person must pay the tax or the tax must become payable by the
person.
[11] Mr. Fleihan
testified that the Appellant did not pay the tax. It therefore
follows that the Appellant cannot obtain an input tax credit on
the basis that the tax was paid.
[12] We must
next examine whether the G.S.T. of $2,946.46 was
"payable" by the Appellant. The only evidence available
to the Court is the issuance of the Invoice to Heinz Strege, the
principal shareholder of the former owner and the commencement of
the lawsuit by Mr. Melnyk against the Appellant and
Mr. Fleihan. The issuance of the Can Pro Diving Invoice
and the commencement of a lawsuit do not make an amount
"payable".
[13] The appeal
will be dismissed since the Appellant does not qualify for an
input tax credit under subsection 169(1) of the
Act.
[14] During the
appeal Sonja Filipone, an employee of the Canada Customs and
Revenue Agency was called as a witness by the Respondent.
Ms. Filipone stated that the Minister refused to allow the
input tax credits of $2,946.46 claimed by the Appellant because
the G.S.T. was not paid by the Appellant. Ms Filipone also stated
that the Minister had concluded that the G.S.T. of $2,946.46 was
not payable by the Appellant. Ms. Filipone stated that if
the Supreme Court of British Columbia concludes that the
Appellant must pay the invoice issued by Can Pro Driving to Heinz
Strege it would follow that G.S.T. would be payable by the
Appellant and the Appellant would therefore qualify for the input
tax credit of $2,946.46. Ms. Filipone also confirmed that a
claim by the Appellant for the input tax credit must be made
within four years of the date of the decision of the Supreme
Court of British Columbia. Ms. Sidhu, counsel for the
Respondent, confirmed the statement by Ms. Filipone. I trust that
the Minister will recognize a claim for input tax credits by the
Appellant in the event that the Appellant is unsuccessful in the
legal action concerning the Invoice before the Supreme Court of
British Columbia.
Signed at
Vancouver, British Columbia, this 4th day of September
2002.
J.T.C.C.
COURT FILE
NO.:
2001-4518(GST)I
STYLE OF
CAUSE:
Raif Holdings Ltd. and
Her Majesty the Queen
PLACE OF
HEARING:
Kelowna, British Columbia
DATE OF
HEARING:
August 19, 2002
REASONS FOR
JUDGMENT BY: The Honourable Judge L.M.
Little
DATE OF
JUDGMENT:
September 4, 2002
APPEARANCES:
Agent for
the
Appellant:
Raif Fleihan
Counsel for
the
Respondent:
Jasmine Sidhu
COUNSEL OF
RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-4518(GST)I
BETWEEN:
RAIF
HOLDINGS LTD.,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
Appeal heard
on August 19, 2002 at Kelowna, British Columbia, by
the
Honourable Judge L.M. Little
Appearances
Agent for
the
Appellant:
Raif Fleihan
Counsel for
the
Respondent:
Jasmine Sidhu
JUDGMENT
The appeal
from the assessment numbered 11EU117675157 made under the
Excise Tax Act, notice of which is dated October 31, 2001
is dismissed.
Signed at
Vancouver, British Columbia, this 4th day of September
2002.
J.T.C.C.
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