Citation: 2010 TCC 646
Date: 20101220
Docket: 2009-1737(GST)I
BETWEEN:
PARADIGM VENTURES, INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Hershfield J.
[1] The Appellant
appeals an assessment respecting GST collectable under the Excise Tax Act
(GST Portion) (the “Act”) for the period from January 1, 2006 to
December 31, 2006.
[2] The Notice of
Appeal identifies the Appellant as a manufacturer agency acting as a sales
agent for non-resident companies. It is asserted that services performed by the
Appellant are zero-rated supplies. The Appellant pleads that the assessment
relied on section 23 of Part V of Schedule VI of the Act (hereinafter
referred to simply as “section 23”) and asserts that such section does
not apply to exclude its services from being zero-rated supplies.
[3] The Reply to the
Notice of Appeal does not take issue with respect to the particular section of
the Act relied on in making the assessment but it does set out the following
assumptions:
…
c)
the Appellant is a
manufacturer’s agency and represents companies based in the United States by
selling their products in Canada to retail and wholesale customers;
d)
the Appellant
arranged for, procured or solicited orders in Canada for non-resident companies;
e)
the Appellant carried
out the above mentioned services in Canada;
f)
the Appellant earned
commission income from the sale of products on behalf of non-resident companies
in Canada;
g)
the Appellant was
registered under Part IX of the Act, effective August 22, 2001;
h)
the Appellant was
required to file annual GST returns;
i)
at all material
times, the Appellant was involved in commercial activities;
j)
at all material
times, the Appellant did not make zero-rated supplies;
k)
at all material
times, the Appellant made taxable supplies in Canada;
l)
at all material
times, the Appellant was required to collect GST on the taxable supplies at the
rate of 7% from January 1, 2006 to June 30, 2006 and 6% from July 1, 2006 to
December 31, 2006; and
m)
the Appellant
reported sales of $257,940.00, but did not collect or remit GST collectible of
$16,766.10 for the Period.
[4] Section 23 sets out
advisory services that are zero-rated supplies but excludes certain agency
services. The relevant part of the provision reads as follows:
23. [Professional, advisory or consulting
service] – A supply of
an advisory, professional or consulting service made to a non-resident person,
but not including a supply of
…
(d) a service of acting as an agent of
the non-resident person or of arranging for, procuring or soliciting orders for
supplies by or to the person.
[5] The Appellant
asserts that section 23 is not the operative provision of the Act. The
Appellant asserts that section 5 of Part V of Schedule VI of the Act (hereinafter
referred to simply as “section 5”), which deals expressly with agents is the
operative section. That section reads as follows:
5. [Agent’s or representative’s service] – A supply made to a non-resident person
of a service of acting as an agent of the person or of arranging for,
procuring or soliciting orders for supplies by or to the person, where the
service is in respect of
(a)
a supply to the
person that is included in any other section of this Part; or
(b)
a supply made outside
Canada by or to the person.
[Emphasis Added.]
[6] This section was
amended in 1997. It formerly read as follows:
5. A supply made to a non-resident person of a
service of acting as an agent of that person, to the extent that the
service is in respect of
(a)
a supply to that
person that is included in any other section of this Part; or
(b)
a supply made outside
Canada by or to that person.
[7] Notwithstanding
that the Reply makes no mention of section 5, Respondent’s counsel does not
deny that it is the operative section and places, in effect, no significance on
the pre-assessment correspondence to the Appellant referring to section 23. In
fact, as will be noted below, the Appellant was told of the section 5 basis to
assess during the appeal process prior to the Minister of National Revenue (the
“Minister”) confirming the assessment. It is clearly the application of section
5 then that the Court is dealing with not section 23. To fit into section 5,
the Appellant has to demonstrate the supply it made was to: (a) a non-resident
whose supply is zero-rated or, (b) the supply by the non-resident was made
outside of Canada.
[8] There has been no
assertion or suggestion that the Appellant’s clients fit under paragraph 5(a).
Respondent’s counsel, therefore, focused his argument on the requirement in
paragraph 5(b). In doing so he has looked at the deeming provisions of
what will constitute a supply made outside of Canada and has argued that the evidence
brought by the Appellant is insufficient to meet the requirements imposed by
those provisions.
[9] Whether a supply is
made outside of Canada is a question of fact subject to the deeming provisions referred to by Respondent’s
counsel. No evidence was brought that might assist the Court except in relation
to the deeming provisions. Supplies are deemed to be inside or outside Canada under subsections
142(1) and (2) of the Act. Subsections 142(1) and (2) provide as
follows:
142.(1) [Place of supply] General Rule – in Canada – For the purposes of
this Part, subject to sections 143, 144 and 179, a supply shall be deemed to be
made in Canada if
(a) in the case of a supply by way of
sale of tangible personal property, the property is, or is to be, delivered or
made available in Canada to the recipient of the supply;
(b) in the case of a supply of tangible
personal property otherwise than by way of sale, possession or use of the
property is given or made available in Canada
to the recipient of the supply;
(c) in the case of a supply of
intangible personal property,
(i) the property may be used in whole
or in part in Canada, or
(ii) the property relates to real
property situated in Canada, to tangible personal property
ordinarily situated in Canada or to a service to be performed in Canada;
(d) in the case of a supply of real
property or of a service in relation to real property, the real property is
situated in Canada;
(e) [Repealed.]
(f) the supply is a supply of a prescribed service; or
(g) in the case of a supply of any other
service, the service is, or is to be, performed in whole or in part in Canada.
(2) [Place of supply] General rule – outside Canada – For the purposes of this Part, a
supply shall be deemed to be made outside Canada
if
(a) in the case of a supply by way of
sale of tangible personal property, the property is, or is to be, delivered or
made available outside Canada to the recipient of the supply;
(b) in the case of a supply of tangible
personal property otherwise than by way of sale, possession or use of the
property is given or made available outside Canada
to the recipient of the supply;
(c) in the case of a supply of intangible personal
property,
(i) the property may not be used in Canada, or
(ii) the property relates to real
property situated outside Canada, to tangible personal property ordinarily
situated outside Canada or to a service to be performed wholly
outside Canada;
(d) in the case of a supply of real
property or a service in relation to real property, the real property is
situated outside Canada;
(e) [Repealed.]
(f) the supply is a supply of a prescribed service; or
(g) in the case of a supply of any other service, the
service is, or is to be, performed wholly outside Canada.
[10] As expressly stated
in subsection 142(1), it is subject to section 143 which deems certain supplies
to be made outside Canada. That is, subsection 142(1) will not apply in respect of a supply if
section 143 applies to deem that supply to be outside of Canada. Section 143 reads as
follows:
143.(1) Supply by non-resident - For the
purposes of this Part, a supply of personal property or a service made in
Canada by a non-resident person shall be deemed to be made outside Canada,
unless
(a) the supply is made in the course of
a business carried on in Canada;
(b) at the time the supply is made, the
person is registered under Subdivision d of Division V; or
(c) the supply is the supply of an
admission in respect of a place of amusement, a seminar, an activity or an
event where the non-resident person did not acquire the admission from another
person.
(2) [Repealed.]
[11] The analysis that Respondent’s counsel suggests is essentially
as follows:
Is the Appellant’s service
in respect of the supply of goods made outside Canada? If so, the supply of the service
is zero-rated.
Paragraph 142(2)(a)
deems the Appellant’s service, in respect of goods sold by a
non-resident, to be outside Canada if those goods were delivered outside Canada. The Appellant did not demonstrate
that any of the goods in respect of which he provided services to non-residents
were delivered outside Canada. Further,
the Appellant did not satisfy the burden of proof to match its
services to any payment for a particular supply by a particular non-resident.
Paragraphs 143(1)(a) and (b)
provide that a supply made by a non-resident is deemed to be made outside of
Canada unless (a) it is made in the course of a business carried on in Canada
or (b) it is made by a person registered under the Act.
Two of the non-resident
suppliers identified by the Appellant were registered under the Act during
the subject period. They also had corporate accounts for income tax
purposes. A third non-resident supplier identified by the Appellant maintained
a corporate account with the Canada Revenue Agency (“CRA”) for income tax
purposes. All the fees earned in respect of these supplies are therefore said
not to be deemed to be made outside of Canada under section 143.
And lastly, and in any
event, the matching of payments to any supplies, and the Appellant’s
records, were so wanting that regardless of the deeming rules, the appeal
had to be dismissed. It is asserted that no reliable evidence was
provided either to the CRA or the Court. There is nothing to support
the Appellant’s late-in-the-day tendered list of non-residents to whom he asserts
he provided services. There are no reliable accounting records of the
amounts, if any, he earned in respect of his services to any of these
listed non- residents. There are no contracts, invoices, order forms or shipping
documents or other evidence that tied any particular service or goods to
a payment.
[12] The factual setting
as described by the Appellant is that it provided its non- resident clients
with introductions to prospective Canadian buyers and was paid a fee or
commission if the introduction resulted in a sale. The Appellant’s
representative (the owner and operator of the Appellant) asserted that the
sales were for the delivery of goods outside Canada and the buyer would be responsible
for bringing them into Canada. He asserted that the amendment made to the Act in
1997, that was lobbied for by the Canadian Professional Sales Association (CPSA),
was intended to deem services to non-residents, as provided by the Appellant, as
zero-rated supplies. He even presented evidence that prior to the amendments,
there was a moratorium on assessments of Canadian companies serving
non-resident suppliers. He referred me to published material and correspondence
that confirmed that commissions earned in respect of supplies made by
non-residents outside Canada were zero-rated. He asserts that is what the Appellant’s
commissions are for and that that should be the end of it. In effect, he seems
to believe that the facts of his situation speak for themselves in the context
of the intended relief that the amendment to section 5 promised.
[13] Clearly, in a
general sense, the facts of his situation have not been disputed. The Minister
has agreed in the assumptions noted above, that the Appellant earned commission
income from non-resident manufacturers in respect of product sales, arranged,
procured or solicited by him on behalf of such non-residents, to customers in
Canada.
[14] Given the background
to the amendment and the assurances he received, the Appellant’s representative
earnestly believes, in effect, that this acknowledgment of what the Appellant
does is a sufficient basis for me to allow its appeal. My repeated cautions to
him that such belief may not be a sufficient basis for me to allow the appeal
made little impression on him. The provisions of the Act, as amended,
regardless of all else, require that I be satisfied as to whether the
Appellant’s client’s supplies were made outside Canada pursuant to subsection
142(2) or fit under section 143. The general picture of the Appellant’s
services would not be sufficient if the provisions of the Act that prescribe
when his services are zero-rated have not been met.
[15] Section 142 deems
supplies to be inside or outside Canada. The Respondent’s position seems to be that unless the
Appellant can establish that it meets the requirements of subsection 142(2),
then subsection 142(1) would apply deeming the Appellant’s clients’ supplies to
be inside Canada. That is not
necessarily true unless the Minister assumed that the non-resident supplies
were made in Canada or assumed that one of the requirements for the deeming provision in
subsection 142(1) has been met. Paragraph 142(1)(a) deems the sale of tangible
personal property to be made in Canada if the property is, or is to be,
delivered or made available in Canada to the recipient of the supply. The
assumption of the Minister is that the Appellant’s clients sold their products in Canada to retail and wholesale
customers. That assumption in and by itself may not be sufficient, in my view,
to place the burden on the Appellant to establish that the goods being sold
were not in fact delivered or made available in Canada. However, I have in
evidence the detailed CRA diary/logs kept at the appeal stage prior to the
confirmation of the assessments and, as well, the appeals officer testified at
the hearing. There is no doubt that the Appellant’s representative and its
accounting representative were told that for his services to be zero-rated, he
needed to establish that the goods that they related to were delivered to the
Canadian buyers outside of Canada as required by subsection 142(2). This tends
to favour a finding that the actual assumption made by the Minister in
confirming the assessment was that the subject deliveries were not made outside
Canada. That is, the Appellant
has the burden of proof here to establish that the deeming provision in
subsection 142(2) applies. Failing that, the Appellant must rely on the deeming
provision in section 143.
[16] It is this burden of
proof that the Appellant had difficulty accepting. My repeated cautions about
it seemed only to frustrate him more and caused the hearing to lose its focus
at times. He argued that he could not provide certain information either
because he had no access to it or because it was confidential and if disclosed
it would jeopardize his business with his non-resident clients. He had not even
provided the CRA or Respondent’s counsel with the names and addresses of his
clients. When the hearing of the Appeal opened in March he advised the Court he
could not provide the Court with confidential third party information. At that
point, I suggested that if the Respondent was correct on the application of
sections 5, 142 and 143 then it did not appear possible that he could succeed
unless he made better disclosure. The March hearing was adjourned to allow him
time to consider how to proceed and what evidence he could bring forward. When
the hearing re-convened in August, Respondent’s counsel advised that the Appellant’s
representative had provided the names of the 5 non-resident clients that had
paid Appellant commissions in 2006. With the list of names the Respondent was
able to determine the status of the non-resident suppliers in respect of the
application of section 143. As noted above, 2 of the non-resident clients were
registered under the Act. Additional information was then provided at
the re-convened hearing under what Appellant’s representative referred to as “duress”.
Still, the information he provided was minimal.
[17] Before reviewing
that additional evidence, I want to address the Appellant’s argument relating
to the initial audit bringing up questions under section 23. This has no
relevance to the appeals. The Appellant asserts that no determination was made
as to whether section 23 applies. While I made no ruling on it at the hearing,
the Appellant’s representative’s own testimony was that the services provided
were excluded under paragraph 23(d) from being zero-rated. The Crown
places no reliance on that section. As noted above, I am satisfied that the Appellant
was told that for his services to be zero-rated, it needed to rely on section 5
and that required it to establish that the goods to which its services related,
were delivered outside of Canada as required by subsection 142(2). The
Appellant knew full well the basis for confirming the assessment. In any event,
the basis of the assessment as confirmed is clearly before me. Section 23 is a
red herring.
[18] As well, I note that
the numerous discussions between the Appellant’s representatives, as reflected
in the CRA diary/logs and correspondence to them, should have alerted the Appellant
to the futility of the argument that the amendment to section 5, allowing the
types of services the Appellant provided to be zero-rated, was not
unconditional. The CRA’s construction of the various sections mentioned above
was clearly explained. Indeed some of his own exhibits, such as an excerpt from
what is asserted to be a national chartered accounting firm publication, suggests
the same construction and noted the difficult evidentiary burden on persons
like the Appellant. It warns that missing documentation as to the goods being
supplied outside Canada could lead to the CRA deciding that the zero-rating did not apply. His
pleas then for the Appellant’s appeal to succeed on the basis of what he essentially
says was the spirit of the amendment, are simply unrealistic. The amendment was
understood by most, it seems, as coming with conditions and burdens of proof.
[19] On the other hand,
the evidence of the pre-confirmation concerns of the CRA make it clear to me
that there were no issues relating to amounts earned or his records. The
assumptions and the record shows that the only concern was identifying the
non-residents and other documentation as would allow a determination of whether
the delivery requirement of section 142 was met.
[20] To underline this
singular focus and general acceptance of all else, it is helpful to refer to
the transcript of the appeals officer’s testimony. He acknowledged that he had
accepted the explanations of the Appellant’s representative and had recommended
vacating the assessment. However, he went on to testify that his team leader,
and then a technical adviser, led him to raise the question of “whether the
supplies were made outside Canada or inside Canada”. That was the information
requested of the Appellant. The Appellant had no documentation as would answer
that inquiry or if it did, its representative was obviously concerned about
surrendering it. Hence, his frustration.
[21] In any event, I will
now consider the nature of the conditions statutorily imposed in order to
determine whether the Appellant’s supplies are zero-rated.
[22] In spite of what
seemed to me to be occasional suggestions that section 143 overrode subsection
142(2), I wish to make it clear that they each afford the Appellant a basis for
claiming that its supplies are zero-rated. If a
supply is deemed to be outside Canada under subsection 142(2), it does not lose
the benefit of that provision just because it is not deemed to be outside of
Canada under section 143 and if a supply is deemed to be outside Canada under
section 143, it does not lose the benefit of that provision just because it is
not deemed to be outside of Canada under subsection 142(2). Once a supply is
deemed to be outside Canada, the existence of another deeming provision is irrelevant
where neither is subject to the other.
[23] That being the case,
the Appellant need not be concerned about the conditions imposed by section 143
if he can establish that the delivery of the goods in respect of which he was
paid by non-resident sellers was made outside Canada. That will qualify the service as
outside Canada under subsection 142(2)
and thereby be zero-rated under section 5. Failing that, he must establish that
his services are, nonetheless, still zero-rated by virtue of the deeming
provision in section 143.
[24] This statutory
approach for zero-rating supplies to agencies in Canada serving non-resident suppliers underlines
the benefit afforded by the amendment to section 5 to persons such as the
Appellant who may not be true agents in a legal sense. The section as it read prior to the
amendment applied to “agents”. The amendment added persons “arranging for,
procuring or soliciting orders”. The Minister’s assumptions in this appeal acknowledge
the Appellant as this latter type of person.
The Appellant’s representative seems to believe that the amendment did more. It
did not. It simply gave the Appellant the same zero-rating opportunity as
given to true legal agents. Like in the case of true agents, however, to
realize on that opportunity there are conditions. In this case the condition is
proving that the goods ordered for Canadian purchasers were delivered outside Canada. By being included in
section 5 this way allows for what might be a simpler method for persons like
the Appellant and their non-resident clients to stay out of the chain of
supplies that require GST payments. A Canadian, as importer, would get ITCs in
respect of the importation of the goods instead of forcing a non-resident to register
and claim ITCs. It is a simpler, revenue neutral, way to approach this activity
or so it seems to me and it avoids the potential difficulties associated with section
143.
[25] In any event,
looking first at subsection 142(2), the burden on the Appellant is to establish
that the goods in respect of which he earned commissions were delivered outside
of Canada. To do that, the
Appellant must tie his commissions to goods delivered outside of Canada. This is no longer as
general an enquiry as the appeals officer might have intimated in his early
discussions with the Appellant’s representative. It is, as Respondent’s counsel
asserted, an exercise that normally requires tracing the delivery terms of each
order and matching it to a particular commission receipt. To the Appellant,
this is, in practical terms, both an impossibility given his role which does
not include being in the loop as to delivery and transportation documentation,
and an accounting nightmare.
[26] As to the
evidentiary problems relating to delivery, the Appellant is in a difficult
position. While it might be possible to get evidence from a Canadian buyer of
where delivery of certain goods was made, that would not in itself be
sufficient to tie a payment by the non-resident seller to those goods.
Inevitably then, it will be easiest for agents in the Appellant’s circumstance
to encourage, or insist that, their clients assist them in identifying, in
respect of each commission payment, the particular order it relates to and the
delivery terms respecting that order. This Court cannot readily dictate how
exacting the tracing requirement might be from an administrative point of view,
but, on a case by case basis, the exercise might be very exacting when it comes
before this Court.
[27] As to the accounting
problem, development of an accounting system that matches a payment from a
particular non-resident to a particular order should not be as challenging as
made out by the Appellant. This is fairly standard, straightforward record
keeping which can be adopted by the Appellant even as it appears to carry on
business.
[28] However, the
Appellant still feels abused by this regime. He complains that he has no
ability to force his clients to enter formal contracts and that he is totally
at their mercy as to what he is paid. He never sees the goods, never handles
any aspect of the order or transport of them and never knows what goods have
actually been acquired and paid for which entitle him to be paid. He cannot
even send an invoice. He
relies on his clients to pay as the circumstances require. He has no ability to
audit. Arrangements are lax but he has no control over them. As well, he admitted that his income reporting might
have mixed cash and accrual methods and that he had difficulty with exchange rate
conversion differences between the two methods. These unsolicited admissions in
a way underlined his candor. I accept him, as did the CRA, as honest and
credible but clearly in need of some better professional accounting advice. In any event, he said he
was unaware of the requirements now being imposed. There were no precedents. He
feels he is being penalized for his reliance on standard practises and lack of
knowledge of what the CRA and this Court are now expecting of him.
[29] This Court can
provide no assistance in respect of these concerns. If clients or customers of
clients will not provide satisfactory delivery evidence in respect of a
particular supply, GST liability is at the agent’s risk. A sale or purchase or
shipping document between his client and the customer would almost certainly
have an identifying order or reference number that could, if recorded properly,
be linked to a payment and a shipping or importation record. Such documentation
cannot be regarded as confidential if section 5 is to be relied on.
[30] What then is the
evidence of deliveries outside of Canada in the case at bar?
[31] In the case of one
client (“Gale”) I was shown only one order document dated in 2006. There is, as
well, a signed representative contract that links the Appellant to that client.
The order document shows shipping as FOB China but there is no dollar amount
shown on the order. A trial balance printout of the Appellant’s income for the
2006 year shows income from that client as $37,260.21. There is no evidence
that the trial balance amount relates specifically to the order put in evidence.
It is impossible to attribute a dollar amount to this delivery made outside of Canada. Further, it cannot serve
as an example that warrants a finding that all deliveries from that client were
made outside Canada.
[32] In the case of a
second client (“LOA”), I was shown two invoices relating to that non-resident’s
supplies to the same Canadian purchaser. The one relating to 2006 has a dollar
amount specified that the Appellant’s representative testified gave rise to a
commission of some $700 US. However, it provides no information as to place of
delivery. It is a faxed copy sent to a number that is presumably that of the
Appellant. The other invoice, also a faxed copy, relates to the 2010 year and
shows the importer of record as the Canadian buyer and there is an e-mail that
connects that supply to the Appellant. Such documentation would be sufficient
evidence that the supplier client of the Appellant made that delivery outside
Canada in 2010. There is a
purchase order number on it and a payment could readily be linked to that order
by any form of confirmation record of the payment referring to that purchase
order number. However, even if that record existed, that together with the
invoice and an e-mail in respect of the 2010 order, is not evidence at all with
respect to the point of delivery of the transaction in 2006. Nor can it serve
as an example that warrants a finding that all deliveries from that client to
that purchaser were made outside Canada in 2006.
[33] Lastly, I was shown
a letter from a third client supplier (“WindChaser”) that said only a small
percentage of the goods it sold to Canadian customers in 2006, whose business
was procured by the Appellant, was delivered in Canada. While there are obvious
weaknesses to this evidence, and with the trial balance printout evidence
provided by the Appellant to connect his client’s service with a specific
dollar amount of commissions, it
is open to me to allow a percentage of the $94,458.00 shown on the trial
balance as attributable to supplies made outside of Canada in respect of this
client. I note, however, that if I were to allow these earnings as relating to
a zero-rated supply, I would need to ascribe a percentage to what was described
as a “small %”. The Appellant suggested that it was 2.6% based on his
representation of freight summaries. There is no evidence supporting this
freight summary. I note here, as well, that this non-resident supplier is one
of the suppliers that was registered under the Act in 2006. That does
not prevent the Appellant’s supply from being zero-rated under subsection
142(2).
[34] A fourth client was
a company in Mexico (“Aly”). The Appellant’s representative’s testimony was that this had
nothing to do with Canadian purchases. Aly procured sales in Mexico and the Appellant found
manufacturers in China through an agent in Taiwan. Commissions were split. There is
no collaborating evidence of this. There are no banking records that show receipts
from a Mexican source. Still, even Respondent’s counsel was, at one point in
the proceeding, willing to accept this testimony if it could be incorporated as
part of an overall settlement. Admittedly, such concession was on a without
prejudice basis.
[35] No mention
of the fifth client was made at the hearing.
[36] As to the deeming
provision in section 143, the Appellant, as noted above, only provided the
names of his non-resident clients after the adjournment of the initial hearing.
That enabled the CRA to determine whether the conditions of section 143 were
met. Of the 5 clients, 2 were registered: LOA and WindChaser. That takes the
commissions from both those companies out of the zero-rating protection of
section 143.
[37] The next question is
whether any of the three remaining companies carried on business in Canada. If they did, that
would take the commissions from these companies out of the zero-rating
protection of section 143. The appeals officer testified that he checked
whether any of these three companies had accounts with the CRA. He found that
one company, Gale, had a corporate account and an import account in 2006 and
that it was registered under the Act in 2008. The Appellant offered no
information concerning whether Gale or any other of its non-resident clients
carried on business in Canada. Indeed, I believe it is fair to say he knew nothing of
the accounts or registrations introduced into evidence.
[38] Based on the account
information pertaining to Gale, I am urged by Respondent’s counsel to find that
it carried on business in Canada. That, I will not do.
[39] Certainly, the CRA
is in a position to know more, if there is more. If the non-resident filed
returns in Canada showing that they were
carrying on business in Canada, the CRA would have to have said so. Further, if there was
activity on these accounts it should have been introduced into evidence. To the
contrary, when asked if the import account or corporate account showed any
activity in 2006, the appeals officer testified that he did not know, he did
not look.
[40] In holding, as I do
now, that the bar to zero-rating under section 143 that is imposed where the
non-resident carries on business in Canada does not apply to any of the
Appellant’s clients, I rely not only on the general rule that the onus on the
taxpayer to prove something does not extend to facts that are particularly
within the Minister’s knowledge, but on the rule that the taxpayer is only
required to prove that a determinative assumption made by the Minister in
making the assessment is wrong. In
the case at bar, the only thing the Appellant might be required to prove if
appropriate assumptions were made, would be whether its representation alone
was such as would support a finding that the non-resident was carrying on
business in Canada. In the case at bar, there are no assumptions relating to
the question of whether the Appellant’s clients were carrying on business in Canada. There are no
assumptions made that imply the Appellant’s representation had that effect. It is assumed that the Appellant
arranged for, procured or solicited orders. That suggests to me that no
assertion is being made that the nature of the “agency” with the Appellant is not
such as would attract a finding that its clients carried on business in Canada by virtue of that
relationship. Indeed, as might be expected given the testimony of the appeals
officer, the assumptions of the Minister relating to the application of section
143 are essentially non-existent. Assumptions (j) to (m) are conclusions of law
that need to be proven. They cannot be assumed.
[41] In the case at bar
then, one might say the Appellant is fortunate that its services to only two of
its clients were excluded from section 5 treatment under section 143 by virtue
of being registered under Act. Even a considerable amount of due
diligence and assurances from clients might not have saved it from the risk
that its services would not be zero-rated under that deeming provision. Therefore,
the opportunity to have its services zero-rated under the umbrella of
subsection 142(2) might, again, be seen as a welcomed opportunity. However, as
stressed above, that opportunity comes with conditions.
[42] As
it turns out then, in the case at bar, being relieved of the onus of proof in
respect of the application of the deeming provision of section 143, the
Appellant has the benefit of it except in the case of LOA and WindChaser who were
both registered under the Act in 2006.
[43] I have already reviewed
the evidence concerning these services. It should be apparent that I find the
evidence in respect of LOA is insufficient. Accordingly, I find that the
Appellant is liable as assessed in respect of supplies to that client in the
amount of $34,212.00.
[44] As to the evidence
concerning WindChaser it is marginal at best. Indeed, his tracing and
accounting would likely be fatal in most cases. However, given the background
of this appeal, the appeals officer’s testimony and a lenient finding of the
balance of probability, I am satisfied that the small percentage of deliveries
inside Canada would not be more than
20%.
[45] Accordingly, the
appeal is allowed, without costs, on the basis that only a total of $53,103 of
the supplies that the Appellant made to the non-resident clients in 2006 was
not zero-rated.
Signed at Ottawa, Canada this 20th day of December 2010.
"J.E.
Hershfield"
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