Citation: 2010 TCC 657
Date: 20101222
Docket: 2008-2571(GST)G
BETWEEN:
GF PARTNERSHIP,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Lamarre J.
[1]
This is a motion made by the respondent
for an order granting leave to amend the Reply to the Notice of Appeal on the
ground that the appellant has declined in part to consent to the filing of the
Amended Reply in circumstances where, in the respondent’s view, it is just and
reasonable that the respondent be entitled to file the Amended Reply.
[2]
More particularly, the appellant
has consented only to the amendments in paragraphs 30, 43 and 51 of the
proposed Amended Reply. The appellant opposes the amendments sought in
paragraphs 1, 9, 27, 28 and 44 of the proposed Amended Reply, which allege or
suggest that the appellant collected but failed to remit goods and services tax
(GST) on the amount of the development charges included in the purchase
price paid by the appellant’s purchasers on the sale of new homes. The proposed
paragraphs to which the appellant objects read as follows:
1. He admits, for the purpose of this Appeal, the
facts stated in paragraphs 1, 2, 3, 4, 6, 9, 12, 25, 31 and 48 of the
Notice of Appeal.
9. With respect to paragraph 31 of the notice of
appeal he states that the appellant made a representation to the Minister that
no GST was charged or collected on the development charges and that the
Minister assumed that this was the case. He now denies that the appellant
failed to charge or collect GST on development charges.
Appellant In fact Collected GST from Purchasers
27. The purchase price for the homes in issue
included GST calculated at the rate of seven percent.
28. Notwithstanding any representation of the
appellant to the contrary or any assumption of the Minister, the appellant did
charge and collect GST on the development charges in issue in this appeal.
Appellant was Bound to remit GST collected even if
collected in error
44. In the alternative that the development
charges did not form part of the consideration for the supply of houses, the
appellant was nevertheless obliged to remit all of the GST that it had
collected on the supply of the houses. This it failed to do. Per the agreements
of purchase and sale the appellant in fact and law collected GST at a rate of
7% of the purchase price, which purchase price included the development
charges. It therefore collected GST on the development charges. However it
remitted GST at a rate of 7% of an amount that did not include the development
charges. Having collected GST on the purchase price, the appellant was bound to
remit that GST even if it was collected in error.
SUMMARY OF
THE PARTIES’ POSITIONS AND FACTS LEADING TO THE PRESENTATION OF THIS MOTION
[3]
In the appellant’s view, the respondent
is now taking the position that the appellant is obligated to remit GST but is
not entitled to a rebate, even though the GST was paid in error. The appellant
states that the proposed amendments involve a reversal of the Minister’s
assumptions pleaded in subparagraphs 23 (r) to (w) of the Amended
Reply (which are identical to subparagraphs 22 (r) to (w) of the
Reply to the Notice of Appeal (Reply)) and the withdrawal by the respondent
of its admission, in paragraph 1 of the Reply, of paragraph 31 of the Notice of
Appeal wherein the appellant states:
31. The Appellant did not charge GST to or collect
GST from the Mattamy Purchasers on the amount of the development charges.
[4]
I also reproduce hereunder
subparagraphs 23 (r) to (w) of the Amended Reply, referred to by the appellant:
Failure to Charge, Collect and Remit GST
r) The Appellant incorporated the Development
Charges into the Purchase Price of the new home to the Purchasers;
s) The Development Charges were an input into the
cost of the house and formed part of the value of the consideration for the
agreed supply of real property;
t) As early as June 2001, the Appellant failed to
charge and collect GST on the total consideration for the supply of real
property including the Development Charges;
u) In February 2002, the Appellant’s divisions
began inserting a clause in their Purchase and Sale Agreements, which states:
The parties acknowledge and agree that, as part of and included in
the Purchase Price herein, the Vendor has or will pay on behalf of the
Purchaser, all taxes, levies, imposts, building permit fees (for permit
obtained on behalf of the Purchaser), and all applicable development charges
including education development charges applicable to the property. The parties
acknowledge and agree that these amounts, at the Vendor’s option, may be shown
separately in the statement of adjustments to be delivered to the Purchaser
prior to Closing.
v) The Appellant included the Development Charges
in the Purchase Price of the real property that the Purchasers were required to
pay, but isolated the Development Charges from the Purchase Price on the
Statement of Adjustments;
w) Regardless of whether it had executed an
Agreement of Purchase and Sale
prior to paying the Development Charges, the Appellant did not charge, collect
or remit GST in respect of the Development Charges and thereby reduced its GST
liability in the aggregate amount of $13,273,958.44.
[5]
The appellant summarizes its position
in the following terms : “the withdrawal of the admission and the proposed
amendments are untenable and do not raise a triable issue, constitute an
alternative basis for the assessment and would cause prejudice to the Appellant
that cannot be remedied by costs.”
[6]
In paragraph 6 of the
Appellant’s Written Submissions on Respondent’s Motion to Amend Pleadings, the appellant
reproduced the facts stated in its Notice of Appeal relating to the
transactions giving rise to the assessment, as follows:
Transactions Giving Rise To The Assessments
6. The Notice of Appeal pleads the following:
(a) The Appellant carries on business as a land
developer and builder of new homes for sale to purchasers in the Province of Ontario.
(b) Prior to commencing construction of new homes in
its subdivisions, the Appellant entered into agreements of purchase and sale
(the "Purchase Agreements") with new home purchasers
(hereinafter individually referred to as a "Mattamy Purchaser").
(c) Each Purchase Agreement specified a purchase
price to be paid for the New Home (the "Purchase Price"). The
Purchase Price included GST and development charges.
(d) Each Purchase Agreement also specified which
taxes, costs or charges were to be included in or excluded from the Purchase
Price.
(e) Prior to the closing of the purchase and sale of
a new home (the "Closing"), the Appellant and the Mattamy
Purchaser agreed upon a statement of adjustments that specified the net
consideration for the transfer of the new home and all other payments and reimbursements
that were to be made to the Appellant (the "Statement of
Adjustments").
(f) Through the Statements of Adjustments, the
Appellant and each Mattamy Purchaser determined the net consideration for the
transfer of the new home by deducting the GST and development charges from the
tax-included Purchase Price. (The net consideration for the transfer of the new
home as agreed upon in the Statement of Adjustments shall hereinafter be
referred to as the "Net Sale Price").
(g) Purchase Agreements entered into subsequent to
February, 2002 contained the following provision:
"The parties acknowledge and agree that, as part of and
included in the Purchase Price herein, the Vendor has or will pay on behalf of
the Purchaser, all taxes, levies, imposts, building permit fees (for permits
obtained on behalf of the Purchaser), and all applicable development charges
including education development charges applicable to the property. The parties
acknowledge and agree that these amounts, at the Vendor’s option, may be shown
separately in the statement of adjustments to be delivered to the Purchaser
prior to Closing."
(h) Prior to a Closing, the Appellant and the
Mattamy Purchaser confirmed in the Statement of Adjustments that the applicable
development charge was a separate charge to be borne by the Mattamy Purchaser
and that the development charge was to be reimbursed to the Appellant
separately from the Net Sale Price for the New Home.
(i) Upon Closing, each Mattamy Purchaser paid the
Net Sale Price and GST to the Appellant for the New Home and reimbursed the
Appellant for the development charge that the Appellant had paid on the Mattamy
Purchaser’s behalf.
[7]
In her Written Submissions on
Motion to Amend Pleadings, the respondent states that the appellant was
assessed net tax under the Excise Tax Act (ETA) on the basis that
it failed to charge, report and remit GST on that portion of the purchase price
of its new homes that was attributable to development charges incurred to
subdivide and develop lands and build the houses in issue. The appellant argues
in its Notice of Appeal that no GST was required to be collected and remitted
in respect of development charges (par. 73 of the Notice of Appeal). The appellant
indeed pleaded in paragraph 31, reproduced above, that it never charged or
collected GST on the development charges. The respondent further states that
the appellant recorded in its general ledger no GST in respect of development
charges and that the general ledger formed the basis upon which the appellant’s
GST returns were filed (as per the cross‑examination of Catherine
Griffin, Vice‑president and Controller of the Appellant, on September 16,
2010 on her affidavit sworn August 30, 2010, at p. 14, q. 52-53). Finally,
the respondent states that in all its dealings with the Canada Revenue Agency (CRA)
auditor, the appellant proceeded entirely on the basis that no GST had been
collected in that regard (see affidavit of Greg Mills, CRA auditor, sworn June
29, 2010, at Tab 6 of the Motion Record). As a matter of fact, the appellant,
in its written submissions, refers to that same affidavit in stating that,
during the course of the audit, the respondent’s auditor came to believe that
GST had not been collected, reported or remitted on development charges.
[8]
In paragraph 1 of the Reply, the
respondent admitted paragraph 31 of the Notice of Appeal and, in subparagraphs 22
(t) and (w), stated as assumptions of the Minister of National Revenue (Minister)
that the appellant collected no GST on the development charges and thereby
reduced its GST liability by the aggregate amount of $13,273,958.44.
[9]
The respondent now proposes to
amend her Reply to argue that, on a proper construction of the purchase and
sale agreements used by the appellant, GST was collected on the development charges,
but was not reported or remitted to the Minister. In the respondent’s view, the
appellant, having collected GST, was obliged to report and remit it, even if it
was collected in error.
[10]
The first time that the respondent
advised the appellant that such an amendment might be sought was during the
discovery of the appellant’s representative, Mr. Jurgen Dirks, on January 28,
2010 (see Responding Affidavit of Catherine Griffin, par. 7). A formal
request for consent to amend the pleadings was sent to the appellant on June 10,
2010 (see affidavit of Sarah Khoury and Exhibit A attached thereto, in the
Motion Record, Tab 5). A response, declining to consent to the contested
amendments was received by the respondent on June 22, 2010 (see affidavit
of Sarah Khoury and Exhibit B attached thereto).
[11]
The appeal concerns the appellant’s
reporting periods commencing June 1, 2001 and ending on May 31, 2006.
The limitation periods for assessment of the different GST returns for the
aforementioned audit period expired on various dates commencing July 31,
2005 and ending June 30, 2010 (see Griffin affidavit, par. 9).
[12]
As of June 10, 2010, the
parties had conducted discoveries and, according to the respondent’s written
submissions, a number of the appellant’s undertakings remained outstanding. A
pre-hearing conference was held on June 30, 2010 and to date no trial date has
been set.
[13]
According to the appellant’s written
submissions, there is no evidence in the affidavits filed in support of the respondent’s
motion to indicate that:
a)
the respondent obtained any new or
additional information subsequent to delivery of the original Reply to the Notice
of Appeal on December 8, 2008;
b)
any representations made on behalf
of the appellant to the auditor were in any way false or misleading (see Griffin
affidavit, par. 10)
RESPONDENT’S SUBMISSIONS
[14]
The respondent submits that there
are two distinct requirements that apply to the amendments proposed:
a) the arguments sought to be advanced through
the amendments must comply with subsection 298(6.1) of the ETA; and
b) the amendments themselves, including the
withdrawal of admissions, if any, may also have to comply with the established
case law, which provides for a liberal, though not unlimited, right to amend
pleadings.
I Subsection 298(6.1) of the ETA
[15]
Subsection 298(6.1) reads as
follows:
298. (6.1)
Alternative argument in support of assessment — The Minister may advance
an alternative argument in support of an assessment of a person at any time
after the period otherwise limited by subsection (1) or (2) for making the
assessment unless, on an appeal under this Part,
(a) there is relevant evidence that the person is no longer able to
adduce without leave of the court; and
(b) it is not appropriate in the circumstances for the court to order
that the evidence be adduced.
[16]
The respondent admits that the
facts and arguments referred to in the contested amendments were formally
advanced by her at a time when, with respect to most, though not all, of the
reporting periods covered by the assessments, the four‑year time limit
specified in paragraph 298(1)(a) of the ETA within which the
Minister could issue an assessment of net tax had expired. Notwithstanding the
expiration of any limitation period, subsection 298(6.1) confers authority on
the Minister to advance an alternative argument in support of an assessment at
any time provided certain conditions are met.
[17]
In Walsh v. The Queen, 2007
FCA 222, affirming 2006 TCC 188, the Federal Court of Appeal held that the
limits imposed under subsection 152(9) of the Income Tax Act (ITA),
which parallels subsection 298(6.1) of the ETA, are the following:
a)
the Minister cannot include
transactions which did not form the basis of the taxpayer’s reassessment;
b)
the right of the Minister to
present an alternative argument in support of an assessment is subject to
paragraphs 152(9)(a) and (b), which speak to the prejudice to the
taxpayer; and
c)
the Minister cannot use subsection
152(9) to reassess outside the time limitations in subsection 152(4) of the
ITA, or to collect tax exceeding the amount in the assessment under appeal.
[18]
In Beaulieu v. The Queen,
2005 TCC 605, upheld by 2006 FCA 317, it was stated that the analysis in the
case law applicable to subsection 152(9) of the ITA applies equally to
subsection 298(6.1) of the ETA.
[19]
In the respondent’s view, none of
the restrictions set out above apply to this case:
a)
The amendments sought relate to
the purchase and sale agreements that are the subject of the assessments at
issue; they do not relate to any other transactions.
b)
The appellant raises no
evidentiary issues in respect of paragraphs 298(6.1)(a) and (b)
and no such issue can reasonably be anticipated since the proposed amendments
are based on the agreements of purchase and sale referred to by the appellant
in its own Notice of Appeal.
c)
The Minister is not reassessing
the appellant; the respondent is only asserting that there is an additional
reason why the net tax assessed is the correct amount; further, the Minister is
not seeking to collect tax in excess of the amounts assessed. Finally, the respondent
relies on Loewen v. The Queen, 2004 FCA 146, at paragraph 11, to
argue that she is entitled to plead facts that are inconsistent with the
Minister’s assumptions; however, the onus of proof will then lie with the Crown.
II Common law test for amending pleadings
[20]
The respondent relies on Canderel
Ltd. v. R., [1993]
CarswellNat 949 (F.C.A.), at paragraph 10, [1994] 1 F.C. 3, in
arguing that, as a general rule, an amendment should be allowed at any stage of
an action, for the purpose of determining the real questions in controversy
between the parties, provided that allowing the amendment would not result in
an injustice not capable of being compensated by costs and that it would serve
the interests of justice. Here, the respondent is of the view that the proposed
amendments will assist in determining the real question in controversy between
the parties. What the respondent is asking the Court is that it help in determining
what the appellant’s net tax is for the periods covered by the assessments. The
interests of justice are in ensuring that money that is collected from private
individuals is dealt with according to law and not inadvertently left in the
hands of the collection agent.
III Common law test for withdrawals of
admissions
[21]
First, the respondent
argues that although the proposed amendments include the striking out of the
admission of paragraph 31 of the Notice of Appeal, that does not amount to
a withdrawal of an admission of fact. The respondent states that the question
of whether GST has been collected is a question of law to the extent that it
turns on the interpretation of a contract. The respondent refers to the
decision of this Court in 9005-0428 Québec Inc. v. R., [1998]
CarswellNat 2979, where it was held that statements by an auditor at discovery
to the effect that GST was included in a contract, were not admissions capable
of binding the parties, as they amounted to an exercise in the construction of a
contract, which falls within the realm of the law and lies solely within the
purview of the Court. Similarly, the respondent is asking here for nothing more
than to have the purchase and sale agreements interpreted on the basis of their
content, which is a question of law.
[22]
That being said, the respondent
also refers to Andersen Consulting v. R., [1997] CarswellNat 1600, in
which the Federal Court of Appeal summarized the factors that govern both the
amendment of pleadings and the withdrawal of admissions. The respondent refers
to those factors as being the following:
a)
whether the amendments
raise a triable issue;
b)
whether the amendments
relate to inadvertence or error;
c)
the timeliness of the
motion and whether the amendments will occasion delay; and
d) whether there is prejudice that cannot be
compensated by costs.
[23]
With respect to the
triable issue factor, the proposed amendments allege that the appellant
collected GST on the disputed development charges and the respondent argues
that, once collected, GST must be remitted even if the collection took place in
error (see ITA Travel Agency Ltd. v. R., 2000 CarswellNat 3036
(T.C.C.), aff’d. 2002 FCA 200, and West Windsor Urgent Care Centre Inc. v. The
Queen., 2005 TCC 405, aff’d. 2008 FCA 11). In the respondent’s view, the
decision of the Supreme Court of Canada in United Parcel Service Canada Ltd.
v. The Queen, 2009 SCC 20, does not say, as will be argued by the appellant,
that West Windsor and ITA Travel Agency are no longer good law.
[24]
As to whether the
amendments relate to inadvertence or error, the respondent submits that the
information provided by the appellant through the GST returns and the general ledger
was that no GST had been collected on the development charges. The Minister
also relied on explanations tendered by the appellant’s then controller, Glen
Clarkson, and on representations made in writing as to why no tax had been
collected (affidavit of Greg Mills, auditor for the CRA, Motion Record, Tab 6).
If the appellant made a mistake by inappropriately interpreting the contracts,
it is nonetheless not relieved of its responsibility to report correctly.
[25]
Furthermore, the respondent
submits that there is no evidence that the amendments sought in this case will
unduly delay the trial of this matter. The discoveries are not yet complete and
even if there were a delay in setting a trial date, the balance of convenience
favours granting the motion. If the arguments raised by the respondent are not
canvassed in this appeal, they will remain unresolved, possibly necessitating a
future appeal to decide the remaining issue.
[26]
Finally, the respondent
is of the view that there is no prejudice that cannot be compensated by costs.
The respondent refers to Canderel, supra, at paragraph 11,
where the Federal Court of Appeal adopted the statement by Lord Esher M.R. in Steward
v. North Metropolitan Tramways Co. (1886), 16 Q.B.D. 556, at page 558, as
follows:
11 As
regards injustice to the other party, I cannot but adopt, as Mahoney, J.A. has
done in Meyer, supra, at page 72, the following statement by Lord Esher,
M.R. in Steward v. North Metropolitan Tramways Co. (1886), 16 Q.B.D. 556,
at page 558:
There is no
injustice if the other side can be compensated by costs: but, if the amendment
will put them into such a position that they must be injured it ought not to be
made.
and the
statement immediately following:
And the same
principle was expressed, I think perhaps somewhat more clearly, by Bowen, L.J.,
who says that an amendment is to be allowed "whenever you can put the
parties in the same position for the purposes of justice that they were in at
the time when the slip was made."
To apply that
rule to the present case: if the amendment is allowed now, will the plaintiff
be in the same position as if the defendants had pleaded correctly in the first
instance?
[27]
The respondent submits that the
arguments that are raised by the appellant on this point and that are found in
Catherine Griffin’s affidavit at paragraph 16 do not point to any non-compensable
prejudice attributable to the passage of time between the filing of the Reply
to the Notice of Appeal in 2008 and the formal request to the appellant to consent
to the amendment of the Reply. The allegations of prejudice made by the appellant
are confined to the fact that the amendment was not made during the audit
process. The prejudice alleged by the appellant is that had it been aware of
the Minister’s new position at the time of the audit, the appellant would not
have paid the disputed GST but would have furnished security until its
obligation to remit in those circumstances had been determined by the Court.
More specifically, the appellant states that, to the extent that the respondent
takes issue with the appellant’s right to a rebate or other repayment of the
GST paid in error, the appellant has been prejudiced by the respondent’s delay
in asserting this new position, as it is now too late to seek repayment of any
money that has been remitted.
[28]
The respondent replies that
prejudice resulting from reliance on the Minister’s assessing position is a
distinct type of prejudice that is already taken into account by Parliament
under the statutory test in subsection 298(6.1) of the ETA, which test is
limited to determining whether the prejudice in issue related to the production
of evidence. The appellant does not assert any such prejudice. Furthermore, the
fact that the amount of the assessment has been paid does not have any impact
on the issue before this Court, which is the determination of the appellant’s
net tax. Finally, the appellant has conceded that it did not have any legal
recourse enabling it to compel purchasers to complete rebate applications or
pay over to the appellant any rebates received. The appellant could not explain
how, in the absence of such recourse, it was prejudiced. It also conceded that
it has not had to reimburse a purchaser for GST paid on development charges
(see Griffin cross-examination, pp. 47-50, 55-56).
APPELLANT’S SUBMISSIONS
[29]
The appellant submits that the respondent’s
motion should be denied because the withdrawal of an admission and the proposed
amendments:
a) are untenable and do not raise a triable issue;
b) constitute the putting forward of an alternative
basis for assessment, which is not permitted as the limitation periods for
assessment have expired; and
c) would cause prejudice to the appellant that
cannot be remedied by costs.
[30]
The appellant relies on the
Federal Court of Appeal decisions in Andersen Consulting, supra,
at paragraph 14, and Merck & Co. v. Apotex Inc., 2003 FCA 488,
at paragraph 32, and on subsection 298(6.1) of the ETA to state that where
a party seeks to withdraw a substantial admission, amend its pleadings and
raise a fundamentally different basis for assessment, all after the expiry of
the relevant limitation periods, that party will have a much higher onus in
order to satisfy the Court that the proposed amendments are in the interests of
justice.
[31]
The appellant submits that the respondent’s
motion fails to meet that onus.
[32]
First, the appellant submits that
the amendments the respondent wishes to introduce at this stage of the
proceedings are untenable. The proposed alternative basis for assessment can
only arise in the event that it is determined by this Court that the
development charges did not form part of the consideration for the sale of the
new homes by the appellant to its purchasers, in which case the appellant was
not required to collect GST on the development charges, and in the event that
it is determined by this Court that, by virtue of the GST-included nature of
the agreement of purchase and sale, the appellant did in fact collect GST on
the tax-exempt development charges and therefore was required to remit that GST
to the Minister. The appellant asserts that the respondent wishes to argue that the appellant
collected the GST out of its own proceeds of sale and is consequently barred
from recovering by rebate or otherwise the GST collected in error. The appellant
argues that, where the purchase price included GST, the two positions advanced
by the respondent cannot co-exist. If no GST was collectible on the development
charges, then the appellant did not collect it. It cannot have both collected
it and not collected it. In the appellant’s view, the respondent’s
interpretation of the transactions that leads to the conclusion that GST was
collected on the transactions is untenable and cannot be in the interests of
justice.
[33]
Second, the appellant submits that
the proposed amendments do not raise a triable issue. The appellant explains
that when a purchaser purchases a new home, the price paid for the new home
includes all GST payable on the sale. The purchaser is relieved of the burden
of having to pay any GST in addition to the GST included in the purchase price.
All GST is effectively then paid by the appellant. If, as alleged by the respondent
in her proposed amendments, the appellant is deemed to have collected GST on
development charges and then remitted it to the CRA, then such GST was paid in
error by the appellant at its own expense out of the sale proceeds that
included GST and, in assessing, the Minister is required to pay a rebate of all
such GST to the appellant pursuant to section 261 and subsection 296(2.1) of
the ETA (see paragraph 39 of the appellant’s written submissions). Those
provisions, as they read at the relevant time, were as follows:
261. (1)
Rebate of payment made in error [tax paid in error] — Where a person has
paid an amount
(a) as or on account of, or
(b) that was taken into account as,
tax, net tax,
penalty, interest or other obligation under this Part in circumstances where
the amount was not payable or remittable by the person, whether the amount was
paid by mistake or otherwise, the Minister shall, subject to subsections (2)
and (3), pay a rebate of that amount to the person.
296. (2.1) Allowance of
unclaimed rebate — Where, in assessing the net tax of a person for a
reporting period of the person or an amount (in this subsection referred to as
the "overdue amount") that became payable by a person under this
Part, the Minister determines that
(a) an
amount (in this subsection referred to as the "allowable rebate")
would have been payable to the person as a rebate if it had been claimed in an
application under this Part filed on the particular day that is
(i) if the
assessment is in respect of net tax for the reporting period, the day on or
before which the return under Division V for the period was required to be
filed, or
(ii) if the
assessment is in respect of an overdue amount, the day on which the overdue
amount became payable by the person,
and, where the rebate is in
respect of an amount that is being assessed, if the person had paid or remitted
that amount,
(b) the
allowable rebate was not claimed by the person in an application filed before
the day notice of the assessment is sent to the person, and
(c) the allowable rebate would be payable to the person if it
were claimed in an application under this Part filed on the day notice of the
assessment is sent to the person or would be disallowed if it were claimed in
that application only because the period for claiming the allowable rebate
expired before that day,
the Minister
shall, unless otherwise requested by the person, apply all or part of the
allowable rebate against that net tax or overdue amount as if the person had,
on the particular day, paid or remitted the amount so applied on account of
that net tax or overdue amount.
[34]
This approach is consistent, in
the appellant’s view, with the decision of the Supreme Court of Canada in United
Parcel Service Canada Ltd. v. Canada, 2009 SCC 20. Therefore, there is no
net recovery to the respondent, with the result that the amendments would not
affect the outcome of the trial, and in effect, no valid issue for trial is
raised by the proposed amendments.
[35]
Third, the appellant argues that
the respondent did not prove that the admission that she now seeks to withdraw
was inadvertent or the product of an error. The appellant did not misrepresent
the facts to the auditor, who, at the time of the audit, had copies of the
agreements of purchase and sale, of the statements of adjustment and of all
relevant books and records. No new facts were discovered. The respondent has
merely drawn a different conclusion from the same facts. The interpretation of
the agreements of purchase and sale is not just a question of law, as suggested
by the respondent, but is a mixed question of fact and law (see MacDougall
v. MacDougall, 2005 CarswellOnt 7257 (O.C.A.).
[36]
Fourth, the appellant submits that
it would be prejudiced by the proposed amendments in that, had it known the
Minister’s new position, namely that GST had been collected from purchasers on
development charges when none was exigible and that the appellant would not be
entitled to a rebate, it would not have paid the GST assessed and would instead
have furnished security pursuant to subsection 314(2) of the ETA until its
obligation to remit in those circumstances had been determined by the Court.
Subsection 314(2) reads as follows:
314. (2)
Security where objection or appeal — Where a person objects to or
appeals from an assessment, the Minister shall accept security, in an amount
and a form satisfactory to the Minister, furnished by or on behalf of the
person, for the payment of any amount that is in controversy.
[37]
Further, if the appellant was
required to formally apply for a rebate pursuant to section 261 of the ETA, it
is now too late to do so because the limitation periods for such rebate
applications expired on various dates commencing July 31, 2003 and ending June
30, 2008. In the appellant’s view, the introduction of this alternate position
long after the expiry of all relevant limitation periods is inherently
prejudicial in nature. Finally, granting leave to amend would delay the setting
of a trial date, which would be prejudicial to the appellant in that the matter
of the proper calculation of GST for reporting periods subsequent to those
under appeal awaits determination in this appeal.
[38]
Fifth, the appellant submits that
the withdrawal of the fundamental assumption of fact that it failed to collect
GST goes beyond the addition of an alternative argument as contemplated by
subsection 298(6.1) of the ETA but is an entirely different basis of
assessment.
ANALYSIS
[39]
The question in controversy in
this appeal revolves around the contractual agreements between the appellant
and the Mattamy purchasers, that is, the agreements of purchase and sale, which
were not produced for the purposes of this motion. The respondent states that
their interpretation is a question of law while the appellant says it is a mixed
question of fact and law. In her original Reply, the respondent stated that the
appellant failed to collect GST on the development charges and alleged that the
development charges formed part of the value of the consideration for the
supply of the real property and were included in the purchase price.
[40]
The appellant states that this
position taken by the respondent in her original Reply reflects what is found
in the CRA’s working papers, in correspondence referred to in Ms. Griffin’s
affidavit, and in all dealings between the appellant and the CRA. The appellant
states that the respondent did not provide any explanation with respect to the proposed
change of position and that the two positions now advanced by the respondent
cannot co‑exist.
[41]
Having read all the documentation
provided with this motion, the Minister’s position at the audit stage and that
proposed in the amendments sought before me do not appear to me as being so contradictory.
In the working papers and the Minister’s correspondence filed together with Ms. Griffin’s
affidavit, it is stated that the appellant (also referred to as Mattamy)
incorporated the development charges paid by it to the municipalities into the
purchase price of the homes sold to home buyers. It would appear that at a certain
point in time in 2001, Mattamy stopped remitting GST on the portion of the
house sale that related to development charges. It would also appear that,
notwithstanding a contrary opinion received from GST/HST Rulings,
Mattamy took it upon itself to reduce the amount of GST to be remitted on the
basis that development charges should not attract GST (see audit report of Greg
Mills, dated March 8, 2005, Exhibit B, to the affidavit of
Ms. Griffin, and the memorandum dated July 20, 2005 from Cyril Martis
of the Technical Applications Section, Exhibit D to Catherine Griffin’s
affidavit, as well as a letter dated December 7, 2006 sent by Greg Mills
to Catherine Griffin, Exhibit D to Greg Mills’ affidavit, at Tab 6 of
the Motion Record). It seems that the Minister assessed the appellant on the
basis that it did not remit the appropriate amount of GST on the purchase price
of the houses, which included the development charges. This is particularly
evident from the Statement of Audit Adjustments filed as Exhibit C to the affidavit
of Catherine Griffin, in which it is repeated again and again that the GST is being
adjusted on sales “as registrant did not remit GST on development
charges that were part of the consideration of new homes sold to their
customers”. In that context, I do not see that the amendments proposed by the respondent
are necessarily inconsistent with the position previously taken at the audit stage
or that they amount to a new basis of assessment rather than constituting an
alternative argument in support of the assessment. Nor do I see what prejudice is
suffered by the appellant, as it itself decided to act as it did, knowing perfectly
well that it was at odds with the Minister on that matter.
[42]
In my view, an analysis of the agreements
of purchase and sale and the adjustments relating thereto is imperative in
order to determine whether GST was collected on the development charges or not.
The proposed amendments will help in defining the real question in controversy
and certainly raise a triable issue that must be determined in the interests of
justice.
[43]
With respect to the prejudice that
would arguably be suffered by the appellant at this stage of the proceedings, I
do not see where the prejudice is. The fact that the appellant paid the amount
assessed rather than providing security as permitted by subsection 314(2)
of the ETA is not conclusive. If the appellant wins its appeal, the amount paid
will be reimbursed, and if it loses, there will be no interest charged. Giving
security would have entailed fees (see cross-examination of Catherine Griffin,
pp. 20‑21). As for the time limit for claiming the rebate for tax
paid in error, pursuant to subsection 261(1) of the ETA, it is my understanding
that the time limit had expired at the time the Notice of Appeal was filed (see
cross‑examination of Catherine Griffin, pp. 52‑54). The
amendments to the pleadings will not change the position in which the appellant
found itself in that regard when it filed its Notice of Appeal and a fortiori when
the respondent filed her original Reply (see Canderel, supra, at
par. 11). The appellant alleges a prejudice on the basis that the Minister
should have put forward the alternative argument during the audit process. As
mentioned above, the appellant was aware that it was taking a risk when it
decided to stop remitting GST on the portion of the purchase price that related
to the development charges. Further, the right to claim a rebate is not
automatic and is a matter that will have to be discussed on the merits in light
of the recent decision of the Supreme Court of Canada in United Parcel
Service, supra, referred to by the appellant. It is my understanding
that that case stands for the proposition that it is the person who makes the
overpayment and is out of pocket for the GST who will be able to claim the
rebate under subsection 261(1) of the ETA. This is a matter to be determined on
the merits of the case, and not in an interlocutory motion.
[44]
With respect to timeliness, I do
not find that the proposed amendments are being requested too late in the
process. It is my understanding that the appellant had not completed its
undertakings at the time the motion was presented. This situation is different
than that in Seaspan International Ltd. v. R., 2001 CarswellNat 1877 (F.C.T.D.),
referred to by the appellant, a case in which the motion to amend the statement
of defence was dismissed in part because of the timing of the motion to amend.
It was filed by the Crown after the parties had executed a statement of agreed
facts for the purpose of having a question of law determined before trial,
after a judgment of the Federal Court had determined that preliminary question
of law, after the Federal Court’s decision had been affirmed by the Federal
Court of Appeal, after an application for leave to appeal to the Supreme court
of Canada had been dismissed, and after a date had been set for a hearing on
the merits. The present situation is clearly distinguishable.
[45]
Finally, the respondent is
entitled to advance an alternative argument in support of an assessment at any
time pursuant to subsection 298(6.1) unless the conditions set out in
paragraphs (a) and (b) have been met, which is not the case, as
admitted by the appellant. Here, the respondent is not relying on transactions
which did not form the basis of the assessment and is not attempting to collect
tax exceeding the amount in the assessment under appeal.
Conclusion
[46]
Relying on the tests stated in Canderel
Ltd., supra, Andersen Consulting, supra, and Walsh, supra,
I am satisfied that the proposed amendments to the Reply to the Notice of
Appeal should be permitted.
[47]
The respondent’s motion is allowed
with costs.
Signed at Ottawa, Canada, this 22nd
day of December 2010.
“Lucie Lamarre”
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