Citation: 2010 TCC 160
Date: 20100318
Docket: 2003-3159(GST)G
BETWEEN:
JEAN-ROBERT LACROIX,
representing CANADEVIM LTÉE,
under subsection 38(1) of the
Bankruptcy and Insolvency Act,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Lamarre J.
[1]
Canadevim Ltée ("Canadevim")
has appealed an assessment made by the Minister of Revenue of Quebec ("the Minister").
The assessment bears the number H2002060, is dated August 23, 2002, and
pertains to the period from May 1, 1998 to October 31, 2001.
The amount of the assessment is $92,023.16, plus interest and penalties, for a
total of $135,570.69. It appears that Canadevim went bankrupt on
January 24, 2003, and that Jean‑Robert Lacroix, one of the
directors, was granted authorization to continue the appeal before this Court (see
the judgment of Justice Martin Bédard of the Quebec Superior Court, Exhibit A‑10).
[2]
At subparagraphs 26(i),
(j), (k) and (l) of her Reply to the Notice of Appeal, the Respondent states
that the assessment is based on the amount of a hypothecary claim entered by Canadevim
on a notice of legal hypothec that Canadevim registered on July 10, 1998,
with respect to $1.2 million worth of work performed by it to build a golf
course on land that was then owned by Harry Adams, Harry Adams and Debra Adams in
their capacity as trustees of the Shirley Goodwin Trust (hereinafter "the
Adams family"), Yoland La Casse and Yoland La Casse in Trust, doing
business under the name of Projet Les Vieux Moulins, in Aylmer, Quebec (see the
notice of legal hypothec, Exhibit A‑4).
[3]
According to the
Minister's calculation, if the amount of the hypothecary claim was $1.2
million, Canadevim should have collected $73,027.60 in goods and services tax (GST).
In addition, the Respondent disallowed $16,662.52 in input tax credits (ITCs)
claimed by Canadevim. These are the two amounts in issue before me.
Facts
[4]
The only person who
testified for the Appellant was Yoland Lacasse. Jean‑Robert Lacroix was
not present. Harry Adams died on July 28, 2000. I understand from Mr.
Lacasse's testimony that Mr. Lacasse was, during the period in issue, the
person primarily responsible for financing two-thirds of the golf course
project, while Harry Adams was primarily responsible for financing the other
third. Mr. Lacroix, through Canadevim, was the golf course construction
contractor.
[5]
In 1989, Yoland Lacasse
bought a 200-acre parcel of land in trust for three companies, one of which was
Canadevim, in which he held shares. Mr. Lacasse personally borrowed
$300,000 from the bank to purchase the land. Another parcel, of 100 acres,
belonged to Mr. Adams. In October 1996, the town of Aylmer approved a
residential and commercial development project that included the building of a
golf course on the parcels of land belonging to Yoland Lacasse in Trust and to Mr. Adams.
[6]
According to Mr.
Lacasse, there was an initial oral agreement that a company would be formed that
would eventually hold and operate the golf course. Under that agreement, Mr. Adams
would hold 33.3% of the shares and Yoland Lacasse in Trust would hold the other
66.6%. The plan was to sell the parcels of land to the new company for a
nominal amount in exchange for shares of that company. That company was never actually
formed, however.
[7]
In August 1996, architectural
plans (Exhibit A‑2) were finalized for the golf course. In the
winter of 1996, Yoland Lacasse in Trust gave Canadevim the mandate to start building
the course. Tree clearing began right away. In the spring of 1997, Canadevim
bought the heavy equipment and began subcontracting. Work on the cleaning
up and irrigation of the land commenced. In the fall of 1997, the greens and
tees were seeded and the fairways were prepared.
[8]
According to Mr. Lacasse,
Harry Adams agreed to Canadevim's doing the work. Mr. Lacasse said that Mr.
Adams paid his share of the architectural fees and urban planning costs, and that
he was on the site once or twice a week. However, in the fall of 1997, Mr. Adams
learned that he had an untreatable form of cancer, prompting him to want to withdraw
from the project and sell his land. No major work was done on the golf course
after November 1997. In the spring of 1998, the grass was cut to preserve
the work that had already been done.
[9]
On April 17, 1998,
Harry Adams made a gift of his land, including part of the golf course, to Debra
Adams and Harry Adams as trustees of Shirley Goodwin, Harry Adams' spouse (see
Exhibit A-3). Mr. Lacasse now realized that Mr. Adams had completely
lost interest in the project. Fearing that the land would be resold by the
Adams family, thereby jeopardizing the entire investment that he had made (both
personally and through Canadevim), Mr. Lacasse had the idea of registering
a notice of legal hypothec on the golf course. That notice was filed on
July 10, 1998 (Exhibit A‑4). Mr. Lacasse had a
discussion with Mr. Lacroix and summarily estimated that the cost of the
work done to that point was $1.2 million. According to his testimony, the work
was roughly 55% complete on that date. The sand traps and certain lakes in the
plan (Exhibit A‑2) were not done; the irrigation system was about
75-80% complete, and the fairways were still covered with rocks. However, as a
former notary, Mr. Lacasse said that registering a notice of legal hypothec
would enable Canadevim to protect its claim against a future purchaser of the Adams family land. Canadevim subsequently commenced
proceedings against the Adams family in order to compel it to come to an
agreement aimed at obtaining the financing necessary to finish the work.
[10]
During this period — that is, in the fall of 1998 — Mr. Lacasse, Mr. Lacroix and two
other shareholders formed Le Club de Golf Les Vieux Moulins Inc. (hereinafter
"CGLVM") to obtain financing so that the golf course could be
finished and the project could become profitable. Despite everything, the golf
club opened in June 1999 in order to begin earning income. The irrigation
system had been completed in part, and the minimum work necessary in order to
open had been done. Thus, the sand traps had been filled, the necessary flags
and signage had been installed, and the equipment to maintain the course was
purchased, as were clubs and balls (for roughly $200,000 in equipment
purchases). There was no clubhouse, the work on the lakes was extended until
2001, and the practice area was also completed in 2001. According to Mr. Lacasse,
the basins still need to be done in order to have complete irrigation. Four
lakes remain to be done at a cost of roughly $750,000.
[11]
In January 2001, the Adams family settled out of court with Canadevim (Exhibit
A-5). Under the terms of the settlement, CGLVM agreed to purchase the Adams
family land for $245,000, and Canadevim gave up any monetary claims it may have
had against Mr. Adams. The agreement was homologated by judgment of the
Quebec Superior Court dated May 31, 2001 (Exhibit A-6). It should be
noted that, in its judgment, the Court states that Mr. Adams denied the
existence of a construction contract with Canadevim regarding the construction
of a golf course on his land. The Court nevertheless accepted the agreement
between Mr. Adams' estate and Canadevim.
[12]
As for Mr. Lacasse, he
continued to borrow funds for the project. He was forced to declare bankruptcy
in January 2002.
[13]
Lot 2016-1, the
200-acre lot acquired by Yoland Lacasse in Trust in order to build the golf
course, was surrendered to Neil and Edgar Elliott by the trustee in bankruptcy
on February 7, 2003. According to the deed of taking in payment and voluntary
surrender (Exhibit A‑1), the actual value of the consideration for the
land was $1,162,548.57 on that date. According to Mr. Lacasse, Neil and Edgar
Elliott were hypothecary creditors, and they paid the trustee $400,000 in the
transaction. They were also partners in CGLVM, which took back control of
the golf course project.
[14]
Mr. Lacasse said that
Canadevim never issued an invoice for the work that was done because they were
waiting for enough progress to be made so that the land could be transferred to
a company, which would then obtain financing to pay Canadevim. Due to Mr. Adams'
illness and death, this plan was never carried out. Canadevim was never
paid.
[15]
Mr. Lacasse said that,
following his bankruptcy in January 2002, the trustee in bankruptcy
seized all the documents, including the purchase invoices paid by Canadevim with
respect to which ITCs disallowed by the Minister are now being claimed.
According to the bankruptcy record book (Exhibit A-7), that seizure took
place on August 12, 2002, and the deadline that the Minister set for providing
the invoices was August 22, 2002. Four of the 26 boxes that were
seized were allegedly never returned.
[16]
There was also evidence
that the trustee in Yoland Lacasse's bankruptcy contested the validity of
the legal hypothec on April 24, 2002 (Exhibit A-9) on the basis
that Canadevim [TRANSLATION] "did not have the appropriate contractor’s
licence required by law" and [TRANSLATION] "never reported the income
generated by the business or made any consumption tax remittances to the tax
authorities concerned with its operations." No judgment has ever been
rendered in that regard.
[17]
The Minister is relying
on the very same legal hypothec to assess Canadevim. In the Quebec
Superior Court judgment dated December 7, 2006, authorizing Mr. Lacroix to
contest the assessment on behalf of Canadevim (Exhibit A-10), it is noted
that neither the trustee nor Canadevim ever collected the $1.2 million
secured by the legal hypothec.
The Respondent's argument
[18]
The Minister's
assessment is based entirely on the notice of legal hypothec registered by Canadevim
in July 1998. The Respondent argues that the registration of such a hypothec
means that Canadevim was the creditor to which the $1.2 million was owed on the
date of the notice of legal hypothec. In the Respondent's submission, the
fact that Canadevim never issued an invoice for the amount of its claim is
immaterial because the work was done in consideration of the amount stated in
the notice. The Respondent argues that the consideration was due on the date
the hypothec was registered and that the tax should accordingly have been
collected from the recipients at that time.
[19]
The Respondent is of
the view that the recipients under the Excise Tax Act (ETA) were Yvon
Lacasse in Trust and Mr. Adams, by virtue of a tacit agreement. The Respondent
also relies on article 320 of the Civil Code of Québec (C.C.Q.) which makes
a promoter who enters into a contract for a company that has not yet been
created personally liable with respect to the obligations set out in the
contract.
The Appellant's argument
[20]
The Appellant submits
that the notice of legal hypothec was not registered to mark the end of the
work, but simply to protect the estimated increased value of the land, as a
result of the work that had been done, at the time that Mr. Adams' portion
of the land was transferred to a trust for the benefit of his spouse.
[21]
The tax, the Appellant
contends, only had to be collected at the time that the consideration for the
work that had been done became due. That time corresponds to the invoicing date,
or the date that the invoice should have been issued, that is to say, the time at
which the work was substantially completed. The Appellant argues that the evidence
shows that the work was not substantially completed at the time that the notice
of legal hypothec was registered. The Appellant submits that article 2727 C.C.Q.,
which the Respondent invokes in her Reply to the Notice of Appeal as justifying
the date of the completion of the work, refers to the obligation to register a legal
hypothec no more than 30 days after the completion of the work in order for it
to remain valid, because a legal hypothec for construction work exists without
having to be published. Therefore, the Appellant argues, the date the notice of
legal hypothec was registered cannot be used to determine the time at which the
work was substantially completed and, accordingly, the time that the tax became
payable.
[22]
There is therefore no
relationship between the date of the registration of the notice of legal hypothec
and the state of the work's progress.
[23]
As for the amount of
$1.2 million in the notice of legal hypothec, it does not necessarily reflect
the consideration for the supply at the time of registration. This legal
hypothec was intended to protect the increase in the property's value, but the
amount shown did not have to be proven at the time of its registration.
[24]
Consequently, the
Minister could not rely on that amount to determine the consideration on which
he claims the tax should have been collected. Moreover, the Appellant submits
that the Minister consented to the trustee's challenge of the legal hypothec. It
is therefore quite inappropriate for the Minister to use it now as the basis of
his assessment.
[25]
Lastly, there is, in
the Appellant’s opinion, no agreement providing a basis for saying that Yoland Lacasse
in Trust and Mr. Adams were the recipients of the work done and that the tax should
have been collected from them. The ultimate recipient was a company which, by
reason of Mr. Adams' illness and death, was never formed.
The statutory provisions
The applicable version of the Excise Tax Act (ETA)
123. Definitions
"recipient" of a supply of property or a service means
(a) where consideration for the supply is payable under an
agreement for the supply, the person who is liable under the agreement to pay
that consideration,
(b) where paragraph (a) does not apply and consideration
is payable for the supply, the person who is liable to pay that consideration, and
(c) where no consideration is payable for the supply
(i) in the case of a supply of property by way
of sale, the person to whom the property is delivered or made available,
(ii) in the case of a supply of property otherwise
than by way of sale, the person to whom possession or use of the property is
given or made available, and
(iii) in the case of a supply of a service, the
person to whom the service is rendered
and any
reference to a person to whom a supply is made shall be read as a reference to
the recipient of the supply;
"supply" means, subject to sections 133 and 134, the
provision of property or a service in any manner, including sale, transfer,
barter, exchange, licence, rental, lease, gift or disposition;
165. (1) Imposition of goods and
services tax — Subject to this Part, every
recipient of a taxable supply made in Canada shall pay to Her Majesty in right
of Canada tax in respect of the supply calculated at the rate of 7% on the value
of the consideration for the supply.
152. (1) When consideration due — For the
purposes of this Part, the consideration, or a part thereof, for a taxable supply
shall be deemed to become due on the
earliest of
(a) the earlier of the day the supplier first issues an
invoice in respect of the supply for that consideration or part and the date of
that invoice,
(b) the day
the supplier would have, but for an undue delay, issued an invoice in respect of
the supply for that consideration or part, and
(c) the day the recipient is required to pay that
consideration or part to the supplier pursuant to an agreement in writing.
168. (1) General rule — Tax under
this Division in respect of a taxable supply is payable by the recipient on the
earlier of the day the consideration for the supply is paid and the day the
consideration for the supply becomes due.
. . .
(3) Supply completed — Notwithstanding
subsections (1) and (2), where all or any part of the consideration for a taxable
supply has not been paid or become due
on or before the last day of the calendar month immediately
following the first calendar month in which
(a) where the supply is of tangible personal property by way
of sale, other than a supply described in paragraph (b) or (c),
the ownership or possession of the property is transferred to the recipient,
(b) where the supply is of tangible personal property by way
of sale under which the supplier delivers the property to the recipient on
approval, consignment, sale-or-return basis or other similar terms,
the recipient acquires ownership of the property or makes a supply
of it to any person, other than the supplier, or
(c) where the supply is under an
agreement in writing for the construction, renovation or alteration of, or
repair to
(i) any real property, or
(ii) any ship or other marine vessel, and
it may reasonably be expected that the construction, renovation, alteration or
repair will require more than three months to complete,
the construction, renovation, alteration
or repair is substantially completed,
tax under this Division in respect of the
supply, calculated on the value of that consideration or part, as the case may
be, is payable on that day.
(6) Value not ascertainable — Where under subsection (3) or
(5) tax is payable on a day and the value of the consideration, or any part
thereof, for the taxable supply
is not ascertainable on that day
(a) tax calculated on the value of the consideration or part,
as the case may be, that is ascertainable on that day is payable on that day;
and
(b) tax calculated on the value of the consideration or part,
as the case may be, that is not ascertainable on that day is payable on the day
the value becomes ascertainable.
Civil Code of
Québec (C.C.Q.)
320. A person who acts for a legal
person before it is constituted is bound by the obligations so contracted,
unless the contract stipulates otherwise and includes a statement to the effect
that the legal person might not be constituted or might not assume the
obligations subscribed in the contract.
2725. The legal hypothecs of the State,
including those for sums due under fiscal laws, and the hypothecs of legal
persons established in the public interest may be charged on movable or
immovable property.
Such hypothecs take effect only from their registration in the
proper register. Application for registration is made by filing a notice
indicating the legislation granting the hypothec, the property of the debtor on
which the creditor intends to exercise it, and stating the cause and the amount
of the claim. The notice shall be served on the debtor.
. . .
2726. A legal hypothec in favour of the
persons having taken part in the construction or renovation of an immovable may
not charge any other immovable. It exists only in favour of the architect,
engineer, supplier of materials, workman and contractor or sub-contractor in
proportion to the work requested by the owner of the immovable or to the
materials or services supplied or prepared by them for the work. It is not
necessary to publish a legal hypothec for it to exist.
2727. A legal hypothec in favour of
persons having taken part in the construction or renovation of an immovable
subsists, even if it has not been published, for thirty days after the work has
been completed.
It subsists if, before the thirty-day period expires, a notice
describing the charged immovable and indicating the amount of the claim is
registered. The notice shall be served on the owner of the immovable.
It is extinguished six months after the work is completed, unless,
to preserve the hypothec, the creditor publishes an action against the owner of
the immovable or registers a prior notice of the exercise of a hypothecary
right.
2728. The hypothec secures the increase
in value added to the immovable by the work, materials or services supplied or
prepared for the work. However, where those in favour of whom it exists did not
themselves enter into a contract with the owner, the hypothec is limited to the
work, materials or services supplied after written declaration of the contract
to the owner. A workman is not bound to declare his contract.
2735. Hypothecary creditors may
institute legal proceedings to have their hypothec recognized and interrupt
prescription, even though their claims are neither liquid nor exigible.
Analysis
I The $73,027.60 in GST alleged to be
collectible
[26]
Under subsection 168(1)
of the ETA, the GST is payable by the recipient when the consideration for the
supply is paid or when the consideration for the supply becomes due, whichever
is earlier.
[27]
Here, the fact that Canadevim
was never paid for the work done is not in dispute.
[28]
The question,
therefore, is when the consideration for the work became due.
[29]
Subsection 152(1) of
the ETA provides that the consideration is deemed to become due either (a) when
the invoice is issued, or (b) when the invoice should have been issued
but for an undue delay, or (c) the day the recipient is required to pay that
consideration pursuant to an agreement in writing.
[30]
In this case, that no
invoice was issued and that there was no written agreement between Canadevim
(the supplier of services) and anyone else is not in dispute.
[31]
The question, then, is
whether Canadevim should have issued an invoice but for an undue delay.
[32]
The explanations given
by Mr. Lacasse reveal that there was a wait to obtain the financing needed
to create a company that would acquire the land and pay for the work. In
addition, when Mr. Adams, one of the partners in the project wanted to drop out
for health reasons, a notice of legal hypothec was registered in order to
protect the investment that had already been made.
[33]
What is meant by an
undue delay? As we can see, paragraph 168(3)(c) of the ETA provides that,
where the supply is made under an agreement in writing for the construction of
real property, the consideration becomes due when the work is substantially
completed.
[34]
The work in this case
was the construction of a golf course, which began in the autumn of 1996 and
had still not been completed at the time of the opening of the course in the
spring of 1999, owing to the special and clearly unanticipated
circumstances created by the health of Mr. Adams, one of the partners. In fact,
counsel for the Respondent acknowledged in his oral argument that when the
notice of legal hypothec was filed in July 1998, the work was not completed,
contrary to what is alleged in subparagraph 26(h) of the Reply to the Notice of
Appeal.
[35]
According to Mr. Lacasse,
the work was perhaps 55% completed. Even though there was no written agreement,
it seems to me that the completion test in paragraph 168(3)(c) of the
ETA is a reasonable one for determining whether consideration was due, and can
apply just as well whether there is a written agreement or not.
[36]
Indeed, since
Parliament has seen fit to specify that, where there is a written agreement, the
consideration becomes due only when the work is substantially completed, it
seems to me that this is a good reference point for determining when the consideration
becomes due in instances where the supplier has issued no invoice for the consideration.
[37]
Paragraph 152(1)(b)
of the ETA provides that the consideration is deemed to become due on the day
the supplier would have issued an invoice, but for an undue delay.
[38]
Since the work was far
from completed at the time that the notice of legal hypothec was registered
(and this is no longer disputed by the Respondent), I do not believe that there
had been at that time any undue delay in issuing an invoice.
[39]
In addition, I think the Appellant
may be correct in saying that the registration of a notice of legal hypothec
does not necessarily mean that the work was completed within the meaning of
article 2727 C.C.Q. either. The scholarly article submitted by the
Appellant states that a building contractor can register a legal hypothec
before the work has been completed if the contractor sees that there is a risk
of not being paid (see P. Ouellet, "La fin des travaux en
matière d'hypothèque légale de la construction", online:
Association patronale des entreprises en construction du Québec (http://www.apecq.org/APECQ/Site/3cpp/cjuridique/cj2002080910.doc).
[40]
Moreover, the question of
whether work has been completed is a question of fact. During the time that the
work is being performed, the construction is not supposed to be ready for its intended
purpose. Thus, work is completed after the complete performance of all the
work specified in the contract. If the contractor suspends the work for
financial reasons, the work is generally not considered to have been completed (see J.A. Savard
and B.P. Quinn, "L'hypothèque légale" in O.F. Kott and C. Roy, eds.,
La construction au Québec : perspectives juridiques (Montréal: Wilson &
Lafleur, 1998), pages 599‑635).
[41]
Here, the work contemplated
by the plans adduced as Exhibit A-2 was far from being completed in
July 1998 when the notice of legal hypothec was filed.
[42]
Moreover, the notice of
legal hypothec does not constitute proof that the claim set out therein was payable
at the time of filing. A notice of legal hypothec is merely a measure to preserve
a right (see Les Industries Falmec inc. c. Société de Cogénération de
St-Félicien, société en commandite / St-Félicien Cogeneration Limited
Partnership, REJB 2003-40996).
[43]
The evidence discloses
that the notice of legal hypothec was registered to protect Canadevim's claim,
but that procedure does not define the exact amount of the claim. At the
registration stage, the notice serves merely to secure the claim that gave rise
to added value, not to prove the exact amount of that added value (see Beylerian c. Constructions
et rénovations Willico inc., REJB 1997-00639 (Que. C.A)).
[44]
Thus, the Respondent is
wrong in saying, at paragraph 35 of the Reply to the Notice of Appeal, that
Canadevim should have issued invoices in the months preceding the filing of the
notice of legal hypothec, in order to substantiate its claim. Consequently, it
cannot be said that the consideration was due on that date as contemplated by
paragraph 152(4)(b) of the ETA.
[45]
Lastly, Canadevim was
never paid. In light of all of the foregoing, I find that the Minister was not
justified in assessing Canadevim for the period in question on the basis of the
notice of legal hypothec, which the Minister used to determine both when the
tax should have been collected and the amount of the tax.
[46]
For these reasons, I
would vacate the assessment with regard to the $73,027.60 in tax, the penalty assessed
under section 280 of the ETA and the related interest.
II The ITC claim of $16,662.52
[47]
The Appellant submits
that Canadevim claimed ITCs on a total of $355,956.79 worth of purchases
in its return dated June 30, 1998 (Exhibit A-12, first page) but
failed to claim ITCs on a $216,129.93 purchase made on
September 30, 1997 (Exhibit A-12, third page).
[48]
During the audit, Canadevim
claimed additional ITCs as a result of that omission. The Minister allowed only
$2,268.19 of those ITCs, and disallowed $15,154.70 (Exhibit A-12, last
page).
[49]
The Respondent submits
that the ITCs on the $216,129.93 purchase total $13,276.38 (Exhibit A-12,
second and third pages), and according to counsel for the Respondent, they had
already been claimed on April 30, 1998, and allowed by the Minister (Exhibit A-13).
[50]
The Appellant is
asking that I permit him to resubmit everything to the Minister so that he can
claim all the ITCs that Canadevim might not have claimed in the past.
[51]
When asked whether he
was aware of the ITCs claimed, in particular with respect to the $216,129.93
purchase referred to above, Mr. Lacasse was unable to provide an answer.
[52]
Jacques Roberge, a tax
specialist who testified for the Appellant with regard to this question,
believes that the ITCs on that amount were never allowed because Canadevim did
not claim them at the time. He said that Mr. Lacroix thought he could claim
ITCs only on purchases that had been paid for, when, in reality, he would have been
entitled to claim them from the moment he received the invoice. Mr. Lacroix
did not testify.
[53]
In my opinion, it is
not clear from the evidence whether the ITCs that the Appellant is claiming
before me have already been allowed or not. I am therefore unable to find that
the Appellant is entitled to them.
[54]
In any event,
regardless of what was claimed or what was not, subsection 225(4) of the
ETA enables a person to claim ITCs within four years. Here, it appears to
be undisputed that this time limit has expired.
[55]
Counsel for the Appellant
relies on subsection 296(2) of the ETA in arguing that, before determining the
amount of net tax reassessed, the Minister must allow unclaimed ITCs where a
person is reassessed for the period for which those ITCs could have been
allowed. Subsection 296(2) of the ETA reads as follows:
296. (2) Where, in assessing the net tax of a person for a
particular reporting period of the person, the Minister determines that
(a) an amount (in this subsection referred to as the "allowable
credit") would have been allowed as an input tax credit for the particular
reporting period or as a deduction in determining the net tax for the
particular reporting period if it had been claimed in a return under Division V
for the particular reporting period filed on the day that is the day on or
before which the return for the particular reporting period was required to be
filed and the requirements, if any, of subsection 169(4) or 234(1) respecting
documentation that apply in respect of the allowable credit had been met,
(b) the allowable credit was not claimed by the person in a
return filed before the day notice of the assessment is sent to the person or
was so claimed but was disallowed by the Minister, and
(c) the allowable credit would be allowed, as an input tax
credit or deduction in determining the net tax for a reporting period of the
person, if it were claimed in a return under Division V filed on the day notice
of the assessment is sent to the person or would be disallowed if it were
claimed in that return only because the period for claiming the allowable
credit expired before that day,
the Minister shall, unless otherwise requested by the person, take
the allowable credit into account in assessing the net tax for the particular
reporting period as if the person had claimed the allowable credit in a return
filed for the period.
[56]
In Byrnes v. The
Queen, 2008 TCC 57, Justice Little stated:
[19] As a result of the current wording in paragraph
296(2)(c), it is my opinion that the Appellant has a right to claim the ITC
where a credit is available to offset the tax. The deadline contained in
subsection 225(4) of the Act does not apply in this situation.
[57]
In this case, I have
just found that the assessment must be vacated as regards the tax. In obiter
dictum, I would say that subsection 296(2) allows unclaimed ITCs to be
applied beyond the limitation period to reduce the net tax assessed.
[58]
In my opinion, once the
reassessed amount is cancelled, subsection 296(2) does not apply. In any
event, in order to rely on that provision, the Appellant had to prove, under
paragraph 296(2)(b) of the ETA, that the credit in question was never
claimed. As stated above, the Appellant has not provided such proof.
[59]
Consequently, the
applicable deadline is the deadline in subsection 225(4).
[60]
I am therefore unable
to analyze this issue or to refer everything back to the Minister so that he
can redetermine whether Canadevim can claim ITCs that it does not believe it has
already claimed. This would constitute a new audit, and my jurisdiction is
limited to determining whether the assessment under appeal is well‑founded
or not.
[61]
For these reasons, I
would allow the appeal and refer the assessment back to the Minister for reassessment
on the basis that Canadevim was not required to collect of GST of $73,027.60 as
a consequence of the legal hypothec registered by Canadevim in July 1998,
and the related penalty and interest must be cancelled.
[62]
With respect to the
ITCs of $16,662.52 disallowed by the Minister, the assessment shall remain
unchanged.
[63]
As for costs, the Appellant
is entitled to costs under Tariff B of the Tax Court of Canada Rules
(General Procedure) ("the Rules"), except the costs related
to the Respondent's successful pre-trial motion to bar Mr. Roberge from
testifying as an expert witness in this appeal (see the order of
January 12, 2010). The Respondent is entitled to costs on that
motion under Tariff B of the Rules.
Signed at Ottawa,
Canada, this 18th day of March 2010.
"Lucie Lamarre"
Translation
certified true
on this 31st day
of May 2010.
Erich Klein, Revisor
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