Citation: 2008TCC428
Date: 20080725
Docket: 2007-2048(GST)I
BETWEEN:
CARROLL PONTIAC BUICK LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb, J.
[1]
The Appellant was assessed for HST
for the period January 1, 2002 to February 28, 2005 for the following amounts
that are in dispute:
Increase in HST collectible:
Period ending February 28, 2002: $18,704.56
Period ending February 28, 2003: $20,068.50
Period ending February 29, 2004: $23,653.47
Period ending February 28, 2005: $24,661.80
Total: $87,088.33
[2]
The Appellant operated a car
dealership in Halifax, Nova Scotia. The Appellant would provide demo vehicles to certain
of its employees for their own personal use. This resulted in a standby charge
and an operating expense benefit being conferred upon these employees for the
purposes of the Income Tax Act. In addition, pursuant to section 173 of
the Excise Tax Act, the Appellant was deemed to have collected HST based
on the total benefit amount taxable to the employees under the Income Tax
Act and any reimbursements paid by the employees.
[3]
With the introduction of the GST
in the early 1990s, the Appellant learned that the Appellant would be required
to remit GST (and later HST) in relation to the employee benefit amounts as a
result of the provisions of section 173 of the Excise Tax Act. The
Appellant decided that it did not want to bear the burden of the cost of the
GST in relation to the shareholder benefits and therefore decided to charge the
employees an amount equal to the GST that the Appellant was required to remit
in relation to the employee benefits. With the introduction of the HST the
amount increased, but the concept remained that the Appellant was charging the
employees an amount equal to its HST obligation in relation to the standby
charge and the operating expense benefit.
[4]
Prior to the periods under appeal,
the identification of the amounts that had been deducted by the Appellant in
its internal accounting systems had caused the Appellant difficulty in tracking
these amounts. For the periods under appeal, the amounts were identified in the
paycheque stubs issued to the employees and in the internal records of the
Appellant as “HST TB” with the TB standing for “taxable benefit”. The total
amount collected by the Appellant from its employees during the periods under
appeal as “HST TB” was equal to the total amount determined by the Respondent
as the HST that was deemed to be collected pursuant to section 173 of the Excise
Tax Act in relation to the standby charges and operating cost benefits
realized by the employees during these periods.
[5]
When filing its HST returns for
these periods, the Appellant included in its HST liability, the total amount
that it had collected from its employees. As noted, this was exactly equal to
the amount of HST that the Appellant is deemed to have collected under section
173 of the Excise Tax Act.
[6]
It is the position of the
Respondent that the Appellant was collecting HST from its employees and
therefore must remit this amount in addition to the obligations on the
Appellant to include in calculating its net tax under section 225 of the Excise
Tax Act the amounts that it is deemed to have collected under section 173
of the Excise Tax Act. Counsel for the Respondent referred to 800537
Ontario Inc. [Acura West] v. The Queen, 2005 FCA 333, [2005] G.S.T.C. 165,
2005 G.T.C.1553. However in that case the taxpayer was purporting to collect
amounts from its customers as GST payable by its customers.
[7]
I do not agree with the position
of the Respondent in this matter. It seems obvious to me that the amounts that
the employees were charged were intended to reimburse the Appellant for a
portion of its cost in providing the automobiles to the employees and that the
Appellant was not collecting amounts that purported to be HST payable by the
employees. The Appellant determined that the amount that the employees would be
required to pay would be equal to the HST liability arising as a result of the Appellant
being deemed to have collected an amount pursuant to section 173 of the Excise
Tax Act.
[8]
If the Respondent is correct, then
this could lead to other situations where amounts would have to be remitted
that are collected to reimburse a person for that person’s GST or HST
obligations. For example a residential condominium corporation will charge the
owners of residential units a condominium fee to cover the common expenses
related to the condominium. This condominium fee will not be subject to GST or
HST as a result of the provisions of paragraph 13 of Part I of Schedule V to
the Excise Tax Act. The condominium fee would presumably be based on the
costs incurred by the condominium corporation. Assume that one of the costs is
for snow removal and this cost is $3,000 plus HST of 13% or $3,390 in total.
When setting the condominium fee, the condominium corporation will want to
collect $3,390 for snow removal and therefore will be collecting an amount that
is based on the HST liability incurred (or to be incurred) by the condominium
corporation. If this $390 that is collected is, as the Respondent would
presumably submit, on account of HST and therefore would have to be remitted,
the condominium corporation would not have sufficient funds to pay its
obligations and I do not agree that this is the intended result of sections 222
and 225 of the Excise Tax Act.
[9]
It also should not matter whether
the condominium corporation breaks down the condominium fee to show the
residents how the fee was determined or simply sends a notice to the residents
of the fee without any breakdown. Why would a condominium corporation that
shows a detailed breakdown of the condominium fee have to remit a portion of
the fee collected as an amount collected as tax or on account of tax while
another condominium corporation charging exactly the same fee (based on the
same components) would not have to remit any HST? In each case the condominium
corporation would be collecting an amount from the residents to compensate the
condominium corporation for its HST liability on the goods and services it
acquires. In my opinion, as in this case, it would not be an intended result of
the application of sections 222 and 225 of the Excise Tax Act that the
condominium corporation should have to remit the amounts that it collects to
cover the HST liability that it has or will incur.
[10]
The Supreme Court of Canada in The
Queen v. Canada Trustco Mortgage Company, 2005 SCC 54, 2005 DTC 5523
(Eng.), [2005] 5 C.T.C. 215, 340 N.R. 1, 259 D.L.R. (4th) 193, [2005]
2 S.C.R. 601, stated that:
10 It
has been long established as a matter of statutory interpretation that “the
words of an Act are to be read in their entire context and in their grammatical
and ordinary sense harmoniously with the scheme of the Act, the object of the
Act, and the intention of Parliament”: see 65302 British Columbia Ltd. v. R.,
[1999] 3 S.C.R. 804 (S.C.C.), at para. 50. The interpretation of a statutory
provision must be made according to a textual, contextual and purposive
analysis to find a meaning that is harmonious with the Act as a whole. When the
words of a provision are precise and unequivocal, the ordinary meaning of the
words play a dominant role in the interpretive process. On the other hand,
where the words can support more than one reasonable meaning, the ordinary
meaning of the words plays a lesser role. The relative effects of ordinary
meaning, context and purpose on the interpretive process may vary, but in all
cases the court must seek to read the provisions of an Act as a harmonious
whole.
[11]
Sections 222 and 225 of the Excise
Tax Act provide, in part, as follows:
222. (1) Subject to subsection
(1.1), every person who collects an amount as or on account of tax under
Division II is deemed, for all purposes and despite any security interest in
the amount, to hold the amount in trust for Her Majesty in right of Canada,
separate and apart from the property of the person and from property held by
any secured creditor of the person that, but for a security interest, would be
property of the person, until the amount is remitted to the Receiver General or
withdrawn under subsection (2).
225. (1) Subject to this
Subdivision, the net tax for a particular reporting period of a person is the
positive or negative amount determined by the formula
A
– B
where
A is the total of
(a) all
amounts that became collectible and all other amounts collected by the person
in the particular reporting period as or on account of tax under Division II,…
[12]
In my opinion, the references to the
amounts collected as or on account of tax in sections 222 and 225 do not
include the amounts collected in this situation which were not collected as tax
payable by the employees but were collected to reimburse the Appellant for its
HST obligation arising as a result of the provisions of section 173 of the Excise
Tax Act. In my opinion this interpretation is consistent with the intent of
the Excise Tax Act and is consistent with reading the provisions of this
Act as a harmonious whole. As noted above, there are many other
situations where amounts are collected to reimburse a person for that person’s
GST or HST liability and if all of these amounts are treated as amounts
collected as or on account of tax, then it will lead to unintended results. The
net affect of the Appellant charging the employees this amount is that the
burden of the HST obligation has been shifted to the employees who received the
use of the vehicles. The general rule, as set out in section 165 of the Excise
Tax Act, is that it is the recipient of the taxable supply and not the
supplier who pays the tax. Since the employees were the recipients of the
supply of the vehicles, in my opinion, the net affect of shifting the burden of
the HST to the employees is harmonious with the Excise Tax Act as a
whole.
[13]
Section 173 of the Excise Tax
Act contemplates a situation where an employee reimburses an employer for a
portion of the costs of providing the automobile. This section of the Excise
Tax Act provides in part as follows:
173. (1) Where a registrant
makes a supply (other than an exempt or zero-rated supply) of property or a
service to an individual or a person related to the individual and
(a) an amount (in this subsection
referred to as the “benefit amount”) in respect of the supply is required under
paragraph 6(1)(a), (e), (k) or (l) or subsection 15(1) of the Income Tax Act to
be included in computing the individual's income for a taxation year of the
individual, or
(b) the supply relates to the use
or operation of an automobile and an amount (in this subsection referred
to as a “reimbursement”) is paid by the individual or a person related
to the individual that reduces the amount in respect of the supply that
would otherwise be required under paragraph 6(1)(e), (k) or (l) or subsection
15(1) of that Act to be so included,
the following rules apply:
(c) in the case of a supply of
property otherwise than by way of sale, the use made by the registrant in so
providing the property to the individual or person related to the individual is
deemed, for the purposes of this Part, to be use in commercial activities of
the registrant and, to the extent that the registrant acquired or imported the
property or brought it into a participating province for the purpose of making
that supply, the registrant is deemed, for the purposes of this Part, to have
so acquired or imported the property or brought it into the province, as the
case may be, for use in commercial activities of the registrant, and
(d) …
for the purpose of determining
the net tax of the registrant,
(v) the total of the benefit
amount and all reimbursements is deemed to be the total consideration payable
in respect of the provision during the year of the property or service to the
individual or person related to the individual,
…
(emphasis added)
[14]
Since an amount was deducted from
the paycheques of the employees, which was identified as “HST TB”, the
employees were paying their employer for the use of the automobiles. As a
result, this would reduce the amount that the employees would be required to
include in their income for the purposes of the Income Tax Act under
paragraphs 6(1)(e) and 6(1)(k). It would not, in my opinion, be appropriate to
tax employees on the full amount of the standby charge and operating expense
benefit without taking into account the amounts that the employees had deducted
from their paycheques. These amounts are clearly amounts that the employees
were paying in relation to the use of the automobiles that had been provided by
their employer. The fact that they were calculated based on the HST liability
of the employer is simply the means by which the amount was determined.
Therefore in my opinion, the amounts that were deducted from the employees’
paycheques would reduce the amount included in their income for the purposes of
the Income Tax Act as standby charges and as operating expense benefits.
[15]
As a result, these amounts would
be reimbursements for the purposes of section 173 of the Excise Tax Act.
Since the total consideration for the purposes of section 173 is the total
amount of the benefit plus the reimbursement amount, the calculation of the HST
deemed to be collected under section 173 of the Excise Tax Act is not
affected by treating these amounts as reimbursements. For example for the
period ending February 28, 2002 the total amount deducted from the employees
paycheques in relation to the standby charge was $14,709.36 and therefore the
total amount of all standby charges for all employees for this period that
would be included in the benefit amount (for the purposes of paragraph 173(1)(a)
of the Excise Tax Act) would be $119,776.68 - $14,709.36 or $105,067.32.
The HST that is deemed to have been collected by the Appellant is based on the
total of the benefit amounts and the reimbursements and therefore the total
consideration for the purposes of section 173 of the Excise Tax Act will
still be $119,776.68. This will result in the same amount being included as HST
collected in determining the net tax of the Appellant under 225 of the Excise
Tax Act, as was determined by the Appellant. This is also the same amount
determined under section 173 by the Respondent. The difference is that the
amount collected by the Appellant from the employees is not, in my opinion,
collected on account of tax, but simply collected as a reimbursement of part of
the cost of providing the vehicles to the employees, which is based on the
calculation on the HST liability of the Appellant. This amount is a
reimbursement amount for the purpose of section 173.
[16]
The treatment of this amount paid
by the employees as a reimbursement should not be any different than if the
employer had determined that the employees should pay for the cost of the gasoline,
the insurance or any other costs that were incurred by the Appellant in
providing the vehicles to its employees.
[17]
The Appellant has, with the
approval of the auditor from the Canada Revenue Agency, changed the description
of the amounts deducted from “HST TB” to “STBYCHRG”. Although the amount
deducted remains the same, this simple name change in the account appears to
remove any issue with the Canada Revenue Agency that the Appellant is
collecting HST. The designation of an account should not determine liability
under the Excise Tax Act. As noted by Associate Chief Justice Bowman (as
he then was) in VanNieuwkerk v. The Queen 2003 TCC 670, [2004] 1 C.T.C.
2577:
6….It has been
said on many occasions in this Court that accounting entries do not create
reality. They simply reflect reality. There must be an underlying reality that
exists independently of the accounting entries.
[18]
The simple designation of the
amounts deducted as “HST TB” does not make the amounts collected as or on
account of tax any more than the change in designation to “STBYCHRG” would
change this result. It is the underlying reality that is relevant. As noted
above, this underlying reality is that the amounts were collected to reimburse
the Appellant for its HST liability arising as a result of the provisions of
section 173 of the Excise Tax Act and not as or account of tax for the
purposes of sections 222 and 225 of the Excise Tax Act.
[19]
Subsection 18.3009 of the Tax
Court of Canada Act provides, in part, that:
18.3009 (1) If
an appeal referred to in section 18.3001 is allowed, the Court shall reimburse
to the person who brought the appeal the filing fee paid by that person under
paragraph 18.15(3)( b). The Court may, in accordance
with the rules of Court, award costs to that person if the judgement reduces
the amount in dispute by more than one half and
…
(
c) in the case of an appeal under Part IX of the Excise
Tax Act,
(i)
the amount in dispute does not exceed $7,000, and
(ii) the
aggregate of supplies for the prior fiscal year of the person did not
exceed $1,000,000.
[20]
Since this appeal is an appeal
referred to in section 18.3001 of the Tax Court of Canada Act and since
the amount in dispute exceeds $7,000, no costs may be awarded to the Appellant.
[21]
As a result, the appeal is allowed,
without costs, and the matter is referred back to the Minister of National Revenue
for reconsideration and reassessment on the basis that the Appellant has not
failed to report and remit HST arising from the personal use of the passenger
vehicles in the amounts of $18,704.56, $20,068.50, $23,653.47 and $24,661.80
for the periods ending February 28, 2002, February 28, 2003, February 29, 2004
and February 28, 2005, respectively.
Signed at Halifax, Nova Scotia, this 25th day of July 2008.
“Wyman W. Webb”
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