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Citation: 2008TCC57
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Date: 20080124
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Docket: 2007-625(GST)I
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BETWEEN:
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ANDREW BYRNES,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Little J.
A. FACTS
[1] The
Appellant operates as a sole proprietor under the name of Country Club Motors
(the “Company”).
[2] The
Company is engaged in the construction, landscaping and snow removal business
in Winnipeg. The Company is a registrant under the Excise
Tax Act (the “Act”).
[3] The
Company owns two “bobcats”, a backhoe, a dump truck and miscellaneous tools and
equipment used in the business.
[4] The
Appellant stated that he hired an accounting firm, by the name of O’Grady
Accounting, to prepare and file the Company’s Goods and Services Tax Returns
(“GST Returns”).
[5] The
Appellant filed a GST Return for the period October 1, 2001 to December 31,
2001 (the “Period”). The Return was received by the Canada Revenue Agency (the
“CRA”) on February 13, 2002. In the GST Return the Appellant reported tax
collected of $588.00, input tax credits of $310.79 for total net tax of
$277.21. The GST Return was accepted as filed.
[6] In
2004 or 2005, officials of the CRA contacted the Appellant about GST owing by
the Company.
[7] The
Appellant said that after an audit was completed by the CRA he was surprised to
discover that there was a GST issue involving the Company because he understood
that O’Grady Accounting was handling GST Returns for the Company.
[8] The
Appellant said that in the 2005 taxation year he discovered that Ms. O’Grady
was not remitting the GST Returns for the Company because she had suffered a stroke
and a nervous breakdown.
[9] The
Company was reassessed by officials of the CRA for additional GST payable and
the Appellant said that he cleaned up all of the GST owing by the Company by
obtaining funds from a second mortgage registered against his home.
[10] When the Appellant obtained his paperwork for the Company from O’Grady
Accounting, he discovered that they had not claimed the input tax credits with
respect to a tractor that the Company had purchased from Brandt Tractor
Ltd. on October 31, 2001. The invoice for the tractor was in the amount of
$50,160.00 and the GST that was paid was $3,080.00.
[11] By letter dated April 28, 2006 the Appellant wrote to the CRA
requesting that the GST Return for the Period be amended to allow additional
input tax credits of $3,080.00. In his letter the Appellant claimed a refund
for the Period determined as follows:
Net Tax Reported $277.21
Adjustments
Additional input tax credits $3,080.00
Refund Claimed $2,802.79
(Note: Officials of the CRA agree that this letter constitutes an amended
GST Return.)
[12] By Notice of Assessment issued on September 27, 2006, the Minister of
National Revenue (the “Minister”) disallowed the GST Refund claimed by the
Appellant on the basis that the input tax credit the Appellant sought to claim
was beyond the four year limitation period set out in subsection 225(4) of the Act.
B. ISSUE
[13] The issue to be decided is whether the Appellant is entitled to the
additional input tax credits of $3,080.00 for the equipment that the Appellant acquired
on October 31, 2001.
[14] The Minister maintains that the Appellant failed to claim the input
tax credit in a tax return filed for reported Period ending December 31, 2001 within
the four year limit imposed by subsection 225(4) of the Act.
C. ANALYSIS AND DECISION
[15] In the Notice of Decision issued to the Appellant, the Minister makes
the following comment:
Paragraph 225(4)(b) of the Excise
Tax Act states that an Input Tax Credit cannot be claimed unless it is claimed
within 4 years of the due date of the first GST Return that the registrant is
entitled to claim this Input Tax Credit. In your case, the Input Tax Credit in
question pertains to your GST reporting period of October-December 2001. You
were required to claim this Input Tax Credit by January 31, 2006. You filed an
Amended GST Return on April 28, 2006 and claimed this Input Tax Credit. Thus,
this Input Tax Credit was claimed after the deadline had expired.
[16] Paragraph 225(4)(b) of the Act reads as follows:
225. (4) An input tax credit of a person for a
particular reporting period of the person shall not be claimed by the person
unless it is claimed in a return under this Division filed by the person on or
before the day that is
…
(b) where the person is not a specified person during the particular
reporting period, the day on or before which the return under this Division is
required to be filed for the last reporting period of the person that ends
within four years
after the end of the particular reporting period; or …
[17] Subsection 296(2) of the Act 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.
[18] It should be noted that subsection 296(2) was amended effective July
7, 1996. In the amendment the word “may” was changed to “shall”.
[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.
[20] Further support for this conclusion can be found in the “GST/HST
News” produced by the CRA in Spring 2004.
[21] At page 3 of the GST/HST News the following comments are found:
Auditing
for GST net tax – It’s a matter of fairness
The “audit
to net tax” principle ensures that the entitlements and obligations of a
GST/HST registrant under audit are given proper consideration. After all, it’s
a matter of fairness.
Generally, a registrant has a
four-year time limit (two years in the case of a specified person) in which to
claim an input tax credit (ITC). In reporting the net tax for a reporting
period, the registrant may include the ITCs that became available in that
period and any unclaimed ITCs from the previous four years (or in the case of a
specified person, two years).
…
In assessing a registrant’s net tax
for a reporting period under audit, the CRA is required to take into account
any ITCs that the registrant did not claim for that reporting period even if
the normal time limit for claiming these ITCs has expired. These unclaimed
ITCs must be for tax that became payable during the particular reporting period
under audit.
[22] It will be noted that the News Release clearly
supports my interpretation of subsection 296(2).
[23] The example cited in the News Release also supports
my conclusion.
[24] The example reads as follows:
On April 30, 2001, Corporation B, a
specified person with a June 30 year-end, reported the following amounts on its
GST/HST return for the reporting period March 1, 2001 to March 31, 2001:
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GST/HST collectible
and collected
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$40,000
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ITCs claimed
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$25,000
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Net tax
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$15,000
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In November 2003, this reporting
period is selected for audit. During the course of the audit, the auditor
discovers $10,000 of unclaimed ITCs for GST/HST paid during this particular
reporting period. Even though the time limit for claiming these ITCs expired on
July 31, 2003, the auditor must take them into account when assessing the net
tax for this reporting period. However, unclaimed ITCs for tax that became
payable in reporting periods before the particular period under audit will not
be taken into account.
[25] In Charles Beaupré v. Her Majesty The Queen, 2005 FCA 168, Justice Létourneau of the
Federal Court of Appeal said:
Interpretation bulletins are not
binding on the Court as to how a legislative provision is to be interpreted.
When the interpretation suggested in the bulletin is the right one, however,
there is no reason to disregard it.
[26] The appeal is allowed, without costs.
Signed at Vancouver,
British Columbia, this 24th day of January 2008.
Little
J.
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