Citation: 2005TCC301
Date: 20050428
Docket: 2004-4698(GST)I
BETWEEN:
LORRAINE McDONELL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Bowman,
C.J.
[1] This appeal is from an assessment of Goods and Services
Tax (GST) made under the Excise Tax Act (E.T.A.) whereby the
Minister of National Revenue denied a refund of GST remitted by the appellant
on behalf of the purchaser of property. Briefly, the question is whether a
supplier who erroneously collects GST from a recipient and remits it to the
government is entitled to claim a refund of the tax.
[2] The appellant was the owner of a parcel of vacant land
of approximately 80 acres. She agreed to sell it to Louis Garth Riley.
[3] The agreement of purchase and sale states the purchase
price is $50,000. Clause 7 of the agreement provides:
7. GST: If this
transaction is subject to Goods and Services Tax (G.S.T.), then such tax shall
be included in the Purchase Price. If this transaction is not subject to
G.S.T., Vendor agrees to provide on or before closing, a certificate that the
transaction is not subject to G.S.T.
[4] The Amended Statement of Adjustments reads as follows:
AMENDED
STATEMENT OF ADJUSTMENTS
VENDOR: Mary
Lorraine McDonell
PURCHASERS: Louis
Garth Riley and Betty Ann Riley
PROPERTY; RR#1,
St. Andrews West (Township of South Stormont (formerly the Township of Cornwall))
ADJUSTED
AS OF: August 17, 2001
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ADJUSTED
SALE PRICE
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Sale Price,
including GST:
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50,000.00
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GST
calculated at 7.00%:
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3,271.03
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Credit
Vendor:
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$46,728.97
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DEPOSIT
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$1,000.00
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REALTY
TAXES
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Total 2001
total taxes
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1,367.38
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Adjustment
based on 1/3 the cost of current assessed taxes (estimated
portion of lands being transferred):
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455.79
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Vendor has
paid:
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455.79
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Vendor’s
share for 228 days:
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284.71
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Credit
Vendor:
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171.08
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BALANCE
DUE ON CLOSING
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payable to
McDonald Duncan,
in trust or as further directed
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$45,900.05
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___________
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$46,900.05
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$46,900.05
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E. & O. E.
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[5] The transaction closed and the deed of land that was registered
in the registry office shows the consideration to be $46,728.97. The figure set
out in the Amended Statement of Adjustments, i.e. $50,000 less the $3,271.03.
The Land Transfer Tax was calculated on the basis of $46,728, not $50,000.
[6] On August 22, 2001, after the transaction
closed, the solicitors for the appellant sent a letter to the Summerside Tax
Centre in Prince Edward Island stating:
Enclosed please find the following:
1. A trust cheque in the
amount of $3,271.03 payable to the Receiver General;
2. Form 62; and
3. Copy of the registered
Transfer/Deed of Land.
Please provide us with a receipt for payment of the
GST applicable on the sale of this property.
[7] The evidence was that this cheque was drawn on the
trust account of the purchaser’s solicitors.
[8] It will be obvious that up to this point the
appellant’s solicitors believed that the sale was subject to GST.
[9] It is conceded by the respondent that this view was
erroneous and that the sale of the vacant land was exempt. This conclusion was
reached by the appellant’s solicitors after a question was raised by the
appellant’s accountant. This conclusion was confirmed by Canada Customs and
Revenue Agency, who sent the appellant’s solicitors a GST memorandum confirming
that vacant land that has previously been farmed but that was purchased for
personal use was exempt from GST.
[10] On December 2, 2003, the solicitor for the appellant
wrote to Leo D. Courville, the solicitor for the purchaser, Mr.
Riley. He said:
The above transaction was completed
in August, 2001.
CCRA has determined that this transaction is not
subject to GST and I am enclosing for your information a copy of a five page
fax forwarded from the Ottawa Tax Services Office.
Ms. Taylor’s concern is that the registered
transfer, Instrument No. 306138 indicates consideration in the amount of
$46,728.97 was paid.
The offer signed by the parties provided for a
purchase price of $50,000.00 inclusive of GST.
The statement of adjustments amended as of August
17, 2001, a copy of which is enclosed, contained an adjusted sale price of
$46,728.97 net of the GST calculated at $3,271.03 which was paid directly to
the Receiver General.
Before CCRA will rebate the GST to the vendor, it
has requested confirmation from the purchaser or his solicitor that $50,000.00
was the total consideration and the vendor is entitled to receive the GST which
was paid on the transaction.
Please provide me with your letter confirming, (a)
the total consideration was $50,000.00, and (b) the vendor, Lorraine McDonell,
is entitled to receive the GST which was paid in the amount of $3,271.03.
I would appreciate your early response as Mrs.
McDonell is anxious to complete this matter with CCRA.
[11] Having received no reply he wrote on January 14, 2004
to Mr. Courville and enclosed a draft letter for him to sign. Mr. Courville
signed the letter and returned it to the solicitor for the appellant. It read
as follows:
The above transaction was completed
August 17, 2001.
The purchase price paid pursuant to the agreement of
purchase and sale was $50,000 inclusive of any applicable GST.
The registered transfer Instrument No. 306138
(Stormont) reflects a consideration of $46,728.97 and GST in the amount of
$3,271.03 was remitted to the Receiver General by the solicitor for the vendor.
I confirm the vendor is entitled to receive any
rebate of the GST paid.
[12] The CCRA refused the rebate claimed by letter dated
February 13, 2004, as follows:
Further to our review of your General Application
for rebate of GST/HST, this letter is to confirm that the rebate has been
disallowed in full.
We acknowledge that representations were provided to
support that the sale of the land would have been exempt of GST pursuant to
Schedule V, Part I, Section 9 of the Excise Tax Act. However, we would like to
draw your attention to page 7 of the enclosed guide which states “Amounts
collected in error – If you collected an amount as or on account of GST/HST
that you should not have collected, you have to include that amount in the calculation
of your net tax. You are not entitled to claim a rebate for amounts you
collected as GST/HST in error.”
[13] It appears that the refusal of the refund was contained
in the notice of assessment dated February 16, 2004, although the notice of
assessment was not put in evidence.
[14] A notice of objection was filed. It read:
NOTICE OF OBJECTION/STATEMENT OF FACT
The taxpayer sold vacant land to a purchaser, Louis
Garth Riley in August, 2001.
The Agreement of Purchase and Sale
provided for a purchase price in the total amount of $50,000.00 inclusive of
any applicable GST.
On completion of the transaction, the vendor
taxpayer delivered to the purchaser a Transfer/Deed of Land indicating a
consideration of $46,728.97 and remitted GST in the amount of $3,279.03. The
Transfer/Deed was registered in the Land Registry Office for the County of Stormont as
Instrument No. 306138.
The Taxpayer claimed a rebate of the GST paid on the
sale of personal use land by reason of GST/HST Memoranda Series 19.5 “Land and
Associated Real Property” as supplied by CCRA on November 28, 2003.
The purchaser of the land, through his solicitor,
provided correspondence to CCRA dated January 14, 2004 confirming the vendor
was the proper party entitled to receive any rebate of the GST paid.
CCRA by correspondence dated February 13, 2004
disallowed the application for rebate of GST stating the taxpayer was not
entitled to claim a rebate for amounts collected as GST in error.
The taxpayer did not collect GST in error. Under the
terms of the Agreement of Purchase and Sale the taxpayer was and is entitled to receive
$50,000.00 from the purchaser. The taxpayer made a self-assessment of GST and
paid $3,271.03 to CCRA. The tax should not have been paid.
[15] The CCRA confirmed the assessment. The notice of
decision reads in part as follows:
The Minister of National Revenue has
carefully reconsidered the assessment with reference to the information and
reasons set forth in your notice of objection and renders the following
decision.
Your objection is disallowed and the assessment is
confirmed.
Your representation is that GST on the sale of land
was submitted in error. It has been acknowledged that GST should not have been
charged on the sale of real property. However, a rebate under Section 261(1) is
available to the payer. The purchaser paid the amount and is eligible for the
rebate. As you collected GST on the transaction you were obligated to remit it.
[16] The reporting letter to the appellant from her
solicitors contains the following statements:
AGREEMENT OF PURCHASE AND SALE
This transaction was completed in accordance with
the Agreement of Purchase and Sale executed by you and the purchasers. The sale price
was $46,728.97 with $1,000.00 being paid as a deposit and the balance payable
to you by certified cheque on closing subject to adjustments.
STATEMENT OF ADJUSTMENTS
. . .
The sale price which, pursuant to the Agreement of
Purchase and Sale was $50,000.00 inclusive of GST, was adjusted so
that you, as vendor, received credit with the sum of $46,728.97, being the net
sale price after deducting the GST component. The purchaser was credited with
the deposit monies of $1,000.00.
[17] In her return of income, prepared by a tax preparer,
the appellant showed the proceeds of disposition of the land as $46,728.97.
[18] On the basis of these facts the appellant, through her counsel,
claims that she is entitled to the refund of GST paid in error. The Crown
recognizes that the tax was paid in error but says that since it was paid by the
purchaser, (although the cheque drawn on the purchaser’s solicitor’s trust
account was remitted by the appellant’s solicitors to CCRA) only the purchaser
can claim it back. The purchaser has shown no inclination to do so and in any
event it is probably now too late.
[19] One thing is clear: the Minister is the last person who
should be trying to hang onto the money. If the only criterion were fairness,
obviously the money should go back to the appellant. If the money were refunded
to the purchaser he would have an obligation to pay it to the appellant.
However, we all know what is said about the absence of equity in a taxing
statute. If it means that a judge’s sense of fairness cannot override the clear
words of a statute, I agree with the statement. If it means that, where there
are two possible interpretations, the Court cannot adopt a construction of the
statute that is consistent with fairness as opposed to one that is not, I do
not agree with it.
[20] I start from the premise that the right of a taxpayer
to obtain a refund of GST must, at least so far as this Court’s jurisdiction is
concerned, be found within the confines of the E.T.A. which contains a
complete code. Section 261 of the E.T.A. reads:
261. (1) Rebate of payment made in error — Where a person has
paid an amount
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(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.
(2) Restriction — A rebate in respect of an amount shall not be paid
under subsection (1) to a person to the extent that
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(a) the amount was
taken into account as tax or net tax for a reporting period of the person
and the Minister has assessed the person for the period under
section 296;
(b) the amount paid
was tax, net tax, penalty, interest or any other amount assessed under
section 296; or
(c) a rebate of the
amount is payable under subsection 215.1(1) or (2) or 216(6) or a refund of
the amount is payable under section 69, 73, 74 or 76 of the Customs Act because
of subsection 215.1(3) or 216(7).
(3) Application for
rebate — A rebate in
respect of an amount shall not be paid under subsection (1) to a person
unless the person files an application for the rebate within two years
after the day the amount was paid or remitted by the person.
(4) One application per
month — Subject to
subsections (5) and (6), not more than one application for a rebate under
this section may be made by a person in any calendar month.
(5) Application by branches
and divisions — Where
a person who is entitled to a rebate under this section is engaged in one
or more activities in separate branches or divisions and is authorized
under subsection 239(2) to file separate returns under Division V in
relation to a branch or division,
(a) the person
may file separate applications under this section in respect of the
branch or division; and
(b) not more
than one application for a rebate under this section in respect of the
branch or division may be made by the person in any calendar month.
(6) Application of
s. 239 — Where a person who has not made an application
under section 239 is entitled to a rebate under this section and is
engaged in one or more activities in separate branches or divisions,
(a) section 239
applies to the person as if the references therein to “commercial
activities” were references to “activities”, as if the references therein
to “returns under this Division” and “returns” were references to
“application under section 261” and as if the references therein to “registrant”
were references to “person”; and
(b) where, because of
this subsection, the person is authorized under section 239 to file
separate applications for rebates under this section in relation to a
branch or division, nor more than one application for a rebate under this
section in respect of the branch or division may be made by the person in
any calendar month.
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[21] I do not think that a supplier who has collected GST in
error from a purchaser and who has remitted it to the government is a person
who has “paid an amount as or on account of as that was taken into account as tax...”
The purchaser is the person who has paid the tax, rightly or wrongly, and the
supplier has simply remitted it. This strikes me as the plain meaning of the
words in subsection 261(1).
[22] The cases are not entirely consistent on this point.
The appellant relies on a decision of this Court in R. Mullen Construction
Ltd. v. Canada, 1997 G.S.T.C. 106. There, the vendor of a house paid GST on
the sale in which the purchase price was said to include GST.
[23] The judgment reads in part as
follows:
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[3] The agreement of purchase and sale between
the Appellant as vendor and Jacques and Deanna LaPierre as purchasers is
Exhibit A-1. It is difficult to determine from Exhibit A-1 whether the
parties expected GST to apply to their transaction because of two conflicting
conditions which appear as paragraphs 1(a) and 1(h) on the second page of
Exhibit A-1:
1(a) Balance of the purchase
price, subject to usual adjustments, to be paid to the Vendor on date of
closing. Purchase price to include GST.
1(h) If this transaction is
subject to GST imposed by Part IX of the Excise Tax Act R.S.C. 1985, c. E-15, then such GST shall be in addition to and not included in the purchase
price, and GST shall be collected and remitted in accordance with applicable
legislation. If this transaction is not subject to GST, the vendor agrees to
provide on or before the closing to the purchaser or purchaser's solicitor a
certificate, in a form reasonably satisfactory to the purchaser or
purchaser's solicitor, certifying that the transaction is not subject to GST.
[4] Mr. David Melnick, the Appellant's lawyer
in the sale transaction, testified at the hearing and stated that both he and
the solicitor representing the purchasers were of the view that condition
1(a) applied and the purchase price of $101,900 included GST. He also stated
that this was the view most favourable to the purchaser, as opposed to
condition 1(h). The statement of adjustments and accompanying trust statement
for the closing of the sale are together in Exhibit A-2. The statement of
adjustments accounts for the transaction as follows:
STATEMENT OF ADJUSTMENTS
CREDITS TO VENDOR
PURCHASE PRICE $95,233.64
TAXES PAID IN ADVANCE
FUEL OIL ADJUSTMENT
GST $
6,666.36
TOTAL COSTS TO PURCHASER $101,900.00
CREDITS TO PURCHASER
DEPOSIT $
3,000.00
VENDOR'S PORTION OF CURRENT
TAXES CALCULATED AS:
TAXES IN ARREARS
INTEREST ON O/S TAXES
TAX CERTIFICATE $
40.00
MORTGAGE PAYOUT
RECORDING RELEASE(S) $ 42.00
TOTAL CREDITS TO PURCHASER $
3,082.00
BALANCE REQUIRED TO COMPLETE
TRANSACTION $ 98,818.00
. . . . .
[5] The statement of adjustments, viewed alone,
indicates that GST was payable on the sale and that the amount of GST was
$6,666.36. There is a conflict, however, between Exhibit A-1 (agreement of
purchase and sale) and Exhibit A-2 (statement of adjustments) because Exhibit
A-1 identified $101,900 as the purchase price whereas Exhibit A-2 identified
$95,233.64 as the purchase price. There is no evidence that the vendor, the
purchasers or the real estate agents had any knowledge of the notional
purchase price of $95,233.64 shown in Exhibit A-2. I am satisfied from
Exhibit A-1 and the oral testimony of Mr. Melnick and Randy Mullen that the
amount of $95,233.64 was never in the minds of the vendor and purchasers when
they signed Exhibit A-1. They were looking only at the agreed price of
$101,900. If they really thought that condition 1(a) applied and condition
1(h) did not, then the agreed price of $101,900 was the maximum amount which
the purchasers would be required to pay, and the vendor would pay any tax out
of the proceeds of sale. The amount of $101,900 may have been the fair market
value of 35 Armcrest Drive in the spring of 1992.
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[24] Justice Mogan allowed the appeal. He referred first to
section 232. I need not deal with that section. As Mogan J. said, in
paragraph 19 of his reasons, “Section 232 is primarily concerned with one
person who has collected excess tax from another person. Section 261 is
primarily concerned with a person who has paid excess tax to the Minister”.
After quoting subsection 261(1), Mogan J. went on to say:
The Appellant and the Respondent are in agreement
that, on the sale to LaPierre in June 1992, an amount of $6,666.36 was paid to
the Minister as or on account of tax; and they further agree that no tax was
payable with respect to that sale. The Respondent argues that any amount paid
as tax by mistake within the meaning of section 261 was paid by Jacques and
Deanna LaPierre. The Respondent relies on the statement of adjustments (Exhibit
A-2). The Appellant argues that any such amount was paid by the Appellant and
relies on the fair market value of 35 Armcrest in June 1992 as being $101,900,
an amount which the purchasers were required to pay regardless of whether GST
applied or not. I accept the Appellant's argument and reject the Respondent's
argument. In my opinion, the amount of $6,666.36 in Exhibit A-2 was a figment
of the imagination of the vendor's lawyer in drafting the statement of
adjustments. A sale price of $95,233.64 was never in the mind of the vendor
Appellant or the purchasers (Jacques and Deanna LaPierre). Their agreed price
of $101,900 was fair market value. The vendor, through its lawyer, made a
mistake in drafting the statement of adjustments and breaking out a notional
sale price of $95,233.64 and a mistaken tax amount of $6,666.36. The purchasers
paid what they agreed to pay ($101,900) when they closed the transaction on
June 12, 1992 without regard to whether the vendor (Appellant) may or may not
have been required to pay some amount as GST. I find that the Appellant paid an
amount as tax by mistake within the meaning of section 261.
[20] No argument was made that any provision in
subsections (2) and (3) of section 261 would prevent the payment of a rebate by
the Minister. Accordingly, I will order that the Minister pay a rebate of the
amount of $6,666.36 to the Appellant
[25] The conclusion reached by Justice Mogan appears to
have been based on a finding of fact that “the amount of $6,666.36 in
Exhibit A‑2 was a figment of the imagination of the vendor’s lawyer
in drafting the statement of adjustments.”
[26] Whether or not I agree with the principle of law on
which the judgment is based, the factual premise of the conclusion is
sufficient to distinguish the case from this one.
[27] In this case the amount of GST mentioned in the
statement of adjustments and paid to the government was not a figment of
anybody’s imagination. It may have been based on a misapprehension of the law
but this does not detract from its reality.
[28] Mr. David Sherman, in an editorial comment,
criticizes the conclusion as “antithetical to the entire scheme of the
legislation”. Mr. Sherman also criticizes certain obiter dicta in GKO
Engineering (a Partnership) v. The Queen, [2000] G.S.T.C. 29, in which Rowe,
D.J. dismissed an appeal because the wrong person applied for the rebate, given
that GST had been collected by a corporation, not the appellant partnership.
Nonetheless he observed:
Counsel for the respondent submitted - at one point - that section 261
of the Act would not apply to the appellant because the appellant was never
"a person who paid an amount" of tax to the Minister. This proposition
flies in the face of the plain wording of the provision which refers to an
amount that was paid on account of tax that was "remittable" by the
person and the Minister's own decision (re: assessment 833427) at page 2 -
paragraph 4 - that defined net tax as "all amounts collectible or
collected as tax or on account of tax by the person during the period". I
fail to see how the Minister could insist that section 232 of the Act is the
only manner by which an adjustment could be made. If there is no continuing
relationship between the parties how can adjustments be made by means of debit
or credit notes? It seems to me that a customer who is not a GST registrant
must be able to use the provisions of subsection 261(1) in order to recover
money paid as tax which - under the circumstances - was not actually
"payable" by that person and, further, in paying money - as GST -
that was not due, therefore, the amount was not then "remittable" by
the person collecting the tax."
[29] This statement seems to imply that a supplier who
collects tax in error from a purchaser and remits it to the government can
obtain a refund under section 261.
[30] In Battista v. The Queen, [2000] G.S.T.C., Rowe
D.J. allowed a dentist who had erroneously collected GST from an associate
dentist to claim a refund. Mr. Sherman’s editorial comment on this case is
also critical of the judgment.
[31] We have then two conflicting approaches: One says the
recipient of a supply from whom GST is collected in error by the supplier is
the person who “paid” the GST and is therefore the only person who can claim a
refund.
[32] The other says that if a supplier mistakenly collects GST
and pays it to the government, the supplier can claim a refund under
section 261. This view is, I think, based on the words in
subsection 261(1)
“where the amount was not payable or remittable by
the person...”
[33] The argument is that while the recipient of a service
must pay the GST the supplier has the obligation to remit the tax collected. I
agree that recipients of a supply do not remit, they pay, whereas suppliers
remit.
[34] Once a supplier collects an amount as GST, the supplier
has an obligation to remit it even though it was collected in error. Therefore,
it cannot be said that GST mistakenly collected from a recipient is not
remittable by the supplier.
[35] I do not think that it is necessary in this case to
decide whether there can never be circumstances in which a supplier could
successfully assert a claim for a refund of tax under section 261. It is
sufficient to say that in my view where a supplier collects an amount as GST
from a recipient of a supply in circumstances in which GST was not exigible and
remits it to the government (as it must: see ITA Travel Agency Ltd. v.
Canada, [2000] G.S.T.C. 5) it is the recipient, not the supplier who
is entitled to claim the refund under section 261. I do not intend these
reasons to be taken as saying that a supplier can never claim a refund under
section 261. At least two situations occur to me where a claim by a
supplier might be considered:
(a) where
a supplier does not collect GST from a recipient in respect of an exempt or
zero-rated supply and then, erroneously, remits from its own funds an amount as
GST to the government.
(b) where
a supplier collects, rightly or wrongly, GST from a recipient and then by
mistake remits to the government more than was collected.
[36] I need not answer the questions raised by these two
hypothetical situations but I do not think that for the supplier to be entitled
to claim a refund of the amount paid under example (a) or the excess over the
amount collected under example (b) does violence to either the scheme of the Act
or the wording of section 261.
[37] That is not however the situation that we have here.
[38] Although I am not particularly pleased with the result
that I am compelled to arrive at here, the law is in my view clear.
[39] The appeal is dismissed.
Signed
at Ottawa, Canada, this 28th day of April 2005.
“D.G.H. Bowman”
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