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Citation: 2004TCC66
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Date: 20040119
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Docket: 2002-4733(GST)I
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BETWEEN:
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CLAIRE RILEY,
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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
(Delivered orally from the bench on May 2,
2003,
in Vancouver, British Columbia.)
Archambault, J.
[1] Ms. Claire Riley is appealing an
assessment dated July 4, 2001 issued pursuant to
Part IX of the Excise Tax Act (Act) by the
Minister of National Revenue (Minister). This assessment
covers the period starting January 1, 1999 and ending
December 31, 2000 (relevant period).
[2] In issuing the assessment, the
Minister held Ms. Riley liable for the goods and services tax
(GST) which, it is alleged, she collected during the
relevant period but did not remit to the Minister. In fact, she
did not collect any such tax.
[3] Ms. Riley is a self-employed
performing artist who in 1998 earned gross income in excess of
$30,000. She achieved the $30,000 threshold sometime in the
middle of December of that year. Unfortunately for her, she was
only advised in 2001 of her obligation to register for GST
purposes and to collect GST. A registration number was assigned
to her by the Minister effective January 1, 1998.[1]
Analysis
[4] Although Ms. Riley indicated
she does not believe that she will be able to recoup from the
various production companies the GST which she did not collect
when they paid her fees, she is still liable under the Act for
that GST. This is pursuant to subsections 221(1) and 225(1)
of the Act, which read as follows:
221(1) [Collection of tax] Every person who makes
a taxable supply shall, as agent of Her Majesty in right of
Canada, collect the tax under Division II payable by the
recipient in respect of the supply.
225(1) [Net tax] 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, and
[. . .]
B is the total of
(a) all
amounts each of which is an input tax credit for the particular
reporting period or a preceding reporting period of the person
claimed by the person in the return under this Division filed by
the person for the particular reporting period, and
[. . .]
[5] It was argued that some of the
services provided by Ms. Riley were performed for the
benefit of a non-resident production company and that those
services might be zero-rated supplies. However, it was
revealed that her services to the non-resident production
company were supplied in Canada to an individual (the director
acting on behalf of the production company) in Canada. Therefore,
those services are excluded from the definition of zero-rated
supply as a result of the application of
paragraph 7(a) or (a.1) of Part V of
Schedule VI of the Act. Those paragraphs read as
follows:
7. A supply of
a service made to a non-resident person, but not including
a supply of
(a) a service
made to an individual who is in Canada at any time when the
individual has contact with the supplier in relation to the
supply;
(a.1) a service that is
rendered to an individual while that individual is in Canada;
. . .
[6] In coming to the above-stated
conclusion, I rely on the following technical notes were issued
by the Department of Finance in July 1997:
The portion of the preamble to existing section 7 of Part V of
Schedule VI that relates to the exclusion for supplies to
non-resident individuals is replaced with new paragraph 7(a).
This paragraph provides that a supply of a service to an
individual may not be zero-rated under section 7 if the
individual is in Canada at any time during which the individual
has contact with the supplier in relation to the supply. This
amendment does not alter the scope of the provision.
Existing paragraph 7(a), which excludes from zero-rating under
section 7 a service that is primarily for consumption, use or
enjoyment in Canada, is replaced with new paragraph 7(a.1).
Difficulties have arisen in the determination of where certain
services are primarily consumed, used or enjoyed. New paragraph
7(a.1) excludes from section 7 a supply of a service that is
"rendered" to an individual while that individual is in Canada.
Note that this applies whether or not the supply is "made" to an
individual (i.e., whether an individual is the legal recipient
within the meaning of subsection 123(1)). A supply may meet the
condition in new paragraph 7(a) in that the service is not
"supplied" to an individual who is in Canada. If, however, the
service is "rendered" to an individual while the individual is in
Canada, the supply would be excluded from zero-rating under
section 7 by paragraph 7(a.1).
For example, where a non-resident company pays a fee for an
employee to attend a management training session in Canada, the
training service, although supplied to a non-resident person
other than an individual, would not be zero-rated under section 7
because the service is rendered to the employee, an individual,
while the employee is in Canada. It should be noted that, since
section 7 is a general zero-rating provision for services, a more
specific provision (e.g., section 18 of this Part) may apply in
some cases.
[7] Given that Ms. Riley's
services were provided in the course of a commercial activity,
they constitute a "taxable supply" as defined in
subsection 123(1) of the Act.[2] Pursuant to subsection 240(1)[3] of the Act, Ms. Riley was not
required to be registered if she qualified as a small
supplier.
[8] A "small supplier" is
defined in subsection 148(1), which provides as follows:
148(1) [Small suppliers] For the purposes of this
Part, a person is a small supplier throughout a particular
calendar quarter and the first month immediately following the
particular calendar quarter if
(a) the total
of all amounts each of which is the value of the consideration
(other than consideration referred to in section 167.1 that is
attributable to goodwill of a business) that became due in the
four calendar quarters immediately preceding the particular
calendar quarters, or that was paid in those four calendar
quarters without having become due, to the person or an associate
of the person at the beginning of the particular calendar quarter
for taxable supplies (other than supplies of financial services
and supplies by way of sale of capital property of the person or
associate) made inside or outside Canada by the person or
associate
does not exceed the total of
(b) $30,000
or, where the person is a public service body, $50,000, and
. . .
[Emphasis added.]
[9] In light of the facts described
earlier in these reasons, Ms. Riley retained her small supplier
status until the end of January 1999, and it was improper to make
her registration retroactive to January 1, 1998.
[10] Pursuant to section 166 of the Act, Ms.
Riley's fees which became due during the time she was a small
supplier do not have to be included in calculating tax payable in
respect of such fees.[4]
[11] Given that the assessment covers the
period of January 1999 during which she was still considered a
small supplier, I would allow the appeal and refer the assessment
back to the Minister for reconsideration and reassessment on the
basis that Ms. Riley remained a small supplier until
January 31, 1999. In other words, the assessment can only
cover the period from February 1, 1999 to December 31,
2000.
Signed at Ottawa, Ontario, this 19th day of January 2004.
Archambault, J.
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