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Citation: 2003TCC683
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Date: 20030930
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Docket: 2001-2831(GST)G
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BETWEEN:
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AIRPORT AUTO LIMITED,
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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
Campbell, J.
[1] On April 27, 2000, a Notice of
Assessment was issued pursuant to Part IX of the Excise
Tax Act (the "Act") for the period January
1, 1997 to October 31, 1998. This Notice assessed the Appellant
for failure to remit GST/HST on certain vehicle transactions and
made adjustments to claimed input tax credits. Penalties were
also charged.
[2] At the outset of the hearing,
counsel for each party filed a Partial Statement of Agreed Facts
together with a Partial Consent to Judgment. As a result, no
evidence was heard. Counsel presented submissions only.
[3] The Appellant, a corporation,
incorporated under the laws of the Province of New Brunswick,
operates a used vehicle business in Moncton. It has been in the
used car business for almost twenty-five years. I am reproducing
the Partial Statement of Agreed Facts as it contains the
essential background information:
PARTIAL STATEMENT OF AGREED FACTS
The Appellant and the Respondent, by their solicitors, agree
to the following facts provided that: 1) such admissions
are made for the purpose of these proceedings only; and 2) the
parties are permitted to adduce additional evidence which is not
contrary to these agreed facts.
1. The
Appellant was a GST registrant with GST Registration No.
100094713RT0001.
2. The
Appellant was a corporation involved in the sale of motor
vehicles.
3. The
Appellant was required by the Excise Tax Act,
R.S.C. 1985, c. E-15, as amended (the
"Act") to file its GST returns on a quarterly
basis.
4. At all
relevant times the Appellant's chief operating officer and
guiding mind was David Taylor.
5. During the
period under appeal the Appellant purchased motor vehicles from
Eagle Auto Sales Ltd. and Belair Auto Ltd. as indicated in
Schedule A, attached hereto.
6. The amounts
indicated in Schedule A as "GST/HST paid" were shown as
such on the purchase invoices and claimed by the Appellant as
input tax credits in its returns filed for the period under
appeal. The amounts shown as paid were, in fact, paid by the
Appellant to Eagle Auto Sales Ltd. and Belair Auto Ltd.
7. Neither
Eagle Auto Sales Ltd. nor Belair Auto Ltd. filed GST/HST returns
in the period under appeal nor did they remit any monies on
account of GST/HST.
8. The
Minister has taken collection action against Eagle Auto Sales
Ltd. and has filed a judgment in the Federal Court pursuant to
that action. No collection action has been taken against Belair
Auto Ltd.
9. In respect
of the transactions listed in Schedule A the Appellant maintained
all of the necessary records as required by the Excise Tax
Act, R.S.C. 1985, c. E-15, as amended and the Minister's
administrative policies and has complied with those
requirements.
[4] The Appellant purchased vehicles
from Eagle Auto Sales ("Eagle") and Belair Auto
(Belair). The invoices included amounts for GST/HST. The
Appellant paid all amounts required for GST/HST, on every vehicle
purchased from Eagle and Belair. These amounts were remitted to
Eagle and Belair in each and every case. There is no issue
concerning this fact and there is no suggestion of fraud or
collusion in this case. The problem arose when Belair and Eagle
did not remit the tax on these transactions that was due to the
Minister under the Act. There is no question that these
transactions were legitimate supplies and that the Appellant, as
the recipient of the supplies, has paid the required tax charged
by the suppliers, Belair and Eagle. The Minister is now
attempting to collect the tax from the Appellant which would
amount to a second payment of this tax by the Appellant.
[5] The issue is simply whether the
Minister can collect the tax from a taxpayer, who has already
paid the tax to the supplier, on a legitimate supply but the
supplier has failed to remit the tax. In other words, is the
Appellant liable to pay the taxes a second time where the
vendor/supplier (Belair and Eagle) has not remitted the tax which
the Appellant paid to them on each vehicle purchase?
[6] Subsection 165(1) of the
Act is the basic charging section under Division II,
which imposes a tax on every recipient of a taxable supply as
follows:
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.
[7] Pursuant to sections 225 and 228
of the Act, the suppliers of the taxable supply (Belair
and Eagle) must file returns and remit the appropriate net tax.
In this case, although the Appellant paid the required tax on
each vehicle purchase, the suppliers did not remit the tax which
was paid by the Appellant.
[8] Debts owed to the Minister are
recoverable under section 313 of the Act. However
subsection 315(1) states that the Minister may not take
collection action in respect to an amount payable or remittable,
unless the amount has been assessed by the Minister. Therefore
the Act contemplates collection proceedings in respect to
assessments for amounts payable and amounts remittable. The
Appellant has argued that when the Appellant paid tax on the
vehicles, it fulfilled its statutory duty. The failure here is
the failure of Eagle and Belair to remit the tax.
[9] Section 296 provides for
assessments by the Minister. Paragraph 296(1)(a) permits the
Minister to assess net tax under Division V. Paragraph 296(1)(b)
permits the Minister to assess any tax payable under Division II
(as well as IV or IV.1), which includes subsection 165(1) of the
Act. Paragraphs 296(1)(a) and (b) read as follows:
The Minister may assess
(a) the net tax of a
person under Division V for a reporting period of the person,
(b) any tax payable
by a person under Division II, IV or IV.1,
[10] It is this paragraph, 296(1)(b), which
the Minister used to assess the Appellant for this tax liability.
The Respondent's position is that this paragraph allows the
Minister to assess the Appellant, even in the circumstances of
this case, where the tax has been paid to the vendor/supplier in
each transaction. There is certainly no allegation of fraud or
collusion here but the Respondent argues that a taxpayer's
motivation or state of mind is not a prerequisite for a taxpayer
to be liable pursuant to paragraph 296(1)(b).
[11] Respondent submitted that
subsection 334(2) is specific and unambiguous when it
states:
A person who is required under this Part to pay or remit an
amount shall not be considered as having paid or remitted the
amount until it is received by the Receiver General.
The Respondent has used this subsection to argue that a
taxpayer's liability for the tax remains outstanding until
the Receiver General actually receives the tax payable, on
account of the registrants' tax liability. Respondent argued
that this is a taxing statute and one must look at the entire
scheme of the Act, which includes credits to taxpayers who
claim input tax credits. Subsection 225(1) of the Act
provides a formula where a registrant's net tax is calculated
as all tax collected, and required to be collected, less all
eligible input tax credits. Section 228 requires a registrant to
calculate its net tax for each reporting period and to remit any
amount calculated to be owing. Alternatively, a registrant can
claim any tax refund from the Minister if the calculation for net
tax results in a negative amount. The Respondent argues that,
although subsection 221(1) requires a vendor/supplier to collect
tax as agent of the Crown, it is the wording of subsection 334(2)
that clearly states that the purchaser/recipient will be viewed
as having not paid the tax, if the tax is not received by the
Receiver General. Respondent then uses paragraph 296(1)(b)
to argue that a purchaser/recipient of a supply may be assessed
for the tax, although the tax has been paid by that
purchaser/recipient, in circumstances where the Receiver General
has not received the tax due from the vendor/supplier.
[12] I agree with the Appellant's
interpretation of these provisions. Paragraph 296(1)(b)
refers to the Minister assessing any "tax payable"
under Division II of the Act. This would include
subsection 165(1). For paragraph 296(1)(b) to apply, there must
be tax payable under Division II. In this case, when the
Appellant paid the required tax to Eagle and Belair pursuant to
the invoices on each vehicle purchase, then there was no longer
tax payable. Where subsection 165(1) is the charging section,
paragraph 296(1)(b) is the assessing section. Since the Appellant
is the recipient of the supply and has paid all taxes due, there
can be no tax payable. Paragraph 296(1)(b) cannot apply in these
circumstances since the Appellant owes no tax.
[13] The Appellant relied on the comments of
Judge Hamlyn in the case of Carlson & Associates
Advertising Ltd. v. Canada, [1997] T.C.J. No. 966 at
paragraph 34:
Once the tax is paid, tax is no longer payable and this
fact would be a complete defense to any other procedure for
collection brought against the Appellant or any other person.
(Emphasis added)
[14] In the Carlson case, the
taxpayer had not paid the tax. The Appellant/taxpayer in the
present case however has paid the required tax. Where the tax is
paid, I agree with Judge Hamlyn's remarks that the tax is
then no longer payable and payment results in a complete defense
to any collection proceedings instituted against such a taxpayer.
This decision was upheld by the Federal Court of Appeal [1998]
F.C.J. No. 423. At paragraph 33 of Judge Hamlyn's
decision he states:
...The possibility of 'double taxation' is reduced
since the Minister is only empowered to seek payment for the
amount of unpaid GST, whether from the supplier or the recipient
of a taxable supply, while tax is payable.
Certainly, the case of a taxpayer/purchaser being required to
pay unpaid GST/HST on a taxable supply cannot be equated to the
case of a taxpayer/purchaser being required to pay once again tax
which the supplier failed to remit. In the first instance, the
tax was never paid by the taxpayer to the vendor of the supply.
The taxpayer is not paying twice where the required payment is
the amount that should have been paid to the vendor in the first
place but never was. In the second instance, the
taxpayer/purchaser has paid the required tax when the supply was
purchased from the vendor/supplier but was never remitted by that
vendor.
[15] The second leg of the Appellant's
argument requires a determination as to whether the
Appellant/purchaser fulfilled the liability to pay tax upon
paying the vendors, (Eagle and Belair) as agents for the
Crown.
[16] Subsection 221(1) creates an agency
relationship where the vendor/supplier becomes an agent for the
Receiver General when collecting the tax on taxable supplies.
This subsection states:
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.
[17] While subsection 165(1) imposes a tax
payable by purchasers of taxable supplies, subsection 221(1)
clearly establishes vendors/suppliers as agents in the collection
of tax. The Appellant argues that where a taxpayer pays the tax
imposed on a supply to the vendor who becomes the Crown's
agent, pursuant to this provision, then the debt is extinguished.
The Respondent submits that although subsection 221(1) creates an
agency relationship, it is not a "regular agency
relationship".
[18] Despite Peter Leslie's able
argument on behalf of the Crown, I cannot agree with his
analysis. I do not see anything in the wording of subsection
221(1) that creates an agency relationship other than a typical
one as would be contemplated under Agency law. The wording of the
section is clear. It makes the Crown a beneficiary for the monies
collected by the vendor of a supply. Applying simple agency law
here, once the taxpayer has paid the tax to the vendor, who is
established as an agent of the Crown pursuant to
subsection 221(1), the purchaser has in effect paid the tax.
The result is that the vendor does in fact hold these monies,
once paid by a purchaser, as an agent of the Crown and the Crown
becomes a beneficiary in respect to these monies.
[19] While subsection 165(1) imposes a
statutory duty to pay the tax, there is a statutory duty of an
agent to remit monies collected, to the Receiver General.
Amounts, paid to the vendor as the tax on a supply, become trust
monies, which give the Crown all remedies of a trust
relationship, including tracing of funds. Once monies collected
become trust monies, the Crown has an automatic interest in these
funds as the designated beneficiary. Subsection 221(1) refers to
a vendor collecting the "tax payable", but in this case
the tax was paid. Once a taxpayer acquires a supply and pays the
tax on the supply to the vendor, the taxpayer's
responsibility to pay this tax is extinguished. I cannot
interpret the Act in any other way. The logical conclusion
is simply that, absent fraud or collusion, once the purchaser
pays the tax to a vendor, as agent of the Crown, the purchaser is
no longer liable for the tax. Any other outcome would be
ludicrous.
[20] The Appellant relied on Government
Policy Statement P-112R to support its position. It states:
...The CCRA will not generally intervene to assess the tax
payable by the purchaser under section 165. However, in
circumstances of potential revenue loss, the Minister may
exercise its authority under paragraph 296(1)(b) of the ETA
and assess a purchaser who is insolvent or bankrupt in respect of
the GST/HST not paid to a supplier.
It is unnecessary to make any further comment in respect to
this statement in light of my interpretation of the relevant
provisions, except to state that it does lend some support to my
interpretation of the sections as it implies that Government will
not proceed against a purchaser unless the tax has not been paid
to the vendor.
[21] In the Government Policy Statement
P-012R, Liability for Net Tax on Transfer of Business Assets,
April 9, 1992, revised January 4, 1999, it states:
...Generally, the recipient of a supply is liable under
section 165, Division II, to pay tax in respect of the supply,
and the supplier is liable under section 221 to collect this
amount from the recipient. Normally, neither person is
responsible for the other's tax liability.
This policy statement goes on to explore the circumstances
when both parties become jointly liable. It must also be noted
that this policy statement is in respect to transfers of business
assets. However it does say that 'normally' neither
person is responsible for the other's tax liability.
[22] In summary, in response to the main
query in this case, that is, is it the Appellant taxpayer or the
Crown that bears the tax burden where a vendor has not remitted
the tax which it has received, I have concluded that it is the
Crown and not the Appellant. The Statutory scheme establishes
that vendors who collect tax on a supply do so as agents of the
Crown. The failure here is a failure to remit the tax collected
from the Appellant. To permit the Crown to collect the tax for a
second time from such a taxpayer, where there has been no fraud
or collusion, would require very explicit statutory language.
That is not present in any of the relevant provisions. While
subsection 334(2) provides that the purchaser of a supply is
considered to have not paid the tax, if it is not received by the
Receiver General, I do not believe this was intended to be a
basis to secure payment of a tax the second time from a
taxpayer/purchaser who has already paid. If I were to place such
an interpretation upon subsection 334(2), I can only envision a
host of ridiculous complications where the burden is placed on
purchasers to expend time, money and energy to ensure tax they
remit to a vendor on the acquisition of a supply reaches the
Receiver General in each case. I do not believe that it was the
intent of this legislation to place every such purchaser in such
precarious circumstances. In effect every purchaser would be
required to verify whether a vendor has remitted the collected
tax. This would be so, on the purchase of a twenty-dollar item,
as it would be on a twenty thousand dollar item. Simply put,
common sense dictates that subsection 334(2) cannot be
interpreted so literally that it would impose impossible
requirements on every purchaser who acquires a taxable supply. It
can never have been the intent to use subsection 334(2) in such a
way that the Crown could then assess a purchaser for the tax
under section 296 in circumstances, where the vendor has
collected tax on the supplies in the first instance, but has not
remitted the money to the Minister.
[23] The appeal is allowed, with costs, on
the basis that paragraph 296(1)(b) of the Act, in the
absence of fraud or collusion, cannot be interpreted to allow the
Minister to collect tax from the Appellant, when the Appellant
has already paid the tax to the vendor/supplier.
[24] Prior to hearing submissions, Appellant
presented a Notice of Motion to amend the Notice of Appeal.
Several amendments were requested with Respondent objecting to
only one - the right of the Appellant to include argument based
on the Canadian Bill of Rights, S.C. 1960, c. 44 s. 1(a).
I allowed the Appellant's motion to amend the Notice of
Appeal, subject to time allocations to both Respondent and
Appellant, to provide written submissions on the amendment
respecting the Canadian Bill of Rights. Of course these
submissions were required only if I had decided this appeal in
the Respondent's favor. Since I have allowed the appeal,
further submissions on the Charter and Canadian Bill of
Rights argument are no longer required.
Signed at Ottawa, Canada, this 30th day of September 2003.
Campbell, J.
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