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Citation: 2004TCC36
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Date: 20040610
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Docket: 2003-1595(GST)I
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BETWEEN:
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R171 ENTERPRISES LTD.,
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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 was engaged in the
business of fabricating steel structural truck parts. The truck
parts were sold to Western Star Trucks Inc., a manufacturer of
large trucks.
[2] On January 1, 1994 the Appellant
and a number of other parties entered into a Joint Venture
Agreement (Exhibit A-1). The Joint Venture Agreement provided
that the named parties would operate as a joint venture under the
name of Torner West Steel Fabricators ("Torner Joint
Venture").
[3] Because of a dispute between the
parties to the Joint Venture, Torner Joint Venture ceased
operations on July 31, 1997. A lawsuit was commenced by some of
the Joint Venture parties.
[4] A Settlement Agreement was
concluded by the Joint Venture parties on June 18, 1998
(effective on June 20, 1997 (the "Settlement
Agreement") (Exhibit A-2)).
[5] The Settlement Agreement provided
that the amount of $2,850,000.00 would be paid to the Plaintiffs
(R203 Enterprises Ltd. ("R203") Mr. Schmitz, Ms. Torner
and Torner Enterprises Ltd.).
[6] Paragraph 5 of the Settlement
Agreement specifically stated that the amount of $2,850,000.00 to
be paid to the Plaintiffs was "... exclusive of any G.S.T.
...".
[7] The Settlement Agreement provided
that the Plaintiffs would transfer a 1/3 undivided interest
in the assets of the Torner Joint Venture to the various parties
(the "Purchasers").
[8] The Purchasers determined that a
proper allocation of the 1/3 undivided interest in the Torner
Joint Venture which had belonged to R203 would be $400,000.00 of
the total purchase price being paid for the assets.
[9] The Purchasers signed an agreement
which provided that the Appellant would acquire 50% of the
undivided interest that R203 had owned in the Torner Joint
Venture and that R204 Enterprises Ltd. ("R204") would
acquire the other 50% interest that R203 had owned in the Torner
Joint Venture.
[10] A new Joint Venture consisting of the
Appellant and R204 acquired the assets sold by R203. The new
Joint Venture operates a steel fabrication business under the
name of Crown West Steel Fabricators Joint Venture (the "New
Joint Venture"). The Appellant acts as the agent of the New
Joint Venture.
[11] Subsequent to the filing of the GST
Return the parties to the Settlement Agreement reduced the amount
owing to the Plaintiffs by paying a lump sum amount of
$1,070,000.00 (see Exhibit A-5). The Appellant maintains
that the settlement payment included all amounts owing including
the GST.
[12] In filing the GST Return the Appellant
claimed Input Tax Credits ("ITCs") in the amount of
$58,975.00.
[13] The Minister of National Revenue (the
"Minister") agreed that the Appellant and R204 were
entitled to claim ITCs in the amount of $18,780.00 in respect of
the acquisition. A Notice of Assessment was issued which provided
the Appellant and R204 with ITCs in the amount of $18,780.00.
B. ISSUES:
[14] The issues to be decided are:
1. Whether the Minister
has properly assessed the Appellant for net tax, interest and
penalties.
2. Whether the Appellant
is entitled to claim additional ITC amounts with respect to the
acquisition of various assets, including goodwill.
C. ANALYSIS:
[15] Counsel for the Appellant argued that
the Minister had reassessed the wrong taxpayer.
[16] Counsel for the Respondent stated that
there is only evidence of one registrant in this situation and
that registrant is the Appellant. Counsel for the Respondent
advised that the numbers RT0001 and RT0002 used on the
assessments were merely used as an "accounting
facilitation". Counsel for the Respondent said:
It's not a different registrant. There is but one
registrant here and that is R171. (Transcript, p. 7, l. 8-10)
[17] I accept the argument of counsel for
the Respondent on this issue and I find that there is no valid
basis to the argument that the Minister reassessed the wrong
taxpayer.
[18] Counsel for the Appellant argued that
the Appellant is entitled to additional ITCs and the Respondent
maintains that the Appellant is not entitled to additional
ITCs.
[19] Subsection 169(1) of the Excise Tax
Act (the "Act") reads as follows:
169. (1) General rule for [input tax] credits - Subject
to this Part, where a person acquires or imports property or a
service or brings it into a participating province and, during a
reporting period of the person during which the person is a
registrant, tax in respect of the supply, importation or bringing
in becomes payable by the person or is paid by the person without
having become payable, the amount determined by the following
formula is an input tax credit of the person in respect of the
property or service for the period: ...
[20] I have also considered subsection
169(4) of the Act:
(4) A registrant may not claim an input tax credit for a
reporting period unless, before filing the return in which the
credit is claimed,
(a) the registrant has obtained sufficient
evidence in such form containing such information as will enable
the amount of the input tax credit to be determined, including
any such information as may be prescribed; and
(b) where the credit is in respect of property or
a service supplied to the registrant in circumstances in which
the registrant is required to report the tax payable in respect
of the supply in a return filed with the Minister under this
Part, the registrant has so reported the tax in a return filed
under this Part.
[21] In Johnston v. The Minister of
National Revenue, 3 DTC 1182 the Supreme Court of Canada held
that the onus was on the taxpayer to show that the assessment was
incorrect.
[22] Counsel for the Respondent maintains
that when the Appellant purchased the assets there was no proof
that any amount was paid for GST.
[23] I have carefully considered the
evidence of the witnesses and I have analysed the various
documents submitted by counsel for the Appellant and counsel for
the Respondent. I have concluded that there is no acceptable
proof before the Court that the Appellant paid any GST with
respect to the assets that were purchased.
[24] In my opinion the Appellant has not
satisfied the onus to establish that the assessment was
incorrect.
[25] The appeal is dismissed without
costs.
Signed at Vancouver, British Columbia, this 10th day of June
2004.
Little J.
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