REASONS
FOR JUDGMENT
V.A. Miller J.
[1]
The issue in this appeal is whether the
Appellant is entitled to input tax credits (“ITCs”) in the amount of $13,582.84
for the period July 1 to September 30, 2007 (the “Period”).
[2]
The Appellant was represented by Roger
Abou-Rached (“Mr. Rached”). He and Douglas Bencze were the only witnesses at
the hearing.
[3]
Mr. Rached testified that he was the President,
CEO and only director of the Appellant. Mr. Bencze is Mr. Rached’s accountant.
Facts
History
[4]
The Appellant initially filed its Goods and
Services Tax (“GST”) return for the Period on April 26, 2010. It was
a nil return as it reported nil sales, nil GST collected, nil ITCs and nil Net
Tax.
[5]
On May 12, 2011, the Appellant filed its GST
return for the period January 1 to March 31, 2011. In this return, the
Appellant claimed ITCs of $14,712.64 in respect of supplies allegedly purchased
from January 1, 2005 to December 31, 2006. The claim was not allowed. The
Appellant later reduced its claim to $13,582.84.
[6]
In September 2011, the Appellant advised the
Minister of National Revenue (the “Minister”) that it would be refiling its
return for the Period to claim the ITCs of $13,582.84 rather than continue to
claim the ITCs in the 2011 period.
[7]
The Appellant then sent a GST return dated
October 4, 2011 to the Minister for the Period in which it claimed the ITCs at
issue. The Minister cancelled this return as a GST return had already been
filed and posted for the Period.
[8]
According to Mr. Rached, the Appellant had
refiled its return for the Period on the advice of Ms. Yoon, the auditor with
the Canada Revenue Agency (“CRA”) who had disallowed these ITCs in the 2011
period.
[9]
In August, 2013, the Appellant sent an amended
return for the Period and again it claimed the ITCs of $13,582.84. The Minister
reassessed the Appellant on February 10, 2014 to deny the ITCs.
[10]
The invoices which supported the ITCs in
question were for supplies and services provided directly to and paid by IHI
Development II Ltd. (“IHI Dev II”) in the period July 1, 2005 to December 31,
2006 in the course of its business.
[11]
The Appellant objected to the reassessment. Mr.
Rached testified that the appeals officer advised that if the supplier invoices
were reissued in the Appellant’s name, the ITCs would be allowed. The Appellant
contacted the suppliers and several of them acquiesced and reissued the
invoices in the Appellant’s name.
The Corporations
[12]
IHI Dev II is one of 27 corporations
incorporated by Mr. Rached and his family.
[13]
Mr. Rached testified that the Appellant owns 80%
of IHI Dev II. According to a chart (exhibit R-3) prepared by Mr. Rached on
June 3, 2014, the Appellant directly owns 40% of the shares of IHI Dev II. It
owns 100% of the shares in IHI Developments Ltd. (“IHI Dev”) which in turn owns
40% of the shares in IHI Dev II.
[14]
No share registers were produced at the hearing
to support any of the shareholdings stated by Mr. Rached or written in exhibit
R-3.
[15]
According to a Memo dated September 30, 2007
(exhibit A-1) to the Appellant from IHI Dev, IHI Dev II and International Hi
Tech Industries Inc. (“IHI”), IHI Dev II purported to assign unclaimed input
tax credits to the Appellant. The Memo reads:
Effective Date: September 30, 2007
To: RAR
Consultants Ltd. (RAR C)
From: IHI Development II Ltd. (IHI D II)
IHI Developments Ltd. (IHI D)
International Hi
Tech industries Inc. (IHI)
With Reference to the purchase share agreement of September 30,
2007, between RAR Consultants Ltd. and International Hi Tech Industries Inc.
with regards to the purchase of assets and liabilities of IHI D, (a fully owned
subsidiary company of IHI) including but not limited to any credit adjustment,
after conducting the proper accounting and auditing of IHI D II.
This is to
confirm that any input tax credits that is most probably outstanding (if
applicable) due to shareholder advances to IHI D II, to fund its operations and
expenses will be in its entirety credited to RAR C.
IHI D II will
undertake to properly account for all its expenses and filings as per above,
however, for whatever reason if IHI D II fails to fulfill its obligations, then
RAR C will have full access to all related records and will file the returns on
behalf of IHI D II and to RAR C’s credit as part of its “assets” that it
purchased as per the above agreement effective September 30, 2007.
[16]
I note that Mr. Rached signed the Memo on behalf
of all three corporations.
Law
[17]
The GST regime is designed so that the GST is
paid by the final consumer. To achieve that result, a buyer of goods and
services gets credit for the inputs which are used in the course of its
commercial activities. Subsection 169(1) of the ETA provides:
169. (1) 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:
A × B
where
A
is the tax in
respect of the supply, importation or bringing in, as the case may be, that
becomes payable by the person during the reporting period or that is paid by
the person during the period without having become payable; and
B
is
(a) where the tax
is deemed under subsection 202(4) to have been paid in respect of the property
on the last day of a taxation year of the person, the extent (expressed as a
percentage of the total use of the property in the course of commercial activities
and businesses of the person during that taxation year) to which the person
used the property in the course of commercial activities of the person during
that taxation year,
(b) where the
property or service is acquired, imported or brought into the province, as the
case may be, by the person for use in improving capital property of the person,
the extent (expressed as a percentage) to which the person was using the
capital property in the course of commercial activities of the person
immediately after the capital property or a portion thereof was last acquired
or imported by the person, and
(c) in any other
case, the extent (expressed as a percentage) to which the person acquired or
imported the property or service or brought it into the participating province,
as the case may be, for consumption, use or supply in the course of
commercial activities of the person (emphasis added).
[18]
The documentation which a registrant must
provide to claim an ITC is given in subsection 169(4) of the ETA. It
reads:
Required
documentation
(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.
[19]
The prescribed information is set out in the Input
Tax Credit Information (GST/HST) Regulations, (SOR/91-45) (the “Regulations”),
section 3 and the Regulations must be strictly adhered to: Key
Property Management Corp v R, 2004 TCC 210; Davis v R, 2004 TCC 662;
affirmed by Systematix Technology Consultants Inc v R, 2007 FCA 226.
[20]
The term “commercial activity” is defined in
subsection 123(1) of the ETA. It reads:
“commercial
activity” of a person means
(a) a business
carried on by the person (other than a business carried on without a reasonable
expectation of profit by an individual, a personal trust or a partnership, all
of the members of which are individuals), except to the extent to which the
business involves the making of exempt supplies by the person,
(b) an adventure
or concern of the person in the nature of trade (other than an adventure or
concern engaged in without a reasonable expectation of profit by an individual,
a personal trust or a partnership, all of the members of which are
individuals), except to the extent to which the adventure or concern involves
the making of exempt supplies by the person, and
(c) the making of
a supply (other than an exempt supply) by the person of real property of the
person, including anything done by the person in the course of or in connection
with the making of the supply;
Analysis
[21]
To be eligible to receive the ITCs in issue, the
Appellant had to demonstrate that it was contractually liable to pay for the
supplies or services and that the supplies or services were acquired for
consumption, use or supply in the course of its commercial activities: General
Motors of Canada Ltd v R, 2008 TCC 117; affirmed 2009 FCA 114 and YSI’s
Yacht Sales International Ltd v R, 2007 TCC 306). This, the Appellant
failed to do.
[22]
According to the Minister’s assumptions and the
evidence at the hearing, IHI Dev II purchased the supplies or services in the
course of its business. The vendors provided the supplies or services directly
to IHI Dev II. IHI Dev II received the supplies or services and paid the
consideration for them.
[23]
The Appellant was not the recipient of the
supplies or services and it was not entitled to receive the ITCs in issue.
Reissuing the invoices for these supplies and services 10 years after the
events does not change the recipient.
[24]
IHI Dev II cannot assign its rights to the ITCs
to the Appellant: Telus Communications (Edmonton) Inc v R, 2009 FCA 49.
[25]
I do not believe that Mr. Rached was told that
he would receive the ITCs if he had the invoices reissued in the Appellant’s
name. However, even if he had been so told, an estoppel cannot apply so as to
prevent the Minister from applying the proper principles under the Excise
Tax Act: Hawkes v R, [1997] 2 CTC 133 (FCA) at paragraph 12. See
also Bowman, A.C.J.T.C.’s decision in Moulton v R, [2002] 2 CTC 2395
where he stated at paragraph 11:
Estoppel in
pais, as it applies to the Crown, involves representations of fact made by
officials of the Crown and relied and acted on by the subject to his or her
detriment.
The doctrine has
no application where a particular interpretation of a statute has been communicated
to a subject by an official of the government, relied upon by that subject to
his or her detriment and then withdrawn or changed by the government. In such a
case a taxpayer sometimes seeks to invoke the doctrine of estoppel. It is
inappropriate to do so not because such representations give rise to an
estoppel that does not bind the Crown, but rather, because no estoppel can
arise where such representations are not in accordance with the law. Although
estoppel is now a principle of substantive law it had its origins in the law of
evidence and as such relates to representations of fact. It has no role to play
where questions of interpretation of the law are involved, because estoppels
cannot override the law.
[26]
IHI Dev II did not claim these ITCs because it
had a tax debt and it knew that the CRA would set-off the amount of the ITCs
against its tax debt.
[27]
This is the second time that Mr. Rached has had
one of his corporations attempt to claim ITCs which properly belonged to
another related corporation. In both appeals, the corporation entitled to claim
the ITCs was a tax debtor and Mr. Rached was attempting to avoid a set-off
of the corporation’s refund against its tax debt.
[28]
Counsel for the Respondent requested that I
award costs of $1,000 against the Appellant because Mr. Rached has wasted the
court’s time by raising the same issue in this appeal that he had raised in Garmeco
Canada International Consulting Engineers Ltd v The Queen, 2015 TCC 194.
However, subsection 9(2) of the Tax Court of Canada Rules of Procedure
respecting the Excise Tax Act (Informal Procedure) (the “Rules”)
allows for costs to be awarded to the Respondent “only
if the actions of the appellant have unduly delayed the prompt and effective
resolution of the appeal”. In the present appeal, there was no delay.
[29]
There was no application to find that Mr. Rached
was a vexatious litigant and I cannot order costs against him pursuant to
section 13.1 of the Rules.
[30]
The appeal is dismissed.
Signed at Ottawa, Canada, this 20th day of September 2016.
“V.A. Miller”
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