Citation: 2013 TCC 217
Date: 20130704
Docket: 2012-3372(GST)I
BETWEEN:
A OK PAYDAY LOANS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
C. Miller J.
[1]
This is an unusual case
in that the Appellant, A OK Payday Loans Inc., is attempting to obtain a Goods
and Services Tax ("GST") refund of approximately $90,200, remitted to
the Government in error, having already lost an appeal to the Tax Court of
Canada from an assessment denying a rebate application pursuant to subsection
261(1) of the Excise Tax Act (the "Act"). That decision
of Justice Paris concluded that the Appellant was simply beyond the two year
time restriction in subsection 261(3) of the Act for applying for the
rebate. Justice Paris acknowledged, however, that subsection 296(2.1) of the Act
was not available as the rebate assessment pursuant to subsection 261(1) of the
Act was not an assessment of net tax for a reporting period which would
have brought subsection 296(2.1) of the Act into play. The
Appellant, therefore, has tried again by claiming the $90,200 as Input Tax
Credits ("ITCs") for the November 2010 reporting period, thus
triggering an assessment. Indeed, the Minister of National Revenue (the
"Minister") did reassess denying the ITCs, giving both sides the
opportunity to then address the applicability of subsections 296(2.1), (3.1)
and (4.1) of the Act.
[2]
The facts are not in
dispute and were well summarized by Justice Paris, but a very brief review is
in order. Ms. Rosene, the owner of the Appellant, testified that the Appellant
was in the financial service business. She discussed the matter with her
accountant, neither of whom appreciated that financial services provided by the
Appellant were an exempt supply. So, although not collecting GST from
customers, Ms. Rosene had the Appellant remit $90,200 of GST to the Government
for the period December 1998 to March 2005 and approximately another $18,000
from then until some time in 2007. It was not until 2007 that she discovered
from a competitor that the Appellant was not required to remit GST.
[3]
After talking on
several occasions with Canada Revenue officials, in 2007 Ms. Rosene
applied, on behalf of the Appellant pursuant to section 261 of the Act,
for a rebate of approximately $18,000 paid in error for the 2005 to 2007 period,
which she successfully obtained. She was advised by Canada Revenue Agency
("CRA") that they could not process an application for the earlier
period (December 1998 – March 2005), but such an application would have to be
sent to the CRA’s Summerside office.
[4]
Upon receipt of the
$18,000 refund, in early 2008 Ms. Rosene proceeded to apply, again pursuant to
section 261 of the Act, for a rebate of the balance of $90,200 relating
to the earlier period, which application was rejected by the Minister. As I
have already pointed out, she was also unsuccessful at the Tax Court of Canada
on this application pursuant to subsection 261(1) of the Act, as the
application was beyond the two year time limitation. However, based on her
reading of the Supreme Court of Canada decision in the case of United Parcel
Service Canada Ltd. v Canada,
she felt there was an avenue to extend the two year restriction, and
consequently filed a GST return for the November 2010 period, claiming the
$90,200 as ITCs. This resulted in a June 2011 assessment denying the ITCs, from
which the Appellant now appeals.
[5]
Ms. Rosene was a straightforward
and honest, yet somewhat frustrated witness. She is clearly flabbergasted that
the Government has not returned $90,200 that does not belong to it, both on a
principled and fairness basis and based on the following encouraging words from
the Supreme Court of Canada in United Parcel Service Canada Ltd.:
30. As I read s.296(2.1), even if no application for a rebate
was made within the applicable limitation period, the rebate shall be applied
by the Minister against the net tax owed by the taxpayer in the reassessment
process if the Minister determines that a rebate would have been payable had it
been claimed. The section refers to "allowable rebate". Allowable
rebate must mean a rebate that would have been allowable had the applicable
procedure been followed. In other words, where these procedures have not been
followed, it is not fatal to the rebate claim.
[6]
There are two issues:
a) Was the Minister correct in
disallowing ITCs of $90,200?
b) Do subsections
296(2.1) and (3.1) of the Act provide any relief for the Appellant in
obtaining a refund of the $90,200 paid in error?
ITCs
[7]
The Appellant was in
the financial service business, thus engaged in the provision of an exempt
supply under the Act. Pursuant to section 169 of the Act, an ITC
is available in respect of a supply used in the course of commercial activity.
Commercial activity is defined to exclude the making of exempt supplies. ITCs
are simply not available to the Appellant and the Minister was correct in
denying them. Ms. Rosene’s argument on this issue was unfortunately premised on
a misunderstanding of section 169 of the Act, which she acknowledged at
trial.
Subsection 296(2.1) of the Act
[8]
The trickier issue,
however, is whether subsection 296(2.1) of the Act throws the Appellant
a lifeline to get a refund. It is worth reproducing some provisions of section
296 of the Act:
(2.1) Where,
in assessing the net tax of a person for a reporting period of the person or an
amount (in this subsection referred to as the “overdue amount”) that became
payable by a person under this Part, the Minister determines that
(a) an amount (in this
subsection referred to as the “allowable rebate”) would have been payable to
the person as a rebate if it had been claimed in an application under this Part
filed on the particular day that is
(i) if
the assessment is in respect of net tax for the reporting period, the day on or
before which the return under Division V for the period was required to be filed,
or
(ii)
if the
assessment is in respect of an overdue amount, the day on which the overdue
amount became payable by the person,
and, where the rebate is in
respect of an amount that is being assessed, if the person had paid or remitted
that amount,
(b) the allowable
rebate was not claimed by the person in an application filed before the day
notice of the assessment is sent to the person, and
(c) the allowable
rebate would be payable to the person if it were claimed in an application
under this Part filed on the day notice of the assessment is sent to the person
or would be disallowed if it were claimed in that application only because the
period for claiming the allowable rebate expired before that day,
the
Minister shall apply all or part of the allowable rebate against that net tax
or overdue amount as if the person had, on the particular day, paid or remitted
the amount so applied on account of that net tax or overdue amount
…
(3.1) If, in
assessing the net tax of a person for a particular reporting period of the
person or an amount (in this subsection referred to as the “overdue amount”)
that became payable by a person under this Part, all or part of an allowable
rebate referred to in subsection (2.1) is not applied under that subsection
against that net tax or overdue amount, except where the assessment is made in
the circumstances described in paragraph 298(4)(a) or (b) after
the time otherwise limited for the assessment by paragraph 298(1)(a),
the Minister shall
(a) apply
(i) all
or part of the allowable rebate that was not applied under subsection (2.1)
against
(ii) any
other amount (in this paragraph referred to as the “outstanding amount”) that,
on or before the particular day that is
(A) if the
assessment is in respect of net tax for the particular reporting period, the
day on or before which the return under Division V for the particular period
was required to be filed, or
(B) if the
assessment is in respect of an overdue amount, the day on which the overdue
amount became payable by the person,
the person defaulted in paying or
remitting under this Part and that remains unpaid or unremitted on the day
notice of the assessment is sent to the person,
as if the person had, on the particular
day, paid or remitted the amount so applied on account of the outstanding
amount;
(b) apply
(i) all
or part of the allowable rebate that was not applied under subsection (2.1) or
paragraph (a) together with interest at the prescribed rate on all or
that part of the allowable rebate, computed for the period beginning on the day
that is 30 days after the later of
(A) the
particular day, and
(B) where
the assessment is in respect of net tax for the particular reporting period,
the day on which the return for the particular reporting period was filed,
and ending on the day on which the
person defaulted in paying or remitting the outstanding amount referred to in
subparagraph (ii)
against
(ii) any
amount (in this paragraph referred to as the “outstanding amount”) that, on a
day (in this paragraph referred to as the “later day”) after the particular
day, the person defaulted in paying or remitting under this Part and that
remains unpaid or unremitted on the day notice of the assessment is sent to the
person,
as if the person had, on the later day,
paid the amount and interest so applied on account of the outstanding amount;
and
(c) refund
to the person that part of the allowable rebate that was not applied under any
of subsection (2.1) and paragraphs (a) and (b) together with
interest at the prescribed rate on that part of the allowable rebate, computed
for the period beginning on the day that is 30 days after the later of
(i) the
particular day, and
(ii) where
the assessment is in respect of net tax for the particular reporting period,
the day on which the return for the particular period was filed,
and ending on the day the refund is paid
to the person.
…
(4.1) An
allowable rebate referred to in subsection (2.1) or a part thereof that was not
applied under that subsection and interest thereon under paragraphs (3.1)(b)
and (c)
(a) shall
not be applied under paragraph (3.1)(b) against an amount (in this
paragraph referred to as the “outstanding amount”) that is payable or
remittable by a person unless the allowable rebate would have been payable to
the person as a rebate if the person had claimed it in an application under
this Part filed on the day the person defaulted in paying or remitting the
outstanding amount and, in the case of a rebate under section 261, if
subsection 261(3) allowed the person to claim the rebate within four years
after the person paid or remitted the amount in respect of which the rebate
would be so payable; and
(b) shall
not be refunded under paragraph (3.1)(c) unless the allowable rebate
would have been payable to the person as a rebate if the person had claimed it
in an application under this Part filed on the day notice of the assessment is
sent to the person, and, where the rebate is in respect of an amount that is
being assessed, if the person had paid or remitted that amount.
[9]
I read subsection
296(2.1) of the Act as the gatekeeper to enter these relieving
provisions that, under subsection 2.1 or paragraphs 3.1 (a) or (b)
allow for an offset against tax or under paragraph 3.1(c) allow for an
actual refund. It is the latter that the Appellant seeks.
[10]
To be clear, subsection
296(2.1) of the Act allows an offset against net tax for the reporting
period. There was no net tax owed by the Appellant for the November 2010
reporting period. Paragraphs 296(3.1)(a) and (b) of the Act
then allow for an offset against any other outstanding amount, again of which
there was none owed by the Appellant. Finally, paragraph 296(3.1)(c) of
the Act allows for a refund of any balance not previously offset.
[11]
One of the conditions
required to obtain relief is found in paragraph 296(2.1)(b) of the Act:
the taxpayer cannot have made a claim for rebate in an application filed before
the day the notice of assessment is sent. In this case, an application for a
rebate was made in February 2008, long before the June 2011 assessment. While
this seems at first glance odd that a taxpayer can seek relief never having
filed for a claim, while the taxpayer who attempts to do the right thing and
file a claim cannot, the words are clear. As I indicated in the decision of Humber
College Institute of Technology & Advanced Learning v Canada:
35. I do not have the same section of
the Act, nor the same circumstances before me. I do not know how I can
interpret a requirement that "the allowable rebate was not claimed by the
person in an application filed before the day notice of the assessment is sent
to the person", in any manner other than how the text reads. While the
purpose of this provision assists me in resolving some ambiguity with respect
to the imposition of interest pursuant to section 280 of the Act, it is
insufficient to overcome the clear meaning of the requirement itself. Did Humber file an application before the assessment? Yes, it did: subsection 296(2.1) of the Act
is simply not available to it. If this is not the result intended, and I have
concluded it likely is not, then it is not for the Court to simply ignore the
requirement. If the clear reading of the provision does not serve the purpose
intended, it is for the legislators to amend the wording.
[12]
It is not necessary to
address any "absurdity" argument as I did in the Humber case,
as the circumstances are different and, indeed, I find the Appellant could
still not benefit from these relieving provisions, even if I ignored the
requirement under paragraph 296(2.1)(b) of the Act (which was the
provision subject to an absurdity argument in Humber). The reason is the
application of subsection 296(4.1) of the Act. That provision sets out
limits on the ability to use these relieving provisions both to offset net tax
or to obtain a refund. To offset tax, paragraph 296(4.1)(a) of the Act
extends the section 261 of the Act two year limit to four years. To
obtain a refund under paragraph 296(3.1)(c), paragraph 296(4.1)(b)
requires that the time of the assessment is still within the two year time
period for making a successful section 261 rebate application. In effect there
remains the same two year limitation. This is fatal to the Appellant’s
position. The Appellant remains beyond the two year restriction.
[13]
Is there anything in
the United Parcel Service Canada Ltd. decision that might save the
Appellant? The United Parcel Service Canada Ltd. decision dealt more
with the issue of who was entitled to a rebate under subsection 261(1) of the Act,
though did also address the applicability of subsection 296(2.1) of the Act.
The Supreme Court of Canada comments, however, were in the context of an offset
against tax, as the United Parcel Service Canada Ltd. claimed a
deduction of the amounts paid in error against its own tax liability. The
Supreme Court of Canada (see the earlier quote) appears to have placed no time
limit on seeking such a claim. Subsection 296(2.1) of the Act simply
allows such an offset, according to the Supreme Court of Canada, at any time.
Similarly, there appears to be no time constraint for a claim under paragraph
296(3.1)(a) of the Act. However, paragraph 296(4.1)(a)
of the Act does impose time limits for an offset pursuant to paragraph
296(3.1)(b) of the Act – four years, and paragraph 296(4.1)(b)
of the Act limits the availability of a refund to the same time
constraint as set out in subsection 261(3) of the Act – two years. The United
Parcel Service Canada Ltd. case simply does not help the Appellant.
[14]
This is an extremely
harsh result. The taxpayer undoubtedly believes the Government, who demands
that the taxpayer act as their collection agent to collect GST, has abandoned
their agent and improperly kept monies not theirs. The legislation imposes time
restrictions, and I am unable to read these complex provisions in a way that
affords the Appellant any way around those time constraints. Unlike the United
Parcel Service Canada Ltd. case, the Appellant seeks a refund, and is
therefore subject to paragraph 296(4.1)(b) of the Act.
[15]
I wish to comment on
what may yet be open to the Appellant. It was clear at trial that Ms. Rosene
feels she did not receive proper professional advice. She may wish to seek
legal advice as to whether the circumstances justify any action in that regard.
[16]
Also, I would encourage
Ms. Rosene to consider a remission request on behalf of the Appellant pursuant
to the Financial Administration Act. I seldom make such a suggestion as
time limitations are what they are. However, notwithstanding I place no duty or
obligation on the Minister to point out to every taxpayer when or if the
taxpayer has made or is making a mistake, I would have hoped that someone at
CRA would have clued in that accepting $108,000 over a nine year period from an
entity with the name "A Ok Payday Loans", as GST purportedly
collected and remitted from customers of an exempt supply of financial services, was incorrect. The taxpayer sought advice on this complicated legislation and,
regrettably, received poor advice. It is not unreasonable, however, for a
taxpayer to expect that the very entity that demands the taxpayer to collect
monies on their behalf might have figured this out, rather than ending up with
a $90,000 windfall. I wish Ms. Rosene success with her remission order application.
I must, however, dismiss her Appeal.
Signed at Ottawa, Canada, this 4th day of July 2013.
"Campbell J. Miller"
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