[1] This is an application for judicial review of the decision of Associate Chief Judge Bowman of the Tax Court of Canada dated August 31, 2000. The decision relates to a reassessment of the combined goods and services tax (GST) and harmonized sales tax (HST) imposed by subsections 165(1) and (2) of the Excise Tax Act, R.S.C. 1985, c. E-15.

[2] The respondent is a corporation that carried on business in Moncton as a retailer of used computer equipment from 1996 to 1999. A Revenue Canada auditor concluded that, for 1996 and 1997, the respondent had understated its sales and had claimed input tax credits to which it was not entitled. On September 24, 1998, a notice of reassessment was issued indicating the following particulars:

Summary of assessment for the period 1996/01/01 to 1997/12/31

Adjustments to GST/HST

Adjustments to Input Tax Credits

Total Adjustments for Assessment Period

Penalty

Interest

Other Penalty

Amount Owing

$ 8,233.62

1,423.99

9,657.61

517.46

326.07

0.00

$10,501.14

Penalty and interest calculated up to: 1998-09-18

[3] The period covered by the reassessment is January 1, 1996 to December 31, 1997. Counsel for the Crown indicated at the hearing of this application for judicial review that the provisions of the Excise Tax Act relating to HST did not come into force until April 1, 1997. Therefore, the rate of tax for the first fifteen months covered by the reassessment was 7% (GST alone), and the rate of tax for the remaining nine months was 15% ( representing GST of 7% and HST applicable to New Brunswick of 8%).

[4] The $8,233.62 amount ("adjustments to GST/HST") referred to in the notice of reassessment reflects the auditor's conclusion that the respondent had understated its 1996 sales by $55,843.43 and its 1997 sales by $36,089.89. These amounts were derived from a review of the respondent's bank deposits compared to the amounts reported in its GST and HST returns.

[5] The respondent objected to the reassessment but it was confirmed. The respondent then appealed to the Tax Court of Canada.

[6] The Notice of Appeal does not give particulars of the grounds of appeal, but the reasons for judgment explain that the appeal is based on the respondent's argument that most of the bank deposits that the auditor thought represented unreported sales were actually amounts advanced by the respondent's sole shareholder, Mrs. Thomas, in the amount of approximately $60,000 to $70,000.

[7] The respondent was entitled to elect and did elect the procedure referred to in section 18.3001 of the Tax Court of Canada Act, R.S.C. 1985, c. T-2, which reads as follows:

18.3001 Subject to section 18.3002, where a person has so elected in the notice of appeal for an appeal under Part IX of the Excise Tax Act or at such later time as is provided in the rules of Court, this section and sections 18.3003 to 18.302 apply, with such modifications as the circumstances require, in respect of the appeal.

18.3001 Sous réserve de l'article 18.3002, le présent article et les articles 18.3003 à 18.302 s'appliquent, avec les adaptations nécessaires, aux appels interjetés aux termes de la partie IX de la Loi sur la taxe d'accise, si une personne en fait la demande dans son avis d'appel ou à toute date ultérieure prévue par les règles de la Cour.

[8] As can be seen from the words of section 18.3001, an election under that provision results in the application of a number of other provisions, including subsection 18.3009(1) (which permits the Tax Court to award costs to the taxpayer if certain conditions are met) and section 18.301 (which imports certain informal procedure rules relating to appeals under the Income Tax Act). An appeal in respect of which an election is made under section 18.3001 is sometimes referred to as a GST or GST/HST appeal "under the informal procedure".

[9] At the hearing in the Tax Court, Ms. Thomas testified as to which bank deposits represented advances. Bowman A.C.J. found her to be credible and on the basis of her evidence, he allowed the appeal and referred the assessment back to the Minister for reassessment on the basis that the respondent's sales, as determined by the auditor, were to be reduced by $32,850 for 1996 and $32,580 for 1997, and that interest and penalties were to be reduced accordingly. He also ordered costs in favour of the respondent.

[10] Neither party takes issue with the substantive conclusions reached by Bowman A.C.J. However, the Crown seeks judicial review of the decision as to costs.

[11] The Crown argues that in a GST or GST/HST appeal under the informal procedure, the authority of the Tax Court to award costs is limited by subsection 18.3009(1) of the Tax Court of Canada Act, which reads as follows:

18.3009 (1) Where an appeal referred to in section 18.3001 is allowed, the Court

(a) shall reimburse to the person who brought the appeal the filing fee paid under paragraph 18.15(3)(b) by that person; and

(b) where the judgment reduces the amount of tax, net tax, rebate, interest and penalties in issue in the appeal by more than one-half, may award costs, in accordance with the rules of Court, to the person who brought the appeal where

(i) the amount in dispute was equal to or less than_$7,000, and

(ii) the aggregate of supplies for the prior fiscal year of that person was equal to or less than_$1,000,000.

18.3009 (1) Dans sa décision d'accueillir un appel visé à l'article 18.3001, la Cour_:

a) rembourse à la personne qui a interjeté appel le droit de dépôt qu'elle a acquitté en vertu de l'alinéa 18.15(3)b);

b) peut, conformément aux modalités prévues par ses règles, allouer les frais et dépens à cette personne si le jugement réduit de plus de moitié le montant de la taxe, de la taxe nette, du remboursement, des intérêts ou de la pénalité qui font l'objet de l'appel et si les conditions suivantes sont réunies_:

(i) le montant en litige est égal ou inférieur à 7 000_$,

(ii) le total des fournitures pour l'exercice précédent de cette personne est égal ou inférieur à 1 000 000_$.

[12] The words "amount in dispute" are defined as follows in subsection 2.2(2) of the Tax Court of Canada Act:

(2) For the purposes of this Act, the "amount in dispute" in an appeal means

(a) the amount of tax, net tax and rebate, within the meaning of Part IX of the Excise Tax Act, that is in issue in the appeal;

(b) any interest or penalty under Part IX of the Excise Tax Act that is in issue in the appeal; and

(c) any amount of tax, net tax or rebate, within the meaning of Part IX of the Excise Tax Act, that is likely to be affected by the appeal in any other appeal, assessment or proposed assessment of the person who has brought the appeal.

(2) Pour l'application de la présente loi, « montant en litige » dans un appel s'entend des montants suivants_:

a) la taxe, la taxe nette et le remboursement, au sens de la partie IX de la Loi sur la taxe d'accise, qui font l'objet de l'appel;

b) les intérêts ou pénalités en vertu de cette partie qui font l'objet de l'appel;

c) la taxe, la taxe nette ou le remboursement, au sens de cette partie, sur lesquels l'appel aura vraisemblablement un effet lors d'un autre appel ou de la détermination d'une autre cotisation ou d'une cotisation projetée de la personne qui a interjeté appel.

[13] The Crown concedes that most of the conditions in subsection 18.3009(1) for an award of costs in favour of the respondent were met: the appeal in the Tax Court was allowed, the judgment of the Tax Court reduced the amounts in issue by more than one-half, and the aggregate of supplies for the prior fiscal year of the respondent met the test in paragraph 18.3009(1)(b). However, the Crown argues that the "amount in dispute" was more than $7,000 and therefore the Tax Court Judge was not entitled to award costs to the respondent despite its substantial success in the appeal.

[14] It is worth noting that no argument was made before Bowman A.C.J. as to the "amount in dispute", with the result that we do not have the advantage of understanding the basis on which he awarded costs. In the absence of reasons for the award of costs, this Court must determine whether the award of costs is supported by the record. Before reviewing the record, however, it is necessary to consider the meaning of the statutory provisions.

[15] It is argued for the taxpayer that the "amount in dispute" is the amount owing after the result of the Tax Court appeal is taken into account, which in these case was less than $7,000. In my view, that is not correct. As I read subsection 18.3009(1), the "amount in dispute" must be understood as a function of the issues raised by the taxpayer and considered by the Tax Court. The problem in this case is in identifying the issues raised by the appellant where the Notice of Appeal is not specific, as is often the case in appeals under the informal procedure.

[16] In this case the generality of the Notice of Appeal led the Crown to take the position that all amounts referred to in the challenged reassessment were "amounts in dispute", from which it would necessarily follow that the "amount in dispute"within paragraph 2.2(2)(a) was $8,233.62 (the amount of GST or combined GST and HST as shown on the notice of reassessment). To that would be added any interest, penalties and other amounts referred to in paragraphs 2.2(2)(b) and (c), as applicable.

[17] However, the fact is that by the time the matter came before the Tax Court, the respondent was not challenging the entire reassessment. It was challenging only the alleged understated sales, and then only to the extent of $60,000 at least and $70,000 at most, for the two year period.

[18] As stated above, the rate of tax for 1996 was 7% (GST alone) and for 1997 was 7% for three months and 15% (combined GST and HST) for nine months. Assuming that the $60,000 to $70,000 in issue is divided approximately equally between the two years (an assumption that is consistent with the factual conclusions reached by Bowman A.C.J.), the GST or combined GST and HST portion of the "amount in dispute" had a potential range, depending upon the exact dates of the bank deposits representing shareholder advances, as follows:

Lowest (based on $60,000) Highest (based on $70,000)

1996: 7% x $30,000 = $2,100 7% x $35,000 = $2,450

1997: 7% x $30,000 = 2,100 15% x $35,000 = 5,250

$4,200 $7,700

[19] For 1997, the "lowest" amount is based on the assumption that the shareholder advances occurred in the first three months of the year (thus the tax is GST alone at 7%) and the "highest" amount is based on the assumption that the shareholder advances occurred in the last nine months of the year (thus the tax is GST/HST combined at 15%).

[20] From this analysis it seems to me that the record discloses a reasonable basis for the conclusion that the GST/HST portion of the "amount in dispute" (i.e., the amount referred to in paragraph 2.2(2)(a) of the Tax Court of Canada Act) was less than $7,000. The result should not change significantly if the penalties and interest referred to in paragraph 2.2(2)(b) were added. There is no suggestion in this case that there are any amounts referred to in paragraph 2.2(2)(c). It follows that the Crown's application for judicial review should be dismissed.

Other points raised by the respondent

[21] In light of this conclusion it is not necessary to consider any of the other issues argued in this judicial review. However, I think it appropriate to comment on two of the arguments raised for the respondent in this case, given the paucity of authority on section 18.3009(1) and the definition of "amount in dispute".

[22] It was argued for the respondent that section 9 of the Tax Court Rules relating to GST or GST/HST appeals under the informal procedure gives the Tax Court Judge the discretion to award costs despite any apparent limitations in subsection 18.3009(1). I cannot accept that argument. In my view, subsection 18.3009(1) must be read as limiting the jurisdiction of the Tax Court to award costs in any GST or GST/HST appeal under the informal procedure. The Tax Court Rules cannot extend the statutory jurisdiction of the Tax Court.

[23] It was also argued for the respondent that the words "with such modifications as the circumstances require" in section 18.3001 give the Tax Court the authority to alter the $7,000 limitation referred to in paragraph 18.3009(1)(a) if there is good reason to do so. I cannot accept that argument. The "modifications" referred to in section 18.3001 refer only to such modifications as may be required to ensure that GST or GST/HST appeals under the informal procedure are conducted as nearly as possible to income tax appeals under the informal procedure. By no stretch can that include an alteration to the $7,000 limitation in paragraph 18.3009(1)(a).

General comment on procedure

[24] Finally, I consider it is appropriate to note that this application for judicial review presented this Court with considerable difficulty because the issue of the $7,000 limitation was not specifically addressed in the reasons for judgment. That is because Bowman A.C.J. was not informed that there was any controversy on this point.

[25] In my view, it is the Crown that should bear the onus in the Tax Court of establishing the facts required to determine whether the $7,000 limitation in paragraph 18.3009(1)(a) applies in a particular case. That is because the Crown is in the best position to compute the amounts in question, particularly the amounts referred to in paragraphs 2.2(2)(b) and (c) (the portion of the definition of "amount in dispute" that refer to interest, penalties and other amounts).

[26] It follows that if a Tax Court Judge awards costs to an appellant in a GST or GST/HST appeal under the informal procedure without being made aware that the case raises a question as to the $7,000 limitation, this Court will not reverse the award of costs unless there are extraordinary circumstances.

Costs on the judicial review

[27] As this application for judicial review was brought by the Crown and the "amount in dispute" was less than $7,000, section 18.3008 of the Tax Court of Canada Act requires the Minister of National Revenue to bear the reasonable and proper costs of the respondent in this Court.

"K. Sharlow"

J.A.

Fredericton, New Brunswick

December 6, 2001

FEDERAL COURT OF APPEAL

NAMES OF COUNSEL AND SOLICITORS OF RECORD

DOCKET: A-632-00

STYLE OF CAUSE: HER MAJESTY THE QUEEN v.

MONCTON COMPUTER EXCHANGE LIMITED

PLACE OF HEARING: Fredericton, New Brunswick

DATE OF HEARING: December 4, 2001

REASONS FOR JUDGMENT BY: Sharlow J.A.

CONCURRED IN BY: Strayer J.A.

Malone J.A.

DATED: December 6, 2001

APPEARANCES:

Dominique Gallant - John Bodurtha. FOR THE APPLICANT

Randy Roth FOR THE RESPONDENT

SOLICITORS OF RECORD:

Department of Justice FOR THE APPLICANT

Suite 1400, Duke Tower

5251 Duke Street

Halifax, Nova Scotia

B3J 1P3

Forbes Roth Basque FOR THE RESPONDENT

P. O. Box 480

Heritage Court

Suite 501 - 95 Foundry Street

Moncton, New Brunswick

E1C 8L9

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Canada v. Moncton Computer Exchange Ltd., 2001 FCA 381

Citations2001 FCA 381

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2001 FCA 381