Date: 20110930
Docket: A-370-10
Citation: 2011 FCA 270
CORAM: SHARLOW
J.A.
LAYDEN-STEVENSON
J.A.
STRATAS
J.A.
BETWEEN:
CIBC WORLD MARKETS
INC.
Appellant
and
HER MAJESTY THE QUEEN
Respondent
REASONS FOR JUDGMENT
STRATAS J.A.
[1]
This
is an appeal from the judgment of the Tax Court of Canada (per Rip
C.J.): 2010 TCC 460.
[2]
CIBC
World Markets Inc. filed a goods and services tax (“GST”) return under the Excise
Tax Act, R.S.C. 1985, c. E-15 claiming input tax credits for two taxation
years, 1998 and 1999. Later, using a different method, it made a second claim,
seeking input tax credits at a higher level for the same two taxation years.
The Minister rejected CIBC World Markets’ second claim on the basis that the
Act did not allow a second claim based on a different method.
[3]
The
Tax Court of Canada interpreted the GST provisions of the Act and agreed with
the Minister. CIBC World Markets appeals to this Court.
[4]
There
are no words in the GST provisions of the Act that expressly allow a GST
registrant, such as CIBC World Markets, to make a second claim for input tax
credits concerning a taxation year using a different method. But, in my view,
the general scheme and purpose of the GST provisions of the Act support the
ability of CIBC World Markets to make such a claim, and there is no statutory
wording to the contrary. Therefore, I would allow the appeal.
A. The
statutory scheme: an overview
[5]
I
shall begin with a broad, conceptual review of the general scheme and purpose
of the GST provisions of the Act. This will provide context for interpreting
the specific provisions at issue in this appeal.
(1) The
purpose of the GST provisions of the Act
[6]
The
GST is a consumption tax. The GST provisions of the Act show that it is meant
to be paid by the final consumers of goods and services. An early technical
paper issued by the Minister on the GST confirms this: Canada, Department of Finance, “Goods and Services Tax: Technical Paper” (Ottawa: Department of
Finance, 1989).
(2) The
key liability provision: subsection 165(1) of the Act
[7]
Subsection
165(1) of the Act sets out a general rule: those who receive services or
property, such as goods, in the course of a commercial activity (known under
the Act as a “taxable supply”) are liable to pay GST.
(3) Who
is subject to GST
[8]
The
general rule in subsection 165(1) of the Act applies to all, even those who are
not final consumers.
[9]
In
particular, each recipient of taxable goods and services is potentially liable
to pay GST, even if it, as an intermediary, ultimately delivers those goods and
services to others. For example, a wholesaler may supply goods to a retailer
who supplies them to a consumer. The retailer is liable to pay GST under the
general rule in subsection 165(1).
[10]
Were
the matter left there, the GST would lose its character as a consumption tax
imposed on the final consumers of goods and services. It would attach, full
force, to each party in a chain of transactions culminating in the final
receipt by consumers.
(4) Input
tax credits: the general concept
[11]
One
way in which the Act prevents this consequence is by giving parties credits for
“inputs” that they receive.
[12]
For
example, for the purpose of the selling of goods to consumers, a retailer might
receive “inputs,” such as inventory. That “input” to the retailer is necessary
in order for it to make a supply of the goods to the consumer. Depending on the
particular business, there may be all sorts of necessary “inputs.”
[13]
Obviously,
if, in the example above, the retailer were not given credit for the GST paid
on inputs needed for the making of a taxable supply of goods to a consumer, the
GST would be imposed full force on it and, for that matter, on every
intermediary in the chain of distribution. If that happened, the GST would lose
its character as a consumption tax imposed on the final consumer of goods and
services.
[14]
To
achieve the purpose of taxing the final consumers of goods and services, the
Act allows tax credits for inputs received by parties to make an onward taxable
supply. These credits are called input tax credits.
[15]
The
input tax credits, as explained above, ensure that the fundamental character of
the GST as a consumption tax on final consumers is maintained. In the words of
the Minister:
A fundamental principle underlying the GST/HST is
that no tax should be included in the cost of property and services acquired,
imported or brought into a participating province by a registrant to make
taxable supplies…in the course of the commercial activities of the registrant.
To ensure that a property or service consumed, used or supplied in the course
of commercial activities effectively bears no GST/HST, registrants are
generally eligible to claim an input tax credit (ITC) for the GST/HST paid or
payable on such property or service. Consequently, the ITC enables each registrant
to recover the tax incurred in that registrant’s stage of the production and
distribution process.
(Canada Revenue Agency, “GST
Memorandum 8.1 – General Eligibility Rules” (May 2005) at paragraph 1.)
(5) Input
tax credits: a further complication
[16]
A
further complication needs to be mentioned. Some supplies under the Act are not
taxable, because they do not fall under section 165(1) of the Act, or they are
otherwise exempt under the Act.
[17]
A
person may be a supplier of both taxable and exempt goods or services, but is
entitled to input tax credits only for inputs relating to the taxable supplies.
[18]
Where
a person is a supplier of both taxable and exempt supplies, a method must be
found to limit the claim for input tax credits to reflect only goods and
services acquired or used for making taxable supplies.
[19]
The
Act solves this problem by allowing parties (in subsection 141.01(5)) to adopt
a general allocation method.
[20]
Not
all methods are acceptable. Subsection 141.01(5) provides that the method must
be “fair and reasonable” and must “be used consistently by the person
throughout the year.” Subsection 141.01(5) reads as follows:
|
141.01. (5) Subject to section 141.02, the methods used by a
person in a fiscal year to determine
(a) the extent to which properties or
services are acquired, imported or brought into a participating province by
the person for the purpose of making taxable supplies for consideration or
for other purposes, and
(b) the extent to which the consumption or
use of properties or services is for the purpose of making taxable supplies
for consideration or for other purposes,
shall be fair and reasonable and shall be used consistently
by the person throughout the year.
|
141.01. (5) Sous réserve de l’article 141.02, seules des
méthodes justes et raisonnables et suivies tout au long d’un exercice peuvent
être employées par une personne au cours de l’exercice pour déterminer la
mesure dans laquelle :
a) la
personne acquiert, importe ou transfère dans une province participante des
biens ou des services afin d’effectuer une fourniture taxable pour une
contrepartie ou à d’autres fins;
b) des biens ou
des services sont consommés ou utilisés en vue de la réalisation d’une
fourniture taxable pour une contrepartie ou à d’autres fins.
|
[21]
There
are also limitation periods or deadlines for the making of claims for input tax
credits: see
the Act, subsection 225(4). As well, double counting is prohibited – an amount
should not be included in a claim for input tax credits if the amount claimed
has already been included in a previous claim: see the Act, subsection 225(3).
B. The facts of this case
[22]
In
this case, the appellant, CIBC World Markets engaged in
commercial activities and was liable to pay GST. It was eligible to claim input
tax credits for the GST it paid, but because not all of its supplies were
taxable supplies, it was required to limit its input tax credit claims in the
manner described above.
[23]
It
fell to CIBC World Markets to determine what portion of the GST it had paid was
claimable as input tax credits. It adopted a particular method for determining
this in the 1998 and 1999 tax years. Using this method, it calculated its input
tax credits at 6.79% of the GST it paid in 1998 and 6.05% of the GST it paid in
1999. It filed returns for the 1998 and 1999 tax years, claiming these amounts.
[24]
The
Minister accepted these ITC claims as filed. In his view, CIBC World Markets’
method in 1998 and 1999 complied with subsection 141.01(5) of the Act in that
it was “fair and reasonable” and “used consistently throughout the year.”
[25]
In
2000, CIBC World Markets adopted a different method. This method resulted in a
more favourable claim for input tax credits. It calculated its input tax
credits at 25.07% of the GST it paid in 2000. The Minister accepted this input
tax credit claim as filed. In his view, CIBC World Markets’ method in 2000
complied with subsection 141.01(5) of the Act in that it was “fair and
reasonable” and “used consistently throughout the year.”
[26]
Using
this different method, CIBC World Markets also made a second claim for input
tax credits for the 1998 and 1999 taxation years, seeking a higher level than
previously claimed. It made this second claim within the applicable limitation
periods under subsection 225(4) for those years. It claimed only amounts over
and above those claimed earlier in those years. In other words, it did not
engage in any double counting within the meaning of subsection 225(3).
C. The
Minister’s position and the Tax Court of Canada’s judgment
[27]
The
Minister rejected the claim for additional input tax credits for the 1998 and
1999 taxation years. There were two reasons underlying the Minister’s position,
both of which the Tax Court of Canada accepted:
● Only
“one kick at the can” is permitted. In the Minister’s view, the Act permits
only one claim for input tax credits to be made for a taxation year.
Colloquially put, the Act gives a GST registrant, such as CIBC World Markets,
only one kick at the can, not two. The Tax Court of Canada agreed, noting that
after a claim is made, “the tax authority will act on this information,” and
permitting revisions to a claim that is not subject to error “would permit
fiscal uncertainty” (at paragraphs 32 and 35).
● Subsection
141.01(5) of the Act. The Minister contended that permitting CIBC World
Markets to use a revised method would offend the requirement in subsection
141.01(5) of the Act that a particular method be “used consistently throughout
the year.” The Tax Court of Canada agreed (at paragraphs 44 and 45).
D. Analysis
[28]
As
mentioned above, this appeal turns upon the proper interpretation of certain
provisions of the Act.
[29]
In
Canada Trustco Mortgage Co. v. Canada, 2005 SCC 54 at paragraph 10, [2005]
2 S.C.R. 601, the Supreme Court of Canada prescribed the proper approach for
interpreting taxation statutes:
…The
interpretation of a statutory provision must be made according to a textual,
contextual and purposive analysis to find a meaning that is harmonious with the
Act as a whole. When the words of a provision are precise and unequivocal, the
ordinary meaning of the words plays a dominant role in the interpretive
process. On the other hand, where the words can support more than one
reasonable meaning, the ordinary meaning of the words plays a lesser role. The
relative effects of ordinary meaning, context and purpose on the interpretive
process may vary, but in all cases the court must seek to read the provisions
of an Act as a harmonious whole.
With this approach in mind, I turn
now to the two issues before us.
(1) Can more
than one claim for input tax credits in the same taxation year be made?
[30]
In
my view they can. There are several reasons which, taken together, lead to this
conclusion.
– I –
[31]
There
are no words in the text of the Act that prohibit more than one claim for input
tax credits concerning the same taxation year.
– II
–
[32]
In
fact, there are words in the Act, specifically in subsection 225(3) of the Act,
that contemplate the possibility that more than one claim for input tax credits
can be made concerning the same taxation year.
[33]
Subsection
225(3) of the Act provides that a GST registrant cannot claim twice for the
same amount – double counting is prohibited. Specifically, it provides that “[a]n
amount shall not be included…to the extent that the amount was claimed or
included as an input tax credit…in determining the net tax for a preceding
reporting period.” This wording specifically refers to “preceding reporting
periods” and contemplates that more than one claim for a taxation year may be
made at different times as long as the same amount is not claimed twice. Thus,
a GST registrant who paid $5 GST on a $100 purchase of office supplies cannot
claim $5 in input tax credits in one return and then claim the same $5 in a
second return. But nothing bars it from claiming $2 in one return and $3 in a
second return, as long as both returns are filed within the statutory
limitation period.
This
is exactly the sort of thing that CIBC World Markets has done here, and it has
not engaged in any double counting.
– III
–
[34]
The
respondent submits that CIBC World Markets was not acting under any error when
it adopted its first method. It observes that the second method was “better”
for CIBC World Markets, but was not necessarily the more accurate or
appropriate of the two.
[35]
That
may be so, but that takes nothing away from the fact that the Minister
considered both methods to be “fair and reasonable” under subsection 141.01(5)
of the Act. Prohibiting a later claim based on a method that has been accepted
as “fair and reasonable” works a harsh result that, in my view, is not
compelled by anything in the Act.
– IV
–
[36]
To
the Minister, finality is important. Interpreting the Act to allow only one
claim for input tax credits does further the objective of finality or, as the
Tax Court called it, “fiscal certainty.”
[37]
But
“fiscal certainty” is not an objective that suffuses the entire Act. Indeed,
various provisions of the Act work against finality or “fiscal certainty.” For
example, in the two years after tax has been paid, one may seek a rebate due to
mistake or other cause: see Act, section 261.
[38]
In
support of its conclusion that only one claim for input tax credits is allowed,
the Tax Court invoked the objective of finality, noting that “the tax authority
will act on [the] information” in the GST registrant’s filing. However, the record
discloses no evidence that the tax authority will act on the information in the
filing in a prejudicial way.
[39]
The
need for finality and fiscal certainty are achieved through the various
deadlines and limitation periods that are set out in the Act. Making more than
one claim for input tax credits, provided the deadlines and limitation periods are
observed, does not implicate any meaningful policy objectives resident in the
Act.
[40]
Absent
clear wording to the contrary – and there is none here – the Act’s objective of
allowing GST registrants to obtain relief for recoverable GST through input tax
credits should prevail in this case.
– V –
[41]
Counsel
for CIBC World Markets submitted that the respondent’s interpretation
transforms the act of filing a return containing a claim for input tax credits
based upon a particular method into an irrevocable election – once a method is
chosen, one cannot depart from it at a later time, even within the limitation
period. In essence, the respondent’s interpretation makes the act of filing a
return based on a particular method an opportunity to “speak now or forever
hold your peace” on the subject of input tax credits.
[42]
I
agree with this characterization. I also agree with the observation of counsel
for CIBC World Markets that there are no statutory words that signal those
legal consequences. This is especially significant. Parliament knows how to
signal those legal consequences. When an election is to be made and when it is
to be irrevocable, Parliament’s practice is to use express words in the GST
provisions of the Act. There are no express words of irrevocable election
concerning the taxpayer’s choice of method.
[43]
Indeed,
in an amendment made in July 2010, Parliament used clear wording to change this
legal situation for certain GST registrants in the financial sector. Subsection
141.02(17) of the Act, added by S.C. 2010, c. 12, s. 57, now
prevents certain parties, such as CIBC World Markets, from
unilaterally changing its method for a particular taxation year after the
return for that year has been filed. Under this new subsection, once a method
has been chosen by a financial institution for a particular year, the method cannot
be changed without the Minister’s written consent.
[44]
The
words of new subsection 141.02(17) of the Act are exactly the sort of precise
words that one would expect to see if the respondent’s interpretation in this
appeal were sound. But in the version of the Act at issue in this appeal, words
such as that are not present.
– VI
–
[45]
Both
the respondent and the Tax Court found certain United Kingdom decisions
concerning that country’s value added tax to be of use in this case: see, e.g.,
Victoria and Albert Museum Trustees v. Customs and Excise Commissioners,
[1996] S.T.C. 1016 (Q.B.). Those decisions must be regarded with caution. They
are based on differently worded legislation concerning a consumption tax system
that is somewhat different from ours. For one thing, in the United Kingdom a method
cannot be changed without prior approval, and a retrospective change to a
method is not allowed unless it is shown that the method is not fair and not
reasonable: VAT Notice 706, “Partial Exemption” (December 2006) at paragraph
6.11.
[46]
For
all of the foregoing reasons, I conclude that CIBC World Markets was entitled
within the limitation period to change its method for the 1998 and 1999
taxation years and claim additional input tax credits.
(2) Is the use of a revised method contrary
to subsection 141.01(5) of the Act?
[47]
Subsection
141.01(5) provides that a method must be “used consistently throughout the
year.” The Tax Court (at paragraph 44) found that it would be “perverse” for a
GST registrant to use one method for a taxation year, and then, later, to
revise it for that year. In its view, subsection 141.01(5) prevents this.
[48]
The
Tax Court appears to have read subsection 141.01(5) as if a GST registrant were
required to select a method at the beginning of a fiscal year and then use that
method consistently until the end of the year. That does not reflect what is
permitted under the Act. Perhaps in recognition of the imprecise science
involved in choosing a method, Parliament allows registrants a number of years
after a taxation year has ended to choose their method and file a claim for
input tax credits for the taxation year: Act, subsection 225(4).
[49]
In
my view, subsection 141.01(5) merely requires consistency throughout the year
whenever a method is chosen. This prevents a GST registrant from using one
method for one part of the year and then another method for another part of the
year, for example to take advantage of a seasonal fluctuation.
[50]
This
interpretation is consistent with the plain meaning of “used consistently
throughout the year” in subsection 141.01(5). CIBC World Market’s first method
was used consistently throughout the 1998 and 1999 taxation years. Its second
method was also used consistently throughout the 1998 and 1999 taxation years.
[51]
The
interpretation also accords with explanatory notes issued by the Minister
concerning a new provision in the Act that is worded similarly and related closely
to subsection 141.01(5): paragraph 141.02(16)(b), enacted by S.C. 2010,
c. 12, s. 57. Paragraph 141.02(16)(b) is related to subsection 141.01(5)
in that it supersedes subsection 141.01(5) for financial institutions.
Paragraph 141.02(16)(b) provides that a method must be “used
consistently by the financial institution throughout the fiscal year,” wording
that is substantially similar to subsection 141.01(5). The Minister’s
Explanatory Notes on this wording, published in September 2009 provide as
follows:
…Paragraph 141.02(16)(b) requires that such a
method be used consistently throughout the financial institution’s fiscal year
(i.e., a financial institution cannot change a method partway through
its fiscal year). The conditions in paragraphs 141.02(16)(a) and (b)
are the same as those found in subsection 141.05, which apply to input tax
credit allocation methods in general.
[52]
Had
CIBC World Markets used one method for part of a taxation year and a second
method for another part of the taxation year, an objection founded upon
subsection 141.01(5) would lie. That is not the case here. It follows that
subsection 141.01(5) does not bar CIBC World Markets’ revised claim for input
tax credits in this case.
E. Proposed
disposition
[53]
I
would allow the appeal, set aside the judgment of the Tax Court of Canada in
file 2007-3926(GST)G dated September 8, 2010, allow the appeal of CIBC World
Markets from the assessment, and refer the matter back to the Minister for
reassessment in accordance with these reasons. I would also award the appellant
its costs in this Court and in the Tax Court of Canada.
"David
Stratas"
“I
agree
K. Sharlow J.A.”
“I
agree
Carolyn Layden-Stevenson J.A.”
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