Citation: 2012 TCC 393
Date: 20121113
Docket: 2009-2677(GST)G
BETWEEN:
MAC'S CONVENIENCE STORES INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Hogan J.
I. Introduction
[1]
The assessments under
appeal were made pursuant to the Excise Tax Act (the “ETA”) for the
period from April 29, 2002 to April 24, 2005. The appellant, Mac’s Convenience
Stores Inc. (“Mac’s”), is a division of Alimentation Couche‑Tard Inc., a
major operator of convenience stores in North America.
[2]
The appeal focuses on
the provision of automated banking machine (ABM) services in the appellant’s
convenience stores. The ABM services were provided in two ways: through ABMs
owned or leased by the Canadian Imperial Bank of Commerce or its wholly-owned
subsidiary, Amicus Corporation, (together or separately hereinafter referred to
as the “CIBC”) and through ABMs owned by the appellant.
[3]
Customers used the ABMs
to withdraw cash from their bank accounts and paid a $1.50 service charge for
each transaction.
[4]
CIBC collected the
service charge for the ABMs that it owned and leased and that it placed in the
appellant’s stores under various licence agreements. CIBC paid a portion of the
service charges collected from non-CIBC clients to the appellant. The issue is
whether the revenue share paid to the appellant by CIBC is consideration for an
exempt supply of financial services, which is the appellant’s position, or
consideration for a taxable supply of real property, which is the respondent’s
position.
[5]
With regard to the ABMs
that the appellant owned, which were operated without the involvement of CIBC,
the issue is whether the appellant is entitled to claim input tax credits
(ITCs) in respect of the GST it paid on the purchase of the ABMs.
[6]
Finally, the appellant
challenges the penalties levied against it and does so on the grounds that it
exercised due diligence in complying with its obligations under the ETA.
II. Factual summary
[7]
In November of 2001,
the appellant and Amicus Corporation, a wholly‑owned subsidiary of CIBC,
entered into an agreement which granted CIBC the right to place ABMs owned or
leased by CIBC in certain of the appellant’s stores.
[8]
Initially, the
arrangement was governed by two contracts: one between the appellant’s Ontario
Division and CIBC, and the other between the appellant’s Western Division and
CIBC (the “2001 Agreements”). The terms of these contracts are essentially the
same.
[9]
Non-CIBC customers
using the ABMs were charged a $1.50 service fee. The appellant’s share of this
service fee could fluctuate monthly between 10% and 55% depending on the
overall usage of the ABM network. The 2001 Agreements provided that either party
could change the service fee charged to non‑CIBC clients, with the
consent of the other party.
[10]
Under the 2001
Agreements, the appellant agreed not to have other banks’ ABMs in its stores,
except for those already in place.
[11]
In 2004, the appellant
and CIBC agreed to a new contract (the "2004 Agreement"). This
agreement made several changes to the arrangement between the parties. Under the
2004 Agreement, only CIBC could change the service fee. Also, the 2004
Agreement allowed Mac’s to place its own ABMs in its stores.
[12]
Under the 2004
Agreement, the appellant provided shared communication lines which were used to
transmit data required to complete the cash withdrawal transactions processed
through ABMs owned or leased by CIBC. At trial, the parties acknowledged that
the appellant collected and remitted GST in respect of payments for the shared
communication lines during the currency of the 2004 Agreement.
III. ABMs
owned or leased by the CIBC
[13]
As noted earlier, the appellant
argues that the revenue share it received from CIBC was consideration for an
exempt supply of financial services. The appellant relies on the definition of
"financial service" in subsection 123(1) of the ETA. The definition
is based on a "catch and release" concept. It first includes a variety of activities under the
heading of financial services through paragraphs (a) to (m) of
the definition, then items otherwise included by those paragraphs are excluded
by paragraphs (n) to (t). The relevant portions of the definition read as follows:
“financial service” means
(a) the
exchange, payment, issue, receipt or transfer of money, whether effected by the
exchange of currency, by crediting or debiting accounts or otherwise,
. . .
(l) the
agreeing to provide, or the arranging for, a service that is
(i) referred to
in any of paragraphs (a) to (i), and
(ii) not
referred to in any of paragraphs (n) to (t), or
. . .
but does not include
. . .
(r.4) a
service (other than a prescribed service) that is preparatory to the provision
or the potential provision of a service referred to in any of paragraphs (a)
to (i) and (l), or that is provided in conjunction with a service
referred to in any of those paragraphs, and that is
(i) a service
of collecting, collating or providing information, or
(ii) a market
research, product design, document preparation, document processing, customer
assistance, promotional or advertising service or a similar service,
(r.5) property
(other than a financial instrument or prescribed property) that is delivered or
made available to a person in conjunction with the rendering by the person of a
service referred to in any of paragraphs (a) to (i) and (l),
[14]
Paragraphs (r.4) and (r.5)
are deemed to have come into force on December 17, 1990. However, they do not
apply in respect of a service rendered under an agreement, evidenced in
writing, for a supply if:
(a) all
of the consideration for the supply became due or was paid on or before
December 14, 2009;
(b) the
supplier did not, on or before December 14, 2009, charge, collect or remit any
amount as or on account of tax under Part IX of the Act in respect of the
supply; and
(c) the supplier did not, on or before December 14,
2009, charge, collect or remit any amount as or on account of tax under Part IX
of the Act in respect of any other supply that is made under the agreement and
that includes the provision of a service referred to in any of paragraphs (q),
(q.1) and (r.3) to (r.5) of the definition
“financial service” in subsection 123(1) of the Act, as amended by subsections
(1) to (4) [of S.C. 2010, c. 12].
[Emphasis added.]
[15]
The appellant states that the
supplies it made to CIBC under the 2001 and 2004 Agreements amounted to
arranging for a financial service. According to the appellant, these activities
fall within paragraph (l) of the definition. It describes itself as the
“link” joining CIBC with the appellant’s customers using the ABMs. It is the appellant’s
submission that it “planned or provided for the ABMs, caused the ABM
transactions to occur, and made preparation for ABM transactions.”
[16]
The appellant contests the Crown’s
view that the supply made to CIBC was in essence a supply of property by way of
a licence. Rather, it states, it supplied CIBC with access to Mac’s customers. As evidence to support this
conclusion, the appellant points to:
a.
the revenue-share arrangement under
which the appellant was paid, which included no provision for guaranteed
income;
b.
the appellant’s right under the
2001 Agreements to change the service fee rate charged to ABM customers;
c.
a letter from Amicus to the
appellant’s store managers emphasizing that the ABMs would “benefit our
partnership”, “help increase store traffic” and “increase revenue opportunities
for your business”; and
d.
the provision of information by
CIBC to the appellant.
[17]
The appellant argues that the fact
that its employees were not generally actively involved in the provision of ABM
services to customers is not determinative because of the automated nature of
the services provided through the machines.
[18]
For its part, the respondent
argues that the appellant did not make a supply consisting of arranging for a
financial service. The respondent argues that the dominant element of the
supply made to CIBC was real property.
The appellant had no role in providing a financial service to ABM customers;
that is, it was not an intermediary in ABM transactions. The respondent describes
the appellant’s conduct as “akin to the role that any landlord would play when
providing space for an ABM”.
[19]
The respondent argues that the
retroactive amendments do apply in this case because the appellant charged GST with
respect to the shared communication lines it provided under the 2004 Agreement. The shared communication
lines were integral to the overall supply because the ABMs could not function
without them and the services provided to CIBC through the lines would have had
no value except as part of an overall supply of space and facilities for the
ABMs.
[20]
The respondent submits that the
retroactive amendments, particularly paragraphs (r.4) and (r.5),
“eliminate any possibility that Mac’s customer services, promotional work or
real property could form the basis of an arranging for service.”
[21]
Paragraph (l) of the
definition of “financial service” in subsection 123(1) includes as a financial
service:
(l) the agreeing to provide, or the arranging for, a
service that is
(i) referred
to in any of paragraphs (a) to (i), and
(ii) not
referred to in any of paragraphs (n) to (t).
[22]
It is not disputed that customers
using the ABMs received a financial service.
A “financial service” includes “the exchange, payment,
issue, receipt or transfer of money, whether effected by the exchange of
currency, by crediting or debiting accounts or otherwise.” The question is whether
the appellant arranged for the provision of such a service to ABM customers
using ABMs owned or leased by CIBC.
[23]
Prior to the 2010 amendments, which
added paragraphs (r.4) and (r.5), the Canada Revenue Agency (CRA)
had issued a policy statement entitled “Meaning of the term “arranging for” as
provided in the definition of ‘financial service’”. As a consequence of the
2010 amendments, this policy statement has been classified as “obsolete”.
However, it was referenced by several judges in considering the scope of the words
“arranging for” in the case law considered below.
[24]
The policy statement informs
readers that:
To
qualify as a service of “arranging for” the supply of a financial
service, each of the following elements should be present:
·
the intermediary will help either the supplier or the recipient
or both, in the supply of a financial service,
·
the supplier and/or the recipient count on one or more
intermediaries for assistance in the course of a supply of a financial service,
and
·
the intermediary is directly involved in the process of the
provision of a financial service and will therefore, expend the time and effort
necessary with the intent to effect a supply of a service described in
paragraphs (a) to (i) of the definition of financial service.
Therefore,
in determining if an intermediary's service qualifies as an “arranging for”
service, one must consider all the facts surrounding the transaction, including
the degree of involvement of the intermediary in the supply of the financial
service and, where applicable, the normal activities of an intermediary in a
given industry.
[25]
The case law considering the words
“arranging for” in paragraph (l) indicates that the scope of the
provision is rather broad. Bowie J. considered the scope of
paragraph (l) in Royal Bank of Canada v. The Queen. At issue was whether
“branch services” provided by the appellant bank to a subsidiary mutual fund
company (RMFI) were financial services and thus exempt supplies. As part of
these branch services, certain Royal Bank employees at the bank’s branches
provided customer service and sold mutual fund units on behalf of RMFI.
[26]
Bowie J. looked at a
dictionary definition of the verb “to arrange” which gave as its meaning: to
“plan or provide for; cause to occur”.
He held that the bank was not merely providing personnel services and the use
of bank office space to the mutual fund company. The employees were at all
times employees of the bank, not of the mutual fund company, and the bank did grant
a right for the mutual fund company any right to occupy the bank’s premises. Rather, he held, the
service the bank provided was “arranging for the distribution of mutual funds,
together with providing ongoing customer service”. He found that arranging
for the distribution of mutual funds was the “dominant element” of the supply
made by the bank.
The Federal Court of Appeal upheld Bowie J.’s decision.
[27]
In Canadian Medical Protective
Association v. Canada, Bowman C.J., as he then was, found that
investment managers paid by the CMPA provided a financial service in that they
arranged for the transfer of ownership of financial instruments. Bowman C.J.’s approach to
the issue of whether the investment managers provided a financial service to
the CMPA consisted of two questions. First, what service did the investment
managers provide in return for the fees paid to them? This involves a factual
determination. Second, does that activity fall within the definition of
financial service in subsection 123(1)?
He held that the investment managers’ services were financial services under
paragraphs (d) and (l) in that they constituted "the
arranging for . . . the transfer of ownership . . .
of a financial instrument".
[28]
The Federal Court of Appeal upheld
Bowman C.J.’s decision on the basis that the effect of the investment
managers’ services was to “cause to occur a transfer of ownership … of a
financial instrument.”
Desjardins J.A. also found that “give instructions”, “make preparations
for”, and “prendre les dispositions pour” were all acceptable
definitions of “arrange for”.
[29]
The cases most on point given the
facts in this appeal are President’s Choice Bank v. The
Queen
and Global Cash Access (Canada) Inc v. The Queen.
[30]
PC Bank concerned, in part, an agreement between CIBC and
Loblaw Companies Limited (Loblaws) whereby CIBC provided retail banking
services under Loblaws’ President’s Choice trademark (labelled “President’s
Choice Financial”). Under this agreement, CIBC paid to Loblaws (and later PC
Bank, a subsidiary of Loblaws) a fee calculated with reference to new accounts
opened and the average funds and assets under management through President’s
Choice Financial.
The parties also established a points-based loyalty program under a separate
agreement.
[31]
There were several issues in the
case, but one was whether the fees paid by CIBC to Loblaws and later to PC Bank
were consideration for arranging a financial service. PC Bank argued that they
were. The Crown argued that the fees were paid for “a supply of facilities,
trademarks, advertising and other non-financial services”.
[32]
Lamarre J. held that PC Bank’s
supplies to CIBC consisted of arranging for financial services. The fees paid
by CIBC were not consideration for the issuance of points under the loyalty
program.
Neither were the fees consideration for exclusive use of the President’s Choice
trademark.
Rather, the financial service agreement between the parties reflected
“Loblaw/PC Bank’s desire to promote the no‑fee bank account or the low‑interest
mortgages offered to its customers, just to give examples.” CIBC paid PC Bank “for its
major role in selling attractive financial products to its [customers].” In support of this
conclusion, Lamarre J. noted the following:
·
The fees CIBC paid to PC Bank were
calculated with reference to new accounts opened and to the average funds and
assets under management.
·
Loblaws used its leverage to
ensure that the financial products and services offered by CIBC through the
President’s Choice Financial brand were more attractive than what would
otherwise be available to consumers.
·
A steering committee with equal
representation from both parties was constituted to ensure that CIBC would meet
Loblaws/PC Bank’s requirements.
The steering committee could re-evaluate the program or terminate the financial
services agreement if certain thresholds (minimum required funds under
management each year) were not met.
·
Loblaws/PC Bank had 10-15
employees working with CIBC to determine the terms to be offered on the
financial products.
·
During the years at issue, PC Bank
had full banking powers under the Bank Act.
[33]
Some of the factors relied on by
Lamarre J. exist in the present case. Mr. Todd Hayman, formerly a
director of merchandising with the appellant, testified that meetings took
place between the appellant’s category managers and CIBC representatives on a
monthly basis.
Additionally, Mr. Hayman testified that he met with CIBC representatives
to discuss the arrangement with the bank several times a year.
[34]
However, there is no evidence that
the appellant intended to or did utilize its leverage to secure a better-than-market
ABM transaction fee rate for its customers. Under cross-examination, Mr. Hayman
stated that Mac’s had no such goal.
Further, $1.50 was the industry standard transaction fee during the period in
question.
The 2001 Agreements included a stipulation that either party could change the
ABM service fee with the consent of the other party. The 2004 Agreement
provided only that CIBC could change the fee rate upon providing notice to the
appellant.
The rate was not changed during the years in question.
[35]
The agreements between the
appellant and CIBC provided termination mechanisms whereby either party could
either remove individual stores from the agreements or end the agreements
themselves. However, the parties did not establish a steering committee or
similar body of the kind that existed in PC Bank. Neither is there
evidence to suggest that employees of the appellant were assigned to help
design the financial service products to be offered through the ABMs.
[36]
The appellant did not help, assist
and become directly involved in the provision of financial services by CIBC to
ABM customers. Its role in the provision of such services was considerably more
passive. The core element of its supply to CIBC was the provision of space in
its stores. This is reflected in the terms of both the 2001 and 2004
Agreements.
[37]
In Global Cash, Woods J.
considered whether a fee paid by a provider of cash access services to Canadian
casinos was consideration for arranging a financial service. Woods J.
identified three separate supplies made by the casinos to Global Cash:
1.
allowing kiosks on the premises;
2.
providing support services at the
cashier cages such as transaction procedures and initiating transactions on
behalf of patrons; and
3.
cashing Global’s cheques.
[38]
Woods J. determined that the first
two of these supplies, that is, allowing kiosks on the premises and providing
support services at the cashier cages, constituted “arranging for” the issuance
of cheques by Global Cash.
She described the casinos as being “directly involved in the issuance of
cheques” and “actively engaged in doing so, since they allow kiosks on the
premises and provide support services such as transaction procedures and
initiating transactions on behalf of patrons”.
She based this conclusion on the interpretation of “arrange for” as meaning to
“plan or provide for; cause to occur” that Bowie J. adopted in Royal
Bank, 2005.
Additionally, she relied on Policy Statement P-239. It is not clear
whether Woods J. would have considered that the operation of the kiosks in
the casinos constituted the arranging for a financial service absent the
support services provided at the cashier cages. She appears to have considered
the two activities together.
[39]
In the case at bar, the causal
event for the service is the customer’s choice to use the machine. Moreover,
the appellant cannot be said to have given instructions regarding the
transactions. The appellant might be said to have made preparations for the
services, but only in the general sense of providing space in its stores for
the ABM transactions to occur. It did not make preparations for individual
transactions, which were strictly between CIBC (the operator of the ABMs) and
the ABM customer.
[40]
The appellant was not acting as an
intermediary with regard to the ABM transactions. It does not stock the
CIBC-owned ABMs with cash. It is not involved with debiting the accounts of ABM
customers. Its employees do not offer assistance to ABM customers beyond
providing them with a phone number to contact CIBC. It is largely a bystander with
respect to ABM transactions.
[41]
For the reasons outlined above,
the appellant’s supply to CIBC is best viewed as a supply of real property
(space in the stores), rather than a supply of arranging for a financial
service.
[42]
I do not have to consider
the parties’ submissions on the scope of the exclusions provided for in new
paragraphs (r.4) and (r.5) because I have concluded that the
appellant did not supply a financial service to CIBC as defined in paragraphs (a)
to (m) of the definition.
IV. Appellant’s ABMs
[43]
The parties acknowledge
that the appellant provided financial services to its customers through the
operation of the ABMs that it owned. However, the respondent denies that the
appellant is entitled to claim ITCs on the GST paid for the purchase of the
ABMs that it placed in its stores.
[44]
Generally speaking,
ITCs cannot be claimed for GST paid or payable on goods or services used or
consumed by the recipient of the supply in connection with the supply of
commercial services. Subsection 185(1) of the ETA operates as an exception to
this general rule. That provision reads as follows:
Financial
services – input tax credits
185.
(1) Where tax in respect of property or a service acquired, imported or
brought into a participating province by a registrant becomes payable by
the registrant at a time when the registrant is neither a listed financial
institution nor a person who is a financial institution because of
paragraph 149(1)(b), for the purpose of determining an input tax
credit of the registrant in respect of the property or service and for the
purposes of Subdivision d, to the extent (determined in accordance with
subsection 141.01(2)) that the property or service was acquired, imported or
brought into the province, as the case may be, for consumption, use or supply
in the course of making supplies of financial services that relate to
commercial activities of the registrant,
(a) where
the registrant is a financial institution because of paragraph 149(1)(c),
the property or service is deemed, notwithstanding subsection 141.01(2), to
have been so acquired, imported or brought into the province for consumption,
use or supply in the course of those commercial activities except to the extent
that the property or service was so acquired, imported
or brought into the province for consumption, use or supply in the course of
activities of the registrant that relate to
(i)
credit cards or charge cards issued by the
registrant, or
(ii) the
making of any advance, the lending of money or the granting of any credit; and
(b) in
any other case, the property or service is deemed, notwithstanding
subsection 141.01(2), to have been so acquired, imported or brought into the
province for consumption, use or supply in the course of those commercial
activities.
[Emphasis added.]
[45]
This provision allows a
registrant that “is neither a listed financial institution nor a person who is
a financial institution because of paragraph 149(1)(b)” (the
appellant is neither of the foregoing) to claim ITCs for property or services
consumed or used by it “in the course of making supplies of financial services that
relate to commercial activities of the registrant”. This result is
achieved because the property or service used to effect the supply of a
“financial service” is deemed to have been acquired for use in the course of
commercial activities for which ITCs may be claimed. In order for a registrant
to benefit from the favourable treatment provided for in subsection 185(1), the
supply of financial services must “relate to” the commercial activities of the
registrant.
[46]
The respondent argues
that the words “relate to” require me to determine whether the appellant placed
the ABMs in its business to facilitate its primary business operations. According
to the respondent, a financial service must be incidental or ancillary to a
registrant’s primary business operations in order to qualify for the favourable
treatment offered by subsection 185(1). The respondent contends that the
appellant did not have to offer cash withdrawal services to its customers
because it accepted payment by credit card and bank debit card. The ABM service
was a separate profit centre for the appellant. For these reasons, the
respondent argues that the appellant’s ABM operations were unrelated to its
other business activities.
[47]
I disagree with the
respondent’s interpretation. The test proposed by the respondent does not
conform to the ordinary meaning of the words "relate to" and fails to
take into account the context and purpose of subsection 185(1).
[48]
In Canada Trustco
Mortgage,
the Supreme Court of Canada (“SCC”) stated that where a provision contains
words with unequivocal meaning, the ordinary meaning of those words plays a
dominant role, and that where, on the other hand, the words may support more
than one reasonable meaning, the ordinary meaning of the words plays a lesser
role and the focus shifts towards the Act’s harmonious whole:
10
. . . When the words of a provision are precise and unequivocal, the ordinary
meaning of the words play [sic] 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.
[49]
The ordinary meaning of
the word “relate” favours the appellant’s position. For example, The
Canadian Oxford Dictionary defines the word “relate” as follows:
Relate, verb
3. (usu. foll. by to, with) bring into
relation with (with one another); establish a connection between (cannot
relate your opinion to my own experience).
[50]
In Nowegijick v. The
Queen,
the SCC held that the phrase “in respect of” has the widest possible scope.
Interestingly, in coming to this conclusion the SCC stated (at page 39) that the
words import such meanings as “in relation to”, “with reference to” or “in
connection with”. The SCC, in Slattery, discussed the definition of “in
respect of” and “relating to” in the context of subsection 241(3) of the Income
Tax Act (“ITA”). The SCC held that the comments in Nowegijick on “in
respect of” are equally applicable to the phrase “relating to”:
In
my view, these comments are equally applicable to the phrase “relating to”. The
Pocket Oxford Dictionary (1984) defines the word “relation” as follows:
…what one person or thing has to with another, way in which one
stands or is related to another, kind of connection or correspondence or
contrast or feeling that prevails between persons or things.
. . .
So,
both the connecting phrases of s. 241(3) suggest that a wide rather than narrow
view should be taken when considering whether a proposed disclosure is in
respect of proceedings relating to the administration or enforcement of the Income
Tax Act.
[Emphasis
added.]
In light of those cases, a registrant needs only to establish
that there is some connection between the making of a supply of a financial
service in respect of which ITCs are claimed and the registrant’s other
commercial activities. The financial services do not have to be found to be
ancillary or incidental to the appellant’s other activities in order to qualify
for the favourable treatment provided for in subsection 185(1). The threshold
is much lower than that suggested by the respondent.
[51]
The respondent points
out that, if I favour the appellant’s position, the appellant will enjoy an
unfair tax advantage, in that it will receive a full credit for the GST paid in
respect of the purchase and operation of its ABMs while the cash withdrawal
services offered by it will remain an exempt financial service for GST
purposes. This will lead to an unlevel playing field because banks pay GST on
the costs of similar service offerings.
[52]
Subsection 185(1) is a
simplification measure. The provision is aimed at reducing controversy by
relieving registrants of the difficult task of apportioning GST paid between activities
that give rise to a credit and those that do not. A registrant can claim ITCs
in respect of financial services contemplated by subsection 185(1) because
the legislator chose to deem inputs for the purpose of financial service
transactions to be inputs for the purpose of commercial activities. The revenue
earned from such transactions escapes GST because the activity remains an
exempt supply for GST purposes. Contrary to the respondent’s contention, Parliament
was undoubtedly aware of this result and favoured simplicity over tax
neutrality concerns when it used broad language to define eligibility under subsection
185(1).
[53]
Weighing the evidence
as a whole, I can find no difference between the appellant’s ABMs and its other
goods and services offerings. The evidence shows that all of the appellant’s
product and service offerings were managed in such a manner as to improve gross
sales and net profits. The appellant’s ABMs also afforded its customers the
same convenience as its other service and product offerings.
[54]
The appellant placed
ABMs in its stores to maximize customer visits. The ABMs were strategically
placed to encourage maximum browsing. The ABM services allowed clients to gain
access to their bank accounts while facilitating the purchase of the appellant’s
other goods and services. The evidence shows that ABM users often made impulse
purchases following a withdrawal of money from their bank accounts. The
appellant profited from both transactions. In my opinion, this is a sufficient
link or connection to justify a finding that the appellant’s ABM operations "relate
to" its other convenience store activities.
V. Due
diligence defence
[55]
The Minister assessed
penalties against the appellant under section 280 of the ETA in connection with
the appellant’s failure to collect GST on the payments it received from CIBC under
the 2001 and 2004 Agreements. The appellant argues that it exercised due
diligence in determining that it did not have to collect GST from CIBC and that
the penalties ought to be cancelled for that reason. It is well established
that a due diligence defence can only be established in one of two
circumstances: where there is a reasonable mistake of fact or where the
taxpayer has taken all reasonable precautions to comply with the ETA. The
appellant did not lead any evidence to show how and why it concluded that the payments
from CIBC were not subject to GST. Therefore, I conclude that the appellant
made an error relating to the interpretation and application of the law. A
mistake of law of that type is not a valid defence against a section 280
penalty. Therefore, the penalty under that section should be maintained.
[56]
No
costs are awarded because the results in this matter are mixed.
Signed at Ottawa, Canada, this 13th day of November 2012.
“Robert J. Hogan”
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