Citation: 2011TCC411
Date: 20110902
Docket: 2010-3809(IT)I
BETWEEN:
LEONARDO FRENNA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan J.
[1]
The Appellant, Leonardo Frenna, is
appealing the determination by the Minister of National Revenue that he was not
entitled to receive a Goods and Services Tax Credit (“GSTC”) of $248 for the 2008
taxation year and which he received during the period July 2009 to June 2010.
[2]
As the only issue was whether the
Minister had properly applied the provisions of section 122.5 of the Income
Tax Act governing entitlement to a GSTC, Mr. Frenna did not appear at the
hearing of his appeal. He was represented by his father-in-law, Mr. Franco
Testani. Mr. Testani has only limited hearing ability so he brought with him to
assist in the presentation of his submissions his daughter, Ms. Sonia Testani,
who is also the spouse of Mr. Frenna.
[3]
The facts assumed by the Minister
in paragraph 9 of the Reply to the Notice of Appeal are not in dispute:
a) The Appellant lived separate and apart from anyone until June 2,
2008 at which time he commenced to cohabit with Sonia Testani;
b)
On June 6, 2009, the Appellant and Sonia Testani were married;
c)
Based upon the revised marital status of the Appellant on June 6, 2009
the Minister made a new determination of the family net income for the 2008
taxation year, to determine the same at $77,367, and issued the Notice of
Determination dated April 30, 2010 claiming overpayment of $124 for the GSTC
issued for the quarters of January and April 2010;
d)
The adjusted income of $77,367 was based upon the income for the 2008
taxation year for the Appellant $3,239 and the spouse $74,128;
e)
The ceiling amount for the adjusted net income of a family for the GSTC
for the 2008 taxation year was $42,231;
f)
As at the time that the quarterly payments for the 2008 taxation year
were made, July and October 2009 and January and April 2010 the Appellant was
married and the Minister applied the family net income for the 2008 taxation
year to determine the eligibility and amount for the GSTC for the quarterly
payments for the taxation year 2008;
g)
As the Appellant had been issued the GSTC at $62 per quarter, for July
and October 2009 and January and April 2010, total $248, the Minister
determined by the issuance of the Notice of Determination issued January 5,
2011 that the Appellant had been overpaid $248.
[4]
Briefly stated, Mr. Testani’s
argument was that the Minister had wrongly taken into account the facts of Mr.
Frenna’s circumstances in 2008 in determining his entitlement to the GSTC
received for the quarters July 2009, October 2009, January 2010 and April 2010.
In support of his position, Mr. Testani provided the Court with all of the
relevant documentation leading up to the assessment under appeal. The only difficulty
with Mr. Testani’s presentation is that his analysis of section 122.5 is
incorrect.
[5]
The purpose of section 122.5 is to
get the GSTC into the hands of lower‑income Canadians to offset the GST
they will have to pay during the year. While that sounds simple enough, achieving
this objective from a legislative perspective requires the use of highly technical
language which is not particularly user-friendly. Briefly summarized, under
subsection 122.5(3), a person is deemed to have paid GST from July to June of
the year following the taxation year in which he applies for the GSTC as well
as in January and April of the year after that; similarly, the GSTC payable during
that period is calculated based on the information provided in the income tax
return for the year he applies. To interpret subsection 122.5(3), regard
must be had to the definitions in subsection 122.5(1), “adjusted income”,
“eligible individual” and “qualified relation”. Equally important is the
definition of the “months specified” for a taxation year under subsection
122.5(4).
[6]
In her submissions, counsel for
the Respondent explained the practical application of section 122.5 by making
reference to the following passage in the Canada Revenue Agency publication, GST/HST
Credit. The starting point for her analysis was to make a distinction
between the “base year” and the “benefit year” as those terms apply to the
calculation of the GSTC:
Base year
and benefit year
The base
year is the year of the income tax and benefit return from which
information is taken to calculate the GST/HST credit entitlement for the
benefit year. The base year is the calendar year just before the start of the
benefit year.
The benefit
year is the 12-month period during which the GST/HST credits are paid. The
benefit year runs from July 1 of the year following the base year to June 30 of
the next year. For example, GST/HST credit payments calculated on the 2010
income tax and benefit return will start being issued in July 2011, which is
the beginning of the benefit year. For more information, see “When do we pay
your credit?” on page 12.
The following
chart illustrates the link between the base year and the benefit year.
|
Base year (tax return)
|
Benefit year
(payments)
|
|
|
July
|
October
|
January
|
April
|
|
2010
|
2011
|
2011
|
2012
|
2012
|
|
2009
|
2010
|
2010
|
2011
|
2011
|
|
2008
|
2009
|
2009
|
2010
|
2010
|
[7]
Applying this approach to Mr.
Frenna’s situation, his “base year” was 2008, the year he applied for the GSTC.
It was upon the information contained in his 2008 income tax return that his
entitlement to receive the GSTC in the “benefit year” i.e., from July 1, 2009
to June 30, 2010, was based. Using the chart above as a guide, one can see that
for the base year 2008, quarterly installments were to be paid for 2008 in the
“months specified” of July 2009, October 2009, January 2010 and April 2010.
[8]
For the purposes of section 122.5,
it is assumed that the circumstances as reported in the year the person applied
for the GSTC will remain the same in the two following years; if that later
turns out not to be the case, however, the person is required under subsection
122.5(6.1) to inform the Minister. Further, if such changes mean that at the
time the person received the GSTC he was no longer eligible for it, the
Minister may require him to repay the GSTC he received.
[9]
That is what happened in the
present case. In 2008, Mr. Frenna properly reported that he was separated and
had an income of $3,239. The Minister accepted these circumstances and using the
2008 information as the base year, determined Mr. Frenna’s eligibility to
receive the quarterly GSTC payments of $62 in the benefit year, July 2009 to
June 30, 2010. It is not disputed that he received these amounts.
[10]
However, on June 6, 2009, Mr.
Frenna and Sonia Testani were married. When this became known to the Canada
Revenue Agency (likely when they duly reported the change in their marital
status in their 2009 returns), Mr. Frenna’s entitlement to a GSTC had to be
redetermined in light of the circumstances as they existed when the GSTC
payments were received. By July 1, 2009, Sonia Testani had become Mr. Frenna’s
spouse and thereby, his “qualified relation” as defined in subsection 122.5(1)
of the Act. As such, her 2008 income of $74,128 had to be added to Mr.
Frenna’s in the calculation of their “adjusted income” for 2008. As their
combined income of $77,367 was well in excess of the cut-off for the GSTC entitlement
of $42,231, Mr. Frenna was assessed for the repayment of the quarterly amounts
paid in 2009 and 2010.
[11]
In these circumstances, there is
no justification to interfere with the Minister’s assessment and accordingly,
the appeal must be dismissed. This conclusion is based on what I believe is the
correct application of section 122.5; there is absolutely no suggestion that
Mr. Testani (as Mr. Frenna’s authorized representative), Mr. Frenna or Ms.
Testani in any way misrepresented their situations to the tax officials.
[12]
At the conclusion of the hearing
of this appeal, I addressed certain other points Mr. Testani had made
during his submissions to the Court. Although Ms. Testani noted my
comments for her father’s benefit, because of his hearing difficulty, I
indicated I would repeat my comments in these Reasons. His submissions and my
responses thereto are summarized below:
1.
Mr. Testani
was understandably distressed that the Canada Revenue Agency had failed to
provide him with the documentation promised in response to his inquiries and
the objection to Mr. Frenna’s assessment. He went on to say that if the
Minister wanted to assess on a certain basis, he should have to prove the basis
for his determination was correct. On this latter point, under Canada’s self‑reporting tax
system, except in certain circumstances not relevant to the present matter, the
onus is on the taxpayer to prove his position in respect of the amount assessed
is correct. As for the lack of documentation, it is unfortunate that Canada
Revenue Agency officials did not provide Mr. Testani with the sort of analysis
presented by counsel for the Respondent; had they done so, this appeal might
not have been necessary. However, the lack of such documentation does not, in
itself, provide me with a legal basis to allow Mr. Frenna’s appeal.
2.
Mr. Testani
submitted that if the Minister’s assessment were based on the assumption that
Mr. Frenna and Ms. Testani had been in a common-law relationship in 2008, then
the Tax Court of Canada ought to order the Canada Revenue Agency to allow
certain adjustments to Ms. Testani’s 2008 income tax return to take that assumption into
account. As it turned out, that was not the Minister’s position but even if it
had been, I have no jurisdiction to make such an order as only the appeal of
Mr. Frenna was before the Court.
3.
In a
similar vein, Mr. Testani argued that if the Minister had assumed that Mr.
Frenna and Ms. Testani had been in a common-law relationship in 2008, the
Canada Revenue Agency ought to have advised Ms. Testani to adjust her income
tax return accordingly to take advantage of a deduction for Mr. Frenna. The
Canada Revenue Agency is not under an obligation to provide such advice to
taxpayers.
4.
Finally, I
referred Mr. Testani to the detailed information contained in the materials
filed by counsel for the Respondent in her submissions, specifically, a
highlighted copy of section 122.5 of the Income Tax Act and the Canada
Revenue Agency publication, GST/HST Credit, in particular, page 9. For
that reason, I have not reproduced the rather lengthy legislative provisions
here.
[13]
For the reasons set out above, the
appeal is dismissed.
Signed at Ottawa, Canada, this 2nd
day of September 2011.
“G. A. Sheridan”
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