Citation: 2010 TCC 469
Date: 20100914
Docket: 2009-3640(GST)I
BETWEEN:
A OK PAYDAY LOANS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Paris, J.
[1] This is an appeal from an assessment by
which the Minister of National Revenue denied the Appellant’s claim under
subsection 261(1) of the Excise Tax Act for a rebate in respect of GST
of $90,200.32 paid in error. Subsection 261(1) reads as follows:
261(1) Where a person has paid
an amount
(a) as or on account of, or
(b) that was taken
into account as,
tax, net tax, penalty, interest or
other obligation under this Part in circumstances where the amount was not
payable or remittable by the person, whether the amount was paid by mistake or
otherwise, the Minister shall, subject to subsections (2) and (3), pay a rebate
of that amount to the person.
[2] The Minister accepted that the Appellant
had paid GST in error but rejected the application for the rebate on the basis
that it was made beyond the time limit set out in subsection 261(3) of the
Act. Subsection 261(3) reads as follows:
261(3) A
rebate in respect of an amount shall not be paid under subsection (1) to a
person unless the person files an application for the rebate within two years
after the day the amount was paid or remitted by the person.
[3] The facts in this case are not in dispute.
The Appellant is in the business of making short-term loans. It became a
registrant under the Act in 1998 and filed quarterly GST returns. The
services provided by the Appellant were exempt from GST, but the Appellant
mistakenly remitted GST on the fees it received. It did not collect GST from
its customers, but remitted it out of the fees collected.
[4] In June 2007, the Appellant became aware
that its services were exempt from GST and received a ruling to that effect
from the Minister in August 2007.
[5] On August 27, 2007, the Appellant applied
for a rebate of the GST paid in error for the periods between April 1, 2005 and
June 30, 2007 (the Later Period). The president of the Appellant, Ms. Charlene
Rosene, testified that she had been told by a Canada Revenue Agency (CRA)
official that she should apply for a rebate for the Later Period only, because
of the limitation in subsection 261(3).
[6] The Minister granted a rebate of $17,809.56
for the Later Period in January 2008.
[7] In February 2008, the Appellant applied for a
rebate of the GST of $90,200.32 paid in error for the periods between December
17, 1998 and March 31, 2005 (the Earlier Period).
[8] By Notice of Assessment dated April 15,
2008, the Minister refused the application because it was made beyond two years
from the time the payments were made in the Earlier Period. The Appellant
objected to the assessment, and the assessment was confirmed by the Minister on
April 27, 2009. This appeal was filed on November 18, 2009.
[9] The Respondent admits that the Appellant
paid GST of $90,200.32 in error for the Earlier Period but says that
subsection 261(3) prevents a rebate from being paid.
[10] The Appellant admits that the rebate
application for the Earlier Period was made more than two years from the time
any of the erroneous GST payments were made in the Earlier Period, but says
that it is entitled to a repayment of the GST by virtue of subsections 296(2.1)
and 296(3.1)of the Act. Subsection 296(2.1) requires that the
Minister, when assessing net tax for a reporting period or assessing for an
amount due under Part IX of the Act, to take into account a rebate to
which a person is entitled under Part IX but which has not yet been claimed by
the person, and to apply the amount of the rebate against net tax or against
the amount owing. Paragraph 296(2.1)(c) provides that the Minister
shall apply the amount of the rebate against the net tax or amount owing even
if the period for applying for the rebate has expired. Subsection 296(2.1)
reads:
296(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 or was so claimed but was disallowed by the
Minister, 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.
[11] The Appellant relies on the decision of the
Supreme Court of Canada in United Parcel Service Canada Ltd. v. Canada, where the Court
confirmed that a person who has paid GST in error has the option of claiming a
rebate under subsection 261(1) or of offsetting the rebate against net tax
owing by it for a reporting period. In the latter case, the expiry of the time
limit in subsection 261(3) is not a bar to offsetting the GST paid in
error against net tax. The same conclusion had been reached in two earlier
cases decided by this Court: Peach Hill Management Ltd. v. Canada and
SAS Restaurants Ltd. v. Canada.
[12] In addition, the Appellant says that by taking into
account the rebate to which it was entitled, the resulting net tax of the
Appellant for the Earlier Period would be negative in the amount of $90,200.32
and that this would be refundable under paragraph 296(3.1)(c).
Subsection 296(3.1) sets out the order in which the rebate is applied
against net tax or overdue amounts, and provides for a refund of any remaining
amount of the rebate, plus interest. Subsection 296(3.1) reads:
296(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.
[13] Counsel for the Respondent submitted that
subsection 296(2.1) is not applicable in this case because the assessment
under appeal is an assessment of the Appellant’s rebate application and not an
assessment of net tax for a reporting period of the Appellant or for any amount
owing under Part IX. An assessment of a rebate application is made under
subsection 297(1) of the Act whereas an assessment of net tax is
made under paragraph 296(1)(a). Therefore, counsel argued, the only
issue before the Court is whether the Appellant’s rebate application met the
conditions set out in section 261.
[14] I agree with counsel for the Respondent that
subsection 296(2.1) can have no application in this case. That provision requires
the Minister to take into account an allowable rebate “in assessing the net tax
of a person for a reporting period of the person or an amount … that became
payable by a person under Part IX of the Act …”.
[15] An assessment of net tax is normally made
under paragraph 296(1)(a) of the Act. That paragraph reads:
296(1) The
Minister may assess
(a) the net tax of a person under Division V for a
reporting period of the person,
The assessment under appeal does not deal with net tax
of the Appellant for a reporting period or with an amount payable by the
Appellant under Part IX. Rather, it
was made under subsection 297(1) of the Act which requires the Minister
to consider an application for a rebate and to assess the amount of the rebate,
if any. Subsection 297(1) reads:
297(1) On receipt of an application made by a person
for a rebate under section 215.1 or Division VI, the Minister shall, with
all due dispatch, consider the application and assess the amount of the rebate,
if any, payable to the person.
[16] The heading on the notice of assessment in
issue reads:
Notice of (Re) Assessment
Goods and Services Tax (Harmonized Sales Tax (GST/HST)
Rebate Application
and the body of the notice reads:
This notice explains the results of our (re) assessment of the
GST/HST rebate application(s) received February 25, 2008.
The notice does not include any reference to net tax of
the Appellant for a reporting period or to an amount owing under Part IX of the
Act.
[17] Finally, although there was no evidence of
when the Appellant was last assessed or reassessed net tax for any of the
periods in which it mistakenly paid the GST, Ms. Rosene confirmed that the
Appellant had not objected to any of those assessments.
[18] The decision of the
Supreme Court in United Parcel Service Canada Ltd. does not assist the
Appellant. It is distinguishable on the basis that the assessments in dispute
there were assessments of net tax. In filing its GST returns for the reporting
periods covered by the assessments, the Appellant had claimed an input tax
credit for the GST paid in error. The Appellants in the Peach Hill
Management Ltd. and SAS Restaurants Ltd. had done likewise, and
their appeals were also from assessments of net tax.
[19] In my view, on an appeal from a reassessment
under subsection 297(1) of an application for a rebate, this Court may
only consider whether the Minister’s decision concerning the rebate was
correct, and whether the conditions for obtaining the rebate set in
section 261 of the Act have been met. Given that, by the
Appellant’s own admission, the application for the rebate was beyond the time
limit set out in subsection 261(3), it is clear that the Minister’s
refusal to grant the rebate was correct, and the appeal must be dismissed.
Signed at Ottawa, Canada, this 14th
day of September, 2010.
“Brent Paris”
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