Citation: 2010 TCC 460
Date: 20100908
Docket: 2007-3926(GST)G
BETWEEN:
CIBC WORLD MARKETS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Rip, C.J.
[1]
CIBC World Markets Inc.
appeals from an assessment made pursuant to Part IX of the Excise Tax Act
("ETA") for the period November 1, 1999 to
October 31, 2000. In the assessment for 2000 the Minister of National
Revenue ("Minister") did not allow the appellant to revise claims for
input tax credits ("ITC") ("revised claims") for 1998 and
1999 in its Goods and Services Tax ("GST") return for 2000. According
to the Minister, the appellant cannot use a different ITC allocation
methodology ("revised methodology") in its 2000 return to claim ITCs
for 1998 and 1999 when amounts already claimed for these years were based on a
fair and reasonable methodology (“original” or “initial” methodology) determined
by the appellant and used consistently by it throughout each of those years:
sections 141.01, 169 and 225 of the ETA.
[2]
The appellant also
appealed from a penalty assessed under paragraph 280(1)(a) of the ETA
on the basis it was duly diligent in calculating and claiming ITCs and
otherwise attempting to comply with its obligation under the ETA. The
Minister questioned if the appellant has any rights to raise this issue,
whether it was duly diligent in preventing the failure to remit net tax and to
challenge the imposition of the penalty. Appellant’s counsel declared that if her
client were successful, the penalty must fall; if her client does not succeed,
the penalty will remain. She conceded any “due diligence” defence.
[3]
The parties agreed on
the following facts:
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A.
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The Appellant is a financial services company resident in
Canada and a wholly-owned subsidiary of the Canadian Imperial Bank of
Commerce, a diversified financial institution resident in Canada.
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B.
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The Appellant is a financial institution registered under
the Excise Tax Act (Canada) (the "Act") for purposes of the goods and
services tax (the "GST").
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C.
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The Appellant's fiscal year for purposes of the GST is
November 1 to October 31.
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D.
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The Appellant filed its GST return:
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(a)
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for the 1998 fiscal period on February 1, 1999
(the "1998 GST return");
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(b)
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for the 1999 fiscal period on January 31, 2000 (the "1999
GST return");
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(c)
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for the 2000 fiscal period on January 31, 2001
(the "2000 GST return");
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E.
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The Appellant carried on business in several divisions
during the 1998 to 2000 fiscal years, including the Private Client Investment
division (the "PCI division")
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F.
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The amount of GST paid or payable by the PCI division was:
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(a)
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$3,157,271 in the 1998 fiscal year (the "1998 PCI
GST");
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(b)
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$2,525,187 in the 1999 fiscal year (the "1999 PCI
GST");
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(c)
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$3,581,460 in the 2000 fiscal year (the "2000 PCI
GST");
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G.
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The Appellant claimed a total input tax credit
("ITC") of $214,378 in respect of the 1998 PCI GST in its 1998 and
1999 GST returns. The amount of the claim was calculated by multiplying the
1998 PCI GST by a recovery rate of 6.79 per cent.
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H.
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The Appellant claimed an ITC of $152,774 in the 1999 GST return in
respect of the 1999 PCI GST by a recovery rate of 6.79 per cent. The amount
of the claim was calculated by multiplying the 1999 PCI GST by a recovery
rate of 6.05 per cent.
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I.
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The Appellant employed an output-based (revenue) methodology
(the "Initial Methodology") to determine the recovery rates of
6.79 per cent and 6.05 per cent, respectively, that were
used in calculating the ITC claims described above.
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J.
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The Initial Methodology is fair and reasonable and was used
by the appellant consistently throughout the 1998 and 1999 fiscal years.
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K.
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The Minister of National Revenue
(the "Minister") allowed the ITC claims made in the 1998 and
1999 GST returns in respect of the 1998 and 1999 PCI GST, except for certain
adjustments that are not at issue in this Appeal.
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L.
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The Appellant claimed an additional amount of $577,781 as an
ITC in respect of the 1998 PCI GST in its 2000 GST return. Such claim was
calculated by multiplying the 1998 PCI GST by a recovery rate of
25.09 per cent, and then subtracting the ITC in respect of the 1998
PCI GST that had been claimed and allowed previously. (Such calculation is
reflected on page 2 of the Minister's Schedule J attached hereto at
Tab A).
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M.
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The Appellant also claimed an additional amount of $466,402
as an ITC in respect of the 1999 PCI GST in its 2000 GST return. Such claim
was calculated by multiplying the 1999 PCI GST by a recovery rate of
24.52 per cent, and then subtracting the ITC in respect of the 1999
PCI GST that had been claimed and allowed previously. (Such calculation is
reflected on page 2 of the Minister's Schedule I attached hereto at
Tab B).
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N.
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In the 2000 GST return, the Appellant claimed an ITC of
$897,941 in respect of the 2000 PCI GST. Such claim was calculated by
multiplying the 2000 PCI GST by a recovery rate of 25.07 per cent.
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O.
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The Appellant employed a methodology based on both inputs
and outputs (the "Revised Methodology") to determine the recovery
rates of 25.09 per cent, 24.52 per cent and
25.07 per cent, respectively, referred to above at
paragraphs 12 to 14.
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P.
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For purposes of this particular proceeding only, the
Respondent is not challenging that the Revised Methodology is a fair and
reasonable method.
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Q.
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If the Court finds that the Appellant was otherwise entitled
to claim the amounts of $577,781 and $466,402 (referred to in
paragraphs 12 and 13 above)
in its 2000 GST return, the Respondent agreed that the amounts were claimed
within the two‑year limitation period set out in subsection 225(4)
of the Act.
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R.
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The Minister assessed the Appellant's 2000 fiscal year
pursuant to the Act by Notice of Assessment No. 05B 11549
dated December 17, 2004 (the "Assessment").
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S.
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By way of the Assessment, the Minister allowed the ITC claim
in respect of the 2000 PCI GST but disallowed the additional ITC claims in
respect of the 1998 PCI GST (i.e., $577,781) and the 1999 PCI GST (i.e.,
$466,402). The Minister also assessed a penalty and interest in the
Assessment, pursuant to subsection 280(1) of the Act.
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T.
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The Appellant objected to the Assessment on March 14,
2005 and the Minister confirmed the Assessment, as it related to the 1998 and
1999 PCI GST, by Notice of Decision issued on June 26 2007.
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U.
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The Appellant objected to the Assessment on March 14,
2005 and the Minister confirmed the Assessment, as it relates to the 1998 and
1999 PCI GST, by Notice of Decision issued on June 26, 2007.
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[4]
The only other evidence
were "read‑ins" from examinations for discovery of
Ashish Patel, an auditor of the Canada Revenue Agency who was responsible
for auditing the appellant's 2000 GST return, representing the Crown and
Stephen Bobkin, who at time of discovery on September 15, 2008, was
Senior Director of Commodity Taxes with Canadian Imperial Bank of Commerce, the
parent company of the appellant. Mr. Bobkin was authorized to represent
the appellant.
[5]
A registrant is generally
entitled to claim an ITC in respect of GST paid or payable in the course of acquiring
a property or service in a commercial activity, pursuant to
subsection 169(1)
of the ETA. An ITC in respect of a particular property or service arises
in the reporting period during which GST is paid or payable by the registrant
in respect of the acquisition of the property or service.
[6]
A registrant calculates
its "net tax" for each reporting period in its annual GST return. Net
tax is generally calculated as the total amount of GST collectible or collected
by the registrant less any ITCs claimed by the registrant:
subsection 225(1). If the amount of net tax is positive, the registrant is
to pay the excess amount to the fisc; if the amount is negative the registrant
is entitled a refund of tax.
[7]
The appellant’s PCI
division carries on both commercial and other activities and is therefore
required to determine the extent to which property or services are acquired or
imported for consumption, use or supply in its commercial activities, expressed
as a percentage: subsection 169(1). The ETA does not specify any
method or formula to determine the extent to which property or services were
acquired or imported for use partly in commercial activities and partly in
other activities. Subsection 141.01(5) simply requires the allocation method
to be "fair and reasonable and … be used consistently by the person
throughout the year”.
The registrant may claim all of part of the ITC which it has so calculated in
the return which it files for the reporting period in which tax is paid on the
input. Or the registrant may also choose to claim all or part of the credit in
a subsequent return but within the limitation period set out in subsection
225(4) of the ETA.
[8]
The appellant is a "specified person" and as such is
required to claim an ITC within the three year period described in
subparagraph 225(4)(a)(iii), i.e. the reporting period during which
GST was paid or payable or in a return for one of the following two reporting
periods. The parties agree that the revised ITCs were claimed within this
limitation period. Also, before filing the GST return claiming an ITC, the
registrant must have obtained documentation to support the amount of the ITC to
be determined: subsection 169(4), paragraph 225(3)(a) and the Input
Tax Credit Information (GST/HST) Regulations. This was also fulfilled by
the appellant.
[9]
The issue in this
appeal, according to the appellant, is whether, for purposes of claiming ITCs,
its method of allocating inputs between those used in a “commercial activity”
and those used in an “exempt activity” was “fair and reasonable” and used
consistently throughout each of 1998 and 1999 as required by section 141.01 of
the ETA and did not offend section 225 of the ETA.
[10]
The respondent’s view
of the issue at bar is whether the appellant is entitled to claim additional
ITCs in its 2000 reporting period in respect of tax paid on inputs in its 1998
and 1999 reporting periods. The appellant used a method in calculating its ITCs
for 1998 and 1999 that was fair and reasonable as required by subsection 141.01(5)
and was used by the appellant consistently throughout each of the 1998 and 1999
reporting periods. The GST returns filed by the appellant for 1998 and 1999
reporting periods were accurate, insofar as they reflected the extent of the
use of properties and services acquired by the appellant’s PCI division in
commercial activity for each reporting period. The respondent’s position is
that once a registrant has made a proper ITC methodology allocation for a
fiscal year, the registrant cannot change the method in a later period. For the
appellant to succeed, the appellant must establish that subsection 225(3)
allows its claim and that it used the revised methodology “consistently” throughout
the fiscal year, as described in subsection 141.01(5) of the ETA.
[11]
The initial methodology
to determine ITCs for the appellant’s PCI division for 1998 and 1999 was based
on outputs and resulted in 6.79 percent and 6.05 percent of GST paid or payable
in the 1998 and 1999 fiscal years, respectively, in commercial activities;
ITCs were claimed on that basis in the GST returns for 1998 and 1999. The
revised or new methodology used in the 2000 GST return was based on both inputs
and outputs. The revised methodology determined that 25.09 percent and 24.52
percent of GST was paid or payable in 1998 and 1999 fiscal years, respectively,
relating to commercial activities. The appellant claimed ITCs in its 2000 GST
return of 18.3 percent and 18.47 percent, respectively, for 1998 and 1999, that
is, the difference between 25.09 percent and 6.79 percent for 1998 and the
difference between 24.52 percent and 6.05 percent for 1999.
[12]
The appellant submitted
that it claimed “additional” ITCs in the 2000 GST return in respect of 1998 and
1999 ITCs for the PCI division (The additional amount is sometimes referred to
as “Disputed Credit”). The claim for ITCs by the appellant in its 2000 GST
return, it declared, was to recover such portion of the 1998 and 1999 GST for
PCI that it had not already claimed, namely 18.3 percent and 18.47 percent,
respectively.
[13]
How the initial ITC claims for
1998 and 1999 were determined by the appellant is described in subparagraph G,
H and I of paragraph 3 in these reasons. Descriptions of the calculations
of the amounts of ITCs claimed using the revised methodology for 1998 and 1999
are contained in subparagraphs L, M and O of paragraph 3 in these reasons.
[14]
Subsection 141.01(5) of
the ETA states that:
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(5)
The methods used by a person in a fiscal year to determine
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(5) 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 :
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(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
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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;
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(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,
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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.
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shall
be fair and reasonable and shall be used consistently by the person
throughout the year.
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[15]
One of the conditions of
subsection 141.01(5) is that the method used by a registrant in a fiscal
year to determine ITCs shall be fair and reasonable. There is no dispute
between the parties that both the initial methodology and the revised
methodology satisfy subsection 141.01(5)’s requirement that the method be fair
and reasonable. And, warned the Federal Court of Appeal, if a method is fair
and reasonable it is not my role to choose the best methodology from among a
range of fair and reasonable alternatives, but rather to test whether the
methodology used by the taxpayer meets the applicable statutory tests: Magog
(Ville) v. R.
A registrant is free to use any fair and reasonable methodology in determining
ITCs.
[16]
The phrase "used
consistently by the person throughout the year" in
subsection 141.01(5), according to the appellant, means simply that a
registrant may not change a methodology partway through a year, that is, one
may not use one methodology for GST paid or payable during the first six months
of the year and another methodology for the next six months so as to maximize
ITC claims. She added that subsection 141.01(5) was not meant “to prevent
revisions to methodology.” She referred to Technical Notes published in September 2009 with respect
to draft paragraph 141.02(16)(b) for support of her position:
… 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 141.01(5), which apply to input tax credit allocation
methods in general.
[Emphasis added.]
[17]
In Chu v.
The Queen
my colleague Little J., interpreting paragraph 118(5)(a) of
the Income Tax Act in an appeal from an income tax assessment, held that
"throughout" means "through the entire time period" and a
year means 12 months. Thus, "throughout the year" means the
"entire consecutive 12‑month period from January 1 to
December 31 of the particular year" or in the case of a fiscal year, the
consecutive 12 month period from the first day of the first month to the last
day of the last month of the fiscal year.
[18]
Since the appellant
used the revised methodology "uniformly over the course of 1998, 1999 and
2000 fiscal periods", appellant’s counsel submitted, the appellant
complied with the requirements of subsection 141.01(5). It used the
same methodology consistently throughout each of 1998 and 1999. The appellant
refrained from changing methodology partway through a fiscal year and
therefore, its counsel concluded, nothing further is required by the phrase in
question.
[19]
The respondent stated
that the output-based (revenue) methodology initially used by the appellant in
calculating its 1998 and 1999 input tax credits was a fair and reasonable
method and it was used by the appellant consistently throughout the 1998 and
1999 reporting periods. The GST returns filed by the appellant for each of its
1998 and 1999 reporting periods were accurate.
[20]
The reasons of Mr.
Justice Noël in Ville de Magog
were cited by respondent’s counsel: that this Court does not have to decide
whether another method, such as the revised method invoked by the appellant, is
“better” or “truer” than the initial method since both methods were fair and
reasonable. Counsel submitted that while the revised method yields a higher
rate of tax recovery for the appellant, this does not, in and of itself, make
the revised method “truer”, more approximate or “more” fair and reasonable. The
fact that the appellant would have been placed in a more economically
advantageous position if it had chosen to use the revised method in its 1998
and 1999 fiscal years, instead of the initial method, does not entitle the
Court to fail to give effect to the initial method deliberately chosen by the
appellant and used of its own volition and accord in its 1998 and 199 returns.
[21]
The ETA does not
contemplate that a registrant may retroactively substitute the fair and
reasonable method previously adopted and used in a prior fiscal year, according
to the respondent. There are no provisions in the ETA, respondent’s counsel
argued, which state that where a registrant wishes to apply a method to
calculate input tax credit entitlement for a prior fiscal year, which is
different than the method previously used in that prior fiscal year, the
registrant is deemed not to have used the original or initial method in the
prior fiscal year, but is deemed to have used the new method instead. Counsel
added that subsection 141.01(5) does not speak of the method used in the fiscal
year or any other fair and reasonable method that the registrant may wish to
adopt within the statutory limitation period and apply to the fiscal year.
[22]
Parliament has simply
not provided any means to substitute the fair and reasonable method used in the
particular fiscal year, declared respondent’s counsel. The absence of any
provisions in the ETA permitting the retroactive application of a
different method or methods to a prior fiscal year is not accidental, but is
entirely consistent with Parliament’s intent that registrants would not have
the ability to substitute the method or methods used in a particular fiscal
year after the fact. In support of her submission, counsel referred to
Explanatory Notes to Bill C-62 concerning former section 147, which was
replaced by subsection 141.01(5):
This section provided that, for the purpose
of claiming input tax credits, a registrant shall allocate inputs to supplies
using a method, or methods, that are fair and reasonable in the circumstances. The
legislation allows flexibility in the choice of methods as long as they are
fair and reasonable. However, once a registrant adopts a method in a fiscal
year, it is to be used at least until the end of that year, or until it becomes
unreasonable.
[emphasis added by counsel]
The Explanatory
Notes to Bill C-13 with respect to subsection 141.01(5) explained:
As noted above, where properties or services
are acquired or imported, or consumed or used, partly for the purpose of making
taxable supplies and partly for other purposes, the interaction between
subsections 141.01(2) and (3) and 169 leads to an apportionment of the tax
payable in respect to the properties or services in determining the related
input tax credit. Subsection 141.01(5) essentially provides that the method
used to apportion must be fair and reasonable and used consistently throughout
the year. It is intended to impose the same onus on registrants as does
existing section 147 of the Act which it replaces. The wording of the rule
is simply modified to be consistent with new subsections 141.01(2) and (3).
[emphasis added by counsel]
[23]
Respondent’s counsel
referred to the situation at bar as an example of retroactive tax planning, a
term the appellant’s counsel objected to. The appellant is seeking to avoid
bearing the downside of a decision made to use the output-based (revenue)
method in its 1998 and 1999 fiscal years. It wishes to retroactively
recharacterize the extent of the use of its inputs in the course of commercial
activity in the 1998 and 1999 reporting periods, for the purposes of subsection
169(1) of the ETA, because it has since realized that it could have
derived a greater tax advantage in the 1998 and 1999 fiscal years if it had
chosen a different input allocation method.
[24]
The appellant, on the
other hand, insists that it has complied with subsection 225(3) which, its
counsel submitted, was designed solely to prevent registrants from double
counting ITCs and other deductions, except in limited circumstances. She
referred to Technical Notes, dated July 1997:
Subsection 225(3) ensures that there
is no double counting of an amount that would reduce net tax for a reporting
period. Subject to the special cases described in
new paragraphs 225(3)(a) and (b), the amendment clarifies
that once an amount has been 'claimed' in a return, it cannot be claimed
again, whether or not that amount was allowable as an input tax
credit or deduction in the first return.
[Emphasis added]
[25]
Paragraph 225(3)(b)
reads:
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225(3) An amount shall not be included in the
total for B in the formula set out in subsection (1) for a
particular reporting period of a person to the extent that the amount was
claimed or included as an input tax credit or deduction in determining the
net tax for a preceding reporting period of the person unless
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225(3) Un montant n'est pas à
inclure dans le total visé à l'élément B de la formule figurant au
paragraphe (1) pour la période de déclaration
donnée d'une personne dans la
mesure où il a été demandé ou inclus à titre de crédit de taxe sur les
intrants ou de déduction dans le calcul de la taxe nette pour une période de déclaration
antérieure de la personne. Le présent
paragraphe ne s'applique pas si les conditions suivantes sont réunies :
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…
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. . .
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(b) where the person is claiming
the amount in a return
for the particular reporting period and
the Minister has not disallowed the amount as an input
tax credit in assessing the net tax of the person for that
preceding reporting period,
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b) si la personne demande le montant dans une
déclaration pour la période donnée et que le ministre ne l'ait pas refusé à
titre de crédit de taxe sur les
intrants lors de l'établissement d'une cotisation visant la taxe nette de la personne pour la
période antérieure :
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(i) the person reports in
writing to the Minister, at or before the time the return for the particular reporting period is
filed, that the person made an error
in claiming that amount in
determining the net tax of the person for that preceding
period,
and
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(i) la personne déclare au
ministre par écrit, au plus tard au moment de la production de la déclaration
visant la période donnée, qu'elle a commis une erreur en demandant le montant dans le
calcul de sa taxe nette pour la
période antérieure,
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(ii) if the person does not
report the error to the Minister …
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(ii) si elle ne
déclare pas l'erreur au ministre …
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[26]
The appellant did not
double count, its counsel stated. The revised claim is simply the addition of
the disputed credit. No part of the disputed credit was previously claimed as
an ITC in the appellant’s 1998 and 1999 GST return. The appellant argued that
in claiming the disputed credit for each of 1998 and 1999 it complied with the
requirements of subsection 225(3) since it refrained from double-counting ITCs
and other deductions. And where there is no double-counting, subsection 225(3)
is fulfilled, counsel concluded.
[27]
The appellant argued
that since it under‑claimed ITCs in its 1998 and 1999 GST returns and, as
a result, over remitted GST to the Minister, it is entitled to correct in its
2000 GST return insufficient claims of ITCs in 1998 and 1999 and the
corresponding over‑remittance of GST.
[28]
Appellant's counsel
stated that in adopting a value-added tax over other tax systems, Parliament
considered as a first principle the full recovery of GST paid or payable by any
registrant acquiring goods or services in connection with making a taxable
supply in the course of a commercial activity
and, in appellant's counsel's view, the disallowance of the disputed amount
frustrates the fundamental purpose of the GST regime. The appellant under
claimed ITCs in its 1998 and 1999 GST returns in respect of the 1998 and 1999
GST by the amount of the disputed amounts and corrected its mistake in the 2000
GST return within the applicable limitation period. To deny such correction is
contrary to the purpose of ITCs in the GST regime, counsel insisted.
[29]
At his examination for
discovery, Mr. Patel confirmed that at time of assessing the appellant,
the Minister assumed that a choice of methodology is considered an
"election" that is "executed" at the time of filing the GST
return for the relevant period but "cannot be applied retroactively to
replace a previous election and thereby affect a prior period filing".
When the appellant filed the original GST returns for 1998 and 1999 based on a
particular method, according to the Mr. Patel, the appellant filed an election
for each year that cannot be changed later, save and except for the two
examples in subsection 225(3).
[30]
The appellant rejects
the Minister's characterization of a particular allocation method as an
irrevocable election since, among other things, it is not supported by a
textual, contextual and purposive analysis of subsections 225(3) and
141.01(5). Indeed, according to appellant's counsel, the Minister's view
improperly disentitles the appellant to ITCs claimed within the applicable
limitation period that arises from GST paid or payable that had not been
claimed in an earlier return.
[31]
Counsel for the
appellant stated that neither subsection 225(3) nor
subsection 141.01(5) refers in any way to an election. A choice of
allocation methodology is not an election. She estimated that the words
"elect" or "election" are used more than 60 times in
the GST portions of the ETA and concluded that Parliament is presumed to
use words and expressions consistently across statutes with the same subject
matter.
If a registrant's choice of methodology does constitute an election, the
appellant argued, it would be "an unjustified or unreasonable
result". Counsel referred to Nassau Walnut Investments Inc. v. R. for the
proposition that where the Income Tax Act does not explicitly provide
for the late-fling of a designation or election, only a rebuttable presumption
arises as to whether a designation or election may be late-filed. Such presumption
may be rebutted where, among other reasons, the denial of a late-filing would
be unjustified or unreasonable.
[32]
Subsection 141.01(5)
entitles a registrant to choose any method to determine ITCs, so long as it is
fair and reasonable and used consistently throughout the year. In making its
choice, the registrant will normally take into consideration alternative
allocation methods based on their practicality, risk and ability to maximize
claimable ITCs. The choice, once put into effect and reported in a GST return,
ends up being relied upon by the Minister considering the claim for ITCs for
the particular period.
[33]
Canadian courts have
applied the principle that an election, once made, is binding, final and cannot
be altered. In Savage v. Wilby,
Chief Justice Richards of the New Brunswick Supreme Court, Appeal
Division, referred to Lord Blackburn in the House of Lords in Scarf v.
Jardine:
And at p. 621: "The principle, I
take it, running through all the cases as to what is an election is this: that
where a part in his own mind has thought that he would choose one of two
remedies, even though he has written it down on a memorandum, or has indicated
it in some other way, that alone will not bind him; but so soon as he has not
only determined to follow one of this remedies, but has communicated it to
the other side in such a way as to lead the opposite party to believe that he
has made that choice, he has completed his election and can go no further".
[Emphasis added.]
[34]
I need not make a
finding on whether the making of a determination under subsection 169(1)
and the method used by virtue of subsection 141.01(5) is an election.
[35]
Subsection 169(1)
of the ETA provides the formula by which a person entitled to an ITC
determines the amount of ITC. “B” in the formula is dependent on a methodology
which shall be fair and reasonable and used consistently by the person
throughout the year: subsection 141.01(5). When the registrant determines the
amount of the ITC and then makes the claim in its return for the period, the
tax authority will act on this information. To allow revisions to a claim that
is void of error would permit fiscal uncertainty, something Parliament does not
want.
[36]
The appellant has
relied to some extent on the provisions of subsection 225(4) as authority for
it to revise its claims for ITCs. The opening words of subsection 225(4) read:
|
225(4)
An input tax credit of a person for a particular reporting period of the
person shall not be claimed by the person unless it is claimed in a return
under this Division filed by the person on or before the day that is …
|
225(4)
La personne qui demande un crédit de taxe sur les intrants pour sa période de
déclaration donnée doit produire une déclaration aux termes de la présente
section au plus tard le jour suivant : . . .
|
[37]
The opening words of
subsection 225(4) state that a person shall make an ITC claim for a period in a
GST return filed within a certain time and, as I understand it, the appellant
has already made such claims for 1998 and 1999. Paragraph 225(4)(a)
recognizes problems a registrant may have with suppliers, for example, who may
not have charged tax, a situation not an issue before me. Paragraph 225(4)(a)
does not anticipate subsequent claims be filed for the same period in other
circumstances.
[38]
The appellant's counsel
referred to a recent decision of the Supreme Court refusing the Minister to
retain an overpayment of GST. In United Parcel Service Canada Ltd. v. Canada, the Crown
argued that the Minister was entitled to retain an overpayment of GST because,
among other things, the taxpayer had not met the procedural rules for claiming
a rebate.
In a unanimous decision, the Supreme Court rejected the Crown's approach to the
rebate entitlement, disallowing the Minister's assessment in its entirety. As
Rothstein J., speaking for the Court, commented, "I do not think it
lies in the mouth of the Minister to raise such an argument [about potential
fraudulent rebate claims] on the facts of this case where he has agreed that
there has been an overpayment and where his position is that he is entitled to
retain overpaid GST."
It would be contrary to the principle enunciated in the UPS decision,
appellant submitted, to deny the disputed amount paid in error and permit the
Minister to retain the appellant's corresponding over-remission of GST.
[39]
The facts in the appeal
at bar are not similar to those in UPS. The UPS case is
distinguishable because the appellant at bar had not made any error or failed
to "follow procedures" in making its ITC claims in the 1998 and 1999
years. On the contrary, the appellant did follow the necessary procedures and,
accordingly, did receive the claims it filed in its original returns for 1998
and 1999. It got what it asked for.
[40]
All agree that the
initial methodology used by the appellant for its 1998 and 1999 fiscal years
was "a fair and reasonable method" for purposes of
subsection 141.01(5). I believe I may assume that the appellant used its
best efforts to apply the initial methodology in calculating ITCs for 1998 and
1999. The appellant suggests that in determining the use of the initial method,
it erred. The possibility of a registrant making an error and wishing to
correct it is contemplated in subsection 225(3). The error, as I
understand it may have been the choice of the "initial method" which,
in hindsight, failed to identify additional ITCs that the appellant would have
uncovered using the revised method. The appellant says it has made corrections
to amounts determined by the initial method by adopting the revised method
within the period permitted by subsection 225(4).
[41]
Subsection 225(3)
prohibits the inclusion of an amount in the total for B in subsection 225(1)
for a particular reporting period to the extent that amount was claimed or
included as an ITC or deduction in net tax for a preceding reporting period
unless the person was not entitled to claim the amount because he could not
satisfy the requirements of subsection 169(4) at the time the return for
the preceding period was filed, or an error was made in filing of the return
for the particular reporting period and notice is given to the Minister. Neither
of those exceptions is present at bar. Once a registrant determines the ITC in
accordance with section 169, it is not entitled to make another claim
under subsection 225(3).
[42]
I have earlier given my
reasons why subsection 225(4) does not apply to the facts of the appeal at
bar so it will serve no purpose to consider if the appellant made an error
contemplated by that provision. However, in any event, I do not believe the
adoption of the revised methodology to unveil the revised ITC amounts was to correct
any error. There is no evidence before me that the initial claim was made in
error of any kind: it was the result of a methodology that, all agree, was fair
and reasonable, as required by subsection 141.01(5). There is no error of
law and there is no error of fact and I note that Turner, J. in Victoria and Albert Trustees v. The Commissioners of Customs
and Excise, had to consider
whether, under the United
Kingdom Value Added Tax
Act 1994 and its regulations, a person changed its original method of apportioning
properties because of error, as to properties purchased for business and those
for non-business purposes. He wrote:
While it is well established that
"error" within Regulation 64 has to be accorded a wide meaning, the
question remains for consideration whether the trustees in making returns using
the income‑based method of apportionment made any error. If they had been
compelled to make their returns on this basis, when in law they could not be so
compelled, there would be a convincing argument to the effect that the trustees
had made an error. All that has in fact happened is that the trustees, having
sought independent advice, have been able to devise a basis for their returns
which produces a more favourable result. The tribunal concluded on this part of
the case (see p. 13‑14):
… we cannot accept that [the] meaning [of
error] is as wide as Mr. Thomas contends. In our judgment a taxpayer who
has adopted a method which is an acceptable method of apportionment, and has
not made a mistake in the way in which he has applied that method, cannot
sensibly be regarded as having made an "error" simply because he
could have chosen another acceptable method which would have produced a
different amount.
The tribunal was correct in reaching this
conclusion. No error of fact or law had been made, simply an incorrect
assessment of what would have been most advantageous to the trustees. I did not
understand the argument for the trustees to compel a different result. It was
to the effect that the word "error" was to be given a broad
commonsense meaning, such that a trader who had made an error of law or error
of fact should be permitted to rectify his returns and, thus, obtain repayment
of sums overpaid. The problem which, as it seems to me, the trustees are unable
to surmount is in demonstrating of what the error consisted, that is of fact,
law or otherwise. As my holding in relation to appendix J shows, there was
no error of law. No error of fact is asserted other than that a method of
assessment was chosen which did not provide the most favourable outcome. It was
nevertheless not one which involved any intrinsic error of fact or law.
For these reasons already identified, the
tribunal was, in my judgment, correct in the decision at which it arrived, and
this appeal must be dismissed.
[43]
The appellant relied on
subsection 141.01(5) arguing that the revised methodology was used
consistently throughout each of 1998 and 1999. There was no change of
methodology partway through a fiscal year. I disagree.
[44]
Firstly, I find it
perverse that the ETA would permit a change that could not be made
during the year to be made after the year is over. If the methodology is to be
used consistently throughout the year it is, among other things, to ensure that
there is no double counting, as the parties agree. But if the methodology used
consistently throughout the year may be revised for that year once the year is
over, then the purpose for the methodology to be used consistently throughout
the year is defeated. All a registrant would have to do if it realizes mid-year
that there is a more beneficial methodology is to use the "inferior"
method consistently throughout the year and, the day after the year is over,
change the prior year's methodology to one that yields a better tax result. I
do not believe this was the intent of Parliament.
[45]
Secondly, adding an
amount, the disputed credit, to the amounts claimed in the original GST returns
for 1998 and 1999, is not a correction to the initial methodology consistently
used throughout those years when the amount of the disputed credit is founded
on a completely different methodology. A registrant cannot extend the
limitation period to choose a methodology. The appellant’s submission that it
is simply adding the amount of the Disputed Credit to a previous claim for ITCs
is inventive. What the appellant did in preparing its 2000 GST return to revise
the claims for 1998 and 1999 was to take the amount of GST it had paid,
multiplied by the new rate, and then subtracted the amounts it had claimed in
the earlier returns. Or, to put it more succinctly, the Disputed Credit, is
merely a “top off” to the original ITC claim of $214,378 and $152,774 for 1998
and 1999 respectively. However, in reality, it is more than that: the so-called
Disputed Credit is part of an overall claim that includes the original amounts
claimed plus the Disputed Credits which are additional amounts, both amounts
being the aggregate determined by a methodology different from that originally
used to make the initial claims. I cannot find any comfort in the appellant’s
submission that the revised methodology was used “consistently” by the
appellant in the 1998 or 1999 year, within the meaning of subsection 141.01(5).
[46]
The appeal therefore is
dismissed with costs.
Signed at Ottawa, Canada, this 8th day of September 2010.
"Gerald J. Rip"
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