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Docket: 2002-1250(GST)I
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BETWEEN:
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586176 ALBERTA LTD.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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____________________________________________________________________
Appeal heard on March 5, 2003 at Edmonton,
Alberta
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Before: The Honourable Judge L.M. Little
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Appearances:
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Agent for the Appellant:
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Ron Strank
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Counsel for the Respondent:
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Galina M. Bining
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____________________________________________________________________
JUDGMENT
The appeal from the assessment made under the Excise Tax
Act, notice of which is dated August 18, 2000 and bears
number 10121147, is dismissed, without costs, in accordance with
the attached Reasons for Judgment.
Signed at Vancouver, British Columbia, this 19th day of March
2003.
J.T.C.C.
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Citation: 2003TCC150
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Date: 20030319
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Docket: 2002-1250(GST)I
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BETWEEN:
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586176 ALBERTA LTD.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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____________________________________________________________________
REASONS FOR JUDGMENT
Little, J.
[1] The Appellant was incorporated
under the laws of the Province of Alberta.
[2] The Appellant was a
"distributor" as defined in section 178.1 of the
Excise Tax Act (the "Act").
[3] Quorum International Canada Ltd.
("Quorum") was a "direct seller" as defined
in section 178.1 of the Act.
[4] The Appellant distributed security
alarms (the "Products") which it purchased from
Quorum.
[5] The Appellant and Quorum were
registrants under the Act.
[6] In 1991 Quorum made an election
pursuant to subsection 178.2(1) of the Act to have section
178.3 of the Act apply to its supply of Products. The
Minister of National Revenue (the "Minister") approved
Quorum's application. The procedure provided for in section
178.2 is known as the "alternate collection
method".
[7] The supply of Products that Quorum
made to the Appellant was taxable under the Act at a rate
of 7%.
[8] The Appellant filed tax returns
under the Act as follows:
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Period
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Tax Collected
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Input Tax Credits
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Net Tax
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December 31, 1997
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0.00
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$3,546.03
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($3,546.03)
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December 31, 1998
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$2,493.39
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5.78
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2,487.61
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$2,493.39
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$3,551.81
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($1,058.42)
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[9] In May 1999 the Appellant
requested that its Goods and Services Tax ("GST") tax
return for the 1998 period be amended to report tax collected of
$5.78, to claim Input Tax Credits ("ITC") of $2,493.39
and to report net tax of $2,487.61.
[10] Mr. Strank, a Director of the
Appellant, testified that in the 1998 Period (the
"Period") the Appellant purchased Products from Quorum
for sale to various customers. In addition to purchasing Products
from Quorum for sale to customers the Appellant also acquired
Products for the purposes of promoting its business. The latter
Products are referred to as Promotional Products.
[11] The Appellant distributed the
Promotional Products to customers and potential customers and
received no payment for the said Promotional Products.
[12] Mr. Strank testified that when the
Appellant filed its GST Returns for the Period the Appellant
believed that it was entitled to receive an ITC on the GST paid
by it on the Promotional Products. However, Mr. Strank said that
the Appellant's bookkeeper filled out the GST Returns
incorrectly and indicated that the tax collected was $2,493.39.
Mr. Strank said that the accountant should have stated that the
ITC was $2,493.39.
[13] By Notice of Reassessment issued on the
18th day of August 2000, the CCRA reassessed the Appellant and
denied the ITC claimed by the Appellant. In the reassessment the
Minister imposed a tax liability of $3,653.01. The amount of
$3,653.01 includes a penalty of $250.70 and interest of
$194.21.
ISSUE
[14] Is the Appellant entitled to obtain
input tax credits with respect to the GST that was paid by it on
the Promotional Products?
ANALYSIS
[15] Mr. Strank testified that when he met
with officials of the CCRA he was advised that while GST is not
imposed on items such as the Promotional Products he should
obtain a refund of the GST from Quorum and not from the CCRA.
[16] Mr. Strank also testified that during
the meeting he told officials of the CCRA that there was a
serious risk that Quorum would not be in business in the near
future and therefore he must receive information regarding the
Appellant's GST liability as soon as possible. The meeting
with CCRA officials occurred in January 2000 and the Notice of
Reassessment was issued in August 2000. Mr. Strank said that
by the time the Notice of Reassessment was issued Quorum had
applied for bankruptcy protection under Chapter 11 of the
Bankruptcy Act in the United States. Mr. Strank said that
because of the bankruptcy status of Quorum, it was impossible for
the Appellant to obtain a refund of the GST from Quorum.
[17] Paragraph 178.3(1)(b) of the
Act deems that tax was not payable by the Appellant on the
purchase of Promotional Products from Quorum.
Paragraph 178.3(1)(c) provides for the situation
where a direct seller (i.e. Quorum) has been given approval
to apply the alternate collection method. Paragraph
178.3(1)(c) reads as follows:
the contractor is not entitled to any rebate under section 261
in respect of the supply; and
[18] In view of the specific wording of
paragraph 178.3(1)(c) it follows that the Appellant is not
entitled to claim input tax credits in connection with the
Promotional Products.
[19] As noted above Mr. Strank stated that
because of the delay in issuing the reassessment the Appellant
was unable to obtain a refund of the GST from Quorum since Quorum
is in bankruptcy protection.
[20] I have carefully reviewed the Notice of
Reassessment issued on the 18th day of August 2000 and the
letter from the CCRA dated August 25, 2000 (Exhibit A-7). In the
letter from the CCRA it is stated that penalty and interest have
been waived for the period of February 1 to August 18, 2000. In
other words it appears that officials of the CCRA have attempted
to provide for the delay that occurred between the meeting with
Mr. Strank in January 2000 and the issuance of the Notice of
Reassessment by waiving interest and penalty.
[21] Since the Appellant is unable to obtain
a refund of the GST from Quorum it would appear that the
Appellant should be entitled to claim a bad debt equal to the
amount of GST that is owed to it by Quorum in determining the
Appellant's income for income tax purposes for the taxation
year that Quorum became insolvent.
[22] I regret that in these circumstances, I
can grant no relief to the Appellant. However, my responsibility
is to interpret the law and I do not have the authority to amend
the law.
[23] The appeal is dismissed.
Signed at Vancouver, British Columbia, this 19th day of March
2003.
J.T.C.C.
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