Date: 20010124
Docket: 98-1936-GST-G
BETWEEN:
9000-6560 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Archambault, J.T.C.C.
[1] Between 1995 and 1997, a vehicle smuggling ring
(smuggling ring) plagued Quebec. It operated using a
scheme that enabled the person or persons who had devised it to
collect the goods and services tax (GST) on vehicle
purchases without remitting it to the tax authorities[1] or made it possible for
input tax credits (ITCs) to be claimed without GST having
been paid on purchases.
[2] Briefly, the scheme used by the smuggling ring, as I
understand it,[2]
worked as follows. A car dealer sold a luxury vehicle, notably a
Jeep Grand Cherokee worth about $40,000, to a native person.
Since the sale was made to a native person on an Indian reserve,
no tax was paid by that person because section 87 of the
Indian Act applied. The native person transferred the
vehicle to a numbered company without collecting the GST or the
Quebec sales tax (QST) (sales taxes).[3] That numbered company
in turn transferred the vehicle to an exporting firm, collecting
the sales taxes but not remitting them to the tax authorities.[4] The exporting firm
then resold the vehicle outside Canada and obtained an ITC in
repayment of the GST it had paid when purchasing the vehicle from
the numbered company.
[3] Although the Minister must know which businesses have
collected sales taxes but not remitted them, he seems to be
unable to recover those taxes for reasons that were not explained
but that can easily be imagined: they have, in all likelihood,
vanished into thin air. However, the dealers leading off this
series of transactions are well established and still carrying on
their activities. It was to them that the Minister sent notices
of assessment claiming the amount of GST that, in his view, they
should have collected when they sold the vehicles to the native
persons.
[4] At the present time, there are apparently about 80 car
dealers in Quebec that have received such assessments. One of
them is 9000-6560 Québec Inc. (Chrysler
St-Jovite). The Minister assessed Chrysler St-Jovite on
August 7, 1997, for $206,253.20 for the period starting on June
1, 1996, and ending on May 31, 1997 (relevant
period). During his audit, the Minister determined that
Chrysler St-Jovite had sold 95 vehicles (95 vehicles) to
native persons without collecting the GST in accordance with
subsection 221(1) of the Act. That subsection reads as
follows:
221(1) Every person who makes a taxable supply shall, as agent
of Her Majesty in right of Canada, collect the tax under
Division II payable by the recipient in respect of the
supply.
[5] In his Reply to the Notice of Appeal, the
Minister—contrary to his usual practice—did not state
the facts on which he had relied in making his assessment.
However, he described his position as follows:
[TRANSLATION]
12. With regard to all of these transactions, the respondent
submits that the appellant, contrary to what it claims in its
Notice of Appeal, did not sell the motor vehicles to Indians who
were entitled to a tax exemption under section 87 of the
Indian Act (R.S.C., c. I-5).
13. The appellant, which is part of a huge motor vehicle
smuggling ring, made sales to Indians (real or fictitious) who
were only mandataries or prête-noms for a non-native
third party, and it apparently did so for the sole purpose of
avoiding collection of the GST (and the Quebec sales tax,
incidentally).
14. The appellant knew very well that the Indians were not
acting on their own behalf, since the transactions were initiated
by the third-party purchasers, who "ordered" the
vehicles from the appellant to be delivered to Indian mandataries
or prête-noms.
15. The deception reached such a level that, during an audit
on the appellant's premises, a representative of the
respondent personally observed—entirely by chance—the
receipt of a facsimile of an alleged Indian’s
identification card, which facsimile was, however, sent by the
real purchaser, 150151 Canada Inc. operating as General Auto
Leasing.
16. To his[5]
astonishment, the respondent also noted that a large number of
telephone calls had been made between the appellant and General
Auto Leasing during the audit period even though there had
apparently been no transactions between those two parties during
that period.
17. Moreover, the appellant cannot claim with any seriousness
that it did not know that the vehicles were not actually being
sold to the alleged Indians, since, inter alia, in a
number of cases the instrument used to pay for the vehicles
referred directly to the real purchaser, 9044-6964
Québec Inc.
18. As well, in several other cases, the respondent found on
General Auto Leasing's premises the data sheets from the
appellant for vehicles allegedly sold to Indians.
19. In a number of cases, the respondent also noted that
General Auto Leasing had purchased vehicles on dates prior
to the dates on which the appellant claims to have sold the same
vehicles to Indians!
20. In addition, the appellant gave the respondent several
alleged acknowledgements of receipt of a vehicle by an Indian on
a reserve that had clearly been altered (names obliterated).
21. Moreover, without limiting the generality of the
foregoing, for a very large number of transactions, the appellant
also failed to provide the respondent with valid proof that the
vehicles had been delivered on a reserve.
22. To top it all off, the appellant's president,
Louis Duchesneau, clearly admitted in the presence of one of
the respondent's representatives that his company had to get
involved in the smuggling to ensure its financial survival.
[6] Although paragraph 21 may suggest that the Minister made
his assessment on the assumption that certain sales may not have
met the conditions set out in section 87 of the Indian
Act—in that, inter alia, no proof was provided
that the vehicles had been delivered on a reserve—the
auditor confirmed during his testimony that his assessment was
not based on that fact. He assumed that all of the sales had been
made on reserves and the vehicles delivered there. It should be
added that the evidence adduced by Chrysler St-Jovite
confirms that all the sales contracts for the 95 vehicles were
signed on a reserve and all the vehicles delivered there.
[7] Basically, therefore, the Minister’s argument is
that Chrysler St-Jovite should have collected the GST when
selling the 95 vehicles because the sales were not really made to
native persons: although native persons signed the sales
contracts, they were acting as mandataries or
prête-noms for non-native third parties. In
the alternative, counsel for the respondent argued that
section 274 of the Act, that is, the general
anti-avoidance rule (GAAR), is applicable here. He
submitted that Chrysler St-Jovite was part of and actively
involved in the smuggling ring, that it engaged in the smuggling
expressly for the purpose of avoiding the collection of the GST
and thereby receiving a benefit: that of reducing the amount of
its net tax payable as determined under section 225 of the
Act.
Facts
Chrysler St-Jovite's version
[8] Chrysler St-Jovite has been operating a Chrysler
dealership since the end of 1994. The president of that
corporation, Louis Duchesneau, owns 50 percent of a holding
company that holds all the shares of Chrysler St-Jovite. The
other 50 percent is owned by a third party.
[9] In October 1996, Mr. Duchesneau received a call from an
Alain Boivin, who wanted to meet him on Rue Ferrier in
Montréal. Mr. Duchesneau did not know Mr. Boivin. During
the meeting, Mr. Boivin, who was about 70 years old, offered to
send buyers to Chrysler St-Jovite in return for a commission of
$100 per vehicle, and Mr. Duchesneau agreed. Mr. Boivin did
not just send customers to Chrysler St-Jovite but also negotiated
the purchase price for them. Mr. Duchesneau stated that he
did not know whether Mr. Boivin was acting on behalf of
General Auto Leasing (GAL), a company of which he
said he had no knowledge. In support of that assertion, Chrysler
St-Jovite filed three cheques totalling $2,215 payable to Alain
Boivin. The cheques are dated January 24, 1997,
January 31, 1997, and February 28, 1997.
[10] Mr. Boivin normally contacted one of Chrysler
St-Jovite's salespersons, a Mr. Forget, to negotiate the
purchase price for the vehicles, which were almost always Jeep
Grand Cherokees. The invoice from Chrysler Canada Limited
(Chrysler Canada) for the vehicle sold to Chrysler
St-Jovite was generally given to Mr. Boivin. It consisted of a
data sheet describing the vehicle, including its registration
number. It should be noted that, on four or five occasions,
native persons went to Chrysler St-Jovite's garage themselves
to choose their vehicles.
[11] Before delivering the vehicle to a native person on a
reserve, Chrysler St-Jovite obtained a copy of the
person's certificate of Indian status and often a copy of
that person's driver's licence. On a number of occasions,
Chrysler St-Jovite's delivery person took a
photograph of the native person with the vehicle when it was
delivered on the reserve. Upon returning to the garage, the
delivery person gave Ms. Léveillée or someone
else in the accounting department the photograph, the certified
cheque or bank draft given to him by the native person and, in
many cases, a credit card slip for the gasoline purchased on or
near the reserve when the vehicle was delivered. That slip
constituted proof that the vehicle had actually been delivered on
a reserve. The employee in the accounting department then drew up
a receipt, which was also placed in the sales file put together
with respect to the native purchaser.
[12] In addition to the documents provided by the delivery
person, that file contained, of course, the sales contract for
the vehicle, Chrysler Canada's invoice or, if the vehicle was
from another[6]
dealer, that dealer's invoice, a status report confirming the
name of the vehicle’s purchaser to Chrysler Canada so that
the manufacturer could send such things as recall notices, and a
copy of the purchaser’s certificate of Indian status and
driver's licence.
[13] That administrative practice followed for the sale of
vehicles to native persons complied with the instructions given
by representatives of the Minister to Mr. Duchesneau and
Ms. Léveillée, who was at that time Chrysler
St-Jovite's controller, in a number of telephone
conversations. Chrysler St-Jovite called to check this regularly,
every three or four weeks. The instructions were always the same,
namely that Chrysler St-Jovite had to keep on file a copy of the
native purchaser's certificate of Indian status and provide
proof that the vehicle had been delivered on a reserve. Those
instructions are moreover consistent with technical information
bulletin B-039R of November 25, 1993, which is
entitled GST Administrative Policy – Application of
GST to Indians.
[14] Chrysler St-Jovite's policy was never to deliver a
vehicle to a customer without being paid by certified cheque or
bank draft, except in highly exceptional circumstances: for
example, in the case of a longtime customer where there was
almost no risk of the customer defaulting on payment. For the
95 vehicles in question, Chrysler St-Jovite always
obtained a certified cheque or bank draft; otherwise, the
delivery person would have left with the vehicle.
[15] The employees in the accounting department were the ones
who looked after cashing the certified cheques and bank drafts.
In general, Mr. Duchesneau did not see them. He therefore did not
know that some of the bank drafts had been issued at the request
of numbered companies, including 9044-6964 Québec
Inc. (9044).
[16] Mr. Duchesneau said that he stopped doing business with
Mr. Boivin in early 1997. The native purchasers were thereafter
sent to him by one Alain Picard, resident of the Kahnawake
reserve who ran a used car sales business. Mr. Duchesneau
said that he preferred dealing with Mr. Picard because he could
obtain a better price for his vehicles. Since the number of Grand
Cherokees he could sell was limited, he preferred to sell them to
the native persons sent to him by Mr. Picard. The number of
vehicles sold to customers sent to him by Mr. Boivin was 20
or 25; all the others were sold through Mr. Picard.
[17] Mr. Duchesneau maintained that he did not know that the
natives were reselling the vehicles. As far as he knew, they were
the real purchasers of the vehicles, and he was not at all aware
of the existence of a vehicle smuggling ring. He said, of course,
that he was not part of any such ring. He said that he did not
learn of GAL's role in the smuggling ring until a meeting
with representatives of the Minister at the end of May 1997.
[18] At that meeting, Mr. Duchesneau was shown a table
depicting the smuggling ring. Chrysler St-Jovite's name did
not appear in the table. Nor was Mr. Duchesneau accused of
fraud. On the contrary, it was acknowledged that he was not one
of those who had devised the scheme. In his testimony, Mr.
Boulay, the Minister's auditor, did not contradict this
version of the facts given by Mr. Duchesneau. Moreover,
Chrysler St-Jovite continued selling to native persons even after
Mr. Boulay's audit began on April 21, 1997. Mr. Duchesneau
even showed Mr. Boulay two vehicles that he was preparing to
deliver on a reserve.
Respondent's version
[19] Mr. Boulay was the main witness for the respondent.
He first contacted Chrysler St-Jovite on April 21, 1997.
Previously, during an audit of an exporting firm, he had noticed
that a number of the exported vehicles had gone through native
persons' hands and that several of them had been purchased
from Chrysler St-Jovite. In addition, Mr. Boulay
knew that the previous year, 1995, the Minister had made
assessments against dealers that had sold vehicles to native
persons as part of the operations of smuggling rings.
[20] Between April 24 and May 1, 1997, Mr. Boulay went to
Chrysler St-Jovite's place of business three times
and examined its accounting records. He also noted that the ITCs
claimed by Chrysler St-Jovite were higher than the amounts of GST
collected by that dealer. Since his audit concerned the period
from August 1996 to April 1997, he drew up a list of the sales to
native persons for which Chrysler St-Jovite had not collected any
GST.
[21] Mr. Boulay went back to the Department with that
list and consulted the computerized data of the
Société de l'assurance-automobile du
Québec (SAAQ) to determine what had happened to the
vehicles sold to the native persons. Three exhibit books
containing 104 exhibits in all were filed by counsel for the
respondent. All of the documentary evidence gathered by Mr.
Boulay can be found therein, including the documents relating to
each of the 95 vehicles involved.
[22] Those documents generally include for each vehicle the
sales contract between Chrysler St-Jovite and the
native person, a copy of the native person's certificate of
Indian status and driver's licence and a computerized
statement from the SAAQ containing the vehicle's registration
history. Using those computerized statements, the auditor was
able to prepare 84 diagrams showing the transfer of ownership of
84 of the 95 vehicles. Those diagrams were produced in Court as
an aide-mémoire.
[23] A representative of the SAAQ testified to explain the
data found in the SAAQ's computerized statements. She told
the Court that the date given as the purchase date corresponds to
the date on which the vehicle is registered with the SAAQ and not
necessarily the date on which ownership of the vehicle is
transferred. Since several transfers may occur on the same day,
the SAAQ is able to determine the order of the transfers on a
given day based on the holder's signing of the registration
certificate over to the new purchaser of the vehicle.
[24] The documents gathered by the auditor also include some
cheques and bank drafts that he was able to obtain from the
companies described as resellers in his diagrams.
[25] An analysis of the diagrams shows that the vehicles sold
by Chrysler St-Jovite were part of simple series of
transactions in some cases and of much more complex series in
others. As an example of a simple series of transactions, I will
describe the case of the vehicle sold by Chrysler St-Jovite to
Ms. McComber on October 24, 1996 (Exhibit I-5). In describing the
transfers among the following persons in chronological order,[7] I indicate the
amount and the date of the sale[8] in parentheses where that information is
available: (1) Chrysler Canada (26/09/96, $40,863[9]),
(2) Chrysler St-Jovite (24/10/96, $42,163), (3) Margaret
McComber, (4) 9037-1550 Québec Inc., (5) 2911639
Canada Inc. (25/10/96, $38,700, $44,100.59 tax included,
(6) 150151 Canada Inc. (General Auto Leasing or GAL)
(28/10/96, $40,500, $46,151.78 tax included),[10]
(7) 2727234 Canada Inc.[11] (United Auto).
[26] The more complex series of transactions include a series
that began with a sale on April 15, 1997 by Chrysler St-Jovite to
Bobbi-Jo Ganley (Exhibit I-74), a native person
from Kahnawake. In this example, there were 10 transfers of
the same vehicle, three of which were to different native
persons. The list of the parties involved in the transfers, in
chronological order,[12] with the date[13] and the amount involved shown in parentheses
where that information is available, is as follows: (1) Chrysler
St-Jovite (15/04/97, $41,626), (2) Bobbi-Jo Ganley,
(3) 9015-2372 Québec Inc. (Auto
Classic) (14/04/97, $41,000, $46,721.55 tax included), (4)
3288943 Canada Inc. (Auto Stolz) (14/04/97,
$42,000), (5) Tina McComber (native), (6) Auto Classic,
(7) Sauvé Plymouth Chrysler (15/04/97, $41,750), (8)
Christin Norton (native), (9) Auto Classic,
(10) S.D. Auto and
(11) 3347923 Canada Inc.[14]
[27] The disturbing facts revealed by the auditor's
analysis of the documents in Exhibit I-74 include the cheque for
$46,721.55 made out by Auto Stolz to Auto Classic, which is
dated April 11, 1997, or four days before the date of the sale by
Chrysler St-Jovite to Bobbi-Jo Ganley. Moreover, the sales
contract between Auto Classic and Auto Stolz is dated April
14, or one day before the date of the sale by Chrysler St-Jovite
to Bobbi-Jo Ganley. The sales contract between Sauvé
Plymouth and Christin Norton—which is dated April 15,
1997—shows a delivery date of April 14, 1997.
Sauvé Plymouth's receipt for $41,750 is also
dated April 14, 1997.
[28] It should be noted that the respondent's evidence
does not show that all of the 95 vehicles were resold by the
native persons. According to the SAAQ's data, Donald McComber
and Christin Norton still own their vehicles (see Exhibits
I-96 and I-97). There is also no evidence that the
vehicles described in Exhibits I-42, I-53 and
I-59 were resold by the native persons. As regards the last
two cases, the auditor admitted that he was unable to obtain any
information from the SAAQ.
[29] A number of the documents provided by the auditor show
that the money used to pay Chrysler St-Jovite came from GAL. In
particular, the documents in Exhibit I-35 show that GAL issued a
certified cheque for $44,100.59 to 9044 on
January 29, 1997, and that 9044 had a bank draft issued
to Chrysler St-Jovite the same day even though 9044 was the third
transferee after Chrysler St-Jovite.[15] Moreover, according to a
United Auto worksheet, the date on which the vehicle was sold by
GAL to United Auto was January 27, 1997, or the day before the
sale by Chrysler St-Jovite to Ms. Morris. According to the same
document, United Auto's purchase price was $39,800, or less
than the $41,626 paid by Ms. Morris on January 28, 1997.[16]
[30] Mr. Boulay said that he told Mr. Duchesneau to
be careful when he sold high-end vehicles that were paid for
through bank drafts. That warning was apparently given on April
24 or 25, 1997. On May 1, 1997, while finishing his audit in the
administrative offices of another dealership garage owned by
Mr. Duchesneau, Mr. Boulay read a facsimile from
[TRANSLATION] "Alain to France" by means of which the
sender, Alain, sent a copy of a certificate of Indian status and
driver's licence. Mr. Boulay said that he asked Mr.
Duchesneau to explain to him why he was receiving certificates of
Indian status by fax from GAL when the vehicles sold to native
persons were purchased subsequently by GAL.[17] Mr. Duchesneau allegedly
told him that he had no choice but to make sales to native
persons, for otherwise he could lose his garage.
[31] According to Mr. Boulay, Mr. Duchesneau was
aware that the vehicles were not staying in the native
persons' hands but did not want to know what happened
afterwards. He said that Mr. Duchesneau told him the
following anecdote: at one point, when making a delivery, one of
his delivery persons had asked what the native persons did with
the vehicles. Mr. Duchesneau was subsequently
"advised" by telephone not to send that delivery person
any more because his safety could not be guaranteed.
[32] When asked at the end of his testimony to summarize the
facts in support of his assessment, Mr. Boulay mentioned the
following points:
The vehicles purchased by the native persons were generally
transferred again the same day or shortly thereafter, in the days
that followed.
(ii) Several vehicles were transferred by Chrysler St-Jovite
to the same person.
Inter alia, there were four sales to Mr. Iseequin:
December 5, 1996, December 20, 1996, January 29, 1997,
and April 29, 1997 (Exhibits I-19, I-23,
I-34 and I-89). There were four sales to Michael
Desgagnés: February 11, 1997, March 20, 1997,
April 22, 1997, and May 1, 1997 (Exhibits I-37,
I-58, I-80 and I-92). There were also four
sales to Wendy Morris: October 30, 1996, January 21,
1997, January 28, 1997, and April 8, 1997 (Exhibits
I-7, I-27, I-35 and I-70). According to
the auditor, some 20 native persons acquired more than one
vehicle from Chrysler St-Jovite. Chrysler St-Jovite therefore had
to be aware that those persons were acting as
prête-noms.
(iii) The fact that Chrysler St-Jovite, which was located in
Saint-Jovite north of Montréal, was selling to
native persons living on the Kahnawake reserve south of
Montréal had to be another indication that those persons
could not be acting on their own behalf and that
Chrysler St-Jovite must have known of the smuggling
ring's existence.
(iv) According to the auditor, all the dealers must have been
aware of the problem in the summer of 1996 because the Minister
had started making assessments against some of them. That
knowledge could have come from the CCAQ.
(v) The fact that Chrysler St-Jovite agreed to deliver the
vehicles described in Exhibits I-30 to I-33 even
though payment was made the following day was an indication that
it knew it would be paid and that it was part of the smuggling
ring.
(vi) The close contact between Chrysler St-Jovite and GAL, as
shown by GAL's telephone statements, and the fact that GAL
had the manufacturer's invoices, show that Chrysler St-Jovite
was heavily involved in the smuggling ring.
(vii) Obviously, the very large number (95) of sales of luxury
vehicles in such a short time should have told Mr. Duchesneau
that there was something suspicious going on.
[33] On cross-examination, Mr. Boulay admitted that he had not
considered the possibility that the native persons purchased
their vehicles in order to resell them as part of a
well-established business or an adventure in the nature of
trade.
Chrysler St-Jovite's explanations
[34] In support of his argument that Chrysler St-Jovite was
really doing business with native persons and not with such
persons acting as prête-noms for someone else,
Mr. Duchesneau filed the sales files put together for a
number of native persons, including that of André
Cataford, to whom Chrysler St-Jovite reimbursed $485 that
he had overpaid. Mr. Duchesneau said that
Chrysler St-Jovite's salespersons received
commissions on the sales they made to native persons.
[35] With regard to the fact that four vehicles, namely those
described in Exhibits I-30 to I-33, may have been delivered
without payment being made on delivery, Mr. Duchesneau
reaffirmed that no vehicles had been delivered without payment
being made either before or at the time of delivery. He explained
that the independent transportation company that delivered the
vehicles in question may have dated its invoice January 28 even
though the delivery did not actually occur until the following
day, January 29. It should also be noted that the four vehicles
were transported on the same trailer.
[36] As regards the fact that Chrysler St-Jovite allegedly
sold a number of vehicles to the same native person,
Mr. Duchesneau stated that he had not noticed this during
the relevant period. His counsel told him of it the day before
the hearing.
[37] Mr. Duchesneau affirmed that he did not remember
discussing with Mr. Boulay the facsimile sent by Mr. Boivin that
had been intercepted by Mr. Boulay. He learned of its existence
when one of his employees told him about it. He said that he did
not notice at the time that General Auto Leasing's name was
on the document. It should be noted that that name does not
appear either under "From" or in the body of the
document but is found only in the space reserved for the modem
transmission data at the top of the facsimile.
The CCAQ's efforts
[38] Jacques Béchard, the CCAQ's president and
chief executive officer, also testified to describe the efforts
made by that association, starting in the summer of 1996, with
respect to the problems created by the smuggling ring. In a
letter dated June 13, 1996 to Bertrand Croteau,
assistant deputy minister and director general at the Quebec
Department of Revenue (Quebec department),
Mr. Béchard described the CCAQ as an organization
representing some 860 car dealers, that is, more than 90
percent of all dealers in the province of Quebec. He reminded
Mr. Croteau that the CCAQ regularly approached the Quebec
department to ensure that its members were complying with their
tax obligations.
[39] Mr. Béchard also informed Mr. Croteau that
the Minister had sent five dealers that were CCAQ members
proposed assessments related to a problem with the GST not being
collected on sales of vehicles to native persons.
[40] The association made many approaches to senior officials
in the Quebec department, to the Quebec Minister of Revenue and
the Quebec Minister of Finance and even to the Premier of Quebec.
Similar approaches were made to a federal minister, Marcel
Massé, as well as to the office of the Minister of
National Revenue and senior officials in his department.
[41] The purpose of these efforts was twofold: first, to
convince the Minister not to act on the proposed assessments
against some of its members, and second, to find a solution which
would end the smuggling ring's abuses. Basically, the
solution put forward by the CCAQ involved amending the Act or
changing administrative practices in such a way that all dealers
would be required to collect the GST when selling vehicles to
native persons, and—as was the case at the provincial level
before the GST was introduced in 1991—those native persons
would be able to obtain a refund of the GST by applying to the
Minister.
[42] On February 11, 1997, Jacques Béchard sent
all the dealers that had received proposed assessments concerning
sales to native persons a note summarizing the meetings with the
Quebec department. He stated the following in that note:
[TRANSLATION]
We pointed out to them [the tax authorities] that our members
should not have to pay the price for abuses committed by native
or other persons who deal in vehicles without car dealers knowing
about it. We therefore asked the department not to act on the
proposed assessments and we also asked it to change the rules for
the future, for instance, by recommending to dealers that they
charge tax on sales to native persons and at the same time
provide them with a tax refund application form, as was done
before 1992.
[43] It was not until July 1997 that the CCAQ clearly informed
its members of the precise nature of the problem presented by the
smuggling ring. In an article entitled [translation] "The
problem of vehicle sales to native persons: the Department of
Revenue is going after the wrong people, the CCAQ exposes the
injustice", the scheme was described as involving
[TRANSLATION] "scams and fraudulent tax practices". The
article also stated that the loss of revenues for the federal and
Quebec tax authorities as a result of the smuggling ring amounted
to about $25 million over 18 months, or $12.5 million for
each level of government.
[44] Mr. Duchesneau said that he did not become a member
of the CCAQ until January 1997 and did not receive any
information from it about the smuggling ring. It was not until
his meeting at the Minister's office on May 25, 1997, that he
learned of its existence. I note that the last sales covered by
the assessment occurred on May 8, 1997.
[45] Despite all its efforts and initiatives, the CCAQ did not
attain its two objectives. Not only did the Minister not cancel
his proposed assessments of the five dealers, but about 80 Quebec
car dealers received notices of assessment for failing to collect
the GST on sales of vehicles to native persons. Moreover, the
Canadian government rejected the request to amend the Act or to
change its administrative practices regarding non-collection of
the GST on the sale of vehicles to native persons.
[46] An explanation for the government's refusal can be
found in a letter written to Mr. Béchard on May 20, 1997,
by the Deputy Minister of National Revenue. On page 2 of that
letter, the Deputy Minister stated the following:
[TRANSLATION]
In your letter, you suggest some changes to the
Department's administrative policy concerning sales to Indian
customers, particularly in the case of sales of motor vehicles.
In this regard, I would like to point out that section 87 of the
Indian Act provides the legal basis for exempting Indians
from certain forms of taxation. The exemption privileges
associated with that provision are protected under the
Constitution Act, 1982, and may not be invalidated by any
other Act of Parliament. Specifically, purchases of personal
property of an Indian or Indian band situated on a reserve and
the interest of an Indian or Indian band in reserve lands or
designated lands are tax-exempt under the Indian
Act.
The purpose of the Department's administrative policies is
to ensure that this tax exemption is protected. Purchases made by
individual Indians off-reserve may be GST-exempt if the
goods are delivered to a reserve by the vendor or the
vendor's agent. The Indian purchaser does not have to be
resident on a reserve to obtain this tax exemption.
[47] Exasperated by the inaction of the tax authorities, the
CCAQ issued a news release on December 4, 1998, announcing its
members' decision to stop delivering vehicles on reserves.
Vehicles sold to native persons would be delivered at the
dealer's place of business and both taxes would be collected.
The news release reads as follows:
[TRANSLATION]
NEWS RELEASE
Trafficking in vehicles purchased tax-free by aboriginals
-
CCAQ forced to act in the face of government
inaction and indeed negligence
Québec, December 4, 1998 - On November 23, 1998,
J.A. Gérald Drolet and Jacques Béchard,
respectively chairman of the board and president and CEO of the
Corporation des concessionnaires d'automobiles du
Québec (CCAQ), held a press conference to bring to the
public's attention the issue of the export trafficking of new
cars purchased tax-free by native persons and resold to
individuals or companies who are in collusion with them. Those
native persons are abusing their status by this conduct, and it
is the dealers who are paying the price.
Rather than pursuing those who are actually guilty, the
Government of Quebec has been engaged for nearly 30 months now in
a veritable "witch hunt" against the dealers, 70 of
which have unfairly received notices of assessment from the
Quebec tax authorities, who want to recover more than $5 million
in taxes not collected on sales of vehicles to native
persons.
From the outset, the Corporation has suggested simple,
effective solutions to put an end to this deplorable situation.
For example, it suggested that sales of vehicles to native
persons be taxable and that it be up to them to claim a refund
from the Department of Revenue, as was the case before 1991.
The Corporation also suggested that the Department of Revenue
issue each native person a certificate confirming to the dealer
that that person is exempt from the GST and the QST on the
purchase of a vehicle. Finally, it asked the government to
resolve this problem, which has gone on for too long already,
before the end of November.
Since the government continues to take pleasure in acting to
the detriment of the province's taxpayers as a whole, the
Corporation, pursuant to its ultimatum, has sent its 860 member
dealers a letter recommending that, each time they sell a vehicle
to a native person, they deliver it at their place of business
and collect both taxes.
The CCAQ deplores the governments' inaction and indeed
negligence in this matter. Through this recommendation to its
members, it is proving once again that dealers are very eager to
comply to the letter with the various statutes that govern
them.
Respondent's argument
[48] Counsel for the respondent argued that Chrysler St-Jovite
did not sell its 95 vehicles to native persons. Rather, the
native persons acted as prête-noms or
mandataries for non-native third parties.
Chrysler St-Jovite was therefore required to collect the GST
under subsection 221(1) of the Act. In the alternative, counsel
for the respondent argued that section 274 applies because
Chrysler St-Jovite received a tax benefit, namely the reduction
of its net tax as determined under section 225 of the Act.
Moreover, counsel maintained that Chrysler St-Jovite
[TRANSLATION] "was knowingly involved in a scheme to sell
[vehicles] without collecting the GST". In his view,
Chrysler St-Jovite [TRANSLATION] "knew that the
said vehicles were not really being sold to Indians, as the
Indians were merely intermediaries or
prête-noms" (page 7 of the respondent's
submissions). His conclusion at page 8 of his submissions is as
follows:
[TRANSLATION]
The scheme in which the applicant was involved was known to it
from the outset, even before the first sale to an Indian. The
evidence has shown collusion among the participants in the said
scheme, the sole purpose of which was tax avoidance and the
consequent reduction of the applicant's net tax, thus
violating the provisions of the Excise Tax Act.
Chrysler St-Jovite's position
[49] Counsel for Chrysler St-Jovite argued that the onus is on
the respondent to prove the correctness of the Minister's
assessment. He argued that the respondent, in her Reply to the
Notice of Appeal, failed to state the facts on which the Minister
had relied in making his assessment, contrary to
paragraph 49(1)(d) of the Tax Court of Canada
Rules (General Procedure). He also referred to the principles
respecting the burden of proof stated in the case law,
inter alia in Brewster v. The Queen, 76 DTC
6046, at page 6049. According to those principles, the
taxpayer's obligation is limited to demolishing the facts on
which the Minister relied in making his assessment and the
Minister may raise new facts to support his assessment but bears
the burden of proving those facts.
[50] On the merits of the case, counsel argued that Chrysler
St-Jovite complied with the instructions it received from
the Minister concerning the collection or non-collection of
the GST. He noted that, according to technical information
bulletin B-039R and the verbal instructions obtained by
Chrysler St-Jovite's employees, Chrysler St-Jovite
was not obliged to collect the GST when it made a sale to a
native person and the vehicle was delivered on a reserve. Here,
the evidence shows that all the vehicles sold to natives by
Chrysler St-Jovite were delivered on reserves.
[51] As far as Chrysler St-Jovite was concerned, the real
purchaser was the native person and this person was not acting as
a mandatary or prête-nom for a non-native
third party. According to counsel, there is nothing in the
evidence that could enable the Court to conclude otherwise. In
any event, even if the native person had acted as a mandatary,
Chrysler St-Jovite was entitled to act as if the native person
were the true purchaser of the vehicle since it was not aware of
the existence of the contract of mandate.
[52] Furthermore, Chrysler St-Jovite had no obligation to
investigate and determine how the native person used the vehicle
purchased from it.
[53] With regard to the respondent's alternative argument
concerning the application of section 274 of the Act, counsel
submitted that the three elements essential to its application,
namely the obtaining of a tax benefit, the existence of an
avoidance transaction and a misuse of, or an abuse having regard
to, the provisions of Part IX of the Act, are not present here.
Chrysler St-Jovite did not receive any tax benefit. Counsel
stated the following at page 3 of his submissions:
[TRANSLATION]
When a sale is made to an Indian and the conditions set out in
section 87 of the Indian Act are met, the Appellant
does not have to collect the tax or remit it to the Minister. The
Appellant derives no benefit from not collecting the tax and not
including it in determining its net tax. If we were to determine
who derives a benefit from the tax not being collected, we would
have to conclude that the Indians do. However, we could not
characterize that benefit as a tax benefit for the purposes of
the Excise Tax Act, since it is a benefit authorized by
the Indian Act, which takes precedence over the Excise
Tax Act.
[54] If there is no tax benefit, there cannot be any avoidance
transaction. The only transactions undertaken or arranged by
Chrysler St-Jovite, namely the sales to native persons, were
undertaken or arranged primarily for bona fide purposes,
[TRANSLATION] "that is, commercial purposes accomplished in
the normal course of operating its business" (page 5 of his
submissions). Finally, there was no misuse or abuse of the Act
because Chrysler St-Jovite complied with the Act and with the
Indian Act.
Analysis
[55] The first question to be decided is where the burden of
proof lies. Who in this case bears the burden of proving or
demolishing the facts supporting the assessment? The fundamental
rule on burden of proof is that the onus is generally on the
taxpayer to demolish the facts on which the Minister relied in
making his assessment. There are a number of judgments that have
laid down and applied this rule. They include two decisions by
the Supreme Court of Canada: Johnston v. M.N.R.,
3 DTC 1182, at page 1183, and Hickman Motors Limited v.
Canada, [1997] 2 S.C.R. 336, at page 378 (97 DTC 5363,
at page 5376). It hardly needs to be pointed out that, if the
onus is on the taxpayer to demolish the facts on which the
Minister relied in making the assessment, it is important that
the respondent disclose those facts to the taxpayer. The
following was stated by Bastarache J. in Continental Bank of
Canada v. Canada, [1998] 2 S.C.R. 358, at page 367,
para. 13 (98 DTC 6501, at page 6505, para. 32):
Taxpayers must know the basis upon which they are being
assessed so that they may advance the proper evidence to
challenge that assessment. Here, it is not clear that there is
the proper factual basis to support a reassessment on the basis
proposed by the appellant.
[56] Moreover, as noted by Hugessen J.A., then a Federal Court
of Appeal judge, in Pollock v. The Queen, 94 DTC 6050
(F.C.A.), the facts assumed by the Minister must be set out in
the Minister's pleadings. Hugessen J.A. stated the following
on this point at page 6053:
It is, of course, the general rule that every party to
litigation in this Court must plead the facts upon which he
relies in such a way as to put his opponent fairly on notice of
the case he has to meet. Where a party's pleadings are so
inadequate as to disclose no case at all he runs the risk of
having them struck out and of loosing [sic] for that
reason. . . .
The special position of the assumptions made by the
Minister in taxation litigation is another matter altogether.
It is founded on the very nature of a self-reporting and
self-assessing system in which the authorities are obliged to
rely, as a rule, on the disclosures made to them by the taxpayer
himself as to facts and matters which are peculiarly within his
own knowledge. When assessing, the Minister may have to assume
certain matters to be different from or additions to what the
taxpayer has disclosed. While the Minister's assumptions,
if any, are generally made in the pleadings, that is not always
the case and we have seen, in this very record, an example of
the taxpayer taking pains to demolish assumptions which the
Minister had not pleaded. Where pleaded, however, assumptions
have the effect of reversing the burden of proof and of casting
on the taxpayer the onus of disproving that which the Minister
has assumed. Unpleaded assumptions, of course, cannot have that
effect and are therefore, in my view, of no consequence to us
here. . . .
Where, however, the Minister has pleaded no
assumptions, or where some or all of the pleaded assumptions
have been successfully rebutted, it remains open to the
Minister, as defendant, to establish the correctness of his
assessment if he can. In undertaking this task, the
Minister bears the ordinary burden of any party to a lawsuit,
namely to prove the facts which support his position unless those
facts have already been put in evidence by his opponent. This is
settled law.
[Emphasis added.]
[57] Here, the respondent did not state in her Reply to the
Notice of Appeal the facts on which the Minister relied in making
his assessment.[18] She merely put forward factual arguments, in
particular those set out in paragraphs 12 et seq. of the
Reply: [TRANSLATION] "the respondent submits that . .
.". In the circumstances, I believe that the onus was on
the respondent to prove the facts supporting the Minister's
assessment. She did not benefit from any presumptions of fact,
and Chrysler St-Jovite therefore did not have any
facts to demolish. However, once the Minister adduced his
evidence of the facts that could support his assessment,
Chrysler St-Jovite had to adduce rebuttal evidence.
Let us therefore examine both parties' evidence.
Obligation to collect: subsection 221(1) of the Act
[58] The respondent's main argument is that the native
persons were acting as prête-noms for
non-native third parties and that Chrysler St-Jovite knew
this or ought to have known it. First of all, it should be noted
that the Minister's auditor was unable to say on behalf of
which alleged mandators the native persons could have been acting
as prête-noms or mandataries. All of the
respondent's evidence concerning the existence of contracts
of mandate or prête-nom is merely
circumstantial.
[59] The best evidence to prove that such mandates existed
would have been the testimony of the parties to such an alleged
contract, namely the native persons to whom Chrysler St-Jovite
transferred its 95 vehicles and the persons on behalf of whom
they allegedly purchased the vehicles. Unfortunately, the
respondent did not see fit or was unable to call those persons to
testify: no explanation of their absence was given by her
witnesses or counsel.[19] Yet the respondent had two reasons to summon them.
First, the burden of proof in this regard was on her. As well,
even if that had not been the case, she had to expect that the
presence of those persons would be necessary to refute
Mr. Duchesneau's testimony that he did not know whether
the natives were acting as prête-noms for
non-native third parties.
[60] Mr. Duchesneau testified at the hearing and stated
under oath that at no time was he aware that the native persons
were acting as prête-noms or mandataries for
non-native third parties. Mr. Duchesneau struck me as
a credible witness, and I have no reason to believe that he lied.
It should also be noted that the entries in the SAAQ's
records are not inconsistent with Chrysler St-Jovite's claim
that the native persons were acting on their own behalf. On the
contrary, the native persons appear in those records as the first
purchasers of the vehicles sold by Chrysler St-Jovite.
Moreover, in his diagrams, the Minister's auditor described
the transfers to the native persons as "sales" and the
intermediaries that subsequently acquired the vehicles as
"resellers".
[61] The fact that Chrysler St-Jovite paid Mr. Boivin and Mr.
Picard commissions supports its claim that it was genuinely doing
business with the native persons and that those two men were
acting merely as brokers. It seems to me that, if Chrysler
St-Jovite had been involved in the smuggling ring's
scheme, it would not have had to pay commissions to find buyers.
Of course, it is not impossible that Chrysler St-Jovite secretly
received some of the amounts of GST that were collected and not
remitted to the tax authorities. However, there is no evidence of
this.
[62] The circumstantial evidence on which the respondent is
relying to defend her assessment is abundant, and I have
described it above. I will comment only on that evidence that I
consider the most important. Generally speaking, it shows that
something underhanded was going on. It is clear that, in the vast
majority of cases, the intention of the native persons was not to
keep the vehicles they purchased but to resell them quickly to
numbered companies. It is clear that someone orchestrated that
vehicle purchasing and reselling scheme not to avoid but to evade
the sales taxes owed to the tax authorities. The evidence shows
that, even before a vehicle was purchased by a native person, the
necessary payment arrangements for the vehicle had been made and
it was known through which intermediaries the vehicle would pass.
In several cases, there are one or more downstream sales
contracts between those intermediaries in which the date of sale
is prior to the date of the sale from Chrysler St-Jovite to the
native person! However, the evidence adduced by the respondent
has not been able to show that Chrysler St-Jovite (or one of its
officers) was one of those who devised the scheme or that it
participated in the smuggling ring with full knowledge of the
fraud.
[63] In particular, the fact that a third party may have
become involved to negotiate for the native persons and advance
them the money needed to pay the purchase price is not
inconsistent with the fact that the true purchasers of the
vehicles sold by Chrysler St-Jovite were indeed those native
persons. Purchasers turn to lenders to finance the purchase of
vehicles all the time.
[64] The presence on GAL's premises of a number of sales
contracts between the manufacturer and the dealer is not
conclusive either. Mr. Duchesneau admitted that it was common
practice to provide that contract to certain potential purchasers
who demanded it for the purpose of negotiating the sale price of
a vehicle. In addition, the fact that a native person purchased
more than one vehicle does not mean that it could not be a
juridical fact that the native persons purchased the vehicles on
their own behalf.
[65] Not only do I believe Mr. Duchesneau's statement
that he thought the natives were acting on their own behalf, but
I have every reason to believe that they were not acting as
prête-noms in these transactions. As counsel for the
respondent admitted, it was essential that a sale to a native
person be interposed between a dealer and a numbered company in
order for the scheme to succeed. It was important that the
vehicle be sold by the dealer tax-free under section 87 of the
Indian Act. To achieve that result, the sale had to truly
be made to a native person and not to such a person acting as a
mandatary for a non-native person. Section 87 reads as
follows:
87. (1) Notwithstanding any other Act of Parliament or any Act
of the legislature of a province, but subject to section 83, the
following property is exempt from taxation, namely,
(a) the interest of an Indian or a band in reserve
lands or surrendered lands; and
(b) the personal property of an Indian or a band
situated on a reserve.
(2) No Indian or band is subject to taxation in respect of the
ownership, occupation, possession or use of any property
mentioned in paragraph (1)(a) or (b) or is
otherwise subject to taxation in respect of any such
property.
(3) No succession duty, inheritance tax or estate duty is
payable on the death of any Indian in respect of any property
mentioned in paragraphs (1)(a) or (b) or the
succession thereto if the property passes to an Indian, nor shall
any such property be taken into account in determining the duty
payable under the Dominion Succession Duty Act, chapter 89
of the Revised Statutes of Canada, 1952, or the tax payable under
the Estate Tax Act, chapter E-9 of the Revised Statutes of
Canada, 1970, on or in respect of other property passing to an
Indian.
[66] As I interpret this section, a native person is entitled
to the tax exemption if the vehicle is situated on a reserve at
the time of the sale. The exemption does not depend on the use
subsequently made of the vehicle by the native person. Nothing
prevents a native person from purchasing a vehicle on a reserve
for the purpose of reselling it to someone else. This was also
the interpretation adopted by the Deputy Minister of National
Revenue in his letter of May 20, 1997:
[TRANSLATION]
On the other hand, sole proprietorships and partnerships owned
by Indians [that engage in commercial activities] are treated the
same way as individual Indians. They are not required to pay the
GST on purchases made on a reserve or purchases made off a
reserve[20] that
are delivered to a reserve.
[67] Moreover, native persons carrying on a business with
annual sales of more than $30,000 must register for the GST and
collect it when supplying their goods and services, except in the
case of GST-exempt supplies, such as those made on a
reserve to a native person. This interpretation also corresponds
with that set out in technical information bulletin
B-039R.
[68] Finally, the interpretation I am adopting is consistent
with that stated by the Supreme Court of Canada in Union of
New Brunswick Indians, supra. In paragraph 35 of that
decision, McLachlin J. (as she then was) stated the
following:
The location of property after the sale and the imposition of
tax is irrelevant. This means that goods purchased
off-reserve attract tax, while goods purchased on-reserve are
exempt, regardless of where the purchaser may intend to use
them.
[Emphasis added.]
[69] McLachlin J. added the following in paragraph 43:
In contrast, the "point of sale" test allows Indians
living off-reserve to purchase goods tax-free on reserves
regardless of where the goods are ultimately used.
[70] In the next paragraph, she recognized that:
In addition, the "point of sale" test is beneficial
to on-reserve Indians in many parts of Canada. First, it provides
an incentive for Indians to establish their own retail outlets on
reserves and gives a competitive edge to reserve businesses,
thereby increasing economic activity and employment.
[71] As I see it, this analysis shows that a native person is
entitled to the exemption provided for in section 87 of the
Indian Act whether that person purchases the property for
personal use—even off a reserve—or purchases it on a
reserve for the purpose of reselling it as part of a business. Of
course, if a native person runs a business on a reserve or
elsewhere, that person must—as stated by the Deputy
Minister of National Revenue and as indicated in the technical
information bulletin—register and collect the GST when
selling goods to non-natives. It seems to me that, under
subsection 221(1) of the Act, the native persons who purchased
vehicles from Chrysler St-Jovite to resell them at a profit had
to collect the GST when they resold them (see also subsection
148(2) of the Act) and remit it to the Minister. The sale of a
single vehicle exceeds $30,000, the level beyond which a supplier
is no longer a small supplier and is required to register. If
those native persons had collected the GST, I do not think that
the Minister would have assessed Chrysler St-Jovite for
failing to collect it.
[72] In my view, not only has the respondent not been able to
prove—as she was required to—that the native persons
were acting as mandataries for non-natives, but in all
likelihood the natives were acting as true purchasers on their
own behalf in the transactions. Since the respondent has failed
to discharge her burden of proof in this regard and as Chrysler
St-Jovite has proved that it was really doing business with the
native persons, I conclude that Chrysler St-Jovite was
not required to collect the GST when it sold the 95 vehicles
or to add any amount in respect of those vehicles in determining
its net tax under section 225 of the Act.
GAAR: section 274 of the Act
[73] The alternative argument made by counsel for the
respondent, which concerns the application of the GAAR set out in
section 274 of the Act, remains be dealt with. That section reads
as follows:
274. (1) Definitions—In this section,
"tax benefit" means a reduction, an
avoidance or a deferral of tax or other amount payable
under this Part or an increase in a refund or rebate of tax or
other amount under this Part;
. . .
(2) General anti-avoidance provision—Where a
transaction is an avoidance transaction, the tax
consequences to a person shall be determined as is
reasonable in the circumstances in order to deny a tax benefit
that, but for this section, would result,
directly or indirectly, from that transaction or from a
series of transactions that include that transaction.
(3) Avoidance transaction—An avoidance
transaction means any transaction
(a) that, but for this section, would
result, directly or indirectly, in a tax benefit,
unless the transaction may reasonably be considered to
have been undertaken or arranged primarily for bona fide
purposes other than to obtain the tax benefit; or
(b) that is part of a series of transactions, which
series, but for this section, would result directly or indirectly
in a tax benefit, unless the transaction may reasonably be
considered to have been undertaken or arranged primarily for bona
fide purposes other than to obtain the tax benefit.
(4) Provision not applicable—For greater
certainty, subsection (2) does not apply in respect of a
transaction where it may reasonably be considered that
the transaction would not result, directly or indirectly,
in a misuse of the provisions of this Part or in an
abuse having regard to the provisions of this Part
(other than this section) read as a whole.
. . .
[Emphasis added.]
[74] Before applying these provisions to the facts of this
appeal, it must first be pointed out that the onus was on the
respondent to prove the facts essential to their application, the
reasons for this being the same as have been stated above.
Moreover, the respondent is relying mainly on the same facts as
those that must exist for subsection 221(1) of the Act to
apply. Counsel for the respondent argued that the native persons
who purchased the vehicles from Chrysler St-Jovite were acting as
prête-noms for non-natives and not on
their own behalf. He further argued that Chrysler St-Jovite knew
that the native persons were acting as prête-noms
for non-native third parties and knowingly participated in
the smuggling ring scheme.
[75] In my opinion, section 274 of the Act is of no assistance
to the respondent's case. First of all, it must be noted that
the respondent is basically reproaching Chrysler St-Jovite for
not collecting the GST when it sold its vehicles to native
persons. If the respondent had succeeded in proving that
Chrysler St-Jovite had in fact sold its vehicles not
to native persons but to the alleged mandators of those persons,
subsection 221(1) of the Act would have been the applicable
provision. Chrysler St-Jovite would then have been required to
collect the GST, since the non-native mandators would not
have been entitled to the tax exemption provided for in section
87 of the Indian Act. It would not have been necessary to
have recourse to section 274 of the Act.
[76] It should also be noted that that section applies only to
a tax benefit that a taxpayer might obtain "but for this
section [274]". So if Chrysler St-Jovite had sold to
non-natives, as the respondent is mistakenly arguing, it
would have been required to collect the GST under subsection
221(1) of the Act and to include the amount so collected in
determining its net tax under section 225 of the Act. Chrysler
St-Jovite could not have received any tax benefit whatsoever.
[77] Having found that the respondent has failed to show that
Chrysler St-Jovite sold vehicles to non-native persons, and
having accepted Chrysler St-Jovite's evidence that it
genuinely sold to native persons who were entitled to the
exemption provided for in section 87 of the Indian Act, it
follows that Chrysler St-Jovite quite simply complied
with subsection 221(1) of the Act, which requires it to collect
only the tax "payable" by the recipient. Here, the
native persons did not have to pay any tax. Chrysler St-Jovite
accordingly did not have to collect any tax, as I concluded
above.
[78] Having determined that the respondent has failed to show
not only that Chrysler St-Jovite sold its vehicles to
non-native persons but also that that company was part of
the smuggling ring, it is an easy matter to conclude that none of
the three conditions necessary for section 274 of the Act to
apply has been met. First of all, the sales made by Chrysler
St-Jovite were made primarily for bona fide purposes, namely
commercial purposes accomplished in the normal course of
operating its business. Second, it did not receive any tax
benefit as that term is defined in section 274 of the Act.
Accordingly, there was no misuse or abuse of the provisions of
Part IX of the Act read as a whole. On the contrary, applying
section 274 of the Act to the facts of this appeal would be an
abuse and a violation of that section.
[79] If there was a tax benefit, it was rather the native
person who received it, by virtue of section 87 of the Indian
Act. In itself, that is not an inappropriate tax benefit,
since it is consistent with the purpose of the Indian Act
as that Act has been interpreted by the Supreme Court of Canada.
The undue tax benefit was obtained by a non-native person,
in all likelihood with the participation—questionable, to
say the least—of native persons. The fact that the latter
did not collect the GST when they resold the vehicles, as I
believe they were required to do, enabled one or more numbered
companies to shamelessly abuse the Canadian tax system.
Unfortunately, the evidence did not make it possible to identify
with certainty which company or companies obtained those
fraudulent benefits. However, it is my view that, by assessing
Chrysler St-Jovite, the Minister is going after the
wrong party.
[80] For all these reasons, Chrysler St-Jovite's appeal is
allowed and the assessment is referred back to the Minister for
reconsideration and reassessment on the basis that, in
determining its net tax under section 225 of the Act,
Chrysler St-Jovite was not required to add any amount of tax
that had become collectible in respect of the sale of the 95
vehicles to the native persons. Chrysler St-Jovite is
entitled to its costs.
Signed at Ottawa, Canada, this 24th day of January 2001.
"Pierre Archambault"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]
Translation certified true on this 23rd day of February
2001.
Erich Klein, Revisor
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