Citation: 2018 TCC 29
Date: 20180207
Docket: 2016-1995(GST)G
BETWEEN:
VITERRA
INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
D'Arcy J.
[1]
These reasons address an application for the
determination of a question of mixed law and fact, pursuant to section 58 of
the Tax Court of Canada Rules (General Procedure), SOR/90-688a (the
“Rule 58 Application”). The actual question (the “Rule 58 Question”) reads as
follows:
Was the Minister statute barred on February 19, 2016 from assessing
GST collectible totalling $640,492.69 on the supply of investment management
services made by the Appellant to three pension plan trusts (assuming such
supplies were made), for the reporting periods from August 1, 2003 to
July 31, 2004 and from August 1, 2004 to July 31, 2005?
[2]
The Appellant brought the required motion
requesting a determination, before a hearing, of the Rule 58 Question. The
Respondent consented to the motion. The Court then issued an Order on November
8, 2016 providing for a hearing of the Rule 58 Question (the “November 8th
Order”).
I. Facts
[3]
Pursuant to the November 8th Order,
the following evidence was placed before the Court for the purpose of the Rule
58 Application:
-
the statement of accepted facts attached as Exhibit
A to the November 8th Order;
-
the Statement of Additional Agreed Facts filed
by the parties on February 22, 2017 (the “Statement of Additional Agreed
Facts”);
-
the Appellant’s Request to Admit and the
Respondent’s response to the request.
[4]
I also considered the pleadings, which were
referred to in the November 8th Order.
[5]
The statement of accepted facts reads as
follows:
a) the appellant was formerly known as Saskatchewan Wheat Pool
(“SWP”);
b) SWP was a
grain handling and agri-food processing and marketing company based in Regina,
Saskatchewan;
c) during the material times, SWP was the administrator of three
separate defined benefit pension plans (the “Pension Plans”);
d) each of the Pension Plans was funded through a separate trust
established to hold and invest the assets of the respective Pension Plans;
e) during the periods from August 1, 2003 to July 31, 2004 and
August 1, 2004 to July 31, 2005 (the “Relevant Periods”) SWP acquired the
services of third party investment managers to manage the Pension Plans’ funds
(the “Investment Services”);
f) during the Relevant Periods and at all material times, SWP was a
GST registrant and was required to file GST returns on a monthly basis;
g) for each monthly reporting period within the Relevant Periods,
SWP filed a GST return (collectively the “GST Returns”), and more than four
years had elapsed before February 19, 2016 since the later of:
i. the date on which SWP was required to file
its GST Return; or
ii. the date when SWP filed its GST Return;
h) in the GST Returns, SWP claimed, inter alia, input tax
credits (“ITCs”) totalling $640,492.69 for the GST paid to investment managers
in respect of the Investments [sic] Services;
i) the Minister originally assessed SWP for the Relevant Periods on
August 10, 2007 and September 17, 2008 (the “Assessments”), respectively;
j) in the Assessments, the Minister denied SWP’s ITC claims on the
GST paid to the investment managers in respect of the Investment Services on
the basis that SWP did not acquire the Investment Services for consumption, use
or supply in the course of SWP’s commercial activities;
k) SWP objected to the Assessments on November 2, 2007 and December
10, 2008, respectively, and SWP and the Minister agreed to hold the objections
in abeyance pending the outcome of General Motors of Canada Limited’s (“GM”)
appeal to the Federal Court of Appeal, which dealt with a similar issue;
l) nearly seven years after the Federal Court of Appeal decided GM’s
appeal, the Minister issued reassessments for the Relevant Periods on February
19, 2016 (the “Reassessments”);
m) in the Reassessments, the Minister allowed the ITCs totalling
$640,492.69 claimed by SWP in respect of the GST paid to the investment
managers on the Investment Services;
n) however, in the Reassessments, the Minister also included
unreported GST collectible totalling $640,492.69 by SWP on the supply of the
Investment Services by SWP to the Pension Plans; and
o) there is no allegation of SWP making misrepresentations
attributable to its neglect, carelessness, or wilful default in respect of the
Investment Services.
[6]
The Statement of Additional Agreed Facts (a copy
of which is attached hereto as Appendix A) focuses on the assessments and
reassessments issued by the Minister. It notes the following:
-
The assessment issued
on August 10, 2007 for the reporting periods ending between August 1, 2003 and
July 31, 2004 denied input tax credits on investment services of $551,956.19.
-
The assessment issued
on September 17, 2008 for the reporting periods ending between August 1, 2004
and July 31, 2005 denied input tax credits on investment services of
$88,536.50.
-
The particulars of the
reassessment issued on February 19, 2016 for the Appellant’s reporting periods
ending between August 1, 2003 and July 31, 2004 are as follows:
•
The Appellant was
assessed GST collectible on “In‑house Resources and Administration
Services” of $68,043.38.
•
The Appellant was
allowed input tax credits on “Investment Services” of $551,956.19.
•
The Appellant was
assessed GST collectible on the “Re-supply of Investment Services” of
$551,956.19.
-
The particulars of the
reassessment issued on February 19, 2016 for the Appellant’s reporting periods
ending between August 1, 2004 and July 31, 2005 are as follows:
•
The Appellant was
assessed GST collectible on “In‑house Resources and Administration
Services” of $61,739.68.
•
The Appellant was
allowed input tax credits on “Investment Services” of $88,536.50.
•
The Appellant was
assessed GST collectible on the “Re-supply of Investment Services” of
$88,536.50.
-
The reassessments
issued on February 19, 2016 did not increase the Appellant’s net tax liability
for the assessed periods.
[7]
In her response to the Appellant’s Request to Admit,
the Respondent admitted that, for each particular reporting period of the Appellant
ending between August 1, 2003 and July 31, 2005, the later of
(a) the day on or before which the Appellant
was required to file its GST return for the particular reporting period and
(b) the day on
which the Appellant filed its GST return for the particular reporting period
was more than four years before February 19, 2016. February 19, 2016
is the date the Minister reassessed the Appellant for these reporting periods.
II. The
Law
[8]
Subsection 296(1) of Part IX of the Excise
Tax Act (the “GST Act”) provides, in part, that the Minister may assess the
net tax of a person for a reporting period of the person and any penalty or
interest payable by a person under the GST Act. Subsection 296(1) also provides
that the Minister may reassess or make an additional assessment of net tax,
penalty or interest.
[9]
The net tax of a person for a specific reporting
period is determined under subsection 225(1). Generally speaking, that
determination is made as follows:
GST that became
collectible during the reporting period
+ GST that
was collected during the reporting period
- input tax credits claimed in the GST return filed by the
person.
[10]
Subsection 298(1) imposes a time limit with
respect to when the Minister may assess a person. Specifically, the Minister is
not permitted to make an assessment, under section 296, of the net tax of a
person for a reporting period of the person more than four years after the
later of the day on or before which the person was required under section 238
to file a return for the period and the day the return was filed. I will refer
to this as the “statutory limitation period”.
[11]
Subsection 123(1) defines the word assessment to
mean an assessment under the GST Act and includes a reassessment under the GST
Act. As a result, the statutory limitation period applies to both assessments
and reassessments.
[12]
The parties agree that the Minister issued the assessments
before the expiry of the statutory limitation period and issued the reassessments
after the expiry of the statutory limitation period.
[13]
Subsections 298(3) and (6.1) provide for
situations where the statutory limitation period does not apply to the
Minister. The Minister relied on these provisions, particularly subsection
298(3), when issuing the reassessments.
[14]
Subsections 298(3) and 298(6.1) read as follows during
the relevant period:
(3) Subsections (1) and (2) do not apply in respect of a
reassessment of a person made
(a) to give effect to a decision on an objection or
appeal; or
(b) with the consent in writing of the person to
dispose of an appeal.
(6.1) The Minister
may advance an alternative argument in support of an assessment of a person at
any time after the period otherwise limited by subsection (1) or (2) for making
the assessment unless, on an appeal under this Part,
(a) there is relevant
evidence that the person is no longer able to adduce without leave of the
court; and
(b) it is not appropriate in the circumstances for the court to
order that the evidence be adduced.
III. Positions of the
Parties
[15]
The Appellant argues that subsections 298(3) and
298(6.1) do not give the Minister the authority to issue, after the expiry of
the statutory limitation period, a reassessment, to give effect to a decision
on an objection that assesses new tax on different transactions. Specifically,
the Minister cannot take into account new or different transactions after the
expiry of the statutory limitation period. The Appellant argues that this is
the result even if the reassessment results in the same or a lower amount of
tax payable.
[16]
It is the Appellant’s position that the reassessments
of the determination of the Appellant’s entitlement to input tax credits in
respect of supplies made by third party investment managers to the Appellant
and the determination of the taxation of an alleged supply by the Appellant of
investment management services to the Pension Plans involve two separate
transactions. The first transaction is the supply of services by the third
party investment managers to the Appellant and the second is the supply of
services by the Appellant to the Pension Plans.
[17]
The Appellant argues that the Minister cannot
assess in respect of the second transaction after the expiry of the statutory
limitation period.
[18]
The Respondent argues that, when responding to a
notice of objection under the GST Act, the Minister is not precluded from
reassessing on the basis of different transactions or even from increasing net
tax. She states the following in her written argument:
. . . That is
because, unlike the corresponding provisions of the Income Tax Act,
subsection 298(3) imposes no limits on the Minister’s power to reassess.
Subsection 298(3) says that the limitation periods set out in subsections
298(1) and (2) “do not apply” in respect of a reassessment of a person made to
give effect to a decision on an objection. Absent any limiting provision, the
Minister’s duty to properly administer the Excise Tax Act requires her
to assess in accordance with the law.
[19]
The Respondent also argues that, even if the
Minister cannot include in her reassessment transactions that do not form the
basis of the taxpayer’s assessment, this limitation has no application in the
current appeal since the Minister did not rely on new transactions when
reassessing the Appellant.
[20]
She argues that the reassessments are not based
on new transactions but rather are based on a recharacterization of the
transactions the Minister considered when issuing the assessments. The recharacterization
was based on the Minister’s new understanding of the nature of the
relationships among the same parties to the same transactions, with no
resulting increase in the Appellant’s net tax.
IV. Preliminary
Issues identified by the Court
A. Evidence before the Court
[21]
The Court first called the Appellant’s motion
for hearing on April 10, 2017. At the commencement of the hearing, I informed
the parties that I was concerned that I could not answer the Rule 58 Question
with the little evidence before me. After discussing my concerns with counsel,
I adjourned the hearing to allow the parties to decide whether they wished to
proceed on the basis of the facts before me or file additional agreed facts.
[22]
In a letter filed with the Court on June 28,
2017, the parties stated the following:
The parties have
considered this matter and write to advise that they agree the matter should
proceed based on the facts set out in the Court’s Order dated November 8, 2016
and the Statement of Additional Agreed Facts filed by the parties prior to
their appearance before the Court on April 10, 2017.
B. Appellant’s reporting periods
[23]
After the conclusion of the oral hearing, I
realized that the Rule 58 Question does not reflect the actual reporting
periods of the Appellant. Specifically, the question refers to two annual
reporting periods, one from August 1, 2003 to July 31, 2004 and a second
reporting period from August 1, 2004 to July 31, 2005. However, as noted in the
statement of accepted facts, the Appellant is a monthly filer.
[24]
The Court notified the parties of its concern.
On November 10, 2017, the parties filed a letter with the Court stating that
they agreed that the Rule 58 Question should be restated as follows:
Was the Minister
statute barred on February 19, 2016 from assessing GST collectible totalling
$640,492.69 on the supply of investment management services made by the
Appellant to three pension plan trusts (assuming such supplies were made), for
the monthly reporting periods ending between August 1, 2003 and July 31,
2005?
[25]
I have accepted this restatement of the
question. It does not affect the issues before the Court.
V. Reasons
for the Order
[26]
I will first address the Respondent’s argument
that under subsection 298(3) of the GST Act the Minister is not precluded,
after the expiration of the statutory reassessment period, from reassessing on the
basis of different transactions or even from increasing net tax.
[27]
The issue of a reassessment increasing the
amount of the net tax of a GST registrant after the expiry of the statutory reassessment
period is not before the Court since the Minister’s reassessment did not
increase the net tax of the Appellant. However, the Appellant’s argument is
that the Minister, when reassessing after the expiry of the statutory reassessment
period, took into account different transactions than the ones that formed the
basis of the original reassessment of the Appellant’s net tax.
[28]
In my view, the finding of the Federal Court of
Appeal in The Queen v. Anchor Pointe Energy Ltd., and of my colleague Justice
Hogan in Klemen v. The Queen,
with respect to subsection 165(5) of the Income Tax Act applies equally
to subsection 298(3) of the GST Act. Justice Hogan stated the following at
paragraphs 22 and 23 of his decision:
[22] As a preliminary matter, the Appellant
submits that the Second Reassessment should be vacated because it was issued
beyond the normal reassessment period and the conditions set out in subsection
152(4) of the Act have not been met. The Respondent argues that the limitations
stated in subsection 152(4) of the Act do not apply to the Second Reassessment
because it was issued following the Minister’s consideration of the Appellant’s
Notice of Objection filed in respect of the First Reassessment. The Respondent
relies in this regard on the wording of subsection 165(5) of the Act, which
reads as follows:
165(5) Validity of reassessment − The limitations imposed under
subsections 152(4) and 152(4.01) do not apply to a reassessment made under
subsection (3).
[23] I disagree with the Respondent’s
interpretation of subsection 165(5) of the Act. While I acknowledge that the
provision, if read literally, could support the Respondent’s argument, in The
Queen v. Anchor Pointe Energy Ltd., the Federal Court of Appeal
(the “FCA”) stated that reassessments issued beyond the normal
reassessment period, following the consideration of a taxpayer’s Notice of
Objection, cannot increase the taxpayer’s tax payable unless the limitations
set out in subsection 152(4) of the Act are respected. With regard to
the scope of subsections 165(3) and 165(5) of the Act, Justice
Rothstein commented as follows:
I am unable to agree with Rip J. that the expiry of the normal
reassessment period is stayed or is extended until the Minister takes action
under subsection 165(5). The implication of such an interpretation is that
because a taxpayer files a Notice of Objection, the Minister has an unlimited
time to reassess the taxpayer to increase tax payable after the normal
reassessment period.
. . .
In my opinion, subsection 165(5) allows
the Minister to reassess after expiry of the normal reassessment period where a
Notice of Objection has been filed but not to include in the taxpayer's income
amounts that were not included in an assessment or reassessment made within the
normal reassessment period.
[Emphasis added.]
[29]
While the wording of subsection 298(3) of the GST
Act is different than the wording of subsection 165(5) of the Income Tax Act,
Parliament’s intention is, in my view, the same: the Minister cannot, after the
expiry of the reassessment period, use subsection 298(3) of the GST Act to
increase the net tax of the GST registrant or to take into account different
transactions that the ones that formed the basis of the reassessment that was
made within the statutory reassessment period.
[30]
As the Federal Court of Appeal noted in Anchor
Pointe, the implication of the Respondent’s position is that, because a
taxpayer files a Notice of Objection, the Minister has an unlimited time to
reassess the taxpayer to increase net tax payable after the normal reassessment
period.
Such an interpretation is not consistent with the statutory scheme of the GST
Act.
[31]
Further, paragraph 298(3)(a) uses the words “to give effect to a decision on an objection or
appeal”. In my view, these words limit the
application of paragraph 298(3)(a).
[32]
As I noted previously, under subsection 296(1)
the Minister assesses the net tax of a registrant. Subsection 301(1.1) allows
the registrant to object to the assessment by filing a notice of objection.
Paragraph 298(3)(a) provides, in part, that the Minister may reassess after the
expiry of the statutory limitation period to “give
effect to a decision on an objection”. In my
view, the words decision on an objection mean a decision regarding the
net tax objected to in the notice of objection, i.e., the net tax assessed by
the Minister. In other words, paragraph 298(3)(a) only waives the
statutory reassessment period with respect to the net tax originally assessed
by the Minister; it does not waive the statutory limitation period in respect
of any additional or new net tax.
[33]
I will now address the Appellant’s argument that
the Minister’s reassessments are based upon different transactions than the
ones that formed the basis of the original assessments of the Appellant’s net
tax.
[34]
As previously stated, I do not believe that the
Minister, when reassessing outside of the statutory reassessment period, can
take into account different transactions than the ones that formed the basis of
the assessment. For example, the Minister denied the input tax credits in
respect of tax paid on the purchase of investment management services that were
related to the Appellant’s employee Pension Plans. The Minister cannot, therefore,
after the expiry of the statutory reassessment period, assess in respect of a transaction
that is not in any way related to the Pension Plans, such as the sale of grain to
a third party.
[35]
However, the question of whether the resupply of
the investment management services to the pension plan is part of the
transactions that formed the basis of the Minister’s assessments is one that
can only be answered by examining all of the relevant facts surrounding the
Appellant’s administration and funding of the Pension Plans.
[36]
The following are the only facts before me with
respect to the investment management services and the Minister’s assessments
and reassessments:
-
During the material times the Appellant was the
administrator of three separate defined benefit pension plans (the
aforementioned Pension Plans).
-
Each of the Pension Plans was funded through a
separate trust established to hold and invest the assets of the respective
Pension Plans.
-
During the relevant period, the Appellant acquired
the services of third party investment managers to manage the Pension Plans’
funds (the “investment management services”).
-
The Appellant claimed, in its GST returns for
the relevant periods, input tax credits totalling $640,492.69 for the GST paid to
investment managers in respect of the investment management services.
-
When assessing the Appellant, the Minister
denied the $640,492.69 of input tax credits claimed by the Appellant in respect
of the investment management services.
-
The Appellant objected to the assessments.
-
When reassessing the Appellant, the Minister
allowed the $640,492.69 of input tax credits claimed by the Appellant in
respect of the GST it had paid to the investment managers for the investment management
services. The Minister’s reassessments included unreported GST collectible of
$640,492.69 in respect of an alleged resupply of the investment management services
by the Appellant to the Pension Plans.
[37]
The statutory scheme of the GST Act is important
when determining whether the Minister considered a new transaction in
reassessing the Appellant.
[38]
Subsection 169(1) contains the general rules for
the claiming of input tax credits. The applicable portions of subsection 169(1)
read as follows:
General rule
for [input tax] credits - Subject to this Part,
where a person acquires or imports property or a service or brings it into a
participating province and, during a reporting period of the person during
which the person is a registrant, tax in respect of the supply, importation or
bringing in becomes payable by the person or is paid by the person without
having become payable, the amount determined by the following formula is an
input tax credit of the person in respect of the property or service for the
period:
A × B
where
A is the tax
in respect of the supply, importation or bringing in, as the case may be, that
becomes payable by the person during the reporting period or that is paid by
the person during the period without having become payable; and
B is
. . .
(b) where the property or service is acquired, imported or brought
into the province, as the case may be, by the person for use in improving
capital property of the person, the extent (expressed as a percentage) to which
the person was using the capital property in the course of commercial
activities of the person immediately after the capital property or a portion
thereof was last acquired or imported by the person, and
(c) in any other case,
the extent (expressed as a percentage) to which the person acquired or imported
the property or service or brought it into the participating province, as the
case may be, for consumption, use or supply in the course of commercial
activities of the person.
[39]
The Appellant’s ability to claim input tax
credits for the GST paid in respect of the investment management services is
dependent on the extent to which the Appellant acquired the investment
management services for consumption, use or supply in its commercial activities.
[40]
As a result, when determining the Appellant’s
net tax for the purpose of the assessments, the Minister had to determine, in
the first instance, whether the Appellant consumed, used or supplied the
investment management services. Once the Minister made this determination, she
then had to decide whether the consumption, use or supply occurred in the
course of the Appellant’s commercial activities.
[41]
In the assessments, the Minister denied the
input tax credits claimed by the Appellant for GST incurred in respect of the
investment management services. The difficulty I face is that I do not know the
basis for the Minister’s determination that the Appellant was not entitled to
claim the input tax credits. I do not know if she determined that the
Appellant consumed or used the investment management services, but did not consume
or use such services in the course of its commercial activities, or if she
concluded that the Appellant resupplied the investment management services but
such resupply did not occur in the course of its commercial activities.
[42]
As a result, I cannot determine if the Minister,
when reassessing, considered a new transaction since I do not know what
transactions the Minister considered when issuing the original assessments to
deny the input tax credits. Therefore, I cannot answer the Rule 58 Question.
[43]
There is a second reason why I cannot answer the
Rule 58 Question.
[44]
As can be seen from this Court’s decision in General
Motors of Canada Ltd. v. The Queen, the administration and funding of
pension plans can be extremely complicated and is normally governed by numerous
complex documents.
It appears from the Minister’s assumptions noted in the Reply that the
Appellant’s involvement with the three Pension Plans was not straightforward
and involved numerous agreements. The evidence with respect to the Appellant’s
involvement with the three Pension Plans is not before the Court.
[45]
In order to answer the Rule 58 Question, the
Court must determine whether the supply of the investment management services
by third parties to the Appellant and by the Appellant to the Pension Plans is
part of the same transaction, or a series of transactions, such that the
Minister did not consider any new transactions when reassessing the Appellant.
The relevant facts, including agreements, required to make such a determination
are not before the Court.
[46]
For example, the Appellant’s counsel admitted
during oral argument that the Appellant resupplied the investment management services
to the Pension Plans. As a result, there may be an interrelationship between
the Appellant’s acquisition of the investment management services and its
resupply of such services to the Pension Plans. I do not have the facts before
me to determine if such a relationship exists and, if it does, the nature or
extent of such relationship. The Court cannot answer the Rule 58 Question without
such knowledge. It cannot answer the question in a factual vacuum.
[47]
In my view, assuming that the parties place the
relevant evidence before the Court, only a trial judge can answer the Rule 58
Question.
[48]
Counsel for the Appellant raised the concern
that it is difficult to find the relevant documents fourteen years after the
fact. It is not clear to me what fourteen-year period counsel was referring to
in his argument. Regardless, I have a very difficult time with this argument.
[49]
In the first instance, the Court bases its
decisions on the facts before it. Secondly, the Minister assessed on August 10,
2007 and September 17, 2008 for the reporting periods that ended between August
1, 2003 and July 31, 2005. As a result, the Appellant was aware within a
relatively short time that it had a tax issue. The Appellant is a sophisticated
taxpayer and should be aware that it must retain the documentation required to
support its tax appeal.
VI. Determination
[50]
For the foregoing reasons, the Court cannot
answer the Rule 58 Question given the limited facts before it. The parties will
proceed with the various litigation steps, including discovery, and then place
the relevant evidence before the trial judge, who will decide the issue raised
in the Rule 58 Question.
[51]
Since the Respondent consented to the hearing of
the Rule 58 Question, there will be no order with respect to costs.
Signed
at Ottawa, Canada, this 7th day of February 2018.
“S. D’Arcy”
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