Waserman Furs LTD v. Minister of National Revenue, [1985] 1 CTC 2375, 85 DTC 309

Goetz, TCJ:—The appellant appeals against a reassessment relating to its 1979 and 1980 taxation years. The business of the appellant is that of a furrier. Its sales are based mainly on the “lay-away” plan whereby a customer makes an initial deposit, usually in the spring on account of the purchase of a fur garment. The purchaser and vendor sign a sales agreement which sets out all the terms of sale. The agreement reads as follows:

SALES AGREEMENT

WASERMAN FURS LIMITED

177 Richmond Road, OTTAWA, ONTARIO.

PURCHASER

ADDRESS

DESCRIPTION OF MERCHANDISE SOLD

DESCRIPTION OF SERVICES TO BE

PERFORMED

PRICE OF MERCHANDISE $

PRICE OF SERVICES $

PROVINCIAL SALES TAX$

COST OF CREDIT (Interest

percentage per annum —%)		$
		$
TRADE-IN/AND DISCOUNT		$
DEPOSIT		$
		$
BALANCE		$
payable by monthly instalments of $		each on the	day of
each month hereafter.
1. The purchaser agrees that this is a completed contract.
2. The purchaser acknowledges receipt of a true copy hereof.
The parties have hereunto set their hands to this agreement this			day
of	A.D., 19
		WASERMAN FURS LIMITED
How long at present address		Per:
Telephone No		per
Telephone No
Occupation		purchaser
Employer		ALL SALES FINAL
Address of employer

THIS FUR GARMENT IS COVERED Business telephone

BY WARRANTY FOR TWELVE Bank Acct with

MONTHS FROM DATE OF SALE FOR FAIR WEAR AND TEAR

48 HOURS NOTICE IS REQUIRED TO OBTAIN NEW FUR GARMENT

3. The title and ownership of the goods described shall remain in Waserman Furs Limited until full payment is made of the price, carrying charges and costs.

4. If the purchaser fails to make payment as provided or removes the goods described out of the Province of Ontario (Quebec) without the consent in writing of Waserman Furs Limited then the vendor, with or without legal process, may take immediate possession of the goods described and all the rights of the purchaser shall cease and and

(sic) terminate thereupon absolutely, and the purchaser hereby authorizes and instructs the vendor that in the event of repossession, the vendor may enter the premises where the goods described are located without liability on the part of the vendor, its servants or agents, and in addition, the purchaser hereby agrees that thereupon all unpaid balance of price shall forthwith become due and payable and may be recovered from the purchaser and all payments previously made shall be retained by the vendor as liquidated damages for failure to carry out the terms of this contract. Upon taking repossession the vendor may sell the goods in public or private sale with or without notice and for such price as the vendor may deem best.

5. The purchaser agrees to pay all costs, charges or disbursements including a reasonable attorney’s fee incurred in taking possession of said subject matter of this sale or in collecting any sums which may be due and owing to the vendor from the purchaser hereunder.

6. No conditions, or representations, express or implied have been made by the vendor nor shall any agreement collateral hereto be binding upon the vendor unless endorsed hereon in writing.

As can be seen the goods and services, if any, are described and the end price is stated. The customer can leave the fur garment in storage with the appellant at no charge until the garment is picked up in the fall. At the time of purchase the provincial sales tax is paid on the sale price, pursuant to section 2 of the Retail Sales Tax Act, c 454, which reads as follows:

2. (1) Every purchaser of tangible personal property, except the classes thereof referred to in subsection (2), shall pay to Her Majesty in right of Ontario a tax in respect of the consumption or use thereof, computed at the rate of 7 per cent of the fair value thereof. RSO 1970, c 415, s 2(1); 1973, c 23, 2(1).

The transactions are recorded in the books of account as sales.

The appellant’s accountant states that the appellant operates on the accrual basis of accounting and at the end of the year calculates the cost of the “layaway” sales and enters them with a reverse entry as inventory in the financial statements.

The point at issue in this appeal is that the appellant sought to take an inventory allowance pursuant to the provisions of paragraph 20(1 )(gg) of the Income Tax Act, SC 1970-71-72, c 63, as amended, which the Minister denied.

The goods purchased under the “lay-away” plan, though held by the appellant, were held only for delivery and not for sale. The agreement for sale indicates that a customer could take possession of the merchandise before payment in full. The sales agreement evidences the intentions of the parties, namely, that the sale could be by cash or on credit. On the execution of this agreement a sale was consummated. Though held in storage, the merchandise was not “held for sale” because the garments were tagged with the customer’s name. Hence paragraph 20(1 )(gg) of the Act does not apply. See MNR v Wardean Drilling Limited, [1969] CTC 265; 69 DTC 5194, and Dresden Farm Equipment Ltd v MNR, [1982] CTC 2377; 82 DTC 1388.

The appellant, being on the accrual method of bookkeeping, incurs liability for tax on accounts receivable for the property sold, pursuant to paragraph 12(l)(b) of the Act. The payments actually made on account of the purchases would be income to the appellant pursuant to the provisions of paragraph 12(l)(a) of the Act.

For the above reasons, the appeal is dismissed.

Appeal dismissed.