Words and Phrases - "deposit"
The auditing firm (“DMCL”) for the appellant (“IHI”) obtained the agreement of IHI, as evidenced by a December 7, 2007 email sent by DMCL to IHI, to fix the audit fee at a level higher than that originally estimated. In the meantime, some payments by IHI (including an initial “retainer” of $25,000) had been made in round figures, without any indication that GST at 6% had been added. About six months later, DMCL prepared an invoice which added GST at the post-2007 rate of 5%.
After noting that essentially noting (at para. 45) that “the Tendances et Concepts case may not carry as much weight now, given that it was based on a previous French version of the ETA, in which arrhes was used as the French equivalent for the English deposit” and that (notwithstanding North Shore Power) IHI’s making of interim payments could have been consistent with their being deposits, Sommerfeldt J stated (at para. 54):
[T]he payment structure set out in [the] email of December 7, 2007 has a broad similarity to the payment structure in North Shore Power. Accordingly, it may be arguable that, by December 11, 2007, the three payments made by IHI to DMCL may have been contractually characterized or recharacterized as payments on account of DMCL’s fee.
|Locations of other summaries||Wordcount|
|Tax Topics - Excise Tax Act - Section 152 - Subsection 152(1) - Paragraph 152(1)(b)||departure of supplier from its usual prompt invoicing||274|
|Tax Topics - Excise Tax Act - Regulations - Input Tax Credit Information (GST/HST) Regulations - Section 3 - Paragraph 3(a) - Subparagraph 3(a)(ii)||invoice not issued if not sent||244|
|Tax Topics - Excise Tax Act - Section 169 - Subsection 169(1)||no contractual nexus between ITC claimant and supplier||265|
|Tax Topics - Excise Tax Act - Section 221 - Subsection 221(2)||unregistered purchaser||35|
|Tax Topics - Excise Tax Act - Schedules - Schedule V - Part I - Section 9 - Subsection 9(2)||sale by corporation not exempted||30|
A supplier (Menova) received substantial down payments (described as “deposits”) respecting its sale of solar array projects, and then became insolvent before earning more than a fraction of the down payments. Menova then issued “credit memos” to the business customer (North Shore) for the value of the unperformed work.
CRA’s position was that the HST included in the credit memos was required to be added back to the net tax of North Shore (thereby effectively reversing the input tax credits previously claimed by North Shore). Before accepting this position, Bocock J first noted that the down payments were not deposits, stating (at para. 24):
There was no payment of earnest money to guarantee the completion of the contracts. The sizeable partial payments were meant to fund the considerable costs connected with the solar panels. The Contracts, although describing the moneys paid as deposits were nonetheless structured as partial payments, half due on execution and the balance due on delivery. …
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|Tax Topics - Excise Tax Act - Section 232 - Subsection 232(3)||HST imposed on a customer through the issuance to it of a credit note by an insolvent supplier||298|
|Tax Topics - Excise Tax Act - Section 231 - Subsection 231(1)||only supplier can claim the credit||186|
Elson v. Prices Taylors, Ltd. (1962), 40 TC 671 (Ch. D.)
When a customer of the taxpayer ordered a "made-to-measure" suit he was asked for a deposit (although the receipt given to him showed only the purchase price and the balance owing, and did not use the word "deposit"). Ungoed-Thomas J. held that because "'deposit' bears a perfectly well and commonly known meaning of security for completion of the purchase" (p. 677) and because the payment was described as such to the customer, the payment should be regarded as a deposit and not merely a part-payment of the purchase price notwithstanding that senior employees of the taxpayer had been instructed that any customer who for any reason declined to take a suit he had ordered was to have his "deposit" refunded to him. He further held that because the deposit became the taxpayer's property on payment and any return of the deposit to the customer was made "not on account of any right of the customer to what was the Company's property, nor on account of any obligation under the contract, but because it was decided by the Company of its own volition, as a separate matter of policy, that it would be helpful to the Company's goodwill" (p. 678), the deposit was a trade receipt when received.
Air Canada v. Min. of Fin. for B.C.,  2 WWR 97 (BCCA)
Certificates of deposit, bearer deposit notes, swap deposit confirmations and bankers' acceptances were held to be "loans and advances to other corporations" rather than "cash on deposit with ... a savings bank" within the meaning of the definition of taxable paid-up capital in the Corporation Tax Act (B.C.). Carrothers, J.A. stated that one must contrast the characteristics of the above bank paper "with the distinctively different characteristics of a cash deposit, which has the attributes of ready availability, use in exchange (orders to pay can be made upon it in the form of a direct order or sometimes a cheque), debtor-creditor relationship in regard to simple debt, and, unlike bank paper, no documentary indicia of the debt other than a ledger or computer entry and perhaps a simple receipt." [C.R.: 212(1)(b)(iii)(D)]
Tendances et Concepts Inc. c. La Reine, 2011 TCC 141 (Informal Procedure)
The registrant was in the business of manufacturing kitchen and bathroom furniture. Its usual business terms required customers to pay 30% up front, 60% on completion and 10% on delivery. The registrant contended that the 30% payment was a deposit, and therefore exempt from GST collection.
Hogan J. reviewed at length the distinction between a deposit and a down payment in common law, and the related distinction between an arrhes and an accompte in Quebec civil law, and concluded (at paras. 45-46):
In my view, a "deposit" or "arrhes," within the meaning of the Act, is:
- security for the performance of the contract;
- retained by the vendor in the case of default by the purchaser, contrary to a down payment;
- refundable or not;
- subsequently applied as a reduction of the sale price;
- an amount on request prior to entering the contract;
- is akin to a means of withdrawal;
- is akin to a penalty clause or prepaid liquidated damages; and
- a set, invariable, minimum amount.
In order to determine whether an amount is a "deposit" or "arrhes" within the meaning of the Act, the following questions must be posed:
- Does the contract specify the nature of the first payment?
- Is the amount intended to secure performance of an obligation?
- Is the amount paid prior to or after the signing of the contract?
- Does a penalty clause already exist?
- Has the tax been calculated on the amount requested?
- Does it represent a relatively small or substantial amount compared to the total value of the contract?
- Have the parties set any terms respecting exercising their right of withdrawal?
Hogan J. found that the 30% was a down payment. The registrant's contracts had a separate penalty clause for early termination, which were to vary based on the costs the registrant incurred before the termination, and did not stipulate that on breach the deposit represented liquidated damages. Moreover, the registrant collected only 30% of the GST-exclusive contract price, whereas a deposit when forfeited would have been required by s. 182 to include the GST collectible on that amount.
Casa Blanca Homes Ltd. v. The Queen, 2013 TCC 338 (Informal Procedure)
The appellant bought and resold the right and obligation to acquire lots from a land developer. Hogan J found that the "non-refundable" deposits collected thereon were each a "debt security" under s. 123(1), given that the collection of a sum under a contract as a "deposit" implies an obligation to return the deposit if the collector does not perform the contract - in this case, if the land developer were unable to complete the lots on time (para. 24). In the alternative, the purchaser's assignment of the deposits to third parties was not a supply at all, because money is neither property not a service (para. 22, adopting Barnett 2011).
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|Tax Topics - Excise Tax Act - Section 123 - Subsection 123(1) - Supply||possible to structure separate assignments||266|