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