Mediclean Incorporated v. The Queen

Mediclean Incorporated v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2022-03-17
Neutral citation
2022 TCC 37
File numbers
2017-2825(GST)G
Judges and Taxing Officers
John R. Owen
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2017-2825(GST)G
BETWEEN:
MEDICLEAN INCORPORATED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on November 8, 2021, at Toronto, Ontario
Before: The Honourable Justice John R. Owen
Appearances:
Counsel for the Appellant:
Louise R. Summerhill
Monica Carinci
Counsel for the Respondent:
Andrée-Anne Lavoie
JUDGMENT
Upon hearing the evidence and submissions of counsel for the Appellant and counsel for the Respondent;
In accordance with the attached Reasons for Judgment, the appeal from the reassessments under Part IX of the Excise Tax Act (the “GST Act”) of each of the Appellant’s quarterly reporting periods ending in the period from January 1, 2009 through June 30, 2015 (“Reporting Periods”) is allowed and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that:
the penalties assessed under section 285 of the GST Act shall be cancelled;
$76,291.61 shall be allowed as input tax credits on the basis that one-quarter of the total of the amounts identified for a year in Appendix H to the Partial Agreed Statement of Facts is an input tax credit for each of the four quarterly reporting periods of the Appellant ending in that year; and
the Disputed Payments (defined in paragraph 87 of the Reasons for Judgment) shall be applied to reduce the net tax of the Appellant for the Reporting Periods in which the Disputed Payments were paid.
The Appellant shall have 30 days from the date of this judgment to submit written submissions on costs. The Respondent shall have a further 30 days to provide written submissions in response to the Appellant’s submissions. The written submissions of each party are not to exceed ten pages.
Signed at Ottawa, Canada, this 17th day of March 2022.
“J.R. Owen”
Owen J.
Citation: 2022 TCC 37
Date: 20220317
Docket: 2017-2825(GST)G
BETWEEN:
MEDICLEAN INCORPORATED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Owen J.
I. Introduction
[1] Mediclean Incorporated (the “Appellant”) is appealing the reassessment under Part IX of the Excise Tax Act (the “GST Act”) [1] by notice dated May 5, 2016 (collectively, the “Reassessments”) of each of its quarterly reporting periods ending in the period from January 1, 2009 through June 30, 2015 (collectively, the “Reporting Periods” and, individually, a “Reporting Period”).
[2] For each of the Reporting Periods, the Reassessments denied input tax credits (“ITCs”) claimed by the Appellant for payments to independent contractors that provided cleaning services to the Appellant during the Reporting Period (collectively, the “Subcontractors” and, individually, a “Subcontractor”) and imposed penalties under section 285.
[3] The total of the ITCs denied by the Reassessments of the Reporting Periods ending in 2009 (the “2009 Reporting Periods”) is $94,034.76 and the total of the ITCs denied by the Reassessments of the Reporting Periods ending in the period from January 1, 2010 through June 30, 2015 (the “2010–2015 Reporting Periods”) is $747,655.15. I will refer to the Reassessments of the 2009 Reporting Periods as the “2009 Reassessments” and to the Reassessments of the 2010–2015 Reporting Periods as the “2010–2015 Reassessments”.
[4] The Reassessments of the Reporting Periods ending in the period from January 1, 2010 through March 31, 2012 (the “2010–2012 Reporting Periods”) were issued after the expiry of the four-year limitation period set out in paragraph 298(1)(a). I will refer to these Reassessments as the “2010–2012 Reassessments”.
[5] The Appellant previously conceded that the 2009 Reassessments were issued within the four-year limitation period because the Appellant filed the returns for the 2009 Reporting Periods on January 20, 2016. [2]
[6] The Respondent previously conceded that the Appellant was entitled to ITCs totalling $76,291.61 for payments made in the 2010–2015 Reporting Periods to the Subcontractors that were registered under the GST Act. [3]
[7] At the commencement of argument, counsel for the Respondent conceded that the penalties under section 285 did not apply to the 2010–2015 Reporting Periods.
[8] Consequently, the issues to be addressed are as follows:
1. Is the Appellant entitled to ITCs, or the deduction of a rebate in computing net tax, in the amount of $94,034.76 for the 2009 Reporting Periods?
Is the Appellant entitled to ITCs, or the deduction of a rebate in computing net tax, in the amount of $671,363.54 [4] for the 2010–2015 Reporting Periods?
Are the 2010–2012 Reassessments statute-barred and therefore void?
Is the Appellant liable for penalties under section 285 for the 2009 Reporting Periods?
II. The Facts
[9] The parties filed a Partial Agreed Statement of Facts (the “PASF”). The PASF states:
1. The Appellant is a corporation created under the laws of Ontario with its registered office address in Thornhill, Ontario.
2. The Appellant is engaged in the business of providing professional cleaning services to businesses including hotels, medical offices and commercial properties.
3. In order to provide services to its clients, the Appellant engages workers to provide cleaning services.
4. In a prior Tax Court of Canada appeal (2008 [sic] TCC 340 [5] ), the Court held that workers engaged by the Appellant were subcontractors. The decision is attached hereto as Appendix A.
5. In 2009, following the decision in the Tax Court of Canada appeal, the Appellant prepared and entered into a subcontractor agreement with each subcontractor engaged by the Appellant. Samples of these agreements are attached hereto as Appendix B.
6. The Appellant received master business licences from some of the subcontractors. Samples of these licences are attached hereto as Appendix C.
7. Also in 2009, the Appellant set up a payment system through its third-party provider Desjardins to effect payment to all of the subcontractors. The payroll records for the reporting periods January 1, 2010 to June 30, 2015 are attached hereto as Appendix D. The payroll records are representative of the payments made to the subcontractors in the referenced periods.
8. The subcontractors did not invoice the Appellant.
9. Each subcontractor received a pay stub. A sample paystub is attached hereto as Appendix E. The sample paystub is representative of the paystubs issued to all subcontractors at issue in this Appeal.
10. The Appellant filed GST/HST returns for the reporting periods between January 1, 2009 and June 30, 2015 (the “Relevant Periods”) on the dates set out in Schedule “A” of the Respondent’s Reply. In the returns, the Appellant claimed Input tax credits (“ITCs”) in respect of the subcontractors listed in the payroll records at Appendix D, and in the consolidated list at Appendix F.
11. On May 5, 2016, the Minister issued a Notice of Reassessment (the “Reassessment”) for the Relevant Periods. The Reassessment is attached hereto as Appendix G.
12. The Appellant claimed ITCs in the amount of $94,034.76 for the year 2009.
13. The total amount of disallowed ITCs that relate to the Appellant’s subcontractors [sic] expense in reporting periods between January 1, 2010 and June 30, 2015 is $747,655.15. [6]
14. The Respondent has conceded to allow ITCs in the amount of $76,291.61, which were claimed in respect of payments made to subcontractors that were registered at the time of payment. The registration numbers of these subcontractors and a breakdown of the amount conceded by subcontractor is attached hereto as Appendix H.
15. The Appellant has conceded that the reporting periods between January 1, 2009 and December 31, 2009 are not statute-barred because the return for those periods was late-filed on January 20, 2016.
[10] Two witnesses testified for the Appellant: John Procopoudis, the President of the Appellant; and David Burkes, CPA, the Appellant’s long-time accountant. I find that both witnesses were credible. No witness was called by the Respondent.
[11] On July 17, 2009, the Tax Court of Canada released its judgment in Mediclean Incorporated v. MNR, 2009 TCC 340. The Court held that workers of the Appellant that were determined by the Minister of National Revenue (the “Minister”) to be engaged in insurable and pensionable employment for the purposes of the Employment Insurance Act and the Canada Pension Plan were independent contractors.
[12] Following this decision, the Appellant took steps in 2009 to formalize its relationship with its independent contractors by preparing and entering into a written agreement with each independent contractor. [7] Samples of written agreements executed in 2012, 2013, 2014 and 2015 are attached to the PASF as Appendix B (Exhibit A-3).
[13] The Appellant entered into the same written agreement with employees who chose to become independent contractors and with all future independent contractors.
[14] Paragraph 4 of the written agreement states:
The Company will pay you bi-weekly for services performed under this agreement a(n) hourly fee of $* [8] plus H.S.T. if applicable during the term of this agreement (the “Subcontractor fee”). The subcontractor [sic] fee will be paid within 15 days after you submit an invoice or on-site record for such services.
[15] Also in 2009, the Appellant set up a payment system through a payroll company called Desjardins to effect payments to each Subcontractor. [9] A 250-page printout with Desjardins’s name at the bottom left of each page is attached to the PASF as Appendix D (Exhibit A-1). Exhibit A-1 is representative of the payments made by Desjardins to the Appellant’s independent contractors during the 2010–2015 Reporting Periods. [10]
[16] Exhibit A-1 shows the payments made to independent contractors, and to employees of the Appellant, [11] for the pay periods ending December 15, 2010, December 15, 2011, December 15, 2012, December 15, 2013, December 15, 2014, and December 15, 2015. [12] Mr. Procopoudis testified that the records for 2009 were not available because Desjardins had deleted those records because of the passage of time.
[17] Exhibit A-1 shows for each payment to a Subcontractor the Subcontractor’s name, address, hourly rate, hours worked, earnings paid and GST/HST paid to the Subcontractor.
[18] Each Subcontractor received a pay stub. [13] A sample pay stub with Desjardins’s name at the bottom right is attached as Appendix E to the PASF (Exhibit A-2). The sample pay stub includes the name of the Appellant, the name and address of the payee, the function of the payee, [14] the hours worked, the hourly rate, the total payment for services provided during the period covered by the stub, the amount of GST paid, the period to which the payment relates and the date on which the amount stated on the stub became payable.
[19] In August or September 2009, Mr. Procopoudis retrieved information from the Canada Revenue Agency (“CRA”) website regarding the information needed to claim an ITC for GST/HST paid under a contractual arrangement.
[20] In May 2015, the CRA commenced an audit of the Appellant under the GST Act (the “CRA Audit”). Mr. Procopoudis testified that he had his own position but that the CRA auditor had his own procedure and that after the CRA auditor presented the CRA position early in the audit, Mr. Procopoudis went to the CRA website to print the CRA guidance for his records. [15]
[21] Two pages of information were entered as Exhibit A-4. The first page addresses contractual arrangements and the second page addresses small suppliers.
[22] Mr. Procopoudis testified that the information on page 1 of Exhibit A-4 regarding the information requirements for contractual arrangements was the same as he had retrieved in 2009.
[23] Mr. Procopoudis’s understanding from reviewing the CRA website in August or September 2009 was that for the Appellant to claim ITCs for payments of GST/HST under a contractual arrangement, the books and records and related documents had to show:
a) The name or trading name and address of the supplier.
b) The supplier’s business number.
c) The reporting period when the HST was paid or became payable and the amount of HST paid or payable.
d) The type of supply.
e) The name or trading name and address of the recipient of the supply.
[24] In cross-examination, Mr. Procopoudis stated that when the contract with the Subcontractors was developed in 2009, he did not seek professional advice regarding the Appellant’s entitlement to ITCs because he believed that the position of the CRA regarding contractual arrangements was clear-cut.
[25] Mr. Procopoudis was asked about the information regarding small suppliers on page 2 of Exhibit A-4 and he replied that he did not refer to that information in 2009 and only became aware of the small supplier issue in 2015 when it was raised by the CRA auditor. I infer from this that the document was printed by Mr. Procopoudis in response to the comments of the CRA auditor.
[26] Mr. Procopoudis repeated his understanding that the small supplier rule was not relevant because the contracts between the Appellant and the Subcontractors provided for the payment of GST/HST on taxable supplies and the services provided by the Subcontractors were taxable supplies. [16]
[27] When asked about the words “if applicable” in paragraph 4 of the sample contracts, Mr. Procopoudis stated that it was his understanding that those words addressed whether the services provided by the Subcontractors were taxable supplies.
[28] In a meeting to review the Appellant’s 2014 financial statements in the first week of May 2015, Mr. Burkes advised Mr. Procopoudis that the CRA was looking into unregistered contractors that were collecting GST/HST. Mr. Burkes suggested that the Appellant request HST numbers before paying HST to the Subcontractors. In June 2015, the CRA auditor advised Mr. Procopoudis of the CRA’s position that the Appellant should obtain an HST number before paying HST.
[29] On July 1, 2015, the Appellant sent a letter to all the Subcontractors stating that they had to be registered under the GST Act by July 30, 2015, to continue to receive HST. A sample copy of the letter was entered into evidence as Exhibit A‑6. At the same time, the Appellant amended its contract with the Subcontractors.
[30] In October or November 2015, the CRA auditor advised Mr. Procopoudis that the Appellant had not filed GST returns for the 2009 Reporting Periods. [17] Mr. Procopoudis investigated the missing returns and discovered them with the 2009 financial statements of the Appellant. He signed and filed the returns together with a payment that included an additional $4,000 to address penalties and interest. [18] Mr. Procopoudis did not consult with Mr. Burkes prior to filing these returns.
[31] Mr. Procopoudis testified that the GST/HST returns of the Appellant for the Reporting Periods were prepared by Mr. Burkes based on the information provided by the Appellant. Mr. Burkes testified that prior to the commencement of the CRA audit in May 2015 he was not asked to give advice regarding the Appellant’s entitlement to ITCs, that he had assumed in preparing the Appellant’s GST/HST returns for the Reporting Periods that GST/HST had to be paid to all the Subcontractors and that in May 2015, when preparing for the audit, he discovered that some of the Subcontractors should not have been paid GST/HST because they were unregistered small suppliers.
III. The Positions of the Parties
A. The Appellant
[32] The Appellant submits that it is entitled to ITCs for all the GST/HST paid to the Subcontractors in the Reporting Periods. Furthermore, even if the Appellant is not entitled to such ITCs, for each of the Reporting Periods the Minister must apply the amount of GST/HST paid by the Appellant to the Subcontractors in error during the Reporting Period to reduce the net tax owing by the Appellant for the Reporting Period.
[33] In support of the latter position, the Appellant cites subsections 261(1) and 296(2.1) and Société en Commandite Sigma-Lamaque v. R., 2010 TCC 415 at paragraphs 26 and 28 and United Parcel Service Canada Ltd. v. R., 2009 SCC 20, [2009] 1 SCR 657 (“UPS”) at paragraphs 23, 29 and 30.
[34] With respect to each of the 2010–2012 Reassessments, the Appellant submits that the Minister has the burden of proving the facts that establish that the Appellant made a misrepresentation in respect of its claim for ITCs in the GST/HST return for the Reporting Period to which the assessment applies and that such misrepresentation was attributable to the Appellant’s neglect, carelessness, or wilful default.
[35] The Appellant submits that while the standard of behaviour expected of taxpayers in filing returns is that of a wise and prudent person, the standard is not one of perfection. A misrepresentation does not exist if the Appellant has thoughtfully, deliberately and carefully assessed the situation and filed on what is bona fide believed to be the correct basis. The Appellant cites The Queen v. Regina Shoppers Mall Ltd., 91 DTC 5101 at page 5105 and Salloum v. R., 2014 TCC 366 (Informal Procedure) affirmed, 2016 FCA 85, which in turn cites Johnson v. R., 2012 FCA 253 at paragraph 55.
[36] With respect to the assessment of penalties for the 2009 Reporting Periods, the Appellant submits that the Minister has the burden of proving the facts that support the imposition of a penalty under section 285. The Appellant submits that the Minister has provided no evidence that would establish that the Appellant knowingly or in circumstances amounting to gross negligence made a false statement in the returns filed for the 2009 Reporting Periods. The Appellant submits that it is not grossly negligent to overpay tax and then seek to have that tax refunded.
B. The Respondent
[37] The Respondent submits that the Appellant is not entitled to ITCs for amounts paid to unregistered small suppliers because, contrary to paragraph 169(4)(a), the Appellant failed to obtain sufficient evidence to enable the amount of the ITCs to be determined, including the information prescribed by the Input Tax Credit Information (GST/HST) Regulations (the “Information Regulations”).
[38] In particular, the Respondent submits that the Appellant did not obtain a GST/HST registration number from the Subcontractors contrary to paragraphs 3(b) and 3(c) of the Information Regulations. In support of its position that a registration number is required for the Appellant to claim ITCs, the Respondent cites Systematix Technology Consultants Inc. v. R., 2006 TCC 277 (Informal Procedure) (“Systematix”), affirmed 2007 FCA 226 and paragraph 79 of SNF L.P. v. R., 2016 TCC 12 (“SNF”).
[39] In addition, for the 2009 Reporting Periods, the Respondent submits that the Appellant claimed ITCs for those periods after the expiry of the limitation period in subsection 225(4) and therefore is not entitled to claim those ITCs.
[40] The Respondent submits that the Appellant is not entitled to a rebate for tax paid in error under section 261 and subsection 292(2.1).
[41] The Respondent cites paragraph 20 of Systematix for the proposition that the GST Act must be strictly applied and cannot be stretched to address GST/HST paid in good faith even if there is perceived unfairness. The Respondent cites paragraph 28 of Systematix for the proposition that the Appellant has not proven that GST/HST was paid in error because there is no evidence that the Subcontractors were small suppliers.
[42] Alternatively, the Respondent cites paragraph 84 of SNF for the proposition that the amounts paid by the Appellant to the Subcontractors were paid because of the Appellant’s own negligence, or inattention and carelessness, and that the Appellant is not entitled to a rebate caused by such behaviour. Since the Appellant was not entitled to a rebate if it had been claimed in time, subsection 292(2.1) is not applicable.
[43] The Respondent cites paragraphs 33 to 36 of Reluxicorp Inc. v. R., 2011 TCC 336, in support of her position that the 2010–2012 Reassessments are valid because the Appellant made a misrepresentation in its returns for the 2010–2012 Reporting Periods that was attributable to neglect, carelessness or wilful default.
[44] The Appellant did not comply with the information requirements in section 169 and therefore made a misrepresentation when it claimed entitlement to ITCs. The Appellant did not obtain any professional advice regarding the documentation required to claim ITCs or regarding its obligation to pay GST/HST to the Subcontractors. The Appellant also did not undertake a thoughtful, deliberate and careful analysis of whether to pay GST/HST to the Subcontractors. Consequently, the misrepresentations by the Appellant were due to neglect or carelessness.
[45] The Respondent submits that the Appellant is liable for the penalty assessed under subsection 285 for the 2009 Reporting Periods because the Appellant filed the GST/HST returns for those periods and claimed ITCs for payments of GST/HST to Subcontractors notwithstanding the issues raised by the CRA audit. Consequently, the Appellant was either wilfully blind to the issue concerning the application of GST/HST to the payments made to unregistered Subcontractors or was grossly negligent in failing to properly consider that issue.
IV. Statutory Provisions
[46] The statutory provisions relevant to this appeal are cited in the footnotes in the Analysis section of these reasons and where appropriate are reproduced in that section.
V. Analysis
[47] I will first address the Appellant’s claim for ITCs and the Appellant’s alternative claim for the application of an “allowable rebate” [19] to reduce the net tax owed by the Appellant for the Reporting Periods. The Appellant’s alternative positions require an understanding of the applicable regime in the GST Act, which is simple in concept but complex in its execution.
A. Summary of the Relevant Tax, ITC and Rebate Provisions
[48] Rather than addressing a few disparate statutory provisions in isolation, I will first summarize the extensive list of provisions that govern the imposition of tax and eligibility for ITCs and rebates in the circumstances of this case. This summary provides a complete statutory context for the issues raised in this appeal.
[49] The GST Act imposes tax under four divisions: Division II, Division III, Division IV and Division IV.1. This appeal is concerned only with tax imposed under Division II.
[50] Every recipient of a taxable supply made in Canada is required to pay to Her Majesty in right of Canada tax in respect of the supply calculated on the value of the consideration for the supply. [20] The general rule [21] is that the tax is payable by the recipient of the taxable supply on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due.
[51] The imposition of tax under subsections 165(1) and (2) is “Subject to this Part”. Since “this Part” is the whole GST Act, each exception or qualification elsewhere in the GST Act must be taken into consideration in determining a person’s liability for the tax imposed by these subsections.
[52] The term “supply” means “the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition”. [22]
[53] The definitions of “property” and “service” are in turn extremely broad. [23] However, the definition of service excludes “anything that is supplied to an employer by a person who is or agrees to become an employee of the employer in the course of or in relation to the office or employment of that person”. [24] Consequently, a supply includes the services provided by an independent contractor to a client but not the services provided by an employee to his or her employer.
[54] A “taxable supply” is a supply made in the course of a “commercial activity”. [25]
[55] A “commercial activity” of a person means a business of the person, an adventure or concern of the person in the nature of trade (an “ANT”) and the making of a supply by the person of real property. [26] A “business” includes a profession, calling, trade, manufacture or undertaking of any kind whatever, whether the activity or undertaking is engaged in for profit. [27]
[56] The definition of “commercial activity” excludes a business or ANT that involves the making of exempt supplies by the person, an exempt supply by the person of real property and, in the case of an individual, a personal trust or a partnership of individuals, a business or ANT carried on or engaged in without a reasonable expectation of profit.
[57] Where the taxable supply is made in a non-participating province, the tax is called goods and services tax (GST). [28] Where the taxable supply is made in a participating province such as Ontario, the tax is called harmonized sales tax (HST). [29] The rate of tax is 5% plus a prescribed provincial percentage if the supply is made in a participating province. [30] For taxable supplies made in Ontario before July 1, 2010, the rate of tax (GST) is 5% and for taxable supplies made in Ontario after June 30, 2010, the rate of tax (HST) is 13%. [31]
[58] The Minister may assess any tax payable by a person under Division II (as well as IV or IV.1). [32] However, if the tax is paid by the recipient of the taxable supply to the person making that supply, then tax is no longer payable by the recipient of the supply provided the transactions are bona fide. [33]
[59] Subject to three exceptions, [34] if a person makes a taxable supply and the consideration for that supply becomes due when that person is a small supplier that is not a registrant, the consideration is not included in computing the tax payable in respect of the supply. [35] Consequently, there is no tax payable on a taxable supply by a small supplier that is not a registrant.
[60] A person is a small supplier throughout a calendar quarter if the total consideration for taxable supplies made by that person that became due in the previous four calendar quarters does not exceed $30,000. A person ceases to be a small supplier at the time the $30,000 limit is exceeded.
[61] A person is a “registrant” if that person is registered, or is required to be registered, under Subdivision D of Division V of the GST Act. [36] Subject to three exceptions, every person that makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered. [37]
[62] One of the three exceptions is for a small supplier that does not carry on a taxi business. [38] Notwithstanding this exception, a small supplier engaged in a commercial activity in Canada may register so as to be entitled to ITCs for tax paid. [39] If a small supplier is registered, then tax is payable on any taxable supply made by that small supplier.
[63] A supply included in Schedule VI to the GST Act is a “zero-rated supply”. A taxable supply that is a zero-rated supply is subject to tax but at a zero rate of tax. [40] Groceries are a common example of a zero-rated supply.
[64] A supply included in Schedule V of the ETA is an “exempt supply”. An exempt supply is not subject to tax under the GST Act. [41]
[65] A recipient of a zero-rated supply may be entitled to ITCs in respect of that supply, for example, if there is tax on a delivery charge for the zero-rated supply. [42] A recipient of an exempt supply is not entitled to ITCs in respect of the supply. [43]
[66] A person that makes a taxable supply must collect the tax that is payable by the recipient in respect of the supply. [44] This general rule does not apply to a taxable supply by a small supplier that is not a registrant because the consideration for such a supply is not included in calculating the tax payable on the supply and therefore the tax payable is nil. [45] This general rule does apply to a taxable supply by a small supplier if the small supplier is a registrant or one of the exceptions in paragraph 166(a), (b) or (c) applies to the supply.
[67] Every registrant must file a return for each reporting period of the registrant. [46]
[68] The reporting period of a registrant may be a fiscal year, a fiscal quarter or a fiscal month of the registrant depending on the threshold amount of the registrant. [47]
[69] Special rules apply where a person becomes or ceases to be a registrant, [48] where a person becomes or ceases to be bankrupt [49] or where a person enters or leaves a receivership. [50]
[70] If the reporting period of the registrant is a fiscal year, then the registrant’s return is due three months after the end of the reporting period. [51] However, where the registrant is an individual whose fiscal year is the calendar year, the due date is the following June 15 if that is the individual’s filing due date under the Income Tax Act (the “ITA”). [52]
[71] If the reporting period of the registrant is other than a fiscal year, then the registrant’s return is due one month after the end of the reporting period. [53]
[72] Every person who is not a registrant must file a return for a reporting period for which net tax is remittable by the person. The filing deadline for the return is one month after the end of the reporting period. [54] The reporting period for a person who is not a registrant is a calendar month. [55]
[73] Every person who is required to file a return under Division II must calculate in the return the person’s net tax for the reporting period for which the return is filed. [56]
[74] A person is required to remit to the Minister that person’s net tax for a reporting period on or before the day the return for the reporting period is due. [57] However, if the return of an individual is due on June 15 under subparagraph 238(1)(a)(ii) as described above, the due date for remittance is April 30. [58]
[75] Subject to the rules in Subdivision B, a person’s net tax is the sum of all amounts collectible or collected in the reporting period as or on account of tax under Division II plus all other amounts required by the GST Act to be added to net tax for the reporting period less the sum of ITCs for the reporting period or a prior reporting period claimed by the person in a return under Division II filed for the reporting period and all amounts that may be deducted from net tax under the GST Act for the reporting period. [59]
[76] Where a person acquires or imports a good or service during a reporting period of the person during which the person is a registrant and tax becomes payable by the person or is paid by the person without having become payable, an amount determined by formula is an ITC of the person. [60] If the acquisition or importation of a good or service is not solely for consumption, use or supply in the course of commercial activities, B of the formula limits the ITC to a percentage of the tax payable based on the extent to which the acquisition or importation is for such a purpose.
[77] A registrant may deduct ITCs in computing net tax only if the registrant has obtained sufficient evidence in such form containing such information as will enable the amount of the input tax credit to be determined including any information required by the Information Regulations. [61] The Minister has a discretionary power to waive this requirement. [62]
[78] A registrant that is not a specified person must claim an ITC on or before the filing due date for the return for the last reporting period that ends within four years of the end of the reporting period in which the ITC arose. [63]
[79] A person may not deduct in computing net tax an amount included or claimed as an ITC or deduction in a preceding reporting period. If, however, the person was not entitled to claim the amount in determining that person’s net tax for the preceding reporting period solely because the person did not satisfy the information requirements in subsection 169(4) before the return for that preceding reporting period was filed, then this general prohibition does not apply. [64]
[80] In addition, if specified conditions are satisfied, when assessing net tax for a particular reporting period, the Minister must allow certain ITCs even if the four‑year limitation for claiming the ITCs has expired. [65] The conditions are:
An amount in respect of the ITC would have been allowed if the ITC had been claimed in a timely filed return for the particular reporting period and the information requirements in subsection 169(4) had been met.
The ITC was not claimed in a return filed before the notice of assessment for the particular reporting period was sent to the person claiming the ITC, or if it was so claimed it was disallowed by the Minister.
The ITC would be allowed for a reporting period of the person if it were claimed in a return filed on the day the notice of assessment for the particular reporting period is sent assuming the four-year limitation period is ignored.
[81] Subject to two limitations, a person that has, whether by mistake or otherwise, paid an amount as or on account of tax, net tax, penalty, interest or other obligation under the GST Act, in circumstances where the amount was not payable or remittable by the person, is entitled to a rebate of the amount so paid. [66]
[82] Under the first limitation, a rebate shall not be paid if any one of three circumstances exist:
The amount was taken into account as tax or net tax for a reporting period of the person and the Minister has assessed the person for the period under section 296. [67]
The amount paid was tax, net tax, penalty, interest or any other amount assessed under section 296. [68]
A rebate of the amount is payable under subsection 215.1(1) or (2) or 216(6) or a refund of the amount is payable under section 69, 73, 74 or 76 of the Customs Act because of subsection 215.1(3) or 216(7). [69]
[83] Under the second limitation, a rebate shall be paid only if the person has filed an application for the rebate within two years after the day the amount was paid or remitted by the person. [70]
[84] Notwithstanding this second limitation, the Minister is required, in assessing the net tax of a person for a reporting period, to deduct the rebate if the Minister determines that an amount (the “allowable rebate”) would have been payable to the person as a rebate if:
the rebate had been claimed in an application filed on the day on or before which the return for the period was required to be filed and the person had paid or remitted that amount,
the allowable rebate was not claimed by the person in an application filed before the day notice of the assessment is sent to the person, and
the allowable rebate would be payable to the person if it were claimed in an application filed on the day notice of the assessment is sent to the person or would be disallowed if it were claimed in that application only because the period for claiming the allowable rebate expired before that day. [71]
B. Analysis of the Appellant’s Claim for ITCs or a Rebate
[85] Counsel for the Appellant submits that either the Appellant is entitled to ITCs under subsection 169(1) for the amounts paid to the Subcontractors as tax under Division II of the GST Act, or the Appellant is entitled either to the payment of a rebate under subsection 261(1) for tax paid in error, or to the application of such a rebate to reduce its net tax under subsection 296(2.1).
[86] The Respondent has conceded the Appellant’s claim for ITCs in respect of tax paid (the “Allowed Payments”) to Subcontractors that were registrants at the time of payment (the “Registered Subcontractors”). The Allowed Payments are listed on an annual basis in tab H to the PASF and total $76,291.61. Counsel for the Respondent advised the Court that the ITCs allowed for each of the quarterly reporting periods ending in a year identified in this summary would be one quarter of the annual amount stated for that year. [72]
[87] The Respondent does not concede the Appellant’s claim for ITCs for amounts totalling $765,398.30 identified by the Appellant as tax paid (the “Disputed Payments”) to Subcontractors that were not registrants at the time of payment (the “Unregistered Subcontractors”).
[88] The basis for the Respondent’s disallowance of the Disputed Payments is that the Appellant did not meet the information requirements imposed by subsection 169(4), in particular, the requirement to obtain a registration number from each Subcontractor that was paid tax. In addition, the Respondent submits that the Appellant’s claims for ITCs in respect of the 2009 Reporting Periods were filed after the expiry of the four-year limitation period in subsection 225(4).
[89] Exhibit A-1 indicates that Subcontractors were paid amounts periodically and that these amounts were each in excess of $30. The PASF states that Exhibit A-1 is representative of the payments made by the Appellant to Subcontractors during the 2010–2015 Reporting Periods. There is no evidence to suggest that the magnitude of the individual payments was different for the 2009 Reporting Periods.
[90] In such circumstances, for the purposes of paragraph 169(4)(a), the following information is prescribed by subparagraph 3(b)(i) of the Information Regulations:
3. For the purposes of paragraph 169(4)(a) of the Act, the following information is prescribed information:
. . .
(b) where the total amount paid or payable shown on the supporting documentation in respect of the supply or, if the supporting documentation is in respect of more than one supply, the supplies, is $30 or more and less than $150,
(i) the name of the supplier or the intermediary in respect of the supply, or the name under which the supplier or the intermediary does business, and the registration number assigned under section 241 of the Act to the supplier or the intermediary, as the case may be, . . . .
[Emphasis added.]
[91] If a payment exceeds $150, paragraph 3(c) of the Information Regulations imposes requirements in addition to those in paragraph 3(b).
[92] Mr. Procopoudis relied on information on the CRA website addressing contractual arrangements to determine the information obtained by the Appellant from Subcontractors. This information makes no reference to the need to obtain a registration number from a payee. Instead, the information refers to a business number, which the Appellant did obtain when one was available.
[93] The Appellant retained Desjardins to manage payments to Subcontractors and employees of the Appellant and Desjardins recorded for each payment to a Subcontractor the Subcontractor’s name, address, hourly rate, hours worked, earnings paid and GST/HST paid to the Subcontractor. The information provided by Desjardins to the Appellant for each payment to the Subcontractors is more than sufficient evidence to support the quantum of ITCs claimed by the Appellant. [73]
[94] However, subsection 169(4) and the Information Regulations require that for taxable supplies with a value greater than $30 a registrant obtain the registration number of the payee in order to be entitled to an ITC for tax paid to that payee. As stated by the Federal Court of Appeal in Systematix Technology Consulting Inc. v. The Queen [74] :
We are of the view that the legislation is mandatory in that it requires persons who have paid GST to suppliers to have valid GST registration numbers from those suppliers when claiming input tax credits. [75]
[95] The Appellant failed to obtain the prescribed information and therefore is not entitled to ITCs for the Disputed Payments. Given this conclusion, I need not address the Respondent’s additional position on ITCs for the 2009 Reporting Periods.
[96] The alternative position of the Appellant is that it is entitled to the paym