Date: 20010314
Docket: 97-266-GST-I
BETWEEN:
HELSI CONSTRUCTION MANAGEMENT INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Bowman, A.C.J.
[1] The appeal was originally heard by McArthur J. and dismissed by him. An appeal to the Federal Court of Appeal was allowed on the basis that he should have granted a last minute request for an adjournment because the appellant was not prepared to proceed. The court followed Garden v. R., [2000] 1 C.T.C. 106.
[2] The Federal Court of Appeal appeared to consider the fact that the Crown consented as relevant. The simple fact is that the Crown almost invariably consents if an appellant asks for an adjournment. When a judge sees twenty or thirty requests for adjournment a week in which the Crown consents it is a little difficult to place much weight on the fact that the Crown consents.
[3] These cases can usefully be compared with the approach taken by the Federal Court of Appeal in Sidhu v. M.N.R., (1994) 176 N.R. 156, where Isaac C.J. dismissed an application for judicial review from a refusal of this court to grant an adjournment. At page 158 he said:
[8] Section 21 of the Tax Court of Canada Rules of Procedure respecting the Unemployment Insurance Act vests the Tax Court of Canada with a discretion to adjourn any appeals on such terms as in its opinion the circumstances of the case require. This implies that in a proper case the court may refuse a request for an adjournment. We find the words of Schreoeder, J.A., used in a different context, in MacDonald et al. v. Stage et al., [1958] O.W.N. 1 (C.A.), at p. 3 are apt to describe what occurred here:
"... it lay entirely within the discretion of the learned trial judge either to postpone or to refuse to postpone the trial of the action. That was a matter for him to decide on the material which was before him. Under the circumstances of this case he may very well have inferred that the application was for the purpose of delay."
[9] Here, the hearing was fixed peremptorily. And, as the learned Tax Court judge correctly observed, this implied that, barring exceptional circumstances, the applicant should be prepared to proceed. He reviewed the circumstances and was satisfied that they were not exceptional. He was informed by counsel for the applicant in unequivocal terms that he was not ready to proceed. We are all of the view that the learned Tax Court judge exercised his discretion properly in those circumstances and that he committed no error that would justify our interference. We are also of the view that it is "nihil ad rem" that counsel for the Minister did not oppose the request for the adjournment. The discretion to adjourn is vested in the court, and although the position taken by counsel for the Minister was a factor to be considered in its exercise, the fact cannot be determinative.
[10] As this court has observed in Adams v. Royal Canadian Mounted Police (Commissioner) (1994), 174 N.R. 314 (F.C.A.):
"... The day has passed when courts could allow to litigants the luxury of being at their beck and call. Courts are public institutions for the resolution of disputes and cost substantial public money. Court congestion and delay is a serious public concern. Parties who launch proceedings at any level with the intention of putting them in a 'holding pattern' for their own private purposes may be called to account for their waste and abuse of a public resource. They also risk having those proceedings dismissed."
[11] For these reasons the s. 28 application will be dismissed.
[4] At all events the matter came on before me on the basis of evidence that was very different from that that was before McArthur J.
[5] The original assessment was for the period January 1, 1991 to August 31, 1994. By that assessment the Minister of National Revenue assessed the appellant for additional GST of $78,982.44 and disallowed input tax credits ("ITCs") of $65,854.43.
[6] The appellant provided additional information and documentation to the respondent before the second hearing. This resulted in the respondent's agreeing that additional ITCs should be allowed to the appellant in the amount of $56,411.16. In addition, the respondent, as the result of facts that emerged at the second hearing, now agrees that the amount of GST assessed against the appellant should be reduced by $5,184.56 in respect of the sale of property at 2851 Hunstmen's Path, St-Lazare.
[7] This leaves us with a net difference between the parties of $10,778.73 in respect of GST and $55,835.62 in respect of ITCs.
[8] The issues fall into three broad categories.
1. The appellant says that GST was improperly charged on certain sales.
2. The appellant says that ITCs were improperly denied to it for failing to provide the required information such as the vendor's registration number.
3. The appellant contends that the formula used by the Minister is incorrect where the new housing rebate is assigned to the builder by the purchaser.
[9] 1. The particular sales in which the appellant alleges that the Minister assessed tax wrongly are the following:
(a) 2645 Simpson, St-Lazare.
The appellant contends that because the property was substantially completed prior to January 1, 1991 it should not have to pay GST. It was however sold after January 1, 1991 and GST is therefore exigible.
(b) 2959 Masters Road, St-Lazare; 529 Jean, Fabreville; 5108 Hertel, Pierrefonds; 12722 Raiche and 88 Adam, Vaudreuil; 2681 Simpson, St-Lazare; 167 Argyle, Kirkland.
Whatever may be the appellant's arguments in support of its position that no GST should be charged, the simple fact of the matter is, none was.
The Revenue auditor, Mr. Denis, testified that no GST was charged by him. The appellant's representative, Mr. Familamiri, may have been misled by some handwritten notes made by Mr. Denis during the first trial. However the evidence is clear that no GST was charged on these transactions against the appellant.
(c) 2851 Huntsmen's Path, St-Lazare.
The Crown has conceded that the GST charged on this transaction should be reduced to $5,184.56.
(d) 4471 Elgin, Pierrefonds.
The appellant contends that this property, which at the time of sale was substantially incomplete, was sold to the appellant's subcontractor and is therefore not taxable because of subsection 167(1) of the Excise Tax Act. In its original form it read:
Where a person who is a registrant makes a supply of all or substantially all of the property used in a commercial activity that forms all or part of a business carried on by the person to a recipient who is a registrant, and the person files an election made jointly by the person and the recipient in prescribed form containing prescribed information with the Minister with the return for the person's reporting period in which the supply is made,
(a) no tax is payable in respect of the supply; and
(b) the recipient shall, for the purposes of this Part, be deemed to have acquired the property for use exclusively in commercial activities of the recipient.
The claim simply does not meet the section.
There is no evidence of any election and there is no evidence that the purchaser was a registrant. The appellant's argument also ignores the words "all or substantially all ..." in the section.
I am not entirely sure when the sale was made and therefore what version of section 167 applies. The evidence does not support the view that the sale falls into any version, original or amended.
[10] 2. The second main point is that additional ITCs beyond the $56,411.16 now conceded by the respondent should be allowed. After the first hearing the appellant provided the Crown with several boxes of invoices which were reviewed and this review formed the basis of the additional ITCs of $56,411.16 now conceded by the respondent.
[11] The main reasons for the disallowance was that the suppliers' GST numbers were not shown on the invoices. This is a requirement under section 3 of the Input Tax Credit Information Regulations. While there may be some justification in certain cases for treating technical or mechanical requirements as directory rather than mandatory (for example see Senger-Hammond v. R., [1997] 1 C.T.C. 2728) that is not so in the case of the GST provisions of the Excise Tax Act.
[12] The appellant's representative contended that the Department had the GST numbers of the various suppliers and should have either given them to him or looked them up itself.
[13] We are dealing with one of the technical requirements under a statute that is somewhat unique for its specificity. Moreover, it is the foundation of a self-assessing system that operates in the commercial world. Unfortunate as it may seem to the appellant, rules are rules. I can do nothing to help the appellant on this point. The problem is to some extent the appellant's own doing. Mr. Familamiri has made great efforts to correct the situation created by the original chaotic state of the records and he has succeeded to some extent. However there is only so much that one can do to correct years of disarray.
[14] 3. The final question is the formula to be used in determining the selling price of a piece of property. The following is the appellant's comparison of the two formulae.
The method used to calculate the Net GST by the Minister's auditor of page 1 of 2, 1994 is as follows;
a) Assuming the sale price of a Real property including GST with rebate assigned to the builder
by the purchaser =A
Therefore actual selling price
not including GST =A/1.0448
Then the GST amount =A – A/1.0448
The 36% rebate becomes B =(A-(A/1.0448)x .36
From above line the Net GST is (A – A/1.0448) – (B)
The correct method of calculating the Net GST is as follows;
b) Assuming the sale price of a Real property including GST with rebate assigned to the builder
by the purchaser =A
Therefore actual selling price
not including GST =A/1.07
Therefore the amount of 7% GST =(A/1.07)x0.07
Then 36% rebate amount is B =(A/1.07)x0.07x0.36
From above line the Net GST is (A/1.07)x0.07 – (B)
The difference in Net GST over charge by comparing a) and b) is 2.355% of Net GST assessed by the Minister's Auditor, which is as per Minister's Auditor's report page 2 of 2 1994;
(GST($465,790)–36% Rebate assigned (162,2000))x0.02355=$7,149.54
[15] I do not need to examine these methods in detail. In Tengrove Developments Inc. v. Canada, [1996] G.S.T.C. 35 (aff'd [1998] G.S.T.C. 49 (F.C.A.)), Rip J. held that where the new housing rebate is assigned back to the builder the rebate forms part of the consideration for the property and therefore the GST should be determined by calculating the consideration (i.e. the selling price not including the GST) by dividing the tax included price by 1.0448.
[16] There is no need to repeat what was said by Rip J. in Tengrove, or by Sobier J. in Fridel Ltd. v. Canada, [1994] G.S.T.C. 25 and by Garon J. (as he then was) in Bernard Homes Ltd. v. Canada, [1998] G.S.T.C. 82.
[17] A simple illustration will suffice. If a taxpayer buys a property for $100,000 and pays the vendor 7% sales tax, it is obvious that the consideration is determined by taking the tax included price ($107,000) and dividing it by 1.07 to arrive at $100,000. It gets more complicated where the rebate of 36% of the tax is assigned to the vendor.
[18] There we would have to go through a series of calculations. We start with $100,000, add 7% to arrive at $107,000. Take 36% of $7,000, or $2,520 so that initially the consideration is $102,520. The tax on this should be $7,176.40 and the rebate should be $2,583.50 and the consideration becomes $102,583.50 and the tax $7,180.85 and the rebate $2,585.10 and so on until a minimal amount is reached.
[19] If one divides $107,000 by the Crown's figure of 1.0448 the result is $102,411.94. This is lower than the figures I have calculated above. The explanation is that the purchaser does not pay more than $107,000 in my example, however much the GST may increase or be exigible from the vendor.
[20] The way the Crown arrives at its figure of 1.0448 is set out in its GST/HST memorandum of July 1998.
10. The value of consideration can be determined in those cases where a rebate forms part of the value of consideration by applying a "rebate factor". The rebate factor accounts for the fact that the rebate forms part of the value of consideration. The rebate factor is expressed as a percentage in most cases and is based on answers to the following questions:
(a) What is the stated price of the unit?
(b) Is this a tax-included amount or a tax-excluded amount?
(c) Is the value of consideration made up of this stated price plus the new housing rebate?
The following illustrates how to calculate and then use the rebate factor for a qualifying unit where:
(a) the stated price is $200,000,
(b) this is a tax-included amount, and
Calculating the rebate factor:
consideration for the sale 100.00%
plus: tax (GST) 7.00%
tax-included price 107.00%
less: GST rebate (36% of 7%) (2.52%)
rebate factor 104.48%
Using the rebate factor to determine the value of consideration of a unit with a tax-included price of $200,000 where the rebate is paid or credited as part of the value of consideration for the unit, the calculations would be as follows:
value of consideration ($200,000/104.48%) $191,424 100.00%
tax payable ($191,424 x 7%) $13,400 7.00%
GST new housing rebate (36% of $13,400) ($4,824) (2.52%)
$200,000 104.48%
In the following calculation, the $200,000 is a tax-excluded amount. In order to apply the rebate factor, the value of consideration must be adjusted to a tax-included amount:
value of consideration $204,824 100.00%
($200,000 +(200,000 x 7%)) / 104.48%)
tax payable ($204,824 x 7%) $14,338 7.00%
GST new housing rebate (36% of $14,338) ($5,162) (2.52%)
$214,000 104.48%
11. As consideration for a unit increases, the rebate factor changes. The different rebate factors are illustrated in the appendix to this section.
[21] I can see no reason to disagree with the Crown's figure of 1.0448. In fact it seems beneficial to the vendor and to the purchaser.
[22] Mr. Familamiri disagrees with the basic position that tax should be paid on the amount of the rebate. With respect I do not agree. It forms part of the consideration.
[23] I can give the appellant no more than the Crown has conceded. The appeal is therefore allowed without costs and the assessment is referred back to the Minister for reconsideration and reassessment to allow the appellant additional input tax credits of $56,411.16 and to reduce the GST assessed by $5,184.56.
Signed at Ottawa, Canada, this 14th day of March 2001.
"D.G.H. Bowman"
A.C.J.