Tax Court of Canada Judgments

Citation: 2004TCC66

Date: 20040119

Docket: 2002-4733(GST)I

BETWEEN:

CLAIRE RILEY,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

REASONS FOR JUDGMENT

(Delivered orally from the bench on May 2, 2003,

in Vancouver, British Columbia.)

Archambault, J.

[1]      Ms. Claire Riley is appealing an assessment dated July 4, 2001 issued pursuant to Part IX of the Excise Tax Act (Act) by the Minister of National Revenue (Minister). This assessment covers the period starting January 1, 1999 and ending December 31, 2000 (relevant period).

[2]      In issuing the assessment, the Minister held Ms. Riley liable for the goods and services tax (GST) which, it is alleged, she collected during the relevant period but did not remit to the Minister. In fact, she did not collect any such tax.

[3]      Ms. Riley is a self-employed performing artist who in 1998 earned gross income in excess of $30,000. She achieved the $30,000 threshold sometime in the middle of December of that year. Unfortunately for her, she was only advised in 2001 of her obligation to register for GST purposes and to collect GST. A registration number was assigned to her by the Minister effective January 1, 1998.[1]

Analysis

[4]      Although Ms. Riley indicated she does not believe that she will be able to recoup from the various production companies the GST which she did not collect when they paid her fees, she is still liable under the Act for that GST. This is pursuant to subsections 221(1) and 225(1) of the Act, which read as follows:

221(1) [Collection of tax] Every person who makes a taxable supply shall, as agent of Her Majesty in right of Canada, collect the tax under Division II payable by the recipient in respect of the supply.

225(1) [Net tax] Subject to this Subdivision, the net tax for a particular reporting period of a person is the positive or negative amount determined by the formula

A - B

where

A is the total of

(a)         all amounts that became collectible and all other amounts collected by the person in the particular reporting period as or on account of tax under Division II, and

[. . .]

B is the total of

(a)         all amounts each of which is an input tax credit for the particular reporting period or a preceding reporting period of the person claimed by the person in the return under this Division filed by the person for the particular reporting period, and

[. . .]

[5]      It was argued that some of the services provided by Ms. Riley were performed for the benefit of a non-resident production company and that those services might be zero-rated supplies. However, it was revealed that her services to the non-resident production company were supplied in Canada to an individual (the director acting on behalf of the production company) in Canada. Therefore, those services are excluded from the definition of zero-rated supply as a result of the application of paragraph 7(a) or (a.1) of Part V of Schedule VI of the Act. Those paragraphs read as follows:

7.          A supply of a service made to a non-resident person, but not including a supply of

(a)         a service made to an individual who is in Canada at any time when the individual has contact with the supplier in relation to the supply;

(a.1)      a service that is rendered to an individual while that individual is in Canada;

. . .

[6]      In coming to the above-stated conclusion, I rely on the following technical notes were issued by the Department of Finance in July 1997:

The portion of the preamble to existing section 7 of Part V of Schedule VI that relates to the exclusion for supplies to non-resident individuals is replaced with new paragraph 7(a). This paragraph provides that a supply of a service to an individual may not be zero-rated under section 7 if the individual is in Canada at any time during which the individual has contact with the supplier in relation to the supply. This amendment does not alter the scope of the provision.

Existing paragraph 7(a), which excludes from zero-rating under section 7 a service that is primarily for consumption, use or enjoyment in Canada, is replaced with new paragraph 7(a.1). Difficulties have arisen in the determination of where certain services are primarily consumed, used or enjoyed. New paragraph 7(a.1) excludes from section 7 a supply of a service that is "rendered" to an individual while that individual is in Canada. Note that this applies whether or not the supply is "made" to an individual (i.e., whether an individual is the legal recipient within the meaning of subsection 123(1)). A supply may meet the condition in new paragraph 7(a) in that the service is not "supplied" to an individual who is in Canada. If, however, the service is "rendered" to an individual while the individual is in Canada, the supply would be excluded from zero-rating under section 7 by paragraph 7(a.1).

For example, where a non-resident company pays a fee for an employee to attend a management training session in Canada, the training service, although supplied to a non-resident person other than an individual, would not be zero-rated under section 7 because the service is rendered to the employee, an individual, while the employee is in Canada. It should be noted that, since section 7 is a general zero-rating provision for services, a more specific provision (e.g., section 18 of this Part) may apply in some cases.

[7]      Given that Ms. Riley's services were provided in the course of a commercial activity, they constitute a "taxable supply" as defined in subsection 123(1) of the Act.[2] Pursuant to subsection 240(1)[3] of the Act, Ms. Riley was not required to be registered if she qualified as a small supplier.

[8]      A "small supplier" is defined in subsection 148(1), which provides as follows:

148(1) [Small suppliers] For the purposes of this Part, a person is a small supplier throughout a particular calendar quarter and the first month immediately following the particular calendar quarter if

(a)         the total of all amounts each of which is the value of the consideration (other than consideration referred to in section 167.1 that is attributable to goodwill of a business) that became due in the four calendar quarters immediately preceding the particular calendar quarters, or that was paid in those four calendar quarters without having become due, to the person or an associate of the person at the beginning of the particular calendar quarter for taxable supplies (other than supplies of financial services and supplies by way of sale of capital property of the person or associate) made inside or outside Canada by the person or associate

does not exceed the total of

(b)         $30,000 or, where the person is a public service body, $50,000, and

. . .

                                                          [Emphasis added.]

[9]      In light of the facts described earlier in these reasons, Ms. Riley retained her small supplier status until the end of January 1999, and it was improper to make her registration retroactive to January 1, 1998.

[10]     Pursuant to section 166 of the Act, Ms. Riley's fees which became due during the time she was a small supplier do not have to be included in calculating tax payable in respect of such fees.[4]

[11]     Given that the assessment covers the period of January 1999 during which she was still considered a small supplier, I would allow the appeal and refer the assessment back to the Minister for reconsideration and reassessment on the basis that Ms. Riley remained a small supplier until January 31, 1999. In other words, the assessment can only cover the period from February 1, 1999 to December 31, 2000.

Signed at Ottawa, Ontario, this 19th day of January 2004.

"Pierre Archambault"

Archambault, J.

CITATION:

2004TCC66

COURT FILE NO.:

2002-4733(GST)I

STYLE OF CAUSE:

Claire Riley and Her Majesty the Queen

PLACE OF HEARING:

Vancouver, British Columbia

DATE OF HEARING:

April 28, 2003

REASONS FOR JUDGMENT BY:

The Honourable Justice Pierre Archambault

DATE OF JUDGMENT:

January 19, 2004

APPEARANCES:

For the Appellant:

The Appellant herself

Counsel for the Respondent:

Raj Grewal

COUNSEL OF RECORD:

For the Appellant:

Name:

Firm:

For the Respondent:

Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada

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