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Docket: 2003-1049(GST)I |
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BETWEEN: |
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CHARLES BEAUPRÉ, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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[OFFICIAL ENGLISH TRANSLATION] |
____________________________________________________________________
Appeal heard on common evidence with the appeal of
Dimension J.M.M. Inc. (2003-1045(GST)I)
on February 4, 2004, at Sherbrooke, Quebec
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Before: The Honourable Judge François Angers |
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Appearances: |
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Counsel for the Appellant: |
Richard Généreux |
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Counsel for the Respondent: |
Louis Cliche |
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under the Excise Tax Act, the Notice of which is numbered 22460, dated March 26, 2001, is dismissed without costs, in accordance with the attached Reasons for Judgment.
Signed at Edmundston, New Brunswick, this 29th day of March 2004.
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"François Angers" |
Angers J.
Translation certified true
on this 30th day of November 2004.
Colette Dupuis-Beaulne, Translator
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Docket: 2003-1045(GST)I |
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BETWEEN: |
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DIMENSION J.M.M. INC., |
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Appellant, |
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And |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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[OFFICIAL ENGLISH TRANSLATION] |
____________________________________________________________________
Appeal heard on common evidence with the appeal of
Charles Beaupré (2003-1049(GST)I)
on February 4, 2004, at Sherbrooke, Quebec
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Before: The Honourable Judge François Angers |
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Appearances: |
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Counsel for the Appellant: |
Richard Généreux |
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Counsel for the Respondent: |
Louis Cliché |
____________________________________________________________________
JUDGMENT
The appeal from the assessment made under the Excise Tax Act, the Notice of which is numbered 22459, March 26, 2001, is dismissed without costs, in accordance with the attached Reasons for Judgment.
Signed at Edmundston, New Brunswick, this 29th day of March 2004.
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"François Angers" |
Angers J.
Translation certified true
on this 30th day of November 2004.
Colette Dupuis-Beaulne, Translator
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Citation: 2004TCC209 |
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Date: 20040329 |
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Dockets: 2003-1049(GST)I 2003-1045(GST)I |
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BETWEEN: |
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CHARLES BEAUPRÉ, DIMENSION J.M.M. INC., |
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Appellants, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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[OFFICIAL ENGLISH TRANSLATION] |
REASONS FOR JUDGMENT
Angers J.
[1] The Appellants are appealing from the assessments made by the Minister of National Revenue (the "Minister"), dated March 26, 2001, number 22460, with respect to the Goods and Services Tax (GST) for the period beginning January 1 and ended October 31, 1997, in the case of the Appellant Charles Beaupré, number 22459 with respect to the GST for the period beginning November 1, 1997, and ended December 31, 2000, in the case of the Appellant Dimension J.M.M. Inc.
[2] Further to a GST audit, the Minister assessed the Appellants for the amounts of $7,045.44 in duties, $748.72 in penalties, and $662.16 in interest, calculated on March 15, 2001, in the case of the Appellant Dimension J.M.M. Inc., and for the amounts of $1,557.28 in duties, $306.40 in penalties, and $303.47 in interest, calculated on March 14, 2001, in the case of the Appellant Charles Beaupré. The amounts assessed are not at issue in this case. This is to determine whether the Appellants correctly calculated the GST amount to collect in a sale involving a trade-in in the course of their business activities. In the case of the Appellant Charles Beaupré, it must also be determined whether the assessment against him is valid, because it is addressed to a person who is not required to collect and remit the tax under the Excise Tax Act (the "Act").
[3] On October 15, 1996, the Appellant Charles Beaupré and Olivier Erbetta, his partner, registered a general partnership with the Inspector General of Financial Institutions of Quebec under the business name of "Dimension J.M.M." The company sells video games. They each invested equal amounts in the company and were equal partners. They operated their business as a partnership until August 1997, when they incorporated the business as Dimension J.M.M. Inc., the Appellant. They held an equal number of shares in the company. The Appellant Charles Beaupré then bought Olivier Erbetta's shares, making him the sole shareholder of the company.
[4] Charles Beaupré is a video game enthusiast. Before starting his own business, he was the manager of a similar business. He gained experience and became familiar with policies on the return and exchange of goods. He introduced similar policies in his own business to deal with potential client dissatisfaction. It was, therefore, possible to return a video game purchased from the business and receive a credit equal to the purchase price before taxes. Where the merchandise was returned within a week of purchase, $15.00 would be deducted from the purchase price; an additional $5.00 would be deducted for each subsequent week. The credit could only be used toward the purchase of another item sold by his business. Mr. Beaupré claims that the majority of clients do not return video games and that the exchange policy applies to approximately 10% of sales. The exchange policy is reviewed with clients at the time of purchase. It was used by the partnership and by the Appellant Dimension J.M.M. Inc. during all the periods at issue. Occasionally, an item not purchased from the general partnership or the Appellant Dimension J.M.M. Inc. is accepted, but this percentage is very low.
[5] The Appellant filed sample invoices into evidence. The three invoices, issued to the same client, illustrate how the exchange policy is applied when a client returns goods and how the applicable taxes are calculated. The first invoice is for the purchase of a video game. The invoice shows the selling price of $79.99, plus the GST and QST, and the purchase date. The next day, the client returns the game and is given a credit note of $65.00. As an incentive, the client is told how much money will be saved in GST and QST when the $65.00 credit note is applied to a new purchase. The third invoice shows a purchase made by the same client the day after the credit note was issued. The $65.00 credit note is applied to the $79.99 purchase, for a balance of $14.99. The GST and QST are then applied to this $14.99 balance. The present case calls into question the way in which the exchange policy, as detailed in the above example, is applied and the way in which the applicable taxes are calculated. The Respondent filed a sample invoice showing a similar way in which the client's credit note is applied to the purchase and how the general partnership and the Appellant Dimension J.M.M. Inc. calculated the taxes. The Respondent is not contesting the way in which taxes are calculated for simultaneous transactions, that is, where the credit note is applied to a purchase at the same time the exchanged good is returned. Rather, the Respondent is challenging the way in which taxes are calculated where the client returns a game and the resulting credit note is used only for a future purchase. According to the Respondent, in this situation, the GST should be calculated on the price of the item prior to the application of the credit note.
[6] The applicable legislative provision in this case is subsection 153(4) of the Act, which defines the value of the consideration for the supply made by a supplier when it accepts used tangible personal property in consideration for the supply. The provision reads as follows:
(4) Used tangible personal property trade-ins
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Where, at the time a supplier makes a supply of tangible personal property to a recipient, the supplier accepts, in full or partial consideration for the supply, other property (in this subsection and subsection (5) referred to as the "trade-in") that
(a) is used tangible personal property or a leasehold interest therein, and
(b) is acquired for consumption, use or supply in the course of a commercial activity of the supplier,
and the recipient is not required to collect tax in respect of the supply of the trade-in, the value of the consideration for the supply made by the supplier is deemed, for the purposes of this Part, to be equal to the amount, if any, by which the value of the consideration for that supply (as otherwise determined under this Part) exceeds
(c) except where paragraph (d) applies, the amount credited to the recipient in respect of the trade-in, and
(d) where the supplier and the recipient are not dealing with each other at arm's length at the time the supply is made and the amount credited to the recipient in respect of the trade-in exceeds the fair market value of the trade-in at the time ownership thereof is transferred to the supplier, that fair market value. |
[7] Counsel for the Appellants argues that the calculation of the GST carried out by his clients complies with the provisions of the subsection at issue. In the alternative, he submits that the exchange policy is an integral part of the verbal agreement between the Appellants and their clients, thus entitling the Appellants to an adjustment of tax during the periods at issue. He also submits that, in the case of the Appellant Charles Beaupré, the assessment at issue is unlawful, because it is addressed to a person who is not required by the Act to collect and remit the tax.
[8] Counsel for the Respondent submits that, to benefit from the provisions of subsection 153(4) of the Act, the transactions must be simultaneous, that is, each new purchase takes place at the same time as the exchange of the used tangible personal property. Where the exchange does not occur at the same time, it is no longer an exchange of used tangible personal property, but rather the application of a credit note, and, consequently, the GST must be calculated on the selling price of the supply prior to the application of the credit. With respect to whether the assessment of the Appellant Charles Beaupré is compliant with the Act, counsel for the Respondent relies on subsections 272.1(5) and 299(2) and paragraph 296(1)(e) of the Act.
[9] Subsection 153(4) of the Act stipulates that the tax is not calculated on the value of used tangible personal property where the following conditions have been met:
1 - A supplier makes a supply of tangible personal property.
2 - The supplier accepts, in full or partial consideration for the supply, other property [...] that is used tangible personal property or a leasehold interest therein, and is acquired for consumption, use or supply in the course of a commercial activity of the supplier.
3 - The recipient is not required to collect tax in respect of the supply of the trade-in.
[10] According to the Explanatory Notes to Bill C-70, published in July 1997 by the Minister of Finance, the purpose of subsection 153(4) of the Act is to prevent tax cascading when a used good, for which no input tax credit was claimed, is accepted as a trade-in by a supplier and is subsequently resold on a taxable basis. To meet this objective, there must be a supply of tangible personal property and the acceptance, by the supplier, at the time he supplies the tangible personal property, of a consideration comprised of used tangible personal property in exchange. Used tangible personal property is defined in the Act as follows:
"Used tangible personal property" means tangible personal property that has been used in Canada;
[11] Can a credit note issued upon the return of used tangible personal property be applied, in whole or in part, to future purchases of tangible personal property in such a way that the supplier is not required to collect the GST on the value of the credit note? In my view, the wording of subsection 153(4) does not allow it, because the exchange must take place at the time the supplier supplies the tangible personal property. Issuing a credit note defers the supply of tangible personal property for which used tangible personal property is accepted, such that the exchange does not take place at the time prescribed by subsection 153(4), namely, at the time the tangible personal property is supplied. This is the position taken by the Canada Customs and Revenue Agency in its Technical Information Bulletin
B-084, which explains that the rule governing sales with trade-ins is not applicable where the supplier offers a credit note instead of used tangible personal property in consideration for the trade-in. The excerpt follows:
The trade-in approach does not apply where a supplier offers a person a credit note or coupon for the value of used tangible personal property (or a leasehold interest therein) credited as a trade-in allowance where the coupon or note is applied in full or in part against unspecified future deliveries of tangible personal property.
[12] This does not mean, however, that subsection 153(4) would not be applicable in a situation where the property purchased must be delivered at a later date or in a situation in which the used tangible personal property is traded in with a view to purchasing other property in the future. In this case, even though the credit note refers to used tangible personal property accepted in exchange, the potential purchase of tangible personal property against which this trade-in (or credit) would be applied has not taken place. Subsection 153(4) cannot, therefore, be applicable in these circumstances.
[13] In this case, I do not feel that the exchange policy established between the clients and the Appellants entitles the Appellants to an adjustment of GST for the period at issue, as maintained by counsel for the Appellants. The application of subsection 153(4) is based on the interpretation of this subsection, not on the contractual agreements concluded between the Appellants and their clients. The Court is not required to consider the interpretation of subsection 153(4) made by the Appellants and their clients in their contractual agreements.
[14] The issue as to whether an assessment is valid because it was addressed to a person who is not required to collect and remit the GST has been dealt with by this Court in Decaire v. Canada [1999] T.C.J. No. 699, Marach v. Canada [2003] T.C.J. No. 45, Janelle v. Canada [2002] T.C.J. No. 216, and Saucier v. Canada [2003] T.C.J. No. 741. This issue arises because the Act includes a partnership in its definition of "person." It stipulates, therefore, that a partnership that is not a corporation is required to register in order to apply the provisions of the Act. In this case, the person registered for the purposes of the Act was "Dimension J.M.M," a general partnership. In this case, the Appellant Charles Beaupré is a partner, not the registrant, within the meaning of the Act. According to counsel for the Appellant, where he is not required to collect and remit the GST in accordance with the Act, he could not, consequently, be assessed as a partner.
[15] In Janelle, Tardif J. analyzed in detail the issue as to whether a partner can be assessed, even though the general partnership or partnership was not assessed. He correctly concluded that a partner can be assessed under subsection 272.1(5) and paragraph 296(1)(e). The decision in Décaire was rendered before section 272.1 was enacted. In Saucier, I pointed out that subsections 299(2), 299(4), and 299(5) of the Act seemed to indicate a concern to protect against the consequences of potential errors in an assessment by making it valid and enforceable.
[16] Subsection 272.1(5) and paragraph 296(1)(e) read as follows:
Joint and several liability
(5) A partnership and each member or former member (each of which is referred to in this subsection as the "member") of the partnership (other than a member who is a limited partner and is not a general partner) are jointly and severally liable for
(a) the payment or remittance of all amounts that become payable or remittable by the partnership under this Part before or during the period during which the member is a member of the partnership or, where the member was a member of the partnership at the time the partnership was dissolved, after the dissolution of the partnership, except that
(i) the member is liable for the payment or remittance of amounts that become payable or remittable before the period only to the extent of the property and money that is regarded as property or money of the partnership under the relevant laws of general application in force in a province relating to partnerships, and
(ii) the payment or remittance by the partnership or by any member thereof of an amount in respect of the liability discharges the joint liability to the extent of that amount; and
(b) all other obligations under this Part that arose before or during that period for which the partnership is liable or, where the member was a member of the partnership at the time the partnership was dissolved, the obligations that arose upon or as a consequence of the dissolution.
296. (1) The Minister may assess:
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(e) any amount which a person is liable to pay or remit under subsection 177(1.1) or Subdivision a or b.1 of Division VII,
and may reassess or make an additional assessment of tax, net tax, penalty, interest or an amount referred to in paragraph (d) or (e).
[17] For these reasons, I conclude that the assessments against the Appellants in this case are well-founded.
[18] The appeals are dismissed without costs.
Signed at Edmundston, New Brunswick, this 29th day of March 2004.
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"François Angers" |
Angers J.
Translation certified true on this 30th day of November 2004.
Colette Dupuis-Beaulne, Translator
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CITATION: |
2004TCC209 |
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COURT FILE Nos.: |
2003-1049(GST)I 2003-1045(GST)I |
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STYLES OF CAUSE: |
Charles Beaupré and Her Majesty the Queen Dimension J.M.M. Inc. and Her Majesty the Queen |
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PLACE OF HEARING: |
Sherbrooke, Quebec |
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DATE OF HEARING: |
February 4, 2004 |
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REASONS FOR JUDGMENT BY: |
The Honourable Judge François Angers |
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DATE OF JUDGMENT: |
March 29, 2004 |
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APPEARANCES: |
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For the Appellants: |
Richard Généreux |
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For the Respondent: |
Louis Cliche |
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COUNSEL OF RECORD: |
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For the Appellants: |
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Name: |
Richard Généreux |
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Firm: |
Généreux Côté Avocats Drummondville, Quebec |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |