A OK Payday Loans Inc. v. R. – TCC: Taxpayer’s GST Refund Claim Out of Time, Court Recommends an Application for a Remission Order

Bill Innes on Current Tax Cases

http://decision.tcc-cci.gc.ca/en/2013/2013tcc217/2013tcc217.html New Window

A OK Payday Loans Inc. v. The Queen[1] (July 4, 2013) involved a claim for a GST refund that the Tax Court concluded was out of time:

[2]            The facts are not in dispute and were well summarized by Justice Paris, but a very brief review is in order. Ms. Rosene, the owner of the Appellant, testified that the Appellant was in the financial service business. She discussed the matter with her accountant, neither of whom appreciated that financial services provided by the Appellant were an exempt supply. So, although not collecting GST from customers, Ms. Rosene had the Appellant remit $90,200 of GST to the Government for the period December 1998 to March 2005 and approximately another $18,000 from then until some time in 2007. It was not until 2007 that she discovered from a competitor that the Appellant was not required to remit GST.

[3]            After talking on several occasions with Canada Revenue officials, in 2007 Ms. Rosene applied, on behalf of the Appellant pursuant to section 261 of the Act, for a rebate of approximately $18,000 paid in error for the 2005 to 2007 period, which she successfully obtained. She was advised by Canada Revenue Agency (“CRA”) that they could not process an application for the earlier period (December 1998 – March 2005), but such an application would have to be sent to the CRA’s Summerside office.

[4]            Upon receipt of the $18,000 refund, in early 2008 Ms. Rosene proceeded to apply, again pursuant to section 261 of the Act, for a rebate of the balance of $90,200 relating to the earlier period, which application was rejected by the Minister. As I have already pointed out, she was also unsuccessful at the Tax Court of Canada on this application pursuant to subsection 261(1) of the Act, as the application was beyond the two year time limitation. However, based on her reading of the Supreme Court of Canada decision in the case of United Parcel Service Canada Ltd. v Canada, she felt there was an avenue to extend the two year restriction, and consequently filed a GST return for the November 2010 period, claiming the $90,200 as ITCs. This resulted in a June 2011 assessment denying the ITCs, from which the Appellant now appeals.

[Footnote omitted]

The Tax Court was extremely sympathetic to the taxpayer’s position but found that its hands were tied:

13]        Is there anything in the United Parcel Service Canada Ltd. decision that might save the Appellant? The United Parcel Service Canada Ltd. decision dealt more with the issue of who was entitled to a rebate under subsection 261(1) of the Act, though did also address the applicability of subsection 296(2.1) of the Act. The Supreme Court of Canada comments, however, were in the context of an offset against tax, as the United Parcel Service Canada Ltd. claimed a deduction of the amounts paid in error against its own tax liability. The Supreme Court of Canada (see the earlier quote) appears to have placed no time limit on seeking such a claim. Subsection 296(2.1) of the Act simply allows such an offset, according to the Supreme Court of Canada, at any time. Similarly, there appears to be no time constraint for a claim under paragraph 296(3.1)(a) of the Act. However, paragraph 296(4.1)(a) of the Act does impose time limits for an offset pursuant to paragraph 296(3.1)(b) of the Act – four years, and paragraph 296(4.1)(b) of the Act limits the availability of a refund to the same time constraint as set out in subsection 261(3) of the Act – two years. The United Parcel Service Canada Ltd. case simply does not help the Appellant.

[14]        This is an extremely harsh result.  …

[15]        I wish to comment on what may yet be open to the Appellant. It was clear at trial that Ms. Rosene feels she did not receive proper professional advice. She may wish to seek legal advice as to whether the circumstances justify any action in that regard.

[16]        Also, I would encourage Ms. Rosene to consider a remission request on behalf of the Appellant pursuant to the Financial Administration Act. I seldom make such a suggestion as time limitations are what they are. However, notwithstanding I place no duty or obligation on the Minister to point out to every taxpayer when or if the taxpayer has made or is making a mistake, I would have hoped that someone at CRA would have clued in that accepting $108,000 over a nine year period from an entity with the name “A Ok Payday Loans”, as GST purportedly collected and remitted from customers of an exempt supply of financial services, was incorrect. The taxpayer sought advice on this complicated legislation and, regrettably, received poor advice. It is not unreasonable, however, for a taxpayer to expect that the very entity that demands the taxpayer to collect monies on their behalf might have figured this out, rather than ending up with a $90,000 windfall. I wish Ms. Rosene success with her remission order application. I must, however, dismiss her Appeal.

One can only hope that the Government will heed the words of the Tax Court judge and grant an application for a remission order.

[1] 2013 TCC 217.