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Decision clarifies how limitations apply

|Written By Alex Robinson
Decision clarifies how limitations apply
Marvin Huberman says a recent ruling makes it clear that an entity can use s. 224 of the Excise Tax Act to assert a statutory cause of action.

An Ontario judge has awarded a $1.5-million judgment to a plaintiff in a decision that lawyers say clarifies how the province’s statute of limitations applies to the Excise Tax Act.

In National Money Mart v. 24 Gold Group Ltd, Superior Court Justice James Diamond granted a summary judgment motion to Money Mart, which was seeking the $1.5-million payment from 24 Gold Ltd. — a private precious metal refiner and dealer — for HST it had not paid when buying unrefined gold.

Lawyers say the decision clarifies that the clock starts to tick on the limitations period in such matters when the CRA assesses tax that is owed.

“This case actually makes it very clear how an entity like Money Mart can assert a statutory cause of action that the Excise Tax Act gives them,” says Marvin Huberman, the lawyer who represented Money Mart in the action.

Between 2010 and 2012, Money Mart sold unrefined gold to 24 Gold for a total sum of more than $12 million. According to the decision, 24 Gold never remitted $1.5 million in HST to the government.

Precious metals are generally exempt from HST, but because the gold was unrefined, it was not entitled to the exemption.

Money Mart started an action against 24 Gold after the CRA conducted an audit on the company’s HST returns in 2015.

The CRA satisfied the unpaid debt out of Money Mart’s 2016 corporate tax payments and 24 Gold refused to reimburse the financial services company.

At issue in the proceeding was whether provisions of the Excise Tax Act gave Money Mart a statutory right of action.

Section 224 holds that when a supplier or seller has made a taxable supply to a recipient or purchaser and has remitted the tax payable to the CRA, the supplier can bring an action against the recipient.

Diamond found the section allows that when suppliers pay outstanding tax owed by a recipient, “then and only then” does the supplier have the right to sue.

The defendants contended that s. 225 of the act places a two-year limitation on 24 Gold’s ability to claim the corresponding input tax credit, meaning the company had allegedly lost the right to claim such a credit because of Money Mart’s delay.

This should preclude the plaintiff’s action, 24 Gold submitted.

Diamond rejected this argument, finding s. 224 does not have a time limit on when a plaintiff must bring such an action.

“On that basis alone, I do not find the presence of any limitation period in the Excise Tax Act to commence a legal proceeding contemplated under section 224,” he wrote in the decision.

Huberman says the decision makes it very clear what needs to be done in order to bring a cause of action under s. 224 of the Excise Tax Act, as well as what the applicable limitations period is.

The judge also determined that s. 225 of the act allows the input tax credit to be filed at any time as long as HST was not originally charged and the CRA has since audited the vendor for the outstanding tax.

Lawyers say the decision points out the power of the supplier’s right under s. 224 of the act to sue a recipient of a taxable supply when the recipient hasn’t paid the tax to the supplier and recover it as if it were a debt. 

“In fact, the court’s willingness to provide ‘summary judgment’ on these matters shows the practical power of this right,” says Robert Kreklewetz, a partner with Millar Kreklewetz LLP, who was not involved in the decision.

Kreklewetz says the underlying issue for the recipient in such a case is how to challenge the CRA’s assessment that the gold was subject to HST.

“It cannot, and yet that can be the real underlying issue in some of these cases where there is a legitimate issue as to whether the initial supply was taxable, zero-rated or exempt,” he says.

The defendant also argued that Money Mart’s claim was statute-barred by the Limitations Act and should have immediately realized its failure to invoice 24 Gold at the time of the transactions for the owing tax.

Diamond, however, found that Money Mart did not have a cause of action until it invoked s. 224 after it paid the HST that was due.

The limitation period, therefore, would not commence until June 2015 at the earliest.

“While I do not condone the delay on the part of the plaintiff to properly invoice the subject transactions, the bottom line is that the plaintiff could not commence a legal proceeding until the CRA audit resulted in the payment by the plaintiff of the outstanding HST,” Diamond wrote.

“No cause of action in law existed until that point.”

Robert Winters, a tax lawyer who was not involved in the case, says he expects the case will be appealed.

“I don’t think tax lawyers will look at this and expect this to be the last word on it,” he says.

Jack Zwicker, the lawyer who represented 24 Gold, did not respond to a request for comment.        LT

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