Canada Revenue Agency Loses GST Case

by Glen Shapiro, LawAndTax-News.com, New York

30 April 2009

The Canadian Supreme Court has ruled that United Parcels Services Canada (UPS) was entitled to reclaim almost CAD3m (USD2.5m) that the company mistakenly paid to the Canada Revenue Agency (CRA) in Goods and Services Tax (GST).

UPS, in its capacity as a licensed customs broker, overpaid CAD2,937,123 in GST from February 1, 1996 to December 31, 1997. The overpayments were due to errors attributable either to UPS or to its customers. They were not collected by UPS from its customers. Instead, UPS reported the overpayments in its monthly GST returns by deducting the amount of the overpayments from its own GST liability as a supplier of goods and services.

The CRA reassessed UPS for the period of February 1, 1996 until December 31, 1997 and disallowed the deductions. UPS successfully appealed to the Tax Court. However, the Federal Court of Appeal overturned the Tax Court’s ruling, although this has now been reinstated by the Supreme Court.

"UPS was entitled to a rebate of the overpayment," the Supreme Court said. "While UPS was not the person liable for the GST, it was the person that paid an amount on account of GST within the meaning of s. 261(1) of the Excise Tax Act. That provision does not require an inquiry into liability for payment."

"The consignees of UPS may well have the liability to pay the GST on the imported goods, but s. 261(1) is worded broadly and it would not be in accordance with the ordinary and grammatical meaning of the provision to read it in such a way as to preclude persons who have actually paid or overpaid GST in error from obtaining a rebate," the court ruled.

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