Supreme Court of Canada Broadens GST Rebate Entitlement

(Blakes Bulletin on Tax – Jeff Galway and Greg Kanargelidis)

On Thursday, April 23, 2009, the Supreme Court of Canada released a precedent-setting decision in United Parcel Service Canada Ltd. v. Her Majesty the Queen. The decision is the first appeal of a Goods and Services Tax (GST) assessment heard by Canada’s highest court. The decision serves to broaden the number of eligible claimants beyond the person with the “legal liability” to pay GST in the case of claims for rebate in respect of GST paid in error.

The dispute arose in the context of UPS’s customs brokerage activities in which UPS, between February 1, 1996 and December 31, 1997, overpaid some C$2.9 million in GST in error to the Minister of National Revenue on shipments imported into and delivered within Canada on behalf of various customers. These overpayments of GST were due to an array of circumstances including incorrect value for duty declarations, returned shipments, Canadian goods returning to the U.S., and the fact that some goods were duty-free.

In such circumstances, UPS credited its customers’ accounts for any overpayment (so that its customers only paid the correct amount of GST), and then deducted the overpayment from its own GST liability. This led to an assessment by the Minister of National Revenue in which UPS was disallowed the deduction of C$2,937,123 from its own liability. After a minor adjustment by the Minister, UPS still found itself out of pocket C$2,900,858 in respect of the GST payments made in error. Read the full article here (PDF).