In a September 3, 2019 Tax Court of Canada case (2237065 Ontario Inc. vs. H.M.Q., 2017-3749(GST)I), at issue was whether the taxpayer supplied zero-rated freight transportation services (as asserted by the taxpayer) or taxable driving services (as asserted by CRA) for the 2011 and 2012 calendar year. The taxpayer was a contractor to another company, Dco, who itself had a contract with FedEx to deliver goods. During the period, the taxpayer did not own its own truck, but rather its owner drove a truck belonging to Dco. The taxpayer was assessed with $6,948 and $7,436 of unreported GST/HST for the two years.

The taxpayer also argued that, if it were required to collect HST, CRA should have determined the tax by multiplying the sales by a factor of 13/113 rather than 13%. That is, the taxpayer argued that HST would have been embedded in the price charged rather than on top of the price as asserted by CRA.

who assumes the liability

Taxpayer loses
In order for the taxpayer’s service to be zero-rated, the taxpayer must be a carrier who supplies the freight transportation services. In reviewing the explanatory notes to the relevant legislation, the Court observed that the key question in determining who a carrier is rests with who bears the liability as a supplier of freight transportation services. In this case the Court found that, while the taxpayer drove Dco’s truck, Dco assumed liability as the carrier. Therefore, the taxpayer was not a carrier supplying a freight transportation service but rather was a supplier of driving services to a carrier, which was not zero-rated.

The Court dismissed the taxpayer’s argument that he received conflicting advice when inquiring on this issue with a CRA officer, noting that such officials are not infallible and that the Court cannot be bound by erroneous departmental interpretations.

GST/HST not charged was added on top of revenues, not imputed as part of revenues

Finally, the Court ruled that, as the taxpayer did not collect HST, there was no mingling of sale proceeds with tax. CRA was, therefore, correct to assess HST as 13% of the gross revenues, rather than to consider the revenues to include HST.