UPS GST Remittance Case May Have Impact on Importation of Goods

While the door hasn’t shut on 2008 quite yet, it is nevertheless useful to look forward to the slate of cases the SCC will hear in 2009. On January 15, the SCC is scheduled to hear United Parcel Service Canada Ltd v Her Majesty the Queen, an appeal from the Federal Court of Appeal (“FCA”) (see 2008 FCA 48). This case deals with the ability of United Parcel Service (UPS) to claim a rebate for GST amounts paid to the Minister of National Revenue which were not recovered by UPS from its customers.


In operating its courier business, UPS also provides a customs brokerage service to help its customers transport goods from foreign countries into Canada. The brokerage service first pays the GST and customs due when the imported items arrive at the border to clear customs. UPS then subsequently collects the paid amounts from the recipients of the goods. UPS charges GST for this service as well as for the courier service it provides.

The problems arise when mistakes cause the amount paid by UPS to the Minister to be greater than the amount UPS collects from its customers. At paras. 5 and 6, the FCA describes the main problems as follows:

[5] The problem which gives rise to this litigation is best illustrated by two examples. UPS transports a package from the United States to a consignee in Canada. The shipper of that package declares its value to be $200. In the course of preparing the custom and GST owing, UPS mistakenly records the $200 shipment as a $2,000 shipment and calculates the amounts payable on that basis. When the goods are delivered, the customer produces an invoice from the shipper which shows the value of the shipment as $200, and not $2,000, and disputes its liability for GST on the $1,800 difference. UPS would either forego collection of the disputed GST or collect the GST in full but credit its customer’s account in the amount of the disputed GST.

[6] In the second example, the shipper declares the value of the shipment to be $2,000. UPS calculates and pays customs and GST on that basis. When UPS, in its capacity as a customs broker, seeks to collect from its customer, the consignee, the latter produces an invoice from the shipper showing the value of the shipment to be $200 and objects to paying GST on the $1,800 difference. Once again, UPS would either forego collection of the disputed GST or would collect it in full but would credit its customer’s account with the amount of the tax on the difference.

In dealing with this overpayment (though the FCA characterized it as a shortfall – see para. 8), UPS deducted these amounts from the amount of GST it was to liable to remit.

Procedural History

In the assessment period from February 1, 1996 to December 31, 1997, the Minister of National Revenue disallowed UPS from deducting the sum of $2,900,858 from its net tax payable. The Tax Court of Canada allowed UPS’s appeal of the Minister’s assessment and referred the assessment back for reconsideration and reassessment on the basis that UPS was entitled to a rebate. The FCA reversed the Tax Court’s decision.

Analysis of the FCA

The FCA decided that based on the Agreed Statement of Facts between the Crown and UPS, an overpayment of GST had occurred. However, the FCA questioned whether UPS was the appropriate party to claim the rebate that was owed. By pointing to West Windsor Urgent Care Centre Inc v Canada, 2008 FCA 11, which decided that “only the person who has paid GST in excess of the legal requirement can claim a rebate with respect to the overpayment” (para 34), the court decided that “UPS is not entitled to claim a rebate of an overpayment of tax by its customers simply on the basis that it was the person who ‘paid’ the tax, in the sense of being the person who remitted the tax” (para 35).

Additionally, the FCA refuted the Tax Court’s rationale that based on s. 18(2) of the Customs Act, RSC 1985, c 1 (2nd Supp), that UPS was entitled to a rebate because it was the party that actually remitted the GST. Section 18(2) states that

Subject to subsections (3) and 20(2.1), any person who reports goods under section 12, and any person for whom that person acts as agent or employee while so reporting, are jointly and severally or solidarily liable for all duties levied on the goods unless…

The FCA distinguished the applicability of this provision by noting that “[s]ection 18 deals with a particular situation as indicated by the marginal note which says ‘Liability of person reporting goods short-landed’. Goods are short-landed when they are reported for importation at a particular time and place and are not imported at that time and place.” The court noted that this was not the case for the facts at hand, and thus, s. 18(2) was not applicable.

Moreover, while noting that “[t]he Chief Justice [of the Tax Court] was influenced by the fact that UPS apparently did not collect the overpayment of tax from its customers so that it was out of pocket to the extent of the Shortfall” (para 41), the FCA nevertheless noted that the Excise Tax Act, RSC 1985, c E-15 [ETA], “does not provide any specific relief for one who pays GST on behalf of another and whose claim for reimbursement remains unsatisfied.” (para. 45) As such, Pelletier J.A. concludes that “UPS is not entitled to claim a rebate for the Shortfall on the basis that it has, in effect, borne the cost of the tax” (para 48).

The FCA summarizes its conclusions as follows:

In the end result, it appears that to the extent that the Shortfall was recoverable, it was not recoverable by UPS. UPS was not the person who paid the GST even though it may have been the person who remitted it. The fact that it chose to absorb the cost of the Shortfall does not confer any rights since an unpaid customs broker has no right under the ETA to deduct the unpaid amounts from its net tax. Furthermore, UPS has not brought itself within the provisions of the ETA dealing with refunds. All in all, UPS is not entitled to recover the amount of the Shortfall from its remittance of net tax. (para 51)

Concerning the possibility of a seeming windfall for the tax authority, Pelletier J.A. writes:

Much has been made of the fact that such a result represents a windfall for the fisc, a windfall which it should not be allowed to retain. If there is an element of windfall in this case, it is only because of the way in which UPS has chosen to approach this problem. UPS has not shown that the other recovery mechanisms in the [Customs] Act gave it no recourse. (para 52)

Looking Forward

It will be interesting to see how the SCC decides this case. As it stands, the FCA decision leaves courier companies on the hook for mistakes that result in an over-collection of GST funds by the Minister of National Revenue. Though the FCA left the door open for other avenues of recourse, it seems likely that the costs of the backed up accumulation of overpayments/shortfalls will, at least temporarily, be passed onto the users of these courier services. We will see whether the SCC rectifies this seeming injustice, and if so, what avenue it takes to get to its result.

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