ZERO-RATED FREIGHT TRANSPORTATION SERVICES
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.
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.
For further information see Video Tax News Monthly Tax Update Newsletter, Issue No. 460.