Reinstate the Notional Tax Credit on Used Goods Sector of the HST

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Reinstate the Notional Tax Credit on Used Goods Sector of the HST

This petition had 105 supporters

bill joyes started this petition to Secondary Resources (Perth) Ltd

TO THE GOVERNMENTS OF CANADA, ONTARIO, MUNICIPALITIES, BUSINESSES, FARMERS AND HOUSEHOLDERS...

I am writing today to appeal for help from the government, business and the public with regards to a battle our family firm has been fighting with Canada Revenue Agency. First, a bit of background information about us and our use of the “notional input tax credit for second hand goods” We are Secondary Resources (Perth) Ltd. a regional scrap metal recycler with recycling yards on Line 42 northwest of Stratford and at 205 Nelson Street, East in Goderich. Our family has been in the scrap business for over 50 years. In that time we have recycled thousands and thousands of tons of material, put millions of dollars into the local economy and employed hundreds of people some for a day, some for decades.

Our problem lies with the Harmonized Sales Tax (HST), in that our business model is backwards from most others. Most other businesses will buy raw materials or supplies from a manufacturer or wholesaler, pay the tax at its purchase, add value to the product and retail it, collecting the tax from the end user. When they file the HST return, the portion of the tax remitted to the government is on the “value added” portion of the tax. They have recovered the input portion of the tax from the end user.
In our business, however, we buy most our material from the retail public and small business with sales under $30,000.00 yearly, who do not have an HST number and do not file HST returns. Consequently, we do not pay the “input side “ of the tax to them. When the precursor to the HST, the GST was introduced, it compensated for this by giving businesses who dealt in second-hand goods ie: Scrapyards, a notional Input tax credit for second-hand goods, which was a mathematical formula (7/107th of the purchase price) in order to balance the equation so that the remittance to government was the “value added” portion of the tax collected.

Our books and our HST returns were done by my mother. She has done them for 50 some years with favourable results, being careful to do due diligence and seek advice where necessary. When the GST was introduced, she received regular paper copies of circulars advising her how to apply & file the tax, which she kept and followed. During a round of cost cutting, the CRA ceased publishing these circulars (Spring of 1996) and referred her to the Queens printer, who we mailed a cheque to but never produced those circulars again.

Approximately 3 years later, they became available online (But 1997 Newsletter was missing according to the Metropolitan Toronto Reference Library). During that period, the tax became the HST, and they continued to use the notional input tax credit for second hand goods. It was proposed April 23, 1996 in parliament that these input tax credit be rescinded, but the government fell in a non-confidence vote and the proposal was tabled. A new government was elected, and the notional input tax for second hand goods was rescinded, but only partially by a ways & means bill sometime in 1997. The notional input tax credit remains in effect today for second-hand goods such as shipping containers and beer kegs.

My mother, unaware of this, continued to use the notional input tax credit and continued to do her due diligence. She sought outside advice on several occasions, up to and including attending an HST seminar put on by CRA and a national Accounting Firm when the HST took over. She brought her books and remittance with her, where she was assured by the Chartered Accountant that she was filing it correctly. She was not alone in making this mistake, as I have talked to many others who have done so, including firms with Accountants or staff operating at a level of sophistication far exceeding our own. Some of their resulting tax liabilities dwarf our own.

Our mistaken use of this tax credit did not become apparent until an HST audit was called on us for May 1/2010 to October 31/2012. The supposed reason for this audit was that we had not remitted our quarterly filing. We had, however, made the payment. Due to their computer error, the money was never applied to our account. The auditor told us that it was in fact a “project year” for our industry, probably brought on by the fact that scrap metal prices went sky high due to the Chinese export boom.

He appeared to know what he was looking for and the audit of May 1/2010 to October 31/2012 produced a tax liability of approximately a quarter of a million dollars, due to our use of the notional input tax credit for second hand goods. One of those years was 2011, when an F-3 tornado struck Goderich and went right through our repair shop, destroying trucks, vehicles, equipment & tools. At the time of the tornado, our family briefly considered closing our Goderich yard to deal with our losses (uninsured), but we knew that for the good of the community we had to stay open and keep buying scrap. Many people lost their jobs as their workplaces were destroyed and they needed whatever income we could provide them as they cleaned up their devastated properties. The day after the tornado I told my staff in Goderich to “just get on the machines and do what people need you to do- don’t worry about the money.” Apparently the federal government was worrying about the money for me, as the tornado produced a liability of $78,000.00 dollars based on $600,000.00 worth of tornado scrap brought in by retail customers without an HST number.

When the auditor produced the results of the audit, we asked to see the order in council rescinding the tax which he was unable to produce. He instead provided us with a copy of an electronic bulletin produced after the fact on how to apply the HST to the second hand goods. He further advised us that we should accept the results of the audit, because if we challenged it in tax court & lost CRA would come back and audit us back another 6 years.

We consulted a Chartered Accountant who admitted that he didn’t know how to apply HST to our backwards business model & referred us to an HST specialist. We consulted our lawyers, who assured us that the notional Input Tax Credit still existed (correct, but not for us) The HST specialist did some research & came back with the ways and means bill rescinding the notional input tax credit for second hand goods. At this point, we grudgingly decided to accept the results of the audit and try to pay it. The auditor advised us that there would be no interest or penalty, as we had made no attempt to defraud the CRA, as it was an honest mistake.

He was correct, in that no interest or penalty was applied to the term of the audit years themselves. As soon as the CRA began trying to collect the money, the meter began running with a vengeance. Our original collection agent was very understanding & helpful, and we committed to trying to pay $1000.00 dollars a week. By this time several things had changed. The export boom in commodities was over, as governments world-wide had exhausted their stimulus cash. Price and volume for scrap metals have been dropping steadily for about 3 years. Also, now that we are no longer using the notional Input Tax Credit, our quarterly remittance to the HST has doubled/tripled as we now must send 13 cents of every retail dollar purchased directly to CRA. We must also send the “value added portion of the tax collected, essentially creating what amounts to double taxation. Further, our industry in general has been devastated by the bankruptcies of scrap metal consumers (U.S. Steel) (Algoma) and the collapse of export. Many of the larger scrap brokerage firms that we deal with face their own challenges as the result of their own entanglements with CRA regarding their application of HST to second hand goods. Many, many scrap companies are in serious trouble or have gone bankrupt. We struggled to make this weekly payment, and our collection agent advised us to apply to the taxpayer relief office.

The taxpayer relief office replied with a letter advising us that they were backed up with appeals, and that they would get to our case in about fifteen months. Meanwhile, we desperately tried to outrace the interest, which continues compounding, interest on interest, in a scrap market that is collapsing in on itself.

After fifteen months we were contacted by a taxpayer relief officer that has been a bright spot in an otherwise horrible story. She decided that since some of the liability has been the result of “a fire, flood or natural disaster” she was allowed to remove approximately $45,000.00 in interest from the total, and she advised us to re-apply down the road. The interest of course, continued to mount.

Soon after, we had a new collection agent attached to our file. For some time previous, we had been taking the HST portion from every load that went out and was paid for & applying it to account through electronic money transfer. These amounts were typically hundreds of dollars which at least allowed us to stand still rather than go behind. This approach did not meet with the new agents satisfaction, as she said that it was too difficult to keep track of , and she wanted lump payments. She told us to stop doing it that way.

She also requested reams of documentation to assess the security & assets of the company, as well as the personal statements of the directors, bank statements, (500 + pages) for the past year, corporate logs, and the kitchen sink. My mom attempted to comply with her requests to the best of her ability while continuing to try to operate her business. This back and forth chain of voice mail (theirs not ours) busy fax machines, holidays (theirs not ours) grew increasingly strained and on Sept 28th they froze our bank accounts.

At this point, the agent called me and told me that she would no longer deal with my mother as my mother doesn’t hear well and could not understand her South Asian accent, which my mother apologized for in a letter she sent to her. She told me that I would have to look after the matter. She was asked on multiple occasions how much money we would need to send to unfreeze the bank account, verbally and in writing, information she would not provide us until she received further documentation. On Wednesday, I gave up on the governments perpetually busy fax machine - got through 3 pages in eight hours.) (won’t accept e-mail – privacy concerns) and called to advise her that I was sending the package by express – post registered mail and that she would have it the next day. She signed for it on Thursday morning.

On Friday morning I called to confirm that she had the package to ask (once again) what it would take to unlock the account. I reached a voice – mail that said “Hi, you’ve reached the desk of _______________ I have taken a leave of absence and will be away until December 14, if you have any questions please call _______________. I was dumbfounded.

I had to go back to operating my business as best as I could without no bank account, relying on trade credit and selling material in smaller quantities where I could be paid in cash, with receipts & HST. My mother phoned several other branches of government, including payroll source deductions which we couldn’t pay as we had no bank account and they won’t take cash. She also contacted the taxpayer relief officer, who was in disbelief about the situation. They called the collection agents team leader, who contacted my mother for an extensive conversation. In that conversation, my mom asked him what he would do in our situation. He advised her to go into receivership. We don’t do business that way. We aren’t going to default on our suppliers to give the money to the government. She also pointed out to him that like many small business people, her home is attached to the business, and if he wanted it he would have to come and take it away from her and my dad.

At that point, the team leader relented. He unlocked our bank accounts and gave us three months to figure it out, before the federal government takes legal action against us and finishes us off. If our business disappears, it won’t be because we didn’t try hard enough, it won’t’ be because we are crooked or lazy or stupid. It will be because the bureaucracy that runs this country is broken; it is slow-moving, punitive, ill informed, and impossible for the average person to navigate.

So we obviously haven’t given up. God loves a tryer, and the best place to pray for potatoes is on the end of a hoe. How can you help us?
1. Continue to support our scrap yards and the yards of other recyclers with your material. The high prices of the export boom are gone; they were a once in a generation event that may never return. Holding on to your scrap for future gain is probably not going to work unless you live a long time.
2. If you are a small business person, or farmer, please bring your HST and Company Name (Registered with the CRA) and put scrap money through your books. If you think that you will avoid declaring scrap income by putting the bills in your kids name, your wife’s name, the dog’s name etc. , please be advised that you are playing with fire. At a recent industry meeting regarding new end of life vehicle protocols, a government representative told those assembled that one of the aims of the program was to eliminate the stream of under the table income arising from the scrap business. WHEN you are audited, telling the CRA that you gave your scrap to some guy that comes around will not work, and we cannot assist you in defrauding the federal government.
3. Contact as many levels of government about this situation as you can, municipal, provincial, federal, (your M.P.P.) and express to them that scrap yards are an essential service, and that industry, agriculture, and residential users need them to continue.
4. Sign our petition asking the federal government to re-instate the notional input tax credit for second hand goods, and to review the operation of the HST, as it has been a contributing factor in 1000’s of plant closures.

The creation of the GST which then became the HST has resulted in some serious competitive imbalances with regards to global trade and investment. One paradox is that if we had sold all of our scrap in the U.S. the HST would have been zero rated and we would not owe a dime. Any HST which we paid out would be returned to us as a credit. Our tax liability exists because we supported Canadian Companies by shipping material to them. Another example of this imbalance occurred when the tax rebate program known as “Retire your ride” was created for the benefit of GM, Ford, & Chrysler. Their dealers were allowed to use the “trade in approach” with regards to the HST. These cars were not traded in as cars; they were traded in as scrap, as they were not allowed to be resold as vehicles. This program made new car dealers into defacto scrap dealers, buying and selling scrap cars at a considerable tax advantage to the scrap yards and auto wreckers with regards to the HST payable. It also added hundreds of thousands of scrap cars into an already flooded & declining market.

As scrap dealers we have had a front row seat of the collapse of the manufacturing in Canada. We have recycled material from 30 some plant closures. Makers of socks, shirts, rubber, auto-parts, farm products, road graders, machine and tools, all were rendered redundant by global trade. We have seen first-hand that money has no nationality and no conscience. If it requires raw materials to grow, it will rip them from the ground, cut them from the field, slash them from the forest or pluck them from the sea in the most ruthless, efficient fashion possible. If the country where these materials are produced has a value added tax such as HST, money will simply take them somewhere else, add value in cheaper jurisdictions and bring them back to sell to us.
If the government can support foreign business with HST free material which they then make into products and send back tax free under free trade agreements; if the government can do math tricks to support auto makers who are too big to fail, if the government can allow our resources to be pillaged by other nations, surely they can assist our family & the scrap recycling industry as a whole to stay in business for one more day.

So there it is. Can our family business survive this? I hope so. Our staff has declined from seventeen to ten, our sales are less than half of what they were, and the number of consumers for scrap materials get smaller and smaller. But people keep supporting us, and for that we are truly thankful. If anyone can save us, it will be the people, because despite all evidence to contrary, the government works for the people, not the other way around. Thanks for your help.

Tom Joyes, Operations Manager
Secondary Resources (Perth) Ltd.

Contact us at www.secondaryres@hotmail.com
1-519-393-5390
1-519-524-7024
1-519-274-0149 (cell)
Sign our petition on Secondary Resources (Perth) Ltd.
Both Scrapyard locations
Website www.secondaryresources.ca

PETITION TO THE FEDERAL GOVERNMENT OF CANADA - NOVEMBER 18TH 2015

WHERE AS: Global Commodity Prices are at catastrophic lows
WHERE AS: Domestic Consumers of Recycled Materials such as Algoma & U.S. Steel Canada
are in crisis

WHERE AS: Recyclers of metals, autos and other materials provide important environmental, monetary and social functions within the communities they serve.

We, the undersigned, request that the federal government re-instate that the Notional input tax credit for second-hand goods, as the high levels of HST that are payable on retail purchases by recyclers are harmful to their firms and their communities.

Further, we request that the federal government conduct a review of the Harmonized Sales Tax, as it is our view that this “value-added” tax has resulted in 1000’s of plant closures in Canada, as global companies choose to add value to our resources in other countries in order to avoid this tax.

Tom Joyes, Secondary Resources (Perth) Ltd.

Name (Please Print): Date: Signature:

Petition Closed

This petition had 105 supporters