09/07/2012 12:14 EDT | Updated 11/07/2012 05:12 EST

Medical Marijuana Club In Victoria Hit With $150K HST Bill

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LOS ANGELES, CA - JULY 25: A budtender rolls a marijuana cigarette for a patient at Perennial Holistic Wellness Center medical marijuana dispensary, which opened in 2006, on July 25, 2012 in Los Angeles, California. The Los Angeles City Council has unanimously voted to ban storefront medical marijuana dispensaries and to order them to close or face legal action. The council also voted to instruct staff to draw up a separate ordinance for consideration in about three months that might allow dispensaries that existed before a 2007 moratorium on new dispensaries to continue to operate. It is estimated that Los Angeles has about one thousand such facilities. The ban does not prevent patients or cooperatives of two or three people to grow their own in small amounts. Californians voted to legalize medical cannabis use in 1996, clashing with federal drug laws. The state Supreme Court is expected to consider ruling on whether cities can regulate and ban dispensaries. (Photo by David McNew/Getty Images)
The Victoria founder of the Cannabis Buyers' Club of Canada has been hit with a $150,000 tax bill for not paying the HST on his medical marijuana sales.

Ted Smith says his club sells $2.5 million in medical marijuana annually, but he didn't think it had to pay HST. Last May, the taxman came to set him straight.

Smith says he will now have to pay six months worth of HST payments and some employee deductions.

"They're not asking me to submit for years past, and they're not fining and penalizing me. What they really want is for the club to be in compliance."

Smith says he is personally responsible for the $150,000 tax bill, so he'll pay it out of his own pocket.

"I'm the one that went this long without paying taxes or doing anything about it, and I don't think it's fair for the membership to have to pay."

Club to be restructured

He says for the past 16 years, he has run the Cannabis Buyers' Club of Canada as an informal co-op, so there are no actual assets for Canada Revenue Agency to go after.

"There is no other organization to go after. The Buyers' Club is unincorporated. There are no bank accounts.There's no society. It's just me. So, yeah, this is my personal bill."

Smith says the club will be turned into a non-profit society whose books will be open to its members. And he'll be cutting formal ties to the club and will no longer draw his salary of $2,000 a month.

"It's kind of a relief because people have been speculating that I have been making money off this and I haven't. The most expensive thing I have is the gold tooth in my mouth."

Earlier this year, Smith did win a legal victory when a B.C. Supreme Court judge struck down a section of Canada's medical marijuana laws that said licensed users cannot possess pot cookies or marijuana body creams.