Tax Court of Canada Judgments

Date: 19991022

Docket: 1999-1923-GST-I

BETWEEN:

LARRY DECAIRE/DORRIN DIESEL

dba A-OK CONSTRUCTION,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Bell, J.T.C.C.

ISSUE:

[1] The issue as stated in the Reply to the Notice of Appeal is:

... whether the Appellant exceeded the small supplier threshold, and was therefore required to be registered pursuant to the Act.[1]

[2] At the hearing Respondent's counsel stated that the issue was whether the partnership of A-OK Construction ceased to be a small supplier in 1993 and was, therefore, liable to collect and remit Goods and Services Tax ("GST").

[3] The issue, however, seems to be whether Larry Decaire ("Decaire") and Dorrin Diesel ("Diesel"), the two persons to whom the Notice of Decision was sent were obligated:

(a) to collect tax under section 221(1) of the Excise Tax Act ("Act"), and

(b) to remit same, under section 228(2) to the Receiver General.

FACTS:

[4] A-OK Construction entered into a contract in February, 1993 with Balbir Saini, Amritpal Saini and Nirmal S. Sibat ("S") for the construction of a house. It appears that the partnership ceased to be a "small supplier"[2] in 1993. Decaire testified that the partnership ceased activity in 1993, there being no intention to continue the business for which it was formed.

[5] A Notice of Assessment dated April 30, 1998 assessed "Larry Decaire, Dorrin Diesel" on a form entitled GOODS AND SERVICES TAX for an amount of tax in the sum of $3,328.04, interest in the amount of $901.08 and penalty in the sum of $1,092.48, the total being $5,321.60 without any description of the components of the tax other than:

Adjustments to GST/HST

Adjustments to Input Tax Credits

[6] Decaire, giving evidence on behalf of himself and Diesel stated simply that revenue under the agreement was $73,257.75. He said that he had spoken to a person at Revenue Canada[3] about the obligation to become a registrant under the Act and was advised that because the partnership was being terminated, no such need existed. On cross-examination he stated that he was aware that the amount of Revenue exceeded $30,000 and that that is why he contacted Revenue Canada.

[7] Julia Jennex("Jennex"), an auditor with Revenue Canada, testified that A-OK had its own bank account and that both Decaire and Diesel were signatories to such account. She testified that she had itemized the jobs for the deposit books and compared that information to the bank statements. She said that the total was approximately $73,000 for the whole year and computed the imputed GST by applying a factor of 7/107 to $73,000.

ANALYSIS AND CONCLUSION:

[8] Respondent's counsel emphasized the fact that the operation was not that of the two individuals but was that of A-OK Construction, operating as a partnership, that the amount of revenue exceeded the limit for small suppliers and that, accordingly, Decaire and Diesel were obligated to collect and remit GST.

[9] Section 123 of the Act defines person to mean:

An individual, partnership ...

[10] There is no doubt that the supply of services by the partnership was a taxable supply made in the course of a commercial activity.

[11] Section 240(1) of the Act provides that every person who makes a taxable supply in Canada in the course of a commercial activity is required to be registered for the purposes of the Act except where the person is a small supplier.

[12] Section 238(1) requires every registrant to file a return with the Minister for each reporting period.

[13] Section 228(1) requires every person who is required to file a return to calculate the net tax of the person for the reporting period.

[14] Section 165(1) requires every recipient of a taxable supply to pay a tax equal to seven percent of the value of the consideration for the supply.

[15] Section 221(1) requires every person who makes a taxable supply to collect the tax payable by the recipient.

[16] Section 228(2) requires every person required to file a return and calculate net tax to remit tax to the Receiver General.

[17] Section 145 of the Act as it read to the period under review, namely 1993, stated:

For the purposes of this Part an activity engaged in by a person as a member of a partnership shall be deemed

(a) to be an activity of the partnership; and

(b) not to be an activity of the person.

This section was altered and expanded when section 272.1 replaced 145, subsection (1) of which was virtually the same as section 145(1). Subsection (5) of section 272.1 provides, inter alia, that a partnership and each member or former member ... are jointly and severally liable for the payment or remittance of all amounts that become payable or remittable by the partnership.[4]

[18] Although Decaire and Diesel prepared their Notice of Appeal using the style of cause:

LARRY DECAIRE/DORRIN DIESEL

dba A-OK CONSTRUCTION

they were appealing from an assessment made, not on the partnership but on

Larry Decaire, Dorrin Diesel

[19] Although Decaire, at the hearing, suggested that there was no partnership, such submission was made, respectfully, without a full understanding of the nature of a partnership and the effect of same under the Act. In addition, he used the word "partnership" in the Notice of Objection in the following fashion:

In January, 1993, a partnership was formed between myself and Dorrin Diesel, doing business as "A-OK Construction".

Later that year, Dorrin and I decided to end the partnership and go our separate ways because of lack of work.

I was advised that if the partnership was dissolving and if I did not anticipate a future income exceeding $30,000 I was not required to apply for a G.S.T. number.

[20] Section 2 of the British Columbia Partnership Act defines partnership as the relation which subsists between persons carrying on business in common with a view of profit. Given that definition, which is standard in common law provinces, and given the foregoing facts and Respondent's counsel's firm position that it was the partnership which conducted business, I have no doubt in concluding that the partnership did, in fact, carry on the above described business. In accordance with the above provisions, a partnership is, for purposes of the Act, defined to be a person. Since that person conducted the business, it is the person providing the taxable supply and required to be registered, it is the person required to file and to calculate tax and it is the person required to collect and remit that tax.

[21] Section 145(1), set out above, clearly provides that an activity engaged in by a person as a member of a partnership shall be deemed to be an activity of the partnership and not to be an activity of the person. Support for the conclusion that I have reached lies in the words of section 272.1(5), added in respect of the post-April 23, 1996 period, which refers to:

... amounts that became payable or remittable by the partnership ...

it being clearly anticipated that a partnership, under the Act, can be the person who is required to collect and remit tax. Since the partnership was the person which conducted business and since a person includes a partnership under this Act[5], that partnership was the person required to collect and remit tax. The Appellants, having had no obligation so to do, this appeal is allowed with the result that they are not liable for tax, interest and penalties as assessed.

Signed at Ottawa, Canada this 22nd day of October, 1999.

"R.D. Bell"

J.T.C.C.

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