Date: 20010524
Docket: 2000-4461-GST-I
BETWEEN:
BUSH APES INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Beaubier, J.T.C.C.
[1] This appeal pursuant to the Informal Procedure was heard at Grande Prairie, Alberta on May 14, 2001 respecting periods from 1995 through 1998. Reginald Merkley, the sole shareholder of the Appellant, testified for the Appellant. The Respondent called Robert Miller, C.G.A., who was not the auditor on the file. His testimony was largely hearsay and was based on extensive conversations he had with the auditor of the Appellant, Reuben Dressler. No explanation was given as to why Mr. Dressler failed to testify. In these circumstances, this hearsay will not be accepted as evidence to refute Mr. Merkley's evidence and testimony including that which refuted the assumptions. (Villas of Collingwood Inc. v. Canada, [1996] G.S.T.C. 12, as confirmed by the Federal Court of Appeal).
[2] Moreover, on Mr. Merkley's evidence, a number of the assumptions of facts which were easily verifiable by the auditor are patently false. These include the important assumptions in this appeal which are corrected as follows:
1. The only bank account the Appellant had was in its sole name and was not joint with Mr. and Mrs. Merkley. Each of them had individual signing authority for the Appellant.
2. The Appellant leased a store premises in Slave Lake, Alberta until 1998 when it retrenched and operated from the Merkley home about 10 km. outside of Slave Lake.
3. Bush Apes Inc. contracted as an oilfield service company and Mr. Merkley carried out these tasks. He was not an employee elsewhere. These services by Bush Apes Inc. required the use of the corporate truck to service oilwells and other field facilities some of which were over 100 km. from the Appellant's corporate base. Bush Apes Inc. also operated a second hand store in Slave Lake's rented premises and, in 1998, at the Merkley house.
4. Bush Apes Inc.'s "cash" purchases were with cheques.
[3] In addition, it is noted that:
1. Mr. Merkley has a grade 10 education and kept the books. Until 1998 the income tax returns were done by H & R Block. In 1998 it was done by a chartered accountant.
2. The Respondent passed the Appellant's file from person to person, each of whom was ignorant of previous occurrences on the file. This statement by Mr. Merkley is verified in part by the hearsay submitted by the Respondent in Court and the unexplained and noteworthy absence of Mr. Dressler.
3. The Appellant's second hand store sold (among other things) beds and kitchen stoves and refrigerators which it essentially purchased in Edmonton and transported to Slave Lake, a round trip distance of over 1,000 km. It paid GST on these goods.
[4] Mr. Merkley testified that he recorded purchases and sales. The Respondent's contrary evidence was entirely hearsay. Therefore, Mr. Merkley's testimony is accepted as true. It should be added that, throughout, Mr. Merkley had a credible demeanour and all of his evidence is accepted entirely. He appears to be a modest man of very modest means. There is no evidence that he had any business experience before becoming involved in these transactions. It is clear that he is not well versed in corporate or business matters. Given his limited education, even the corporate financial records may be in some error. But he had all the corporate receipts, cheque stubs and records available in Court for cross-examination and he was not cross-examined on them. Instead the Respondent relied on the hearsay testimony of Mr. Miller. As a result, the Court believes Mr. Merkley's testimony that the Appellant reported all of its income and that the Appellant's oil service revenue was used to keep operating. For this reason, the Court finds that the Appellant did not fail to report any GST for the periods in question.
[5] Mr. Merkley testified that the Appellant had a truck which was used "99.9%" of the time on business. Given the distances travelled on business, the fact that Mr. Merkely had no personal business and the fact that his evidence was not refuted, this is accepted. This assumption is included in assumptions that are false, including an assumption that Mr. Merkley had a personal business. In these circumstances, Mr. Merkley's evidence that the Appellant used both its first and second truck in excess of 99% for business is accepted. It is to be noted that Mrs. Merkely could not and cannot drive and that the oil service business appears to have been operated out of the Merkley home. For these reasons, the Court finds that the Merkleys had no personal benefit from the use of the truck. But the "94" truck, which was in fact a '93, was both a personal vehicle and truck within the meaning of the Income Tax Act and the Excise Tax Act; this was agreed to by Mr. Merkley in his testimony. This agreement is also applied to the 1997 truck.
[6] Mr. Merkley testified that he had sufficient documentation for GST purposes and that on his chartered accountant's instructions he did a short run which verified this. He also testified that CCRA's auditor did a quarter year test. However, the evidence is clear that many of the auditor's assumptions are false. Any evidence by CCRA respecting this matter is hearsay and is based on what Mr. Dressler told Mr. Miller; as a result, the Respondent's evidence is rejected. Moreover, Mr. Merkley described the cheques which were spent for personal use and this discrepancy was accounted for in his returns as filed. Therefore, the Court finds that Appellant has refuted the material assumptions respecting input tax credits and further, finds that the Appellant did keep adequate records to enable a determination of the Appellant's liabilities, obligations or entitlements under Part IX of the Excise Tax Act. For these reasons the input tax credits of $21,641.82 claimed by the Appellant are reduced by the amounts admitted to by Mr. Merkley as follows based on periods during each calendar year:
1995 - The Appellant is allowed 100% of the amounts claimed
1996 - The Appellant is allowed 95% of the amounts claimed
1997 - The Appellant is allowed 95% of the amounts claimed
1998 - The Appellant is allowed 70% of the amounts claimed.
[7] The Respondent assessed penalties and interest pursuant to Section 280 of the Excise Tax Act. The assessment of penalties and interest are confirmed respecting any amount which the Appellant may owe as a consequence of these reasons.
[8] Therefore, this matter is referred to the Minister of National Revenue for reconsideration and reassessment on the basis that:
1. Both trucks owned and operated by the Appellant were both personal vehicles and trucks within the meaning of subsection 248(1) of the Income Tax Act and 123(1) of the Excise Tax Act.
2. The input tax credits claimed by the Appellant for each calendar year in dispute are reduced to the following percentages which are to be allowed to the Appellant:
1995 - All amounts claimed are allowed
1996 - 95% of the amounts claimed are allowed
1997 - 95% of the amounts claimed are allowed
1998 - 70% of the amounts claimed are allowed.
3. The penalties and interest assessed pursuant to Section 280 of the Excise Tax Act are confirmed as they apply to the foregoing.
4. In all other respects, the appeals are allowed.
Signed at Ottawa, Canada this 24th day of May 2001.
"D.W. Beaubier"
J.T.C.C.