Date: 20010817
Docket: 2001-797-GST-I
BETWEEN:
LAWRENCE DIMARIA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
[1] The Appellant did not report and remit Goods and Services Tax ("GST") collectible on three truck sale transactions in the amount of $6,806.03. By notice of (re) assessment numbered 00000010158 and dated June 22, 1999, the Minister of National Revenue (the "Minister") assessed the Appellant's GST liability for the quarterly reporting periods from January 1, 1996 to March 31, 1998 as follows:
Adjustments to GST $ 6,806.03
Adjustments to Input Tax Credits 2,058.48
Total Adjustments for Assessment Period 8,864.51
Penalty 1,583.92
Interest 1,066.40
Other penalty 1,701.51
Amount owing $13,216.34
[2] The Appellant, Mr. Lawrence DiMaria, appeals from the Minister's reassessment of his GST liability for the quarterly reporting periods from January 1, 1996 to March 31, 1998, in which the Minister required the Appellant to pay GST on three truck sales transactions.
[3] The Appellant at trial admitted certain assumptions pleaded by the Respondent in the Reply to the Notice of Appeal.
a) at all relevant times, the Appellant was operating a trucking and transportation business (the "Business");
b) at all relevant times, the Business had a December 31 business year end for GST purposes;
c) at all relevant times, the Appellant made taxable supplies in the course of his commercial activities;
d) in 1993, the Appellant purchased three trucks, to be used in the Business, from Mercedes Benz Corporation ("MBCC"): a 1989 Kenworth, a 1994 Freightliner and a 1991 Freightliner;
e) in June, 1996, the Appellant sold the 1989 Kenworth to Camions Freightliner Trucks Montreal for $21,500, plus GST in the amount of $1,505, for a total sale price of $23,005;
f) at the Appellant's request, Camions Freightliner Trucks Montreal paid the Appellant an amount of $15,271.27, and paid an amount of $7,733.33 to MBCC for a total of $23,005;
g) also in 1996, the Appellant sold the 1994 Freightliner to East West Fashion Inc. for $46,729, plus GST in the amount of $3,271.03, for a total sale price of $50,000. (Note - the Appellant's evidence with respect to this assumption was GST not included;
h) at the Appellant's request, East West Fashion Inc. paid MBCC an amount of $41,717.41, and paid an amount of $8,282.59 to L & DD Trucking for a total of $50,000;
i) in August 1996, the Appellant sold the 1991 Freightliner to Gill Motors Inc. for $29,000, plus GST in the amount of $2,030, for a total sales price of $31,030;
j) at the Appellant's request, Gill Motors Inc. paid an amount of $14,494.70 to MBCC, and paid an amount of $16,535.30 to Larry DiMaria for a total of $31,030;
k) the three trucks were not seized or repossessed by MBCC for the purpose of satisfying in whole or in part a debt or obligation owing by the Appellant to MBCC.
THE APPELLANT'S POSITION
[4] From his Notice of Appeal adopted as part of his evidence at trial, the Appellant states that he sold three trucks in order to avoid financial disaster. The Appellant also states that to the best of his knowledge he did not receive GST amounts for any of the three transactions, therefore he did not remit any GST amount with respect to these three transactions[1]. The Appellant further asserts that if GST was included in the balance amount for each truck, since MBCC collected the balance they should be liable for the GST.
ISSUES
[5] The first issue is whether the Minister properly assessed the Appellant for GST amounts with respect to the three truck sale transactions. In order to determine this issue the question of whether the Appellant made a taxable supply when he sold the three trucks must be addressed.
[6] The second issue is whether the Minister properly assessed gross negligence penalties against the Appellant. The issue hinges on whether the Appellant acted knowingly or with "gross negligence" in not collecting and remitting GST on the three transactions.
STATUTORY FRAMEWORK
[7] The applicable legislative provisions with respect to taxable supplies are as follows:
141. (1) For the purposes of this Part, where substantially all of the consumption or use of property or a service by a person, other than a financial institution, is in the course of the person's commercial activities, all of the consumption or use of the property or service by the person shall be deemed to be in the course of those activities.
141.1 (1) For the purposes of this Part,
(a) where a person makes a supply (other than an exempt supply) of personal property that
(i) was last acquired or imported by the person for consumption or use in the course of commercial activities of the person or was consumed or used by the person in the course of a commercial activity of the person after it was last acquired or imported by the person,
[...]
the person shall be deemed to have made the supply in the course of the commercial activity;
165. (1) Subject to this Part, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the rate of 7% on the value of the consideration for the supply.
221. (1) Every person who makes a taxable supply shall, as agent of Her Majesty in right of Canada, collect the tax under Division II payable by the recipient in respect of the supply.
285. Every person who knowingly, or under circumstances amounting to gross negligence, in the carrying out of any duty or obligation imposed by or under this Part, makes or participates in, assents to or acquiesces in the making of a false statement or omission in a return, application, form, certificate, statement, invoice or answer (in this section referred to as a "return") made in respect of a reporting period or transaction is liable to a penalty of the greater of $250 and 25% of the total of [...]
ANALYSIS
[8] Paragraph 141.1(1)(a) of the Excise Tax Act (the "Act") deals with the disposition of personal property. The paragraph provides that where a person makes a supply of personal property that was consumed or used by the person in the course of a commercial activity, the person shall be deemed to have made a supply in the course of commercial activity.
[9] The Appellant was not in the business of selling trucks, the trucks were purchased for and were used substantially in the Business. The Appellant used the trucks to make taxable supplies, namely a transportation service. Thus the sale of the trucks would constitute a supply made in the course of commercial activity.
[10] A supply made in the course of commercial activity is a taxable supply under the Act and the supplier, the Appellant in this case, is obligated to collect GST for the supply under section 221 of the Act.
PENALTY FOR FALSE STATEMENTS OR OMISSIONS
("KNOWLEDGE AND/OR GROSS NEGLIGENCE")
[11] The penalty found in section 285 in the Act is parallel to subsection 163(2) of the Income Tax Act.
[12] The classic definition of "gross negligence" for the purpose of applying a penalty under the Income Tax Act or the Act is found in Venne v. The Queen, [1984] C.T.C. 223, Strayer J. stated at p. 234:
"Gross negligence" must be taken to involve greater neglect than simply a failure to use reasonable care. It must involve a high degree of negligence tantamount to intentional acting, an indifference as to whether the law is complied with or not.
[13] This definition had been cited in numerous tax cases and is the standard applied by the courts when determining whether a penalty for gross negligence is appropriate.
[14] In 897366 Ontario Limited v. The Queen, [2000] G.S.T.C. 13 at para. 19, Judge Bowman had these words with respect to imposing a penalty under section 285:
... The imposition of penalties under section 285 requires a serious and deliberate consideration by the taxing authority of the taxpayer's conduct to determine whether it demonstrates a degree of wilfulness or gross negligence justifying the penalty. Section 285 is not there to permit assessors to punish taxpayers for being frustrating or annoying. It cannot be overemphasized that penalties may only be imposed under section 285 in the clearest of cases, and after an assiduous scrutiny of the evidence.
[15] Judge Bowman's statements can be taken as further support for the notion that a determination of knowledge or gross negligence involves a subjective component. Further, Judge Bowman would appear to be restricting the application of a section 285 penalty to the circumstance where the taxpayer clearly acted knowingly or with gross negligence.
[16] The Appellant said he had difficulty in understanding who owns the trucks and the GST consequences of such ownership when selling the vehicles. The evidence supports the Appellant's full ownership of all three trucks and I conclude the Appellant knew he owned the trucks at the relevant time.
[17] However, the question of whether a finding that the Appellant acted knowingly and/or with gross negligence requires further scrutiny of the evidence.
[18] The discrepancy that lead to the audit arose from a comparison of the Appellant's income tax returns and the Appellant's filed GST returns. In particular, a review of the Appellant's capital cost allowance schedules in his income tax return exposed the unreported dispositions.
[19] Specifically, when questioned by the CCRA during the audit period the Appellant denied that he had sold any trucks. Further, it would appear that he advised others (his ex-wife in particular) to deny the truck sales. However, at trial, as indicated, he did agree he sold the trucks.
[20] The Appellant clearly did not exercise reasonable care in his reporting and remitting obligations and the Appellant's original denial of the truck dispositions leads to a conclusion that the Appellant knowingly accounted to the making of a false statement in the GST returns.
[21] The appeal is dismissed.
Signed at Ottawa, Canada, this 17th day of August 2001.
"D. Hamlyn"
J.T.C.C.
COURT FILE NO.: 2001-797(GST)I
STYLE OF CAUSE: Lawrence DiMaria and
Her Majesty the Queen
PLACE OF HEARING: Ottawa, Ontario
DATE OF HEARING: August 8 and 9, 2001
REASONS FOR JUDGMENT BY: The Honourable Judge D. Hamlyn
DATE OF JUDGMENT: August 17, 2001
APPEARANCES:
For the Appellant: The Appellant himself
Counsel for the Respondent: Yves Parent
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-797(GST)I
BETWEEN:
LAWRENCE DIMARIA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on August 8 and 9, 2001 at Ottawa, Ontario, by
the Honourable Judge D. Hamlyn
Appearances
For the Appellant: The Appellant himself
Counsel for the Respondent: Yves Parent
JUDGMENT
The appeal from the assessment made under Part IX of the Excise Tax Act, notice of which is dated June 22, 1999 and bears number 00000010158, is dismissed.in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 17th day of August 2001.
|
"D. Hamlyn" |
J.T.C.C.