[OFFICIAL ENGLISH TRANSLATION]
97-148(GST)I
BETWEEN:
CLUB IMMOBILIER INTERNATIONAL INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on common evidence with the appeals of Gestion 69692 Inc. (97-141(GST)I), Gestion 69691 Inc. (97-146(GST)I) and Claudette Ruest (97-147(GST)I) on January 28, 29 and 30, 1998, at Montréal, Quebec, by
the Honourable Judge Alain Tardif
Appearances
Agent for the Appellant: Marcel Thiffault
Counsel for the Respondent: Maryse Lord
JUDGMENT
The appeal from the assessment made under subsection 296(1)(b) of the Excise Tax Act, notice of which is dated September 25, 1995, and bears number 22221, is dismissed and the assessment is confirmed in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 11th day of September 1998.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 19th day of June 2003.
Sophie Debbané, Revisor
[OFFICIAL ENGLISH TRANSLATION]
Date: 19980911
Docket: 97-148(GST)I
BETWEEN:
CLUB IMMOBILIER INTERNATIONAL INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] When the hearing began, it was agreed to proceed separately in the four cases, that is, Gestion 69692 Inc. (97-141(GST)I), Gestion 69691 Inc. (97-146(GST)I), Claudette Ruest (97-147(GST)I) and Club Immobilier International Inc. (97-148(GST)I). This case was the first one heard. However, the parties requested that the evidence be part of the other three cases insofar as it may be useful and relevant thereto.
[2] That request to share part of the evidence was no doubt based on the fact that Marcel Thiffault was the principal witness and the directing mind of the
three appellant corporations and the business in respect of which his wife was appealing. In other words, he managed all of the four registrants' activities alone.
[3] The appellant appealed through a Notice of Appeal reading as follows:
[TRANSLATION]
NOTICE OF APPEAL
The appellant appeals the respondent's decision dated October 24, 1996, confirming the assessment made on September 25, 1995, for the period from January 1, 1991, to August 31, 1994.
1. On September 25, 1995, the respondent issued a notice of assessment numbered 22221 under the Excise Tax Act for the period from January 1, 1991, to August 30, 1994;
2. The appellant filed a notice of objection to the assessment referred to in the preceding paragraph;
3. In a decision made on October 24, 1996, the respondent confirmed notice of assessment number 22221 issued under the Excise Tax Act;
4. The appellant appeals the decision of the Minister of Revenue confirming assessment number 22221;
5. Following an audit, the respondent made the following adjustments:
GOODS AND SERVICES TAX $8,612.73
INPUT TAX CREDIT ($2,797.68)
6. The respondent claims, inter alia, that the appellant failed to remit the GST on commission income for real estate agents;
7. The assessments made by the respondent under the Excise Tax Act are incorrect because the auditor from the Department of Revenue did not take account of the fact that three real estate agents using the Club immobilier international inc. name were independent, self-employed agents, that they had certificates of registration, and that they were therefore obliged to remit the GST themselves;
8. In the circumstances, the appellant was entitled to claim tax rebates on inputs used in its business; thus, the rebates claimed by the taxpayer should have been granted to it, as well as those on the user fees paid by the real estate agents;
9. The appellant gave the respondent all the invoices for which it claimed input tax rebates, and all of those invoices result from the registrant's commercial activities;
10. At all relevant times, the appellant complied with the provisions of the Excise Tax Act regarding the documentary requirements provided for by law;
11. This appeal is well founded in fact and in law;
FOR THESE REASONS, MAY IT PLEASE THE COURT:
TO ALLOW this appeal;
TO SET ASIDE notice of assessment number 22221 issued under the Excise Tax Act on September 25, 1995;
TO REFER the entire matter back to the respondent in order that she issue a notice of reassessment in accordance with the judgment to be made in this case;
THE WHOLE with costs.
MONTRÉAL, January 20, 1997
NORMAND BÉRUBÉ
10422 Rue de Martigny
Montréal, Quebec H2B 2M6
Tel.: (514) 389-6339
Counsel for the Appellant
[4] In answer to the Notice of Appeal, the respondent set out the facts on which the assessment had been based. Those facts are described as follows in subparagraphs 10(a) to (n) inclusive of the Reply to the Notice of Appeal:
[TRANSLATION]
10. In making the said assessment, the Minister relied on the following facts discovered during the audit that was carried out in 1994 and 1995:
(a) the appellant is a goods and services tax registrant;
(b) during the period at issue, the appellant carried on activities as a real estate agency;
(c) all of those activities were managed by Marcel Thiffault, the appellant's president and shareholder;
(d) during the same period, Marcel Thiffault also managed two other corporations, that is, Gestion 69692 Inc., of which he is the president and shareholder, and Gestion 69691 Inc., the president and shareholder of which is Claudette Ruest, Mr. Thiffault's spouse, and he managed the many commercial activities carried on by Claudette Ruest in her own name;
(e) during the period at issue, Marcel Thiffault used just one bank account for all the activities of the appellant, of the two companies referred to in subparagraph (d), and of Claudette Ruest, an account that was also used to pay Mr. Thiffault's personal expenses;
(f) the accountant prepared the appellant's quarterly returns on the basis of cheques without having the purchase and sales invoices in his possession;
(g) moreover, since the accountant did not have the sales contracts or the invoices in his possession, income was reported on the basis of deposits and adjusted at the end of the year when those documents were provided to him;
(h) the income also had to be adjusted at the end of the year to take account of income that had not been deposited in the account, and it then had to be broken down for each registrant and each activity on the basis of the information provided by Marcel Thiffault;
(i) thus, the amounts collected as residential rents by two of the four registrants managed by Mr. Thiffault could not be traced in the deposits, and the respondent was unable to confirm that the income reported for such residential rentals in fact came from those rentals or from the laundry rooms made available to tenants;
(j) it results from the foregoing that the appellant's accounting was deficient, the books of account being inadequate or non-existent, that not all the income was reported, that some invoices to justify the claimed ITCs were missing, that the ITCs were claimed without taking account of which registrant the invoices had been issued to and that ITCs were claimed for non-taxable activities;
(k) the entries made in the appellant's general ledger were therefore not consistent with the purchase and sales invoices;
(l) with regard to the GST assessed on the commission income, the respondent considered the following:
- the appellant brought together six real estate agents;
- the appellant did not give the respondent all of the sales contracts;
- the respondent compared the commission income shown in the contracts that were provided with the books and the cheques written by the appellant to the agents, and this revealed unreported income;
- $3,000.00 per agent per year was also added to the appellant's income for the user fees paid by the agents;
- the result was that $10,453.07 had not been collected by the appellant as GST on taxable supplies;
(m) finally, after reviewing all the invoices submitted by the appellant, a total of $125.00 in ITCs were denied for the following reasons:
- some purchase invoices were missing;
- some purchases were not eligible, inter alia, because they were personal in nature or involved property that had not been acquired in the course of commercial activities, and therefore did not entitle the appellant to ITCs;
(n) however, the respondent allowed $2,717.49 in ITCs that had not been claimed by the appellant;
[5] Marcel Thiffault testified at length in support of the appeal; his testimony was often ambiguous and confused, and he was even contradictory on certain points; he did not file contracts or documents that could clarify or explain his incoherent testimony.
[6] To illustrate that confusion, I will take the liberty of quoting certain passages from Mr. Thiffault's testimony:
[TRANSLATION]
Q. Now, what was the situation with the Department of Revenue as regards . . . the real estate agents in question who worked for you?
A. Well, the problem, which persists here this morning because we aren't capable of resolving it, is that in Trois-Rivières there were five agents, as I recall, three of which were accepted and two of which were denied. They all did the same work, they all had the same contract, the same agreement and, for some reason I'm not aware of, three were accepted and two were denied.
[7] He later stated the following:
[TRANSLATION]
Q. Now, did the agents have to pay anything to use the Club Immobilier International name?
A. Yes.
Q. How did that work?
A. Well, they paid me a royalty every month; it was an agreement we had. It was for the cost of the name, if you will.
Q. And what were the exact amounts?
A. For some agents, it was $200. And for some, in the end, it was $300. In the end, there was one agent, I think, who was paying $300, as I recall.
Q. We're talking about $300 per . . .
A. Near the end. Because in the beginning, I'm talking, we started in 1984 or 1985, after all. In the beginning it was $200 and in the end there were some who were paying $300 and some who were paying two . . . it was $250. It depends on the period.
Q. You're talking about a monthly amount?
A. Monthly, yes.
HIS HONOUR: But explain to me the difference between that $200 or $300 royalty and the five percent you referred to earlier.
A. We had a special agreement with Mr. Trépanier whereby he was receiving just a small percentage on his commissions. That didn't apply to the others. There was really a fixed amount for them.
Q. So, Mr. Trépanier didn't pay a monthly royalty?
A. Yes, yes, the same thing.
Q. OK.
A. The same thing, but he had an additional five percent because there was, in a way, more administrative work with him; it was no more than that.
Q. But the five percent applied only to Mr. Trépanier?
[8] At another point, he first said that he had been misinformed by the Department's representatives concerning the status of the agents versus the obligation to add GST to the user fees paid by the agents:
[TRANSLATION]
That was more or less the predicament, if you will, that we were trying to resolve with the government when I called. And I didn't know. Had I known that I ought to have charged seven percent on the name, I would certainly have done so. I don't see why I wouldn't have. But it happened in 1991 and until mid-1992, if you will, and at the time the government was telling us:
Do as you think, and we'll see whether we'll allow it. We're in the early stages. There won't be any problem. Things will sort themselves out; no problem.
But today there are problems.
Q. Exactly whom did you approach to verify things?
(Emphasis added)
[9] After claiming that ignorance and the inaccurate information he was given were the reasons why the GST had not been collected on the user fees, Mr. Thiffault later said that the agents simply did not want to assume the obligation:
[TRANSLATION]
A. Well, at first it was because we were very confused, at first. Later on, when you're talking about some time afterwards, they didn't want to pay it any more then. They never paid the seven percent. My dispute with the agents was based on the fact that they administered their GST and QST. They had their commissions. I put them at 100 percent of their commissions. They had their GST. They had their QST. Based on that, they administered everything, according to them. And in my opinion, I didn't have . . . I couldn't charge them, they didn't want to pay. And also, even if they . . . There was nothing specifying that it was my duty to charge it. And I was also dealing with cells. There was one cell in one place and one cell in another. If I had at least been able to collect in one place, but the situation was the same for everyone.
(Emphasis added)
[10] Every person responsible for collecting the GST must have clear, precise accounting in which a quick and efficient verification can be made as to whether the duty has been discharged. In case of doubt, when it comes to proving that the tax has been collected, I think that every wise, sensible and prudent person should have such a record to ensure that the amounts making up the tax base can be verified.
[11] Although it was claimed that all the agents had the same contract, the reality was actually very different. The following passage from the testimony is quite revealing about the extent to which things were muddled and about the lack of documentary references:
[TRANSLATION]
Q. OK. So, Mr. Thiffault, you were talking about the fact that the Department's basis for calculation was $3,000 a year.
A. Yes.
Q. And what were the actual amounts of the user fees?
A. Well, it's like I said earlier, they were $200 for the most part. It also depends on the period. In the end, I know the fee in one case was $300, as I recall, but in most cases it was $200. Many of the fees stayed at $200 for a very long time. I never increased them.
Q. And in Mr. Lévesque's case?
A. Mr. Lévesque didn't have to pay anything at all because he was the manager and he had more work to do for me than the others, so it was free for him.
Q. Now I would like you to explain whether, for Club Immobilier International . . .
HIS HONOUR: Listen here. I'm going to say something that applies entirely to the rest of the case. You say:
The GST was assessed on an annual contribution of about $3,000.
Your client answers, saying:
No, it wasn't $3,000, it was $2,000, and in some circumstances, nothing was paid at all.
Is it-and this scenario could well recur often-is it your intention to prove that each agent actually paid a certain amount, etc., etc., or will I have to assess this based on a comment like:
No, it wasn't $3,000, it was $2,000, and in some cases it was nothing at all.
NORMAND BÉRUBÉ: I have the company's accountant here, who will . . . who was responsible for preparing the returns, who will give a precise explanation of the calculations, the basis for the calculations and the difference between the Department's figure of $18,000 and the actual figure according to my client.
[12] On this fundamental issue, André Paquette, the accountant responsible for the file, stated the following:
[TRANSLATION]
Q. So, Mr. Paquette, first of all, did you have to do the accounting for Club Immobilier International?
A. Yes, I did.
Q. For the period at issue here, from '91 to ninety . . . to August '94?
A. Yes, that's right.
Q. You were the one who prepared the returns?
A. Yes.
Q. OK. Now, when you prepared . . . you prepared the tax returns, they were quarterly returns at that time?
A. They were . . yes, quarterly returns when no periods were skipped. In general, they were quarterly. (Emphasis added)
Q. And what documents did you have at your disposal to prepare the tax returns in question for the company?
A. The returns were based on . . . the deposits, the deposit slips. That was also how the income was accounted for. We also used the cash disbursements or the McBee book of account submitted this morning. It was in fact in the cash disbursements that all the cheques were recorded. That was more or less what we used in order to prepare the tax returns. (Emphasis added)
. . .
NORMAND BÉRUBÉ:
Q. To your knowledge, were there missing documents in the company's accounting or inadequate books?
A. Well, inadequate books. Let's say that, in that type of business, what is most often relevant are books: the cash receipts and disbursements are prepared using the cheques and deposits.Now, the documents are not actually always compared with the invoices, since, when there's a cheque, it's assumed that the cheque paid an invoice. And when there's a deposit that's been cashed . . . it's also often done by discussing things with the manager of the business to ensure that all of the deposits indicated in fact cover all of the income received for the year . . . for the period. (Emphasis added)
. . .
Q. For the ITC claims, did you have in your possession the invoices establishing . . . corresponding to each of the credits claimed?
A. No, not always. Occasionally, there were invoices, but quite often the ITC was identified using the cheque. Because, as I said before, it was assumed that the cheque paid an eligible invoice in most cases. And the cheque stub was recorded in . . . with . . . in the accounting. Usually, the applicable GST amount was also entered on the cheque stub, or in this case, McBee, it wasn't a stub, it was indicated in the books. If it wasn't, we calculated it ourselves. (Emphasis added)
. . .
Q. Mr. Paquette, you explained that you did the accounting primarily on the basis of the bank documents: deposit slips and cheques for the withdrawals?
A. That's right.
Q. And that you didn't have . . . or you rarely had in your possession the corresponding documents, that is, the sales and purchase invoices. So what happens when income is earned but not deposited in the bank account?
A. There can be a problem. But, as I said earlier, we often . . . in the report we prepare, we often state that we have asked the manager questions, we have made comparisons and analyses. If, unfortunately or by coincidence, some income is missing, then I hope the manager will tell me so when asked those questions. So, it's . . . But as a general rule, in a business, it can be assumed that all income is deposited. That, to begin with, is a rule that is . . . (Emphasis added)
[13] With regard to the assessments, the case related mainly to two agents, Théo Trépanier and a Ms. Belleau. It was therefore essential that those two individuals come and testify to support the appellant's arguments at least in part.
[14] In fact, Théo Trépanier did testify: I will deal with the quality of that testimony later. Ms. Belleau did not testify, and the justification for her absence is not very serious. This is shown by the transcript of certain passages that clearly show that the appellant did not make much of an effort to adduce the best evidence in support of its arguments, no doubt forgetting that the burden of proof is on the person challenging the validity of an assessment.
[TRANSLATION]
NORMAND BÉRUBÉ: Yes, I think that my client will establish the circumstances. And he has tried unsuccessfully to find Ms. Belleau. I think that it must be . . . it should be admitted as secondary evidence.
HIS HONOUR: Do you have a certificate of service indicating that the bailiff tried to contact her?
NORMAND BÉRUBÉ: Well, I don't . . .
HIS HONOUR: To serve her . . .
NORMAND BÉRUBÉ: I didn't have an address for service. I think that my client can explain the situation. We couldn't subpoena her because we had no address. And we tried to locate her but were unable to.
MARYSE LORD: That strikes me as too easy. They had . . . you at least had Ms. Belleau's last known address, since she worked for Mr. Thiffault . . .
A. In the . . .
MARYSE LORD: . . . Club Immobilier International.
HIS HONOUR: Just a second, sir.
MARYSE LORD: Yes, they at least had the last known address. I think it's too easy for them to say they couldn't find the witness in order that they may produce a letter.
HIS HONOUR: Listen, I'm going to file the letter if I have evidence of some weight concerning the serious steps taken and the fact that it turned out to be impossible to contact, to serve Ms. Belleau with a subpoena for her to come. This seems to me to be a basic rule. I mean, I'm being told about the content of a letter written by a woman, but the best witness is the woman who wrote it . . . who wrote the letter. I mean, the content of a letter is going to be dealt with and, if cross-examination is desired, then what?
NORMAND BÉRUBÉ: I understand that. But I think my client is entitled to explain the steps, the fact that he tried to contact the woman, and I think he's entitled to explain the steps that he took . . . that he was able to take to contact her so that she would be in court the day of the hearing. That's what I want . . . that's what I want to show. The Court will decide. But as far as I'm concerned . . .
HIS HONOUR: Yes, but you'll agree with me and admit that the way to contact someone isn't to look in the phone book to see whether the person's name is there and then check whether the address is there and, I mean, or to try to reach the person at a telephone number that one hasn't . . .
NORMAND BÉRUBÉ: Those steps were taken, were attempted. That is the point on which I want Mr. Thiffault to testify.
HIS HONOUR: What did you do to contact Ms. Belleau, Mr. Thiffault?
A. We began by drawing up once again the invoices we wanted her to sign for us. We sent them by bailiff. She never . . . she never considered that, except that at one point, I received a letter in which she told me:
If the Department of Revenue has to deal with me, I have my GST numbers, I have my QST numbers . . .
. . .
Q. OK. First of all, Mr. Thiffault, I understand that it's . . . there are two agents for Club Immobilier International who are at issue today as regards the GST collected on commission income. They are Mr. Trépanier and Ms. Belleau?
A. I believe so.
. . .
[15] Moreover, the testimony given by Roger T. Trépanier is hardly more convincing and shows that the appellant was very negligent by taking for granted facts that, on their face, were doubtful and very ambiguous:
[TRANSLATION]
NORMAND BÉRUBÉ:
Q. And I'm just going to have you clarify the number shown here on the invoices, the tax number at the bottom, GST. I understand from your testimony that it corresponds to . . .
A. Yes.
Q. It corresponds to the entity's name?
A. Yes. Because, with the steps that were taken, I was asked to sign some invoices, and the invoices were issued in my name. After that I was told that that number was registered in the name of the Centre de plein air Louis-Riel, so the invoices were redone in that company's name; and I signed again because that number belongs to it.
Q. And you never told Mr. Thiffault . . .
A. No, in 1991 . . .
Q. . . . the tax number?
A. In 1991 . . .
Q. That corresponded?
A. . . . initially, he had asked me to give him a number, and that was the number I had.
Q. I have no further questions for this witness.
HIS HONOUR: Tell me, Mr. Trépanier, is the Centre de plein air Louis-Riel a company that has issued shares?
A. Yes, there were shares.
Q. You were the only shareholder?
A. Periodically. I operated for 21 years; I was the sole owner. After that, we took on shareholders. After that, some shareholders left. There was . . .
Q. What line of business was the company in?
A. It's an outdoor centre.
Q. A licence . . . what's done, let's say, the rules and regulations on real estate brokerage, but the licence that enabled you to sell real estate . . .
A. Yes.
Q. . . . was in your own name?
A. Yes, sir.
Q. Your personal name?
A. Yes.
Q. The Centre de plein air Louis-Riel had nothing to do with your real estate activities?
A. Nothing at all. (Emphasis added)
. . .
Q. Fine. If I look at the second invoice dated May 14, 1991, the commission is $4,672.90 for an immovable property on Rue Jean-Baptiste. What were the proceeds of sale for that transaction, for example?
A. Jean-Baptiste?
Q. Uh-huh.
A. Well, for Jean-Baptiste, I can't say from memory.
Q. You don't remember?
A.No. Jean-Baptiste . . .
Q. So you don't know whether the amounts indicated there are accurate?
A. But Ms. Lord, it was in 1991.
Q. But you signed it in 1996?
A. Yes. I was asked to sign, and I signed.(Emphasis added)
. . .
Q. Do you remember receiving $464.93 . . .
A. Yes.
Q. . . . on August 20, 1993?
A. Yes, I do.
Q. You do?
A. Yes, Ms. Lord.
Q. Now, the amount from December 12, 1992?
A. That!
Q. A commission, I believe, of $1,500?
A. Yes, $1,500.
Q. What is that?
A. I have no idea, Ms. Lord. It's vague on the commission. (Emphasis added)
Q. You don't know?
A.No, I don't have the reference. I don't have any . . . (Emphasis added)
Q. But you signed the invoices anyway?
A. Yes. For the Grondin estate, I can give you details.
. . .
Q. Mr. Trépanier, who prepares the transaction sheet?
A. I do.
Q. You were the one who prepared this?
A. Yes.
Q. In the document I showed you earlier, which I have just given His Honour, concerning the sale of 855 des Récollets, I think, on which it was written by hand GST . . .
A. Yes.
Q. . . . $675.
A. Yes, yes.
A. Was it your . . .
A. No.
Q. . . . handwriting?
A. No, not at all.
Q. Do you know who wrote it?
A. It wasn't me. (Emphasis added)
[16] This case was the first one to be heard by the Court and the only one in which testimony was given by the person responsible for the accounting, André Paquette; that testimony is key in assessing the mediocrity of the accounting system and also the poor quality and total lack of transparency of the data and information available during the audit that led to the four appeals. What is more, it confirms that the accounting was totally deficient and incomplete.
[17] The evidence showed that Marcel Thiffault, the directing mind of all the businesses, was the only person who had information that, more often than not, was not compiled in writing; a number of agreements were not put into writing even though they had significant consequences. I am referring, inter alia, to the contracts between the company and each of the real estate agents and to the lack of records in each agent's name, records in which their status could have been quickly and efficiently determined.
[18] Moreover, the evidence clearly showed that a number of invoices had been prepared in connection with the respondent's audit, that is, much later than the services were rendered. One of the signatories, Mr. Trépanier, admitted that he had signed and/or prepared such invoices according to Mr. Thiffault's instructions and had assumed that the amounts shown were accurate. I think that the invoices were documents of convenience that were prepared basically to counter the proposed assessment.
[19] It is my view that the accounting system established by Marcel Thiffault was totally inadequate, incomplete and deficient. The Act does not require an accounting system that is highly sophisticated or that meets the highest standard of good practice. However, it does require a system that can explain and prove that the obligations laid down by the Act have been met. The appellant was an agent; as such, it had strict, definite obligations. These are elements provided for in sections 221, 222, 228 and 238 of the Act, which read as follows:
221(1) Collection of tax - 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.
(2) Exception - A supplier (other than a prescribed supplier) who makes a taxable supply of real property by way of sale is not required to collect tax under Division II payable by the recipient in respect of the supply where
(a) the supplier is a non-resident person or is resident in Canada by reason only of subsection 132(2);
(b) the recipient is registered under Subdivision d and the supply is not a supply of a residential complex made to an individual; or
(c) the recipient is a prescribed recipient.
(3) Idem - Where a carrier who makes a particular taxable supply of a service of transporting tangible personal property
(a) is provided with a declaration referred to in section 7 of Part VII of Schedule VI by the shipper, and
(b) at or before the time the tax in respect of the particular supply becomes payable the carrier did not know and could not reasonably be expected to know that
(i) the property was not being shipped for export,
(ii) the transportation by the carrier was not part of a continuous outbound freight movement in respect of the property, and
(iii) there was or was to be any diversion of the property to a final destination in Canada,
the carrier is not required to collect tax in respect of the particular supply or any supply that is incidental to the particular supply.
(3.1) Export certificate Where a registrant who makes a taxable supply of tangible personal property is provided with a certificate referred to in section 1 of Part V of Schedule VI by the recipient of the supply and, at or before the time that tax in respect of the supply becomes payable, the registrant did not know and could not reasonably be expected to have known that the property would not be exported by the recipient in the circumstances described in that section, the registrant is not required to collect tax in respect of the supply.
(4) Definitions In subsection (3), "carrier", "continuous outbound freight movement" and "shipper" have the same meanings as in Part VII of Schedule VI.
...
222 (1) Amounts collected held in trust - Subject to subsection (1.1), where a person collects an amount as or on account of tax under Division II, the person shall, for all purposes, be deemed to hold the amount in trust for Her Majesty until it is remitted to the Receiver General or withdrawn under subsection (2).
(1.1) Amounts collected before bankruptcy Subsection (1) does not apply, at or after the time a person becomes a bankrupt (within the meaning of the Bankruptcy and Insolvency Act), to any amounts that, before that time, were collected or became collectible by the person as or on account of tax under Division II.
(2) Withdrawal from trust A person who holds tax or amounts in trust by reason of subsection (1) may withdraw from the aggregate of the moneys so held in trust
(a) the amount of any input tax credit claimed by the person in a return under this Division filed by the person in respect of a reporting period of the person, and
(b) any amount that may be deducted by the person in determining the net tax of the person for a reporting period of the person,
as and when the return under this Division for the reporting period in which the input tax credit is claimed or the deduction is made is filed with the Minister.
(3) Amounts in trust not part of estate In the event of any liquidation, assignment, receivership or bankruptcy of or by a person, an amount equal to the amount deemed under subsection (1) to be held in trust for Her Majesty shall, for all purposes, be deemed to be separate from and to form no part of the estate in liquidation, assignment, receivership or bankruptcy, whether or not that amount has in fact been kept separate and apart from the person's own moneys or from the assets of the estate.
...
228 (1) Calculation of net tax Every registrant who is required to file a return under this Division shall in the return calculate the net tax of the registrant for the reporting period for which the return is required to be filed.
(2) Remittance Where the next tax for a reporting period of a registrant is a positive amount, the registrant shall remit that amount to the Receiver General on or before the day on or before which the return for that period is required to be filed.
(3) Net tax refund Where the net tax for a reporting period of a registrant is a negative amount, the registrant may claim in the return for that reporting period that amount as a net tax refund for the period, payable to the registrant by the Minister.
(4) Real property supplied by person not required to collect tax Where tax under Division II is payable by a person in respect of a supply of real property (other than a supply deemed to have been made) that is made to the person in circumstances in which subsection 221(2) applies, the person shall pay the tax to the Receiver General and file with the Minister in prescribed manner a return in respect of the tax in prescribed form containing prescribed information,
(a) where the person is a registrant and acquired the property for use or supply primarily in the course of commercial activities of the person, on or before the day on or before which the person's return for the reporting period in which the tax became payable is required to be filed; and
(b) in any other case, on or before the last day of the month following the month in which the tax became payable.
...
(6) Set-off of refunds or rebates Where at any time a person files a particular return as required under this Part for a reporting period in which it is determined that an amount of tax (in this subsection referred to as the "remittance amount") is required under subsection (2) or (4) to be remitted by the person and files with that return another return as required under this Part in which the person claims
(a) a refund to the payment of which the person is entitled at that time under this Part, or
(b) a rebate to the payment of which the person is entitled at that time under Division VI,
the following rules apply:
(c) for the purposes of subsections (2) and (4), the person shall be deemed to have remitted at that time on account of the person's remittance amount the lesser of
(i) the remittance amount, and
(ii) the amount of the refund or rebate, as the case may be,
(d) where in the other return the person claims a refund, the person shall, for the purpose of subsection 169(4), be deemed to have filed the particular return before filing the return in which the refund was claimed and, for the purpose of this Part, the Minister shall be deemed to have paid to the person at that time an amount as a refund equal to the lesser of
(i) the remittance amount, and
(ii) the refund referred to in paragraph (a), and
(e) where in the other return the person claims a rebate, the Minister shall, for the purpose of Division VI, be deemed to have paid to the person at that time an amount as a rebate equal to the lesser of
(i) the rebate referred to in paragraph (b), and
(ii) the amount, if any, by which that rebate exceeds the excess of the remittance amount over any refund referred to in paragraph (a).
(7) Refunds and rebates of another person A person may, in prescribed circumstances and subject to prescribed conditions and rules, reduce or offset the tax required under subsections (2) and (4) to be remitted by that person at any time by the amount of any refund or rebate to which another person may at that time be entitled under this Act.
...
238(1) Filing required Every registrant shall file a return with the Minister for each reporting period of the registrant
(a) where the registrant's reporting period is the fiscal year, within three months after the end of the year; and
(b) in every other case, within one month after the end of the reporting period of the registrant.
(2) Idem Every person who is not a registrant shall file a return with the Minister for each reporting period of the person for which net tax is remittable by the person within one month after the end of the reporting period.
(3) Non-resident performers, etc. Notwithstanding subsection (2), where, in a reporting period of a non-resident person, the person makes a taxable supply in Canada of an admission in respect of a place of amusement, a seminar, an activity or an event, the person shall
(a) file with the Minister a return for that period on or before the earlier of
(i) the day on or before which a return for that period is required to be filed under subsection (1), and
(ii) the day the person, or one or more employees of the person who are involved in the commercial activity in which the supply was made, leaves Canada; and
(b) on or before that earlier day, remit all amounts that became collectible, and all other amounts collected by the person, in the period as or on an account of tax under Division II.
(4) Form and content Every return under this Subdivision shall be made in prescribed form containing prescribed information and shall be filed in prescribed manner.
[20] To account for its proper management, a registrant must absolutely have in its possession, at all times, the information and documents that are relevant to showing that its administration is sound and in keeping with requirements but also that it has fulfilled its responsibility.
[21] The evidence showed no such thing but rather established that ambiguity was so pervasive that it was no doubt deliberate or even encouraged.
[22] According to Mr. Thiffault, his accounting was acceptable; he always fulfilled his obligations and, if there were any errors, they were trivial and insignificant. If the errors were substantial and significant, the persons responsible are the government officials who did not give him the correct information or the professionals to whom he had entrusted the task of looking after the affairs he managed, but the said errors are in no way attributable to him.
[23] I regret to say that this is not at all what emerges from the testimonial and documentary evidence adduced; quite the reverse-the weight of the evidence indicates that Marcel Thiffault managed the affairs for which he was responsible by himself and in a totally offhand manner. In many respects, he was the only person who understood his accounting. The lack of records or their deficiency made it impossible to clarify anything.
[24] I attach no value to the testimony of Mr. Thiffault, who was the directing mind of the appellant business and the other three appellants.
[25] The weight of the evidence has satisfied me that Mr. Thiffault intentionally preferred confusion and ambiguity to clarity and order, muddles to method, and ambiguity to precision. He may have known what his rudimentary accounting meant, but that same very perfunctory accounting did not enable him to demonstrate clearly that he had fully assumed the obligations laid down by the Act.
[26] Section 286 of the Act is, however, very clear and not at all confusing concerning the responsibilities of those subject to that section. It reads as follows:
286(1) Keeping books and records Every person who carries on a business or is engaged in a commercial activity in Canada, every person who is required under this Part to file a return and every person who makes an application for a rebate or refund shall keep records in English or in French in Canada, or at such other place and on such terms and conditions as the Minister may specify in writing, in such form and containing such information as will enable the determination of the person's liabilities and obligations under this Part or the amount of any rebate or refund to which the person is entitled.
(2) Inadequate records Where a person fails to keep adequate records for the purposes of this Part, the Minister may require the person to keep such records as the Minister may specify and the person shall thereafter keep the records so specified.
(3) Period for retention Every person required under this section to keep records shall retain them until the expiration of six years after the end of the year to which they relate or for such other period as may be prescribed.
(4) Objection or appeal Where a person who is required under this section to keep records serves a notice of objection or is a party to an appeal or reference under this Part, the person shall retain, until the objection, appeal or reference and any appeal therefrom is finally disposed of, every record that pertains to the subject-matter of the objection, appeal or reference.
(5) Demand by Minister Where the Minister is of the opinion that it is necessary for the administration of this part, the minister may, by a demand served personally or by registered or certified mail, require any person required under this section to keep records to retain those records for such period as is specified in the demand.
(6) Permission for earlier disposal A person who is required under this section to keep records may dispose of the records before the expiration of the period in respect of which the records are required to be kept if written permission for their disposal is given by the Minister.
[27] An intelligent businessman, Marcel Thiffault had organized all of his economic activities for the obvious purpose of reducing his obligations to the government as much as possible.
[28] There is nothing wrong with this per se, provided that everything is legitimate and in order and that the Act has been fully complied with. The actual situation was very different.
[29] Everything was indescribably muddled, and a number of supporting documents were missing; others were incomplete or non-existent; a number of invoices had been photocopied, thereby creating a presumption that they had been used by more than one entity.
[30] To add to the ambiguity, all of the available supporting documents were jumbled up and stored together, making any attempt at clarification extremely difficult.
[31] The burden of proof was on the appellant; that responsibility means that it had not only to show on a balance of evidence that the assessment was in no way justified but also, and above all, to prove what the assessment ought to have been.
[32] In fact, if the appellant had shown what the real assessment should have been, this would have meant that the Department had erred during the audit and had therefore made an unjustifiable and groundless assessment.
[33] To discharge that burden and satisfy the Court, the appellant would have had to call witnesses who could explain specifically what the situation regarding the various agreements was in the absence of documents or written contracts; the appellant would also have had to make an effort to prepare its case so as to facilitate a thorough, coherent and clear presentation supported by all the appropriate and relevant documentary evidence rather than constantly blaming the persons responsible for the audit, whom it accused of arrogance and vindictiveness.
[34] Since documentary evidence was not available and the individuals who could have provided important information were not called to testify, the appellant adduced evidence that was totally deficient.
[35] It chose instead to aggressively attack those in charge of its file, to criticize the methods used, to discredit the work done and to question the auditors' honesty and good faith. Charles Thiffault never understood that the burden of proof was on the appellants; during his testimony, he systematically attacked and disparaged the audit work, perhaps thinking that this approach would undermine the validity of the assessments.
[36] In some respects, Charles Thiffault used the hearing to express his resentment toward the respondent's auditors, thus totally deviating from the primary objective of the appeal: proving on a balance of evidence that the assessment in dispute was unfounded in fact and in law.
[37] Proving this required that he present and file all the original supporting documents, above all, as they were actually issued, and not a semblance of evidence that was reconstructed on the basis of the proposed assessment and that referred to uncertain or even fictitious data that were also partial and incomplete.
[38] Admittedly, it was not easy, and it may even have been impossible to adduce such evidence given the almost complete absence of an appropriate accounting system. That deficiency was intended, maintained and sustained by Mr. Thiffault, the only person in charge of managing the corporation.
[39] In such circumstances, Mr. Thiffault has only himself to blame and must therefore accept complete responsibility, because of his indifference and negligence, for not providing the businesses for which he was responsible with adequate accounting systems that met the Act's requirements.
[40] Although the evidence to show the soundness of his arguments was totally deficient or even non-existent, Marcel Thiffault never stopped maintaining that the respondent was in error and that his affairs were correctly and appropriately managed. He even gave himself credit for having an exemplary case. He continually repeated that he had been harassed and been the victim of arrogant, cavalier, insolent and insulting behaviour.
[41] During the hearings, which were spread out over a few days, the Court did not notice anything that could support such accusations; on several occasions, it was put in evidence that, when the documents and facts gave rise to doubt, the assumption that favoured the appellant was adopted refuting, at least in part, Mr. Thiffault's accusations of vendettas or retaliation. Marcel Thiffault was aggressive toward the Department's representatives several times and thus certainly contributed to the deteriorating atmosphere during the discussions about the files.
[42] The respondent's evidence was made up of the testimony of Michel Chicoine, Jean Maltais and Solange Poirier-Houle. A number of documents, most of which were working documents and various compilations and tables drawn up on the basis of their findings, reviews and analyses, supplemented the testimony of the people responsible for the audit.
[43] I could tell that the audit work was a huge undertaking. Since the auditors had very little information and the information available was often incomplete or ambiguous, they had to reconstruct the economic realities of the four businesses using a cheque statement, deposit slips and copies of banking transactions provided by a credit union. The relevant invoices were stored together in a jumble.
[44] Although the appellant, through Marcel Thiffault, argued that this accounting was satisfactory, I believe, on the contrary, that it was totally vague and inadequate; it absolutely did not allow an audit to be carried out in any way.
[45] The methods used by the respondent certainly did not have the scientific rigour one would wish for. Could things have been done differently? Was there a more valid or more appropriate method? I do not think so since the documentation was non-existent, deficient or incomplete.
[46] Rather than structuring and adducing extensive evidence by the appropriate documentation and the testimony of individuals directly involved in the disputed transactions to show that its arguments were valid, the appellant chose to hire an accountant, Mr. Arpin, who was given part of the respondent's working documents in order that he could discredit the results obtained.
[47] It would probably have been wiser and less costly to use the talents of accountants at the appropriate time to set up a coherent and transparent accounting system backed by all the supporting documents.
[48] What is quite surprising, if not peculiar, is that the accountant himself used that which he criticized the respondent for using, namely, a method that was just as arbitrary. His analysis and reproaches might have had some merit if everything had been drawn up on the basis of real data recorded at the time of the transactions.
[49] Like Mr. Thiffault, Mr. Arpin did not seem to understand that the purpose of the appeals was not to put the auditors on trial but solely to establish what the assessments ought to have been by means of evidence consisting of real accounting data that they alone could and should have had in their possession.
[50] In such matters, the burden of proof is on the person challenging the validity of the assessment that results from an audit, generally followed by discussions and negotiations.
[51] If an appellant does not show that the assessment, which is presumed valid, is incorrect, the Court must simply confirm it. The appellant must prove this on a balance of evidence; proof beyond a reasonable doubt is therefore not necessary. However, it is essential that the balance of probabilities support the arguments underlying the appeal. I have trouble understanding how the appellant could have hoped that the Court would decide in its favour given the very poor quality of its evidence.
[52] Although the Court intervened many times, the appellant never changed its approach; all of its energies and efforts were basically devoted to discrediting or undermining the quality of the auditors' work. There may have been some cause for complaint, since the auditors had to use rather unorthodox procedures to determine certain data that were essential in making the assessments. However, the weight of the evidence showed that the process and methods used were serious and reasonable and that the results were plausible and reliable. Moreover, the appellant alone is responsible for its criticism regarding the quality of the audit, since it did not assume the responsibilities imposed on it by the Act as a GST registrant.
[53] For these reasons, the appeal is dismissed and the assessment is confirmed. I further order that this judgment be appended to the following files:
Gestion 69692 Inc. (97-141(GST)I)
Gestion 69691 Inc. (97-146(GST)I)
Claudette Ruest (97-147(GST)I)
Signed at Ottawa, Canada, this 11th day of September 1998.
|
"Alain Tardif" |
J.T.C.C.
Translation certified true
on this 19th day of June 2003.
Sophie Debbané, Revisor