97-266(GST)I
BETWEEN:
HELSI CONSTRUCTION MANAGEMENT INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on September 16, 1997, at Vancouver, British Columbia, by
the Honourable Judge C.H. McArthur
Appearances
Agent for the Appellant: Sirus Familamiri
Counsel for the Respondent: Brent Paris
JUDGMENT
The appeal from the assessment made under the Excise Tax Act, notice of which is dated November 25, 1994 and bears number 032G0101547 is dismissed in accordance with the attached Reasons for Judgment.
Signed at Ottawa Canada, this 4th day of November 1997.
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J.T.C.C.
Date: 19971104
Docket: 97-266(GST)I
BETWEEN:
HELSI CONSTRUCTION MANAGEMENT INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
McArthur, J.T.C.C.
[1] This appeal is from a decision of the Minister of National Revenue dated November 25, 1994 wherein the Appellant was reassessed under the Excise Tax Act (the "Act")[1] for net tax of $144,836.37, interest of $16,523.93 and penalty of $17,917.12.
[2] The Appellant was primarily in the business of house construction in the Montreal area from January 1, 1991, to August 31, 1994. An audit was conducted by Revenue Canada on the Appellant's books and records.
[3] The Minister concluded that the Appellant was liable to remit goods and services taxes (GST) of $78,982.44 and that the Appellant was not entitled to input tax credits (ITC) of $65,854.43.
[4] The Minister submitted that the Appellant did not keep records or documents containing information which would enable the determination of the Appellant's entitlement to the amount of ITC and that the books and records were, for the period in issue, not kept in accordance with the requirements of section 286 of the Act.
[5] The Appellant, through its sole shareholder, Mr. Familamiri, presented a computer print out in support of its claim for ITC's and stated that 20 boxes of invoices were in transit from Montreal to Vancouver.
[6] A request for an adjournment was denied the Appellant because it had three years to obtain the necessary information and it was probable that the information contained in the 20 boxes had already been taken into account by the Minister's auditor.
[7] Mr. Familamiri admitted that the Corporation's books were in disarray, that the Corporation was in a desperate financial situation during the relevant period, and it could not afford a competent bookkeeper. Several office moves added to the confusion.
[8] For the most part Mr. Familamiri relied on his memory to reconstruct the Corporation's construction and sale transactions and took the position that it was Revenue Canada's obligation to reconstruct the Appellant's accounting. He stated that no GST should be owing and all ITC's claimed should be allowed because the Corporation lost a substantial sum of money during the relevant period. He submitted that there are many errors in the audit and the auditor should have found those documents necessary to support the Appellant's position. I am satisfied that all documents contained in the 20 boxes were reviewed by the auditor in August of 1994.
Legislation
Unremitted GST, Penalty and Interest
[9] The provision of Part IX of the Act that imposes the GST is subsection 165(1):
165. Imposition of goods and services tax
(1) Subject to this Part, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada a tax in respect of the supply equal to 7% of the value of the consideration for the supply.
[10] The requirement for a supplier to remit "net tax" is found in subsection 228(2) of the Act which reads:
228 (2) Remittance
Where the net tax for a reporting period of a person is a positive amount, the person 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.[2]
[11] The penalty provision applicable is found in subsection 280(1), which provides:
280. Penalty and interest
(1) Subject to this section and section 281, where a person fails to remit or pay an amount to the Receiver General when required under this Part, the person shall pay on the amount not remitted or paid
(a) a penalty of 6% per year, and
(b) interest at the prescribed rate,
computed for the period beginning on the first day following the day on or before which the amount was required to be remitted or paid and ending on the day the amount is remitted or paid.
Claim for ITC
[12] Pursuant to subsection 169(1) the Appellant was entitled to claim a credit (ITC) for the GST tax it paid for the goods and services obtained in order to construct the properties it sold.
[13] The Minister relied upon the Appellant's failure to maintain books and records as required by the Act as grounds for the denial of the ITC claimed. The relevant provisions are paragraph 169(4)(a) and subsection 286(1), which provide:
169 (4) Required documentation
A registrant may not claim an input tax credit for a reporting period unless, before filing the return in which the credit is claimed,
(a) the registrant has obtained sufficient evidence in such form containing such information as will enable the amount of the input tax credit to be determined, including any such information as may be prescribed;
286. Keeping books and records
(1) 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. [emphasis added]
Unremitted GST
[14] Where the net tax is a positive amount the taxpayer must remit that amount to the Receiver General.
[15] The auditor found that there was an overall positive net tax collected by the Appellant and not remitted as required in subsection 282(2) of the Act. The Appelant kept inadequate sales journals and cash receipts ledgers.
[16] The Appellant had the auditors detailed information for almost three years. It is not sufficient for the Appellant to state that the information is not correct, that it was losing money and should not have to remit any tax collected. There was very little in the Appellant's evidence that was clear and definite. Mr. Familamiri went through the list of sales constructed by the auditor and contradicted some of the auditor's evidence and in cross-examination at times his recollection changed.
[17] The Respondent presented evidence that the Appellant did not declare GST collected on certain sales. There was something amiss in the Appellant's record keeping. The Appellant did not present records to satisfy its burden of proof.
Input Tax Credits
[18] The Appellant relied heavily on computer printouts presented in evidence. The months of September, October, November and December 1993 are the months when it would appear most of the transactions, relevant to this appeal, took place. These printouts include a large bundle of computer records that were left unexplained. I lack the expertise to gain any meaningful information from these.
[19] As a random example, I have reproduced approximately 1/4 of one of the over 50 pages submitted :
DATE: 1997/01/16
HEURE: 11:32:24 HELSI FINAL Page No. 1
ANALYSE DETAILLEE (01 Jan. 1993 AU: 31 Déc. 1993)
DATE No REF EXPLICATION DE LA TRANSACTION DEBIT
**** COMPTE.: 11250 GST RECEIVABLE
1993/01/04 B000461 METAL 10.50
1993/01/05 B000369 NOTARY BRUNET 140.00
1993/01/06 B000500 ALARME DYNAMIC 40.25
1993/01/07 B000368 NOTARY BRUNET 4479 ELGIN 98.00
1993/01/09 P000858 COMMISSION Re:528 637.00
1993/01/09 P000859 COMMISSION Re:532 637.00
1993/01/11 B000501 ALARME DYNAMIC 40.25
1993/01/13 B000493 BETON J. JODOIN 36.74
1993/01/15 B000462 METAL 14.70
1993/01/18 B000499 ALARME DYNAMIC 8.05
1993/01/21 B000389 ZAVIE LEVINE 350.00
1993/01/22 B000471 MATERIEL 10.50
1993/01/25 B000457 BOISERIE UNIVERSELLE 1190.84
[20] The Minister's auditor testified that, during his audit, he requested all the Appellant's documentation and carefully reviewed everything made available to him. There was no evidence presented by the Appellant that the information presented at trial was not previously taken into consideration by the auditor.
[21] The Appellant admitted to not keeping proper books and records for the relevant time period. Mr. Familamiri explained that he was struggling desperately to keep his companies from bankruptcy and in doing so the GST records were neglected. He felt because his companies were losing money the Appellant did not owe any money and the record keeping was left in disarray. There was no journal to record the sales of residences and the Minister's auditor had to search the appropriate Registry offices for the information required.
[22] The determination of whether a person has failed to keep adequate records is a question of fact. In Swimm (K.T.) v. Canada, [1996] G.S.T.C. 40 (T.C.C.) (Informal), Judge Rip found that the taxpayer failed to keep adequate records where he had only maintained a ledger book in which entries were made once a month. The taxpayer had kept no other documentation. Judge Rip found that the Minister's calculations, on the balance of probabilities, were correct. In 620247 Ontario Ltd., [1995] G.S.T.C. 22 (T.C.C.) (Informal), Judge Bowman found that the taxpayer's record keeping was haphazard, and in the absence of receipts or cancelled cheques as evidence, he concluded that he could not provide relief to the taxpayer.
[23] I find that there was clearly an inadequacy of records. The Appellant's evidence is insufficient to rebut the findings of the auditor in arriving at the assessments of the Minister.
[24] I now turn to the question of penalty and interest. The penalty provision applicable is found in subsection 280(1), which provides:
280. Penalty and interest
(1) Subject to this section and section 281, where a person fails to remit or pay an amount to the Receiver General when required under this Part, the person shall pay on the amount not remitted or paid
(a) a penalty of 6% per year, and
(b) interest at the prescribed rate,
computed for the period beginning on the first day following the day on or before which the amount was required to be remitted or paid and ending on the day the amount is remitted or paid.
[25] The most quoted case regarding the application of this provision is Pillar Oilfield Projects v. Canada, [1993] G.S.T.C. 49 (T.C.C.) (Informal), where Judge Bowman held that there is no penalty where due diligence is exercised by the Appellant. He mentioned that due diligence involves more than merely accepting, without more, some oral advice from an assessor with the Department of National Revenue, and at page 49-7 said:
As stated above innocent good faith in the making of unintentional errors is not tantamount to due diligence. That defence requires affirmative proof that all reasonable care was exercised to ensure that errors not be made.
[26] To these comments Judge Bowman added the following in 620247 Ontario Ltd. v. Canada, supra, at 22-4:
The due diligence required to avoid the liability to a penalty under section 280 involves a sincere and demonstrable attempt that a reasonable person in similar circumstances could be expected to make in order to comply with the requirements of the law.
[27] In White Rock Management v. Canada, [1995] G.S.T.C. 50 (T.C.C. - Informal), Judge Sobier found that the due diligence defence was not met where the Appellant spoke only with public officials and did not talk to a lawyer or consult the Act.
[28] The notion of a due diligence defence has been upheld in a number of this Court's decisions, including matters heard under the General Procedures: see Acme Video Inc. v. Canada, [1995] G.S.T.C. 49 (T.C.C.), where Judge Rowe affirmed the reasons given by Judge Bowman in Pillar, although found on the facts before him that the defence had not been met. While the matter of a due diligence has most recently been challenged in argument by the Crown in Locator of Missing Heirs v. M.N.R. (1997), 212 N.R. 391 (F.C.A.), the Court of Appeal (per Roberston, J.A.) declined to make a determination on the point.
[29] The language of the Act is clear that an Applicant for ITC must have the prescribed information prior to filing the returns in which the credits are claimed.[3] This information includes that set out in the Input Tax Credit Information Regulations:[4]
3. For the purposes of paragraph 169(4)(a) of the Act, the following information is prescribed information:
(a) where the total amount paid or payable shown on the supporting documentation in respect of the supply or, if the supporting documentation is in respect of more than one supply, the supplies, is less than $30,
(i) the supplier's name or the name under which the supplier does business,
(ii) where an invoice is issued in respect of the supply or the supplies, the date of the invoice,
(iii) where an invoice is not issued in respect of the supply or the supplies, the date on which there is tax paid or payable in respect thereof, and
(iv) the total amount paid or payable for all of the supplies;
(b) where the total amount paid or payable shown on the supporting documentation in respect of the supply or, if the supporting documentation is in respect of more than one supply, the supplies, is $30 or more and less than $150,
(i) the information set out in paragraph (a),
(ii) the registration number assigned to the supplier pursuant to section 241 of the Act,
(iii) where the amount paid or payable for the supply or the supplies does not include the amount of tax paid or payable in respect thereof,
(A) the amount of tax paid or payable in respect of each supply or in respect of all of the supplies, or
(B) where provincial sales tax is payable in respect of each taxable supply that is not a zero-rated supply and is not payable in respect of any exempt supply or zero-rated supply,
(I) the total of the tax paid or payable under Division II of Part IX of the Act and the provincial sales tax paid or payable in respect of each taxable supply, and a statement to the effect that the total in respect of each taxable supply includes the tax paid or payable under that Division, or
(II) the total of the tax paid or payable under Division II of Part IX of the Act and the provincial sales tax paid or payable in respect of all taxable supplies, and a statement to the effect that the total includes the tax paid or payable under that Division,
(iv) where the amount paid or payable for the supply or the supplies includes the amount of tax paid or payable in respect thereof and one or more supplies are taxable supplies that are not zero-rated supplies, a statement to the effect that tax is included in the amount paid or payable for each supply in respect of which there is tax paid or payable, and
Draft Regulation
(v) where the status of two or more supplies is different, an indication of the status of each taxable supply that is not a zero-rated supply; and
(c) where the total amount paid or payable shown on the supporting documentation in respect of the supply or, if the supporting documentation is in respect of more than one supply, the supplies, is $150 or more,
(i) the information set out in paragraph (a) and subparagraphs (b)(ii) to (v),
(ii) the recipient's name, the name under which the recipient does business or the name of the recipient's duly authorized agent or representative,
(iii) the terms of payment, and
(iv) a description of each supply sufficient to identify it.
[30] In applying the general test set out in 620247 Ontario Ltd. (supra), I have no difficulty in finding, from the facts presented, that the Appellant did not sincerely and demonstrably attempt to comply with the requirements of the law.
[31] For these reasons the appeal is dismissed and the Appellant is liable to a penalty pursuant to section 280 of the Act.
________________________________
J.T.C.C.
Ottawa, Canada,
November 4, 1997
COURT FILE NO.: 97-266(GST)I
STYLE OF CAUSE: Helsi Construction Management Inc., and
Her Majesty the Queen
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: September 16, 1997
REASONS FOR JUDGMENT BY: the Honourable Judge C.H. McArthur
DATE OF JUDGMENT: November 4, 1997
APPEARANCES:
Agent for the Appellant: Strus Familamiri
Counsel for the Respondent: Brent Paris
COUNSEL OF RECORD:
For the Appellant:
Name:
Firm:
For the Respondent: George Thomson
Deputy Attorney General of Canada
Ottawa, Canada
[1] RSC 1985, c. E-15, as amended.
[2] The provision has since been twice amended. The first amendment was applicable to reporting periods that begin after 1994. The second amendment applies to reporting periods ending after March 1997.
[3] Metro Exteriors v. Canada, [1995] G.C.T.C. 62 at 62-5 (T.C.C. - Informal).
[4] SOR/91-45, December 18, 1990, P.C. 1990-2755, December 18, 1990, gazetted December 31, 1990. As currently drafted, proposed amendments to the Regulation would apply after the period relevant to this appeal.