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Docket: 2003-2990(GST)I |
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BETWEEN: |
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HARBHAJAN SINGH DOSANJH, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
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Appeal heard on March 31, 2004, at Toronto, Ontario.
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Before: The Honourable Justice Campbell J. Miller |
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Appearances: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
P. Michael Appavoo |
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JUDGMENT
The appeal from the assessment of goods and services tax made under the Excise Tax Act notice of which is dated June 12, 2003 and bears number 08BP-119060093, for the period July 1, 1997 to December 31, 2001 is allowed without costs and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is liable to pay GST in the amount of $3,859. Penalties and interest to be adjusted accordingly.
Signed at Ottawa, Canada, this 7th day of April 2004.
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"Campbell J. Miller" |
Miller J
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Citation: 2004TCC285 |
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Date: 20040407 |
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Docket: 2003-2990(GST)I |
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BETWEEN: |
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HARBHAJAN SINGH DOSANJH, |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Miller J.
[1] Mr. Dosanjh is a taxi driver. He mistakenly believed he could claim "small supplier" status for purposes of the Excise Tax Act ("Act") for the years in question. He was wrong. The Minister of National Revenue ("Minister") assessed him for the period from July 1, 1997 to December 31, 2001 ("Period") for goods and services taxes ("GST") in the amount of $7,144.41, and the Minister denied input tax credits ("ITCs") of $628.04. The Minister based his GST assessment on income amounts reported by Mr. Dosanjh in his 1997 to 2001 income tax returns. Apart from 2001, the Minister did not allow Mr. Dosanjh any ITCs, reasoning that Mr. Dosanjh had not sought any, and that he had not provided appropriate documents in prescribed form to be entitled to claim any ITCs. At the outset, I wish to indicate my concern with an approach that would rely on a taxpayer's reported income to assess GST, yet completely ignore the taxpayer's reported expenses for purposes of determining reasonable ITCs. The result is harsh. I do not suggest taxpayers can blatantly ignore the rules - obviously not. I do suggest however that taxpayers might expect an element of reasonableness in the manner in which their objections are handled, especially given "reasonableness" is a concept sprinkled liberally throughout our tax legislation.
Facts
[2] Mr. Dosanjh received advice from his accountant in 1996 that he was a small supplier for purposes of the Act. He proceeded to deregister his taxi business for purposes of the Act effective December 31, 1996. Not until late in 2001 did Mr. Dosanjh realize his error and he reregistered effective November 1, 2001. He reported GST collected of seven percent of his yearly reported income of $34,964, which was his total business income for the year, as shown on his statement of business account filed with his 2001 income tax return. This resulted in his estimation of GST of $2,447.48. He also claimed ITCs of $3,022.63. The Minister allowed ITCs of $2,394.59, though offered no explanation at trial on what basis such ITCs were permitted. Mr. Dosanjh reported expenses for income tax purposes in 2001 was $27,118.
[3] Mr. Dosanjh's income tax returns, filed for 1997 to 2001, were tendered in evidence. They indicated the following:
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1997 |
1998 |
1999 |
2000 |
2001
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Taxi income |
$ 3,298 |
$29,985 |
$34,520 |
$34,260 |
$34,964
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Business expenses |
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Business tax, fees, licence |
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$ 9,680 |
$ 96 |
$ 82 |
$ 5,400 |
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Fuel |
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$ 2,940 |
$ 4,680 |
$ 5,862 |
$ 3,956 |
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Insurance |
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$ 4,000 |
$ 3,400 |
$ 3,400 |
$ 3,421 |
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Interest |
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$ 90 |
$ 84 |
$ 60 |
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Repairs |
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$ 364 |
$ 3,284 |
$ 842 |
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Meals |
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$ 1,430 |
$ 2,860 |
$ 1,200 |
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Professional fees |
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$ 150 |
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$ 150 |
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Utilities/plus |
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$ 720 |
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$ 542 |
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Radio dispatch |
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$ 5,400 |
$ 5,400 |
$ 5,400 |
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Plate rental |
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$ 9,600 |
$ 9,600 |
$ 8,971 |
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Supplies |
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$ 784 |
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CCA |
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$ 5,368 |
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Total |
__________ 0 |
_________ $24,774 |
_________ $29,404 |
_________ $27,972 |
_________ $27,118 |
[4] I accept Mr. Dosanjh's evidence that these were legitimate business expenses. The returns appear to have been assessed as filed. Mr. Dosanjh did not present supporting documentation in connection with these expenses, other than a typed note from a Mr. Anwar Warwar, who verified that Mr. Dosanjh paid a monthly fee to the "taxi plate owner" of $800 including GST for the period January 1, 2000 to December 31, 2000. Mr. Dosanjh had requested this information from Mr. Warwar for purposes of this trial. There is no issue with respect to the fact that Mr. Dosanjh carried on the business of driving a taxi for the period in question, and also that he incurred the expenses and earned the income just reviewed.
[5] The Crown did not call anyone from Canada Customs and Revenue Agency ("CCRA"), but counsel advised me that the GST assessed against Mr. Dosanjh was determined by simply multiplying the reported income from his income tax returns by seven percent, resulting in the following:
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1997 |
1998 |
1999 |
2000 |
2001 |
Total
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Income |
$ 3,298 |
$29,985 |
$34,520 |
$34,260 |
$34,964 |
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GST @ 7% |
$ 230 |
$ 2,098 |
$ 2,416 |
$ 2,398 |
$ 2,447 |
$ 9,589 |
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ITC |
0 |
0 |
0 |
0 |
$ 2,394 |
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Tax owing |
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$ 7,195 |
[6] There is a slight discrepancy between the amount owing of $7,195, which the Respondent assumed in his Reply to the Notice of Appeal versus the assessed amount of GST of $7,144.
Analysis
[7] The first issue is the correctness of the Minister's assessment of GST for the years 1997 through 2001. Subsection 240(1.1) of the Act requires every small supplier who carries on a taxi business to be registered. Mr. Dosanjh carried on a taxi business. He should have been registered. He should have collected and remitted GST. He was not eligible for the small supplier treatment, which would have allowed him to not charge, and, consequently, not remit the GST. It is for Mr. Dosanjh to determine who might be responsible for any loss he incurs as a result of this mistaken belief.
[8] What should Mr. Dosanjh have charged and remitted? The Crown suggests seven percent of his income reported for income tax purposes. Indeed, in determining his 2001 GST owing, Mr. Dosanjh relied on the same approach. If Mr. Dosanjh did not charge GST on that income and is now being asked to remit as though he did, the remittance, I would suggest, should be based on the income being GST inclusive. For example, if Mr. Dosanjh had a $30 fare, he should have collected $32.10, but he did not. He only collected $30. How can we deem him to be holding monies in trust for the government that he never received. That $30 should be broken into a fare portion of $28.04 and a notional GST of $1.98, which was charged and received, but not remitted. Working through the math, rather than charging GST of $9,589, the GST should have been calculated on the basis that it was included in the fares charged, in which event the amount of GST is $8,962.
[9] The next step is the determination of ITCs. Mr. Appavoo, for the Respondent, referred me to subsection 169(4) of the Act, along with the Input Tax Credit Regulations ("Regulations"), section 3. They read as follows:
169(4) 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; and
(b) where the credit is in respect of property or a service supplied to the registrant in circumstances in which the registrant is required to report the tax payable in respect of the supply in a return filed with the Minister under this Part, the registrant has so reported the tax in a return filed under this Part.
Section 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 name of the supplier or the intermediary in respect of the supply, or the name under which the supplier or intermediary 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 name of the supplier or the intermediary in respect of the supply, or the name under which the supplier or intermediary does business and the registration number assigned under section 241(1) of the Act to the supplier or the intermediary, as the case may be,
(ii) the information set out in subparagraphs (a)(ii) to (iv),
(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) a statement to the effect that tax is included in the amount paid or payable for each taxable supply,
(B) the total (referred to in this paragraph as the "total tax rate") of the rates at which tax was paid or payable in respect of each of the taxable supplies that is not a zero-rated supply, and
(C) the amount paid or payable for each such supply or the total amount paid or payable for all such supplies to which the same total tax rate applies, and
(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 paragraphs (a) and (b),
(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.
[10] Mr. Appavoo also relied upon the following passage from Associate Chief Justice Bowman in the case of Helsi Construction Management Inc. v. The Queen, [2001] T.C.J. No. 149 (Q.L.) at paragraph 13:
We are dealing with one of the technical requirements under a statute that is somewhat unique for its specificity. Moreover, it is the foundation of a self-assessing system that operates in the commercial world. Unfortunate as it may seem to the appellant, rules are rules.
[11] Presumably this was offered as support for a rigid adherence to technical requirements that achieves a result completely out of whack with commercial reality, and, indeed, out of sync with an objective of the GST system. Yes, rules are rules, and technical requirements are necessary to ensure that the process of collecting GST works. They are not intended, however, to ensure windfall receipts for the government. They must be applied sensibly. Here, Mr. Dosanjh received advice from his accountant that he was a small supplier, and therefore did not have to register. He was unaware of subsection 240(1.1), which required registration. For the years in question he operated under this misapprehension and neither charged nor remitted GST. He did however continue to incur expenses, expenses acceptable to CCRA for purposes of determining Mr. Dosanjh's taxable income. But, because Mr. Dosanjh cannot now produce receipts with prescribed information, these expenses have no impact on the determination of the amount Mr. Dosanjh should remit. As stated at the outset, this is a harsh result. What is curious however is that the Respondent did allow ITCs in 2001 to the extent of $2,394, but provided me with no evidence on what basis it did so.
[12] I do not construe subsection 169(4) as a requirement for a taxpayer to have to produce prescribed information to CCRA. It only requires that the "the registrant has obtained sufficent evidence . . .". The requirement is for Mr. Dosanjh to have, at some point prior to claiming ITCs, the necessary evidence. CCRA did not find fault with the expenses for income tax purposes, and I accept Mr. Dosanjh's evidence that he incurred those expenses. We are not talking about quantum - we are only talking about whether Mr. Dosanjh has satisfied the obligation to have obtained the necessary prescribed information. Unfortunately, we have little evidence of what exactly Mr. Dosanjh did obtain to know whether it met the requirements of the Regulations. To review the Regulations previously cited, it is clear they require the following information for expenses incurred of less that $30:
- name of supplier
- date
- amount paid
For expenses between $30 and $150 the following additional information is required:
- registration number
- amount of tax, if not included in the amount paid
For those expenses over $150 the following further information is required:
- name of recipient
- terms of payment
- description of supply.
[13] Looking at the actual accepted expenses during the Period, and applying a good dose of common sense to a determination of whether Mr. Dosanjh obtained this information I conclude the following:
1. Fuel Filling up at any gas station will produce the necessary information required for payments under $150. Mr. Dosanjh meets the requirement for this expense, which totals $17,438 over the Period.
2. Insurance I am prepared to take judicial notice that insurance companies simply do not bill without the information required by the Regulations. Mr. Dosanjh meets this requirement for insurance expenses which total $14,221.
3. Phone and Professional Fees
Similarly, accounts from utility companies and professionals would, as a matter of course, contain the appropriate information. These amounts total $1,562.
4. Repairs Without any knowledge of where Mr. Dosanjh had his repairs done, it is not possible to draw any conclusion as to what information, if any, Mr. Dosanjh had obtained. For example, he may have only dealt with small suppliers who did not charge GST. I cannot find the requirements were met with respect to repairs.
5. Meals I was provided with no breakdown as to what constituted this expense, though restaurants, even fast food chains, offer evidence of the supply, and, at the very least, their name, date and amount. This is all that is required for expenditures less than $30. I cannot imagine what possible expenditures greater than $30 Mr. Dosanjh could have made. I also accept that very few restaurants, if any, would be small suppliers. I find that Mr. Dosanjh met the requirement by having obtained the necessary information for his meal expenses, which total $5,490.
6. Radio dispatch ($21,600) and a Plate rental ($37,771)
These are the two major expense items critical to a taxi driver's business. Unfortunately for Mr. Dosanjh, they are also items of which I have no general knowledge vis-à-vis their method of invoicing. The only evidence I have is the note from Mr. Warwar, which was not an invoice but only confirmation of the amount paid. There was no date nor any registration number. It has little probative value, other than to infer there were no invoices, or he might have produced them. While I have found for Mr. Dosanjh on those expenses where common knowledge and indeed common sense suggests he obtained the necessary information, I have no knowledge of how a radio dispatcher or plate owner charges a taxi driver. Mr. Dosanjh was not helpful in that regard. It would be too much by way of speculation to find that Mr. Dosanjh, with respect to those expenses, had obtained the requisite information. I simply have no idea.
[14] The findings I have reached are not intended to encourage taxpayers to discard their supporting documentation. To the contrary, Mr. Dosanjh would have been much better served had he retained complete and accurate records. There were circumstances in this case that swayed me to find in Mr. Dosanjh's favour with respect to certain expenses, nothwithstanding he produced no documents at trial. Those circumstances were:
1. Mr. Dosanjh was a credible witness;
2. CCRA accepted the amount of expenses for income tax purposes, so quantum was not at issue;
3. CCRA accepted expenses in 2001 for accrediting Mr. Dosanjh with certain ITCs;
4. Mr. Dosanjh operated under a mistaken belief, based on professional advice;
5. Where the amount is not in dispute, it is self-evident that appropriate documentation would have been obtained with respect to certain expenses.
[15] I find Mr. Dosanjh owes GST of $8,962, but is entitled to ITCs of seven percent of $38,711 (being the total of expenses for which he obtained sufficient prescribed information) or $2,709, leaving an amount of $3,859 to be remitted. To summarize, the appeal is allowed and the GST to be remitted is calculated as follows:
GST of $8,962
less ITCs CCRA allowed $2,394
less ITCs I allow of $2,709
Amount owing $3,859
There shall be no award of costs.
Penalties and interest should be adjusted accordingly.
Signed at Ottawa, Canada, this 7th day of April 2004.
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"Campbell J. Miller" |
Miller J.
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CITATION: |
2004TCC285 |
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COURT FILE NO.: |
2003-2990(GST)I |
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STYLE OF CAUSE: |
Harbhajan Singh Dosanjh v. Her Majesty The Queen |
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PLACE OF HEARING: |
Toronto, Ontario |
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DATE OF HEARING: |
March 31, 2004 |
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REASONS FOR JUDGMENT BY: |
The Honourable Justice Campbell J. Miller |
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DATE OF JUDGMENT: |
April 7, 2004 |
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APPEARANCES: |
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For the Appellant: |
The Appellant himself |
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Counsel for the Respondent: |
P. Michael Appavoo |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
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Firm: |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |