Docket: 2003-1147(GST)G
BETWEEN:
CONSTRUCTION DANIEL PROVENCHER INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
____________________________________________________________________
Appeal
heard on March 6, 2007, at Shawinigan, Quebec.
Before: The Honourable
Réal Favreau
Appearances:
|
Counsel for the Appellant:
|
François Daigle
|
|
Counsel for the Respondent:
|
Robert Poupart
|
____________________________________________________________________
JUDGMENT
The
appeal from the assessment made under the Excise Tax Act, notice of
which is dated April 15, 2002,
and bears the number 02306242, pertaining to the goods and services tax
for the period from February 1, 1994, to January 31, 2001, is dismissed, with
costs, in accordance with the attached Reasons for Judgment.
Signed at Montréal, Quebec, this 22nd day of
March 2007.
“Réal Favreau”
Translation certified true
on this 20th day of February 2008
François Brunet, Revisor
Citation: 2007TCC147
Date: 20070322
Docket: 2003-1147(GST)G
BETWEEN:
CONSTRUCTION DANIEL PROVENCHER INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1] This
is the appeal from an assessment made under subsections 191(1) and 298(4) of the Excise Tax Act (the “Act”), notice
of which is dated April 15, 2002, bears the number 02306242, for the period from February 1,
1994, to January 31, 2001, claiming an amount of $27,217.32 in goods and
services tax (“GST”), interest and penalties.
[2] The
only issue is whether the assessment at issue could be made at any time, i.e.
after expiry of the four-year limitation period, in accordance with
subsection 298(4) of the Act. The calculation of the tax amounts claimed from
the Appellant and the application of the self-supply rule under
subsection 191(1) of the Act, when the two single unit residential
complexes were rented, are not challenged.
[3] Subsection 298(4) of the Act reads as follows:
An assessment in respect of any matter may be made at any time
where the person to be assessed has, in respect of that matter,
(a) made
a misrepresentation that is attributable to the person’s neglect, carelessness
or wilful default;
(b)
committed fraud
(i) in making
or filing a return under this Part,
(ii) in making
or filing an application for a rebate under Division VI, or
(iii) in
supplying, or failing to supply, any information under this Part; or
(c) filed
a waiver under subsection (7) that is in effect at that time.
[4] Only
paragraph (a) can be applied in this case and the Respondent has the
burden of proving that there has been a misrepresentation attributable to the
Appellant’s neglect, carelessness or wilful default.
[5] The Appellant is a
business specialized in the construction and sale of new houses and which
started its operations around the early 1990s. The sole director and
shareholder of the Appellant is Daniel Provencher, who obtained his degree in accounting
from the Université du Québec à Trois‑Rivières. After completing his
studies, he was employed by Revenue Canada for three years, including two years
as a tax auditor at the Montréal office. After that Mr. Provencher acted as an
inspector for Caisses populaires Desjardins for eleven years and as commercial
loan officer of a caisse populaire for two years. He acquired his experience in
construction by looking after a construction company with a partner in 1988 and
1989.
[6] The facts from
which the dispute arises are simple and relate to the sale of two new houses,
one built in 1994 and the other in 1995. For each of them, the Appellant had
different potential buyers sign a promise to purchase, conditional upon
obtaining a hypothec. In both cases, the buyers were unable to secure their
financing and the sale of the houses could not be concluded. Rather than leave
the houses empty, the Appellant then offered the buyers the possibility to
occupy the houses that they could not buy in exchange for the payment of rent.
The buyers accepted the Appellant’s offer and occupied the houses as tenants
from June 15, 1994, for one of them and November 1995, for the other.
The Appellant made no declaration concerning these rental contracts and did not
remit the GST applicable under subsection 191(1) of the Act.
[7] In both cases, the
tenants left the premises at the beginning of 1997 and the Appellant put the
houses up for sale again as new houses.
[8] On August 4, 1998,
the Appellant sold one of the houses to Robert Dusseault for $60,000,
calculated as follows:
|
Sale price
GST
GST rebate
QST
QST rebate
Total amount
Infrastructure reimbursement
Total payable
|
=
=
=
=
=
=
=
=
|
$51,642
3,615
1,301
3,507
1,263
56,200
3,800
$60,000
|
[9] On July 2, 1998,
the Appellant sold the other house to Nancy Garand and
Stéphane Lachance for $60,000, calculated as follows:
|
Sale price
GST
GST rebate
QST
QST rebate
Total amount
Infrastructure reimbursement
Total payable
|
=
=
=
=
=
=
=
=
|
$51,642
3,615
1,301
3,507
1,263
56,200
3,800
$60,000
|
[10] In both cases, the
Appellant collected GST and remitted the tax so collected in accordance with
subsection 225(1) of the Act, even though these sales were exempt from GST as
they had already been occupied. The buyers are probably entitled to claim the
GST overpayment.
[11] The only issue is
whether the Appellant made a misrepresentation that is
attributable to the Appellant’s neglect, carelessness or wilful default by not declaring the
two rentals and not self-assessing on the market value of the buildings when
they were rented.
[12] As the Appellant did
not produce GST returns for the two house rentals and did not remit the GST
amounts payable, the Appellant undoubtedly made a misrepresentation. The
Appellant acted as if it had never rented the houses in question and completely
ignored these transactions. Following the tenants’ departure, the Appellant put
the houses on the market as new houses and ran advertisements in the Nouveliste
to that effect. When the houses were sold, the Appellant calculated the GST and
the GST rebate, as if the houses had been new. This way the GST was paid, but
not by the right person.
[13] In his testimony,
Mr. Provencher stated that the Appellant’s policy was to collect and remit the
GST when it was paid for the sale of houses, and this is exactly what was done
for the sale of the two houses. Mr. Provencher also mentioned that the
Appellant had been audited several times by the Ministère du Revenu du Québec
and that the auditors had always accepted the Appellant’s approach.
[14] Evidence was offered
that a first GST audit was conducted on the Appellant
by Céline Goyette in October 1991 concerning a tax rebate application
for the period from May 1 to July 31, 1991. Ms. Goyette testified that her
audit report contained information to the effect that Mr. Provencher appeared
to have a poor knowledge of certain rules of the Act and that she had given him
some explanations concerning the rules for the remission of taxes and the
calculation of self-supply credits. Following the audit, she submitted a draft
assessment cancelling a credit application. After receiving this draft
assessment, Mr. Provencher met with the auditor and her supervisor to
discuss this draft assessment, but no adjustment was made to it and, after
that, the assessment was issued.
[15] Mr. Provencher
moreover indicated that the Appellant was audited in 1992 and in August 1994,
and that the auditors issued assessments of zero. The assessments were not
tendered in evidence and it was not specified which taxes the audits dealt
with, or with regard to which period.
[16] The audit which gave
rise to the assessment under appeal was conducted by Louise Langlois in
2001. Ms. Langlois testified that, during her audit, she asked Mr. Provencher
if the Appellant had rented houses, which was denied by Mr. Provencher.
Ms. Langlois observed that the Appellant did not have appropriate records of
house rentals, that the analysis of the Appellant’s bank deposits showed no
revenue from house rentals and that the Appellant’s accounting books showed no
rental revenue. However, the evidence does not show whether the rental revenues
were later assessed by the tax authorities. In his testimony,
Mr. Provencher stated that the Appellant had reported its rental revenue.
Ms. Langlois otherwise confirmed that the Appellant had not produced any tax
reports for the rental of the houses, that it had not applied the rule of
self-supply under subsection 191(1) of the Act and that it had not remitted the
GST payable.
[17] By choosing not to
make a specific return or not to include the rental of the two houses in its
return for the relevant period, the Appellant made it impossible for the
Minister of National Revenue (the “Minister”) to know that an assessment was
required. Therefore, the limitation period was suspended until the Minister had
knowledge of the existence of a debt or the right to a debt.
[18] The Appellant
deliberately made a misrepresentation in order to not remit the GST when due.
[19] Mr. Provencher is an
informed businessman with excellent knowledge of accounting and finance. Having
worked as a tax auditor, he knew very well how to obtain the information
relevant to his situation. He could have consulted the memoranda and policy
statements published by the tax authorities; he also could have consulted other
contractors and the Association professionnelle des constructeurs en habitation
du Québec. Moreover, the evidence shows that he had been informed on the
self-supply rules in 1991 during Ms. Goyette’s audit.
[20] The Appellant cannot
plead ignorance of the Act. It demonstrated a wilful default or blindness.
[21] For these reasons,
the appeal is dismissed with costs.
Signed at Montréal, Quebec, this 22nd day of March 2007.
“Réal Favreau”
Translation certified true
on this 20th day of February 2008
François Brunet, Revisor
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