Citation: 2012 TCC 102
Date: 20120329
Docket: 2011-2206(GST)I
BETWEEN:
DAVID S. HOLLINGSWORTH,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
David Hollingsworth has carried on
business as a sole proprietor since 1999. This appeal relates to assessments
made under the Excise Tax Act in respect of net tax, interest and
late-filing penalties. The periods at issue are for the quarterly reporting
periods beginning January 1, 2007 and ending September 30, 2008.
Background
[2]
The appellant filed goods and
services tax (GST) returns for the periods at issue on August 16, 2010. Net tax
in an aggregate amount of $5,861.29 was reported.
[3]
Assessments for these periods were
issued by notices dated September 13, 2010. In the assessments, the net tax was
accepted as filed, arrears interest in the aggregate amount of $944.20 was
charged, and penalties for the failure to file returns on time were imposed in
the aggregate amount of $234.38.
[4]
By way of background, when the
appellant commenced business in 1999, he filed quarterly GST returns for two or
three reporting periods, but then he filed very few returns for approximately
10 years. He submits that he paid the net tax with his income tax returns and
thought that this was sufficient.
[5]
There is no dispute as to when the
relevant returns were filed. The 2007 returns were clearly filed late.
[6]
The quarterly returns for 2008
were also filed late but this is not the end of the story. The appellant attempted
to file an annual return for that year on January 2, 2009. It was within the
deadline for annual returns. The return was rejected by the Canada Revenue
Agency (CRA) because their records indicated that in 2000 the appellant
requested to file quarterly GST returns.
[7]
Further to CRA requests in 2009 to
file returns, the appellant filed quarterly returns on August 16, 2010 which
appear to relate to most reporting periods since 2001. The returns included all
quarterly periods that are at issue in this appeal.
[8]
As for payments of net tax, it
appears that no payments were made with the returns filed in August 2010, but that
the appellant had made some payments on account of GST in prior years.
[9]
According to CRA’s records, the
appellant made a payment on account of GST on January 29, 2008 in the amount of
$2,467.02 and another payment on January 9, 2009 in the amount of $3,066.50.
[10]
According to the litigation
officer who testified on behalf of the respondent, it is CRA’s practice not to
apply amounts that are paid on account of GST until returns are filed.
[11]
The payment made on January 29,
2008 was applied by the CRA to amounts owing for reporting periods in 2001 and
2002.
[12]
The payment made on January 9,
2009 was applied by the CRA to the quarterly reporting period ending December
31, 2008. When the quarterly returns were filed on August 16, 2010 this payment
was reapplied based on the amounts as assessed on September 13, 2009.
Accordingly, on August 16, 2010, an amount of $555.42 was applied to the amount
assessed for the reporting period ending December 31, 2008 (i.e., it was not
reapplied), and the balance in the amount of $2,508.08 was reapplied to
reporting periods in 2007.
Analysis
[13]
The appellant acknowledges that he
filed the quarterly GST returns late but he submits that he has done enough to
comply with his GST obligations and should not be penalized further. He also
submits that the payments were wrongly held in limbo and should have been
applied to amounts owing.
[14]
In general, the appellant’s
testimony was far too brief and vague to warrant making any adjustment based on
the testimony alone. However, there is support for some of the appellant’s
testimony in documents introduced by the respondent. The main document in
support is the statement of arrears (Ex. R-2). The evidence as a whole warrants
some adjustment to the assessments.
[15]
First, the attempted filing of a
2008 annual return justifies the deletion of late filing penalties for
reporting periods beginning January 1, 2008 and ending September 30, 2008.
[16]
It is inappropriate to impose a
late filing penalty for the 2008 reporting periods in these circumstances. The
appellant attempted to comply with the reporting obligation but the return was
rejected. In my view, the appellant was sufficiently diligent with respect to
this period that the penalties should not have been imposed. It is
understandable that the appellant did not remember that he had requested a quarterly
filing almost ten years earlier.
[17]
Counsel for the respondent submits
that the appellant was not diligent with respect to this return because it was
only filed after the CRA requested returns.
[18]
The evidence as a whole does not
support this submission. The appellant testified that he was contacted by the
CRA sometime in 2009 and that this led him to file returns going back 10 years.
The annual return was attempted to be filed on January 2, 2009. It is not
realistic to think that a return filed on that date would be made in response
to a CRA request made sometime in 2009. I would conclude that the return on
January 2, 2009 was filed before the appellant was contacted by the CRA. In any
event, the return was filed on time if the reporting period was annual. It is
irrelevant whether the return was filed pursuant to a CRA request.
[19]
The second adjustment that should
be made relates to interest for the 2008 reporting periods that are at issue.
As mentioned above, the appellant made a payment to the CRA on January 9, 2009 in
the amount of $3,066.50. This payment was first applied to the quarterly period
ending December 31, 2008 and subsequently a portion was reapplied to periods
ending in 2007.
[20]
In my view, this payment should
have been applied to all quarters in 2008 because it is sufficiently clear that
this is what the appellant had intended. The payment and the annual return were
probably made together or at approximately the same time.
[21]
According to the evidence of the
litigation officer, the CRA applies payments to the periods requested by
taxpayers. In this case, the CRA should have applied the entire amount to the
four quarters in 2008 instead of only the fourth quarter.
[22]
Arrears interest for assessments
for periods beginning January 1, 2008 and ending September 30, 2008 should be
adjusted to take the January 9, 2009 payment into account. For simplicity,
interest assessed should be adjusted on the basis that the entire amount paid
on January 9, 2009, $3,066.50, should be applied to net tax as ultimately
assessed starting with the earliest quarterly periods in 2008.
[23]
These are the only adjustments to
the assessments that are warranted in my view.
[24]
There is insufficient evidence to
support an adjustment to net tax. It was accepted by the Minister as filed.
[25]
As for the late filing penalty for
2007, the appellant submits that he thought it was sufficient to pay the GST
with his income tax returns. He suggests that the CRA should have asked him to
file GST returns.
[26]
I disagree with this
submission. Taxpayers are required to take sufficient steps to ensure
compliance with their GST obligations under the Excise Tax Act. This
includes the filing of returns. I am not satisfied that the appellant exercised
appropriate care in respect of the 2007 GST returns.
[27]
As for interest for 2007, there
was a payment made on January 29, 2008. It is not reasonable to expect that
this payment be applied to 2007 because no returns for 2007 were filed until
much later. There is insufficient evidence that the appellant intended this
payment to apply to amounts owing for 2007.
[28]
In the result, the appeal with
respect to assessments for the periods beginning January 1, 2007 and ending
December 31, 2007 will be dismissed. The appeal with respect to assessments for
the periods beginning January 1, 2008 and ending September 30, 2008 will be allowed
on the basis that the penalties for late filing should be deleted and interest
should be adjusted to apply a payment made on January 9, 2009 to amounts
assessed starting with the earliest reporting periods in 2008.
[29]
Each party shall bear their own
costs.
Signed at Ottawa, Ontario this 29th day of March 2012.
“J. M. Woods”
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