Citation: 2011 TCC 481
Date: 20111026
Docket: 2010-598(GST)I
BETWEEN:
AHMAD A. KHAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Favreau J.
[1]
This is an appeal, by
way of the Informal Procedure, from a reassessment dated February 10, 2006
No. 05DP-GB 0525 1193 5412 made under Part IX of the Excise Tax
Act, R.S.C. 1985, c.E‑15, as amended, (the "ETA"),
for the period from January 1, 2001 to December 31, 2003
(the "period"). By virtue of that reassessment, the Minister of
National Revenue (the "Minister") assessed the appellant in the
amounts of $7,167.83 for net tax, $652.12 for interest and $3,695.71 for penalties
in respect of uncollected Goods and Services Tax ("GST") for the
period.
[2]
In assessing the
appellant, the Minister relied on the following assumptions of facts set out in
paragraph 13 of the Reply to the Notice of Appeal
(the "Reply"):
a) the facts stated and admitted above;
b) the appellant is a GST registrant with GST
Registration No. 86480 4893 RT0001, which was obtained on July 10,
2000; (denied)
c) the appellant did not file any GST returns
for the period 2001‑01‑01 to 2003‑12‑31
(the "period"); (admitted)
d) the total value of the appellant's
supplies for each of the 2001, 2002 and 2003 taxation years exceeded $30,000; (admitted
for 2001 and 2002 only)
e) the appellant was operating a car
maintenance and repair shop (Khan Auto Repairs) and a paralegal business (Khan
and Associates) during the period; (admitted except for the auto repair
business that was not carried on in 2003)
f) both businesses were sole proprietorships
sharing the same GST registration number; (admitted)
g) the appellant did not maintain proper
books and records during the period; (denied)
h) the appellant did not report all of his
business and professional income during the period; (denied)
i) the appellant did not maintain receipts
for expenses claimed on the statements of business activities filed; (denied
as all work orders and invoices were remitted to the auditor)
Unreported income from
paralegal business
j) the appellant did not retain any invoices
for services provided in the 2001 taxation year; (denied)
k) the appellant's income for the 2001
taxation year was the average of income earned in the 2002 and 2003 taxation
years; (admitted)
l) the appellant received income in the
amount of $7,477 in the 2001 taxation year; (admitted)
m) the appellant collected or should have
collected $523 in GST for the 2001 taxation year that he failed to remit to the
Receiver General; (denied)
n) the appellant retained invoices for the
2002 taxation year; (admitted)
o) the appellant's income for the 2002
taxation year was $7,654, which he failed to report; (admitted for the
amount only)
p) the appellant collected or should have
collected $536 in GST for the 2002 taxation year that he failed to remit to the
Receiver General; (denied as no GST was collected)
q) the appellant retained invoices for the
2003 taxation year; (admitted)
r) the appellant's income for the 2003
taxation year was $9,322, which he failed to report; (admitted for the
amount only)
s) the appellant collected or should have
collected $653 in GST for the 2003 taxation year that he failed to remit to the
Receiver General; (denied as no GST was collected);
Unreported income from the
auto repair business
t) in the 2001 taxation year, the appellant
received income in the amount of $106,500 that he failed to report; (admitted
for the amount only)
u) in the 2001 taxation year, the appellant
collected or should have collected the amount of $7,455 in respect of GST, and
he failed to remit that sum to the Receiver General; (denied as no GST was collected)
v) in the 2002 taxation year, the appellant
received income in the amount of $78,741 that he failed to report; (denied
as the right amount should be $48,191)
w) in the 2002 taxation year, the appellant
collected or should have collected the amount of $5,512 in respect of GST, and
he failed to remit that sum to the Receiver General; (denied as no GST was collected)
GST on unreported income
for both businesses
x) the following chart
sets out the GST calculated on the unreported income from both businesses for
the period: (denied)
|
|
2001
|
2002
|
2003
|
|
Khan and Associates GST
|
$523
|
$536
|
$653
|
|
Khan Auto Repairs GST
|
$7,455
|
$5,512
|
$0
|
|
TOTAL GST
|
$7,978
|
$6,048
|
$653
|
Input tax credits
y) the appellant did not retain all receipts
for the period; (denied as all receipts were presented)
z) of the receipts
that he retained, the following chart sets out all the GST, rounded up, paid by
the appellant in the period: (admitted)
|
|
2001
|
2002
|
2003
|
|
Parts for auto repairs
|
$201
|
$233
|
$0
|
|
Maintenance and repairs
|
$325
|
$0
|
$0
|
|
Motor vehicle expenses
|
$256
|
$216
|
$239
|
|
Office expenses
|
$78
|
$306
|
$59
|
|
Supplies (Canadian Tire)
|
$88
|
$0
|
$0
|
|
Rent
|
$1,480
|
$1,634
|
$1,711
|
|
Telephone and utilities
|
$288
|
$380
|
$0
|
|
Other expenses
|
$0
|
$0
|
$17
|
|
Total Input Tax Credits
|
$2,716
|
$2,768
|
$2,025
|
aa) the appellant has net tax amounts owing of
$5,262 in 2001, $3,279 in 2002 and ($1,373) in 2003, totalling $7,168. (denied
as no GST was collected)
[3]
In assessing the gross
negligence penalties, the Minister relied on the following further facts set out
in paragraph 14 of the Reply:
a) the appellant was a GST registrant as
early as July 2000, but he never filed a return for GST purposes; (admitted
as no GST was collected)
b) the appellant was obligated to file a
return for GST purposes as he was not a small supplier; (admitted but the
appellant did not know that at the time)
c) the appellant maintained his own books and
records; (admitted)
d) the appellant held himself out to the
general public as a person having sophistication and legal knowledge, as he
purported to operate a paralegal business; (admitted)
e) the appellant filed his income tax returns
and therefore knew or should have known that GST was collectible and remittable
on income; (denied as the appellant did not know that at the time)
f) the appellant did not cooperate with the
auditor, as he initially refused to provide any books and records to the
auditor; (denied)
g) the appellant refused to attend meetings
with the auditor; and (denied)
h) the appellant refused to speak with the
auditor on the telephone. (denied)
[4]
The Minister also
relied on the other material facts set out in paragraph 15 of the Reply:
15. The appellant retained receipts for the
2002 year that the Minister did not review when conducting the audit. These
receipts represent an additional amount of $14.18 in input tax credits to be
allowed in 2002.
[5]
The appellant testified
at the hearing. He admitted that, during the period, he was operating a car
maintenance and repair shop ("Khan Auto Repairs") and a paralegal
business ("Khan and Associates") and that both businesses were sole
proprietorships sharing the same GST registration number. He also admitted that
the total value of his supplies for each of the 2001 and 2002 taxation years
exceeded $30,000 and that he did not file any GST returns for the period.
[6]
The only explanation
given by the appellant for not collecting GST from the customers of Khan Auto
Repairs was that GST was already paid when the parts were purchased. In support,
15 receipts for parts purchases made in 2001 and 2002 were attached to the
GST Amended Notice of Appeal, dated February 18, 2010, filed with the
Court on March 18, 2010.
[7]
According to the
appellant, he was not required to file any GST returns nor to remit GST to the
Receiver General because no GST was collected.
Analysis
[8]
The appellant reported,
in his income tax returns for the 1999 and 2000 taxation years, gross business
income in the amounts of $48,000 and $122,954, respectively. In his income tax
returns for the 2001, 2002 and 2003 taxation years, the appellant reported
gross business income in the amounts of $112,100, $48,191.23 and nil,
respectively. For the 2002 and 2003 taxation years, the gross income from the
paralegal business was reported as professional income in the amounts of $4,000
and $7,000 respectively. During the period, the appellant was not a "small
supplier", as defined in subsection 148(1) of the ETA, because
he made more than $30,000 in taxable supplies in each year. The appellant was
required to register for GST purposes and there is no evidence that
registration was revoked at any time during the period.
[9]
The supplies for auto
repairs and paralegal services made by the appellant were "taxable
supplies", as defined in subsection 123(1) of the ETA (i.e. a
supply made in the course of a commercial activity). The recipients of the
taxable supplies were required to pay GST on the value of the consideration for
the supply pursuant to subsection 165(1) of the ETA and the
appellant was required to collect the GST payable by the recipients on the
taxable supplies that he provided pursuant to subsection 221(1) of the ETA.
Subsection 221(1) reads as follows:
(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.
[10]
Pursuant to
subsection 245(2) of the ETA, the appellant was required to file
GST returns for each quarterly period and, pursuant to subsection 228(1)
of the ETA, to calculate the net tax for the period for which the return
was required to be filed.
[11]
The net tax to be
remitted to the Receiver General is calculated pursuant to
subsection 225(1) of the ETA after deducting the input tax credits
from the GST collected. In this instance, the Minister denied the claims for
the input tax credits where certain receipts and invoices were not provided or
where the appellant did not provide sufficient evidence to support the claims,
including any information prescribed by the Input Tax Credit Information
(GST/HST) Regulations, SOR/91‑45.
[12]
Pursuant to
section 299 of the ETA, an assessment or a reassessment is deemed
to be valid and binding and the burden of proof is on the appellant to show
that the assessment or reassessment is wrong.
[13]
The appellant testified
at the hearing but he has not provided any reasonable and plausible explanation
as to why the GST has not been collected and why GST returns have not been
filed. No other witness testified to corroborate the appellant's version of the
facts. Consequently, the appellant has not met his burden of proof and the
reassessment remains.
[14]
The appellant was
assessed gross negligence penalties under section 285 of the ETA.
This section provides a 25 percent penalty for false statements or
omissions that are made either knowingly, or under circumstances amounting to
gross negligence. The relevant part of that provision provides:
285. [Gross negligence penalty for] False statements or omissions — Every person who knowingly, or under circumstances amounting
to gross negligence, makes or participates in, assents to or acquiesces in the
making of a false statement or omission in a return, application, form,
certificate, statement, invoice or answer (each of which is in this section
referred to as a "return") made in respect of a reporting period or
transaction is liable to a penalty of the greater of $250 and 25% of the total
of
(a) if the false statement or omission is relevant to the
determination of the net tax of the person for a reporting period, the amount
determined by the formula
A — B
where
A is the
net tax of the person for the period, and
B is the amount that would be the net tax of the person for
the period if the net tax were determined on the basis of the information
provided in the return,
…
[15]
It is clear from the
wording of that provision that the penalty applies only in circumstances where
a taxpayer has made some type of false statement in a return, application,
form, certificate, statement, invoice or answer.
[16]
A person who failed to
report net tax by failing to file GST returns can be considered to have
knowingly evaded tax but he cannot be considered to have made a false statement
in a return (see Lee v. The Queen, 2010 TCC 400, 2010 G.S.T.C.
114 (TCC)) and Calandra v. The Queen, 2011 TCC 7, 2011 G.S.T.C. 3 (TCC).
For this reason, the penalty under section 285 of the ETA shall be
deleted from the reassessment.
[17]
As a result of the
above findings, the appeal is allowed and the reassessment is referred back to
the Minister for reconsideration and reassessment on the basis that the
appellant is entitled to additional input tax credits in the amount of $14.18 for
the 2002 taxation year and that the penalties under section 285 of the ETA
shall be cancelled.
Signed at Ottawa, Canada, this 26th day of October 2011.
"Réal Favreau"
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