Citation: 2011 TCC 186
Date: 20110325
Docket: 2009-2966(GST)I
BETWEEN:
3922731 CANADA INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Rip C.J.
[1]
This is an appeal from reassessments
issued under Part IX of the Excise Tax Act (Act) for the period from
January 1, 2006, to December 31, 2007, in which the Minister of National Revenue
(Minister) assessed the goods and services tax (GST) collected but not remitted
by the appellant for an amount of $10,357.17 and denied input tax credits (ITCs)
in the amount of $7,378.85.
[2]
The appellant is known
under the business name “Handyman Plus.” The appellant provides residential
renovation services that are subject to GST. The appellant is registered for
GST purposes.
[3]
During the period at
issue, the appellant’s sales were $561,245.31 and it collected the GST for an amount
of $33,608.32. However, the Minister submits that only one amount of $23,251.15
was remitted. The appellant therefore failed to remit $10,357.17.
[4]
During the same period,
the appellant claimed ITCs in the amount of $17,839.82. The Minister alleges that
no documentation required to support the ITC claim for $7,378.85 was
provided.
[5]
Prior to and at the
beginning of the hearing, the parties agreed to reduce the amounts in issue. The
only amounts still being disputed by the appellant are as follows: the unpaid and
disallowed GST amount now totals $1,268.42 for the period ending March 31,
2006, whereas the ITC amount claimed by the appellant, for the period ending September
30, 2007, is $5,775.79 and concerns only one invoice.
[6]
Serge Lafortune testified
for the appellant. He has been handling his accounting for four years. His job involves
the preparation of yearly financial statements, bookkeeping and tax remittances.
He handled his accounting for the period ending September 30, 2007, but not the
period ending March 31, 2006.
[7]
As for the $5,775.79 in
disallowed ITCs, the appellant introduced in evidence an invoice from the corporation
4362799 Canada Inc. dated August 13, 2007. The invoice was for “consulting
services” charged to the appellant in the amount of $102,011.00 $ (including
$6,120.66 in GST) for a total of $108,131.66. The accountant claimed ITCs for
that invoice in the amount of $6,120.66. At the time of audit, the Canada
Revenue Agency (CRA) refused to allow the ITCs considering that there was no
mention of the GST number of 4362799 on the invoice. Furthermore, 4362799 was
not registered for GST purposes and had not remitted the amount in question.
432799 was registered by the CRA at the time of the audit.
[8]
The CRA’s audit allowed
the accountant to realize that the invoice of 432799 was inaccurate. In fact, the
appellant only paid $102,011 to 432799 by way of a cheque in the amount of
$45,000 and by a certified cheque in the amount of $57,011. The accountant
inferred that it was rather a “tax inclusive” transaction totalling $102,011. The
invoice is therefore incorrect and the tax actually charged is $5,775.79 and
not $6,120.66.
[9]
There is also another anomaly.
The invoice is dated August 13, 2007, whereas the first cheque of $45,000 is
dated July 19, 2007. However, nowhere on the invoice is there mention of the
first payment of $45,000 already made. The accountant never amended the
GST report respecting the incorrect ITC amount that was initially claimed as he
was unaware of the error until the time of the audit.
[10]
The contract between
the appellant and 432799 was not filed in evidence. There was no communication
between the appellant and 432799, or with its directors, to amend the invoice
and it seems that 432799 is being dissolved. The accountant stated that he had
a discussion with the principal of the appellant during which he confirmed that
the agreement was for $102,011.
[11]
As for the GST amount
collected but not remitted, the books and records of the appellant indicate for
the period ending March 31, 2006, that the GST owed is $3,262.42 whereas
only $1,924 has been remitted according to its GST return. That leaves a
shortfall of $1,338.42 that has not been remitted to the CRA. The parties have
agreed to reduce that amount to $1,268.42.
[12]
According to the
accountant, there is no supporting documentation, no service sold to a customer that generated
GST for an amount of $1,268.42. Although the accountant did not go through all of
the appellant’s invoices, he did verify subsequent cash inflows. He began his
cash inflow verifications only from April 1, 2006. He did not verify the appellant’s
invoices and cash inflows prior to that date.
[13]
While the accountant
does not know why such an amount appeared on the appellant’s return, he put
forward certain hypotheses. He also stated that he attempted to contact the
former accountant, but to no avail. He could not recall his name at the hearing.
[14]
The following exchange properly
summarizes the situation as regards the amount of $1,268.42. Counsel for the
respondent posed the following question [Translation]:
“So you are suggesting that the amount is incorrect but without providing any
concrete evidence as to why the amount is incorrect. The different [sic]
theory but it is unknown what actually happened with the books and records for
the year 2006?” The accountant replied, “That is correct.”
[15]
As for the ITCs, the appellant
is of the view that it is entitled to them as the tax was in fact paid. It is
irrelevant whether or not 432799 was registered as it had an obligation to be
registered. Moreover, the appellant cannot be held liable for the failure of 432799
to remit the GST; it is entitled to ITCs from the moment GST is paid. Finally, the
obligation to provide an invoice with a GST number is simply a “technicality” of
the Act, which, furthermore, was subsequently resolved when the CRA assigned a
GST number to 432799.
[16]
The respondent, for her
part, is of the view that the appellant is not entitled to the ITCs, as the
invoice does not follow the formal procedure set out in paragraph 169(4)(a)
of the Act and in the regulatory provisions. The case law strictly applied
such provisions in Systematix,
Baker,
Camion DM Inc
and St-Isidore Écono Centre Inc.
[17]
As for the unremitted
GST amount of $1,268.42, the appellant argues that good faith is always presumed
and, from the moment it stated that the amount was incorrectly entered, in light
of after-the fact verifications, the CRA should have no longer claimed that
amount from it. As for the respondent, she is asking that the Court draw a negative
inference from the absence of testimony by the former accountant and principal
of the appellant.
Act
[18]
Subsections 169(4)
and 169(5) of the Act read as follows:
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(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.
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(4) L’inscrit peut demander un crédit de taxe sur les
intrants pour une période de déclaration si, avant de produire la déclaration
à cette fin :
a) il obtient les renseignements suffisants pour établir le
montant du crédit, y compris les renseignements visés par règlement;
b) dans le cas où le crédit se rapporte à un bien ou un service
qui lui est fourni dans des circonstances où il est tenu d’indiquer la taxe
payable relativement à la fourniture dans une déclaration présentée au
ministre aux termes de la présente partie, il indique la taxe dans une
déclaration produite aux termes de la présente partie.
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(5) Where the Minister is satisfied that there are or
will be sufficient records available to establish the particulars of any
supply or importation or of any supply or importation of a specified class
and the tax in respect of the supply or importation paid or payable under
this Part, the Minister may
(a) exempt a specified
registrant, a specified class of registrants or registrants generally from
any of the requirements of subsection (4) in respect of that supply or
importation or a supply or importation of that class; and
(b) specify terms and conditions
of the exemption.
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(5) Le ministre peut, s’il est convaincu qu’il existe
ou existera des documents suffisants pour établir les faits relatifs à une
fourniture ou à une importation, ou à une catégorie de fournitures ou
d’importations, ainsi que pour calculer la taxe relative à la fourniture ou à
l’importation, qui est payée ou payable en application de la présente partie :
a) dispenser un inscrit, une catégorie d’inscrits ou les inscrits
en général des exigences prévues au paragraphe (4) relativement à la
fourniture ou à l’importation ou à une fourniture ou une importation de la
catégorie;
b) préciser les
modalités de la dispense
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Sections 2
and 3 of the Input Tax Credit
Information (GST/HST) Regulations (Regulations) read as follows:
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2. In these Regulations,
“Act” means the Excise
Tax Act; (Loi)
“intermediary”
of a person, means, in respect of a supply, a registrant who, acting as agent
of the person or under an agreement with the person, causes or facilitates
the making of the supply by the person; (intermédiaire)
. . .
Regulations; (taxe de vente
provinciale)
. .
.
“supporting
documentation” means the form in which information prescribed by section 3 is
contained, and includes
(a)
an invoice,
(b)
a receipt,
(c)
a credit-card receipt,
(d)
a debit note,
(e)
a book or ledger of account,
(f)
a written contract or agreement,
(g)
any record contained in a computerized or electronic retrieval or data
storage system, and
(h)
any other document validly issued or signed by a registrant in respect of a
supply made by the registrant in respect of which there is tax paid or
payable; (pièce justificative)
“tax
paid or payable” means tax that became payable or, if it had not become
payable, was paid. (taxe payée ou payable)
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2. Les définitions qui
suivent s’appliquent au présent règlement.
. . .
« intermédiaire » Inscrit qui, agissant à titre de mandataire
d’une personne ou aux termes d’une convention conclue avec la personne,
permet à cette dernière d’effectuer une fourniture ou en facilite la
réalisation. (intermediary)
« Loi » La Loi sur la taxe d’accise. (Act)
« pièce justificative » Document qui contient les renseignements
exigés à l’article 3, notamment :
a) une facture;
b) un reçu;
c) un bordereau de carte de crédit;
d) une note de débit;
e) un livre ou registre de comptabilité;
f) une convention ou un contrat écrits;
g) tout registre faisant partie d’un système de recherche
documentaire informatisé ou électronique ou d’une banque de données;
h) tout autre document signé ou délivré en bonne et due forme par
un inscrit pour une fourniture qu’il a effectuée et à l’égard de laquelle il
y a une taxe payée ou payable. (supporting documentation)
. . .
« taxe payée ou payable » Taxe devenue payable ou qui a été
payée alors même qu’elle n’était pas devenue payable. (tax paid or payable)
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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 the 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 the intermediary does business, and the
registration number assigned under subsection 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.
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3. Les renseignements visés à l’alinéa 169(4)(a) de la Loi,
sont les suivants :
a) lorsque le montant total payé ou payable, selon la pièce
justificative, à l’égard d’une ou de plusieurs fournitures est de moins de
30 $ :
(i) le nom ou le nom commercial du fournisseur ou de
l’intermédiaire,
(ii) si une facture a été remise pour la ou les fournitures, la
date de cette facture,
(iii) si aucune facture n’a été remise pour la ou les
fournitures, la date à laquelle il y a un montant de taxe payée ou payable
sur celles-ci,
(iv) le montant total payé ou payable pour la ou les
fournitures;
b) lorsque le montant total payé ou payable, selon la pièce
justificative, à l’égard d’une ou de plusieurs fournitures est de 30 $
ou plus et de moins de 150 $ :
(i) le nom ou le nom commercial du fournisseur ou de
l’intermédiaire et le numéro d’inscription attribué, conformément au
paragraphe 241(1) de la Loi, au fournisseur ou à l’intermédiaire, selon le
cas,
(ii) les renseignements visés aux sous-alinéas a)(ii) à
(iv),
(iii) dans le cas où la taxe payée ou payable n’est pas comprise
dans le montant payé ou payable pour la ou les fournitures :
(A) ou bien, la taxe payée ou payable pour toutes les
fournitures ou pour chacune d’elles,
(B) ou bien, si une taxe de vente provinciale est payable pour
chaque fourniture taxable qui n’est pas une fourniture détaxée, mais ne l’est
pas pour une fourniture exonérée ou une fourniture détaxée :
(I) soit le total de la taxe payée ou payable selon la section
II de la partie IX de la Loi et de la taxe de vente provinciale payée
ou payable pour chaque fourniture taxable, ainsi qu’une déclaration portant
que le total pour chaque fourniture taxable comprend la taxe payée ou payable
selon cette section,
(II) soit le total de la taxe payée ou payable selon la section
II de la partie IX de la Loi et de la taxe de vente provinciale payée
ou payable pour toutes les fournitures taxables, ainsi qu’une déclaration
portant que ce total comprend la taxe payée ou payable selon cette section,
(iv) dans le cas où la taxe payée ou payable est comprise dans
le montant payé ou payable pour la ou les fournitures et que l’une ou
plusieurs de celles-ci sont des fournitures taxables qui ne sont pas des
fournitures détaxées :
(A) une déclaration portant que la taxe est comprise dans le
montant payé ou payable pour chaque fourniture taxable,
(B) le total (appelé « taux de taxe total » au présent
alinéa) des taux auxquels la taxe a été payée ou était payable relativement à
chacune des fournitures taxables qui n’est pas une fourniture détaxée,
(C) le montant payé ou payable pour chacune de ces fournitures
ou le montant total payé ou payable pour l’ensemble de ces fournitures
auxquelles s’applique le même taux de taxe total,
(v) dans le cas où deux fournitures ou plus appartiennent à
différentes catégories, une mention de la catégorie de chaque fourniture
taxable qui n’est pas une fourniture détaxée;
c) lorsque le montant total payé ou payable, selon la pièce
justificative, à l’égard d’une ou de plusieurs fournitures est de 150 $
ou plus :
(i) les renseignements visés aux alinéas a) et b),
(ii) soit le nom de l’acquéreur ou son nom commercial, soit le
nom de son mandataire ou de son représentant autorisé,
(iii) les modalités de paiement,
(iv) une description suffisante pour identifier chaque
fourniture.
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[19]
I have substantial
doubts regarding the invoice involving the amount of $5,775.79. The invoice has
a number of anomalies. The GST amount indicated is inaccurate and does not make
mention of the initial payment of $45,000. Moreover, the contract for services
between 432799 and the appellant was not filed in Court and no principal of the
appellant testified. The accountant’s testimony as
to the nature of the agreement between 432799 and the appellant is hearsay. All
this leads me to believe that the tax was never paid or charged. However, even
without arriving at that conclusion, the appellant cannot claim ITCs, as the
formal procedure set out in paragraphs 3(c) and 3(b)(i) of
the Regulations was not followed. The invoice must bear the supplier’s
registration number.
[20]
The “technicalities” of
the Act, as characterized by counsel for the appellant, must be respected. The
case law is well-established. The following excerpt from the Federal Court of
Appeal’s decision
properly summarizes the situation:
[4] We
are of the view that the legislation is mandatory in that it requires persons
who have paid GST to suppliers to have valid GST registration numbers from
those suppliers when claiming input tax credits.
[5] We
agree with the comments of Bowie J. in the case of Key
Property Management Corp. v. R. [2004]
G.S.T.C. 32 (T.C.C.) where he stated:
The whole purpose of paragraph
169(4)(a) and the Regulations is to protect the
consolidated revenue fund against both fraudulent and innocent incursions. They
cannot succeed in that purpose unless they are
considered to be mandatory requirements and strictly enforced. The
result of viewing them as merely directory would not simply be inconvenient, it
would be a serious breach of the integrity of the statutory scheme.
[Emphasis added.]
[6] We
also agree with the comments of Campbell J. in Davis v. R.
[2004] G.S.T.C. 134 (TCC):
Because of the very specific way in
which these provisions are worded, I do not believe they can be sidestepped. They are clearly mandatory and the Appellant has simply
not met the technical requirements which the Act and
the Regulations place upon him as a member of a
self-assessing system.
[Emphasis added.]
[21]
The appellant cannot
claim ITCs if the invoice does not bear the supplier’s registration number. Although
the Minister could have allowed the ITCs under subsection 169(5) of the Act, he
chose not to exercise his discretion in this case. The Court cannot force his
hand. In such circumstances, it is irrelevant whether or not the invoice was
“tax inclusive.”
[22]
The burden of proving that
the amount of $1,268.42 was incorrectly entered rested with the appellant.
The new accountant did not verify all the invoices and cash inflows for the period
ending March 31, 2006. He simply verified subsequent cash inflows. The
accountant and the appellant should have conducted an analysis of the invoices
and cash inflows for the period ending March 31, 2006. The fact of verifying
cash inflows after that period is not enough. Furthermore, the accountant does
not know why the amount was incorrectly entered. In such circumstances, the testimony
of the former accountant was necessary.
[23]
The appeal is
dismissed.
Signed at Ottawa, Canada, this 25th day of March 2011.
“Gerald J. Rip”
Translation certified true
on this 18th day
of May 2010.
Daniela Possamai,
Translator
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