Citation: 2010 TCC 424
Date: 20100818
Docket: 2010-467(GST)I
BETWEEN:
WAYNE BOWDEN,
Appellant,
and
HER MAJESTY THE QUEEN,
For the appellant: The appellant
himself
Counsel for the Respondent: Darren
Prevost
___________________________________________________________________
REASONS FOR JUDGMENT
(Delivered
orally from the bench
on July 15, 2010, in Toronto, Ontario.)
Bowie J.
[1] I dismissed these appeals from the bench on July 15, 2010,
and at that time I gave my reasons for doing so orally. The appellant has
requested written reasons for judgment, and under section 18.23 of the Tax
Court of Canada Act I deem it advisable to give the reasons in writing.
What follows is the reasons that I gave at that time, edited slightly for
syntax and to correct some minor errors in the transcript.
[2] The appeals
before me are in respect of the appellant's claims for input tax credits with
respect to the periods from July 1, 2007 up to and including September 2009. The
appellant takes the position that he operated during that time period three
business, one of which it is common ground is a financial services business and
therefore one whose product is not subject to GST, and whose expenses do not
generate input tax credits.
[3] The claim for
input tax credits pertains to the appellant's other activities, which fall into
two areas which he described as first, a computer consulting business and
second, a home renovation and home staging business. It is the appellant's
position that he is entitled to claim, and has claimed, and is entitled to
receive input tax credits in respect of amounts expended in connection with
those latter two activities.
[4] There is a
preliminary point to be decided with respect to availability of an appeal in
respect of the periods, and these are quarterly periods, from January 1, 2009
to September 30, 2009. The respondent moves to quash the appeal in respect of
those periods on the basis that the appellant did not file a Notice of
Objection in response to the Notice of Reassessment covering those periods.
[5] The respondent
filed an affidavit of one Teresa D'Sa, whose evidence in that affidavit was to
the effect that she had examined the appropriate records, looking for a notice
of objection in respect of the reassessments pertaining to the periods, January
1, 2009 to September 30, 2009, which were reassessed by Notices of Reassessment
dated January 21, 2010. She was unable to find any such notice of objection.
[6] The appellant
produced a copy of a notice of objection pertaining to those periods, dated
February 5, 2010. His evidence was that he mailed it that day, or within a day
or two thereafter, and that he therefore had filed a valid notice of objection.
[7] However, it is
also common ground that that Notice of Objection has not as of today's date
resulted in either a notice of confirmation or a notice of reassessment. One
hundred and eighty days not having elapsed since its filing, the precondition
for an appeal of the 2009 periods has not been satisfied. The appeal in respect
thereof will therefore be quashed.
[8] The appellant
will of course at some future time have a right either by the passage of time
or as a result of action on the Minister's part to either reassess or confirm,
to pursue an appeal in respect of 2009. For today's purposes, what is validly
under appeal is limited to the periods comprised of the calendar years 2007 and
2008.
[9] The Minister's
position with respect to those years is that the appellant was not carrying on
a commercial activity in respect of computer consulting or a commercial
activity in respect of home renovation and home staging. Home staging, for the
benefit of the uninitiated, is the practice of improving, if I can call it
that, the cosmetic appearance of one's home while it is for sale on the real
estate market for the purpose of making it appear more attractive to potential
buyers than it otherwise might.
[10] Initially, I had
some concern whether the Minister's position in this respect was adequately
revealed by the reply, and whether the appellant was sufficiently apprised of
the issues that he had to meet. However, as the evidence developed it became
apparent to my satisfaction that the appellant indeed understood the issues
from the outset and was in no way taken by surprise. Indeed, he had prepared
spreadsheets specifically intended to demonstrate the extent of his commercial
activities with respect to computer consulting, home renovation and home
staging.
[11] This being an
informal appeal, and the appellant not being taken by surprise, I have no
hesitation in dealing with this matter on the issues as they developed during
the course of the hearing.
[12] Without going
into great detail about the scheme of the goods and services tax provisions
found in Part IX of the Excise Tax Act, it is
sufficient to say that people in business who collect and remit goods and
services tax are entitled to offset against that as input tax credits, the
goods and services tax that they have paid in respect of expenditures they have
made for the purpose of generating the revenue stream of their businesses. There
are of course numerous exceptions. The financial service industry essentially
operates outside the scheme in the sense that financial services are not
subject to goods and services tax. Those who provide financial services are not
entitled to input tax credits in respect of their expenditures that are
properly inputs to the financial services business.
[13] Consideration of
the matters before me today is confined to those aspects of the appellant's
activities that pertain to the non-financial service activities that he carries
on in the realms of computer consulting and home renovation and home staging.
[14] In order to be
entitled to input tax credits, one has to have made the expenditures that give
rise to them in the course of a commercial activity. Commercial activity is an
expression that is given a specific definition in the Excise Tax Act,
section 123(1). That definition is divided in three parts. The first part of it
reads:
“Commercial
activity” means a business carried on by the person (other than a business
carried on without a reasonable expectation of profit by an individual, a
personal trust or a partnership all of the members of which are individuals)
except to the extent to which the business involves the making of exempt
supplies by the person …
[15] Parliament has
specifically provided that an individual who carries on a business that has no
reasonable expectation of profit is not carrying on a commercial activity, with
the result that they are not able to recover input tax credits. There is no
need for me to go into the policy considerations that underlie that provision,
but it is generally fairly well understood that value-added taxes potentially
give rise to very significant areas of abuse. One of those is in respect of
input tax credits. This provision is a provision that is intended to eliminate
potential abuse.
[16] The major
question before me, and it was certainly the major subject of the evidence
before me this morning, is whether or not the appellant, who carries on all of
these businesses as proprietorships, had a reasonable expectation of profit
from his activities in the areas in question.
[17] In Exhibit A-2,
he prepared a summary to show the goods and services tax that he had collected
and remitted over the period beginning January 2003 and ending at the end of
the third quarter of 2009, and to show as well in summary form his GST returns
for the quarters within that period and the input tax credit claims.
[18] From 2006 through
September 2009, the GST collected is $15, none of it, I may say, within the
period that is actually under appeal here; $10 of it pertains to the second
quarter of 2009 and $5 to the third quarter of 2009. There apparently were no
sales whatsoever in the businesses (I use the word "businesses" only
in the sense that it describes the activities that the appellant says are
commercial activities giving rise to ITCs) during 2006 and 2007 and 2008. There
was one transaction in the second quarter of 2009 that apparently generated
revenues for the appellant of $200, which he charged to affix a wall bracket
for a television for a customer and, in the third quarter of 2009, he
apparently took care of a computer virus for another customer and charged $100,
giving rise to $5 in GST collected for that period.
[19] That seems to be
the sum total of business activity, at least when viewed from the perspective
of the generation of revenues for a period of some three-and-a-bit years.
[20] The appellant
does have some qualification in the area of computers by way of studies at a
community college. His expertise in home renovation and staging seems to be
self‑taught, beginning, he said, at the age of 14 when he started doing
home renovations. He didn't have any business plan for either of these
activities. He apparently had no projections of probable sales. He does not
appear so far as I can tell from the evidence to have given consideration
to the revenues required in order to generate profits, but has simply, to put
it in the vernacular, hung out a shingle and looked for work.
[21] The computer
consulting business, he said, began in 1987 and the home renovation and staging
business in about 2006. The appellant's explanation of the absence of revenues
in the period that we are concerned with here was that his time was so fully
occupied dealing with Revenue Canada auditors that he had little or no time left to devote
to his business activities. Secondly, he said that his business ethic required
him, when talking to potential customers, to reveal to them that he was having
disagreements, if I can put it that way, with Revenue Canada, that
his businesses were the subject of audit, and that this discouraged people from
doing business with him.
[22] I find both of
those suggestions to be fatuous.
[23] In my view, when
one considers all of the factors referred to by Justice Dickson, as he then
was, in Moldowan v. The Queen
that were considered by the Court at that time to be appropriate indicia of the
probability of profit and therefore of the existence of a business, there is
little here to suggest that we are dealing with a business or two businesses,
that had any expectation of profit in 2007 and 2008; I will not refer to 2009
because it may become the subject of other proceedings at some later point. Certainly
within the time frame that I am concerned with here I see little to suggest
that any anticipation of profit from these activities would be at all
reasonable.
[24] Indeed, even
ignoring for the moment the more stringent test that is made applicable by the
definition of commercial activity in the Excise Tax Act, and applying
the Supreme Court of Canada's more recent test for the existence of a business
as found in Stewart v. The Queen, one would
be hard pressed to say that these were businesses, there being little if any
indication that they are carried on in a businesslike manner.
[25] The appellant's
evidence of course was that he expected to make a profit, but expectations are
not necessarily reasonable expectations. What is important here is not what the
appellant's subjective expectations may have been, but viewed objectively, what
is a reasonable expectation. In my view, there is no reasonable expectation,
here, of profit.
[26] Accordingly, the
appeals in respect of the periods from January 1, 2009 to September 30, 2009
will be quashed. The appeals in respect of the periods July 1, 2007 to December
31, 2008 will be dismissed.
Signed at Ottawa, Canada, this 18th day of August, 2010.
“E.A. Bowie”
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