Citation: 2009 TCC 494
Date: 20091001
Docket: 2008-110(GST)I
BETWEEN:
BASHAR ALOF,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] The appellant, Bashar Alof, has appealed an assessment
made under the Excise Tax Act relating to the harmonized sales tax (HST)
for the period from January 1, 2001 to December 31, 2001. The issue concerns
the amount of net tax for the period in relation to the operation of a pizza
restaurant.
[2] Mr. Alof filed an HST return for the period which
reported the following: (1) sales of $82,000, (2) HST of $3,500, and (3) input
tax credits (ITCs) of $10,295.16. He also claimed a refund of $6,795.16, which
represents the difference between the ITCs and the HST.
[3] In the assessment at issue, the Minister of National
Revenue disallowed the refund claim by reducing allowable ITCs by $6,795.16. The
explanation given in the notice of confirmation was that there was insufficient
evidence to support the ITCs.
[4] The appellant has appealed this assessment for reasons
stated in the notice of appeal as follows:
The sales
reported was more than double of the actual sales. Supporting records were
distroid in the fire that completely distroid both of my business & home.
[5] It is relatively clear from the above that the
appellant is putting into issue two separate issues – sales and ITCs. Each will
be considered below.
Discussion
[6] At the commencement of the hearing, I raised an issue
concerning the burden of proof because the reply filed by the Minister does not
mention the sales issue. As well, the reply does not mention that any
assumptions were made by the Minister in relation to sales or taxable supplies.
[7] Notwithstanding the reply, the Minister in assessing
likely did assume that the appellant’s taxable supplies were sufficient to
produce HST of $3,500. Nevertheless, the jurisprudence is clear that the
Minister will have the initial burden of proof on facts for which no
assumptions are stated in the reply. The recent decision of Webb J. in LeCaine
v. The Queen, 2009 TCC 382, provides a very good summary of the case law on
this point.
[8] For the
reasons below, I am satisfied that the
respondent has satisfied this initial burden on the issue of sales, at least to
the point where the burden should shift to the appellant.
[9] I would first note that HST of $3,500 implies that the
taxable supplies are approximately $23,000. This is based on the testimony of
the auditor that the relevant HST rate is 15 percent.
[10] The question becomes this. Is there sufficient
evidence before me that the appellant likely had taxable supplies of at least
$23,000 in the 2001 reporting period?
[11] The auditor testified that the HST reported by the
appellant for the three prior years was $11,380, $11,072 and $8,370. These
annual amounts of HST translate to taxable supplies far in excess of $23,000.
Further, the sales reported by the appellant in the HST return were $82,000.
[12] I accept
from the evidence that the pizza restaurant did not operate throughout 2001
because of a fire. There is evidence that
negotiations were conducted with an insurer as to an appropriate amount of
business interruption insurance.
[13] The evidence is less clear on when the fire occurred but
I find that it likely took place on July 24, 2001.
[14] The appellant testified that the pizza business did
not reopen after the fire. Although the appellant’s testimony was not
convincing in many respects, I accept that there were no taxable supplies from
July 24, 2001 to the end of the year.
[15] Based on all these facts, a reasonable inference could
be drawn that the taxable supplies were likely at least $23,000 in 2001, and
that the HST collectible was at least $3,500.
[16] This is sufficient in my view to impose a burden on
the appellant to provide some reliable evidence that his taxable supplies were
less than $23,000.
[17] As
mentioned above, the sales that were
reported by the appellant in the HST return were $82,000. This is far in excess
of $23,000.
[18] The appellant suggests that some of his sales were of
products that were not taxable, such as uncooked pizzas. I was not persuaded by
this explanation. The appellant’s testimony regarding the uncooked pizza
business was far too vague to be convincing. In addition, although a
photograph of the uncooked pizzas was entered into evidence, there was
insufficient evidence as to when the photograph was taken.
[19] In the result, I conclude that it is not appropriate
to make an adjustment to net tax for sales or HST collectible.
[20] I now turn to the ITC issue.
[21] In order for the disputed ITCs to be recognized in
computing net tax, it must be established that the appellant incurred
sufficient qualifying expenses to generate the ITCs. In addition, it must be
established that the appellant complied with the documentation requirements in
s. 169(4) of the Act.
[22] In making the assessment, the Minister assumed the
following:
j) the
Appellant’s input tax credits for the Period Under Appeal could not be
determined from his books and records.
[23] This assumption could be better worded, but it is clear
that the assessment was on the basis that the ITCs were overstated by
$6,795.16. As explained in the auditor’s testimony, the amount disallowed was
arbitrary, and the appellant was given the benefit of the doubt with respect to
the balance of the ITCs.
[24] The appellant submitted at the hearing that he did not
understand that documentation for the ITCs was an issue. I was not satisfied
with this explanation. I note that the appellant’s own notice of appeal had
included the notice of confirmation which mentioned the lack of supporting
evidence as the reason for disallowing the ITCs. Based on my observation of the
appellant at the hearing, he appeared to be quite an intelligent person. I
conclude that he understood the issue.
[25] At the hearing, the appellant testified that he had
lost all relevant documentation in the fire.
[26] Even if this statement is true, it does not assist the
appellant. At the very least, the appellant should have provided detailed and
cogent testimony regarding the expenses for which the ITC claims were made. The
appellant’s evidence as a whole was not forthright, it was vague, and it was
far from being detailed enough.
[27] In addition, the appellant testified that he went back
to some of the suppliers and had obtained duplicate documentation. The
appellant failed to produce this evidence at the hearing.
[28] In light of this conclusion, it is not necessary that
I consider the documentation requirements of s. 169(4).
[29] The appeal will be dismissed, without costs.
Signed at Ottawa, Canada this 1st day of October 2009.
“J. M. Woods”
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