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Citation: 2009 TCC 13
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Date: 20090108
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Docket: 2005-1892(GST)I
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BETWEEN:
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AAPEX DRIVING ACADEMY LTD.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Little J.
A.
FACTS
[1] This appeal was heard in common
evidence with the appeals from the income tax assessments concerning Christine
Raby v. the Queen (“Raby”) and Aapex Driving Academy Ltd. v. the
Queen (“Aapex”). I refer to the facts and defined terms as
they are stated in those respective decisions, in addition to the facts as
outlined below.
[2] In the reassessments issued against Raby,
the Minister of National Revenue (the “Minister”) included certain amounts in
the business income of Christine Raby relating to the Vehicle Fees that
Aapex credited in her Shareholder Account for the use of the Vehicles that she
owned.
[3] The Minister determined that although
adjusting entries were made in the books of the Appellant to reverse out the Vehicle
Operating Expenses at the end of each relevant taxation year, no adjustments
were made to account for the Goods and Services Tax (“GST”) relating to the Vehicle
Operating Expenses.
[4] The Appellant claimed Input Tax Credits
(“ITCs”) in the amounts of $5,906.00 and $7,016.00 for the respective periods
ending December 31, 2001 and December 31, 2002 with respect to the Vehicle
Operating Expenses.
[5] The Appellant also claimed ITCs in the
amounts of $6,756.97, $4,800.00 and $6,432.36 for the respective periods ending
June 30, 2001, September 30, 2001 and December 31, 2001, with respect to the
Vehicle Fees it paid to Raby and Racine.
[6] The Minister reassessed the Appellant
for the period January 1, 2001 to December 31, 2002. The Minister:
(a)
increased
the GST collectible by $12,922.00;
(b)
disallowed
ITCs totalling $30,911.33;
(c)
imposed
interest in the amount of $2,589.83, calculated as of May 3, 2004; and
(d)
imposed
a penalty in the amount of $5,897.82, calculated as of May 3, 2004.
B.
ISSUES
TO BE DECIDED
[7] The issues under this appeal are as
follows:
(a)
whether
the Minister was correct to disallow ITCs in the amounts of $5,906.00 and
$7,016.00 for the respective periods ending December 31, 2001 and December 31,
2002 with respect to the Appellent’s payment of the Vehicle Operating Expenses
on behalf of Raby and Racine;
(b)
whether
the Minister was correct to disallow ITCs in the amounts of $6,756.97,
$4,800.00 and $4,432.26 for the respective periods ending June 30, 2001,
September 30, 2001, and December 31, 2001, with respect to the Vehicle Fees
paid by the Appellant to Raby and Racine;
(c)
whether
the Minister was correct to impose interest in the amount of $2,589.83,
calculated as of May 3, 2004, with respect to the reassessment of GST on the
Appellant; and
(d)
whether
the Minister was correct to impose a penalty in the amount of $5,897.82,
calculated as of May 3, 2004, with respect to the reassessment of GST on the
Appellant.
C.
ANALYSIS
[8] During the hearing, counsel for the
Respondent stated that the revised tax payable under the current appeal should
be calculated as follows:
GST Payable: Aapex
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Annual Periods Ending
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12/31/2001
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12/31/2002
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Net Tax per
Reassessment
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45,470.85
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52,363.23
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Less: ITCs Claimable
ITCs on Vehicle Allowance
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24,954.00
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31,141.00
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Revised Net Tax Payable
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20,516.85
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21,222.23
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(Note: This is a change from the original reassessments)
[9] However, neither counsel for the
Appellant nor counsel for the Respondent made any submissions or arguments with
respect to the Minister’s reassessment of the disallowance of ITCs claimed by
the Appellant. Counsel for the Respondent did not make any submissions with
respect to the revised tax payable amounts that she presented during the
hearing.
[10] Canadian courts have established that the onus is on the
taxpayer to prove that the reassessments are incorrect. Based on the lack of any evidence or argument regarding the
disallowance of ITCs under this appeal, I reject the Appellant’s position on
these issues.
[11] In addition, counsel for the Respondent
did not make any submissions or arguments with respect to the penalty levied on
the Appellant by the Minister.
[12] Based on the lack of evidence and
argument with respect to the imposition of penalties, I am unable to ascertain
how these penalties were calculated, and under which basis they were assessed.
[13] In Consolidated Canadian Contractors
Inc. v. R., [1998] G.S.T.C. 91 (“Consolidated Canadian Contractors”),
the Federal Court of Appeal held that a penalty assessed under section 280 of
the Act may be cancelled if the Appellant can demonstrate due diligence
in attempting to comply with the GST legislation.
[14] In Tri-Bec Inc. v. R, [2003]
G.S.T.C. 75, the Court considered the decision in Consolidated Canadian
Contractors in deciding whether to cancel an assessment of penalty under
section 280 of the Act. In paragraph 25, Justice Lamarre Proulx
said:
The
respondent made no representation or comment on the assessment of penalty.
Relying on the decision by the Federal Court of Appeal in Consolidated
Canadian Contractors Inc. v. R. …, I do not see any clear manifestation of
a lack of diligence in this case. It is therefore my view that the assessment
of penalty is not founded under the Act.
[15] Similarly, based on the lack of any
evidence or argument on this issue, I am not convinced that the Minister was
correct to levy a penalty on the Appellant.
[16] Accordingly, the appeal is dismissed
with respect to the reassessment, but is referred back to the Minister for
reconsideration and reassessment on the basis that the penalties should be deleted
in respect of the relevant periods.
[17] Since success is divided, I am not
prepared to award any costs.
Signed at Vancouver, British Columbia, this 8th day of January 2009.
Little
J.
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