Citation: 2007TCC672
Date: 20071116
Docket: 2004-4795(GST)G
BETWEEN:
RABAH HERROUG,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1] This is an appeal
from a notice of assessment issued to the Appellant under Part IX of the Excise
Tax Act R.S.C. (1985), c. E‑15, as amended (hereinafter the Act),
which bears the number 03402031, is dated October 10, 2003, and covers the
period from July 1, 1999, to December 31, 2002 (hereinafter the period in
issue).
[2] By this notice of
assessment, the Respondent is claiming from the Appellant the sum of
$41,104.12 $, itemized as follows:
(a) adjustments
to the reported net tax calculation in the amount of $32,150.02;
(b) penalties
in the amount of $5,728.36; and
(c) net
interest in the amount of $3,225.74.
[3] The amount of the
adjustments to the reported net tax calculation, that is $32,150.02, represents
the goods and services tax (hereinafter the GST) the Appellant collected but
neither reported nor remitted to the Minister of Revenue of Quebec as an agent
for the Respondent (hereinafter the Minister) in the amount of
$29,700.46 and an amount of $2,449.57 claimed and obtained by the
Appellant as input tax credits for the quarters ending on September 30, 1999,
and December 31, 1999, which were disallowed in the absence of
supporting documentation.
[4] The GST in the
amount of $29,700.46 collected by the Appellant that was neither reported nor
remitted to the Minister is attributable to 2000 for an amount of $17,922.40,
to 2001 for an amount of $10,184.42 and to 2002 for an amount of $1,593.64.
[5] In issuing the
notice of assessment of October 10, 2003, the Minister relied, in particular,
on the following facts:
(a) the
Appellant worked for a company specializing in the sale of heat pumps and other
heating and cooling equipment, that is Climatisation GR Inc. (hereinafter
“GR”);
(b) during
the period in issue, the Appellant sold heat pumps on behalf of GR;
(c) in
addition to acting on behalf of GR, the Appellant engaged in business
activities under the name Chalet Électronique;
(d) the Appellant is a
registrant for the purposes of Part IX of the Act;
(e) the
Appellant did not file any net tax return for the period between January 1,
2000, and December 31, 2002;
(f) the
Appellant claimed a commission from GR for each sale of a heat pump, or other
system, by means of invoices, including GST and Quebec sales tax, addressed to GR;
(g) GR then
issued a cheque to the Appellant in the amount indicated on the invoice, which
included the GST and Quebec sales tax;
(h) during
the period in issue, the Appellant collected, otherwise than as salary, the
following amounts, excluding the GST and Quebec sales tax, either under his
personal name or the name Chalet Électronique:
i. $256,034.36
between January 1, 2000, and December 31, 2000, including $164,014.41 from
GR;
ii. $145,222.57 between
January 1, 2001, and December 31, 2001, including $140,222.57 from GR;
iii. $22,766.36 between
January 1, 2002, and December 31, 2002, from an unknown source.
[6] The Appellant
disagrees with the assessment, as established, on the basis of, inter alia,
the following facts:
(a) during
the period in issue, the Appellant also acted as a sales director for GR in
that he was responsible for training sales representatives;
(b) the
Appellant was always an employee with GR;
(c) as
such, the Appellant received a base salary and commissions based on the sales
made on behalf of GR;
(d) the
Appellant drove a car provided by the company;
(e) for
the 2000, 2001, 2002 and 2003 taxation years, the Appellant filed his income
tax returns as an employee of the company;
(f) the
company made source deductions form the Appellant’s wages;
(g) the
company directly billed its customers for the sales made by the Appellant;
(h) the
Appellant always indicated to customers that he worked for the company;
(i) at
all relevant times, the company collected taxes from its customers on sales
made by the Appellant;
(j) as
an employee, the Appellant never collected taxes on the sales he made.
[7] The issues are as
follows:
(a) whether
the Appellant collected GST as consideration for the commissions he billed to
GR and as consideration for the supply of other goods and services not related
to GR;
(b) whether,
if the GST was collected by the Appellant, that tax had to be remitted to the
Minister by the Appellant; and
(c) whether
the Appellant is entitled to the amount of $2,449.57 as input tax credits
that he previously claimed and obtained for the quarters ending on September
30, 1999, and December 31, 1999.
[8] The Appellant
testified and explained that he was a businessperson who operated an electronic
repair business until December 1999 under the name “Chalet Électronique.” He
was therefore a tax registrant but cancelled his tax numbers on January 1, 2000.
[9] The Appellant
stated that he became an employee of GR in January 2000 and that he left GR on
December 31, 2001. In that respect, he produced a letter from the Ministère du
Revenu du Québec dated August 30, 2004 (Exhibit A-1), which confirms that the
Appellant was considered an employee for the services rendered from January 1,
1999, to December 31, 2001, to GR and that, as a result, GR had to pay his
Québec Pension Plan contributions. The Appellant also produced a letter of
confirmation of employment from GR dated August 14, 2001 (Exhibit A-2).
Finally, the Appellant produced a copy of his Income Tax and Benefit Return (T1
General) for the year 2000 showing a total income of $272,659.60 which
included a base salary of $44,000 and commissions in the amount of
$228,659.60 (Exhibit A-3).
[10] The Appellant explained
that, during his first year of employment with GR, he received commissions on
the sales he himself made and a percentage on the sales made by other GR
salespersons. The Appellant also explained that, during that period, he
received the total amount of his income by cheque, without tax adjustments,
billing and source deductions.
[11] The Appellant is not
challenging the accuracy of the amounts received by GR as the amounts received
represent the amounts appearing on the invoices. The Appellant also explained
that GR gave advances to the salespersons to take into account incomplete sales
and that GR did not provide any information pertaining to how the remuneration
was calculated.
[12] The Appellant explained
that, after the tax authorities began auditing the affairs of GR in 2002, the
company put in place a fictitious billing system under which the taxes were
added to the salespersons’ remuneration. The Appellant stated that he never
prepared or saw such invoices. The Appellant also stated that the income
invoices were prepared by the company’s bookkeeper.
[13] The auditor for the
Ministère du Revenu du Québec, Danièle Fleury, testified and explained how she
validated the total amount of the sales made by the Appellant at GR. She had
access to the company’s ledger and to the Appellant’s bank statements following
the issuance of letters of requirement to the banks. She obtained a copy of the
invoices relating to the Appellant, a copy of the paycheques issued to the
Appellant and a copy of the company’s accounts payable.
[14] The auditor also
explained that the input tax credits sought from the Appellant were paid to him
without supporting documentation for the periods ending September 30, 1999, and
December 31, 1999.
[15] When cross-examined,
the auditor acknowledged that the Appellant’s invoice numbers were sequential
whereas the Appellant’s cheque numbers were not. The Appellant pointed out that
it was really strange that the invoice numbers pertaining to the Appellant’s
remuneration were sequential when the company had sales in excess of
$45 million at the time.
[16] The Appellant
submitted as follows:
(a) the
Appellant was recognized by Quebec tax authorities as being a GR employee since 1999;
(b) the
president of GR stated that the Appellant was a GR employee in his letter of
August 14, 2001;
(c) the
fact that the manual invoice numbers pertaining to the Appellant’s remuneration
are sequential demonstrates that this is a fabrication after the fact;
(d) the
lack of documents relating to the Appellant’s remuneration;
(e) the
context in which the invoices were prepared shows that it is fraud. GR went
bankrupt and its president, Ralph Abergel, was prosecuted for fraud;
(f) the
amount of the cheques received by the Appellant is not disputed and, following
a four-year audit, the Appellant was never personally implicated in the
fraudulent activities of GR and its president;
(g) the
Appellant’s bank accounts were seized and he still cannot access them.
[17] Counsel for the
Respondent pointed out that the Appellant did not report all his income in his
2000 income tax return. The 2000 income tax return filed with the Ministère du
Revenu du Québec showed a total income of $39,215.25, including employment
income of $4,177.53. That tax return was accompanied by a Relevé 1 indicating
employment income for that amount. An amended 2000 income tax return was filed
by the Appellant in 2004 with the Ministère du Revenu du
Québec, this time showing employment income of $272,659.60. No Relevé 1
accompanied that income tax return. An Income Tax and Benefit Return for the
year 2000 was filed in 2004 by the Appellant, which showed employment income of
$272,659.60. No information slip (T4) was included with the tax return and no
document was provided to show that a source deduction in the amount of
$62,758.21 had been made. Moreover, the Income Tax and Benefit Return was
not signed.
[18] The following are some
of the submissions of the Respondent in support of the assessment:
(a) all the amounts on which the
assessment is based are supported by documents;
(b) taxes collected, including those
to which a person is not entitled, must be remitted to tax authorities;
(c) the Appellant was not entitled to input tax credits as
he did not produce the supporting documentation required by the Input Tax Credit Information (GST/HST)
Regulations (the Regulations);
(d) no witness corroborated the fabrication of invoices by GR’s
accounting department;
(e) the Appellant is not credible
as he failed to report significant income for the year 2000.
[19] The Act requires
that the amounts collected by a person “as or on account of tax” must be paid to the
Receiver General. Subsections 221(1), 222(1) and 225(1) of the Act clearly
indicate Parliament’s intent in that respect. The provisions read as follows:
221(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.
. . .
222(1) Trust for amounts collected - Subject to subsection (1.1), every person who
collects an amount as or on account of tax under Division II is deemed, for all
purposes and despite any security interest in the amount, to hold the amount in
trust for Her Majesty in right of Canada, separate and apart from the property
of the person and from property held by any secured creditor of the person
that, but for a security interest, would be property of the person, until the
amount is remitted to the Receiver General or withdrawn under subsection (2).
. . .
225(1) Net tax -- (1) Subject to this Subdivision, the net tax for a
particular reporting period of a person is the positive or negative amount determined
by the formula
A - B
where
A is the total of
(a) all amounts that became collectible and all other
amounts collected by the person in the particular reporting period as or on
account of tax under Division II, and
(b) all amounts that are
required under this Part to be added in determining the net tax of the person
for the particular reporting period; and
B is the total of
(a) all amounts each of which is an input tax credit for
the particular reporting period or a preceding reporting period of the person
claimed by the person in the return under this Division filed by the person for
the particular reporting period, and
(b)
all amounts each of which is an amount that may be deducted by the person under
this Part in determining the net tax of the person for the particular reporting
period and that is claimed by the person in the return under this Division
filed by the person for the particular reporting period.
[20] The Federal Court of
Appeal has on numerous occasions upheld the principle that a person who
collects tax, whether payable or not, must add it to the amount of the net tax
under subsection 225(1) of the Act and remit it to the Receiver General. It is
pertinent to refer to the decisions rendered in Gastown Actors
Studio Ltd. v. Canada, (2000) G.S.T.C. 108, [2000] F.C.J. No.
2047, ITA International Travel Agency Ltd. v. Canada, (2002) G.S.T.C. 58
(F.C.A.), [2002] F.C.J. No. 733, and 800537 Ontario Inc. v. Canada, (2005) G.S.T.C. 165,
[2005] F.C.J. 1732. In the latter decision, Sexton J.A. reproduced paragraph 10
of the reasons of Sharlow J.A. in Gastown Actors Studio Ltd., supra,
in which she observed that:
. . . a taxpayer who has in
fact collected GST, whether for services that are taxable or for services that
are later determined to be exempt supplies, must remit those amounts and is
liable to be assessed if they are not remitted.
[21] In Lorraine
McDonell v. The Queen, [2005] T.C.J. No. 302, 2005 TCC 301, Bowman C.J. of
this Court again confirmed the duty of every person who collects an amount as GST to remit it to the
Receiver General even though it was collected in error. At paragraph 34, he made
the following observation:
Once a supplier collects an amount as GST, the supplier has an
obligation to remit it even though it was collected in error. Therefore, it
cannot be said that GST mistakenly collected from a recipient is not remittable
by the supplier.
[22] If the tax was paid
in error, the person who paid the tax, rightly or wrongly, may obtain a
reimbursement if the requirements of subsection 261(1) of the Act are met.
According to paragraph 21 of the decision rendered by Bowman C.J. in the case
cited above, it is the person who paid the tax who is entitled to a
reimbursement and not the supplier who must simply remit it:
. . . The
purchaser is the person who has paid the tax, rightly or wrongly, and the
supplier has simply remitted it. This strikes me as the plain meaning of the
words in subsection 261(1).
[23] Based on the
evidence in the case, I am not convinced that the GST amounts stated on the
invoices in the Appellant’s name were paid in error. The Appellant’s tax status
within GR is very confusing.
[24] According to Exhibit
A-1, GR filed a notice of objection whereby it refused to pay the Appellant’s
Québec Pension Plan contributions on the ground that the Appellant acted on its
behalf as a self-employed worker for the services rendered to GR from January
1, 1999, to December 31, 2001. The objections officer of the Ministère du
Revenu du Québec denied GR’s objection and concluded on August 30, 2004, that
the Appellant was an employee and that the company had to pay his Québec
Pension Plan contributions. It is important to note here that the decision was
rendered after the 2000, 2001 and 2002 taxation years and after the amounts as or on account of GST were paid to the
Appellant.
[25] Exhibit A-2 entitled
“Confirmation of Employment” dated August 14, 2001, adds to the confusion by
confirming that the Appellant had been employed with GR since March 1, 2000, and
not since January 1, 1999, and that the Appellant’s position, as indicated in
Exhibit A-1, became permanent on January 1, 2001, at an annual salary of
$44,200.00.
[26] The Appellant did
not report all his income for 2000 and did not include the T4 information slip
with his federal income tax return.
[27] The fact that the
invoices were prepared by GR and not by the Appellant does not render them
invalid. Self-assessment is not contrary to the Act and is also a procedure
required by the Act under certain circumstances.
[28] The Appellant did
not file any tax returns in respect of the tax collected from GR and from
recipients of all other goods and services provided by the Appellant outside of
GR. The Minister determined the amount of GST collected based on GR’s invoices,
cheques issued by GR in payment of said invoices and deposits made by the
Appellant in his various bank accounts between January 1, 2000, and
December 31, 2002.
[29] The use of bank
deposits to determine sales
that are subject to GST is acceptable. Bowman C.J. observed at paragraph 9 of the
decision in Montréal Timbres et Monnaies Champagne Inc. v. The Queen,
2005 TCC 186:
. . . it is
reasonably well established that bank deposits are an acceptable method of
determining sales that are subject to GST, in the absence of evidence to the
contrary.
[30] As for the $2,449.57
claimed and obtained by the Appellant as input tax credits for the quarters
ending on September 30, 1999, and December 31, 1999, the Appellant did not
produce any supporting documentation. Bédard J. of this Court had an
opportunity to address that issue and observed at paragraph 28 of the decision
in Bobby Lee Baker v. The Queen, 2007 TCC 106:
Subsection 169(4) of the Act and the Regulations are clear and the
courts have adopted the position that a registrant is not entitled to receive
the ITCs requested before filing the required supporting documentation. In this
case, the Appellant did not produce the required supporting documentation as
evidence and, therefore, he was not entitled to receive the ITCs claimed.
[31] The information
prescribed in section 3 of the Regulations is comprehensive and very onerous on the Appellant. In the case at
bar, the Appellant did not discharge its duty to produce the supporting
documentation necessary to obtain input tax credits.
[32] The following
excerpt from paragraph 3 of the judgment rendered by Bédard J. in Richard
Gélinas v. The Queen, 2004 TCC 327, is entirely apposite in the case at
bar:
The evidence presented by the Appellant in support of his appeal
relies essentially on his testimony and is unsupported, with the occasional
exception, by any documentary evidence nor by any independent and credible
testimony. . . .
[33] The Appellant’s
allegations that GR issued fake invoices to the Appellant and certain other
salespersons, that GR went bankrupt following the execution of a search warrant
issued following a sworn information and finally, that the president of GR is
being prosecuted for fraud were not supported by any supporting documentation
during the hearing. Those allegations cannot constitute sufficient evidence to
rebut the presumptions as to the validity of the notice of assessment under
subsection 299(4) of the Act, which reads as follows:
An assessment shall, subject to being reassessed
or vacated as a result of an objection or appeal under this Part, be deemed to
be valid and binding, notwithstanding any error, defect or omission therein or
in any proceeding under this Part relating thereto.
[34] Considering that no
submission was made by the Appellant concerning the imposition of the
penalties, there is no need to address that issue.
[35] For these reasons,
the appeal is dismissed with costs.
Signed at Ottawa, Canada, this
16th day of November 2007.
“Réal Favreau”
Translation
certified true
on this 20th day of
February 2008.
François Brunet, Revisor
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