Citation: 2007TCC748
Date: 20071217
Docket: 2007-38(GST)I
BETWEEN:
607730 B.C. LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The Appellant,
607730 B.C. Ltd., is appealing Notice of Assessment No. A106677 made by
the Minister of National Revenue pursuant to the Excise Tax Act.
[2] The Minister
assessed the Appellant for $17,005.28 in respect of its failure to remit that amount
under a Requirement to Pay issued on May 15, 2003. As of that date, according
to the Minister, the Appellant owed at least that amount to Grampian
Construction Ltd. for renovation work that company had done for the Appellant. Pursuant
to subsection 317(1) of the Act, the Minister issued a Requirement to
Pay against Grampian's debtor, the Appellant, to recover Grampian's unremitted
Goods and Services Tax:
317.(1)
Garnishment – If the Minister has knowledge or suspects that a particular
person is, or will be within one year, liable to make a payment to another
person who is liable to pay or remit an amount under this Part (in this
subsection and subsections (2), (3), (6) and (11) referred to as the "tax
debtor"), the Minister may, be notice in writing, require the particular
person to pay without delay, if the moneys are payable immediately, an in any
other case as and when the moneys become payable, the moneys otherwise payable
to the tax debtor in whole or in part to the Receiver General on account of the
tax debtor's liability under this Part.
[3] The facts
assumed by the Minister are set out in paragraph 8 of the Reply to the Notice
of Appeal:
a) Grampian was in the construction business;
b) Grampian was registered under Part IX of the Act, effective
October 17, 2000, and was assigned Goods and Services Tax ("GST")
registration number 89173 4212 RT0001;
c) Grampian was required to file quarterly GST returns and to
make remittances on a quarterly basis;
d) at all material times, all or substantially all of
Grampian's supplies were taxable at the rate of 7 percent;
e) Grampian filed quarterly GST returns for the reporting
periods from June 1, 2001 to May 31, 2003 but Grampian failed to remit the net
tax amounts with these returns, as detailed in Schedules "A" and
"B";
f) during the periods from June 1, 2001 to May 31, 2003,
Grampian was required to remit net tax of $23,622.25 respecting GST collected
under subsection 228(2) of the Act, but Grampian failed to remit net tax
of $15,153.61 plus applicable penalty and interest during this period as
require (the "Debt");
g) prior to May 15, 2003, Grampian started major renovation
work of the Olde England Inn, for the Appellant;
h) on May 15, 2003, the Minister issued the Requirement which
required the Appellant to pay not more than $33,897.55 that was owing to
Grampian, directly to the Receiver General;
i) on May 30, 2003, the Minister received from Grampian,
seven post dated cheques totaling $23,005.28, drawn to the Appellant's account
and made out to Grampian (the "Post Dated Cheques") as follows:
|
Cheque Date
|
Cheque Amount
|
|
May 31, 2003
|
$1,000.00
|
|
|
June 14, 2003
|
$1,000.00
|
|
|
June 23, 2003
|
$1,000.00
|
|
|
July 12, 2003
|
$3,000.00
|
|
|
July 28, 2003
|
$6,000.00
|
|
August 9, 2003
|
$5,000.00
|
|
August 23, 2003
|
$6,005.28
|
|
|
|
|
|
j) payment in the amount of $6,000.00, of the Post Dated
Cheques, was applied to the Debt;
k) the Appellant stopped payment on three of the Post Dated
Cheques totaling $17,005.28 as follows:
|
Cheque Date
|
Cheque Amount
|
|
July 28, 2003
|
$6,000.00
|
|
August 9, 2003
|
$5,000.00
|
|
August 23, 2003
|
$6,005.28
|
l) the Appellant was required to pay $17,005.28 directly to
the Receiver General; and
m) the Appellant did not remit any other payment to the
Receiver General in respect of the Requirement.
[4] The issue is whether
the Appellant "was liable to make a payment" to Grampian of
$17,005.28, the total of the three post-dated cheques upon which the Appellant
put a stop-payment after the Requirement to Pay had been issued.
[5] The Appellant
was represented by its principal, Duncan Morrison, who also testified at the
hearing. The Crown called William Glennie, the principal of Grampian
Construction Ltd.
[6] I found Mr.
Glennie's evidence more reliable than that of Mr. Morrison. Mr. Glennie gave
his evidence clearly and directly. Mr. Morrison was less forthcoming, claiming
on occasion that he could not recall amounts or what had been discussed with
Mr. Glennie; on contentious points, he was somewhat evasive in his answers. His
documentary evidence was equally weak: describing his system of records keeping
for his various companies as "convoluted", he was candid in his
testimony that he had not been very diligent in maintaining separate financial
records for any of his companies, including the Appellant. His practice was to
pay what he could from whichever account he could without worrying too much
about invoices or amounts paid. This made difficult the Appellant’s task of
proving it was not liable to Grampian for at least $17,005.28 – especially when
coupled with Mr. Morrison's lapses in memory regarding certain key aspects
of his dealings with Mr. Glennie and Grampian.
[7] Mr. Morrison was
the principal of other small companies which, like the Appellant, owned
properties in Victoria. In the months (if not years) prior to the issuance
of the Requirement to Pay, Grampian had done renovation work on these
properties. The most extensive renovation project, however, was the Olde
England Inn, a property owned by the Appellant. Mr. Morrison estimated the
value of the work on the Olde England Inn as being in the "six
figures", certainly over the $100,000 mark. The cost of the other projects
both he and Mr. Glennie described as in the tens of thousands of dollars.
[8] As the
principals of their respective small corporations, Mr. Morrison and Mr. Glennie
were in frequent contact regarding the renovation projects. Both were
experiencing financial difficulties in the early months of 2003. Mr. Glennie
was struggling to ensure that he had enough cash on hand to meet Grampian's
bi-weekly payroll for the work crew, to pay the company's suppliers for the
materials used in the Appellant's projects and to cover its tax remittances. On
what Mr. Morrison himself admitted were "several occasions", the
Appellant was unable to pay in full the amounts billed by Grampian. For his
part, Mr. Glennie testified that to wring even partial payment from the
Appellant, he would often have to chase Mr. Morrison down at one of his
properties.
[9] In the spring of
2003, with Grampian's debts mounting and after the Appellant's repeated failure
to pay the amounts due to the company, Mr. Glennie was finally forced to stop
work on the Appellant's projects. He met Mr. Morrison at one of the
construction sites to confront him with his urgent need for payment. He explained
that the Appellant's non-payment was causing him to fall behind in his
obligations to his creditors, including Lumber World, the main supplier for the
Appellant's Olde England Inn project and the Minister of National Revenue. I
accept Mr. Glennie's evidence that at the time of their discussion the
Appellant owed Grampian approximately $72,000. Unable to pay such a large
amount at once, Mr. Morrison agreed to give Mr. Glennie what he could: a
series of post‑dated cheques, totalling some $23,000 for the period May
to August 2003. I also accept Mr. Glennie's testimony that the post-dated
cheques were not accepted in full and final settlement of any amounts then owed
by the Appellant or Mr. Morrison's other companies.
[10] In July 2003, Mr.
Morrison put a stop-payment on the last three of the post‑dated cheques.
At the hearing, his explanation for doing so was that Grampian had failed to
apply the post-dated cheques he had given Mr. Glennie to amounts owed to Lumber
World. As a result, Lumber World registered a Builders' Lien[1] for $38,000 against the Appellant's property, the
Olde England Inn. Mr. Morrison explained that he saw Grampian's failure to pay Lumber
World for the materials used in the Appellant’s projects as a breach of
contract and accordingly, decided to set-off the lien charge by putting a stop
payment on the three outstanding post-dated cheques. As far as he was
concerned, as of July 2003, the Appellant did not owe Grampian any more money.
[11] Mr. Morrison's
explanation struck me as one that had come to him well after the fact. It is
inconsistent with his admission that he had known in early spring that Grampian
was falling behind in the payment of its debts in general; specifically, that
Grampian owed a significant amount to Lumber World and the CRA. He also knew
full well that the Appellant’s failure to pay in full the amounts it owed
Grampian was a contributing factor to Mr. Glennie's economic woes. Mr. Morrison
wanted Grampian to keep working on the Olde England Inn, to the point that when
Mr. Glennie personally ceased work on the project, Mr. Morrison asked him if
the Appellant could employ directly some of Grampian’s workers. Further, given
Mr. Morrison's description of the Appellant's haphazard methods of bill payment,
it is hard to imagine him taking the unusual step of instructing Mr. Glennie
to apply the post-dated cheques amounts specifically to the Lumber World debt.
In any event, the Appellant did not produce sufficient documentation at the
hearing to substantiate any genuine right of set off against Grampian in
respect of the Lumber World debt.
[12] The case boils
down to this: the major project undertaken by Grampian was at the Appellant's
property, the Olde England Inn. It was an extensive kitchen renovation and an
upgrade of at least one floor of the guestrooms to make them more rentable. Grampian
had three- to five-man crews working at the site for several months. Labour and
materials valued at over $100,000 went into the project. The work on Mr.
Morrison's other companies' projects were worth, at best, a tenth of the value
of the renovations on the Appellant's property. The Appellant on "several
occasions" failed to pay Grampian in full for its bi-weekly billings. The
supplier, Lumber World, ultimately accepted from the Appellant $15,000 in full
settlement of the $38,000 the Appellant owed for materials. Though some
invoices[2] were produced, they were not helpful in showing what
amounts were owed or paid by whom during the relevant period. The Appellant
admits to have given Grampian post-dated cheques totalling some $23,000,
leading to the obvious inference that it owed Grampian at least that amount
during the relevant period. Finally, the Appellant did not provide the Court
with books and records to establish that it did not owe Grampian $17,005.28.
[13] In these
circumstances, it is highly likely that the Appellant was "liable to make
a payment" of at least $17,005.28 to Grampian in the one-year period
following the issuance of the Requirement to Pay on May 15, 2003. In any event,
it is the Appellant who bears the onus of showing that it was not liable to
Grampian for that amount, as assumed by the Minister. Having failed to do so, the
Appellant cannot succeed in its appeal; accordingly, the appeal from Notice of
Assessment No. A106677 is dismissed.
Signed at Ottawa,
Canada, this 17th day of December, 2007.
"G. A. Sheridan"
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