|
Citation: 2007TCC488
|
|
Date: 20070823
|
|
Docket: 2004-3080(GST)G
|
|
BETWEEN:
|
|
CLUB 300 BOWL INC.,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
Little J.
A. FACTS:
[1] The
Appellant was incorporated under the laws of the Province of Ontario.
[2] In 1986,
the Appellant built a bowling alley located at 146 Old Kennedy Road in the City
of Markham, Ontario. The bowling alley had 60 lanes.
[3] The bowling
alley was located on land owned by Old Kennedy Road Recreation Centre Joint
Venture.
[4] Grace Mok,
wife of Dr. Simon Mok, was the Manager of the bowling alley. Dr. Mok was the
majority shareholder of the Appellant.
[5] Grace Mok
testified on behalf of the Appellant. Mrs. Mok said that in 1996 the business
in the Appellant’s bowling alley complex was slowing down because of the age of
the facility and the lack of new equipment.
[6] Mrs. Mok
said that the shareholder of the Appellant decided to carry out an extensive
renovation of the bowling alley facility at a cost of approximately $10,000 per
lane for a total cost of approximately $600,000.
[7] Mrs. Mok
also testified that in addition to carrying out renovations on the bowling
alley, the Appellant would also spend approximately $150,000 in additional
improvements.
[8] The
renovations were to be financed as follows:
1.
Deutsche
Financial Services Canada Inc. $450,000
2.
Brunswick
Corporation $150,000
3.
Costs of
further renovations – Loan from the Hong Kong Bank $150,000
Total $750,000
[9] Mrs. Mok
testified that the renovations to the bowling alley were commenced in 1996 and
completed in 1997.
[10] Mrs. Mok
said that in 1998, litigation was commenced against the Appellant by investors
who owned the real estate on which the bowling alley was located.
[11] Mrs. Mok said
that the litigation continued until December 8, 1998 when it was resolved. When
the litigation was concluded, the Appellant no longer owned the bowling alley.
[12] Mrs. Mok said
that on December 8, 1998, the Appellant was “kicked out” of the building. Mrs.
Mok said that all of the Appellant’s financial records were retained by the
landlord and were later destroyed.
[13] The
Appellant filed a Goods and Services Tax (GST) Return for the January 1, 1997
to December 31, 1997 period (the “Period”) reporting GST collected in the
amount of $117,181.95 and claimed input tax credits (“ITC’s”) in the amount of
$188,843.43. The Appellant claimed net tax refundable in the amount of $71,661.48
for the Period.
[14] By Notice
of Assessment dated September 7, 2001, the Minister of National Revenue (the
“Minister”) assessed the Appellant for the Period as follows:
Net tax $117,181.95
Interest $ 25,238.46
Penalties $ 30,605.61
[15] The Appellant
objected to the Minister’s Assessment by way of Notice of Objection dated
December 5, 2001, and provided the Minister with documentation to allow the
Appellant ITC’s in the amount of $55,273.22.
[16] By Notice
of Reassessment No. 05EP118109081 dated April 22, 2004, the Minister considered
this documentation and varied the original assessment as follows:
Net tax $61,903.73
Interest $12,891.67
Penalties $15,425.47
[17] The
Appellant filed a Notice of Appeal to the Tax Court.
B. ISSUE:
[18] The issue
is whether the Appellant is liable for the net tax interest and penalties as
assessed.
C. ANALYSIS
and DECISION:
[19] Counsel for
the Respondent argued that the Appellant did not maintain sufficient and
appropriate evidence as required by subsection 169(4) of the Excise Tax Act (the
“Act”). During the hearing, Counsel for the Respondent also questioned
whether the Appellant had carried out the renovations as claimed.
Legislation
[20] Subsection
169(4) of the Act provides as follows:
(4) Required documentation - A registrant may
not claim an input tax credit for a reporting period
unless, before filing the return in which the credit is claimed,
(a) the registrant has
obtained sufficient evidence in such form containing such information as will
enable the amount of the
input tax credit to be determined, including any such information as may be prescribed; and
(b) where the credit is in respect of property or a service
supplied to the registrant in
circumstances in which the registrant is
required to report the tax payable in respect of the supply in a
return filed with the Minister under
this Part, the registrant has
so reported the tax in a return filed under this Part.
[21] Section 2
of the Regulations provides the following definition:
"supporting
documentation" means the
form in which information prescribed by section 3 is contained, and includes
(a) an
invoice,
(b) a
receipt,
(c) a
credit-card receipt,
(d) a debit
note,
(e) a book
or ledger of account,
(f) a
written contract or agreement,
(g) any
record contained in a computerized or electronic retrieval or data storage
system, and
(h) any other document validly issued or signed by a
registrant in respect of a supply made by the registrant in respect of which
there is tax paid or payable
[22] Section 3
of the Input Tax Credit Information (GST/HST) Regulations (“Regulations”)
sets out the prescribed information required for the purposes of paragraph
169(4)(a) as follows:
3. For the purposes of paragraph 169(4)(a) of
the Act, the following information is prescribed information:
(a)
where the total amount paid or payable shown on the supporting documentation in
respect of the supply or, if the supporting documentation is in respect of more
than one supply, the supplies, is less than $30,
(i)
the name of the supplier or the intermediary in respect of the supply, or the
name under which the supplier or the intermediary does business,
(ii)
where an invoice is issued in respect of the supply or the supplies, the date
of the invoice,
(iii)
where an invoice is not issued in respect of the supply or the supplies, the
date on which there is tax paid or payable in respect thereof, and
(iv)
the total amount paid or payable for all of the supplies;
(b)
where the total amount paid or payable shown on the supporting documentation in
respect of the supply or, if the supporting documentation is in respect of more
than one supply, the supplies, is $30 or more and less than $150,
(i)
the name of the supplier or the intermediary in respect of the supply, or the
name under which the supplier or the intermediary does business, and the
registration number assigned under subsection 241(1) of the Act to the supplier
or the intermediary, as the case may be,
(ii)
the information set out in subparagraphs (a)(ii) to (iv),
(iii)
where the amount paid or payable for the supply or the supplies does not
include the amount of tax paid or payable in respect thereof,
(A)
the amount of tax paid or payable in respect of each supply or in respect of
all of the supplies, or
(B)
where provincial sales tax is payable in respect of each taxable supply that is
not a zero-rated supply and is not payable in respect of any exempt supply or
zero-rated supply,
(I)
the total of the tax paid or payable under Division II of Part IX of the Act
and the provincial sales tax paid or payable in respect of each taxable supply,
and a statement to the effect that the total in respect of each taxable supply
includes the tax paid or payable under that Division, or
(II)
the total of the tax paid or payable under Division II of Part IX of the Act
and the provincial sales tax paid or payable in respect of all taxable
supplies, and a statement to the effect that the total includes the tax paid or
payable under that Division,
(iv)
where the amount paid or payable for the supply or the supplies includes the
amount of tax paid or payable in respect thereof and one or more supplies are
taxable supplies that are not zero-rated supplies,
(A)
a statement to the effect that tax is included in the amount paid or payable
for each taxable supply,
(B)
the total (referred to in this paragraph as the "total tax rate") of
the rates at which tax was paid or payable in respect of each of the taxable
supplies that is not a zero-rated supply, and
(C)
the amount paid or payable for each such supply or the total amount paid or
payable for all such supplies to which the same total tax rate applies, and
(v)
where the status of two or more supplies is different, an indication of the
status of each taxable supply that is not a zero-rated supply; and
(c)
where the total amount paid or payable shown on the supporting documentation in
respect of the supply or, if the supporting documentation is in respect of more
than one supply, the supplies, is $150 or more,
(i)
the information set out in paragraphs (a) and (b),
(ii)
the recipient's name, the name under which the recipient does business or the
name of the recipient's duly authorized agent or representative,
(iii)
the terms of payment, and
(iv) a description of each supply sufficient to
identify it.
[23] The Period at issue spans the entire year of 1997. Subparagraph 3(b)(iv)
amended by P.C. 2000-633, subsection 3(3), May 4, 2000, is applicable to
supplies made after March 1997. However, where supplies were made before
February 1998, the subparagraph shall be read without reference to clause
(c). The subparagraph formerly reads:
Where the amount paid or
payable for the supply or the supplies includes the amount of tax paid or
payable in respect thereof and one or more supplies are taxable supplies that
are not zero-rated supplies, a statement to the effect that tax is included in
the amount paid or payable for each supply in respect of which there is tax
paid or payable, and
[24] Subsection 169(4) has been interpreted by the Courts to require a
taxpayer to provide
sufficient evidence in submitting his documentation and the prescribed
information set out in the Regulations. In D & P Holdings
Ltd. v. Canada, [1999] T.C.J. No. 529 (informal procedure),
Hamlyn J. stated:
15 Subsection 169(4) outlines the documentation
requirements associated with ITCs. As a result of this provision, a
registrant must provide sufficient evidence to determine the amount of the
ITCs, plus any information prescribed by regulation. Such prescribed
information is outlined in the Input Tax Credit Information Regulations (the
"Regulation"), section 3.
16 The Regulation defines "supporting
documentation" as used in section 3 to include an invoice, a receipt, a
credit-card receipt, a debit note, a book or ledger of account, a written
contract or agreement, any record contained in a computerized or electronic
retrieval or date storage system, and any other document validly issued or
signed by a registrant in respect of a supply made by the registrant in respect
of which there is tax paid or payable. The Appellant was unable to supply
supporting documentation for the overstated ITCs. (Emphasize added)
[25] The Court has generally held that the clear technical requirements
of paragraph 169(4)(a) and its related regulations are mandatory. In Helsi
Construction Management Inc. v. R., [2001] GSTC 39 (TCC), aff’d by [2002] GSTC
113 (FCA), Bowman A.C.J., as he then was, held:
11 The main reasons for the disallowance was
that the suppliers' GST numbers were not shown on the invoices. This is a
requirement under section 3 of the Input Tax Credit Information Regulations.
While there may be some justification in certain cases for treating technical
or mechanical requirements as directory rather than mandatory (for example see Senger-Hammond
v. R., 1997] 1 C.T.C. 2728 (T.C.C.)) that is not so in the case of the
GST provisions of the Excise Tax Act.
12 The appellant's representative contended
that the Department had the GST numbers of the various suppliers and should
have either given them to him or looked them up itself.
13 We are dealing with one of the technical
requirements under a statute that is somewhat unique for its specificity. Moreover,
it is the foundation of a self-assessing system that operates in the commercial
world. Unfortunate as it may seem to the appellant, rules are rules. I can do
nothing to help the appellant on this point. The problem is to some extent the
appellant's own doing. Mr. Familamiri has made great efforts to correct the
situation created by the original chaotic state of the records and he has
succeeded to some extent. However there is only so much that one can do to
correct years of disarray.
This interpretation
has been followed in cases before the Tax Court, e.g. Alexander Nix Group
Inc. v. R., [2002] GSTC 100 (informal procedure), Key Property
Management Corp v. R. [2004] GSTC 32 (“Key Property”) and Davis
v. R., [2004] GSTC 134.
[26] In Key Property, Bowie J. described the object of subsection
169(4) and found that its requirements are to be “strictly enforced”:
…The whole purpose of paragraph 169(4)(a) and the Regulations is to protect the consolidated
revenue fund against both fraudulent and innocent incursions. They cannot
succeed in that purpose unless they are considered to be mandatory requirements
and strictly enforced. The result of viewing them as merely directory would not
simply be inconvenient, it would be a serious breach of the integrity of the
statutory scheme.
[27] I have
carefully considered the evidence provided by Mrs. Mok, and the documents
submitted in evidence and I have concluded that the Appellant did not satisfy
the requirements of section 169 of the Act and the Regulations. I
have reached this conclusion because while evidence was produced of borrowings
made by the Appellant to finance the improvements there was insufficient
evidence to satisfy the “supporting documentation” referred to in
paragraph 2 of the Regulations (See paragraph 21 above).
[28] In my
opinion the position adopted by the Minister was correct.
[29] The appeal
is dismissed, without costs.
Signed at Vancouver, British Columbia, this 23rd day of August
2007.
Little J.
Email this Content