Citation: 2009TCC264
Date: 20090522
Docket: 2006-1702(GST)G
BETWEEN:
THE TORONTO-DOMINION BANK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1]
This appeal is from an
assessment made under the Excise Tax Act (the Act) for the period
November 1, 1998 to October 31, 1999. The Appellant was assessed on the basis
that it had claimed ITCs for the 1996 reporting period (“the 1996 ITCs”) in its
1999 Goods and Services Tax (GST) return (“the 1999 Return”) and these ITCs
were statute-barred. It was also assessed a penalty under section 280 of the
Act.
[2]
The parties submitted a
partial agreed statement of facts which reads:
AGREED STATEMENT
OF FACTS (PARTIAL)
The parties to this proceeding
admit, for the purposes of this proceeding only, the truth of the following
facts:
1.
The Appellant’s fiscal period for purposes of the goods and services tax
(the “GST”) is November 1 to October 31.
2.
The amount of GST paid or payable by the Appellant to third-party
suppliers was:
a.
approximately $56 million for the period from November 1, 1995 to
October 31, 1996 (the “1996
period”);
b.
approximately $62 million for the period from November 1, 1996 to
October 31, 1997 (the “1997
period”);
c.
approximately $73 million for the period from November 1, 1997 to
October 31, 1998 (the “1998
period”); and
d.
approximately $76 million for the period from November 1, 1998 to
October 31, 1999 (the “1999
period”).
3.
For the 1998 period, the Appellant filed its GST return on January 29,
1999 (the “1998 Return”), a copy of which is included at Tab 19 of the Joint
Book of Documents. In its 1998 Return the Appellant claimed input tax credits
(“ITCs”) of $13,149,666 as a deduction in computing net tax.
4.
At the time of filing its 1998 Return, the Appellant had obtained invoices
showing the amounts of GST paid or payable for supplies purchased in the course
of its commercial activities in 1996, 1997 and 1998 periods.
5.
The Appellant retained KPMG to review the amounts of GST paid on payable
by the Appellant for certain supplies in its 1996, 1997 and 1998 periods and
prepare calculations of the amounts of ITCs to which the Appellant was entitled
in respect of those supplies. Before filing its 1998 Return, the Appellant had
available and relied upon summaries in the preliminary KPMG schedules dated
January 25, 1999 attached at Tab 23 of the Joint Book of Documents (the
“Preliminary KPMG Schedules”).
6.
The Appellant claimed a total of $2,313,867 on its 1998 Return in
respect of the supplies reviewed by KPMG. According to the Preliminary KPMG
Schedules, of the total of $2,313,867, $624,666 was in respect of supplies
purchased in its 1996 period, $916,943 was in respect of supplies purchased in
its 1997 period and $772,253 was in respect to supplies purchased in its 1998
period.
7.
For the 1999 reporting period, the Appellant filed its GST return on
January 31, 2000 (the “1999 Return”), a copy of which is attached at Tab 1 of
the Joint Book of Documents. In its 1999 Return, the Appellant claimed ITCs of
$18,722,166 as a deduction in computing net tax.
8.
At the time of filing its 1999 Return, the Appellant had obtained
invoices showing the amounts of GST paid or payable for supplies purchased in
the course of its commercial activities in the 1996, 1997, 1998 and 1999
periods.
9.
Before filing its 1999 Return, the Appellant had available and relied
upon summaries in the final KPMG schedules dated in August of 1999 and attached
at Tabs 4 to 12 of the Joint Book of Documents (the “Final KPMG Schedules”).
10. The Minister assessed
the Appellant’s 1999 Return in a Notice of (Re)Assessment dated January 30,
2004 (the “1999 Assessment”), a copy of which is attached at Tab 13 of the
Joint Book of Documents.
11. The Minister confirmed
the 1999 Assessment in a Notice of Decision dated March 13, 2006, a copy of
which is attached at Tab 18 of the Joint Book of Documents.
The Appellant and Respondent
agree that this Agreed Statement of Facts (Partial) does not preclude either
party from calling evidence to supplement the facts agreed to herein, provided
that such evidence does not contradict the agreed facts.
[3]
The only witness at the
hearing was Teresa Ma who is a senior manager of commodity tax with the
Appellant.
[4]
The Appellant is a
large diversified financial institution carrying on business in Canada. It is a “listed financial institution” as that term
is defined in subsection 123(1) of the Act. It has an annual GST reporting
period which begins on November 1 of each calendar year. The Appellant’s
deadline for filing its GST return for each year is January 31 of the following
year.
[5]
It was not disputed by
the parties that the Appellant is a “specified person” as that term is defined
in subsection 225(4.1) of the Act or that the Appellant had a two year
limitation period to claim its ITCs in accordance with subparagraph 225(4)(a)(iii).
[6]
The Appellant engaged
KPMG to determine whether the Appellant had miscalculated or failed to claim
any additional ITC amounts for the 1996, 1997 and 1998 reporting periods. KPMG
began its analysis in November 1998. This review was called the KPMG SALT
Recovery Review (“KPMG Recovery Review”).
[7]
KPMG submitted a status
report to the Appellant on January 25, 1999. I note that the following items
were listed under Preliminary Results on the report:
·
GST Recovery to be included in the 1998 GST
Return (please refer to the enclosed preliminary summary)
·
The impact of the preliminary findings on the
GST Assessment (discuss)
·
GST Accrual for 1996 ITCs.
[8]
The “Preliminary
Summary Schedule” which was enclosed with the status report was as follows:
Preliminary Summary
Schedule
Toronto Dominion Bank
Preliminary
Results as at January 29, 1999
KPMG
SALT Recovery Review
|
Reference
|
Description
|
QST
|
GST/HST
|
Amount
|
|
Schedule I
|
Wealth Management
|
144,332.74
|
|
144,332.74
|
|
Schedule II
|
Wealth Management – Dow
Jones
|
3,691.48
|
|
3,691.48
|
|
Schedule III
|
VISA Equipment
|
|
1,223,018.73
|
1,223,018.73
|
|
Schedule IV
|
Special Loans Unit (Toronto)
|
|
678,252.04
|
678,252.04
|
|
Schedule V
|
Centralized Accounts
Payable Processing
|
|
224,405.78
|
224,405.78
|
|
Schedule VI
|
Capitalized Software
|
|
52,141.25
|
52,141.25
|
|
Schedule VII
|
Loan Realization – CGT
|
678.50
|
59,926.09
|
60,604.59
|
|
Schedule VIII
|
Stationary Rate Adjustment
|
|
76,122.77
|
76,122.77
|
|
Total Refund Claim
|
148,702.72
|
2,313,866.67
|
2,462.569.39
|
GST
Recovery summarized by year:
1996 604,820.67
1997/98 1,709,046.00
Total 2,313.866.67
[9]
The ITCs claimed by the
Appellant in its 1998 return included the total ITCs that had been identified
by KPMG up to January 29, 1999.
[10]
In order to calculate
the amounts for its 1998 return, the Appellant prepared various exhibits.
Exhibit II[1]
was a document prepared by the Appellant at the time the 1998 return was filed
and was a reference to the ITCs claimed on that return. It was filed with the
1998 return[2].
I will refer to this document as the “1998 Exhibit II”. Among the ITCs detailed
under the heading “ITCs Other” on the 1998 Exhibit II were the following
which referred to the “KPMG Review”:
Visa POS Terminals
$1,223,019
Special Loans Unit (Toronto)
678,252
Centralized A/P Processing
224,406
Capitalized Software
52,141
CGT Loan Realizations
59,926
TDAM Inc. Stationary Rate Adjustment
76,123
Total
$2,313,867
[11]
KPMG finished its
Recovery Review in August 1999 and the final total ITCs recovered were
$6,913,750.31. As the Appellant had already claimed $2,313,866.66 of these ITCs
in its 1998 return, it claimed the difference ($4,599,883) in its 1999 return
which it filed on January 31, 2000. The Appellant again prepared and filed various
exhibits which gave a breakdown of the amounts reported in its 1999 return.
Exhibit II[3]
for the 1999 return (“the 1999 Exhibit II”) gave a breakdown of the ITCs
claimed in that return. In that exhibit, ITCs in the amount of $4,599,883 were
referred to as “KPMG GST 1997 and 1998 ITC recovery”.
[12]
A breakdown of the ITCs
recovered by KPMG and claimed in the 1999 return was included in the final KPMG
materials as follows:
|
|
1996
|
1997
|
1998
|
Total
|
|
TD Bank
|
$1,275,751
|
$2,081,446
|
$3,556,553
|
$6,913,750
|
|
Less Accrued
in 1998 return
|
(1,275,751)
|
(1,038,116)
|
|
(2,313,867)
|
|
Net TD Bank
Recovery to Post in 1999
GST return
|
|
$1,043,330
|
$3,556,553
|
$4,599,883
|
|
Total GST
Recovery to Post in 1999
GST return
Due by Jan 31
2000
|
|
|
|
$4,599,883
|
[13]
The Canada Revenue
Agency (CRA) audited the Appellant for its 1998 and 1999 reporting periods. The
audits were neither performed at the same time nor by the same auditors.
[14]
An audit plan for the
1998 reporting period was prepared by William Carroll and sent to the Appellant
with a letter dated January 21, 2002. However, the audit or at least the last
part of the audit was performed by Robert Young who met with Teresa Ma on
December 3, 2002. In the initial audit plan, the auditor requested to see the
working papers that supported the claim for ITCs per the KPMG review as noted
in the 1998 Exhibit II. At the meeting with Teresa Ma, Robert Young was told
that the KPMG worksheets were maintained in 10 binders.
[15]
It was Teresa Ma’s
evidence that she told Robert Young where he could find the binders and that
the binders contained the entire KPMG Recovery Review worksheets. In
cross-examination, Teresa Ma estimated that each of the 10 binders containing
the KPMG worksheets was 4 or 5 inches thick. I gather from the auditor’s “Summary
of ITCs & Adjustments”, where he listed the numbers as set out in the 1998
Exhibit II, that he referred only to the KPMG preliminary results. That is, it
appears that he referred only to those results which had been prepared at the
time that the 1998 return was filed.
[16]
It would have been
helpful to hear from Robert Young and to learn exactly how he conducted the
audit of the 1998 return. Robert Young completed his audit at the end of
January 2003. He made audit adjustments unrelated to the issue in this appeal.
He did not make any audit adjustments with respect to the ITCs in the amount of
$2,313,866.66 which had been identified by the KPMG Recovery Review and which
had been claimed by the Appellant in its 1998 return.
[17]
The 1998 return became
statute barred on January 31, 2003.
[18]
Patricia Chong, Large
File Case Auditor, audited the Appellant’s 1999 return. She disallowed the
Appellant’s claim for ITCs in the amount of $624,666 on the basis that this
amount was statute-barred as it related to the 1996 period. According to the
Reply to Notice of Appeal, the amount that should have been disallowed was
$651,085.
[19]
Excerpts from Patricia
Chong’s discovery testimony were read into evidence at the hearing. She was
asked why the KPMG Recovery Review schedules, which were available at the time
the 1998 return was prepared, were relevant in auditing the 1999 return. She
answered as follows:
“In order to understand the input tax credits that were claimed in
1999, the way it was presented by the bank, in the schedules supporting their
working papers, they showed that the input tax credits that they were claiming
in 1999, they arose in – there was a schedule that showed the years that they
were related to, so they showed 1996, 1997, and 1998. Then they also showed
that of these amounts, a total of $2.3-million was claimed in the 1998 year.
Therefore, I had to see exactly whether or not that was true, so it was
necessary to look at what was exactly claimed in the 1998 year.”
Appellant’s Position
[20]
It is the Appellant’s
position that its claim for ITCs in the 1999 return related only to GST paid or
payable in the 1997 period, 1998 period and 1999 period. At the time the 1999
return was filed, the Appellant had obtained invoices from third party
suppliers relating to the amounts of GST paid or payable by it for these
periods.
[21]
With respect to the
1998 return, counsel for the Appellant stated that the ITCs claimed related to
GST paid or payable during the 1996 period, 1997 period and 1998 period. At the
time of filing the 1998 return, the Appellant had obtained invoices from third
party suppliers relating to the amounts of GST paid or payable by it in these
periods.
[22]
When a registrant files
a GST return, it is required only to indicate the amount of ITCs claimed, not
the specific documentary source of the ITCs or the period to which any
particular ITC relates. As the Appellant had obtained all documentary evidence
to support the ITCs claimed in its 1998 return and 1999 return prior to the
returns being filed, it met the requirements of subsection 169(4) of the Act
and the Input Tax Credit Information GST/HST Regulations.
[23]
Counsel for the
Appellant argued that “the wording of paragraph 169(4)(a) of the ETA explicitly
contemplated a determination of input tax credits to occur subsequent
to the claiming of an input tax credit”. She stated that because the future
tense is used in paragraph 169(4)(a), a registrant need only obtain the
requisite evidence at the time that the ITCs are claimed; “subsection 169(4)
does not require the ‘amount of the input tax credit to [have] been determined
at that time’”.
[24]
Finally, it is the
Appellant’s position that Parliament’s choice of words suggests that it was
most concerned about a registrant being able to support a claim on audit and
not with the precision of the registrant’s claims within a relevant limitation
period. Neither the Act nor the Input Tax Credit Information GST/HST
Regulations required a person to identify on its GST return, the period to
which any particular ITC being claimed related.
[25]
In the alternative,
counsel argued, if it is found that ITCs in the amount of $651,085 related to
the 1996 reporting period and were statute-barred as they were claimed in the
1999 return, then subsection 296(2) applied. This subsection provides that the Minister
of National Revenue (the “Minister”) must allow the 1996 ITCs in assessing net
tax in the 1998 return.
Respondent’s Position
[26]
At the time that the
Appellant filed its 1998 return, the KPMG Recovery Review had uncovered ITCs in
the amount of $624,666 which related to the 1996 reporting year. It was only
this amount of ITCs that related to the 1996 reporting period that was claimed
in the 1998 return.
[27]
The KPMG Recovery
Review identified the remaining ITCs ($651,085) that related to the 1996
reporting period after the 1998 return was filed. This amount was claimed in
the 1999 return and was statute-barred.
[28]
With respect to the
Appellant’s alternative argument, counsel for the Respondent stated that the
subsection 296(2) should have been raised for the 1998 reporting period and not
the 1999 reporting period.
[29]
In the Reply, the
Minister assumed facts which related to the disallowed 1996 ITCs and also
assumed that the ITC recovery rate for the Toronto Special Loans Unit should
have been 50% rather than the 92% which was used by the Appellant in its
calculation of ITCs for the 1996, 1997 and 1998 reporting periods. It was the
Respondent’s position that, if the ITCs claimed in the 1999 return for the
Toronto Special Loans Unit pertained only to the 1997 and 1998 reporting
periods, then the amount of $260,870 should be disallowed.
Analysis and Decision
[30]
The relevant statutory
provisions are as follows:
169. (1) General rule for [input tax] credits -- Subject to this Part, where a person
acquires or imports property or a service or brings it into a participating
province and, during a reporting period of the person during which the person
is a registrant, tax in respect of the supply, importation or bringing in
becomes payable by the person or is paid by the person without having become
payable, the amount determined by the following formula is an input tax credit
of the person in respect of the property or service for the period:
A
× B
where
A is the tax in respect of the
supply, importation or bringing in, as the case may be, that becomes payable by
the person during the reporting period or that is paid by the person during the
period without having become payable; and
B is
(a) where the tax is deemed under
subsection 202(4) to have been paid in respect of the property on the last day
of a taxation year of the person, the extent (expressed as a percentage of the
total use of the property in the course of commercial activities and businesses
of the person during that taxation year) to which the person used the property
in the course of commercial activities of the person during that taxation year,
(b) where the property or service
is acquired, imported or brought into the province, as the case may be, by the
person for use in improving capital property of the person, the extent
(expressed as a percentage) to which the person was using the capital property
in the course of commercial activities of the person immediately after the
capital property or a portion thereof was last acquired or imported by the
person, and
(c) in any other case, the extent
(expressed as a percentage) to which the person acquired or imported the
property or service or brought it into the participating province, as the case
may be, for consumption, use or supply in the course of commercial activities
of the person.
…
(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.
296. (2) Allowance of unclaimed credit -- Where, in assessing the net tax of a person
for a particular reporting period of the person, the Minister determines that
(a) an amount (in this subsection
referred to as the "allowable credit") would have been allowed as an
input tax credit for the particular reporting period or as a deduction in
determining the net tax for the particular reporting period if it had been
claimed in a return under Division V for the particular reporting period filed
on the day that is the day on or before which the return for the particular
reporting period was required to be filed and the requirements, if any, of
subsection 169(4) or 234(1) respecting documentation that apply in respect of
the allowable credit had been met,
(b) the allowable credit was not
claimed by the person in a return filed before the day notice of the assessment
is sent to the person or was so claimed but was disallowed by the Minister, and
(c) the allowable credit would be
allowed, as an input tax credit or deduction in determining the net tax for a
reporting period of the person, if it were claimed in a return under Division V
filed on the day notice of the assessment is sent to the person or would be
disallowed if it were claimed in that return only because the period for
claiming the allowable credit expired before that day,
the Minister
shall take the allowable credit into account in assessing the net tax for the
particular reporting period as if the person had claimed the allowable credit
in a return filed for the period.
[31]
In performing its work, KPMG
analyzed the availability of ITCs in various business segments which it
identified by Schedules. By January 29, 1999, KPMG had completed its analysis
of six business segments for GST purposes. By the time KPMG had finished its
review in August 1999, it had performed a GST analysis of seventeen business
segments and had identified ITCs that could be recovered from these business
segments.
[32]
The evidence in this
appeal showed that when the Appellant filed its 1998 return, it claimed the ITCs
that KPMG had identified in the amount of $2,313,865. A review of the
preliminary schedules that had been prepared by KPMG as of January 25, 1999 and
the “KPMG Worksheets for 1999” show that ITCs in the amount of $2,313,865 were
applicable to the following years:
|
|
1996
|
1997
|
1998
|
TOTAL
|
|
Visa
Equipment
(Schedule 3)
|
$387,515.58
|
$529,122.61
|
$306,380.00
|
$1,223,018.73
|
|
Special Loans
Unit – Toronto
(Schedule 4)
|
172,796.69
|
257,641.22
|
247,814.13
|
678,252.04
|
|
Central
Accounts
Payable
(Schedule 5)
|
|
37,671.49
|
186,734.29
|
224,405.78
|
|
Capitalized
Software
(Schedule 6)
|
24,533.03
|
10,296.47
|
17,311.76
|
52,141.25
|
|
Loan
Realizations
(CGT type)
(Schedule 7)
|
255.50
|
45,655.77
|
14,014.82
|
59,926.09
|
|
Stationary
Rate
Adjustment
(Schedule 8)
|
39,565.00
|
36,557.77
|
|
76,122.77
|
|
TOTAL
|
$624,665.80
|
$916,945.33
|
$772,255.00
|
$2,313,866.66
|
[33]
The documentary
evidence disclosed that the Appellant could not have claimed 1996 ITCs in the
amount of $1,275,751 in the 1998 return. When it filed its 1998 return on
January 29, 1999, the Appellant did not know that the additional $651,085 of
ITCs for the 1996 reporting period existed. KPMG had only identified $624,665.80
with respect to the 1996 ITCs by January 29, 1999,
[34]
It was also the
Appellant’s position that it had claimed $1,038,116 of 1997 ITCs in its 1998
return. However, the documentary evidence disclosed that the 1997 ITCs claimed
by the Appellant in its 1998 return was $916,945.33. The amount of $1,038,116
is merely the difference between the total ITCs identified ($2,313,866.66) by
January 29, 1999 and the total 1996 ITCs ($1,275,751) identified by the end of
the Recovery Review. In cross-examination, Ms. Ma admitted that no specific
ITCs identified by the KPMG Recovery Review for the 1997 reporting period could
be added to give the sum of $1,038,116.
[35]
Counsel for the
Appellant has argued that the Appellant had the documentary evidence to
establish the amount of the ITCs at the time the 1998 return was audited and
that subsection 169(4) does not require a registrant to determine or calculate
the amount of the ITCs until the time of the audit. I do not agree with
counsel’s interpretation. Subsection 169(4) cannot be viewed in isolation from
the rest of section 169 or for that matter from the Act itself.
[36]
Subsection 169(1) of
the Act provides the general rules for determining the amount of an ITC. In the
present appeal many of the ITCs had to be determined by using an allocation
formula pursuant to subsection 141.01(5) of the Act. Subsection 169(4) sets out
the documentation requirements for the ITCs. It requires a registrant to have
“obtained sufficient evidence in such form containing such information” prior
to filing the return in which the credit is claimed[4]. On a textual,
contextual and purposive reading of sections 141.01 and 169 of the Act, a
registrant must determine the amounts of its ITC entitlement before it can
claim them. In the situation where a registrant determines its ITCs using an
allocation formula, subsection 169(4) of the Act requires the registrant to have,
prior to filing its return, the information to support the method that it used
for allocating its ITCs between taxable and exempt supplies and the evidence
and information to substantiate the amount of the ITCs that it claimed.
[37]
It is true that neither
the Act nor the Input Tax Credit Information GST/HST Regulations
requires a person to identify, on its GST return, the period to which any particular
ITC being claimed relates. However, it is inherent in the formula for the
calculation of an ITC that the ITC is in respect of a particular reporting
period. The “A” in the formula given in subsection 169(1) is the tax in respect of the supply, that becomes
payable by the person during the reporting period or that is paid by the
person during the period without having become payable. Likewise the calculation of net tax in section 225 is
for a particular period and subsection 225(4) limits the time within which an
ITC can be claimed.
[38]
Chief Justice Garon, as he then
was, discussed the calculation of net tax in section 225 and in particular, the
situation where the ITC being claimed is from a preceding period. In Paquin
v. R.[5]
he stated:
15 Therefore, it is necessary to analyze the
scope of paragraph a) of point B of the formula in question that deals
specifically with input tax credit. The paragraph reads as follows:
225(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
…
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 …
[16] Paragraph a) of point B
specifically sets out the case where an amount that represents an input tax
credit and is related to a preceding period may be claimed within a particular
period that is later. The juxtaposition of the mention of the particular period
and the preceding period in paragraph a) of point B of the above-mentioned
formula does not seem to leave any doubt that the legislative intent was to
allow a taxpayer to claim input tax credit in a return subsequent to the period
during which these credits could have first been claimed. This was the
conclusion of Archambault J. of this Court in Metro Exteriors Ltd. v. Canada,
(T.C.C.) [1995] G.S.T.C. 62. This provision from paragraph a) of point B is
completed by subsection 225(4), which establishes deadlines of four years or
two years, depending on the circumstances, to claim input tax credit.
[17] The above indicates that this
right to input tax credit does not exist until it is claimed.
[39]
The Appellant cannot
say that the 1996 ITCs were accrued in the 1998 return. Its right to the 1996
ITCs did not exist until they were claimed in a return.
[40]
Based on my finding that
the Appellant claimed only $624,666 of its 1996 ITCs in its 1998 return, the
remaining 1996 ITCs of $651,085 must have been claimed in the 1999 return. In
accordance with subparagraph 225(4)(a)(iii) of the Act, the Appellant had a two
year limitation period to claim its ITCs and it was statute-barred from
claiming the 1996 ITCs in its 1999 return.
[41]
I do not have to decide
whether, in accordance with subsection 296(2), the CRA should have taken the
1996 ITCs in the amount of $651,085 into account in calculating net tax for the
1998 reporting period. That period is not before me.
[42]
The Appellant stated
that it relied on in-house expertise and retained outside professionals in an
effort to comply with its requirements under the Act. It was the Appellant’s
argument that this amounted to due diligence and the penalty under section 280
should be deleted.
[43]
The Federal Court of Appeal
in Corporation de L’Ecole Polytechnique v. Canada[6] summarized
the principles to be considered when reviewing whether a taxpayer exercised due
diligence. The defence of due diligence is not the same as the defence of good
faith which allows a person to be forgiven if he made an error of fact in good
faith, even if the error was unreasonable. The defence of due diligence is a
higher standard as it requires that the error be one which a reasonable person
would have made in the same circumstances.
[44]
When the Appellant
filed its 1998 return, it knew that the KPMG Recovery Review had not identified
all of the possible 1996 ITCs. The Appellant had to know this because KPMG had
only completed its review of six business segments. The 1998 Exhibit II filed
with the 1998 return gave specific amounts of ITCs that were being claimed in
that return. The amount of ITCs claimed in the 1998 return could be directly
traced to the business segments analyzed by KPMG and to the specific years
reviewed. The Appellant knew that the 1996 ITCs identified after January 29,
1999 were statue-barred. Why else would the Appellant attempt, after the fact,
to attribute the total ITCs claimed in the 1998 return in a manner that did not
agree with the schedules produced by KPMG.
[45]
In the circumstances of
this appeal, I am not satisfied that the Appellant exercised the requisite due
diligence.
[46]
The appeal is dismissed
with costs.
Signed at Ottawa,
Canada, this 22nd day of May 2009.
“V.A. Miller”
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