Citation: 2008 TCC 366
Date: 20080626
Docket: 2007-4615(GST)I
BETWEEN:
CLAUDE RICARD,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This is an appeal
from an assessment made on November 23, 2006, under Part IX of the Excise Tax Act
(ETA), pertaining to the period from January 1, 2006, to
March 31, 2006, and bearing the number AEFT002068.
[2] The Respondent has
worded the issue as follows:
[TRANSLATION]
The issue is whether the Appellant is
entitled to include a $3,296.37 input tax credit in computing his net tax for
the period in issue.
[3] In making the
assessment, the Respondent relied on the assumptions of fact set out in
paragraph 17 of the Reply to the Notice of Appeal, which read as follows:
[TRANSLATION]
(a) The facts
admitted to above.
(b) The Appellant
is a registrant for the purposes of Part IX of the ETA.
(c) The Appellant
operates a business that sells used vehicles.
(d) On April 15,
2004, the Respondent, acting through the Minister, assessed the Appellant under
Part IX of the ETA for the period from July 1, 1999, to
December 31, 2002, and sent the Appellant a notice of assessment bearing
the number AEFV0281 and the same date.
(e) As stated in
the notice of assessment sent to the Appellant, the amounts assessed on April
15, 2004, are as follows:
|
Adjustments in the calculation of the
reported net tax
|
$6,566.52
|
|
Penalties
|
$1,051.92
|
|
Net interest
|
$514.99
|
|
Total
|
$8,133.43
|
(f) Specifically,
the adjustments, totalling $6,566.52, in the calculation of the net tax
reported by the Appellant (see the preceding paragraph) can be broken down as
follows:
|
GST collected or collectible but not included in
the calculation of the reported net tax
|
$4,082.23
|
|
Excess ITCs claimed and obtained by mistake or
without entitlement
|
$2,484.29
|
|
Total
|
$6,566.52
|
(g) On or about
April 28, 2004, that is, within the prescribed time, the Appellant
submitted a notice of objection to the Minister with respect to the assessment
referred to above at subparagraph (d), without making any admissions concerning
the statement of facts and reasons. On May 10, 2004, the
Minister acknowledged receipt of the notice of objection.
(h) On December 20,
2004, a Revenu Québec objections officer sent
the Appellant a letter setting out the adjustments that would be made to the
assessment referred to above at subparagraph (d): the adjustments in the
calculation of the reported net tax would be $4,087.95 instead of $6,566.52.
(i) On
February 16, 2005, in response to the notice of objection, and in accordance
with the preceding subparagraph, the Minister reassessed the Appellant for the
period in question and notified him of his decision in a notice of reassessment
bearing the number 02307303 and the same date. (The notice in
question cancels and replaces the notice of assessment referred to above at
subparagraph (d).)
(j) As stated in the
notice of reassessment sent to the Appellant, the amounts assessed on February
16, 2005, are as follows:
|
Adjustments in the calculation of
the reported net tax
|
$4,087.95
|
|
Penalties
|
$719.15
|
|
Net interest
|
$363.10
|
|
Total
|
$5,170.20
|
(k) Specifically,
the adjustments, totalling $4,087.95, in the calculation of the net tax
reported by the Appellant (see the preceding paragraph) can be broken down as
follows:
|
GST collected or collectible but not included in the
calculation of the reported net tax
|
$1,792.64
|
|
Excess ITCs claimed and obtained by mistake or
without entitlement
|
$2,295.31
|
|
Total
|
$4,087.95
|
(l) The Appellant
did not file an appeal in this Court from the reassessment referred to above at
subparagraph (i).
(m) In the winter of
2005, the Minister, in conjunction with the reassessment under Part IX of
the ETA referred to above at subparagraph (i), also reassessed the Appellant
under the Taxation Act, R.S.Q., c. I-3, Quebec's provincial income tax
statute, for the 1999, 2000, 2001 and 2002 taxation years, and sent him
notices of reassessment in this regard.
(n) In light of
these reassessments made by the Minister in the winter of 2005 and referred to
above at subparagraphs (i) and (m), and further to an exchange of information,
the Canada Customs and Revenue Agency (as it was called at the time) reassessed
the Appellant in December 2005 or January 2006 for the 2000, 2001 and 2002
taxation years under the Income Tax Act, R.S.C. 1985,
c. 1 (5th Supp.).
(o) A portion of
the ITC amount in issue, claimed in the calculation of the net tax for the
period in issue, corresponds to the adjustments made by the Canada Customs and
Revenue Agency (CCRA) to the additional automobile expenses deductible in
computing the Appellant’s business income, namely, $813.68 (7% of ($2,972 [2000 taxation year] + $4,930 [2001 taxation year] + $3,722 [2002 taxation year]). Those ITCs were already assessed or
de-assessed by the Minister upon making the reassessment referred to in
subparagraph (i).
(p) A large part,
if not all, of the ITC amount of $813.68 was claimed more than four (4) years
after the date on which the Appellant had paid the corresponding GST.
(q) The other part
of the ITC amount in issue, claimed in the calculation of the net tax for the
period in issue, corresponds to the adjustments made by the CCRA to the
additional gross business income to be added in computing the Appellant's
business income, namely, $2,482.69 (i.e. 7% of ($4,834 [2000 taxation year] + $17,833 [2001 taxation year] + $12,800 [2002 taxation year]), an amount that actually corresponds to
the GST that was payable and should have been included in the calculation of
the Appellant's net tax, which had already been assessed or de-assessed by the
Minister upon making the reassessment referred to in subparagraph (i)).
(r) In any event, a
large part, if not all, of the amount of $2,482.69 designated as an ITC by the
Appellant was claimed more than four (4) years after the date on which the
Appellant claims to have paid the corresponding GST.
(s) The Appellant
therefore owes the Minister the amount of the adjustments to his reported net
tax for the period in issue.
[4] Since I had a good
idea of the direction that the Appellant planned to take, and since the
Appellant clearly did not understand the nature and scope of the evidence
that he would need to submit, I explained the scope of his obligations with
respect to the burden of proof in his appeal.
[5] I stated, repeated
and emphasized that he would need to establish the merits of his claims by
providing detailed documentary evidence of the facts that demonstrate his
entitlement to the input tax credits (ITCs).
[6] Despite the Court's
numerous, precise and detailed explanations, the Appellant essentially
argued that his appeal should be allowed on the basis of Exhibits A‑1,
A-2 and A-3, which he adduced. In his submission, the contents of these
documents demonstrate that he is completely correct.
[7] Essentially, the
documents in question set out the details of a settlement with the Canada
Customs and Revenue Agency (CCRA), which agreed to make changes to his income
and expenses as part of a reassessment that was revised to his advantage.
[8] Based on this
settlement, the Appellant is seeking to be reimbursed for the ITCs
corresponding to the difference between the initial assessment and assessment that
was corrected to his advantage as part of the settlement of his file.
[9] As for the
Respondent, she called four witnesses: Daniel Gaulin, Manon Lafrenière, France Blouin and Jocelyne Létourneau.
Mr. Gaulin and Ms. Lafrenière were the first witnesses to testify.
[10] Both of them were
instructed to do a complete audit; Mr. Gaulin was responsible for income tax,
and Ms. Lafrenière was responsible for GST and QST.
[11] The audit and its
outcome caused the Appellant to react so negatively that his relations with Ms.
Lafrenière broke down to the point that the exchanges between them had to be
filtered by Ms. Lafrenière's superior.
[12] The Appellant
promptly filed a notice of objection to the assessment. Ms. Blouin made
some major changes. Among other things, she cancelled practically all the
income that had been added. Major changes were also made to the automobiles'
value. Although he remained dissatisfied with the result, the Appellant,
for reasons that remain vague, did not file an appeal in the Court of Québec.
[13] Following an audit
by the provincial authorities, and based on information that they disclosed,
the CCRA intervened, and a new draft assessment was submitted to the Appellant.
The assessment was essentially based on the Income Tax Act and did
not include GST, since Quebec had already exercised its jurisdiction under the formal
agreement to that effect between the two levels of government.
[14] In the course of the
correspondence and negotiations following the income tax reassessment, other
changes, which were also to the Appellant's benefit, were made to the initial
assessment.
[15] Given the potential
impact of the changes on the net GST amounts, the Appellant, through the
instant appeal, is indirectly claiming the input tax credits based on the
settlement with the CCRA. In other words, the Appellant claims to be
entitled to the ITCs on the difference between the amounts that formed the
basis of the initial assessment, and the amount that was used for the
definitive assessment that followed the settlement.
[16] As for the
Respondent, she submits that the ITCs claimed by the Appellant were refunded or
are statute-barred since they pertain to purchases made or expenses incurred
more than four years ago.
[17] In light of these
facts, the Appellant needed to do a complete inventory of the relevant
purchases and sales in order to obtain ITCs. Such an inventory would have made
it possible to ascertain the parties' rights and obligations, both in terms of relevance
and of the date or dates based on which it could be determined whether the
claim was statute‑barred.
[18] With consumption
taxes (GST and QST), as with income tax, it must be possible to ascertain the
taxpayer's rights and obligations from the documents, vouchers and records. This
is not an issue of reasonableness; rather, it is essentially a bookkeeping
issue.
[19] It is sometimes
necessary to resort to an approach based on reasonableness under certain
circumstances, or in an unusual context, such as where a kind of circumstantial
evidence is needed because a person who is being audited has no documents or
has incomplete accounting records. In the case at bar, the Appellant wishes to
obtain ITCs based on a settlement in which no ITC-related documents or vouchers
were under consideration.
[20] It is the duty of
every registrant to keep all supporting documents, because the amounts involved
do not belong to the person who collects them. Indeed, consumption tax
registrants are agents and trustees and therefore have serious
responsibilities. Registrants must manage their affairs coherently and
transparently and are accountable for that management.
[21] In the case at bar,
the Appellant seemed very conversant with his file and this obviously enabled
him to secure several adjustments to the initial assessment.
[22] However, the
evidence also disclosed that the officials' desire to settle the file also
played a part in the settlement. First of all, these elements are not
sufficient to conclude that the appeal has merit, and secondly, they are
nothing more than a circumstantial indication.
[23] The merits of an
appeal cannot be decided based on perceptions, intuitions or circumstantial
evidence, especially where the entire case, not just a few elements of it, is
at stake.
[24] Moreover, an appeal
is not the appropriate recourse for grievances concerning the persons
responsible for one or more audits that led to assessments.
[25] It is true that it
might be very frustrating to have to pay what is not owed, or to be unable
to collect one's due; however, in both income and consumption tax cases,
taxpayers must be able to establish their rights based on
documentary evidence. They cannot succeed based on oral assertions of
their allegations and on certain indirect clues.
[26] Very often, a
party's inability to demonstrate the merits of the party’s claims stems from
negligence or a certain amount of carelessness on the part of that party, who
is required to keep all relevant supporting documents and provide them upon request.
In other words, taxpayers are often the authors of their own misfortune because
they do not have the essential details and documents in their possession.
[27] Even though this
Court gave the Appellant a detailed explanation of what he would have to do in
order to succeed, he submitted evidence that cannot even be characterized as circumstantial.
[28] He basically aired his
grievances and frustrations, which might be justified in view of the numerous
changes made to his assessment.
[29] Essentially, the
Appellant was content to submit a few documents and claim that he was entitled
to ITCs and interest based on a settlement with the CCRA.
[30] However, the fact
that the Appellant obtained the settlement was partly attributable to the
explanations that he provided, but was also attributable to what was clearly a
desire, on the part of the officials, to settle the matter.
[31] While the
Appellant's reaction may be understandable, it is neither possible nor
reasonable to conclude that he adduced sufficient evidence to succeed in his
appeal.
[32] The number and extent
of the adjustments and corrections to his assessments suggest that the auditor
was being somewhat zealous. But evidence of zeal is not sufficient to set
aside all the auditor's work or findings.
[33] I would also point
out that situations of this kind often result from inadequate bookkeeping and a
lack of supporting documents. Granted, perception, intuition and imagination
are often blunt work instruments, but they are unfortunately necessary to fill
in gaps for which the taxpayer is usually responsible.
[34] The Appellant chose
to submit evidence based solely on the settlement with the CCRA, which, as I
have stated, stemmed from a desire to settle the matter.
[35] The amounts of GST, which
is a tax, and ITCs, which are inputs, are computed based on numerous
taxable supplies made or received on specific dates.
[36] In order to
establish the taxpayer's rights and obligations in this matter, it is absolutely
essential that the Court have all the information and supporting documents
related to the supplies that gave rise to the dispute.
[37] The evidence adduced
by the Appellant completely shut out this fundamental consideration.
Consequently, it is obvious that his appeal cannot be allowed.
Signed at Ottawa, Canada, this 26th day of June 2008.
"Alain Tardif"
Translation certified true
on this 2nd day of September 2008.
Susan Deichert, Reviser
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