Nettoyage Docknet Inc. c. La Reine, 2006 TCC 690

                  TAX COURT OF CANADA

                  RE:  EXCISE TAX ACT

                                        2004-4750(GST)G

BETWEEN           NETTOYAGE DOCKNET INC.

Appellant

-and-

HER MAJESTY THE QUEEN

Respondent

[OFFICIAL ENGLISH TRANSLATION]

Before the Honourable BRENT PARIS, Tax Court of Canada,  Nicolet, Quebec, October 20, 2006.

                  --------------------

                  REASONS FOR JUDGMENT

APPEARANCES:

FRANÇOIS DAIGLE

Counsel for the Appellant

FRANK ARCHAMBAULT

Counsel for the Respondent

Clerk/Technician: Jacqueline Clermont

           RIOPEL, GAGNON, LAROSE & ASSOCIÉS

                215 Saint-Jacques Street

                       Suite 238

                Montréal, Quebec H2Y 1M6

GST-4894           JEAN LAROSE, O.S.

REASONS FOR JUDGMENT

JUSTICE PARIS:     The Appellant is contesting a reassessment of GST by the Minister of National Revenue concerning the period from September 1, 1999, to August 31, 2003. According to the Minister, the Appellant failed to collect and remit GST on $57,176 in taxable supplies and claimed $326.55 in input tax credits to which it was not entitled. Consequently, the Minister determined that the Appellant's net tax liability for the period was $3,610.69.

The Appellant claims to have reported all its taxable supplies for the period and says that it did not fail to collect any of the requisite GST. The Appellant carried on a business that provided ventilation duct cleaning, furnace‑hood degreasing, and various cleaning services. In the spring of 2004, the Appellant underwent a GST and QST audit. Before the audit began, the Appellant's premises were robbed and all the accounting books from the taxation years prior to 2002, as well as some of the records for the year 2002, were stolen.

Faced with this unavailability of records, the auditor referred to the Appellant's financial statements for the fiscal years ended August 31, 2000, and August 31, 2001, to establish the Appellant's total taxable supplies for those periods.

The income reported on the financial statements was higher than the taxable supplies reported by the Appellant for GST purposes. The amount of the discrepancy was $35,972 for the first fiscal year and $21,204 for the second fiscal year. The auditor assumed that all the income posted to the financial statements had been received by the Appellant in consideration of taxable supplies. The Appellant claims that the discrepancies in question are attributable to the fact that the Appellant earned income from GST-exempt supplies and that the income posted to the financial statements included an amount for work in progress.

The Appellant tendered evidence of tax-exempt customers through the witness Ms. St-Arnaud, who testified that, each year, the Appellant had some contracts with tax-exempt entities, but that the invoices for those customers for the years 2000 through 2002 were among the documents stolen. 

Ms. St-Arnaud had managed to give the auditor two invoices for these customers, and those invoices were accepted, but she says that all the other invoices were stolen. She tried to draw up a list of contracts (Exhibit A‑7) based on the information provided by the customers; the list shows roughly $12,500 in contracts. Both of the invoices accepted by the auditor are on the list.

Ms. St-Arnaud, and Mr. Lesage, the Appellant's accountant, also testified that the fiscal year ended August 31, 1999, included an amount for work in progress that was not billed during that year. Mr. Lesage was unable to specify the amount, but he believed it was approximately $24,000. 

According to the Appellant, it was impossible to present a more accurate picture of its taxable sales for the period in issue because of the theft of its documents and records. Yet, according to its lawyer, it managed to show that the method used by the auditor did not yield an accurate result, which would be sufficient to reverse its burden of proof.

Where a taxpayer does not have complete documentation to establish its tax liability under the Act, it can still provide other evidence to substantiate its position. In Susteras v. The Queen, Justice Hamlyn of this Court stated, at page 6:

The proof could be as simple as precise detailed oral evidence that clearly addresses each disallowed amount and substantiates the claim. For this to occur, the Appellant would have to provide specific detailed credible evidence. When the oral evidence falls to generalizations, unproved assertions or arguments, this presentation does not amount to other acceptable evidence.

In the instant case, I must determine whether the Appellant has adduced sufficient evidence to show that there were errors in the assessments.

As far as the contracts with tax-exempt customers are concerned, Ms. St-Arnaud did not see fit to obtain a copy of the invoices from the customers listed on Exhibit A‑7. Ms. St-Arnaud said that the customers still have these invoices, but she did not ask them for a copy. Without the details concerning the dates of these contracts, it is difficult to accord Exhibit A‑7 much weight. Moreover, Ms. St-Arnaud explained that the Appellant did not want to call these witnesses to testify because of the cost and because she did not want to bother them.  

Even if I accept that the Appellant made certain zero-rated supplies attributable to the years in issue, I have no way of knowing the dollar amount of these contracts. Ms. St-Arnaud's testimony lacked detail, and this shortcoming was not offset by other sufficiently probative and credible evidence. 

Neither Ms. St-Arnaud nor Mr. Lesage were able to provide the value of the Appellant's WIP under its contract with the Université du Québec in late August 1999. In my view, Mr. Lesage's suggestion that it was roughly $24,000 was a very imprecise estimate — almost a guess. But the Respondent tendered Exhibit I‑2, which consists of documents that were prepared by the engineer responsible for the project at the Université du Québec and provide details regarding the progress of the work on a weekly basis as well as certain monetary amounts tied to the work that was done. These documents tend to show that the value of the Appellant's work in progress under the contract was approximately $30,000 at the end of August 1999.

Although the documents show that the Appellant issued invoices for almost all these amounts, Ms. St-Arnaud explained that the Appellant had not issued invoices for them at that point. I accept her explanations and, on the basis of this evidence, I accept that the work in progress at the end of August 1999 was worth $30,000.

What remains to be determined is the effect on the Appellant's GST liability when an amount for work in progress is included in the Appellant's income for its fiscal year ended August 31, 1999, but that amount is invoiced in 2000. In my opinion, the effect would be the opposite of what the Appellant seems to be arguing. If the Appellant collected GST on amounts that were included in its income in a prior year, the GST collected would represent more than 7% of the income reported for the year. However, in the Appellant's case, the GST collected in 2000 represented less than 7% of income.

Therefore, in my opinion, even if the Appellant issued invoices in the year 2000 for work that was in progress in 1999, this does not account for the discrepancy between the GST that was remitted and the GST that the Appellant should have remitted based on its income.

No evidence was provided in connection with the input tax credits; there is nothing before the Court that shows that the auditor erred in disallowing the ITCs in question. In sum, the Appellant has not discharged its burden to prove, on a balance of probabilities, that the assessments in issue were excessive.

For these reasons, the appeal is dismissed.

                  *******************

Translation certified true

on this 1st day of August 2007.

Brian McCordick, Translator