|
Citation: 2004TCC662
|
|
Date: 20041001
|
|
Docket: 2003-4189(GST)I
|
|
BETWEEN:
|
|
BRENT DAVIS,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
(Edited from the transcript of Reasons for
Judgment
delivered orally July 7, 2004 at Halifax,
Nova Scotia)
Campbell, J.
[1] This is an appeal from an
assessment for goods and services tax/harmonized tax
("GST/HST") arising from adjustments to GST/HST
collectible and to input tax credits ("ITCs") claimed,
together with penalties and interest in respect to the period
January 1, 1999 to December 31, 2000.
[2] The Appellant is the sole owner
and operator of a business called
"Mr. D's Small Engine Repair", which
repairs lawn and garden equipment and snow blowers. This repair
work also included warranty work where local customers would
bring in equipment to the Appellant to have repaired and then the
Appellant would bill the supplier and manufacturer of the
equipment. These manufacturers were sometimes outside of the
province and out of the country. In respect to this work the
Appellant did not include tax on the out-of-Canada accounts.
[3] In addition to repair work the
business also sold items such as chain saws, trimmers and lawn
tractors. These items were left on the business premises by
customers and the Appellant for the most part sold the items for
these individuals without receipt of any commission for assisting
in the sales.
[4] During the period under appeal, he
leased a 1998 Dodge Stratus and owned a Jeep Comanche. The jeep
was used 100 percent in the business for deliveries and hauling
equipment. The Dodge was used by the Appellant's wife for
travelling to and from her work, but was also used to some extent
in the business. According to the Appellant's evidence, his
vehicle was used for pick-up and delivery of smaller parts, long
distance business trips and to make bank deposits and run small
errands.
[5] The Appellant claimed business
usage at 92 percent, but the Minister reduced business usage to
15 percent of the time.
[6] The Appellant maintained one log
for both vehicles. He explained that he tracked the total
kilometres for both vehicles and at year-end subtracted the Jeep
Comanche kilometres, as it was used 100 percent in the business,
so that the balance equalled the kilometres used for the Dodge
car.
[7] The Appellant kept two business
accounts - one at CIBC and one at the Credit Union. He testified
that he received military and DVA pensions and sometimes
transferred personal funds to these business accounts to keep the
business operating. He did not, however, enter those transactions
in his ledger, as he considered it personal. The three amounts
relevant to this period were $2,000.00 deposited to CIBC business
account on February 25, 2000, $300.00 deposited to the CIBC
business account on March 2, 2000 and $200.00 deposited again to
the CIBC business account on March 3, 2000. Jacqueline Keating,
the appeals officer, testified that the auditor's working
papers referred to these three amounts as unidentified deposits,
which could not be verified, as the source of these funds could
not be determined.
[8] On January 24, 2000 the Appellant
sold a blower belonging to Doug Murdock for $500.00. This
amount was deposited to the business account. Before selling it,
the Appellant repaired the blower at a cost, including taxes, of
$95.00. He did not charge any additional amount for selling this
equipment for Doug Murdock. On February 5, 2000 the business
issued a cheque to Doug Murdock for the balance being $405.00. He
referred to his deposit slip of January 24, 2000 where he
deposited $500.00 cash. The $405.00 cheque to Murdock was not
properly recorded in the books and cross-referenced.
[9] I must decide, in this appeal,
whether the Appellant is liable for the GST/HST collectible, as
calculated by the Minister, and whether the Appellant is entitled
to ITCs in excess of the amount the Minister has allowed.
[10] At the outset, the Appellant pointed
out a small error of $21.00 in the deposit totals for July 9, 14
and 20 in the year 1999.
[11] The Respondent agreed with this error
and the resulting error changes the Minister's figures of
adjustment to GST/HST collectible from $2,293.00 to $2,272.00. I
stand, counsel, to be corrected on that. I had amounts from
Wednesday where you had given me a $2,272.00 figure?
[12] MS. MCINTYRE: I apologize, Madam
Justice, I did not bring my notes with me today, but that sounds
correct. The $2,271.00 sounds correct, but I am not sure, because
I do not have my notes with me.
[13] MADAM JUSTICE
CAMPBELL: I believe it was $21.00,
and if that is the case - it is only a dollar, but we might as
well get the figures right - that I believe make it $2,272.00
instead of $2,271.00.
[14] MS. MCINTYRE: That sounds
correct.
[15] MADAM JUSTICE
CAMPBELL: As the adjustment to ITCs
claimed remain the same, the Minister's figure for net tax
becomes - and again it is a change of a dollar there -- $4,598.00
instead of $4,597.00.
[16] The Respondent's position is that
the onus is on the Appellant to disprove the Minister's
assessment and that he has not done so, as he has not met the
technical requirements and regulations set out in the Act,
nor has he kept adequate and proper books and records, again, as
required by the Act.
[17] It is clear that the onus is on the
Appellant here. There is no issue of credibility. This case is
simply one of sufficient and adequate record keeping.
[18] The Appellant expressed frustration
with the history of acceptability of his accounting methods. He
initially hired and paid an accountant to set him up with an
acceptable bookkeeping system for the business.
[19] In an audit completed prior to the
present one, the Appellant advised that he was informed by that
auditor that his record keeping system was in order. Although I
sympathize with the Appellant's comments, I must deal with
his appeal with the records as they are presented to me.
[20] In respect to the claim for ITCs in
excess of the amount allowed, Respondent counsel referred me to
the decision of Justice McArthur in 1116186 Ontario Inc. v.
Canada, [2003] T.C.J. No. 730.
[21] That case was in respect to ITCs that
were denied due to lack of documentary evidence. The transactions
were primarily in cash, and the Appellant did not file GST
returns. Justice McArthur relied on the comments of Associate
Chief Justice Bowman of this Court in Helsi Construction
Management Inc. v. Canada, [1997] T.C.J. No. 1194.
[22] In that case, Justice Bowman concluded
that the document requirements referred to in the
Regulations are "mandatory", to use his wording,
and not "directory".
[23] I agree with Justice Bowman's
conclusions in the Helsi case. Paragraph 169(4)(a)
refers to the documentation required to support an ITC claim.
Regulation 3 sets out in detail the prescribed information which
is necessary to support a claim under that paragraph. These are
technical requirements which are clearly set out and referred to
in the relevant provisions and Regulations.
[24] Because of the very specific way in
which these provisions are worded, I do not believe they can be
sidestepped. They are clearly mandatory and the Appellant has
simply not met the technical requirements which the Act
and the Regulations place upon him as a member of a
self-assessing system.
[25] I conclude therefore, in respect to
this issue, that the Minister properly disallowed ITCs claimed by
the Appellant pursuant to subsection 169(1) of the
Act.
[26] The remaining issue relates to the
proper calculation of GST/HST. Here I am accepting the
Appellant's evidence respecting the three deposits of
$2,000.00 on February 25, 2000, $300.00 on March 3, 2000 and
$200.00 on March 2, 2000.
[27] Although the auditor's
documentation verified these amounts as deposits on those dates,
no source was identified and therefore those amounts were not
accepted. The Appellant advised me that he located the three
supporting cheques for these amounts only recently, and that they
were not available for the auditor's review.
[28] Respondent counsel agreed, in her
summation, that credibility was not at issue. I also agree and
therefore accept the Appellant's explanation for these three
deposits - that he had to transfer personal funds, at various
times, to this business to keep it in operation.
[29] Similarly, in respect to the $405.00
cheque to Doug Murdock, the Appellant gave a very plausible
explanation together with supporting cheque when addressing the
$500.00 cash deposit. He lives in a rural area, and as a matter
of courtesy, he accommodates customers by selling their items
with no remuneration to himself. This is often the case in a
rural area where the commercial realities are far removed from
those of the more cosmopolitan areas.
[30] In respect to vehicles, I have no
evidence before me that would suggest that the 15 percent usage
allocated by the Minister for the second vehicle, the 1998 Dodge,
was not reasonable. There is no evidence to suggest it was used
beyond the Minister's allocated 15 percent for business
purposes. In respect to warranty work performed in Canada for
outside companies, it is a taxable supply and HST must be
charged.
[31] The appeal is therefore allowed without
costs to permit adjustments to be made to the Minister's
calculations for GST/HST collectible based on identification of
source of funds for the deposits of $2,000.00, $300.00, $200.00
and $500.00 on February 25, 2000, March 3, 2000, March 2, 2000
and January 24, 2000 respectively. The adjustments shall
also reflect an error of $21.00 in the Minister's original
calculation of GST/HST collectible.
Signed at Ottawa, Canada this 1st day of October 2004.
Campbell J.
Email this Content