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Citation: 2004TCC74
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Date: 20040121
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Docket: 2003-352(GST)I
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BETWEEN:
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736728 ONTARIO LIMITED,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Lamarre, J.
[1] This is an appeal under the
informal procedure from an assessment made on
February 6, 2002 by the Minister of National Revenue
("Minister") under the Excise Tax Act
("Act") for the period from
December 1, 1998 to February 28, 1999. In
assessing the appellant, the Minister disallowed an
input tax credit ("ITC") in the amount of
$12,600 that was claimed pursuant to section 169 of the
Act, which reads as follows:
Subdivision b - Input tax credits
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 x 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.
[2] The facts upon which the
Minister relied in disallowing the ITC are stated in
paragraph 4 of the Reply to the Notice of Appeal, which
reads as follows:
(a) in February
1999, the Appellant purchased the [Piper Navajo] Aircraft for
$180,000 plus $12,600 in GST;
(b) at all material
times, the Appellant was inactive;
(c) at all material
times, the Appellant did not carry out any business;
(d) except for the
ITC of $12,600 claimed, the Appellant filed nil GST returns from
September 1, 1997 to August 31, 2001;
(e) at all material
times, the Appellant had no bank account;
(f) at all
material times, the Appellant had no commercial activities.
[3] The respondent denied the ITC on
the basis that, during the period at issue, the appellant was
carrying on no commercial activity within the meaning of
subsection 123(1) of the Act.
[4] A commercial activity is defined
as follows in subsection 123(1):
"commercial activity" of a person means
(a) a business carried on by the person (other than a business
carried on without a reasonable expectation of profit by an
individual, a personal trust or a partnership, all of the members
of which are individuals), except to the extent to which the
business involves the making of exempt supplies by the
person,
(b) an adventure or concern of the person in the nature of
trade (other than an adventure or concern engaged in without a
reasonable expectation of profit by an individual, a personal
trust or a partnership, all of the members of which are
individuals), except to the extent to which the adventure or
concern involves the making of exempt supplies by the person,
and
(c) the making of a supply (other than an exempt supply) by
the person of real property of the person, including anything
done by the person in the course of or in connection with the
making of the supply.
Issue
[5] The appellant takes issue with the
respondent's position. It contends that it has been operating
a business leasing and selling aircraft since 1993, and that this
business was a going concern before, during and after the period
at issue. This case raises a factual issue and the sole question
to be resolved is whether the Piper Navajo aircraft was acquired
by the appellant during the period at issue for consumption, use
or supply in the course of a commercial activity within the
meaning of the Act being carried on by it, such that it is
entitled to the ITC claimed.
Facts
[6] The appellant is a family-owned
corporation. It belongs to Mrs. Margaret Burns, a
registered nurse, and her son, David Burns, but it has been
managed since it came into existence in 1993 by Mrs. Burns'
husband, Robert Burns, a commercial pilot and a businessman. Mr.
Burns has an air transport licence and is also a qualified
aircraft mechanic, which, he says, are requirements for operating
a commercial airline business. He has been in the commercial
airline business for 35 years.
[7] The appellant purchased in 1993 a
deHavilland Beaver aircraft, a bush plane used in the summer
months and equipped with floats for landing on water. It was
leased by the appellant from 1993 to 1997 inclusive. The last
financial statements prepared for the appellant, that is, those
for the year ended December 31, 1998, show income in the
amount of $34,437 in 1997 from leasing the aircraft (Exhibit
A-2). In 1998, a problem occurred with the lessee and the
aircraft, being tied up in litigation, could not be leased to
someone else. In the same period, a mandatory repair was required
on the plane pursuant to an airworthiness directive. That repair
would have cost the appellant over $20,000. Mr. Burns, who in
1998 had personally acquired controlling shares in another
corporation, Mylight Aircraft Inc., operating as Westair Aviation
("Westair"), then decided that the appellant should
sell the deHavilland Beaver and buy another aircraft, with
regular landing gear, that could be leased to Westair in order to
enhance the growth of both Westair and the appellant.
Westair's business involved operating a flight school, an
aircraft repair facility and a charter air service company
providing corporate people with transportation to locations that
were somewhat difficult to get to with regular airline companies.
At the time Mr. Burns purchased his shares in Westair, that
company was not in a very good financial position.
[8] Thus the deHavilland Beaver
aircraft was sold on November 20, 1998 for $300,000 and the
appellant, who is a registrant under the Act, collected
goods and services tax ("GST") of $21,000 (Exhibit
A-1). The appellant realized a profit of $130,319 from the sale
of this aircraft (see statement of income and retained earnings
of the appellant for the year ended December 31, 1998,
Exhibit A-2). Although it collected $21,000 in GST, the
appellant did not remit it to the Receiver General for Canada at
the time. The total amount of the sale price and the GST were
deposited in the appellant's bank account (an amount of
$107,000 was deposited on November 25, 1998 and a further amount
of $214,000 was deposited on December 7, 1998, for a total of
$321,000; see Exhibit A-11). The appellant did not file an income
tax return for that year, so we do not know whether the profit on
the sale of the aircraft was treated as a capital gain or as a
revenue item for income tax purposes.
[9] The appellant did not report the
sale of the deHavilland Beaver in its quarterly GST returns
either. The GST returns filed in evidence for the periods after
November 1996 show the following, as per Exhibits A-22 and
R-1:
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Reporting period
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Revenue
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From:
December 1, 1996 to February 28, 1997
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$60,000
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March 1, 1997 to May 31, 1997
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0
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June 1, 1997 to August 31, 1997
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$18,000
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September 1, 1997 to November 30, 1997
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0
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December 1, 1997 to February 28, 1998
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0
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March 1, 1998 to May 31, 1998
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0
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June 1, 1998 to August 31, 1998
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0
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September 1, 1998 to November 30, 1998
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0
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[10] All those GST returns were filed a
month or so after the end of each quarterly period, the last
having been filed in January 1999. The appellant also filed, all
together, in December 1999, GST returns for the quarterly periods
from December 1, 1998 to August 31, 1999 showing nil revenue (as
per Exhibits R-2 and R-3).
[11] Mr. Burns testified that after the sale
of the deHavilland Beaver, he started shopping right away for
another aircraft corresponding to the needs of Westair. The Piper
Navajo was finally purchased in February 1999 for $180,000 plus
$12,600 GST (Exhibit A-3). The plane required some repairs that
had to be done to meet the applicable airworthiness standards
(Exhibit A-6). It was only in April 1999 that Westair
obtained an operating certificate for that plane. Both
Mr. and Mrs. Burns testified that Westair began leasing the
Piper Navajo in April 1999. They could not find, however, any
lease agreements showing that the plane was, in fact, leased to
Westair as of April 1999. The first lease agreements that
were filed in evidence were for periods starting after
February 28, 2000 (see Exhibits A-4 and A-5). Mr.
Burns said that there had been lease agreements with Westair
since April 1999. A lease agreement was a mandatory
requirement of Transport Canada. Without such an agreement,
Westair could not have operated the aircraft. It can be seen from
the logbook pertaining to the Piper Navajo
(Exhibit A-6) that the plane did not fly between the months
of February 1999 and April 1999, in which month it
started to fly again.
[12] Mr. and Mrs. Burns testified that the
plane generated approximately $1,500 to $1,700 per month that was
used to pay the loans secured by their house and their chalet,
that had been taken out in order for the appellant to purchase
the aircraft (see also the letter written by Mr. Burns to the
Canada Customs and Revenue Agency ("CCRA") on
February 26, 2002, Exhibit R-4, and the documents stating
the amounts due on the loans, Exhibits A-7, A-8 and A-9). Indeed,
the appellant has filed numerous documents to show that Mr. and
Mrs. Burns had granted a mortgage on their house and
extended their line of credit on their chalet (which line of
credit was eventually transformed into a mortgage), for an
approximate total amount of between $180,000 and $200,000 (see
Exhibits A-7, A-8 and A-9). The extensive documentation also
shows that in early 1999 Mr. and Mrs. Burns personally made the
payments due on the loans (Exhibit A-10) and that the appellant
took over making those payments in mid-1999 (Exhibit A-11).
Mr. Burns testified that he and his wife were reimbursed by the
appellant by cheque for the mortgage payments and that the
appellant in turn was reimbursed by Westair through the lease
payments. Mr. Burns also testified that Westair started
making the mortgage payments directly in December 1999. There is,
however, no bank statement to show that Westair actually made any
payments on the mortgage in 1999, either directly or indirectly.
The Westair bank statements provided in Exhibit A-12 start
in June 2001, and they do in fact indicate that, at that
time, Westair was paying the mortgage directly.
[13] However, the appellant filed the
financial statements for Westair for the years ended March 31,
2000 through March 31, 2003 (see Exhibits A-13, A-14, A-15 and
A-16). The statements of income and retained earnings therein
show that Westair had flight operations costs. For the year ended
March 31, 2000, the appellant was able to show that the amount of
$220,694 entered under the item "Flight operations"
included amounts totalling $19,768 ($12,498 + $7,270) paid to the
appellant in that year by Westair (see working paper from Quigley
Kelly, accountants for Westair, for the year ended
March 31, 2000, filed as Exhibit A-20). The
evidence also indicates that the payments on the loans taken out
to purchase the aircraft amounted to about $1,500 to $1,700 per
month, for a total of approximately $18,000 to $20,400 per year,
which in fact is very close to the figure of $19,768 referred to
above as having been paid by Westair to the appellant for flight
operations. The appellant also filed a document entitled
"Westair Aviation General Ledger as of
April 1, 2000" (Exhibit A-19), which shows a
total account payable to the appellant in the amount of $14,487
for the period from March 31, 1999 to March 30, 2000.
This document shows that the amounts paid correspond to the
amounts of the payments on the loans and it also shows that,
starting in December 1999, Westair made the payments on
those loans directly to the financial institutions concerned.
Furthermore, the comparative profit and loss statements of
Westair filed for the years ended March 31, 2000
through March 31, 2003 (see Exhibits A-17 and A-18)
show two specific items which seem to be related to the leasing
of the aircraft from the appellant. One item is "Aircraft
Lease Costs" and the second is
"PA-31 Expenses". The appellant was able to
demonstrate that the "PA-31 Expenses" were
related to its aircraft. Indeed, in the Westair general ledger
for the year ended March 31, 2003 (Exhibit A-19, pp. 2
and 3), we see that that account ("PA-31 Expenses")
comprises the mortgage payments made to the appellant or to the
financial institutions. Mr. Burns also testified that the
mortgage payments made by Westair were only with respect to the
appellant's aircraft. In addition, for the year ended in
March 2003, we see that in the financial statements the two
accounts "PA-31 Expenses" and "Aircraft Lease
Costs" are grouped together, and accounted for, in flight
operations costs (see Exhibits A-16 and A-21), which
costs, as stated above, include the mortgage payments. As the
Westair general ledger "as of April 1, 2000"
likewise shows some "PA-31 Expenses", it is possible to
infer that this account was related to the leasing of the
aircraft and that these expenses were accounted for in flight
operations costs in the financial statements prepared for Westair
for the year ended March 31, 2000.
[14] Mr. Burns explained that, under
the lease, the appellant did not charge Westair more than the
amount of the loan payments because Westair had to get back on
its feet. However, he had expectations that the demand for the
services provided by Westair would increase, thereby creating
more revenues for Westair and consequently for the appellant,
which could then increase the amount it charged under the lease
for the use of the aircraft. In the years 1999 through 2002,
however, the aircraft flew to only half of its capacity in terms
of time. It flew an average of 250 hours per year when,
according to Mr. Burns, it should have flown 500 hours
or more. Mr. Burns said that the airline industry declined
after September 11, 2001. Other reasons explaining a
slow start for the Piper Navajo aircraft were a poor
economy, especially in the high-tech industry, which took a
tumble, resulting in fewer people flying from the Ottawa area to
the United States, and later on the Severe Acute Respiratory
Syndrome (SARS), which eliminated most of the trips going through
the city of Toronto.
[15] No financial statements were prepared
for the appellant after the year ended March 31, 1998.
As stated above, it consistently filed nil GST returns after
August 31, 1997 and did not file income tax returns
either for the years subsequent to 1997. The appellant did not
declare the sale of the deHavilland Beaver aircraft, nor did
it claim any ITC with respect to the purchase of the Piper Navajo
aircraft on filing the original GST returns. It was only after it
was audited, and first reassessed on October 2, 2000
(Exhibit A-25) for the payment of the $21,000 that was not
remitted to the Receiver General for Canada at the time the
deHavilland Beaver was sold, that the appellant wrote to the CCRA
to obtain a credit for the GST paid ($12,600) on the purchase of
the Piper Navajo aircraft (see the notice of objection dated
October 25, 2000, Exhibit A-27; see also the
letters sent by Mrs. Margaret Burns to the CCRA in March and
April 2001, filed as Exhibits A-28 and A-29, in which
she claims that the appellant's liability was only the
difference between what it owed the CCRA ($21,000) and what the
CCRA owed it ($12,600), namely $8,400). It was at that point that
Mrs. Burns began making payments to the CCRA in respect of
the amounts due on the appellant's GST account (see Exhibits
A-29 and A-30). In May 2001, Mrs. Burns wrote to the
CCRA to correct the GST return filed for the period from
December 1, 1998 to February 28, 1999 by
claiming an ITC of $12,600 for that period (Exhibit A-31). The
actual amended GST return for that period was received by the
CCRA on November 8, 2001 (Exhibit R-2).
[16] The ITC claim was refused by the CCRA
on the basis that it considered that the appellant had not
operated any business during that period. The fact that no
financial statements were prepared after 1998, combined with the
fact that the appellant had filed nil GST returns since
September 1997, was an indication, according to the CCRA,
that the appellant was inactive.
[17] Mr. and Mrs. Burns both testified
that they separated in 1999. After 1998, it was Mrs. Burns
who filed the nil GST returns. She and Mr. Burns testified
that they were under the impression that GST returns had to show
income only when it was over $30,000. Mrs. Burns also said
that she indicated nil income because the net income, that is,
the lease income less the mortgage payments, was nil.
Furthermore, the Burns did not think that the proceeds of the
sale of the aircraft had to be included as income for GST
purposes. That is their explanation as to why nil GST returns
were filed. As for the absence of financial statements after
1998, Mr. Burns said that he was under the impression at the
time that he could not get the bank statements and cancelled
cheques necessary to prepare them. As he and his wife had
separated, he was no longer directly involved in the
appellant's bookkeeping. His wife took over the bookkeeping
responsibility in 1999, and she, in fact, confirmed that she was
the one who filed at the end of 1999 nil GST returns for that
entire year. She said that she was not aware that financial
statements had to be prepared yearly. She also admitted she had
said to an officer of the CCRA during the audit that the
appellant was inactive in 1999. She said at the hearing that she
did not understand the meaning of a company being inactive. In
fact, she was then under the impression that the appellant was
inactive because she felt there was no real revenue being
generated, only loans being serviced, and, in her view, at the
time, that was not in fact doing business (see transcript, volume
2, page 223).
[18] Mr. Burns also explained that
Westair had a computerized system which allowed records to be
kept of all relevant dealings of Westair on a daily basis, so
that that information would be available to the bookkeeper. He
said that no such system existed for the appellant because its
only revenue consisted of the reimbursement of the loan payments.
He also explained that it was his understanding, at the time,
that where one earned only a small amount of revenue, there was a
simplified method whereby one was not required to collect GST
that would be offset by any ITCs claimed - in this instance, ITCs
with respect to purchases of parts or things necessary for the
aircraft (see transcript, volume II, page 119). He also said
that, as the appellant's income was the reimbursement of the
loan payments, which went directly to the financial institutions
concerned, he did not think that the appellant had to declare any
income because, in fact, the income did not stay in the
appellant's account. He now recognized that he had been
mistaken in this regard.
Appellant's Argument
[19] The issue is whether the appellant is
entitled to an ITC for the period from December 1, 1998
to February 28, 1999. The appellant had to show that it
was carrying on a commercial activity during that period and, in
its view, it did so demonstrate. Under the definition of
commercial activity in the Act, a corporation has only to
show that it was carrying on a business during the relevant
period. Under that definition, the requirement of a reasonable
expectation of profit does not apply to corporations. Business is
defined as follows in subsection 123(1):
"business" includes a profession, calling,
trade, manufacture or undertaking of any kind whatever, whether
the activity or undertaking is engaged in for profit, and any
activity engaged in on a regular or continuous basis that
involves the supply of property by way of lease, licence or
similar arrangement, but does not include an office or
employment.
[20] The appellant contends that it has been
in the business of leasing and of investing in the purchase and
sale of aircraft since 1993. The fact that during the period at
issue there was a lull in the leasing activity, as the appellant
had previously disposed of its deHavilland Beaver and then,
during the said period, purchased another aircraft, does not mean
that the business was not still being carried on. The evidence
presented at trial showed that the appellant had decided to
pursue an alternate direction in the airline business. It had
decided to sell the float plane and to move towards being a
charter operation and doing flight training, so it required a
regular aircraft. The leasing activities started as soon as the
Piper Navajo aircraft met the airworthiness standards. In the
appellant's view, there is enough evidence to establish that
the plane was leased to Westair for an amount equivalent to the
line of credit interest and the mortgage payment. The fact that
the payment was sometimes made to the appellant indirectly does
not alter the fact that it was made.
[21] Furthermore, the fact that books and
records were not properly maintained and that tax returns were
not filed, does not cause the business to cease to exist. There
are provisions in the Act to deal with taxpayers who fail
to report properly, or who make misrepresentations or are
negligent in their reporting. Penalties are assessed in such
instances and were in fact assessed in the present case. Indeed,
the appellant was assessed a penalty for having failed to report
and remit the GST on the sale of the deHavilland Beaver aircraft.
The appellant does not contest that penalty. However, this should
not be determinative of the question of whether a business was
carried on or not during the period at issue.
[22] Although there was no revenue coming in
during that period, that does not mean that there was no
commercial activity going on in that same period. In fact, it is
the appellant's position that it never stopped its commercial
activities. It was simply reconfiguring its business.
Respondent's Argument
[23] The respondent is of the view that
since it reported no sales or revenues in the period from
September 1, 1997 through August 31, 2001,
the appellant was not engaged in a commercial activity. The
respondent argues that the evidence does not show on a balance of
probabilities that the appellant was carrying on a business
during the period under appeal. In her view, the appellant did
not in any manner utilize the Piper Navajo aircraft as part of a
profit-making activity. Since, at no material time, did the
appellant report any taxable supplies, it must have been making
either exempt supplies or no supplies at all and therefore it was
not engaged in a commercial activity. The respondent relies on
the case of Two Carlton Financing Ltd. v. Canada,
[1998] T.C.J. No. 447 (Q.L.), affirmed [2000] F.C.J. No. 15
(Q.L.) (F.C.A.), to submit that, while the Act does not
expressly require the existence of taxable supplies for there to
be a commercial activity, the absence of taxable supplies may
support a conclusion that there is no commercial activity.
[24] The respondent observes that the
appellant chose to file repeated nil GST returns. Mr. Burns, in
the respondent's view, has demonstrated indifference to his
own and to the appellant's tax obligations and to the
preparation of the appellant's financial statements after
1998. In the face of such negligence, Mr. Burns cannot now
ask the Court to rely on his word about the relationship between
the appellant and Westair. The respondent submits that this Court
cannot ignore the repeated nil GST returns which, by their very
nature, demonstrate the absence of taxable supplies and therefore
the absence of a commercial activity.
Analysis
[25] It is true that the appellant has been
largely negligent with respect to its legal responsibility to
prepare either its financial statements or its GST and income tax
returns after the sale of the deHavilland Beaver aircraft in
November 1998. It is also true that in the face of such
negligence, the credibility of Mr. Burns, who was, in fact,
the controlling mind behind the appellant, is compromised such
that his testimony alone cannot override a history of
GST returns showing nil income.
[26] However, I agree with the appellant
that such indifference or negligence is not conclusive as to
whether the appellant operated a business or not. I agree with
the appellant that indifference or negligence of this nature is
dealt with elsewhere in the Act, that in fact the
appellant was charged a penalty in that regard, and that this
matter should have little bearing on the question before me,
namely: was the appellant carrying on a business during the
period when it acquired the Piper Navajo aircraft?
[27] I also agree with the appellant that it
does not need to show income in any one period in order to be
exercising a commercial activity. Furthermore, under the
Act, it is not expressly required that the reasonable
expectation of profit test be met for a corporation to be
exercising a commercial activity, as is the case, for example,
with individuals.
[28] Having said this, I am satisfied that
the appellant has demonstrated on a balance of probabilities that
it was operating a business even during the period at issue, when
no income was being generated. Although I would not go as far as
to say that it was operating a business buying and selling
aircraft, I am nonetheless satisfied that it was operating some
kind of business within the meaning of the Act. Business
is defined in the Act as including, among other things, an
undertaking of any kind whatever, whether the activity or
undertaking is engaged in for profit, and any activity engaged in
on a regular or continuous basis that involves the supply of
property by way of lease, licence or similar arrangement.
[29] The documentary evidence provided by
the appellant is sufficient to show that the appellant had
generated income in the past with the deHavilland Beaver aircraft
and that it did so thereafter with the Piper Navajo. Although the
appellant did not provide the first lease agreements, which would
have corroborated the testimony that the Piper Navajo aircraft
was leased as soon as it met the requirements of the Transport
Canada regulations, it nevertheless provided enough documentation
to convince me that the plane was leased to Westair as of
April 1999 for an amount equivalent to the payments to be
made by the appellant on the loans taken out to purchase the
aircraft. The statement of income and retained earnings of
Westair for its April 1, 1999 to March 31, 2000 fiscal year and
the working paper of Westair's accountant, the general ledger
of Westair and the aircraft's logbook for the same period
contain enough information, in my view, to allow one to conclude
that Westair did in fact lease the Piper Navajo aircraft from the
appellant as early as 1999 for the amount of the mortgage and
line of credit payments. This is confirmed by Mrs. Burns,
who testified that it was clearly in the appellant's interest
to lease the aircraft to Westair as soon as it was operational in
order to meet the mortgage payments (see transcript,
volume 2, page 219).
[30] Contrary to the respondent's
contention, the written documents provided are not all posterior
to the date of the first reassessment. A close examination of the
documents filed by the appellant shows that most of them relate
to Westair's fiscal year starting April 1, 1999 and
ending March 31, 2000. The appellant was first
reassessed in October 2000.
[31] I am also satisfied that the appellant
did not cease operating a business when it sold the deHavilland
Beaver aircraft. The evidence disclosed that the Piper Navajo was
acquired only three months after the sale of the
deHavilland Beaver, and was operational one month after its
acquisition, which does not sound like an inordinate length of
time for a taxpayer that is reconfiguring its business. The
purchase of an airplane is certainly a major investment and a
reasonable amount of time is required for closing such a
transaction.
[32] The fact that no financial statements
were prepared for the appellant after 1998 is certainly a fact
that is not favourable to the appellant's position. Indeed, a
corporation that claims to be in business ought to prepare
financial statements. However, in the particular circumstances of
this case I accept the explanations given by Mr. and
Mrs. Burns. They were in the process of separating in 1999.
Mr. Burns testified that, from that time on, he no longer
had possession of the appellant's bank statements and
cancelled cheques, as the appellant was legally owned by
Mrs. Burns and their son. Mrs. Burns, who never had a
close look at the appellant's business before her separation
from her husband, testified that she did not know that financial
statements had to be prepared on a yearly basis. She also
testified that she thought the appellant was not required to
declare income on its GST returns, as Westair was only
reimbursing the appellant for its mortgage payments. As soon as
she realized that the appellant owed the government GST, she
immediately took action to pay the GST owing.
[33] Although
Mr. Burns' approach towards his own and the
appellant's financial and tax obligations is not approved of
and should be altered for the future, I am of the view that the
benefit of the doubt should be given to the appellant regarding
its failure to prepare financial statements and to properly file
its GST and income tax returns, and that one should not rush to
the conclusion that it was not operating a business.
[34] I find that this case is
distinguishable from Two Carlton Financing Ltd.,
supra, referred to by the respondent. In that case, the
taxpayer corporation did not report any taxable supplies and did
not collect GST during the period at issue because it was engaged
in providing services that constituted exempt supplies. The
taxpayer tried to convince the Court that it was not providing
exempt supplies, but was engaged in a commercial activity, which
argument was not accepted by the Court on the evidence presented
at trial. Here, it is true that the appellant did not report
taxable supplies in 1999,[1] but the evidence presented before me at trial suggests
that this was a mistake and establishes, in my view, that the
appellant carried on a commercial activity, as defined in the
Act, throughout 1999 and thereafter.
[35] I therefore conclude that the appellant
has demonstrated on a balance of probabilities that it was
carrying on a commercial activity in the period at issue. The
appellant is consequently entitled to an ITC in the amount of
$12,600 in respect of the purchase of the Piper Navajo
aircraft.
[36] The appeal is allowed, with costs, and
the assessment is referred back to the Minister of National
Revenue for reconsideration and reassessment on the basis that
the appellant is entitled to an input tax credit in the amount of
$12,600 for the period in question.
Signed at Ottawa, Canada, this 21st day of January 2004.
Lamarre, J.
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