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Citation: 2004TCC151
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Date: 20040218
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Docket: 2003-361(GST)I
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BETWEEN:
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KEN E. WITZKE,
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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
Beaubier, J.
[1] This appeal was heard at Kelowna,
British Columbia on February 12, 2004. The Appellant
testified. The Respondent called Stewart Mason, the accountant
for Bell Pole Co. Ltd.
[2] The particulars in dispute are set
out in paragraphs 5 to 13 of the Reply to the Notice of Appeal.
None of the assumptions were refuted. The paragraphs read:
5. By Notice
of Assessment numbered 12260000692, dated September 13, 2000, the
Minister of National Revenue (the "Minister") assessed
the Appellant for under-reported net tax of $88,200.39, as
detailed in the attached Schedule "A", plus penalty and
interest of $23,391.79 and $17,90.45(sic) respectively for
the reporting periods from January 1, 1993 to December 31, 1997,
(the "Assessment Period").
6. The
Appellant filed a Notice of Objection on
October 12, 2001.
7. By Notice
of Decision issued October 24, 2002, the Minister confirmed the
assessment.
8. In so
assessing and confirming, the Minister relied on the following
assumptions of fact:
a) the
Appellant is an individual who, at all material times, was
involved in the following business activities: logging (the
"Logging Activity"), fruit orchards and apartment
rentals;
b) the
Appellant registered under Part IX of the Excise Tax Act, R.S.C.
1985, c. E-15, (the "Act"), effective January 1,
1991, and was assigned Registration number 12332 7579RT;
c) at all
material times, the Appellant owed (sic) numerous
properties in the Okanagan region of British Columbia;
d) at all
material times, the Appellant made taxable supplies of logs and
fruit and exempt supplies of residential real property;
e) at all
material times, the supply of logs was taxable at the standard
rate of 7%;
f) at
all material times, the Appellant collected or was required to
collect GST on the sale of logs;
g) for the
Assessment Period the Appellant file (sic) his GST returns
reporting no GST, input tax credits ("ITC") of
$40,458.20, claiming net refunds of $40,458.20, as detailed in
the attached Schedule "B";
h) at all
material times, the Appellant did not report any GST in respect
of the Logging Activity;
i)
during the Assessment Period, the Appellant under-reported GST of
$109,162.74, in respect of the Logging Activity, as detailed in
the attached Schedule "A";
j) in
respect of the Logging Activity, the Appellant and was allowed
ITC of $20,962.35, as detailed in the attached Schedule
"A";
k) at all
material times, the Appellant knew that he was not accounting for
the GST on his Logging Activity; and
l) the
Appellant did not exercise due diligence in ensuring that the
correct amount of net tax was reported and remitted to the
Receiver General;.
m) after being
assessed, the Appellant invoiced his customers the GST not
originally invoiced and received direct payments from some of his
customers.
n) with
respect to the supplies made to Bell Pole,
i) the
Appellant had a mortgage payable to Bell Pole;
ii) pursuant
to an arrangement, Bell Pole applied all amounts invoiced to it
during the Assessment Period to the mortgage owed by the
Appellant;
iii) pursuant
to the arrangement, the GST invoiced (the "Invoiced
Amount") by the Appellant was also applied against the
mortgage owned to Bell Pole; and
iv) the Appellant
did not incur a bad debt.
B. ISSUE
TO BE DECIDED
9. The issue
is whether the Appellant failed to report and remit net tax of
$88,200.39.
C.
STATUTORY PROVISIONS RELIED ON
10. He relies on
subsections 123(1) and 298(4), sections 165, 221, 222, 225, 228,
231, 280 and 296 of the Act.
D.
GROUNDS RELIED ON AND RELIEF SOUGHT
11. He respectfully
submits that at all material times the Appellant made taxable
supplies of logs to his customers, and that he failed to report
GST that was collected or collectible of $109,162.75, and remit
net tax of $88,200.39, as required by section 228 of the Act.
12. He submits that the
Appellant did not incur a bad debt during and subsequent to the
Assessment Period, as he received, within the meaning of
subsection 123(1) of the Act, the Invoiced Amount as
consideration when it was applied against the debt owed to Bell
Pole, and thus was paid to him at law.
13. He further submits
that the Appellant has not incurred a bad debt as no amount was
written off his books and records as provided by subsection
231(4) of the Act.
[3] The Court finds, on the evidence,
that in assumption 8(c), the word "owed" should be
"owned"; and in 8(n)(ii) and (iii), the arrangement was
simply a set-off by Bell Pole Co. Ltd.
[4] The Appellant is a well-educated,
competent and successful businessman. He did not file his 1994 to
1997 inclusive income tax returns until 1998. From the evidence,
part of the reason for this may have been a series of family
tragedies in the years 1992 to 1995. However, he is a major
orchardist and his GST filings were attended to by an accountant
and appear to have been filed on a timely basis. In particular,
his input tax credits were claimed, but his GST payments due on
major logging income were not reported or paid.
[5] The Appellant testified that, in
particular, Bell Pole Co. Ltd., didn't report to him on a
timely basis. Stewart Mason testified that the company records
appeared to indicate that it did. The Appellant also suggested
that the GST from Bell Pole Co. Ltd. should have been paid to him
directly and not offset against the mortgage which he had granted
Bell Pole Co. Ltd. to secure its advances to him against the wood
that it logged from his land.
[6] However, the provisions of the
Excise Tax Act allow the GST to be paid to the Appellant
in the manner adopted by Bell Pole Co. Ltd. Moreover, the
Appellant had similar deals with other logging companies which
were paying the GST to him as the logging occurred. There is no
evidence that he was ignorant of Bell Pole Co. Ltd.'s logging
activities, although he testified that its reports to him were
late.
[7] On the evidence before the Court,
the entire appeal is dismissed.
Signed at Saskatoon, Saskatchewan this 18th day of February,
2004.
Beaubier, J.
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