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Citation: 2004TCC285
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Date: 20040407
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Docket: 2003-2990(GST)I
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BETWEEN:
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HARBHAJAN SINGH DOSANJH,
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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
Miller J.
[1] Mr. Dosanjh is a taxi driver. He
mistakenly believed he could claim "small supplier"
status for purposes of the Excise Tax Act
("Act") for the years in question. He was wrong.
The Minister of National Revenue ("Minister") assessed
him for the period from July 1, 1997 to December 31, 2001
("Period") for goods and services taxes
("GST") in the amount of $7,144.41, and the Minister
denied input tax credits ("ITCs") of $628.04. The
Minister based his GST assessment on income amounts reported by
Mr. Dosanjh in his 1997 to 2001 income tax returns. Apart from
2001, the Minister did not allow Mr. Dosanjh any ITCs, reasoning
that Mr. Dosanjh had not sought any, and that he had not provided
appropriate documents in prescribed form to be entitled to claim
any ITCs. At the outset, I wish to indicate my concern with an
approach that would rely on a taxpayer's reported income to
assess GST, yet completely ignore the taxpayer's reported
expenses for purposes of determining reasonable ITCs. The result
is harsh. I do not suggest taxpayers can blatantly ignore the
rules - obviously not. I do suggest however that taxpayers might
expect an element of reasonableness in the manner in which their
objections are handled, especially given
"reasonableness" is a concept sprinkled liberally
throughout our tax legislation.
Facts
[2] Mr. Dosanjh received advice from
his accountant in 1996 that he was a small supplier for purposes
of the Act. He proceeded to deregister his taxi business
for purposes of the Act effective December 31, 1996. Not
until late in 2001 did Mr. Dosanjh realize his error and he
reregistered effective November 1, 2001. He reported GST
collected of seven percent of his yearly reported income of
$34,964, which was his total business income for the year, as
shown on his statement of business account filed with his 2001
income tax return. This resulted in his estimation of GST of
$2,447.48. He also claimed ITCs of $3,022.63. The Minister
allowed ITCs of $2,394.59, though offered no explanation at trial
on what basis such ITCs were permitted. Mr. Dosanjh reported
expenses for income tax purposes in 2001 was $27,118.
[3] Mr. Dosanjh's income tax
returns, filed for 1997 to 2001, were tendered in evidence. They
indicated the following:
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1997
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1998
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1999
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2000
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2001
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Taxi income
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$ 3,298
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$29,985
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$34,520
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$34,260
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$34,964
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Business expenses
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Business tax, fees, licence
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$ 9,680
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$ 96
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$ 82
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$ 5,400
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Fuel
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$ 2,940
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$ 4,680
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$ 5,862
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$ 3,956
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Insurance
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$ 4,000
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$ 3,400
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$ 3,400
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$ 3,421
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Interest
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$ 90
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$ 84
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$ 60
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Repairs
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$ 364
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$ 3,284
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$ 842
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Meals
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$ 1,430
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$ 2,860
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$ 1,200
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Professional fees
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$ 150
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$ 150
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Utilities/plus
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$ 720
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$ 542
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Radio dispatch
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$ 5,400
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$ 5,400
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$ 5,400
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Plate rental
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$ 9,600
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$ 9,600
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$ 8,971
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Supplies
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$ 784
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CCA
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$ 5,368
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Total
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__________
0
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_________
$24,774
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_________
$29,404
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_________
$27,972
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_________
$27,118
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[4] I accept Mr. Dosanjh's
evidence that these were legitimate business expenses. The
returns appear to have been assessed as filed. Mr. Dosanjh did
not present supporting documentation in connection with these
expenses, other than a typed note from a Mr. Anwar Warwar, who
verified that Mr. Dosanjh paid a monthly fee to the "taxi
plate owner" of $800 including GST for the period January 1,
2000 to December 31, 2000. Mr. Dosanjh had requested this
information from Mr. Warwar for purposes of this trial.
There is no issue with respect to the fact that Mr. Dosanjh
carried on the business of driving a taxi for the period in
question, and also that he incurred the expenses and earned the
income just reviewed.
[5] The Crown did not call anyone from
Canada Customs and Revenue Agency ("CCRA"), but counsel
advised me that the GST assessed against Mr. Dosanjh was
determined by simply multiplying the reported income from his
income tax returns by seven percent, resulting in the
following:
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1997
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1998
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1999
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2000
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2001
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Total
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Income
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$ 3,298
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$29,985
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$34,520
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$34,260
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$34,964
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GST @ 7%
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$ 230
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$ 2,098
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$ 2,416
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$ 2,398
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$ 2,447
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$ 9,589
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ITC
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0
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0
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0
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0
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$ 2,394
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Tax owing
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$ 7,195
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[6] There is a slight discrepancy
between the amount owing of $7,195, which the Respondent assumed
in his Reply to the Notice of Appeal versus the assessed amount
of GST of $7,144.
Analysis
[7] The first issue is the correctness
of the Minister's assessment of GST for the years 1997
through 2001. Subsection 240(1.1) of the Act requires
every small supplier who carries on a taxi business to be
registered. Mr. Dosanjh carried on a taxi business. He should
have been registered. He should have collected and remitted GST.
He was not eligible for the small supplier treatment, which would
have allowed him to not charge, and, consequently, not remit the
GST. It is for Mr. Dosanjh to determine who might be
responsible for any loss he incurs as a result of this mistaken
belief.
[8] What should Mr. Dosanjh have
charged and remitted? The Crown suggests seven percent of his
income reported for income tax purposes. Indeed, in determining
his 2001 GST owing, Mr. Dosanjh relied on the same approach. If
Mr. Dosanjh did not charge GST on that income and is now being
asked to remit as though he did, the remittance, I would suggest,
should be based on the income being GST inclusive. For example,
if Mr. Dosanjh had a $30 fare, he should have collected $32.10,
but he did not. He only collected $30. How can we deem him
to be holding monies in trust for the government that he never
received. That $30 should be broken into a fare portion of $28.04
and a notional GST of $1.98, which was charged and received, but
not remitted. Working through the math, rather than charging GST
of $9,589, the GST should have been calculated on the basis that
it was included in the fares charged, in which event the amount
of GST is $8,962.
[9] The next step is the determination
of ITCs. Mr. Appavoo, for the Respondent, referred me to
subsection 169(4) of the Act, along with the Input Tax
Credit Regulations ("Regulations"), section
3. They read as follows:
169(4) A registrant may not claim an input tax credit for a
reporting period unless, before filing the return in which the
credit is claimed,
(a) the registrant has obtained sufficient evidence in
such form containing such information as will enable the amount
of the input tax credit to be determined, including any such
information as may be prescribed; and
(b) where the credit is in respect of property or a
service supplied to the registrant in circumstances in which the
registrant is required to report the tax payable in respect of
the supply in a return filed with the Minister under this Part,
the registrant has so reported the tax in a return filed under
this Part.
Section 3. For the purposes of paragraph 169(4)(a) of the
Act, the following information is prescribed information:
(a) where the total amount paid or payable shown on the
supporting documentation in respect of the supply or, if the
supporting documentation is in respect of more than one supply,
the supplies, is less than $30,
(i) the name of the supplier or the intermediary in respect of
the supply, or the name under which the supplier or intermediary
does business,
(ii) where an invoice is issued in respect of the supply or
the supplies, the date of the invoice,
(iii) where an invoice is not issued in respect of the supply
or the supplies, the date on which there is tax paid or payable
in respect thereof, and
(iv) the total amount paid or payable for all of the
supplies;
(b) where the total amount paid or payable shown on the
supporting documentation in respect of the supply or, if the
supporting documentation is in respect of more than one supply,
the supplies, is $30 or more and less than $150,
(i) the name of the supplier or the intermediary in respect of
the supply, or the name under which the supplier or intermediary
does business and the registration number assigned under section
241(1) of the Act to the supplier or the intermediary, as the
case may be,
(ii) the information set out in subparagraphs (a)(ii) to
(iv),
(iii) where the amount paid or payable for the supply or the
supplies does not include the amount of tax paid or payable in
respect thereof,
(A) the amount of tax paid or payable in respect of each
supply or in respect of all of the supplies, or
(B) where provincial sales tax is payable in respect of each
taxable supply that is not a zero-rated supply and is not payable
in respect of any exempt supply or zero-rated supply,
(I) the total of the tax paid or payable under Division II of
Part IX of the Act and the provincial sales tax paid or payable
in respect of each taxable supply, and a statement to the effect
that the total in respect of each taxable supply includes the tax
paid or payable under that Division, or
(II) the total of the tax paid or payable under Division II of
Part IX of the Act and the provincial sales tax paid or payable
in respect of all taxable supplies, and a statement to the effect
that the total includes the tax paid or payable under that
Division,
(iv) where the amount paid or payable for the supply or the
supplies includes the amount of tax paid or payable in respect
thereof and one or more supplies are taxable supplies that are
not zero-rated supplies,
(A) a statement to the effect that tax is included in the
amount paid or payable for each taxable supply,
(B) the total (referred to in this paragraph as the "total tax
rate") of the rates at which tax was paid or payable in respect
of each of the taxable supplies that is not a zero-rated supply,
and
(C) the amount paid or payable for each such supply or the
total amount paid or payable for all such supplies to which the
same total tax rate applies, and
(v) where the status of two or more supplies is different, an
indication of the status of each taxable supply that is not a
zero-rated supply; and
(c) where the total amount paid or payable shown on the
supporting documentation in respect of the supply or, if the
supporting documentation is in respect of more than one supply,
the supplies, is $150 or more,
(i) the information set out in paragraphs (a) and (b),
(ii) the recipient's name, the name under which the
recipient does business or the name of the recipient's duly
authorized agent or representative,
(iii) the terms of payment, and
(iv) a description of each supply sufficient to identify
it.
[10] Mr. Appavoo also relied upon the
following passage from Associate Chief Justice Bowman in the case
of Helsi Construction Management Inc. v. The Queen, [2001]
T.C.J. No. 149 (Q.L.) at paragraph 13:
We are dealing with one of the technical requirements under a
statute that is somewhat unique for its specificity. Moreover, it
is the foundation of a self-assessing system that operates
in the commercial world. Unfortunate as it may seem to the
appellant, rules are rules.
[11] Presumably this was offered as support
for a rigid adherence to technical requirements that achieves a
result completely out of whack with commercial reality, and,
indeed, out of sync with an objective of the GST system. Yes,
rules are rules, and technical requirements are necessary to
ensure that the process of collecting GST works. They are not
intended, however, to ensure windfall receipts for the
government. They must be applied sensibly. Here, Mr. Dosanjh
received advice from his accountant that he was a small supplier,
and therefore did not have to register. He was unaware of
subsection 240(1.1), which required registration. For the years
in question he operated under this misapprehension and neither
charged nor remitted GST. He did however continue to incur
expenses, expenses acceptable to CCRA for purposes of determining
Mr. Dosanjh's taxable income. But, because Mr. Dosanjh
cannot now produce receipts with prescribed information, these
expenses have no impact on the determination of the amount Mr.
Dosanjh should remit. As stated at the outset, this is a harsh
result. What is curious however is that the Respondent did allow
ITCs in 2001 to the extent of $2,394, but provided me with no
evidence on what basis it did so.
[12] I do not construe subsection 169(4) as
a requirement for a taxpayer to have to produce prescribed
information to CCRA. It only requires that the "the
registrant has obtained sufficent evidence . . .". The
requirement is for Mr. Dosanjh to have, at some point prior
to claiming ITCs, the necessary evidence. CCRA did not find fault
with the expenses for income tax purposes, and I accept
Mr. Dosanjh's evidence that he incurred those expenses.
We are not talking about quantum - we are only talking about
whether Mr. Dosanjh has satisfied the obligation to have
obtained the necessary prescribed information. Unfortunately, we
have little evidence of what exactly Mr. Dosanjh did obtain to
know whether it met the requirements of the Regulations.
To review the Regulations previously cited, it is clear
they require the following information for expenses incurred of
less that $30:
- name of supplier
- date
- amount paid
For expenses between $30 and $150 the following additional
information is required:
- registration number
- amount of tax, if not included in the amount paid
For those expenses over $150 the following further information
is required:
- name of recipient
- terms of payment
- description of supply.
[13] Looking at the actual accepted expenses
during the Period, and applying a good dose of common sense to a
determination of whether Mr. Dosanjh obtained this information I
conclude the following:
1. Fuel
Filling up at any gas station will produce the necessary
information required for payments under $150. Mr. Dosanjh meets
the requirement for this expense, which totals $17,438 over the
Period.
2. Insurance I am prepared to take judicial notice that
insurance companies simply do not bill without the information
required by the Regulations. Mr. Dosanjh meets this
requirement for insurance expenses which total $14,221.
3. Phone and Professional Fees
Similarly, accounts from utility companies and professionals
would, as a matter of course, contain the appropriate
information. These amounts total $1,562.
4. Repairs Without any knowledge of where
Mr. Dosanjh had his repairs done, it is not possible to draw any
conclusion as to what information, if any, Mr. Dosanjh had
obtained. For example, he may have only dealt with small
suppliers who did not charge GST. I cannot find the requirements
were met with respect to repairs.
5. Meals I was provided
with no breakdown as to what constituted this expense, though
restaurants, even fast food chains, offer evidence of the supply,
and, at the very least, their name, date and amount. This is all
that is required for expenditures less than $30. I cannot imagine
what possible expenditures greater than $30 Mr. Dosanjh could
have made. I also accept that very few restaurants, if any, would
be small suppliers. I find that Mr. Dosanjh met the requirement
by having obtained the necessary information for his meal
expenses, which total $5,490.
6. Radio dispatch ($21,600) and a Plate rental
($37,771)
These are the two major expense items critical to a taxi
driver's business. Unfortunately for Mr. Dosanjh, they are
also items of which I have no general knowledge
vis-à-vis their method of invoicing. The only
evidence I have is the note from Mr. Warwar, which was not an
invoice but only confirmation of the amount paid. There was no
date nor any registration number. It has little probative value,
other than to infer there were no invoices, or he might have
produced them. While I have found for Mr. Dosanjh on those
expenses where common knowledge and indeed common sense suggests
he obtained the necessary information, I have no knowledge of how
a radio dispatcher or plate owner charges a taxi driver. Mr.
Dosanjh was not helpful in that regard. It would be too much by
way of speculation to find that Mr. Dosanjh, with respect to
those expenses, had obtained the requisite information. I simply
have no idea.
[14] The findings I have reached are
not intended to encourage taxpayers to discard their supporting
documentation. To the contrary, Mr. Dosanjh would have been much
better served had he retained complete and accurate records.
There were circumstances in this case that swayed me to find in
Mr. Dosanjh's favour with respect to certain expenses,
nothwithstanding he produced no documents at trial. Those
circumstances were:
1. Mr. Dosanjh was a credible
witness;
2. CCRA accepted the amount of
expenses for income tax purposes, so quantum was not at
issue;
3. CCRA accepted expenses in 2001 for
accrediting Mr. Dosanjh with certain ITCs;
4. Mr. Dosanjh operated under a
mistaken belief, based on professional advice;
5. Where the amount is not in
dispute, it is self-evident that appropriate documentation would
have been obtained with respect to certain expenses.
[15] I find Mr. Dosanjh owes GST of
$8,962, but is entitled to ITCs of seven percent of $38,711
(being the total of expenses for which he obtained sufficient
prescribed information) or $2,709, leaving an amount of $3,859 to
be remitted. To summarize, the appeal is allowed and the GST to
be remitted is calculated as follows:
GST
of
$8,962
less ITCs CCRA allowed $2,394
less ITCs I allow
of
$2,709
Amount
owing
$3,859
There shall be no award of costs.
Penalties and interest should be adjusted accordingly.
Signed at Ottawa, Canada, this 7th day of April 2004.
Miller J.
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