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Citation: 2004TCC218
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Date: 20040507
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Docket: 2002‑4292(GST)I
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BETWEEN:
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HAROLD STE‑MARIE,
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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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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Tardif J.
[1] This
is an appeal from an assessment dated March 23, 2001, bearing
No. 203817, issued pursuant to the Excise Tax
Act, (the "Act").
[2] In
reconsidering and reevaluating the assessment, the Respondent relied on the
following assumptions of fact, reproduced under numbers 13 to 22
of Paragraph A of the Reply to the Notice of Appeal:
[TRANSLATION]
13. As alleged in
the Notice of Appeal and the Agreement of Dissolution filed as Exhibit I‑1,
the Appellant operated an incorporated law office under the name Ste-Marie,
Milliard et Associés;
14. As stated at
paragraph 4 of the same agreement, the Appellant reserved rights over all
work in progress, and over all work undertaken by the other lawyers in the
firm, as at February 1st 1993;
15. As stipulated
at paragraph 6 of the said agreement, associate Milliard was to pay the
Appellant 50% of all fees he invoiced from February 1st, 1993,
until his termination of employment, in order to defray his office expenses;
16. As stipulated
at paragraph 7 of the same agreement, associate Milliard agreed to pay the
Appellant 10% of the legal fees invoiced in connection with some of the files,
subject to certain terms and conditions, with respect to the reimbursement of
some of the expenses;
17. From the time
the company Ste‑Marie, Milliard ceased to exist, January 31st, 1993
until February 28, 1994, the date on which Harold Ste‑Marie
was supposed to receive the legal fees in compliance with
paragraphs 4, 6 and 7 of the said agreement, the Appellant
did not file a tax return, as shall be demonstrated during discovery and the
hearing;
18. The Appellant
was therefore in default in this respect. In order to rectify the situation,
the auditor retroactively registered Harold Ste‑Marie, in the
capacity of agent, at February 1, 1993, since legal fees are by law
subject to taxation. The auditor then proceeded to audit the company;
19. Following the
audit, the Minister issued an assessment on February 7, 1997, bearing
No. 06213104, and covering the time period from February 1, 1993
to June 30, 1996, as seen in Exhibit I‑2;
20. On
April 17, 1997, the Appellant filed an objection and the Minister
issued a decision confirming most of the assessment, as seen in Exhibit I‑3;
21. On
January 8, 1999, following the decision with respect to the
objection, the Minister issued a reassessment bearing No. 8214005, as seen
in Exhibit I‑4;
22. In its
decision respecting the objection, the Minister established the objector’s
billings for the period from February 1, 1993 to
June 30, 1996, as follows:
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Year 1994 – Billings
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Per the individual’s tax return
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$189,459
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Following Audit
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$284,584
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Settlement of Objections
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$246,972
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Additional Revenue including taxes
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$57,513
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Year 1995 –
Billings
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Per the
individual’s tax return
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$42,522
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Following Audit
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$106,310
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Settlement of Objections
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$106,310
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Additional Revenue, including taxes
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$63,788
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Year 1996 –
Billings
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Per the
individual’s tax return
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$103,383
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Following Audit
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$65,283
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Settlement of Objections
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$65,283
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Difference (balance of 1996 accounts
receivable to be added to 1997 billings)
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- $38,100
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[3] The
Respondent described as follows the issue at bar:
[TRANSLATION]
The issue at bar comes down to
simply determining the amount of taxable supplies for the period from
February 1, 1996 to January 31, 1999, while taking into
account an additional amount of $38,100 added to the 1997 billings;
[4] A
lawyer by profession, the Appellant operated a company that juggled multiple
businesses under the name "Étude légale Ste‑Marie, Milliard et
Associés”. Following dissolution of the company, the Appellant pursued legal
practice on his own.
[5] The
associates, including the Appellant, concluded an agreement providing for the
dissolution of the company. The agreement stipulated that, as at
February 1, 1993, the Appellant was to keep all the work in progress,
as well as all the undertakings of the other lawyers in the firm.
[6] The
Appellant collected legal fees for the period from February 1, 1993
to February 28, 1994. However, he did not file the corresponding tax
return. In fact, the Appellant failed to register and therefore, did not
submit any activity reports.
[7] The
Appellant collected legal fees that are taxable pursuant to the Act.
He failed to report these fees and failed to effect the pertinent
payments. During the audit the Appellant was retroactively registered as at
February 1st, 1993, for the years 1993 to 1996.
[8] Following
the first audit, the Minister issued assessment No. 06213104 on
February 7, 1997, for the period from February 1, 1993 to
June 30, 1996.
[9] On
April 17, 1997, the Appellant filed an objection. But a large measure
of the assessment was confirmed in the resulting decision.
[10] It seems the Appellant was not very cooperative with respect to the
audit of the years prior to 1997. Since there were very few documents available
to effect the audit and to determine the legal liabilities of the Appellant, it
was then agreed that a third party be appointed to reconstruct the
accounting to some extent, in order to facilitate the task of assessing and
calculating the amount of Goods and Services Tax ("GST") owed by the
Appellant.
[11] With this objective in mind, the Minister used the cash accounting
method to issue the reassessment, since it would have been extremely difficult,
if not impossible, to use the accrual accounting method; on the basis of the
cash accounting method, the Respondent claims that he had to carry forward an
amount of $38 100 to the 1997 financial year.
[12] Following the audit, talks and negociations took place at the
objection stage. The Respondent pointed out that the Appellant had consented to
the fact that the $38 100 amount be brought forward to 1997.
[13] After paying the full payable amount assessed in connection with
taxation years 1994, 1995 and 1996, the Appellant claimed
that he had already sorted out his position until the end of the period covered
by the assessment, namely the end of 1996. He therefore completely denied
agreeing that an amount of $38,100 be carried forward to 1997.
[14] Later, Ms. Diane Lavallée decided to undertake a new audit with
respect to the taxation years following 1994, 1995 and 1996,
which are the years covered by the settlement and subject to this particular
appeal.
[15] On January 8, 1999, the Minister issued a reassessment
bearing No. 8214005 to which the Appellant objected again.
[16] In support of the assessment hereby appealed,
Ms. Diane Lavallée, who is in charge of the Appellant’s file, rejects
the interpretation of facts submitted by the Appellant and his accountant; she
insists that the parties undertook an implied agreement that the $38,100 would
be carried over to the 1997 taxation year.
[17] For this reason, Ms. Lavallée proceeded on the basis that $38,100
was to be added to the total revenue for the 1997 taxation year, since she
is of the opinion that this amount was excluded from the 1996 fiscal
period calculations and therefore, the amount had not been assessed.
[18] Accordingly, while auditing 1997, 1998 and 1999, she
added a $38 100 to the other revenues to assess the said taxation years.
[19] The evidence established that the original assessment hereby appealed
includes two components: the first component is related to the amount of
$38 100, and has been the subject of inconsistent explanations; the second
component concerns the differences between the Appellant’s statement and the
observations made by Ms. Lavallée during the audit.
[20] Following issuance of the appealed assessment, the Appellant initiated
the objection procedure. He chose to waive the possible benefits of prescription
and retained the services of a tax professional in order to prove, during the
objection, the validity of his submissions.
[21] Once again, the officers in charge of the Appellant’s file noted that
the tax expert retained by the Appellant failed to cooperate whatsoever during
the discovery of documents and during the submission of observations in support
of the objection.
[22] It appears that the tax expert retained by the Appellant did not
actually cooperate or submit any explanations or documents. The Appellant
seemed surprised with the harsh resulting decision, since he alleged he had
very good arguments to submit in support of his objection.
[23] According to the Appellant, the basis of his objection was: to deny
the carrying forward the $38,100 to the 1997 taxation year and to
demonstrate that a significant portion of his revenue included non taxable
legal fees, since a number of his clients were Indian and therefore, not
subject to the GST.
[24] Even though the grounds he mentioned could have raised some
interesting issues, the Appellant did not provide sufficient evidence for this
Court to weigh its validity and pertinence.
[25] I must conclude that he did not submit any valid proof in support.
The Appellant himself recognized that his evidence was insufficient with
respect to this component of the appeal, and he added that he would assume all
the resulting consequences.
[26] As to the $38,100, I accept the explanations submitted by the
Appellant and his accountant, these explanations being perfectly consistent
with his waiving application of the prescription.
[27] Indeed, he probably believed that all his liabilities prior to the end
of 1996 had been resolved, and he then chose to waive application of the
prescription. Otherwise, he would certainly not have agreed to waive this
benefit.
[28] Moreover, I found that the explanations in connection with the $38,100
to be a bit suspicious: normally, the officers in charge of the file would have
followed the matter up. Here, the Appellant only learned a number of years
later that he was being reassessed and that, with respect to this reassessment,
he would have to deal with a $38,100 carry forward relating to the
1997 taxation year.
[29] The appeal is allowed in part and the assessment is sent back to the
Minister of National Revenue to be reconsidered and reassessed taking into
account the fact that the $38,100 should be deleted from all calculations; the
penalties remain but must be reassessed according to the above‑mentioned
corrections; the interest must also be reassessed relative to the reassessment.
Signed in Ottawa,
Canada, this 7th day of May 2004.
Tardif J.
Translation certified true
on this 10th day of
September 2004.
Ingrid B. Miranda, Translator
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