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Citation: 2004TCC451
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Date: 20040628
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Docket: 2003-4546(GST)I
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BETWEEN:
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CALISTAR CONSTRUCTION SERVICES LTD.,
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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] The Appellant, Calistar
Construction Services Ltd., raises three issues in its appeal of
the Minister of National Revenue (the Minister) assessment of its
goods and services tax (GST) liability:
(i) the denial by the Minister
of input tax credits (ITCs) of $743.40 in connection with the
construction of a bison fence;
(ii) the denial by the Minister
of the ITCs of $392.59 in connection with work provided by RC
Electro Comp; and
(iii) the imposition of penalties
pursuant to section 280 of the Excise Tax Act (the
Act).
[2] The Appellant was owned entirely
by Mr. Mark Chechotko. The Appellant was in the business of
clearing, preparing and cleaning sites so oil companies could
establish an oil or gas well, of building and maintaining gravel
paths to such sites and of extracting, processing and supplying
gravel and sand out of a gravel pit. In the summer of 2000, the
Appellant had a contract with Kensington Energy Ltd. to prepare a
site on the property of Mr. Richard Woloszyn, a cousin of Mr.
Chechotko. Mr. Woloszyn kept bison on his property. It was
determined, in conjunction with the oil company's consultant,
that a fence would be required to keep the bison out of the site,
and that Mr. Woloszyn would be the person most capable of
constructing such a fence, which he did. He rendered an invoice
to the Appellant for such work in the amount of $10,620 plus GST
of $743.40. The invoice was a printed form with the name
"Laurich Farm Supply Centre" at the top of the invoice.
Someone, presumed by Mr. Chechotko to be Mr. Woloszyn,
crossed out "Laurich Farm Supply Centre" and wrote in
"Richard Woloszyn". There was a GST number at the
bottom of the invoice. The Appellant included this work in its
invoice onto Kensington Energy Ltd. The Appellant then paid Mr.
Woloszyn the full amount of $11,363.40.
[3] The invoice from RC Electro Comp
in the amount of $6,001.03, including $392.59 of GST, was
primarily for materials in connection with a gravel crusher. The
invoice is dated December 3, 1999. It was paid by the Appellant
on December 16, 1999. The invoice was addressed to the
Appellant's address, but in the space where there had been a
name, the name had been whitened out. It was clear however that
the name whitened out was Allied Gravel Sales. Mr. Chechotko
explained that he was a part owner of Allied Gravel Sales in
1999, but some time through the summer of 1999 Allied Gravel had
shifted its sand and gravel operation over to the Appellant. When
questioned initially by the Crown on cross-examination as to what
vehicles and equipment were owned by the Appellant, Mr. Chechotko
made no mention of any crusher.
[4] Mr. Chechotko acknowledged that a
mistake had been made in reporting GST, by improperly claiming
ITCs in January 2001 of $8,431.56, which was the net tax remitted
by the Appellant to the government in the previous period.
Mr. Chechotko referred to this as a bookkeeping error. He
admitted that neither he nor his wife, a nurse by profession, had
experience with bookkeeping. Mr. Chechotko's wife tried
to manage the paperwork, with some difficulty, every week or two.
According to Mr. Chechotko, this was a time of expansion and
money was tight, so no regular bookkeeping assistance was sought.
At year end all the records were provided to an accountant for
year end statements. The Appellant was assessed a penalty of
$1,311.01.
Analysis
Bison Fence ITC
[5] The first issue is the
Appellant's entitlement to an ITC in connection with the
bison fence. There is no question the Appellant had the work done
and paid for it, including paying the GST. While the
Respondent's pleadings suggest that the fence was not used in
commercial activity, this was not pursued at trial. The sole
issue is whether the supporting documentation in connection with
this ITC complies with the requirements of subsection 169(4) of
the Act and section 3 of ITC Information
Regulations:
Excise Tax Act
169(1) 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 × B
...
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.
ITC Information Regulations
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 the intermediary does
business,
(ii) where an
invoice is issued in respect of the supply or the supplies, the
date of the invoice,
(iii) here 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) he 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) he name of
the supplier or the intermediary in respect of the supply, or the
name under which the supplier or the intermediary does business,
and the registration number assigned under
subsection 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.
[6] The Respondent pleaded in the
Reply to the Notice of Appeal, not as an assumption, but as an
"Other Material Fact" the following:
11. The registration
number that was listed on the documentation provided by the
Appellant to support the input tax credit of $743.40, which it
claimed with respect to the payment allegedly made to
Richard Woloszyn, was not assigned to Richard Woloszyn.
There was no evidence as to whom the GST number on the invoice
from Mr. Woloszyn belonged, though there is a presumption it
was assigned to Laurich. There was no evidence, however, whether
Laurich was a separate entity or simply a trade name of Mr.
Woloszyn's. There was also no evidence whether
Mr. Woloszyn or Laurich did or did not remit the GST. Mr.
Chechotko, when asked if he had any evidence to refute the
Respondent's assertions in paragraph 11 of the Reply,
acknowledged that he had not. He confirmed that he simply paid
the GST, relying on the invoice.
[7] I do not intend to wade into the
mandatory versus directory debate surrounding the requirements of
ITC Information Regulations (see cases of Helsi
Construction Management Inc. v. R.[1] and Jospeh Ribkoff Inc.
c. R.).[2] This informal procedure case can be decided
on a different basis.
[8] In determining whether the GST
number on the invoice was the number of the supplier, Mr.
Woloszyn, I am left with very little evidence. The Respondent has
not proven the number was not assigned to Mr. Woloszyn: the
Respondent presented no evidence, but simply relied on Mr.
Chechotko's testimony. Mr. Chechotko has not proven the
GST number was assigned to Mr. Woloszyn - he does not know. But
he has presented the invoice. What should I take from the
invoice? Is it prima facie proof of a GST number assigned
to Mr. Woloszyn or prima facie proof of a GST number
assigned to an entity other than Mr. Woloszyn? Does the
crossing out of "Laurich Farm Supply Centre" and
insertion of "Richard Woloszyn" alter a presumption
that the GST number on an invoice delivered by a supplier is the
supplier's GST number? I do not believe it does. That invoice
meets the requirements of subsection 169(4) of the Excise Tax
Act and the Input Tax Credit Information Regulations,
unless I am presented with clear evidence to the contrary. I
would have thought this would be an easy matter for the
Respondent to provide, as such information is certainly more
readily available to the Respondent than to the Appellant, yet
the Respondent presented no evidence. Reliance on
Mr. Chechotko's testimony, which was to the effect that
he did not know, falls far short of proving the GST number was
not Mr. Woloszyn's. I therefore find the Appellant has
complied with subsection 169(4) of the Act and the
Input Tax Credit Information Regulations, and is entitled
to the ITC of $743.40.
RC Electro Comp ITC
[9] With respect to the invoice from
RC Electro Comp, I find the original invoice was addressed to
Allied Gravel, acknowledged by Mr. Chechotko to be a
separate entity. I also find that the invoice was paid by the
Appellant. The materials invoiced are shown as being supplied
over the period August to November 1999. Mr. Chechotko testified
that it was sometime in the summer of 1999 the gravel operation
shifted from Allied to the Appellant, though he was not definite
on this point. It is impossible to tell from the invoice whether
the supplies were received by the Appellant or Allied Gravel.
[10] The Respondent's position is first,
that Allied Gravel, and not the Appellant, was the recipient of
the supply; second, even if the Appellant was the recipient, the
supporting documentation has not met the requirements of the
ITC Information Regulations, as the supporting
documentation does not contain the recipient's name. Given
Mr. Chechotko's uncertainty as to the timing of the Appellant
taking over Allied Gravel's business, the lack of any
documentation in connection with that transaction, the fact that
the only supporting documentation, as required by the ITC
Information Regulations, evidences an invoice in the name
of Allied Gravel and the lack of mention by Mr. Chechotko of the
crusher as being part of the Appellant's equipment, leads me
to conclude that it was Allied Gravel, and not the Appellant, who
was the person who acquired property, as required by subsection
169(1) of the Act. The Appellant, although the payor, is
therefore not entitled to the ITC.
Penalties
[11] Finally, I turn to the issue of the
penalty assessed pursuant to section 280 of the Act. It is
well established that the taxpayer can be relieved of this
penalty if the Court is satisfied the taxpayer exercised due
diligence in attempting to comply with the requirements of the
Act (see Pillar Oilfield Projects Ltd. v. Canada,[3]Canada (Attorney
General) v. Consolidated Canadian Contractors Inc. (C.A.),[4] and
more recently Corporation de L'École Polytechnique
c. Canada).[5]
This latter case summarizes the appropriate principles in
reviewing the due diligence of the taxpayer. Briefly, acting in
good faith is not sufficient to meet the due diligence defence;
it is met only if a reasonable person would have committed the
error at issue in the same circumstances: a more demanding
test.
[12] What did the Appellant do that a
reasonable person in similar circumstances would have done to
avoid the mistake, the mistake being claiming a prior
period's net tax as an ITC in the subsequent period? Very
little. I accept the Appellant's contention that, as a
registrant, he has been put in the position of serving as the
government's collection agent in a system of complicated laws
and regulations. He is indignant that in giving it his best
effort, but making a mistake, he will be penalized. This attitude
is certainly understandable, if the taxpayer has acted reasonably
to avoid the mistake. I am not satisfied however that
Mr. Chechotko did act in this case with the requisite degree
of diligence.
[13] The mistake was not a bookkeeper error,
as Mr. Chechotko described it, but a mistake of law. The
Appellant claimed as an ITC something that was not eligible for
such treatment. Any inquiry of Canada Customs and Revenue Agency
or a bookkeeper or an accountant would have quickly revealed that
no ITC was available in such circumstances. But Mr.
Chechotko's evidence was that money was tight and his wife,
untrained in bookkeeping, was left to look after the GST filings.
Neither of them knew the law. This is not at all surprising given
the complexity of the legislation. It would be unrealistic to
expect them to know. It is not however, unrealistic or
unreasonable to expect them to ask someone. This was not a matter
of an adding mistake or a decimal point in the wrong place. This
was a case of claiming ITCs for a prior period's net tax
owing - a fundamental error in the application of the GST scheme,
an error that with minimum inquiry, could have been avoided.
[14] The Appellant's argument is
tantamount to a position that, because he is a registrant and is
providing a service on behalf of the government, it is unjust
that he should be penalized for a mistake. The flaw in this
approach is that it is missing the following proviso:
"provided I have acted reasonably to avoid the
mistake". Although it may appear to Mr. Chechotko at the
time of rapid expansion and tight money, that corners could be
cut by not seeking proper advice, that was not a prudent course
to follow and not a course a reasonable person in similar
circumstances would have followed. I find the defence of due
diligence has not been established to relieve the Appellant of
the penalty pursuant to section 280 of the Act.
[15] In summary, the appeal is allowed with
respect to the availability of the ITC of $743.40, but with no
further relief available to the Appellant.
Signed at Ottawa, Canada, this 28th day of June, 2004.
Miller J.
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