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Citation: 2004TCC446
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Date: 20040616
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Docket: 2001-2284(GST)G
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BETWEEN:
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REDASH TRADING INCORPORATED,
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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
Bell, J.
ISSUE:
[1] The issue is whether the
Appellant, in respect of some 210 transactions in the period
October 1, 1997 to September 30, 1998 in respect of which it
claimed Input Tax Credits ("ITC's"), in law,
acquired vehicles thereby entitling it to such
ITC's.
FACTS:
[2] Mr. Evong ("E") was, in
the relevant period, president, secretary and treasurer of the
Appellant. He and his wife each owned 50 percent of the issued
and outstanding shares of that company. He was the only witness
for the Appellant. E was a certified customs broker from 1971
until selling his share of that business in April, 2002. He
described the Appellant's activities in arranging the export
of vehicles from Canada to Lahr, Germany for purchase by Canadian
service men there. E stated that the vehicle manufacturers did
not want dealers like him exporting vehicles to other counties
and, accordingly, the Appellant used about 30 different names in
so doing in order to conceal those deals from the manufacturers.
He said that the Appellant had an open "garage policy"
for insurance to cover the vehicles while being moved to the
shipping point. He testified that the Appellant stopped shipping
to service men in 1997.
[3] E stated that in 1994 or 1995 he
met John Bruce ("Bruce") at a shipping terminal, both
being there for the same purpose, and that they talked while they
had to wait. Bruce, E said, told him he was always looking for
new sources of vehicles. E then said that the Appellant started
faxing manufacturers' vehicle invoices to Bruce and that he
then faxed them to his customers. The Appellant, E stated, sold
vehicles to Bruce's company and faxed its invoices prepared
by E. E also said that because he did not want Bruce to know his
dealer sources, he would pick up the vehicles and deliver them to
the terminal. He said that the Appellant marked up the
dealer's price by $500 to $1,000. He stated that Bruce knew
how much the dealer paid and how much the Appellant received.
[4] E then testified that Bruce called
him one day and asked if he could obtain more vehicles. He said
that Bruce was an "independent" and that Bruce and the
Appellant were competitors. E stated that Bruce did not have the
financing to do all the transactions he wished and asked E to
"do deals" for him. He said that he would receive money
from the buyers of vehicles and pay the suppliers. He said that
the financing Bruce could not handle was to pay the Harmonized
Sales Tax ("HST")[1]. E also stated that when Bruce asked E if the
Appellant would enter into a deal, the Appellant would respond
according to its ability to handle, financially, any given
transaction.
[5] Documents covering two
representative transactions were filed as exhibits. The details
of one of such transaction follow:
(1) Bruce faxed to the Appellant an
invoice showing the Appellant as the "Customer" and
setting out its full address. It was from 1206866 Ontario Inc.
(address shown), part of the information being in a box on the
invoice,
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Date
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February 25, 1998
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Invoice No.
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R-120
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Rep
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JOHN BRUCE
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FOB
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Toronto
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The vehicle was described as
1 1998 - JEEP GRAND CHEROKEE
LIMITED
VIN # 1 J4GZ88Z4WC279526
DEEP SLATE PEARL COAT
The "Unit Price" was shown as $41,700 and the TOTAL
was shown as $47,955 made up of $41,700 plus HST of $6,255.
(2) E testified that he then prepared
an invoice. It was on a printed form with the Appellant's
name, address and telephone and fax numbers at the top right hand
corner. It was addressed to BRAVO MANAGEMENT SERVICES with its
full address. It had the same vehicle description as above and
showed the "UNIT PRICE" as $42,700, "GST" as
$2,989 and 'TOTAL DUE" as $45,689. The difference in
price, although the evidence was not specific, appears to be the
profit. E stated that this invoice was not sent out but was for
his accounting records and was to be a document to substantiate
his claim for HST.
(3) E said that Bruce prepared and
faxed to the Appellant a "BILL OF SALE" with the
Appellant's name, as the vendor (together with its address
and GST number) selling to
BRAVO MANAGEMENT SERVICES
101 SUBWAY CRESCENT
ETOBICOKE, ONTARIO
M9B 6K4
This document showed the same full vehicle description as
above and showed the unit price of $42,700, GST of $2,989 and
total of $45,689 as above. E said the Appellant charged GST
because the sale was in Canada.[2]
(4) A faxed copy of the invoice from
Chrysler Canada Ltd. to a dealer in Mississauga was included with
the above documents. Also included was a photocopy of a document
appearing to be a bank draft for $47,995 addressed to 1206866
Ontario Inc. bearing the words:
"FUNDS FROM REDASH"
The name REDASH replaced another name which had been struck
out.
[6] E stated that the Appellant
received $45,689 from Bravo. He also said that he was never told
why the Appellant was "in the middle". He said he
thought it was to protect the buyer. He said that he never saw
the vehicle and never had the occasion to believe the vehicles
were not in existence. He said he never heard that a vehicle was
not delivered. He stated further that he had done "other
deals" with a Mr. Best in Vancouver who had clients in
Germany and Austria.
[7] E stated that the Appellant paid
HST on each of the 210 transactions. He said that the Appellant
was in Nova Scotia and that, therefore, HST was payable.
[8] E was referred to the Notice of
Assessment which appeared to be an original assessment[3] for payment by him of
an amount equal to ITC's received, namely, $1,029,121.06.
This was feebly described on the Notice of Assessment as
"Adjustments to Input Tax Credits". A letter dated
seven days before the Notice of Assessment referred to:
a Summary of Adjustments to be made to your Goods and Services
Tax/Harmonized Sales Tax Return(s) for the above audit
period.
The four pages attached provided a slightly comprehensible
"Statement of Audit Adjustments" which, in respect of
adjustments, typically said, in a representative example:
... input tax credit claim is disallowed in accordance
with section 169 of the Act. See worksheet #0915 for details.
The Notice of (RE)ASSESSMENT continued as follows:
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Total Adjustments for Assessment Period
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$1,029,121.06
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Penalty
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110,115.32
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Interest
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86,021.99
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Other penalty
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344,332.03
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Amount Owing
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1,569,550.40
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No statutory authority for the penalties and no computation
thereof was shown.
[9] The Minister reassessed the
Appellant for the period under appeal. That is the reassessment
from which the appeal is brought. A copy of that document was not
produced to the Court. However, it is described in the Reply to
the Notice of Appeal as follows:
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Adjustments to ITCs
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$1,395,586.87
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Net Interest
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$90,294.87
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Penalties
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$460,084.25
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Total
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$1,945,965.99
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[10] E said that he received the ITC's
"and now they ask to be paid back". He stated that he
"entered" the GST collected and remitted it to Revenue.
He said further that it was not accounted for in the reassessment
and that Revenue has kept that amount even though it had been
declared. He opined that on the one hand Revenue was saying that
the transactions were bona fide and on the other hand that
they were not.
[11] E then testified that he expected the
sellers to remit the tax paid to them by him to be remitted to
Revenue and that he only found out after meeting with Revenue
auditors that they didn't so remit it. In that regard he said
that auditors came to the Appellant in September 1998 to discuss
the transactions and that this was the first time he was aware of
any problem. He said he gave them his files and answered all
questions and that he was devastated that he was part of the
problem. He told those auditors that he was then involved in a
transaction where the Appellant was obliged forthwith to pay for
seven vehicles and that he would help them get that money. He
said he delayed forwarding payment to the seller until the next
day and that Revenue "showed up" and took more than
$300,000.
[12] E said that neither he nor the
Appellant were charged under the Excise Tax Act. He said
further that he was simply buying a vehicle and selling it to a
customer and that that was what he was in business to do. He
testified that he was never aware of any relation between the
original seller and the ultimate purchaser. He said that he was
being penalized to pay for something that someone else stole and
that "I was caught in the middle".
[13] On cross-examination, E admitted that
the Appellant was black-listed by vehicle manufacturers and that
that was why it purchased vehicles using different names. He said
that he dealt with specific dealerships who wanted sales and that
they had a designated salesman for contracts.[4] E stated that he kept this to
himself and that Bruce did not know the Appellant's contacts
and that he did not know Bruce's contacts.
[14] E said that Bruce was not an employee
of the Appellant, was not an agent of the Appellant and could not
sign on behalf of or bind the Appellant. He said "He was
another customer of mine".
[15] E testified that he never negotiated to
buy any of the vehicles in the transactions and that he never saw
them. When queried about the prices of the vehicles he said that
the prices were reasonable if the vehicles were in good
condition. He said that he never spoke to any purchaser
respecting the transactions. When asked if this was the normal
way he carried on business, E replied that he had similar
transactions. When asked whether he knew if any of the vehicles
existed he replied that most had the manufacturer's invoices
and that there would be a vehicle at one time for that invoice.
When queried as to whether he had ever questioned himself about
these transactions he replied saying that he was very busy and
"I don't know if I did that or not". He said that
many cars were being sold and that many were going across the
border. He said he thought that Bruce was hiding his sources.
With respect to the money seized by the auditors E said that the
purchaser who sent the money wanted it back because he did not
receive the cars.
[16] When questioned whether he ever asked
Bruce what was going on he replied that he didn't think so -
that these were just other transactions similar to what he was
doing - a little bit different but still purchases and sales.
When asked if it was possible he did not want to know, he
responded that it was possible.
[17] The Reply included, with respect to
matters other than penalties, 28 assumptions of fact, one of such
assumptions containing nine subparagraphs. Because I propose
dealing with the question of whether assumptions not specifically
denied by the Appellant should be deemed to be facts in this
appeal, I set forth all such assumptions as follows:
8. In so
assessing the Appellant, the Minister relied on, inter
alia, the following assumptions:
a) the facts
stated and admitted above;
b) the
Appellant is a GST registrant with GST Registration
No.132477787RT;
c) the
Appellant was a corporation involved in the sale of motor
vehicles;
d) the
Appellant is required by the Excise Tax Act, R.S.C. 1985,
c. E-15, as amended (the "Act") to file its
GST returns on a monthly basis;
e) the
Appellant purported to purchase 210 motor vehicles from three
numbered companies incorporated in Ontario and two sole
proprietorships resident in Ontario (the "vendors")
from October 1997 to August 1998;
f) the
vendors were:
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Legal Name
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Trading Name
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1206866 Ontario Inc.
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Parkerville Enterprises
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1283915 Ontario Ltd.
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None
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Mathew Owl
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Capital Cars & trucks
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1265111 Ontario Inc.
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Owl & Associates
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Ezra Owl
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Belmont Auto
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g) The
Appellant also purported to purchase additional motor vehicles
from the vendors in September 1998;
h) the vendors
operated primarily under the direction of an individual by the
name of Ken Parker who, while located in the Province of Ontario
at all times relevant to this appeal, was originally from Nova
Scotia;
i) Ken
Parker and John Bruce were closely acquainted with each
other;
j) the
Appellant and the vendors participated in a scheme involving the
purchase and sale of motor vehicles whereby:
i) Ken
Parker negotiated a sale of the motor vehicles to a purchaser
(the "purchaser"), the terms of which required the
purchaser to make payment to the Appellant;
ii) for each
transaction Ken Parker forwarded instructions to John Bruce,
usually by fax, which included the name of the vendor and the
purchaser, the vehicle make, model, year and identification
number;
iii) the
instructions also included the Appellant's purported purchase
price from the vendor and the purported sale price to the
purchaser;
iv) the Appellant
forwarded its "purchase price" to Ken Parker after the
sales proceeds were received from the purchaser;
v) on average
the Appellant's "purchase price" from the vendor
was $800 less than the price received from the purchaser, which
amount represented the Appellant's remuneration for
participating in the transactions for a total of $195,924.00
during the period under appeal;
vi) after the fact
John Bruce created invoices under the vendor's and the
Appellant's names to document both the Appellant's
purported purchase from the vendor and the Appellant's
purported sale of the vehicle;
vii) the vendors
purported to charge and collect HST from the Appellant at a rate
of 15% on the transactions referred to in subparagraphs 8(e) and
(g);
viii) Schedule A, attached
hereto, details by vehicle the foregoing purported transactions
as recorded by John Bruce including the amount of purported tax
paid which represents ITCs claimed by the Appellant which have
been disallowed;
ix) the Appellant
purported to charge the purchasers GST at a rate of 7%;
k) the
purchasers were:
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Legal Name
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Trading name
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1070699 Ontario Ltd.
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Corporate Leasing & Rental
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1081528 Ontario Ltd.
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Federal Leasing & Rental
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1261531 Ontario Ltd.
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K & M Motors
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1211863 Ontario Ltd.
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A & T Leasing
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1265111 Ontario Ltd.
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Owl & Associates
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Ezra Owl
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Belmont Auto
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1262672 Ontario Ltd.
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n/a
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Waytee Inc.
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n/a
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1283915 Ontario Ltd.
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n/a
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Bravo Management Services Inc.
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n/a
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Peleshok Motors (Ajax) Ltd.
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n/a
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Technessen Ltd.
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n/a
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The American German Connection Inc.
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n/a
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l) Ken
Parker did not deal at arm's length with 1070699 Ontario Ltd.
and 1081528 Ontario Ltd.;
m) all of the
purchasers had previous dealings with Ken Parker and were willing
to accommodate him in the transactions and purported transactions
to facilitate the execution of the scheme described above;
n) the motor
vehicles referred to in subparagraphs 8(e) and (g) were never
delivered to or made available to the Appellant and they were
never under the Appellant's authority or control;
o) the
Appellant never negotiated the sale or purchase of any of the
vehicles referred to in subparagraphs 8(e) and (g) but simply
acted as a conduit for the transfer of funds and allowed invoices
to be produced in its name;
p) neither the
Appellant nor any agent of the Appellant had possession of, legal
title to or interest in any of the motor vehicles referred to in
subparagraphs 8(e) and (g) during the period under appeal;
q) in filing
its' GST/HST returns for the period under appeal, the
Appellant reported the 7% HST collected with respect to the
transactions referred to in subparagraphs 8(e) and (g) and
claimed the 15% HST the Appellant paid with respect to those same
transactions as ITCs;
r) none
of the vendors have filed GST returns;
s) some of the
motor vehicles referred to in subparagraphs 8(e) and (g) were
owned by third parties at the time of the alleged purchases and
sales by the Appellant and neither the Appellant nor the vendors
had legal title to or an interest of any kind in those motor
vehicles;
t) some
of the motor vehicles referred to in subparagraphs 8(e) and (f)
did not exist at the time of the alleged purchases and sales by
the Appellant;
u) some of the
motor vehicles referred to in subparagraphs 8(e) and (f) never
changed hands from the person who owned them at the time of the
alleged purchases and sales by the Appellant;
v) in its tax
return for the month of September, 1998 the Appellant reported
tax collected of $82,358 and claimed ITCs of $176,979;
w) of the ITCs
claimed in September, 1998 $168,075 related to purported
transactions as described above;
x) the
Appellant had no documentation or books and records of any kind
to support its claim for ITCs in September, 1998 although a total
of $1,288,575 was paid to one of the vendors in that month;
y) the
transactions referred to in subparagraphs 8(e) and (g) were not
bona fide business transactions;
z) the
Appellant claimed ITCs in relation to the following vehicles
twice:
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Vehicle VIN
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First Claim
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Second Claim
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ITC Claimed
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018111
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Oct. 1997
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Nov. 1997
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$6,505.65
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WE147418
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Nov. 1997
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Jan. 1998
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$5,753.10
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W0181700
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July 1998
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July 1998
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$6,000.00
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aa) the scheme described
above, particularly in subparagraph 8(j), was an artificial
arrangement executed by the Appellant and the vendors to give the
appearance that the Appellant was purchasing and selling the
automobiles described in subparagraphs 8(e) and (g) when such was
not the case; and
bb) the invoices created
by John Bruce at the vendors' instructions were created
solely for the purpose of effecting the aforementioned artificial
arrangement and did not reflect actual purchases and sales;
ANALYSIS AND CONCLUSIONS:
[18] I found E to be entirely credible. That
credibility, in my view, is not compromised by his statement at
the end of cross-examination that it was possible that he did not
want to know about what Bruce was doing. E knew clearly what he,
himself, was doing.
[19] The Appellant was in the business of
buying and selling vehicles. He was approached by Bruce and given
the opportunity of participating in the purchase and sale of
other vehicles. Bruce provided the necessary documentation, some
of which was created by Bruce, to E. The fact that Bruce found
the sellers and buyers has no effect upon the Appellant's
activities other than to complete a transaction that involved
less work than was normally the case. It collected the purchase
price of vehicles sold together with the appropriate amount of
GST and paid the vendor the invoiced amount which included
HST.
[20] Appellant's counsel, in his written
brief, said that each decision made by the Appellant to purchase
a vehicle for sale was communicated by E to Bruce with the
expectation that this information would be communicated by Bruce
to the owner of the vehicle. Counsel said further that such chain
of communication would, in each case, represent the communication
of an offer to the Appellant to purchase a vehicle and the
communication by the Appellant to the owner of the vehicle that
the offer was accepted. Counsel continued by saying that the
subsequent delivery of funds by the Appellant to the owner for an
amount equal to the agreed purchase price (together with the tax
amount claimed by the vendor to be owing by the Appellant in
respect of the purchase) represented the delivery by the
Appellant of consideration pursuant to the agreement. Counsel
added that the Appellant entered into a binding, enforceable
agreement with the owner of each such vehicle pursuant to which
the Appellant acquired a contractual right to have possession of
and title to the vehicle delivered to the Appellant or at its
direction, thus making the Appellant contractually liable for
payment of the purchase price. Based on the facts before the
Court I agree with that submission.
[21] This appeal inspires a discussion of
the matter of onus on an Appellant to negate the assumptions of
fact made by the Minister. An historical review of jurisprudence
and reference to written commentaries is in order.
[22] In Pleet v. Canadian Northern Quebec
R.W. Co., 50 O.L.R. 223, (affirmed S.C.C. [1923] 4 D.L.R.
1116) the Ontario Supreme Court, Appellate Division, found that
the defendants were common carriers of potatoes from the time
they received them until they were found frozen in their car
standing on the siding. It held that they might have relieved
themselves from liability for the loss of the potatoes had they
established that the freezing was not in whole or in part
attributable to neglect on their part. It held further that the
onus was upon them and they had failed to satisfy it. Ferguson,
JJ.A., at page 227, said:
No doubt the general rule is that he who asserts must prove,
and that the onus is generally upon the plaintiff, but there are
two well-known exceptions:
(1) That where the
subject-matter of the allegation lies particularly within the
knowledge of one of the parties, that party must prove it,
whether it be of an affirmative or negative
character: Mahony v. Waterford Limerick and
Western R.W. Co., [1900] 2 I.R. 273, at p. 280; Kent v.
Midland R.W. Co. (1874), L.R. 10 Q.B. 1.
(2) That he who
relies on an exception to the general rule must prove that he
comes within the exception: Ashton & Co. v.
London and North-Western R.W. Co., [1918] 2 K.B. 488;
London and North-Western R.W. Co. v. Ashton & Co.,
[1920] A.C. 84.
The plaintiff established that the goods passed into the
possession of these defendants, and that they remained in their
possession, dominion, and control, or the possession, dominion,
and control of their connecting carrier, the Grand Trunk, until
they were destroyed: the plaintiff had no opportunity of knowing
what was done with the potatoes, how they were cared for, how
they were handled, how, when, or where they were frozen. On the
other hand, the defendants knew or had every opportunity for
knowing, learning, and presenting the information to the Court.
All the facts were peculiarly within the knowledge of the
defendants, and in these circumstances it seems to me that the
onus was on the defendants to furnish it: Taylor on Evidence,
11th ed., p. 375; 1 Sm. L. C., 12th ed., p. 257; and St. John v.
Illinois Central R.R. Co. (1912), 168 Ill. App.
599;...
(emphasis added)
[23] In Anderson Logging Co. v. British
Columbia, [1925] S.C.R. 45 Duff, J.,at page 46, said:
The principle topic of controversy on this appeal is whether
the profit accruing from this sale was, in whole or in part,
assessable to income tax. The solution turns primarily upon the
answer to be given to the question whether or not the profit
falls within the category of "income" within the
meaning of the British Columbia statute. ...
...
And at page 49, said:
On behalf of the appellant company it is contended, first,
that the onus was upon the Crown to shew that the profit was
earned in an operation which was a part of the business carried
on in fact by the company; and, secondly, that from what is
described as the isolated case of the purchase and sale of these
timber limits no inference as to the course of the company's
business can properly be drawn.
First, as to the contention on the point of
onus. If, on an appeal to the judge of the Court of
Revision, it appears that, on the true facts, the application of
the pertinent enactment is doubtful, it would, on principle, seem
that the Crown must fail. That seems to be necessarily
involved in the principle according to which statutes imposing a
burden upon the subject have, by inveterate practice, been
interpreted and administered. But, as concerns the
inquiry into the facts, the appellant is in the same position
as any other appellant. He must shew that the impeached
assessment is an assessment which ought not to have been made;
that is to say, he must establish facts upon which it can be
affirmatively asserted that the assessment was not authorized by
the taxing statute, or which bring the matter into such a state
of doubt that, on the principles alluded to, the liability of the
appellant must be negatived. The true facts may
be established, of course, by direct evidence or by probable
inference. The appellant may adduce facts constituting
a prima facie case which remains unanswered; but in
considering whether this has been done it is important not to
forget, if it be so, that the facts are, in a special degree if
not exclusively, within the appellant's cognizance; although
this last is a consideration which, for obvious reasons, must not
be pressed too far.
(emphasis added)
[24] Johnston v. Canada (Minister of
National Revenue), [1948] S.C.R. 486 considered the proper
rate of tax under the Income War Tax Act applicable for
the 1944 year. Rand, J., at page 488, said:
The appeal raises also the question of onus. By section 58 any
person objecting to the amount at which he is assessed may appeal
to the Minister. If the Minister rejects the appeal, under
section 60(1) a Notice of Dissatisfaction may be served on the
Minister and the taxpayer shall in it state that he desires his
appeal to be set down for trial. By subsection (2),
The appellant shall forward therewith a final statement of
such further facts, statutory provisions and reasons which he
intends to submit to the Court in support of the appeal as were
not included in the aforesaid Notice of Appeal, or in the
alternative, a recapitulation of all facts, statutory provisions
and reasons included in the aforesaid Notice of Appeal, together
with such further facts, provisions and reasons as the appellant
intends to submit to the Court in support of the appeal.
...
And at page 489 said:
Notwithstanding that it is spoken of in section 63(2) as an
action ready for trial or hearing, the proceeding is an appeal
from the taxation; and since the taxation is on the basis of
certain facts and certain provisions of law either those facts or
the application of the law is challenged. Every such fact found
or assumed by the assessor or the Minister must then be accepted
as it was dealt with by these persons unless questioned by the
appellant. If the taxpayer here intended to contest the fact that
he supported his wife within the meaning of the Rules mentioned
he should have raised that issue in his pleading, and the burden
would have rested on him as on any appellant to show that the
conclusion below was not warranted. For that purpose he might
bring evidence before the Court notwithstanding that it had not
been placed before the assessor or the Minister, but the
onus was his to demolish the basic fact on which the
taxation rested.
(emphasis added)
[25] In Eli Lilly and Co. v. Nu-Pharm
Inc., [1997] 1 F.C. 3, the Federal Court of Appeal, at
paragraph 23, said:
The Motions Judge described the common law presumption, at
pages 152-153:
...where a party fails to lead evidence of a fact that it
is in a better position to establish, the Court will infer that
the facts are adverse to that party's interests.
The maxim underlying this exception was enunciated by Lord
Mansfield in Blatch v. Archer (1774), 1 Cowp. 63, at page
65; 98 E.R. 969, at page 970:
It is certainly a maxim that all evidence is to be weighed
according to the proof which it was in the power of one side to
have produced, and in the power of the other to have
contradicted.
The learned justice then referred to Pleet
(supra) in both the Court of Appeal and the Supreme Court
of Canada.
[26] In Hickman Motors Ltd. v.
Canada, [1997] 2 S.C.R. 336, the Court stated:
As I have noted, the appellant adduced clear, uncontradicted
evidence, while the respondent did not adduce any evidence
whatsoever. In my view, the law on that point is well settled,
and the respondent failed to discharge its burden of proof for
the following reasons.
It then stated that the initial onus of
"demolishing" the Minister's exact assumptions is
met where the appellant makes out at least a prima facie
case. It said further that the appellant adduced evidence which
met not only a prima facie standard but an even higher
one. The Court said, at paragraph 93:
The law is settled that unchallenged and uncontradicted
evidence "demolishes" the Minister's assumptions:
... As stated above, all of the appellant's evidence in
the case at bar remained unchallenged and uncontradicted.
...
and at paragraph 94:
Where the Minister's assumptions have been
"demolished" by the appellant, "the onus . . .
shifts to the Minister to rebut the prima facie case"
made out by the appellant and to prove the
assumptions...
At paragraph 95 the Court stated:
Where the burden has shifted to the Minister, and the Minister
adduces no evidence whatsoever, the taxpayer is entitled to
succeed: ...
[27] Charles MacNab, in an article entitled
"The Burden of Proof in Income Tax Cases" in the
Canadian Tax Journal (1978), at page 406 said, having referred to
Duff J.'s statements in Anderson Logging:
There is obviously a further consideration of policy and
fairness with respect to the way the onus is hinged to the exact
assumptions made, and that is that no taxpayer ought to be placed
in a position where he has to answer a barrage of assessing
positions, which, it would seem, have the potential at least of
causing him considerable expense both in terms of money and time
consumed.
[28] In an article published by the Canadian
Tax Foundation by William Innes and Hemamalini Moorthy entitled:
William Innes and Hemamalini Moorthy, "Onus of Proof
and Ministerial Asumptions: The Role and Evolution of Burden of
Proof in Income Tax Appeals" (1998) 46 Canadian Tax Journal,
page 1187. The following comments and conclusions are found at
page 1188:
The authors conclude that the onus placed on a taxpayer to
disprove ministerial assumptions is a form of negative inference
drawn by the courts as a matter of public policy where the
underlying facts are peculiarly within the knowledge of the
taxpayer, not of the minister. Where a taxpayer is called upon to
"demolish" ministerial assumptions of fact, this
involves nothing more complicated than adducing a prima
facie case that such assumptions are incorrect. If the Crown
calls no evidence, a taxpayer's evidence will normally be
accepted as demolishing the minister's assumptions unless it
is successfully challenged on cross-examination or presents
serious issues of credibility, or unless the Court draws a
negative inference from the taxpayer's failure to call
material evidence at his or her disposal.
(emphasis added)
And at page 1190:
...in our view what is necessary to "demolish"
a ministerial assumption is to prove the material facts that are
within the knowledge of the taxpayer if those facts do not
support the minister's assumption. If the court is convinced
that all material facts within the taxpayer's knowledge are
before the court and those facts prima facie rebut the
minister's assumptions, then such assumptions cease to have
any continuing role in the proceedings.
(emphasis added)
...
And at page 1209:
It seems clear to us that in recent years the courts have
moved considerably in the direction of simplifying and clarifying
the rules respecting onus and ministerial assumptions in tax
litigation. Apart from certain exceptions such as false
statements or omissions, statute-barred years, and alternative
pleadings ... we believe that the rules can be summarized as
follows:
1) The rule
respecting ministerial assumptions is a form of negative
inference drawn by the courts as a matter of policy in light of
the common-sense proposition that the material facts underlying
an assessment are peculiarly within the knowledge of the
taxpayer, not of the minister.
2) While the
point is not entirely free from doubt, the rule probably
does not extend to facts assumed by the minister that the
taxpayer could not reasonably be expected to either prove or
disprove (for example, dealings of unrelated parties of which the
taxpayer is unaware); it is likely that the onus is on the Crown
to prove such facts.
(emphasis added)
[29] Finally at page 1211, the above authors
state that:
Ministerial assumptions should be invoked to dismiss an appeal
only in cases where a court concludes that a taxpayer has not
adduced material evidence in his or her possession or
control ...
(emphasis added)
[30] The assumptions contained in paragraph
8.h), i), subparagraphs i), ii), iii) of paragraph j) and
paragraphs l), m), n), p), r), s), t) and u) were not within the
knowledge of the Appellant. The language in the opening portion
of paragraph j) to the effect that "the Appellant and the
vendors participated in a scheme involving the purchase and sale
of motor vehicles" was clearly negated by the Appellant. The
assumptions in paragraphs aa) and bb) referring to
"artificial arrangements" have the character of law
more than of fact and appear to exist solely to support the
conclusion that the Minister had reached. The same can be said
for paragraph y) referring to the transactions not being
"bona fide".
[31] As indicated above, the assumptions
contained a number of statements knowledge of which was, on the
evidence, beyond the ken of E. For example, the vague assumption
that some of the vehicles in the subject transactions "did
not exist at the time of the alleged purchases and sales by the
Appellant" appears designed to colour the Appellant's
activities as disentitling it to the ITC's requested.
Perceptions of fact based upon facts which lie within the
peculiar knowledge of the Respondent which are paraded as
assumptions in the Reply to the Notice of Appeal, which are
beyond the knowledge of the Appellant and which are not easily or
practicably deniable by the Appellant without extraordinary
effort and expenditure, should not be deemed to be facts simply
because they are not specifically negated by the
Appellant's evidence. Assumptions of fact in such
circumstances cannot displace the need of the Respondent to
produce evidence to substantiate or support that which may be
relevant to counter or affect the Appellant's factual
presentation.
[32] No evidence whatsoever was adduced by
the Respondent respecting the issue to be decided and no
submission was advanced respecting those assumptions. This adds
flesh to the bones of Lord Mansfield's statement in Blatch
v. Archer, supra, that:
It is certainly a maxim that all evidence is to be weighed
according to the proof which it was in the power of one side to
have produced, and in the power of the other to have
contradicted.
[33] The Minister's assumptions were,
with respect to facts within its knowledge, demolished by the
Appellant. In accordance with the Hickman Motors Ltd.
decision, the onus thereby shifts to the Minister and where the
Minister adduces no evidence whatever the taxpayer is entitled to
succeed.
This is consistent with the above statement in
Pleet:
All the facts were peculiarly within the knowledge of the
defendants, and in these circumstances it seems to me that the
onus was on the defendants to furnish it.
It is also consistent with the impressions of Duff, J. in
Anderson Logging Co. stated above and repeated here:
The Appellant may adduce facts constituting a prima
facie case which remains unanswered; but in considering
whether this has been done it is important not to forget, if it
be so, that the facts are, in a special degree if not
exclusively, within the Appellant's cognizance although
this last is a consideration which, for obvious reasons, must not
be pressed too far.
(emphasis added)
[34] Further, based upon my appraisal of the
evidence, the Appellant met the onus, with respect to facts known
by E, of demolishing, as set out in Johnston, "the
basic fact on which the taxation rested".
[35] One wonders whether the perpetrators of
the scheme suggested in the Reply were pursued by the fisc for
the monies that the Respondent, by the reassessment appealed
from, seeks, by such reassessment, to recover.
[36] I have reached my decision on the basis
of E's evidence which I found to be wholly believable. He was
the only witness at the hearing. He was cross-examined by
Respondent's counsel and, in overall examination, gave me not
the slightest indication that he was anything but honest and
forthcoming to the best of his ability.
[37] Respecting the transactions under
examination, documents were presented to the Appellant. It
indicated its willingness to proceed with the transactions. It
received the purchase price and appropriate GST from a person it
had no reason to believe was not the buyer. It paid the vendor
its invoice price including HST. It paid the appropriate
amount of tax to Revenue, a fact not stated in the
Respondent's Reply. It also applied for and received Input
Tax Credits.
[38] I have concluded, based on
evidence, which does not include the described ministerial
assumptions, that the Appellant acquired the vehicles within the
meaning of and for the purposes of section 169 of the Excise
Tax Act, Part IX, respecting GST. The pertinent part thereof
reads as follows:
... where a person acquires ... property ...
and ... tax ... becomes payable, the amount determined
by the following formula is an input tax credit of the person in
respect of the property.
[39] Accordingly, the Appellant is entitled
to the ITC's applied for excepting the amount of $168,075
relating to certain of the relevant transactions and claimed in
September, 1998. There was, as agreed by counsel for both
parties, no evidence supporting same as required by section
169(4) of the said Act, the pertinent portion reading as
follows:
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.
[40] The Notice of (Re)Assessment contained
in the Appellant's Book of Exhibits gives no authority or
computation of the penalties levied. Section 280.1 of the
Act states that a person who fails to remit or pay an
amount to the Receiver General when required shall pay a penalty
of 6 percent per year on that amount. If any such amount was not
so remitted or paid in this case, the penalty will apply. Section
285 of the Act provides a penalty if any person knowingly,
or under circumstances amounting to gross negligence, makes or
participates in, assents to or acquiesces in the making of a
false statement or omission in a return, application, form,
certificate, statement, invoice or answer. Respondent's
counsel submitted that the Appellant was assessed penalties
pursuant to this section respecting ITC's that were claimed
and disallowed,
because it knowingly, or under circumstances amounting to
gross negligence, filed GST/HST returns for the period under
appeal in which it claimed ITC's to which it was not
entitled.
Respondent's counsel's written submission states,
among other things, that E knew that the Appellant did not
purchase any of the vehicles in question and that it had no
obligation to pay GST/HST on purchases that did not take place.
In oral submissions he said that E made no enquiries as to what
was going on and on that basis, was grossly negligent. Those
submissions ignore the evidence and have no foundation in law. E
earnestly believed that the Appellant was buying the cars.
Failure to ask "what was going on" could, in these
circumstances, not possibly constitute gross negligence. E, in
entering into transactions referred to him by Bruce, was simply
doing so as part of the regular commercial vehicle business
carried on by him.
[41] In any event because of the
Appellant's success herein no such penalties are applicable,
including penalties on the aforesaid sum of $168,075 where no
evidence supporting penalties was produced.
[42] For the foregoing reasons the appeal is
allowed except for its ITC's in the amount of $168,075 above
described.
COSTS
[43] Counsel made written submissions
respecting costs. Appellant's counsel itemized services
performed, stating that the tariff total would be $4,000. He
referred to section 147 of the Tax Court of Canada Rules
(General Procedure), which reads:
The Court may fix all or part of the costs with or without
reference to Schedule II, Tariff B and, further, it may award a
lump sum in lieu of or in addition to any taxed costs.
He then described the amount involved, namely $1,945,965.99,
being more than ten times the minimum amount set out as a
threshold for class C proceedings. He then stated:
The Respondent raised serious allegations against Redash and
its principal William Evong in its Reply. Essentially, the
Respondent alleged that the Appellant was complicit to a scheme
of artificial transactions designed to defraud the Canada Revenue
Agency. These allegations were asserted as assumptions in the
Respondent's Reply without any substantiation at the hearing,
and were rejected by this Court.
[44] The Joint Application for a time and
place for the hearing discloses that:
There will be approximately 4 witnesses and 50 documents for
the Appellant and 3 witnesses and 17 documents or folios of
documents for the Respondent.
It is reasonable for Appellant's counsel to have assumed
that the Respondent's evidence would have related to the
aforementioned assumptions in the Reply to the Notice of Appeal
and to have expended preparation energies in that direction.
[45] The Appellant met the burden of
demolishing assumptions within its knowledge. The Respondent
produced no evidence to establish such assumptions as fact, the
onus being upon it so to do.
[46] Having regard to
(1) the nature of the assumptions
described in the Appellant's submission respecting costs,
(2) the Respondent having adduced no
evidence in respect thereof, and
(3) Appellant's counsel's
submissions.
costs in the amount of $8,000 plus appropriate disbursements
are awarded to the Appellant.
Signed at Ottawa, Canada, this 16th day of June 2004.
Bell, J.
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