Date: 20011221
Docket: 2001-1081-GST-I
BETWEEN:
403015 B.C. LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasonsfor
Judgment
Sarchuk J.
[1]
This is an appeal by 403015 B.C. Ltd. (the Appellant) from an
assessment dated August 3, 1999 by virtue of which the Minister
of National Revenue (the Minister) assessed the Appellant a total
amount of $126,994.78.[1] The Appellant was also assessed the gross negligence
penalty of $13,085.02 under section 285 of the Excise Tax
Act (the Act) in respect of the eleven properties
which were sold before December 31, 1998.[2]
[2]
In so reassessing the Appellant, the Minister relied on the
following assumptions of fact:
(i)
the Appellant registered under Part IX of the Excise Tax
Act effective January 1, 1991, and was assigned GST
registration number 131579609;
(ii)
the Appellant is involved in real property development;
(iii)
the Appellant is required to file GST on a quarterly basis;
(iv) for
the Assessment Period, the Appellant claimed within the time
required ITCs of $222,324.60 as set out in the attached schedule
"A";
(v)
ITCs of $14,479.90 were disallowed as the Appellant failed to
provide sufficient documentation as required by the
Act;
(vi) for
the Assessment Period, the Appellant reported NIL sales and NIL
GST collected as set out in the attached schedule
"A";[3]
(vii) during
the Assessment Period, the Appellant sold the Properties on which
GST was collected;
(viii) the Appellant
was assessed GST of $146,376.99 on the unreported sales of the
Properties and was allowed the related GST New Housing Rebate of
$53,091.70;
(ix)
the Appellant did not remit GST in respect of the sales of the
Properties;
(x)
on the GST returns filed by the Appellant and signed by its
principal, Bruce Rosengren, NIL GST was shown as collected in
respect of the sales of the Properties;
[3]
It is not disputed that when contacted by the auditor, the
Appellant submitted all GST payable excepting the amount assessed
as penalty under section 285 of the Act which, as
previously noted, is the subject of this appeal.
[4]
The position of the Appellant was advanced by its president,
Lloyd Bruce Rosengren. During 1998 and 1999, the Appellant was in
the business of constructing and selling condominium units in
Langley, BC. Rosengren said this was the first condominium
project that the Appellant had been involved in. It had retained
Mr. Glen Laughlin and, according to Rosengren, as the
Appellant's conveyancing solicitor, was required to pay
GST
"out of the disbursements of each sale. I had permission
to do this from my lender, which I had negotiated prior to the
sales and had them send Mr. Laughlin's office a copy of
the commitment letter and authorization to do so".[4]
Rosengren contends that these documents contain a provision
that the net GST may be paid out of the proceeds of each sale and
that his solicitors should have and did in fact pay the GST to
the lender as instructed and the ultimate proceeds of the sales
were not released or paid to the Appellant for the purposes of
remitting the GST.
[5]
Evidence was adduced on behalf of the Respondent from Glen Arthur
Laughlin. He is a member of the law firm Kane, Shannon &
Weiler and had been retained by the Appellant to handle all the
necessary conveyancing with respect to the condominiums in issue.
He testified that the Appellant had not provided him with any
instructions with respect to GST collected from the condominium
sales. More specifically, he does not recall receiving any
instructions with respect to remitting the GST (to Revenue
Canada) and his review of the files and his notes failed to
disclose any record of such a conversation with Rosengren or any
other form of instruction to that effect. He observed that it
would have been "unique to his situation so I would normally
make a note to that - to that effect". He further
observed that he has never remitted or reported GST on behalf of
a client in similar transactions and noted that it is something
that a conveyancing solicitor would not be able to do since he
would not have all of the relevant information with respect to
input tax credits, etc. He maintains that if Rosengren had given
such instructions, those instructions would have appeared on the
"authority to pay document since that document re:
disbursement that the solicitor makes is set out for the
client's approval because it's his money that we are
spending".
Relevant Statutory Provisions
[6]
Section 285 of the Act provides that:
285
Every person who knowingly, or under circumstances amounting to
gross negligence in the carrying out of any duty or obligation
imposed by or under this Part, 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 (in this section referred to as a "return")
made in respect of a reporting period or transaction is liable to
a penalty of ...
This requires that an omission or false statement in a return
be made knowingly or in circumstances amounting to gross
negligence. It is the Respondent's responsibility to
establish these elements.
Analysis
[7]
Evidence was adduced on behalf of the Respondent from Colleen
Joan Browne, an auditor with Revenue Canada. The Appellant's
file initially came to the attention of Revenue Canada because
the input tax credits were so high and no sales whatsoever had
been reported. An investigation disclosed that there had in fact
been sales as a result of which the Appellant's
representative was called in order to set up an audit. The
representative was advised of the results of the investigation
and shortly thereafter Rosengren, on behalf of the Appellant,
attended at the Revenue Canada offices and paid the GST on all
the properties in issue. The evidence before the Court further
established that Rosengren had been filing the GST returns for
the Appellant since its inception. It was audited in 1993 and
assessed a negligence penalty for failing to pay GST on the
transfer of certain property. Rosengren conceded that at the time
of that audit, he had been advised by a representative of Revenue
Canada by way of letter which "broadly instructed how GST on
- on a corporately constructed dwelling should be
handled". The evidence also establishes that the Appellant
filed GST returns for the quarters ending September 30, 1998,
December 31, 1998 and March 31, 1999 and reported no sales when
in fact, the Appellant had made 19 sales during these quarters
and had received GST refunds totalling $24,918.03 after filing
the false returns. Furthermore, in the course of Rosengren's
examination of the Appellant's former solicitor, it became
apparent that the Appellant had financial difficulties with
respect to construction costs during the period of time when the
failure to remit occurred.
[8]
The Appellant's position is that it was the responsibility of
its solicitor to remit the GST for each respective unit from the
amounts received in payment from the purchaser upon closing. In
fact, Rosengren insisted that such instructions had been given to
the company solicitor, Laughlin. Having heard and observed both
in the course of their testimony, I accept that of Laughlin and
find that no request had been made by Rosengren to have Laughlin
or his firm remit or report the GST collected from the sales.
There is nothing in writing to indicate that such instructions
had been given. Furthermore, as Laughlin noted, this would have
been a rather unique request and would not normally have been a
practice of his firm and if acceded to, such a request would have
been documented. I am satisfied that Mr. Laughlin on behalf of
the Appellant paid out the funds to the lender in accordance with
the terms set out in the agreement and in the letters that were
sent to the solicitors by the lender and then as instructed,
remitted the balance including the builder's lien holdback to
the Appellant. Furthermore, an examination of the vendor's
statements of adjustments, the authority to pay and the trust
account printouts indicate that the GST was not remitted and that
the Appellant was receiving in excess of the amounts that were
agreed upon between itself and the lender. This fact should
clearly have been evident to the Appellant.
[9]
The fact that the Appellant amended its returns immediately upon
being apprised of the audit does not serve to mitigate against
the penalty levied under section 285 of the Act. On the
evidence as a whole, I am satisfied that the Appellant's
failure to report the sales and remit the tax was not an
inadvertent error but rather was done knowingly. The Appellant
obtained a substantial advantage as a result of the failure to
report the sales since as Rosengren conceded, the mortgage was
discharged at an earlier date and as a result, the Appellant was
required to pay less interest to the lender. In addition, the
Appellant had the benefit of significant refunds that it received
by failing to report any sales while claiming significant input
tax credits in those same three quarters.
[10] This
appeal is dismissed.
Signed at Ottawa, Canada, this 21st day of December, 2001.
"A.A. Sarchuk"
J.T.C.C.
COURT FILE
NO.:
2001-1081(GST)I
STYLE OF
CAUSE:
403015 B.C. Ltd. and
Her Majesty the Queen
PLACE OF
HEARING:
Vancouver, British Columbia
DATE OF
HEARING:
October 10, 2001
REASONS FOR JUDGMENT
BY:
The Honourable Judge A.A. Sarchuk
DATE OF
JUDGMENT:
December 21, 2001
APPEARANCES:
Agent for the
Appellant:
Lloyd Bruce Rosengren
Counsel for the
Respondent:
Kristy Foreman Gear
COUNSEL OF RECORD:
For the
Appellant:
Name:
N/A
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-1081(GST)I
BETWEEN:
403015 B.C. LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on October 10, 2001, at Vancouver,
British Columbia, by
the Honourable Judge A.A. Sarchuk
Appearances
Agent for the
Appellant:
Lloyd Bruce Rosengren
Counsel for the
Respondent:
Kristy Foreman Gear
JUDGMENT
The
appeal from the assessment of tax made under the Excise Tax
Act, notice of which is dated August 3, 1999 and bears number
00000000248 is dismissed.
Signed at Ottawa, Canada, this 21st day of December, 2001.
J.T.C.C.
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