Date: 20010817
Docket: 2001-797-GST-I
BETWEEN:
LAWRENCE DIMARIA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Hamlyn, J.T.C.C.
[1]
The Appellant did not report and remit Goods and Services Tax
("GST") collectible on three truck sale transactions in
the amount of $6,806.03. By notice of (re) assessment numbered
00000010158 and dated June 22, 1999, the Minister of National
Revenue (the "Minister") assessed the Appellant's
GST liability for the quarterly reporting periods from January 1,
1996 to March 31, 1998 as follows:
Adjustments to
GST
$ 6,806.03
Adjustments to Input Tax
Credits
2,058.48
Total Adjustments for Assessment
Period
8,864.51
Penalty
1,583.92
Interest
1,066.40
Other
penalty
1,701.51
Amount
owing
$13,216.34
[2]
The Appellant, Mr. Lawrence DiMaria, appeals from the
Minister's reassessment of his GST liability for the
quarterly reporting periods from January 1, 1996 to March 31,
1998, in which the Minister required the Appellant to pay GST on
three truck sales transactions.
[3]
The Appellant at trial admitted certain assumptions pleaded by
the Respondent in the Reply to the Notice of Appeal.
a)
at all relevant times, the Appellant was operating a trucking and
transportation business (the "Business");
b)
at all relevant times, the Business had a December 31 business
year end for GST purposes;
c)
at all relevant times, the Appellant made taxable supplies in the
course of his commercial activities;
d)
in 1993, the Appellant purchased three trucks, to be used in the
Business, from Mercedes Benz Corporation ("MBCC"): a
1989 Kenworth, a 1994 Freightliner and a 1991 Freightliner;
e)
in June, 1996, the Appellant sold the 1989 Kenworth to Camions
Freightliner Trucks Montreal for $21,500, plus GST in the amount
of $1,505, for a total sale price of $23,005;
f)
at the Appellant's request, Camions Freightliner Trucks
Montreal paid the Appellant an amount of $15,271.27, and paid an
amount of $7,733.33 to MBCC for a total of $23,005;
g)
also in 1996, the Appellant sold the 1994 Freightliner to East
West Fashion Inc. for $46,729, plus GST in the amount of
$3,271.03, for a total sale price of $50,000. (Note - the
Appellant's evidence with respect to this assumption was GST
not included;
h)
at the Appellant's request, East West Fashion Inc. paid MBCC
an amount of $41,717.41, and paid an amount of $8,282.59 to
L & DD Trucking for a total of $50,000;
i)
in August 1996, the Appellant sold the 1991 Freightliner to Gill
Motors Inc. for $29,000, plus GST in the amount of $2,030, for a
total sales price of $31,030;
j)
at the Appellant's request, Gill Motors Inc. paid an amount
of $14,494.70 to MBCC, and paid an amount of $16,535.30 to Larry
DiMaria for a total of $31,030;
k)
the three trucks were not seized or repossessed by MBCC for the
purpose of satisfying in whole or in part a debt or obligation
owing by the Appellant to MBCC.
THE APPELLANT'S POSITION
[4]
From his Notice of Appeal adopted as part of his evidence at
trial, the Appellant states that he sold three trucks in order to
avoid financial disaster. The Appellant also states that to the
best of his knowledge he did not receive GST amounts for any of
the three transactions, therefore he did not remit any GST amount
with respect to these three transactions[1]. The Appellant further asserts that
if GST was included in the balance amount for each truck, since
MBCC collected the balance they should be liable for the GST.
ISSUES
[5]
The first issue is whether the Minister properly assessed the
Appellant for GST amounts with respect to the three truck sale
transactions. In order to determine this issue the question of
whether the Appellant made a taxable supply when he sold the
three trucks must be addressed.
[6]
The second issue is whether the Minister properly assessed gross
negligence penalties against the Appellant. The issue hinges on
whether the Appellant acted knowingly or with "gross
negligence" in not collecting and remitting GST on the three
transactions.
STATUTORY FRAMEWORK
[7]
The applicable legislative provisions with respect to taxable
supplies are as follows:
141. (1) For the purposes of this Part, where substantially
all of the consumption or use of property or a service by a
person, other than a financial institution, is in the course of
the person's commercial activities, all of the consumption or
use of the property or service by the person shall be deemed to
be in the course of those activities.
141.1 (1) For the purposes of this Part,
(a) where a person makes
a supply (other than an exempt supply) of personal property
that
(i)
was last acquired or imported by the person for consumption or
use in the course of commercial activities of the person or was
consumed or used by the person in the course of a commercial
activity of the person after it was last acquired or imported by
the person,
[...]
the person shall be deemed to have made the supply in the
course of the commercial activity;
165. (1) Subject to this Part, every recipient of a taxable
supply made in Canada shall pay to Her Majesty in right of Canada
tax in respect of the supply calculated at the rate of 7% on the
value of the consideration for the supply.
221. (1) Every person who makes a taxable supply shall, as
agent of Her Majesty in right of Canada, collect the tax under
Division II payable by the recipient in respect of the
supply.
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 the greater of $250 and 25%
of the total of [...]
ANALYSIS
[8]
Paragraph 141.1(1)(a) of the Excise Tax Act (the
"Act") deals with the disposition of personal
property. The paragraph provides that where a person makes a
supply of personal property that was consumed or used by the
person in the course of a commercial activity, the person shall
be deemed to have made a supply in the course of commercial
activity.
[9]
The Appellant was not in the business of selling trucks, the
trucks were purchased for and were used substantially in the
Business. The Appellant used the trucks to make taxable supplies,
namely a transportation service. Thus the sale of the trucks
would constitute a supply made in the course of commercial
activity.
[10] A supply
made in the course of commercial activity is a taxable supply
under the Act and the supplier, the Appellant in this
case, is obligated to collect GST for the supply under section
221 of the Act.
PENALTY FOR FALSE STATEMENTS OR
OMISSIONS
("KNOWLEDGE AND/OR GROSS
NEGLIGENCE")
[11] The
penalty found in section 285 in the Act is parallel to
subsection 163(2) of the Income Tax Act.
[12] The
classic definition of "gross negligence" for the
purpose of applying a penalty under the Income Tax Act or
the Act is found in Venne v. The Queen, [1984]
C.T.C. 223, Strayer J. stated at p. 234:
"Gross negligence" must be taken to involve greater
neglect than simply a failure to use reasonable care. It must
involve a high degree of negligence tantamount to intentional
acting, an indifference as to whether the law is complied with or
not.
[13] This
definition had been cited in numerous tax cases and is the
standard applied by the courts when determining whether a penalty
for gross negligence is appropriate.
[14] In
897366 Ontario Limited v. The Queen, [2000] G.S.T.C. 13 at
para. 19, Judge Bowman had these words with respect to
imposing a penalty under section 285:
... The imposition of penalties under section 285
requires a serious and deliberate consideration by the taxing
authority of the taxpayer's conduct to determine whether it
demonstrates a degree of wilfulness or gross negligence
justifying the penalty. Section 285 is not there to permit
assessors to punish taxpayers for being frustrating or annoying.
It cannot be overemphasized that penalties may only be imposed
under section 285 in the clearest of cases, and after an
assiduous scrutiny of the evidence.
[15] Judge
Bowman's statements can be taken as further support for the
notion that a determination of knowledge or gross negligence
involves a subjective component. Further, Judge Bowman would
appear to be restricting the application of a section 285 penalty
to the circumstance where the taxpayer clearly acted knowingly or
with gross negligence.
[16] The
Appellant said he had difficulty in understanding who owns the
trucks and the GST consequences of such ownership when selling
the vehicles. The evidence supports the Appellant's full
ownership of all three trucks and I conclude the Appellant knew
he owned the trucks at the relevant time.
[17] However,
the question of whether a finding that the Appellant acted
knowingly and/or with gross negligence requires further scrutiny
of the evidence.
[18] The
discrepancy that lead to the audit arose from a comparison of the
Appellant's income tax returns and the Appellant's filed
GST returns. In particular, a review of the Appellant's
capital cost allowance schedules in his income tax return exposed
the unreported dispositions.
[19]
Specifically, when questioned by the CCRA during the audit period
the Appellant denied that he had sold any trucks. Further, it
would appear that he advised others (his ex-wife in particular)
to deny the truck sales. However, at trial, as indicated, he did
agree he sold the trucks.
[20] The
Appellant clearly did not exercise reasonable care in his
reporting and remitting obligations and the Appellant's
original denial of the truck dispositions leads to a conclusion
that the Appellant knowingly accounted to the making of a false
statement in the GST returns.
[21] The
appeal is dismissed.
Signed at Ottawa, Canada, this 17th day of August 2001.
"D. Hamlyn"
J.T.C.C.
COURT FILE
NO.:
2001-797(GST)I
STYLE OF
CAUSE:
Lawrence DiMaria and
Her Majesty the Queen
PLACE OF
HEARING:
Ottawa, Ontario
DATE OF
HEARING:
August 8 and 9, 2001
REASONS FOR JUDGMENT
BY:
The Honourable Judge D. Hamlyn
DATE OF
JUDGMENT:
August 17, 2001
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Yves Parent
COUNSEL OF RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
2001-797(GST)I
BETWEEN:
LAWRENCE DIMARIA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on August 8 and 9, 2001 at Ottawa,
Ontario, by
the Honourable Judge D. Hamlyn
Appearances
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
Yves Parent
JUDGMENT
The
appeal from the assessment made under Part IX of the Excise
Tax Act, notice of which is dated June 22, 1999 and bears
number 00000010158, is dismissed.in accordance with the attached
Reasons for Judgment.
Signed at Ottawa, Canada, this 17th day of August 2001.
J.T.C.C.
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