Aspire Management Realty Ltd. v. The Queen, docket 98-71-GST-I (Informal Procedure)

Date: 19990809

Docket: 98-71-GST-I

BETWEEN:

ASPIRE MANAGEMENT REALTY LTD.,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

O'Connor, J.T.C.C.

[1] This appeal was heard on July 27, 1999 at Edmonton, Alberta pursuant to the Informal Procedure of this Court. Testimony was given by L. Hazelaar, the agent for the Appellant, a Chartered Accountant, and by Mohan Maharaj the principal of the Appellant company. Testimony was also given by Catherine Chang, an appeals officer with Revenue Canada.

FACTS:

[2] The basic facts are as follows:

1. By Notice of Assessment number 00010105370, dated February 28, 1997, for the period January 1, 1993 to December 31, 1996, the Minister of National Revenue (the "Minister") assessed the Appellant net tax (GST) in the amount of $29,008.48, interest in the amount of $3,723.20 and penalty in the amount of $3,928.91.

2. The Appellant objected to Notice of Assessment number 00010105370 by Notice of Objection, dated April 23, 1997.

3. The Minister partly allowed the objection by a Notice of Decision and Notice of Reassessment 10BT-115145112, both dated October 9, 1997 by reducing the net tax collectible to the amount of $22,478.14 (Total GST of $45,587.47 less ITCs of $23,109.33) with interest and penalty in the amounts of $1,906.82 and $2,006.40, respectively. There is no dispute as to the amount of ITCs.

[3] The Appellant was engaged in a commercial activity consisting of the management of real estate. The real estate so managed with very minor exceptions consisted of residential real estate.

[4] The Appellant was registered for purposes of the Excise Tax Act ("Act") since January 1, 1991 under registration number 100294156.

[5] According to the Respondent, during the relevant period the Appellant made total taxable supplies in the following amounts:

Year End Sept 30	Taxable Supplies	GST Collectible	GST Reported	GST Unreported
1993	$201,951.00 (x 9/12)	$10,602.43	$8,198.91	$2,403.52
1994	$242,385.00	$16,966.95	$10,197.49	$6,769.46
1995	$180,578.00	$12,640.46	$9,920.76	$2,719.70
1996	$67,000.00	$4,690.00	$278.32	$4,411.68
Oct,Nov & Dec 1996	$9,823.29	$687.63	$332.65	$354.98
TOTALS		$45,587.47	$28,928.13	16,659.34

[6] The Appellant contests these figures and submits that the correct figures are as follows:

	Taxable Supplies	GST	GST Reported	GST Unreported
1993 (Jan - Sept 30)	$123,786.63	$8,664.78	$8,198.91	$465.87
1994 fiscal year	$189,411.22	$13,258.78	$10,197.49	$3,061.29
1995 fiscal year	$137,576.40	$9,630.34	$9,920.76	($290.42)
1996 fiscal year	$6,444.76	$451.12	$278.32	$172.80
Oct,Nov & Dec 1996	$0.00	$0.00	$359.98	($359.98)
TOTALS		$32,005.02	$28,955.46	$3,049.56

[7] The Appellant did not file all of its GST returns on time as required by section 228 of the Act.

[8] According to the Respondent the Appellant failed to maintain sufficient books and records to allow a proper verification and determination of the Appellant's liability obligations under the Act but according to the representative of the Appellant there were sufficient books and records and had the auditor examined same this dispute would never have gotten to this stage. Mr. Maharaj reviewed Exhibit A-1 in detail. In essence it consists of a record of bank deposits made during the period in question with notations that some of the amounts deposited in the bank were in respect of non-taxable supplies. The Appellant maintains that the items consisted of non-taxable supplies because they were in certain cases loans made by shareholders to the Appellant, rental and other items which flowed through the bank account, i.e., were received and deposited by the Appellant but later paid out to the owners of the properties. Other items consisted of renovations, mistakes, insurance payments amounts flowed through the company's account but ultimately advanced to Aspire International, the main company in the group, set up fees and other items.

[9] The Respondent maintains that because the books and records were insufficient some other method had to be employed by the Minister in establishing the assessment. Consequently, the financial statements submitted by the Appellant were used to determine the gross income. The auditor and the appeals officer also considered other methods of determining the gross income but finally determined that the most appropriate method was to rely on the financial statements. Consequently, the figures that appear above representing the Respondent's submissions as to what were taxable supplies are taken from the Appellant's financial statements.

[10] The Appellant attempted to explain that the financial statements were not reliable because some items included in gross revenue were not taxable supplies as detailed more fully in Exhibit A-1. The Appellant contends that the figures submitted above by the Appellant and based upon Exhibit A-1 are the correct figures. The Respondent submits that the Appellant was obliged under section 286(4) of the Excise Tax Act to keep proper records and books and since the Appellant did not do so the Respondent was entitled to assess on the basis of the financial statements filed with the Appellant's income tax returns.

ANALYSIS AND DECISION:

[11] I accept the credibility of Mr. Maharaj. His detailed analysis of Exhibit A-1 established that he was fully familiar with the GST legislation and his references to the financial statements not truly reflecting the taxable supplies by the Appellant were understood. The evidence as to what books and records were available to the auditor and the appeals officer was contradictory. Even though the records may not have been up to the standard required by Revenue Canada there were definitely records maintained and made available.

[12] Consequently, although I find no fault with the approach of Revenue Canada, now that all of the figures are in, I find on a balance of probabilities, that the position of the Appellant is correct. Consequently, the appeal is allowed to the following extent, namely, that the matter is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the GST collectible is $3,049.56. The interest and penalties are to be adjusted on this basis.

Signed at Ottawa, Canada this 9^th day of August, 1999.

"T.P. O'Connor"

J.T.C.C.