Date: 19971118
Docket: 97-826-GST-I
BETWEEN:
SDC STERLING DEVELOPMENT CORPORATION,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Christie A.C.J.T.C.
[1] This appeal is governed by the informal procedure
prescribed under section 18.3001 and related provisions of the
Tax Court of Canada Act.
[2] Apart from the references to case law the Notice of Appeal
reads:
“TAKE NOTICE THAT SDC Sterling Development (hereinafter
the ‘Appellant’) appeals to the Court from the Notice
of Decision of the Minister of National Revenue dated December
19, 1995, in connection with the Goods and Services Tax
Assessment No. 04BP0300830 dated May 1, 1995 under Part IX of the
Excise Tax Act (‘ETA’), in respect of the
period January 1, 1991 through January 31, 1995.
A. Reasons for Appeal
The assessment includes an amount under ETA subsection 281(1)
for penalty and interest for supplies which are ‘wash
transactions’. The stated policy of the Minister of
National Revenue (the ‘Minister’) is to waive or
cancel the penalty and a portion of interest in the case of a
wash transaction.
The assessment includes an amount for penalty under ETA
subsection 280(1) whereas the Appellant exercised due diligence
in its effort to comply with its obligations under the ETA.
B. Relevant Facts
Wash Transactions
Section 281.1 provides to the Minister the authority to waive
or cancel interest or penalty otherwise payable by a person under
ETA section 280.
The Facts
1) The Appellant charged fees to limited partnerships for the
management of commercial rental properties.
2) The Appellant charged fees to limited partnerships for the
management of the construction of commercial rental
properties.
3) The Appellant did not collect and remit GST on the fees
charged to the limited partnerships, because it did not consider
its management services to be taxable supplies.
4) The limited partnerships are registrants for the purpose of
the ETA.
5) The limited partnerships acquired the Appellant’s
management services in the course of their commercial
activities.
6) Pursuant to ETA subsection 169(1), the limited partnerships
would have been entitled to claim a full input tax credit
(‘ITC’) if the Appellant had collected GST on the
supply of the management services.
7) The limited partnerships did not claim any ITCs based on
the initial charges of the Appellant.
8) Subsequent to the audit for the period January 1, 1991 to
January 31, 1995, the Appellant invoiced the limited
partnerships for the GST that should have been charged under ETA
subsection 165(1) and 221(1).
In Technical Information Bulletin (‘TIB’) B-074,
Guidelines for the Reduction of Penalty and Interest in
‘Wash Transactions’ Situations, Revenue Canada
defines a wash transaction in the following manner:
A ‘wash transaction’ occurs when a supply,
taxable at the rate of 7%, is made and the supplier has not
remitted an amount of net tax by virtue of not having correctly
charged and collected the tax from the recipient who is a
registrant and who would have been entitled to claim a full input
tax credit if the tax had been correctly applied.
In the circumstances of a ‘wash transaction’, the
Minister will waive all interest or penalty payable by a person,
other than a minimum penalty equal to the lesser of the total
interest and penalty owing and 4% of the tax not remitted. By
this policy, the Minister mitigates the significant interest and
penalty consequences that a registrant would otherwise suffer
when the registrant made errors in applying the GST rules, but
when these errors did not result in any net revenue loss to the
government.
In TIB B-074, Revenue Canada states that the Minister will
waive or cancel the portion of the penalty and interest that is
in excess of 4% of the GST not collected in a ‘wash
transaction’ situation where the following conditions are
satisfied:
a) it is demonstrated that the supply in question was made to
a registrant who would have been entitled to a full ITC if the
GST has been correctly applied;
b) the supplier has not been previously assessed for the same
mistake and has a satisfactory history of voluntary
compliance;
c) the supplier has remedied the situation to ensure that GST
is collected on future supplies of a similar nature; and
d) the supplier has exercised reasonable care and diligence
without being negligent or careless in the conduct of its affairs
to ensure that GST is collected on all taxable supplies.
The Appellant’s supplies of management services to the
limited partnerships are ‘wash transactions’ as
described by Revenue Canada in TIB B-074. The Appellant meets the
criteria set out in TIB B-074 for waiver of the penalty and
interest, because:
a) the limited partnerships who were charged the GST did not
claim ITCs on the GST charged;
b) the Appellant had not been previously assessed on these
issues; and
c) the Appellant hired a firm of chartered accountants to set
up its accounting system to take into account GST, and followed
that accounting system. Therefore, the Appellant exercised care
and diligence in relation to its GST obligations.
Because the Appellant is no longer operational, there will be
no question of failure to collect GST on future supplies of
property management services.
Due Diligence
The Facts
1) The Appellant hired a national public accounting firm to
set up its accounting system. The Appellant ensured that its
accounting staff were involved in the process;
2) The Appellant had its computer accounting system updated to
reflect the GST and ensured that its staff was trained in this
new software;
3) The Appellant’s financial affairs were subject to
significant scrutiny by financial specialists because the
Appellant reported this financial information in documentation
prepared for the distribution to prospective investors. None of
the reviews done by the professionals who were involved in
preparation of these documents indicated that the construction
revenue was subject to GST;
4) The Appellant hired qualified employees with accounting
designations to perform its accounting and tax-reporting
functions;
5) The Appellant’s financial statements were reviewed on
an annual basis by a public accounting firm, including a specific
examination of the GST accounts to ensure that GST was accounted
for correctly. The annual reviews did not report any
irregularities or errors; and
6) The Appellant’s activity was in an area where the GST
issues were extremely complex. During the course of the audit,
even the auditor requested technical guidance from his superiors
on the nature of these supplies. The denial of ITCs on GST paid
or payable with respect to these taxable supplies was a
significant part of the adjustment.”
[3] The opening paragraph and paragraphs 1 to 7 inclusive of
the Reply to the Notice of Appeal read:
“In reply to the Notice of Appeal for the period from
January 1, 1991 to January 31, 1995, the Deputy Attorney General
of Canada says:
A. STATEMENT OF FACTS
1. Except as hereinafter expressly admitted, he denies each
and every allegation in the Notice of Appeal, and puts the
Plaintiff to the strict proof thereof.
2. By Notice of Assessment number 04BP0300830, dated May 1,
1995, the Minister of National Revenue (the
‘Minister’) assessed the Appellant’s GST
liability for the reporting periods of January 1, 1991 to January
31, 1995 by:
a) increasing the Appellant’s GST payable in the amount
of $69,608.15;
b) reducing the Appellant’s claim for input tax credit
in an amount of $60,945.70, by disallowing $67,523.70 and
allowing a previously unclaimed amount of $6,578.00;
c) assessing penalties and interest in the amount of
$22,903.98 and $21,259.52 respectively.
3. In so assessing the Appellant’s tax liability, the
Minister made, inter alia, the following assumptions of
fact:
a) the Appellant is a GST registrant effective January 1,
1991, involved in real estate syndication and management;
b) the Appellant understated its GST on its returns for the
periods from January 1,1991 to January 31, 1995;
c) the Appellant overstated input tax credits allowable on its
returns for the periods from January 1,1991 to January 31,
1995;
d) the Appellant’s year end is October 31; and
e) the Appellant was deregistered for GST purposes, effective
April 30, 1995.
4. On July 28, 1995, the Appellant filed a Notice of Objection
to Assessment No. 04BP0300830 with the Minister.
5. The Minister reviewed the objections made by the Appellant
and allowed them in part, issuing Notice of Reassessment No.
04BP113891709, which reduced the net tax owing for the periods
January 1, 1991 to January 31, 1995 to $93,882.82 and issued the
accompanying Notice of Decision on December 19, 1996.
6. In so reassessing, the Minister reviewed all documentary
evidence presented by the Appellant and based on that evidence,
concluded that the Appellant did not exercise due diligence in
filing its returns properly.
B. ISSUES
7. The issue is whether the Minister properly assessed the
Appellant a net increase in its GST liability in the amount of
$93,882.82, with penalty and interest in the amounts of
$19,561.12 and $18,485.80 respectively, for the period of January
1, 1991 to January 31, 1995.”
[4] The Court was informed at the hearing on November 5, 1997,
that the increase in the appellant’s GST liability of
$93,882.82 was not an issue before it. The issues to be
determined are liability to the penalty and interest. Subsection
280(1) of the Excise Tax Act (“the
Act”) provides:
“280. (1) Subject to this section and section 281, where
a person fails to remit or pay an amount to the Receiver General
when required under this Part, the person shall pay on the amount
not remitted or paid
(a) a penalty of 6% per year, and
(b) interest at the prescribed rate,
computed for the period beginning on the first day following
the day on or before which the amount was required to be remitted
or paid and ending on the day the amount is remitted or
paid.”
[5] The onus is on the appellant to show that the reassessment
is in error. This can be established on a balance of
probabilities. Where the onus lies has been settled by numerous
authorities binding on this Court. It is sufficient to refer to
two judgments of the Supreme Court of Canada in this regard:
Anderson Logging Co. v. The King, [1925] S.C.R. 45 and
Johnston v. M.N.R., [1948] S.C.R. 486. This applies to
both penalty and interest payable under subsection 280(1) of the
Act: DeHede Fashions International Limited v. The
Queen, [1996] G.S.T.C. 50 (T.C.C.) at p. 50-3.
[6] With respect to interest, decided cases establish that
this court is not in a position to grant relief in that regard.
In Somnus Enterprises No. 1 Limited v. The Queen, [1995]
G.S.T.C. 4 (T.C.C.) both penalty and interest had been assessed
against the appellant under subsection 280(1) of the Act.
Bowman, T.C.J. said at pp. 4-2 and 4-3:
“Nor can I provide any relief against the assessment of
interest. Interest is exigible automatically where there is a
deficiency in the tax paid. The only circumstance in which relief
against interest is available is where the Minister of National
Revenue exercises his discretion under s. 281.1[1] of the Excise Tax Act. I
agree with the respondent that it is not within this
court’s jurisdiction to review the Minister’s
exercise of his discretion under s. 281.1. Our jurisdiction, like
that of the Federal Court, is defined by the statute creating the
court. If such a jurisdiction is conferred upon the Federal Court
it is for that court to determine under the Federal Court
Act.
Where this court clearly does have jurisdiction is, not to
review the exercise of the Minister’s discretion to waive
penalties and interest under s. 281.1 where interest and
penalties have otherwise been properly assessed under the Act,
but rather to determine whether the penalties and interest have
been properly assessed in accordance with the law. I can do
nothing about the interest in this case, but the penalties are
another matter.”
In Kornacker v. The Queen, [1996] G.S.T.C. 21 Sarchuk,
T.C.J. said at p. 21-3 with reference to paragraph
280(1)(b) of the Act: “Interest is payable in
such cases regardless of the reasons for delay or failure”.
He went on to point out as Bowman, T.C.J. had done in
Somnus that the Minister of National Revenue could grant
relief under section 281.1 of the Act. In Roberts v.
The Queen, [1997] T.C.J. No. 771 (T.C.C.) Bowman, T.C.J.,
again speaking with reference to paragraph 280(1)(b), said
at paragraph 8: “I can, of course, do nothing about the
imposition of interest on deficient payments. That is
automatic.” In Lawson v. The Queen, [1995] G.S.T.C.
59 Mogan, T.C.J., after citing subsection 280(1), said at p.
59-4:
“The important verb in that section is ‘shall
pay’. The payment of the penalty and the interest is
obligatory. Parliament has made it so. To the extent that the
appellant acknowledges his liability for the tax, he is also
acknowledging his liability for both the penalty and the interest
because they run concurrently with the liability for the tax to
the extent that it was not paid. It was not paid on the due date
because the appellant did not know that the liability was there.
And a significant amount of it still has not been paid because he
has been in such financial straits after selling the house at a
loss at a time when there was still $26,000 owing to National
Trust.
Because the obligation to pay penalty and interest is
mandatory, I do not have any jurisdiction to reverse what
Parliament has enacted. I cannot take away the liability for the
penalty or the interest. When the appellant acknowledges his
liability for the tax, he has also acknowledged his liability for
the penalty and the interest because they are obligatory and they
flow from the liability for the tax. The only relief available to
the appellant is under s. 281.1 of the Excise Tax Act
which is within that group of sections that relate to goods and
services tax.”
[7] The law in relation to penalties payable under paragraph
280(1)(a) is different. In Pillar Oilfield Projects
Ltd. v. The Queen, [1993] G.S.T.C. 49 (T.C.C.) Bowman, T.C.J.
enunciated for the first time the existence of the defence of
“due diligence” in relation to such penalties. After
referring to a number of reported cases including several
decisions of the Supreme Court of Canada he concluded at p.
49-7:
“In my opinion the penalties imposed under subsec.
280(1) of the Excise Tax Act fall under the second
category described by Dickson J. They involve
‘strict’ as opposed to ‘absolute’
liability and are susceptible of being challenged where the
taxpayer demonstrates due diligence.”
Earlier at the same page he made the point that:
“Innocent good faith does not, however, amount to due
diligence”.
[8] In Somnus (supra) this is said at pp. 4-3
and 4-4:
“As stated in Pillar Oilfield Projects Ltd. v.
Canada, [1993] G.S.T.C. 49 (T.C.C.) there can be no
justification for the routine and automatic imposition of
penalties merely because a taxpayer has incorrectly computed his
or her tax liability. Such penalties are not absolute. Rather
they are strict, in the sense in which that expression is used in
R. v. Sault Ste. Marie, [1978] 2 S.C.R. 1299, 85 D.L.R.
(3d) 161 and are susceptible of a defence of due diligence. It is
unnecessary that I repeat what was said in the Pillar
Oilfield case.
Here I think the defence of due diligence has been made out.
What constitutes due diligence in a particular case involves both
subjective and objective criteria and depends on the facts of the
particular case. Mere innocent good faith is not in itself
sufficient. It requires an honest attempt by the taxpayer to
comply, to the best of his or her ability, with the requirements
of the statute, using the sources of information, facilities and
resources available to that taxpayer. In considering whether a
taxpayer has exercised due diligence a factor may, depending upon
the circumstances, be that taxpayer’s level of
sophistication in tax matters. The evidence discloses that the
appellant kept meticulous books, showing which of its suppliers
were registrants and which were not. The appellant’s
bookkeeper, Ms. Templeton, testified that she obtained videos
from the Department of National Revenue in an attempt to
determine how she should comply with the Act. She consulted
another large company that carried on the same business as the
appellant and determined from them the manner in which they dealt
with export sales of used goods. She consulted chartered
accountants and made enquiries of officials of the Department of
National Revenue. She went to public libraries in an unsuccessful
attempt to obtain up-to-date copies of the Excise Tax Act.
She followed instructions in departmental publications but was
not able to find any reference to the tax consequences of
exporting used goods.
I am satisfied on the evidence that the appellant did all that
could reasonably be expected of it to comply with the Excise
Tax Act and that the appellant has demolished one of the
basic assumptions set out in para. 3(k) of the Reply that:
k) the Appellant was not duly diligent in ensuring that it met
its requirements under the Act to recapture the notional
input tax credits when the goods on which they were claimed were
subsequently exported.”
[9] In Consolidated Canadian Contractors Inc. v. The
Queen, [1997] G.S.T.C. 34 the issue is described by Bowman,
T.C.J. at page 34-2:
“The appellant is a building contractor and the matter
arises from its construction of two schools. Hickory Wood Public
School and Blessed Edith Stein School. The issue relates to the
inclusion by the Minister in the base upon which GST is
calculated of the cost of certain items that are zero-rated and
of Ontario sales taxes paid on goods purchased by the appellant
and incorporated in the structures that it built.”
He went on at page 34-5:
“I turn now briefly to the penalties. Obviously they
must be deleted with respect to the provincial sales tax
component on which the Minister has assessed tax. Quite apart
from that, with respect also to the zero-rated supplies, I have
not seen a case recently in which a taxpayer has more amply
demonstrated due diligence. He did everything that could
reasonably be expected of him to ensure that the GST was properly
collected and paid. He relied upon published bulletins and upon
oral confirmation with officials of the Department of National
Revenue.”
[10] In Roberts (supra) Bowman, T.C.J. said at
paragraphs 5 to 11 inclusive:
“For the period January 1, 1991 to April 30, 1993 he
declared GST of $14,065.86 and ITCs of $7,604.58. The Department
of National Revenue in auditing adjusted these figures to
$15,808.62 and $7,127.36 respectively for a net tax adjustment of
$2,219.98.
For the period May 1, 1993 to October 31, 1994 he filed no
returns and the Minister, on the basis of his records, calculated
his GST at $11,057.63 and his ITCs at $4,718.12 for a net tax of
$6,339.51.
The appellant, as stated, does not dispute these adjustments.
He argues however that having hired bookkeepers who turned out to
be worse than useless, and having paid them almost $6,000, he has
demonstrated due diligence as that expression is used in the
decision of this court in Pillar Oilfield Project Ltd. v. The
Queen, [1993] G.S.T.C. 49.
I can of course do nothing about the imposition of interest on
deficient payments. That is automatic. The imposition of
penalties although (incorrectly in my view) administratively
automatic, is susceptible of a defence of due diligence. The
Pillar Oilfield case has been followed in about 20 cases
in this court. As the principle has been applied in this court,
the threshold, however, is a fairly high one. Simple good faith
is not enough.
Here it is true the appellant hired bookkeepers for one of the
periods in question and paid them what appears to me to be
excessive amounts for their incompetence and inaction. This might
justify an action by the appellant against them, but it does not
amount to due diligence. The accountants are after all the
appellant’s agents and the appellant is responsible of what
they did or failed to do. In the same way as the exercise of due
diligence on the part of a taxpayer’s accountants or
bookkeepers would be attributed to the taxpayer and would justify
the removal of a penalty, so too does the absence of due
diligence on the part of the taxpayer’s accountants or
bookkeepers disentitle him or her to the relief envisaged by the
Pillar Oilfield case.
So far as the second period is concerned, it would require a
drastic rewriting of the definition of due diligence to interpret
it as encompassing the failure to file returns at all.
In light of the difficulty that the appellant had in the first
period with the overpaid and essentially useless bookkeepers, the
Minister would be justified in waiving the interest and penalties
on $2,219.98 under section 281.1 of the Excise Tax Act.
That is however a matter within the discretion of the Minister.
This court’s power to cancel penalties must be exercised
within the ambit of the due diligence test set out in Pillar
Oilfield.”
[11] While the defence of due diligence has been acknowledged
in a number of decisions of this court that has not occurred in
all appeals involving liability for penalties under paragraph
280(1)(a). I refer, for example, to Kornacker v. The
Queen and Lawson v. The Queen, both of which have
already been cited regarding interest. See also Breault v. The
Queen, [1997] G.S.T.C. 25 (T.C.C.).
[12] On February 7, 1996 judgment was issued by this court in
770373 Ontario Ltd. v. The Queen. The appellant had been
reassessed for penalties and interest under subsection 280(1) of
the Act. The appeal was allowed regarding the penalties.
The Attorney General of Canada made application for judicial
review of that decision under section 28 of the Federal Court
Act: Attorney General of Canada v. 770393 Ontario
Ltd., [1997] G.S.T.C. 1. As reported in an editorial comment
at page 1-3 the issue of the validity of the due diligence
defence was thoroughly argued before the Court of Appeal.
Nevertheless it chose to dispose of the application in this way.
Strayer J.A.:
“The Court has found this application for judicial
review to be difficult because no findings of fact and no reasons
were given by the learned Tax Court Judge in support of his
decision to set aside the penalty imposed on the respondent under
s. 280 of the Excise Tax Act.
The only basis argued before us for supporting that decision
has been the defence of due diligence, a matter adverted to
briefly by the Minister’s counsel in the Tax Court. Even if
in law there is a defence of due diligence to payment of the
penalty under s. 280, a matter which we find it inappropriate to
decide in these circumstances, we have been referred to no
evidence before the trial judge, either in the transcript of the
trial proceedings or in documents, that would have supported such
a defence. We must therefore set aside the decision on the basis
that it was made without regard to the evidence, even assuming
that there was no error of law in applying a defence of due
diligence.
The application will therefore be allowed, the decision of the
Tax Court be set aside and the matter referred back to the Tax
Court for determination in accordance with these reasons.
Reasonable and proper costs will be awarded to the respondent in
accordance with s. 18.3008 of the Tax Court of Canada
Act.”
This same failure to resolve the issue was repeated by the
Federal Court of Appeal in Locater of Missing Persons Inc. v.
The Queen, [1997] G.S.T.C. 16.
[13] In my opinion the defence of due diligence exists in
respect of penalties assessed under paragraph 280(1)(a) of
the Act. Its existence is founded upon sound judicial
principles.
[14] In the case at hand Mr. Paul Hunter signed the Notice of
Appeal as president of the appellant. There is evidence that
prior to becoming president he was a vice-president of the
appellant. The inference to be drawn from the evidence is that at
least for the purposes of what is relevant to this appeal
Mr. Hunter was the directing mind and will of the appellant.
He is a chartered accountant although he emphasized that he has
not practiced that profession for 10 years and that he is no
longer a member of the Canadian Institute of Chartered
Accountants.
[15] The appellant charged fees to limited partnerships to
manage commercial rental properties. Mr. Hunter states that it
was not aware that the services were taxable supplies under the
GST. This is alleged notwithstanding that early in the history of
the GST the appellant retained the services of a well known
national accounting firm. If that firm did in fact give
insufficient or erroneous advice to the appellant, that does not
go to establishing due diligence: Roberts (supra).
I add that particulars of what the firm did or did not do were
not spelled out in evidence at the hearing.
[16] The evidence of the respondent is that extracting
required information from the appellant was a slow and arduous
process. On more than one occasion it was considered necessary to
send it a DEMAND FOR GOODS AND SERVICES TAX RETURN(S). Mr. Robert
W. Ingram, an auditor with Revenue Canada, testified that in each
of the quarters ending January 1991, April 1991, July 1991,
October 1991, January 1992, April 1992, July 1992, October 1992
the appellant was late in filing the required returns. This
tardiness ranged from five weeks to six months. The returns for
the quarter ending January 1993 up to the quarter ending April
1994 were filed on July 20, 1994. Mr. Hunter said that some of
these returns do not indicate tax owing. I accept that. But it
does not really mitigate the delinquency in filing the returns in
the context of this appeal.
[17] While the defence of due diligence did succeed in
Somnus and Consolidated Canadian Contractors Inc.,
it will be seen from what is quoted in paragraphs 8 and 9 of
these reasons from the reasons for judgment in those appeals,
that the facts in the case at hand do not compare favourably with
those in Somnus or Consolidated Canadian Contractors
Inc. On the whole of the evidence the appellant in this
appeal has not established due diligence.
[18] Finally the appellant claims entitlement to the benefits
described in Technical Information Bulletin B-074 which is
entitled: Guidelines For The reduction of Penalty and Interest
in “Wash Transaction” Situations. It is
sufficient for present purposes to reproduce these portions of
B-074:
“Introduction
This bulletin explains the guidelines for the reduction of
penalty and interest in ‘wash transaction’
situations.
Pursuant to the announcement made by the Minister of Finance
on September 14, 1992 and the enactment of section 281.1 of the
Excise Tax Act on June 10, 1993, c. 27, s. 127(1), the
Minister of National Revenue (hereinafter referred to as the
‘Minister’) will consider waiving or cancelling all
but a minimum portion of the penalty and interest payable by a
person under section 280 of the Excise Tax Act where the
penalty and interest charge is the direct result of a ‘wash
transaction’. These guidelines do not affect a
person’s obligation to pay or collect the tax payable for a
taxable supply.
Wash Transactions
A ‘wash transaction’ occurs when a supply, taxable
at the rate of 7%, is made and the supplier has not remitted an
amount of net tax by virtue of not having correctly charged and
collected the tax from the recipient who is a registrant and who
would have been entitled to claim a full input tax credit if the
tax had been correctly applied.
Administrative Guidelines for ‘Wash
Transactions’
Where there is a ‘wash transaction’, the Minister
will consider waiving or cancelling the portion of the penalty
and interest, payable at the time of assessment, that is in
excess of 4% of the tax not properly collected by the
supplier.
Where it is determined that an amount of penalty and interest
will be reduced to 4% of the tax not collected, the Minister will
first waive or cancel all or a portion of the interest. In most
cases, the remaining 4% will be penalty which is payable in
addition to the amount assessed to account for the GST not
properly charged.
Conditions
The Minister will consider waiving or cancelling the portion
of the penalty and interest that is in excess of 4% of the tax
not collected in a ‘wash transaction’ situation where
the following conditions are satisfied:
(a) It must be demonstrated that the supply in question was
made to a registrant who would have been entitled to a full input
tax credit if the tax had been correctly applied.
(b) The supplier must not have been previously assessed for
the same mistake and must have a satisfactory history of
voluntary compliance.
(c) The supplier must have remedied the situation to ensure
that tax is collected on future supplies of a similar nature.
(d) The supplier must have exercised reasonable care and
diligence without being negligent or careless in the conduct of
its affairs to ensure that tax is collected on all taxable
supplies.”
It is made clear that the Bulletin is founded upon section
281.1 of the Act which provides that the Minister of
National Revenue “may” waive or cancel interest or
penalties or both payable by a person under section 280.[2]
[19] The purely discretionary nature of what is provided is
emphasized in B-074. It is said in the Introduction
that the Minister “will consider waiving or
cancelling” penalties and interest. This is repeated under
the heading Administrative Guidelines for “Wash
Transactions” and Conditions.
[20] It was made certain in Somnus and the other
authorities previously cited with reference to interest that this
Court has no jurisdiction to review the Minister’s exercise
of discretion under section 281.1.
[21] Stobbie Construction v. The Queen, [1996] G.S.T.C.
41 (T.C.C.) involved wash transactions. The Court gave effect to
the due diligence defence in respect of penalties imposed under
paragraph 280(1)(a) of the Act. It did not,
however, interfere with the Minister’s exercise of
discretion under section 281.1 in relation to interest payable
under paragraph 280(1)(b). Lamarre, T.C.J. repeated what
was said in Somnus about the lack of jurisdiction of this
Court to review the exercise of the Minister’s discretion
under section 281.1.
[22] The appeal is dismissed.
"D.H. Christie"
A.C.J.T.C.C.