Date: 19971104
Docket: 97-266(GST)I
BETWEEN:
HELSI CONSTRUCTION MANAGEMENT INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
McArthur, J.T.C.C.
[1] This appeal is from a decision of
the Minister of National Revenue dated November 25, 1994 wherein
the Appellant was reassessed under the Excise Tax Act (the
"Act")[1] for net tax of $144,836.37, interest of $16,523.93 and
penalty of $17,917.12.
[2] The Appellant was primarily in the
business of house construction in the Montreal area from January
1, 1991, to August 31, 1994. An audit was conducted by Revenue
Canada on the Appellant's books and records.
[3] The Minister concluded that the
Appellant was liable to remit goods and services taxes (GST) of
$78,982.44 and that the Appellant was not entitled to input tax
credits (ITC) of $65,854.43.
[4] The Minister submitted that the
Appellant did not keep records or documents containing
information which would enable the determination of the
Appellant's entitlement to the amount of ITC and that the
books and records were, for the period in issue, not kept in
accordance with the requirements of section 286 of the
Act.
[5] The Appellant, through its sole
shareholder, Mr. Familamiri, presented a computer print out in
support of its claim for ITC's and stated that 20 boxes of
invoices were in transit from Montreal to Vancouver.
[6] A request for an adjournment was
denied the Appellant because it had three years to obtain the
necessary information and it was probable that the information
contained in the 20 boxes had already been taken into account by
the Minister's auditor.
[7] Mr. Familamiri admitted that the
Corporation's books were in disarray, that the Corporation
was in a desperate financial situation during the relevant
period, and it could not afford a competent bookkeeper. Several
office moves added to the confusion.
[8] For the most part Mr. Familamiri
relied on his memory to reconstruct the Corporation's
construction and sale transactions and took the position that it
was Revenue Canada's obligation to reconstruct the
Appellant's accounting. He stated that no GST should be owing
and all ITC's claimed should be allowed because the
Corporation lost a substantial sum of money during the relevant
period. He submitted that there are many errors in the audit and
the auditor should have found those documents necessary to
support the Appellant's position. I am satisfied that all
documents contained in the 20 boxes were reviewed by the auditor
in August of 1994.
Legislation
Unremitted GST, Penalty and Interest
[9] The provision of Part IX of the
Act that imposes the GST is subsection 165(1):
165. Imposition of goods and services tax
(1) Subject to this Part, every recipient of a taxable supply
made in Canada shall pay to Her Majesty in right of Canada a tax
in respect of the supply equal to 7% of the value of the
consideration for the supply.
[10] The requirement for a supplier to remit
"net tax" is found in subsection 228(2) of the Act which
reads:
228 (2) Remittance
Where the net tax for a reporting period of a person is a
positive amount, the person shall remit that amount to the
Receiver General on or before the day on or before which the
return for that period is required to be filed.[2]
[11] The penalty provision applicable is
found in subsection 280(1), which provides:
280. Penalty and interest
(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.
Claim for ITC
[12] Pursuant to subsection 169(1) the
Appellant was entitled to claim a credit (ITC) for the GST tax it
paid for the goods and services obtained in order to construct
the properties it sold.
[13] The Minister relied upon the
Appellant's failure to maintain books and records as required by
the Act as grounds for the denial of the ITC claimed. The
relevant provisions are paragraph 169(4)(a) and
subsection 286(1), which provide:
169 (4) Required documentation
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;
286. Keeping books and records
(1) Every person who carries on a business or is engaged in a
commercial activity in Canada, every person who is required under
this Part to file a return and every person who makes an
application for a rebate or refund shall keep records in
English or in French in Canada, or at such other place and on
such terms and conditions as the Minister may specify in writing,
in such form and containing such information as will enable
the determination of the person's liabilities and obligations
under this Part or the amount of any rebate or refund to which
the person is entitled. [emphasis added]
Unremitted GST
[14] Where the net tax is a positive amount
the taxpayer must remit that amount to the Receiver General.
[15] The auditor found that there was an
overall positive net tax collected by the Appellant and not
remitted as required in subsection 282(2) of the Act. The
Appelant kept inadequate sales journals and cash receipts
ledgers.
[16] The Appellant had the auditors detailed
information for almost three years. It is not sufficient for the
Appellant to state that the information is not correct, that it
was losing money and should not have to remit any tax collected.
There was very little in the Appellant's evidence that was
clear and definite. Mr. Familamiri went through the list of
sales constructed by the auditor and contradicted some of the
auditor's evidence and in cross-examination at times his
recollection changed.
[17] The Respondent presented evidence that
the Appellant did not declare GST collected on certain sales.
There was something amiss in the Appellant's record keeping.
The Appellant did not present records to satisfy its burden of
proof.
Input Tax Credits
[18] The Appellant relied heavily on
computer printouts presented in evidence. The months of
September, October, November and December 1993 are the months
when it would appear most of the transactions, relevant to this
appeal, took place. These printouts include a large bundle of
computer records that were left unexplained. I lack the expertise
to gain any meaningful information from these.
[19] As a random example, I have reproduced
approximately 1/4 of one of the over 50 pages submitted :
DATE: 1997/01/16
HEURE: 11:32:24
HELSI
FINAL
Page No. 1
ANALYSE DETAILLEE (01 Jan. 1993 AU: 31 Déc.
1993)
DATE
No REF EXPLICATION DE LA
TRANSACTION DEBIT
**** COMPTE.:
11250 GST
RECEIVABLE
1993/01/04
B000461
METAL
10.50
1993/01/05
B000369 NOTARY
BRUNET
140.00
1993/01/06
B000500 ALARME
DYNAMIC
40.25
1993/01/07
B000368 NOTARY BRUNET 4479
ELGIN
98.00
1993/01/09
P000858 COMMISSION
Re:528
637.00
1993/01/09
P000859 COMMISSION
Re:532
637.00
1993/01/11
B000501 ALARME
DYNAMIC
40.25
1993/01/13
B000493 BETON J.
JODOIN
36.74
1993/01/15
B000462
METAL
14.70
1993/01/18
B000499 ALARME
DYNAMIC
8.05
1993/01/21
B000389 ZAVIE
LEVINE
350.00
1993/01/22
B000471
MATERIEL
10.50
1993/01/25
B000457 BOISERIE
UNIVERSELLE
1190.84
[20] The Minister's auditor testified
that, during his audit, he requested all the Appellant's
documentation and carefully reviewed everything made available to
him. There was no evidence presented by the Appellant that the
information presented at trial was not previously taken into
consideration by the auditor.
[21] The Appellant admitted to not keeping
proper books and records for the relevant time period. Mr.
Familamiri explained that he was struggling desperately to keep
his companies from bankruptcy and in doing so the GST records
were neglected. He felt because his companies were losing money
the Appellant did not owe any money and the record keeping was
left in disarray. There was no journal to record the sales of
residences and the Minister's auditor had to search the
appropriate Registry offices for the information required.
[22] The determination of whether a person
has failed to keep adequate records is a question of fact. In
Swimm (K.T.) v. Canada, [1996] G.S.T.C. 40 (T.C.C.)
(Informal), Judge Rip found that the taxpayer failed to keep
adequate records where he had only maintained a ledger book in
which entries were made once a month. The taxpayer had kept no
other documentation. Judge Rip found that the Minister's
calculations, on the balance of probabilities, were correct. In
620247 Ontario Ltd., [1995] G.S.T.C. 22 (T.C.C.)
(Informal), Judge Bowman found that the taxpayer's record
keeping was haphazard, and in the absence of receipts or
cancelled cheques as evidence, he concluded that he could not
provide relief to the taxpayer.
[23] I find that there was clearly an
inadequacy of records. The Appellant's evidence is
insufficient to rebut the findings of the auditor in arriving at
the assessments of the Minister.
[24] I now turn to the question
of penalty and interest. The penalty provision applicable is
found in subsection 280(1), which provides:
280. Penalty and interest
(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.
[25] The most quoted case regarding the
application of this provision is Pillar Oilfield Projects v.
Canada, [1993] G.S.T.C. 49 (T.C.C.) (Informal), where
Judge Bowman held that there is no penalty where due
diligence is exercised by the Appellant. He mentioned that due
diligence involves more than merely accepting, without more, some
oral advice from an assessor with the Department of National
Revenue, and at page 49-7 said:
As stated above innocent good faith in the making of
unintentional errors is not tantamount to due diligence. That
defence requires affirmative proof that all reasonable care was
exercised to ensure that errors not be made.
[26] To these comments Judge Bowman added
the following in 620247 Ontario Ltd. v. Canada, supra, at
22-4:
The due diligence required to avoid the liability to a penalty
under section 280 involves a sincere and demonstrable attempt
that a reasonable person in similar circumstances could be
expected to make in order to comply with the requirements of the
law.
[27] In White Rock Management v.
Canada, [1995] G.S.T.C. 50 (T.C.C. - Informal), Judge Sobier
found that the due diligence defence was not met where the
Appellant spoke only with public officials and did not talk to a
lawyer or consult the Act.
[28] The notion of a due diligence defence
has been upheld in a number of this Court's decisions, including
matters heard under the General Procedures: see Acme Video
Inc. v. Canada, [1995] G.S.T.C. 49 (T.C.C.), where Judge Rowe
affirmed the reasons given by Judge Bowman in Pillar,
although found on the facts before him that the defence had not
been met. While the matter of a due diligence has most
recently been challenged in argument by the Crown in Locator
of Missing Heirs v. M.N.R. (1997), 212 N.R. 391 (F.C.A.), the
Court of Appeal (per Roberston, J.A.) declined to make a
determination on the point.
[29] The language of the Act is clear
that an Applicant for ITC must have the prescribed information
prior to filing the returns in which the credits are claimed.[3] This information
includes that set out in the Input Tax Credit Information
Regulations:[4]
3. For the purposes of paragraph 169(4)(a) of the
Act, the following information is prescribed information:
(a) where the total amount paid or payable shown on the
supporting documentation in respect of the supply or, if the
supporting documentation is in respect of more than one supply,
the supplies, is less than $30,
(i) the supplier's name or the name under which the
supplier does business,
(ii) where an invoice is issued in respect of the supply
or the supplies, the date of the invoice,
(iii) where an invoice is not issued in respect of the
supply or the supplies, the date on which there is tax paid or
payable in respect thereof, and
(iv) the total amount paid or payable for all of the
supplies;
(b) where the total amount paid or payable shown on the
supporting documentation in respect of the supply or, if the
supporting documentation is in respect of more than one supply,
the supplies, is $30 or more and less than $150,
(i) the information set out in paragraph (a),
(ii) the registration number assigned to the supplier
pursuant to section 241 of the Act,
(iii) where the amount paid or payable for the supply or
the supplies does not include the amount of tax paid or payable
in respect thereof,
(A) the amount of tax paid or payable in respect of each
supply or in respect of all of the supplies, or
(B) where provincial sales tax is payable in respect of each
taxable supply that is not a zero-rated supply and is not payable
in respect of any exempt supply or zero-rated supply,
(I) the total of the tax paid or payable under Division II of
Part IX of the Act and the provincial sales tax paid or payable
in respect of each taxable supply, and a statement to the effect
that the total in respect of each taxable supply includes the tax
paid or payable under that Division, or
(II) the total of the tax paid or payable under Division II of
Part IX of the Act and the provincial sales tax paid or payable
in respect of all taxable supplies, and a statement to the effect
that the total includes the tax paid or payable under that
Division,
(iv) where the amount paid or payable for the supply or
the supplies includes the amount of tax paid or payable in
respect thereof and one or more supplies are taxable supplies
that are not zero-rated supplies, a statement to the effect that
tax is included in the amount paid or payable for each supply in
respect of which there is tax paid or payable, and
Draft Regulation
(v) where the status of two or more supplies is
different, an indication of the status of each taxable supply
that is not a zero-rated supply; and
(c) where the total amount paid or payable shown on the
supporting documentation in respect of the supply or, if the
supporting documentation is in respect of more than one supply,
the supplies, is $150 or more,
(i) the information set out in paragraph (a) and
subparagraphs (b)(ii) to (v),
(ii) the recipient's name, the name under which the
recipient does business or the name of the recipient's duly
authorized agent or representative,
(iii) the terms of payment, and
(iv) a description of each supply sufficient to identify
it.
[30] In applying the general test set out in
620247 Ontario Ltd. (supra), I have no difficulty in
finding, from the facts presented, that the Appellant did not
sincerely and demonstrably attempt to comply with the
requirements of the law.
[31] For these reasons the appeal is
dismissed and the Appellant is liable to a penalty pursuant to
section 280 of the Act.
________________________________
J.T.C.C.
Ottawa, Canada,
November 4, 1997
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