REASONS
FOR JUDGMENT
D’Auray J.
[1]
The appeals of Mr. Amiripour under the Income
Tax Act (“ITA”) and the Goods and Services Tax (“GST”) were heard on
common evidence.
[2]
The issue in the ITA appeal is whether
the Minister of National Revenue (the “Minister”) properly calculated the
income of the appellant.
[3]
The issue in the Goods and Services Tax (“GST”) appeal is whether the Minister
correctly assessed the appellant’s net tax for the period of October 6, 2003
to December 31, 2004.
[4]
The position of the Minister is that the appeals
should be dismissed since the appellant has not demolished the assumptions of
fact made by the Minister.
ITA
[5]
I will deal first with the ITA appeal.
[6]
The assumptions of fact relied upon by the
Minister in reassessing the appellant are set out in paragraph 11 of the
respondent’s Reply to Notice of Appeal:
11. In determining
the Appellant’s tax liability for the 2003 and 2004 taxation years, the Minister
made the following assumptions of fact:
a) During
2003, the Appellant operated a business as a sole proprietor;
b) The
Appellant’s sole proprietorship earned not less than $2,610 of business income
in the 2003 taxation year;
c) During
2003 and 2004 the Appellant operated a business in a 50/50 partnership with
another individual (the “Partnership”);
d) The
Partnership’s business activities included roofing and handy-man jobs;
e) The Partnership
earned no less than $59,660 and $179,557 in the 2003 and 2004 taxation years,
respectively;
f) The Partnership
incurred expenses of not more than $22,190 and $67,002 in the 2003 and 2004
taxation years, respectively;
g) Alpine
Roofing was the Partnership’s major client;
h) The
Partnership earned no less than $54,296 and $186,434, inclusive of goods and
services taxes, from Alpine Roofing, in the 2003 and 2004 taxation years,
respectively;
i) The
Partnership did not incur expenditures for the amounts claimed as purchases;
Alpine Roofing supplied the Partnership with all of the materials needed to do
the jobs;
j) The
Partnership’s expenses for subcontractor fees were not more than $12,850 and
$54,282 in the 2003 and 2004 taxation years, respectively;
k) The amounts claimed by the Partnership as an expense for
rent were in respect of the Appellant’s personal residence, and were personal
expenditures not amounts incurred for the purpose of earning income;
l) The amounts claimed by the Partnership as an expense for
advertising and promotion were in respect of meals, and were personal
expenditures not amounts incurred for the purpose of earning income;
m) The
Partnership did not incur auto expenses of more than $521 and $2,500 in the
2003 and 2004 taxation years, respectively;
n) The
amounts claimed by the Partnership as office expense involved personal
expenditures that were outside the 2003 and 2004 taxation years, and were not
expenditures incurred for the purpose of earning income in the 2003 and 2004
taxation years;
o) The
Partnership did not provide any documentation to support the amount it claimed
as a telephone expense was an expenditure incurred for the purpose of earning
income, and this amount represents a personal expenditure of the Appellant;
p) The
Partnership’s accounting expenses were not more than $3,927 in the 2004
taxation year;
q) The
Partnership’s claim for capital cost allowance (“CCA”) was in respect of a
vehicle that was not purchased until 2004, and for which the Appellant did not
apply the half-year rule;
r) The
Partnership’s earned a 40% profit margin from its handy-man jobs; and
s) In
2003 and 2004, the Partnership earned cash from handy-man jobs of no less than
$9,541 and $5,692, inclusive of goods and services taxes, respectively;
t) In
2003 and 2004, the Partnership incurred expenses relating to its handy-man jobs
of not more than $5,350 and $3,192, respectively.
[7]
At my request, the respondent submitted at trial
Schedules showing what the appellant reported as income and claimed as expenses
and what the Minister added to the appellant’s income and allowed as expenses
for income tax purposes for the taxation years under appeal:
|
2003
Partnership Income and the
appellant’s handy man income as a sole proprietorship
|
|
Income
reported by the appellant from the partnership
|
Income assessed by the Minister from the partnership
|
In dispute
|
|
|
Alpine:
$54,296
|
|
|
|
Handy man work:
9,541
|
|
|
|
Income (with GST):
63,837
|
|
|
|
(Less GST): 4,177
|
|
|
|
|
|
|
Expenses
|
|
Claimed by
the appellant
|
Allowed by the Minister
|
In dispute
|
|
Subcontractors: $12,850
|
$ 12,850
|
0
|
|
Purchases: 19,458
|
591
|
18,867
|
|
Rent: 4,860
|
0
|
4,860
|
|
Disposal: 1,252
|
1,252
|
0
|
|
Small tools: 2,133
|
2,133
|
0
|
|
Advertising: 332
|
0
|
332
|
|
Automobile: 2,232
|
521
|
1,711
|
|
Bank charges: 84
|
84
|
0
|
|
Telephone: 490
|
0
|
490
|
|
CCA: 2,069
|
0
|
2,069
|
|
Handy man expenses: 0
|
5,350
|
0
|
|
|
|
|
|
Summary 2003
|
|
Appellant
|
Allowed
|
In dispute
|
|
Income from partnership: $10,078
|
Income: $ 59,660
|
$49,582
|
|
Expenses: 45,760
|
Expenses: 22,781
|
22,979
|
|
Net loss: ($35,682)
|
Income: $36,879
|
$72,561
|
|
|
|
|
|
Appellant’s share: ($17,841)
|
Appellant’s share: $18,439
|
$36,280
|
|
|
Sole
proprietorship
income: 2,610
|
2,610
|
|
|
|
|
|
2004
Partnership Income and the appellant’s handy man income as a sole
proprietorship
|
|
Income reported by the appellant
|
Income assessed by the Minister
|
In dispute
|
|
|
From Alpine:
$186,734
|
|
|
|
Handy man work: 5,692
|
|
|
|
Income (with GST):
192,126
|
|
|
|
(Less GST): 12,569
|
|
|
|
|
|
|
Expenses
|
|
Claimed by
the appellant
|
Allowed by
the Minister
|
In dispute
|
|
Subcontractors: $57,492
|
$54,282
|
321
|
|
Purchases: 23,135
|
8,871
|
14,264
|
|
Advertising and promotion: 3,893
|
0
|
3,893
|
|
Automobile: 3,572
|
2,500
|
1,072
|
|
Bank charges: 388
|
388
|
0
|
|
Office: 1,378
|
0
|
1,378
|
|
Accounting: 3,935
|
3,927
|
8
|
|
CCA: 1,447
|
1,033
|
414
|
|
Annual labour: 1,680
|
1,680
|
0
|
|
Handy man expenses: 0
|
3,192
|
0
|
|
96,920
|
75,873
|
21,350
|
|
Loss: (72,920)
|
Income: 103,684
|
176,907
|
|
|
|
|
Partnership-Added
Income
[8]
In cross-examination, the respondent established
that the partnership earned, for the work performed for its major client Alpine
Roofing, income in the amounts of $54,296 (GST included) and $186,434 (GST
included) for the 2003 and 2004 taxation years respectively.
[9]
The appellant was vague when asked why the
partnership reported the amounts of $10,078 instead of $59,660 in 2003 and
$24,000 instead of $179,557 in 2004, as income from Alpine Roofing and from the
handy man work. He explained that his accountant was new and did not have
enough experience in preparing income tax returns.
[10]
I have some difficulty with this explanation.
The discrepancy between the amounts earned and reported is significant. The
appellant had to be aware that he was not reporting all his income earned from
Alpine Roofing. At trial, he readily admitted, when presented with the
evidence, that his gross income emanating from Alpine Roofing should be
increased for both taxation years.
[11]
However, the appellant did not agree that the
amounts of $9,541 for 2003 and $5,692 for 2004 should be included in the
partnership income for the handyman work that the partnership would have
performed.
[12]
With respect to these amounts, the respondent
filed in evidence schedules showing all the deposits made in the partnership
bank’s account. The deposits were all linked to income earned from the
partnership. The appellant did not offer any reason as to why these amounts
should not be included in the partnership income. The burden was on him to show
that these amounts should not have been included in the partnership income and since
he failed to do so, the appellant’s share of these amounts, namely $4,770.50
for 2003 and $2,846 for 2004, was properly included in the appellant’s income.
[13]
Therefore, the Minister correctly established
the partnership gross income at $59,660 (appellant’s share $29,830) for the
2003 taxation year and at $179,557 (appellant’s share $89,778.50) for the 2004
taxation year.
Expenses disallowed
[14]
At trial, the respondent conceded that the
partnership was entitled to deduct as expenses under the heading “Purchases”
the amount of $591 for 2003 and the amount of $8,871 for 2004.
[15]
The appellant did not have any documents or
invoices to prove the expenses incurred by the partnership. He stated that all
the documents were destroyed in a fire in 2008. He stated that before the fire,
he gave some documents to the Canada Revenue Agency (CRA). He also stated that
his partner and the new accountant for the partnership also gave documents to
the CRA to justify the partnership’s expenses. This was confirmed by a letter
dated October 30, 2103 from Ms. Rosebush of the CRA in which she
acknowledged that the appellant had provided some documents to prove the
expenses incurred by the partnership. However, Ms. Rosebush noted that many
documents were lacking. In her letter, Ms. Rosebush wrote that she based her
adjustments on the additional documentation/information provided by the
appellant and on reasonable inferences when the documentation was lacking.
[16]
There is no requirement that vouchers or receipts
be provided for all expenditures claimed as deductions provided that the
expenditures are proved by other credible evidence. As was stated by Justice
Bowman in Chrabalowski v Canada :
[10] As this court has said
on a number of occasions there is no requirement that vouchers or receipts be provided
for all expenditures claimed as deductions provided that the expenditures are
proved by other credible evidence. I do not however think the appellant has
passed even the very modest threshold of proving his case that I consider
appropriate. It is worthwhile repeating what was said in Merchant v. The Queen,
98 DTC 1734:
[7] Where a large number of
documents, such as invoices, have to be proved it is a waste of the court's
time to put them in evidence seriatim. The approach set out in Wigmore on
Evidence (3rd Ed.) Vol IV, at s. 1230 commends itself:
s.1230(11): . . . Where a fact could
be ascertained only by the inspection of a large number of documents made up of
very numerous detailed statements - as, the net balance resulting from a year's
vouchers of a treasurer or a year's accounts in a bank-ledger - it is obvious
that it would often be practically out of the question to apply the present
principle by requiring the production of the entire mass of documents and
entries to be perused by the jury or read aloud to them. The convenience of
trials demands that other evidence be allowed to be offered, in the shape of
the testimony of a competent witness who has perused the entire mass and will
state summarily the net result. Such a practice is well-established to be
proper.
[8] This passage was cited with
approval by Wakeling, J.A. in Sunnyside Nursing Home v. Builders Contract
Management Ltd. et al., (1990) 75 S.R. 1 at p. 24 (Sask. C.A.) and by
MacPherson, J. in R. v. Fichter, Kaufmann et al., 37 S.R. 128 (Sask. Q.B.) at
p. 129. I am in respectful agreement.
Some form of the method approved by Wigmore
would have been appropriate here.
[17]
The appellant’s position was that all the
expenses claimed by the partnership should be allowed.
[18]
In line with Chrabalowski v Canada, I
will only analyse those expenses that the appellant testified on and where some
credible evidence was offered.
Purchases
[19]
In light of the concession made by the
respondent at trial, the partnership was entitled to deduct $591 in 2003 and
$8,871 in 2004. The partnership had claimed as purchases the amounts of $19,458
and $23,135 in 2003 and 2004 respectively.
[20]
The respondent stated that most of the expenses
for the partnership to perform its work were covered by Alpine Roofing. That
said, the respondent allowed an amount of $8,871 in 2004.
[21]
The appellant testified that Alpine Roofing did
not cover all the expenses He stated that the partnership paid $45 per day for
nails, which would amount to approximately $9,000 a year.
[22]
The amount of $8,871 conceded by the respondent
in 2004 is close to the $9,000 figure advanced by the appellant for the
purchase of nails for 2004. I will therefore, not modify these expenses for
2004 since what was allowed by the CRA is reasonable.
[23]
Applying the same reasoning to the 2003 taxation
year, the CRA should have allowed an amount of $4,435.50 for the purchase of nails, taking
into account that the activities of the partnership started in September 2003.
Automobile expenses
[24]
The partnership claimed as automobile expenses
the amounts of $2,232 for four months in 2003 and $3,572 in 2004 for
approximately eight months. The CRA allowed the amounts of $521 in 2003 and
$2,500 in 2004 as automobile expenses.
[25]
The appellant stated that the partnership owned
a 1997 cargo truck in 2003 and purchased a new cargo truck in 2004. Taking a
common sense approach, the automobile expenses were not overstated by the
partnership, considering gas, repairs and maintenance expenses on the vehicles
for both the 2003 and the 2004 taxation years. Therefore, the expenses claimed
by the appellant for the automobile expenses are allowed.
Telephone
[26]
The partnership claimed $490 for four months in
2003 for a telephone. The respondent noted that in 2004 the partnership did not
claim anything for the telephone. However, in 2004 there was a new heading
“office expenses” that did not form part of the 2003 statement of expenditures.
It is reasonable to infer that the telephone in 2004 was claimed under the
heading office expenses. In any event, the appellant stated during his testimony
that the partnership had one phone and a contract with Fido. Again, using a common
sense approach, a telephone was needed to operate the partnership in 2003 and
2004. The partnership is claiming an average of $122.50 a month for the phone.
I will allow $280 as an expense for the telephone in 2003 ($70 per month for four
months) and $560 in 2004 ($70 per month for eight months).
Other expenses
[27]
As for the other expenses claimed by the partnership
that were partly allowed or disallowed by the CRA, the appellant did not give
any cogent explanations that substantiated the expenses claimed.
GST appeal
[28]
The Minister’s assumptions of fact with respect
to the GST appeal are set out in paragraph eight of the Reply to Notice of
Appeal. They read as follows:
8. In assessing net tax to the
Appellant, the Minister relied on, inter alia, the following
assumptions:
a) the facts stated and admitted
above;
b) during the period October 6, 2003
to December 31, 2004, the Appellant operated a business in a 50/50 partnership
with another individual (the “Partnership”);
c) the Partnership’s business
activities included roofing and handy-man jobs;
d) the Partnership is a GST
registrant with GST Registration no. 87485 2908 RT0001;
e) the Partnership was required by
the Act to file its GST returns on an annual basis;
f) the Partnership was required to
charge and collect GST on the value of the consideration received from his
customers for the supply of roofing services and handy-man jobs at the rate of
7% between October 6, 2003 and December 31, 2004;
g) between October 6, 2003 and
December 31, 2004, the Partnership was required to charge and collect GST of
not less than $16,745.75 from its customers;
h) neither the Appellant nor the
Partnership maintained proper books and records for the business;
i) neither the Partnership nor the
Appellant had any documentation to support input tax credits (“ITC’s”) claimed
for the periods under the appeal;
j) Alpine Roofing was the Partnership’s
major client;
k) Alpine Roofing supplied the
Partnership with all of the materials needed to do the jobs;
l) the Partnership claimed ITCs for
GST allegedly paid on expenses which were not incurred by it during the periods
under appeal, or if incurred, were not incurred in relation to its commercial
activities;
m) neither the Partnership nor the
Appellant are entitled to ITC’s in excess of the amounts already allowed by the
Minister, which is $824.23 in respect of the reporting period ended December
31, 2004 and $182.11 for the period ended December 31, 2003; and
n) the Partnership was required to
remit net tax of not less than $11,745.20 for the period ended December 31,
2004 and $3,994.21 for the period ended December 31, 2003.
GST charged and collected
[29]
The respondent argued that the partnership had
to charge and collect GST on the value of the consideration received form his
customers for the supply of roofing services and handy man jobs at the rate of
7%. I agree with the respondent. The partnership was registered for GST
purposes and it had to charge the GST on the supplies it provided to Alpine
Roofing and on its handyman work. The partnership provided $239,217 of supplies
in 2003 and 2004, therefore it had to charge and collect GST in the amount of $16,745.19.
Input tax credits
[30]
Section 169(4)(a) of the Excise Tax
Act (“ETA”) states:
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; and
. . .
[31]
Under the Input Tax Credit Information
Regulations, (the “Regulations”) the prescribed information is as
follows:
PRESCRIBED INFORMATION
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 name of the supplier or the
intermediary in respect of the supply, or the name under which the supplier or
the intermediary 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 name of the supplier or the
intermediary in respect of the supply, or the name under which the supplier or
the intermediary does business, and the registration number assigned under
subsection 241(1) of the Act to the supplier or the intermediary, as the case
may be,
(ii) the information set out in
subparagraphs (a)(ii) to (iv),
(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) a statement to the effect that tax is
included in the amount paid or payable for each taxable supply,
(B) the total (referred to in this
paragraph as the “total tax rate”) of the rates at which tax was paid or
payable in respect of each of the taxable supplies that is not a zero-rated
supply, and
(C) the amount paid or payable for each
such supply or the total amount paid or payable for all such supplies to which
the same total tax rate applies, and
(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 paragraphs
(a) and (b),
(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.
[32]
With respect to the input tax credits (“ITCs”),
the respondent stated that the CRA allowed as ITCs the amounts of $824.23 for
2003 and $182.11 for 2004 based on the supporting documentation provided by the
partnership.
[33]
The respondent also submitted that it was not
clear that the GST was remitted to the Receiver General by the partnership
since some of the expenses were paid in cash. This was confirmed by the
appellant during his testimony, he stated that the partnership did not issue
invoices to the subcontractors since they were paid in cash. He also stated
that he and his partner gave the invoices they had to the CRA.
[34]
The respondent argued that in light of
requirements under subsection 169(4) of the ETA and on the Regulations,
I cannot allow ITCs unless the registrant provides the supporting documentation
as prescribed by the Regulations.
[35]
The respondent relied upon the decision of the
Federal Court of Appeal in Systematix Technology Consultants Inc v Canada where Justice
Sexton agreed with the comments made by Justice Bowie in Key Property Management
Corp v R, that the information required under subsection 169(4) of the ETA
and under section 3 of the Regulations is mandatory. Justice Sexton
stated the following:
4 We are of the view that the
legislation is mandatory in that it requires persons who have paid GST to
suppliers to have valid GST registration numbers from those suppliers when
claiming input tax credits.
5 We agree with the comments of
Bowie J. in the case of Key Property Management Corp. v. R., [2004]
G.S.T.C. 32 (T.C.C. [General Procedure]) where he stated:
“The whole purpose of paragraph
169(4)(a) and the Regulations is to protect the consolidated revenue
fund against both fraudulent and innocent incursions. They cannot succeed in
that purpose unless they are considered to be mandatory requirements and
strictly enforced. The result of viewing them as merely directory would not
simply be inconvenient, it would be a serious breach of the integrity of the
statutory scheme [emphasis added].
6 We also agree with the comments
of Campbell J. in Davis v. R., [2004] G.S.T.C. 134 (T.C.C. [Informal
Procedure]):
“Because of the very specific way in
which these provisions are worded, I do not believe they can be sidestepped. They
are clearly mandatory and the Appellant has simply not met the technical
requirements which the Act and the Regulations place upon him as
a member of a self-assessing system [emphasis added].
[36]
The appellant also claimed that all the
supporting documents were destroyed in a fire in 2008. However, he did not file
any evidence for example, an insurance claim or a police report, proving that
there had been a fire.
[37]
I therefore agree with the respondent that I
cannot allow ITCs over and above those granted by the Minister based on the
documentations provided by the partnership. The appellant did not submit any
supporting documentation to establish the ITCs that the partnership claimed.
The jurisprudence is clear, these provisions (169(4)(a) of the ETA and
section 3 of the Regulations on ITCs) are mandatory.
Disposition of the ITA appeal
[38]
The appeal is allowed for the 2003 and 2004 taxation
years.
[39]
The appellant is entitled to claim his share of
the following expenses incurred by the partnership:
|
Purchases
|
Partnership
|
Appellant’s share
|
|
2003 taxation year
|
$4,435
|
2,217.50
|
|
Automobile
|
|
|
|
2003 taxation year
|
$2,232
|
$1,116
|
|
2004 taxation year
|
$3,572
|
$1,786
|
|
Telephone/office expenses
|
|
|
|
2003 taxation year
|
$280
|
$140
|
|
2004 taxation year
|
$560
|
$280
|
[40]
The appellant is not entitled to any further
relief.
Disposition of the GST appeal
[41]
The GST appeal is dismissed.
Signed at Ottawa, Canada, this 22nd day of July 2015.
“Johanne D’Auray”
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