Citation: 2013
TCC 160
Date: 20130514
Docket: 2011-335(GST)G
BETWEEN:
9100-8649 QUÉBEC INC.
Appellant,
and
HER MAJESTY THE QUEEN
Respondent.
REASONS FOR JUDGMENT
Favreau J.
[1]
This
is an appeal against an assessment dated December 17, 2009, issued by the
Minister of Revenue of Quebec, acting as an agent for the Minister of National
Revenue (the Minister), under Part IX of the Excise Tax Act (ETA) with
respect to the goods and services tax (GST) for the period from January 1,
2006, to December 31, 2008 (the period).
[2]
In
the assessment dated December 17, 2009, the Minister assessed the
appellant for an amount of $197,251.44 in GST, for a total of $285,709.86 in
duties, interest ($42,499.39) and penalties ($45,947.23) under section 285
of the ETA.
[3]
In
assessing the appellant, the Minister based himself on the following findings
and assumptions of fact, stated at paragraph 11 of the Reply to the Notice
of Appeal:
[translation]
(a) During
the period at issue, the appellant operated two licensed restaurants under the
names "Torii Sushi" and "Kingyo", and Phan Thi Dien Trang
is the president, sole director and sole shareholder of the appellant;
(b) The respondent's
representatives audited the appellant for the period from January 1, 2006,
to December 31, 2008;
(c) Applying the sampling method
during the audit, they noted significant discrepancies between the daily sales
and the daily compilations prepared by Ms. Trang, the director of the
appellant;
(d) A significant discrepancy was
observed during the audit between the invoices for beer purchases and the beer
sales reports obtained by making a copy of the hard drive for 2008, in that
more than 350 cases of beer had been purchased by the appellant but never sold;
(e) Also, after making a copy of
the hard drive of the appellant's accounting system, the respondent observed a
difference of about $79,000 between the income stated in the 2008 copy and the
income reported by the appellant in its financial statements;
(f) Accordingly, the respondent
had serious reasons to suspect that there was additional unreported income;
(g) The respondent applied a
method of reconstructing the appellant's sales to determine the appellant's
total sales and the amount of taxable supplies during the period at issue,
namely, from January 1, 2006, to December 31, 2008, for each of the
appellant's businesses;
(h) The alternative audit method
consisted of reconstructing the appellant's sales from its purchases by
applying a fixed ratio to certain items calculated on the basis of a sampling
of invoices, and the items selected for this audit were beer, wine and sake;
(i) The respondent's representatives
calculated the quantity of litres of beer, wine and sake purchased between 2006
and 2008 from the invoices of the appellant's suppliers and determined the
quantity of alcohol poured into the wine glasses and the small and large sake
carafes in the presence of the appellant's representatives;
(j) The respondent's
representatives determined the number of litres available for resale by the
appellant per restaurant and per year;
(k) On the basis of the
information about the appellant's 2008 tax year drawn from the copy of the hard
drive, the respondent's representatives determined the exact number [of litres]
of beer, wine and sake sold during the year at issue, and on that basis an
average unit price per litre of alcohol sold for each of the selected items was
established;
(l) For 2006 and 2007, the
respondent applied the sampling method to each restaurant to establish an
average unit price per litre of alcohol sold for each of the selected items,
namely, beer, wine and sake;
(m) A loss rate of 8% for personal
consumption and promotion was allowed by the respondent, despite the fact that
the appellant did not maintain a register of losses, and this ratio was
multiplied by the litres of alcohol purchased by each of the two restaurants;
(n) The respondent established the
following:
(Amended
table)
|
Torii
|
2008
|
2007
|
2006
|
|
Ratio (sales$/litre)
|
226.30
|
208.02
|
205.16
|
|
Litres of wine, sake, beer
purchased and deemed to have been sold
|
5,815.34
|
6,488.61
|
8,072.22
|
|
Reconstructed sales Torii
|
1,316,038.76
|
1,349,759.45
|
1,656,077.86
|
|
|
|
|
|
|
Kingyo
|
|
|
|
|
Ratio (sales$/litre)
|
286.71
|
285.00
|
257.90
|
|
Litres of wine, sake, beer
purchased and deemed to have been sold
|
7,701.54
|
7,539.83
|
6,496.61
|
|
Reconstructed sales Kingyo
|
2,208,072.15
|
2,148,883.04
|
1,675,454.85
|
|
|
2008
|
2007
|
2006
|
|
Total reconstructed
|
$3,524,110.91
|
$3,498,642.49
|
$3,331,551.71
|
|
sales Torii et Kingyo
|
|
|
|
|
8% loss allowed
|
281,928.87
|
279,891.40
|
266,524.14
|
|
Sales reported in
financial statements
|
$2,033,936.00
|
$2,237,591.00
|
$2,093,475.00
|
|
|
|
|
|
|
Unreported income
|
$1,208,246.04
|
$981,160.09
|
$971,552.57
|
as appears from the worksheets attached to and
included in this Reply;
(l) The Minister has therefore
established that taxable sales of $3,160,958.70 were not reported by the
appellant for 2006 to 2008 and that an amount of $184,423.86 was not remitted to the respondent.
[4]
The
issues are the following:
(a) Was the Minister entitled to use an alternative
audit method in the circumstances?
(b) Did
the alternative audit method, as applied by the Minister, produce reliable results?
(c) Was
the Minister entitled to impose penalties on the appellant?
[5]
According
to the appellant, the Minister was not entitled to use the alternative audit
method in this case for the following reasons, as set out at paragraph 14
of its Notice of Appeal:
[translation]
(a) The auditor relied on erroneous,
misleading and irrelevant assumptions of fact in deciding to apply an
alternative audit method.
(b) The auditor failed to certify
the accuracy and relevance of the assumptions of fact on which she relied in
deciding to apply an alternative audit method.
(c) The appellant duly kept all of
the books, registers and other documents or items that it was required to keep
under the applicable tax legislation (the Documents).
(d) The Documents were available
and could have been verified by the auditor in order to determine, through an
exhaustive analysis of these, the appellant's actual tax liability under the
ETA, but she did not do so.
(e) The appellant duly submitted
to the Minister all of the returns it was required to produce under the ETA.
(f) The Appellant duly collected
and remitted to the Minister all of the amounts it was required to collect and
remit under the ETA.
(g) The adjustments made by the
Minister with respect to the amounts allegedly owed by the appellant under the
ETA for the period covered by the assessment are inaccurate and excessive.
[6]
In
the alternative, the appellant submits that the alternative audit method used
by the Minister did not produce reliable results supporting the adjustments
made under the assessment dated December 17, 2009, for the following
reasons in particular, listed at paragraph 16 of the Notice of Appeal:
[translation]
(a) The sample used by the
auditor, namely, the Appellant's alcohol purchases during the course of the
Period at issue, is clearly not representative of the total sales generated by
the appellant during the course of that Period.
(b) In this respect, the sales reconstructed
by the auditor are based on the false assumption that 92% of the alcohol
purchased by the Appellant had been sold during the course of the Period at
issue, thereby failing to take into account important factors such as the
following:
(i) personal consumption of
alcohol by the Appellant's directors and managers;
(ii) alcohol provided free of
charge to the Appellant's clients;
(iii) the use of alcohol in meal
preparation;
(iv) alcohol provided on a
sponsorship basis; and
(v) breakage.
(c) The samples taken by the
auditor and on which the Assessment is based are inaccurate and not
statistically reliable.
[7]
Finally,
the appellant submits that the Minister was not entitled to impose the
penalties, in particular for the following reasons, set out at
paragraph 18 of the Notice of Appeal:
[translation]
(a) The Appellant duly collected
and remitted to the Minister all of the amounts it was required to collect and
remit under the ETA for the Period at issue.
(b) The Appellant is not liable
for any further amounts to the Minister under the ETA for the Period at issue.
(c) The Appellant made no
statement or omission in any document, whether voluntarily or in circumstances
equivalent to gross negligence.
(d) More specifically, and without
limiting the generality of the above, the Appellant is not liable for any penalties
to the Minister under section 285 of the ETA for the Period at issue.
[8]
The
appellant is not contesting the purchases of beer, wine or sake it made during
the period.
[9]
The
appellant adduced the following documents before the Court:
(a) the audit report
dated December 8, 2009 (Exhibit A-1);
(b) the
detailed reconciliation of GST, Quebec sales tax, input tax credits (ITC) and input
tax rebates (ITR) (Exhibit A-2); and
(c) a
worksheet showing the available litres of beer, wine and sake for each restaurant
and the number of litres sold, as well as the number of litres consumed by the
employees and the number of litres provided free of charge at events and for
the Christmas and New Year holidays, with a confirmation of consumption by the
employees of each restaurant attached (Exhibit A-3).
[10]
The
evidence filed in Court by the respondent includes the following documents:
(a) the
Notice of Assessment dated December 17, 2009; the Minister's decisions on
the objection and the GST/HST audit adjustment statements (Exhibit I-1);
(b) the
appellant's unaudited financial statements for December 31, 2008, 2007,
and 2006 (Exhibit I-2);
(c) a
compilation made by the appellant of its monthly sales (Exhibit I‑3);
(d) additional
worksheets from the auditor (Exhibit I‑4); and
(e) the summary of
the appellant's unreported income (Exhibit I-5).
[11]
Several
people testified on the appellant's behalf, including Thi Diem Trang Phan, sole
director and owner of the appellant; Nguyen Chau, her spouse and the manager of
both restaurants; Thang Phat Vuong, a head cook; Minh Hue Dang, a cook; Le Tri
Dung, a cook; Mr. Jaccrya, a sushi chef; and Le Quang Trung, a server.
[12]
The
purpose of the testimony of the appellant's employees was to confirm their
unsworn written statements regarding their wine and beer consumption in the
workplace, after the closing of the restaurant each evening and on special
occasions (Exhibit A-3). According to them, the employees' consumption of
beer and wine in the two restaurants during the period was approximately seven
to nine cases of 24 bottles of beer per week, generally provided free of charge
and sometimes charged at $1 per bottle. They also said that they would consume
three to five bottles of wine per week that were charged at cost, while another
two to three bottles of wine were consumed each week in tastings with clients
and for new recipes. Finally, the employees confirmed that alcohol consumption
was free on special occasions such as Christmas, the New Year, the Chinese New
Year, restaurant anniversaries and other such celebrations.
[13]
Thi
Diem Trang Phan first confirmed the restaurants' opening hours. Torii is open
from Monday to Saturday. From Monday to Friday, the restaurant is open
from 11:30 a.m. to 2:30 p.m. and 5:00 p.m. to 10:00 p.m.;
on Saturdays, the restaurant is open from 5:00 p.m. to 10:00 p.m. Kingyo
is open from Tuesday to Sunday, and the weekly opening hours are from
11:30 a.m. to 2:00 p.m. and 5:00 p.m. to 9:00 or 10:00 p.m.
On weekends, the restaurant is open from 5:00 p.m. to 10:00 p.m. Ms. Phan
explained that the restaurants seated about 90 people each and employed 30
to 35 people in total, including full-time and part-time employees, most of
whom were of Asian origin and living in Montreal. Torii is in Laval, while Kingyo,
which opened in October 2005, is in Blainville.
[14]
Ms. Phan,
who studied accounting at University of Quebec at Montréal, explained that all
sales and payments were recorded in the ALOHA computer system. A compilation of
tips was prepared for each shift and a sales report provided to each server. At
the end of each workday, a cash register reconciliation was prepared for each
shift. At the end of each month, the consolidated operation results for both
restaurants were prepared using Quick Book software. Ms. Phan herself
prepared the tax returns and kept all the registers. Ms. Phan stated that
she had given all of the documents and a copy of the computer system to the
auditor and that she had answered all of the auditor's questions.
[15]
During
the audit, Ms. Phan provided the auditor with the monthly sales reports (Exhibit I-3),
which were compiled from invoices and servers' reports. On cross-examination,
Ms. Phan admitted that the data in the monthly sales reports did not match
the data in the ALOHA computer system, blaming the discrepancies on a loss of
data caused by power outages in the new shopping centre where Kingyo was
located. For 2008, the errors amounted to about $79,000, which Ms. Phan
characterized as insignificant.
[16]
To
justify the low ratio of alcohol sales to litres purchased, Ms. Phan
pointed to her employees' consumption, which she estimated at eight to ten
cases of 24 bottles of beer per week for the two restaurants, and
complimentary drinks offered to customers by the manager in the dining rooms.
However, Ms. Phan admitted that there was neither a button on the cash
registers nor any other log for complimentary beverages, and no log to record
consumption.
[17]
Nguyen
Chau is the manager and sommelier for both restaurants and is in charge of
hiring cooks and sushi chefs, most of whom live in Montreal. He explained that,
during the afternoon break, from 2:00 to 5:00 p.m., the cooks eat,
sleep, play poker or drink beer. He states that it is important to provide beer
to the cooks to create a good atmosphere and maintain good relations with them.
Beer is also provided as a reward for meeting sales targets. Cases of beer
available to the employees are left in the restaurant kitchen refrigerators. Mr. Chau
confirmed that no record was kept of the employees' beer consumption. Mr. Chau
stated that he drank an average of six bottles of beer each day with the
employees. Finally, Mr. Chau explained that once the free beer ran out,
employees could obtain more by placing $1.00 per beer in a box left out for
that purpose; the appellant would lose 0.25¢ per beer.
[18]
Mr. Chau
was not able to explain the number and frequency of power outages in the
restaurants. However, he stated that a generator was purchased for $6,000 and
installed in the Kingyo restaurant.
[19]
Dario
Grimard, a computer technician, testified at the hearing on the respondent's behalf
and stated that, on May 14, 2009, he had made a copy of the hard drive of the
server for each restaurant for 2008.
[20]
Sophie
Leduc, the auditor from Revenu Québec, testified at the hearing and explained how
she had conducted the audit and her findings. The audit commenced on
January 27, 2009, at the accounting firm of Vinh, Prévost, Patenaude CA
Inc. The appellant then provided the auditor with its monthly sales reports
(Exhibit I-3). Before this meeting, the auditor made an initial visit on
June 3, 2008, to the Torii restaurant, and made incognito visits to Torii on
October 18, 2008, and Kingyo on November 20, 2008.
[21]
On
February 18, 2009, the auditor visited the Torii restaurant to measure the
amount of liquid poured into the wine glasses and the small and large sake
carafes. She did the same thing on March 18, 2009, at the Kingyo
restaurant.
[22]
On
May 6, 2009, the auditor prepared an inventory of the alcohol in the Torii
restaurant, in the presence of a representative of the appellant. On
May 7, 2009, the exercise was repeated at the Kingyo restaurant and at
Ms. Phan's residence.
[23]
On
May 14, 2009, a copy was made of the hard drive of the server of each of
the two restaurants.
[24]
The
auditor explained that she had first performed a reconciliation of the tax
returns, a supply risk assessment and a comparison of the deposit list with the
reported income. No significant discrepancy was noted as a result of these
analyses.
[25]
The
auditor also reviewed the method for recording sales and noted that all client
invoices were saved and compiled in daily summaries and that all the
information was combined in the monthly sheets prepared by Ms. Phan.
[26]
The
auditor audited the data from Ms. Phan's monthly sheets by randomly
selecting the month of February 2007 for the Kingyo restaurant and
November 2007 for the Torii restaurant. Each day's invoices for those
months were compared with the information provided in Ms. Phan's monthly
sheets. The auditor noted several discrepancies, but these were not
substantial. According to the auditor, this exercise led her to conclude that
the data in Ms. Phan's monthly sheets was not reliable.
[27]
The
auditor also analyzed the income reported in the financial statements with the
appellant's reported income. A small discrepancy was observed, but a
discrepancy of $79,000 was observed when the income reported in the financial
statements was compared with the income recorded in the 2008 hard drive copy.
[28]
However,
the auditor found a large discrepancy when she analyzed the invoices for beer
purchases with the statement of beer sales from the 2008 hard drive copy. For
2008, the auditor noted that 274 cases of beer in 341‑mL bottles and
85 cases of beer in 650‑mL bottles had been purchased without being
sold and that 2,770 bottles of wine were missing. In terms of litres, a
discrepancy of 6,000 litres of beverage was found for 2008, between litres
purchased (14,051 litres) and litres sold (8,346 litres), according
to the copy. For 2006 and 2007, beer sales were lower than beer purchases.
[29]
On
the basis of these observations, the auditor decided to use an alternative
method to ensure that all of the appellant's income was reported. The selected
method consisted of reconstructing sales from purchases by applying a fixed ratio
to certain items (beer, wine and sake) from a sampling of invoices. For 2006
and 2007, a 45‑day sample was chosen at random for each restaurant. For
2008, the number of litres of beer, wine and sake sold was easy to determine from
the information in the hard drive copy. Estimated sales were established on the
basis of an average unit price calculated in litres for each of the selected items
multiplied by the number of litres purchased.
[30]
This
reconstruction of sales revealed a discrepancy of $3,167,703.82 in income for
the three audit years for the two restaurants, or about $1,000,000 per year.
[31]
Based
on the appellant's submissions and the letter signed by all the employees who
consumed alcohol in the restaurants, the auditor raised from 3% to 8% of the
income the percentage of loss, complimentary beverages and personal
consumption, representing $828,930.94 for the three years audited. According to
the letter signed by the employees, their alcohol consumption represented about
60% of the purchases of both restaurants, but the appellant asked them to cover
35%.
[32]
Penalties
of 25% were applied under section 285 of the ETA, representing $45, 947.25,
given that the unreported amounts represented 49.76% of reported sales and that
the false statements and omissions occurred repeatedly.
Applicable legislative provisions and standard of proof
[33]
Subsection 286(1)
of the ETA provides for the agent's duty to keep records:
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.
[34]
Subsection 288(1)
of the ETA grants duly authorized persons the authority to audit, among other
things, an agent's documents to determine his or her tax liability:
An authorized person may, at all reasonable times,
for any purpose related to the administration or enforcement of this Part,
inspect, audit or examine the documents, property or processes of a person that
may be relevant in determining the obligations of that or any other person
under this Part or the amount of any rebate or refund to which that or any
other person is entitled . . . .
[35]
Under
subsection 296(1) of the ETA, the Minister of National Revenue may make an
assessment, reassessment or additional assessment to determine, among other
things, the net tax of an agent for a reporting period as well as the
applicable penalties and interest.
[36]
Under
subsection 299(3) of the ETA, an assessment is deemed valid and binding, subject
to a reassessment and subject to being vacated on an objection or appeal under
the same Part.
[37]
In Amiante
Spec Inc. and Her Majesty the Queen, 2009 FCA 139 (CanLII), the Federal
Court of Appeal made the following comments about the standard of proof
applicable when a taxpayer wishes to challenge the validity of an assessment or
reassessment:
[15] Hickman reminded us that the Minister
proceeds on assumptions in order to make assessments and that the taxpayer has
the initial burden of demolishing the exact assumptions stated by the Minister.
This initial onus is met where the taxpayer makes out at least a prima facie
case that demolishes the accuracy of the assumptions made in the assessment.
Lastly, when the taxpayer has met his or her onus, the onus shifts to the
Minister to rebut the prima facie case made out by the taxpayer and
prove the assumptions (Hickman, supra, at paragraphs 92, 93 and 94).
. . .
[23] A prima facie case is one
"supported by evidence which raises such a degree of probability in its
favour that it must be accepted if believed by the Court unless it is rebutted
or the contrary is proved. It may be contrasted with conclusive evidence which
excludes the possibility of the truth of any other conclusion than the one
established by that evidence" (Stewart v. Canada, [2000] T.C.J. No.
53, paragraph 23).
[24] Although it is not conclusive
evidence, "the burden of proof put on the taxpayer is not to be lightly,
capriciously or casually shifted", considering that "[i]t is the
taxpayer’s business" (Orly Automobiles Inc. v. Canada, 2005 FCA
425, paragraph 20). This Court stated that the taxpayer "knows how and why
it is run in a particular fashion rather than in some other ways. He [or she]
knows and possesses information that the Minister does not. He [or she] has
information within his [or her] reach and under his [or her] control" (ibid.).
Analysis and conclusion
[38]
Counsel
for the appellant argued that an alternative audit method may not be used in
this case because the appellant had all of its accounting records and, after
conducting four audits, the auditor found income discrepancies that varied
between only 0.2% and 3.8%.
[39]
Courts
allow tax authorities to use alternative audit methods not only in cases where
the taxpayer does not have adequate accounting records, but also when the
books, registers and financial statements are not reliable.
[40]
In
this case, the appellant had no documents in support of the inventory counts.
In the circumstances, it is not open to the appellant to argue that its books,
registers and financial statements are complete, adequate and reliable.
[41]
The
reconciliation of the income reported in the financial statements and the income
obtained from the 2008 copy revealed that the income in the financial
statements had been underestimated by $79,000. During the hearing, the
appellant was unable to explain this discrepancy.
[42]
The
analysis of the beer purchase invoices and the statement of beer sales obtained
from the 2008 copy revealed a significant discrepancy, namely, that
274 cases of 341-mL bottles of beer and 85 cases of 650‑mL bottles
of beer had been purchased without being sold, and that more than 2,128 litres
of wine were missing.
[43]
The sampling
of sales for the month of February 2007 for the Kingyo restaurant and
November 2007 for the Torii restaurant compared with the information
contained in the owner's monthly sheet did not reveal significant
discrepancies, but the frequency and regularity of the discrepancies indicated
that the appellant's reports were not reliable.
[44]
In the
light of the evidence, I am of the view that the Minister was justified in
using an indirect method to ensure that all of the appellant's income was
reported.
[45]
Counsel
for the appellant questions the reliability of the alternative method applied
by the Minister, which was based on estimates and samples that could only
produce approximate results. He argues that the case law consistently holds that
the tax authorities must show that the premises upon which the alternative
method is based are reliable.
[46]
With
respect, I am of the view that the alternative method applied by the Minister
produced reliable results. All of the invoices for the purchases of beer, wine
and sake for the two restaurants and for the three years at issue were checked,
and this has not been challenged by the appellant.
[47]
The
number of litres of alcohol available for resale by the restaurant each year
was calculated on the basis of the number of litres purchased and adjusted to
take into account variations in inventory. The number of litres available for
resale was multiplied by the ratio established during the capture of alcohol
sales to calculate the estimated sales.
[48]
With
the copy of the hard drive, all the information for 2008 was available, which
allowed for a complete audit by census. The total sales and litres sold could be
determined precisely. For 2006 and 2007, the auditor relied on a 45-day sample
for each of the restaurants. The estimated sales were determined on the basis
of an average unit price calculated in litres for each of the selected items
multiplied by the number of litres purchased. This is how the discrepancies
between the reconstructed sales and the reported sales were calculated.
[49]
Counsel
for the appellant has not challenged any of the steps of the alternative method
used by the auditor, instead submitting that, following the appellant's
verifications of the internal consumption of beer by the appellant's employees,
the auditor should have done a further audit to corroborate the results of the
audit conducted using the alternative method. According to him, the 8% loss
based on Restaurant Barolo Inc. c. Québec (Sous-ministre du Revenu), 2007 QCCQ 316 (CanLII) is
arbitrary and fails to take into account the appellant's explanations. He also
submits that he presented uncontested evidence that employees had consumed
about 60% of the beer purchased by the appellant during the audit period. This
does not constitute standard loss, in his view, but rather the consumption by
employees of the majority of the purchases of an item used to reconstruct
sales. In short, counsel for the appellant submits that the letter produced by
the employees who had consumed alcohol and their testimony at the hearing
should be accepted as prima facie evidence and that the respondent
should bear the burden of proof.
[50]
For
the following reasons, I cannot accept the above-mentioned testimony and
letters as prima facie evidence, as the figures provided for the
consumption of alcohol were implausible, vague and unreliable. The appellant
produced no record of alcohol losses, complimentary drinks for clients, bottles
of wine used in the kitchen or employee consumption of beer. Employee
consumption of beer represented approximately 60% of the beer purchased by the
appellant for the two restaurants, but for the Kingyo restaurant alone,
employee consumption of beer represented 80% to 85% of the beer purchased for
that restaurant. These consumption figures are impossible. The letters and
testimony of the appellant's employees refer to their beer and wine consumption
in general terms, about seven to nine cases of 24 bottles of beer and
about three to five bottles of wine per week. The size of the bottles of beer
and wine in millilitres is not specified, nor are the brands of the beer and
wine consumed. The testimony of the appellant's managers was vague with respect
to the employees who were allowed to drink beer at no charge and how the cases
of beer were put at the employees' disposal. No explanation was provided for
why, or according to what rules, the cases of beer were made available to the
employees.
[51]
In
the circumstances, the appellant did not provide sufficient evidence to
demonstrate that the allocation of 8% by the auditor for promotion and internal
use should be raised.
[52]
Counsel
for the appellant did not make any submissions regarding the 25% penalty
provided for at section 285 of the ETA. Section 285 provides that the
penalty may be applied where a person "knowingly, or under circumstances
amounting to gross negligence, makes or participates in, assents to or
acquiesces in the making of a false statement or omission in a return". The
respondent bears the burden of proof with respect to this provision.
[53]
The
evidence shows significant and repeated omissions in the goods and services tax
returns, namely, unreported sales representing 49.76% of reported sales, or $3,167,703.82
compared with reported sales of $6,365,002.00. The evidence shows that the
appellant repeatedly made false statements and omissions in its tax returns.
The appellant did not provide explanations for these omissions, and the only
possible conclusion is that they are the result of gross negligence on its part.
[54]
For
these reasons, the appeal is dismissed with costs.
Signed at Ottawa, Canada, this 14th
day of May 2013.
"Réal Favreau"
Translation certified
true
On this 11th
day of July 2013
François Brunet, Revisor
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