Docket: A-80-14
Citation: 2014 FCA 225
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CORAM :
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NADON J.A.
GAUTHIER J.A.
SCOTT J.A.
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BETWEEN:
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KOSMA-KARE CANADA INC.
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Appellant
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and
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HER MAJESTY THE QUEEN
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Respondent
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REASONS FOR JUDGMENT OF
THE COURT
(Delivered from the Bench at Montréal,
Quebec, on October 8, 2014)
GAUTHIER J.A.
[1]
Kosma-Kare Canada Inc. is appealing from a decision
of Justice Lucie Lamarre of the Tax Court of Canada (the judge) dismissing its
appeal from an assessment made under Part IX of the Excise Tax Act,
R.S.C. 1985, c.E-15 (the Act), for the taxation periods between April 1, 2006,
and June 30, 2010. In this assessment, the Minister of Revenue Quebec denied
input tax credits to Kosma-Kare, because they were based on invoices of
convenience and did not describe the true service supplier or intermediary. He
also imposed a penalty, and the assessment for the April 1, 2006, to
February 2007 period was made outside the normal deadlines under
section 298 of the Act.
[2]
Kosma-Kare is a manufacturing company that makes
first aid and cosmetic cotton products. It regularly used two employment
agencies, namely, 9167-4523 Québec Inc. (9167) and 9199-9201 Québec Inc. (9199),
to get personnel to perform certain tasks such as packing.
[3]
Kosma-Kare submits that it is not disputed that
it paid for personnel that actually worked during the relevant period.
According to Kosma-Kare, the documents submitted in support of its tax credit
claims meet the strict requirements of the Act. The judge therefore should have
followed the reasoning of this Court in Systematix Technology Consultants
Inc. v. Her Majesty the Queen, 2007 FCA 226, and the assessment should have
been set aside.
[4]
Kosma-Kare argues that the judge erred in law in
imposing on it a (i) moral duty (that of ensuring that it was not using
‘illegal’ workers, that is, workers being paid under the table or less than minimum
wage) and (ii) the duty of acting as the tax police by obtaining the
information requested by the Quebec Revenue Agency (ARQ) with respect to these
workers, such as their social insurance number. According to Kosma-Kare, these
factors are of no relevance to determining whether it was entitled to the
claimed tax credits.
[5]
It is true that in her reasons (2014 CCI 13), the
judge commented at length on the scheme set up by 9167 and 9199 and the fact
that Kosma-Kare wilfully looked the other way even though it should have known
that it was taking advantage of illegal workers. However, before doing so, the
judge had already concluded that the respondent had shown that the workers used
by Kosma-Kare could not have been employees of 9167 or 9199, or subcontractors
with which these agencies allegedly did business.
[6]
The judge concluded that it was very clear from
the evidence that the companies that had issued the invoices Kosma-Kare submitted
in support of its tax credit claims did not act as employment agencies or as
intermediaries between sub-contractors in that field (reasons at
paragraph 51).
[7]
Consequently, contrary to its allegations, Kosma-Kare
had not complied with the strict provisions of the Act requiring, among other
things, that it declare 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 that supplier or intermediary, as the case may be (Input Tax Credit
Information (GST/HST) Regulations, SOR/91‑45, subparagraph 3(b)(i)
(the Regulations).
[8]
Given the evidence of record and the judge’s
conclusions regarding the lack of credibility of some of the witnesses,
Kosma-Kare has not satisfied us that the judge made a palpable and overriding
error in this respect. It has also failed to satisfy us that the judge
committed any other error that would warrant our intervention in concluding
that Kosma-Kare did not make a prima facie case that the Minister’s
assumptions were erroneous.
[9]
In the circumstances, it is unnecessary to address
the other issues raised by Kosma-Kare to dispose of the appeal on the merit of
the rejection of its tax credit claims. This is especially so since, at the
hearing, the parties confirmed that these issues, which are serious, are
already under appeal in another case (Salaison Lévesque Inc. v. The Queen,
2014 TCC 36 (A‑134-14)) and that they should be ruled on shortly by this
Court. It is obvious that nothing here should be interpreted as endorsing any
of the judge’s comments in this respect.
[10]
Kosma-Kare is further challenging the judge’s
conclusions confirming the imposition of a penalty under section 285 of
the Act. It also submits that the respondent did not meet its burden to
establish that it could assess it outside the normal period under
subsection 298(4) of the Act for the April 2006 to February 2007
period.
[11]
The judge described the correct test for
disposing of the two issues at paragraph 74 of her reasons. However,
according to Kosma-Kare, she erred in how she applied them.
[12]
Her reasons with respect to the penalty and the
application of subsection 298(4) of the Act are brief (paragraph 76).
The judge writes that Kosma-Kare, despite the warning it received from the ARQ
in 2005, agreed to work with people with no concern as to whether they had work
permits or a social insurance number, thinking that the blame would be placed
on the agencies with which it was working. According to the judge, this
demonstrates complete indifference towards the Act and amounts to gross
negligence. In this regard, she cites the decision of Justice Strayer in Venne
v. Canada (Minister of National Revenue), [1984] F.C.J. No. 314 (QL),
1984 CarswellNat 210, 84 D.T.C. 6247 (Venne).
[13]
First, the respondent admitted that the Act does
not deal with the duty to pay employees minimum wage any more than it requires
them to obtain work permits. Then, contrary to Justice Strayer’s approach
in Venne, the judge did not explain the link she established between Kosma-Kare’s
false statement or omission (the only issue discussed at the hearing before us
was the name and business number of the supplier or the intermediary Kosma-Kare
had to declare under the Regulations) and the failure to comply with other
legislation concerning work permits and the minimum wage.
[14]
This is a palpable and overriding error since
nothing else in the decision justifies the conclusion that Kosma-Kare committed
gross negligence directly related to a false statement or omission within the
meaning of section 285 of the Act.
[15]
Similarly, in dealing with the application of
subsection 298(4) of the Act, the judge also failed to clarify the link
she established between Kosma-Kare’s wilful blindness to the worker’s illegal
status and its alleged misrepresentations. At no time did the judge indicate on
what basis Kosma-Kare was aware or should have been aware, had it not been for
its neglect, carelessness or wilful default, that 9167 and 9199 were not
service suppliers or were not acting as intermediaries under the Regulations.
[16]
In the circumstances, the judge’s two
conclusions in this respect must be set aside. The appeal will therefore be
dismissed except with regard to the penalty and the assessment for the
April 2006 to February 2007 taxation period. The matter will be referred
back to the TCC for redetermination of these two issues. Given the mixed
outcome, each party shall bear its own costs.
“Johanne Gauthier”
Certified true translation
François Brunet,
Revisor
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