Dockets: 2010-2509(GST)I
2010-2510(GST)I
BETWEEN:
ZENON KEDZIERSKI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on February 7 and 10, 2012 at Ottawa, Ontario
Before: The Honourable
Justice J.M. Woods
Appearances:
|
Agent for the Appellant:
|
Robert
Kedzierski
|
|
Counsel for the Respondent:
|
Christopher Kitchen
|
____________________________________________________________________
JUDGMENT
The
appeal with respect to assessments made under the Excise Tax Act for
periods from January 17 to December 31, 2005 is allowed, and the assessments
are referred back to the Minister of National Revenue for reconsideration and
reassessment on the basis that:
(a)
for the period from January 17 to
March 31, 2005, additional input tax credits in the amount of $1,137 should be
allowed,
(b) for the period from April 1 to June 30, 2005,
additional input tax credits in the amount of $453.59 should be allowed,
(c)
for the period from July 1 to September
30, 2005, goods and services tax collectible should be reduced by $355, and
(d) for the period from October 1 to December 31, 2005,
goods and services tax collectible should be reduced by $500.
Each
party shall bear their own costs.
Signed at Ottawa,
Ontario this 15th day of March 2012.
“J. M. Woods”
Citation: 2012 TCC 85
Date: 20120315
Dockets: 2010-2509(GST)I
2010-2510(GST)I
BETWEEN:
ZENON KEDZIERSKI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
Zenon Kedzierski owns a motorcycle
parts business which is operated as a sole proprietorship. For the most part,
the business purchases motorcycles as salvage and sells the parts.
[2]
This appeal concerns four
assessments of net tax made under the Excise Tax Act for 2005, which is
the first year that the business operated. The assessments relate to each
quarter in 2005 and, for simplicity, the periods will be referred to as Q1, Q2,
Q3 and Q4.
[3]
According to the Reply filed by
the respondent, the aggregate net tax payable for 2005 is $5,696.84. As a
result of two concessions made by the respondent at the hearing, the net tax
payable as now submitted by the respondent is $4,743.25. The amounts conceded
are $453.59 for Q2 and $500 for Q4.
[4]
At the hearing, the appellant
introduced into evidence goods and services tax (GST) returns in which refunds
are claimed for each period for an aggregate refund of approximately $14,770.
[5]
Based on the respondent’s position
as set out above and the appellant’s GST returns submitted into evidence, the
total amount in dispute is $19,513.25.
[6]
The appellant was represented at
the hearing by his son, Robert Kedzierski, who also testified on behalf of the
appellant. Although the appellant did not attend the hearing, the respondent did
not object to this on the basis that Robert Kedzierski has detailed knowledge
of the transactions that are at issue.
[7]
By way of background, it is clear
from the evidence that the appellant did not keep proper accounting records
from which net tax could be properly determined. The assessments were therefore
based on a review of source documents.
[8]
In determining GST collectible,
the auditor generally assumed that deposits to the bank account used by the
business represent sales, except where a satisfactory explanation was provided.
In determining input tax credits (ITCs), the auditor scrutinized the
documentation provided and rejected claims if the documentation did not satisfy
the provisions of the Act and regulations.
[9]
This method of determining net tax
was appropriate in the circumstances.
[10]
At the hearing, the appellant
submitted two binders of additional source documents. Many of these had not
been reviewed by the respondent prior to the hearing.
[11]
Based on a review of the evidence
as a whole, I have concluded that it is appropriate to make only two additional
adjustments to the amounts assessed.
[12]
For Q1, an adjustment should be
made to increase ITCs by $1,137. The auditor rejected an invoice that supported
this expense. The invoice represents purchases of motorcycles from Import Auto
Sales, which is an automobile dealership owned by Robert Kedzierski (R-1, Tab
J). Mr. Kedzierski testified that Import Auto Sales acted as an accommodation
party to purchase the vehicles for resale to the appellant. It was explained
that this was done because the appellant did not have the proper licenses to
purchase the vehicles.
[13]
The auditor was not satisfied with
the supporting documentation, at least in part because the seller’s GST
registration number was not on the invoice.
[14]
The appellant introduced
additional documentation at the hearing to support this expense. It is a
customs form showing that Import Auto Sales imported motorcycles around this
time and paid GST at the border in the amount of $1,118.71 (A-1, Tab 3, 4th page).
[15]
Although the amounts do not match,
the additional documentation does support that some ITCs should be allowed in
respect of this transaction. I will allow additional ITCs for Q1 in the amount
of $1,137.
[16]
The second adjustment that should
be made is to reduce GST collectible for Q3 in the amount of $354.87. This
adjustment is based on documentation provided by the appellant at the hearing as
to U.S. sales which are exempt from GST (Ex. A-2, Tab 2). The supporting documentation
is by no means ideal, but it is sufficient in my view to justify an adjustment
to reflect exempt U.S. sales as represented by the appellant in the amount
of $9,788.71. This is an increase of $5,423.71 from what was accepted by the
auditor. GST collectible should be reduced by $355 to take this into account.
[17]
These are the only adjustments
that are warranted in my view. In reaching this conclusion, I would make the
following observations.
[18]
First and foremost, if the result
in this appeal is harsh to the appellant, he has only himself to blame because
he failed to keep adequate books and records as required by the legislation.
[19]
Second, the auditor was correct in
my view to reject some of the source documentation that the appellant provided.
The following two examples from Q1 illustrate the problem.
[20]
In respect of ITCs for Q1, the
appellant provided supporting documents for purchases of motorcycles from MP
Cars and Import Auto Sales. The supporting documents consisted of handwritten
invoices and toll bridge receipts which the auditor rejected as not being
reliable. I would agree with the auditor. I would note in particular that the
GST number for MP Cars on the invoices is incorrect, and some of the invoices
for Import Auto Sales list “parts” without a more detailed description of the
type of parts that are purchased. The invoices are not sufficiently reliable in
my view. As for the toll bridge receipts, they do not provide details of the
purchases.
[21]
Robert Kedzierski testified that
MP Cars and Import Auto Sales purchased the vehicles as an accommodation as
described above and that he paid the GST at the border on behalf of these corporations.
The total amount of ITCs claimed with respect to these transactions is $6,726.30
(Ex. R-1, Tab 4).
[22]
The appellant should have been able
to provide more reliable supporting documentation by linking the invoices to
customs documents. As mentioned above, the amount of $1,137.50 has been allowed
since customs documentation was provided at the hearing. The handwritten invoices
that were given to the auditor were not sufficiently reliable.
[23]
In respect of GST
collectible for Q1, the appellant provided
to the auditor three handwritten invoices which purportedly represent the
entire sales for Q1. The amounts were claimed as exempt from GST as exports.
[24]
These invoices are also not
sufficiently reliable. They are all numbered sequentially, and the total amount
for ten items conveniently adds up to the round number of $17,000. The invoices
are simply not sufficiently reliable.
[25]
Finally, I would comment generally
concerning the documents introduced by the appellant at the hearing. In order
for these documents to support further adjustments to net tax, the appellant
must establish that the transactions reflected in these documents were not
properly taken into account in the assessments. The appellant has failed to
satisfy me on this.
[26]
In the result, the only additional
adjustments will be the two items mentioned above. The appeal will be allowed,
and the assessments will be referred back to the Minister of National Revenue
to make the following adjustments:
(a) for
Q1, additional ITCs in the amount of $1,137 should be allowed,
(b) for Q2, additional ITCs in the amount of $453.59
should be allowed,
(c) for Q3, GST collectible should be reduced by $355,
and
(d) for Q4, GST collectible should be reduced by $500.
[27]
Each party shall bear their own
costs.
Signed at Ottawa, Ontario this 15th day of March 2012.
“J. M. Woods”
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