[OFFICIAL ENGLISH TRANSLATION]
Date: 19980911
Docket: 97-148(GST)I
BETWEEN:
CLUB IMMOBILIER INTERNATIONAL
INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] When the hearing began, it was
agreed to proceed separately in the four cases, that is,
Gestion 69692 Inc. (97-141(GST)I), Gestion 69691
Inc. (97-146(GST)I), Claudette Ruest
(97-147(GST)I) and Club Immobilier International
Inc. (97-148(GST)I). This case was the first one heard.
However, the parties requested that the evidence be part of the
other three cases insofar as it may be useful and relevant
thereto.
[2] That request to share part of the
evidence was no doubt based on the fact that
Marcel Thiffault was the principal witness and the directing
mind of the
three appellant corporations and the business in respect of
which his wife was appealing. In other words, he managed all of
the four registrants' activities alone.
[3] The appellant appealed through a
Notice of Appeal reading as follows:
[TRANSLATION]
NOTICE OF APPEAL
The appellant appeals the respondent's decision dated
October 24, 1996, confirming the assessment made on
September 25, 1995, for the period from
January 1, 1991, to August 31, 1994.
1. On
September 25, 1995, the respondent issued a notice of
assessment numbered 22221 under the Excise Tax Act for the
period from January 1, 1991, to
August 30, 1994;
2. The
appellant filed a notice of objection to the assessment referred
to in the preceding paragraph;
3. In a
decision made on October 24, 1996, the respondent
confirmed notice of assessment number 22221 issued under the
Excise Tax Act;
4. The
appellant appeals the decision of the Minister of Revenue
confirming assessment number 22221;
5. Following
an audit, the respondent made the following adjustments:
GOODS AND SERVICES
TAX
$8,612.73
INPUT TAX
CREDIT
($2,797.68)
6. The
respondent claims, inter alia, that the appellant failed
to remit the GST on commission income for real estate agents;
7. The
assessments made by the respondent under the Excise Tax
Act are incorrect because the auditor from the Department of
Revenue did not take account of the fact that three real estate
agents using the Club immobilier international inc. name were
independent, self-employed agents, that they had
certificates of registration, and that they were therefore
obliged to remit the GST themselves;
8. In the
circumstances, the appellant was entitled to claim tax rebates on
inputs used in its business; thus, the rebates claimed by the
taxpayer should have been granted to it, as well as those on the
user fees paid by the real estate agents;
9. The
appellant gave the respondent all the invoices for which it
claimed input tax rebates, and all of those invoices result from
the registrant's commercial activities;
10. At all relevant times,
the appellant complied with the provisions of the Excise Tax
Act regarding the documentary requirements provided for by
law;
11. This appeal is well
founded in fact and in law;
FOR THESE REASONS, MAY IT PLEASE THE COURT:
TO ALLOW this appeal;
TO SET ASIDE notice of assessment number 22221 issued
under the Excise Tax Act on
September 25, 1995;
TO REFER the entire matter back to the respondent in
order that she issue a notice of reassessment in accordance with
the judgment to be made in this case;
THE WHOLE with costs.
MONTRÉAL, January 20, 1997
NORMAND BÉRUBÉ
10422 Rue de Martigny
Montréal, Quebec H2B 2M6
Tel.: (514) 389-6339
Counsel for the Appellant
[4] In answer to the Notice of Appeal,
the respondent set out the facts on which the assessment had been
based. Those facts are described as follows in
subparagraphs 10(a) to (n) inclusive of the Reply to the
Notice of Appeal:
[TRANSLATION]
10. In making the said
assessment, the Minister relied on the following facts discovered
during the audit that was carried out in 1994 and 1995:
(a) the appellant is
a goods and services tax registrant;
(b) during the
period at issue, the appellant carried on activities as a real
estate agency;
(c) all of those
activities were managed by Marcel Thiffault, the
appellant's president and shareholder;
(d) during the same
period, Marcel Thiffault also managed two other
corporations, that is, Gestion 69692 Inc., of which he is the
president and shareholder, and Gestion 69691 Inc., the president
and shareholder of which is Claudette Ruest, Mr.
Thiffault's spouse, and he managed the many commercial
activities carried on by Claudette Ruest in her own
name;
(e) during the
period at issue, Marcel Thiffault used just one bank account
for all the activities of the appellant, of the two companies
referred to in subparagraph (d), and of
Claudette Ruest, an account that was also used to pay
Mr. Thiffault's personal expenses;
(f) the
accountant prepared the appellant's quarterly returns on the
basis of cheques without having the purchase and sales invoices
in his possession;
(g) moreover, since
the accountant did not have the sales contracts or the invoices
in his possession, income was reported on the basis of deposits
and adjusted at the end of the year when those documents were
provided to him;
(h) the income also
had to be adjusted at the end of the year to take account of
income that had not been deposited in the account, and it then
had to be broken down for each registrant and each activity on
the basis of the information provided by
Marcel Thiffault;
(i) thus, the
amounts collected as residential rents by two of the four
registrants managed by Mr. Thiffault could not be traced in
the deposits, and the respondent was unable to confirm that the
income reported for such residential rentals in fact came from
those rentals or from the laundry rooms made available to
tenants;
(j) it results
from the foregoing that the appellant's accounting was
deficient, the books of account being inadequate or
non-existent, that not all the income was reported, that
some invoices to justify the claimed ITCs were missing, that the
ITCs were claimed without taking account of which registrant the
invoices had been issued to and that ITCs were claimed for
non-taxable activities;
(k) the entries made
in the appellant's general ledger were therefore not
consistent with the purchase and sales invoices;
(l) with
regard to the GST assessed on the commission income, the
respondent considered the following:
- the
appellant brought together six real estate agents;
-
the appellant did not give the respondent all of the sales
contracts;
-
the respondent compared the commission income shown in the
contracts that were provided with the books and the cheques
written by the appellant to the agents, and this revealed
unreported income;
-
$3,000.00 per agent per year was also added to the
appellant's income for the user fees paid by the agents;
-
the result was that $10,453.07 had not been collected by the
appellant as GST on taxable supplies;
(m) finally, after
reviewing all the invoices submitted by the appellant, a
total of $125.00 in ITCs were denied for the following
reasons:
-
some purchase invoices were missing;
-
some purchases were not eligible, inter alia, because they
were personal in nature or involved property that had not been
acquired in the course of commercial activities, and therefore
did not entitle the appellant to ITCs;
(n) however, the
respondent allowed $2,717.49 in ITCs that had not been claimed by
the appellant;
[5] Marcel Thiffault testified at
length in support of the appeal; his testimony was often
ambiguous and confused, and he was even contradictory on certain
points; he did not file contracts or documents that could clarify
or explain his incoherent testimony.
[6] To illustrate that confusion, I
will take the liberty of quoting certain passages from
Mr. Thiffault's testimony:
[TRANSLATION]
Q. Now, what was the situation with the Department of Revenue as
regards . . . the real estate agents in question who worked for
you?
A. Well, the problem, which persists here this morning because we
aren't capable of resolving it, is that in
Trois-Rivières there were five agents, as I recall,
three of which were accepted and two of which were denied. They
all did the same work, they all had the same contract, the same
agreement and, for some reason I'm not aware of, three were
accepted and two were denied.
[7] He later stated the following:
[TRANSLATION]
Q. Now, did the agents have to pay anything to use the Club
Immobilier International name?
A. Yes.
Q. How did that work?
A. Well, they paid me a royalty every month; it was an agreement
we had. It was for the cost of the name, if you will.
Q. And what were the exact amounts?
A. For some agents, it was $200. And for some, in the end, it was
$300. In the end, there was one agent, I think, who was paying
$300, as I recall.
Q. We're talking about $300 per . . .
A. Near the end. Because in the beginning, I'm talking, we
started in 1984 or 1985, after all. In the beginning it was $200
and in the end there were some who were paying $300 and some who
were paying two . . . it was $250. It depends on
the period.
Q. You're talking about a monthly amount?
A. Monthly, yes.
HIS HONOUR: But explain to me the difference between that $200 or
$300 royalty and the five percent you referred to earlier.
A. We had a special agreement with Mr. Trépanier
whereby he was receiving just a small percentage on his
commissions. That didn't apply to the others. There was
really a fixed amount for them.
Q. So, Mr. Trépanier didn't pay a monthly
royalty?
A. Yes, yes, the same thing.
Q. OK.
A. The same thing, but he had an additional five percent because
there was, in a way, more administrative work with him; it was no
more than that.
Q. But the five percent applied only to
Mr. Trépanier?
[8] At another point, he first said
that he had been misinformed by the Department's
representatives concerning the status of the agents versus the
obligation to add GST to the user fees paid by the agents:
[TRANSLATION]
That was more or less the predicament, if you will, that we
were trying to resolve with the government when I called. And I
didn't know. Had I known that I ought to have charged
seven percent on the name, I would certainly have done so. I
don't see why I wouldn't have. But it happened in
1991 and until mid-1992, if you will, and at the time the
government was telling us:
Do as you think, and we'll see whether we'll allow it.
We're in the early stages. There won't be any problem.
Things will sort themselves out; no problem.
But today there are problems.
Q. Exactly whom did you approach to verify things?
(Emphasis added)
[9] After claiming that ignorance and
the inaccurate information he was given were the reasons why the
GST had not been collected on the user fees, Mr. Thiffault
later said that the agents simply did not want to assume the
obligation:
[TRANSLATION]
A. Well, at first it was because we were very confused, at first.
Later on, when you're talking about some time afterwards,
they didn't want to pay it any more then. They never
paid the seven percent. My dispute with the agents was
based on the fact that they administered their GST and QST. They
had their commissions. I put them at 100 percent of their
commissions. They had their GST. They had their QST. Based on
that, they administered everything, according to them. And in my
opinion, I didn't have . . . I couldn't
charge them, they didn't want to pay. And also, even if
they . . . There was nothing specifying that it
was my duty to charge it. And I was also dealing with cells.
There was one cell in one place and one cell in another. If I had
at least been able to collect in one place, but the situation was
the same for everyone.
(Emphasis added)
[10] Every person responsible for collecting
the GST must have clear, precise accounting in which a quick and
efficient verification can be made as to whether the duty has
been discharged. In case of doubt, when it comes to proving that
the tax has been collected, I think that every wise, sensible and
prudent person should have such a record to ensure that the
amounts making up the tax base can be verified.
[11] Although it was claimed that all the
agents had the same contract, the reality was actually very
different. The following passage from the testimony is quite
revealing about the extent to which things were muddled and about
the lack of documentary references:
[TRANSLATION]
Q. OK. So, Mr. Thiffault, you were talking about the fact
that the Department's basis for calculation was $3,000 a
year.
A. Yes.
Q. And what were the actual amounts of the user fees?
A. Well, it's like I said earlier, they were $200 for the
most part. It also depends on the period. In the end, I know the
fee in one case was $300, as I recall, but in most cases it was
$200. Many of the fees stayed at $200 for a very long time. I
never increased them.
Q. And in Mr. Lévesque's case?
A. Mr. Lévesque didn't have to pay anything at
all because he was the manager and he had more work to do for me
than the others, so it was free for him.
Q. Now I would like you to explain whether, for Club Immobilier
International . . .
HIS HONOUR: Listen here. I'm going to say something that
applies entirely to the rest of the case. You say:
The GST was assessed on an annual contribution of about
$3,000.
Your client answers, saying:
No, it wasn't $3,000, it was $2,000, and in some
circumstances, nothing was paid at all.
Is it-and this scenario could well recur often-is it your
intention to prove that each agent actually paid a certain
amount, etc., etc., or will I have to assess this based on a
comment like:
No, it wasn't $3,000, it was $2,000, and in some cases it
was nothing at all.
NORMAND BÉRUBÉ: I have the company's accountant
here, who will . . . who was responsible for
preparing the returns, who will give a precise explanation of the
calculations, the basis for the calculations and the difference
between the Department's figure of $18,000 and the actual
figure according to my client.
[12] On this fundamental issue,
André Paquette, the accountant responsible for the
file, stated the following:
[TRANSLATION]
Q. So, Mr. Paquette, first of all, did you have to do the
accounting for Club Immobilier International?
A. Yes, I did.
Q. For the period at issue here, from '91 to
ninety . . . to August '94?
A. Yes, that's right.
Q. You were the one who prepared the returns?
A. Yes.
Q. OK. Now, when you prepared . . . you prepared
the tax returns, they were quarterly returns at that time?
A. They were . . yes, quarterly returns
when no periods were skipped. In general, they were
quarterly. (Emphasis added)
Q. And what documents did you have at your disposal to prepare
the tax returns in question for the company?
A. The returns were based on . . . the deposits,
the deposit slips. That was also how the income was accounted
for. We also used the cash disbursements or the McBee book of
account submitted this morning. It was in fact in the cash
disbursements that all the cheques were recorded. That was
more or less what we used in order to prepare the tax
returns. (Emphasis added)
. . .
NORMAND BÉRUBÉ:
Q. To your knowledge, were there missing documents in the
company's accounting or inadequate books?
A. Well, inadequate books. Let's say that, in that type of
business, what is most often relevant are books: the cash
receipts and disbursements are prepared using the cheques and
deposits.Now, the documents are not actually always
compared with the invoices, since, when there's a cheque,
it's assumed that the cheque paid an invoice. And
when there's a deposit that's been
cashed . . . it's also often done by
discussing things with the manager of the business to ensure that
all of the deposits indicated in fact cover all of the income
received for the year . . . for the period.
(Emphasis added)
. . .
Q. For the ITC claims, did you have in your possession the
invoices establishing . . . corresponding to each
of the credits claimed?
A. No, not always. Occasionally, there were invoices, but
quite often the ITC was identified using the cheque. Because, as
I said before, it was assumed that the cheque paid an eligible
invoice in most cases. And the cheque stub was recorded
in . . . with . . . in the
accounting. Usually, the applicable GST amount was also entered
on the cheque stub, or in this case, McBee, it wasn't a stub,
it was indicated in the books. If it wasn't, we calculated it
ourselves. (Emphasis added)
. . .
Q. Mr. Paquette, you explained that you did the accounting
primarily on the basis of the bank documents: deposit slips and
cheques for the withdrawals?
A. That's right.
Q. And that you didn't have . . . or you
rarely had in your possession the corresponding documents, that
is, the sales and purchase invoices. So what happens when income
is earned but not deposited in the bank account?
A. There can be a problem. But, as I said earlier, we
often . . . in the report we prepare, we often
state that we have asked the manager questions, we have made
comparisons and analyses. If, unfortunately or by coincidence,
some income is missing, then I hope the manager will tell me so
when asked those questions. So, it's . . . But
as a general rule, in a business, it can be assumed that
all income is deposited. That, to begin with, is a rule
that is . . . (Emphasis added)
[13] With regard to the assessments, the
case related mainly to two agents,
Théo Trépanier and a Ms. Belleau. It was
therefore essential that those two individuals come and testify
to support the appellant's arguments at least in part.
[14] In fact,
Théo Trépanier did testify: I will deal with
the quality of that testimony later. Ms. Belleau did not
testify, and the justification for her absence is not very
serious. This is shown by the transcript of certain passages that
clearly show that the appellant did not make much of an effort to
adduce the best evidence in support of its arguments, no doubt
forgetting that the burden of proof is on the person challenging
the validity of an assessment.
[TRANSLATION]
NORMAND BÉRUBÉ: Yes, I think that my client will
establish the circumstances. And he has tried unsuccessfully to
find Ms. Belleau. I think that it must
be . . . it should be admitted as secondary
evidence.
HIS HONOUR: Do you have a certificate of service indicating that
the bailiff tried to contact her?
NORMAND BÉRUBÉ: Well, I
don't . . .
HIS HONOUR: To serve her . . .
NORMAND BÉRUBÉ: I didn't have an address for
service. I think that my client can explain the situation. We
couldn't subpoena her because we had no address. And we tried
to locate her but were unable to.
MARYSE LORD: That strikes me as too easy. They
had . . . you at least had Ms. Belleau's
last known address, since she worked for
Mr. Thiffault . . .
A. In the . . .
MARYSE LORD: . . . Club Immobilier International.
HIS HONOUR: Just a second, sir.
MARYSE LORD: Yes, they at least had the last known address. I
think it's too easy for them to say they couldn't find
the witness in order that they may produce a letter.
HIS HONOUR: Listen, I'm going to file the letter if I have
evidence of some weight concerning the serious steps taken and
the fact that it turned out to be impossible to contact, to serve
Ms. Belleau with a subpoena for her to come. This seems to
me to be a basic rule. I mean, I'm being told about the
content of a letter written by a woman, but the best witness is
the woman who wrote it . . . who wrote the letter.
I mean, the content of a letter is going to be dealt with and, if
cross-examination is desired, then what?
NORMAND BÉRUBÉ: I understand that. But I think my
client is entitled to explain the steps, the fact that he tried
to contact the woman, and I think he's entitled to explain
the steps that he took . . . that he was able to
take to contact her so that she would be in court the day of the
hearing. That's what I want . . . that's
what I want to show. The Court will decide. But as far as I'm
concerned . . .
HIS HONOUR: Yes, but you'll agree with me and admit that the
way to contact someone isn't to look in the phone book to see
whether the person's name is there and then check whether the
address is there and, I mean, or to try to reach the person at a
telephone number that one hasn't . . .
NORMAND BÉRUBÉ: Those steps were taken, were
attempted. That is the point on which I want Mr. Thiffault
to testify.
HIS HONOUR: What did you do to contact Ms. Belleau,
Mr. Thiffault?
A. We began by drawing up once again the invoices we wanted her
to sign for us. We sent them by bailiff. She
never . . . she never considered that, except that
at one point, I received a letter in which she told me:
If the Department of Revenue has to deal with me, I have my
GST numbers, I have my QST numbers . . .
. . .
Q. OK. First of all, Mr. Thiffault, I understand that
it's . . . there are two agents for Club
Immobilier International who are at issue today as regards the
GST collected on commission income. They are
Mr. Trépanier and Ms. Belleau?
A. I believe so.
. . .
[15] Moreover, the testimony given by
Roger T. Trépanier is hardly more convincing and
shows that the appellant was very negligent by taking for granted
facts that, on their face, were doubtful and very ambiguous:
[TRANSLATION]
NORMAND BÉRUBÉ:
Q. And I'm just going to have you clarify the number shown
here on the invoices, the tax number at the bottom, GST. I
understand from your testimony that it corresponds
to . . .
A. Yes.
Q. It corresponds to the entity's name?
A. Yes. Because, with the steps that were taken, I was asked to
sign some invoices, and the invoices were issued in my name.
After that I was told that that number was registered in the name
of the Centre de plein air Louis-Riel, so the invoices were
redone in that company's name; and I signed again because
that number belongs to it.
Q. And you never told Mr. Thiffault . . .
A. No, in 1991 . . .
Q. . . . the tax number?
A. In 1991 . . .
Q. That corresponded?
A. . . . initially, he had asked me to give him a number, and
that was the number I had.
Q. I have no further questions for this witness.
HIS HONOUR: Tell me, Mr. Trépanier, is the Centre de
plein air Louis-Riel a company that has issued shares?
A. Yes, there were shares.
Q. You were the only shareholder?
A. Periodically. I operated for 21 years; I was the sole owner.
After that, we took on shareholders. After that, some
shareholders left. There was . . .
Q. What line of business was the company in?
A. It's an outdoor centre.
Q. A licence . . . what's done, let's say,
the rules and regulations on real estate brokerage, but the
licence that enabled you to sell real
estate . . .
A. Yes.
Q. . . . was in your own name?
A. Yes, sir.
Q. Your personal name?
A. Yes.
Q. The Centre de plein air Louis-Riel had nothing to
do with your real estate activities?
A. Nothing at all. (Emphasis added)
. . .
Q. Fine. If I look at the second invoice dated May 14, 1991,
the commission is $4,672.90 for an immovable property on
Rue Jean-Baptiste. What were the proceeds of sale for
that transaction, for example?
A. Jean-Baptiste?
Q. Uh-huh.
A. Well, for Jean-Baptiste, I can't say from
memory.
Q. You don't remember?
A.No. Jean-Baptiste . . .
Q. So you don't know whether the amounts indicated
there are accurate?
A. But Ms. Lord, it was in 1991.
Q. But you signed it in 1996?
A. Yes. I was asked to sign, and I
signed.(Emphasis added)
. . .
Q. Do you remember receiving $464.93 . . .
A. Yes.
Q. . . . on August 20, 1993?
A. Yes, I do.
Q. You do?
A. Yes, Ms. Lord.
Q. Now, the amount from December 12, 1992?
A. That!
Q. A commission, I believe, of $1,500?
A. Yes, $1,500.
Q. What is that?
A. I have no idea, Ms. Lord. It's vague on the
commission. (Emphasis added)
Q. You don't know?
A.No, I don't have the reference. I don't have
any . . . (Emphasis added)
Q. But you signed the invoices anyway?
A. Yes. For the Grondin estate, I can give you details.
. . .
Q. Mr. Trépanier, who prepares the transaction
sheet?
A. I do.
Q. You were the one who prepared this?
A. Yes.
Q. In the document I showed you earlier, which I have just given
His Honour, concerning the sale of
855 des Récollets, I think, on which it was
written by hand GST . . .
A. Yes.
Q. . . . $675.
A. Yes, yes.
A. Was it your . . .
A. No.
Q. . . . handwriting?
A. No, not at all.
Q. Do you know who wrote it?
A. It wasn't me. (Emphasis added)
[16] This case was the first one to be heard
by the Court and the only one in which testimony was given by the
person responsible for the accounting,
André Paquette; that testimony is key in assessing
the mediocrity of the accounting system and also the poor quality
and total lack of transparency of the data and information
available during the audit that led to the four appeals. What is
more, it confirms that the accounting was totally deficient and
incomplete.
[17] The evidence showed that
Marcel Thiffault, the directing mind of all the businesses,
was the only person who had information that, more often than
not, was not compiled in writing; a number of agreements were not
put into writing even though they had significant consequences. I
am referring, inter alia, to the contracts between the
company and each of the real estate agents and to the lack of
records in each agent's name, records in which their status
could have been quickly and efficiently determined.
[18] Moreover, the evidence clearly showed
that a number of invoices had been prepared in connection with
the respondent's audit, that is, much later than the services
were rendered. One of the signatories, Mr. Trépanier,
admitted that he had signed and/or prepared such invoices
according to Mr. Thiffault's instructions and had
assumed that the amounts shown were accurate. I think that the
invoices were documents of convenience that were prepared
basically to counter the proposed assessment.
[19] It is my view that the accounting
system established by Marcel Thiffault was totally
inadequate, incomplete and deficient. The Act does not
require an accounting system that is highly sophisticated or that
meets the highest standard of good practice. However, it does
require a system that can explain and prove that the obligations
laid down by the Act have been met. The appellant was an
agent; as such, it had strict, definite obligations. These are
elements provided for in sections 221, 222, 228 and 238 of
the Act, which read as follows:
221(1) Collection of tax - Every person who
makes a taxable supply shall, as agent of Her Majesty in right of
Canada, collect the tax under Division II payable by the
recipient in respect of the supply.
(2)
Exception - A supplier (other than a prescribed supplier)
who makes a taxable supply of real property by way of sale is not
required to collect tax under Division II payable by the
recipient in respect of the supply where
(a) the
supplier is a non-resident person or is resident in Canada by
reason only of subsection 132(2);
(b) the recipient is registered
under Subdivision d and the supply is not a supply of a
residential complex made to an individual; or
(c) the recipient is a
prescribed recipient.
(3) Idem - Where a carrier who makes a particular
taxable supply of a service of transporting tangible personal
property
(a) is provided with a declaration referred to in
section 7 of Part VII of Schedule VI by the shipper, and
(b) at or before the time the tax in respect of the
particular supply becomes payable the carrier did not know and
could not reasonably be expected to know that
(i) the property was not being shipped for export,
(ii) the transportation by the carrier was not part of a
continuous outbound freight movement in respect of the property,
and
(iii) there was or was to be any diversion of the property to
a final destination in Canada,
the carrier is not required to collect tax in respect of the
particular supply or any supply that is incidental to the
particular supply.
(3.1) Export certificate Where a registrant
who makes a taxable supply of tangible personal property is
provided with a certificate referred to in section 1 of Part V of
Schedule VI by the recipient of the supply and, at or before the
time that tax in respect of the supply becomes payable, the
registrant did not know and could not reasonably be expected to
have known that the property would not be exported by the
recipient in the circumstances described in that section, the
registrant is not required to collect tax in respect of the
supply.
(4) Definitions In subsection (3),
"carrier", "continuous outbound freight
movement" and "shipper" have the same meanings as
in Part VII of Schedule VI.
...
222 (1) Amounts collected held in trust - Subject to
subsection (1.1), where a person collects an amount as or on
account of tax under Division II, the person shall, for all
purposes, be deemed to hold the amount in trust for Her Majesty
until it is remitted to the Receiver General or withdrawn under
subsection (2).
(1.1) Amounts collected before bankruptcy Subsection
(1) does not apply, at or after the time a person becomes a
bankrupt (within the meaning of the Bankruptcy and Insolvency
Act), to any amounts that, before that time, were collected
or became collectible by the person as or on account of tax under
Division II.
(2) Withdrawal from trust A person who holds tax or
amounts in trust by reason of subsection (1) may withdraw from
the aggregate of the moneys so held in trust
(a) the amount of any input tax credit claimed by the
person in a return under this Division filed by the person in
respect of a reporting period of the person, and
(b) any amount that may be deducted by the person in
determining the net tax of the person for a reporting period of
the person,
as and when the return under this Division for the reporting
period in which the input tax credit is claimed or the deduction
is made is filed with the Minister.
(3) Amounts in trust not part of estate In the event
of any liquidation, assignment, receivership or bankruptcy of or
by a person, an amount equal to the amount deemed under
subsection (1) to be held in trust for Her Majesty shall, for all
purposes, be deemed to be separate from and to form no part of
the estate in liquidation, assignment, receivership or
bankruptcy, whether or not that amount has in fact been kept
separate and apart from the person's own moneys or from the
assets of the estate.
...
228 (1) Calculation of net tax Every registrant who
is required to file a return under this Division shall in the
return calculate the net tax of the registrant for the reporting
period for which the return is required to be filed.
(2)
Remittance Where the next tax for a reporting period of
a registrant is a positive amount, the registrant 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.
(3) Net tax
refund Where the net tax for a reporting period of a
registrant is a negative amount, the registrant may claim in the
return for that reporting period that amount as a net tax refund
for the period, payable to the registrant by the Minister.
(4) Real property supplied by person not required to collect
tax Where tax under Division II is payable by a person
in respect of a supply of real property (other than a supply
deemed to have been made) that is made to the person in
circumstances in which subsection 221(2) applies, the person
shall pay the tax to the Receiver General and file with the
Minister in prescribed manner a return in respect of the tax in
prescribed form containing prescribed information,
(a) where the person is a registrant and acquired the
property for use or supply primarily in the course of commercial
activities of the person, on or before the day on or before which
the person's return for the reporting period in which the tax
became payable is required to be filed; and
(b) in any other case, on or before the last day of the
month following the month in which the tax became payable.
...
(6) Set-off of refunds or rebates Where at any time
a person files a particular return as required under this Part
for a reporting period in which it is determined that an amount
of tax (in this subsection referred to as the "remittance
amount") is required under subsection (2) or (4) to be
remitted by the person and files with that return another return
as required under this Part in which the person claims
(a) a refund to the payment of which the person is
entitled at that time under this Part, or
(b) a rebate to the payment of which the person is
entitled at that time under Division VI,
the following rules apply:
(c) for the purposes of subsections (2) and (4), the
person shall be deemed to have remitted at that time on account
of the person's remittance amount the lesser of
(i) the
remittance amount, and
(ii) the amount of
the refund or rebate, as the case may be,
(d) where in the other return the person claims a
refund, the person shall, for the purpose of subsection 169(4),
be deemed to have filed the particular return before filing the
return in which the refund was claimed and, for the purpose of
this Part, the Minister shall be deemed to have paid to the
person at that time an amount as a refund equal to the lesser
of
(i) the remittance amount, and
(ii) the refund referred to in paragraph (a), and
(e) where in the other return the person claims a
rebate, the Minister shall, for the purpose of Division VI, be
deemed to have paid to the person at that time an amount as a
rebate equal to the lesser of
(i) the rebate referred to in paragraph (b), and
(ii) the amount, if any, by which that rebate exceeds the
excess of the remittance amount over any refund referred to in
paragraph (a).
(7) Refunds and rebates of another person A person
may, in prescribed circumstances and subject to prescribed
conditions and rules, reduce or offset the tax required under
subsections (2) and (4) to be remitted by that person at any time
by the amount of any refund or rebate to which another person may
at that time be entitled under this Act.
...
238(1) Filing required Every registrant shall file a
return with the Minister for each reporting period of the
registrant
(a) where the registrant's reporting period is the
fiscal year, within three months after the end of the year;
and
(b) in every other case, within one month after the end
of the reporting period of the registrant.
(2) Idem Every person who is not a registrant shall
file a return with the Minister for each reporting period of the
person for which net tax is remittable by the person within one
month after the end of the reporting period.
(3) Non-resident performers, etc. Notwithstanding
subsection (2), where, in a reporting period of a non-resident
person, the person makes a taxable supply in Canada of an
admission in respect of a place of amusement, a seminar, an
activity or an event, the person shall
(a) file with the Minister a return for that period on
or before the earlier of
(i) the day on or before which a return for that period
is required to be filed under subsection (1), and
(ii) the day the person, or one or more employees of the
person who are involved in the commercial activity in which the
supply was made, leaves Canada; and
(b) on or before that earlier day, remit all amounts
that became collectible, and all other amounts collected by the
person, in the period as or on an account of tax under Division
II.
(4) Form and content Every return under this
Subdivision shall be made in prescribed form containing
prescribed information and shall be filed in prescribed
manner.
[20] To account for its proper management, a
registrant must absolutely have in its possession, at all times,
the information and documents that are relevant to showing that
its administration is sound and in keeping with requirements but
also that it has fulfilled its responsibility.
[21] The evidence showed no such thing but
rather established that ambiguity was so pervasive that it was no
doubt deliberate or even encouraged.
[22] According to Mr. Thiffault, his
accounting was acceptable; he always fulfilled his obligations
and, if there were any errors, they were trivial and
insignificant. If the errors were substantial and significant,
the persons responsible are the government officials who did not
give him the correct information or the professionals to whom he
had entrusted the task of looking after the affairs he managed,
but the said errors are in no way attributable to him.
[23] I regret to say that this is not at all
what emerges from the testimonial and documentary evidence
adduced; quite the reverse-the weight of the evidence indicates
that Marcel Thiffault managed the affairs for which he was
responsible by himself and in a totally offhand manner. In many
respects, he was the only person who understood his accounting.
The lack of records or their deficiency made it impossible to
clarify anything.
[24] I attach no value to the testimony of
Mr. Thiffault, who was the directing mind of the appellant
business and the other three appellants.
[25] The weight of the evidence has
satisfied me that Mr. Thiffault intentionally preferred
confusion and ambiguity to clarity and order, muddles to method,
and ambiguity to precision. He may have known what his
rudimentary accounting meant, but that same very perfunctory
accounting did not enable him to demonstrate clearly that he had
fully assumed the obligations laid down by the Act.
[26] Section 286 of the Act is,
however, very clear and not at all confusing concerning the
responsibilities of those subject to that section. It reads as
follows:
286(1) Keeping books and 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.
(2) Inadequate
records Where a person fails to keep adequate
records for the purposes of this Part, the Minister may require
the person to keep such records as the Minister may specify and
the person shall thereafter keep the records so specified.
(3) Period for
retention Every person required under this section to
keep records shall retain them until the expiration of six years
after the end of the year to which they relate or for such other
period as may be prescribed.
(4) Objection or
appeal Where a person who is required under this
section to keep records serves a notice of objection or is a
party to an appeal or reference under this Part, the person shall
retain, until the objection, appeal or reference and any appeal
therefrom is finally disposed of, every record that pertains to
the subject-matter of the objection, appeal or reference.
(5) Demand by
Minister Where the Minister is of the opinion that it
is necessary for the administration of this part, the minister
may, by a demand served personally or by registered or certified
mail, require any person required under this section to keep
records to retain those records for such period as is specified
in the demand.
(6) Permission for
earlier disposal A person who is required under
this section to keep records may dispose of the records before
the expiration of the period in respect of which the records are
required to be kept if written permission for their disposal is
given by the Minister.
[27] An intelligent businessman,
Marcel Thiffault had organized all of his economic
activities for the obvious purpose of reducing his obligations to
the government as much as possible.
[28] There is nothing wrong with this
per se, provided that everything is legitimate and in
order and that the Act has been fully complied with. The
actual situation was very different.
[29] Everything was indescribably muddled,
and a number of supporting documents were missing; others were
incomplete or non-existent; a number of invoices had been
photocopied, thereby creating a presumption that they had been
used by more than one entity.
[30] To add to the ambiguity, all of the
available supporting documents were jumbled up and stored
together, making any attempt at clarification extremely
difficult.
[31] The burden of proof was on the
appellant; that responsibility means that it had not only to show
on a balance of evidence that the assessment was in no way
justified but also, and above all, to prove what the assessment
ought to have been.
[32] In fact, if the appellant had shown
what the real assessment should have been, this would have meant
that the Department had erred during the audit and had therefore
made an unjustifiable and groundless assessment.
[33] To discharge that burden and satisfy
the Court, the appellant would have had to call witnesses who
could explain specifically what the situation regarding the
various agreements was in the absence of documents or written
contracts; the appellant would also have had to make an effort to
prepare its case so as to facilitate a thorough, coherent and
clear presentation supported by all the appropriate and relevant
documentary evidence rather than constantly blaming the persons
responsible for the audit, whom it accused of arrogance and
vindictiveness.
[34] Since documentary evidence was not
available and the individuals who could have provided important
information were not called to testify, the appellant adduced
evidence that was totally deficient.
[35] It chose instead to aggressively attack
those in charge of its file, to criticize the methods used, to
discredit the work done and to question the auditors' honesty
and good faith. Charles Thiffault never understood that the
burden of proof was on the appellants; during his testimony, he
systematically attacked and disparaged the audit work, perhaps
thinking that this approach would undermine the validity of the
assessments.
[36] In some respects,
Charles Thiffault used the hearing to express his resentment
toward the respondent's auditors, thus totally deviating from
the primary objective of the appeal: proving on a balance of
evidence that the assessment in dispute was unfounded in fact and
in law.
[37] Proving this required that he present
and file all the original supporting documents, above all, as
they were actually issued, and not a semblance of evidence
that was reconstructed on the basis of the proposed assessment
and that referred to uncertain or even fictitious data that were
also partial and incomplete.
[38] Admittedly, it was not easy, and it may
even have been impossible to adduce such evidence given the
almost complete absence of an appropriate accounting system. That
deficiency was intended, maintained and sustained by
Mr. Thiffault, the only person in charge of managing the
corporation.
[39] In such circumstances,
Mr. Thiffault has only himself to blame and must therefore
accept complete responsibility, because of his indifference and
negligence, for not providing the businesses for which he was
responsible with adequate accounting systems that met the
Act's requirements.
[40] Although the evidence to show the
soundness of his arguments was totally deficient or even
non-existent, Marcel Thiffault never stopped
maintaining that the respondent was in error and that his affairs
were correctly and appropriately managed. He even gave himself
credit for having an exemplary case. He continually repeated that
he had been harassed and been the victim of arrogant, cavalier,
insolent and insulting behaviour.
[41] During the hearings, which were spread
out over a few days, the Court did not notice anything that could
support such accusations; on several occasions, it was put in
evidence that, when the documents and facts gave rise to doubt,
the assumption that favoured the appellant was adopted refuting,
at least in part, Mr. Thiffault's accusations of
vendettas or retaliation. Marcel Thiffault was aggressive
toward the Department's representatives several times and
thus certainly contributed to the deteriorating atmosphere during
the discussions about the files.
[42] The respondent's evidence was made
up of the testimony of Michel Chicoine, Jean Maltais
and Solange Poirier-Houle. A number of documents, most
of which were working documents and various compilations and
tables drawn up on the basis of their findings, reviews and
analyses, supplemented the testimony of the people responsible
for the audit.
[43] I could tell that the audit work was a
huge undertaking. Since the auditors had very little information
and the information available was often incomplete or ambiguous,
they had to reconstruct the economic realities of the four
businesses using a cheque statement, deposit slips and copies of
banking transactions provided by a credit union. The relevant
invoices were stored together in a jumble.
[44] Although the appellant, through
Marcel Thiffault, argued that this accounting was
satisfactory, I believe, on the contrary, that it was totally
vague and inadequate; it absolutely did not allow an audit to be
carried out in any way.
[45] The methods used by the respondent
certainly did not have the scientific rigour one would wish for.
Could things have been done differently? Was there a more valid
or more appropriate method? I do not think so since the
documentation was non-existent, deficient or
incomplete.
[46] Rather than structuring and adducing
extensive evidence by the appropriate documentation and the
testimony of individuals directly involved in the disputed
transactions to show that its arguments were valid, the appellant
chose to hire an accountant, Mr. Arpin, who was given part
of the respondent's working documents in order that he could
discredit the results obtained.
[47] It would probably have been wiser and
less costly to use the talents of accountants at the appropriate
time to set up a coherent and transparent accounting system
backed by all the supporting documents.
[48] What is quite surprising, if not
peculiar, is that the accountant himself used that which he
criticized the respondent for using, namely, a method that was
just as arbitrary. His analysis and reproaches might have had
some merit if everything had been drawn up on the basis of real
data recorded at the time of the transactions.
[49] Like Mr. Thiffault, Mr. Arpin
did not seem to understand that the purpose of the appeals was
not to put the auditors on trial but solely to establish what the
assessments ought to have been by means of evidence consisting of
real accounting data that they alone could and should have had in
their possession.
[50] In such matters, the burden of proof is
on the person challenging the validity of the assessment that
results from an audit, generally followed by discussions and
negotiations.
[51] If an appellant does not show that the
assessment, which is presumed valid, is incorrect, the Court must
simply confirm it. The appellant must prove this on a balance of
evidence; proof beyond a reasonable doubt is therefore not
necessary. However, it is essential that the balance of
probabilities support the arguments underlying the appeal. I have
trouble understanding how the appellant could have hoped that the
Court would decide in its favour given the very poor quality of
its evidence.
[52] Although the Court intervened many
times, the appellant never changed its approach; all of its
energies and efforts were basically devoted to discrediting or
undermining the quality of the auditors' work. There may have
been some cause for complaint, since the auditors had to use
rather unorthodox procedures to determine certain data that were
essential in making the assessments. However, the weight of the
evidence showed that the process and methods used were serious
and reasonable and that the results were plausible and reliable.
Moreover, the appellant alone is responsible for its criticism
regarding the quality of the audit, since it did not assume the
responsibilities imposed on it by the Act as a GST
registrant.
[53] For these reasons, the appeal is
dismissed and the assessment is confirmed. I further order that
this judgment be appended to the following files:
Gestion 69692 Inc.
(97-141(GST)I)
Gestion 69691 Inc.
(97-146(GST)I)
Claudette Ruest
(97-147(GST)I)
Signed at Ottawa, Canada, this 11th day of September 1998.
J.T.C.C.
Translation certified true
on this 19th day of June 2003.
Sophie Debbané, Revisor
Email this Content