Citation: 2009TCC510
Date: 20091020
Docket: 2009-342(GST)I
BETWEEN:
G.E. HEALTHCARE BIO-SCIENCES INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Webb J.
[1] The Appellant was a specified person in respect
of the assessments made by the Canada Revenue Agency in 2006 and 2008, as
determined for the purposes of the Excise Tax Act (the “ETA”).
The Appellant was reassessed under the ETA for additional net tax for
the monthly reporting periods from October 1, 2000 to July 31, 2004 in the
amount of $1,186,342 by Notice of Assessment dated October 27, 2006, based only
on information that Revenu Québec had received from the Appellant with respect
to additional amounts of GST/HST that the Appellant had collected but not
remitted. This amount was subsequently reduced by $129,635 by a Notice of
Assessment dated October 2, 2008, which was issued following the filing of a
Notice of Objection by the Appellant.
[2] The period under appeal is from October 1,
2000 to January 31, 2001. The Appellant, by the Notice of Assessment dated
October 27, 2006, was assessed an increase in net tax for this period in the
amount of $126,109.04. The Notice of Assessment dated October 2, 2008 reduced
the net tax for this period by $6,118.24 (which all related to the month of
January 2001) and therefore the net tax assessed for the period under appeal is
$119,991. The only issue in this appeal is whether the reassessment of the
Appellant was properly made under subsection 298(4) of the ETA.
[3] Subsection 298(4) of the ETA
provides in part as follows:
(4) An assessment in respect of any matter may be made at any time
where the person to be assessed has, in respect of that matter,
(a) made a misrepresentation that is attributable to the person's
neglect, carelessness or wilful default;…
[4] The Respondent did not argue that there was
any misrepresentation that was attributable to wilful default and therefore the
question in this case is whether there was a misrepresentation that was attributable
to the Appellant’s neglect or carelessness.
[5] The Appellant filed GST/HST returns for
each month during the period under appeal in which the Appellant reported the
following:
|
Reporting
Period
|
Date on Return
|
Net Tax As Reported
|
|
October 2000
|
November 7, 2000
|
($9,391.86)
|
|
November 2000
|
December 7, 2000
|
$16,257.31
|
|
December 2000
|
January 10, 2001
|
$109,798.21
|
|
January 2001
|
February 14,
2001
|
$56,717.91
|
[6] In July 2004, an auditor for Revenu Québec
contacted the Appellant to commence an audit. The auditor had asked for
information for the reporting periods starting in January 2001. The auditor did
not receive any information until the spring of 2005. The information disclosed
by the Appellant in the spring of 2005 showed that the Appellant had collected
GST/HST in excess of the amount that it had used in determining its net tax for
the reporting periods from October 1, 2000 to July 31, 2004 and the Appellant
submitted a significant payment ($830,000) with the information. As noted, the
Appellant does not dispute that the amounts are correct, and therefore the
Appellant does not dispute that it had collected $119,991 more in GST/HST during
the period from October 1, 2000 to January 31, 2001 than it had reported as
collected (or collectible) for this period. The only issue raised by the
Appellant in this Appeal is whether the Respondent has failed to establish that
the Appellant made any misrepresentation that was attributable to the
Appellant’s neglect or carelessness.
[7] Each of the parties called one witness. The
Respondent called the auditor for Revenu Québec and the Appellant called a
consultant who was retained by the Appellant after the Appellant had been
reassessed. Unfortunately the testimony of a person who was only retained after
the Appellant had been reassessed is of no assistance in determining the
circumstances related to the failure to remit the GST/HST when it ought to have
been remitted or to explain why the Appellant underreported the amount of
GST/HST that it had collected.
[8] One of the documents that the auditor had
received from the Appellant was a schedule which listed the tax collected from
sales journal, the tax collected from account 2310,10, the total tax collected,
the tax remittance and the difference. The following table shows the amount of
GST/HST that was collected in excess of the amount reported as collected (or
collectible) and not remitted for the months under appeal as taken from this
schedule that was prepared by the Appellant (and hence acknowledged by the
Appellant as owing as additional net tax) and the amount of additional net tax
that was assessed by the Notice of Assessment dated October 27, 2006 for these
months:
|
Reporting
Period
|
Unremitted Tax from the Schedule
|
Additional Net Tax Assessed
|
|
October 2000
|
($1,246.04)
|
($1,246.04)
|
|
November 2000
|
$28,233.14
|
$28,233.14
|
|
December 2000
|
$54,143.57
|
$54,143.57
|
|
January 2001
|
$44,978.37
|
$44,978.37
|
|
Total:
|
$126,109.04
|
$126,109.04
|
[9] As noted above, the net tax for January 2001
was subsequently reduced by $6,118.24. It is obvious that the Appellant was
reassessed based on its own schedule showing the amount of net tax that had not
been remitted.
[10] The Appellant relied on the decision of
Justice Campbell in Bondfield Construction Company (1983) Limited v. The
Queen, 2005 TCC 78, 2005 G.T.C. 999-4, [2005] G.S.T.C. 110. In
paragraph 100 of this decision, Justice Campbell stated as follows:
100 So, in the final result, do I have any evidence before me
establishing that the Appellant made a misrepresentation to the Minister? There
was no such evidence provided to me. Although the Appellant's approach, I
believe, was incorrect, I do not believe it amounted to a misrepresentation to
the Minister. I appreciate that this Appellant has been put in a difficult
position, not only because of the passage of time, but also because the
principal players that have so affected this outcome have either been found
criminally liable for fraud and jailed (the Appellant's comptroller, Mr. Kar)
or are being sued by the Appellant (the external accountants, Martyn, Dooley
& Partners). The Respondent did not specifically refer to a single GST
return that contained a misrepresentation. When Ms. MacNeil was questioned
respecting her determination to assess beyond the statutory limitation period,
she stated that one of her reasons was “... because the amount was significant
for GST purposes ...” (Transcript page 658). Quantum is certainly not
sufficient for the Minister to find a misrepresentation; and even if by some
stretch I could find that it was, the amount was relatively miniscule when
viewed in the context of the overall business revenue of the Appellant, where
hundreds of millions of dollars in transactions took place over a five-year
period….
101 Now, with respect to the GST on PST adjustments, as they relate
to the statute barred issue, the Appellant utilized the 2.7407% formula to
calculate the GST on a reduced contract price, and as a result it
under-remitted GST. Since the introduction of GST, it has become a recognized
principle that general retail sales tax is to be excluded from GST
calculations. I do not believe it is such a giant leap to expect that the
Appellant would accept that it was reasonable to not charge GST on PST.
Devising a formula to accomplish this, however, does not amount to a
misrepresentation. Certainly the Appellant under remitted GST and should have
dealt with it differently. It was the responsibility of Martyn, Dooley to
detect this error and inform the Appellant. The Appellant did not take the
position that the correct procedures were instituted in respect to the GST on
PST issue but that the evidence does not support a conclusion that the
Appellant made a misrepresentation to the Minister. If the Appellant concluded
that it was correct to back out the GST on the PST, is it a misrepresentation
to the Minister to include it in income where the internal chartered accountant
devised the formula and the external accounting firm sanctioned it but never
advised the Appellant to change its procedures? In addition can there be a
misrepresentation when the records were open and obvious for anyone viewing
them, with the worksheets attached to the GST filings and returns? I do not
believe so, particularly when one looks at the period under appeal. It was
during the inception of the GST tax, when confusion existed respecting its
implementation. The Appellant made no attempt to conceal the GST it
under-remitted either in books, records or accounts. It was simply viewed as
not owing to the Minister and therefore it was included in income and taxes
paid on it. I do not believe this means the Appellant was negligent or careless
and certainly it is not evidence of wilful default….
[11] However, it seems to me that the Bondfield
Construction Company (1983) Limited case can be distinguished from the
present case. In Bondfield Construction Company (1983) Limited, the
additional assessment for GST appears to have arisen in relation to a GST on PST
issue and how the Appellant was treating the GST when both taxes were
applicable. In this case not only is the amount significant but the basis of
the discrepancy and the circumstances related to the discovery of the
unremitted amounts are important. The discrepancy was based on the difference
between amounts actually collected and the amounts reported as collected and
was disclosed by the Appellant when the first information was submitted to the
auditor following his request for information. It is obvious that the
additional net tax as assessed was determined from the schedule disclosed by
the Appellant.
[12] It seems clear to me that a
misrepresentation was made by the Appellant in filing its returns for November
2000, December 2000 and January 2001. The following table shows the net tax as
reported for each month, the additional net tax that was assessed for each
month and the percentage that the additional net tax is of the net tax as
reported:
|
Reporting
Period
|
Net Tax As Reported
|
Additional Net Tax
|
Percentage of Reported Amount
|
|
October 2000
|
($9,391.86)
|
($1,246.04)
|
n/a
|
|
November 2000
|
$16,257.31
|
$28,233.14
|
174%
|
|
December 2000
|
$109,798.21
|
$54,143.57
|
49%
|
|
January 2001
|
$56,717.91
|
$38,860.13
|
69%
|
[13] The amount shown on the returns for these
reporting periods (except for the return for October 2000) as the net tax amount
was significantly less than the actual net tax amount for these reporting
periods (except for the month of October 2000). To determine the actual net tax
amount for each month, the reported amount would be added to the additional net
tax assessed and the following table shows the total net tax amount for each
month and the net tax amount as reported as a percentage of the total net tax
for that month:
|
Reporting Period
|
Net Tax As Reported
|
Additional Net Tax
|
Total Net Tax
|
Reported Amount as %
of Total
|
|
October 2000
|
($9,391.86)
|
($1,246.04)
|
($10,637.90)
|
n/a
|
|
November 2000
|
$16,257.31
|
$28,233.14
|
$44,490.45
|
37%
|
|
December 2000
|
$109,798.21
|
$54,143.57
|
$163,941.78
|
67%
|
|
January 2001
|
$56,717.91
|
$38,860.13
|
$95,578.04
|
59%
|
[14] It seems clear that in reporting the net
tax amount for the months of November 2000, December 2000 and January 2001 that
the Appellant made a misrepresentation in each of these returns. The amount
reported as net tax for each of these months ranged from 37% to 67% of the
actual net tax for each of these months. Since the error made in the return for
October 2000 resulted in the Appellant receiving less of a refund for that
month than it was entitled to receive, I am assuming that the Appellant does
not object to the reassessment of the net tax for that month.
[15] The discrepancy between the GST/HST actually
collected and the amount that was reported as collected was disclosed by the
Appellant in the first response to an inquiry from the auditor for Revenu
Québec and therefore acknowledged by the Appellant in this document.
[16] Without hearing any evidence from the
Appellant to explain why the Appellant discovered this error following the
request for information but did not discover the error before the returns were filed,
it seems more likely than not that the Appellant was careless in preparing the
GST/HST returns for the months of November 2000, December 2000 and January 2001
and in making the representation that the amount of GST/HST that it had collected
for these months was less than the amount that it had actually collected. In
this case it seems that this is a logical inference to be drawn from the facts
as presented since the schedules prepared by the Appellant clearly show that
the Appellant had collected more GST/HST for the periods under appeal (except
the month of October) than it had disclosed in its GST/HST returns filed for
these months.
[17] As a result, the appeal is dismissed,
without costs.
Signed at
Ottawa, Canada, this 20th day of October, 2009.
“Wyman W. Webb”
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