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Citation: 2009 TCC 161
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Date: 20090320
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Docket: 2008-920(GST)I
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BETWEEN:
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1418499 ONTARIO LTD.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
REASONS FOR JUDGMENT
Woods J.
[1] 1418499
Ontario Ltd. appeals an assessment under the Excise Tax Act for the
period from January 1, 2003 to December 31, 2004.
[2] In its
GST returns for the period, the appellant reported an aggregate net tax of
negative $5,341.25. This was comprised of GST collectible of nil and input tax
credits (ITCs) of $5,341.25.
[3] In
the assessment that is under appeal, the Minister disallowed the ITCs on the
basis that the appellant failed to provide documentation as requested by the
Minister to substantiate the amounts claimed.
[4] The
issues are whether the ITCs should be disallowed and whether a penalty and
interest were properly imposed.
[5] The
evidence reveals that the appellant did not provide any documentation to the
Canada Revenue Agency to support the ITCs claimed, notwithstanding that several
requests were made.
[6] At
the hearing of the appeal, the only documentation that was presented consisted
of handwritten income statements for the two years involved.
[7] The
appellant submits that these statements relate to a small courier business that
was operated on behalf of the appellant by Kwabena Asubonteng. He is the
husband of Lydia Kontor, who was the President and sole shareholder of the
appellant. According to their testimony, this business was operated from 2000
to 2005 and is now discontinued.
[8] According
to the income statements, the business had revenues of just over $30,000 and
expenses slightly higher than that for each of the years at issue. Many of
these purported expenses are the subject of the ITC claims.
[9] The
Minister acknowledges that no GST was required to be collected on fees
generated by the appellant, on the basis that the courier service was
zero-rated as a freight transportation service.
Analysis
[10] The
appellant has the burden to establish that it is entitled to the ITCs. For this
purpose, the appellant must establish that it incurred GST in relation to
expenses of a business, and that it had obtained certain supporting documentation
before filing the GST returns, as required by s. 169(4) of the Act.
[11] The
evidence presented is entirely unsatisfactory to meet this burden in both
respects.
[12] The only
supporting documentation that the appellant had at the hearing was the handwritten
income statements. These could easily have been fabricated and I have given
them very little weight. I would also note that some of the expenses listed on
the statements (fuel and meals) were estimates consisting of a daily rate. This
suggests a lack of proper record keeping.
[13] Also,
there were no independent witnesses to substantiate the appellant’s story. The
appellant submits that its accountant prepared the income statements based on
supporting documentation that it had. It suggests that the documentation was
subsequently lost during a move that took place in April, 2006. At the very
least, the accountant who prepared the income statements should have testified
to support this story.
[14] Furthermore,
and most important, the testimony of Mr. Asubonteng and Mrs. Kontor was not
nearly detailed or cogent enough to satisfy the burden imposed. Mr. Asubonteng
testified on behalf of the appellant and Mrs. Kontor was called as a witness by
the Minister. In addition to their testimony being very brief, the evidence of
the two witnesses was inconsistent in places, as for example whether expenses
were paid by cheque or in cash and whether the supporting documentation was kept
in a box or a bag.
[15] I am
therefore not satisfied that the expenses claimed were incurred, or that the
appellant had obtained the prescribed documentation as required by s. 169(4).
[16] I turn
now to the question of penalty and interest. This was not something that was
specifically raised by the appellant but was addressed by counsel for the
Minister. The Minister included in the assessment a penalty and interest in the
amounts of $550.74 and $220.43, respectively. Both were imposed under section
280(1) of the Act.
[17] According
to paragraph 12 of the Minister’s reply, the penalty and interest were imposed
because the appellant failed to “report and remit or pay net tax as and when
required by the Act.”
[18] This is
not a proper basis to impose penalty or interest under section 280(1).
[19] First,
I note that s. 280(1) does not refer to a failure to report. It only refers to
a failure to remit or pay.
[20] Second,
on the facts as assumed by the Minister, the net tax is nil. There is no
failure to remit or pay net tax.
[21] After
I raised this issue at the opening of the hearing, counsel for the Minister
changed the basis for the imposition of the penalty and interest, and led
evidence in support.
[22] According
to the revised position, the failure was not in respect of net tax at all. It
was a failure to pay back the ITCs which previously had been refunded to the
appellant. The repayment is required by section 230.1 of the Act.
[23] The
evidence for the Minister on this issue included a computer-generated summary
of the appellant’s GST history. According to the summary, the appellant
received refund cheques for the ITCs claimed. The appellant does not deny that
these amounts were received.
[24] According
to the notice of assessment, this amount was included in the assessment as an
amount owing. This is specifically permitted by s. 296(1)(d) of the Act.
[25] Although
it is unfortunate that this issue was not properly dealt with in the reply, I
do not think that there was prejudice to the appellant in allowing the Minister
to prove it at the hearing.
[26] The appeal
will be dismissed.
Signed at Toronto,
Ontario this 20th day of March 2009.
Woods
J.
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