Citation: 2009TCC68
Date: 20090130
Docket: 2007-4911(GST)I
BETWEEN:
SAGE INTERIORS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Delivered orally from the Bench on January 29, 2009.)
Woods J.
[1] These are
reasons delivered orally in the matter of Sage Interiors Inc. and Her Majesty
the Queen. The appeal was scheduled on a peremptory basis and was heard under
the Court’s informal procedure.
[2] Sage Interiors carried on a business of providing
interior construction services such as drywalling. It appeals a GST assessment
made for the period from November 1, 2002 to October 31, 2003.
[3] The appellant was represented at the hearing by
Jeffrey Sieben, who worked with his father, Derald Sieben, in the business.
They, along with Derald Sieben’s spouse, were the shareholders of the
corporation.
[4] Jeffrey Sieben was the only witness for the appellant
at the hearing. The father did not testify but counsel for the respondent
informed me that she had been told that the father had health problems. The
appeals officer provided testimony for the Minister.
[5] I turn now to the details of the assessment. The
Minister made a number of adjustments to the tax payable. In the appellant’s
return filed for the period, the appellant claimed a refund in respect of net
tax in the amount of $53,900. In the assessment, the Minister made adjustments
in respect of several items and the computations are complex. They are
summarized in paragraph 18 of the Minister’s reply and I will not repeat them
here.
[6] The items that were in dispute at the hearing were
agreed by the parties during opening statements.
[7] Counsel for the Minister, Ms. Burns, conceded during
the opening that the assessment was excessive by the amount of $15,077.29. She
then outlined what she thought the outstanding issues between the parties were.
[8] Mr. Sieben agreed with this description and indicated
that the appellant would not be pursuing its additional claim for a new housing
rebate.
[9] Based on the opening statements, I prepared a written
summary of the issues in dispute as an aide to the parties before evidence was
led.
[10] The items in dispute may be categorized into two
types.
[11] The first relates to a number of condos located in a
building called the Liberty building. The appellant had contracted to provide
finishing services on this building for a corporation called Pinehurst
Developments Inc. The appellant also purchased some condos in the building for
itself from Pinehurst.
[12] The Minister submits that the appellant did not
properly account for GST on condos that it purchased and then sold. According
to the Minister, the appellant should have collected and remitted GST on the
sales in the following amounts: $20,214.95 in respect of Unit 20, $20,934.58 in
respect of Unit 29 and $13,738.31 in respect of Unit 27.
[13] The second category of items in dispute relates to GST
on construction services for Pinehurst at the Liberty building. The Minister
submits that the appellant failed to remit a proper amount of GST on these services.
[14] There are several items in dispute in relation to the
services.
[15] First, the Minister submits that the appellant did not
properly account for work done in invoices identified through invoice numbers
311 to 315. The Minister submits that GST in the amount of $14,521.03 should
have been remitted.
[16] The second item is GST of $425 in respect of invoice
number 316.
[17] The third item is $2,388.61 which is alleged to be an
under-reporting of GST in respect of other services performed. It appears that
this amount was a rough estimate by the Minister because there were no proper
books and records on which a proper calculation could be made.
[18] The fourth item is an amount of $22,638.70 which is
alleged to be an under‑reporting of services in respect of Units 26 and
28. Again this appears to be a rough estimate that the Minister had to make
because of lack of records.
[19] In total, the amount of GST at issue is over $80,000.
Penalties have also been imposed.
[20] The adjustments that the Minister made for these items
were complex because the Minister had to give credit for what was already
reported by the appellant. I find no fault with what the Minister did in the
assessment. If there were errors in the calculations, the appellant should have
been able to establish this through its books and records.
[21] Before discussing the merits of the appeal, I should
briefly mention that the amounts that I have described as amounts at issue
exclude the amount conceded by the Minister.
[22] I turn now to the substantive issues. The appellant
has the burden in this case to present some reliable evidence to support that
the disputed amounts are incorrect. My conclusion is that this burden has not
been satisfied.
[23] For many of the items in dispute, it was not possible
for me to ascertain any argument being made by the appellant.
[24] I wish to comment about two of the arguments that were
made.
[25] The first concerns GST on invoices numbers 311 to 315.
The Minister assumed that these invoices were issued to Pinehurst and that they
represented work done for Pinehurst.
[26] Mr. Sieben testified that this work was done on condos
that were owned by the appellant itself.
[27] If the appellant is correct that the work was done on
condos that it owned, then I do not see how it assists the appellant. If
Pinehurst was charged for work, I was not provided with a reason why GST should
not have been remitted on these charges.
[28] Although that is sufficient to dispose of the
appellant’s argument, I would also note that the Minister introduced into
evidence copies of invoices numbers 311 to 315. The invoices show that
virtually all of the work was done in parts of building that the appellant did
not own.
[29] In cross-examination, Mr. Sieben did not acknowledge
the authenticity of these invoices. However, there is no reason to doubt their
authenticity. The invoices have Derald Sieben’s signature at the bottom and
according to the testimony Derald Sieben’s fax number is at the top. According
to the appeals officer, the invoices were provided to the auditor by Derald
Sieben.
[30] In the context of this appeal under the informal
procedure I accept the invoices’ authenticity.
[31] Before leaving the issue concerning these invoices, I
would briefly mention that the invoices reveal that a small amount of work was
done in units that at some point were owned by the appellant. According to
counsel for the Minister the amount is approximately $200.
[32] I do not think that it would be appropriate to make an
adjustment for this $200 amount. Pinehurst was clearly billed for this work.
There are several possible reasons for the charges and I am not satisfied that
the assessment was incorrect to include it.
[33] In the result, I do not think it is appropriate to
make any adjustment to the assessment in relation to invoices 311 to 315.
[34] The second argument of the appellant that I wish to
comment on concerns construction work that the appellant did in Units 26 and
28. The amount in dispute is $22,638.70.
[35] The dispute between the parties was whether these
units were ever purchased by the appellant. The Minister assessed GST on
construction work done on these units on the basis that the appellant never did
own them. In the alternative, the Minister argued that even if the units were
owned by the appellant, then GST should have been remitted when the units were
sold by the appellant to others. It was suggested that this tax would have
exceeded the amount that was actually assessed.
[36] Mr. Sieben led some evidence to support that the units
were actually owned by the appellant. I accept this evidence. However, it does
not assist the appellant because the appellant was not able to satisfactorily
address the alternative argument of the Minister. Accordingly I see no reason
to disturb the assessment on this issue.
[37] In the final analysis, I am not persuaded that there
is any basis to reduce the amounts that have been assessed except for the
concession by the Minister. In particular, I am not persuaded by any of the
appellant’s other arguments.
[38] Further, I do not think that is appropriate to vacate
the penalties on grounds of due diligence. The number of items on which
adjustments were made, and the amounts at issue, amply justifies the imposition
of penalties.
[39] As a final matter, I would note that the auditor made
a number of estimates for purposes of the assessment. It is very likely that
the figures are not completely accurate. In the absence of any reliable
evidence by the appellant to dispute these figures, however, it is not
appropriate to make any adjustment.
[40] In the result, the appeal will be allowed, and the
assessment will be referred back to the Minister for reassessment on the basis
that tax should be reduced by $15,077.29 as conceded by the Minister. Penalties
should also be reduced accordingly.
[41] As for costs, each party should bear their own.
Signed at Edmonton, Alberta this 30th day of January 2009.
“J. Woods”
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