Citation: 2008 TCC 536
Date: 20080930
Docket: 2002-2912(GST)I
BETWEEN:
BERNARD DESROSIERS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Archambault J.
[1]
Bernard Desrosiers
is appealing from an assessment made by the Ministère du Revenu du Québec ("MRQ")
as agent for the Minister of National Revenue ("the Minister")
under the Excise Tax Act ("ETA").
Procedural context and parties' positions
[2]
Mr. Desrosiers' appeal
was part of a series of appeals filed by him and by several of the corporations
in which he held an interest, including Les Gazons du Bas St‑Laurent
Inc. ("Gazons"), Les
Pelouses de l'Est Inc. ("Pelouses") and Vert‑Dure Plus
(1991) Inc. ("Vert‑Dure").
As I stated in the reasons for my decision in Vert‑Dure on
September 14, 2007, [1] the hearing of these appeals proved to be very
laborious and difficult. The appeals required ten days of hearings to address
their merits and the motions, not to mention the numerous telephone conferences
to deal with case management as well as postponement requests.
[3]
In addition to this,
counsel for the Respondent, in a moment of great frustration, requested, and
obtained from the Court, a settlement conference with another judge with a view
to settling the appeals in whole or in part. Fortunately, this conference,
which was held in November 2007 and was presided over by my colleague
Justice Paul Bédard, resulted in the filing of discontinuances by Gazons
and Pelouses. In fact, a discontinuance of the appeal from my decision in Vert‑Dure
was filed in the Federal Court of Appeal on December 3, 2007, as
well.
[4]
Mr. Desrosiers' appeal
is the last one remaining before this Court. The Notice of Appeal bears
no date, but was stamped by the Court on May 16, 2002. In it,
Mr. Desrosiers states that Bernard Brosseau, C.A., is his agent in the
instant appeal. He also states that the Minister did not render a
decision on the objection that he had filed with the MRQ in respect of an
assessment made on March 13, 1998, and bearing the number 0252606
(Exhibit I‑1, tab 1, page 5). The assessment, issued
by the Minister, covered the period from February 1, 1995, to
November 30, 1997 ("the relevant period"). It
increased the net tax by $6,049.02, an amount equal to the input tax credits
(ITCs) disallowed by the Minister. It also added interest and penalties.
According to the Reply to that Notice of Appeal, the notice of objection was
[TRANSLATION] "filed on or about June 11, 1998."
[5]
By preliminary motion, Mr.
Desrosiers asked the Court to vacate the assessment because, upon receiving his
notice of objection, the Minister did not, with all due dispatch, reconsider
the assessment and vacate or confirm the assessment or make a reassessment, in
accordance with subsection 301(3) of the ETA. On December 23,
2003, the Respondent responded to the motion by producing evidence of a reassessment
dated January 28, 2000, covering the same period. By that
reassessment, the Minister reduced the amount of the disallowed ITCs to
$5,489.24 (not including interest and penalties). (See Exhibit I‑1,
tab 1, page 2.)
[6]
As Justice Angers wrote
at paragraph 8 of his reasons in Desrosiers v. The Queen,
2003 TCC 859, on December 23, 2003, "[t]his situation led Counsel for the Respondent
to ask the Court to dismiss the appeal on the ground that it was filed outside
the time prescribed by the Act, as the reassessment is dated
January 28, 2000, and the Notice of Appeal was filed on
May 16, 2002." Since Mr. Desrosiers testified that he never received the
reassessment, and that there was no proof that the reassessment was sent to Mr. Desrosiers
in accordance with the requirements of subsection 301(5), Justice Angers
concluded that the Minister never sent the reassessment to him (see paragraph
11 of his reasons). Consequently, he dismissed the Respondent's motion.
However, he also dismissed Mr. Desrosiers' motion to vacate the
assessment, based on several precedents in which courts have held that the
Minister's lack of dispatch does not result in the vacation of an assessment. Justice Angers
added, at paragraph 15: "Finally,
application of the provisions set out in section 299 of the Act will
preclude the assessment under appeal in this case from being vacated." And
he concluded that "the appeal from the assessment dated March 13,
1998, shall be heard at a future sitting of this Court . . ."
[7]
It can be seen from
Justice Angers' reasons that the assessment under appeal in the case at bar is
the assessment dated March 13, 1998, and, since no appeal was filed in
the Federal Court of Appeal from Justice Angers' decision, the doctrine of res judicata
applies to the two issues that he decided.
[8]
In his Reply to the
Notice of Appeal, the Respondent framed the issue as follows: Was Mr. Desrosiers
entitled to the ITC of $6,049.02 that he claimed for the period from
February 1, 1995, to November 30, 1997? At subparagraphs
4 (d), (e) and (f), the Minister states:
[TRANSLATION]
(d) A
tax audit revealed that the Appellant had no supporting documentation for a
total of $6,049.02 in ITCs.*
(e) The
Appellant claimed a total of $6,049.02 in ITCs,* which were disallowed owing to
the absence of supporting documentation.
(f) On
December 31, 1996, the Appellant notified the Minister that he was ceasing his
commercial activities, and asked that his GST registration be cancelled.
* Reduced to $5,489.24
in the reassessment of January 28, 2000, as counsel for the
Respondent stated at the hearing.
[9]
Consequently, the issue
is whether Mr. Desrosiers was entitled to the $6,049.02 in ITCs that
the Minister disallowed in his assessment of March 13, 1998.
[10]
Despite the decision of
Justice Angers, who rejected the same argument in 2003, Mr. Desrosiers'
new lawyer, Mr. Dury, stated as follows in his Answer to the Reply to the
Notice of Appeal, filed on October 14, 2005:
[TRANSLATION] "This is not an appeal from an assessment, but
rather a request to vacate the assessment because the MRQ did not respond to
the notice of objection, which was filed in time, within the six-month time
limit set out in paragraph 306(b) of the ETA."
[11]
Here is how counsel for
Mr. Desrosiers defines the points in issue in his Answer:
[TRANSLATION]
16. He denies
paragraph 5 of the Reply filed by counsel for the Respondent. Counsel for
the Respondent misunderstood the nature of the Appellant's appeal and is
mistakenly asserting that the only question for determination is whether the
Appellant was entitled to ITCs of $6,116.70 for the period from
February 1, 1995, to November 30, 1997.
17. The main
issue is based on paragraph 306(b) of Part IX of the ETA, which
stipulates that an appellant may appeal to the Tax Court of Canada to have the
assessment vacated if one hundred and eighty days (six months) have elapsed
after the filing of the notice of objection and the Minister has not notified
the appellant that the Minister has vacated or confirmed the assessment or has
reassessed. Even though the statutory limitation is six months, 88 (eighty‑eight)
months have now elapsed without a decision from the MRQ on the notice of
objection filed by the Appellant on or about June 11, 1998.
18. This appeal
is also based on section 38 of the Act respecting the Ministère du
Revenu, R.S.Q. 1977, c. M‑31, which defines the powers of an
auditor in the performance of his duties. Auditors must conduct their audits on
the premises of any individual or legal person being audited. The premises of
financial institutions or of customers or suppliers are not part of these
premises and the auditor's audit must be limited to the accounting documents
and registers on those premises.
19.
The foregoing is the crux of the matter,
not a supposed confirmation that the Appellant was, or was not, entitled to GST
input tax credits.
[Emphasis added.]
[12]
At paragraph 20 of
his Answer, he adds: [TRANSLATION]: "The entire dispute is limited to
these sections, not to sections 165, 169 and 280 of the ETA, to which
counsel for the Respondent referred in his Reply."
[13]
Despite my decision in Vert-Dure,
which rejected this argument for reasons similar to those given by Justice
Angers, and despite that company's discontinuance of its appeal from that decision
before the Federal Court of Appeal, Mr. Desrosiers' pleadings once again raise the
same unfounded arguments that he raised throughout the numerous days of
hearings in his personal appeal.
[14]
At paragraph 6 of
his Answer, counsel for Mr. Desrosiers asserts [TRANSLATION]:
". . . The entire assessment is based on the
disallowance of input tax credits (ITCs) claimed by the Appellant. The
Appellant must also point out to the Court that the ITCs
. . . for most of the year 1997 were never reimbursed.
How can ITCs that were never paid to the Appellant be claimed back from
him?"
[15]
At paragraph 34, counsel
for Mr. Desrosiers asserts:
[TRANSLATION]
However, the auditor made an even bigger
mistake in early September 1997 when she went to the office of the financial
institutions with which the Appellant was dealing at the time, and asked for
information concerning the Appellant's banking transactions. Section 38 of
the Act respecting the Ministère du Revenu sets out the powers that an
auditor may exercise in the performance of her duties, and none of the
paragraphs of that section indicate that the auditor may ask third parties for
information. This is a fundamental error based on which the Court should be
able to vacate all the notices of assessment issued by auditor Claire
Desjardins on March 13, 1998. Ms. Desjardins exceeded her powers.
None of the evidence illegally obtained by Ms. Desjardins at that time could be
used for the purpose of her draft reassessments, nor can such evidence be
admitted by the Court.
[16]
Mr. Desrosiers sought
an adjournment on the second day of the last session of hearings. The ground for
his request was that he was missing two letters that he had left at home and
that he needed so that he could show that the MRQ had obtained information from
the Canada Revenue Agency (CRA). I told Mr. Desrosiers that this
postponement request was completely unacceptable in view of the numerous days
of hearings that had already been held in 2005 and 2007, and that he had been
given every opportunity to establish all the relevant facts of his case.
However, I allowed someone who had helped him with his bookkeeping to
testify by telephone conference, because counsel for the Respondent objected to
the admission of a sworn declaration by that person for the purpose of
establishing which information the person had obtained from the CRA with
respect to certain documents that the CRA was supposed to transmit to the MRQ.
[17]
It is clear that the
argument based on section 38 of the Act respecting the Ministère du Revenu
is without legal merit, because that statute is provincial, while the
assessment disputed in the case at bar was made under the ETA, a federal
statute.
[18]
In his Answer, counsel
for Mr. Desrosiers also states that the Minister improperly disallowed the ITCs
because he was given all the supporting documents and because he accepted Mr.
Desrosiers' expenses as legitimate expenses in computing his income under the Income
Tax Act.
[19]
During the two days of
hearings held in May 2008, Mr. Desrosiers raised arguments that he had never
raised before. For example, he argued that, as a status Indian, he was not
required to pay any tax under the Act. In addition, citing an unreasonable
audit, he sought a remedy under subsection 24(1) of the Canadian Charter
of Rights and Freedoms ("the Charter").
Factual background
[20]
Mr. Desrosiers
testified that he was a farmer who grew hay and grain on land that he owned or
leased from the Ministère des Transports du Québec. He also said that he tried
to operate a greenhouse to grow ginseng. The Minister did not dispute the
fact that Mr. Desrosiers operated a farming business. In fact, he granted
him ITCs upon being shown supporting documentation that contained the
prescribed information contemplated by subsection 169(4) of the ETA and by
the Input Tax Credit (GST/HST) Information Regulations ("the Regulations").
[21]
Mr. Desrosiers is
largely the author of his own misfortune, because he did not keep accounting
records that would have enabled the Minister to audit the expenses for which he
was claiming ITCs in his GST returns. After the audit began, he prepared
an accounting statement to justify the ITCs that were claimed. That document
provides the month during which the expense was allegedly incurred, a document
number designating the invoice for which he was claiming the ITC, and the
amounts of GST and QST associated with the claim (Exhibit A‑30, tab E, at
pages 4, 5 and 6).
Analysis
[22]
With regard to the
obligation to provide supporting documentation containing the prescribed
information, Mr. Desrosiers cited several decisions of our Court, notably the
decision of Chief Justice Bowman (as he then was) in Les Voitures Orly Inc.
/ Orly Automobiles Inc. v. The Queen, 2004 TCC 86, [2004] G.S.T.C.
57 (Eng.), and one of my decisions, Ventes d'autos Giordano Inc. v. The Queen, [2001] T.C.J. No. 132 (QL),
2001 GTC 358 (Eng.). I do not understand how these decisions could help
Mr. Desrosiers' case. Indeed, in Giordano, I stated, at paragraph 47,
that the supporting documentation in issue there met all the requirements of
subsection 169(4) of the ETA.
[23]
As counsel for the
Respondent has argued, my decision in Systematix Technology Consultants Inc. v. The Queen, 2006 TCC 277, [2006] G.S.T.C.
120 (Eng.) is much more relevant to the issues
in dispute in Mr. Desrosiers' appeal because, in Systematix, I held
that if a GST number contained in a supporting document is erroneous or
invalid, or the number is not stated on the document as required by the
Regulations, the registrant is not entitled to the ITCs. This
decision was affirmed by the Federal Court of Appeal in Systematix Technology Consultants Inc.
v. Canada, 2007 FCA 226,
[2007] G.S.T.C. 74. The following statement is made at paragraph 4 of the
decision of the Federal Court of Appeal:
We are of the view
that the legislation is mandatory in that it requires persons who have paid GST
to suppliers to have valid GST registration numbers from those suppliers when
claiming input tax credits.
[24]
If a registration
number that is not valid at the relevant time prevents a registrant from
obtaining an ITC, it is obvious that the complete absence of a GST number would
prevent a registrant from obtaining an ITC under subsection 169(4) of the ETA.
Consequently, given the express requirement contained in the ETA, the Court has
no flexibility to admit an invoice as substantiation for an ITC where
information prescribed by the ETA and the Regulations is missing. This is the
rule that I intend to apply to the ITCs claimed by Mr. Desrosiers.
• Supporting documentation for ITCs
[25]
Mr. Brosseau, Mr. Desrosiers'
accountant, prepared and adduced Exhibit A‑38, a summary table setting
out all the ITC amounts that Mr. Desrosiers is claiming. It is worth
reproducing part of that table,
to which I shall add an "ITC" column setting out the Court's decision
with respect to each of the ITC claims. The letter "A" means
that the ITC was allowed, and the letter "D" means that it was disallowed.
Following the hyphen after the letter "D" is the reason for
disallowing the claim: "N" means that there was no GST number; "RNI"
means that the recipient was not identified; "VNI" means that the
vendor was not identified; "NSD" means that there was no supporting
documentation; and "PE" means that the claim was for a personal expense.
|
Date
|
Supplier
|
GST amount
|
ITC
|
GST claim
|
Exhibit
A‑32
|
Exhibit
I‑1
|
Exhibits tendered in
court
|
|
Mar. '95
|
Fermes Fernand
Cantin
|
$490.00
|
A
|
P-1-95
|
|
|
A-3
and I-3
|
|
|
Me Jacques
Michaud
|
$35.00
|
A
|
P-2-95
|
|
|
|
|
|
|
$525.00
|
|
|
|
|
|
|
April '95
|
Excavation
Dionne
|
$21.00
|
D-N
|
P-3-95
|
|
|
A-2
|
|
Oct. '95
|
Aménagement
Yockell
|
$182.00
|
D-N
|
P-4-95
|
page 66
|
|
A-10
|
|
|
Aménagement
Yockell
|
$56.55
|
D-N
|
P-5-95
|
|
|
A-11
|
|
|
Dépanneur
Irving Jessop
|
$8.38
|
A
|
P-6-95
|
|
|
A-5
|
|
|
Élec Roger
Desjardins
|
$5.95
|
A
|
P-7-95
|
|
|
A-4
|
|
|
Gaz-O-Bar
|
$7.42
|
D-N
|
P-8A-95
|
page 51
|
|
|
|
|
|
$1.82
|
D-N
|
P-8B-95
|
|
|
A-10
|
|
|
Papeterie
Bélanger
|
$0.03
|
D
|
P-8C-95
|
|
|
A-8
|
|
|
|
$4.40
|
A
|
P-8D-95
|
|
|
A-22
|
|
|
Canada Post
|
$0.25
|
D
|
P-8E-95
|
|
|
A-6
|
|
|
Shell
|
$1.23
|
D
|
P-16-95
|
|
|
A-9
|
|
|
|
$268.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nov '95
|
Excavation
Dionne
|
$361.07
|
D-N
|
P-9-95
|
|
|
A-12
|
|
|
|
|
|
|
|
|
|
|
Dec '95
|
Canada Post
|
$13.68
|
D-N
|
P-10-95
|
|
|
A-13
|
|
|
Gaz-O-Bar
|
$3.03
|
A
|
P-11-95
|
|
|
A-14
|
|
|
St-Hubert
|
$1.86
|
A
|
P-12-95
|
|
|
A-15
|
|
|
Restaurant
Deauville
|
$4.08
|
A
|
P-13-95
|
|
|
A-15
|
|
|
Resto
Hydraulique
|
$28.28
|
A
|
P-14-95
|
|
|
A-16
|
|
|
Multi
Luminaire
|
$11.55
|
D-RNI
|
P-15-95
|
|
|
A-17
|
|
|
Gaz-O-Bar
|
$1.12
|
A
|
P-17-95
|
|
|
A-18
|
|
|
K-Mart
|
$4.97
|
A
|
P-18-95
|
|
|
A-18
|
|
|
Shell
Canada
|
$1.54
|
A
|
P-19-95
|
|
page 9
|
|
|
|
Service
Irving Jessop
|
$2.49
|
A
|
P-20-95
|
|
|
A-19
|
|
|
Excavation
Dionne
|
$43. 97
|
D-N
|
P-21-95
|
|
|
A-20
|
|
|
|
$116.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar '96
|
Stéréo Plus
|
$18.20
|
A
|
P-1-96
|
page 48
|
|
|
|
|
Shell
Canada
|
$2.05
|
D-NSD
|
P-3-96
|
|
page 11
|
|
|
|
Canada Post
|
$0.16
|
D-NSD
|
P-4-96
|
page 50
|
|
|
|
|
Shell
Canada
|
$1.06
|
D-NSD
|
P-5-96
|
page 8
|
|
|
|
|
Uniprix
|
$6.24
|
D-N
|
P-6-06
|
page 50
|
|
|
|
|
Uniprix
|
$0.94
|
A
|
P-7-96
|
page 50
|
|
|
|
|
Uniprix
|
$3.79
|
D-N
|
P-8-96
|
page 50
|
|
|
|
|
Quinc
Centre-ville
|
$0.94
|
D-NSD
|
P-9-96
|
|
page 11
|
|
|
|
Quinc
Centre-ville
|
$1.91
|
D-NSD
|
P-10-96
|
|
page 11
|
|
|
|
Dickner Inc.
|
$3.39
|
D-NSD
|
P-11-96
|
|
page 11
|
|
|
|
Centre du
Rasoir
|
$4.34
|
A
|
P-12-96
|
|
|
A-24
|
|
|
Shell
Canada
|
$1.66
|
D-NSD
|
P-13-96
|
page 8
|
|
|
|
|
Shell
Canada
|
$2.66
|
A
|
P-14-96
|
page 8
|
|
|
|
|
Shell
Canada
|
$0.94
|
D-NSD
|
P-15-96
|
page 8
|
|
|
|
|
Multi
Luminaire
|
$11.51
|
A
|
P-16-96
|
|
|
A-26
|
|
|
ADR
|
$2.80
|
A
|
P-17-96
|
|
|
A-27
|
|
|
Imprimerie
Service
|
$11.49
|
D-N
|
P-18-96
|
page 53
|
|
|
|
|
Groupe
Mallette Maheu
|
$32.55
|
D-N
|
P-19-96
|
page 54
|
|
|
|
|
|
$106.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apr. '96
|
Groupe
Mallette Maheu
|
$25.20
|
A
|
P-20-96
|
|
page 22
|
|
|
|
Bureau
Service
|
$3.03
|
D-N
|
P-2-96
|
page 49
|
|
|
|
|
|
$28.23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct. '96
|
|
$0.00
|
|
P-21-96
|
|
|
|
|
|
Guy Voyer,
atty.
|
$151.08
|
D-PE
|
P-22-96
|
page 56
|
|
|
|
|
Service
Auto Bélanger
|
$14.26
|
A
|
P-23-96
|
|
|
A-28
|
|
|
Aménagement
Yockell
|
$290.50
|
D-N
|
P-24-96
|
page 58
|
|
|
|
|
|
$455.84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nov. '96
|
|
$20.27
|
|
Adjust tax -deferral
|
|
|
|
|
|
MTQ
|
$368.06
|
A
|
P-25-96
|
page 13 [sic]
|
|
|
|
|
|
$388.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dec. '96
|
|
$27.65
|
|
Adjust tax deferred
|
|
|
|
|
|
Guy Voyer,
atty.
|
$89.60
|
D-PE
|
P-26-96
|
page 59
|
|
|
|
|
Aménagement
paysager D
|
$429.68
|
D-N
|
P-27-96
|
page 61
|
|
|
|
|
|
$546.93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jan. '97
|
MTQ
|
$184.03
|
A
|
P-1-97
|
[page 22]
|
[page 27]
|
|
|
|
Aménagement
paysager D
|
$301.47
|
D-N
|
P-27-96 bal
|
page 61
|
|
|
|
|
|
$485.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feb. '97
|
|
$133.35
|
|
Jan. bal. fwd
|
|
|
|
|
|
Excavation
Dionne
|
$485.50
|
D-N
|
P-2-97
|
page 27
|
|
|
|
|
Gagnon Michaud
|
$17.50
|
D
|
P-3-97
|
page 28
|
|
|
|
|
Aménagement
Yockell
|
$613.65
|
D‑N
|
P-4-97
|
page 29
|
|
|
|
|
|
$1,250.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar. '97
|
Aménagement
Yockell
|
$972.00
|
D-N
|
P-5-97
|
page 30
|
|
|
|
|
|
|
|
|
|
|
|
|
Apr. '97
|
|
$88.40
|
D-NSD
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jun. '97
|
Groupe
Mallette & Maheu
|
$10.06
|
A
|
P-5-97
|
page 31
|
|
|
|
|
Aménagement
Yockell
|
$172.18
|
D-N
|
P-4-97SUI
|
page 29
|
|
|
|
|
|
$182.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nov. '97
|
Casgrain
Gagnon
|
$8.16
|
A
|
P-6-97
|
page 34
|
|
|
|
|
Daigle Paré
|
$7.00
|
A
|
P-7-97
|
page 36
|
|
|
|
|
Groupe
Aventure
|
$30.45
|
A
|
P-8-97
|
page 37
|
|
|
|
|
Yvan
Pelletier
|
$14.00
|
A
|
P-9-97
|
page 38
|
|
|
|
|
Aménagement
Yockell
|
$245.87
|
D-N
|
P-4-97SUI
|
page 29
|
|
|
|
|
|
$305.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assessments
even though ITCs not claimed – Exhibit I‑1 [(tab 2)]
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Omnipaire
|
$253.70
|
D
|
|
|
pp. 37
& 40
|
|
|
|
Omnipaire
|
$332.50
|
D
|
|
|
pp. 37
& 40
|
|
|
|
|
|
|
|
|
|
|
|
|
Fernand mon
tailleur
|
$28.64
|
D
|
|
|
page 47
|
|
|
|
Vélo plein
air
|
$56.33
|
D
|
|
|
page 45
|
|
|
|
Exhibit A-7
|
$69.89
|
D
|
|
|
|
|
|
|
Exhibit
A-23
|
$3.39
|
D
|
|
|
|
|
|
|
Distrival
|
$1 050.40
|
D
|
|
page 32
|
|
|
|
|
Distrival
|
$952.00
|
D
|
|
page 33
|
|
|
|
|
Mallette
& Maheu
|
$32.55
|
D
|
|
|
page 20
|
|
|
|
Nutrite
|
$879.60
|
D
|
|
|
page 23
|
|
|
|
Multi
Luminaire
|
$11.51
|
D
|
|
page 31
|
|
[A-26]
|
|
|
|
|
|
|
|
|
|
|
|
|
$3,670.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
• Cancellation of the registration
[26]
The issue that arises
with respect to the year 1997 is related to the fact that the basis on which
counsel for the Minister justified disallowing all of Mr. Desrosiers' ITCs was
that he had filed a notice of cessation of business, and that his GST number
had therefore been revoked. In support of this decision, the Minister filed
Exhibit I-1, tab 3, a form called "Changement survenu durant la
période" [notice of change during the period] in which
Mr. Desrosiers checked the box corresponding to the permanent closing of
the business effective January 1, 1997. The document was
received by the MRQ on March 23, 1998. However, Mr. Desrosiers
vehemently denies filling out the portion of the form on which the
identification number and account number of his business are written by hand.
[27]
Mr. Desrosiers claims
to have filed this document without having filled out the registrant
identification part. He claims that the MRQ entered his registration number
on the document. This account of the facts strikes me as highly implausible, since it would
mean that Mr. Desrosiers mailed a document without identifying the registrant
business and without writing anything on the envelope. How could the MRQ have
written in Mr. Desrosiers' business number in such a case? In fact,
Mr. Desrosiers acknowledges having written the words [TRANSLATION] "file closed"
on the GST return for the subsequent period, (March 1 to
March 31, 1998) and his name is on that return. This document was
filed with the MRQ on June 19, 1998. It is therefore very likely that
the notice of change, and, in particular, the notice of permanent closing, was not
received by the MRQ until the March-June quarter, and that the MRQ simply sent
out a GST return on which Mr. Desrosiers' identifying information (name,
account number and identification number) was already entered. I therefore
accept the account given by the auditor, to the effect that Mr. Desrosiers
filed a notice of permanent closing. This was the dispute at the hearing,
and I found that the conclusion that the Minister had revoked
Mr. Desrosiers' registration, as suggested by the remark [TRANSLATION]
"GST Susp. Date 96-12-31" on a printout of a document from the MRQ
database, was warranted.
[28]
Following the hearing,
I considered the provisions of the ETA that govern the revocation of a
business's registration. Subsections 242(1), (2) and (3) of the ETA provide:
242. (1) Cancellation
− The Minister may, after giving a person who is registered under
this Subdivision reasonable written notice, cancel the registration of the
person if the Minister is satisfied that the registration is not required for
the purposes of this Part.
(2) Request for cancellation − The Minister shall cancel the
registration of a person who is not carrying on a taxi business, effective
after the last day of a fiscal year of the person, where
(a) the person is a small supplier
and has filed with the Minister in prescribed manner a request, in
prescribed form containing prescribed information, to do so; and
(b) the person has been registered for
a period of not less than one year ending on that day
(3) Notice of cancellation or variation − Where the Minister cancels or
varies the registration of a person, the Minister shall notify the person in
writing of the cancellation or variation and the effective date thereof.
[29]
As stated in subsection
242(1) of the ETA, the Minister may cancel a person's registration number if he
is satisfied that the registration is not required for the purposes of Part IX
of the ETA. By virtue of subsection 243(3), the Minister must notify the
person in writing of the cancellation and the effective date thereof. But the Minister
adduced no evidence of his compliance with section 242 of the ETA.
Consequently, the Court is unable to find that the cancellation of the
registration was done in compliance with the ETA, if indeed it occurred at all.
Under the circumstances, Exhibit I‑2 does not constitute sufficient
evidence of revocation: the written notice required by
subsection 242(3) is lacking.
[30]
It should also be added
that the auditor did not raise the revocation of Mr. Desrosiers' registration
as a ground for disallowing the ITCs for 1997. Rather, she cited a
discrepancy between the ITCs reported and the ITCs set out in
Mr. Desrosiers' documents. Moreover, contrary to what counsel for the
Respondent wrote at subparagraph 4(f) of his Reply to the Notice of
Appeal, the evidence adduced before the Court does not show that
Mr. Desrosiers applied to have his registration cancelled. He merely said
that he was ceasing to operate his business. If the Minister had asked the
taxpayer to file form GST‑11, "Application to Cancel
Registration", the misunderstanding would undoubtedly have been avoided.
• ITCs not received
[31]
Before we move away
from Mr. Desrosiers' summary table, prepared by his accountant
Mr. Brosseau, it is important to address an argument that Mr. Desrosiers
and Mr. Brosseau raised, namely, that the MRQ, in its assessment, did not
have the authority to establish an amount of ITCs greater than the amount
received by Mr. Desrosiers. In my opinion, Mr. Brosseau does not
understand the difference between a notice of assessment and a statement of
account in which the MRQ can claim amounts payable by a taxpayer or registrant.
[32]
When a registrant like
Mr. Desrosiers files an appeal against an assessment before this Court,
the role of this Court is to verify whether the assessment is well founded,
which, in the instant case, means to verify the extent to which the Minister
was entitled to disallow the ITCs that Mr. Desrosiers claimed in his GST
returns. The specific question that the Court must decide is whether the
Minister was justified in disallowing, in whole or in part, the ITCs claimed by
Mr. Desrosiers. The issue of the ITCs received by Mr. Desrosiers is a
collection matter that is simply not in issue before this Court. If there is a
problem concerning the payment of rebates to which Mr. Desrosiers was
entitled, or concerning the collection of an amount that he did not receive,
the venue in which to debate that problem is the Federal Court of Canada, which
must determine whether or not the Minister was entitled to collect from Mr. Desrosiers
the amounts that the MRQ claims that he owes.
[33]
Naturally, one of the
important elements in determining whether Mr. Desrosiers owed a given
amount of money is the assessment itself. As I stated in my reasons in Vert‑Dure,
supra note 1, at paragraph 6, I admitted statements of account from the
MRQ's collection department in order to enable the taxpayer to better
understand what amounts the MRQ might be claiming from him. However, the
dispute before this Court is limited to the question of eligibility for the
ITCs claimed by Mr. Desrosiers. Thus, what must be determined, among other
things, is whether supporting documentation containing all the requisite
information was available prior to his filing the GST return for each month or
quarter in respect of which he made claims; whether the expenses were incurred
as part of a commercial activity or a personal activity; and any other
eligibility issue that might occur to Mr. Desrosiers. However, the fact that he
did not receive an ITC payment is not among those questions.
[34]
In any event, Mr.
Desrosiers and Mr. Brosseau ought to consult Exhibit I‑3, the MRQ
statement of account dated February 1, 2006, which lists all the
MRQ's accounting transactions. The sum of all amounts under the
"rebates" column is $5,612.82. I believe that this must be increased
by the $490 which the statement of account lists as an amount owing, but which,
in my view, for the reason stated above, is a $490 ITC that the MRQ granted him
and applied against his debt, given that this involved the purchase of real property
and was a self‑assessment.
[35]
Consequently, if the amount
of $490 is added, the total is $6,102.82, which is very close to the $6,116.70 in
ITCs claimed by Mr. Desrosiers. Both of these amounts are higher than the
$4,505.21 that Mr. Brousseau states that Revenu Québec paid, in his table in
Exhibit A‑38. The amount of $6,102.82, which I find that
Mr. Desrosiers received or had access to, exceeds the total of the amounts
set out in the last two columns of Mr. Brosseau's table (Exhibit A‑38), namely
$6,053.83. The adjusted amount in the March 1998 MRQ assessment was $6,049.02, and
the adjusted amount from its January 2000 assessment, which was disregarded for
the purposes of this appeal, was $5,489.24. Thus, Mr. Brosseau's argument that
the amount contemplated by the assessment exceeds the amount that Mr.
Desrosiers received is clearly wrong. In any event, the evidence before this
Court has disclosed that Mr. Desrosiers was entitled to at least $1,202.18
in ITCs, which means that the amount of the ITCs disallowed by the assessment
is now only $4,846.84.
• Vacation of assessment, and limitation
period
[36]
Two other things are
worth repeating. Firstly, the question of vacating the assessment on the basis
that the Minister did not act with all due dispatch in considering the notice
of objection was already debated in Vert‑Dure, and thus, I have
already decided it. Secondly, Mr. Desrosiers made the same argument in the
instant appeal upon his preliminary motion before Justice Angers, who rejected
it. Consequently, the doctrine of res judicata applies to this
question.
[37]
Mr. Desrosiers, and
his advisor, Mr. Brosseau, presented confusing arguments to this Court
with regard to the limitation period. On the one hand, Mr. Desrosiers
submitted that the March 1998 assessment was time-barred because the Minister
did not respond to the June 1998 notice of objection within the 180-day time
limit contemplated in paragraph 306(b) of the ETA. He argued that a
reassessment could no longer be made and that a new audit was necessary. On the
other hand, Mr. Brosseau submitted that the Minister could not reassess
because he was outside the limitation period. The arguments are variants of the
ones that Mr. Desrosiers and Mr. Brosseau made in Vert‑Dure
and before Justice Angers. In any event, I reiterate the reasons that
I gave in Vert‑Dure and I reject the arguments on that same basis.
There is no need to go over those reasons here; it is sufficient simply to
re-read my reasons in Vert‑Dure.
[38]
In any case, it is clear
that the Minister was entitled to reassess in March 1998, because
paragraph 298(1)(a) of the ETA allots four years after the return is
filed, and the assessment covers the periods from February 1, 1995,
to November 30, 1997. In March 1998, fewer than four years
had elapsed even since February 1, 1995. Thus, this argument raised
by Mr. Desrosiers is unfounded as well.
• The Charter
[39]
The argument based on
subsection 24(1) of the Charter, and citing an unreasonable search
by the MRQ, is unfounded not only in law, but in fact as well. Indeed,
Ms. Desjardins testified that she did not contact anyone except suppliers
to obtain information. She did not consult Mr. Desrosiers' accountants
with respect to his personal file, nor did she have any dealings with the Caisse populaire.
As Ms. Desjardins stated, the only thing that needed to be done in
Mr. Desrosiers' matter was to justify the ITCs that he was claiming. All she
needed was the supporting documentation. It was up to Mr. Desrosiers to provide
it. Thus, there was no need for her to contact third parties such as
financial institutions.
[40]
The only third-party
contact that she made — and
it is noted in the file — was
to check with one of Mr. Desrosiers' suppliers in order to see whether the
invoice that Mr. Desrosiers produced as a supporting document was valid. And
the evidence disclosed major differences between the invoice that the supplier
issued to Mr. Desrosiers and the invoice that Mr. Desrosiers
produced. I see absolutely nothing unreasonable about the MRQ's inquiry, which
consisted in checking with a supplier whether the invoice purportedly issued by
that supplier was actually so issued. See the decision in Main
Rehabilitation Co. v. Canada, [2004] F.C.J. No. 2030
(QL), 2004 FCA 403, which I cited at paragraph 46 of in my decision in Vert‑Dure,
supra; and the decision in R v. McKinlay Transport Ltd.,
[1990] 1 S.C.R. 627, cited in Vert‑Dure, supra, at paragraph 41.
• Tax exemption for Aboriginals
[41]
In what seemed to me to
be a last resort, Mr. Desrosiers raised the fact that he is an Aboriginal.
He presented his card from Développement des Peuples Aborigènes du Canada, which
is a certificate of his Aboriginal status and of his membership of the Micmac
Nation of the Bedeque community. Mr. Desrosiers acknowledged that he did
not live on a reserve and that none of his purchases were made on a reserve.
Furthermore, the goods that were purchased appear to have been used off
reserve. The problem is that the exemption in section 87 of the Indian
Act is limited to reserves. The provision states:
87. (1) Notwithstanding
any other Act of Parliament or any Act of the legislature of a province, but
subject to section 83, the following property is exempt from taxation:
(a) the interest of an Indian or a band in reserve lands or
surrendered lands; and
(b) the personal property of an Indian or a band
situated on a reserve.
(2) No Indian
or band is subject to taxation in respect of the ownership, occupation,
possession or use of any property mentioned in paragraph (1)(a) or (b)
or is otherwise subject to taxation in respect of any such property.
(3) No succession duty, inheritance tax or estate duty is payable
on the death of any Indian in respect of any property mentioned in paragraphs
(1)(a) or (b) or the succession thereto if the property passes to
an Indian, nor shall any such property be taken into account in determining the
duty payable under the Dominion Succession Duty Act, chapter 89 of the
Revised Statutes of Canada, 1952, or the tax payable under the Estate Tax
Act, chapter E-9 of the Revised Statutes of Canada, 1970, on or in respect
of other property passing to an Indian.
[Emphasis
added.]
[42]
This interpretation of
section 87 of the Indian Act has been recognized several times by the
Supreme Court of Canada, notably in Mitchell v. Peguis Indian Band,
[1990] 2 S.C.R. 85, [1990] S.C.J. No. 63 (QL), where La Forest J.
held, at page 131 (S.C.R.) and paragraphs 87-88 (QL):
In summary, the historical record makes it clear that
ss. 87 and 89 of the Indian Act, the sections to which the deeming
provision of s. 90 applies, constitute part of a legislative
"package" which bears the impress of an obligation to native peoples
which the Crown has recognized at least since the signing of the Royal Proclamation
of 1763. From that time on, the Crown has always acknowledged that it is
honour‑bound to shield Indians from any efforts by non‑natives to
dispossess Indians of the property which they hold qua Indians, i.e., their
land base and the chattels on that land base.
It is also important to underscore the corollary to the
conclusion I have just drawn. The fact that the modern‑day
legislation, like its historical counterparts, is so careful to underline that exemptions
from taxation and distraint apply only in respect of personal property situated
on reserves demonstrates that the purpose of the legislation is not to remedy
the economically disadvantaged position of Indians by ensuring that Indians
may acquire, hold, and deal with property in the commercial mainstream on
different terms than their fellow citizens. An examination of the
decisions bearing on these sections confirms that Indians who acquire and deal
in property outside lands reserved for their use, deal with it on the same
basis as all other Canadians.
[Emphasis added.]
[43]
I find Mr. Desrosiers'
argument based on his Aboriginal status to be completely unfounded for several
reasons. First of all, the issue in the instant appeal is not whether
Mr. Desrosiers was subject to the GST or not, but rather whether he was
entitled to claim ITCs. The issue is not, and never was, whether Mr. Desrosiers
was required to pay the tax upon receiving supplies. Thus, Mr. Desrosiers'
argument falls completely outside the scope of the issue before this Court.
[44]
Mr. Desrosiers cited
section 6 of the Charter, which states:
6. (1) Every citizen of Canada has the
right to enter, remain in and leave Canada.
(2) Every
citizen of Canada and every person who has the status of a permanent resident
of Canada has the right
(a) to move to and take up residence in any
province; and
(b) to pursue the gaining of a livelihood
in any province.
(3) The
rights specified in subsection (2) are subject to
(a) any laws or practices of general
application in force in a province other than those that discriminate among
persons primarily on the basis of province of present or previous residence;
and
(b) any laws providing for reasonable
residency requirements as a qualification for the receipt of publicly provided
social services.
(4) Subsections
(2) and (3) do not preclude any law, program or activity that has as its object
the amelioration in a province of conditions of individuals in that province
who are socially or economically disadvantaged if the rate of employment in
that province is below the rate of employment in Canada.
[45]
Mr. Desrosiers submits
that section 87 of the Indian Act is discriminatory because it
requires him to live on a reserve in order to benefit from the tax exemption.
It should be noted that Mr. Desrosiers did not serve upon each provincial
Attorney General the requisite notice to challenge the validity of a federal
statute. Consequently, this question could not be argued before the Court. In
any event, I do not believe that this argument is well founded, having regard
to the remarks by La Forest J. quoted above.
• Penalty under section 280 of the
ETA
[46]
With respect to the
penalty, section 280 read as follows at the relevant time:
280(1)
Penalty and interest − Subject to this section and section
281, where a person fails to remit or pay an amount to the Receiver General
when required under this Part, the person shall pay on the amount not remitted
or paid
(a) a penalty of 6% per year, and
(b) interest at the prescribed
rate,
computed for the period beginning on the first
day following the day on or before which the amount was required to be remitted
or paid and ending on the day the amount is remitted or paid.
[47]
It is important to
recall that the penalty in paragraph 280(1)(a) of the ETA is related to
a strict liability offence. The case law recognizes that the defence of due
diligence is available in cases of this kind. In Corporation de l'École
Polytechnique v. Canada, 2004 FCA 127, [2004] G.S.T.C. 39, [2004]
GTC 1148 (Eng.), Décary and Létourneau JJ.A. recalled the principles that
govern the defence of due diligence. At paragraph 29, they wrote:
The defence of due
diligence should not be confused with the defence of good faith, which applies
in the area of criminal liability, requiring proof of intent or guilty
knowledge. The good faith defence enables a person to be exonerated if he or
she has made an error of fact in good faith, even if the latter was
unreasonable, whereas the due diligence defence requires that the error be
reasonable, namely, an error which a reasonable person would have made in
the same circumstances. The due diligence defence, which requires a
reasonable but erroneous belief in a situation of fact, is thus a higher
standard than that of good faith, which only requires an honest, but
equally erroneous, belief.
[Emphasis added.]
[48]
In order to justify the
absence of supporting documentation containing the information prescribed by
the ETA and the Regulations, Mr. Desrosiers submitted that it was
difficult, in regions like Mont‑Joli, to obtain sufficient information to
be aware that one must provide such documentation in order to be entitled to
ITCs. In addition, he said that it was impossible to verify the validity
of the GST numbers.
And yet, Mr. Desrosiers knew that one needs to fill out a GST return in
order to be entitled to ITCs. Moreover, he admitted that he uses an accountant
to help him produce his financial statements and income tax returns. However,
he said that he does not use the services of such a professional with regard to
his obligations under the ETA. He also acknowledged that he did not
contact the suppliers in order to obtain their GST number from them.
[49]
In addition to his
hundreds of pages of submissions, Mr. Desrosiers managed to produce
documents from the MRQ, case law, and Memorandum TPS 400‑1‑2 which
describes the rules under which ITCs can be obtained (Exhibit A‑39). The memorandum
is dated November 8, 1990. Moreover, as counsel for the Respondent
noted, Mr. Desrosiers lives in Sainte‑Flavie, roughly 30 km
from a tax office where he could have obtained all the relevant information.
[50]
Consequently, it is
clear, based on the evidence, that Mr. Desrosiers did not act with due
diligence with a view to fulfilling his tax obligations. The penalty under
section 280 must be maintained. Distance cannot be considered a
justification for the absence of the information prescribed by
subsection 169(4) of the ETA and by the Regulations, and such information
includes the supplier's registration number for any sales over $30 and the name
of the recipient for any sales over $150.
[51]
In my opinion, the circumstances
of the instant case do not give rise to a defence of due diligence. A
reasonable person would either have consulted a professional — for example, an accountant with a
respected firm like Groupe Mallette Maheu, the one that Mr. Desrosiers was
dealing with at the time — or, at
the very least, have consulted the MRQ to obtain the memoranda that would have
told him which documents he needed to have in order to substantiate his ITC
claims. It seems that Mr. Desrosiers knew that supplies of
agricultural products are exempt, but that he was nonetheless entitled to ITCs.
It is very surprising that Mr. Desrosiers was not aware of the conditions
that he had to fulfil in order to be entitled to those ITCs. Since he made no
effort to inquire about his tax obligations, I am unable to conclude that the
due diligence defence applies under the circumstances.
• Costs
[52]
As I stated at the
beginning of these reasons, the conduct of Mr. Desrosiers, and that of his
accountant, did not favour the most efficient possible conduct of the appeal. I
consider it completely unreasonable that the appeals instituted by
Mr. Desrosiers and his companies took so much of the Court's time, owing
to the number of days of hearings, the number of postponement requests, and the
massive jumble of supporting documents, GST memoranda and arguments that they
produced. Moreover, time and time again, Mr. Desrosiers stubbornly
reiterated unfounded arguments that unduly prolonged the trial. As we have
seen, he reprised this performance on the last two days of hearings. He
reversed some of the concessions that he had made on previous hearing dates in
relation to ITCs that he admitted he was not entitled to because he did not
have any supporting documentation containing the information prescribed by the
Regulations, thereby requiring us to reopen the argument concerning some of the
ITC claims.
[53]
In addition, Mr. Desrosiers
was unable to prove misconduct on the part of the Respondent in his personal
file, just as he had been unable to do in Vert‑Dure. During the
last two days of hearings, Mr. Desrosiers reprised this tactic, attempting
to show that there had been an unreasonable search. The facts alleged in his
affidavit, produced as Exhibit A‑34, did not persuade the Court. The
affidavit is a tissue of unproven insinuations. Mr. Desrosiers even tried to
obtain a postponement because he forgot two letters which he claimed would have
supported his position. This request was denied because he already had
ample opportunity to adduce this evidence in the course of the various sessions
of hearings held from 2005 to 2008.
[54]
In my opinion,
Mr. Desrosiers has drained the judicial system's resources long enough.
This situation resembles the one in Fournier v. The Queen, [2005] GTC 1398,
[2005] G.S.T.C. 91, where the Federal Court of Appeal held as follows in
an appeal from one of my decisions:
10 The judge described the appellant's
behaviour as "extreme and abusive stubbornness" and "vexatious
conduct . . . [that] caused the Court to waste a great deal of time". The
anticipated one-day hearing of the appeal in the Tax Court of Canada ended up
taking two full 11-hour days to complete.
11 The judge stated that he had no
jurisdiction to impose costs on an appellant who unnecessarily delayed an
appeal process initiated within an informal proceeding. I should point out that
the Tax Court of Canada has the inherent jurisdiction to prevent and control an
abuse of its process: see Yacyshyn v. Canada, [1999] F.C.[J.] No. 196 (F.C.A.).
12
The awarding of
costs is one mechanism for preventing or remedying abusive delays or
procedures: see Blencoe v. British Columbia (Human Rights Commission), [2000]
2 S.C.R. 307, at paragraphs 179 and 183. In Sherman v. Canada
(Minister of National Revenue - M.N.R.), [2003] 4 F.C. 865,
at paragraph 46, this Court addressed the issue in the following terms:
It is now generally accepted that an award of
costs may perform more than one function. Costs under modern rules may serve to
regulate, indemnify and deter. They regulate by promoting early
settlements and restraint. They deter impetuous, frivolous and abusive
behaviour and litigation. They seek to compensate, at least in part, the
successful party who has incurred, sometimes, large expenses to vindicate its
rights.
[55]
I feel it important to
reiterate that taxpayers have an obligation to prepare their appeal properly
and as efficiently as possible, and that, barring exceptional circumstances, they
must cooperate with the respondent's counsel or the Minister's representatives
with a view to identifying the points in issue and coming to an agreement when
possible. Only the questions on which the parties are unable to agree deserve
the Court's attention. In my opinion, it is important to discourage the conduct
in which Mr. Desrosiers and his accountant engaged here. Based on my impression
that Mr. Desrosiers has only a modest income, and having regard to the
modest relief that he was able to justify before the Court and to the fact that
this appeal was under the informal procedure, I find that the sum of $500 is
reasonable under the circumstances. Otherwise, the costs would have been much
higher.
• Conclusion
[56]
For all these reasons,
Mr. Desrosiers' appeal is allowed and the assessment is referred back to the
Minister for reconsideration and reassessment on the basis that
Mr. Desrosiers was entitled to the following amounts in computing his
ITCs:
|
Reporting period ending on
|
ITC
|
|
|
|
|
March 31, 1995
|
$525.00
|
|
October 31, 1995
|
$18.73
|
|
December 31, 1995
|
$43.65
|
|
March 31, 1996
|
$40.45
|
|
April 30, 1996
|
$15.12
|
|
October 31, 1996
|
$14.26
|
|
November 30, 1996
|
$368.06
|
|
January 31, 1997
|
$107.24
|
|
June 30, 1997
|
$10.06
|
|
November 30, 1997
|
$59.61
|
|
Total
|
$1,202.18
|
[57]
The Respondent is
entitled to $500 in costs.
Signed at Ottawa, Canada, this 30th day of September
2008.
"Pierre Archambault"
Translation
certified true
on this 5th day of
January 2009.
Brian McCordick,
Translator
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