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Docket: 2004-2907(GST)I
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BETWEEN:
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560838 ALBERTA LTD.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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____________________________________________________________________
Appeal heard on December 2, 2004 at Edmonton,
Alberta
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Before: The Honourable Justice L.M. Little
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Appearances:
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Agent for the Appellant:
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Rodney Supersad
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Counsel for the Respondent:
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Galina Bining
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____________________________________________________________________
JUDGMENT
The
appeal from the assessment made under Part IX of the Excise
Tax Act with respect to the Notice of Assessment dated
December 13, 2002, bearing number 10122894 is allowed, without
costs, and the assessment is referred back to the Minister of
National Revenue for reconsideration and reassessment in
accordance with the terms of the attached Reasons for
Judgment.
Signed at Vancouver, British Columbia, this 11th day of
January 2005.
Little J.
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Citation: 2005TCC42
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Date: 20050111
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Docket: 2004-2907(GST)I
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BETWEEN:
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560838 ALBERTA LTD.,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Little J.
A. FACTS:
[1] The Appellant was incorporated
under the laws of the Province of Alberta. Mr. Rodney Supersad
owns all of the issued shares of the Appellant.
[2] The Appellant has owned and
operated a restaurant known as Cilantros since 1996. Cilantros is
a small restaurant with 29 seats and is located at
10322 11th Street in the City of Edmonton.
[3] At all relevant times the
Appellant was a registrant for purposes of the Goods and Services
Tax ("GST") under the Excise Tax Act (the
"Act").
[4] Mr. Supersad maintains that the
Appellant filed its GST returns in a proper manner for the period
commencing on January 1, 2001 and ending June 30, 2002 (the
"Reporting Period").
[5] The Appellant claimed total input
tax credits in the amount of $7,280.75 for the Reporting
Period.
[6] By a Notice of Assessment (the
"Assessment") dated December 13, 2002 the Minister of
National Revenue (the "Minister") assessed the
Appellant net tax of $5,106.31, interest of $439.78 and a penalty
of $737.60. As a result of the position adopted by the Minister,
all of the input tax credits that had been claimed by the
Appellant were denied.
[7] The Appellant filed an Objection
to the Assessment.
[8] By a Notice of Reassessment (the
"Reassessment") dated April 2, 2004 the Minister
allowed the Objection in part and assessed tax, interest and
penalty as follows:
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Tax
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$4,654.44
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Interest
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413.22
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Penalty
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689.90
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Total
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$5,757.56
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Pursuant to the Reassessment the Minister allowed the Appellant
input tax credits in the amount of $451.87.
[9] The Appellant filed a Notice of
Appeal to the Tax Court in which it claimed that it had properly
recorded the tax that had been collected and that it was entitled
to the input tax credits that it had claimed.
B. ISSUE:
[10] Is the Appellant entitled to claim
input tax credits in excess of the amount of $451.87 that has
been allowed by the Minister?
C. ANALYSIS:
[11] Mr. Robert Reti, an auditor with the
Canada Revenue Agency ("CRA"), appeared as a witness
for the Respondent.
[12] Mr. Reti testified that he had reviewed
the business operation of the Appellant and the financial records
maintained by Mr. Supersad for the Appellant.
[13] Mr. Reti said that from his analysis
the Appellant's accounting records for the Reporting Period
were inadequate. Mr. Reti said that the Appellant did not
maintain a General Ledger and that its financial records
consisted of various invoices, cancelled cheques, bank statements
and credit card receipts.
[14] Mr. Reti said that he attempted to
assist Mr. Supersad by showing him how the Appellant would comply
with the requirements of the Act.
[15] Mr. Reti said that when he reviewed the
Appellant's financial statements he reviewed the
Appellant's records for the months of October, November and
December 2002 for the purpose of confirming the input tax credits
claimed by the Appellant for that period. Mr. Reti said that he
did this analysis in order to verify the input tax credits
claimed by the Appellant for the Reporting Period. The working
papers prepared by Mr. Reti for the months of October, November
and December 2002 were filed as an exhibit (see Exhibit A-5).
[16] Mr. Reti said that in the course of his
review of the Appellant's records for October, November and
December 2002 he reviewed all receipts plus debit cards,
cancelled cheques, bank statements and credit card receipts.
Mr. Reti testified that according to the calculations as
shown on Exhibit A-5 he determined that the input tax credits
claimed by the Appellant for the three-month period were $748.34
and the input tax credits as verified totalled $727.64. Mr. Reti
said that his calculations indicated that 97.23% of the input tax
credits claimed by the Appellant for that period were
verified.
[17] Mr. Reti stated that he had also
reviewed the purchase invoices maintained by the Appellant for
GST purposes for the period January 1, 2001 to March 31, 2001
(see Exhibit A-6). During this period the input tax credits
claimed by the Appellant were $832.68 and the input tax credits
verified by purchase invoices were $451.87 resulting in a
variance between input tax credits claimed and input tax credits
established by purchase invoices of 54.27% (Note: Mr. Reti
said that he had confined his review for this period to actual
purchase invoices provided by the Appellant and he did not review
the Appellant's bank statements, debit card invoices,
cancelled cheques or credit card slips).
[18] Mr. Reti also testified that he had
reviewed the purchase invoices maintained by the Appellant for
the period October 1, 2002 to December 31, 2002. During this
period the input tax credits claimed by the Appellant were
$748.34 and the input tax credits verified by Mr. Reti were
$505.19. According to Mr. Reti the percentage of verified input
tax credits per purchase invoices were 67.8% of the input tax
credits claimed by the Appellant. Mr. Reti testified that
when he prepared his calculations he confined his analysis to
purchase invoices provided by the Appellant and he did not review
the Appellant's bank statements, debit card invoices,
cancelled cheques or credit card slips.
[19] As noted above the Reassessment issued
by the Minister only allowed the Appellant to claim input tax
credits of $451.87 for the Reporting Period compared to input tax
credits claimed by the Appellant in the amount of $7,280.75. The
Minister maintains that the Appellant "failed to provide the
documentation required to support that it is entitled to input
tax credits in excess of $451.87".
[20] From a careful analysis of all of the
evidence I have determined that the Appellant is entitled to 60%
of the input tax credits claimed, i.e. 60% of $7,280.75 or
$4,368.45.
[21] I have arrived at this number because
of the finding by Mr. Reti that 67.8% of input tax credits
claimed were as verified for the period October, November and
December 2002 (see Exhibit A-5) and that 54.27% of input tax
credits claimed for the period January, February and March 2001
(see Exhibit A-6) were verified by Mr. Reti.
[22] I also note that Mr. Supersad stated
during the appeal that he has retained new accountants to prepare
the tax returns for the Appellant as required by the Act
and he stated that he is attempting to follow the recommendation
from Mr. Reti to comply with the requirements imposed by the
CRA.
[23] The appeal is allowed, without costs,
and the Minister is instructed to permit the Appellant to claim
input tax credits of $4,368.45 for the Reporting Period.
Signed at Vancouver, British Columbia, this 11th day of
January 2005.
Little J.
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