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Citation: 2004TCC664
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Date: 20041014
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Docket: 2003-2625(GST)I
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BETWEEN:
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MORT-AN-SON PLUMBING 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
Teskey, J.
[1] The Appellant appeals an
assessment made pursuant to the Goods and Services (GST)
provisions of the Excise Tax Act
(the "Act"), Notice of which is dated
March 14, 2003, containing notice number 10DT0110430.
[2] This matter first came on for
hearing on December 10, 2003 and resumed on
September 20, 2004. Many times during the first hearing, the
Appellant was advised that the issue was whether the assessment
was correct and the onus was on the Appellant to prove that the
assessment contained errors. At the conclusion of the examination
in chief of Glenda Thelma Mortenson, a director and
shareholder of the Appellant during the relative time period,
almost no pertinent evidence had been adduced. The Appellant was
offered an adjournment in order to produce their books and
records and any other relevant evidence that might help the
Appellant to demonstrate that the assessment contained
errors.
[3] At the continuation of the hearing
on September 20, 2004, the Appellant alleged that their
position had been compromised as a result of the adjournment and
my suggestion that the appeal appeared to be mathematics only and
the parties should attempt to settle, since during the settlement
attempts the Appellant had disclosed their records to the
Respondent.
[4] This allegation is without
substance or merit, as the Appellant was in the same position on
September 20, 2004 as on December 10, 2003, namely the
onus was on the Appellant to demonstrate the assessment had
errors and to produce the necessary documents to establish any
errors.
[5] The Notice of Assessment is
Exhibit A-5. It states that net tax assessed is
$271,726.99. This figure is arrived at by taking the amount of
tax declared and remitted during the period of assessment, being
from January 1, 1999 to December 31, 2001 of
$148,298.00 and adding thereto the sum of $74,099.15, being the
GST on undeclared revenues of $1,046,315.00 and by taking away
the sum of $49,329.84 of claimed and received input tax credits
(ITC). Thus, these two sums totalling $123,428.99 were added to
the amount of $148,298.00 to make a total net tax assessed of
$271,726.99.
[6] The Notice of Assessment
reads:
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(RE) ASSESSMENT PERTAINING TO: 1999-01-01 TO
2001-12-31
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Net Tax Assessed - Taxe nette cotisée
$271,726.99 DR
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Instalments - Acomptes provisionnels
$ 0.00
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Rebates - Remboursements
$0.00
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Payment on filing - Paiement sur production
$0.00
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Net Interest - Intérêt net
$14,991.70 DR
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Penalties - Pénalités
$23,280.06 DR
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Refund Amount - Remboursement
$0.00
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Amount Owing - Montant dû
$161,700.75
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[7] Since 7% of the undisclosed income
of $1,046,315.00 is $73,242.05 and not $74,099.15, as shown on
the summary of assessment, the net tax assessed is overstated by
the difference, namely the sum of $847.00.
[8] The notice, for clarity's
sake, should have shown payments received of $148,298.00.
Therefore, the 2003-03-04 Notice of assessment should
have read as follow:
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(RE) ASSESSMENT PERTAINING TO: 1999-01-01 TO
2001-12-31
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Net Tax Assessed - Taxe nette cotisée
$271,726.99 DR
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Instalments - Acomptes provisionnels
$ 148,298.00 CR
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Rebates - Remboursements
$0.00
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Payment on filing - Paiement sur production
$0.00
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Net Interest - Intérêt net
$14,991.70 DR
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Penalties - Pénalités
$23,280.06 DR
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Refund Amount - Remboursement
$0.00
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Amount Owing - Montant dû
$161,700.75
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[9] The Respondent, in the Reply to
the Notice of Appeal, made 29 assumptions of fact. With
agreement and amendment or lack of evidence to the contrary, they
now read as follows:
(a) registration
number 125364463 was acquired effective January 1, 1991;
(b) the Appellant
did not exist on January 1, 1991;
(c) the registration
number 125364463 was assigned to Mort-an-Son Plumbing
and Heating, a proprietorship;
(d) the
proprietorship was dissolved effective November 1, 1995;
(e) the appellant
was incorporated on May 9, 1995 and took over the
registration number 125364463 for the purpose of GST;
(f)
Norman Mortenson was the principal shareholder of the
appellant;
(g) at all material
times, the appellant was a plumbing contractor;
(h) at all material
times, the appellant supplied plumbing sub-contracting
services to Botting & Associates (Alberta) Ltd.
("Botting");
(i) Botting
was the appellant's only customer;
(j) prior to
1999 the appellant and Botting entered into a contractual
arrangement for the supply of plumbing services and payroll
services;
(k) all the
individuals that provided services to Botting through the
appellant were employees of the appellant;
(l)
Norman Mortenson was a minority shareholder of Botting,
whose shares were redeemed by Botting on August 3, 2003;
(m) the appellant was a
registrant for the purposes of the Act during the assessment
period of January 1, 1999 to December 31, 2001;
(n) the Appellant
was required to file its GST returns on a quarterly basis, with a
year-end of July 31;
(o) at all material
times, the appellant filed returns based on calendar
quarters;
(p) the appellant
filed returns for the period reporting tax collectible, input tax
credits and net taxes, as set out in Schedule B to the
Reply. The appellant alleged that the schedule is in error but
did not demonstrate any errors and it, therefore, stands as
accurate;
(q) the appellant
calculated the tax collected/collectible it reported by
multiplying the amount it reported on its return as "Sales
and other revenues" by 7%;
(r) for the
reporting periods ending between January 1, 1991 and
March 31, 2001, the appellant calculated the input tax
credits claimed by multiplying the amount reported on its
returns as "Sales and other revenue" by 2%;
(st) the appellant
received at least $4,009,700.00 in consideration for the supplies
it made during the period but only reported consideration of
$2,963,385.00, thus understating its supplies by the sum of
$1,406,315.00;
(vv) Botting paid tax of at
least $280,682.24 on the supplies it received during the period
and the appellant collected the said amount;
(w) the appellant failed
to account for and report tax collected or collectible of at
least $73,235.23 with respect to the consideration that became
payable to it during the period on the taxable supplies;
(xy) no books or records were
produced to the Court to establish any entitlement to any
ITCs;
(z) the appellant
paid GST on very few of the expenses it incurred;
(aa) at least 95% of the
appellant's expenses were in respect of the wages it paid to
its employees;
(bb) at all material times, the
election form to use the quick method of accounting for net tax
clearly stated that a registrant whose annual taxable sales
totalled more than $200,000.00 was not eligible for use of the
quick method.
[10] Exhibit A-1 is a form notice
sent by Canada Customs and Revenue Agency ("CCRA") to
the Appellant on May 14, 2001. This form speaks for itself.
It does nothing more than demand that the Appellant account for
GST by the general rules.
[11] On the same date as the Notice of
Assessment, the CCRA sent a letter of explanation
(Exhibit A-2) to the Appellant.
[12] The Appellant responded to the CCRA by
letter dated April 3, 2003.
[13] As a result of the April 3, 2003
letter, CCRA replied on July 7, 2003
(Exhibit A-8) and cancelled the penalties in the
amount of $23,280.06 and cancelled interest in the amount of
$7,496.85.
[14] Taking into consideration the error
mentioned in paragraph 6, the Notice of assessment on this
date, for the period up to March 14, 2003 should read:
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(RE) ASSESSMENT PERTAINING TO: 1999-01-01 TO
2001-12-31
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Net Tax Assessed - Taxe nette cotisée
$270,879.44 DR
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Instalments - Accomptes provisionnels
$148,298.00 CR
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Rebates - Remboursements
$0.00
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Payment on filing - Paiement sur production
$ 0.00
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Net Interest - Intérêt net
$7,496.85 DR
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Penalties - Pénalités
Nil
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Refund Amount - Remboursement
$0.00
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Amount Owing - Montant dû
$130,077.14
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[15] Exhibit A-4 contains a copy
of a running balance of monies owed by the Appellant, which was
sent by CCRA to the Department of Justice.
[16] The Appellant argues the figures in the
columns headed "penalty accruing" and "interest
accruing" ought not to be there as the assessment assesses
the total tax, penalties and interest as of March 14, 2003,
and since all figures in these two columns predate March 14,
2003, the Minister cannot make additional charges to the
Appellant for penalties or interest accruing prior to that date.
This, in essence, if allowed, would allow the Respondent to amend
its assessment with no right of appeal. Thus the sum of $6,375.76
and $3,138.62 are already in the assessment or they cannot be
added thereto.
[17] I accept this argument and refer the
assessment back to the Minister of National Revenue for
reconsideration and reassessment on the basis that net tax should
be stated as $270,879.44, as set forth above. In regards to
penalties, all have been deleted from the assessment and the
interest charged to the date of the Notice of Assessment, namely
March 14, 2003, stands at $7,495.70. Thus, the last box of
the Notice, which sates an amount owing of $161,700.75, which is
as of that date, is reduced by the sums of $847.00, $23,280.00
and $7,496.85, making a new amount of $130,077.90 being the
amount owing as of March 14, 2003 all as shown in
paragraph 13 above. The only interest and penalties that can
be added to the amount $130,077.90 must accrue after
March 14, 2003 and the charges in the "penalty
accruing" and "interest accruing" columns prior to
March 14, 2003 are either included in the assessment or
cannot be added to the assessment.
[18] Thus, the appeal is allowed, without
costs, and the assessment is referred back to the Minister for
reconsideration and reassessment on the basis that the net tax
assessed is $270,879.99 and that the amount owing as of
March 14, 2002 is changed to $130,077.90, which include all
penalties and interest to that date.
[19] The Appellant argues that it should
only be charged 5% GST on all income prior to the notification
dated March 14, 2001 (Exhibit A-1). This argument
is not valid as the Appellant lost the right in law to use the
Quick 5% Method prior to the assessment period, that is why the
net tax assessed stays the same subject to before mentioned
adjustment.
[20] There has been no evidence before me
that the ITCs claimed in the period and denied in the assessment
should be changed. From the evidence of
Robert Stuart Link, the Appeals Officer, the CCRA was
very generous to the Appellant in only taking away $49,329.84 of
the claimed ITCs, which the Appellant never should have received,
and these had to be charged to the Appellant, since it was not
entitled to them. The Appellant was warned by me in December of
2003 that, if they wanted some of the $49,329.84, they would have
to produce books of account and invoices to demonstrate the
actual amount of GST the Appellant paid out during the period. No
evidence was brought forward that disputes the amount of ITCs
claimed and received and taken away by the assessment.
[21] The Appellant further argues, based on
what is shown in Exhibit A-4 and summarized in
Exhibit A-7, a document prepared by the Appellant,
again that there should be further adjustments. On the evidence
before me since I must and have looked at the entire period and
not just a portion thereof to determine if the assessment
contained errors, and other than what I have said above, I can
find no fault with the assessment.
[22] Since the Appellant did not argue that
the employees wages were GST exempt, there is no need to review
all the provision of the Act or the Regulations thereto
that was put before the Court. The Respondent's position on
this was quite accurate and complete when given in argument.
Signed at Ottawa, Ontario, this 14th day of October, 2004.
Teskey, J.
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