|
Citation: 2004TCC216
|
|
Date: 20040326
|
|
Docket: 2001-2266(GST)I
|
|
BETWEEN:
|
|
ATS AUTOMOTIVE LTD.,
|
|
Appellant,
|
|
and
|
|
|
|
HER MAJESTY THE QUEEN,
|
|
Respondent.
|
REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the
Informal Procedure was heard at Regina, Saskatchewan, on
March 10, 2004. At the opening of the hearing, the
Appellant withdrew its appeal of the GST assessment and of the
section 280 penalty under the
Excise Tax Act. The appeal of the penalty
assessed under section 285 proceeded. On this basis, the
Respondent proceeded first and called Gordon Arnold C.M.A.,
the auditor on the file, to testify. The Appellant followed and
called Sharon Dubois to testify.
[2] Paragraphs 7 to 15 of the Reply to
the Notice of Appeal read:
7. The
Minister of National Revenue (the "Minister") assessed
the Appellant by Notice of Assessment No. 09ES0002073, dated
August 16, 2000, to among other things, deny input tax
credits totaling $18,669.05 in respect of Goods and Services Tax
("GST")/Harmonized Sales Tax ("HST") Returns
for the periods ending between October 1, 1997 and
March 31, 2000.
8. A Notice of
Objection was filed on November 14, 2000.
9. By Notice
of Decision dated March 27, 2001, the Minister
confirmed the assessment.
10. In so assessing the
Appellant, the minister relied on, inter alia, the
following assumptions:
a) the facts
stated and admitted above;
b) the
Appellant was incorporated on or about August 12, 1977
(sic);
c) the
Appellant registered for the purposes of the Act effective
September 1, 1997;
d) the
Appellant was a corporation involved in the operation of a tire
and automobile service center (the
"Auto Center");
e) the
Appellant is required by the Excise Tax Act,
R.S.C. 1985, c. E-15, as amended (the
"Act") to file its GST returns on a quarterly
basis;
f)
Sharon Dubois was the sole shareholder and director of the
Appellant Corporation;
g) prior to
the incorporation of the Appellant, the Auto Center was
owned and operated by Accent Tire & Auto Center Ltd.
("Accent");
h)
Ms. Dubois was also a shareholder and director of
Accent;
i) in or
about the summer and fall of 1997, Accent was unable to meet its
financial obligations and defaulted on a loan with the Sherwood
Credit Union (the "Credit Union");
j) on or
about September 30, 1997 the operations of the
Auto Center were taken over by the Appellant, whereby the
assets of Accent (the "Assets") were transferred to the
Appellant;
k) on or about
November 29, 1997 the Appellant, Accent and the
Credit Union entered into an agreement whereby the
Credit Union agreed to forbear exercising its rights to
realize on the loan to which Accent was in default (the
"Forbearance Agreement");
l) the
terms of the Forbearance Agreement included, inter
alia, the following provisions:
i) the
Appellant, Accent, and the Guarantors jointly agreed to pay to
the Credit Union the sum of $325,000.00 payable over a
specified period;
ii) in the
event of default the Appellant, Accent and the Guarantors waive
notice of demand to seize and sell the Assets, pursuant to
section 59 of The Personal Property Security Act;
iii)
Ms. Dubois was one of Guarantors referred to above;
m) as a result of
the Forbearance Agreement, the Credit Union did not
effect seizure of Assets;
n) on or about
January 6, 1998, the Appellant entered into a financing
agreement with the Credit Union, whereby the
Credit Union agreed to loan the Appellant the sum of
$325,000.00 (the "Financing Agreement");
o) the purpose
of the Financing Agreement was to finance the purchase of
the Assets;
p) the
Appellant claimed an Input Tax Credit (the "ITC") in
the amount of $18,669.05 for the reporting period ending
December 31, 1997 arising out of a purported purchase
of the Assets from the Credit Union;
q) the Assets
were not purchased by the Appellant from the Credit Union,
but rather were transferred directly from Accent to the
Appellant;
r) no
GST was paid by the Appellant, nor was the Appellant invoiced or
charged GST as a result of the transfer of the Assets to the
Appellant;
s) the
Appellant did not obtain sufficient documentation to support its
claim for the ITC as required by section 169(4) of the
Act or pursuant to the Input Tax Credit Information
Regulations;
t)
Ms. Dubois was personally responsible for the accounting of,
and prepared the GST returns for, both Accent and the
Appellant;
u)
Ms. Dubois signed an acknowledgment stating that she was
fully aware of the nature and effect of the Forbearance
Agreement, and that she received independent legal advice
respecting the agreement;
v)
Ms. Dubois was an experienced business person;
w) Ms. Dubois
was a shareholder, director and bookkeeper of other related
companies, which companies had previously been assessed by the
Minister for failing to remit GST as required by the
Act;
x) the
Appellant knowingly, or under circumstances amounting to gross
negligence, made or participated in, assented to or acquiesced in
the making of false statements or omissions in the GST returns
filed for the reporting period of December 31, 1997, as
a result of which the net tax that would have been determined on
the basis of the information provided in that return was less
that the net tax that would have been determined on the basis of
the information provided in that return was less than the net tax
for that reporting period by the amount of $18,669.05;
y) as a
consequence of the making of the false statements referred to
above, the Minister assessed the Appellant a penalty in the
amount of $4,667.00 pursuant to section 285 of the
Act.
B. ISSUES TO
BE DECIDED
11. The issues are whether
the Appellant is entitled to the ITC in the amount of $18,669.00
and whether the Minister properly assessed penalties against the
Appellant.
C.
STATUTORY PROVISIONS RELIED ON
12. He relies on
subsection 169(4) and sections 148, 166, 183, 280, 285 of
the Act, the Input Tax Credit Regulations
(SOR/91-45), and The Personal Property Security Act
(Saskatchewan).
D.
GROUNDS RELIED ON AND RELIEF SOUGHT
13. He respectfully
submits that the Minister properly denied the ITC and that the
Appellant claimed the ITC relating to a transfer of assets for
which no tax was paid and for which the Appellant was not
invoiced or charged GST.
14. He further submits
that the Appellant failed to obtain sufficient documentation to
support its claim for the ITC as required by section 169(4)
of the Act or pursuant to the Input Tax Credit
Information Regulations.
15. He further submits
that the Appellant knowingly, or under circumstances amounting to
gross negligence, made or participated in, assented to or
acquiesced in the making of false statements or omissions in the
GST returns filed for the reporting period of
December 31, 1997, as a result of which the net tax
that would have been determined on the basis of the information
provided in that return was less than the net tax for that
reporting period by the amount of $18,669.05;
[3] At the opening of the hearing, the
Appellant admitted assumptions 10(b) - which should read
August 12, 1997, (c), (d), (e), (f), (h), (l)iii), (n),
(o), (p), (r), (t) and (u).
[4] Mr. Arnold was evasive while
on the stand and at one point testified that he had the
handwritten notes that he made while interviewing
Mrs. Dubois on May 24, 2001 in Court with him. He
then referred to his computer notes, which he stated he prepared
from his handwritten notes. When asked for the handwritten notes
under cross-examination, he testified that he did not have them.
Thus, the Court does not accept any of his testimony respecting
that interview. Furthermore, where Mr. Arnold's
testimony conflicts with that of Mrs. Dubois,
Mrs. Dubois' testimony is preferred and is accepted as
the truth of that matter.
[5] Accent "quitclaimed and
conveyed" to Sherwood Credit Union.
("Sherwood") of Regina, the assets in question and some
receivables by deed dated November 29, 1997 (Exhibit
A-1, Tab 8). This ambiguous phraseology enabled Sherwood to
acquire this property and allege that it had not formally seized
this property.
[6] Sherwood never formally
transferred these assets and receivables to ATS by a written
document and alleged to Mr. Arnold that it had never seized
them.
[7] On November 29, 1997,
Sherwood once again did not execute a "Forbearance
Agreement". (Exhibit A-1, Tab 7) respecting Accent, ATS,
Mr. and Mrs. Dubois and three other corporations
of Mr. Dubois' - all of whom executed it. Loans
totalling $988,355.12 were forgiven by Sherwood in return for a
Consent to Seizure (para. 2) and payment of $325,000.00 over
12 years (para. 1), and security and various assurances.
Like the "quitclaim and conveyance", this document is
replete with ambiguous clauses designed to favour Sherwood.
[8] On December 18, 1997,
Sherwood offered a loan of $325,000.00 to ATS with the security
described in Exhibit A-1, Tab 7, and a promissory note and
general security agreement from ATS. This was accepted and
Mrs. Dubois regarded it as a bill of sale of the assets and
receivables, which in fact became ATS'.
[9] As a result of the corporate debt
problems of Accent and other Dubois corporations in the tire
business in Regina and Estevan, Mr. Dubois was insolvent and
later went bankrupt. Mrs. Dubois' testimony is accepted
that in late 1996 and 1997 she first became acquainted with these
corporations' affairs when she gathered their records for
Revenue Canada. At that time, she was new to the business and to
corporate and tax affairs. On August 12, 1997, she
incorporated ATS because Mr. Dubois was on the way to
becoming bankrupt.
[10] Mrs. Dubois regarded
Sherwood's December 18, 1997 letter (Exhibit A-1,
Tab 9) as a bill of sale of the assets and receivables from
Sherwood to ATS. The Court accepts her testimony as true
because:
1. ATS acquired the assets
and receivables.
2. This is the only
document executed by Sherwood.
3. ATS had the assets from
then on and Accent had relinquished them to Sherwood by Exhibit
A-1, Tab 8.
[11] Mrs. Dubois began running the
accounting and reporting of a business for the first time by her
operation of ATS. Her husband did the tire side of the business.
On an accountant's advice, Mrs. Dubois claimed the ITC
in question in her first GST return. Her claim was for
7/100 of $266,000.00, or $18,669.50. The
$266,000.00 was the appraised value of the assets, less the
receivables, in the total of $325,000.00. She misunderstood the
7/107 concept at that time.
[12] Mr. Arnold acknowledged on
cross-examination that Mrs. Dubois did not
"knowingly" file the ITC claim in question.
[13] In the Court's view she was not
otherwise grossly negligent. She had learned that Accent had
transferred the assets to Sherwood. After that, Sherwood had
taken the assets as security from ATS bona fide and for
value. ATS had title. She did not know that the CCRA (as it then
was) required sales documents. She had mortgaged her home and
guaranteed the Sherwood loan personally to secure Sherwood
respecting the $325,000.00 loan on what it acknowledged were
ATS's assets. The ITC claim was only respecting the
$266,000.00 based on an understandably mistaken calculation of
the 7 %, and was based on an accountant's advice. That
claim was not grossly negligent or based on gross negligence. In
the Court's view it was not even negligent on the part of
Mrs. Dubois or the Appellant. If anything, based on the evidence
before the Court, it is Sherwood's conduct which is
questionable.
[14] For these reasons, the appeal is
allowed. In view of the Appellant's last minute concession
described in paragraph [1], the Appellant is only awarded the
taxable costs of the hearing itself for the full day.
Signed at Vancouver, Canada, this 26th day of March, 2004
Beaubier, J.
Email this Content