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Citation: 2003TCC209
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Date: 20030404
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Docket: 2002-3423(GST)I
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BETWEEN:
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PIERRE BORDELEAU,
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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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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Alain Tardif, J.T.C.C.
[1] This is an appeal from a goods and services tax ("GST") assessment dated August 28, 2002, for the period from January 1, 1997, to December 31, 2000.
[2] The issue is whether the appellant failed to collect $7,659.38 in GST on sales of taxable goods and remit it to the Deputy Minister of Revenue of Quebec ("the DMRQ").
[3] In making the assessment at issue, the DMRQ, acting on behalf of the Canada Customs and Revenue Agency ("the CCRA"), relied on the following findings and assumptions of fact:
[TRANSLATION]
(a) The appellant is a GST registrant;
(b) The appellant operates a convenience store, a business that primarily sells beer, cigarettes and other products;
(c) During the period from January 1, 1997, to December 31, 2000, the appellant was an agent of the DMRQ for the purpose of collecting and remitting the GST;
(d) During the above-mentioned period, the appellant failed to remit to the DMRQ $7,659.38 in net tax, determined as follows:
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GST:
Input tax credits:
Total:
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$7,153.05
$506.33
$7,659.38
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(e) The $7,659.38 in tax generated $774.26 in interest and $895.60 in penalties;
(f) The appellant's failure to remit the tax to the DMRQ was due to his negligence and carelessness, since, inter alia:
(i) The tax payable had to be collected and therefore had to be remitted to the DMRQ;
(ii) The appellant had to collect the tax on sales of taxable goods, including beer and tobacco products;
(iii) The sales, including of beer and tobacco products, to the appellant's customers, the appellant himself and persons related to the appellant - sales on which no tax was collected or remitted - total the following for the periods at issue:
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Period
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Total Sales Without Tax
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January 1 to December 31, 1997
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$22,048.52
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January 1 to December 31, 1998
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$30,565.83
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January 1 to December 31, 1999
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$52,959.51
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January 1 to December 31, 2000
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$38,647.75
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(iv) The DMRQ's auditor calculated sales by reconstructing the taxable sales from the taxable purchases intended for sale;
(v) The taxable sales were reconstructed in three stages: sales of beer, sales of tobacco products and sales of other taxable goods;
(vi) There was a difference between the reported tax and the eligible tax based on the reconstruction of taxable sales;
(vii) Selling beer, tobacco products and other taxable goods is a commercial activity and is the appellant's principal commercial activity;
(viii) For the purposes of his commercial activity, the appellant had to collect the tax on all sales of beer, tobacco products and other taxable goods;
(g) The appellant claimed $506.33 in non-allowable ITCs;
(h) The ITCs disallowed were for the purchase of certain goods intended for sale and for expenses for gasoline used for personal purposes;
[4] Jean-François Levasseur, a chartered accountant, represented Dépanneur le complexe 1996 Enr. (Pierre Bordeleau). He reviewed the company's file and submitted a report filed as Exhibit A-1.
[5] Mr. Levasseur also called Pierre Bordeleau and his spouse, Sylvie Goulet, to testify in their capacity as the owner and manager of the business, respectively. Their testimony was basically the same as Mr. Levasseur's, namely:
· they had very little or no experience running a convenience store business;
· the convenience store was in an area where there were two large grocery stores;
· the people living in the area were mainly elderly and retired, and they carefully monitored the prices of the products they bought;
· to foster and develop customer loyalty, the appellant cut prices to break into this market of particular customers who considered price to be of decisive importance;
· for the reasons set out above, the profit margin of the appellant's convenience store was considerably lower than the standard in this field of economic activity.
[6] The following facts were admitted:
· The amount of the stock purchases on the basis of which the assessments were made.
· The auditor, Mr. Bourassa, did very serious, detailed work that was up to standards of good practice, considering the constraints of the file.
· The audits were conducted in a climate of mutual co-operation.
· Mr. Bordeleau's spouse also made some admissions in a letter she wrote to the Quebec Department of Revenue:
[TRANSLATION]
. . .
When Jacques Bourassa came by to audit the GST and QST remittances for 1997, 1998, 1999 and 2000, we could not give him our cash receipts book since we had never kept one, not knowing how it could be useful. This is the first time my husband has had a business. He is a welder by trade.
We have therefore used the "Z" reports from the cash register to prepare the cash receipts book for the above-mentioned years (photocopies attached).
You will surely notice that the amounts remitted to the government are not entirely consistent with the returns filed. It was when I checked the books again that I realized some income had not been reported. The dates and years are: June 3, 1998; March 6 and December 23, 1999; and March 18, October 23 and December 28, 2000.
These omissions were indeed unintentional on my part, and discovering this fact makes me very uncomfortable. It was never a question of hiding anything.
When we bought the convenience store, we had to compete with IGA and METRO, which were located very close to the store. We bought, and we still buy, our cigarettes on a day-to-day basis. Very often, we went to IGA or METRO several times a day to buy our cigarettes one carton at a time, since we did not have enough money to keep them in stock. To build our clientele, we sold cartons and cigarettes at a very small profit. Customers ordered a carton from us, we went to buy it and resold it to them immediately because we did not have the cash available.
We very often purchased things for friends or family members. They repaid us with no profit. It was in and out. We only wanted to be helpful. We definitely put an end to this practice. We had no idea of the impact it could have.
We sold newspapers that could not be returned to the supplier (Le Nouvelliste and La Presse), so if we did not sell them, it was a loss for us, but we never took account of this, and believe me, we threw out a lot of newspapers. This distributor has accepted returns only since 2001. I do not know the exact date.
We supply matches with purchases of cigarettes. I have always entered the purchase of matches under "groceries" rather than entering them as expenses of the convenience store. The same is true of stamps. We keep them to accommodate our customers, and I entered these purchases as "supplies" rather than expenses. There is no profit on stamps. We go buy 50 at the post office and resell them individually. The same is true of recycling bags. I always entered them under "groceries" when I should have entered the expense under "stationery".
When we needed cleaning products, paper towels or any other product for the use of the convenience store, my husband took the product off the shelf and did not enter it as an expense; however, we had not sold the products. We no longer do that, but it had been the way we did things since 1996.
Our biggest mistake was "CREDIT". It is incredible how much money we lost. We never entered it under "bad debts". To us, the money was lost and we could never get it back. We were dealing with people on welfare, so we resigned ourselves to it. Since they had an impact on the bookkeeping, the only bad debts we reported were NSF cheques.
We were victims of shoplifting, and one person even came into the convenience store at night without breaking in (he had stolen the janitor's keys and had copies made for himself). He took what he needed and left. It took a while for my husband to become aware of the scheme, since there was no offence. When he was caught on videotape, we filed a complaint with the police. He said that he had stolen a carton of cigarettes. We know that he stole more than he said, but we cannot prove anything.
Some cash register tapes are missing because of the water damage we had. The cash register's ink ribbon broke. Someone also broke into the store in December 1999. I cannot find the cash register tape. Perhaps it was given to the insurance company, but I cannot remember. The entire month of March 1998 is also missing. I cannot find the tapes; perhaps because of the water damage.
Our cash register was stolen on November 15, 1999. While we were waiting for a new one, Digitec gave us a replacement cash register, but the tape is incomprehensible (see attached photocopy). So for November 15 to December 12, 1999, I have the cash register tapes, but I cannot understand them.
I hope that this is satisfactory. Do not hesitate to call me for further information. The convenience store belongs to my husband, Pierre Bordeleau, but I have always done the accounting.
Sylvie Goulet
[7] The burden of proof was on the appellant. To discharge such a burden, it is not enough to raise doubts about the accuracy of an assessment, especially where the assessment was made using an alternative analysis because it could not be made using direct evidence. I consider it important to recall that the appellant, through his agent, a chartered accountant, admitted that the respondent had acted in a manner that was beyond reproach.
[8] The appellant admitted the purchase cost of the goods. He argued that the profit margin on sales was much lower than the usual standard in this type of business because of the competition and the customers in the area.
[9] I must dispose of this appeal on the balance of probabilities. On the one hand, it has been shown that the assessment was made using an alternative method that was not completely reliable but that was applied in an impeccable manner.
[10] The only criticism or argument made by the appellant about the correctness of the assessment under appeal was that the auditor had based his calculations on a profit margin higher than the actual one. He argued that the profit margins considered were arbitrary.
[11] To demonstrate this arbitrariness, the appellant's agent referred to the particular context, namely the location of the business and the type of customers who lived in the area. The particularity resulted from the presence of two large grocery stores that normally sold their products for less than the prices charged by convenience stores, the type of business the appellant owned at the time.
[12] To support his arguments, he provided a few examples in which the profit margin was very small or even non-existent on certain occasions.
[13] On the other hand, the respondent, through the testimony of the auditor, Mr. Bourassa, showed that the profit margin percentage had been established on the basis of real prices, discussions and a number of conversations with the appellant himself. In the end, Mr. Bourassa determined that the profit margins were much lower than those characterizing this type of operation, in which he had moreover developed an expertise of several years.
[14] The Court could see that Mr. Bourassa's work was serious and painstaking.
[15] I have stated several times that a person who operates a business and acts as an agent of the government for the collection of taxes must have bookkeeping that is beyond reproach and that makes it possible to conduct an audit at any time in accordance with accepted accounting principles. When such bookkeeping is adequate and supported by all vouchers, the clarity and precision of the available information makes it possible to draw appropriate, decisive conclusions.
[16] In this case, the respondent had to use an alternative method, and the quality of its application was readily acknowledged by the accountant representing the appellant. The appellant did not adduce any evidence that could verify or discredit the quality of the work done. Accordingly, he did not discharge his burden of proof, and the appeal is therefore dismissed.
Signed at Ottawa, Canada, this 4th day of April 2003.
J.T.C.C.
Translation certified true
on this 21st day of June 2004.
Sophie Debbané, Revisor
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