[OFFICIAL ENGLISH TRANSLATION]
Date: 20011026
Docket: 2000-4086(GST)G
BETWEEN:
JACKY OUAKNINE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This appeal concerns the amount of
sales subject to the goods and services tax ("GST")
during the period from August 1, 1997, to March 31,
1999.
[2] During that period, the appellant
operated four women's clothing stores, one at the Galeries de
Longueuil, one at the Galeries Lachine, another at Greenfield
Park and, lastly, one at the Galeries Lachute.
[3] The stores in question were
operated during the following periods:
- from August 1997
to April 1998 at the Galeries Lachine;
- from March to
December 1998 at the Galeries Longueuil;
- from May to
October 1998 at Greenfield Park, Quebec; and
- from May 1998 to
February 1999 at the Galeries Lachute.
[4] For the entire period from
August 1, 1997, to March 31, 1999, the appellant
reported sales of approximately $35,000 for the purposes of
computing the GST.
[5] In late September or early October
1999, the Minister of National Revenue (the
"Minister"), through Maurice Mailloux, an auditor,
initiated the process that was to lead to the audit of the sales
subject to payment of GST. At that time, he went to the
appellant's home to obtain all the books of account, data,
documents and vouchers relevant and necessary to the conduct of
the audit.
[6] The only documentation he obtained
was a portion of the bank statements and a few insufficient and
incomplete supporting documents. He had access to no books of
account and observed that there were no cash register tapes,
these being, according to the appellant, non-existent. There were
no documents proving purchases, the reason given being that the
inventory sold in the four stores came from the inventory of a
store doing business under the style and trade name Chez Lily.
According to the appellant, after that business closed, he had
shared the property with someone else and thereby obtained $9,000
worth of clothing, which corresponded to half the inventory in
question. He contended that he had used that inventory to operate
the four stores involved in the instant case.
[7] During the audit, the appellant
provided no invoices, but he did produce a few at the hearing,
adding that he had no copies of cheques to prove certain
purchases since all the suppliers had required that they be paid
in cash.
[8] In the case of his commercial
operations, he had no accounting data, used cash registers
without cash register tapes and did not keep copies of invoices
for his sales so that account would be kept of the amount of
taxes he had to remit.
[9] He asserted and repeated that it
was a very small business and that he had effected
compensation-that is to say, he reimbursed himself for taxes
paid-out of the amounts payable; but here again, there was no
accounting, no records and no documentary evidence on the basis
of which to audit the transactions.
[10] Thus, during the audit, he provided no
documents or accounting records that would allow a satisfactory
audit to be done.
[11] For a taxpayer operating a business,
regardless of its size, the context or the circumstances, there
is no valid reason for not having, at all times, all the
documentary evidence and vouchers on the basis of which it can be
determined whether the taxpayer subject to the obligation has
satisfactorily discharged his responsibilities as an agent. This
is a matter of management of the property of others, and thus it
is essential to have impeccable accounting.
[12] Collecting taxes with the obligation to
remit them to the government is a heavy responsibility which must
be performed in an irreproachable manner, failing which there may
and must be serious consequences for the person who fails to
discharge the obligation he has freely accepted in deciding to
operate a business.
[13] Section 286 of the Excise Tax
Act (the "Act") provides as follows:
Keeping books and records
(1) Every person who
carries on a business or is engaged in a commercial activity in
Canada, every person who is required under this Part to file a
return and every person who makes an application for a rebate or
refund shall keep records in English or in French in Canada, or
at such other place and on such terms and conditions as the
Minister may specify in writing, in such form and containing such
information as will enable the determination of the person's
liabilities and obligations under this Part or the amount of any
rebate or refund to which the person is entitled.
Inadequate records
(2) Where a person
fails to keep adequate records for the purposes of this Part, the
Minister may require the person to keep such records as the
Minister may specify and the person shall thereafter keep the
records so specified.
Period for retention
(3) Every person
required under this section to keep records shall retain them
until the expiration of six years after the end of the year to
which they relate or for such other period as may be
prescribed.
Electronic records
(3.1) Every person required by this section
to keep records who does so electronically shall retain them in
an electronically readable format for the retention period set
out in subsection (3).
Exemptions
(3.2) The Minister may, on such terms and
conditions as are acceptable to the Minister, exempt a person or
a class of persons from the requirement in subsection (3.1).
Objection or appeal
(4) Where a person
who is required under this section to keep records serves a
notice of objection or is a party to an appeal or reference under
this Part, the person shall retain, until the objection, appeal
or reference and any appeal therefrom is finally disposed of,
every record that pertains to the subject-matter of the
objection, appeal or reference.
Demand by Minister
(5) Where the
Minister is of the opinion that it is necessary for the
administration of this Part, the Minister may, by a demand served
personally or by registered or certified mail, require any person
required under this section to keep records to retain those
records for such period as is specified in the demand.
Permission for earlier disposal
(6) A person who is
required under this section to keep records may dispose of the
records before the expiration of the period in respect of which
the records are required to be kept if written permission for
their disposal is given by the Minister.
[14] The appellant argued that, in his
capacity as agent, he remitted all the GST corresponding to sales
of approximately $35,000. The appellant would like this Court to
take his word alone by way of explanation and justification. He
added that he certainly never made sales greater than that
amount, giving as the main reason the fact that operating the
four stores resulted in a loss of over $20,000.
[15] He would like this Court to believe
him, although he admitted he had made a number of false
statements regarding the same question and kept no records or
supporting documents.
[16] The appellant claimed that he had very
often gone several days without making a single sale and that he
had spent his time reading crime novels and playing
tic-tac-toe.
[17] Given his great availability, I find it
hard to understand why the appellant did not have the time to
keep records and to compile supporting documents to show that he
was properly carrying out the mandate he had accepted.
[18] As a collector of the Quebec sales tax
and the GST, he must have known that he would eventually have to
account for his administration. He not only did nothing, he
obviously deliberately organized his affairs so as to make any
audit impossible.
[19] The testimony of the appellant's
accountant showed that he had very limited knowledge of basic
accounting practices, which no doubt explains his aggressive
attitude toward the auditor, whom he criticized as having
incorrectly carried out certain checks of credit card and Interac
slips.
[20] As the accountant clearly had no
qualifications, he in no way convinced me of the quality of his
purported bookkeeping. He made a number of utterly gratuitous
statements, in particular that 98 percent of the
appellant's customers paid by credit card or Interac, whereas
the appellant claimed that 90 percent of his customers paid
that way. The percentages in both cases were pure fabrications
and not supported by anything at all.
[21] The witness, who represented himself to
be an accountant, did not know the number of businesses involved.
He claimed that the cash register tapes were not necessary and,
lastly, that the work he had done was correct, normal and
satisfactory. He checked nothing and assumed to be truthful the
information which the appellant had given him orally.
[22] I find this testimony worthless; what
is more, it shows the appellant's utter indifference toward
and disregard for his responsibilities as agent in collecting the
GST.
[23] The appellant testified that he had
acquired legal training abroad. The pleadings he signed and
certain aspects of his performance before the Court indeed showed
that he was able to represent himself and that he had well above
average knowledge of business matters. This adds to the
seriousness of his having submitted such a confused file and the
total absence of intelligent accounting in support of his
management.
[24] At the outset, he emphasized several
facts likely to generate a certain amount of sympathy for the
obvious purpose of taking the proceedings in an entirely
inappropriate direction. I take no account of these facts,
however much sympathy they might inspire, because they were not
at all material in the circumstances.
[25] As to the evidence regarding the very
object of the appeal, the appellant adduced no element, fact,
document, book of account or other supporting document of any
kind to prove its validity.
[26] I believe absolutely nothing of the
appellant's testimony. Most of his explanations were
contradictory, while others were implausible or simply weird.
[27] In particular, he stated that he had
sold nothing in Lachute during a three-month period. With regard
to this, his own witness, the administrator of the building
where the appellant's store was located, flatly contradicted
this testimony and denied that it could have been so.
[28] The appellant doggedly contended that
he had benefited from termination of his lease two months before
it was to expire, but his witness once again categorically denied
the statement.
[29] The appellant submitted that all the
statements concerning his sales, which he had himself made to the
management of the shopping centre where he operated two stores,
were false. He said he had considerably inflated the sales
figures so that the lessor would not terminate his lease, a lease
for which the consideration had nothing to do, however, with the
volume of sales.
[30] On this point, Ms. Viens, a
representative of the shopping centre in question, clearly stated
that the information had absolutely nothing to do with the lease,
particularly since sales in no way affected the amount of the
rent.
[31] Ms. Viens also mentioned that the
shopping centre always abided by the leases when tenants paid
their rent. She ended her testimony by saying that the appellant
had always paid his rent, thus refuting the appellant's basic
argument that he had to inflate his sales figures so that his
lease would not be terminated or left unrenewed.
[32] The burden of proof was on the
appellant, and he tried to discharge it by attacking, criticizing
and disputing the methodology adopted by the respondent. This was
perhaps not an ideal approach, but, in the circumstances, the
appellant himself brought about the situation by acting as he
did. The sales as determined on the basis of the appellant's
statements to the shopping centre's management may have been
different for the other stores, but the appellant should have
adduced credible evidence of that, which he did not do.
[33] Unfortunately, I cannot determine what
the sales figures for the Galeries de Lachute store might have
been. The only intelligent, valid and scientific way to do so was
through adequate and truthful accounting.
[34] The appellant deliberately chose not to
keep such accounting, and so he has only himself to blame if he
does not like the conclusions drawn. Although the method used by
the respondent was not perfect, it was the only one possible. The
results obtained are not so unreasonable that the Court must
intervene, particularly since the appellant adduced no evidence
that might discredit the quality of the work performed by the
respondent.
[35] There is a total lack of relevant
evidence on which to base the disposition of the appeal. In
addition, the testimony constituting the immaterial evidence is
simply not credible. Furthermore, sales were evaluated in a
fairly arbitrary way for one of the four stores, namely the
Lachute store.
[36] However, the evidence affords no
justification or ground for rejecting that approach, which was
the only available approach in the circumstances. On the other
hand, the method used for the other stores was satisfactory,
appropriate and highly valid. The results moreover are plausible
and reasonable.
[37] Despite the above-mentioned deficiency,
I do not believe I need interfere to determine, in an equally
arbitrary manner, the amount of sales that may have been achieved
by the Lachute store. The appellant himself was the cause of his
own misfortune in failing to keep any of the valid supporting
documentation and in not having adequate accounting records.
[38] The appellant acted in a grossly
negligent manner and displayed carelessness and recklessness
tantamount to extremely gross negligence. The appellant had an
obligation to have in his possession at all times all relevant
supporting documents, books of account and data required for an
auditable accounting. At the time of the audit, he had absolutely
nothing that would have enabled an audit in accordance with good
practice to be undertaken.
[39] The appellant collected and had to
collect the applicable taxes on all sales. Since the amount of
those taxes did not belong to him, he had a duty to be
disciplined and meticulous in carrying out his responsibility as
an agent. Instead, as the evidence showed, he was negligent,
careless and utterly irresponsible, and accordingly the penalties
are wholly justified. I therefore confirm that the penalties were
correctly assessed.
[40] The appeal is dismissed, with
costs.
Signed at Ottawa, Canada, this 26th day of October 2001.
J.T.C.C.
Translation certified true
on this 26th day of February 2003.
Erich Klein, Revisor
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