Date: 20010316
Docket: 2000-2533-GST-I
BETWEEN:
9034-3252 QUÉBEC INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre, J.T.C.C.
[1]
This is an appeal from an assessment made under the Excise Tax
Act ("Act") whereby the Minister of National
Revenue ("Minister") claimed from the appellant a net
tax amount of $3,291.28 plus accrued interest calculated thereon
to the date of the assessment and a penalty in the amount of
$446.85.
[2]
The evidence revealed that the amount of $3,291.28 corresponds to
the total input tax credits credited to the appellant for the
period from April 25, 1996 to March 31, 1999. The appellant does
not dispute that these input tax credits were claimed with
respect to the supply of residential units (in an
18-unit apartment building) by way of lease. While
such a supply is an exempt supply pursuant to section 6 of Part I
of Schedule V of the Act, the respondent submits that the
business carried on by the appellant is not a commercial activity
within the meaning of subsection 123(1) of the Act and
therefore does not give rise to input tax credits pursuant to
subsection 169(1) of the Act. The respondent also assessed
penalties pursuant to section 280 of the Act. The relevant
provisions read as follows:
Division I – Interpretation
123. (1) Definitions – In section 121, this Part
and Schedules V to X,
"commercial activity" of a person means
(a) a business carried on by the person (other than a business
carried on without a reasonable expectation of profit by an
individual, a personal trust or a partnership, all of the members
of which are individuals), except to the extent to which the
business involves the making of exempt supplies by the
person,
(b) an adventure or concern of the person in the nature of trade
(other than an adventure or concern engaged in without a
reasonable expectation of profit by an individual, a personal
trust or a partnership, all of the members of which are
individuals), except to the extent to which the adventure or
concern involves the making of exempt supplies by the person,
and
(c) the making of a supply (other than an exempt supply) by the
person of real property of the person, including anything done by
the person in the course of or in connection with the making of
the supply;
"exempt supply" means a supply included in
Schedule V;
Subdivision b – Input tax credits
169. (1) General rule for [input tax] credits
– Subject to this Part, where a person acquires or imports
property or a service or brings it into a participating province
and, during a reporting period of the person during which the
person is a registrant, tax in respect of the supply, importation
or bringing in becomes payable by the person or is paid by the
person without having become payable, the amount determined by
the following formula is an input tax credit of the person in
respect of the property or service for the period:
A x B
where
A
is the tax in respect of the supply, importation or bringing in,
as the case may be, that becomes payable by the person during the
reporting period or that is paid by the person during the period
without having become payable; and
B
is
. . .
(c) in any other case, the extent (expressed as a percentage) to
which the person acquired or imported the property or service or
brought it into the participating province, as the case may be,
for consumption, use or supply in the course of commercial
activities of the person.
280. (1) Penalty and interest – Subject to
this section and section 281, where a person fails to remit or
pay an amount to the Receiver General when required under this
Part, the person shall pay on the amount not remitted or paid
(a) a penalty of 6% per year, and
(b) interest at the prescribed rate,
computed for the period beginning on the first day following
the day on or before which the amount was required to be remitted
or paid and ending on the day the amount is remitted or paid.
Schedule V – Exempt Supplies
(Subsection 123(1))
Part I – Real Property
6. [Rent] – A supply
(a) of a residential complex or a residential unit in a
residential complex by way of lease, licence or similar
arrangement for the purpose of its occupancy as a place of
residence or lodging by an individual, where the period
throughout which continuous occupancy of the complex or unit is
given to the same individual under the arrangement is at least
one month; or . . .
[3]
Ms. Dobrila Solunac-Milic who testified for the appellant said
that she was informed on the telephone by an agent from Revenue
Canada (as it was then called) that she had to file goods and
services tax ("GST") returns with respect to her rental
business. She therefore filed an application for registration on
May 10, 1996, on which she indicated that she wished the
registration for the GST to take effect on April 25, 1996. She
also indicated on that application, filed as Exhibit A-1,
that the appellant's principal commercial activity was
"gestion immobilière" (property management).
Nobody told her, and she said she was not aware, that the rental
of residential units was not a commercial activity. On
May 14, 1996, Revenue Canada sent a letter to the appellant
confirming the GST registration number. That letter indicated
that the appellant had been assigned a quarterly reporting period
and that her first GST return and amount of net GST payable was
to cover the period from April 25, 1996 to June 30, 1996.
[4]
The appellant thereafter filed quarterly returns showing no GST
collectible (except once, by mistake) but claiming input tax
credits on tax paid in respect of all supplies used in the
operation of its business. The input tax credits claimed were all
credited to the appellant until the assessment of September 1,
1999 requiring that the appellant reimburse the input tax credits
erroneously credited to it.
[5]
Ms. Solunac-Milic submits that she acted in good faith during all
that period and cannot understand why the Minister waited for
three years to advise her by way of an assessment that she
wrongly claimed input tax credits. She says that she kept in
casual contact with agents from Revenue Canada to be sure that
the appellant's GST returns were properly filed.
[6]
It is clear from the provisions of the Act that the
appellant was not entitled to any input tax credits. The owner of
a residential apartment building whose business consists of
renting apartments to tenants is a supplier of exempt supplies,
and such a business falls outside the definition of
"commercial activity". There is no entitlement to input
tax credits in respect of taxable supplies acquired in the course
of its rental business (see The Queen v. 398722 Alberta
Ltd., 2000 G.T.C. 4091 (F.C.A.)).
[7]
The assessment is therefore well-founded with respect to the net
tax assessed and the interest calculated thereon, which are the
inevitable results of the increased tax liability. However, with
respect to the penalties assessed pursuant to section 280 of the
Act, they are susceptible of a defence of due diligence
(see Canada v. Consolidated Canadian Contractors Inc.
(C.A.), [1999] 1 F.C. 209). Due diligence is the degree of
care that a reasonable person would take to ensure compliance
with the Act.
[8]
In Pillar Oilfield Projects Ltd. v. The Queen, [1993]
G.S.T.C. 49 (T.C.C.) at page 49-7, Judge Bowman stated the
following:
. . . As stated above innocent good faith in the making of
unintentional errors is not tantamount to due diligence. That
defence requires affirmative proof that all reasonable care was
exercised to ensure that errors not be made.
[9]
Judge Bowman added in that regard in Wong (E.) v. Canada,
[1996] G.S.T.C. 73 (T.C.C.) at page 73-5:
. . . It does not require perfection or infallibility. It
does, however, require more than a casual inquiry of an official
in the Tax Department.
[10] And more
recently, he stated in 1036705 Ontario Ltd. v. The Queen,
[2000] G.S.T.C. 73 (T.C.C.) at paragraph 20:
. . . Due diligence is not the same as innocent good faith. I
do not think that a phone call to some unnamed official in the
tax department with a couple of broad general questions,
eliciting equally broad and general answers, amounts to the type
of due diligence required to avoid the penalty imposed under
section 280. The trouble with the type of enquiry that was
evidently made here is that I doubt that Mr. King really knew
what questions to ask. Mr. King called some evidence to show that
sometimes general answers given by departmental officials to
broad questions are less than satisfactory. That is self evident.
I doubt that one really needs evidence to support such a
proposition. However, due diligence requires more than casual
enquiries.
[11] In all
these cases, the Court was not inclined to conclude that a
taxpayer exercised due diligence when he only made casual
enquiries of the Department of National Revenue. After careful
consideration, I am of the opinion that, in the present case, the
evidence did not reveal that the appellant did all that could be
reasonably expected of it to comply with the Act. Indeed,
it appears that Ms. Dobrila Solunac-Milic did not disclose
all the relevant information to the tax department. She contented
herself with asking questions about the appellant's GST
liabilities with respect to property management without
specifying that the appellant was in the business of renting
residential units. In fact, she did not seem concerned about the
fact that the appellant claimed input tax credits during the
period at issue, although she knew that the appellant did not
have to collect GST from its tenants, as appears from the
quarterly returns filed by the appellant during that entire
period.
[12] In the
circumstances, given the fact that the appellant claimed input
tax credits knowing that it did not collect GST from its tenants,
it is my opinion that it ought to have consulted professionals
who were knowledgeable in the matter of the goods and services
tax or given more precise information to the people at Revenue
Canada (as it was then called) so as to have a better idea of the
appellant's GST liabilities.
[13] The fact
that it took three years for the Minister to realize that the
appellant erroneously claimed input tax credits does not alter
the appellant's duty to ensure that errors not be made. I
therefore conclude that the appellant did not exercise due
diligence and that the penalties shall be maintained.
[14] The
appeal is dismissed.
Signed at Ottawa, Canada, this 16th day of March 2001.
"Lucie Lamarre"
J.T.C.C.
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