Date: 20001205
Docket: 1999-3720(GST)I
BETWEEN:
CARIE D. WILLIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Campbell, J.
[1] By Notice of Assessment dated May
16, 1995, the Appellant was assessed for Goods and Services Tax
(GST) and for penalties and interest for the period January 1,
1991 to December 31, 1994, by making adjustments to amounts
otherwise filed as follows:
Tax
adjustment, increase in GST
collectible
$36,243.83
Penalties
$ 5,459.91
Other
Penalties
$ 2,194.65
Interest
$ 5,215.57
[2] The category "other
penalties" originally calculated the penalty under section
285 of the Act at $2,194.65. The reply noted a calculation
error and identified the proper calculation as $2,215.91.
[3] The Appellant operated a sole
proprietorship known as United Plumbing & Heating which
supplied plumbing contracting services in the Province of
Nova Scotia. It ceased doing business in 1995. During the
period in question, the Appellant was registered as a GST
registrant. He was required to file 16 quarterly GST returns
for this period but filed only five, one each for the four
quarters in 1991 and one for the quarter ending September 30,
1993.
[4] The Minister's reply contained
an attached Schedule "A" detailing the amounts for
goods and services tax, income tax credits and net tax reported
by the Appellant and the adjustments made by the Minister to both
the five quarters for which returns were filed and the remaining
quarters for which they were not filed.
[5] The Appellant commenced the
business in 1991 and hired an employee to complete his books. He
found this too expensive and he let her go in 1992. During 1991,
all four GST returns were filed. He then entrusted his brother,
Lawrence Willis, to keep the business records. His brother
did not keep proper records and except for the one GST return
filed in 1993, the business filed no further returns. The
Appellant testified that he knew he had to keep receipts and
proper records and that he was responsible for filing returns. He
had people hired to do this and he stated he just
"didn't get on top of it".
[6] When the audit request came in
1995, an official of Revenue Canada attended at the
Appellant's residence and the Appellant's wife gave them
a box containing receipts and deposit books of the
proprietorship. Other than this box, the Appellant kept track of
business items on his computer. Except for this one contact,
Revenue Canada officials did not contact the Appellant again.
[7] With the lack of adequate
financial records, the Minister calculated GST collectible in
1991 by assuming that the gross business revenue reported on the
Appellant's 1991 T1 adjustment tax return consisted of
consideration for taxable supplies and prorated this business
revenue to quarterly periods. GST was then calculated on each
prorated amount.
[8] For the years 1992, 1993 and 1994,
the deposits recorded in the Appellant's business account
were used to determine the consideration for taxable supplies and
GST collectible.
[9] These methods of calculation for
the period of 1991 and the period 1992 to 1994, produced a figure
of additional GST collectible of $36,243.83. The Appellant gave
evidence that he had himself reconciled his bank deposit books
and his T1 form and agreed with the figure for GST collectible.
The issue of whether the GST of $36,243.83 was correctly
calculated and assessed was not before me for decision.
[10] The remaining two issues to be decided
are:
(1) whether the Appellant can claim
additional input tax credits and
(2) whether assessed penalties in the
amount of $5,459.91 pursuant to subsection 280(1) and other
penalties in the amount of $2,215.91 pursuant to section 285
together with interest pursuant to section 280 of the Act
are properly calculated.
[11] Paragraph 10(k) of the assumptions
contained in the reply stated that "the Appellant did not
have documentation to allow input tax credits to be claimed in
excess of those already claimed by him on returns filed".
The Appellant according to the Schedule "A" attached to
the reply reported input tax credits, in the five GST returns he
did file, totalling $6,092.35. He filed as an exhibit a summary
of input tax credits with detailed summaries for each quarter in
respect to each of the years under appeal. The total receipts for
the years 1991 to 1994 totalled $3,256.15. There were
discrepancies however between these summary figures in the
exhibit and the figures supplied in Schedule "A" of the
reply where the input tax credits were reported by the Appellant
as $6,092.35. That means the Appellant reported receipts for
input tax credits for five of the relevant 16 quarters in a total
amount of $6,092.35 but then provided a summary in his exhibit
for the entire 16 quarters for input tax credits in the amount of
$3,256.15. The Appellant agreed that the figures for 1991 where
he filed four returns should have been the same and he could not
account for why they were not the same. The Appellant did have
invoices to support each of the amounts claimed in the summary
sheets tendered as an exhibit.
[12] In addition to filing these summary
sheets, the Appellant also filed a letter from his major
supplier, Thornes, which confirmed that GST on 1993 and 1994
purchases for United Plumbing & Heating totalled $4,699.59.
These were not included in the Exhibit A-1 summary sheets as this
correspondence was only received by the Appellant on November 20,
2000.
[13] I accept that the Appellant did not
keep adequate financial records but I do not accept as reasonable
that the Minister expects GST to be payable and yet not allow
input tax credits. This was a plumbing contracting business and
would by necessity be making purchases of plumbing fixtures. They
could not possibly operate without doing so. I am therefore going
to allow the Appellant to claim the sum of $4,699.59 as an input
tax credit in respect to business purchases from his supplier,
Thornes. His summary sheets, which total $3,256.15 for the years
1991 to 1994, were, according to the Appellant, for GST on other
purchases for his business. I find that the fair and reasonable
approach is to allow one half of $3,256.15 as input tax credits
i.e. $1,628.08. These summary sheets cover purchases such as gas,
Canadian Tire, crane supply, Atlantic Air Conditioning, etc.
Without specific evidence by the Appellant in respect to the
receipts, I cannot find all amounts to be input tax credits for
the business. His business could not operate however without
purchases such as those outlined in his summary. Section 286 of
the Act requires proper record keeping to substantiate a
rebate or refund claim. I find the information in the two
exhibits together with the Appellant's evidence sufficiently
establishes the input tax credit claim to the extent I have
permitted.
[14] The Appellant was a credible witness
who testified that he has paid considerable amounts on his
outstanding account since 1998 and now just wanted to have what
he felt were reasonable adjustments made to his account. He
readily acknowledged that he had verified the GST amount of
$36,243.83 calculated by the Minister and agreed to this figure
during the hearing. He had full intention he stated to pay any
balance owing. By his own admission however he did not keep
proper records and he failed to file returns in a timely fashion.
His only explanation was that he relied on his brother after
1991. His brother was obviously incompetent in bookkeeping and
did not complete the work. It was however the Appellant's
business and he is the individual who is ultimately responsible
for the financial records, calculations and appropriate
remittances. The Minister assessed penalties under sections 280
and 285. The facts establish that the Appellant did not exercise
the requisite standard of care in calculating and remitting GST.
In fact after 1991, he made little attempt to comply with the
necessary filings and remittances even though he was aware that
it was his responsibility. The due diligence test established in
Pillar Oilfield Projects Ltd. v. Canada [1993] G.S.T.C.
49, has not been met. The penalty of $5,459.91 assessed under
section 280 is confirmed.
[15] Because of the difficulties the
Appellant had with his bookkeeper, and the family problems which
have resulted from the Appellant's financial burden,
including the near loss of his home, this is a case where the
Minister would be justified in waiving the interest and penalties
under section 281.1 of the Act. In making this
recommendation, I am aware that it is entirely within the
Minister's discretion to waive or cancel. One must however be
cognizant of the fact that interest charges of $5,215.57 are the
tip of the iceberg as the charge is an ongoing one. In this case
the Appellant has incurred an additional six years of interest
charges since 1994 and will continue to do so unless some relief
is provided. He stated that his wife and children have left him
over the financial problems this has created. Except for his
family's intervention he would have lost his home. His wages
have been garnished. The garnishee amount was reduced when it
became apparent his budget could not support the initial amount
being deducted. He is now making an effort to turn his financial
situation around. I strongly recommend that the Minister give him
some support in this effort if not in respect to interest for the
period under appeal, then for interest charges since 1994 and
those to be charged in the future.
[16] The final issue which I must deal with
is the penalty of $2,215.91 imposed under section 285 of the
Act. The wording of section 285 is almost identical to
that contained in subsection 163(2) of the Income Tax Act.
Section 285 requires that an omission or false statement in a
return be made knowingly or in circumstances amounting to gross
negligence. However the Income Tax Act contains a
provision (subsection 163(3)) that clearly places the burden of
proof on the Crown. There is no corresponding provision in the
Goods and Services Tax Act. The omission of such a provision
has been addressed in a number of cases by this Court including
Alex Excavating Inc. v. The Queen [1995] G.S.T.C. 57
and 897366 Ontario Ltd. v. The Queen [2000] G.S.T.C. 13.
In the absence of such a provision in this Act, these
cases place the onus on the Crown to establish the necessary
facts which would substantiate imposition of a penalty under
section 285. As stated by Bowman, A.C.J.T.C. in 897366
Ontario Ltd. v. The Queen at p. 135:
"It appears axiomatic that where a government imposes a
penalty upon a subject for conduct in which a necessary
ingredient is mens rea of intent or recklessness, it is
incumbent upon that government to justify its action."
[17] To arrive at any other conclusion would
be to ignore the basic rule of consistency in judgments and would
undoubtedly lead to unfair and unreasonable conclusions. The
Crown produced no evidence at the hearing to establish the
imposition of a penalty. No assessor was called to support a
finding of wilful conduct. The Appellant was negligent in not
keeping proper records and making remittances but the
Appellant's conduct does not amount to gross negligence. The
penalty under section 285 is therefore deleted.
[18] The appeal is allowed and the
assessment referred back to the Minister for reassessment and
reconsideration to allow input tax credits of $4,699.59 and
$1,628.08 to be applied against the GST liability, which was
agreed upon between the parties, in the amount of $36,243.83. The
penalty of $2,215.91 imposed under section 285 is deleted. The
penalty and interest imposed under section 280 are maintained but
should be re-calculated to give effect to the further input tax
credits allowed.
Signed at Ottawa, Canada, this 5th day of December 2000.
J.T.C.C.
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