REASONS
FOR JUDGMENT
D’Auray J.
I. Facts
[1]
By notice of assessment dated April 3, 2009, the
Minister of Revenue of Quebec (the Minister) adjusted the goods and services tax
(the GST) collectible by 9103-4348 Québec Inc. (the appellant) by $14,189.91
for the periods between October 1, 2005, and March 31, 2008.
[2]
Moreover, the Minister calculated interest and
penalties for late remittance of $3,228.73 pursuant to section 280.1 of the Excise
Tax Act, R.S.C. 1985, c. E-15 (ETA).
[3]
On December 8, 2009, following the filing of a
notice of objection on or about May 4, 2009, the Minister confirmed the
assessment for the period in question.
[4]
At the beginning of the hearing, the respondent cancelled
an amount of $1,147.17 for the periods between October 1, 2007, and March 31,
2008, owing to a calculation error.
[5]
During the periods at issue, that is, the
periods from October 1, 2005, to September 30, 2006, from October 1, 2006,
to September 30, 2007, and from October 1, 2007, to March 31, 2008,
the appellant operated a restaurant and bar by the name of Golden Pub.
[6]
During those periods, all the supplies made by
the appellant in carrying on its business activities were taxable supplies.
[7]
From 2005 to 2008, the appellant used in its
establishment two different sales recording systems, namely, the “Maitre’D”
system, until May 2006, and the “Veloce” system, as of June 2006. For
accounting data entry, the appellant used a program called “Acomba.”
Choice of alternative audit
method
[8]
During the examination-in-chief of Ms. Gendron, a
manager
at the Agence du Revenu du Québec (ARQ), by Mr. Jodoin, counsel
for the appellant, Ms. Gendron provided the background to the file.
(a)
Ms. Gendron indicated that, following a preliminary
analysis, it was decided that the appellant’s file would be audited.
(b)
To that end, Ms. Matthews was assigned to the
appellant’s file as an ARQ auditor. Ms. Gendron was Ms. Matthews’ manager.
(c)
On May 12, 2008, Ms. Matthews went to the
appellant’s place of business to begin the audit.
(d)
Ms. Matthews did not find any notable discrepancies
in the appellant’s books of account. The amounts in the general ledger matched
the income amounts in the financial statements and in the “Veloce” sales
recording system.
(e)
Ms. Gendron decided, on the recommendation of
Ms. Matthews, to apply an alternative audit method in the appellant’s file
for the following reasons, inter alia:
(1) according to the ARQ, the purchases‑to-sales ratio was outside
the norm; food purchases represented 44.13% of sales and beverage purchases
represented 55.48% of sales, whereas, according to the ARQ, the percentage for
this type of restaurant and bar should have been between 30% and 35%;
(2) according to the ARQ, the percentage of input tax credits (ITCs),
i.e., 46.6%, was too high in relation to the GST remittances made by the
appellant;
(3) the gross margin was between 52% and 55%, whereas, according to the
ARQ, it should have been between 65% and 70%;
(4) there was no copy of the back-up tape from the ‟Maitre’Dˮ sales recording system that the appellant had used for most of
2006; thus, the sales data were missing for that period;
(5) the appellant had not provided the ARQ with documents, namely,
inventory control sheets, indicating liberalities, free items, employee
discounts, “two-for-one” specials and losses owing to broken or unusable
bottles; for the sake of concision, I will refer to all of these terms as [translation] “complimentary items and losses;”
(6) an analysis of the meal bills revealed that the bill numbers were
not consecutive; in addition, for the period from October 1, 2006, to September
30, 2007, 9.15% of bills were missing.
Alternative
audit method used
[9]
In the present case, the Minister used the
sales-per-litre ratio method to determine the taxable supplies and,
consequently, the GST the appellant was required to collect.
[10]
The amount of alcohol purchases for the periods
at issue was not disputed by the appellant. On the basis of the purchases, in
this case, of litres of bottled beer and of wine, the Minister determined the
number of litres of alcohol available for resale for the periods at issue.
[11]
The Minister relied on the sales recorded in the
appellant’s “Veloce” sales recording system to determine, for each period, the
ratio generated by one litre of alcohol sold. In his calculations, the Minister
allowed for a percentage for [translation] “complimentary items and losses.”
[12]
For the period during which the appellant used
the “Maitre’D” sales recording system, that is, prior to May 2006, since the
data were missing, the Minister used the data from 2007, calculating a 2%
downward adjustment.
[13]
Paragraphs 16(f) to 16(r) of the Reply to the
Notice of Appeal explain in detail the alternative audit method that the
Minister used to determine the taxable supplies and the GST collectible.
[translation]
16. . . .
(f) in order to
determine the amount of GST the appellant collected or was required to collect
during the period in question, the amount of taxable supplies made by the
appellant was reconstructed using the appellant’s annual sales and discounts
report, namely, the report from the Maitre’D system prior to May 2006 and the
Veloce system as of May 2006, which were the systems used by the appellant;
(g) the Minister
considered all alcohol sales for each of the products to determine, on a per-year
basis, the ratio generated by one litre of alcohol sold;
(h) the Minister
identified the number of litres of alcohol purchased by the appellant from
brewers and the Société des alcools du Québec;
(i) the Minister determined
that for each litre of beer and wine combined that the appellant supplied by
way of sale, the appellant made taxable supplies in the amount of $110.96 for
the period from October 1, 2006, to September 30, 2007, and in the amount
of $126.24 for the period from October 1, 2007, to March 31, 2008;
(j) since the
appellant could not provide all its documents for the period from October 1,
2005, to September 30, 2007, the Minister used a ratio of $108.74, namely, the
ratio calculated for the period ending September 30, 2007, allowing a 2%
downward adjustment to cover the increased selling price of goods
[$110.96 X 2% less];
(k) more specifically,
the Minister identified all the litres of beer and wine sold and accounted for
by the appellant in order to determine the ratio of the sales noted above to
purchases, namely:
|
October 1, 2005, to
September 30, 2006
|
7,700.770 litres
|
|
October 1, 2006, to
September 30, 2007
|
6,404.600 litres
|
|
October 1, 2007, to
August 31, 2008
|
2,361.489 litres
|
(l) the amounts
mentioned in the above subparagraphs for the entire period in question, from
mid-May 2006 onward, have been established on the basis of all the available
accounting data submitted by the appellant to the Minister; they were very
detailed data taken from the
“VELOCE SYSTEMˮ;
(m) from the purchase
invoices that the appellant submitted to him or the data from the brewers and
the SAQ,[3]
the Minister identified the quantities, converted to litres, of wine and beer
purchased by the appellant that the appellant supplied by way of sale for each
of the three fiscal years included in the period in question, including some
adjustments to account for losses incurred by the appellant (the quantities
used in the kitchen or consumed by staff, the complimentary items provided to
patrons and losses of any nature, put at approximately 5%);
(n) the amount of
taxable supplies made by the appellant so reconstructed by the Minister is
$837,400.72 for the period between October 1, 2005, and September 30,
2006 (7,700.700 litres x $108.74, to within approximately $27.00), $710,665.30
for the fiscal year ending September 30, 2007 (6,404.600 litres x $110.96, to
within approximately $10.00), $298,113.43 for the period ending March 31,
2008 (2,361.489 litres x $126.24, to within approximately $0.94);
(o) the amount of GST
that the appellant collected or that it was required to collect during the
period in question was:
|
period from
October 1, 2005, to September 30, 2006:
|
$55,829.51
|
|
period from
October 1, 2006, to September 30, 2007 :
|
$42,639.92
|
|
period from
October 1, 2007, to March 31, 2008:
|
$16,276.99
|
|
Total
|
$114,746.42
|
(p) the appellant filed
its net tax returns, reporting an overall amount of $100,556.39 in GST
collected or collectible in calculating its net tax for the period in question;
(q) the appellant did
not therefore report, in calculating its net tax for the period in question, an
amount of $14,190.03 ($114,746.42 - $100,556.39) as GST collected or
collectible (there is a discrepancy of $0.12 in the appellant’s favour in the
assessed amount of $14,189.91);
(r) a review of all the documents shows that the appellant did not
report, during the period in question, each and every sale that was made and
for which tax at the rate of 7% (6% for supplies made after June 2006 and 5%
for supplies made after December 2007) on the value of the consideration for
the supplies was payable by the recipients to the appellant, who was required to
collect it.
II. Issues
[14]
(i) Is Ms. Gendron’s testimony hearsay?
(ii) Was the Minister
justified in using an alternative audit method?
(iii) Did the Minister
correctly assess the appellant by adding in his calculation of net tax an
amount of $14,189.91 as GST that the appellant allegedly did not account for
and remit to the Receiver General?
III. Positions
of the parties and legal analysis
(i) Is Ms. Gendron’s testimony in her examination-in-chief by counsel
for the respondent, Ms. Alcindor, hearsay?
[15]
At the beginning of Ms. Gendron’s
examination-in-chief by Ms. Alcindor, counsel for the appellant, Mr.
Jodoin, objected to all questions pertaining to the work done by the auditor in
this case, Ms. Matthews. According to Mr. Jodoin, the great majority of
the questions posed by Ms. Alcindor to Ms. Gendron elicited hearsay,
because Ms. Gendron had no first-hand knowledge of the audit work performed by
Ms. Matthews.
[16]
Ms. Alcindor indicated that Ms. Matthews, the
auditor responsible for the appellant’s file, had retired from the ARQ five or
six years earlier and that it was decided not to have her testify, as it would
have been too complicated for Ms. Matthews to reacquaint herself with the
file.
[17]
Furthermore, according to Ms. Alcindor, Ms.
Gendron could testify because, as Ms. Matthews’ manager, she was the one who
had authorized the use of the alternative audit method. Also, she had closely
overseen the file and had been involved at every stage. Moreover, Ms. Gendron
had attended meetings with Ms. Matthews, Mr. Drummond (the appellant’s
representative and shareholder) and counsel for the appellant to discuss the
appellant’s file.
[18]
I reserved my decision on the objection and
asked the parties to put forward at the argument stage their positions on the
hearsay issue.
[19]
It should be noted that, at the hearing, Ms.
Gendron was examined in chief by Mr. Jodoin. Counsel for the respondent, Ms.
Alcindor, chose not to cross-examine her and instead conducted an examination-in-chief
of Ms. Gendron.
[20]
In its submissions, the appellant argued that most
of Ms. Gendron’s testimony was hearsay. The appellant’s argument is that
Ms. Gendron did not go to the premises of the appellant’s restaurant and bar,
that the data were compiled by Ms. Matthews and that the worksheets and
T-20 Audit Report were prepared by Ms. Matthews. Furthermore, it was Ms.
Matthews who checked the records and meal bills and who read the sales reports
in the “Veloce” sales recording system. The appellant argues that no valid
reason was provided by the respondent for Ms. Matthews’ absence in court.
The appellant also argues that none of the hearsay exceptions applies in this
case.
[21]
The appellant therefore argues that the appeal
must be allowed on the basis that the respondent is unable to provide
justification for selecting the alternative audit method in this case.
[22]
As for the respondent, she asserts that at the
time of the hearing Ms. Matthews had been retired from the ARQ for five or
six years. It would have been complicated for Ms. Matthews to come out of
retirement and review the file, and so a decision based on expediency was made.
[23]
Furthermore, the respondent argues that Ms.
Gendron has first-hand knowledge of the file. As Ms. Matthews’ manager, Ms.
Gendron was the only one who could authorize the use of the alternative audit
method. Also, all data used by Ms. Matthews were taken from the appellant’s
documents that are an integral part of the ARQ’s file. For instance, the copy
of the appellant’s “Veloce” sales recording system is an integral part of the
file. All of Ms. Matthews’ worksheets are in the ARQ’s file. All the
calculations of ratios by Ms. Matthews are evident upon reading the
documents from the appellant. The only figure from the ARQ is the percentage of
[translation] “complimentary items
and losses.” In that regard, the respondent argues that the percentage was
determined by the ARQ because the appellant had not provided the inventory
control sheets establishing the percentage of [translation]
“complimentary items and losses.” Furthermore, the percentage was determined by
the ARQ following meetings attended by Ms. Gendron along with Ms. Matthews
as well as, for the appellant, the appellant’s counsel and Mr. Drummond.
[24]
The respondent therefore argues that Ms.
Gendron’s testimony is admissible because it is reliable for the following
reasons: Ms. Gendron had first-hand knowledge of the file given her involvement
in the case. Furthermore, the data came from the appellant’s documents. Ms.
Gendron had access to those documents; her testimony could not be hearsay, as
it was reliable.
[25]
The respondent also argues that Ms. Gendron’s
testimony is admissible in evidence as the appellant consented to its
admissibility by undertaking its own examination-in-chief of Ms. Gendron.
[26]
I will begin with the respondent’s last
argument, namely, that by conducting an examination-in-chief of Ms. Gendron,
the appellant implicitly consented to hearsay evidence.
[27]
I am of the view that having conducted an
examination-in-chief of Ms. Gendron on the facts surrounding both the
choice of the alternative audit method and the assessment in the case at bar,
counsel for the appellant cannot object, during the examination-in-chief of Ms.
Gendron by counsel for the respondent, to questions also pertaining to the
facts surrounding the choice of the alternative audit method and the
assessment.
[28]
It is apparent from the case law and doctrine
that the appellant cannot introduce hearsay evidence which it later argues is
inadmissible. Professor Ducharme explains, in Précis de
la preuve, 6th ed. (Montreal: Wilson & Lafleur,
2005), the nuances to be considered with respect to consent to hearsay
evidence:
[translation]
1438. Contrary to what some authors assert, in the case
of hearsay evidence, a distinction must be made between waiver, that is, not
objecting, and consent. A party may refrain for a number of reasons from
objecting to a witness’s relating another’s statement. It may do so in
particular because it believes, rightly or wrongly, that what is being
presented is a fact relevant to the dispute, and not because it intends to
consent to the statement being used as testimony. In order for a party’s refraining
from objecting to evidence being led of a statement to amount to consent within
the meaning of article 2869 C.C.Q, it is necessary that the party could not
have failed to appreciate that the evidence was being adduced as testimony. Consent
should be presumed where a party has itself produced, as testimony, an adverse
statement.
[Emphasis added.]
[29]
In Construction Nelson inc c Centre de
rénovation Gervais Roch inc, 2013 QCCQ 7618, the defendant, by
examining Mr. Massicotte for discovery on the specifics of the loan and by
filing that examination for discovery in its entirety in the Court record, waived
the possibility of raising an objection to evidence of a loan. Judge Landry of
the Court of Québec states the following at paragraphs 55 to 58 of his reasons:
[translation]
[55] In his treatise entitled La preuve civile, Professor
Royer25 writes in this regard (at page 1426):
Litigants who consent to the production of evidence or who introduce
or use evidence cannot subsequently object to that evidence by relying on
admissibility rules whose sanction is not contrary to public order, in
particular those set out in articles 2860 to 2868 of the Civil Code of Québec. Thus,
a defendant who has examined a plaintiff on the existence or content of a juridical
act cannot subsequently prevent the adverse party from proving the juridical
act through testimony, even if such testimony contradicts a validly executed
instrument. A party who has examined the adverse party on that party’s affidavit
and who has filed that examination in the record cannot object to the
admissibility of the testimony by affidavit. Such waivers of the
sanction of a rule on admissibility have often occurred in examinations for
discovery under articles 397 or 398 C.C.P.
(Emphasis
added.)
[56] There have
been a number of judgments to the same effect,26 including that of
the Court of Appeal in Sabourin c. Charlebois:
In the
present case, counsel for the appellant decided to examine the respondent before
the filing of the pleading (article 397 C.C.P.); the deposition thus taken forms
part of the record (article 396 C.C.P.). On that occasion, counsel for the appellant
introduced himself the evidence to which he will seek to object during the
trial.
(Emphasis
added.)
[57] In Barrest,27
Judge Bachand summarized the state of the law on the issue as follows:
By
virtue of Iarrera c. Guinta Iarrera 1987 RDJ 223 (CA) and the judgment in Via
Route inc. c. Zawahry J.E. 97-197 (CS), a party that itself introduces
inadmissible evidence, such as testimonial evidence, by filing an examination for
discovery, cannot subsequently object to such evidence.
(Emphasis
added.)
[58] Consequently,
this argument by the defendant for the dismissal of the action is ill-founded. The
motion to dismiss must accordingly be considered on the basis that the alleged loan
has been established.
______________________
25 4th edition (Cowansville: Les Éditions
Yvon Blais Inc., 2008), 1891 pages.
26 Sabourin
c. Charlebois [1982] C.A.
361; Via Route inc. c. Zawahry J.E. 97-197 (C.S.); Iarrera c.
Guinta Iarrera [1987] RDJ 223 (C.A.); Barrest c. Dumoulin B.E.
2006BE-110.
27 Cited in preceding footnote.
[30]
Therefore, Ms. Gendron’s testimony is admissible
as to the facts relating to the alternative audit method and the Minister’s assessment.
The appellant’s objection is dismissed.
[31]
In light of this finding, I therefore need not
consider whether the hearsay exception under the principled approach set out by
the Supreme Court of Canada applies to Ms. Gendron’s testimony.[4]
(ii) Was
the Minister justified in using an alternative audit method?
[32]
The appellant argues that it is up to the
respondent to justify the Minister’s choice to use an alternative audit method for
assessment purposes, and that if the Court were to decide that the use of the alternative
audit method by the Minister was not justified, the presumption of validity of
the assessment would no longer stand.
[33]
Contrary to the appellant, the respondent argues
that it is the appellant who has the burden of proof and that it is up to the
appellant to show why the Minister was not justified in using an alternative
audit method for assessment purposes. The respondent cites in that regard subsection
299(3) of the LTA:
299(3) An assessment, subject to
being vacated on an objection or appeal under this Part and subject to a reassessment,
shall be deemed to be valid and binding.
[34]
I agree with the respondent. As indicated by the
Federal Court of Appeal in Amiante Spec Inc v Her Majesty the Queen,
2009 FCA 139, the taxpayer has the initial burden of demolishing the Minister’s
assumptions. In Amiante Spec Inc, Justice Trudel stated the following at
paragraphs 15, 23 and 24 of her reasons.
[15] Hickman
reminded us that the Minister proceeds on assumptions in order to make
assessments and that the taxpayer has the initial burden of demolishing the
exact assumptions stated by the Minister. This initial onus is met where the
taxpayer makes out at least a prima facie case that demolishes the accuracy of the assumptions made in the
assessment. Lastly, when the taxpayer has met his or her onus, the onus shifts
to the Minister to rebut the prima facie case made out by the taxpayer and prove the assumptions (Hickman, supra, at paragraphs 92, 93 and 94).
. . .
[23] A prima facie case is one “supported by evidence which raises
such a degree of probability in its favour that it must be accepted if believed
by the Court unless it is rebutted or the contrary is proved. It may be
contrasted with conclusive evidence which excludes the possibility of the truth
of any other conclusion than the one established by that evidence” (Stewart v. Canada, [2000] T.C.J. No. 53, paragraph 23).
[24] Although it is not conclusive
evidence, “the burden of proof put on the taxpayer is not to be lightly, capriciously
or casually shifted”, considering that “[i]t is the taxpayer's business” (Orly Automobiles Inc. v.
Canada, 2005 FCA 425,
paragraph 20). This Court stated that the taxpayer “knows how and why it is run
in a particular fashion rather than in some other ways. He [or she] knows and
possesses information that the Minister does not. He [or she] has information
within his [or her] reach and under his [or her] control” (ibid.).
[35]
The appellant also argues that the Minister was not
justified in using the alternative audit method because its records and books
of account and financial statements were adequate and reliable.
[36]
The appellant argues that the standards established
by Ms. Gendron and Ms. Matthews[5]
are arbitrary. During her testimony, Ms. Gendron explained that the percentage of
purchases versus sales should be between 30% and 35% for both food and
beverages. According to the appellant, that percentage is unfounded as it is
not based on solid statistical data or recognized expertise in the restaurant industry.
Moreover, the appellant refers to Ms. Gendron’s testimony in which she indicated
that, during the periods at issue, the ARQ had no reference guide setting
standards in the restaurant industry.
[37]
According to the appellant, the Minister could
not take into account the ratios in this case, namely, a ratio of 44.13% for purchases/sales
of food and a ratio of 55.48% for purchases/sales of beverages, to justify the
use of the alternative audit method. The appellant asserts that Ms. Gendron could
not rely on her audit experience pertaining to the restaurant industry to determine
that the appellant’s purchases/sales ratios were too high.
[38]
According to the appellant, the other ratios used
by the ARQ, namely, the gross margin ratio and the percentage of input tax
credits claimed compared to the GST collected by the appellant, are also
arbitrary.
[39]
The appellant also argues that a number of
witnesses explained why certain invoices were missing for the periods at issue.
They all testified to the same effect, that is to say, that there were a number
of invoice redistributions and cancellations. The appellant argues as well that
the “Veloce” system had a technical issue that was known to the ARQ. The system
skipped invoices and this explained why the invoice numbers were not in
sequence. In addition, the “Veloce” system did not store the redistributed or
cancelled invoices. Thus, the ARQ could not use this as a criterion for
resorting to the alternative audit method.
[40]
The appellant also argues that if the auditor (Ms.
Matthews) or other persons at the ARQ had requested the inventory control
sheets for the periods at issue, the appellant would have provided such documents
establishing the percentage of [translation]
“complimentary items and losses.”
[41]
As for the missing documents, namely, the copy
of the backup tape from the ‟Maitre’Dˮ sales recording system for most of 2006, according to the appellant
the ARQ could have made a copy of the hard drive.
[42]
Thus, according to the appellant, the Minister
was not justified in using the alternative audit method.
[43]
For her part, the respondent argues that the
Minister could use the alternative audit method because, as evidenced by the document
filed by the appellant as Exhibit A-1, the gross margin ratio and the purchases/sales
ratios for food and for beverages were outside the norm and the percentage of
ITCs claimed by the appellant was high compared to the GST collected by it.
[44]
Furthermore, the respondent argues that the
appellant did not provide the inventory control sheets establishing the percentage
of [translation] “complimentary
items and losses” for the periods at issue. In addition, the appellant did not
have a copy of the backup tape from the ‟Maitre’Dˮ sales recording system that it had used for most of 2006; thus, the
appellant was unable to provide most of the sales data for 2006. Furthermore, according
to the respondent, invoices were missing. While redistribution may explain part
of the missing invoices, the rate of 9.15% established following three days of
sampling was high. The respondent also argues that the appellant did not lead
evidence as to the invoice redistribution percentage during the periods at
issue.
[45]
Consequently, the respondent argues, the
accounting books and records were not reliable as the appellant was unable to
provide supporting documentation relating to inventory and documentation
pertaining to sales was missing for most of 2006. The respondent thus contends
that the Minister was justified in not relying on the appellant’s books, accounting
records and financial statements.
[46]
I am of the view that in this case the Minister was
justified in using an alternative audit method to assess the appellant. It does
not suffice that books and accounting records exist and are consistent with one
another; they must also be reliable. The appellant did not provide any document
establishing the percentage of [translation]
“complimentary items and losses” for the periods at issue. Furthermore, no data
were provided concerning sales for the period covering most of 2006.
[47]
Subsection 299(1) of the ETA provides that the
Minister is not bound by any return, application or information provided by or
on behalf of any person and may make an assessment, notwithstanding any return,
application or information so provided or that no return, application or
information has been provided.
[48]
In 9100-8649 Québec Inc v The Queen, 2013
TCC 160, Justice Favreau reiterates the applicable principle allowing the tax authorities
to apply an alternative audit method. At paragraph 39 of his reasons for judgment,
he writes as follows:
[39] Courts allow
tax authorities to use alternative audit methods not only in cases where the
taxpayer does not have adequate accounting records, but also when the books,
registers and financial statements are not reliable.
[49]
Justice Tardif, in 9010-9869 Québec Inc v The
Queen, 2007 TCC 365, wrote as follows at paragraphs 49 and 52 with respect
to the Minister’s use of an alternative audit method:
[49] Indeed, unless there is adequate accounting and all
vouchers are available, an alternative audit method will have to be used, and
it is a foregone conclusion that such a method cannot be as reliable as a
direct audit method, which is made possible by an accounting system that
follows standard practices and the provisions of the Act.
. . .
[52] Thus,
unless the registrant can show that the approach used was abusive and
vindictive, that it was not serious, and that it was tainted by arbitrariness
and unacceptable work methods, the registrant will have to live with the
financial consequences, however painful they may be.
[50]
In 9100-8649 Québec Inc, the
appellant, as in this case, had no documents in support of the inventory counts.
Justice Favreau indicated that, in the circumstances, it was not open to the
appellant to argue that its books, registers and financial statements were
complete, adequate and reliable. Justice Favreau determined that the alternative
audit method was justified.
[51]
The appellant also asserts that the Minister did
not send it any request in writing concerning the missing documents. In my
view, it matters little whether the appellant received or did not receive a
request in writing requiring the missing documents. The obligation to keep
books and records is found in subsection 286(1) of the ETA, which provides that
every person who carries on a business in Canada “shall keep records . . .
in such form and containing such information as will enable the determination
of the person’s liabilities and obligations under this Part.” This
obligation falls on the taxpayer. It is therefore the taxpayer’s responsibility
to produce all information and justifications supporting his or her claims.
[52]
Accordingly, the Minister was justified in using
the alternative audit method for assessment purposes.
[53]
I would also note that it is important to make a
distinction between what led the Minister to use the alternative audit method
and the facts on which the Minister relied in making the assessment in this
case. The profit margin ratios, the purchases-to-sales ratios, the ITCs claimed
compared to the GST collected, the missing invoices, the absence of inventory
control sheets for [translation]
“complimentary items and losses” and the absence of documents from the
“Maitre’D” sales recording system served only as indicia that led the Minister
to use the alternative audit method; those elements were not used to assess the
appellant. Thus, the appellant’s argument that the ratios established by the
ARQ could not be relied on by the Minister as justifying the use of the
alternative audit method, since these ratios had been determined on the basis
of the experience acquired by Ms. Gendron in auditing restaurants, does not
stand up. The ratios were merely some indicia among other indicia that raised
doubts about the reliability of the books, accounting records and financial
statements. The Minister’s decision to use the alternative audit method rested
on a number of indicia.
[54]
In the case at bar, the Minister made the
assessment using the number of litres of beer and wine purchased by the
appellant during the periods at issue. There is no dispute regarding the number
of litres of beer and wine purchased, as the appellant admitted the figures
with respect thereto. Using the sales recorded in the “Veloce” sales recording
system, the Minister proceeded to establish the ratio that is generated by each
litre of beer and wine sold. From those data, the appellant’s taxable supplies were
reconstructed. As indicated by Justice Favreau at paragraph 37 of his reasons
for judgment in 9120-1616 Québec Inc v The Queen, 2014 TCC 4, this audit
method has been approved by a number of decisions of this Court:
. . . The indirect audit method used by the Minister was approved
by a number of decisions of our Court, including those rendered in 9100-8649 Québec Inc. v. The
Queen, 2013 TCC 160 (on
appeal to the Federal Court of Appeal), Restaurant Place Romaine Inc. v. The Queen, 2010 TCC 347 and 9110-1568 Québec Inc. v. The Queen, 2009 TCC 554 . . . .
(iii) Did
the Minister correctly assess the appellant by adding in the calculation of net
tax an amount of $14,189.91 as GST that the appellant allegedly did not
account for and remit to the Receiver General?
[55]
The appellant did not take issue with the
reliability of the alternative audit method used by the Minister. Thus, the
only possibility for the appellant is to contest the percentage determined for
it with respect to [translation]
“complimentary items and losses,” whose effect is to decrease sales.
[56]
Several people who worked for the appellant
during the periods at issue testified for the appellant. They indicated that,
under Mr. Drummond (the shareholder), everything that was sold had to be
entered in the sales recording systems. If, at the end of a shift, inventory
did not balance with sales, the server had to pay the difference.
[57]
For his part, Mr. Drummond indicated that
he was not on site, as he worked as a bailiff; it was therefore important for
him to implement a system to protect him from theft. He testified that his
instructions were clear: no meal could leave the kitchen without a receipt and
no beverage could be poured if it was not entered in the “Veloce” system. In
addition, according to his estimate, 80% of the bills were paid by Visa or by debit
card.[6]
[58]
The witnesses also indicated that competition
was fierce and that to attract patrons the appellant had put on a number of promotions,
for example: discounts for persons who worked at ski resorts, “two-for-one”
specials for hockey and rugby teams, promotions before and after shows at the
Chapiteau Bromont and special activities to attract business. According to those
witnesses, the appellant had to be generous with respect to [translation] “complimentary items and
losses” in order to attract business.
[59]
The respondent filed in evidence a report from
“Veloce” for the period from October 1, 2006, to September 30, 2007, which
indicates what is included in the “Veloce” system:
|
1.
|
LIBERALITIES
|
$12,840.53
|
|
2.
|
FREE ITEMS
|
$1,709.60
|
|
3.
|
EMPLOYEE
DISCOUNTS
|
$5,515.15
|
|
4.
|
10% DISCOUNT
|
$534.32
|
|
8.
|
Menhir
|
$59.10
|
[60]
Following meetings with the appellant, the ARQ
allowed an additional 5% for [translation]
“complimentary items and losses.” This 5% was added to what had already been
entered in the “Veloce” system. According to Ms. Gendron, the percentage of [translation] “complimentary items and
losses” and other items in “Veloce” was approximately 3.9%.
[61]
At the hearing, the appellant did not indicate
why the inventory control sheets for the periods at issue, showing the [translation] “complimentary items and
losses”, were not filed in evidence.
[62]
None of the witnesses was able to indicate what
the percentage of [translation]
“complimentary items and losses” was during the periods at issue, except to say
that a number of [translation]
“complimentary itemsˮ were provided to the appellant’s patrons.
[63]
Therefore, in the absence of any evidence, I
cannot increase the percentage of [translation]
“complimentary items and losses.”
[64]
Accordingly, in light of the respondent’s
concession, the appeal is allowed so that the amount of $1,147.17 can be deducted from the amount that the appellant was
required to collect as GST for the periods between October 1, 2007, and
March 31, 2008. In all other respects, the appeal is dismissed and costs are
awarded to the respondent.
Signed at Ottawa, Canada, this 10th day of
September 2015.
“Johanne D’Auray”
Translation
certified true
on this 27th day
of July 2016.
Erich Klein, Revisor
Email this Content