REASONS
FOR JUDGMENT
V.A. Miller J.
[1]
The issues in this appeal are whether the
Appellant is entitled to receive an Input Tax Credit (“ITC”) of $11,564.89 for
the quarterly period ending June 30, 2011 and whether the Minister of
National Revenue (the “Minister”) properly imposed a gross negligence penalty
of $2,891.22 against the Appellant.
[2]
The witnesses at the hearing were Hugh Moran who
is the President and sole shareholder of the Appellant and Darlene Slingerland
who is an Appeals Officer with the Canada Revenue Agency (“CRA”).
Facts
[3]
The Appellant was incorporated in Manitoba in
1975. Over the years it has operated three separate businesses. In 1991, it
started BPR Communications and, according to Mr. Moran, this is the only
division of the Appellant which is still operational. BPR Communications provides
management services to corporate, small business and not-for-profit sector
clients. Mr. Moran is the Appellant’s only employee and the Appellant provided
its services through Mr. Moran.
[4]
The Appellant was located in Red Deer, Alberta
until February 25, 2013 and relocated to London, Ontario effective February 26,
2013.
[5]
Mr. Moran stated that there were periods when
the Appellant did not have any clients and it therefore did not have any
revenue. One such period occurred in the late 1990’s and the Appellant did not
file its GST returns. It was Mr. Moran’s evidence that he was told by an
officer employed with the CRA that the Appellant had to file its GST returns
and it could estimate its ITCs. Mr. Moran stated that the Appellant
complied and it did receive a refund of the ITCs which it estimated.
[6]
For the quarterly periods from April 1, 2007 to
March 31, 2011, the Appellant again had no clients. It filed GST returns for
each quarter and estimated its ITCs. The total ITCs estimated and total refund
requested was $10,710. (See Schedule 1 attached to these reasons.) For each
period, the Appellant was assessed as filed but the refund was withheld because
the Appellant was non-compliant in filing its income tax returns. According to
Mr. Moran, the refund was withheld because the Appellant had not prepared its
financial statements.
[7]
On July 7, 2011, the Minister reassessed the
Appellant to disallow the ITCs which had been claimed for the quarterly periods
from April 1, 2007 to March 31, 2011. The amount of ITCs disallowed was
$11,236. 29. The basis for the reassessment was that the Appellant did not meet
the criteria in subsection 169(4) of the Excise Tax Act (the “Act”).
The Appellant did not object to this reassessment.
[8]
On January 13, 2015, the Appellant filed a GST/HST
return for the quarterly period ending June 30, 2011 in which it reported nil
sales, nil GST/HST and claimed ITCs of $11,564.89 and a net refund of
$11,564.89.
[9]
The Minister assessed the Appellant on June 23,
2015 for the quarterly period ending June 30, 2011 and disallowed the claim for
the ITCs. The Minister also assessed a gross negligence penalty of $2,891.22 as
she had determined that the ITCs claimed in this period included the ITCs that
had been disallowed for the quarterly periods ending April 1, 2007 to March 31,
2011. The assessment was confirmed by notice dated December 11, 2015.
[10]
Mr. Moran admitted that the ITCs which were
claimed for the quarterly period ending June 30, 2011 included the amount of
$11,236.29 which had been previously disallowed. It was his evidence that he
was advised by a CRA officer to include these amounts in the return for the
period ending June 30, 2011. He stated that the Appellant relied on the advice
of the CRA officer and claimed the ITCs in good faith.
[11]
In the Reply, the Minister assumed that the
Appellant had no commercial activity and that it did not incur any ITCs for the
quarterly period ended June 30, 2011. Mr. Moran disagreed with these
assumptions. It was his evidence that the Appellant did not have clients but it
did incur expenses for business development with the intention of obtaining
clients. The ITCs resulted from these expenses.
[12]
Mr. Moran complained that the CRA did not give
the Appellant the opportunity to provide documents which would support the
claimed ITCs. He stated that all expenses had been paid by credit card.
Law
[13]
The documentation which a registrant must
provide to claim an ITC is given in subsection 169(4) of the ETA. It
reads:
Required
documentation
169(4) A
registrant may not claim an input tax credit for a reporting period unless,
before filing the return in which the credit is claimed,
(a) the registrant has obtained sufficient evidence in such form
containing such information as will enable the amount of the input tax credit
to be determined, including any such information as may be prescribed; and
(b) where the credit is in respect of property or a service supplied
to the registrant in circumstances in which the registrant is required to
report the tax payable in respect of the supply in a return filed with the
Minister under this Part, the registrant has so reported the tax in a return
filed under this Part.
[14]
The prescribed information is set out in the Input
Tax Credit Information (GST/HST) Regulations, (SOR/91-45) (the “Regulations”).
These Regulations must be strictly adhered to: Key Property
Management Corp v R, 2004 TCC 210; Davis v R, 2004 TCC 662; affirmed
by Systematix Technology Consultants Inc v R, 2007 FCA 226. The
definition for “supporting documentation” and
section 3 of the Regulations read:
supporting
documentation means the form in which information prescribed by section 3 is
contained, and includes
(a)
an invoice,
(b)
a receipt,
(c)
a credit-card receipt,
(d)
a debit note,
(e)
a book or ledger of account,
(f)
a written contract or agreement,
(g) any record contained in a computerized or
electronic retrieval or data storage system, and
(h) any other document validly issued or signed by a
registrant in respect of a supply made by the registrant in respect of which
there is tax paid or payable; (pièce justificative)
3 For the
purposes of paragraph 169(4)(a) of the Act, the following information is
prescribed information:
(a) where the total amount paid or payable shown on
the supporting documentation in respect of the supply or, if the supporting
documentation is in respect of more than one supply, the supplies, is less than
$30,
(i) the name of the supplier or the intermediary in
respect of the supply, or the name under which the supplier or the intermediary
does business,
(ii) where an invoice is issued in respect of the
supply or the supplies, the date of the invoice,
(iii) where an invoice is not issued in respect of
the supply or the supplies, the date on which there is tax paid or payable in
respect thereof, and
(iv) the total amount paid or payable for all of the supplies;
(b) where the total amount paid or payable shown on
the supporting documentation in respect of the supply or, if the supporting
documentation is in respect of more than one supply, the supplies, is $30 or
more and less than $150,
(i) the name of the supplier or the intermediary in
respect of the supply, or the name under which the supplier or the intermediary
does business, and the registration number assigned under subsection 241(1) of
the Act to the supplier or the intermediary, as the case may be,
(ii) the information set out in subparagraphs (a)(ii) to (iv),
(iii) where the amount paid or payable for the
supply or the supplies does not include the amount of tax paid or payable in
respect thereof,
(A) the amount of tax paid or payable in respect of each supply or
in respect of all of the supplies, or
(B) where provincial sales tax is payable in respect of each taxable
supply that is not a zero-rated supply and is not payable in respect of any
exempt supply or zero-rated supply,
(I) the total of the tax paid or payable under Division II of Part
IX of the Act and the provincial sales tax paid or payable in respect of each
taxable supply, and a statement to the effect that the total in respect of each
taxable supply includes the tax paid or payable under that Division, or
(II) the total of the tax paid or payable under Division II of Part
IX of the Act and the provincial sales tax paid or payable in respect of all
taxable supplies, and a statement to the effect that the total includes the tax
paid or payable under that Division,
(iv) where the amount paid or payable for the supply
or the supplies includes the amount of tax paid or payable in respect thereof
and one or more supplies are taxable supplies that are not zero-rated supplies,
(A) a statement to the effect that tax is included in the amount
paid or payable for each taxable supply,
(B) the total (referred to in this paragraph as the “total tax
rate”) of the rates at which tax was paid or payable in respect of each of the
taxable supplies that is not a zero-rated supply, and
(C) the amount paid or payable for each such supply or the total
amount paid or payable for all such supplies to which the same total tax rate
applies, and
(v) where the status of two or more supplies is
different, an indication of the status of each taxable supply that is not a
zero-rated supply; and
(c) where the total amount paid or payable shown on
the supporting documentation in respect of the supply or, if the supporting
documentation is in respect of more than one supply, the supplies, is $150 or
more,
(i) the information set out in paragraphs (a) and (b),
(ii) the recipient’s name, the name under which the
recipient does business or the name of the recipient’s duly authorized agent or
representative,
(iii) the terms of payment, and
(iv) a description of each supply sufficient to identify it.
[15]
According to subsection 225(3) of the Act,
the Appellant can claim ITCs which had been claimed and disallowed for previous
periods if the ITCs were disallowed on the basis that the Appellant did not
satisfy the requirements of subsection 169(4) of the Act before the
return for the preceding period was filed. Subsection 225(3) reads:
Net tax
225 (1) Subject
to this Subdivision, the net tax for a particular reporting period of a person
is the positive or negative amount determined by the formula
A - B
…
Restriction
(3) An amount
shall not be included in the total for B in the formula set out in subsection
(1) for a particular reporting period of a person to the extent that the amount
was claimed or included as an input tax credit or deduction in determining the
net tax for a preceding reporting period of the person unless
(a) the person was not entitled to claim the amount
in determining the net tax for the preceding period only because the person did
not satisfy the requirements of subsection 169(4) in respect of the amount
before the return for that preceding period was filed; and …
Analysis
ITCs
[16]
In support of the ITCs claimed for the period
ending June 30, 2011, the Appellant relied on documents which Mr. Moran had
produced. Exhibit A-1 was a “Summary of the Financial Statements” for the
Appellant for the period 2007 to 2012 inclusive. Apparently the Financial
Statements were not prepared until 2013. They were not entered as an exhibit.
[17]
Exhibit A-2 was a list of expenses and the HST
which had been incurred for the expense for the periods June 30, 2008 to June
30, 2012. All of the alleged expenses on Exhibit A-2 were rounded numbers.
There were no source documents to support any of these expenses. Mr. Moran
stated that the Appellant did not maintain a ledger or journal that was
prepared contemporaneously with the expense.
[18]
Counsel for the Respondent cross-examined Mr.
Moran on copies of credit card statements which he had given to her prior to
the hearing of the appeal. These credit card statements allegedly contained the
Appellant’s expenses and supported the estimated ITCs claimed by the Appellant.
I note that some of the credit card statements were in Mr. Moran’s name and
others were in both the Appellant and Mr. Moran's name.
[19]
The credit card statements were for the periods
from June 26, 2006 to July 28, 2012. Mr. Moran stated that all of the
expenses on the credit cards were business expenses but he did not claim the
GST on all of these expenses in his estimate of ITCs. He could not give any
explanation for any of the amounts appearing on the credit card statements. He
did not know which amounts had been claimed.
[20]
The Appellant has not provided any documentation
which meets the requirements of the Act and the Regulations and
these requirements are mandatory. As a result, the Appellant is not entitled to
claim any amount as an ITC for the period under appeal.
Penalties
[21]
Mr. Moran stated that the Appellant did not have
any clients or sales for the quarterly periods. The Appellant has not shown
that it had a commercial activity for any of the periods between April 1, 2007
and June 30, 2011 and it is my view that it did not have a commercial activity
for these periods. In arriving at this conclusion, I have not overlooked that
in Exhibit A-1 the Appellant listed that it had revenue of $7,000 in 2010. As I
previously stated, there were no documents to support any of the entries on
Exhibits A-1 and A-2.
[22]
Based on the evidence, I have also concluded
that the ITCs which the Appellant claimed in its return for the period ending
June 30, 2011 were not an estimate of ITCs incurred in respect to a commercial
activity but instead were fictitious amounts.
[23]
Since the evidence supports my conclusion that
the Appellant did not have a commercial activity during the period, the
Minister has met her burden under section 285 of the Act and I find that
the gross negligence penalties were properly imposed.
[24]
The appeal is dismissed. There are no costs
awarded.
Signed at Ottawa, Canada, this 27th day of January 2017.
“V.A. Miller”
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