Date: 20000104
Dockets: 98-817-GST-I; 98-820-GST-I
BETWEEN:
LA MARÉE HAUTE ENR., AUBERGE DES CÉVENNES INC.,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Lamarre Proulx, J.T.C.C.
[1] These two appeals from assessments under the Excise Tax Act ("the Act") were heard on common evidence under the informal procedure. In the case of Auberge des Cévennes Inc., the assessment is for the period from January 1, 1991, to November 30, 1996. In the case of La Marée Haute Enr., the period at issue is from June 15, 1991, to November 30, 1995.
[2] The issue is whether the appellants qualified as "small suppliers" under subsection 148(2) of the Act when the Act came into force on January 1, 1991.
[3] The facts on which the Minister of National Revenue ("the Minister") relied in assessing the appellant Auberge des Cévennes Inc. are set out as follows in paragraph 9 of the Reply to the Notice of Appeal ("the Reply"):
[TRANSLATION]
(a) During the above-mentioned periods, the appellant ran a licensed restaurant in Anse Saint-Jean, Quebec;
(b) Louis-Mario Dufour owned 70 percent of the appellant's shares and was its director;
(c) During the same periods, Mr. Dufour was also the sole owner of a business in Anse Saint-Jean, Quebec, made up of a restaurant, a bar and a shop, which he operated under the name La Marée Haute Enr.;
(d) During the same periods, Louis-Mario Dufour operating as La Marée Haute Enr. was associated with the appellant since he controlled it and was the sole owner of La Marée Haute Enr.;
(e) On January 1, 1991, the appellant did not qualify as a "small supplier" because its taxable supplies and those of La Marée Haute Enr. exceeded $30,000 in the four quarters ending on September 30, 1990;
(f) According to the income statements found in the financial statements filed with the Minister for the fiscal period from December 1, 1989, to November 30, 1990, the income of the appellant and La Marée Haute Enr. was as follows:
Auberge des Cévennes Inc.La Marée Haute Enr.
Sales $55,617 $4,177 = $59,794
Other income $5,789 $150 = $5,939
$61,406$4,327 = $65,733
(g) On January 1, 1991, the appellant was required to register for the purposes of the GST;
(h) Starting on January 1, 1991, the appellant was required to collect the GST and remit its net tax to the Minister.
[4] The Reply concerning the appellant La Marée Haute Enr. is almost the same apart from subparagraphs 9(a) and (c), which read as follows:
[TRANSLATION]
(a) during the above-mentioned periods, Louis-Mario Dufour was the sole owner of a business in Anse Saint-Jean, Quebec, made up of a restaurant, a bar and a shop, which he operated under the name La Marée Haute Enr.;
. . .
(c) during the same periods, Auberge des Cévennes Inc. ran a licensed restaurant in Anse Saint-Jean, Quebec.
[5] The appellant's agent testified for the appellant. Hélène Godbout, Marie-Claude Mathieu and Pierre Cantin testified at the request of counsel for the respondent.
[6] Mr. Dufour admitted subparagraphs 9(a) to (d) of the Reply. He denied the other subparagraphs. As regards what is stated in subparagraphs 9(d) and (e), Mr. Dufour tried to explain that he had sold a business in 1990 and that the income from that business was about $30,000, which, in his view, brought the appellants within the "small supplier" category. However, the financial statements of La Marée Haute Enr. were filed as Exhibit I-2 and those of Auberge des Cévennes Inc. were filed as Exhibit I-3 and those statements as at November 30 of each year from 1990 to 1995 confirm the calculations of sales and other income shown in subparagraph 9(f) of the Reply.
[7] Exhibit I-6 is a contract dated February 25, 1991, by which Auberge des Cévennes Inc. leased immovable property to Auberge des deux pignons Inc. That lease therefore does not affect the period from December 1, 1989, to November 30, 1990, which is the period taken into account to establish "small supplier" or "registrant" status as at January 1, 1991.
Analysis
[8] Under subsection 240(1) of the Act, every person who makes a taxable supply is required to register except the persons referred to in that subsection, which reads as follows:
240(1) Every person who makes a taxable supply in Canada in the course of a commercial activity engaged in by the person in Canada is required to be registered for the purposes of this Part, except where
(a) the person is a small supplier;
(b) the only commercial activity of the person is the making of supplies of real property by way of sale otherwise than in the course of a business; or
(c) the person is a non-resident person who does not carry on any business in Canada.
(Emphasis added.)
[9] "Small supplier" is defined in paragraph 148(1)(a), which reads as follows:
148(1) For the purposes of this Part, a person is a small supplier throughout a particular calendar quarter and the first month immediately following the particular calendar quarter if
(a) the total of all amounts each of which is the value of the consideration (other than consideration referred to in section 167.1 that is attributable to goodwill of a business) that became due in the four calendar quarters immediately preceding the particular calendar quarter, or that was paid in those four calendar quarters without having become due, to the person or an associate of the person at the beginning of the particular calendar quarter for taxable supplies (other than supplies of financial services and supplies by way of sale of capital property of the person or associate) made inside or outside Canada by the person or associate
does not exceed the total of
(b) $30,000 . . . .
[10] The definition of "registrant" in subsection 123(1) of the Act reads as follows:
"registrant" means a person which is registered, or who is required to be registered, under Subdivision d of Division V.
[11] A request to cancel a registration must be made by the registrant himself under subsection 242(2) of the Act, which reads as follows:
242(2) The Minister shall cancel the registration of a person . . . effective after the last day of a fiscal year of the person, where
(a) the person is a small supplier and has filed with the Minister in prescribed manner a request, in prescribed form containing prescribed information, to do so; and
(b) the person has been registered for a period of not less than one year ending on that day.
[12] The evidence showed that the total of all amounts each of which was the value of the consideration for taxable supplies due in the calendar quarters immediately preceding that of January 1, 1991, exceeded $30,000. The appellants were therefore not "small suppliers" as at January 1, 1991, and were accordingly required to collect the goods and services tax and remit the net tax to the Minister pursuant to sections 221 and 228 of the Act.
[13] The appellants' agent asked that the interest and penalties be cancelled because of the flood that hit the Saguenay region in the summer of 1996.
[14] I will begin by discussing the usual situation under the Act as regards interest and penalties. The Court has no discretion with respect to interest, which is calculated on the tax owed. As for penalties, in Consolidated Canadian Contractors Inc. v. The Queen, [1998] G.S.T.C. 91, the Federal Court of Appeal determined that they could be cancelled if the registrant had exercised due diligence. The facts in support of such due diligence should be alleged in the Notice of Appeal. This was not done but, in any event, it is my view that the evidence did not show any due diligence by the appellants. Thus, it was the Minister that registered the appellants—on September 27, 1996, in the case of Auberge des Cévennes Inc. and on October 1, 1996, in the case of La Marée Haute Enr. In actual fact, the evidence showed rather that the appellants were negligent.
[15] During the trial of this case, mention was made of section 281.1 of the Act, which gives the Minister discretion to cancel interest payable and penalties. The exercise of that ministerial discretion is not at issue here, since what is before me is an appeal from an assessment.
[16] With regard to interest, penalties and section 281.1 of the Act, I refer to what was stated by Judge Bowman of this Court in Somnus Enterprises No. 1 Ltd. v. Canada, [1995] T.C.J. No. 23:
Nor can I provide any relief against the assessment of interest. Interest is exigible automatically where there is a deficiency in the tax paid. The only circumstance in which relief against interest is available is where the Minister of National Revenue exercises his discretion under section 281.1 of the Excise Tax Act. I agree with the respondent that it is not within this court's jurisdiction to review the Minister's exercise of his discretion under section 281.1. Our jurisdiction, like that of the Federal Court, is defined by the statute creating the court. If such a jurisdiction is conferred upon the Federal Court it is for that court to determine under the Federal Court Act.
Where this court clearly does have jurisdiction is, not to review the exercise of the Minister's discretion to waive penalties and interest under section 281.1 where interest and penalties have otherwise been properly assessed under the Act, but rather to determine whether the penalties and interest have been properly assessed in accordance with the law. I can do nothing about the interest in this case, but the penalties are another matter. As stated in Pillar Oilfield Projects Ltd. v. The Queen [1993] G.S.T.C. 49 there can be no justification for the routine and automatic imposition of penalties merely because a taxpayer has incorrectly computed his or her tax liability. Such penalties are not absolute. Rather they are strict, in the sense in which that expression is used in The Queen v. Sault Ste Marie [1978] 2 S.C.R. 1299 and are susceptible of a defence of due diligence.
[17] A document discussing administrative measures for disaster victims in the Saguenay and Lac St-Jean region was filed as Exhibit A-3. The appellants' agent referred in particular to the final paragraph:
[TRANSLATION]
Moreover, this extraordinary situation that was beyond the control of taxpayers and agents opens the door to the application of section 94.1 of An Act respecting the Ministère du Revenu concerning the waiver and cancellation of interest and penalties.
[18] Section 94.1 of An Act respecting the Ministère du Revenu reads as follows:
The Minister may waive, in whole or in part, any interest, penalty or charge provided for by a fiscal law.
The Minister may also cancel, in whole or in part, any interest, penalty or charge exigible under a fiscal law.
A decision of the Minister under this section is not subject to opposition or appeal.
A statistical summary of all waivers and cancellations under this section shall be tabled, each year, before the National Assembly, within the first 15 days of the following session.
[19] The application of that section is not within this Court's jurisdiction, and I therefore cannot rule on such application.
[20] In conclusion, the evidence clearly showed that the appellants were correctly assessed in fact and in law and the appeals are dismissed.
Signed at Ottawa, Canada, this 4th day of January 2000.
"Louise Lamarre Proulx"
J.T.C.C.
[OFFICIAL ENGLISH TRANSLATION]