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Docket: 2003-2625(GST)I |
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BETWEEN: |
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MORT-AN-SON PLUMBING LTD., |
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Appellant, |
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and |
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HER MAJESTY THE QUEEN, |
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Respondent. |
Appeal heard on December 10, 2003 and September 20, 2004 at Calgary, Alberta
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Before: The Honourable Justice Gordon Teskey |
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Appearances: |
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Agent for the Appellant: |
Harvey Harris |
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Counsel for the Respondent: |
Dawn M. Taylor |
JUDGMENT
The appeal from the assessment of goods and services tax made pursuant to the Excise Tax Act, notice of which is dated March 14, 2003 and bears number 10DT0110430 is allowed, without costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the net tax assessed is $270,879.99 and that the amount owing as of March 14, 2002 is $130,077.09, which includes all penalties and interest to that date, in accordance with the attached Reasons for Judgment.
Signed at Ottawa, Canada, this 14th day of October, 2004.
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"Gordon Teskey" |
Teskey, J.
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Citation: 2004TCC664 |
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Date: 20041014 |
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Docket: 2003-2625(GST)I |
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BETWEEN: |
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MORT-AN-SON PLUMBING LTD., |
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Appellant, |
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And |
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HER MAJESTY THE QUEEN, |
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Respondent. |
REASONS FOR JUDGMENT
Teskey, J.
[1] The Appellant appeals an assessment made pursuant to the Goods and Services (GST) provisions of the Excise Tax Act (the "Act"), Notice of which is dated March 14, 2003, containing notice number 10DT0110430.
[2] This matter first came on for hearing on December 10, 2003 and resumed on September 20, 2004. Many times during the first hearing, the Appellant was advised that the issue was whether the assessment was correct and the onus was on the Appellant to prove that the assessment contained errors. At the conclusion of the examination in chief of Glenda Thelma Mortenson, a director and shareholder of the Appellant during the relative time period, almost no pertinent evidence had been adduced. The Appellant was offered an adjournment in order to produce their books and records and any other relevant evidence that might help the Appellant to demonstrate that the assessment contained errors.
[3] At the continuation of the hearing on September 20, 2004, the Appellant alleged that their position had been compromised as a result of the adjournment and my suggestion that the appeal appeared to be mathematics only and the parties should attempt to settle, since during the settlement attempts the Appellant had disclosed their records to the Respondent.
[4] This allegation is without substance or merit, as the Appellant was in the same position on September 20, 2004 as on December 10, 2003, namely the onus was on the Appellant to demonstrate the assessment had errors and to produce the necessary documents to establish any errors.
[5] The Notice of Assessment is Exhibit A-5. It states that net tax assessed is $271,726.99. This figure is arrived at by taking the amount of tax declared and remitted during the period of assessment, being from January 1, 1999 to December 31, 2001 of $148,298.00 and adding thereto the sum of $74,099.15, being the GST on undeclared revenues of $1,046,315.00 and by taking away the sum of $49,329.84 of claimed and received input tax credits (ITC). Thus, these two sums totalling $123,428.99 were added to the amount of $148,298.00 to make a total net tax assessed of $271,726.99.
[6] The Notice of Assessment reads:
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(RE) ASSESSMENT PERTAINING TO: 1999-01-01 TO 2001-12-31
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Net Tax Assessed - Taxe nette cotisée
$271,726.99 DR |
Instalments - Acomptes provisionnels
$ 0.00 |
Rebates - Remboursements
$0.00 |
Payment on filing - Paiement sur production
$0.00 |
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Net Interest - Intérêt net
$14,991.70 DR |
Penalties - Pénalités
$23,280.06 DR |
Refund Amount - Remboursement
$0.00 |
Amount Owing - Montant dû
$161,700.75 |
[7] Since 7% of the undisclosed income of $1,046,315.00 is $73,242.05 and not $74,099.15, as shown on the summary of assessment, the net tax assessed is overstated by the difference, namely the sum of $847.00.
[8] The notice, for clarity's sake, should have shown payments received of $148,298.00. Therefore, the 2003-03-04 Notice of assessment should have read as follow:
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(RE) ASSESSMENT PERTAINING TO: 1999-01-01 TO 2001-12-31
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Net Tax Assessed - Taxe nette cotisée
$271,726.99 DR |
Instalments - Acomptes provisionnels
$ 148,298.00 CR |
Rebates - Remboursements
$0.00 |
Payment on filing - Paiement sur production
$0.00 |
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Net Interest - Intérêt net
$14,991.70 DR |
Penalties - Pénalités
$23,280.06 DR |
Refund Amount - Remboursement
$0.00 |
Amount Owing - Montant dû
$161,700.75 |
[9] The Respondent, in the Reply to the Notice of Appeal, made 29 assumptions of fact. With agreement and amendment or lack of evidence to the contrary, they now read as follows:
(a) registration number 125364463 was acquired effective January 1, 1991;
(b) the Appellant did not exist on January 1, 1991;
(c) the registration number 125364463 was assigned to Mort-an-Son Plumbing and Heating, a proprietorship;
(d) the proprietorship was dissolved effective November 1, 1995;
(e) the appellant was incorporated on May 9, 1995 and took over the registration number 125364463 for the purpose of GST;
(f) Norman Mortenson was the principal shareholder of the appellant;
(g) at all material times, the appellant was a plumbing contractor;
(h) at all material times, the appellant supplied plumbing sub-contracting services to Botting & Associates (Alberta) Ltd. ("Botting");
(i) Botting was the appellant's only customer;
(j) prior to 1999 the appellant and Botting entered into a contractual arrangement for the supply of plumbing services and payroll services;
(k) all the individuals that provided services to Botting through the appellant were employees of the appellant;
(l) Norman Mortenson was a minority shareholder of Botting, whose shares were redeemed by Botting on August 3, 2003;
(m) the appellant was a registrant for the purposes of the Act during the assessment period of January 1, 1999 to December 31, 2001;
(n) the Appellant was required to file its GST returns on a quarterly basis, with a year-end of July 31;
(o) at all material times, the appellant filed returns based on calendar quarters;
(p) the appellant filed returns for the period reporting tax collectible, input tax credits and net taxes, as set out in Schedule B to the Reply. The appellant alleged that the schedule is in error but did not demonstrate any errors and it, therefore, stands as accurate;
(q) the appellant calculated the tax collected/collectible it reported by multiplying the amount it reported on its return as "Sales and other revenues" by 7%;
(r) for the reporting periods ending between January 1, 1991 and March 31, 2001, the appellant calculated the input tax credits claimed by multiplying the amount reported on its returns as "Sales and other revenue" by 2%;
(st) the appellant received at least $4,009,700.00 in consideration for the supplies it made during the period but only reported consideration of $2,963,385.00, thus understating its supplies by the sum of $1,406,315.00;
(vv) Botting paid tax of at least $280,682.24 on the supplies it received during the period and the appellant collected the said amount;
(w) the appellant failed to account for and report tax collected or collectible of at least $73,235.23 with respect to the consideration that became payable to it during the period on the taxable supplies;
(xy) no books or records were produced to the Court to establish any entitlement to any ITCs;
(z) the appellant paid GST on very few of the expenses it incurred;
(aa) at least 95% of the appellant's expenses were in respect of the wages it paid to its employees;
(bb) at all material times, the election form to use the quick method of accounting for net tax clearly stated that a registrant whose annual taxable sales totalled more than $200,000.00 was not eligible for use of the quick method.
[10] Exhibit A-1 is a form notice sent by Canada Customs and Revenue Agency ("CCRA") to the Appellant on May 14, 2001. This form speaks for itself. It does nothing more than demand that the Appellant account for GST by the general rules.
[11] On the same date as the Notice of Assessment, the CCRA sent a letter of explanation (Exhibit A-2) to the Appellant.
[12] The Appellant responded to the CCRA by letter dated April 3, 2003.
[13] As a result of the April 3, 2003 letter, CCRA replied on July 7, 2003 (Exhibit A-8) and cancelled the penalties in the amount of $23,280.06 and cancelled interest in the amount of $7,496.85.
[14] Taking into consideration the error mentioned in paragraph 6, the Notice of assessment on this date, for the period up to March 14, 2003 should read:
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(RE) ASSESSMENT PERTAINING TO: 1999-01-01 TO 2001-12-31
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Net Tax Assessed - Taxe nette cotisée
$270,879.44 DR |
Instalments - Accomptes provisionnels
$148,298.00 CR |
Rebates - Remboursements
$0.00 |
Payment on filing - Paiement sur production
$ 0.00 |
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Net Interest - Intérêt net
$7,496.85 DR |
Penalties - Pénalités
Nil |
Refund Amount - Remboursement
$0.00 |
Amount Owing - Montant dû
$130,077.14 |
[15] Exhibit A-4 contains a copy of a running balance of monies owed by the Appellant, which was sent by CCRA to the Department of Justice.
[16] The Appellant argues the figures in the columns headed "penalty accruing" and "interest accruing" ought not to be there as the assessment assesses the total tax, penalties and interest as of March 14, 2003, and since all figures in these two columns predate March 14, 2003, the Minister cannot make additional charges to the Appellant for penalties or interest accruing prior to that date. This, in essence, if allowed, would allow the Respondent to amend its assessment with no right of appeal. Thus the sum of $6,375.76 and $3,138.62 are already in the assessment or they cannot be added thereto.
[17] I accept this argument and refer the assessment back to the Minister of National Revenue for reconsideration and reassessment on the basis that net tax should be stated as $270,879.44, as set forth above. In regards to penalties, all have been deleted from the assessment and the interest charged to the date of the Notice of Assessment, namely March 14, 2003, stands at $7,495.70. Thus, the last box of the Notice, which sates an amount owing of $161,700.75, which is as of that date, is reduced by the sums of $847.00, $23,280.00 and $7,496.85, making a new amount of $130,077.90 being the amount owing as of March 14, 2003 all as shown in paragraph 13 above. The only interest and penalties that can be added to the amount $130,077.90 must accrue after March 14, 2003 and the charges in the "penalty accruing" and "interest accruing" columns prior to March 14, 2003 are either included in the assessment or cannot be added to the assessment.
[18] Thus, the appeal is allowed, without costs, and the assessment is referred back to the Minister for reconsideration and reassessment on the basis that the net tax assessed is $270,879.99 and that the amount owing as of March 14, 2002 is changed to $130,077.90, which include all penalties and interest to that date.
[19] The Appellant argues that it should only be charged 5% GST on all income prior to the notification dated March 14, 2001 (Exhibit A-1). This argument is not valid as the Appellant lost the right in law to use the Quick 5% Method prior to the assessment period, that is why the net tax assessed stays the same subject to before mentioned adjustment.
[20] There has been no evidence before me that the ITCs claimed in the period and denied in the assessment should be changed. From the evidence of Robert Stuart Link, the Appeals Officer, the CCRA was very generous to the Appellant in only taking away $49,329.84 of the claimed ITCs, which the Appellant never should have received, and these had to be charged to the Appellant, since it was not entitled to them. The Appellant was warned by me in December of 2003 that, if they wanted some of the $49,329.84, they would have to produce books of account and invoices to demonstrate the actual amount of GST the Appellant paid out during the period. No evidence was brought forward that disputes the amount of ITCs claimed and received and taken away by the assessment.
[21] The Appellant further argues, based on what is shown in Exhibit A-4 and summarized in Exhibit A-7, a document prepared by the Appellant, again that there should be further adjustments. On the evidence before me since I must and have looked at the entire period and not just a portion thereof to determine if the assessment contained errors, and other than what I have said above, I can find no fault with the assessment.
[22] Since the Appellant did not argue that the employees wages were GST exempt, there is no need to review all the provision of the Act or the Regulations thereto that was put before the Court. The Respondent's position on this was quite accurate and complete when given in argument.
Signed at Ottawa, Ontario, this 14th day of October, 2004.
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"Gordon Teskey" |
Teskey, J.
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CITATION: |
2004TCC664 |
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COURT FILE NO.: |
2003-2625(GST)I |
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STYLE OF CAUSE: |
Mort-An-Son Plumbing Ltd. and The Queen |
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PLACE OF HEARING: |
Calgary, Alberta |
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DATE OF HEARING: |
December 10, 2003 and September 20, 2004 |
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REASONS FOR JUDGMENT BY: |
The Hon. Justice Gordon Teskey |
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DATE OF JUDGMENT: |
October 14, 2004 |
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APPEARANCES: |
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Agent for the Appellant: |
Harvey Harris |
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Counsel for the Respondent: |
Dawn M. Taylor |
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COUNSEL OF RECORD: |
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For the Appellant: |
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Name: |
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Firm: |
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For the Respondent: |
Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada |