BETWEEN:
BRAMPTON VEE WORLD MOTORS LIMITED,
and
____________________________________________________________________
Appeal heard on October 17, 18 and 19, 2005, and February 28,
March 1, 2 and 3, 2006, at Toronto, Ontario
By: The Honourable Justice E.A. Bowie
Appearances:
____________________________________________________________________
JUDGMENT
The appeal from the assessment of goods and services tax made under the Excise Tax Act, notice of which is dated January 23, 2003, and bears number 05DP0015671, for the period January 1, 1994 to December 31, 1998 is allowed, and the assessment is quashed.
Signed at Ottawa , Canada, this 9th day of August 2006.
BETWEEN:
BRAMPTON VEE WORLD MOTORS LIMITED,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
[1] The appellant brings this appeal, under the Court's informal procedure, from an assessment for goods and services tax (gst) under the Excise Tax Act,[1] Part IX, (the Act) for the period between January 1, 1994 and December 31, 1998. The assessment was issued on January 23, 2003, and it added the following amounts to the appellant's liability for that period:
|
Additional tax |
$17,317.29 |
|
Penalties |
10,200.05 |
|
Interest |
4,516.19 |
The penalties and interest are said to have been computed to May 2, 2000, the date upon which the gst assessor wrote to the appellant what is known in the jargon of the Canada Revenue Agency[2] as a proposal letter. Beyond that, the appellant is told only that ":... interest and penalties accrue daily on any unpaid balance".
[2] There is no dispute that the assessment is statute-barred, in that it was issued more than four years after the filing of the last return for the period in question. Nor has the appellant executed a waiver under subsection 298(7) of the Act. The respondent, therefore, must justify the Minister's right to assess the appellant under subsection 298(4).[3] That subsection reads as follows:
298(4) An assessment in respect of any matter may be made at any time where the person to be assessed has, in respect of that matter,
(a) made a misrepresentation that is attributable to the person's neglect, carelessness or willful default;
(b) committed fraud
(i) in making or filing a return under this Part,
(ii) in making or filing an application for a rebate under Division VI, or
(iii) in supplying, or failing to supply, any information under this Part; or
(c) filed a waiver under subsection (7) that is in effect at that time.
[3] The two shareholders of the appellant are Manuel Aguiar and Maria Aguiar. Mr. and Mrs. Aguiar were the subject of a net worth analysis by the Agency that proceeded from the base year 1993 through the years 1994, 1995 and 1996, resulting in a conclusion by the auditor that in filing their income tax returns for those years they had, collectively, understated their incomes by the following amounts:
|
1994 |
$87,603.10 |
|
1995 |
39,464.89 |
|
1996 |
22,371.37 |
The conclusion of the auditor was that the only viable source of the undeclared amounts was the business of the appellant, and as each of them held 50% of the shares of the appellant, they were each reassessed to the extent of the tax on one-half of these amounts. The appellant was also reassessed for income tax, on the basis that the source of the amounts that the shareholders had failed to declare was income that it had failed to declare in the same years. Much discussion took place between the Aguiars and their advisers on the one hand, and the Agency's officials on the other, following the issuance of these reassessments. The Aguiars and the appellant did not appeal from the reassessments, but they maintained throughout that there was no truth to the allegation that either they or the appellant had failed to report income that they had received during the relevant period. The failure to appeal these assessments, they say, was attributable to the very substantial fee that their lawyers quoted them for doing so.
[4] Counsel for the respondent called three witnesses, the income tax assessor, the gst assessor, and Mr. Manuel Aguiar. Mr. Aguiar was, during the period in question, the directing mind of the appellant corporation. The appellant's business consists of buying and selling used automobiles, and servicing and repairing automobiles. Its income comes in the form of cheques, credit card payments, and, to a lesser extent, cash. During the period with which this appeal is concerned, Mr. Aguiar's secretary was responsible for the daily bookkeeping and the cash deposits, and a Mr. Majeed reviewed the books from time to time and prepared unaudited statements for the company, as well as its tax returns. Mr. Majeed trained as an accountant with a firm of chartered accountants, but did not pass the exams to become a chartered accountant himself. However, he has practiced as an accountant for many years, and has been the accountant for the appellant since 1977. The secretary who worked for the company during the relevant years was unable to testify for reasons of ill-health. Mr. Aguiar's daughter, who took over her duties when she became ill, testified, as did Mr. Majeed.
[5] The income tax auditor testified in detail as to the sources of the information from which she prepared the net worth analysis and the income tax reassessments. Subject to a few very minor errors, which she acknowledged during her evidence-in-chief, her evidence satisfied me that she had good reason to reach the conclusions that she did as to the undeclared income of Mr. and Mrs. Aguiar. The great majority of the information that she used came from either the individual taxpayers and their representatives, or from reliable sources such as bank records. She was painstaking in ensuring that the taxpayers had full opportunity to comment on information that she gathered from other sources, and she gave them the benefit of the doubt in numerous instances where there was disagreement. For purposes of this appeal, I am satisfied that her reassessments of Mr. and Mrs. Aguiar were warranted. Where I am unable to accept her evidence, however, is when she concludes that the only possible source of the undeclared income of Mr. and Mrs. Aguiar is from undeclared revenues of Brampton Vee World Motors Limited, a conclusion that the gst auditor appears to have adopted without question.
[6] It is appropriate at this point, I think, to say a few words about the pleadings in this case. By the time of trial the Notice of Appeal had been amended twice. The Second Amended Notice of Appeal is prolix in the extreme, and I am not without sympathy for counsel who had to plead to it. That, however, does not relieve the Deputy Attorney General of his responsibility, commented upon more than once in this Court, to plead fairly and frankly the assumptions of fact, as opposed to conclusions of law or of mixed fact and law, that gave rise to the assessment under appeal. In this case paragraphs 12 and 13 of the Reply filed on behalf of the respondent purport to fulfill that obligation.
12. In so reassessing the Appellant, the Minister made the following assumptions of fact:
a) at all material times, the Appellant was a registrant for GST purposes and was engaged in the business of used car sales and automotive repair;
b) the Appellant failed to keep records in such form and containing such information as would enable the determination of its liabilities and obligations under Part IX of the Act as required by subsection 286(1) of the Act;
c) during the Period, the Appellant failed to report GST of not less than $17,317.29 on its Taxable Supplies for purposes of the Act as and when required.
13. In failing to report the GST noted in above subparagraph 10(d), the Appellant knowingly, or under circumstances amounting to gross negligence in the carrying out of a duty or obligation under the Act, has made in or participated in, assented to or acquiesced in the making of false statements in the GST returns filed for the Period, as a result of which net tax that was payable on the Appellant's GST returns filed during the Period was not less than the actual net tax payable by the following amounts:
|
Year |
Net Tax Payable as Filed |
Actual Net Tax Payable
|
Discrepancy |
|
1994 |
$24,180.30 |
$31,895.16 |
$7,714.80 |
|
1995 |
$20,482.89 |
$24,340.58 |
$3,857.69 |
|
1996 |
$16,517.10 |
$22,261.90 |
$5,744.80 |
Patently, these paragraphs fall far short of what is required of the Crown in a case where the Minister's right to reassess depends upon being able to show that the taxpayer has made a misrepresentation or committed fraud in filing its returns under the Act. They do nothing but assert the conclusion as to the matters in issue that the Deputy Attorney General would like the Court to reach. Paragraph 13 simply parrots the words of section 285 of the Act, while doing nothing to inform the appellant as to the facts that the Minister says justify the imposition of the penalty. Moreover, by the inclusion of the word "not" towards the end of the text, The Deputy Attorney General is in the peculiar position of alleging in that paragraph that the appellant's returns did not understate its liability for tax! It is now more than three years since the Federal Court of Appeal addressed the subject of what is permissible in the pleading of assumptions in tax cases: see The Queen v. Anchor Pointe Energy Ltd.[4] Such vague, meaningless pleading by the Crown as we have here, whether in an income tax or a gst appeal, is simply inexcusable.
[7] I need not decide, however, whether the deficiency in this Reply amounts to misconduct that would justify allowing the appeal on that basis alone. As I have said, I am not satisfied that the Agency's auditors were justified in concluding that the understatement by the Aguilars of their personal incomes should lead to the inference that the source of their undeclared income was undeclared revenues of Brampton Vee World Motors Ltd. Certainly there was no direct evidence before me of any such understatement. Counsel for the Crown described the case against the appellant as circumstantial. Nothing in the evidence of Mr. Aguilar, or his daughter, or Mr. Majeed in any way supports the Minister's case. The assessors made much in their evidence about the appellant's failure to keep satisfactory financial records. This was denied by Mr. Majeed, and I cannot say that he was wrong to do so. The income tax assessor seems to have reached her conclusion on the basis that Mr. and Mrs. Aguilar had no other significant source of income. However, there was considerable evidence about a farm owned and operated by the Aguilars, and about rental property owned by them. It is not at all clear to me what either the gross income or the cash flow of the farm was during the critical period, but there was evidence that Mr. Aguilar raised livestock there which he sold on Saturdays. There was even less evidence as to the financial results of the rental properties. On the evidence before, me it is at least as likely that the undeclared income came from one of these sources as from the appellant. I am not satisfied that I should draw the inference that the assessors did. The respondent has failed to satisfy me on a balance of probabilities that the appellant understated its gross revenues or its gst payable when it filed its returns during the calendar years 1994 to 1998.
[8] The appeal is allowed and the assessment is quashed. The appellant is entitled to the return of its filing fee. It is not a case in which I may award costs, nor would I do so if I could. Several days of hearing were wasted due to the inability of the appellant's agent to distinguish the relevant from the irrelevant, and his insistence on introducing multiple copies of documents, the great majority of which did not advance the appellant's case at all.
Signed at Ottawa , Canada, this 9th day of August 2006.
"E.A. Bowie"
Bowie J.
COURT FILE NO.: 2003-4429(GST)I
STYLE OF CAUSE: BRAMPTON VEE WORLD MOTORS LIMITED AND HER MAJESTY THE QUEEN
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: October 17, 18 and 19, 2005 and
February 28, March 1, 2 and 3, 2006
REASONS FOR JUDGMENT BY: The Honourable Justice E.A. Bowie
DATE OF JUDGMENT: August 9, 2006
APPEARANCES:
|
Agent for the Appellant: |
Khalil Hasan |
|
Counsel for the Respondent: |
Lorraine Edinboro |
COUNSEL OF RECORD:
Firm: N/A
For the Respondent: John H. Sims, Q.C.
Deputy Attorney General of Canada
Ottawa, Canada