http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/68861/index.do
832866 Ontario Inc. v. The Queen (March 26, 2014 – 2014 TCC 93) was an appeal dealing with GST resulting from the owners of a contractor moving into a model home, resulting in a self-supply. The sole question was whether CRA could open up the year in question as a result of misrepresentation:
[1] The sole issue in this appeal from an assessment of Goods and Services Tax (“GST”) is whether the taxpayer “made a misrepresentation that is attributable to the person’s neglect, carelessness or wilful default” within the meaning of subsection 298(4) of the
Excise Tax Act (“Act“) when it made and filed a GST return for the period January 1, 2006 to March 31, 2006.
[2] At all relevant times the corporation was a builder of custom homes. It had been in business for over 20 years. It continues to carry on business under the name and style “Carriage Hills Construction” although now it is primarily in the renovation business. It was the appellant’s practice to obtain financing to purchase several lots in a subdivision and then build a model home for prospective purchasers to view. It did not build on speculation but only when it received an agreement to purchase a home.
[3] In 2006, the taxpayer’s shares were owned by Mr. and Mrs. DeMarco, each as to 50%. Mr. DeMarco, who studied to be a draftman at Ryerson, supervised construction and dealt with customers and lawyers. Both he and Mrs. DeMarco negotiated contracts with suppliers. Mr. DeMarco died in April 2011. Mrs. DeMarco scheduled the trades and attended at the office. She had worked for a management team at Bell Canada for 17 years. Her position at Bell Canada did not entail bookkeeping.
[4] In 2005 business was slow. The DeMarcos were having difficulty maintaining the home in which they resided and a model home owned by the taxpayer. In early 2006, the DeMarcos chose to sell their home and move with their children into the model home which had been vacant since completion in 2004. The model home, said Mrs. DeMarco, was for sale during the time the family lived in it.
[5] Apparently unknown to both Mr. and Mrs. DeMarco, once the family moved into the model home the status of model home would be changed from investment to rental property. The move, for purposes of the Act, resulted in a self‑supply and GST became exigible.
[Footnote omitted]
The court concluded that there had been misrepresentation:
[39] Mrs. DeMarco was not a former CRA employee knowledgeable about GST as was the principal of Construction Daniel Provencher Inc. nor was she a professional accountant herself. A GST return does not ask many questions as does an income tax return and her counsel submitted that it is questionable whether a review of the GST return by Mrs. DeMarco would have raised any questions. This is not a reason for not taking proper precautions to at least attempt to ensure the proper making of the return.
[40] On the other hand, Mrs. DeMarco did not use the services of a person familiar, if not professionally qualified, with tax in general or GST in particular. The appellant had engaged the services of a chartered accountant but she did not even touch base with him. Nor did she consult with CRA or any of its publications. It was she who made the initial entries into the software and journal from which the bookkeeper extrapolated the information to prepare accounts and the GST return. It was when the original entries were being made that the misrepresentation was conceived. She simply made the entries and signed the GST return without review.
[41] Unlike the taxpayer in
Bondfield Construction Co. (1983) Ltd. v. The Queen, the appellant, who relied wholly on its accountants, both internal and external, did not engage “every possible internal and external control to ensure compliance …” Indeed, she engaged in none. The fact that the move by the family into the model home was a transaction the DeMarcos and the appellant had never experienced before in the over the 20 years existence of the company, or at least since the start of the GST, did not disturb her sufficiently to ask questions.
As a result the appeal was dismissed.