http://decision.tcc-cci.gc.ca/tcc-cci/decisions/en/item/119627/index.do
Univers Gym Fitness Inc. v. The Queen (September 1, 2015 – 2015 TCC 216, Lafleur J.).
Précis: The taxpayer sought to deduct $5,078.15 in computing GST payable. The amount represented bad debts from its fitness customers in the period from 2009 to 2011. The taxpayer’s accountants testified but no one from the corporation appeared. The bad debts were computed from records given to the accountants but they had no knowledge who prepared the records or what steps were taken to collect the alleged bad debts. The Court declined to admit the documents and disallowed the claim to deduct the bad debts. There was no order as to costs since this was an informal procedure appeal.
Decision: This case simply boiled down to the fact that the taxpayer did not provide sufficient proof of the bad debts in question. The failure of any officer of the taxpayer to testify in the proceeding was also critical. The witnesses for the taxpayer were its accountant, Mr. Tremblay, and one of Mr. Tremblay’s accounting technicians, Ms. Larouche:
[64] In order to conclude that a debt is bad, I must determine whether the creditor took reasonable measures, without success, to collect the debt. In my view, the appellant did not adduce sufficient evidence, on a balance of probabilities, that could permit me to find that it took such measures in this case.
[65] Mr. Tremblay repeatedly noted that the passage of time alone justified considering a debt as being bad. I cannot agree with that proposition. Indeed, it is clear that this alone is not sufficient to conclude that a debt is bad.
[66] Mr. Tremblay added that the recovery procedure used was a standard procedure used in this type of industry. Again, Mr. Tremblay’s assertion alone does not allow me to conclude that the debts are bad.
[67] Ms. Larouche explained to the Court the procedure she has been using since late 2012 to collect monies owing to the appellant. Ms. Larouche spends approximately two hours of work per week trying to collect payments from clients in default. First, she deactivates the magnetic chip that allows access to the appellant’s premises and, then, she calls the client who owes the debt. After more than two unsuccessful attempts, the boss places the call. Ms. Larouche admitted that this procedure has been in place since 2013 and she was unable to testify regarding the procedures in place from 2009 to 2011. Did she attempt to collect the debts from 2009, 2010 and 2011? No evidence was provided to me in that regard. During her cross‑examination, Ms. Larouche acknowledged that no letter or notice of default was sent to clients in default of payment, whereas at paragraph 5 of the Notice of Appeal, the appellant indicated that letters were sent to debtors to claim the amounts owing. No officer of the appellant testified at the hearing. No evidence was provided about the procedures followed to recover the debts from 2009, 2010 and 2011.
[68] In my view, the evidence adduced by the appellant does not allow me to conclude that the debts of 2009, 2010 and 2011 are bad.
As a result the appeal was dismissed without costs as this was an informal procedure appeal.