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University not liable to collect and remit GST on parking fines

Appeal by university from reassessment by Minister under Excise Tax Act (Can.), for period from April 1, 2003 to May 31, 2005. University had four types of parking spaces. Permit lots and visitor lots were identified with signs and visitor lots had more information indicating that vehicles not displaying valid receipts were subject to ticketing and impoundment. University hired people to patrol and enforce parking regulations and issue ticket to be left on car for infractions. On reverse of ticket it was written that traffic offence notice (TON) was issued under authority of s. 27 of University Act (B.C.). Appeal allowed. Reassessment was referred back to Minister for reconsideration and reassessment on basis that university was not liable to collect and remit GST on parking fines. By driver’s conduct in taking parking space, knowing that there was requirement of permit of TVM ticket to prove payment and leaving without having complied, now with TON indicating that driver owed university $30, non-paying driver had, in accordance with reasoning of Federal Court of Appeal in 2000 judgment, struck deal with university. Contractual terms of contract between non-paying driver and university did not provide for consideration for parking spot but agreement by non-paying driver to run risk of having to pay fine. There was no intention to breach agreement to pay for taxable supply of parking. University had statutory authority to invoke fine for traffic offence and this is what it did. Fines were imposed because non-paying drivers were effectively stealing. Notwithstanding there may have been contract, in these circumstances GST was not exigible on fine.
Simon Fraser University v. R. (Apr. 22, 2013, T.C.C. [Informal Procedure], Campbell J. Miller J., File No. 2012-1698(GST)I) 227 A.C.W.S. (3d) 1201.


Worker was double-dipping with employer’s consent

Appeal by worker from determination by Minister that worker was not engaged in insurable employment. Worker was employed by corporation wholly owned by his brother. Minister determined that worker was not engaged in insurable employment on basis that he was related to his employer and terms and conditions of his employment were not substantially similar to arm’s length terms. Appeal dismissed. In essence, worker was double-dipping with employer’s consent, which was not indicative of arm’s length dealing. Evidence was lacking in detail regarding amount of time worker spent on various duties, which was crucial here as some duties, such as deliveries, were typically lower-paying than sales representative’s job. Minister also raised various other facts that supported determination, including that large pay raise and large salary advance would not be given at beginning of employment in arm’s length relationship.
Zhang v. Minister of National Revenue (Feb. 20, 2013, T.C.C. [Employment Insurance], J.M. Woods J., File No. 2012-2508(EI)) 225 A.C.W.S. (3d) 865.



Expenses incurred to perform pro bono services not deductible

Appeal by taxpayer from reassessment by Minister. Taxpayer was lawyer who was member of bar in Ohio, New York, and Massachusetts. In 2009, taxpayer was employed by corporation. Taxpayer filed income tax return under Income Tax Act (Can.), for 2009 taxation year. Taxpayer reported that he earned no business income and he incurred business expenses of $10,520. Minister disallowed expenses in total amount of $8,242 for continuing legal education courses, travel, meals, office, supplies, and telephone. Appeal dismissed. There was no evidence on which it could be concluded that taxpayer had law practice. Positions which taxpayer held as director of corporation were offices. Taxpayer was limited to deductions permitted by s. 8 of Act. There was no provision in s. 8 that would allow taxpayer to deduct costs of his continuing education courses and related travel and meal expenses from his office and employment income. Expenses taxpayer incurred to perform pro bono services were not deductible.
Jamieson v. R. (Feb. 18, 2013, T.C.C. [Informal Procedure], Valerie A. Miller J., File No. 2011-3994(IT)I) 225 A.C.W.S. (3d) 860.



Imposition of GST on lawyers’ fees did not infringe Charter rights

Determination of question of whether or not imposition of GST on lawyers’ fees for criminal defence services infringed rights of registrants’ clients under s. 10(b) of Canadian Charter of Rights and Freedoms on appeal by registrant from assessment and imposition of interest and penalty under Excise Tax Act (Can.). Registrant law corporation failed to collect and remit GST on legal services it provided. It was determined that imposition of GST on lawyers’ fees did not infringe client’s Charter rights. It could not be said that s. 165(1) of Act had specific purpose of taxing legal services in defence of state-sponsored prosecution. Parliament did not single out those particular services for different treatment under provision and registrant failed to show that s. 165(1) of Act had invalid purpose. Registrant did not provide any reasonably imaginable circumstances or hypotheticals that would demonstrate breach of s. 10 (b) rights. Right to counsel under s. 10(b) of Charter was not ongoing right throughout preparation and hearing stages, but was limited to time surrounding arrest or detention. Constitutionality of GST on criminal defence services was not question of law alone, and it was not apparent on its face that tax would impede access to counsel.
Stanley J. Tessmer Law Corp. v. R. (Jan. 28, 2013, T.C.C. [General Procedure], B. Paris J., File No. 2007-3627(GST)G, 2007-3628(GST)G, 2007-3629(GST)G, 2007-3630(GST)G, 2007-3631(GST)G) 224 A.C.W.S. (3d) 508.


Appellant did not have reasonable expectation of profit from commercial rental

Appellant wrote for local newspaper. Respondent denied appellant’s writing column was business. Appellant claimed losses of $33,165 in 2006 and $3,708 in 2007. Appellant rented tools and equipment. Appellant was disallowed maintenance and repair expenses with respect to rental property. Appellant appealed reassessment of goods and services tax (“GST”) by which Minister determined commercial portion of appellant’s property rental activity and tool rental activity were not commercial activities within meaning of s. 123(1) of Excise Tax Act (Can.). Appellant consolidated income and expenses from all appellant’s activities. Appeal was allowed in part. Appellant wrote for local newspaper as part of appellant’s political activities. Appellant did not make profit from columns appellant wrote for local newspaper. Appellant did not prove connection between legal fees claimed by appellant for lawsuit and columns written by appellant from specified date on. Appellant did not intend tool rental to be stand-alone business. Tool rental was incidental to operation of rental property. Incidental tool rental revenues should have been included in rental property revenues as part of rental property operation. No adjustment was made because it was not shown with certainty how much revenue was actually earned. Appellant’s commercial rental did not constitute commercial activity as defined under s. 123(1) of Act. Appellant did not have reasonable expectation of profit from commercial rental. Roof repair was to be allowed as current expense rather than on made on capital account.
Palangio v. Canada (Oct. 24, 2012, T.C.C., Paris J., File No. 2011-2064(IT)I; 2011-2065(GST)I) 223 A.C.W.S. (3d) 262.



Appellant failed to treat tax compliance obligations as priority

Appeal by taxpayer from late filing penalties. Appellant land development company filed 2003 tax return, due April 30, 2004, in November 2004 declaring no net income and no tax payable. Appellant filed amended return for 2003 in November 2008 declaring income of $292,232 and tax payable of $28,659. Appellant filed 2006 tax return, due April 30, 2007, in August 2009. Appellant assessed late filing penalties of $3,152 for 2003 and $216,479 for 2006. Appellant also assessed late GST filing penalties for various periods. Appellant’s sole shareholder testified 2003 return not filed in timely manner because loss anticipated and appellant had unused non-capital losses from previous years to offset any income. Witness erred in anticipating loss as result of failure to consider “soft expenses” not deductible from income. Witness testified 2006 return also not filed in timely manner because of anticipated loss, but could not explain how income underestimated by $5.8 million. Witness provided similar explanation for failure to file returns and remit GST in timely manner. Appeal dismissed. Issue whether appellant exercised requisite level of due diligence in relation to filing various returns within time required. In circumstances, proof of due diligence required proof of reasonable mistake of fact. Taxpayer could avoid late filing penalties if able to establish, on balance of probabilities, reasonable grounds to believe no tax owing. Witness’s evidence fell short of establishing reasonable grounds on both subjective and objective tests. Court satisfied appellant had simply failed to treat tax compliance obligations as priority.
830480 Alberta Inc. v. Canada (Dec. 3, 2012, T.C.C., Hogan J., File No. 2010-3252(IT)G; 2012-115(GST)I) 221 A.C.W.S. (3d) 757.

Goods And Services Tax

Taxpayer’s lifestyle appeared to contradict claims of modest income Appeal by taxpayer from assessment by Minister under Income Tax Act (Can.), for 2000 to 2002 taxation years, and under Excise Tax Act (Can.), for 1998 to 2002 taxation years for unpaid GST. Taxpayer operated automobile brokerage, traded in shares of Internet business, and temporarily rented his home. Minister added income from business and rental income, and treating sale of shares as capital gain. Appeal allowed in part. Shares of Internet business may have been dealt with in manner contrary to securities commission rules. Gains from disposition of shares were capital in nature, and reassessment to make them part of ordinary income would be out of time. Payments made to internet business were not expenses but loans, and were not deductible. Loans did not have contingent obligation for repayment. Minister properly assessed revenue from automobile brokerage in 2000 and 2001 taxation years based on initial returns, and minister’s assumptions were not demolished. Home was used for car business purposes, and deduction was granted of 20 per cent of home expenses when premises were not leases. Deduction of 10 per cent suggested by minister was too low. No reliable evidence regarding use of home to meet business clients. Deposit analysis of 2002 taxation year showed deposits into bank of more than $500,000 and reported income from car business of $29,324. Certain expenses for automotive brokerage in 2002 were conceded by minister. All deposits were not likely from sale of cars, as some amounts were in American dollars and car sales were Canadian. Income from automobile brokerage reduced by $170,000. Taxpayer was not required to prove source of income to disprove minister’s assumptions. Taxpayer’s lifestyle appeared to contradict claims of modest income. Payment to law firm was not shown to be business related deduction of legal expenses. Rental income which was not reported in returns but not included in assessments could be reassessed, as taxpayer made misrepresentation regarding rental income. Deposit in amount of $10,000 could not be added to rental business as issue was not raised in pleadings. No adjustment made to GST collectible in 1998 and 1999, amount in other taxation years to be adjusted to reflect new findings regarding income tax owing. Minister did not show sufficient evidence to warrant penalties. Last v. Canada (Oct. 9, 2012, T.C.C., Woods J., File No. 2006-2525(IT)G; 2006-2902(GST)I) 220 A.C.W.S. (3d) 650.
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