Rockport Developments Inc. v. The Queen

Rockport Developments Inc. v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2009-05-04
Neutral citation
2009 TCC 180
File numbers
2006-3036(GST)G
Judges and Taxing Officers
François M. Angers
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2006-3036(GST)G
BETWEEN:
ROCKPORT DEVELOPMENTS INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on common evidence with the appeals of
Pine Glen Supply Ltd. (2006-3037(GST)G),
Goldsboro Contracting Ltd. (2006-3038(GST)G),
C M J Storage Ltd. (2006-3039(GST)G),
ASA Construction Company Ltd. (2006-3040(GST)G),
M R Martin Construction Inc. (2006-3041(GST)G),
The Bend Electric Ltd. (2006‑3042(GST)G),
Codiac Drilling & Boring Ltd. (2006‑3043(GST)G) and
Robinson Construction Company Ltd. (2006‑3044(GST)G)
on May 12, 2008, at Moncton, New Brunswick.
Before: The Honourable Justice François Angers
Appearances:
For the Appellant:
Edward J. McGrath
Counsel for the Respondent:
John Bodurtha
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Excise Tax Act for the period from January 1, 2001 to December 31, 2003 is allowed in part with partial costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Edmundston, New Brunswick, this 4th day of May 2009.
« François Angers »
Angers J.
Docket: 2006-3037(GST)G
BETWEEN:
PINE GLEN SUPPLY LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on common evidence with the appeals of
Rockport Developments Inc. (2006-3036(GST)G),
Goldsboro Contracting Ltd. (2006-3038(GST)G),
C M J Storage Ltd. (2006-3039(GST)G),
ASA Construction Company Ltd. (2006-3040(GST)G),
M R Martin Construction Inc. (2006-3041(GST)G),
The Bend Electric Ltd. (2006‑3042(GST)G),
Codiac Drilling & Boring Ltd. (2006‑3043(GST)G) and
Robinson Construction Company Ltd. (2006‑3044(GST)G)
on May 12, 2008, at Moncton, New Brunswick.
Before: The Honourable Justice François Angers
Appearances:
Counsel for the Appellant:
Edward J. McGrath
Counsel for the Respondent:
John Bodurtha
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Excise Tax Act for the period from January 1, 2001 to December 31, 2003 is allowed in part with partial costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Edmundston, New Brunswick, this 4th day of May 2009.
« François Angers »
Angers J.
Docket: 2006-3038(GST)G
BETWEEN:
GOLDSBORO CONTRACTING LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on common evidence with the appeals of
Rockport Developments Inc. (2006-3036(GST)G),
Pine Glen Supply Ltd. (2006-3037(GST)G),
C M J Storage Ltd. (2006-3039(GST)G),
ASA Construction Company Ltd. (2006-3040(GST)G),
M R Martin Construction Inc. (2006-3041(GST)G),
The Bend Electric Ltd. (2006‑3042(GST)G),
Codiac Drilling & Boring Ltd. (2006‑3043(GST)G) and
Robinson Construction Company Ltd. (2006‑3044(GST)G)
on May 12, 2008, at Moncton, New Brunswick.
Before: The Honourable Justice François Angers
Appearances:
Counsel for the Appellant:
Edward J. McGrath
Counsel for the Respondent:
John Bodurtha
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Excise Tax Act for the period from January 1, 2001 to December 31, 2003 is allowed in part with partial costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Edmundston, New Brunswick, this 4th day of May 2009.
« François Angers »
Angers J.
Docket: 2006-3039(GST)G
BETWEEN:
C M J STORAGE LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on common evidence with the appeals of
Rockport Developments Inc. (2006-3036(GST)G),
Pine Glen Supply Ltd. (2006-3037(GST)G),
Goldsboro Contracting Ltd. (2006-3038(GST)G),
ASA Construction Company Ltd. (2006-3040(GST)G),
M R Martin Construction Inc. (2006-3041(GST)G),
The Bend Electric Ltd. (2006‑3042(GST)G),
Codiac Drilling & Boring Ltd. (2006‑3043(GST)G) and
Robinson Construction Company Ltd. (2006‑3044(GST)G)
on May 12, 2008, at Moncton, New Brunswick.
Before: The Honourable Justice François Angers
Appearances:
Counsel for the Appellant:
Edward J. McGrath
Counsel for the Respondent:
John Bodurtha
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Excise Tax Act for the period from January 1, 2001 to March 31, 2004 is allowed in part with partial costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Edmundston, New Brunswick, this 4th day of May 2009.
« François Angers »
Angers J.
Docket: 2006-3040(GST)G
BETWEEN:
ASA CONSTRUCTION COMPANY LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on common evidence with the appeals of
Rockport Developments Inc. (2006-3036(GST)G),
Pine Glen Supply Ltd. (2006-3037(GST)G),
Goldsboro Contracting Ltd. (2006-3038(GST)G),
C M J Storage Ltd. (2006-3039(GST)G),
M R Martin Construction Inc.(2006-3041(GST)G),
The Bend Electric Ltd. (2006‑3042(GST)G),
Codiac Drilling & Boring Ltd. (2006‑3043(GST)G) and
Robinson Construction Company Ltd. (2006‑3044(GST)G)
on May 12, 2008, at Moncton, New Brunswick.
Before: The Honourable Justice François Angers
Appearances:
Counsel for the Appellant:
Edward J. McGrath
Counsel for the Respondent:
John Bodurtha
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Excise Tax Act for the period from January 1, 2001 to March 31, 2004 is allowed in part with partial costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Edmundston, New Brunswick, this 4th day of May 2009.
« François Angers »
Angers J.
Docket: 2006-3041(GST)G
BETWEEN:
M R MARTIN CONSTRUCTION INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on common evidence with the appeals of
Rockport Developments Inc. (2006-3036(GST)G),
Pine Glen Supply Ltd. (2006-3037(GST)G),
Goldsboro Contracting Ltd. (2006-3038(GST)G),
C M J Storage Ltd. (2006-3039(GST)G),
ASA Construction Company Ltd. (2006-3040(GST)G),
The Bend Electric Ltd. (2006‑3042(GST)G),
Codiac Drilling & Boring Ltd. (2006‑3043(GST)G) and
Robinson Construction Company Ltd. (2006‑3044(GST)G)
on May 12, 2008, at Moncton, New Brunswick.
Before: The Honourable Justice François Angers
Appearances:
For the Appellant:
Edward J. McGrath
Counsel for the Respondent:
John Bodurtha
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Excise Tax Act for the period from January 1, 2001 to December 31, 2003 is allowed in part with partial costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Edmundston, New Brunswick, this 4th day of May 2009.
« François Angers »
Angers J.
Docket: 2006-3042(GST)G
BETWEEN:
THE BEND ELECTRIC LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on common evidence with the appeals of
Rockport Developments Inc. (2006-3036(GST)G),
Pine Glen Supply Ltd. (2006-3037(GST)G),
Goldsboro Contracting Ltd. (2006-3038(GST)G),
C M J Storage Ltd. (2006-3039(GST)G),
Asa Construction Company Ltd. (2006-3040(GST)G),
M R Martin Construction Inc. (2006-3041(GST)G),
Codiac Drilling & Boring Ltd. (2006‑3043(GST)G) and
Robinson Construction Company Ltd. (2006‑3044(GST)G)
on May 12, 2008, at Moncton, New Brunswick.
Before: The Honourable Justice François Angers
Appearances:
For the Appellant:
Edward J. McGrath
Counsel for the Respondent:
John Bodurtha
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Excise Tax Act for the period from January 1, 2001 to March 31, 2004 is allowed in part with partial costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Edmundston, New Brunswick, this 4th day of May 2009.
« François Angers »
Angers J.
Docket: 2006-3043(GST)G
BETWEEN:
CODIAC DRILLING & BORING LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on common evidence with the appeals of
Rockport Developments Inc. (2006-3036(GST)G),
Pine Glen Supply Ltd. (2006-3037(GST)G),
Goldsboro Contracting Ltd. (2006-3038(GST)G),
C M J Storage Ltd. (2006-3039(GST)G),
ASA Construction Company Ltd. (2006-3040(GST)G),
M R Martin Construction Inc. (2006-3041(GST)G),
The Bend Electric Ltd. (2006‑3042(GST)G) and
Robinson Construction Company Ltd. (2006‑3044(GST)G)
on May 12, 2008, at Moncton, New Brunswick.
Before: The Honourable Justice François Angers
Appearances:
For the Appellant:
Edward J. McGrath
Counsel for the Respondent:
John Bodurtha
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Excise Tax Act for the period from January 1, 2001 to March 31, 2004 is allowed in part with partial costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Edmundston, New Brunswick, this 4th day of May 2009.
« François Angers »
Angers J.
Docket: 2006-3044(GST)G
BETWEEN:
ROBINSON CONSTRUCTION COMPANY LTD.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on common evidence with the appeals of
Rockport Developments Inc. (2006-3036(GST)G),
Pine Glen Supply Ltd. (2006-3037(GST)G),
Goldsboro Contracting Ltd. (2006-3038(GST)G),
C M J Storage Ltd. (2006-3039(GST)G),
ASA Construction Company Ltd. (2006-3040(GST)G),
M R Martin Construction Inc. (2006-3041(GST)G),
The Bend Electric Ltd. (2006‑3042(GST)G) and
Codiac Drilling & Boring Ltd. (2006‑3043(GST)G)
on May 12, 2008, at Moncton, New Brunswick.
Before: The Honourable Justice François Angers
Appearances:
For the Appellant:
Edward J. McGrath
Counsel for the Respondent:
John Bodurtha
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Excise Tax Act for the period from January 1, 2001 to December 31, 2003 is allowed in part with partial costs, and the reassessment is referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Edmundston, New Brunswick, this 4th day of May 2009.
« François Angers »
Angers J.
Citation: 2009 TCC 180
Date: 20090504
Dockets: 2006-3036(GST)G, 2006-3037(GST)G,
2006-3038(GST)G, 2006-3039(GST)G,
2006-3040(GST)G, 2006-3041(GST)G,
2006-3042(GST)G, 2006-3043(GST)G,
2006-3044(GST)G
BETWEEN:
ROCKPORT DEVELOPMENTS INC., PINE GLEN SUPPLY LTD.,
GOLDSBORO CONTRACTING LTD., C M J STORAGE LTD.,
ASA CONSTRUCTION COMPANY LTD.,
M R MARTIN CONSTRUCTION INC., THE BEND ELECTRIC LTD.,
CODIAC DRILLING & BORING LTD.,
ROBINSON CONSTRUCTION COMPANY LTD.,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers J.
[1] The present appeals concern reassessments of tax under the Excise Tax Act (the "Act") by the Minister of National Revenue (the “Minister”) for taxation periods from January 1, 2001 to either December 31, 2003 or March 31, 2004, as the case may be. Rockport Developments Inc. (Rockport), Pine Glen Supply Ltd. (Pine Glen), Goldsboro Contracting Ltd. (Goldsboro), C M J Storage Ltd. (CMJ), ASA Construction Company Ltd. (ASA), M R Martin Construction Inc. (Martin), The Bend Electric Ltd. (Bend), Codiac Drilling & Boring Ltd. (Codiac) and Robinson Construction Company Ltd. (Robinson), collectively referred to as the appellants are appealing the Minister’s decision to assess, and to make adjustments to the reporting and remittance of, Goods and Services Tax (GST) and Harmonized Sales Tax (HST) for the aforementioned periods.
[2] Robinson entered into a contract with MRM Technical Group Inc. (now Exelon), an American firm which had obtained a contract with Enbridge Gas New Brunswick Inc. (Enbridge) for the development of a natural gas distribution system in New Brunswick. Robinson subcontracted some of the work and services to its affiliated companies, namely the other appellants.
[3] Robinson was involved in the provision of construction labour and administrative services; Pine Glen provided non-unionized labourers to Robinson, 031781 NB Ltd., CMJ, Codiac and Exelon; Goldsboro provided construction labour and administrative services; CMJ was involved in the rental of commercial properties; ASA provided pipe fitting and welding services; Martin was involved in drilling for water and sewer lines; Bend provided labour services; and Codiac was involved in drilling for water and sewer lines.
[4] Due to Enbridge’s inability to obtain the necessary permits, there were delays of up to four months beyond the required start date, which resulted in a substantial increase in equipment lease and labour costs. As well, late design changes were made by Enbridge, which resulted in extra costs for the various appellants, particularly Robinson.
[5] Robinson submitted these extra costs to Exelon, which in turn presented them to Enbridge. Payment of many of these extra costs was refused and, as a result, Robinson filed a statement of claim against Exelon and Enbridge seeking payment. The claim was for 3.25 million dollars plus costs but it was eventually settled for $545,000. As a result, and due, obviously, to the significant reduction in the claim amount, the other appellants, who were subcontractors for Robinson were unable to receive payment for services rendered.
[6] By notices of reassessment and further notices of reassessment, the net tax amount was confirmed but the Minister waived pursuant to subsections 281.1(1) and 281.1(2) of the Excise Tax Act (the "Act") all penalties and interest in excess of 4% of the tax not properly collected. The following are the assessments under appeal:
Taxation Period
Net Tax
$
Interest
$
Penalty
$
Total
$
January 1, 2001 to December 31, 2003
Goldsboro
23,790.21
122.44
1,273.80
25,186.45
Martin
122,816.39
1,737.10
8,043.73
132,597.22
Pine Glen
23,954.62
0.00
1,092.40
25,047.02
Robinson
101,849.11
17,722.18
40,564.43
160,135.72
Rockport
35,413.32
12.00
1,642.49
37,067.31
January 1, 2001 to March 31, 2004
ASA
36,185.08
209.85
525.94
36,920.87
Bend
60,322.44
213.36
2,380.96
62,916.76
CMJ
39,408.01
(531.52)
1,941.21
40,817.70
Codiac
225,773.15
(649.83)
6,211.06
231,334.38
[7] All appellants were GST registrants who filed returns on a quarterly basis. The corporate structure of the appellants is reproduced below. The relationship between the shareholders is as follows: Jim Martin and Connie Martin are married; Jim is the son of George and Shirley Martin; and Jim and Kim Martin are siblings.
[8] At the beginning of the trial, many of the points in dispute were admitted by the appellants. Following are the issues raised in each appellant’s appeal with an indication of what is still being disputed.
ASA
[9] In computing its net tax for the quarterly period ending March 31, 2004, ASA deducted an amount of $14,088.05 representing the HST component of a receivable from Robinson for services rendered to Robinson by ASA, and Robinson claimed input tax credits (ITCs) in the same amount on account of the HST charged by ASA.
[10] The issue is whether ASA was entitled to an adjustment to net tax in relation to a bad debt arising from supplies made to Robinson.
Bend
[11] Bend charged Robinson $60,032 for labour services for each of the periods ending December 31, 2001 and December 31, 2003, and deducted from its net tax the amount of $9,004.87 for each period on account of tax payable on a bad debt. In addition, Bend did not collect HST totalling $36,426.03 with respect to services provided to and received by Robinson, Codiac, 031781 NB Ltd. and Martin. Bend also overcollected HST in the amount of $788.42 and overstated its ITC entitlement by $2,626.81.
[12] The issues are:
a) whether Bend is entitled to a net tax adjustment in relation to a bad debt arising from supplies made to Robinson;
b) whether Bend was required to collect HST on the supply of services to the above-mentioned companies;
c) whether Bend overcollected an amount of HST of $788.42 and whether it overclaimed ITCs in the amount of $2,626.81.
Bend has informed the Court that paragraph c) above is no longer in dispute.
CMJ
[13] CMJ under-reported HST by $12,833.36 with respect to transactions involving Bend, 031781 NB Ltd., Cross Creek Mini Homes Ltd. and Pine Glen and under-reported an additional $76,668.59 in HST that should have been collected. CMJ received commercial rental income but did not collect HST of $691.48 thereon, and failed to claim ITCs in the amount of $54,946.12.
[14] The issues with regard to CMJ are:
a) whether CMJ was required to collect HST in the amount of $12,833.36 as a result of the supply of services to the above-mentioned companies whose shareholders are Jim, George, Connie and Shirley Martin;
b) whether CMJ under-reported additional HST in the amount of $76,668.59;
c) whether CMJ failed to report HST in the amount of $691.48 with respect to commercial rental income ?
d) whether CMJ is entitled to ITCs in excess of the amount allowed by the Minister.
CMJ has informed the Court that paragraphs b), c) and d) above are no longer in dispute.
Codiac
[15] Codiac under-reported HST collectible by amounts of $40,361.09 and $1,444.82. It also, during the period under appeal, understated its ITC entitlement by $74,730.45. Codiac defaulted on lease payments to TD Asset Finance Corp., John Deere and G.E. Capital (the lessors). Demand letters were sent to Codiac for payment of the outstanding amounts, which did not include HST. The appellant paid the amounts to the lessors and claimed ITCs in the amount of $103,344.59, but no such HST amount had been paid. Finally, Codiac did not report HST in the amount of $471.40 collectible with respect to a taxable benefit relating to an automobile it provided to David Ross, an employee of Codiac.
[16] The issues with regard to Codiac are:
a) whether Codiac underreported HST in the amount of $41,805.91;
b) whether Codiac is entitled to ITCs in excess of the amount allowed by the Minister;
c) whether Codiac is entitled to ITCs in the amount of $103,344.59 with respect to payments made to the lessors;
d) whether Codiac under-reported HST collectible in the amount of $471.40 with respect to the automobile benefit.
Codiac has informed the Court that paragraphs a), c) and d) above are no longer in dispute.
Goldsboro
[17] Goldsboro claimed a bad debt expense of $424.66 involving Robinson and Codiac. It also provided services to 031781 NB Ltd., Codiac and Martin between December 31, 2001 and December 31, 2003. The total taxable amount of those services was $114,661.77, on which $17,199.27 in HST was payable, but none was collected.
[18] In addition, Goldsboro was required to collect an additional HST amount of $5,256.83 and overclaimed ITCs in the amount of $910.
[19] The issues with regard to Goldsboro are:
a) whether Goldsboro is entitled to an adjustment to net tax in relation to a bad debt expense of $426.66 arising from supplies made to Robinson and Codiac;
b) whether Goldsboro was required to collect HST in the amount of $17,199.27 on the supply of services to the Martin Group;
c) whether Goldsboro was required to collect additional HST in the amount of $5,256.83;
d) whether Goldsboro overclaimed additional ITCs in the amount of $910.
Goldsboro has informed the Court that paragraphs c) and d) above are no longer in dispute.
Martin
[20] During the period under appeal, Martin did not collect $102,791.92 in HST with respect to services it provided to various companies. It also failed to collect additional HST of $90,795.82. Martin underclaimed its ITCs by $78,365.68, but ITCs relating to payments made to CitiCapital for leased drilling equipment were overstated by $15,480.54.
[21] The issues in Martin are:
a) whether Martin was required to collect HST in the amount of $102,791.92 with respect to services provided to the Martin Group;
b) whether Martin was required to collect an additional amount of HST of $90,795.82 during the period under appeal;
c) whether Martin was entitled to ITCs in excess of the amount allowed by the Minister.
Martin has informed the Court that paragraphs b) and c) above are no longer in dispute.
Pine Glen
[22] Pine Glen under-reported $23,411.91 in HST in relation to services provided to Robinson, 031781 NB Ltd., CMJ, Martin and Codiac, and overstated ITCs by a total of $541.36 .
[23] The issues in Pine Glen are:
a) whether Pine Glen under-reported HST collectible by the amount of $23,411.91 with respect to transactions involving the Martin Group;
b) whether Pine Glen overstated its ITC entitlement by $541.36.
Pine Glen has informed the Court that paragraph b) above is no longer in dispute.
Robinson
[24] Robinson commenced its lawsuit against Exelon and Enbridge in January 2002. Exelon counterclaimed against Robinson for work not performed by the latter or not provided for in the contract. Exelon, on February 7, 2002, issued a request to Robinson for a refund of $1,431,037.60 ($1,244,380.52 + 15% HST of $186,657.08) with respect to payments made to Robinson by Exelon and not billable to Enbridge. In December 2003, Robinson claimed an ITC of $186,657.08 relating to the request for refund made by Exelon, but did not pay any amount pursuant to that request.
[25] In addition, Robinson deducted for the period ending December 31, 2003, $440,984.14 worth of HST on amounts that were not paid by Exelon. The HST component of bad debts for the period ending December 31, 2003 was $369,897.18 ($440,984.14 – (545,000 x 15/115)), $545,000 being the settlement amount.
[26] Robinson also wrote off as the HST component of a bad debt an amount of $35,958.87 relating to an amount not paid by Codiac and an amount of $2,159.30 relating to an amount not paid by Marco Electric Ltd. (Marco). During the period under appeal, Jim Martin owned 50% of the shares of Marco and the other 50% were owned by a person related to Jim Martin as defined in the Income Tax Act.
[27] Robinson also over-reported HST by $679,115.03 and overstated its entitlement to ITCs by $176,163.93. Finally, Robinson did not include in its February 2002 return HST of $554 collectible with respect to a taxable benefit relating to an automobile provided to David Ross, an employee of Robinson.
[28] The issues with regard to Robinson are:
a) whether Robinson is entitled to ITCs in the amount of $186,657.08 relating to a refund request made by Exelon;
b) whether Robinson is entitled to deduct from net tax an amount in excess of the $369,897.18 allowed by the Minister in relation to bad debt;
c) whether Robinson is entitled to deduct from net tax amounts of $35,958.87 and $2,159.30 owed to it by Codiac and Marco respectively;
d) whether Robinson is entitled to claim ITCs in excess of the amount allowed by the Minister with respect to the period under appeal;
e) whether Robinson under-reported HST in the amount of $554 collectible for the period ending February 28, 2002.
Robinson has informed the Court that paragraphs a), d) and e) are no longer in dispute. As for paragraph b), Robinson agrees with the amount of $369,897.18 but argues that the amount is not a bad debt.
[29] Robinson, in its notice of appeal, sought a face-to-face meeting with representatives of Justice Canada to resolve these issues and requested that the interest and penalties be overturned, that a guide be provided for taxpayers to help them understand how penalties are applied, and finally, that there be a global settlement with the Canada Revenue Agency covering all the related companies. The Court has no jurisdiction to grant those kinds of relief.
Rockport
[30] Rockport claimed a deduction from net tax in respect of bad debt expenses in the amount of $2,007.94 involving Robinson and Codiac . In addition, Rockport did not collect HST in the amount of $27,814.81 on services rendered to Codiac, 031781 NB Ltd. and Martin. It also under-reported HST in the amount of $3,281.85 which should have been collected, and overstated its ITCs by $2,310.47.
[31] The issues with regard to Rockport are:
a) whether Rockport is entitled to a net tax adjustment in the amount of $2,007.94 in relation to bad debt expenses arising from the provision of services to Robinson and Codiac;
b) whether Rockport was required to collect HST in the amount of $27,814.81 on the supply of services to the Martin Group;
c) whether Rockport was required to collect additional HST in the amount of $3,281.85;
d) whether Rockport overstated its entitlement to ITCs by $2,310.47.
Rockport has informed the Court that paragraphs c) and d) above are no longer in dispute, thus leaving a) and b).
[32] The construction project was known as the Enbridge/New Brunswick gas distribution project and Exelon was awarded four of the seven contracts the project required in both Moncton and Fredericton. The arrangement Robinson had with Exelon was that the latter was to assist in training and provide the rental of specialized tools and Robinson was hired as a subcontractor to do construction work. Once the training was completed, Exelon was only involved in the paperwork. The services were paid for on a per-unit-of-construction basis pursuant to the Exelon/Enbridge prime contract. Exelon kept 10% of the payment as compensation for training services and equipment rental and Robinson was paid the remaining 90%. According to James Martin, Robinson was to be paid weekly, as it was not financially capable of covering the costs of such a project, and Exelon was comfortable with that arrangement.
[33] Robinson made progress payment every week and submitted them to Exelon. A representative from Exelon was present on a weekly basis and served as liaison with Enbridge. The project was delayed for lack of proper permits, and Enbridge and Exelon were very demanding. Robinson was expected to begin work on all four contracts or projects at the same time (two in Fredericton and two in Moncton), with the result that there was a lot of standby time.
[34] The project finally got underway in September of 2000 and many people were put to work. Payment certificates were being forwarded but disputes arose regarding some measurements and not all payments were being made. In addition to the 10% kept by Exelon, a further 15% was kept as holdback. By December 2000, Robinson’s expenditures were up to two million dollars and it did not have the financial means to cover this amount. Suppliers were not being paid and Robinson was being sued by them. It nevertheless completed the work during the winter and spring of 2001 and began the process of suing Exelon and Enbridge for payment. At that point, Robinson had payment certificates totalling the $3.25 million it eventually sued for.
[35] During construction, Robinson’s employees doubled in number, with over 100 skilled workers being employed. The regular bookkeeper had left the year before and was replaced by James Martin’s sister. The demands on her were overwhelming and David Ross was hired in December 2000. The situation for the appellants was, in James Martin’s own words, "disorganized at best".
[36] David Ross is a chartered accountant. His main responsibilities when hired consisted of collecting major accounts and maintaining good relations with the bank, suppliers and key customers. He quickly became aware of the difficulties Robinson was experiencing with Enbridge, which was refusing to accept certain extra costs. A meeting was held in Fredericton on December 13, 2000 with a representative from each of Enbridge and Exelon to review the major issues such as delays and the extra winter costs caused by the delays in starting work on the project. Enbridge was pushing for the work to proceed quickly and said it would discuss these outstanding issues later.
[37] In order for Robinson to be paid by Exelon, Enbridge had to approve and sign the Daily Progress Report (DPR) that Exelon produced using Robinson’s payment claim sheets. Enbridge also requested that Robinson provide invoices so that Enbridge could claim ITCs. The payment claims were reviewed by one Brad Olsen of Exelon and if approved by him they were forwarded to Enbridge.
[38] In January, Exelon began returning claim packages to Robinson insisting on changes or chargebacks that actually came from Enbridge. They were, in fact, reductions in approved quantities. According to Mr. Ross, the amounts charged for the provision of services were those listed on a price agreement sheet and the claims submitted by Kim Martin on behalf of Robinson were made accordingly. Exelon would add its 10% to the pricing and submit the claim to Enbridge. Enbridge replied to Exelon, and Exelon to Robinson. Mr. Ross found that the way in which things were done was rather unique in that Enbridge did not rely on independent professionals such as engineers in reviewing the billings. If Enbridge disagreed with a claim, it would put it aside to be dealt with later. Enbridge, he found, was very difficult to deal with.
[39] The other appellants all became affected financially as a result. Some were operating construction companies, some were satellite manpower companies offering special skills, and others, such as Codiac, were hired as subcontractors for specific purposes such as reducing the risk associated with horizontal directional drilling. All these appellants were billing Robinson for their services as independent entities, and as the project moved along all the appellants encountered serious cash flow problems and had difficulties remitting the tax on those billings. They were able to partially resolve that problem in that one of the appellants would bill Robinson. Robinson would claim the ITC on that billing. The local tax office would call Robinson saying it had a tax refund cheque for Robinson but that there were also taxes payable by one of the other appellants. The local tax office used Robinson's refund cheque to pay the other appellants’ tax owing. In other words, Robinson was using its ITCs to pay the other appellants' tax.
[40] In early 2001, Mr. Ross recognized the financial difficulties which the non-payment of HST by the appellants caused with respect to the payment of operating expenses by Robinson and suggested as a solution that Exelon be viewed as the only customer for all the appellants and that Robinson ultimately bill Exelon. The process was changed immediately in that some of the appellants stopped billing Robinson for their work so that the HST did not need to be reported and remitted by them. The assessments against these appellants now reflect the unremitted HST, but the appellants are arguing that the corresponding ITCs should be considered in the calculation of net tax for assessment purposes. In other words, the question is whether the auditor should have credited input tax credits to these appellants. It is the respondent’s position that since none of the appellants charged or paid tax on the supplies made to the recipients, ITCs cannot be credited to the recipients of the supplies in calculating net tax. The respondent also raised the fact that the appellants are not closely related corporations.
[41] The facts and circumstances of these appeals give rise to three main issues, which are as follows:
1. In the appellant Robinson’s appeal, there is no dispute that tax is due and owing. The question is: when did the tax become payable? Robinson submits that the invoice was created in 2005 at the time of the settlement. The respondent submits that it was created in 2001. The answer to this question will affect the amount of interest and the penalty that can be assessed against the appellant Robinson.
2. Can Goldsboro, Robinson, Rockport, ASA and Bend be allowed a deduction for bad debt pursuant to section 231 of the Act? Should they be considered to be related pursuant to subparagraphs 251(2)(c)(ii) and (iii) of the Income Tax Act and as such to be dealing with each other at arm’s length?
3. Are the appellants Goldsboro, Martin, Pine Glen, Rockport, Bend and Codiac closely related and should the auditor have allowed them ITCs?
[42] Issue number one has to do with the unpaid extra charges and other charges based on the daily progress reports that Enbridge had put aside to be dealt with later. Invoices for these items were actually prepared when it became necessary for Robinson to crystallize its claim against Enbridge and Exelon so that a notice of lien could be filed. Robinson had filed a mechanic’s lien to collect what it was owed, but had to abandon that avenue since a lien could not be had on public property. The procedure was then reduced to a regular action for non-payment. A list of the outstanding invoices is found in Exhibit A-3.
[43] According to Robinson’s general ledger entries for December 31, 2003, the debt had not been written off as of that date and was still on the books as accrued settlement receivables because Robinson felt that some of this money was recoverable. Entries were made by Mr. Ross to indicate the debt had been written off, but as an effort to recover was ongoing, the amounts owed were also termed receivables for the purposes of the claim of lien. The auditor concluded that the amounts were not written off since they still appeared in the books as receivables and therefore are not considered a bad debt.
[44] The ITC in respect of the settlement amount receivable was eventually allowed by Appeals, but at the time of the audit the claim was still before the courts. The issue is therefore not the amount of the ITC but the interest and penalty amounts that accrued on the ITC, and they depend on when the actual value of the bad debt can be ascertained or, put differently, on whether the consideration for the taxable supply was due at the time of the settlement or at the time the daily progress reports and so-called invoices were made.
[45] The respondent’s position is that the invoices are all listed in Exhibit A-3 and identified as being outstanding invoices as of September 28, 2001. In addition, they were listed in Robinson’s books and records and, accordingly, the tax was due and payable on the day these invoices were issued.
[46] The appellants’ position is that a request or application for payment is not an invoice as contemplated in subsection 152(1) of the Act, for that request must first be approved by the recipient for an invoice to be created. The appellants therefore argue that the invoice for the services and materials provided to both Enbridge and Exelon was only created in 2005 when the settlement was reached. That is the moment in time that there was actual approval. They further submit that the mere creation of a document to quantify one’s claim of lien does not constitute an invoice as contemplated in subsection 152(1).
[47] The date of the invoice determines tax liability. In that regard, sections 152 and 168 of the Act are of assistance. Section 182 may also be of assistance in this fact situation because the court settlement establishes the value of the consideration and the date on which it was determined.
[48] Subsections 152(1) and 168(1) read as follows
152.(1) When consideration due – For the purposes of this Part, the consideration, or a part thereof, for a taxable supply shall be deemed to become due on the earliest of
(a) the earlier of the day the supplier first issues an invoice in respect of the supply for that consideration or part and the date of that invoice,
(b) the day the supplier would have, but for an undue delay, issued an invoice in respect of the supply for that consideration or part, and
(c) the day the recipient is required to pay that consideration or part to the supplier pursuant to an agreement in writing.
. . .
[Emphasis added.]
168.(1) General rule – Tax under this Division in respect of a taxable supply is payable by the recipient on the earlier of the day the consideration for the supply is paid and the day the consideration for the supply becomes due.
[49] Subsection 123(1) of the Act defines an invoice as follows:
“invoice” includes a statement of account, a bill and any other similar record, regardless of its form or characteristics, and a cash register slip or receipt.
[50] Tax liability is determined by the date on which the consideration is due. Subsection 152(1) establishes when the consideration is due. It should therefore follow that subsection 152(1) assumes that a valid and an agreed upon consideration exists such that, if the value of the consideration is contested or disputed, the consideration cannot be said to be valid and agreed upon. In the present fact situation, the so-called invoices all represent extra charges and other charges based on the daily progress reports that Enbridge and Exelon refused to recognize and accept for all kinds of, reasons including their not having been approved by Enbridge. All these requests for payment were specifically set aside by Enbridge to be dealt with at a later date. The refusal of Enbridge and Exelon to pay these extra charges and other expenses forced Robinson to file a claim for lien under the New Brunswick Mechanics' Lien Act, and invoices were prepared in order for Robinson to meet the requirements of that Act and be able to quantify its claim. Only those contested amounts were not paid by Enbridge and Exelon, and this was on a contract whose value was almost 12 million dollars.
[51] In the settlement agreement dated April 29, 2005, the appellants, Exelon and Enbridge agreed that Exelon would pay Robinson the sum of $545,000 "in full settlement" of all amounts allegedly owing to Robinson by Exelon. The parties agreed that the work had been completed and the only remaining issue was putting a pecuniary value on that supply. The preamble to that 2005 agreement states that the work under the contracts has been completed and that a dispute has arisen between Robinson and Exelon as to the amounts owed to Robinson for work performed under the contracts. It therefore follows, in my opinion, that although invoices may have been tendered to Exelon, the exact value of the consideration had not been determined prior to this second agreement. The value of the consideration was in dispute from the time the requests for payment were made and the invoices were issued. It was therefore impossible to establish the tax owing until the exact amount of the consideration was ascertained, which is what the settlement agreement did.
[52] In Douglas