The GST/HST and QST systems rely heavily on transaction documentation. The Tax Court of Canada (TCC) confirmed this principle in Dow & Duggan Log Homes International (1993) Limited v. The Queen, 2019 TCC 280 (CanLII).
As a reminder, the supply of tangible personal property (TPP) may not be subject to GST/HST and QST when, in the case of a sale, it is delivered to the recipient outside Canada or is, or will be, made available outside Canada, or in the case of a supply by way of lease, it is made available to the recipient outside Canada (see 142(2)(a) and (b) ETA and 22.7 to 22.9.1 and 22.32 ARQST).
A supply of a TPP that does not meet these criteria may also be zero-rated when the supplier ships the TPP outside Canada (see 12, Part V, Schedule VI ETA and 190 ARQST).
According to the TCC, the evidence of exportation required by the Canada Revenue Agency or Revenu Québec when the recipient exports a TPP can serve as a guide when the supplier ships the property outside Canada, but the Court may decide otherwise. Thus, the documentary requirements when the supplier ships TPP could be lower.
However, this does not mean that the supplier should not be able to demonstrate this shipment. In fact, the general requirements to maintain adequate records for a period of 6 years (see section 286 ETA and sections 34 et seq. Tax Administration Act).
[33] The Respondent submits that the evidentiary standard from section 1 should apply to section 12, i.e. that the Minister has the discretion to determine what will constitute satisfactory evidence and that this Court should not intervene unless she commits a reviewable error in exercising that discretion.[37] I cannot agree with the Respondent that where one provision is silent as to an evidentiary threshold, it is appropriate or correct to take a threshold from another provision and apply it to the silent provision with the same force of law. To do so runs contrary to the principles of statutory interpretation established by the Supreme Court of Canada when dealing with taxation statutes.
[38] Section 1 of Schedule VI, Part V deals with exports involving intermediary recipients and contains an evidentiary threshold equivalent to Ministerial discretion. Section 12 of Schedule VI, Part V deals with direct exports and lacks any reference to an evidentiary threshold. A consistent statutory interpretation of these two provisions found in the same Schedule and Part of the Act is that Parliament intended only for section 1 to have a discretionary evidentiary threshold.
[39] I am of the view that when dealing with section 12, it is logical and reasonable to refer to the Minister’s list of satisfactory evidence for qualifying under section 1, as a guideline for section 12. However, there is nothing in the Act to support the interpretation that the Minister has discretionary authority to decide what constitutes adequate proof for the purposes of section 12 such that this Court should not intervene unless she commits a reviewable error.
[40] I found Mr. Dow, Mr. Duggan, and Ms. Warner to be credible witnesses.[41] However, it is difficult to ignore the lack of documentary evidence where the statutory provisions in question rely heavily on documentation. For example, the transaction at line 5 of Exhibit R-2 is supported by an unsigned sales receipt to a U.K. purchaser for $61,730.50 and a signed purchase order; there are no documents relating to delivery.
[42] Subsection 286(1) of the Act requires every person who carries on a business or is engaged in a commercial activity to keep adequate books and records such that the Minister can determine any amounts owed by or owing to the person. Subsection 286(3) requires that these records be retained for six years after the end of the year to which they relate. Subsection 286(4) states that where a matter is under objection or appeal, the person is required to retain their records until their matter is finally disposed of.
[43] The audit was completed in September 2014, based on the audit report [Exhibit R-1, Tab 58] and the notice of reassessment [Exhibit R-1, Tab 59]. I believe that the actions of the Appellant’s bookkeeper likely contributed to the lack of complete records. However, I also believe that the principals of the Appellant relied heavily on their everyday knowledge and recollection to conduct business such that a thorough re-creation of their records would probably have been incomplete in any event.[44] The oral testimony of Messrs. Dow and Duggan lacked sufficient precision and detail for me to be able to clearly distinguish one transaction from another or to follow a particular transaction from beginning to end. The lack of precision and detail in their testimony was compounded by the fact that the CRA auditor who performed this audit did not testify.