The Arguments of a Taxpayer is Not Enough, the Taxpayer Needs to Present Evidence
A common issue is highlighted in the recent Tax Court of Canada GST case, Paradigm Ventures, Inc. v. The Queen. Simply put, in this case, the Appellant presented its arguments to the Court and the Court asked to see the EVIDENCE.
Let me help you picture this - remember the movie Jerry McGuire when Tom Cruise was yelling "Show me the money!" Now picture a judge at the front of a court, wearing black robes and yelling "Show me the evidence!"
The facts in the Paradigm Ventures case are unremarkable. They key point was that in order to win, the Appellant needed to show that delivery of goods had taken place outside of Canada. The court wanted to agree with the Appellant, but needed evidence that factually the goods were actually delivered outside Canada.
The representative for the Appellant made bald assertions that the contracts were for delivery outside Canada (without providing any contracts). This frustrated the judge and prompted him to write in the decision "In effect, he seems to believe that the facts of this situation speak for themselves in the context of the intended relief ...". The judge on to write:
"Given the background to the amendment and the assurances he received, the Appellant’s representative earnestly believes, in effect, that this acknowledgment of what the Appellant does is a sufficient basis for me to allow its appeal. My repeated cautions to him that such belief may not be a sufficient basis for me to allow the appeal made little impression on him..."
The judge further goes on to add:
"His pleas then for the Appellant’s appeal to succeed on the basis of what he essentially says was the spirit of the amendment, are simply unrealistic. The amendment was understood by most, it seems, as coming with conditions and burdens of proof."
The judge's words are helpful because we often get caught up in what we want to be the result.
In this case, the judge adjourned the hearing so that the Appellant could bring helpful evidence. The judge gave some guidance as to what he would like to see. The judge said he wanted to see evidence that the commissions were tied to goods that were delivered outside Canada. The judge wrote about the Court's expectations:
- "It is, as Respondent’s counsel asserted, an exercise that normally requires tracing the delivery terms of each order and matching it to a particular commission receipt.It is, as Respondent’s counsel asserted, an exercise that normally requires tracing the delivery terms of each order and matching it to a particular commission receipt."
- "As to the evidentiary problems relating to delivery, the Appellant is in a difficult position. While it might be possible to get evidence from a Canadian buyer of where delivery of certain goods was made, that would not in itself be sufficient to tie a payment by the non-resident seller to those goods. Inevitably then, it will be easiest for agents in the Appellant’s circumstance to encourage, or insist that, their clients assist them in identifying, in respect of each commission payment, the particular order it relates to and the delivery terms respecting that order. This Court cannot readily dictate how exacting the tracing requirement might be from an administrative point of view, but, on a case by case basis, the exercise might be very exacting when it comes before this Court."
- "As to the accounting problem, development of an accounting system that matches a payment from a particular non-resident to a particular order should not be as challenging as made out by the Appellant. This is fairly standard, straightforward record keeping which can be adopted by the Appellant even as it appears to carry on business."
In the end, the Appellant could not provide sufficient evidence for the Court to allow the appeal (the appeal was allowed for a small portion of the assessment where the Court stretched the evidence to find in the Appellant's favour).
This case highlights the difficulty faced by auditors, lawyers and the Tax Court of Canada. If only the taxpayer had thought ahead about the evidence he/she would need later to demonstrate he/she is entitled to relief or was not required to collect GST/HSt in the first place.
Cyndee Todgham Cherniak is counsel to and in affiliation with the International Trade Law and the Tax Law (Commodity Tax
