736728 Ontario Ltd. v. The Queen

736728 Ontario Ltd. v. The Queen Court (s) Database Tax Court of Canada Judgments Date 2004-01-21 Neutral citation 2004 TCC 74 File numbers 2003-352(GST)I Judges and Taxing Officers Lucie Lamarre Subjects Part IX of the Excise Tax Act (GST) Decision Content Docket: 2003-352(GST)I BETWEEN: 736728 ONTARIO LIMITED, Appellant, and HER MAJESTY THE QUEEN, Respondent. ____________________________________________________________________ Appeal heard on September 24 and 25, 2003, at Ottawa, Ontario. Before: The Honourable Justice Lucie Lamarre Appearances: Counsel for the Appellant: Susan Tataryn Counsel for the Respondent: Joanna Hill and John Shipley ____________________________________________________________________ JUDGMENT The appeal from the assessment made under Part IX of the Excise Tax Act for the period from December 1, 1998 to February 28, 1999 is allowed, with costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant is entitled to an input tax credit in the amount of $12,600 for the period in question. Signed at Ottawa, Canada, this 21st day of January 2004. "Lucie Lamarre" Lamarre, J. Citation: 2004TCC74 Date: 20040121 Docket: 2003-352(GST)I BETWEEN: 736728 ONTARIO LIMITED, Appellant, and HER MAJESTY THE QUEEN, Respondent. REASONS FOR JUDGMENT Lamarre, J. [1] This is an appeal under the informal procedure from an assessment made on February 6, 2002 by the Minister of National Revenue ("Minister") under the Excise Tax Act ("Act") for the period from December 1, 1998 to February 28, 1999. In assessing the appellant, the Minister disallowed an input tax credit ("ITC") in the amount of $12,600 that was claimed pursuant to section 169 of the Act, which reads as follows: Subdivision b - Input tax credits 169. (1) General rule for [input tax] credits - Subject to this Part, where a person acquires or imports property or a service or brings it into a participating province and, during a reporting period of the person during which the person is a registrant, tax in respect of the supply, importation or bringing in becomes payable by the person or is paid by the person without having become payable, the amount determined by the following formula is an input tax credit of the person in respect of the property or service for the period: A x B where A is the tax in respect of the supply, importation or bringing in, as the case may be, that becomes payable by the person during the reporting period or that is paid by the person during the period without having become payable; and B is (a) where the tax is deemed under subsection 202(4) to have been paid in respect of the property on the last day of a taxation year of the person, the extent (expressed as a percentage of the total use of the property in the course of commercial activities and businesses of the person during that taxation year) to which the person used the property in the course of commercial activities of the person during that taxation year, (b) where the property or service is acquired, imported or brought into the province, as the case may be, by the person for use in improving capital property of the person, the extent (expressed as a percentage) to which the person was using the capital property in the course of commercial activities of the person immediately after the capital property or a portion thereof was last acquired or imported by the person, and (c) in any other case, the extent (expressed as a percentage) to which the person acquired or imported the property or service or brought it into the participating province, as the case may be, for consumption, use or supply in the course of commercial activities of the person. [2] The facts upon which the Minister relied in disallowing the ITC are stated in paragraph 4 of the Reply to the Notice of Appeal, which reads as follows: (a) in February 1999, the Appellant purchased the [Piper Navajo] Aircraft for $180,000 plus $12,600 in GST; (b) at all material times, the Appellant was inactive; (c) at all material times, the Appellant did not carry out any business; (d) except for the ITC of $12,600 claimed, the Appellant filed nil GST returns from September 1, 1997 to August 31, 2001; (e) at all material times, the Appellant had no bank account; (f) at all material times, the Appellant had no commercial activities. [3] The respondent denied the ITC on the basis that, during the period at issue, the appellant was carrying on no commercial activity within the meaning of subsection 123(1) of the Act. [4] A commercial activity is defined as follows in subsection 123(1): "commercial activity" of a person means (a) a business carried on by the person (other than a business carried on without a reasonable expectation of profit by an individual, a personal trust or a partnership, all of the members of which are individuals), except to the extent to which the business involves the making of exempt supplies by the person, (b) an adventure or concern of the person in the nature of trade (other than an adventure or concern engaged in without a reasonable expectation of profit by an individual, a personal trust or a partnership, all of the members of which are individuals), except to the extent to which the adventure or concern involves the making of exempt supplies by the person, and (c) the making of a supply (other than an exempt supply) by the person of real property of the person, including anything done by the person in the course of or in connection with the making of the supply. Issue [5] The appellant takes issue with the respondent's position. It contends that it has been operating a business leasing and selling aircraft since 1993, and that this business was a going concern before, during and after the period at issue. This case raises a factual issue and the sole question to be resolved is whether the Piper Navajo aircraft was acquired by the appellant during the period at issue for consumption, use or supply in the course of a commercial activity within the meaning of the Act being carried on by it, such that it is entitled to the ITC claimed. Facts [6] The appellant is a family-owned corporation. It belongs to Mrs. Margaret Burns, a registered nurse, and her son, David Burns, but it has been managed since it came into existence in 1993 by Mrs. Burns' husband, Robert Burns, a commercial pilot and a businessman. Mr. Burns has an air transport licence and is also a qualified aircraft mechanic, which, he says, are requirements for operating a commercial airline business. He has been in the commercial airline business for 35 years. [7] The appellant purchased in 1993 a deHavilland Beaver aircraft, a bush plane used in the summer months and equipped with floats for landing on water. It was leased by the appellant from 1993 to 1997 inclusive. The last financial statements prepared for the appellant, that is, those for the year ended December 31, 1998, show income in the amount of $34,437 in 1997 from leasing the aircraft (Exhibit A-2). In 1998, a problem occurred with the lessee and the aircraft, being tied up in litigation, could not be leased to someone else. In the same period, a mandatory repair was required on the plane pursuant to an airworthiness directive. That repair would have cost the appellant over $20,000. Mr. Burns, who in 1998 had personally acquired controlling shares in another corporation, Mylight Aircraft Inc., operating as Westair Aviation ("Westair"), then decided that the appellant should sell the deHavilland Beaver and buy another aircraft, with regular landing gear, that could be leased to Westair in order to enhance the growth of both Westair and the appellant. Westair's business involved operating a flight school, an aircraft repair facility and a charter air service company providing corporate people with transportation to locations that were somewhat difficult to get to with regular airline companies. At the time Mr. Burns purchased his shares in Westair, that company was not in a very good financial position. [8] Thus the deHavilland Beaver aircraft was sold on November 20, 1998 for $300,000 and the appellant, who is a registrant under the Act, collected goods and services tax ("GST") of $21,000 (Exhibit A-1). The appellant realized a profit of $130,319 from the sale of this aircraft (see statement of income and retained earnings of the appellant for the year ended December 31, 1998, Exhibit A-2). Although it collected $21,000 in GST, the appellant did not remit it to the Receiver General for Canada at the time. The total amount of the sale price and the GST were deposited in the appellant's bank account (an amount of $107,000 was deposited on November 25, 1998 and a further amount of $214,000 was deposited on December 7, 1998, for a total of $321,000; see Exhibit A-11). The appellant did not file an income tax return for that year, so we do not know whether the profit on the sale of the aircraft was treated as a capital gain or as a revenue item for income tax purposes. [9] The appellant did not report the sale of the deHavilland Beaver in its quarterly GST returns either. The GST returns filed in evidence for the periods after November 1996 show the following, as per Exhibits A-22 and R-1: Reporting period Revenue From: December 1, 1996 to February 28, 1997 $60,000 March 1, 1997 to May 31, 1997 0 June 1, 1997 to August 31, 1997 $18,000 September 1, 1997 to November 30, 1997 0 December 1, 1997 to February 28, 1998 0 March 1, 1998 to May 31, 1998 0 June 1, 1998 to August 31, 1998 0 September 1, 1998 to November 30, 1998 0 [10] All those GST returns were filed a month or so after the end of each quarterly period, the last having been filed in January 1999. The appellant also filed, all together, in December 1999, GST returns for the quarterly periods from December 1, 1998 to August 31, 1999 showing nil revenue (as per Exhibits R-2 and R-3). [11] Mr. Burns testified that after the sale of the deHavilland Beaver, he started shopping right away for another aircraft corresponding to the needs of Westair. The Piper Navajo was finally purchased in February 1999 for $180,000 plus $12,600 GST (Exhibit A-3). The plane required some repairs that had to be done to meet the applicable airworthiness standards (Exhibit A-6). It was only in April 1999 that Westair obtained an operating certificate for that plane. Both Mr. and Mrs. Burns testified that Westair began leasing the Piper Navajo in April 1999. They could not find, however, any lease agreements showing that the plane was, in fact, leased to Westair as of April 1999. The first lease agreements that were filed in evidence were for periods starting after February 28, 2000 (see Exhibits A-4 and A-5). Mr. Burns said that there had been lease agreements with Westair since April 1999. A lease agreement was a mandatory requirement of Transport Canada. Without such an agreement, Westair could not have operated the aircraft. It can be seen from the logbook pertaining to the Piper Navajo (Exhibit A-6) that the plane did not fly between the months of February 1999 and April 1999, in which month it started to fly again. [12] Mr. and Mrs. Burns testified that the plane generated approximately $1,500 to $1,700 per month that was used to pay the loans secured by their house and their chalet, that had been taken out in order for the appellant to purchase the aircraft (see also the letter written by Mr. Burns to the Canada Customs and Revenue Agency ("CCRA") on February 26, 2002, Exhibit R-4, and the documents stating the amounts due on the loans, Exhibits A-7, A-8 and A-9). Indeed, the appellant has filed numerous documents to show that Mr. and Mrs. Burns had granted a mortgage on their house and extended their line of credit on their chalet (which line of credit was eventually transformed into a mortgage), for an approximate total amount of between $180,000 and $200,000 (see Exhibits A-7, A-8 and A-9). The extensive documentation also shows that in early 1999 Mr. and Mrs. Burns personally made the payments due on the loans (Exhibit A-10) and that the appellant took over making those payments in mid-1999 (Exhibit A-11). Mr. Burns testified that he and his wife were reimbursed by the appellant by cheque for the mortgage payments and that the appellant in turn was reimbursed by Westair through the lease payments. Mr. Burns also testified that Westair started making the mortgage payments directly in December 1999. There is, however, no bank statement to show that Westair actually made any payments on the mortgage in 1999, either directly or indirectly. The Westair bank statements provided in Exhibit A-12 start in June 2001, and they do in fact indicate that, at that time, Westair was paying the mortgage directly. [13] However, the appellant filed the financial statements for Westair for the years ended March 31, 2000 through March 31, 2003 (see Exhibits A-13, A-14, A-15 and A-16). The statements of income and retained earnings therein show that Westair had flight operations costs. For the year ended March 31, 2000, the appellant was able to show that the amount of $220,694 entered under the item "Flight operations" included amounts totalling $19,768 ($12,498 + $7,270) paid to the appellant in that year by Westair (see working paper from Quigley Kelly, accountants for Westair, for the year ended March 31, 2000, filed as Exhibit A-20). The evidence also indicates that the payments on the loans taken out to purchase the aircraft amounted to about $1,500 to $1,700 per month, for a total of approximately $18,000 to $20,400 per year, which in fact is very close to the figure of $19,768 referred to above as having been paid by Westair to the appellant for flight operations. The appellant also filed a document entitled "Westair Aviation General Ledger as of April 1, 2000" (Exhibit A-19), which shows a total account payable to the appellant in the amount of $14,487 for the period from March 31, 1999 to March 30, 2000. This document shows that the amounts paid correspond to the amounts of the payments on the loans and it also shows that, starting in December 1999, Westair made the payments on those loans directly to the financial institutions concerned. Furthermore, the comparative profit and loss statements of Westair filed for the years ended March 31, 2000 through March 31, 2003 (see Exhibits A-17 and A-18) show two specific items which seem to be related to the leasing of the aircraft from the appellant. One item is "Aircraft Lease Costs" and the second is "PA-31 Expenses". The appellant was able to demonstrate that the "PA-31 Expenses" were related to its aircraft. Indeed, in the Westair general ledger for the year ended March 31, 2003 (Exhibit A-19, pp. 2 and 3), we see that that account ("PA-31 Expenses") comprises the mortgage payments made to the appellant or to the financial institutions. Mr. Burns also testified that the mortgage payments made by Westair were only with respect to the appellant's aircraft. In addition, for the year ended in March 2003, we see that in the financial statements the two accounts "PA-31 Expenses" and "Aircraft Lease Costs" are grouped together, and accounted for, in flight operations costs (see Exhibits A-16 and A-21), which costs, as stated above, include the mortgage payments. As the Westair general ledger "as of April 1, 2000" likewise shows some "PA-31 Expenses", it is possible to infer that this account was related to the leasing of the aircraft and that these expenses were accounted for in flight operations costs in the financial statements prepared for Westair for the year ended March 31, 2000. [14] Mr. Burns explained that, under the lease, the appellant did not charge Westair more than the amount of the loan payments because Westair had to get back on its feet. However, he had expectations that the demand for the services provided by Westair would increase, thereby creating more revenues for Westair and consequently for the appellant, which could then increase the amount it charged under the lease for the use of the aircraft. In the years 1999 through 2002, however, the aircraft flew to only half of its capacity in terms of time. It flew an average of 250 hours per year when, according to Mr. Burns, it should have flown 500 hours or more. Mr. Burns said that the airline industry declined after September 11, 2001. Other reasons explaining a slow start for the Piper Navajo aircraft were a poor economy, especially in the high-tech industry, which took a tumble, resulting in fewer people flying from the Ottawa area to the United States, and later on the Severe Acute Respiratory Syndrome (SARS), which eliminated most of the trips going through the city of Toronto. [15] No financial statements were prepared for the appellant after the year ended March 31, 1998. As stated above, it consistently filed nil GST returns after August 31, 1997 and did not file income tax returns either for the years subsequent to 1997. The appellant did not declare the sale of the deHavilland Beaver aircraft, nor did it claim any ITC with respect to the purchase of the Piper Navajo aircraft on filing the original GST returns. It was only after it was audited, and first reassessed on October 2, 2000 (Exhibit A-25) for the payment of the $21,000 that was not remitted to the Receiver General for Canada at the time the deHavilland Beaver was sold, that the appellant wrote to the CCRA to obtain a credit for the GST paid ($12,600) on the purchase of the Piper Navajo aircraft (see the notice of objection dated October 25, 2000, Exhibit A-27; see also the letters sent by Mrs. Margaret Burns to the CCRA in March and April 2001, filed as Exhibits A-28 and A-29, in which she claims that the appellant's liability was only the difference between what it owed the CCRA ($21,000) and what the CCRA owed it ($12,600), namely $8,400). It was at that point that Mrs. Burns began making payments to the CCRA in respect of the amounts due on the appellant's GST account (see Exhibits A-29 and A-30). In May 2001, Mrs. Burns wrote to the CCRA to correct the GST return filed for the period from December 1, 1998 to February 28, 1999 by claiming an ITC of $12,600 for that period (Exhibit A-31). The actual amended GST return for that period was received by the CCRA on November 8, 2001 (Exhibit R-2). [16] The ITC claim was refused by the CCRA on the basis that it considered that the appellant had not operated any business during that period. The fact that no financial statements were prepared after 1998, combined with the fact that the appellant had filed nil GST returns since September 1997, was an indication, according to the CCRA, that the appellant was inactive. [17] Mr. and Mrs. Burns both testified that they separated in 1999. After 1998, it was Mrs. Burns who filed the nil GST returns. She and Mr. Burns testified that they were under the impression that GST returns had to show income only when it was over $30,000. Mrs. Burns also said that she indicated nil income because the net income, that is, the lease income less the mortgage payments, was nil. Furthermore, the Burns did not think that the proceeds of the sale of the aircraft had to be included as income for GST purposes. That is their explanation as to why nil GST returns were filed. As for the absence of financial statements after 1998, Mr. Burns said that he was under the impression at the time that he could not get the bank statements and cancelled cheques necessary to prepare them. As he and his wife had separated, he was no longer directly involved in the appellant's bookkeeping. His wife took over the bookkeeping responsibility in 1999, and she, in fact, confirmed that she was the one who filed at the end of 1999 nil GST returns for that entire year. She said that she was not aware that financial statements had to be prepared yearly. She also admitted she had said to an officer of the CCRA during the audit that the appellant was inactive in 1999. She said at the hearing that she did not understand the meaning of a company being inactive. In fact, she was then under the impression that the appellant was inactive because she felt there was no real revenue being generated, only loans being serviced, and, in her view, at the time, that was not in fact doing business (see transcript, volume 2, page 223). [18] Mr. Burns also explained that Westair had a computerized system which allowed records to be kept of all relevant dealings of Westair on a daily basis, so that that information would be available to the bookkeeper. He said that no such system existed for the appellant because its only revenue consisted of the reimbursement of the loan payments. He also explained that it was his understanding, at the time, that where one earned only a small amount of revenue, there was a simplified method whereby one was not required to collect GST that would be offset by any ITCs claimed - in this instance, ITCs with respect to purchases of parts or things necessary for the aircraft (see transcript, volume II, page 119). He also said that, as the appellant's income was the reimbursement of the loan payments, which went directly to the financial institutions concerned, he did not think that the appellant had to declare any income because, in fact, the income did not stay in the appellant's account. He now recognized that he had been mistaken in this regard. Appellant's Argument [19] The issue is whether the appellant is entitled to an ITC for the period from December 1, 1998 to February 28, 1999. The appellant had to show that it was carrying on a commercial activity during that period and, in its view, it did so demonstrate. Under the definition of commercial activity in the Act, a corporation has only to show that it was carrying on a business during the relevant period. Under that definition, the requirement of a reasonable expectation of profit does not apply to corporations. Business is defined as follows in subsection 123(1): "business" includes a profession, calling, trade, manufacture or undertaking of any kind whatever, whether the activity or undertaking is engaged in for profit, and any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease, licence or similar arrangement, but does not include an office or employment. [20] The appellant contends that it has been in the business of leasing and of investing in the purchase and sale of aircraft since 1993. The fact that during the period at issue there was a lull in the leasing activity, as the appellant had previously disposed of its deHavilland Beaver and then, during the said period, purchased another aircraft, does not mean that the business was not still being carried on. The evidence presented at trial showed that the appellant had decided to pursue an alternate direction in the airline business. It had decided to sell the float plane and to move towards being a charter operation and doing flight training, so it required a regular aircraft. The leasing activities started as soon as the Piper Navajo aircraft met the airworthiness standards. In the appellant's view, there is enough evidence to establish that the plane was leased to Westair for an amount equivalent to the line of credit interest and the mortgage payment. The fact that the payment was sometimes made to the appellant indirectly does not alter the fact that it was made. [21] Furthermore, the fact that books and records were not properly maintained and that tax returns were not filed, does not cause the business to cease to exist. There are provisions in the Act to deal with taxpayers who fail to report properly, or who make misrepresentations or are negligent in their reporting. Penalties are assessed in such instances and were in fact assessed in the present case. Indeed, the appellant was assessed a penalty for having failed to report and remit the GST on the sale of the deHavilland Beaver aircraft. The appellant does not contest that penalty. However, this should not be determinative of the question of whether a business was carried on or not during the period at issue. [22] Although there was no revenue coming in during that period, that does not mean that there was no commercial activity going on in that same period. In fact, it is the appellant's position that it never stopped its commercial activities. It was simply reconfiguring its business. Respondent's Argument [23] The respondent is of the view that since it reported no sales or revenues in the period from September 1, 1997 through August 31, 2001, the appellant was not engaged in a commercial activity. The respondent argues that the evidence does not show on a balance of probabilities that the appellant was carrying on a business during the period under appeal. In her view, the appellant did not in any manner utilize the Piper Navajo aircraft as part of a profit-making activity. Since, at no material time, did the appellant report any taxable supplies, it must have been making either exempt supplies or no supplies at all and therefore it was not engaged in a commercial activity. The respondent relies on the case of Two Carlton Financing Ltd. v. Canada, [1998] T.C.J. No. 447 (Q.L.), affirmed [2000] F.C.J. No. 15 (Q.L.) (F.C.A.), to submit that, while the Act does not expressly require the existence of taxable supplies for there to be a commercial activity, the absence of taxable supplies may support a conclusion that there is no commercial activity. [24] The respondent observes that the appellant chose to file repeated nil GST returns. Mr. Burns, in the respondent's view, has demonstrated indifference to his own and to the appellant's tax obligations and to the preparation of the appellant's financial statements after 1998. In the face of such negligence, Mr. Burns cannot now ask the Court to rely on his word about the relationship between the appellant and Westair. The respondent submits that this Court cannot ignore the repeated nil GST returns which, by their very nature, demonstrate the absence of taxable supplies and therefore the absence of a commercial activity. Analysis [25] It is true that the appellant has been largely negligent with respect to its legal responsibility to prepare either its financial statements or its GST and income tax returns after the sale of the deHavilland Beaver aircraft in November 1998. It is also true that in the face of such negligence, the credibility of Mr. Burns, who was, in fact, the controlling mind behind the appellant, is compromised such that his testimony alone cannot override a history of GST returns showing nil income. [26] However, I agree with the appellant that such indifference or negligence is not conclusive as to whether the appellant operated a business or not. I agree with the appellant that indifference or negligence of this nature is dealt with elsewhere in the Act, that in fact the appellant was charged a penalty in that regard, and that this matter should have little bearing on the question before me, namely: was the appellant carrying on a business during the period when it acquired the Piper Navajo aircraft? [27] I also agree with the appellant that it does not need to show income in any one period in order to be exercising a commercial activity. Furthermore, under the Act, it is not expressly required that the reasonable expectation of profit test be met for a corporation to be exercising a commercial activity, as is the case, for example, with individuals. [28] Having said this, I am satisfied that the appellant has demonstrated on a balance of probabilities that it was operating a business even during the period at issue, when no income was being generated. Although I would not go as far as to say that it was operating a business buying and selling aircraft, I am nonetheless satisfied that it was operating some kind of business within the meaning of the Act. Business is defined in the Act as including, among other things, an undertaking of any kind whatever, whether the activity or undertaking is engaged in for profit, and any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease, licence or similar arrangement. [29] The documentary evidence provided by the appellant is sufficient to show that the appellant had generated income in the past with the deHavilland Beaver aircraft and that it did so thereafter with the Piper Navajo. Although the appellant did not provide the first lease agreements, which would have corroborated the testimony that the Piper Navajo aircraft was leased as soon as it met the requirements of the Transport Canada regulations, it nevertheless provided enough documentation to convince me that the plane was leased to Westair as of April 1999 for an amount equivalent to the payments to be made by the appellant on the loans taken out to purchase the aircraft. The statement of income and retained earnings of Westair for its April 1, 1999 to March 31, 2000 fiscal year and the working paper of Westair's accountant, the general ledger of Westair and the aircraft's logbook for the same period contain enough information, in my view, to allow one to conclude that Westair did in fact lease the Piper Navajo aircraft from the appellant as early as 1999 for the amount of the mortgage and line of credit payments. This is confirmed by Mrs. Burns, who testified that it was clearly in the appellant's interest to lease the aircraft to Westair as soon as it was operational in order to meet the mortgage payments (see transcript, volume 2, page 219). [30] Contrary to the respondent's contention, the written documents provided are not all posterior to the date of the first reassessment. A close examination of the documents filed by the appellant shows that most of them relate to Westair's fiscal year starting April 1, 1999 and ending March 31, 2000. The appellant was first reassessed in October 2000. [31] I am also satisfied that the appellant did not cease operating a business when it sold the deHavilland Beaver aircraft. The evidence disclosed that the Piper Navajo was acquired only three months after the sale of the deHavilland Beaver, and was operational one month after its acquisition, which does not sound like an inordinate length of time for a taxpayer that is reconfiguring its business. The purchase of an airplane is certainly a major investment and a reasonable amount of time is required for closing such a transaction. [32] The fact that no financial statements were prepared for the appellant after 1998 is certainly a fact that is not favourable to the appellant's position. Indeed, a corporation that claims to be in business ought to prepare financial statements. However, in the particular circumstances of this case I accept the explanations given by Mr. and Mrs. Burns. They were in the process of separating in 1999. Mr. Burns testified that, from that time on, he no longer had possession of the appellant's bank statements and cancelled cheques, as the appellant was legally owned by Mrs. Burns and their son. Mrs. Burns, who never had a close look at the appellant's business before her separation from her husband, testified that she did not know that financial statements had to be prepared on a yearly basis. She also testified that she thought the appellant was not required to declare income on its GST returns, as Westair was only reimbursing the appellant for its mortgage payments. As soon as she realized that the appellant owed the government GST, she immediately took action to pay the GST owing. [33] Although Mr. Burns' approach towards his own and the appellant's financial and tax obligations is not approved of and should be altered for the future, I am of the view that the benefit of the doubt should be given to the appellant regarding its failure to prepare financial statements and to properly file its GST and income tax returns, and that one should not rush to the conclusion that it was not operating a business. [34] I find that this case is distinguishable from Two Carlton Financing Ltd., supra, referred to by the respondent. In that case, the taxpayer corporation did not report any taxable supplies and did not collect GST during the period at issue because it was engaged in providing services that constituted exempt supplies. The taxpayer tried to convince the Court that it was not providing exempt supplies, but was engaged in a commercial activity, which argument was not accepted by the Court on the evidence presented at trial. Here, it is true that the appellant did not report taxable supplies in 1999,[1] but the evidence presented before me at trial suggests that this was a mistake and establishes, in my view, that the appellant carried on a commercial activity, as defined in the Act, throughout 1999 and thereafter. [35] I therefore conclude that the appellant has demonstrated on a balance of probabilities that it was carrying on a commercial activity in the period at issue. The appellant is consequently entitled to an ITC in the amount of $12,600 in respect of the purchase of the Piper Navajo aircraft. [36] The appeal is allowed, with costs, and the assessment is referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the appellant is entitled to an input tax credit in the amount of $12,600 for the period in question. Signed at Ottawa, Canada, this 21st day of January 2004. "Lucie Lamarre" Lamarre, J. CITATION: 2004TCC74 COURT FILE NO.: 2003-352(GST)I STYLE OF CAUSE: 736728 Ontario Limited v. The Queen PLACE OF HEARING: Ottawa, Ontario DATES OF HEARING: September 24 and 25, 2003 REASONS FOR JUDGMENT BY: The Honourable Justice Lucie Lamarre DATE OF JUDGMENT: January 21st, 2004 APPEARANCES: Counsel for the Appellant: Susan Tataryn Counsel for the Respondent: Joanna Hill and John Shipley COUNSEL OF RECORD: For the Appellant: Name: Susan Tataryn Firm: Rasmussen, Starr, Ruddy For the Respondent: Morris Rosenberg Deputy Attorney General of Canada Ottawa, Canada [1] The GST returns for the year 2000 and subsequent years were not filed in evidence.