FIERA FOODS COMPANY, Appellant, v. HIS MAJESTY THE KING,, 2023 TCC 140

Docket: 2018-1078(GST)G BETWEEN: FIERA FOODS COMPANY, Appellant, and HIS MAJESTY THE KING, Respondent . Appeal heard on October 31, 2022, November 1 to 3, 2022, November 7 to 10, 2022, November 14 to 16, 2022 and January 20, 2023, at Toronto, Ontario Before: The Honourable Justice John R.

Owen Appearances : Counsel for the Appellant: Al Meghji, Alexander Cobb Mark Sheeley and Alexandra McLennan Brown Counsel for the Respondent: Jack Warren, Dan Daniels and Albert Brunelle JUDGMENT UPON hearing the evidence and submissions of counsel for the Appellant and counsel for the Respondent; IN ACCORDANCE with the attached Reasons for Judgment (the " “Reasons” " ), the appeal from the reassessments under

Part IX of the Excise Tax Act that denied the deduction of input tax credits claimed by the Appellant in computing net tax for each of the 37 monthly reporting periods ending in the period from January 1, 2011 to and including January 31, 2014 is allowed with costs to the Appellant and the reassessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Appellant is entitled to the ITCs as defined in paragraph 4 of the Reasons . The parties shall have 60 days from the date of this judgment to agree on costs.

If no agreement is reached the Appellant shall have a further 30 days to submit written submissions on costs. The Respondent shall have a further 30 days to provide written submissions in response to the Appellant’s submissions. The written submissions of each party are not to exceed ten pages. Signed at Ottawa, Canada, this 20 th day of September 2023. “J.R. Owen” Owen J. Citation: 2023 TCC 140 Date: 20230920 Docket: 2018-1078(GST)G BETWEEN: FIERA FOODS COMPANY, Appellant, and HIS MAJESTY THE KING,

Respondent. REASONS FOR JUDGMENT Owen J. I. Introduction [ 1 ] Fiera Foods Company (the " “Appellant” " ) appeals reassessments (the " “Reassessments” " ) by the Minister of National Revenue (the " “Minister” " ) under

Part IX of the Excise Tax Act , RSC 1985, c E-15 (the " “ ETA ” " ) [1] of the 37 monthly reporting periods (collectively, the " “Reporting Periods” " ) ending in the period from January 1, 2011 to and including January 31, 2014 (the " “Relevant Period” " ). The Reassessments denied the deduction of a total of $5,758,469.46 of input tax credits claimed by the Appellant in computing net tax for the Reporting Periods and assessed penalties under

section 285. [ 2 ] The Appellant claimed the input tax credits in respect of harmonized sales tax ( " “HST” " ) paid by the Appellant to 13 payees that the Appellant says provided taxable supplies to the Appellant during the Relevant Period. The names of the 13 payees (individually, an " “Agency” " and collectively, the " “Agencies” " ) and the details regarding the disallowed input tax credits are set out in the following chart, which is appended as

Schedule " “A” " to the Reply: [ 3 ] In its written argument, the Appellant concedes that it is not entitled to input tax credits in respect of amounts paid to Alpha Logistics Services Inc ( " “Alpha” " ) for the weeks ending December 8, 2012 to August 10, 2013 because it did not have an HST registration number for that Agency at the time it filed the corresponding HST returns. [ 4 ] The Appellant’s concession reduces the input tax credits claimed by the Appellant in respect of Alpha from $455,401.38 to $180,595.42 and reduces the total input tax credits claimed by the Appellant from $5,758,469.46 to $5,483,663.50.

I will refer to the total amount of input tax credits remaining in dispute as the " “ITCs” " . [ 5 ] The Respondent admits that the Appellant paid the amounts in respect of which it calculated the ITCs but denies that the payments by the Appellant were for taxable supplies. The Respondent contends that the Agencies were not capable of providing the services paid for by the Appellant.

In the alternative, the Respondent submits that the Appellant has not satisfied the documentary requirements in subsection 169(4) and in the Input Tax Credit Information (GST/HST) Regulations , SOR/91-45 (the " “ Information Regulations ” " ). [ 6 ] Consequently, the issues raised by the Appellant’s appeal of the Reassessments are as follows: 1 . Is the Appellant entitled to the ITCs under subsection 169(1)? 2 . If the answer to the first question is yes, is the Appellant precluded from claiming the ITCs because of paragraph 169(4)(

a) and the Information Regulations ? 3 . If the answer to the first question is no, is the Appellant entitled to a rebate for tax paid in error under

section 261 and subsection 296(2.1)? 4 . Is the Appellant liable for the penalties assessed by the Minister under

section 285? II. The Evidence A. The Witnesses [ 7 ] The Appellant called 11 witnesses, all of whom were employees of the Appellant or of a corporation related to the Appellant. Some of these employees had started as non-employee workers and subsequently became full-time employees of the Appellant. I will refer to an individual who worked for the Appellant but who was not an employee of the Appellant at the relevant time as a " “temporary worker” " or a " “TW” " .

I note that the legal character of the relationship between the Appellant and the TWs is not in issue. [ 8 ] The Appellant’s witnesses were as follows: 1 . Mr. Mahendra Bungaroo, the chief financial officer and chief administrative officer of the Appellant and the chief financial officer of several other corporations related to the Appellant. 2 . Mr. Zorik Ochakovsky, the director of manufacturing of the Appellant. 3 . Ms. Nataliya Seleznova, formerly a temporary worker (circa 2000–2001) and currently the payroll manager of the Appellant. Ms.

Seleznova was a payroll supervisor of the Appellant from 2011 to 2018. 4 . Ms. Zinaida Kissin, a time and attendance clerk of the Appellant. 5 . Mr. Kennet Ojo, formerly a temporary worker and currently a production supervisor of the Appellant. 6 . Ms. Lanie Manabat, formerly a temporary worker and currently an employee who works in the packaging department of the Appellant.

7. Mr. Admoon Aadam, formerly a temporary worker and currently an employee who works in the packaging department of theAppellant. 8. Ms. Tetyana Taranenko, formerly a temporary worker and currently an employee who works in the packaging department of theAppellant. 9. Mr. David Mandel, formerly a temporary worker and currently an employee who works in the packaging department of theAppellant. 10. Mr. Abhishek Khosla, an information technology ("“IT”") manager of Ryan Consulting Corporation ("“RCC”"), a corporationrelated to the Appellant.

RCC provides IT services to the Appellant and corporations related to the Appellant. 11. 11.Ms.

Malgorzata Magda Gawedzka, a production manager at the Appellant who was a production supervisor at the Appellantduring the Relevant Period. [9] The Respondent called 17 witnesses, three of whom were Canada Revenue Agency ("“CRA”") auditors at the time of the audit of theRelevant Period and 14 of whom were former temporary workers who testified under subpoena.[2] Two of the former temporaryworkers are current employees of the Appellant[3] and two were employees of the Appellant for a period of time.[4] [10] The three CRA auditors are as follows: 1. Mr. Chris Li, an auditor with the CRA who does GST/HST audits. 2.

Mr. Raminder Kooner, an auditor with the CRA who does GST/HST audits. 3. Ms. Kathleen Servilla, an auditor with the CRA who does GST/HST audits. B. The Credibility and Reliability of the Witnesses [11] The credibility of a witness refers to the honesty of the witness or the readiness of the witness to tell the truth. A finding that awitness is not credible is a finding that the evidence of the witness cannot be trusted because the witness is deliberately not telling thetruth. [12] The reliability of a witness refers to the ability of the witness to recount facts accurately.

If a witness is credible, reliability addressesthe kinds of things that can cause even an honest witness to be mistaken. A finding that the evidence of a witness is not reliable goes tothe weight to be accorded to that evidence. [13] Reliability may be affected by any number of factors, including the passage of time. In R v Norman, (ON CA),[1993] OJ No 2802 (QL), 68 OAC 22, the Ontario Court of Appeal explained the importance of reliability at paragraph 47: . . . The issue is not merely whether the complainant sincerely believes her evidence to be true; it is also whether thisevidence is reliable.

Accordingly, her demeanour and credibility are not the only issues. The reliability of the evidence iswhat is paramount. . . . [14] In this case, reliability is a particular concern because at the time of the hearing, the Relevant Period had commenced nearly 12years prior and many of the subpoenaed witnesses worked at the Appellant’s premises for only a short period of time. [15] With respect to each fact witness, I have considered all relevant factors[5] and I have concluded that each fact witness is credible.[6]I will address issues of reliability in the context of the evidence. C.

Summary of the Evidence

(1) Introduction [16] The resolution of the issues raised in this appeal will turn in large part on my findings of fact. As there is no agreement between theparties as to the facts, I am required to parse the evidence in considerable detail to ensure that, to the best of my ability, my findings offact are correct. As a result, these reasons will be longer than might be the case where the facts are either straightforward or substantiallyagreed.

(2) The Business of the Appellant [17] The Appellant is in the business of producing frozen bakery products for retailers such as supermarkets and fast-food chains locatedin Canada and in the United States. The frozen products are in the form of either raw dough or pre-baked items depending on the needsof the retailer.

The Appellant has carried on its bakery business since 1987. [18] The Appellant operates from two plants in the Toronto area: one located at 50 Marmora Street ("“Marmora”"), comprisingapproximately 250,000 to 300,000 square feet on four floors, and one located at 220 Norelco Drive ("“Norelco”"), comprisingapproximately 55,000 square feet.

The Marmora and Norelco plants operate five to six days per week depending on demand, with two12-hour or three 8-hour shifts per day. [19] At Marmora, the Appellant produces several products in different areas of the plant, including bagels, bread, croissants, pastries andsometimes cookies and muffins. At Norelco, the Appellant produces croissants and some pastry products.

[ 20 ] During the Relevant Period, the Appellant had annual revenues of between $195 million and $300 million from the sale of between 8 million and 10 million cases of products. A small portion of these products were produced at the facility of a corporation related to the Appellant called Upper Crust. [7] [ 21 ] Only a small percentage of the Appellant’s sales are made under long-term contracts. Most sales are from ad hoc orders received from customers, and those types of orders typically have a turnaround of less than ten days.

On occasion, the turnaround may be as short as one day. [8] [ 22 ] The prices for the Appellant’s products are negotiated with customers. [9] The Appellant is a relatively small player in the frozen baked goods market, so it has little leverage when it comes to passing on cost increases to customers. If a customer will not accept a price increase, the Appellant has to decide whether to stop doing business with the customer. [10] [ 23 ] The profit margins for the Appellant’s business are low and the Appellant relies on high sales volumes to earn a profit.

Consequently, the profitability of the Appellant is sensitive to the cost of inputs such as raw materials and labour. [11] The direct labour costs of the Appellant for 2011, 2012 and 2013 were stated in the financial statements of the Appellant to be $32,634,072, $35,409,549 and $41,071,078, respectively. [12] Mr. Bungaroo testified that the direct labour figure represented the labour cost for full-time employees of the Appellant and TWs. [13]

(3) The Use of TWs by the Appellant [ 24 ] During the Relevant Period, the workforce of the Appellant comprised between 1,100 and 1,200 individuals. Approximately 35 to 40 percent of the workers were employees of the Appellant and the remainder were provided to the Appellant by agencies. Approximately 200–250 individuals worked at the Appellant’s plants " “per shift” " (see line 19 of page 35 of the October 31, 2022 transcript.) [14] [ 25 ] Mr.

Bungaroo testified that the Appellant used agencies to obtain TWs because it did not have the internal resources to source TWs. [15] The Appellant used the Agencies because they were consistently able to provide TWs on very short notice while other agencies were not. [16] Although the TWs provided by the Agencies sometimes gave rise to personnel issues, the Appellant continued to work with the Agencies because they were always able to provide TWs on very short notice. [17] [ 26 ] The turnover of TWs was high and therefore the Appellant had to source TWs daily. [18] The availability of TWs sometimes on very short notice was critical to the Appellant’s business. [19] [ 27 ] Ms.

Kissin testified that during the Relevant Period, she contacted the Agencies for TWs except in urgent situations, where a production supervisor of the Appellant could contact the Agencies directly for TWs to avoid his or her production line shutting down. [20] [ 28 ] The testimony of the TWs (I will refer to the TWs who testified as the " “witness TWs” " ) indicates that they were attracted by advertising or, in a few cases, by word of mouth (i.e., a friend or relative). In cross-examination, Mr.

Bungaroo testified that the Appellant advertised in community publications to attract employees but not to attract TWs.

However, these advertisements would generate calls from agencies and resulted in a lot of agencies knowing that the Appellant used TWs. [21] [ 29 ] On the basis of the testimony of the witness TWs, the advertising appears to have been targeted at specific communities through local publications such as community-oriented newspapers, and the TWs who responded to the advertising were often recent immigrants to Canada. [ 30 ] The Appellant did not treat the TWs as employees and paid amounts to the agencies for the TWs.

All but one of the witness TWs [22] stated that they were paid weekly in cash. [23] Two witness TWs testified that they were initially paid in cash but subsequently obtained a debit card that was provided by a person other than the Appellant. [24] One of these two witness TWs testified that they were required to give a $20 deposit to obtain the debit card. [25] [ 31 ] On the basis of the testimony of the witness TWs, TWs could obtain their pay for the week on either Friday or Saturday of that week.

The payments in cash were made in one of three ways: (1) pick up cash at a specific location, which was a Money Mart or a location adjoining a Western Union; (2) receive, on the Appellant’s premises, an envelope of cash from an Agency representative; or, (3) receive, on the Appellant’s premises, an envelope of cash from a production supervisor of the Appellant. The procedure for obtaining payment varied but typically a TW had to sign something to obtain payment of his or her weekly wages. [ 32 ] Ms.

Gawedzka testified that for a period of time, the Appellant allowed representatives of the Agencies to distribute envelopes in a parking lot of the Appellant. Following a robbery, the Appellant allowed its production supervisors, who at the time included Ms. Gawedzka, to distribute envelopes of cash to TWs on the Appellant’s premises. [ 33 ] Ms. Gawedzka testified that the envelopes of cash distributed to TWs by production supervisors were delivered to the Appellant’s premises by individuals who were representatives of the Agencies. Ms.

Gawedzka stated that the names of two of the individuals who delivered envelopes were Souren and Rosemary. [26] [ 34 ] The Agencies changed during the Relevant Period. The way in which each change was accomplished is described under a heading that appears later on in these reasons and that reads as follows: " “

(7) The Replacement of an Agency with a New Agency ” " . [ 35 ] Exhibit A-9 consists of 12 letter agreements, which show the following execution dates: Name of Agency Date of Agreement SN Rush Services Ltd (“SN Rush”) December 20, 2009 Teamco Staffing Inc (“Teamco”) November 11, 2010 V-Star Consulting ( " “V-Star” " ) No Date

Savex Consulting Inc (“Savex”) August 18, 2011 VM Balance (“VM Balance”) September 16, 2011 APAC Group (“APAC”) March 29, 2012 EDACA September 5, 2012 Unicorn Management (“Unicorn”) October 15, 2012 Alpha December 6, 2012 1886758 Ontario Inc./Proxor Group (“Proxor”) January 5, 2013 Westlake Consulting (“Westlake”) September 2, 2013 Vista Group (“Vista”) November 26, 2013 V-Star Consulting ( " “V-Star” " ) No Date Name of Agency Date of Agreement [ 36 ] The Appellant could not locate a letter agreement for Right Way Optimum ( " “Right Way” " ). [27] [ 37 ] Mr.

Bungaroo testified that the Appellant did not strictly enforce the letter agreements because the agreements were written for the benefit of the Appellant to protect the Appellant. [28] The Appellant did not inspect the business premises of the Agencies because the Appellant knew whether the TWs provided by the Agencies were showing up for work. [29] [ 38 ] Mr. Bungaroo testified that the Appellant checked to ensure that each Agency had a Workplace Safety and Insurance Board ( " “WSIB” " ) certificate but did not make inquiries regarding the shareholders and directors of the Agencies. [30]

(4) The Representatives of the Agencies [ 39 ] Mr. Bungaroo testified that three individuals were collectively the points of contact for all the Agencies: Mr. Souren Sarkissov, Mr. Igor Morozov and Mr. Alex Zeinalov (individually, a " “Representative” " and, collectively, the " “Representatives” " ). [31] The Appellant stopped working with Souren Sarkissov in 2014, Igor Morozov in 2016 or 2017 and Alex Zeinalov in 2018. [32] [ 40 ] Mr. Bungaroo testified that he communicated with Souren Sarkissov by e-mail and telephone [33] and infrequently met with Mr. Sarkissov in his office. [34] Mr.

Bungaroo also stated that he met and communicated with Igor Morozov and Alex Zeinalov. [35] [ 41 ] Exhibit A-10 is an e-mail chain in which Mr. Bungaroo and Mr. Ochakovsky each sent e-mails to " “teamcostaffing@gmail.com” " , which start " “Suren” " and " “Dear Suren and Naum” " , respectively. The record indicates that the correct spelling of Mr. Sarkissov’s first name is " “Souren” " . [ 42 ] Counsel for the Respondent pointed out in his cross-examination of Ms.

Seleznova that Exhibit A-37, which is an e-mail from her to several of the Agencies, did not identify specific individuals, only the names of the Agencies. [36] [ 43 ] After counsel for the Respondent provided Ms. Seleznova with the document to refresh her memory, Ms. Seleznova identified her contacts at the Agencies as follows: 1. Alpha: Igor 2. SN Rush: Igor 3. APAC: Alex 4. Proxor: Alex 5. Vista: Alex 6. VM Balance: Souren 7. EDACA: Souren 8. Right Way: Souren 9. Savex: Souren 10. Teamco: Souren 11. Unicorn: Souren 12. V-Star: Souren 13. Westlake: Souren [37]

(5) The Appellant’s Time and Attendance System (TraceTime) [ 44 ] The Appellant issued each employee of the Appellant and each TW a swipe card–also frequently referred to by the witnesses as a punch card–that identified the individual by a bar code. [ 45 ] The Appellant had punch clocks that were supplied and maintained by a third party located throughout its plants. A TW would

swipe the card and the clock would recognize the bar code and log the time. The punch clocks had a button so a TW could choose whether the in and out time was for the shift or for a break (e.g., lunch) during the shift. The punch clocks were programmed with a list of valid bar codes. If a bar code was not used for six months, it was deactivated, but it was possible to have it reactivated. [38] [ 46 ] All employees and TWs had to use the punch clocks.

However, because it would take a few days to issue a swipe card to a new TW, the hours of a new TW would be recorded by the TW’s production supervisor until a swipe card was issued to the TW. [39] [ 47 ] In cross-examination, Mr. Bungaroo testified that during the Relevant Period, the Appellant had a requirement that the identification of new TWs be checked the first time a TW entered a plant.

Once a TW started working at a plant, the TW’s production supervisor would be able to identify the TW. [40] In 2014, a photograph of the card holder was added to the swipe cards. [41] [ 48 ] Most of the witness TWs testified that they reported to security when they arrived at the Appellant’s premises for the first time.

With one exception, [42] the witness TWs either did not mention being asked for identification (“ " ID " ”) when they arrived at the Appellant’s premises for the first time, or, if asked by counsel, stated that they did not recall being asked for ID, that they believed or thought that they were not asked for ID, or, in a couple of instances, that they were not asked for ID. [ 49 ] The Appellant used a time and attendance system called TraceTime to keep track of the hours worked by all employees and TWs and to assign schedules to employees and TWs.

TraceTime aggregated all punch-in and punch-out information from the punch clocks in the Appellant’s plants, and all time entered manually into TraceTime. The information available to a person using TraceTime would depend on the role of the person. [43] [ 50 ] Programs called " “policies” " were applied to the raw information to adjust times for various reasons such as to remove 30 minutes to account for a lunch break and to limit total time to the length of the shift. [44] In cross-examination, Mr.

Khosla testified that a unique policy that sets various attributes was also associated with each Agency’s ID number, which in turn was associated with an Agency name. [45] However, an Agency did not have attributes, only the policy. [46] [ 51 ] In cross-examination, Mr. Khosla testified that the only way to determine whether time was from a punch clock or from a manual entry was to compare the raw data from the clocks (the clock table) with the work time database, which included all clock times and manually entered times. Mr.

Khosla agreed that the raw clock table and the raw work time database had not been entered into evidence but stated that the information in evidence did come from the work time database. [47] [ 52 ] During the Relevant Period, Ms. Seleznova and Ms. Kissin were responsible for entering TWs into TraceTime and obtaining swipe cards for TWs. [48] To do this, they needed the TW’s name, the name of the agency with which the TW was associated, the department in which the TW would work and the rate to be paid to the agency. [49] Ms. Kissin testified that she did not rely on the agencies for information about TWs.

Instead, she relied on the Appellant’s production supervisors for such information. [50] [ 53 ] Most of the time, new TWs were assigned one of two pay rates. The rate was determined by the physical difficulty of the work to be performed by the TW. Occasionally, a special rate would be approved by management. [51]

(6) The Payments by the Appellant to the Agencies [ 54 ] Mr. Bungaroo identified Exhibits A-11, A-12, A-13 and A-14 as the invoices in the names of the Agencies received by the Appellant. Exhibits A-11, A-12, A-13 and A-14 contain copies of all invoices showing the name of an Agency that were received by the Appellant for 2011, 2012, 2013 and January 2014, respectively.

Each invoice is accompanied by a form of agency payments report ( " “APR” " ) printed by the Appellant from TraceTime and a payment slip showing information regarding the cheque or cheques issued by the Appellant to pay the invoice. [52] The payment slips indicate that all payments by the Appellant were to the Agency named in the accompanying invoice. [ 55 ] Exhibits A-11 to A-14 contain invoices for the following periods: Name of Agency Period Teamco January 2, 2011 to August 13, 2011 SN Rush January 2 , 2011 to December 1, 2012 Right Way February 6, 2011 to September 10, 2011 Savex September 11, 2011 to October 13, 2012 VM Balance September 11, 2011 to September 1, 2012 APAC March 25, 2012 to February 16, 2013 EDACA September 2, 2012 to October 5, 2013 Unicorn October 14, 2012 to August 31, 2013 Alpha December 2, 2012 to February 1, 2014 Proxor February 17, 2013 to November 23, 2013 Westlake September 1, 2013 to February 1, 2014 Vista November 24, 2013 to February 1, 2014 V-Star October 6, 2013 to February 1, 2014 [ 56 ] Mr.

Bungaroo testified that the APRs in Exhibits A-11 to A-14 were prepared by the Appellant weekly for each Agency using the information in TraceTime. TraceTime had the name of the Agency associated with each TW, the TW’s " “employee” " number, the rate payable to the Agency for that TW and the hours worked by the TW. [53] [ 57 ] Ms. Seleznova testified that every Tuesday she printed two types of APRs from TraceTime for every Agency that had provided TWs to the Appellant during the previous week. Ms.

Seleznova identified the documents in Exhibit A-32 as representative of the APRs she printed weekly. [54] I will refer to the two types of APRs printed by Ms. Seleznova as " “purchase-summary-APRs” " and " “hours-

APRs” " . [ 58 ] The purchase-summary-APRs state the name of the Appellant’s plant (e.g., Marmora or Norelco), the name of the Agency, the week to which the report applies, and the total dollar amount payable to the Agency broken down by department ( e.g. , packaging department, bagel department). [ 59 ] The hours-APRs state the name of the Appellant’s plant, the name of the Agency, the week to which the report applies , the name of the TWs associated with the Agency who had worked for the Appellant during the week, and the total hours worked for the Appellant by each such TW during the week.

As with the purchase-summary-APR, the hours-APR is organized by department. [ 60 ] Collectively, the purchase-summary-APR and the hours-APR for a particular week allow for the determination of the average hourly rate paid by the Appellant for TWs working in a particular department of the Appellant during that week. [ 61 ] Ms. Seleznova testified that on Tuesdays she sent a purchase-summary-APR and an hours-APR to each Agency that provided TWs for the week covered by the APR and would expect to receive an invoice from the Agencies by noon on Wednesdays. [55] [ 62 ] Ms.

Seleznova would check each invoice received from an Agency against her purchase-summary-APR and, if the invoice was correct, she would enter the invoice into ACCPAC—the Appellant’s accounting system—for payment. Ms. Seleznova would then print a cheque and would give it to her manager for approval. [56] [ 63 ] Ms. Seleznova testified that there were very rarely errors in invoices, andshe could not recall any one in particular. [57] [ 64 ] Occasionally an Agency would dispute the hours worked by a TW. If hours were disputed, Ms. Seleznova would ask the relevant production supervisor to check and confirm the hours.

If this was not done quickly enough to include any additional amount owed in the payment to the Agency for the week, then the amount would be added to the following week’s payment. [58] [ 65 ] Ms. Seleznova testified that cheques issued to the Agencies were either mailed to the Agency or picked up by a representative of the Agency. Ms. Seleznova identified the representatives of the Agencies as Alex, Souren, and Igor. Ms. Seleznova did not recall any other representative picking up cheques. [59] [ 66 ] In his cross-examination of Mr.

Bungaroo, counsel for the Respondent pointed out several relatively small discrepancies (when comparing the totals) between the amounts stated in an hours-APR printed in 2019 for a particular Agency and week and the invoice for the same Agency and week. Mr. Bungaroo explained that the correct numbers were found in the contemporaneous APRs and that APRs printed later contained discrepancies because of changes in the status of TWs, such as becoming inactive or changing Agencies. [60] [ 67 ] Mr.

Khosla testified that the Appellant has three databases, which he identified as the bill of materials database, the time and attendance database (i.e., TraceTime) and the accounting software database. [ 68 ] The Appellant backs up all three databases on tape drives. [61] The time and attendance and the accounting databases are backed up daily and the bill of materials database is backed up every two hours. [62] The backups were stored off-site so that they would be available if there was a disaster at Marmora. Only the IT group had access to the backups. [63] [ 69 ] In cross-examination, Mr.

Khosla testified that the tape drives were kept for eight to ten years and were not overwritten. [64] In re- examination, Mr. Khosla clarified that the Appellant still had the backups for the Relevant Period. [65] [ 70 ] Mr. Khosla testified that in 2015, the Appellant discovered issues with APRs printed from the then current TraceTime database. Specifically, the numbers in an APR printed from the current database did not match the numbers on historical documents, such as purchase-summary-APRs printed by Ms.

Seleznova. [66] This resulted in relatively minor discrepancies. [67] [ 71 ] Once discovered, the issues [68] were fixed going forward but to obtain accurate information for APRs for a period prior to the fix, the APR had to be printed from the backup of the database that was as close as possible to the date on which the original APR would have been printed, [69] which was typically the Tuesday after the week that the APR addressed. In cross-examination, Mr. Khosla agreed with counsel for the Respondent that it was not possible to tell from a document whether it was printed from a backup. [70] [ 72 ] Ms.

Kissin testified that during the Relevant Period, she was employed as a time and attendance clerk with the Appellant. Ms. Kissin summarized her duties during the Relevant Period as follows: I received a request or orders from supervisors. I called agencies and made arrangements so they will send us people and when those workers showed up, I set up files for each worker based on the order I was provided by supervisors. And then just recorded working hours which I received from supervisors. [71] [ 73 ] Ms.

Kissin testified that a record of a new TW’s time would be kept by the TW’s production supervisor until a swipe card was issued to the new TW, which would take about one week. Ms. Kissin would manually enter the time recorded by the production supervisor into TraceTime. [72] [ 74 ] Ms. Kissin would enter the following information in TraceTime: the first and last name of the TW, the hours worked, the department of the Appellant in which the TW worked, the referring agency and the rate. The rate was provided to Ms. Kissin by her supervisor. [73] [ 75 ] Ms.

Kissin would enter a TW into TraceTime only after the TW’s production supervisor had provided her with the hours worked by the TW on his or her first day. [74] Ms. Kissin recalled that heavy lifting positions had a higher rate of pay. [75] [ 76 ] Ms. Kissin testified that production supervisors would advise her of their personnel needs mainly by telephone but sometimes by e- mail. Ms. Kissin would then call Agencies to see if they had TWs available. If an Agency had TWs available, she would e-mail to

confirm the request for TWs. Ms. Kissin stated that she sent an e-mail because there had been instances when an Agency had sent more TWs or fewer TWs than requested. [76] [ 77 ] Ms. Kissin identified 31 e-mails, or e-mail chains, to or from Agencies and/or about TWs. [77] Most of the e-mails were to Ms. Kissin from Unicorn, Savex, Vista, EDACA, Westlake, Proxor or Teamco. In a few instances, Ms. Kissin had forwarded an e-mail to someone else who worked at the Appellant or had responded to an e-mail from an Agency. [ 78 ] The topics of the 31 e-mails are as follows: an Agency providing Ms. Kissin with the name(

s) of TW(

s) from the Agency , [78] an Agency providing Ms. Kissin with the name(

s) of TW(

s) from the Agency who are replacing other TW(

s) from the Agency, [79] a request by an Agency to check for missing hours or to increase the rate for a TW provided by that Agency, [80] Ms. Kissin forwarding to an Agency an internal e-mail identifying issues with TWs from an Agency, [81] and an e-mail from Savex to Ms. Kissin attaching a " “name list of our employees for Nov 11 2011” " [82] . [ 79 ] In response to a question from counsel for the Appellant as to why an Agency would send an e-mail regarding replacement TWs, Ms. Kissin explained: A.

Well, when temporary employees got sick or unable to show up at work they were supposed to report it to their agency and then the agency ask us whether we needed the replacement. Q. Why were they supposed to report it to the agency? A. Because they are employees of the agency. [83] [ 80 ] Ms. Kissin testified that over time she learned which agencies she could rely on to provide TWs and which agencies she could not rely on. Ms. Kissin stated that she had a whole list of agencies with names of individuals to contact.

When asked for the names of people she called she said that she remembered some information, but she was " “not quite sure in which year are all these agencies on the list” " . [84] [ 81 ] In cross-examination, Ms. Kissin agreed with counsel for the Respondent that the only documents she received from Agencies were the e-mails, that she received the hours from the production supervisors but there were no documents in evidence to that effect, that she did not meet with or collect documents from new TWs, and that she did not review the IDs of new TWs. [85]

(7) The Replacement of an Agency with a New Agency [ 82 ] The dates that invoices in a particular Agency name ceased and commenced, combined with the dates of the letters of understanding, indicate that during the Relevant Period Teamco and Right Way were replaced by Savex and VM Balance, respectively, SN Rush was replaced by Alpha, Savex was replaced by Unicorn, VM Balance was replaced by EDACA, APAC was replaced by Proxor, EDACA was replaced by V-Star and Proxor was replaced by Vista. [ 83 ] The invoices issued for the last week of January 2014 are in the names of Vista, V-Star, Westlake and Alpha, indicating that these Agencies were the only ones dealing with the Appellant at the end of the Relevant Period. [ 84 ] The Appellant’s counsel asked Mr.

Bungaroo why three individuals represented 13 Agencies. Mr. Bungaroo stated: A. Some agencies will stop working and those contact[s] will come to us and say we have stopped with those agencies and they’re working with different agencies now. And they’re representing a different agency. [86] [ 85 ] Mr.

Bungaroo testified that when a Representative advised the Appellant that he was working with a new Agency, the TWs associated with the prior Agency would be given the opportunity to move to the new Agency. [87] The Appellant facilitated the transfer by providing to the new Agency an office in the basement of the plant. [88] Ms.

Seleznova did not recall any TW complaining about changing Agencies. [89] [ 86 ] For the Appellant, the change in Agencies was accomplished by adding the new Agency to TraceTime and moving the TWs associated with the prior Agency to the new Agency. [90] The new Agency was also set up in ACCPAC. [91] [ 87 ] In cross-examination, Mr.

Khosla testified that it was possible to accomplish a change in Agency by changing the name of the Agency in TraceTime only if the Appellant knew at the time of the change that all the TWs associated with the former Agency were moving over to the replacement Agency and that except for the name change everything was staying the same. [92] [ 88 ] Ms. Seleznova testified that prior to adding the new Agency in TraceTime and ACCPAC, she would require the owner or director of the new Agency to sign a letter of understanding. Ms. Seleznova would also obtain a WSIB certificate for the new Agency. [93] Ms.

Seleznova had online tools available to ensure that a new Agency had a WSIB certificate. [94] [ 89 ] In re-examination, Ms. Seleznova testified that when a Representative changed Agencies, she would simply change the name of the Agency in TraceTime so that all the TWs associated with the old Agency in TraceTime would become associated with the new Agency in TraceTime. She would also set up the new Agency in ACCPAC. [95] [ 90 ] In cross-examination, Ms.

Seleznova testified that she did not confirm with the new Agency that the TWs of the former Agency were employed by the new Agency because the same Representative was representing the new Agency. [96] Ms. Seleznova and counsel for the Respondent had the following exchange: Q. By representing Alpha did you take this to mean that the workers provided by Alpha were Igor’s workers? A. Igor was representing Alpha, yes.

Q. Did you take that to mean the workers that Igor supplied that went to Alpha when it came to SN Rush was the workers that Igor was providing you? A. Yes, as a representative, yes. Q. And the same thing would apply when Souren or Alex changed agencies? A. Correct. [97] [ 91 ] In cross-examination, counsel for the Respondent asked Ms. Seleznova if there was any documentation relating to a change in Agency and she stated that there was only a verbal agreement and that nothing was done by the Appellant to verify the transfer of the TWs to the new Agency. [98] [ 92 ] In cross-examination, Ms.

Seleznova testified that Agency invoices were sent to the Appellant by fax or e-mail. Ms. Seleznova agreed with counsel for the Respondent that the sample in tab 2A of Exhibit A-11 did not have a fax cover sheet or an e-mail showing that the invoice was an attachment. [ 93 ] Counsel for the Respondent asked Ms. Seleznova about a correction to the invoice at tab 2A of Exhibit A-11 that added $960 for a TW. Ms.

Seleznova stated that she did not recall the timing but acknowledged that the invoice from the Agency showed the corrected amount and had the same January 18, 2011 date as the APR. [99] [ 94 ] Counsel for the Respondent took Ms. Seleznova to tabs 48B and 49D of Exhibit A-12, which include invoices from SN Rush and Alpha Logistics, respectively. Ms. Seleznova agreed with counsel that the layout of the two invoices is similar, that the invoices show the same telephone and fax numbers in the address line and that they both say " “Established since 1998” " . Ms.

Seleznova confirmed that Igor represented both Agencies. The dates of the two invoices indicate that SN Rush was replaced by Alpha after the week ending December 1, 2012. [100] [ 95 ] Counsel for the Respondent took Ms. Seleznova through the same exercise with the invoices at tabs 35A, 37B, 32C and 37C of Exhibit A-11 and at tabs 7A, 8A, 47A and 48A of Exhibit A-13 to much the same effect. [101] [ 96 ] Counsel for the Respondent took Ms. Seleznova to Exhibit A-32 and asked if many of the TWs shown in the detailed APRs for SN Rush at page 4 of tab 32 and page 10 of tab 33, respectively, were the same. Ms.

Seleznova agreed that they were and that someone would have changed the duplicate TWs from SN Rush to Alpha in the Appellant’s system. [102] [ 97 ] Counsel for the Respondent took Ms. Seleznova to an employee information audit report (an " “EIA report” " ) for a TW (Exhibit R- 33) and compared that report to APRs for Savex, EDACA and V-Star (Exhibits R-34, R-35 and R-36). Ms. Seleznova agreed with counsel that Exhibit R-33 did not reflect the last change in Agency to V-Star, which was reflected in Exhibit R-36. [103] Counsel undertook a similar exercise with 15 other TWs to the same effect. [104] Ms.

Seleznova stated repeatedly that she used EIA reports for a limited purpose and that she knew that they existed but was not " “really” " familiar with that type of report. [105] [ 98 ] In examination in chief and in cross-examination, Mr. Khosla provided a detailed explanation of the contents of an EIA report. [106] [ 99 ] Mr. Khosla identified Exhibits A-90 and A-91 as examples of two reports printed from the same backup. The crux of Mr.

Khosla’s testimony is that one cannot simply look at an EIA report and conclude that information such as a change in Agency is missing because the backup used determines the information on the EIA report. [107] [ 100 ] In cross-examination, Mr. Khosla confirmed that it was not possible to tell from the face of an EIA report when an Agency had changed or from which backup the EIA report had been printed. The information on the EIA report reflected only what was in the system at the time of the backup from which the EIA report had been printed.

To determine which backup was used, the EIA report had to be cross-referenced with other reports. The " “printed” " date revealed only the date on which the report was printed, not the backup from which the report was printed. [108] [ 101 ] In cross-examination, Mr. Khosla testified that if an Agency name is changed in TraceTime, the change will not appear on an EIA report or any other document.

However, if a new agency is added to TraceTime (i.e., an additional agency as opposed to a replacement agency), then the change will be captured on an EIA report of any TW associated with that new agency. [109] [ 102 ] In re-examination, counsel for the Appellant asked Ms. Seleznova to compare Exhibits R-39, R-44, R-47 and R-56, being EIA reports for four different TWs, to Exhibits A-41 to A-45, being EIA reports for the same four TWs. [110] All the EIA reports show a " “printed” " date of February or March of 2019.

The comparison revealed that the information in the EIA reports differed depending on the name of the Agency stated on the top right of the EIA report, which in turn suggests that the EIA reports were printed from different backups.

(8) The CRA Audit of the Appellant and of the Agencies [ 103 ] Mr. Li testified that Mr. Au, a CRA auditor, initially audited the Appellant for the period from December 2010 until the end of November 2012. [111] [ 104 ] Mr. Li testified that Mr. Au’s audit addressed the Appellant’s claim of input tax credits, but that Mr. Au made no adjustments. [112] Mr. Au did, however, raise issues regarding 12 agencies paid by the Appellant—seven of which were Agencies— because the HST remitted by the agencies was significantly less than the input tax credits claimed by the Appellant. [113] [ 105 ] Mr.

Li testified that the team auditing the Relevant Period requested records but that the CRA received a " “very limited amount of information” " . [114] In cross-examination, Mr. Li conceded that Mr. Au did not have any concern regarding the Appellant’s books and

records [115] and that all records requested by the CRA were in fact provided by the Appellant. [116] [ 106 ] In re-examination of Mr. Li, counsel for the Respondent suggested, in reference to Exhibit A-114, that information requested by Mr. Kooner had not been provided, and Mr. Li agreed. Mr. Kooner also testified that the information was not provided. [117] However, in cross-examination, Mr.

Kooner stated that Exhibit R-90, which is an excerpt from a CRA audit report for VM Balance, was correct when it stated the following in an entry dated February 4, 2014: Response received from Fiera Food Company, the following documents provided – GL listing, sample invoices (5), contract and sample of cancelled cheques (5). Services provided – Temporary General Production Labour, last day of Interactions September 7, 2012. Contact information Natalia (416) 827-8530 [118] [ 107 ] In cross-examination, Mr. Kooner conceded that Exhibit R-81, which is an excerpt from Mr.

Kooner’s audit report for EDACA, stated the following in an entry for December 31, 2013: Response received from Fiera Foods Company, the following documents provided – GL listing, sample invoices (5), contract and sample of cancelled cheques (5). [119] [ 108 ] In Mr. Kooner’s “Memo for File” regarding EDACA, which is included in Exhibit A-114, Mr. Kooner writes in an entry dated December 31, 2013 that he received a package from the Appellant by mail and states the following: " “I will review the information and complete a WP analysis of the sales and GST/HST collected” " .

In the next entry, dated January 7, 2014, Mr. Kooner writes " “I discussed the file with my TL and we discussed that the next step I would take is a bank requirement”. " [120] There is no suggestion in the " “Memo for File” " regarding EDACA that the Appellant was not co-operating or that information was being withheld by the Appellant. However, there are several entries in the memo that indicate that there had been difficulty obtaining third-party information from others. [ 109 ] Mr.

Li testified that during the audit of the Relevant Period, the Appellant’s file was referred to the Criminal Investigations Division of the CRA. [121] In cross-examination, Mr. Kooner testified that the decision to make the referral was made on October 31, 2014. [122] [ 110 ] The decision of the Criminal Investigations Division of the CRA found no evidence of wrongdoing by the Appellant. Mr.

Bungaroo identified a letter from the Criminal Investigations Division of the CRA dated February 7, 2020, which stated the following: The Criminal Investigations Division of the Canada Revenue Agency (CRA) confirms that Fiera Foods Company, its officers, directors, or agents are no longer targets or potential parties of the criminal investigation pertaining to the supply of temporary labour services to Fiera Foods Company from 2011-2014 and the suppliers’ alleged failure of remitting certain required Goods and Services Tax/Harmonized Sales Tax payments to the CRA. [123] [ 111 ] Mr.

Bungaroo confirmed that no further action was taken against the Appellant by the Criminal Investigations Division of the CRA. [124] [ 112 ] In cross-examination, Mr. Li acknowledged that Mr. Au had raised the need for further investigation to determine whether the Appellant had colluded with the agencies even though he had " “no solid evidence” " of collusion. [125] Mr. Li testified that he found no evidence that any of the money paid by the Appellant to the Agencies had made its way back to the Appellant. [126] [ 113 ] In cross-examination, Mr.

Li agreed that with respect to the provision of TWs, the CRA did not ask the Appellant for contact details for TWs and did not ask for access to TraceTime. Instead, the CRA relied on the names listed in the hourly APRs provided by the Appellant. [127] [ 114 ] In cross-examination, Mr. Li testified that the CRA used name searches in the CRA database to try and identify and track down TWs. Mr. Li conceded that the Appellant would not have social insurance numbers for the TWs because the TWs were not employees of the Appellant. [128] Mr.

Li also conceded that the CRA had no way of knowing whether the people who the CRA was contacting were the same people as those listed on the APRs provided by the Appellant. [129] [ 115 ] In cross-examination, Mr. Li was asked a series of questions regarding the information that had to be provided to obtain a registration number under the ETA . Mr.

Li identified the information that, to his knowledge, had to be provided as the following: 1 . the name, social insurance number and postal code of the owner of the business; 2 . the business name, business number and type of business; and 3 . the physical address of the business and, if different, the mailing address of the business. [ 116 ] In cross-examination, Mr.

Li confirmed that a post office box could be given as the address of the business, that there was no requirement for the owner of the business to warrant that the business be carried out from the address provided, that no one other than the owner had to be identified and that the applicant did not have to disclose other registration numbers. [130] Mr. Li testified that the searches of the Agencies conducted by the CRA were based on the information provided by the Agencies to obtain a registration number. [131] [ 117 ] In cross-examination, Mr.

Li testified that it " “appears that they [the Agencies] did not report taxable sales they had made from [the Appellant]” " . [132] [ 118 ] In cross-examination, Mr. Li testified that the Minister’s position was not that the Appellant had made everything up or that the TWs had not worked for the Appellant, but rather that the Agencies had not provided labour services to the Appellant. [133] [ 119 ] In re-examination, Mr. Li testified that the CRA had attempted to contact the owners of the Agencies, but without success. [134]

[ 120 ] Mr. Kooner testified that he audited EDACA and Teamco on his own and that he took over the audits of SN Rush, Unicorn and VM Balance after Mr. Singh, the previous CRA auditor, went on leave in October 2014. [135] [ 121 ] Mr. Kooner testified as to his audit findings at some length using his audit summaries and audit reports to refresh his memory. [136] Mr. Kooner’s evidence may be summarized as follows: 1 . On the basis of the T4s issued, the five Agencies had few employees and minimal payrolls, particularly in relation to the amounts on the invoices provided to the CRA by the Appellant. 2 .

The cheques received by EDACA from the Appellant were cashed at a cash house. I note that Mr. Li testified that most of the Agencies’ cheques from the Appellant were cashed at the same cash house. [137] 3 . Mr. Kooner identified a different owner for each of the five Agencies but was not able to reach anyone from four of the five Agencies. Mr. Kooner had gotten sidetracked after a question on whether he was able to reach the owner of Unicorn, and counsel did not return to the question. 4 . Mr. Kooner found no reference to Souren Sarkissov in his audits of EDACA, SN Rush or Teamco.

Counsel did not ask about Unicorn or VM Balance. I note that Ms. Seleznova identified Igor Morozov as her contact at SN Rush. [ 122 ] In cross-examination, Mr. Kooner had the following exchange with counsel for the Appellant regarding an entry in Exhibit R-81 dated June 3, 2014 that recorded a conversation with Larissa Ischenko from GTA Financial Investment Corporation: Q. The last bullet says she says she remembered that the client is an employment agency and that they need cash to pay for the employees that work for them. A. Correct. Q.

One of the few contacts you made with a third party other than Fiera also told you that Edaca was an employment agency? A. Correct. [138] [ 123 ] Ms. Servilla audited Savex for the period January 1, 2011 to August 31, 2013. Ms. Servilla testified that Mr. Au had requested information from Mr. Sergio Portnoy, the accountant for Savex, who provided copies of 60 invoices, 59 of which were issued to the Appellant. Ms. Servilla had interviewed Mr. Portnoy and Mr. Portnoy had provided Ms.

Servilla with information regarding the activities of Savex, including an additional 100 invoices issued to persons other than the Appellant. The invoices to third persons were in the general ledger of Savex, but the invoices to the Appellant were not. [139] [ 124 ] Ms. Servilla was taken by counsel for the Respondent to three pairs of invoices issued by Savex. One invoice of each pair was issued to a third party, and one was issued to the Appellant. Each pair of invoices had the same number but the invoice to the Appellant was followed by the letter " “A” " . [140] [ 125 ] Ms. Servilla identified Mr.

Stanislav Yasenik as the owner and director of Savex but did not come across the name Souren Sarkissov in her audit as being a director, officer or employee. [141] [ 126 ] Ms. Servilla performed a bank account reconciliation for the bank statements of Mr. Yasenik and determined that with minor variations, the invoices to persons other than the Appellant were reflected in the bank account but the invoices to the Appellant were not. [142] [ 127 ] Ms. Servilla determined that Savex had issued six T4s for 2011 totalling $13,681 and nine T4s for 2012 totalling $20,847. [143] [ 128 ] Ms.

Servilla testified that the business address of Savex was a residential apartment building. [144] In cross-examination, Ms. Servilla agreed that this information was not recorded in her audit report. [145] [ 129 ] In cross-examination, Ms. Servilla agreed with counsel for the Appellant that Savex would work with other agencies when the demand for TWs exceeded its available workers and that one such agency was VM Balance. Ms. Servilla also agreed with counsel that she had requested and received from VM Balance its invoices for these services. [146] [ 130 ] In cross-examination, Ms.

Servilla agreed with counsel for the Appellant that no one from the team that was auditing the Appellant had contacted her in December 2014 or March 2015 to provide her with additional information that was received from the Appellant and to ask her to follow up on that information. [147] III. The Submissions of the Parties A. The Appellant’s Submissions [ 131 ] The Appellant submits that there is overwhelming evidence of the Appellant’s need for TWs on a regular and continuous basis and that that need was fulfilled by the Agencies.

TWs made up the majority of the Appellant’s production workforce and payments to Agencies for TWs constituted the majority of the Appellant’s production labour expense. [ 132 ] The Appellant used TWs provided by the Agencies because it was far more cost effective and efficient and because the Agencies were able to provide TWs to meet the Appellant’s specific production needs, which varied from time to time. The Appellant could not

fulfill its constant requirement for workers itself and therefore needed the Agencies to fulfill that role. [ 133 ] The Appellant entered into letters of understanding with the Agencies for the provision of TWs and the Agencies provided TWs to the Appellant. The Agencies invoiced the Appellant for the TWs provided and the Appellant paid the Agencies the full amounts of the invoices, which included HST. [ 134 ] Mr. Bungaroo, Mr. Ochakovsky, Ms. Seleznova, Ms. Kissin and Ms.

Gawedzka all testified about their interactions with the individuals who represented the Agencies and about how the Appellant sourced temporary labour through the Agencies. There are hundreds of contemporaneous records substantiating that the Appellant placed orders for TWs with the Agencies, that those orders were filled by the Agencies and that the Agencies and the Appellant were in regular communication about issues surrounding TWs. [ 135 ] The Appellant submits that the Respondent has no theory as to how the TWs were supplied, or by whom, if they were not supplied by the Agencies.

Nor does the Respondent have an explanation as to why the Appellant would pay the Agencies millions of dollars if the Agencies were not providing TWs to the Appellant.

The Respondent has not alleged that the Appellant recovered any of the monies paid to the Agencies for TWs and there is no evidence to support such a conclusion. [ 136 ] The Appellant submits that the facts and circumstances in this appeal are substantially the same as those addressed in Salaison Lévesque Inc v The Queen , 2014 TCC 36 ( " “ Salaison Lévesque ” " ), where the Tax Court judge allowed the taxpayer’s claim for input tax credits. [ 137 ] The Appellant submits that it has met the documentary requirements imposed by subsection 169(4) and the Information Regulations . [ 138 ] The Appellant submits that except for the requirement that the HST number of the supplier appear in the documentation, which has been strictly enforced, the courts have been flexible with the document requirements in the Information Regulations : Lohas Farm Inc v The Queen , 2019 TCC 197 at paragraph 146 , and Bijouterie Almar Inc v The Queen , 2010 TCC 618 at paragraphs 71 and 77 . [ 139 ] The Appellant cites Forestech Industries Ltd v The Queen , 2009 TCC 591 at paragraph 30 for the proposition that it is only necessary that the Appellant possessed the documentation with the prescribed information at the time the relevant return was filed, and CFI Funding Trust v The Queen , 2022 TCC 60 ( " “ CFI ” " ) at paragraph 48 for the proposition that the documentation need not be signed by the supplier provided that the claimant can otherwise substantiate that the amounts claimed are correct. [ 140 ] In the event the Court concludes that services were not provided by the Agencies, the Appellant submits that it is entitled to a rebate under subsection 296(2.1) because (

i) the Appellant did not apply for any rebate in respect of the tax that it paid to the Agencies and (ii) the Appellant would have been entitled to a rebate under subsection 261(1) had it applied for such a rebate within the applicable limitation period in subsection 261(3). [ 141 ] The Appellant submits that subsection 296(2.1) requires the Minister to apply an unclaimed rebate against the net tax of a person even where no application for a rebate was made within the applicable limitation period: United Parcel Service Canada Ltd v Canada , 2009 SCC 20 , [2009] 1 SCR 657 at paragraphs 29–32 .

The Appellant submits that if no taxable supply was made to the Appellant, then the HST paid by the Appellant must have been paid in error: Welch v The Queen , 2010 TCC 449 at paragraph 12 . [ 142 ] The Appellant submits that it paid amounts on account of HST to the Agencies and that if the Agencies did not provide taxable supplies to the Appellant, those amounts were paid in error.

The reason for the error is not a consideration: Mediclean Incorporated v The Queen , 2022 TCC 37 at paragraphs 126–128 . [ 143 ] The Appellant submits that the Respondent cannot discharge the burden of establishing that the Appellant deliberately disregarded the law or demonstrated such an indifference to appropriate and reasonable diligence in a self-assessing system as belies or offends common sense: Guindon v Canada , 2015 SCC 41 , [2015] 3 SCR 3 ( " “ Guindon ” " ) at paragraphs 60–61 . [ 144 ] The Appellant filed its HST returns for the Relevant Period on the good faith belief that, having received supplies of TWs from, and paying HST to, the Agencies, it was entitled to the ITCs.

The Minister had accepted these claims for prior periods. [ 145 ] The audit of the Appellant’s returns for the period from December 2010 to November 2012 has no bearing on the application of the penalties in issue and it is paradoxical to suggest otherwise given that the CRA auditor for that period allowed the ITCs claimed by the Appellant on the basis that the Appellant met the documentary requirements.

Further, the audit did not end until 2013, so any guidance given was after the returns for the Relevant Period were filed and the only potentially relevant guidance related to vendors having valid HST registrations, which the Appellant heeded. B. The Respondent’s Submissions [ 146 ] The Respondent submits that the evidence of the witnesses who were TWs of the Appellant during the Relevant Period (the " “TW Witnesses” " ) contradicts the information from TraceTime and the associated records (the " “Records” " ). [ 147 ] The Respondent submits that the TW Witnesses testified to the following: 1.

He/she had no knowledge of the agency or agencies with which he/she is associated in the Records (ten TW Witnesses ); He/she did not remember the name of the agency (two TW Witnesses); He did not provide the name of an agency (one TW Witness); He remembered the name of the agency, but it was not an Agency (one TW Witness);

He could not confirm that he worked for an agency (one TW Witness); He never spoke to anyone at an agency and never visited an agency (one TW Witness); She remembered only one of the two or three Agencies with which she is associated in the Records (two TW Witnesses); and She did not work at the Appellant’s premises during the Relevant Period (one TW Witness). [ 148 ] The Respondent submits that there is no third-party evidence to corroborate the Records because the Appellant failed to call any of the Representatives as a witness.

The Respondent asks the Court to draw an adverse inference from the absence of such evidence. [ 149 ] The Respondent submits that the Appellant has the burden to prove on a balance of probabilities any facts alleged in the Notice of Appeal that are denied by the Respondent, and to demolish the Minister’s assumptions of fact: Eisbrenner v Canada , 2020 FCA 93 at paragraph 24 . [ 150 ] The Respondent submits that the Appellant has failed to meet this burden because the Appellant has not established that the Agencies supplied TWs to the Appellant and has not established that the Appellant collected the information required by subsection 169(4) and the Information Regulations . [ 151 ] The Respondent submits that the requirements under subsection 169(4) and the Information Regulations are strictly enforced mandatory requirements: Systematix Technology Consultants Inc v Canada , 2007 FCA 226 ( " “Systematix” " ) at paragraphs 4–6 . [ 152 ] Where the supplier listed on an invoice is not the actual supplier, the requirements of the Information Regulations have not been met and the ITCs may not be claimed: Modes Crystal Inc v The Queen , 2013 TCC 33 at paragraph 25 ; Constructions Marabella Inc v The Queen , 2012 TCC 397 at paragraph 27 ; Kosma-Kare Canada Inc v Canada , 2014 FCA 225 at paragraphs 6–7 ; Salaison Lévesque at paragraph 91. [ 153 ] Where documentation is not in a form enumerated in the Information Regulations , the documentation must be authored by or signed by the supplier: Vocan Health Assessors Inc v The Queen , 2021 TCC 49 ( " “ Vocan ” " ) at para 177 ; International Hi-Tech Industries Inc v The Queen , 2018 TCC 240 ( " “International Hi-Tech” " ) at para 68 [sic 66]. [ 154 ] The Respondent submits that the

interpretation proposed in CFI at paragraph 48 runs contrary to the text and purpose of the Information Regulations and could lead to absurd results, such as denying paper records but allowing electronic records with the same information. [ 155 ] The Respondent submits that the Appellant’s case requires the Court to accept that the Agencies were bona fide employment agencies distinct from one another, but the evidence does not support that conclusion: 1 . There is no evidence tying the Representatives to the Agencies. 2 .

The Appellant understood that the Representatives provided the TWs to the Appellant and the Appellant never met with anyone else associated with an Agency. 3 . The only business dealings that the Appellant had with the Agencies was through the Representatives, but there is no documentary evidence linking the Representatives to the Agencies or showing that a Representative changed Agencies. 4 . When an Agency changed names, nothing changed in the terms under which TWs were provided to the Appellant and therefore the Appellant must have known that the name change was superficial. 5 .

The testimony of the TW Witnesses indicates that there was no paperwork associated with a change in Agency and that most of the TW Witnesses were either unaware of a change in Agency or were aware only because the Appellant told them of the change. 6 .

The EIA reports of the Appellant do not reflect or properly reflect the changes in Agency and at times contradict the data in TraceTime. [ 156 ] The Respondent submits that the Records are not reliable, are inconsistent, are contradicted by the testimony of the TW Witnesses and cannot be accepted for the truth of their contents. [ 157 ] The Respondent submits that the penalties assessed under

section 285 are justified because the Appellant made a false statement in the returns that claimed the ITCs and either knew that the Agencies did not make the supplies or should have inquired about the relationship between the Agencies and the Representatives. Given the circumstances, that is, the failure to make inquiries regarding the supply of the TWs, the Appellant was either wilfully blind or was grossly negligent. [ 158 ] The Respondent submits that the Appellant did not pay HST in error. The Appellant has failed to establish that the HST that it paid was not payable by the Appellant.

The supply of TWs is a taxable supply and the Appellant paid HST in respect of that supply pursuant to subsection 165(1). IV. The Relevant Provisions of the ETA and the Information Regulations [ 159 ] The provisions of the ETA and of the Information Regulations relevant to the issues raised by the parties are reproduced in Appendix A of these reasons.

V. Analysis A. Review of the Evidence and Findings of Fact [ 160 ] The Respondent’s position is in substance that the Agencies could not have provided TWs to the Appellant because the Agencies did not have the employees or resources to perform that function. [ 161 ] Mr. Kooner testified that the CRA audit of EDACA, SN Rush, Unicorn, Teamco and VM Balance revealed minimal employees in comparison to the TWs listed in the records of the Appellant as having been provided by those Agencies. Ms. Servilla testified to much the same effect about Savex.

I will refer to the six audited Agencies as the " “Audited Agencies” " .

Because there is no evidence to suggest otherwise, I infer that the findings of the CRA with respect to the Audited Agencies apply to all the Agencies. [ 162 ] The witness TWs all testified that they were paid in cash (directly or through a debit card) and the TWs who were called by the Appellant testified that they were not issued a T4 for their work at the Appellant or, in one case, that he did not recall receiving a T4. [ 163 ] Consequently, the evidence of the Respondent’s witnesses and of the TWs called by the Appellant establishes that the Agencies did not treat the TWs as employees and did not comply with any of the requirements imposed by law on an employer, including the reporting, withholding and remitting requirements imposed under the Income Tax Act , RSC 1985, c1 (5 th Supp )( " “ ITA ” " ), the Employment Insurance Act , SC 1996, c23 ( " “ EI Act ” " ) and the Canada Pension Plan , RSC 1985, c C-8 ( " “ CPP ” " ). [ 164 ] The CRA audits of the Audited Agencies also revealed that the Agencies did not record in their books and records any activities with the Appellant and that they did not disclose to or remit to the CRA any HST received from the Appellant. [ 165 ] While the Respondent’s evidence and the TWs’ evidence support the conclusion that the Agencies deliberately concealed any activities that they may have had with the Appellant—a point made most clearly by Ms.

Servilla in her testimony regarding the information provided by Mr. Portnoy, the reconciliation Ms. Servilla performed of Savex’s bank account, and the “duplicate” invoices Ms. Servilla uncovered in the records of Savex—this evidence does not lead to the conclusion that the Agencies provided no services to the Appellant. [ 166 ] The testimony of Mr. Bungaroo, Mr. Ochakovsky, Ms. Seleznova, Ms. Kissin and Ms.

Gawedzka and the exhibits that accompany that testimony indicate quite clearly that the Appellant entered into arrangements with the Agencies and that pursuant to those arrangements the Agencies sourced and directed TWs to the Appellant, billed the Appellant for those TWs and paid those TWs in cash. In a few cases, the Appellant directed TWs sourced elsewhere to the Agencies, which then billed the Appellant for the TWs and paid the TWs in cash. [ 167 ] I infer from the evidence that the principal objective of the Appellant was to secure TWs to work in its plants at the lowest possible cost.

If the Appellant failed to acquire the needed TWs for a particular production line, the production line was at risk of shutting down with the attendant consequences to the Appellant’s bottom line. [ 168 ] The Appellant relied on the Agencies to meet its principal objective because the Agencies proved capable of directing sufficient TWs to the Appellant to meet its need for workers, which often arose on very short notice.

While the services provided by the Agencies were far from perfect, the Agencies proved to be the best available option for the Appellant to meet its principal objective. [ 169 ] The Appellant did not rely on the Agencies for any function other than soliciting and directing TWs to the Appellant, obtaining a WSIB certificate (which was checked by Ms.

Seleznova), billing the Appellant for the work that was performed by the TWs for the Appellant, and paying the TWs for that work (collectively, the " “Agency Activities” " ). [ 170 ] The Respondent did not argue that the Agencies, in performing the Agency Activities, were acting in the capacity of an agent for the Appellant and there is no evidence to support such a conclusion. The Agencies performed the Agency Activities as principal.

This is consistent with the CRA’s own findings that there was no evidence of collusion between the Appellant and the Agencies. [ 171 ] The Agencies were represented by three individuals. The evidence of Mr. Bungaroo and Ms. Seleznova indicates that these three individuals were the contact points between the Appellant and the Agencies. The evidence of Mr. Bungaroo, Ms. Seleznova and Ms. Kissin, as well as other evidence of the Appellant, supports the conclusion that the Appellant regularly and consistently dealt with these three individuals as representatives of the Agencies. [ 172 ] Ms.

Servilla testified that Mr. Au requested information from Mr. Sergio Portnoy, the accountant for Savex, who provided copies of 60 invoices, 59 of which were issued to the Appellant. Ms. Servilla also testified that she interviewed Mr. Portnoy and that Mr. Portnoy provided her with information regarding the activities of Savex, including an additional 100 invoices issued to persons other than the Appellant. [ 173 ] The invoices issued by Savex to third persons were in the general ledger of Savex but the invoices to the Appellant were not.

Souren Sarkissov, the Representative of Savex, represented 8 of the 13 Agencies. Ms. Servilla’s evidence regarding Savex is consistent with the Agencies issuing invoices to the Appellant but excluding from their records not only the invoices issued to the Appellant but all dealings with the Appellant. Ms.

Servilla’s evidence is inconsistent with a person other than the Agencies issuing the invoices in the name of the Agencies to the Appellant. [ 174 ] In a few instances, an Agency did not direct a TW to the Appellant, but the Appellant treated the TW as if he or she had been provided by an Agency, and the Agency complied with this arrangement. I have no doubt that the Appellant chose this course to avoid the legal obligations and the cost of employing the TW. Whatever the reason, the Agency billed the Appellant for the work that was performed by the TW for the Appellant and paid the TW in cash for that work.

[175] All arrangements such as training TWs and establishing the amount paid for TWs, and all record keeping associated with theAppellant’s use of TWs, was under the control of the Appellant. The Appellant provided the information that it compiled regarding thehours and cost of TWs to the Agencies in the form of the hours-APRs and the purchase-summary-APRs so that the Agencies could billthe Appellant for the TWs. While there was an occasional correction of the information in the APRs for missing time, any correctionwould be based on information confirmed by the Appellant’s production supervisors. [176] Ms.

Kissin testified that she did not rely on the Agencies for information about TWs. Instead, she relied on the Appellant’sproduction supervisors for such information. [177] The evidence of Mr. Bungaroo, Ms. Seleznova, Ms. Kissin and Mr. Khosla and the exhibits entered through those witnessesindicate that, in its records, the Appellant associated TWs who were directed to the Appellant by an Agency with the Agency.

If anAgency was replaced by a new Agency, the TWs were then associated with the new Agency by changing the name of the Agency inTraceTime. [178] The Appellant made no other change and did not confirm the transfer of TWs from the old Agency to the new Agency. The wholeprocess was invisible to the TWs, who continued to receive envelopes of cash or credits to a debit card for hours worked at theAppellant’s plants. In cases where the TWs were paid on the Appellant’s premises, the cash was provided by the Representatives of theAgencies, which is consistent with Mr. Li’s and Mr.

Kooner’s evidence that the Agencies cashed the cheques issued by the Appellant atcash houses. [179] Every Tuesday, the payroll department of the Appellant would print from TraceTime an hours-APR and a purchase-summary-APRfor each Agency associated with the TWs who had worked for the Appellant during the previous week. Ms. Seleznova sent the APRs fora particular Agency to that Agency with the expectation that the Agency would bill the Appellant by noon the following day.

The billissued by each Agency is evidenced by an invoice in the name of the Agency issued to the Appellant and the Appellant’s payment to theAgency is evidenced by a payment stub showing payment to the Agency. Copies of the purchase-summary-APRs, invoices and paymentstubs for the Relevant Period are contained in Exhibits A-11, A-12, A-13 and A-14 (the "“Billing and Payment Exhibits”"). [180] The purchase-summary-APR for an Agency for a week summarizes the dollar value of the work performed during the week byTWs associated with the Agency in the Appellant’s records.

The amounts are broken down by department within the Appellant and notby TW. [181] The hours-APR for an Agency for a week provides a report of the hours worked for the Appellant during that week by each TWassociated with the Agency in the Appellant’s records, again broken down by department. The Billing and Payment Exhibits do notinclude the hours-APRs, but examples of those printouts for TWs who worked at Norelco are found in Exhibit A-32. I have no reason todoubt Ms. Seleznova’s testimony that she provided both forms of APRs to the Agency named in the APR.

In any event, the hours-APRsare clearly part of the Appellant’s contemporaneous records. [182] The invoice of each Agency for a week is in the amount stipulated in the associated purchase-summary-APR, plus HST at the rateof 13%. Ms. Seleznova testified that she checked the invoices against the Appellant’s records, and if correct, entered the amount intoACCPAC for payment. She would then print a cheque, which she gave to her manager for approval.

The payment stubs in the Billing andPayment Exhibits indicate that the Appellant paid the Agency named in the associated invoice the full amount stipulated in that invoice. [183] The Respondent raises concerns regarding the authenticity and trustworthiness of the Appellant’s records, including the invoices,purchase-summary-APRs and payment stubs included in the Billing and Payment Exhibits. [184] The records contained in the Billing and Payment Exhibits are undoubtedly contemporaneous business records of the Appellantunder the common law established by the Supreme Court of Canada in Ares v Venner, (SCC), [1970] SCR 608.

I heardample evidence from Mr. Bungaroo, Ms. Seleznova, Ms. Kissin and Mr. Khosla to support the authenticity of these records and I heardno convincing evidence that challenged the authenticity of these records.[148] [185] The existence of a few trivial discrepancies in subsequently printed records is not evidence that the Billing and Payment Exhibitseither lack authenticity or are untrustworthy. The content of the records is entirely consistent with the Appellant’s entire course ofconduct.

The Appellant was meticulous in ensuring that it paid only for TWs that the Appellant could verify had worked in its plants andonly for the time that the Appellant could verify was worked by the TWs. [186] I have heard no evidence that supports the position that the Appellant was keeping false records. Quite the contrary, Mr. Bungaroo,Ms. Seleznova, Ms. Kissin and Mr. Khosla each provided detailed evidence regarding the creation, use and maintenance of the businessrecords entered into evidence by the Appellant.

The notion that a failure on the part of the Appellant to enter the raw data behind theserecords somehow impeaches the records is not tenable. Mr.

Khosla confirmed that the records in evidence were taken from the databasesof raw information maintained by the Appellant and that the Appellant retained all its daily backups from the Relevant Period. [187] The CRA conducted a civil audit and a criminal investigation into the arrangements between the Appellant and the Agencies andfound no evidence of collusion and no evidence that supports the Respondent’s contention that the Appellant’s records do not reflectwhat in fact transpired. [188] The Respondent suggests that I should draw an adverse inference because the Appellant did not subpoena witnesses who couldtestify from the perspective of the Agencies.

I decline to do so for two reasons. [189] First, it is clear from the evidence of the Respondent’s witnesses that the Agencies were perpetrating a fraud against the Crown incollecting HST but not remitting that HST. This raises a serious question about the credibility of any such evidence.

I certainly have noreason to believe that an individual representing the Agencies would have credible and reliable evidence that impeaches thecontemporaneous business records maintained by the Appellant. [190] Second, the CRA audited six of the Agencies in 2014 and the only person found who had knowledge of an Agency’s activity was

Mr. Portnoy. I fail to see how the Appellant can be expected to track down individuals with first-hand knowledge of the activities of the Agencies for a trial almost ten years after the end of the Relevant Period. [ 191 ] The Respondent does not contest that the Appellant paid the amounts indicated in the Billing and Payment Exhibits and in fact asserts that the Appellant was required to pay the HST on the amounts identified in the purchase-summary-APRs and associated invoices (i.e., the Respondent asserts that no amount was paid in error).

However, the Respondent has not explained to the Court why the Appellant would be keeping the detailed records evidenced by the Billing and Payment Exhibits but for the purposes explained by the witnesses for the Appellant. [ 192 ] The Respondent’s own evidence is that the Agencies received the cheques issued by the Appellant in payment of the invoices in the Billing and Payment Exhibits and that the Agencies converted the cheques received into cash. This is entirely consistent with the testimony of most of the witness TWs regarding how they were paid each week for their work at the Appellant. [ 193 ] Mr.

Li testified in chief that most of the cheques to the Agencies were cashed at the same cash house rather than deposited into a bank account. This evidenc

[…]