9091-2239 Québec Inc. v. The Queen (September 14, 2016 – 2016 TCC 198, Favreau J.).
Précis: The taxpayer ran a pizza shop. A GST auditor used an alternative audit method to determine that it had under-reported GST by roughly $24,000. The Court varied the method used by the auditor and arrived at a figure of roughly $13,000 of under-reported GST. The Court sustained penalties on the lesser amount. There was no order as to costs since this was an informal procedure appeal.
Decision: Essentially this case boiled down to a very granular analysis of the GST auditor’s alternative audit method:
 The auditor determined the average total sale to be $32.94, using the following calculation: reported sales divided by the number of pizzas sold according to the SRM (excluding 14‑inch pizzas). The $32.94 amount was then multiplied by the number of boxes purchased (or available for sale, excluding the 14‑inch boxes), which was 8,693, to arrive at the reconstituted sales, namely, $286,334. There is therefore a discrepancy of $126,869 (when the reconstituted sales are compared with the reported sales of $159,464 for 2012). Thus, according to the auditor’s method, 55.69% of sales were reported and 45% were not (Exhibit I‑1, Tab 10, p. 7.4).
 If the same calculation is done again adding the 14-inch boxes, the result indicates that in fact 69.46% of sales were reported, and therefore approximately 30% were not.
 Why were the 14‑inch boxes not taken into account in the calculations? The auditor stated that because, according to the SRM, there were more sales than purchases, she dismissed this element. In my opinion, the 14‑inch boxes should have been included in the calculations. Otherwise, the calculations cannot provide a true reflection of reality. Indeed, according to Exhibit I‑1, Tab 15 (p. 7.75), in 2011, 3,650 14-inch boxes were purchased, whereas in 2010 the appellant purchased 2,550, and in 2012, 2,850. There is clearly a large difference in 2011: 1,100 more boxes than in 2010 and 800 more than in 2012. In 2011, the appellant must have purchased more 14‑inch boxes than needed; therefore the negative variance the auditor noted (Exhibit I‑1, Tab 10, p. 7.5) is probably erroneous.
 As for the other‑sized boxes, the number of boxes purchased each year remained stable. It must also be noted that, according to the SRM, the best‑selling pizza size was the 14‑inch size; therefore, if the boxes of that size are excluded, the results will be erroneous (Exhibit I‑1 Tab 10, p. 7.6).
 For these reasons, it is my view that 30% of the appellant’s sales were unreported, that is, sales totalling $256,047 for the period, distributed as follows:
- For 2009: $58,074
- For 2010: $62,069
- For 2011: $67,562
- For 2012: $68,342
Therefore, $12,802.35 should be added to the appellant’s net tax calculation for the period, and not $23,768.85 as determined in the assessment.
The Court sustained penalties on the lesser amount. There was no order as to costs since this was an informal procedure appeal.