Date:
20110524
Docket:
A-128-09
Citation: 2011 FCA 174
CORAM: NOËL
J.A.
NADON
J.A.
EVANS
J.A.
BETWEEN:
JOHN F.
GROSCKI
Appellant
and
HER MAJESTY
THE QUEEN
Respondent
REASONS FOR
JUDGMENT
NOËL J.A.
[1]
This
is an appeal by Mr. John F. Groscki (the appellant) from a judgment of Miller
J. of the Tax Court of Canada (the Tax Court Judge) confirming the assessment
issued by the Minister of National Revenue (the Minister) disallowing the
appellant’s deduction for bad debts under paragraph 20(1)(p) of the Income
Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (the Act) for his 2002
taxation year.
[2]
In
computing his income for the 2002 taxation year, the appellant deducted an
amount of $12,000 on line 8590 (Bad debts) of his statement of professional
activities that was filed with his T1 income tax return. He explained before
the Tax Court that the figure of $12,000, although claimed as a bad debt,
represents the increase in his reserve for doubtful debts for his 2002 taxation
year over that applicable to his 2001 taxation year. As such, he took the
position that he was entitled to the deduction as a reserve for doubtful debts.
[3]
The
combined effect of paragraphs 20(1)(l) and 12(1)(d) of the Act
allows a taxpayer to deduct a reserve for doubtful debts for a given taxation
year subject to this reserve being included in income in the following year and
a new reserve being claimed as a deduction in that year, if justified. The
result is that the payment of taxes on receivables, the collection of which can
be shown to be doubtful, is deferred until such time as they cease to be
doubtful. In contrast, when a debt can be shown to be unrecoverable, paragraph
20(1)(p) allows for a final one-time deduction with no corresponding
inclusion.
[4]
It
is useful for present purposes to reproduce paragraph 12(1)(d) of the
Act which requires a taxpayer to include in income a reserve for doubtful debts
claimed in the prior year:
|
12. (1) There shall be included in computing the income of a
taxpayer for a taxation year as income from a business or property such of
the following amounts as are applicable
…
(d) any
amount deducted under paragraph 20(1)(l) as a reserve in computing
the taxpayer’s income for the immediately preceding taxation year;
…
|
12. (1) Sont à inclure dans le calcul du revenu tiré par un
contribuable d’une entreprise ou d’un bien, au cours d’une année
d’imposition, celles des sommes suivantes qui sont applicables :
[…]
d) les sommes déduites à titre de
provision en application de l’alinéa 20(1)l) dans le calcul du
revenu du contribuable pour l’année d’imposition précédente;
[…]
|
[5]
In
his reasons for judgment, the Tax Court Judge stated the following with respect
to the appellant’s deduction of $12,000 for bad debt (reasons for judgment at
para. 9):
The issue before me, however,
is not whether [the appellant] has properly calculated his allowance for
doubtful accounts, but whether he has proven he had $12,000 of bad debts in
2002. He has not provided me any evidence with respect to bad debts for 2002. …
[6]
The
Tax Court Judge also made the following statement (reasons for judgement at
para. 4):
… [The appellant] calculated
[the $12,000] expense by determining an allowance for doubtful accounts in year
one and in year two, and determining the difference. When the appeals officer
attempted to explain to [the appellant] that such a determination was not a bad
debt for income tax purposes, but an increase in an allowance for doubtful
accounts, [the appellant] accused the appeals officer of not knowing what he
was talking about. With respect, that was unfair, and was inaccurate.
[7]
As
the appellant was unable to demonstrate that debts totaling $12,000 became
unrecoverable during his 2002 taxation year, the Tax Court Judge held that the
deduction was properly disallowed.
[8]
In
support of his appeal, the appellant argues that the Tax Court Judge erred in characterizing
the issue before him as whether he had a bad debt of $12,000. According to the
appellant the issue throughout was whether he was entitled to a reserve for
doubtful debts in the amount of $12,000. The appellant submits that the reserve
was allowable as such and the Tax Court Judge erred in requiring him to follow
a particular methodology in claiming it.
[9]
The
difficulty with the arguments raised on appeal is one of evidence, or more
precisely the lack thereof. I agree that if the reserve which the appellant
purports to have claimed for doubtful debts for his 2002 taxation year was
treated as such and included in his income for the subsequent taxation year, as
was required by paragraph 12(1)(d), he was entitled to a $12,000
deduction in 2002 regardless of the label placed on the deduction which he
claimed. On the other hand, if the deduction was a one-time deduction with no
corresponding inclusion the next year, it was properly characterized by the Tax
Court Judge as a deduction for bad debts.
[10]
It
would have been a simple matter for the appellant to produce his 2003 tax
return and show that the reserve which he claimed was treated as such and
included in his income for that subsequent year. Absent any such evidence, it
was open to the Tax Court Judge to treat the claimed deduction as a one-time
deduction for bad debts. As otherwise there is no evidence that the amount
claimed became a bad debt during 2002, the Tax Court Judge properly upheld the
disallowance.
[11]
I
would dismiss the appeal with costs.
“Marc
Noël”
“I
agree
M. Nadon J.A.”
“I
agree
John M. Evans J.A.”
FEDERAL COURT OF APPEAL
NAMES OF COUNSEL AND
SOLICITORS OF RECORD
DOCKET: A-128-09
APPEAL FROM AN AMENDED JUDGMENT DELIVERED
ORALLY FROM THE BENCH OF THE HONOURABLE JUSTICE MILLER OF THE TAX COURT OF
CANADA DATED APRIL 24, 2009, DOCKET NUMBER 2008-1645(IT)I.
STYLE OF CAUSE: JOHN
F. GROSCKI and HER MAJESTY THE QUEEN
PLACE OF HEARING: Toronto, Ontario
DATE OF HEARING: May 19, 2011
REASONS FOR JUDGMENT BY: Noël J.A.
CONCURRED IN BY: Nadon J.A.
Evans J.A.
DATED: May 24, 2011
APPEARANCES:
|
Leigh Somerville Taylor
|
FOR
THE APPELLANT
|
|
Paolo Torchetti
Donna
Dorosh
|
FOR
THE RESPONDENT
|
SOLICITORS OF RECORD:
|
LEIGH SOMERVILLE TAYLOR
Professional
Corporation
Toronto,
Ontario
|
FOR
THE APPELLANT
|
|
MYLES J. KIRVAN
Deputy
Attorney General of Canada
|
FOR
THE RESPONDENT
|
Email this Content