Docket: 2012-538(IT)I
BETWEEN:
MOHAMMED RAHMAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard on August 27, 2012 at Toronto, Ontario
By: The Honourable
Justice J.M. Woods
Appearances:
|
For the
Appellant:
|
The
Appellant himself
|
|
Counsel for the Respondent:
|
Ernesto Caceres
Cameron Baradargohari (student)
|
____________________________________________________________________
JUDGMENT
The appeal with respect to assessments made under the Income
Tax Act for the 2006 and 2007 taxation years is allowed, and the
assessments are referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that:
1.
the income of the appellant from
the taxi business for the 2006 taxation year is $8,112;
2.
in computing income from the taxi
business for the 2007 taxation year: (1) the appellant’s sales are $49,779, (2)
a taxi rental expense in the amount of $12,000 has been incurred, and (3) the appellant
is entitled to an additional deduction for fuel in the amount of $2,500; and
3.
gross negligence penalties should
be deleted for both years.
Each party shall bear their own costs.
Signed at Ottawa, Ontario this 7th day of September 2012.
“J. M. Woods”
Citation: 2012 TCC 320
Date: 20120907
Docket: 2012-538(IT)I
BETWEEN:
MOHAMMED RAHMAN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Woods J.
[1]
The appellant, Mohammed Rahman,
drove a taxi in Toronto during the 2006 and 2007 taxation years. His income tax
returns reported business income from this activity in the amounts of $8,112
and $10,093, respectively.
[2]
Mr. Rahman has appealed
assessments under the Income Tax Act which increased his income from the
business by approximately $50,000 for 2006 and $40,000 for 2007. The
assessments also imposed gross negligence penalties for both years.
[3]
At the commencement of the
hearing, the Crown informed the Court that it would concede the following:
-
the income as reported by the appellant
for the 2006 taxation year,
-
the revenue and taxi rental
deduction as reported by the appellant for the 2007 taxation year, and
-
the deletion of gross negligence
penalties for both years.
[4]
The relevant amounts are listed in
Schedule A to the Crown’s reply and will not be reproduced here.
[5]
The remaining issues involve deductions
claimed for the 2007 taxation year for expenditures that were described in the
income tax return as fuel, repairs and maintenance, insurance and brokerage
fee.
[6]
Mr. Rahman was the only witness at
the hearing. He testified that he drove a taxi belonging to Amir Kahn from 2005
to 2007 and that Mr. Kahn used Blue and White Taxi as a brokerage service. Mr.
Rahman stated that he took eight hour shifts as assigned by Mr. Kahn and that
he normally drove one taxi but might drive another when the primary vehicle was
in for repair.
[7]
Mr. Rahman testified that he paid
a total of $25,150 to Mr. Kahn in 2007 as taxi rent. According to the
testimony, this amount was described separately in the tax return as follows: (1)
$12,000 was paid as taxi rental, (2) $2,350 was paid for repairs and
maintenance on the vehicle, (3) $5,400 was paid for Mr. Kahn’s insurance on the
vehicle, and (4) $5,400 was paid for Mr. Kahn’s brokerage fees on the vehicle. In
addition, Mr. Rahman testified that he incurred fuel expense in the amount of
$13,250.
[8]
The Crown is disputing most of the
repair expense ($1,975), approximately one third of the fuel ($4,865), all of
the insurance ($5,400) and all of the brokerage fee ($5,400).
[9]
I would first comment that at the
hearing counsel for the Crown refused to divulge the reason for the concessions
made, despite the request of the appellant that he do so. It was suggested by Mr.
Rahman that the concessions for 2006 support his position for 2007 because the
aggregate amounts claimed are very similar.
[10]
I am unable to agree with Mr.
Rahman on this point. The concessions made by the Crown for 2006 are not relevant
to the factual findings for 2007. There are many possible reasons that the
Crown would make concessions that have nothing to do with the actual facts
surrounding Mr. Rahman’s business. The Crown has chosen not to divulge the
reason for the concessions and that is their prerogative.
[11]
Turning to the evidence with
respect to 2007, the main problem that I have with the position of Mr. Rahman
is that he has virtually no documentation to support the expenses that are in
dispute. All of the disputed amounts were paid in cash except for some of the
fuel, most of his suppliers insisted on cash and would not give receipts and
any receipts that Mr. Rahman had have been lost. Mr. Rahman’s case is
further weakened because he did not call anyone else as a witness to support
his testimony.
[12]
With the exception of the fuel, I
do not think that Mr. Rahman has made a satisfactory prima facie case to
rebut the assumptions made by the Minister.
[13]
In order for Mr. Rahman’s
testimony to be believed, I would have to accept the following:
-
Mr. Rahman earned very little ($10,000)
from the business in 2007 despite having worked regular shifts throughout the
year,
-
Mr. Rahman paid for repairs and
maintenance on the taxi even though it was driven 24 hours per day and he had
only an 8 hour shift, and
-
all of Mr. Rahman’s supporting
documents had been mislaid by his former landlord.
[14]
It is possible that all these
statements are accurate, but it is unlikely in my view. Further, Mr. Rahman’s
testimony was not sufficiently detailed to satisfy a prima facie case.
[15]
I would also mention that Mr.
Rahman has a statutory obligation to keep sufficient books and records to
support the income reported in the return. By dealing on a cash basis with
suppliers without receipts, Mr. Rahman has put himself in a position that he is
unable to comply with this obligation.
[16]
In the circumstances, the
assessment for 2007 should be upheld as it relates to repairs and maintenance,
insurance and the brokerage fee.
[17]
As for the fuel expense, the
Minister assumed that the fuel expenses were at least 20 percent personal. I am
prepared to accept that the allocation to personal use is too high. I propose
to allow an additional deduction of $2,500 on account of fuel.
[18]
In the result, the appeal will be
allowed, and the assessments will be referred back to the Minister for
reassessment on the basis of the Crown’s concessions and an additional $2,500
on account of fuel expense for 2007.
[19]
Each party shall bear their own
costs.
Signed at Ottawa, Ontario this 7th day of September 2012.
“J. M. Woods”
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