Citation: 2012 TCC 100
Date: 20120329
Docket: 2008-3858(IT)G
BETWEEN:
NIRMALA NAIDU SUGNANAM,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Docket: 2008-3815(IT)I
AND BETWEEN:
ESESSON CANADA INC.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR ORDER
Woods J.
[1]
The appellants, Dr. Nirmala Naidu
Sugnanam and Esesson Canada Inc., bring the following motion:
Ordering the
Canada Revenue Agency (CRA) to provide us a written Undertakings as requested
for during the examination of discovery held on 21/22 March 2011.
[2]
The motion relates to appeals
under the Income Tax Act. These appeals, along with an appeal by
Sobhanadri Naidu Sugnanam, will be heard together beginning June 25, 2012.
[3]
The motion will be dealt with on
the basis of written submissions. The appellants filed a notice of motion dated
December 3, 2011 (filed January 11, 2012) and further submissions were made by
letters dated February 24 and 26 and March 1, 2012. The respondent filed reply
submissions by letters dated January 18 and February 28, 2012.
[4]
The respondent objects to the
motion on two main grounds. With respect to Esesson Canada Inc., the respondent
submits that no undertakings were given because the corporation was not part of
the discovery process since its appeal is governed by the Court’s Informal
Procedure. With respect to Dr. Sugnanam, the respondent submits that it has
satisfied all undertakings given at the examination for discovery, and that the
information requested in the motion was not the subject of undertakings which
it agreed to provide during the examination.
[5]
As far as I can determine, the
respondent is correct on both counts. Esesson Canada Inc. was not part of the
discovery process. Further, the respondent provided a transcript of excerpts
from the examination which suggests that the respondent did not provide any undertakings
with respect to the information requested in this motion.
[6]
The appellants submit that the
respondent did in fact undertake to provide this information. It is not
possible to verify this statement without supporting evidence which was not
provided. The submission is not accepted.
[7]
Notwithstanding that the
respondent raised valid technical grounds to dismiss the motion, this is not a
satisfactory resolution in respect of the issues raised by the appellants.
[8]
In large part, the information
sought by the appellants is an attempt to better understand the position of the
respondent. This has already been provided by the respondent in the Replies. The
Replies appear to be well drafted and conform to the applicable Rules of this
Court.
[9]
If the appellants were represented
by counsel, there likely would be no difficulty in understanding the
respondent’s position. However, the appellants are not represented by counsel
and it appears that they are not able to fully understand the Replies. This
would hardly be surprising given the complexity of the Income Tax Act. I
suspect that many taxpayers who represent themselves in this Court are not able
to fully understand the replies filed by the Crown.
[10]
If in this motion the appellants
had specifically sought clarification of parts of the Replies instead of
seeking answers to Undertakings, I would have granted it. In the circumstances,
it would not be in the best interests of justice to deny all relief to the
appellants simply because of how the motion was framed.
[11]
The general question that is
raised by this motion is how much assistance should the respondent be expected
to provide self-represented litigants in understanding the case that they have
to meet. In answering the question in a particular case, the interests of both
parties should be taken into account and a balance should be struck.
[12]
In general, taxpayers who choose
to represent themselves in appeals in this Court should take positive action to
try to understand the case that they have to meet. They should not be able to
sit back and require the respondent to do all the work. At the same time, the
respondent should also be expected to provide some assistance.
[13]
In this particular case, I am not
satisfied that either party has done enough. For example, the appellants seek a
copy of the income tax provisions that the respondent relies on. Such
provisions are generally available through the internet and the Replies provide
the necessary section references. The appellants should have been able to access
this material, even though they are not currently in Canada.
[14]
The respondent, on the other hand,
chose to object to the motion on formal grounds rather than providing some
assistance to the appellants. Some assistance is warranted, in my view.
[15]
In the interests of moving this
matter along, I will endeavour to provide some information in these reasons.
The respondent will be directed to supplement this prior to the trial.
[16]
I would first make a general
comment about the Replies for the benefit of the appellants. The Replies are important
documents which are designed to inform taxpayers of the case that they have to
meet. As prescribed by the Rules, the Replies set out the following:
(a) the
facts that are admitted,
(b) the
facts that are denied,
(c) the facts of which the
respondent has no knowledge and puts in issue,
(d) the findings or assumptions
of fact made by the Minister when making the assessment,
(e) any
other material fact,
(f) the
issues to be decided,
(g) the
statutory provisions relied on,
(h) the
reasons the respondent intends to rely on, and
(i) the relief sought.
[17]
In order to understand the
position of the respondent, it is particularly important to have regard to two
of the above sections, the assumptions of fact made by the Minister, (d), and
the reasons or grounds that are relied on, (h).
[18]
The assumptions of fact made by
the Minister are important because, to the extent that a taxpayer disagrees with
a fact assumed, the taxpayer generally has the burden to establish what the
correct fact is, based on evidence properly presented in Court.
[19]
It is usually not relevant whether
the Minister conducted the audit in a proper manner. Even if the Minister acted
in an arbitrary manner during the audit, the facts assumed are generally
considered to be true unless the taxpayer provides satisfactory evidence to the
contrary in Court.
[20]
Replies also set out a list of
statutory provisions that the Crown intends to rely upon. The Replies in this
case do give a list of statutory provisions, but it appears that the appellants
do not have a copy of them. The provisions have been reproduced in the
appendix.
[21]
I now turn to the specific
information that the appellants seek. There are seven requests, which the
appellants have referred to as “Undertakings.” Each request is discussed below
under the headings used by the appellants.
[22]
Undertaking No. 1
Tax office has transferred Esesson Canada Inc income for the years
2002 & 2003 to Dr. Nirmala Naidu Sugnanam’s personal income:
Undertaking is needed: Under what CRA’s
income tax act, clause or sub clause this book transfer has been done CRA?
Please provide a “copy” of related sub clause from CRA’s rules.
[23]
By way of background, the appeals relate to income from Dr. Sugnanam’s
medical practice. The appellants submit that the income was earned by Esesson
Canada Inc. The Minister had removed it from the income of Esesson Canada Inc.
and included the medical income in Dr. Sugnanam’s income.
[24]
According to the assumptions of
fact made by the Minister and as set out in the Replies, the medical income was
earned by Dr. Sugnanam and did not relate to a business carried on by Esesson
Canada Inc. At trial, the appellants will have the burden to disprove these
factual assumptions.
[25]
If the Replies to do not fully set
out the grounds that the respondent intends to rely on, the additional grounds
should be communicated to the appellants prior to the trial. In addition, the
judicial authorities that the respondent intends to rely on should also be
provided to the appellants in advance of the trial. This applies not only to
this request but to all issues.
[26]
Undertaking No. 2
CRA has submitted TWO copies of unsigned Minutes of meeting were
attached as part of documentation to the honourable court.
We have challenged the authenticity of these minutes vide our letter
dated [sic] to CRA. CRA representative confirmed that they are “personal notes
of the auditor”
Undertaking is needed: The name
“Minutes of Meeting” is a misleading and we feel they are intended to send
wrong messages to all who reads it. Please confirm these so called “Minutes”
are in deed personal notes of the auditor and amend the document submitted to
the court accordingly.
[27]
With respect to
confirming the personal notes, it appears
from the request that this has already been done. With respect to amending a
document, the appellant is not entitled to this type of relief. These requests are
denied.
[28]
Undertaking No. 3
CRA assumed that Dr. Sugnanam’s son stayed at 64 Chatam drive, Calgary during 2002 & 2003, which is a
rental property of Dr. Sugnanam. We have filed a proof of company registration
and associated documentation to CRA as well as to the honourable court
confirming that Esesson Canada Inc. has indeed occupied that property during
that period 2002-2003 and operated their business. The pass port copy of Dr.
Sugnanam’s son show’s he is out of the country in the latter part of 2003. Even
then Dr. Sugnanam’s rental property’s expenses for year 2003 were not
considered.
Undertaking is needed: CRA will only
consider their speculation/assumption and will not consider the proof submitted
by the tax payer. On either case the reason for such denial.
[29]
The factual foundation for the
Minister’s position is set out in the assumptions stated in paragraphs 32(h) to
(t) of the Reply. At trial, the burden will be on Dr. Sugnanam to disprove
these assumptions of fact on the basis of properly introduced evidence.
[30]
With respect to the grounds relied
on by the respondent, the Reply sets out four separate grounds: no source of
income, paragraph 18(1)(a) of the Income Tax Act, paragraph 18(1)(h) of
the Income Tax Act, and expenses were not incurred.
[31]
Three of the four grounds are
clear once the statutory provisions are referred to. The first ground, no
source of income, requires some clarification.
[32]
In general, a deduction for an expense
is allowed only if the expense is associated with a source of income. The
meaning of “source of income” was discussed in the leading case of Stewart v
The Queen, 2002 SCC 46, 2002 DTC 6969. A brief passage from that decision
is reproduced below.
[60] In summary, the issue of whether or
not a taxpayer has a source of income is to be determined by looking at the
commerciality of the activity in question. Where the activity contains no
personal element and is clearly commercial, no further inquiry is necessary.
Where the activity could be classified as a personal pursuit, then it must be
determined whether or not the activity is being carried on in a sufficiently
commercial manner to constitute a source of income. […]
[33]
Undertaking No. 4
CRA during the examination of discovery confirmed that it is a
common practice for CRA to depute their representative to obtain clarifications
before finalising audit especially when the tax payer is not in a position to
move due to health reasons. In spite of written request and medical
documentation provided to CRA about the health condition of Mr. Sobhanadri
Naidu Sugnanam such facility was not provided to one of the Canadian citizen.
Undertaking is required: CRA to specify
the reason for such discrimination by not deputing their representative and
their intention to finalise the audit unilaterally?
[34]
The only issue properly before the
Court is whether the tax has been correctly determined in accordance with the
relevant legislative provisions. As mentioned earlier, the conduct of the CRA
is generally not relevant to this inquiry. This request for information is
denied.
[35]
Undertaking No. 5
Though the copies of documentation was submitted to CRA/honourable
court, the Transport/Vehicle log in original was asked to bring along with when
Dr. Sugnanam was coming to Calgary for examination of Discovery. The
original log was presented during the examination of discovery. The same was
verified/witnessed again by CRA representative with no comments.
Undertaking is required: CRA to specify
the reason for such discrimination for not considering vehicle log, and vehicle
maintenance expenses as zero and concluded the audit? Under what income tax
act, clause or sub clause this rejection was done?
Does CRA assumes that a Gynaecologist/Obstritian attend emergency
calls by walking by foot in Newfoundland weather? between Hospital and home with out a car? Does all doctors
in Canada were treated in the
same way by CRA? If not can CRA specify the reason by means of this
undertaking?
[36]
With respect to allegations as to
CRA’s conduct, the request is denied for the reasons above.
[37]
The factual assumptions which the Minister has relied on
are set out in paragraphs 32(u) to (aa) of the Reply. These paragraphs do not
require elaboration.
[38]
The grounds relied on by the
respondent are set out in paragraph 35(d) of the Reply. As these grounds are
similar to the grounds relating to Undertaking No. 3, no further clarification
is required.
[39]
Undertaking No. 6
After three years of deliberations CRA now acknowledges Dr. Sugnanam
worked as fee for service and also acknowledges MCP billing procedure and work
involved to be performed by supporting staff, but rejected the expenses
incurred for office modifications, office space, heating, lighting,
communication, office stationary and equipment.
Undertaking is required: CRA to specify
the reason for such discrimination for not considering the office facilities.
Under what income tax act, clause or sub clause this rejection was made?
[40]
The respondent’s position is the
same as for Undertaking No. 5. Consequently, no further clarification is
required.
[41]
Undertaking No. 7
During audit CRA has rejected some of the travel expenditures,
though we have provided required information in the CRA format ie, date of
travel, travel ticket, purpose of journey, people contacted, place of visit;
etc.
Undertaking is required to write what is
the criteria for rejection.
[42]
According to the Reply
to the Notice of Appeal of Esesson Canada Inc., the Minister assumed that
travel expenses in the amount of $30,315.03 were personal or living expenses of
Mr. and Dr. Sugnanam.
[43]
The appellants bear the
burden to establish that this factual assumption is not correct. No
clarification is required.
Disposition
[44]
The motion for an order
compelling answers to undertakings is dismissed, but the respondent is directed
to provide the information set out in these reasons. The information shall be
provided to the appellants no later than May 14, 2012.
[45]
Each party shall bear their own
costs in respect of the motion.
Signed at Ottawa, Ontario this 29th
day of March 2012.
“J. M. Woods”
APPENDIX – LEGISLATIVE PROVISIONS
Income Tax Act, R.S.C. 1985, c. 1 (5th
Supp.), as of 2012
SECTION 9(1)
Income
(1) Subject to this Part, a
taxpayer’s income for a taxation year from a business or property is the
taxpayer’s profit from that business or property for the year.
SECTION 15(1)
Benefit conferred on shareholder
(1) Where at any time in a taxation
year a benefit is conferred on a shareholder, or on a person in contemplation
of the person becoming a shareholder, by a corporation otherwise than by
(a) the
reduction of the paid-up capital, the redemption, cancellation or acquisition
by the corporation of shares of its capital stock or on the winding-up,
discontinuance or reorganization of its business, or otherwise by way of a
transaction to which section 88 applies,
(b) the
payment of a dividend or a stock dividend,
(c) conferring,
on all owners of common shares of the capital stock of the corporation at that
time, a right in respect of each common share, that is identical to every other
right conferred at that time in respect of each other such share, to acquire
additional shares of the capital stock of the corporation, and, for the purpose
of this paragraph,
(i) where
(A) the
voting rights attached to a particular class of common shares of the capital
stock of a corporation differ from the voting rights attached to another class
of common shares of the capital stock of the corporation, and
(B) there
are no other differences between the terms and conditions of the classes of
shares that could cause the fair market value of a share of the particular
class to differ materially from the fair market value of a share of the other
class,
the shares of the
particular class shall be deemed to be property that is identical to the shares
of the other class, and
(ii) rights
are not considered identical if the cost of acquiring the rights differs, or
(d) an
action described in paragraph 84(1)(c.1), 84(1)(c.2) or 84(1) (c.
3),
the amount or value
thereof shall, except to the extent that it is deemed by section 84 to be a
dividend, be included in computing the income of the shareholder for the year.
SECTION 18(1)
General limitations
(1) In computing the income of a
taxpayer from a business or property no deduction shall be made in respect of
(a) General limitation - an outlay or expense except to the
extent that it was made or incurred by the taxpayer for the purpose of gaining
or producing income from the business or property;
(h) Personal and living expenses - personal or living expenses of the
taxpayer, other than travel expenses incurred by the taxpayer while away from
home in the course of carrying on the taxpayer’s business;
SECTION 56(2) Indirect
payments
(2) A payment or transfer of property made
pursuant to the direction of, or with the concurrence of, a taxpayer to some
other person for the benefit of the taxpayer or as a benefit that the taxpayer
desired to have conferred on the other person (other than by an assignment of
any portion of a retirement pension pursuant to section 65.1 of the Canada Pension Plan or a comparable provision of a
provincial pension plan as defined in section 3 of that Act or of a prescribed
provincial pension plan) shall be included in computing the taxpayer’s income
to the extent that it would be if the payment or transfer had been made to the
taxpayer.
SECTOIN
56(4) Transfer of rights to income
(4) Where a taxpayer has, at any time before
the end of a taxation year, transferred or assigned to a person with whom the
taxpayer was not dealing at arm’s length the right to an amount (other than any
portion of a retirement pension assigned by the taxpayer under section 65.1 of
the Canada
Pension Plan or
a comparable provision of a provincial pension plan as defined in section 3 of
that Act) that would, if the right had not been so transferred or assigned, be
included in computing the taxpayer’s income for the taxation year, the part of
the amount that relates to the period in the year throughout which the taxpayer
is resident in Canada shall be included in computing the taxpayer’s income for
the year unless the income is from property and the taxpayer has also
transferred or assigned the property.
SECTION 67 General
limitation re expenses
67. In computing income, no deduction shall
be made in respect of an outlay or expense in respect of which any amount is
otherwise deductible under this Act, except to the extent that the outlay or
expense was reasonable in the circumstances.
SECTION 171(1)
Disposal of appeal
(1) The Tax Court of Canada may
dispose of an appeal by
(a) dismissing
it; or
(b) allowing
it and
(i) vacating
the assessment,
(ii) varying
the assessment, or
(iii) referring
the assessment back to the Minister for reconsideration and reassessment.
SECTION 248
This provision
contains definitions for the Act as a whole. It is not reproduced.
Medical Act, R.S.N. 1990, c.M-4
SECTION 30(1)
30. (1)
A person, other than a person who is licensed under the Act, shall not
(a) engage
in the practice of medicine;
(b)
hold himself or herself out or allege by advertisement, sign or statement
of any kind to be entitled to engage in the practice of medicine; or
(c)
take or use a name, title or description implying or calculated to lead the
public to believe that he or she is licensed under this Act.
Medical Care Insurance Act, 1999, S.N.L.
1999, c. M‑5.1
SECTION 1
1. This Act may be cited as the Medical Care Insurance Act,
1999.
SECTION 10 Payment for services
10.(1) The minister shall, under this
Act and the regulations, make payment for the providing of insured services to
beneficiaries.
(2) Where a
participating physician as an individual or through a professional medical
corporation provides insured services to a beneficiary, the minister shall
make payment to the physician or professional medical corporation for the
services, but where a participating physician performs professional services
for a public authority or body that has received the prior approval of the
minister, in addition to the provision of insured services to beneficiaries,
the minister may, upon being satisfied that the participating physician is
receiving remuneration for the provision by him or her of those professional
services, enter into an arrangement with the public authority or body providing
for the payment to it for the insured services so provided to beneficiaries,
and the minister shall make the payment in accordance with the arrangements
made.
(3) Where an insured
service is provided in the province to a beneficiary by other than a
participating physician as an individual or through a professional medical
corporation, the minister shall make payment to the beneficiary in respect of
that insured service.
(4) Where an insured
service is provided in the province to a person who is an insured resident of
another jurisdiction in Canada by other than a participating physician as an
individual or through a professional medical corporation, the responsibility
for payment will not rest with the medical care plan of this province.
(5) The right of the beneficiary to receive payment
from the minister in respect of insured services provided in the province by
other than a participating physician, as an individual or through a
professional medical corporation, is a contractual right and the beneficiary is
entitled to receive payment from the minister in respect of those services in
an amount equal to the amount payable, for similar services, to a participating
physician by the minister under the regulations.
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