Docket: 2011-1857(IT)I
BETWEEN:
DARYL CHRISTENSEN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal
heard on January 24, 2012, at Vancouver, British Columbia
Before: The Honourable
Justice G. A. Sheridan
Appearances:
|
Agent for the Appellant:
|
Glen
Christensen
|
|
Counsel for the Respondent:
|
Dawn Francis
|
____________________________________________________________________
JUDGMENT
In accordance with the attached Reasons
for Judgment, the appeal from the reassessment of the 2006 taxation year made
under the Income Tax Act is dismissed.
Signed at Ottawa, Canada, this 1st day of February 2012.
“G. A. Sheridan”
Citation: 2012TCC42
Date: 20120201
Docket: 2011-1857(IT)I
BETWEEN:
DARYL CHRISTENSEN,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan J.
[1]
In 2006, the Appellant, Daryl
Christensen, was employed by Hay's Roof Management Ltd., a company in which his
father, Glen Christensen, owned 100% of the common shares. Sometime in 2008, the
Minister of National Revenue conducted a compliance audit of Hay's Roof
Management Ltd. during the course of which, the auditor discovered the company
had paid $15,916 in respect of a condo the Appellant purchased in 2006. Four cheques
totaling this amount had been made out to various payees; the respective
amounts were expensed in the company’s computerized accounting records. In
these circumstances, the Minister reassessed to include the $15,916 in the
Appellant’s income as an employment benefit under sections 5 and 6 of the Income
Tax Act (“the Act”).
[2]
Glen Christensen acted as the
Appellant’s agent and testified on his behalf. He was able to speak to the
facts both in his capacity as the Appellant’s father and as the directing mind
of Hay's Roof Management Ltd. The Appellant declined to give evidence in chief
but was called as a witness by the Respondent.
[3]
By way of background, the
Appellant through his then representative objected to the reassessment on the
basis that the $15,916 was a “home relocation loan” under sections 80.4 and
248(1) of the Act.
This also formed one
of the basis for the Appellant’s appeal to the Tax Court of Canada. Except
to the extent it reflects on the credibility of the Appellant’s position, this ground
of appeal is not relevant as it was abandoned by the Appellant at the hearing. According
to Glen Christensen, what ought to have been pled was that the $15,916 was
a loan to the Appellant from him in his personal capacity as his father and
further, that the loan had been inadvertently recorded in the books of Hay's
Roof Management Ltd. as a company expense.
[4]
While this took the Respondent by
surprise, as it was under the Informal Procedure, the Appellant was permitted to
proceed on the new footing. I must say counsel for the Respondent acquitted
herself very well given the sudden change in the Appellant’s position.
[5]
Turning, then, to the issue at
hand, Glen Christensen admitted that the four cheques totaling $15,916 had been
paid by Hay's Roof Management Ltd. for the purchase and improvements to the
Appellant’s condo. Further, he admitted on cross-examination (after reviewing a
copy of the auditor’s analysis of the company’s accounting records) that the $15,916 had been
expensed by the company. However, he went on to say that the company’s records
did not accurately reflect the reality of the situation. Because the company
owed him money in his capacity as a shareholder, Glen Christensen caused Hay's
Roof Management Ltd. to make the loan advances directly to the Appellant on his
behalf. While at a loss to explain how he could have made such an error, Glen
Christensen explained he had then mistakenly entered the payments in the
‘expense’ category of the company’s books when, in fact, they should have been
recorded in the ‘shareholder’s loan’ account.
When I asked Glen Christensen if he had any documentation to support his
contentions regarding the personal loan to the Appellant or his shareholder loan
agreement with Hay's Roof Management Ltd., he answered in the negative. The
loan agreement between him and his son was verbal and he had no papers in
respect of the shareholder loan.
[6]
As I explained to the Appellant
and his agent at the hearing, it is for the taxpayer to prove wrong the
assumptions upon which a reassessment is based. In the present matter, the
Appellant failed to discharge this burden. With no documentation to corroborate
their evidence, the credibility of the Appellant and Glen Christensen was
crucial to the success of the appeal. I regret to say I did not find their
evidence persuasive. In my view, their testimony had more to do with rewriting
history than recounting the facts as they existed at the time.
[7]
First of all, if Glen
Christensen’s story regarding the shareholder loan and accounting errors were
true, why was it advanced for the first time at the hearing of the appeal? While
it seems the Appellant was out of the country for some period during the audit
of Hay's Roof Management Ltd., given his father’s involvement in the corporate
audit and his pro-active role in the prosecution of the Appellant’s appeal, it
seems odd that Glen Christensen would not have mentioned the nature of the
payments to the auditor or at the objection stage. His explanation was that the
auditor had never asked him about the four payments. When presented on cross‑examination
with copies of the auditor’s notes to the contrary, Glen Christensen still
maintained he could not recall ever having discussed the payments with him. In
my view, it defies common sense to think that if Glen Christensen’s simple
explanation of the personal loan were true, the Appellant would have doggedly
challenged the reassessment on the much more complex “home relocation loan” provision
about which he candidly testified he knew nothing. The Appellant also had a very
selective memory: while he testified that any discussions he and Glen
Christensen might have had about the loan would certainly have occurred outside
the business premises of Hay's Roof Management Ltd., he also said he could not
recall ever having discussed the terms of the loan with his father. For his
part, Glen Christensen said they had discussed the loan and interest was to be
payable at 5 per cent. In any case, both were clear that the Appellant had
never repaid the $15,916 to his father. Nor is there any evidence that amount
was paid back to Hay's Roof Management Ltd.
[8]
Given the witnesses’ lack of
credibility and corroborating documentation, I am unable to find that the
Appellant has rebutted the assumptions upon which the reassessment was based.
Given that the Appellant was an employee of Hay's Roof Management Ltd. at the
time the payments were made on his behalf and that he never repaid the amount,
the $15,916 constituted an employment benefit as contemplated by the broadly
drafted
paragraph 6(1)(a) of the Act. There is no evidence that Hay's
Roof Management Ltd. forgave the loan but even if it had, the benefit would still
have been included in income under subsection 6(15). The appeal of the reassessment
of the 2006 taxation year is dismissed.
Signed at Ottawa, Canada, this 1st day of February 2012.
“G. A. Sheridan”
CITATION: 2012TCC42
COURT FILE NO.: 2011-1857(IT)I
STYLE OF CAUSE: DARYL CHRISTENSEN AND HER MAJESTY THE QUEEN
PLACE OF HEARING: Vancouver, British Columbia
DATE OF HEARING: January 24, 2012
REASONS FOR JUDGMENT BY: The
Honourable Justice G. A. Sheridan
DATE OF JUDGMENT: February 1, 2012
APPEARANCES:
|
Agent for the
Appellant:
|
Glen Christensen
|
|
Counsel for the
Respondent:
|
Dawn Francis
|
COUNSEL OF RECORD:
For the Appellant:
Name: n/a
Firm:
For the
Respondent: Myles J. Kirvan
Deputy
Attorney General of Canada
Ottawa,
Canada
Email this Content