Holte v. The Queen, docket 2001-973(IT)I (Informal Procedure)

Date: 20021212

Docket: 2001-973-IT-I

BETWEEN:

MYRON HOLTE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Little, J.

A.             FACTS

[1]            In the 1997 and 1998 taxation years the Appellant owned and operated a farm consisting of approximately 956 cultivated acres and located near Wadena, Saskatchewan.

[2]            In the 1997 and 1998 taxation years the Appellant also worked as a commission salesman for Redhead Equipment Ltd. ("Redhead"). The Appellant sold new and used road building equipment for Redhead in Saskatchewan.

[3]            In computing his income for the 1997 and 1998 taxation years the Appellant deducted the amounts of $123,847.00 and $69,553.00 respectively as farm expenses and $19,379.00 and $16,865.00 respectively as commission sales expenses.

[4]            By Notice of Reassessment dated the 14th day of September 1999 for the 1997 and 1998 taxation years the Minister of National Revenue (the "Minister") disallowed $123,847.00 and $69,553.00 respectively as farm expenses and $19,379.00 and $16,865.00 respectively as commission sales expenses.

[5]            The Appellant filed Notices of Objection to the said reassessments and by Notices of Reassessment dated the 16th day of February 2001 the Minister allowed the following amounts:

Farm Expenses

                                                Claimed                  Allowed                   Disallowed

1997                                         $123,847.00                             $120,971.00                             $ 2,876.00

1998                                         69,553.00                               65,934.00                               3,619.00

Commission Sales Expenses

1997                                         $ 19,379.00                              $ 10,892.00                              $ 8,487.00

1998                                         16,865.00                               9,860.00                                 7,005.00

[6]            The Appellant filed Notices of Appeal to the Court with respect to the Notices of Reassessment that were issued under the Income Tax Act on the 16th day of February 2001.

[7]            The Appellant was also reassessed for Goods and Services Tax under the Excise Tax Act. The original assessments under the Excise Tax Act were revised to allow the Appellant to claim further input tax credits. However, the Appellant did not file Notices of Appeal to the Court with respect to the final Notices of Reassessment issued under the Excise Tax Act. I am therefore unable to hear any appeal or grant any relief under the Excise Tax Act since the Appellant has not filed Notices of Appeal for the G.S.T. adjustments that were made.

B.             ISSUE

[8]            The issue is whether the Appellant is entitled to deduct any further expenses in determining his income for the 1997 and 1998 taxation years.

[9]            One of the main items in dispute is the vehicle expenses claimed by the Appellant. The following vehicle expenses are in issue:

                                                Claimed                  Allowed                   Disallowed

1997                         $15,448.68                               $7,079.08                                 $8,369.60

1998                         13,375.98                                6,802.60                  6,573.38

[10]          The Appellant said that Redhead required their commission salesmen to use a 4-door automobile that was manufactured in North America. The Appellant also testified that he was required to travel extensively throughout Central and Northern Saskatchewan to meet customers and potential customers in connection with the sale of new and used road building equipment. The Appellant produced his diary for 1997 (Exhibit A-3) which indicated that in 1997 he drove approximately 75,000 kilometres for business purposes. The Appellant also testified that the use of his automobile in 1998 would be at least 75,000 kilometres or more.

[11]          The Appellant also testified that when his accountant prepared his income tax returns for the 1997 and 1998 taxation years he had deducted 20% of the actual vehicle expenses incurred in each year. In other words, the expenses shown above that he had claimed, i.e. $15,448.68 for 1997 and $13,375.98 for 1998 represent 80% of the actual vehicle expenses incurred by the Appellant.

[12]          It should also be noted that the Respondent called Veronica Konrath as a witness. Ms. Konrath was the auditor from the Canada Customs and Revenue Agency ("CCRA") who carried out the audit on the Appellant. When Ms. Konrath was questioned at the hearing about the vehicle expenses claimed by the Appellant she said:

Now that I know where he drives it could have been different, i.e. I would have allowed more expenses.

[13]          After considering the testimony of the Appellant I have concluded that the vehicle expenses which should be allowed are:

                                                Amount Disallowed                              Amount to be Allowed

                1997                         $8,369.60                                                 $6,369.60

                1998                         $6,573.38                                                 $5,573.38

[14]          The Appellant also testified that he made donations to the Chelan Curling

Club to promote his employer's business in the area. I would allow the following expenses:

1997                         Chelan Curling Club                                             $ 569.90

1997                         Painters Lodge Jacket                                          $ 199.33

                                contributed by the Appellant

to the Curling Club

[15]          The Appellant testified that to promote his employer's business he made promotional gifts of liquor to various customers who had purchased construction equipment. The amount claimed by the Appellant as gifts to customers in 1998 was $487.00 and the Minister allowed 50% or $243.67. (Note: The Appellant testified that he does not drink alcohol.) Under these circumstances I believe that the Appellant should be allowed to claim the full amount of $487.00 in determining his income for the 1998 taxation year.

[16]          The Appellant also testified that he paid Mr. Wallester $1,426.62 in 1997 re contract work on his farm. I accept his testimony and the amount of $1,426.62 should be allowed as an expense.

[17]          The Appellant testified that he travelled to Kindersley, Saskatchewan and Medicine Hat, Alberta to inspect farm equipment. The following expenses should be allowed:

                1998         -             Kindersley Motel                                  $77.47

                1998         -             Travelodge Hotel                                  $84.00

                                                Medicine Hat

[18]          Before concluding my Reasons I should note that if the Appellant had provided relevant information to the CCRA officials in a timely manner many of the expenses in dispute might have been allowed.

[19]          The appeals from the assessments made under the Income Tax Act for the 1997 and 1998 taxation years are allowed, without costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment on the basis that the Minister is instructed to reassess the Appellant to allow the amounts outlined above. In all other respects the appeals will be dismissed.

Signed at Vancouver, British Columbia, this 12th day of December 2002.

"L.M. Little"

J.T.C.C.

COURT FILE NO.:                                                 2001-973(IT)I

STYLE OF CAUSE:                                               Myron Holte and

                                                                                                Her Majesty the Queen

PLACE OF HEARING:                                         Regina, Saskatchewan

DATE OF HEARING:                                           November 20, 2002

REASONS FOR JUDGMENT BY:      The Honourable Judge L.M. Little

DATE OF JUDGMENT:                                       December 12, 2002

APPEARANCES:

Agent for the Appellant:                     Douglas M. Nagel

Counsel for the Respondent:              Anne Jinnouchi

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2001-973(IT)I

BETWEEN:

MYRON HOLTE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on November 20, 2002, at Regina, Saskatchewan, by

the Honourable Judge L.M. Little

Appearances

Agent for the Appellant:                     Douglas M. Nagel

Counsel for the Respondent:              Anne Jinnouchi

JUDGMENT

                The appeals from the assessments made under the Income Tax Act for the 1997 and 1998 taxation years are allowed, without costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.

Signed at Vancouver, British Columbia, this 12th day of December 2002.

"L.M. Little"

J.T.C.C.