Boyle v. The Queen, docket 2002-1024(IT)I (Informal Procedure)

Date: 20021107

Docket: 2002-1024-IT-I,

2002-1037-IT-I

BETWEEN:

KEVIN P. BOYLE,

ELI L. FLUTER,

Appellants,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasonsfor Judgment

Bowie J.

[1]            Mr. Boyle and Mr. Fluter appeal from reassessments for income tax for their taxation years 1997 and 1998. Each of them was reassessed under section 15 of the Income Tax Act (the Act) to include in his income amounts which the Minister of National Revenue considered to be shareholder benefits conferred on them by Roberts Properties Inc. (Roberts). These amounts, the Minister says, were personal expenses of the Appellants which they expended and then recovered from the company under the guise of business expenses that they had paid. The facts, while not exactly identical, are essentially the same in each case, and so both Appellants and counsel for the Respondent agreed that they should be heard together on common evidence.

[2]            The amounts added to the Appellants' incomes are:

                                                                                1997                      1998

                Mr. Boyle                                               $3,558.70                                 $855.50

                Mr. Fluter                                               $3,888.93                                 $984.51

The form which these alleged benefits took consists, according to the assumptions pleaded by the Respondent, of two items. One is meals eaten by the Appellants at lunch time, paid for by them in cash, and then reimbursed by the company. The other is amounts paid to them by the company to reimburse them for business use of their personally owned vehicles in respect of local business travel, which I take to mean travel by automobile in and near the City of Regina, where Roberts carries on the business of real estate development and management. In each case, and for each year, the amounts that the Minister has treated as shareholder benefits consist of all the meals for which the Appellants paid by cash and were reimbursed, and one-half of the local business travel which they claimed from the company on a monthly basis, and for which they were reimbursed. The amounts are:

Mr. Boyle	1997	1998
Cash Meals ½ Local Travel Total	1,729.76 1,828.94 3,558.70	481.31 374.19 855.50
Mr. Fluter Cash Meals ½ Local Travel Total	1,906.87 1,982.06 3,888.93	490.65 493.86 984.51

[3]            The Minister's assumptions of fact on which the assessments are based occupy seven pages in each Reply. They are substantially identical, except for the specific amounts making up the benefits assessed, which of course vary somewhat. Many of the 44 specific assumptions are of little real significance. However, as the Minister called no evidence, I think it is important to set out in full the significant assumptions pleaded. I shall omit those that I consider superfluous. Those that follow are from the Reply in the appeals of Mr. Boyle, but I have included in subparagraphs 12(p), (q), (bb) and (cc) the amounts claimed as set out in the Replies for each of the Appellants:

12.            In so assessing the Appellant, the Minister made the following assumptions of fact:

                ...

(b)            at all relevant times the Appellant was a shareholder of the Corporation;

(c)            at all relevant times Eli Fluter was a shareholder of the Corporation;

                ...

(h)            at all material times the Appellant submitted "monthly" expense claims to the Corporation (referred to as the "monthly" expense claims);

                (i)             the Appellant is a member of the YMCA;

(j)             at all material times the Appellant regularly worked out at the YMCA during his lunch break;

(k)            the purpose of the visits to the YMCA was for the Appellant's physical fitness;

Meals Expense

(l)             between April 1, 1996 and March 31, 1998, the Corporation paid and recorded it its books and records "Advertising and Promotion Expenses" totalling at least $45,506 calculated as follows:

                                April 1, 1996 to March 31, 1997           29,516

                April 1, 1997 to March 31, 1998           15,990

                Total                                                                        45,506

(m)           at all material times the Appellant had a Corporate credit card and charged a number of meals to that card;

(n)            the amounts the Corporation paid and recorded in its books and records as "Advertising and Promotion Expense" included the amounts the Appellant had charged on the Corporation's credit card for business meals;

(o)            the amounts the Corporation paid and recorded in its books and records as "Advertising and Promotion Expense" also included the amounts the Appellant had claimed on his "monthly" expense claims as cash paid for meals;

(p)            the following amounts were claimed on the Appellant's "monthly" expense claims for the 1997 taxation year as cash paid for meals:

Kevin P. Boyle		Eli L. Fluter
Date	Amount	Date	Amount
February 3, 1997	140.19	January 2, 1997	149.53
March 3, 1997	144.86	January 2, 1997	163.55
April 4, 1997	145.65	February 3, 1997	163.55
May 6, 1997	140.19	March 3, 1997	154.21
June 2, 1997	168.22	April 4, 1997	164.44
July 30, 1997	182.24	May 6, 1997	137.38
July 8, 1997	184.11	June 2, 1997	154.21
September 6, 1997	144.86	July 2, 1997	163.55
October 2, 1997	163.55	July 31, 1997	172.90
November 3, 1997	158.88	September 2, 1997	141.50
December 2, 1997	157.01	October 2, 1997 November 3, 1997 December 2, 1997	141.12 63.55 137.38
Total	1,729.76	Total	1,906.87

(q)            the following amounts were claimed on the Appellant's "monthly" expense claims for January 1, 1998 to March 31, 1998, as cash paid for meals:

Kevin P. Boyle		Eli L. Fluter
Date	Amount	Date	Amount
January 6, 1998	163.55	January 6, 1998	163.55
January 28, 1998	177.57	January 28, 1998	163.55
February 28, 1998	140.19	March 3, 1998	163.55
Total	481.31	Total	490.65

(r)             the Appellant did not provide vouchers or receipts to the Corporation to support the amounts he claimed on his "monthly" expense claims for January 1, 1997 to March 31, 1998, as cash paid for meals, nor did he identify who, if anyone, was entertained;

(s)            the Appellant estimated the amounts he claimed on the "monthly" expense claims for January 1, 1997 to March 31, 1998, as cash paid for meals, as he did not obtain and/or retain receipts for the amounts paid;

(t)             the majority of amounts the Appellant claimed on the "monthly" expense claims for January 1, 1997 to March 31, 1998, as cash paid for meals related to expenses the Appellant incurred at the YMCA;

(u)            the amounts totalling $1,729.76 (Fluter - $1,906.87) that the Appellant claimed as cash paid for meals on his "monthly" expense claims for the 1997 taxation year, and which were paid by the Corporation, were personal and living expenses of the Appellant;

(v)            the amounts totalling $481.31 (Fluter - $490.65) that the Appellant claimed as cash paid for meals on his "monthly" expense claims for January 1, 1998 to March 31, 1998 and which were paid by the Corporation, were personal and living expenses of the Appellant;

Automobiles Expenses and Parking

(w)           between April 1, 1996 and March 31, 1998, the Corporation paid and recorded in its books and records "Travel Expenses" totalling at least $40,648, calculated as follows:

                April 1, 1996 to March 31, 1997                           20,535

                April 1, 1997 to March 31, 1998                           20,113

                Total                                                                                        40,648

(x)             the Appellant used his personal vehicle for his personal use and enjoyment and in the course of the Corporation's business;

(y)            the Appellant did not keep a record of the business and personal use of his vehicle;

(z)             on his "monthly" expenses claims for January 1, 1997 to March 31, 1998 the Appellant claimed amounts:

                (i)             for travel to and parking at distant locations; and

                (ii)            for local travel and parking

(aa)          on the "monthly" expense claims for the 1997 taxation year the Appellant claimed $3,657.88 (Fluter - $3,964.22), which was calculated as follows, for local travel and parking:

Mr. Boyle

Date	Kilometres driven	Estimated operating costs	Estimated parking	Total
Feb. 3, 1997	900	294.39	44.86	339.25
March 3, 1997	925	302.57	28.04	330.61
April 4, 1997	945	309.11	42.06	351.17
May 6, 1997	985	322.20	37.38	359.58
June 2, 1997	1,020	333.64	37.38	371.02
July 30, 1997	1,015	275.09	37.37	312.46
July 8, 1997	1,100	298.13	37.38	335.51
Sept. 6, 1997	950	257.48	57.94	315.42
Oct. 2, 1997	1,015	275.09	54.20	329.29
Nov. 3, 1997	1,060	287.29	50.47	337.76
Dec. 2, 1997	890	241.21	34.58	275.79
Total*	10,805	3,196.20	461.66	3,657.86

*difference due to rounding

Mr. Fluter

Date	Kilometres driven	Estimated operating costs	Estimated parking	Total
Jan. 2, 1997	900	277.57	42.06	319.63
Jan. 2, 1997	890	274.49	32.71	307.20
Feb. 3, 1997	950	310.75	34.58	345.33
Mar. 3, 1997	800	261.68	31.78	293.46
April 4, 1997	775	253.50	34.58	288.08
May 6, 1997	915	299.30	42.06	341.36
June 2, 1997	975	318.93	32.71	351.64
July 2, 1997	750	203.27	33.64	236.91
July 31, 1997	890	241.21	43.93	285.14
Sept. 2, 1997	975	264.25	51.40	315.65
Oct. 2, 1997	935	253.41	44.86	298.27
Nov. 3, 1997	850	230.37	42.06	272.43
Dec. 2, 1997	975	264.25	44.86	309.11
Total*	11,580	3,452.98	511.23	3,964.21

*difference due to rounding

(bb)          on the "monthly" expense claims for January 1, 1998 to March 31, 1998, the Appellant claimed $748.37 (Fluter - $987.71), which was calculated as follows, for local travel and parking:

Mr. Boyle

Date	Kilometres driven	Estimated operating costs	Estimated parking	Total
Jan. 6, 1998	530	143.64	0.00	143.64
Jan. 28, 1998	725	237.15	35.57	272.72
Feb. 28, 1998	915	299.30	32.71	332.01
Total	2,170	680.09	68.28	748.37

Mr. Fluter

Date	Kilometres driven	Estimated operating costs	Estimated parking	Total
Jan. 6, 1998	925	250.70	49.53	300.23
Jan. 28, 1998	975	318.93	41.12	360.05
Mar. 3, 1998	925	302.57	24.86	327.43
Total	2,825	872.20	115.51	987.71

(cc)          the Appellant did not provide vouchers or receipts to the Corporation to support the amounts he claimed on his "monthly" expense claims for January 1, 1997 to March 31, 1998, for local travel and parking;

(dd)          the Appellant estimated the amount that he claimed for parking on his "monthly" expense claims for January 1, 1997 to March 31, 1998;

(ee)          the Appellant estimated the number of kilometres he claimed as local business travel on his "monthly" expense claims for January 1, 1997 to March 31, 1998;

(ff)            the Appellant estimated the amount that he claimed for operating costs of his vehicle on his "monthly" expense claims for January 1, 1997 to March 31, 1998 by multiplying the estimated kilometres by a specified rate per kilometre;

...

(ll)            the amounts claimed for local travel and parking on the "monthly" expense claims for January 1, 1997 to March 31, 1998, included travel from the Appellant's home to the Corporation's place of business and travel from the Corporation's place of business to the Appellant's home;

(mm)        the amounts claimed by the Appellant for local travel and parking on the "monthly" expenses for January 1, 1997 to March 31, 1998, included parking at the YMCA while the Appellant was at the facility exercising and eating lunch;

...

(pp)          at least 50% of the amount claimed and paid for operating costs and parking were the personal and living expenses of the Appellant;

(qq)          at least $1,828.94 (Fluter - $1,982.06) of the amounts the Appellant claimed for local travel and parking on his "monthly" expense claims for the 1997 taxation year, and which were paid by the Corporation, were personal or living expenses of the Appellant or a person related to him; and

(rr)            at least $374.19 (Fluter - $493.86) of the amounts the Appellant claimed for local travel and parking on his "monthly" expense claims for January 1, 1998 to March 31, 1998 and which were paid by the Corporation, were personal or living expenses of the Appellant or a person related to him.

[4]            Mr. Fluter was the only witness. He testified that the Appellants are, as he put it, equal partners in their business. They both enjoy and are committed to a healthy lifestyle, and as part of this they belong to the YMCA, and they go there practically every weekday at noon. They work out and jog, then they eat lunch at the YMCA cafeteria. Those lunches costs about $6 to $10, and no receipts are available. The cash register, he said, did not even produce a tape. Although it is only two or three blocks from their office to the YMCA, they go there by car, and for each trip they have to put $1 or $2 in a parking meter. They both also use their private automobiles to visit the many real estate projects that they are developing in the Regina area, and, less frequently, their rental properties. Mr. Fluter has three vehicles, one of which he says is used almost entirely for business, which I understood to include commuting from home to office. He said that he did not include his commuting mileage in that which he submitted to the company for reimbursement, however.

[5]            Mr. Fluter also testified that he and Mr. Boyle did not maintain logs of their local mileage for which they claimed reimbursement. His rather curious explanation was that they had maintained such logs in the past, and their claims of business mileage had been accepted by the Minister without question, and so they discontinued keeping the logs. The logic of this escapes me. In any event, the Appellants were not able to establish the mileage driven for business, otherwise than by their estimates made on a monthly basis and submitted for reimbursement. As they each own 50% of the shares of Roberts, it is reasonable to assume that their claims were accepted and paid without question.

[6]            The Appellants' claims to be reimbursed for the meals that they ate at the YMCA, and the associated mileage and parking costs, is based upon their assertion that they conducted a significant amount of business during their lunch time sojourns there. Mr. Fluter stated in his evidence that they had frequent business meetings there, sometimes at the lunch counter, and sometimes while exercising or jogging. He explained that Regina has a small business community in which everyone knows everyone else and their business, so that the formalities of appointments and privacy can easily be dispensed with. In this context, they apparently viewed their visits to the YMCA to be business activities, and the amounts they paid for their lunches, and any lunches they bought for others, to be legitimate business expenses of their company. Both Appellants asserted during the hearing that, although the amounts of tax in issue are small, they felt strongly that they should, as a matter of principle, contest the assessments, because they consider them to be unwarranted and unfair. I agree with their view that the principle involved is an important one, and that these assessments must be reviewed strictly according to the law and the facts, even though they may consider the amounts involved to be picayune, at least in the context of their declared six digit incomes, or the corporation's total annual expenses for meals, entertainment and travel.

[7]            I have no doubt that the dominant purpose of the Appellants' visits to the YMCA was recreation and not business. No doubt they had casual conversations from time to time regarding matters related to their business. They may even, as Mr. Fluter testified, have arranged some encounters there in advance. However, I do not believe that there was a predominant, or even significant, business purpose to these visits; Mr. Fluter's evidence as to that is simply not credible. I find that the Appellants monthly claims to be reimbursed were simply their way of taking a small but steady income, in the form of the payment of minor personal expenses, without the burden of taxation.

[8]            I turn now to the amounts that the Appellants received from the company for their local vehicle use, which includes driving the three blocks to the YMCA and feeding the parking meters there. The Appellants were wise to keep the logs of mileage that they once did. They were unwise to discontinue that practice. The Respondent did not contest the Appellants' right to be reimbursed for their legitimate business mileage without attracting tax under section 15 of the Act. However, without any logs the Appellants simply could not establish with any reasonable degree of certainty what the extent of that mileage in fact was. Certainly Mr. Fluter's oral evidence fell far short of doing so. The Minister reassessed the Appellants on the assumption that 50% of the mileage for which they were paid was legitimate business mileage. The evidence does not persuade me otherwise.

[9]            The appeals are dismissed.

Signed at Ottawa, Canada, this 7th day of November, 2002.

"E.A. Bowie"

J.T.C.C.

COURT FILE NO.:                                                 2002-1024(IT)I and 2002-1037(IT)I

STYLE OF CAUSE:                                               Kevin P. Boyle and Eli L. Fluter and

Her Majesty the Queen

PLACE OF HEARING:                                         Regina, Saskatchewan

DATE OF HEARING:                                           October 24, 2002

REASONS FOR JUDGMENT BY:      The Honourable Judge E.A. Bowie

DATE OF JUDGMENT:                                       November 7, 2002

APPEARANCES:

For the Appellants:                                               The Appellant themselves

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

2002-1024(IT)I

BETWEEN:

KEVIN P. BOYLE,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on common evidence with the appeals of Eli L. Fluter (2002-1037(IT)I), on October 24, 2002, at Regina, Saskatchewan, by

the Honourable Judge E.A. Bowie

Appearances

For the Appellant:                                                 The Appellant himself

Counsel for the Respondent:              Anne Jinnouchi

JUDGMENT

                The appeals from the assessments of tax made under the Income Tax Act for the 1997 and 1998 taxation years are dismissed.

Signed at Ottawa, Canada, this 7th day of November, 2002.

"E.A. Bowie"

J.T.C.C.

2002-1037(IT)I

BETWEEN:

ELI L. FLUTER,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on common evidence with the appeals of Kevin P. Boyle (2002-1024(IT)I), on October 24, 2002, at Regina, Saskatchewan, by

the Honourable Judge E.A. Bowie

Appearances

For the Appellant:                                                 The Appellant himself

Counsel for the Respondent:              Anne Jinnouchi

JUDGMENT

                The appeals from the assessments of tax made under the Income Tax Act for the 1997 and 1998 taxation years are dismissed.

Signed at Ottawa, Canada, this 7th day of November, 2002.

"E.A. Bowie"

J.T.C.C.