Puhakka v. The Queen, docket 2002-844(IT)I (Informal Procedure)

Date: 20020910

Docket: 2002-844-IT-I

BETWEEN:

TIMO PUHAKKA,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Reasons for Judgment

Little, J.

A.             FACTS

[1]            The Appellant has had experience working in the tool and dye industry.

[2]            In the 1997 and 1998 taxation years the Appellant maintains that he was operating a business under the name "Timo Enterprises" ("Enterprises").

[3]            The Appellant's spouse owned and operated a physiotherapy clinic under the name "East Scarborough Physiotherapy" (the "Clinic").

[4]            During the 1997 and 1998 taxation years the Appellant worked for the Clinic performing front desk and other duties for the Clinic.

[5]            In the 1997 and 1998 taxation years the Clinic issued T-4A forms for the Appellant as follows:

	Income
1997	$7,800.00
1998	14,560.00

                The Appellant reported the above amounts as employment income in determining his income for the 1997 and 1998 taxation years.

[6]            In the 1997 and 1998 taxation years the Appellant also received the following amounts from the Clinic:

	Additional Income
1997	$16,250.00
1998	$20,900.00

[7]            The Appellant maintains that the additional income was the income of Enterprises. The Appellant also deducted expenses in determining the income of Enterprises. Enterprises reported income as follows:

	1997	1998
Income	$16,250.00	$20,900.00
Expenses	12,653.57	14,046.73
Net Income	$3,596.43	$6,853.27

[8]            The Minister of National Revenue (the "Minister") issued Notices of Assessment for the Appellant's 1997 and 1998 taxation years and the income of Timo Enterprises was accepted as filed.

[9]            Subsequent to the issuance of the assessments the Appellant requested that the Canada Customs and Revenue Agency allow Timo Enterprises additional expenses as follows:

	1997	1998
Additional Expenses	$914.25	$2,688.24

[10]          On the 15th day of April, 2001 the Minister issued Notices of Reassessment for the Appellant's 1997 and 1998 taxation years. In the reassessments the Minister disallowed the expenses of $12,653.57 and $14,046.73 originally claimed by the Appellant for the 1997 and 1998 years respectively. In the said reassessments the Minister also denied the additional expenses in the amount of $914.25 and $2,688.24 that were claimed by the Appellant.

B.             ISSUES

(1)            Did the Appellant operate a business under the name of "Timo Enterprises" in the 1997 and 1998 taxation years?

(2)            If Timo Enterprises was carrying on a business in the 1997 and 1998 taxation years, is Timo Enterprises allowed to deduct the expenses that were claimed?

C.             ANALYSIS

[11]          I have considered the testimony of the Appellant and I have concluded that in the 1997 and 1998 taxation years he was operating a business under the name of "Timo Enterprises". It therefore follows that the amounts of $16,250.00 and $20,900.00 received in the 1997 and 1998 taxation years respectively constituted business income. In reaching this conclusion I have noted the pieces of equipment manufactured by Timo Enterprises for the Clinic. (See Exhibit A-8.) I have also heard the Appellant's testimony that he attempted to develop new business for Timo Enterprises by advertising and by personal contact with other Physiotherapists. (Note: to determine whether a taxpayer is carrying on a business in a taxation year we must examine the relevant facts in that particular taxation year.)

[12]          We must now determine the expenses that may be deducted by "Timo Enterprises".

[13]          I have concluded that the following expenses are deductible in determining the business income of Timo Enterprises:

1997 Taxation Year

                                                                                                Claimed                                   Allowed

Home Insurance                                    50% - $ 280.06                       25% - $ 140.03

Property Tax                                                          50% - 1,168.80                       25% -    584.40

Mortgage Interest                                                 50% - 5,048.36                       25% - 2,524.18

Utilities                                                   50% - 1,071.32                       25% -    535.66

Telephone                                                              15% -    115.93                         15% -    115.93

Supplies                                                  100% - 460.17                        100% - 460.17

Office                                                                      100% -    28.75                         100% -    28.75

Capital Cost Allowance                                       732.76                    50% -    366.38

                Amount to be allowed for 1997               $9,204.53                                 $4,755.50

(See Exhibit A-6.)

1998 Taxation Year

                                                                                                Claimed                                   Allowed

Property Tax                                                          25% - $1,010.73                      25% -$1,010.73

Mortgage Interest                                                 25% - 2,520.43                       25% - 2,520.43

Utilities                                                   25% - 675.70                         25% - 675.70

Telephone                                                              15% -    63.32                          15% -    63.32

Supplies                                                  100% - 237.71                        100% - 237.71

Capital Cost Allowance                                       968.55                    50% -    484.27

Amount to be allowed for 1998               $5,668.87                                $4,992.16

(See Exhibit A-7.)

[14]          The appeals for the 1997 and 1998 taxation years will be allowed to permit the Appellant to deduct the expenses as outlined in paragraph [13] above.

Signed at Vancouver, British Columbia, this 10th day of September, 2002.

"L.M. Little"

J.T.C.C.COURT FILE NO.:                                   2002-844(IT)I

STYLE OF CAUSE:                                               Timo Puhakka and

                                                                                                Her Majesty the Queen

PLACE OF HEARING:                                         Toronto, Ontario

DATE OF HEARING:                                           July 23, 2002

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

DATE OF JUDGMENT:                                       September 10, 2002

APPEARANCES:

For the Appellant:                                                 The Appellant himself

Counsel for the Respondent:              Xenia Proestos (Student-at law)

COUNSEL OF RECORD:

For the Appellant:                

Name:                               

Firm:                 

For the Respondent:                             Morris Rosenberg

                                                                                Deputy Attorney General of Canada

                                                                                                Ottawa, Canada

2002-844(IT)I

BETWEEN:

TIMO PUHAKKA,

Appellant,

and

HER MAJESTY THE QUEEN,

Respondent.

Appeals heard on July 23, 2002 at Toronto, Ontario, by

the Honourable Judge L.M. Little

Appearances

For the Appellant:                                                 The Appellant himself

Agent for the Respondent:                 Xenia Proestos (Student-at-law)

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 10th day of September 2002.

"L.M. Little"

J.T.C.C.