Citation: 2010 TCC 579
Date: 20110110
Docket: 2008-3994(IT)I
BETWEEN:
ALCIDAS ST-ONGE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH TRANSLATION]
AMENDED REASONS FOR JUDGMENT
Bédard J.
[1]
The subject of this
appeal is the expenses declared by the appellant, an investment advisor, for
earning commission income during the 2003, 2004 and 2005 taxation years.
[2]
I would note
immediately that the appellant did not file his Notice of Appeal from the
notice of confirmation dated March 8, 2008, for the 2005 taxation year,
within the time allowed under section 169 of the Income Tax Act (the
Act). Accordingly, I am of the opinion that the appeal regarding the 2005
taxation year cannot be heard.
[3]
Paragraphs 1 to 12
of the Reply to the Notice of Appeal set out the issues. Those paragraphs read
as follows:
[Translation]
a.
He acknowledges that the appeal relates only to
the expenses claimed for earning commission income during the 2003, 2004 and
2005 taxation years.
b.
He denies the allegations of fact set out in the
Notice of Appeal that are not consistent with the following.
c.
The initial notice of assessment, for the 2003
taxation year, was sent to the appellant on May 20, 2004.
d.
By reassessment for the 2003 and 2004 taxation
years, notices of which were sent to the appellant on April 10, 2007, the
Minister of National Revenue (the Minister) rejected the sums of $32,843 and
$22,877, respectively, in relation to expenses claimed for earning commission
income.
e.
On May 14, 2007, the appellant served notices of
objection, inter alia, on the Minister for each of the 2003 and 2004
taxation years.
f.
On March 6, 2008, the Minister reassessed
the appellant in response to the notices of objection for the 2003 and 2004
taxation years, revising the net commission income to $34,492 and $52,582,
respectively.
g.
On May 11, 2009, Justice Gerald J. Rip allowed
the applicant’s application to extend the time for appealing for the 2003 and
2004 taxation years, and fresh Notices of Appeal had to be prepared and filed
with this Court no later than June 15, 2009.
h.
In making the reassessments dated March 6, 2008,
for the 2003 and 2004 taxation years, the Minister assumed the following facts:
i.
during the taxation years in issue, the
appellant was an investment advisor;
ii.
during the taxation years in issue, he moved to Bonaventure
on the Baie des Chaleurs and developed a clientele in that region;
iii.
in early February 2004, the appellant sold
his clientele to Investors Group and ceased to carry on business in that field;
iv.
during the taxation years in issue, the
appellant claimed the following amounts as expenses incurred for the purpose of
earning commission income:
2003
– $53,767
2004
– $27,932
v.
after auditing the expenses for earning
commission income, the Minister disallowed the following amounts relating to
the expenses claimed, in computing the appellant’s income:
|
|
2003
|
2004
|
|
(i) advertising
|
$ 549
|
|
|
(ii) salary
|
$ 8,000
|
|
|
(iii) training
|
$ 611
|
|
|
(iv) miscellaneous
|
$ 1,515
|
|
|
(v) insurance
|
$ 2,365
|
|
|
(vi) taxes and permits
|
$ 884
|
|
|
(vii) vehicles
|
$ 4,610
|
$ 4,299
|
|
(viii) interest
|
$ 2,859
|
$ 1,905
|
|
(ix) entertainment expenses
|
$ 2,154
|
$ 250
|
|
(x) rent
|
$ 5,802
|
$ 3,886
|
|
(xi) travel expenses
|
$ 3,189
|
$ 2,283
|
|
(xii) telephone
|
$ 305
|
$ 573
|
|
(xiii) commissions
|
|
|
|
(xiv) client buy-backs
|
|
$ 6,500
|
|
(xv) office expenses
|
_______
|
$ 3,181
|
|
|
$32,843
|
$22,877
|
vi.
at the objections stage, the Minister allowed
the following amounts, for expenses for earning commission income:
|
|
2003
|
2004
|
|
(i) advertising
|
$ 538
|
|
|
(ii) miscellaneous
|
$ 157
|
|
|
(iii) insurance
|
$ 453
|
|
|
(vii) vehicles
|
$4,268
|
$436
|
|
(v) rent
|
$1,184
|
$ 99
|
|
(vi) travel
expenses
|
$ 622
|
|
|
|
$7,222
|
$535
|
vii.
after the objections stage, the Minister
disallowed the following amounts for expenses claimed for earning commission
income:
|
|
2003
|
2004
|
|
(i) expenses disallowed
after audit
|
$32,843
|
$22,877
|
|
(ii) less: expenses allowed after objections
stage
|
$ 7,222
|
$ 535
|
|
|
$25,621
|
$22 342
|
viii.
the amounts disallowed by the Minister for the
2003 and 2004 taxation years, such as rental expenses, travel expenses,
interest expenses and vehicle expenses, were disallowed because they were
personal expenses;
ix.
the other expenses disallowed by the Minister
for the 2003 and 2004 taxation years were disallowed because they were not incurred
and were not incurred for the purpose of earning commission income.
B. ISSUES
i.
The issues are as follows:
i.
whether the appellant has a right of appeal to
this Court for the 2005 taxation year;
ii.
whether the Minister properly disallowed the
sums of $25,621 and $22,342 for the 2003 and 2004 taxation years, respectively,
as expenses incurred for the purpose of earning commission income.
C. STATUTORY PROVISIONS, ARGUMENT AND RELIEF SOUGHT
j.
He relies primarily on sections 9, 10, 12,
14, 18, 20, 67, 152, 165, 169 and 248 of the Income Tax Act,
R.S.C. 1985 (5th Supp.), c. 1 (the Act).
k.
He submits that the Notice of Appeal relating to
the 2005 taxation year may not be adjudicated because the appellant did not
file the appeal within the time allowed by section 169 of the Act.
l.
He submits that the Minister properly disallowed
the sums of $25,621 and $22,342 for the 2003 and 2004 taxation years,
respectively, as expenses incurred for the purpose of earning commission
income, under section 18 of the Act.
[4]
I would point out
immediately that the appellant was the only person who testified in his appeal.
I would also point out that the appellant did not produce any documentary or
objective evidence to substantiate his position. In addition, Hélène Marquis, the
auditor with the Canada Customs and Revenue Agency (the Agency) who did the
audit in the appellant’s case, and Mr. Roy, an objections officer with the
Agency, testified in support of the respondent’s position.
Client buy-backs
[5]
The appellant deducted
an expense of $8,395 in computing income from his business for 2004 under
the heading [Translation] “Client Buy-backs” The Minister
disallowed a portion of the expense deducted, in the amount of $6,500. In their
testimony on this issue, Ms. Marquis essentially reiterated the part of
her audit report (Exhibit I‑1, tab 3, page 13) on this
issue, and Mr. Roy essentially reiterated the part of his objection report
(Exhibit I‑2) on this issue. The relevant part of Ms. Marquis’
audit report (Exhibit I‑1) reads as follows:
[Translation]
The
taxpayer claimed expenses for client buy-backs in the amount of $8,395 in
computing his commission income for the 2004 taxation year. That amount is
composed of a $1,895 buy-back of a client and $6,500 for purchase of clients.
The $6,500 for purchase of clients is substantiated only by a handwritten note
showing the purchase of clients from René St‑Onge; the handwritten note
is not sufficient to substantiate the $6,500 claimed. In addition, purchase of
clients is not a current expense, it is a “capital” expenditure that could be
treated as an eligible expenditure. We asked the taxpayer to provide us with
supporting documents to substantiate the purchase of clients in order to treat
this amount as an eligible capital expenditure in computing the cumulative
amount of eligible capital expenditures. The taxpayer did not provide us with
any additional information.
We therefore disallow $6,500 in 2004.
F/T 7950
Paragraph 18(1)(a)
of the ITA
The relevant part of Mr. Roy’s
objection report (Exhibit I‑2) reads as follows:
[Translation]
Client buy-back
2003
The
taxpayer allegedly sold part of his clientele to his son Rémi in the summer of
2001 after he moved to Bonaventure. He allegedly bought the same clientele back
from Rémi in May 2003, paying by cheque in the amount of $7,500, on
May 11, 2003. However, the taxpayer is claiming a $6,500 expense in 2004
as client buy‑back?
In
a discussion with the taxpayer, he told us that there was no real sale to his
son in 2001. Because he lived with his son when he went to see other
clients in Québec between June 2001 and the summer of 2002, the savings on the
cost of a hotel made up for the clientele. According to the taxpayer, the
amount paid in May 2003 was a commission for looking after his clientele.
Other
facts and conclusions in the appeals
Facts:
-
Mr. St‑Onge’s son Rémi allegedly
lived in Québec for one year (June 01 to June 02) and then settled in
the municipality of Maria a few kilometres from Bonaventure (where his father
lived);
-
The taxpayer spent about 12 days a month in Québec
to look after his clientele, although he lived in Bonaventure;
-
The taxpayer bought the clientele back in May
2003 and sold it in February 2004;
-
There was no sale contract in 2001;
-
The expense claimed in 2004 ($6,500) is not
consistent with the amount of the cheque ($7,500);
-
The expense was claimed in 2004 and the payment
was in 2003; and
-
The purchase of clientele is a capital
expenditure (eligible capital expenditure).
Conclusion
There
cannot have been an acquisition of clientele since the facts show there was
never a sale. The issue is therefore whether the payment represents an eligible
expense. The son (Rémi) benefited from the clientele developed by the father. The
son had to look after the clientele in Québec because the father lived in
Bonaventure. However, the son moved to a few kilometres from Bonaventure
(Maria) one year after the father left Québec. Because the son was in the same
situation as the father (remote from the clientele), he was not performing any
service.
It
is curious for a person to be paid to benefit from clientele that he did not
develop. As a general rule, it is actually the person to whom the clientele is
lent who should pay a commission. Is it conceivable that if the transaction had
been made at arm’s length the terms would have been the same? As well, in this
period, the taxpayer stated that he was constantly prospecting for clients. We
can therefore assume that the taxpayer could have looked after the clientele
lent to his son.
Based
on these facts and information, it cannot be concluded that the expense was
incurred for the purpose of earning income from a business, because it was not
established that a service was performed by the son (Rémi). The expense is
disallowed under 18(1)(a).
Ref:
Table of Contents – Representation Section (R38-R40)
In addition, I note that the appellant’s testimony on
this issue cannot be summarized, given that it was vague and incomprehensible.
I would also point out that the appellant did not present any supporting
document at the hearing to substantiate the alleged $6,500 expense.
[6]
I would immediately
point out that the fact that the appellant presented three different versions
to Ms. Marquis and Mr. Roy regarding this $6,500 expense and also submitted
supporting documents to them to substantiate this expense that were dubious, to
say the least, prompted me to conclude that it would be dangerous to assign
credibility to the appellant’s testimony without probative corroborating evidence
in the form of sufficient documentation or credible testimony.
[7]
Given that the
appellant’s evidence on this issue was based solely on his testimony, which was
vague and incomprehensible, I must conclude (having regard to my earlier
conclusion concerning the probative value of the appellant’s testimony) that
the Minister properly disallowed the $6,500 for the 2004 taxation year as
expenses for client buy-backs for the purpose of earning commission income,
under section 18 of the Act. I will add that I also inferred from the fact
that the appellant did not call his son to testify that that evidence would
have been unfavourable to him.
Vehicle expenses
[8]
In computing his income
from his business for the 2003 taxation year, the appellant deducted $9,529 as
vehicle expenses, which breaks down as follows:
|
Gas and oil:
|
$2,908
|
|
Registration and licence:
|
$ 173
|
|
Lease expenses:
|
$5,862
|
|
Parking:
|
$ 586
|
[9]
In addition, in
computing his income from his business for the 2004 taxation year, the
appellant deducted $4,745 as vehicle expenses, which breaks down as follows:
|
Gas and oil:
|
$ 300
|
|
Registration and licence:
|
$ 173
|
|
Lease expenses:
|
$3,990
|
|
Insurance:
|
$ 60
|
|
Parking:
|
$ 250
|
[10]
The Minister disallowed
a portion of the expenses deducted by the appellant in this regard in 2003 (in
this case, expenses totalling $342) because:
1.
for certain expenses,
the appellant presented no objective proof to substantiate them;
2.
for certain expenses,
the documents presented to substantiate them were insufficient;
3.
the Minister concluded
that 15% of the appellant’s travel was of a personal nature.
[11]
The appellant’s
evidence on this point was based solely on his testimony. The appellant simply
explained that he had two vehicles available to him, and that one of them (the
leased Toyota) had been used solely to earn income from his business. I would
immediately point out that Mr. Roy, whose credibility is not in doubt,
testified that the appellant had told him at an interview that he estimated the
maximum percentage use of that vehicle for personal purposes to be 15%.
[12]
Having regard to my
earlier conclusion that it would be dangerous to assign any probative weight to
the appellant’s testimony without probative corroborating evidence in the form
of documentation (such as invoices, cheques and travel records), I must
conclude in this case that the Minister properly disallowed the $342 for the
2003 taxation year as expenses relating to the use of a vehicle for the purpose
of earning commission income. That conclusion seems to me to be particularly
obvious in that the appellant’s testimony was contradicted by a credible
witness.
[13]
The Minister also
disallowed a portion of the expenses deducted by the appellant in this regard
in 2004 (in this case, expenses totalling $3,863) because:
1.
for certain expenses,
the appellant presented no objective proof to substantiate them;
2.
for certain expenses,
the documents presented to substantiate them were insufficient;
3.
the $3,291 lump sum
payment was made by the appellant to cancel his vehicle lease when he was no
longer in business.
[14]
The appellant’s
evidence regarding the expenses deducted for the use of a vehicle for the 2004
taxation year was based solely on his testimony. Given that I previously
concluded that I assigned no probative value to the appellant’s testimony
without probative corroborating evidence, I must conclude that the Minister was
entitled to disallow the expenses not substantiated by sufficient supporting
documentation that he deducted in this regard in 2004. The expenses incurred by
the appellant after his business was sold (in this case, after February 2,
2004) cannot have been incurred for the purpose of earning income from a
business because he was no longer operating the business when the expenses were
incurred. With respect to the $3,291 lump sum paid by the appellant to cancel
the lease on his vehicle, I am of the opinion that the appellant could not
deduct that expense in computing the income from his business for the 2004
taxation year. Just as amounts originally payable under a contract would be
deductible from income if they had been paid, amounts paid to cancel a contract
can also be deductible, as a general rule. In this case, if the appellant had
continued to make monthly payments under the lease after February 2, 2004
(the date when the appellant’s business was sold), rather than making a lump
sum payment to cancel the lease, the monthly payments would not have been
deductible as expenses incurred for the purpose of earning income from a
business, given that he was no longer operating the business at that point.
Salary
[15]
The appellant deducted
$8,000 as salary he allegedly paid to his spouse in computing the income from
his business for the 2003 taxation year. The evidence showed (see Exhibit I‑2)
that the expense was disallowed by the Minister essentially because no
supporting evidence was submitted by the appellant to substantiate the $8,000
expense. The appellant, who had the burden of proof, did not produce any
documentary or objective evidence at the hearing showing payment of the salary
to his spouse in 2003. The appellant’s evidence on this point was based solely
on his testimony. However, the appellant did not even give an explanation at
the hearing as to the nature of the services his spouse allegedly performed for
him in that year and the time she allegedly spent on providing the services.
Having regard to my earlier conclusion concerning the probative value of the
appellant’s testimony, I must conclude that the Minister properly disallowed
the $8,000 as salary expenses for the purpose of earning commission income for
the 2003 taxation year, under section 18 of the Act.
Taxes and permits
[16]
The appellant deducted
$2,448 as expenses for taxes, permits and fees in computing the income from his
business for the 2003 taxation year. The evidence showed (see Exhibit I-1,
tab 3, page 7 and Exhibit I‑2) that a portion of the expense
deducted, in this case $884, was disallowed essentially because the appellant
did not provide any supporting documents to substantiate those expenses, or
because the documents provided were insufficient. The appellant did not even
think it necessary to give any explanation whatsoever at the hearing concerning
the disallowed $884 expense, nor did he submit any documentary evidence
concerning it. Accordingly, I must conclude, given that the appellant did not
present any evidence on this point, that the Minister properly refused the $884
as expenses for taxes, permits and fees for the purpose of earning commission
income for the 2003 taxation year, under section 18 of the Act.
Insurance
[17]
The appellant deducted
$2,395 as insurance expenses in computing the income from his business for the
2003 taxation year. The evidence showed (see Exhibit I‑2, tab 3,
page 7 and Exhibit I‑2) that a portion of the expense deducted in
2003, in this case $1,912, was disallowed essentially because the appellant did
not provide any supporting documents to substantiate those expenses. At the
hearing, the appellant provided no explanation or documentary evidence on this
point. Accordingly, I am of the opinion that the Minister properly disallowed
the $1,912 as insurance expenses for the purpose of earning commission income
for the 2003 taxation year, under section 18 of the Act.
Advertising
[18]
The appellant deducted
$549 as advertising expenses in computing the income from his business for the
2003 taxation year. The evidence showed (see Exhibit I‑2) that the
Minister disallowed a portion of the expense, in this case $11, because no
sufficient supporting document was submitted by the appellant to substantiate
the $11 expense. Given that the appellant did not produce any documentary
or objective evidence at the hearing to show payment of that expense, and did
not provide any explanation concerning this alleged expense, I must also
conclude that the Minister properly disallowed the $11 as advertising expenses
for the purpose of earning commission income for the 2003 taxation year, under
section 18 of the Act.
Training
[19]
The appellant deducted
$611 as training expenses in computing the income from his business for the 2003
taxation year. The evidence showed (see Exhibit I‑2) that the
expense was essentially disallowed by the Minister because no sufficient
supporting document was submitted by the appellant to substantiate the $611
expense. The appellant, who had the burden of proof, did not produce any
documentary or objective evidence at the hearing to show payment of that
expense. The appellant did not even give any explanation at the hearing
concerning the nature of the expense he allegedly incurred for the purpose of earning
income from his business. Accordingly, I must conclude, having regard to the
absence of evidence, that the Minister properly disallowed the $611 as training
expenses for the purpose of earning commission income for the 2003 taxation
year, under section 18 of the Act.
Miscellaneous expenses
[20]
The evidence showed
(see Exhibit I‑2) that the Minister disallowed $1,358 deducted by
the appellant in computing the income from his business for the 2003 taxation
year under the heading [Translation] “Miscellaneous Expenses”, under section
18 of the Act, essentially because no supporting document was submitted by the
appellant to substantiate those expenses. The appellant, who had the burden of
proof, simply did not submit any evidence at the hearing on this point.
Accordingly, I must conclude, having regard to the absence of evidence, that
the Minister properly disallowed the $1,358 as miscellaneous expenses for
earning commission income for the 2003 taxation year, under section 18 of
the Act.
Office expenses
[21]
The appellant deducted
$3,274 as office expenses in computing the income from his business for the
2004 taxation year. The evidence showed (see, inter alia, Exhibit I‑1,
tab 3, page 13 and Exhibit I‑2) that a portion of the expense
deducted in 2004, in this case $3,181, was disallowed because the appellant did
not provide any supporting documents to substantiate those expenses. At the
hearing, the appellant did not provide any explanation or documentary evidence
on this point. Accordingly, I am of the opinion that the Minister properly
disallowed the $3,181 deducted by the appellant as office expenses for the
purpose of earning commission income for the 2004 taxation year, under
section 18 of the Act.
Entertainment expenses
[22]
The appellant deducted
$2,154 and $272 as entertainment expenses in computing the income from his
business for the 2003 and 2004 taxation years, respectively. The evidence
showed (see Exhibit I‑1, tab 3, page 11 and Exhibit I‑2)
that the expense deducted in 2003 and a portion of the expense also deducted in
2004, in this case $250, was disallowed because the applicant did not provide
any supporting documents to substantiate those expenses. The appellant did not
provide any explanation or documentary evidence on this point at the hearing.
Accordingly, I am of the opinion that the Minister properly disallowed the
$2,154 and $250 deducted as entertainment expenses for the purpose of earning
commission income for the 2003 and 2004 taxation years, respectively, under
section 18 of the Act.
Telephone
[23]
The appellant deducted
$1,429 and $698 as telephone expenses for the 2003 and 2004 taxation years,
respectively. The evidence showed that a portion of these deductions, in this
case $305 in 2003 and $573 in 2004, was disallowed because the applicant did
not provide any supporting documents to substantiate those expenses. The
appellant did not provide any explanation or documentary evidence on this point
at the hearing. Accordingly, I am of the opinion that the Minister properly
disallowed the $305 and $573 as telephone expenses incurred for the purpose of
earning commission income for the 2003 and 2004 taxation years, respectively,
under section 18 of the Act.
Interest
[24]
The appellant deducted
$3,578 and $9,973 as interest expenses for the 2003 and 2004 taxation years,
respectively. The evidence showed (see Exhibit I‑1, tab 3,
page 10 and Exhibit I‑2) that a portion of these expenses, in this
case $2,859 in 2003 and $1,905 in 2004, was disallowed essentially because the
appellant was not able to provide any documentary evidence to establish that
the purchases paid for by credit card, or the cash withdrawals from those
credit cards, were used to earn income from his business or to earn income from
property. The appellant’s evidence on that point was based solely on his
testimony that the interest was for the purchase of materials used to set up
his office at his residence in Bonaventure and purchases of Nortel shares.
Having regard to my earlier conclusion, that it would be dangerous to assign
credibility to the appellant’s testimony without probative corroborating
evidence in the form of sufficient documentation or credible testimony, I must
conclude that the Minister properly disallowed the $3,578 and $1,973 as
interest paid for the purpose of earning commission income for the 2003 and
2004 taxation years, respectively, under section 18 of the Act.
Travel expenses
[25]
The appellant’s
principal residence was in Bonaventure during the years in issue, and he had
set up an office in the residence. Given that a large proportion of the clients
were still in Québec, the appellant had to go there for about 12 days a
month for business purposes. Instead of staying at a hotel while he was in Québec,
the appellant lived in an apartment with his son. The appellant deducted $3,274
and $2,283 as travel expenses for the 2003 and 2004 taxation years. The
evidence showed that the travel expenses deducted in 2003 included $2,644.93
for meals and $630.09 for transportation. The evidence also showed (see
Exhibit I‑1, tab 3, page 12) that for 2004, all of the
expenses deducted by the appellant in this regard were disallowed by
Ms. Marquis because the appellant did not provide any supporting
documentation for the expenses deducted in this regard. The evidence also
showed that for 2003, virtually all of the expenses deducted by the appellant
in this regard (in this case, $3,189) were disallowed by Ms. Marquis for the
reasons stated in her audit report (see Exhibit I‑1, tab 3,
page 12), which reads as follows:
[Translation]
For
2003, $492.19 corresponds to the difference between the amounts entered on the
compilation sheets and all of the supporting documents provided. That amount
was not incurred for the purpose of earning income. For $840.01 there are not
sufficient supporting documents. The receipts and credit/debit cards are not
sufficient supporting documents because they do not provide a detailed and
accurate description of the expense incurred. There is $1,210.91 for meals in Québec
(restaurants and grocery stores). We consider these to be non-deductible
personal and living expenses. There is $15.64 for a meal in Bonaventure. There
is nothing from which we could determine that this was a meal for business
purposes.
The evidence also shows (see Exhibit I‑2)
that for settlement purposes, Mr. Roy allowed the appellant to deduct 50% of
the expenses incurred (in this case, 50% of $1,210.91) for meals (restaurants
and grocery stores) in Québec. The appellant’s evidence on this point was based
solely on his testimony that all of the expenses deducted in this regard were
incurred for the purpose of earning income from his business. Having regard to
my earlier conclusion with respect to the probative weight of the appellant’s
testimony when it was not supported by sufficient documentary evidence or the
testimony of credible witnesses, I must conclude that the Minister was entitled
to disallow most of the expenses deducted in 2003, with the exception of
restaurant and grocery store expenses incurred that year, and all expenses
deducted in 2004. For the grocery store expenses deducted in 2003, I am of the
opinion that they were personal expenses or living expenses and accordingly
that the Minister was more than generous in allowing the appellant to deduct
50% of those expenses (in this case, $621) in computing the income earned from
his business for the 2003 taxation year.
Rent
[26]
The appellant deducted
$9,159 and $3,986 in expenses in computing the income from his business for the
2003 and 2004 taxation years, respectively. The Minister disallowed a portion
of the expenses deducted in this regard: $4,618 in 2003 and $3,787 in 2004. In
her testimony on this issue, Ms. Marquis essentially reiterated the part
of her audit report (see Exhibit I‑1, tab 3, page 11) that
reads as follows:
[Translation]
The taxpayer deducted rental expenses of $9,159 and $3,986 in
computing his commission income in 2003 and 2004, respectively. These were, in
part, rental expenses associated with an apartment where he lived when he went
to Québec. His son was the co-tenant. The taxpayer lived in Québec from 2000 to
2001. He then moved to Bonaventure. Although he bought a residence in
Bonaventure, he retained his clients in Québec. He also developed a small
clientele in Bonaventure. In Bonaventure, the taxpayer had an office in his
personal residence. In Québec, he had an office in the common room of the
Investors Group building. Over 90% of the clientele was in Québec. He went to Québec
every month for one week. The taxpayer did not provide any supporting documents
to substantiate the amounts deducted. In addition, he disposed of his [sic]
on February 2, 2004.
We
are of the opinion that the taxpayer had a place of business in Québec (the
Investors Group building) and a place of business in Bonaventure (the office in
his personal residence). The rental expenses for the apartment in Québec are
personal and living expenses. In the representations dated October 23, 2006,
the taxpayer provided us with supporting documents based on which we can allow
him $460.30 (total monthly expenses for renting a computer), $99.79 and $585.66
(40% of school taxes and municipal taxes = business % of the use of the
residence in Bonaventure) and $2,211.74 (electricity attributable to the
office in Bonaventure) in computing commission income for 2003. A total of
$99.79 is also allowed in 2004 (computer rental for one month and other
expenses).
We
therefore disallow $5,802 ($9,159 - $460.30 - $99.79 - $585.66 - $2,211.74 = $5,501.51)
in 2003 and $3,886 ($3,986 - $99.79 = $3,886.21) in 2004, corresponding to
personal expenses and also not substantiated by supporting documents; those
expenses are not deductible in computing commission income.
F/T 744 and F/T 7410
Paragraphs 18(1)(a) and 18(1)(h) of
the ITA
In addition, in his testimony on this issue, Mr. Roy
essentially reiterated the part of his report (see Exhibit I‑2)
concerning an objection that reads as follows:
[Translation]
Rent
The
$5,802 expense in 2003 and $3,886 in 2004 were disallowed.
(2003):
The disallowed expense is largely related to the rental of an apartment in Québec.
The apartment is occupied by Mr. St-Onge’s son (Daniel), a student at the time.
The taxpayer is claiming the amount of the apartment because he says if he had
had to pay for a hotel and the cost would have been much higher.
The
Audit Division determined that the apartment in Québec was personal in nature
and therefore not an allowable expense.
The
expense was originally $9,159. The expenses for electricity and taxes for the
office in Bonaventure and the computer rental were allowed. The remaining
$5,802 was therefore disallowed.
(2004):
The amount disallowed again represents the apartment in Québec, according to
the taxpayer. However, he was no longer in business as of February 2004. He
then submitted, in representations, an expense for breaking the computer rental
contract, in the amount of $3,221. The expense was disallowed because the
taxpayer was no longer in business when the contract was broken.
[27]
The appellant’s barely
comprehensible testimony on this point could be summarized as: [Translation] “I paid the rent and my son, with whom I lived, paid
the other expenses associated with the apartment that I rented.” In other
words, the appellant claimed that the real cost of the rent was more than $500
per month (or $8.22 per day) and that the Minister should have taken that into
account in his calculations. I would point out that the appellant submitted no
documentary evidence to substantiate the expenses thus deducted and that his
son did not testify to corroborate his position. I conclude from this that that
evidence would have been unfavourable to him. Having regard to my earlier
conclusion with respect to the probative weight of the appellant’s testimony
when it was not supported by sufficient documentary evidence or the testimony
of credible witnesses, I must conclude that the Minister properly disallowed
the $4,618 and $3,781 for rental expenses incurred for the purpose of earning
commission income for the 2003 and 2004 taxation years, respectively, under
section 18 of the Act.
[28]
For these reasons, the
appeal is dismissed.
Signed at Ottawa, Canada, this 10th day of January 2011.
“Paul Bédard”
Translation
certified true
on this 22nd day
of February 2011
Monica F.
Chamberlain, Reviser
Email this Content