Docket: 2007-4740(IT)G
BETWEEN:
GERALD MERKE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeals
heard on March 14, 2011, at Winnipeg,
Manitoba
Before: The Honourable
Justice G. A. Sheridan
Appearances:
|
For the Appellant:
|
The
Appellant himself
|
|
Counsel for the Respondent:
|
Cameron S. Regehr
Brooke Sittler
|
____________________________________________________________________
AMENDED JUDGMENT
In accordance with the attached Amended Reasons
for Judgment, the appeals of the 2003 and 2004
taxation years are allowed, without costs, and the reassessments are referred
back to the Minister of National Revenue for reconsideration and reassessment
based on the following adjusted amounts:
For the 2003 Taxation Year
|
Merke
Business:
|
|
|
Opening
Inventory (as reported)
|
$ 419,440
|
|
Purchases
(conceded)
|
$ 2,723,382
|
|
Closing
Inventory (as reported)
|
$ 513,670
|
|
Overhead
Expenses without CCA (conceded)
|
$ 118,197
|
|
Merke Farm:
|
|
|
Expenses without
CCA (conceded)
|
$ 158,546
|
For the 2004
Taxation Year
|
Merke Business:
|
|
|
Opening
Inventory (as reported)
|
$ 513,670
|
|
Purchases
(conceded)
|
$ 2,033,684
|
|
Closing
Inventory (as reported)
|
$ 98,680
|
|
Overhead
Expenses without CCA (conceded)
|
$ 35,545
|
|
Merke Farm:
|
|
|
Expenses without
CCA (conceded)
|
$ 144,856
|
This Amended Judgment and Amended
Reasons for Judgment is issued in substitution for the Judgment and Reasons for
Judgment issued the 20th day of May, 2011.
Signed at Ottawa, Canada,
this 22nd day of June
2011.
“G. A. Sheridan”
Citation: 2011TCC273
Date: 20110622
Docket: 2007-4740(IT)G
BETWEEN:
GERALD MERKE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
AMENDED REASONS FOR JUDGMENT
Sheridan J.
[1]
The Appellant, Gerald Merke, is appealing
the reassessment by the Minister of National Revenue of his 2003 and 2004
taxation years disallowing certain business and farming expenses.
[2]
In 2003, the Appellant was a 50%
partner in a fertilizer business known as Merke Bros. (“Merke Business”) and in
2004, the sole proprietor of that enterprise. In both years, the Appellant was
also engaged in farming (“Merke Farm”). The Minister denied the expenses
claimed by the Appellant because he had not provided any supporting
documentation for them. Accordingly, the Minister assumed a ‘nil’ amount for
opening and closing inventory, purchases of goods sold and overhead expenses
without CCA. The details of the Minister’s reassessments are set out in
Schedules A and B of the Reply to the Notice of Appeal.
[3]
The only issue in these appeals is
whether the Appellant can justify the expense amounts claimed. The Appellant
represented himself and was the only witness to testify. As was the case at the
audit stage, the weakness of the Appellant’s evidence was his failure to substantiate
the claims made with documentation.
[4]
By way of background, the
Appellant was audited in 2006 and appealed the resulting reassessment in 2007
under the Informal Procedure. Because the amounts involved were well in excess
of the monetary limits under the Informal Procedure, the Court granted the
Respondent’s request to “bump up” the appeals to the General Procedure. As a
self-represented litigant, the Appellant had some difficulty complying with the
General Procedure Rules’ more onerous requirements, in particular, with meeting
procedural deadlines. He arrived in Court the morning of the hearing with a
bundle of cheques, bank statements, financial statements and
some hand-written summaries of their contents. These were meant to be in response
to the undertakings given to the Respondent on examination for discovery, the
deadline for which had long since passed. While counsel advised that the
Respondent had not had the opportunity to review these documents, the Appellant
claimed that many of the cheques and bank statements, at least, had already
been disclosed in his Book of Documents.
[5]
After hearing from the
parties on how best to deal with this material, the Court granted the Respondent’s request for a recess to
permit counsel and the Canada Revenue Agency auditor to go through the various
documents with the Appellant in the hope of resolving at least some of the
matters in dispute. Court resumed at 1:30. Counsel for the Respondent advised
the Court that following their review of Exhibit A-1 with the Appellant, the
Crown was prepared to concede that the appeals of the 2003 and 2004 taxation
years ought to be allowed and the matters referred back to the Minister of
National Revenue for reconsideration and reassessment only in respect of those
expenses which the Appellant had been able to verify. These were summarized in
the auditor’s hand-written notes, entered as Exhibit A-4.
[6]
The appeals then proceeded in
respect of the Appellant’s entitlement to the balance of disallowed expenses.
The Appellant’s position was that the appeals ought to be allowed based on the
amounts claimed in the Merke Business financial statements prepared by his
accountant and reported along with the Merke Farm expenses in his 2003 and 2004
income tax returns. The Appellant’s main concerns were, in respect of
Merke Business, further deductions for bank charges and interest, gas and oil
expenses, and a bad debt; in respect of Merke Farm, interest expenses.
[7]
The Appellant had the
onus of proving his entitlement to these additional amounts. Unfortunately,
instead of availing himself of the
opportunity to do so, the Appellant used a good part of his testimony to criticize
the shortcomings in the Minister’s conclusions – but without showing how they
were wrong.
[8]
Turning, first, to a consideration
of the persuasiveness of his testimony, the Appellant contended that the Court
should accept the expenses as claimed in his returns
because they had been prepared by his longtime accountant who accurately
reported the information the Appellant provided to him. However, his accountant
was neither called as a witness nor present to assist the Appellant in
marshalling his evidence at the hearing. The Appellant’s answer to this was
that he ought to be given time to consult his accountant to review the amounts
conceded by the Respondent, saying he would get back to the Court in due
course. Even if the Court had been disposed to grant such an unreasonable
request, based on the Appellant’s own testimony, it might have proven difficult
for him to implement this plan: he initially tried to justify the
unavailability of certain supporting documents by saying his accountant had
sold his business and moved to British Columbia. He later said that for some
time the accountant’s whereabouts were unknown but then mentioned having spoken
with him by phone in preparation for the hearing.
[9]
The other difficulty with the
Appellant’s testimony was his belligerent attitude: whether this was just his
nature or the result of frustration with the legal and taxation process was difficult
to assess. However, concerned with his failure to refer the Court to specific
documents in support of his contentions, before writing these Reasons for
Judgment I carefully went through the voluminous materials in Exhibits
A-1 and A-2 to see if there might be some link between his oral evidence and
those documents.
[10]
The Appellant personally kept track of the day-to-day
business and farm expenses by writing cheques to his suppliers and creditors;
at tax time, he gave the cancelled cheques and bank statements to his
accountant along with his instructions as to how the expenditures represented
by the cheques were to be categorized. Unfortunately, he did not maintain a general
ledger or even an informal log of the expenditures for either Merke Business or
Merke Farm.
[11]
Nonetheless, like the materials in the Book of Documents, the
materials that made up Exhibit A-1 were reasonably well sorted by category and
by date. The one exception was a bundle of moisture-damaged TD Canada Trust
envelopes, some empty, some containing bank statements for “Merke Bros. Trust”.
The Appellant testified that the handwritten summaries and attached cheques in
Exhibit A-1 were only a “sample” of his total expenses but further details
could be found in the Book of Documents. His position was essentially that even
if his records were incomplete, the annual totals could be extrapolated from
reviewing the documents as a whole.
[12]
In my view, that would require a
rather strenuous evidentiary leap. Having carefully reviewed the Appellant’s
materials, it seems to me that if there had been additional documents to
support his claims, the Appellant would have produced them. A good example is
his claim for gas and oil expenses for Merke Business. In 2003 and 2004, Merke
Business claimed $65,404 and $97,370, respectively for gas and oil; at the hearing, based
on the cheques produced in Exhibit A-1, the Crown conceded only $20,534 and
$32,370, respectively, of these amounts. The Appellant argued he should be
allowed the full amount because, briefly paraphrased, anyone with any sense
would know he could not operate his business on the small amounts conceded by
the Minister.
[13]
I must say that given the volume
of business done by Merke Business, the Appellant might be right. The problem
is that, despite being reminded many times that it was for him to justify his
entitlement to additional amounts, the Appellant did not provide the Court with
enough evidence to find in his favour. He did not, for example, explain why gas
and oil in such quantities would have been necessary to run Merke Business. Nor
did he direct the Court to any supporting documentation. My review of the gas
and oil cheques from Exhibit A-1 (cross‑referenced with the cheques and
bank statements in the Book of Documents) revealed that in October of 2003 and
2004, Merke Business made a one-time payment of $20,000 and $30,000,
respectively to “Merke Bulk Fuels” as well as a few other miscellaneous
purchases at various gas stations throughout each year. Given the number of
documents in Exhibit A-2 and their rather tidy organization, I can only wonder
why - if there were other documents showing additional gas and oil purchases
sufficient to bridge the gap between the amounts conceded by the Minister and
claimed by the Appellant - they were not included. Or if they were included, I
was unable to identify them without the Appellant’s explanatory evidence. And
given the size of the discrepancy and the Appellant’s “hands-on” approach to
cheque writing, I would have thought that absent the necessary documents, he
would at least have explained in what circumstances Merke Business had incurred
the additional amounts; for example, the name of the fuel dealer(s), an
estimate of the amounts and so on.
[14]
The same can be said of the
Appellant’s claims for “Bank Charges and Interest” for Merke Farm in 2003.
According to Schedule A of the Reply, the amount disallowed was $10,596. The
Appellant argued that these charges could be found in the bank statements in
his Book of Documents. The Appellant had every opportunity at the hearing to
direct the Court’s attention to the appropriate document(s) but preferred
instead to rail against the Minister’s methods. On my review of the bank
statements in Exhibit A-2, however, I saw nothing but service charges averaging
$15 to $20 per month. The Appellant dismissed as insufficient counsel for the
Respondent’s concession during final submissions to allow a further amount to
reflect these minor charges.
[15]
The Appellant also claimed
entitlement to a bad debt expense for Merke Business of $9,500 as shown in the
Financial Statement. However, he provided no documentation in support of this
claim; nor did he offer any description as to how such a debt might have
arisen.
[16]
In light of the general
unhelpfulness of the Appellant’s testimony, his failure to link any particular
expense with its supporting record and his overall attitude of expecting others
to do what he ought to have done himself, the Appellant has not met his onus of
proving his entitlement to any amount in excess of the expenses already
conceded by counsel for the Respondent.
[17]
In accordance with the Amended
Reasons for Judgment, the appeals of the 2003 and 2004 taxation years are
allowed, without costs, and the reassessments are referred back to the Minister
of National Revenue for reconsideration and reassessment based on the amounts
conceded by the Respondent at the hearing:
For the 2003 Taxation Year
|
Merke Business:
|
|
|
Opening Inventory (as reported)
|
$ 419,440
|
|
Purchases
(conceded)
|
$ 2,723,382
|
|
Closing
Inventory (as reported)
|
$ 513,670
|
|
Overhead
Expenses without CCA (conceded)
|
$ 118,197
|
|
Merke Farm:
|
|
|
Expenses without
CCA (conceded)
|
$ 158,546
|
For the 2004
Taxation Year
|
Merke Business:
|
|
|
Opening
Inventory (as reported)
|
$ 513,670
|
|
Purchases
(conceded)
|
$ 2,033,684
|
|
Closing
Inventory (as reported)
|
$ 98,680
|
|
Overhead
Expenses without CCA (conceded)
|
$ 35,545
|
|
Merke Farm:
|
|
|
Expenses without
CCA (conceded)
|
$ 144,856
|
This Amended Judgment and Amended
Reasons for Judgment is issued in substitution for the Judgment and Reasons for
Judgment issued the 20th day of May, 2011.
Signed at Ottawa, Canada, this 22nd day of June 2011.
“G. A. Sheridan”
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