Citation: 2011TCC61
Date: 20110131
Docket: 2008-3957(IT)G
BETWEEN:
RICARDO CADAY, JR.,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan J.
[1]
The Appellant, Ricardo
Caday, Jr., is appealing the arbitrary assessment of the Minister of National Revenue which included
in income for the 2003, 2004 and 2005 taxation years of $67,138, $59,253 and
$58,138, respectively. Because, even
after having been requested to do so, the Appellant did not
file income tax returns for those three years, the Minister also assessed late and repeat late filing
penalties under subsections 162(1) and (2) of the Income Tax Act. As of the date of the hearing of this appeal, the
Appellant had still not filed any of his returns.
[2]
The Appellant
represented himself in this General Procedure appeal and was the only witness
to testify. A generally credible witness,
the Appellant’s real difficulties lay in his lack of organization. As well as
not having filed returns as required, he had not maintained proper records of
his employment income or expenses. Thus, the better part of the day it took to
hear this matter was spent trying to make sense of the Appellant’s testimony while
sifting through what few documents he had produced in the hope of arriving at a
just determination of his tax liability. Thanks in no small part to the
patience and forbearance of counsel for the Respondent, the Appellant was able
to establish that his income in the taxation years was less than assessed and
that he was entitled to certain expenses as set out below.
Employment
Income for 2003, 2004 and 2005
[3]
During these years, the Appellant
was employed as an insurance agent for various firms in the Windsor area. The Minister’s assessment of his income in
each of the taxation years was apparently based on information gleaned from his
spouse’s income tax returns. However,
having reviewed the T-4’s and T-4A’s produced by the Appellant, the Respondent conceded
that the Appellant’s income in each year was $26,389, $23,496, $38,923.
Employment
Expenses and Other Deductions
[4]
As mentioned above, the Appellant
never filed income tax returns for 2003, 2004 and 2005. He did, however, on the
eve of trial prepare draft returns for 2003
and 2004 which he used as reference material at the hearing.
He did not have enough time, he said, to complete the 2005 return.
[5]
In his 2003 and 2004 draft
returns, the Appellant claimed deductions of approximately $8,000 and $10,000,
respectively, for motor vehicle expenses, costs incurred for seminar fees,
professional licensing dues, parking, magazine subscriptions, client entertainment,
advertising and promotion, office supplies and his home office. He also
testified that he paid $157 per month for 5 months in 2003 and 12 months in
2004 under a computer leasing contract. Finally, he sought to deduct $611 as Canada
Pension Plan contributions.
[6]
Counsel for the Respondent argued
that not all of these deductions ought to be allowed as some were not supported
with receipts or other documentation and/or the estimated amounts were not
reasonable. Further, this was a General Procedure matter and the Appellant had
not fully complied with orders for the production of documents.
[7]
I accept the submissions of
counsel for the Respondent that there is insufficient evidence to justify
allowing in full the expenses claimed by the Appellant. Like many taxpayers who
appear without legal counsel, the Appellant was quite overwhelmed by his
obligations under the rules and with the complexity of establishing his
entitlements; however, there is a limit to the leeway the Court can permit in a
General Procedure appeal.
[8]
Beginning, then, with the Canada
Pension Plan deductions, there was nothing to show the amount claimed had
actually been paid. As for his home office expenses, the Appellant claimed 6/7th
of the total cost of utilities, property tax and insurance for his residence in
each year. While I accept his testimony that his work as an insurance agent
required him to have office space in his home for use in the evening or on
weekends and that he would have paid something towards such expenses, he
produced no invoices for his residential utilities, taxes and insurance. There
was the same lack of documentation for his motor vehicle expenses: I accept
that he used one of his two cars to travel around selling insurance but the
Appellant did not maintain a motor vehicle log and could only estimate his
costs based on average gasoline prices and odometer readings in each year. Similarly,
he did not provide to the Respondent or bring to Court receipts for client
entertainment, magazine subscriptions, office supplies, parking and so on. He
did have a receipt for $299 paid for a professional development seminar in
2003. Accordingly, I have allowed a reasonable amount for such expenses and
where applicable, I have given effect to the concessions made by the Minister
as set out below.
The
2003 Taxation Year
[9]
The Respondent concedes that in
2003, the Appellant’s income was $26,389. His employer deducted at source
$1,732 in respect of income tax which, for some reason, was not reported on the
T-4 issued by his employer; that amount should be taken into account by the
Minister when reassessing. Similarly, the Appellant produced an “Instalment
Payment Summary” issued to him by the Canada Revenue Agency for 2004
which refers to a “total instalment credit” for 2003 of $2,230.75. In
reassessing the Appellant’s 2003 taxation year in accordance with these Reasons
for Judgment, the Minister ought to determine the amount of and, if applicable,
take into account any instalment payments the Appellant may have made in that
year. As for the $8,000 claimed as other employment expenses in 2003, I find that
the Appellant incurred 25% of that amount, $2,000.
The
2004 Taxation Year
[10]
The Respondent conceded that in 2004,
the Appellant’s income was $23,496. He made instalments of $2,980.84,
a figure which ought to be considered by the Minister in reassessing. His employer
withheld $2,648 in income tax but as was the case in 2003, neglected
to show this amount on the Appellant’s T-4A. Also deducted directly from his pay
cheque was $5,712 for employee expenses. As for the $10,000 in other
expenses claimed by the Appellant, I find that he incurred employment expenses of
20% of that amount, $2,000.
The
2005 Taxation Year
[11]
The Respondent conceded that in
2005, the Appellant’s income was $38,923. At the hearing, the Appellant did not
have any supporting documentation other than the T-4 and a sample Earnings Summary for January 2005. I accept the submission of counsel
for the Respondent that based on these documents, it is likely that on average,
his employer withheld from his monthly pay cheque approximately $478 for employment
expenses in January 2005, making for an annual deduction of $5,736.
Late
Filing Penalties
[12]
The Appellant was required under
subsection 150(1) of the Act to file an income tax return in each of the
taxation years under appeal:
150(1)
Filing returns of income - general rule. Subject to subsection (1.1), a
return of income that is in prescribed form and that contains prescribed
information shall be filed with the Minister, without notice or demand for the return, for each taxation
year of a taxpayer,
[13]
The Appellant’s failure to file
his returns triggered the operation of the late‑filing provisions, subsections
162(1) and (2):
162(1) Failure to file return of income. Every
person who fails to file a return of income for a taxation year as and when
required by subsection 150(1) is liable to a penalty equal to the total of
(a) an
amount equal to 5% of the person’s tax payable under this Part for the year
that was unpaid when the return was required to be filed, and
(b) the
product obtained when 1% of the person’s tax payable under this Part for the
year that was unpaid when the return was required to be filed is multiplied by
the number of complete months, not exceeding 12, from the date on which the
return was required to be filed to the date on which the return was filed.
(2)
Repeated failure to file. Every person
(a) who
fails to file a return of income for a taxation year as and when required by
subsection 150(1),
(b) on
whom a demand for a return for the year has been served under subsection 150(2),
and
(c) by
whom, before the time of failure, a penalty was payable under this subsection
or subsection (1) in respect of a return of income for any of the 3 preceding
taxation years
is liable to a
penalty equal to the total of
(d) an
amount equal to 10% of the person’s tax payable under this Part for the year
that was unpaid when the return was required to be filed, and
(e) the
product obtained when 2% of the person’s tax payable under this Part for the
year that was unpaid when the return was required to be filed is multiplied by
the number of complete months, not exceeding 20, from the date on which the
return was required to be filed to the date on which the return was filed.
[14]
The Appellant admitted that he did
not file returns in 2003, 2004 and 2005 and that he did not comply with the
Minister’s request to do so. However, assuming as the Minister did that tax was
owing in those years, it was open to the Appellant to avoid the imposition of
such penalties if he were able to show that he exercised “due diligence”; in
other words, that he took all reasonable steps to comply with his obligations
under the Act.
[15]
The Appellant’s evidence was that
he did not file his returns when due on the 30th of April of the
following year because he believed (apparently on the advice of his tax
preparer) that he had no taxable income in any of the taxation years. He also
told the Court that he and his wife had numerous health and financial problems
throughout these years, many of which continue to the present time.
[16]
The standard a taxpayer must meet
to avoid the imposition of late-filing penalties is a high one. Here, the
Appellant has failed to satisfy me that he took any steps to comply with his
obligations under the Income Tax Act. Whatever his motives may have
been, the evidence shows carelessness in records keeping and indifference to
his obligations as a taxpayer, a pattern that remained unaltered even after the
receipt of the Minister’s request to file returns and continued unabated
throughout the prosecution of his appeal. As for his personal difficulties,
while I accept his evidence on that score and am sympathetic to his plight, his
evidence did not provide the basis for concluding that they prevented him from
filing his returns in a timely fashion.
[17]
Accordingly, if after reassessing
in accordance with these Reasons for Judgment tax was owed in any or all or the
years under appeal, the Minister will be justified in imposing penalties under
subsections 162(1) and/or (2), as the case may be.
[18]
Counsel for the Respondent also
asked for fixed costs of $500, an amount which she quite rightly submitted did
not come close to covering the expenses incurred to ensure that the Appellant
had his day in Court. Counsel acknowledged his financial difficulties - which
are significant - but argued that given the Appellant’s failure to comply with
the Tax Court of Canada Rules (General Procedure) and orders of this
Court, the awarding of costs was justified. I must say I was disappointed at
the Appellant’s lack of preparation at the hearing given the time that had been
spent at the interlocutory stage to explain what would be expected of him and
having made allowances, at that time, for his lack of strict compliance with
the Rules. I regret to say that his behaviour caused unnecessary delay
and expense for the Respondent, the Court and as counsel pointed out, even
himself. In the circumstances, I am more receptive to the Respondent’s request
than I otherwise might have been given the Appellant’s financial troubles.
Accordingly, costs are awarded to the Respondent in the amount of $500.
[19]
For the reasons set out above, the
appeals of the 2003, 2004 and 2005 taxation years are allowed and the assessments
are referred back to the Minister for reconsideration and reassessment in
accordance with these Reasons for Judgment.
Signed at Vancouver, British Columbia, this 31st day of January, 2011.
“G. A. Sheridan”
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