Citation: 2010 TCC 150
Date: 20100422
Docket: 2009-3369(IT)I
BETWEEN:
PETER PLATIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Angers J.
[1]
These are appeals of
the appellant's reassessments for his 2004 and 2005 taxation years. In
computing his income for both taxation years, the appellant claimed employment
expenses in the total amounts of $32,707 and $31,621 for each of those years
respectively. The breakdown of the expenses is as follows:
|
|
2004
|
2005
|
|
|
$
|
$
|
|
Meals & entertainment
(50%)
Supplies
Parking
Motor vehicle expenses
Accounting/legal fees
Other business expenses
Business use of home
|
5,719
2,707
4,188
8,225
—
11,604
261
|
2,430
1,543
2,077
7,242
166
19,423
280
|
[2]
The Minister of
National Revenue (the Minister) reassessed the appellant's 2004 and 2005 taxation
years and disallowed employment expenses totalling $21,053 and $10,320 for those
taxation years respectively. The Minister also assessed penalties under
subsection 163(2) of the Income Tax Act (the "Act") in
respect of some of the disallowed expenses. The amounts of the penalties were
$397.77 and $203.91 for the 2004 and 2005 taxation years respectively.
[3]
The appellant filed
Notices of Objection and, as a consequence of representations by the appellant,
the Minister allowed further employment expense amounts of $1,551 and $1,798
for the 2004 and 2005 taxation years respectively. The issues are whether the
appellant is entitled to deduct the employment expenses claimed in excess of
the amounts determined by the Minister for each taxation year and whether the
Minister properly assessed gross negligence penalties with respect to some of
the disallowed expenses that I will deal with later in these reasons.
[4]
The appellant is a
commissioned commodities and foreign exchange broker who was employed by Refco Futures
Canada Ltd. (Refco) throughout the 2004 taxation year and about half of the
2005 taxation year. He earned commission income from Refco in the amount of
$49,945 for 2004 and $48,573 for 2005.
[5]
For the purpose of
filing his 2004 and 2005 tax returns, the appellant obtained from his employer a
T2200 (Declaration of Conditions of Employment) form for both taxation years.
The original T2200 (Exibit R-1, Tab 3) for 2004 is signed by a Mr. Chan
and is dated February 11, 2005. The original T2200 (Exhibit R-1, Tab 3)
for 2005 purports to have been signed by one Eugenia Chee on February 17, 2006,
but Ms. Chee testified that it was not her signature on the document and that it
was not she who had filled it out. Both T2200s indicate the following: (a) the
appellant was required to pay his own expenses; (b) he was normally required to
work away from the employer's place of business; (c) he received no allowance
for the use of his motor vehicle; (d) his work required him to pay other
expenses such as home office, lodging, travel, meal, entertainment, telephone
and computer expenses; and (e) the employer required that he be away for at
least 12 hours from the area where he normally worked. On the T2200 for 2005,
it is indicated that he had to be away from that area once a month. Both T2220s
indicate that the employer required the appellant to have a home office, to pay
for an assistant and to pay for supplies used directly in the appellant's work,
that there was no reimbursement of any of those expenses and, most surprisingly,
that the appellant was not paid by commissions based on the volume of sales
made, which is contrary to the evidence adduced at trial.
[6]
At the request of the
Canada Revenue Agency, the employer provided amended T2200s that were both
signed by Ms. Eugenia Chee on November 19, 2008 (Exhibit R-1, Tab 4). Those
amended T2200s confirm that the appellant was required to pay his own expenses
and they also confirmed some other conditions of employment indicated in the
original T2200s. They also provide different answers to some of the questions.
They indicate, for example, that the appellant was not required to work away
from the employer's place of business, that he was paid by commission, that he was
not required to be away for at least 12 hours from the area of the employer's
business (downtown Toronto) and that he was not required to pay for an
assistant.
[7]
The appellant introduced
in evidence T2200 forms for each of the taxation years under appeal. They are Exhibit
A-1, which is identical to the original (Exhibit R‑1, Tab 3, page 2)
filed with his 2004 tax return and Exhibit A-7, which he said was the one he had
filed with his 2005 tax return. Exhibit A-7 is apparently signed by Ms. Chee
and she acknowledges that it is her signature, but she does not recall the
document, as the information contained on the first page of the form is not in her
handwriting. In addition, the date (2005 02 21) on Exhibit A‑7 is
typed in. That T2200 indicates that the period of employment was from January
1, 2005 to July 5, 2005, the latter being the date the appellant was dismissed,
which date would not have been known on February 21, 2005 when Exhibit A-7 was
signed. The appellant was unable to provide any information that could have shed
some light on the origin of that exhibit.
[8]
In 2004-2005, Eugenia
Chee was the chief compliance and financial officer with Refco. At the time,
Refco had approximately 40 brokers working for it in Toronto,
including the appellant. There was no written contract with the appellant and the
brokers were all responsible for their own expenses. They could entertain
clients but did so without any expectation of being reimbursed by Refco.
[9]
The brokers, including
the appellant, were required to arrive at the office between 7:30 a.m. and 8
a.m. in order to monitor the markets, and to remain on Refco's premises until 5
p.m. The reason for this requirement was that the brokers' telephone conversations
were recorded. Since commodity markets are open all the time, it was not
uncommon for the brokers to work after their above-stated hours. Although Refco
did not require that they travel for the purposes of their work, its brokers
were allowed some flexibility and could travel in or out of province. It is
forbidden by law for Canadian brokers to have commodity market clients in the U.S.
[10]
With regard to
supplies, Refco did not require its brokers to provide their own office
supplies. These were all furnished by Refco. As for maintaining a home office, strictly
speaking there was no such requirement by Refco, but it was common practice for
brokers to have a computer at home so as to be able to follow the markets.
According to Ms. Chee, the brokers' revenue-generating activities were carried
on at their desks on Refco's premises, as brokers, including the appellant, were
not allowed to trade on the markets anywhere other than on Refco's premises.
Ms. Chee also testified that it is common for a commodities broker to offer
foreign exchange, but said that, in general, Refco has no U.S. clients for foreign exchange.
[11]
A motor vehicle was not
a requirement for the appellant's work but, it was reasonable to consider a
vehicle a necessity. As for meetings with clients at brokers' homes, Refco had
no policy in that regard, but it could stop such meetings. Moreover, space for meeting
clients was provided on Refco's premises. The majority of the brokers' work was
performed on Refco's premises.
[12]
The appellant has a
college degree, having graduated in 1992 in small business management. He has
been employed as a commodities broker with various firms ever since. As regards
his tax returns, he submits all of his receipts to H & R Block and they
prepare the returns. He cannot explain the discrepancies between the T2200
forms nor can he say why the signature on one of the forms is not Ms. Chee's.
He acknowledges that most of his time was spent at Refco, that the majority of
his clients were in the Toronto area and that Refco did not require him to
buy office supplies.
[13]
The appellant provided
the Court with envelopes full of receipts pertaining to his expenses and with logbooks,
reconstructed at the CRA'S request, showing his motor vehicle expenses incurred
for business travel purposes. The respondent also produced some receipts, in particular
with respect to meals and entertainment.
[14]
I will now deal with
each of the various expense claims.
Meals and Entertainment
[15]
The appellant's claim
under this heading is $5,719 for 2004 and $2,430 for half of 2005. One must
bear in mind that those figures represent half of the actual expense amounts, namely
$11,438 and $4,860. The CRA's position is that not only are these amounts
unreasonable in that they represent 23% of the appellant's commissions for 2004
and 10% of his commissions for 2005, but many of the receipts provided are for
personal items. The appellant's position is that the receipts all relate to
clients that he had to entertain for business purposes.
[16]
The appellant was
cross-examined regarding a few of these receipts, one of which was for one
drink in Chicago with a person who was not a direct client of his but from whom
he was requesting a break with respect to fees. The appellant drank water on that
occasion and it was at 11:34 p.m. Another receipt is for an expense $388.08
incurred in Chicago. He was entertaining three traders who had
helped him close a deal. He was not soliciting clients. He also claimed a
deduction of $102.88 for flowers that he had bought for someone who was alone
on Valentine's Day, who worked at the hotel where he was staying and who had introduced
some people to him. Other claims are made for meals in Amsterdam and for visits to museums. The explanations provided by the appellant concerning
the receipts produced during his cross-examination were vague and unreliable.
The appellant failed to produce those receipts himself or to provide any
explanation showing that the expenses were incurred to earn employment income and
that his claim was accordingly justified. I accept the CRA's position with respect
to the portion of the appellant's meal and entertainment expense claim that it disallowed.
Motor Vehicle Expenses
[17]
At the audit stage, the
motor vehicle expenses were reduced by half on the basis that no logbook was
provided and that some repairs were done on vehicles other than the appellant's.
When logbooks were provided, it became apparent that the appellant had claimed
mileage for weekends and statutory holidays in addition to mileage for days
when he was out of the country. The appellant explained that the out-of-country
mileage was done in rented vehicles. That explanation would have made sense were
it not for the fact that the mileage claimed (41 or 42 kilometres) is the same
distance as that shown for his travel from his home to the office. The
appellant conceded in his testimony that half his mileage was for personal purposes.
The CRA's position is thus consistent with that admission and the CRA was therefore
correct in disallowing as personal expenses half of the motor vehicle expenses
claimed. There is no doubt that the logbooks provided by the appellant were
reconstructed after the fact and are unreliable.
Parking
[18]
The appellant claimed a
parking expense of $4,188 for the 2004 taxation year and $2,077 for the 2005
taxation year. Those amounts included the appellant's monthly parking costs for
his presence at his employer's place of business. Given that he had to be at
the office on a regular basis, those particular costs were a personal expense
and the Minister was correct in disallowing that portion of the parking expense.
Supplies
[19]
The appellant claimed
$2,707 under this heading in 2004 and $1,543 in 2005. In Exhibit A-2, the total
of the receipts provided with respect to supplies for 2004 comes to around
$500. Among the receipts provided to the CRA, were some from a store that sells
sunglasses, another that was not in the appellant's name and still others that
were for such things as DVD movies and soft drinks. In addition, the evidence
clearly establishes that Refco provided all the office supplies needed and that
the appellant's conditions of employment did not require him to provide any
supplies himself. The appellant failed to provide the Court with any evidence
justifying the receipts he submitted or explaining why the amount he claimed in
his 2004 tax return did not match the total figure from Exhibit A-2. This
expense, in my opinion, was properly disallowed.
Home Office and Other Business Expenses
[20]
There was no actual
breakdown provided by the appellant with respect to either the home office
expense or the other business expenses for either taxation year, nor were any
explanations or receipts provided, particularly regarding those expenses that
were personal in nature, for either of the taxation years in issue. A review of
the receipts submitted by the appellant at trial and during the CRA audit and
appeal processes shows that they clearly related to things of a personal nature
or that were not required by his employer. Not only do things such as DVD
movies, sunglasses, roses, and travel expenses for his mother clearly appear to
be personal in nature and not to be required by his employer, but the
appellant's explanations regarding them are not plausible.
[21]
The appellant is a
well-educated person with particular knowledge in the management of a business.
In addition, on a previous audit, he had been advised that expenses such as
haircuts, movies, CDs, basic monthly telephone costs and Internet costs were
personal expenses and not deductible. The discrepancies with regard to both
content and date in the various T2200 forms make the T2200s submitted by the
appellant, including Exhibit A-7 which he presented at the hearing, totally
unreliable. The appellant claimed expenses for supplies, telephone expenses and
Internet expenses, none of which he was required to incur by his employer and which
were clearly personal and living expenses; he did so knowing that he could not
claim those expenses or was indifferent as to whether he could or not, and he made
no effort to fulfil his obligations. The Minister properly assessed penalties
under subsection 163(2) of the Act.
[22]
The appeals are
dismissed.
Signed at Ottawa, Canada, this 22nd day of April 2010.
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