Citation: 2010TCC526
Date: 20101027
Docket: 2010-1715(IT)I
BETWEEN:
LOUISE TAYLOR,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
(Delivered orally from the
bench on October 6, 2010, in Toronto, Ontario.)
V.A. Miller, J.
[1]
The issue in this
appeal is whether the Minister of National Revenue (the “Minister”) was correct
to disallow the deduction of business expenses in the amount of $20,131 for the
2006 taxation year.
[2]
The Appellant operates
B & M Distribution Services (“B & M”) a sole proprietorship. B & M
is a distributor of cake boxes and cake boards.
[3]
The Appellant did not
appear at the hearing of this appeal. She was represented by Peter Davey who is
her bookkeeper. It was his evidence that he was hired by the Appellant in
August 2006. Prior to that time, the Appellant did her own books using the bank
statements and he had to start from scratch to produce the books. I gather from
the evidence that the Appellant started her business in 2005.
[4]
In 2006, the Appellant
claimed “purchase expenses” in the amount of $197,520. The Minister disallowed
“purchase expenses” of $14,771 on the basis that they were unsupported by
documentation. The amount of $1,813 was disallowed on the basis that it was a
duplicated entry in the Appellant’s books. The Minister also disallowed the
deduction of $392 which was claimed as an advertising expense but which was
actually the cost of the Appellant’s Christmas gift for her mother. Motor
vehicle and travel expenses in the amount of $2,085.45 and $934 respectively
were also disallowed.
[5]
Mr. Davey stated that
the only amounts which were now at issue were the following:
(a)
three invoices from
McNairn Packaging which totalled $3,169.87
(b)
five invoices from ERP
which totalled $7,542.07
(c)
the amount of $1,472.70
[6]
It was Mr. Davey’s
evidence that the Appellant often paid for some of her purchases by cash. She
gave a debit card to one of her suppliers who used the card to take the
purchase price of the goods out of the Appellant’s bank account. In doing so,
the supplier rounded up the amount he withdrew from the Appellant’s account. As
a result, the invoices do not always exactly match the withdrawals from the
bank account.
[7]
During the period, the
Appellant had two main suppliers, McNairn Packaging (“McNairn”) and Les Emballages
Rapide Plus B.L. Inc. (“ERP”).
The McNairn Invoices
[8]
The Minister disallowed
the following amounts which the Appellant had claimed as “purchase expenses”.
They were disallowed on the basis that the Appellant was not able to produce
invoices and proof of payment to show that the expenses were actually incurred.
|
Description
|
Amount
|
|
July inventory
purchases
|
$6,300
|
|
May inventory
purchases
|
2,900
|
|
June inventory
purchases
|
2,600
|
|
Cash purchases
|
1,500
|
|
|
1,472
|
[9]
Mr. Davey presented
three invoices from McNairn Packaging to B & M. The invoices showed that
the product purchased totalled $3,196.87 and it was paid for by a post-dated
cheque dated 30 days after the purchase. The product was shipped to the
Appellant on June 7 and 8. Exhibit A2, the Appellant’s bank statement for the
period ending July 31, 2006, showed that cheque #150 for the amount of
$3,169.87 was marked NSF on July 7. It was Mr. Davey’s evidence that these
invoices were paid by cash. He submitted exhibit A4 to support his evidence.
[10]
The problem that I have
with the Appellant’s position is that I do not know that the amount of
$3,196.87 forms part of the July inventory purchases. I have no evidence to
show that this amount of $3,196.87 was not already allowed by the Minister. The
invoices show that the inventory was purchased in June and not July. Exhibit A4
is a document that was produced by Mr. Davey for B & M. It bears the title,
Vendor Balance Detail, and it lists the amounts in the Accounts Payable to McNairn
Packaging and when and how these amounts were paid for the period May 5, 2006
to October 30, 2008. This exhibit shows that the amount of $3,169.88 was paid
by debit to McNairn on June 14, 2006. The date next to the invoices on exhibit
A4 is June 26, 2006.
[11]
There is no evidence
which allows me to conclude that the amount of these invoices is included in
the July inventory purchase which was disallowed. In fact, even Mr. Davey’s
testimony was not definitive. He stated that the amount of $3,196.87 may
be contained in the $6,300.00.
ERP Invoices
[12]
Exhibit A3 consists of
invoices for product purchased from ERP as follows:
March 9, 2006 $
583.70
May 2, 2006
2,129.17
May 24, 2006
1,722.04
August 16, 2006
2,826.71
January 25, 2007 280.45
It was Mr. Davey’s evidence that these were
amounts paid to ERP in cash for product purchased by the Appellant. According
to Mr. Davey, ERP had the Appellant’s debit card. He also submitted a letter
dated October 4, 2010, (exhibit A5), from ERP which confirmed that all invoices
from ERP to B & M have been paid.
[13]
I have reviewed exhibit
R-1 and I have concluded that the amounts of these invoices were not already
allowed by the Minister. In particular, at Tab 4 there is a letter from the
Appeals Officer who had carriage of this file. She listed the invoices which
have been submitted as exhibit A3 and she stated that “if these invoices are to
be considered in addition to the amount requested in the Notice of Objection,
please provide proof of payment for these invoice.” I have also concluded that
these were expenses incurred and paid by the Appellant in 2006.
The Amount of $1472
[14]
Mr. Davey stated that
there was a cheque for $1,560 on the Appellant’s books. The cheque was never
cashed and he reversed the amount. The amount of $1,471.70 was the amount of
the cheque less GST. When his client was being audited, the auditor disallowed
the amount of $1,471.70 as an unsubstantiated purchase.
[15]
Mr. Davey was unable to
produce any document to show that he had reversed the entry of the cheque. In
fact, he did not show me any document that would allow me to conclude that
there was such a cheque or that he had reversed any amounts.
[16]
The onus in an appeal
is on the Appellant to show that the Minister’s assessment is incorrect. In
this appeal, the Appellant, through her representative, has not given any
reliable proof to show that the amount of $1,472 represented a cheque that was
reversed in its books. The amount of $1,472 plus GST does not equate to the
amount of $1,560.
[17]
In conclusion, the appeal
is allowed and the Appellant is entitled to deduct expenses in the amount of
$7,261.62. I have not allowed a deduction for the amount of $280.45 as it was
an expense which was incurred in 2007.
Signed at Ottawa,
Canada, this 27th day of October 2010.
“V.A. Miller”
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