Citation: 2009 TCC 615
Date: 20091211
Docket: 2008-3908(IT)I
BETWEEN:
EDWARD PYTEL,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Rip, C.J.
[1]
Edward Pytel has
appealed his 2005 income tax assessment on the basis that he is entitled to
deductions of expenses incurred in earning business income.
[2]
Mr. Pytel
described himself a "taper" working as an independent contractor. He
has had no business training. He has a grade 10 education and has attended
trade school.
[3]
Ed Tel Taping Ltd.
("Ed Tel") is a corporation in which Mr. Pytel is the sole
shareholder, director and officer. Mr. Pytel's evidence is that
Ed Tel subcontracts its business to him.
[4]
For the years prior to
2008, Mr. Pytel had engaged Big Red Income Tax Accounting
("Big Red") to prepare Ed Tel's financial statements and
income tax returns. Big Red also prepared Mr. Pytel's personal tax return
for 2005 and earlier taxation years.
[5]
Mr. Pytel's
personal tax return for 2005 was dated October 17, 2006 and was stamped
"Received" by the Canada Revenue Agency ("CRA") on
November 21, 2006. Mr. Pytel reported rental income of $6,961 and net
business income of $30,790; reported gross business income was $78,264. The
business income was from business carried on under the firm name Ed's Handyman
Services ("Ed's Handyman"), a sole proprietorship owned by
Mr. Pytel. Ed Tel reported business income of $4,331 for 2005.
[6]
A "T1 Adjustment
Request", dated October 27, 2006, (and stamped November 5, 2007
by the CRA Winnipeg Tax Centre) and purportedly signed by Mr. Pytel
requested that his net business income for 2005 be increased to $78,600 from
$30,790.
[7]
A Statement of Business
Activities of Ed's Handyman was attached to Mr. Pytel's Adjustment Request.
Mr. Pytel reported gross income of $78,600; there was no cost of goods sold.
Gross profit was $78,600. No expenses were claimed since "all expenses
have been paid by my corporation." Thus his requested net business income for
2005 was $78,600, according to the Adjustment Request. This is in contrast to
the Statement of Business Activities for 2005 included as part of his 2005 tax
return where he reported gross income of $77,264, cost of goods sold of
$24,346.31 for a gross profit of $53,917.69. Expenses were $21,210.71. The net
income of $32,706.98 was reduced by $1,917.39 for business use of home
expenses. Mr. Pytel's net income from business was $30,790, according to
his tax return for 2005.
[8]
Also attached to the
Adjustment Request under the heading "Ed Tel Taping Ltd., Subcontract
(Edward Pytel) January through December 2005", are two lists of
subcontracts to Ed's Handyman. One list, which I assume was originally prepared
for Ed Tel, reflects the following:
|
Income
|
|
174,895.97
|
|
Cost of Goods
Sold
|
|
|
|
Subcontractors
|
122,008.77
|
|
|
Supplies
& Materials
|
26,955.88
|
|
|
Total COGS
|
|
148,964.65
|
|
|
|
|
|
Gross Profit
|
|
25,931.32
|
|
Various
Expenses
|
|
21,600.39
|
|
|
|
4,330.93
|
[9]
The second list, noted
as a Revised List, provides as follows:
Income
|
|
174,895.97
|
|
Cost of Goods
Sold
|
|
|
|
Subcontractors
|
43,408.77
|
|
|
Supplies
& Materials
|
26,955.88
|
|
|
Total COGS
|
70,364.65
|
|
|
|
|
|
|
Gross Profit
|
|
104,531.22
|
|
Expenses
|
|
|
|
Subcontractor Ed's Handyman
|
78,600.00
|
|
|
Other
expenses
|
21,600.39
|
|
|
|
|
100,200.39
|
|
Net Income
|
|
4,330.93
|
[10]
The Adjustment Request sought
to increase Mr. Pytel's income by $336 (to $78,600) and delete all the
business expenses claimed in Mr. Pytel's Statement of Business Activities
filed with his 2005 tax return. (These expenses ought to have been added to the
expenses of Ed Tel but were not.)
[11]
The CRA reassessed
Mr. Pytel for 2005 in accordance with the information contained in the
Adjustment Request. As stated above, no mirror reassessment was issued to
Ed Tel.
[12]
Mr. Pytel
testified that he did not authorize the Adjustment Request and that he did not
know about the existence of the Request until 2007. He said he signed whatever
his accountant put in front of him. However, his evidence is that the signature
on the Adjustment Request "is not mine". I note that there is a
significant difference in the purported signature of Mr. Pytel certifying
the information in his 2005 tax return and that on the Adjustment Request.
[13]
Ed's Handyman "looks
after" rental property owned by Mr. Pytel. Most of the money
Mr. Pytel lives on comes from rental property. The relationship between
Ed Tel and Ed's Handyman is blurred. At one point Mr. Pytel seemed to
suggest that Ed's Handyman pays all expenses incurred by Ed Tel. Later on,
in cross‑examination, Mr. Pytel explained that money from the
corporation "goes into" Ed's Handyman and, from this money, Ed's Handyman
pays all the expenses, including the expenses for Ed Tel. After
Ed Tel pays all the bills, any money left over is loaned to
Mr. Pytel. Ed Tel and Mr. Pytel have separate bank accounts.
[14]
Mr. Pytel stated
that he relied on his accountant in filing his personal tax return and the
corporate tax return for 2005.
[15]
No records are kept by
Mr. Pytel. He issues bills and receives receipts. It appears that the
bills and receipts are put on files, one monthly file for each of Ed Tel,
Ed's Handyman and Mr. Pytel personally. The files are put in a box and at
the end of the year are given to the accountant to sort out.
[16]
Crown counsel asked
Mr. Pytel that if Ed Tel incurred expenses, would it be for taping or
Handyman services? Mr. Pytel answered that he had no idea. He assumed the
accountant knew what belonged where.
[17]
"Big Red Income
Tax Accounting" is the trade name of an Alberta
numbered company, the shares of which are owned by David Patterson.
Mr. Patterson has worked as a bookkeeper and accountant since the 1980s.
He has no accounting designation. He prepared the 2005 tax returns for
Mr. Pytel and Ed Tel. Mr. Patterson keeps copies of tax returns
but no other documents.
[18]
Mr. Patterson
explained that he prepared the Adjustment Request because he thought it would
be better if the expenses originally claimed by Mr. Pytel be placed in the
corporation's return. He said he did all the writing on the Request. It is not
clear if this included the purported signature of Mr. Pytel. However,
while he prepared the adjustment request for Mr. Pytel, he did not prepare
the corporate return to reflect the adjustment that was requested to
Mr. Pytel's return.
[19]
The tax return for
Mr. Pytel was dated October 17, 2006. The corporate tax return was
prepared on October 16. The Adjustment Request was made on
October 27.
[20]
Big Red invoiced
Mr. Pytel for preparation of the tax returns on October 17, 2006. The
invoiced amounts were $1,249.95 for the corporation and $298.90 for
Mr. Pytel. Mr. Pytel attended the office on October 27 to pay
and left a cheque for $1,000, which was accepted as payment in full. The
Adjustment Request is dated the same day Mr. Pytel settled the account.
[21]
Mr. Patterson now
admits that the Adjustment Request was sent in error. He says the expenses
should have remained with the proprietorship, Ed's Handyman. Mr. Patterson
could not recall the reason for the request; it may have been sent in error.
[22]
Wendy Stasiuk, an
appeals officer with the CRA, testified that notwithstanding requests to
Mr. Pytel and his agent, Mr. Kwok, for documents to establish that
the expenses were incurred by Ed's Handyman, that is, Mr. Pytel personally,
nothing was received. She was instructed by the Winnipeg Office of the CRA "to
take the expenses out as per request for revision".
[23]
Mr. Pytel appears
to be an excitable individual. The courtroom is not familiar territory to
Mr. Pytel and he was no doubt nervous in that setting. He resented being
questioned on cross‑examination. He was wary of the questions asked him.
He was explained that cross‑examination is a normal step in the trial
process. He continued to be suspicious of the process in which he found himself
an unwilling participant. He did nothing wrong — he relied on an
accountant — and was in a battle he had difficulty comprehending.
[24]
The issue before me is
not whether Mr. Pytel authorized or was even aware of the Adjustment
Request. The appeal does not rise or follow from this matter. What I must
decide is whether the assessment before me is a good assessment. In assessing
in the manner he did, was the Minister correct in not allowing any deductions
to Mr. Pytel in determining his business income? The issue before me, then,
is who incurred the cost of goods sold of $24,346 and the expenses of $21,211
in the course of carrying on a business originally claimed by Mr. Pytel in
his 2005 tax return, he or Ed Tel?
[25]
It is obvious that had
the Adjustment Request not been filed with the CRA, it is very unlikely the reassessment
subject in this appeal would exist. The CRA would have been content with
Mr. Pytel's tax return for 2005, as filed. The filing of the Adjustment
Request opened up a can of worms insofar as Mr. Pytel is concerned. When
the CRA received the Adjustment Request, it apparently considered it as
legitimate and assessed accordingly. After Mr. Pytel filed an objection,
the CRA asked for evidence supporting Mr. Pytel's position. Since neither
he nor his former accountant retained any records of business activity in 2005,
CRA confirmed the assessment. The Adjustment Request and documentation attached
to it are relevant because the Minister reassessed Mr. Pytel based on the
information contained in that material.
[26]
Now my job is to
determine if the assessment is proper.
[27]
If Mr. Pytel was a
subcontractor, would it be reasonable for him to carry on business without any
expenses? The CRA obviously believes this can be so. However, the CRA was
simply acting on the Adjustment Request and could not secure any documentation
from the appellant to prove one way or another who incurred the expenses.
[28]
The problem officials
of the CRA may have had, as I had, is that Mr. Pytel could not separate
himself from Ed Tel, a corporate entity. This complicated even the
simplest question. In his view there is no difference between Ed Tel and
him. He stated that his accountant told him " … well, there's money in
this pocket … who does it belong to? They're both your pockets is the way he
explained it to me."
[29]
Again, for example, when
I asked Mr. Pytel who was carrying on the taping business, he or
Ed Tel, he replied it made no difference but thought it was his own
personal business.
[30]
Mr. Pytel's
personality combined with him finding himself in unknown surroundings
contributed to him leaving the trial during respondent counsel's argument. I
had directed respondent's counsel to proceed first in argument to afford
Mr. Pytel an opportunity to hear the Crown's position so that he could
comment fully on the Crown's case in his submissions. He appeared reluctant to
make any submissions. In the course of respondent's counsel's argument
Mr. Pytel objected strenuously to counsel's suggestion that he was not a
subcontractor and after a second interruption left the courtroom:
JUSTICE RIP: So
if Ed's Handyman is carrying on business itself and you would have been allowed
the expenses, would you not?
MR. PERLINSKI: If
it was carrying on business itself, it would be entitled to those expenses,
yes.
JUSTICE RIP: And
here there's documents showing that he was a subcontractor.
MR. PERLINSKI: He's
also stated today that he wasn't a subcontractor, that it was just his business
through and through.
JUSTICE RIP: Yes.
Well, that's what I'm saying. What I'm saying is I could go either way.
MR. PERLINSKI: I'm
aware of that, sir.
MR. PYTEL: If
I'm not a subcontractor, what the hell am I?
JUSTICE RIP: Mr.
Pytel. Mr. Pytel, you don't say anything at this point. This is not an argument,
this is representation. Each party shows a courtesy to the other party. I'll
ask all questions, but not to you at this point; do you understand, Mr. Pytel?
MR. PYTEL: Well,
if I'm going to hear something like, well, Mr. Pytel is not a subcontractor --
JUSTICE RIP: Listen,
this is their position, okay. This is their position, and each party is
permitted or has to give what its position is without any argument from the
other until you are called upon. When you are called upon, you could give me your
position. Go ahead.
MR. PERLINSKI: Sorry.
JUSTICE RIP: Do
you understand what I'm saying?
MR. PERLINSKI:
I do understand that, sir, and it's you do have to understand my position
though, is put the Minister's best foot forward in argument.
JUSTICE RIP: I
realize that. I realize that.
MR. PERLINSKI:
And I realize –
MR. PYTEL: Yes.
And you have --
JUSTICE RIP:
Okay. Mr. Pytel, one more word out of you and you're going to have to leave
the room. I'm not asking you to leave the room, but you have to listen
courteously. Show to the record that Mr. Pytel has left the court.
(MR. PYTEL EXITS
THE COURTROOM)
MR. PERLINSKI:
I would still ask that it not work against him, if the Court still feels it's
in his favour then to --
JUSTICE RIP: Well,
I'm asking you questions, and I don't know, the door is open. I don't know if
Mr. Pytel is listening or not. I think the whole thing is Mr. Pytel is a very
excitable person, I got that impression.
MR. PERLINSKI:
Antagonistic is the word that I thought was well-chosen by his accountant.
JUSTICE RIP:
And the problem is, I don't know what's happening here. I know what your
position is, I know what his position is.
MR. PERLINSKI: Well,
the problem today, sir, and it's -- it really comes down to a horrendous lack
of evidence. A horrendous lack of explanations.
JUSTICE RIP: On
both sides.
MR. PERLINSKI: On both sides. …
[31]
I instructed the
Registrar of the Court to send a copy of the transcript of Crown counsel's
argument to Mr. Pytel and inform him that if he wished to make any
representation or comments to me to do so by November 22, 2009. This was
done on October 22, 2009. Mr. Pytel has not contacted the Court.
Nevertheless, he had testified before his exit from the courtroom and did
produce documentary evidence in the form of his 2005 tax return.
[32]
Mr. Pytel is an
unsophisticated appellant who is unfamiliar with the Court process. However, he
ought to realize that if he leaves a courtroom during proceedings and does not
return, he is jeopardizing his case. While Mr. Pytel may not have had
anything to say at the start of argument, he may have heard something in the
Crown's argument that, given an opportunity to respond, may have helped him.
[33]
This is an appeal
launched by Mr. Pytel. He chose to leave the courtroom prematurely. He has
not acknowledged the attempt by the Court to give him an opportunity to respond
to Crown's argument. It may be argued, and it was not, that he has abandoned
his appeal. Such an argument may find support in Brassington v. Brassington,
[1961] 3 All E.R. 988, discussed in R. v. Swartz, [1977] M.J.
No. 28 (QL), [1977] 2 W.W.R. 751, 34 C.C.C. (2d) 477, that only
in exceptional circumstances should relief be open to litigants who voluntarily
leave the field before the battle is over. Based on Mr. Pytel's background
and lack of experience, however, I would not accept this argument.
[34]
Mr. Pytel is
asking that he be assessed according to the information contained in his tax
return for 2005, that he carried on business and incurred the expenses disallowed
by the CRA. On the other hand, the CRA reassessed Mr. Pytel based on information
contained in the Adjustment Request. Neither party offered any corroborative
evidence. However, because he has the onus of proof, this was Mr. Pytel's job.
In any event, as respondent's counsel stated, there was a "horrendous lack
of evidence … on both sides".
[35]
At the end of the day
there are only two documents on which I can rely, the 2005 income tax return
and attachments and the Adjustment Request and attachments. The testimony of
Mr. Pytel basically was that he collected his invoices and receipts and
gave them to his accountant to prepare the 2005 tax return, he relied on his
accountant and signed whatever his accountant put before him, including the 2005
tax return. The Crown's reason for reassessing in the manner it did is that it
received no proof the information in the Adjustment Request was wrong. It can
also be said that the Crown received no proof that the information in the tax
return was wrong. Very simply, the CRA received nothing from the taxpayer or
his representative notwithstanding the CRA's request. The reason, as
Mr. Patterson indicated, was that he retained only income tax returns and no
additional information existed.
[36]
In such circumstances,
the CRA could have relied on the assessment, which was based on the information
in the tax return, which served as the basis of the original assessment, as
much as on the information in the Adjustment Request. It relied on the latter;
the CRA may have been influenced by the fact that the latter increased
Mr. Pytel's tax for 2005.
[37]
I prefer to rely on the
information contained in the tax return. This was a document actually signed by
Mr. Pytel. The information on the statement of Business Activities included
with the 2005 tax return coupled with Mr. Pytel's evidence that he
personally carried on a taping business, suggests that he indeed carried on a
business. The relationship between him and Ed Tel is confused and blurred,
if not mysterious.
[38]
There was no evidence
or suggestion on the part of the Crown that Mr. Pytel was an employee of
Ed Tel and that could be a reason Ed Tel absorbed all the expenses.
If Mr. Pytel carried on business, as I mentioned earlier, then he
reasonably could be expected to have incurred expenses, expenses listed in the
Statement of Business Activities attached to his 2005 tax return.
[39]
On the balance of
probabilities, Mr. Pytel was a subcontractor to Ed Tel and, as such,
carried on business on his own account and the expenses purportedly
"transferred" to Ed Tel in the Adjustment Request should remain
with Mr. Pytel.
[40]
The appeal will be
allowed accordingly.
[41]
I wish to add several
words to these reasons.
[42]
The vast majority of
informal appellants in this Court act for themselves or are represented by
persons without any legal background. This, the Tax Court has in common with
all other Canadian courts. Employees of the Tax Court try to assist the
appellants and prospective appellants in getting their appeal to trial. The
Court has produced a video describing the conduct of an appeal. Judges try to
help the taxpayers subject to their limits of judicial impartiality.
Nevertheless taxpayers and their lay representatives are often intimidated by
the process and are unable to fully prosecute the appeals. This is what
happened here.
[43]
I am informed that the
Legal Aid programs of the provinces do not provide assistance to taxpayers who
cannot afford legal representation in income tax appeals. The rationale, I
could only guess, is that if a person has a tax problem, the person must have
money. There are appeals before the Court that are family related matters, such
as Canada Child Tax benefits, and if disputed before a Family Court judge, may
entitle the parties to legal aid. There are also appeals claiming medical
expenses, Unemployment Income benefits, Canada Pension Plan benefits, among
others, that impact upon low income persons.
[44]
A need for taxpayers to
be better prepared for their appeals before this Court is obvious. Legal Aid
programs must consider extending their assistance to taxpayers, notwithstanding
current budgeting issues. Dealing with a government bureaucracy, the CRA, for
example, and then with a court is very stressful even on the most experienced
persons. Unjust tax assessments may cause strain on the family relationship and
ought to be challenged with public support when appropriate. Law firms and law
schools also have the capacity to help.
[45]
Law firms could
contribute in solving this problem by having its lawyers assist low income
taxpayers "pro bono". Law schools may encourage students
interested in tax and in litigation to have programs offering assistance to
taxpayers contesting an assessment. This would sensitize potential tax lawyers to
the fact that there are low income taxpayers with real tax problems and these
taxpayers require legal assistance, notwithstanding the amount of tax or that
their problem is not one of sophisticated tax planning. The Court would be
happy to co‑operate with firms and law schools interested in assisting
low income tax appellants.
Signed at Ottawa, Canada, this 11th
day of December 2009.
"Gerald J. Rip"
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