Citation: 2007TCC696
Date: 20071121
Docket: 2006-1933(IT)I
BETWEEN:
PHILIP ZEPOTOCZNY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1] The Appellant, a commissioned salesman
employed by Jim Peplinski’s Lease Master, a division of Humberview Motors Inc.
(“Lease Master”), has appealed the reassessment of his 2003 taxation year on
the basis that he is entitled to deduct the following disallowed expenses:
|
EXPENSE
|
CLAIMED
|
ALLOWED
|
DISALLOWED
|
|
|
|
|
|
|
Motor vehicle
|
$ 5,299.00
|
$ 0
|
$ 5,299.00
|
|
Meals & entertainment
|
3,522.00
|
861.30
|
2,660.70
|
|
Accounting & legal
|
1,177.00
|
1,177.00
|
0
|
|
Advertising & promotion
|
1,413.00
|
365.25
|
1,047.75
|
|
Office expenses
|
1,775.00
|
0
|
1,775.00
|
|
Convention & trade shows
|
1,763.00
|
0
|
1,763.00
|
|
Salary to assistant
|
25,720.35
|
0
|
25,720.35
|
|
Telecommunications
|
897.83
|
0
|
897.83
|
|
Work space in the home
|
737.00
|
0
|
737.00
|
|
TOTAL
|
$42,304.18
|
$2,403.55
|
$39,900.63
|
[2] The provisions of the Income Tax Act
which are relevant to this appeal are as follows:
8. (1) Deductions
allowed -- In computing a taxpayer's income for a taxation year from an
office or employment, there may be deducted such of the following amounts as
are wholly applicable to that source or such part of the following amounts as
may reasonably be regarded as applicable thereto:
(f) sales
expenses [of commission employee] -- where the taxpayer was employed in the
year in connection with the selling of property or negotiating of contracts for
the taxpayer's employer, and
(i) under the contract of employment was required to pay
the taxpayer's own expenses,
(ii) was ordinarily required to carry on the duties of the
employment away from the employer's place of business,
(iii) was remunerated in whole or part by commissions or
other similar amounts fixed by reference to the volume of the sales made or the
contracts negotiated, and
(iv) was not in receipt of an allowance for travel
expenses in respect of the taxation year that was, by virtue of subparagraph
6(1)(b)(v), not included in computing the taxpayer's income,
amounts
expended by the taxpayer in the year for the purpose of earning the income from
the employment (not exceeding the commissions or other similar amounts referred
to in subparagraph (iii) and received by the taxpayer in the year) to the
extent that such amounts were not
(v) outlays, losses or replacements of capital or payments
on account of capital, except as described in paragraph (j),
(vi) outlays or expenses that would, by virtue of
paragraph 18(1)(l), not be deductible in computing the taxpayer's income for
the year if the employment were a business carried on by the taxpayer, or
(vii) amounts the payment of which reduced the amount that
would otherwise be included in computing the taxpayer's income for the year
because of paragraph 6(1)(e);
(2) General
limitation -- Except as permitted by this section, no deductions shall
be made in computing a taxpayer's income for a taxation year from an office or
employment. (emphasis added)
10) Certificate
of employer -- An amount otherwise deductible for a taxation year under
paragraph (1)(c), (f), (h) or (h.1) or subparagraph (1)(i)(ii) or (iii) by a
taxpayer shall not be deducted unless a prescribed form, signed by the
taxpayer's employer certifying that the conditions set out in the applicable
provision were met in the year in respect of the taxpayer, is filed with the
taxpayer's return of income for the year. (emphasis added)
[3] According to the contract that the
Appellant signed with Lease Master, in 2003 the Appellant received a company
car; a $100 monthly allowance for gasoline; reimbursement for any additional
business travel expenses that had been pre-approved; and a $50 monthly
allowance for a celluar telephone. The Appellant had to submit receipts with
his claim for these expenses. As well, the Appellant requested and received a
“Promotion and Advertising Budget” in the amount of $5,450.
[4] The Appellant’s T-4 for 2003 included an
automobile benefit in the amount of $3,933.12. The Appellant filed a form T2200
dated March 12, 2004 with his income tax return for the 2003 taxation year. In
the form the Appellant’s employer indicated that the Appellant:
a) had to pay his own expenses;
b) was required to work away from his place of
business;
c) received an allowance of $1,800;
d) received a repayment of the expenses he paid
to earn employment income;
e) was required to pay
for gas, phone, entertainment and stationery beyond the amount allowed in his
contract;
f) was not required to
use a portion of his home as an office;
g) was not required to
pay for an assistant;
h) was not required to
pay for supplies that he used directly in his work; and
i) would not be
repaid for any of the expenses he incurred in paragraphs f, g and h.
[5] The Appellant was issued a Notice of
Reassessment dated October 3, 2005 wherein he was advised that the Minister of
National Revenue (the “Minister”) had reassessed his 2003 income tax liability
to disallow expenses claimed in the amount of $39,900.63. On October 11, 2005,
the Appellant sent the Minister a new T2200 for the 2003 taxation year.
According to this new form the Appellant was required to use a portion of his
home as an office, to pay for an assistant and to pay for supplies that he used
directly in his work.
[6] Clearly the two forms conflict and the
issue becomes whether I accept the second form as representing the true state
of affairs. I am mindful of Chief Justice Bowman’s comments on credibility in
the decision of Faulkner v. M.N.R., 2006 TCC 239 where he stated
the following:
[13]
Where questions of credibility are concerned, I think it is
important that judges not be too quick on the draw. In 1084767 Ontario Inc.
(c.o.b. Celluland) v. Canada, [2002] T.C.J. No. 227 (QL), I said
this:
8
The evidence of the two witnesses is diametrically
opposed. I reserved judgment because I do not think findings of credibility
should be made lightly or, generally speaking, given in oral judgments from the
bench. The power and obligation that a trial judge has to assess credibility is
one of the heaviest responsibilities that a judge has. It is a responsibility
that should be exercised with care and reflection because an adverse finding of
credibility implies that someone is lying under oath. It is a power that should
not be misused as an excuse for expeditiously getting rid of a case. The
responsibility that rests on a trial judge to exercise extreme care in making
findings of credibility is particularly onerous when one considers that a
finding of credibility is virtually unappealable.
[14]
I continue to be of the view that as judges we owe it to the
people who appear before us to be careful about findings of credibility and not
be too ready to shoot from the hip. Studies that I have seen indicate that
judges are no better than any one else at accurately making findings of
credibility. We do not have a corner on the sort of perceptiveness and acuity
that makes us better than other people who have been tested such as
psychologists, psychiatrists or lay people. Since it is part of our job to make
findings of credibility, we should at least approach the task with a measure of
humility and recognition of our own fallibility. I know that appellate courts
state that they should show deference to findings of fact by trial judges
because they have had the opportunity to observe the demeanour of the witness
in the box. Well, I have seen some accomplished liars who will look you
straight in the eye and come out with the most blatant falsehoods in a
confident, forthright and frank way, whereas there are honest witnesses who
will avoid eye contact, stammer, hesitate, contradict themselves and end up
with their evidence in a complete shambles. Yet some judges seem to believe
that they can instantly distinguish truth from falsehood and rap out a judgment
from the bench based on credibility. The simple fact of the matter is that
judges, faced with conflicting testimony, probably have no better than a 50/50
chance of getting it right and probably less than that when their finding is
based on no more than a visceral reaction to a witness. Moreover, it is
essential that if an adverse finding of credibility is made the reasons for it
be articulated
[7] I have given absolutely no weight to the
second form T2200 submitted by the Appellant. My reasons are as follows:
(a) The form was only prepared after the
Appellant had been reassessed and the expenses were disallowed. As such the motive
for preparing the second form is suspect.
(b) The Appellant stated that Peter Opar who
signed both forms had been mistaken when he filled out the initial form. Yet
the Appellant did not call Peter Opar as a witness.
(c) The Appellant stated that he has two sons and
in 2003 neither son had a job. He created a job as his assistant for his son,
Tyler. He stated that he did this without going to management and this was the
reason Peter Opar filled out the first form as he did. These statements are
totally implausible as the documentary evidence disclosed that throughout 2003
Tyler Zepotoczny was an employee of Lease Master on a full-time basis. According
to the T4 issued by Lease Master to Tyler Zepotoczny, his salary in 2003 was
$38,306.10.
(d) The Appellant had an assistant who was employed
by Lease Master. The Appellant stated that his assistant’s first name was
Belinda.
[8] As a result, in
accordance with subsection 8(10) of the Act and the T2200 that the
Appellant filed with his income tax return, the Appellant is not entitled to
deduct expenses related to office supplies, work space in the home and salary
to an assistant.
[9] The Appellant was provided a company car
and was given a monthly allowance of $100 for the cost of gasoline. It is noted
that according to his contract, the Appellant had to submit receipts to his
employer in order to obtain the gasoline allowance. The Appellant said he was not
fully reimbursed for his gasoline expenses; however, he gave no receipts and no
evidence as to the amount he spent for gasoline that was not reimbursed. It was
also the Appellant’s evidence that he paid for the insurance on the company
car. However, he did not have any documents to support his statement. The
Appellant’s contract stated that the insurance on the company car would be paid
in accordance with the “Demo Policy”. I infer from this that if the Appellant
had to pay for the insurance he could very easily have tendered the “Demo
Policy” as an exhibit.
[10] The Appellant claimed meals and
entertainment expenses in the amount of $3,522.00. His claim was allowed for
the amount of $1,722.57. Only 50% of the $1,722.57 is deductible in accordance
with subsection 67.1(1) of the Act. The Appellant did not tender any
documents at trial to support the balance of his claim in the amount of
$1,799.43. The Respondent tendered some of the receipts that the Appellant had
given to the Canada Revenue Agency (“CRA”). The receipts showed that the
Appellant had claimed the same expense twice (the restaurant receipt and the
credit card statement); the cost of a staff birthday party; the cost of a
luncheon for the Information Technology Section of his office; the cost of his
personal lunch and costs of meals delivered to his home. These receipts did not
total $1,799.43 and the expenses submitted were not incurred to earn employment
income.
[11] The Appellant claimed the cost of purchases
from the Liquor Control Board of Ontario (“LCBO”). These purchases were not
explained by the Appellant and the Reply to the Notice of Appeal lists some of
the purchases as relating to team building, an open house at the Appellant’s
residence and beer for the son’s birthday party. I have already noted that the
Appellant received a Promotion and Advertising Budget in the amount of $5,450
from Lease Master. Consequently, I find that the amount of $1,047.75 was not
incurred to earn employment income.
[12] The Appellant’s evidence confirmed the
assumptions in paragraph 6(u) to (z) of the Reply to Notice of Appeal which
were that the expenses in the amount of $1,763 claimed by the Appellant were
for additional costs incurred while he and his wife were on a cruise that was
paid for by his employer. The expenses claimed included the cost of a
limousine to and from his home and the airport, credit card expenses while on
the ship for gifts, drinks, taxis to and from the ship and the beach, tips and
souvenirs for his son and his assistant. These expenses were not incurred to
earn employment income.
[13] The Appellant was given a monthly allowance
of $50 to pay for his telecommunications expenses. He stated that he incurred
more than the $600 allowance and yet when asked for the telephone bills to support
his statement, the Appellant tendered the bills belonging to his son, Tyler
Zepotoczny who also worked at Lease Master National.
[14] The Appellant was totally unprepared for
the hearing of his appeal. He presented no relevant documents to support his
appeal and much of his testimony was contradicted by documentary evidence
presented by the Respondent. In a situation such as this where I have found
that there were a series of excessive or implausible claims made by the
Appellant, there is a shadow cast on all of the Appellant’s evidence (Chrabalowski
v. Canada, [2004] T.C.J. No. 488).
[15] I have reviewed all of the evidence and I
find that the Appellant has not demonstrated that the Minister was in error in
disallowing the claimed deductions.
[16] The appeal is dismissed.
Signed at Edmonton, Alberta this 21st day
of November, 2007.
“V.A. Miller”
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