Citation: 2008TCC458
Date: 20080812
Docket: 2007-4273(IT)I
BETWEEN:
SHELAGH JEAN COOK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Margeson, J.
[1]
The appellant initially
filed a notice of appeal with respect to her 2001, 2002, 2003, 2004, 2005 and
2006 taxation years. At the beginning of the trial in all of these matters, the
respondent moved for dismissal of the appeals for the 2001, 2002 and 2004
taxation years and this motion was allowed.
[2]
An order dismissing
these appeals was signed on the 28th day of March 2008.
[3]
The hearing of the
appeals for the remaining years went ahead on March 5, 2008 and was concluded
on June 20, 2008.
[4]
The Minister conceded
that the appeal should be allowed with respect to legal fees in 2005 in the
amount of $3441.17 and the spousal amount of $7344.00 in computing her non-refundable
tax credits for the 2005 taxation year, pursuant to paragraph 118(1)(a)
of the Act.
[5]
That leaves for
decision the claim for deduction of the business expenses in 2005, the
non-refundable tax credit for mental or physical impairment, transferred from
spouse in 2003 and 2005 and the late filing penalty of $628.02 for the 2005
taxation year pursuant to sub-section 162(1) of the Act.
Evidence
[6]
John James Alexander
Cook said that the appellant was involved in a new type of marketing program
which went nowhere. It involved placing material on a disc and distributing it.
No revenue was received from it. It was his wife’s business but he tried to run
it. She was only claiming part of the expenses incurred and only for the year
2005.
[7]
His wife was claiming a
portion of the interest on the mortgage of their home. The amount being claimed
was $1151.88
[8]
In cross-examination he
said that they had a business plan (but he did not have it in Court), there
were no sales and there was no income earned. The idea was his, but his wife
provided the money. The expenses were paid by him including the telephone and
utilities of $131.21. These were not personal expenses.
[9]
With respect to the
expenses relative to the home, he did not have the receipts with him. The only
basis for saying that the expenses were those of the appellant was that it was
her money. She was not involved in the business.
[10]The
appellant did not testify, but the Minister agreed not to ask the Court to draw
any unfavourable inferences from her failure to testify in regard to the
disallowed expenses.
[11]The
witness was recalled after the adjournment to June 20, 2008. He said that he
ran in an election in January of 2006 as Jack Cook. He was a serious candidate.
He ran as an independent. He was opposing the other candidate and was also
testing a marketing concept.
[12]He
had materials for advertising. He had a D.V.D. which talked about his
background and negative statements about the other candidate.
[13]He
presented the cover of the D.V.D. into evidence as R2 and the D.V.D. as R1. It was
recorded in 2005 and was done professionally. 38,000 copies were produced. They
were mailed out to constituents through Canada Post. He also had a website.
[14]Exhibit
R3 was introduced. It was part of the website.
[15]He
had an official agent and was required to report to Elections Canada. These
were introduced as exhibit R4. The invoice of the official agent was for
$37,900.
[16]Exhibit
R5 was the invoice for $46,662.48 from Sprite Computers.
[17]He
agreed that at the hearing in March he had said that this was a business
receipt for marketing but agreed that this was used in the election campaign.
His explanation was that it was used as a marketing concept to show that it
could be used in an election campaign and it was successful. Then he said that
he was not asked about it in March.
[18]He
agreed that the receipts A-2 were presented in March as business receipts and
all except one were claimed as election expenses. The receipt for $66.87 to
Shoppers had nothing to do with the marketing business. The $18.83 claim for
work in the office was not in 2005 and should not have been used. The $5888.89
for Canada Post was an election expense and was not in 2005. The $2500 deposit
was for the campaign. Then he said that the expenses in 2006 were not claimed
in 2005.
[19]He
was referred to the statement of business activities, A3, and said that the $1151.88
amount for mortgage interest was for business only but he had no receipt. They
calculated it.
[20]The
amount of $2251.33 for interest was pro-rated. He had no receipt for the $131.21.
The $2739.40 listed as other expenses were campaign expenses. He did not know
what portion was for the campaign.
[21]The
total of these amounts was $22,000, plus or minus. He claimed $24,152.49
[22]He
claimed $2120.38 for business use of the house but he had no documents and no
breakdown. Then he said “we sent it in.” They sent the receipts in with the
disability tax certificate and they were not returned, according to him.
[23]The
disability tax certificate filed was not the original one that he sent in to the
Canada Revenue Agency.
[24]Exhibit
A4 was admitted by consent, subject to weight.
[25]With
respect to his mental disability, he said that his troubles started in 2003. He
was sleeping 20 hours per day, he lost over 30 pounds and had no interest in
life, his family of business. He showed outbursts towards his family. His wife
advised him to go to counselling. He went to see his doctor, then to another
doctor who assigned him to Dr. Wilson and met him several times.
[26]He
was given drugs for 2 years. These had some side effects. He felt like he was
in a bubble. By the latter part of 2005 he felt much better, but could only
deal with one issue. He was unable to multi-task anything. If anything was too
complicated, he walked away from it.
[27]He
hired a lawyer to take on his responsibilities. By 2005 he was off drugs and
doing better. He needed to do something and became more focused on life. He
“could not down load” small problems from his mind.
[28]At
first the drugs made him combative and angry. His blood pressure was up. He did
not improve until he got the second drug which was in about six months.
[29]By
the latter part of 2004 things started to change but “he did not know what it
was.”
[30]He
was involved in a business in 2003, the “Segway” business. In 2004 he started a
legal action in the British Columbia Supreme Court. He had counsel, he swore
affidavits, had a writ of summons issued in May of 2004 as well as a statement
of claim.
[31]He
swore an affidavit on February 7, 2005 which was introduced as Exhibit R-6.
[32]He
said that for 70% of the time, or all or almost all of the time, he was
affected. The latter part of 2003 and almost all of 2004 was the worst period
of his life.
[33]By
the mid part of 2005 he may have been able to conduct a business deal.
[34]He
reiterated that with respect to the business there were no sales. It did not
progress beyond the idea stage. They test drove the marketing idea, got no
sales but tried to get sales. The appellant had no involvement in the
business. The account was in his name. His wife financed it. The house and
mortgage were in her name.
Argument on
behalf of the Respondent
[35]Apart
from those points conceded, the remainder of the appeal should be dismissed. The
claim for the loss of $24,000 and other claimed expenses related to the D.V.D.
There was no income from it.
[36]With
respect to the expenses claimed in schedules D and E in the Reply, they should
be disallowed as there were no receipts and they were personal.
[37]The
evidence does not support the position that they were deductible. These expenses
related to his election campaign.
[38]Credibility
is an issue here. In March he said that the expenses were for the business and
in June he said that they were for the election campaign. The onus is on the
appellant. If there was a D.V.D. marketing business, it was the husband’s and
not the appellant’s.
[39]The
expenses were not for a business. It was his business. The evidence does not
support the position that it ever got off the ground. It was only at the idea
stage. The only marketing done was for his election campaign.
[40]There
was no other credible evidence to back up that of the husband regarding the
expenses. The burden has not been met. Apart from Exhibit A2 every other expense
was for the husband’s election campaign.
[41]There
are no receipts that add up to the amounts referred to in Schedule “D” in the
Reply.
[42]If
the Court finds that the appellant was in business in 2005 then late filing
penalties should be reduced by 6 weeks.
[43]The
RRSP amounts will be calculated based upon the results of the appeal, including
the fact that the legal expenses were allowed.
[44]With
respect to the disallowed disability tax credits, the appellant’s husband was
not markedly restricted in 2003 and 2005. Therefore his wife is not entitled to
the deduction.
[45]The
threshold is very high. It is rigorous. There is not much room to manoeuvre.
The burden has not been met. A certificate alone may not be enough.
[46]The
certificate does not speak to the year 2003. The doctor did not meet with the
husband until 2004. The doctor did not testify.
[47]The
husband did not suffer on a continuous basis for 12 months, according to his
evidence. His condition was up and down. He could function at times. He has not
met the requirements of paragraph 118.4(1)(a).
[48]Under
paragraph 118.4(1)(b) “all or substantially all of the time” is more
than 70% of the time. According to the husband, he suffered about 70% of the
time. There was no evidence given otherwise.
[49]The
evidence with respect to the year 2003 suggests that he was not impaired all or
substantially all of the time.
[50]With
respect to the Certificate, it should be given no weight for 2003. The year
2004 is not before this Court.
[51]With
respect to the year 2005, without the evidence of the doctor or his wife, his
evidence does not amount to very much at all.
[52]In
2005 he was good enough to do this marketing concept and was considering
running for public office.
[53]In
cases where the appeal was allowed, the situation was much different from here.
[54]Mr.
Cook’s impairment does not rise to the level of impairment established in the
cases where the appeal was allowed.
[55]The
husband’s condition was serious, but without more evidence to explain the
certificate and without his wife’s testimony, the onus has not been met.
[56]There
should be an unfavourable inference drawn because the wife did not testify
about his disability and none of his doctors testified.
[57]The
appeal should be dismissed.
Argument on
behalf of the appellant
[58]The
husband argued that there are many different levels of mental illness. Not only
one factor is involved. He did not file an appeal against a million dollar tax
case because he could not address the issue. The ability to perform the
functions of daily living was missing from his life.
[59]Further,
it is stressful for the appellant to be here. It should not be held against her.
[60]It
takes a while to establish income from a business. The primary purpose was to
establish a marketing concept, the campaign was secondary, to prove that the
product worked.
[61]The
respondent argued that the husband did not say that there was a campaign when
he testified in March. However, all of the receipts indicated that.
[62]It
was past the idea concept and was actually tested.
[63]There
were no documents presented with respect to the house, but any responsible
person would know that there are expenses and these receipts were sent.
[64]The
appellant’s primary argument is that the appellant financed the business.
[65]The
appeal should be allowed.
Analysis and
Decision
[66]The
Court is satisfied, that apart from the matters conceded by the Minister, the
burden is on the appellant to show on a balance of probabilities that the other
expenses claimed were business expenses in the year that they were claimed,
that they were expended and that they were not personal expenses. The evidence
given by the only witness called on behalf of the appellant falls far short of
meeting these requirements.
[67]The
receipts produced were inadequate in many respects but where they were indicative
of expenditures, they very clearly showed that they related to the personal
election campaign of the appellant’s husband, in many cases, and had nothing to
do with a business allegedly operated by the appellant.
[68]It
is clear from the evidence of the husband himself that he ran the operation
from the beginning to the end and the only part played by the appellant was in
“bankrolling” the husband’s adventure.
[69]The
husband’s own testimony showed clearly that he claimed many of the expenses as
part of his election campaign and the Court disagrees with the argument that
the expenses claimed could be for both the election and any business which the
husband claimed to operate.
[70]If
the appellant loaned money to the husband’s business there may very well have
been another avenue for her to claim these amounts, but it was not by claiming
to operate a business which she was clearly not doing.
[71]Counsel
for the respondent raised the issue of credibility in indicating that on the
first day of trial the husband was indicating that all of the expenses related
to business and on the second day of trial he said they were claimed as
election expenses. This gave the Court some concern when it heard his evidence
on the second day of trial and this concern was not alleviated by the husband’s
indication that they could be for both. The Court takes him to have meant that
if they had been allowed by the returning officer as election expenses, then
they would not have been claimed as business expenses.
[72]It
does appear to the Court that the attempt to claim these as business expenses
did not come about until the husband realized that he was not going to be
reimbursed for the expenses by the returning officer.
[73]Apart
from the unconvincing evidence of the husband, there was no credible evidence
that would entitle the Court to conclude that these claimed expenses were
deductible.
[74]The
Court agrees that there were no proper receipts which added up to the amounts
claimed in Schedules “D” and “E” of the reply.
[75]In
argument, the husband made light of the fact that the Minister was questioning
the claim for home expenses by saying that any responsible person would know
that these were expenses. However, this is not evidence which goes to
establishing what the expenses were for and what was their total.
[76]The
husband’s primary argument was that the appellant financed the operation.
However, that does not entitle her to claim that these expenses, which were
clearly those of her husband, were deductible by her as claimed here.
[77]With
respect to the claimed expenses, the Court is satisfied that except as to those
points conceded by the Minister, the appeal should be dismissed.
[78]With
respect to the disallowed disability tax credits, the Court is satisfied that
the evidence is insufficient to establish on a balance of probabilities that
the husband was “markedly restricted” in the years 2003 and 2005 in accordance
with the requirements of paragraph 118.4(1)(a) and 118.4(1)(b).
[79]The
points raised by Counsel for the respondent on these issues are well taken. The
husband’s evidence, when considered in toto, does not establish that he
suffered on “a continuous basis” during those years.
[80]Further,
his condition did not persist “all or substantially all of the time” as those
terms have come to be understood. The Court agrees that 70% of the time does
not meet the threshold.
[81]The
Court is not required to accept the certificate as being definitive on this
issue, particularly where, as here, the evidence given in Court runs contrary
to the opinion set our in the certificate.
[82]If
the person who signed the certificate had been able to elaborate on its
contents, that may have been sufficient, but he was not called.
[83]Further,
the appellant did not testify as to the husband’s condition and clearly her
evidence could have been significant in either corroborating the certificate or
calling its conclusion into question.
[84]Certainly,
the evidence given by the husband himself as to certain legal matters that he
attested to in the years in question would call into question whether he was as
incapacitated as both he and the certificate suggested.
[85]There
can be no doubt that the appellant had a serious mental impediment during part
of the years in question, but the evidence falls short of satisfying the Court
that he came within the narrow parameters of the provisions in question.
[86]In
the end result, the appeal is allowed with respect to the legal fees in 2005,
in the amount of $3441.17 and the spousal amount of $7344.00 in 2005. The
matter is remitted to the Minster for re-assessment and reconsideration, based
upon these findings.
[87]In
all other respects, the appeal is dismissed.
Signed at New Glasgow, Nova Scotia, this 12th
day of August 2008.
“T. E. Margeson”
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