Docket: 2008-315(IT)I
BETWEEN:
MATHIEU CHAMBERLAND,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
[OFFICIAL ENGLISH TRANSLATION]
Appeal heard October 31, 2008, at Montreal,
Quebec.
Before: The Honourable
Justice François Angers
Appearances:
|
Agent for the Appellant:
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Serge Cloutier
|
|
Counsel for the Respondent:
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Annick Provencher
|
____________________________________________________________________
JUDGMENT
The appeals from assessments
established under the Income Tax Act for the 2002 and 2003 taxation
years are dismissed, in accordance with the attached reasons for judgment.
Signed at Montreal, Quebec, this 21st day
of November 2008.
"François Angers"
Translation certified true
on this 9th day of
January 2009.
Elizabeth Tan,
Translator
Citation: 2008 TCC 625
Date: 20081121
Docket: 2008-315(IT)I
BETWEEN:
MATHIEU CHAMBERLAND,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Angers J.
[1]
The Appellant is
appealing from two assessments established by the Minister of National Revenue
(the Minister) under the Income Tax Act (the Act) for his 2002 and 2003
taxation years. The Minister had determined the deduction claimed by the
Appellant for "other employment expenses" when calculating his income
for the 2002 taxation year to be zero, disallowed the net business loss claimed
by the Appellant for the 2003 taxation year, and revised the claim to add a net
business income of $1,585. The Minister also established a gross negligence
penalty for the two years in question, for $1,107 and $1,096.62, respectively,
pursuant to subsection 163(2) of the Act.
[2]
In his income tax
return for the 2002 taxation year, the Appellant claimed employment income of
$33,587.06 from two distinct employers, CNC Solstice Inc. for
$23,810.06 and Location Snap Shots Inc. (Snap Shots) for $9,777. He
also received $874 in employment-insurance benefits. Employment expenses deducted
by the Appellant totalled $13,189 and related to his job at Snap Shots. The
Appellant received travel expenses from Snap Shots, calculated according at a
rate of $0.35 per kilometre when he had to travel and for the 2002 taxation
year, he received $841.15 from Snap Shots.
[3]
Ms. Carole Pitre
from Snap Shots provided the Appellant with a T2200 form for his tax report, in
which she acknowledged paying him $0.35 a kilometre for $841.15. She also
confirmed that in accordance with his employment conditions, the Appellant did
not pay any other expense. It was not a full-time job but a regular job, at one
or two services per week. All the tools required to complete his work were
provided to him, and since it was work that was carried out mainly on movie
sets, he was fed, considering the hours were from 5 to 13 hours per day.
[4]
The employment expenses
deducted by the Appellant consist of legal and accounting fees for $546.37,
meals and entertainment expenses ($4,950 x 50%) for $2,475, travel fees for
$575, parking fees for $120 and expenses for his vehicle for $9,473. The
Appellant allegedly drove 24,402 kilometres for the purpose of earning income,
from a total of 25,138 kilometres.
[5]
In his income tax
return for the 2003 taxation year, the Appellant claimed employment income of
$22,381.96 from his employer CNC Solstice Inc. and employment insurance
benefits of $4,543. Under the heading "business income," he deducted
a loss of $14,424.14. His gross business income was $1,585 and his
business expenses were $16,009.14, distributed as follows:
|
|
$
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net purchases
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2,365.70
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insurance
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215.00
|
|
maintenance and repairs
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526.38
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|
management and administration fees
|
125.00
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|
meals and entertainment expenses
($4,950 x 50%)
|
2,475.00
|
|
expenses for vehicles
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3,122.60
|
|
office costs
|
235.44
|
|
accounting, legal and other fees
|
546.37
|
|
travel costs
|
135.00
|
|
telephone and public services
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928.65
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|
CCA
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5,334.00
|
|
|
16,009.14
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[6]
The Appellant drove
25,236 kilometres for the purpose of earning income, which corresponds to
his total mileage from 2003.
[7]
The Minister disallowed
all expenses following an audit. The business expenses were disallowed on the
ground that they were not paid for the purpose of earning business income. As
for the employment expenses, they were disallowed because the Appellant did not
show they were incurred to gain employment income. The Appellant never sent the
documentary evidence or anything to the auditor, claiming he kept it all at the
family cottage and there had been a burglary. In December 2005, he was asked to
produce a copy of the police report from the burglary and he told the auditor
that only a few things were taken and it had not been reported to the police or
the insurer.
[8]
The Appellant is a
trained gunsmith, driller and blaster. In his testimony he explained that he
could not present any documentary evidence because there had been water damage
in the basement of his cottage after Easter in 2004, and a briefcase with
important documents such as his general ledger disappeared after his garage was
broken into on May 7, 2004. A list of the stolen items was submitted. As for
the water damage, no claim was filed with the insurer.
[9]
In 2002, the Appellant
decided to start his own business. He also stated that he travelled around
Quebec to go to all the hunting and fishing clubs and firearms stores to offer
his services. He wanted to establish a network of commercial relations. He
claims that he kept a general ledger and a notebook for his appointments. He
gave these documents to his accountant Serge Cloutier to prepare his
income tax reports.
[10]
He admits he did not
keep a record of the distances travelled, and testified that the kilometres
driven in 2002 were not for Snap Shots but to start his business, as were
the kilometres driven in 2003 when he was no longer an employee of Snap Shots.
[11]
The Appellant submitted
to evidence two invoices from his accountant for professional fees for each of
the years in question. It is interesting to note that the fees are the same for
the two years and that part of the fees charged are in relation to searching
for missing documents, for both of the years in question. Therefore, documents
were missing before the May 7, 2004, burglary, since the invoices were dated
April 14, 2003, and March 17, 2004.
[12]
Three other exhibits
were submitted, two of which are for work the Appellant carried out for Snap
Shots in 2003 when he was no longer an employee of that company. These invoices
are for $1,285 and are included in the $1,585 the Appellant claimed as business
income. The Appellant was reimbursed for pager fees and vehicle costs for
travelling. The third invoice is for a purchase made by the Appellant at Snap
Shots for $93.98 before taxes, and which is included in the $2,365.70 claimed
as purchases in 2003.
[13]
In cross-examination,
the Appellant admitted that he had some bookkeping training when he took his
gunsmith courses, in case he decided to start his own business. He even tried
it out in 2001 but claimed it didn't work. No business income was claimed for
2001. He did, however, claim $6,590 in business income for 2000 without
claiming any expenses, which he could not explain. Among the other income in
2001, the Appellant was employed by Snap Shots and CNC Solstice Inc. and no
employment expenses were deducted that year.
[14]
Through the
cross-examination, the Court learned that the Appellant changed accountants in
2002. He admitted he paid much less income tax than the previous years with
this new accountant. In fact, his refunds were almost 20 times higher, which
led him to admit he was happy with the result. He also admitted that his work
at CNC Solstice was regular and he had accumulated an average of 40 hours a
week.
[15]
When questioned about
the kilometres driven in 2002 to earn income in relation to the kilometres
driven that year and the figure for 2003, which is identical, the Appellant
admitted that it was almost impossible for the figures to be identical. He did
not raise this issue with his accountant. He also testified that he had more
than one vehicle and he used another one, particularly at the end of 2003 when
he returned to school. Neither could he explain how his entertainment and meal
expenses were identical, $4,950, for the two taxation years in question.
[16]
It must therefore be
determined whether the Minister correctly revised the Appellant's net business
income, establishing it at $1,585 and thereby disallowing all the business
expenses the Appellant claimed for the 2003 taxation year. It must also be
determined whether the Minister correctly revised the deductions for
"employment expenses" to zero in the Appellant's income calculation
for the 2002 taxation year. For these two taxation years, it must also be
determined whether the Minister was justified in imposing a penalty for gross
negligence pursuant to subsection 163(2).
[17]
At the beginning of his
pleading and during the hearing, the agent for the Appellant admitted that for
the 2002 taxation year, his office had erred in deducting employment expenses.
He claimed, however, that the Appellant had incurred these expenses for the
purpose of starting his gunsmith business and they were to earn business
income, as the 2003 expenses. On this point, I must state that it is surprising
enough that such an error could be committed, but even more so that nobody
noticed it until the hearing of the case. Evidently, these cannot be employment
expenses. It is unlikely that the Appellant incurred so many expenses for a
business that did not earn him a single penny of income.
[18]
I cannot ignore the
fact the Appellant was unable to produce even a single piece of documentary evidence
in support of his expenses, either at the audit stage or during the trial
before the Court. The many contradictions in his testimony and the various
versions of the facts only undermine any credibility he might have. It must not
be forgotten that at the time of the audit, he never mentioned the loss of
documents caused by the water damage in the basement of his cottage. During a
conversation with the auditor on December 19, 2005, all he spoke of was a
burglary that would explain why he did not have all his documentary evidence,
which was in boxes at the cottage. At the trial, he referred to water damage at
the cottage after Easter 2004, and a break-in on May 17, 2004, to explain the
lack of documents. In my opinion, the issue of missing documentary evidence
goes back to before the break-in and the water damage because the Appellant's
accountant billed him on April 14, 2003, and March 17, 2004, for time spent
looking for missing documents while preparing his income tax reports for 2002
and 2003. One has to wonder if the Appellant actually had these documents at
all.
[19]
The Appellant claimed
he had bookkeeping training during his gunsmith course, in case he wanted to
start his own business. Although the content of the course was not described in
detail, it is surprising that the Appellant did not find it necessary to keep a
record of his travels, and more particularly of the kilometres driven for
business compared to those driven for personal reasons. It was only when
questioned about the kilometres claimed in his tax reports that he stated he
had more than one vehicle and he drove close to 50,000 kilometres per year. In
so doing, he doubled the annual kilometres indicated in his income tax reports.
[20]
There is also the fact
that the Appellant held jobs in 2002 that undoubtedly restricted his
availability to run a business, thus making his claim that he drove around
Quebec to make a name for himself and to go see hunting and fishing clubs
unlikely. Expending this much energy should, in my opinion, have generated at
least a few dollars of income in two years. In 2003 he did earn an income of
around $1,500 but the only invoices produced are from his former employer that
had dismissed him as an employee in 2002 and that, in 2003, relied on his
services as needed. Moreover, the invoices clearly show that his vehicle and
pager expenses were reimbursed and that he was fed while on the film sets.
[21]
One must wonder how the
Appellant could have spent exactly the same amount in entertainment and meal
expenses for the two years in question. He was unable to explain this or
provide any explanations. The Appellant was unable to meet his burden of proof
and establish on a balance of probabilities that he had the right to deduct
employment or business expenses for his 2002 taxation year, and business
expenses for this 2003 taxation year.
[22]
As for the penalty
imposed under subsection 163(2) of the Act, the burden is on the Minister to
establish the facts to justify it. The Minister is justified in imposing such a
penalty when it can be established that a taxpayer has knowingly, or under
circumstances equal to gross negligence, made a false statement or omission in
a report for a taxation year, or participated, consented or agreed to such a
statement or omission.
[23]
In Lucien Venne v.
Her Majesty the Queen, 84 D.T.C. 6247, Strayer J. interpreted the concept
of gross negligence as a case of negligence greater than simply a failure to
use reasonable care. There must be a significant degree of negligence that
corresponds to a deliberate act, indifference to the respect of the Act.
[24]
The Federal Court of
Appeal, in Villeneuve v. Canada, 2004 D.T.C. 6077, went so far as to
state that gross negligence could result from the wrongdoer's wilful blindness.
[25]
In this case, the
Appellant was not unaware that his income tax reports for the years in question
led to a sizeable refund compared to the previous years and in particular, 2002
when he was a paid employee during almost the entire year. The fact that he did
not ask questions about this sudden change when he signed his tax reports shows
his indifference as to whether laws are complied with and regarding his duty to
ensure he provides accurate and complete information. The fact he deducted
employment expenses in 2002 knowing full well they were not incurred for his
employer Snap Shots constitutes a false statement that is attributed to more
than a simple failure to use reasonable care.
[26]
In my opinion, the
Appellant showed indifference regarding the number of kilometres driven in
order to earn income, compared to the total driven, since it is so unlikely.
Similarly, the fact that the meal and entertainment expenses claimed during the
two years in question were identical should also have drawn his attention. All
in all, the Appellant wanted to benefit from this new method of reducing his
taxes and did not think it was necessary to ask questions about the content of
his tax report, thus shirking himself of all responsibilities regarding his
obligations under the Act. The Respondent therefore established her burden of
proof and the penalties are upheld.
[27]
The appeals are
dismissed.
Signed at Montreal, Quebec, this 21st day of November
2008.
"François Angers"
Translation
certified true
on this 9th day of
January 2009.
Elizabeth Tan, Translator
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