Citation: 2008 TCC 643
Date: 20081125
Docket: 2008-258(IT)I
BETWEEN:
ANDRZEJ JASTRZEBSKI,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Favreau J.
[1]
These are appeals from
reassessments dated January 22, 2007, and made under the Income
Tax Act, R.S.C. 1985 (5th Supp.), c. 1, as amended
("the Act"), in respect of the 2003 and 2004 taxation
years. By these reassessments, the Minister of National Revenue
("the Minister") revised the Appellant's net rental loss for the
2003 taxation year to $1,297, and revised the Appellant's net rental income for
the 2004 taxation year to $3,020.
[2]
The Appellant served a
notice of objection on the Minister with respect to the 2002, 2003 and 2004
taxation years. The Minister submits that since the notice of objection in
respect of the 2002 taxation year was dated February 20, 2007, it is
invalid because it was not served within the time allotted by the Act.
The notice of assessment in respect of the 2002 taxation year was dated
June 2, 2003. Since no notice of objection was served on the Minister
in respect of the 2002 taxation year, the instant Notice of Appeal in respect
of the 2002 taxation year cannot be entertained.
[3]
On May 15, 2007, the
Minister confirmed the reassessments dated January 22, 2007, in
respect of the 2003 and 2004 taxation years, based on the following facts, set
out in paragraph 7 of the Reply to the Notice of Appeal:
[TRANSLATION]
(a)
During the taxation years in issue, the
Appellant owned a rental property. (admitted)
(b)
The rental property in question is a building
consisting of three units, a workshop and garages located at civic
addresses 95-101 Troy Street in Montréal. (admitted subject to the
clarification that it was a triplex with four garages and one workshop above
the garages)
(c)
Further to an audit by the Ministère du Revenu
du Québec (MRQ), the Minister adopted the revised net rental income or
losses in respect of the Troy Street building in Montréal for the 2003 and 2004
taxation years, as though he had arrived at those amounts himself. (admitted)
(d)
In computing the Appellant's income for the 2003
and 2004 taxation years, the Minister disallowed rental expenses of $4,787 and
$35,218, respectively, in connection with the building on Troy Street in
Montréal. (admitted)
(e)
The Troy Street building in Montréal generated
$12,770 in gross rental income for the 2003 taxation year and $15,790 in gross rental
income for the 2004 taxation year. (admitted except for the amount of gross
rental income for 2004, which must be $13,190, as reported)
(f)
In particular, for the 2004 taxation year, the
Appellant claimed a $25,000 rental expense on account of wages supposedly paid
to his wife Aleksandra and his son Dobromir for assistance with the maintenance
of the building (admitted, but it is added that renovations were also done with
the assistance of the Appellant's wife and son)
(g)
The Minister determined that the expense in
respect of wages supposedly paid to his wife Aleksandra and his son Dobromir
for building maintenance assistance for the 2004 taxation year was not
incurred. (denied)
(h)
The other rental expenses that were disallowed
for the 2003 and 2004 taxation years consisted of personal expenses,
unreasonable expenses, and expenses that were not incurred. (denied)
[4]
The issues disputed at
the hearing pertained to the amount of gross rental income for the year 2004
($15,790 versus $13,190) and the deductibility of the $25,000 that the
Appellant paid his wife ($15,000) and his son ($10,000) for help that they provided
with the maintenance and renovations done in the course of the years 1999 to
2004. The other contested expense deductions were settled between the parties
and were either disallowed in full (e.g., clothing and restaurant meals) or in
part (e.g., cellular phone and automobile expenses). With regard to
the automobile expenses, other adjustments have to be made in order to take into
account the wear and tear on the vehicle.
[5]
The gross rental income
for the 2004 taxation year was determined to be $15,790 based on statistical
data used by the Ministère du Revenu du Québec (MRQ), which audited the
Appellant's income tax returns.
[6]
The MRQ auditor
testified at the hearing, and provided information about his conduct of the
audit, his meetings with the Appellant, and his requests to the Appellant for
particulars. He pointed out that he had noticed that the gross rental incomes
reported by the Appellant were lower than the neighbourhood average. Based on
cross-checks, he determined that the Troy Street building had four electric
meters and four civic addresses but that the Appellant only reported income
from three units.
[7]
In the notarial deed of
sale for the Troy Street building, dated December 21, 2004, the
seller declared that the building generated roughly $2,270 in gross rental
income per month, or $27,240 per year.
[8]
The auditor explained
that he modified the gross rental income for the year 2004 based on leases in
effect during that year.
[9]
The Appellant tried to
justify the fact that the gross rental income was below the neighbourhood
average by citing the role of the Régie du logement du Québec, which controls
rent increases.
[10]
Following the sale of
the Troy Street building on December 21, 2004, the Appellant
paid $15,000 to his wife and $10,000 to his son for their help with the
maintenance and renovations in the Appellant's buildings from 1999 to 2004.
The amounts received by the Appellant's spouse and son were reported as
income in their respective 2004 income tax returns.
[11]
The Appellant testified
that he did numerous renovations between 1999 and 2004 (bathroom, painting and
tiling) and that he only ever resorted to the services of one specialist, a plumber.
In addition, he said that he purchased roughly $20,000 worth of materials
during that period.
[12]
The Respondent's
position is that this $25,000 payment is not deductible, notably for the
following reasons:
(a)
there is no proof of
payment, and a single bank account was used for the family;
(b)
there are no supporting
documents, such as journals recording the hours worked, or a precise
description of the work done;
(c)
the payees are related
persons who were not at arm's length from the Appellant;
(d)
the amount paid is not
reasonable having regard to the annual gross rental income;
(e)
the amount paid should
have been deducted each year that the services were rendered to the Appellant (accrual
accounting method); and
(f)
the payment constitutes
income-splitting.
[13]
As Tardif J. of this
Court held in Mailhot v. The Queen, 2005 DTC 318, at paragraph
12:
To be able to
adequately justify income and expenses, it is necessary to keep appropriate
supporting documents to allow for proper analysis to ensure that the relevant
legal provisions are met.
[14]
In the case at bar, the
Appellant has not submitted the supporting documents needed to justify the
deductibility of the payment of the sum of $25,000 to his wife and his son.
[15]
I do not doubt the
possibility that renovations were done to the Appellant's buildings in the
course of the years 1999 through 2004 and that the vast majority of the work
was done by the Appellant himself and by his family members. However, by
reason of the lack of information and documents based on which the payment of
$25,000 in the course of the 2004 taxation year could be justified, the Appellant
was unable to meet the onus of proof that he needed to meet in order to
invalidate the assessments that were made.
[16]
It has been amply
shown, on a balance of probabilities, that the assessments were correctly made
on the basis of the available information and documents. The gross rental
income for the 2004 taxation year, in the amount of $15,790, was shown. As
for the payment of $25,000, it should be noted that the Appellant had no legal
obligation to pay that amount to his wife and son, and that there was no basis
on which to find that the payment was made and that it was justified. In fact,
the Appellant's wife and son did not testify at the hearing.
[17]
For all these reasons,
the appeals are dismissed.
Signed at Ottawa, Canada,
this 25th day of November 2008.
"Réal Favreau"
Translation
certified true
on this 30th day
of December 2008.
Brian McCordick,
Translator
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