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Citation: 2006TCC146
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Date: 20060310
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Docket: 2005-1548(IT)I
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BETWEEN:
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BRENDA ORYSCHAK,
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Appellant,
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and
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HER MAJESTY THE QUEEN,
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Respondent.
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REASONS FOR JUDGMENT
Little J.
A. FACTS:
[1] The
Appellant operates a bookkeeping, tax consulting and tax preparation business
from her home in Kamloops, British Columbia.
[2] When
the Appellant filed her income tax returns for the 2000, 2001 and 2002 taxation
years she claimed a number of deductions for motor vehicle expenses, meals and
entertainment and bad debts.
[3] The
Minister of National Revenue (the "Minister") issued Reassessments on
the following basis:
1. Motor Vehicle Expenses:
The Appellant had claimed that she used the
Ford truck 90% for business purposes. Officials of the Canada Revenue Agency
("CRA") determined that the Ford truck was used 20% for business
purposes. The following amounts are involved:
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Claimed
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Revised
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2000
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$6,521.29
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$1,449.17
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2001
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3,659.36
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813.19
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2002
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7,008.27
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709.17
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[4] The
appeal was heard in Kamloops, British Columbia on December 1, 2005. During the hearing various
comments were made by both parties concerning the business use of the Ford
truck by the Appellant.
[5] On
December 3, 2005 the agent for the Appellant sent a letter to the Court. In her
letter the agent for the Appellant maintained that the Auditor from the CRA did
not finish her task of calculating the mileage for the business use of one of
the vehicles. The Appellant's agent also made a number of other comments
concerning the evidence provided by the Auditor from the CRA.
[6] By
letter dated December 9, 2005 Mr. David Everett, counsel for the Respondent,
sent the Court a copy of a letter dated December 9, 2005 from
Clare Matheson, the CRA Auditor. In her letter Ms. Matheson said that the
methodology used by her to determine the business use of the vehicle was based
on the estimated log provided to her by the Appellant.
[7] By
letter dated January 11, 2006 Mr. Everett provided the Court with a further
analysis by Ms. Matheson of a vehicle expense calculation for the 2000 taxation
year which he said should be read with reference to Ms. Matheson's letter dated
December 9, 2005.
[8] After
considering the information provided by the parties during the hearing and the
information provided subsequent to the hearing I have concluded that the
business use of the Ford vehicle was as follows:
2000 - 60%)
2001 - 60%) of the amount originally claimed by the
Appellant
2002 - 60%)
2. Meals
and Entertainment:
The
following amounts were claimed by the Appellant:
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Taxation Year
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Claimed
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Allowed
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2000
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$1,468.09
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0
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2001
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1,538.15
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0
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2002
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1,114.30
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0
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The Minister did not allow
the Appellant to deduct any expenses that she paid for meals and entertainment
of her clients. (Note: The Appellant testified that she deducted 50% of
the amount paid for meals and entertainment re personal use.)
I have carefully considered
the Appellant's testimony and I accept the testimony of the Appellant that she
had business meetings with her clients at the various restaurants referred to
by her in evidence.
I have concluded that the following
amounts should be allowed:
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Taxation
Year
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2000
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$1,101.06
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2001
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1,153.61
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2002
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835.73
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3. Bad
Debts:
[9] The
following amounts were claimed by the Appellant as Bad Debts:
Bad Debts Claimed
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Claimed
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Allowed
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200l
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$ 3,975.00
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0
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2002
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18,539.00
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0
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[10] Bad Debts and Doubtful Debts are dealt with in paragraphs 20(1)(l) and
20(1)(p) of the Act. Paragraph 20(1)(l) read as follows:
20. (1) Notwithstanding paragraphs
18(1)(a), (b) and (h), in computing a taxpayer's income for a taxation year
from a business or property, 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:
...
(l) Doubtful or impaired debts — a
reserve determined as the total of
(i) a reasonable amount in
respect of doubtful debts (other than a debt to which subparagraph (ii)
applies) that have been included in computing the taxpayer's income for the
year or a preceding taxation year; and
[11] Paragraph 20(1)(p) reads:
(p) Bad debts — the total of
(i) all debts owing to the
taxpayer that are established by the taxpayer to have become bad debts in the
year and that have been included in computing the taxpayer's income for the
year or a preceding taxation year, and
...
[12] Based on the testimony I have concluded that the Appellant should be
allowed to deduct the bad debts or doubtful debts that she claimed on the understanding
that she must include in her income for the subsequent years any portion of the
bad debts or doubtful debts which was paid. In reaching this conclusion I agree
with the comments of Madam Justice Reed of the Fedeeral Court where she said in Coppley, Noyes & Randall
Limited v. The Queen, 91 DTC 5291 where she said at page 5297:
Both counsel agree that the
senior management of a corporate taxpayer is in the best position to determine,
from its inspection of the company's accounts' receivable, which accounts are
likely to give rise to difficulty and might be a doubtful collection ...
[13] In other words, I believe that the Appellant's business judgment as to
which debts may be uncollectible is to be preferred over the judgment of the
CRA Auditor.
4. Work
Space in Home:
During the hearing the parties reached an agreement with respect to the tax
treatment of the work space in the home. I will, therefore, not deal with this
issue.
[14] The appeals are allowed, without costs, and the Minister is to
reassess the Appellant to make the adjustments referred to above.
Signed at Vancouver,
British Columbia, this 10th day of March 2006.
Little
J.
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