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Citation: 2005TCC74
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Date: 20050211
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Docket: 2004-1200(IT)I
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BETWEEN:
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SAM JIN HAM,
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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
O'Connor, J.
[1] The issue in these appeals is
whether the Appellant is entitled to deduct certain expenses in
the 1999 and 2000 taxation years.
[2] As a result of reassessments dated
May 20, 2003 and December 31, 2003, the Minister of National
Revenue ("Minister") disallowed the following salary
expenses allegedly paid to certain of the Appellant's
children, in respect of the Appellant's insurance commission
business, namely.
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1999
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2000
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Daughter Jeehon
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$ 2,400
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Daughter Jeehon
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$ 8,400
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Son Jeeho
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$ 5,200
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Son Jeeho
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$ 8,400
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Daughter Jihae
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$ 9,600
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Son Edwin
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$ 4,200
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Son Edward
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$ 4,200
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Total
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$ 7,600
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Total
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$ 34,800
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[3] The parties, at the outset, agreed
that certain other expenses which had apparently been disallowed
to the Appellant were to be allowed, namely medical insurance
premium amounts of $115 in 1999 and $1,380 in 2000. The parties
further agreed that the only remaining issue related to the
disallowance of the above salaries and that there was no longer
any dispute as to any of the salaries paid to the Appellant's
wife and the salaries paid to the children in respect of a
variety store business.
[4] The reasons for the Minister's
disallowance are based principally upon the following assumptions
of fact in paragraph 8 of the Reply:
(d) in his 1999 and
2000 taxation years, the Appellant did not pay his children the
amounts of $7,600 and $34,800 respectively, he claimed as
salaries and wages expenses in respect of his Insurance
Business;
...
(h) in the 1999
taxation year, his children Jeehon, Jeeho, Jihae, Edwin and
Edward were 21, 20, 18, 16 and 16 years of age;
...
(k) in the 1999 and
2000 taxation years, the Insurance Business had no employees;
...
(m) the disallowed
salaries and wages expenses, if made or incurred, were not made
or incurred for the purpose of earning commission income ... but
were personal or living expenses of the Appellant;
(n) the salaries and
wages expenses disallowed by the Minister were not reasonable in
the circumstances.
[5] The Reply submits further:
... the salaries and wages expenses disallowed by the Minister
were not outlays or expenses incurred for the purpose of earning
income from commissions, that the expenses were personal or
living expenses of the Appellant, and that the Appellant was
properly reassessed for the 1999 and 2000 taxation years, in
accordance with paragraphs 18(1)(a) and 18(1)(h) and 118.2(2)(q)
of the Act.
... the disallowed expenses in respect of claimed salaries and
wages are not reasonable in the circumstances and are not
deductible pursuant to section 67 of the Act.
[6] Other facts which led to the
Minister's disallowances of the alleged salaries relate to
the method of their payment. The details are seen in the
following extract from the Notice of Appeal for the 1999
year.
The Ham family has one family household bank account. The
insurance business income is paid into this account. The children
receive payment for wages by way of receiving money or direct
benefits in lieu of money for personal expenditures which
includes food, clothing, entertainment, their portion of
household costs, tuition fees, transportation, vacations and
various other expenditures. The children have requested this be
done. The Ham family has a limited income, the children
appreciate that the whole family has to work to be successful.
Canada Revenue Agency may prefer a cheque to confirm its payment,
the Ham's method is not less valid. ...
[7] The same quote appears in the
Notice of Appeal for the 2000 taxation year.
[8] The Appellant submitted that the
work of Jeehon and Jeeho in 1999 consisted of filing, prospecting
and telemarketing, collection phone calls, banking, attending
Korean cultural events to obtain business and data entry.
[9] The Appellant further submitted
that the work provided in the year 2000 by Jeehon, Edwin, Jihae
and Jeeho consisted of filing, prospecting and telemarketing,
collection phone calls, banking, attending Korean cultural events
to obtain business, and data entry; and that the work of Edward
in the year 2000 consisted of filing, prospecting and
telemarketing and collection phone calls.
[10] The Appellant also submitted as part of
Exhibit A-1 unsigned letters reading as follows:
To Whom It May Concern:
During the 1999 and 2000 taxation years I earned wages of
$5,200 and $8,400 from Sam Ham in performing my duties with
respect to his insurance commission business. I received payment
by way of receiving monies or payments made on my behalf for
personal expenditures including food, clothing, entertainment,
cigarettes, my portion of household costs, tuition - past and/or
present, transportation, vacations, birthday and Christmas gifts,
and various other expenditures.
Yours truly,
Jeeho Ham
To Whom It May Concern:
During the 1999 and 2000 taxation years I earned wages of
$2,400 and $8,400 from Sam Ham in performing my duties with
respect to his insurance commission business. I received payment
by way of receiving monies or payments made on my behalf for
personal expenditures including food, clothing, entertainment, my
portion of household costs, tuition - past and/or present,
transportation, vacations, birthday and Christmas gifts and
various other expenditures.
Yours truly,
Jeehon Ham
To Whom It May Concern:
During the 2000 taxation year I earned wages of $4,200 from
Sam Ham in performing my duties with respect to his insurance
commission business. I received payment by way of receiving
monies or payments made on my behalf for personal expenditures
including food, clothing, entertainment, cigarettes, my portion
of household costs, tuition - past and/or present,
transportation, vacations, birthday and Christmas gifts and
various other expenditures.
Yours truly,
Edward Ham
To Whom It May Concern:
During the 2000 taxation year I earned wages of $4,200 from
Sam Ham in performing my duties with respect to his insurance
commission business. I received payment by way of receiving
monies or payments made on my behalf for personal expenditures
including food, clothing, entertainment, cigarettes, my portion
of household costs, tuition - past and/or present,
transportation, vacations, birthday and Christmas gifts and
various other expenditures.
Yours truly,
Edwin Ham
To Whom It May Concern:
During the 2000 taxation year I earned wages of $9,600 from
Sam Ham in performing my duties with respect to his insurance
commission business. I received payment by way of receiving
monies or payments made on my behalf for personal expenditures
including food, clothing, entertainment, my portion of household
costs, tuition - past and/or present, transportation, vacations,
birthday and Christmas gifts and various other expenditures.
Yours truly,
Jihae Ham
[11] The Appellant also submitted a
handwritten summary indicating the following hours and rates of
pay.
Jeehon - 1999 - 160 hours at $15
- total
$2,400
Jeehon - 2000 - 560 hours at $15
- total
$8,400
Jeeho - 1999 - 347 hours at $15
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total $5,200
Jeeho - 2000 - 560 hours at $15
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total $8,400
Jihae - 2000 - 960 hours at $10
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total $9,600
Edward - 2000 - 420 hours at $10
- total $4,200
Edwin - 2000 - 420 hours at $10
- total
$4,200
[12] Testimony was given by the Appellant
and by the Appellant's three sons, namely Jeeho, Edwin and
Edward. Although the Reply to the Notice of Appeal refers to a
lack of T4 slips and a lack of children's income tax returns
with respect to the salaries in question, the transcript of the
evidence indicates these matters were ultimately rectified.
Analysis and Conclusion
[13] I find the following to be prime
considerations.
1. The Appellant has the
burden of proving the reassessments wrong and the Appellant has
the burden of demolishing or proving wrong the assumptions of
fact contained in the Reply.
2. There has been no
explanation as to why the letters of the various children
mentioned above were not signed but the three children who
testified confirmed they worked the contemplated hours. However,
it is difficult to understand why so many employees were required
to carry out the same tasks and why so many hours were required.
The two children who did not testify were away and could not
appear at the hearing.
3. The pooling of money
consisting of alleged salaries and their application as described
above leaves doubts as to whether the full amounts were actually
paid and received.
4. The Appellant and his
children were not at arm's length and the Appellant's
records and bookkeeping were deficient.
5. Notwithstanding the
foregoing, uncontradicted testimony shows that the children did
some work and received some payments. I do not however, given all
the circumstances consider the payments claimed to be wholly of
the nature contemplated in paragraph 18(1)(a) of the
Income Tax Act nor reasonable. I have consequently decided
that the appeals are to be allowed to the extent of permitting
the Appellant the deductions for medical insurance premiums of
$115 in 1999 and $1,380 in 2000 and by allowing the claimed
salaries of the Appellant's five children with respect to the
Appellant's insurance commission business only to the extent
of one-half, that is to say a total of $3,800 in 1999 and a total
of $17,400 in 2000.
Signed at Ottawa, Canada, this 11th day of February, 2005.
O'Connor, J.
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