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Citation: 2005TCC114
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Date: 20050210
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Docket: 2004-2842(IT)I
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BETWEEN:
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BARRY HARGRAVE,
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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
Beaubier, J.
[1] This appeal pursuant to the
Informal Procedure was heard at Kamloops, British Columbia, on
January 28, 2005. The Appellant testified. The Respondent called
Thomas Jacobson, C.G.A., the auditor on the file.
[2] Paragraphs 3 to 11 inclusive of
the Reply to the Notice of Appeal outline the matters in
issue. They read:
3. In
computing income for the 1999, 2000 and 2001 taxation years, the
Appellant deducted business losses of $17,797, $2,961 and
$31,481, respectively, as detailed in the attached Schedule
"A".
4. The
Minister of National Revenue (the "Minister") initially assessed
the Appellant as filed for the 1999, 2000 and 2001 taxation years
by Notices dated July 31, 2000, May 10, 2001 and June 17, 2002,
respectively.
5. By Notices
dated July 25, 2003, the Minister reassessed the Appellant's
1999, 2000 and 2001 taxation years to disallow claimed cost of
goods sold and business expenses totalling $17,797, $2,961 and
$35,216 respectively, as detailed in the attached Schedule
"A".
6. The
Appellant objected to the reassessments by serving on the Minster
a Notice of Objection dated October 14, 2003.
7. By Notice
dated March 31, 2004, the Minister confirmed the reassessments
for the Appellant's 1999, 2000 and 2001 taxation years.
8. In
reassessing taxes for the 1999, 2000 and 2001 taxation years and
in confirming those reassessments, the Minister assumed the same
facts, as follows:
a) the
Appellant reported self-employed activities of a plumbing,
heating and air-conditioning business under the trade name of
"One Stop Contractors";
b) the
Appellant did not perform any plumbing or refrigeration
services;
c) the
Appellant planned to start an automotive repair and glass
replacement business;
d) the
Appellant did not perform any auto body or restoration work;
e) the
Appellant had not commenced any business operations;
f) the
Appellant was not engaged in any commercial activities;
g) the
Appellant claimed cost of goods sold of $1,660 for the 2001
taxation year;
h) the
Appellant claimed business expenses of $17,797, $2,961 and
$33,556 for the 1999, 2000 and 2001 taxation years,
respectively;
i) the
Appellant did not incur the cost of goods sold and the business
expenses claimed in 1999, 2000 and 2001 taxation years to gain or
produce income from a business; and
j) the
Appellant earned other income of $3,735 for the 2001 taxation
year.
B. ISSUES
TO BE DECIDED
9. The issue
is whether the Appellant is entitled to deduct any amounts
claimed as cost of goods sold and business expenses in the 1999,
2000 and 2001 taxation years.
C.
STATUTORY PROVISIONS RELIED ON
10. He relies on sections
3 and 9, subsection 248(1), and paragraphs 18(1)(a), 18(1)(b) and
18(1)(h) of the Income Tax Act, R.S.C. 1985, c. 1
(5th Supp.), as amended (the "Act").
D. GROUNDS RELIED
ON ANDRELIEF SOUGHT
11. He respectfully
submits that because there was no source of business income, the
Appellant is not entitled to deduct any cost of goods sold and
business expenses disallowed by the Minister. The amounts were
not paid or incurred for the purpose of gaining or producing
income from a business. Rather, they were personal or living
expenses of the Appellant or were payments on account of capital,
and therefore were properly disallowed under paragraphs 18(1)(a),
18(1)(b) and 18(1)(h) of the Act.
[3] With respect to the assumptions in
paragraph 8, the findings of the Court are:
a) -
c):
Were not
refuted.
d) - f) and
(i) The
Appellant admitted in cross-examination that he did not start the
business until the year 2000. He submitted a few, intermittently
numbered invoices in evidence. One for less than $100 had no
labour or work done and was dated in June 2001 and remainder for
2001 were dated October to December 2001. He did not submit his
invoice book with the remaining invoice stubs which would have
exceeded 100 invoice stubs.
[4] The Appellant filed exhibits
containing pictures of his house, pump house and shop outside of
100 Mile House, British Columbia. He is apparently a divorcee who
is now 62 and he has set up an elaborate shop. In
cross-examination he admitted that much of the shop capital
equipment pictured was acquired after 2000. The expenses he
claimed included substantial amounts for a guard dog, and for
some items that appear to be capital.
[5] Counsel for the Respondent and the
auditor expressed their suspicion of the invoices (Exhibit A-4)
quite properly. Invoice 329257 is dated 06.11.01. The next in
number 329263 is dated 10.12.01. The next, 329265, is dated
10.15.01. By comparison invoice 329272 is dated 10.07.01. The
Appellant testified that he destroyed and reversed invoices and
quotes based on ICBC and other determinations. However, without
the invoice book with copies, his explanation is not accepted.
For this reason the June, 2001 invoice, which does not itemize a
labour component, is not evidence of the Appellant being in
business.
[6] There is no evidence before the
Court that the Appellant had any business other than the
automotive business. Until October, 2001 he was either a
hobbyist, or he was thinking about, or getting ready to go into
business. He commenced the automotive business in October,
2001.
[7] Therefore, the appeals for 1999
and 2000 are dismissed.
[8] The appeal for 2001 is allowed and
this matter is referred back to the Minister of National Revenue
for reconsideration and reassessment on the basis that the
Appellant commenced business on October 1, 2001.
Signed at Calgary, Alberta, this 10th day of
February 2004.
Beaubier, J.
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