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Docket: 2004-4007(IT)I
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BETWEEN:
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GEOFFREY P. NOWAK,
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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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____________________________________________________________________
Appeals heard on July 8, 2005 at Toronto, Ontario
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Before: The Honourable Justice L.M. Little
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Appearances:
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For the Appellant:
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The Appellant himself
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Counsel for the Respondent:
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Lorraine Edinboro
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____________________________________________________________________
JUDGMENT
The appeals from the assessments made under the Income Tax Act for the 1998 and 1999 taxation years are allowed, without costs, and the assessments are referred back to the Minister of National Revenue for reconsideration and reassessment in accordance with the attached Reasons for Judgment.
Signed at Vancouver, British Columbia, this 19th day of July 2005.
Little J.
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Citation: 2005TCC438
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Date: 20050719
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Docket: 2004-4007(IT)I
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BETWEEN:
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GEOFFREY P. NOWAK,
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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] In the 1998 taxation year and from January to September of the 1999 taxation year the Appellant was an employee of Prestige Motors. The Appellant was hired by Prestige Motors to sell used cars.
[2] When the Appellant filed his income tax returns for the 1998 and 1999 taxation years he reported the following amounts:
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1998
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1999
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Income
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$62,894.93
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$33,024.88
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Expenses
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$17,413.00
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$17,868.00
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[3] By Notices of Reassessment dated September 4, 2001 for the 1998 and 1999 taxation years the Minister of National Revenue (the "Minister") disallowed the amounts of $15,585.00 and $15,525.00 respectively.
[4] By Notices of Reassessment dated April 3, 2003 the Minister allowed additional expenses.
[5] The Appellant filed Notices of Objection.
[6] By Notification of Confirmation dated May 17, 2004 the Minister confirmed that the Appellant had not shown that the amounts of $12,415.00 and $13,518.00 which were claimed by the Appellant in the 1998 and 1999 taxation years were deductible expenses.
B. ISSUE:
[7] The issue is whether the Appellant is entitled to deduct employment expenses in excess of the amounts allowed by the Minister.
C. ANALYSIS & CONCLUSION:
[8] The following table summarizes the amounts in issue:
1998 EXPENSES
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Expense
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Claimed
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Allowed
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Disallowed
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Advertising
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750.00
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500.00
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250.00
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Motor Vehicle
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7,046.00
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4,051.09
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2,994.91
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Entertainment
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1,165.00
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224.33
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940.67
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Supplies
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2,297.00
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222.86
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2,074.14
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Telephone
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386.00
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0.00
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386.00
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CCA for Computer
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847.00
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0.00
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847.00
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Clothing
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2,762.00
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0.00
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2,762.00
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Work Space in Home
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2,160.00
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0.00
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2,160.00
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Total
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$17,413.00
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$4,998.28
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$12,414.72
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1999 EXPENSES
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Expense
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Claimed
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Allowed
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Disallowed
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Advertising
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1,488.00
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500.00
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988.00
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Motor Vehicle
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7,161.00
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3,524.07
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2,061.11
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Entertainment
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1,153.00
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151.08
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1,001.92
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Supplies
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2,684.00
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0.00
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2,684.00
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OMVIC License
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0.00
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175.00
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0.00
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Telephone
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530.00
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0.00
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530.00
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Clothing
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2,692.00
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0.00
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2,692.00
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Work Space in Home
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2,160.00
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0.00
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2,160.00
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Total
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$17,868.00
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$4,350.15
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$13,517.85
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[9] I have concluded that the Appellant is entitled to deduct the following amounts:
1. Advertising
The Appellant testified that he had to do additional advertising in order to obtain customers. The Appellant also testified that some of the advertising expenses paid by him were reported under the category of entertainment or supplies. In my opinion the Appellant should be allowed additional advertising expenses as follows:
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Year
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Claimed
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Allowed
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Disallowed
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Additional
Allowance
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1998
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750.00
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500.00
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250.00
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250.00
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1999
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1,488.00
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500.00
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980.00
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* 200.00
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* The Appellant was not employed by Prestige Motors in October, November and December 1999. I have therefore reduced the amount allowed in 1999 in recognition of the fact that the Appellant was only employed for nine months in 1999.
2. Motor Vehicle Expenses
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Claimed
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Allowed
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Disallowed
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Additional
Expenses
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1998
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7,046.00
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4,051.09
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2,994.91
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800.00
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1999
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7,161.00
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3,524.07
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2,061.11
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600.00
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The Appellant's main argument is that the Minister had incorrectly calculated the gasoline consumption of his vehicle. The Appellant testified that he drove a used 1989 Corsica which consumed a lot of gasoline. The Appellant maintained that the Minister's calculation for gasoline was unrealistic because it did not recognize the type of vehicle used by the Appellant. I believe the Appellant's argument has some merit. I have concluded that the Appellant should be allowed additional expenses of $800.00 in 1998 and $600.00 in 1999 regarding gasoline purchases. (Note: The lower amount for 1999 recognizes the fact that the Appellant was only employed from January to September 1999.)
3. Entertainment
Counsel for the Minister introduced Exhibits R-3 and R-4. Exhibit R-3 is a document that outlines the Conditions of Employment for 1998 and Exhibit R-4 outlines the Conditions of Employment for 1999. The documents are signed by the Business Manager of Prestige Motors. Paragraph 6 of Exhibits R-3 and R-4 contains the following statement:
6(a) Did you require this employee to pay other expenses for which the employee did not receive any allowance or repayment [ √ ] Yes [ ] No
(b) If yes, indicate the type of expenses. "Entertainment, promotions, sales licence, etc."
The Appellant testified that he spent a lot of time and money developing clients in the Spanish community. However, he said that he does not have any receipts to support the claim for entertainment expenses above the amounts allowed by the Minister.
Based on the Appellant's testimony I am convinced that the Appellant should be allowed to deduct the following additional entertainment expenses:
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1998
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$800.00
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1999
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$600.00
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4. Supplies
The Appellant testified that he claimed expenses on a trip that he made to Cuba and he also claimed expenses on a trip made to the Bahamas. The Appellant also said that he claimed additional expenses under the category of Supplies.
I am not convinced that the Appellant is entitled to deduct anything under the category of Supplies.
5. Telephone Amount Claimed Amount Allowed
1998 $386.00 0
1999 $530.00 0
The Minister has not allowed anything as telephone expenses in the Appellant's home.
The Appellant testified that he frequently used the telephone in his home for business calls and that he also made long distance calls from his home.
I have concluded that the Appellant should be allowed to deduct the following telephone expenses:
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Deductible
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Non-Deductible -
Personal
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1998
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½ of $386.00 or $193.00
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½ of $386.00 or $193.00
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1999
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40% of $530.00 or $212.00
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60% of $530.00 or $318.00
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6. Clothing Amount Claimed Amount Allowed
1998 $2,762.00 0
1999 $2,692.00 0
I am not prepared to allow any deductions under this category.
7. Work Space in Home Amount Claimed Amount Allowed
1998 $2,160.00 0
1999 $2,160.00 0
I am not prepared to allow anything under this category.
[10] The appeals are allowed, without costs, and the Minister is instructed to reassess as indicated above.
Signed at Vancouver, British Columbia, this 19th day of July 2005.
Little J.
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