Citation: 2005TCC377
Date: 20050727
Docket: 2004-3512(IT)I
BETWEEN:
CHARLES CHUTE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Dussault J.
[1] These are appeals
from assessments for the appellant's 2000 and 2001 taxation years. In his income
tax returns, the appellant declared an income of $6,965 and an income of $1,939
for the 2000 and 2001 taxation years, respectively.
[2] By the assessments in
issue, the Minister of National Revenue ("Minister") increased the
appellant's income by $7,351 for the 2000 taxation year and by $19,016 for the
2001 taxation year. For the 2001 taxation year, the increase takes into account
$499 for home office expenses, the deduction of which was refused. In a letter
dated May 16, 2005, sent to the Court following the hearing, the respondent
concedes that the deduction of this amount should be allowed.
[3] It should be noted
that the assessments were made pursuant to an audit by the Ministère du Revenu
du Québec ("M.R.Q."). The increase in income for the 2000 and 2001
taxation years also results from applying a somewhat modified "net worth
method" of assessment whereby the personal and living expenses (cost of
living) of the appellant and his wife were determined, with respect to certain
items of expenses, by using statistical data, which the appellant challenged at
the objection stage. At that stage, the difference between the amounts used as the
basis for the assessments and the appellant's own figures for certain items of personal
expenses was reduced by 50 % by the M.R.Q. for a total of $2,539 in 2000
and of $1,920 in 2001. The Minister agreed to the same reductions reflected in
the assessments in issue.
[4] The situation is
summarized in the following charts provided by counsel for the respondent in
her May 16, 2005, letter:
2000
|
|
Amounts Before Objections
|
Appellant's Figures at Objections
|
Difference
|
Amounts Allowed by Appeals Officer
|
|
Furniture
|
$ 585
|
$ 0
|
$ 585
|
$ 292.50
|
|
Maintenance and
Repairs
|
$
455
|
$
100
|
$
355
|
$
177.50
|
|
Clothing
|
$ 1 312
|
$
100
|
$ 1 212
|
$ 606
|
|
Medical
Expenses
|
$ 1 397
|
$
300
|
$ 1 097
|
$
548.50
|
|
Personal Care
|
$
507
|
$ 95
|
$
412
|
$
206
|
|
Other
|
$
1 417
|
$
0
|
$
1 417
|
$
708.50
|
|
Total
|
$
5 673
|
$
595
|
$
5 078
|
$
2 539
|
2001
|
|
Amounts Before Objections
|
Appellant's Figures at Objections
|
Difference
|
Amounts Allowed by Appeals Officer
|
|
Furniture
|
$
596
|
$ 0
|
$
596
|
$
298
|
|
Maintenance and Repairs
|
$
464
|
$
100
|
$
364
|
$
182
|
|
Clothing
|
$ 1 338
|
$
100
|
$ 1,238
|
$
619
|
|
Medical Expenses
|
$ 1 425
|
$
300
|
$ 1,125
|
$
562.50
|
|
Personal Care
|
$
517
|
$ 95
|
$
422
|
$
211
|
|
Other
|
$
99
|
$
0
|
$
99
|
$
44.50
|
|
Total
|
$
4 439
|
$
595
|
$
3 844
|
$
1 920
|
[5] In his Notice of Appeal,
the appellant challenged the above disputed items. There was a difference
remaining between his own statement of expenses based on what he termed real
expenses and the assessments by the M.R.Q. and by the Minister based on
statistical data. Here is how he addressed the issue for each year:
2000:
. . .
I was asked to fill out a statement of
personal expenses, which I did to the best of my recollection. The person
handling my file accepted most of the figures, but substituted some for the
Ministere du Revenu's statistics. I explained to them that these were
incorrect, but was ignored. I have listed them again, as they are valid to my
life and lifestyle.
Household furniture: They put a figure of $585.00. I put $300.00. I
did not buy any furniture in 2000, but did get a Bell Express Vu dish at an
app. cost of $300.00
Repairs & maintenance: They put $455.00. I put $100.00. The only
repairs I did this year were 1) patch the roof shingles with pitch which
cost about $20.00 and 2) paint window frames at a cost of about $35.00 for a
gallon of paint.
Medical expenses: They put $1,312.00. I put $300. My wife and I take
Vit. C, app. $70.00 per year and she takes blood pressure medication, app.
$150.00 a year, plus misc. small things.
Clothing: They put $1,312.00. Each year for at least the last five
years, I have bought 2 pairs of jeans at app. $25.00 a pair, 2 or 3 sets
of underwear and some socks for app. $40.00. My wife purchases my shirts at a thrift
shop in Sherbrooke for $1.00 to
$2.00 each and I get 5 or 6 per year. The costs for my wife are very similar,
and we do buy new shoes some years.
Personal care: They put $507.00. I get my hair cut 3 or 4 times a
year at a cost of $9.75 plus $2.00 tip = $47.00 per year. My wife has her hair
cut 4 times a year at a cost of $10.00 plus $2.00 tip = $48.00 per year.
This is a total of $95.00.
Other (spending money): They put $1,417.00. I don't know what this
refers to, since I can't find any reference to it on the form I was asked to
fill out. I can't understand how they can just say I had extra money.
. . .
2001:
. . .
I was asked to fill out a statement of personal expenses, which I
did to the best of my recollection. The person handling my file accepted most
of the figures, but substituted some for the Ministere du Revenu's statistics.
I explained to them that these were incorrect, but was ignored. I have listed
them again, as they are valid to my life and lifestyle.
Household furniture: They put a figure of $596.00. I put $0.00. I
did not buy any furniture or electronics in 2001.
Repairs & maintenance: They put $464.00. I put $100.00. The only
repairs I did this year were to patch the roof shingles, which cost about
$20.00 for the pitch, and painted window frames at a cost of $35.00 for a
gallon of paint.
Medical expenses: They put $1,425.00. I put $450.00. My wife and I
take Vit. C, app. $70.00 per year and she takes blood pressure medication, app.
$150.00 per year, plus misc. small things.
Clothing: They put $1,338.00. Each year for at least the last five
years, I have bought 2 pairs of jeans at app. $25.00 a pair, 2 or 3 sets
of underwear and some socks for app. $40.00. My wife purchases my shirts at a
thrift shop in Sherbrooke for
$1.00 to $2.00 each and I get 5 or 6 a year. The costs for my wife are very
similar, and we do buy new shoes some years.
Personal care: They put $517.00. I get my hair cut 3 or 4 times a
year at a cost of $9.75 plus $2.00 tip = $47.00 per year. My wife gets her hair
cut 4 times a year at a cost of $10.00 plus $2.00 tip = $48.00 per year.
This is a total of $95.00.
Other (spending money): They put $99.00. I don't know what this
refers to, since I can't find any reference to it on the form I was asked to
fill out. I can't understand how they can just say I had extra money.
[6] At the hearing,
counsel for the respondent agreed to reduce to zero the amounts under the item
"Other", that is $708.50 for 2000 and $49.50 for 2001.
[7] The appellant is an antique
dealer. He lives in the country on 50 acres of land in the municipality of Eaton, Quebec. One part of the
two-storey residence is 100 years old and the other part is
20 years old.
[8] In his testimony, the
appellant reiterated the explanations contained in his Notice of Appeal with
regard to the disputed expenses for the two years in issue. He testified that
his cost of living is low, that the expenses he claimed were genuine and that
he had no other expenses under the items he disputes.
[9] However, with regard
to maintenance and repair expenses, the appellant admitted he had a lawnmower
and tractor for removing snow and that the fuel expense for this equipment
amounted to roughly $150 per year.
[10] With regard to clothing
expenses, the appellant said he has no need for "fancy clothes". When
asked whether he nonetheless had winter clothes, he said he had a 15‑year‑old
winter coat, rubber boots and galoshes. The appellant said he did not know what
his wife wore during the years in issue.
[11] With regard to medical
expenses, the appellant said that he and his wife wore glasses. However, he said
he did not purchase any in 2000 or 2001 and that he did not recall whether his
wife had done so. He added that neither he nor his wife went to the dentist
during those years.
[12] Andrée Deslonchamps, an
auditor with the M.R.Q., confirmed that statistical data from Statistics Canada
had been used for the different expense items disputed by the appellant. She
said that the item "Other" was used to arrive at an amount representing
the total expenses of a two‑person family on social assistance. However,
she admitted that the statistical data reflected an average and that the M.R.Q.
did not have evidence that the amounts stated by the appellant were incorrect.
On the other hand, she said that the appellant had not provided detailed or
satisfactory explanations that would account for the lower expenses that he said
he had incurred.
[13] Joselyne Létourneau, an
appeals officer with the Canada Customs and Revenue Agency, explained that
after the appellant filed his Notices of Objection, she made the same changes that
had been made at the provincial level. Specifically, where the appellant
challenged the use of statistical data for an expenditure item, she reduced by
50% the difference between the amounts established on the basis of the
statistics and the appellant’s own figures. In her view, the appellant was
claiming that some of his expenses were in fact lower than the amounts
established and, since no field audit had been done, she decided to give the
appellant the benefit of the doubt and reduce the differences by 50%.
[14] The appellant reported
only $6,965 in income for the year 2000 and $1,939 for the year 2001. However,
according to Appendix II of the Reply to the Notice of Appeal ("the
Reply"), the mortgage payments alone for 2000 and 2001, based on the figures
the appellant himself provided during the audit, amounted to $5,134 and $6,350
respectively. Appendix I of the Reply, which also uses the appellant's own
figures, states that the food expenses for the years 2000 and 2001 amounted to
$3,600 and to $4,250 respectively. These figures alone show that the appellant
obviously did not report all his income for the two years in issue. In fact,
the differences between the reported income and the income established
following the audit amount to $7,351 for 2000 and to $19,016 for 2001. The
differences take into account the adjustments that were made in response to the
Notices of Objection.
[15] The fact that the
appellant clearly did not report all his income and that the differences are quite
significant, lead me to believe that the appellant also tried to minimize his
expenses during the audit. Therefore, I have some trouble accepting his
testimony as a whole — testimony which, I might add,
was rather vague in some respects.
[16] Furthermore, I
acknowledge that statistical data are not necessarily a very reliable source
for determining the "cost of living", which can vary considerably
from one taxpayer or family to another based on many factors.
[17] In the instant case,
the difference between the amounts the appellant submitted and the amounts used
for the assessments has already been reduced by 50%. In addition, the
respondent concedes that the amounts of $708.50 and of $49.50 under the item
"Other", for the years 2000 and 2001 respectively, must be
reduced to zero.
[18] Under the item "Furniture",
the difference of $292.50 for the year 2000 is kept because a Bell ExpressVu dish
was purchased for $300. The $298 difference for 2001 is cancelled.
[19] Under the item "Maintenance
& Repair", the differences of $177.50 in 2000 and of $182 in 2001 are kept
in view of the appellant's admission regarding an additional fuel expense of roughly
$150 for the lawnmower and the tractor.
[20] Under the item
"Clothing", the differences of $606 in 2000 and of $619 in 2001 are kept.
In my opinion, even if a person has a simple lifestyle and buys inexpensive
clothing, it is not reasonable to believe one can clothe oneself in Canada, for
both summer and winter, for as little as $100 a year. In my opinion, the appellant's
testimony on that point was rather vague and unconvincing. He was unable to
provide any information regarding the clothing that his wife normally wore and
regarding her winter clothing in particular. I emphasize that the actual
difference is $100 less per year than the amount stated in the charts
reproduced at paragraph 4, assuming the appellant estimated the total clothing
expense for himself and his wife at $200 per year, not at $100 per year.
[21] Under the item "Medical
Expenses", the differences of $548.50 in 2000 and $562.50 in 2001 are
cancelled. I can accept that two healthy people do not spend more than $300 per
year on this expense item where the only purchases made are vitamin C and one blood
pressure medication.
[22] Under the item "Personal
Care", the differences of $206 for the year 2000 and of $211 for the year
2001 are cancelled. I was not made aware of all the expenditures placed under
this item to establish the statistics, and no clarifications were provided on
the subject. I accept the explanations provided by the appellant in his Notice
of Appeal.
[23] In short, for the 2000
taxation year, the amount of $7,351 added to the income is reduced by $1,463,
which is the total of the amounts added to the income under the following items:
"Other" $708.50
"Medical Expenses" $548.50
"Personal Care" $206.00
[24] For the 2001 taxation
year, the amount of $19,016 added to the income is reduced by $1,620, which is
the total of the amounts added to the income under the following items:
"Other" $49.50
"Furniture" $298.00
"Medical Expenses" $562.50
"Personal Care" $211.00
"Home Office Expenses" $499.00
[25] Accordingly, the
appeals from the assessments made for the 2000 and 2001 taxation years are
allowed and the assessments are referred back to the Minister of National
Revenue for reconsideration and reassessment on the basis that the amount of
$7,351 added to the appellant's income for the 2000 taxation year must be
reduced by $1,463 and that the amount of $19,016 added to the appellant's
income for the 2001 taxation year must be reduced by $1,620.
Signed at Ottawa, Canada, this 27th day of July 2005.
"P.R. Dussault"
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