Citation: TCC2006500
Date: 20060911
Docket: 2005-2903(IT)I
BETWEEN:
NANCY E. BRADLEY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Beaubier, J.
[1] This appeal pursuant to the Informal Procedure was heard at Calgary, Alberta, on September 1, 2006. The Appellant testified and called her son, Mathew, and a friend, Margaret Gouin.
[2] The appeal concerns reassessments for 2001 and 2002 which disallowed the Appellant's deduction of $2,000 allegedly paid to her daughter, Rachel, born August 2, 1993 and $5,000 allegedly paid to her son, Mathew, born November 1, 1989. The particulars are contained in paragraphs 11 to 16 of the Reply to the Notice of Appeal, which read:
11. In so reassessing the Appellant for the 2001 and 2002 taxation years, the Minister assumed the following facts in respect of the salary expense:
(a) during the 2001 taxation year, the Appellant was a self-employed commission agent with Equitable Life of Canada, I.G. Financial Services Inc. and Generation Financial Corporation;
(b) during the 2002 taxation year, the Appellant was a self-employed commission agent with Equitable Life of Canada, HPM Financial Services Inc. and Generation Financial Corporation;
(c) the Appellant has two children (the "Children"):
|
Name
|
Date of Birth
|
Age in 2001
|
Age in 2002
|
|
Mathew
|
Nov 1, 1989
|
11/12
|
12/13
|
|
Rachel
|
Aug 2, 1993
|
7/8
|
8/9
|
(d) the Appellant claimed salaries to the Children (hereinafter the "Salaries Expense") of $7,000.00 in each year of which she attributed $5,000.00 to Mathew and $,2000.00 to Rachel;
(e) any salaries paid to the Children were not based on the duties they performed or the hours they worked;
(f) the Appellant did not pay the Salaries Expense to the Children;
(g) the Salaries Expense was not reasonable in the circumstances;
(h) the Appellant paid child care expenses in respect of the Children in both the 2001 and 2002 taxation years; and
(i) the Salaries Expense was not incurred for the purpose of gaining or producing income from a business or property.
12. The assumptions made in paragraphs 11 (e) and 11(h) were first assumed at the Notice of Objection stage.
B. ISSUES TO BE DECIDED
13. The issue is whether the Salaries Expense was reasonable and if reasonable, was it incurred by the Appellant for the purpose of gaining or producing income from a business or property.
C. STATUTORY PROVISIONS, GROUNDS RELIED ON AND RELIEF SOUGHT
14. He relies on sections 3, 9 and 67, subsection 248(1) and paragraphs 18(1)(a) and 118(1)(b) of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp) (the "Act") as amended for the 2001 and 2002 taxation years.
15. He submits that the Salaries Expense:
(a) was not incurred; and
(b) if incurred:
(i) was not reasonable, as required by Section 67 of the Act; and
(ii) not incurred for the purpose of gaining or producing income from a business or property within the meaning of paragraph 18(1)(a) of the Act.
16. In the alternative, if the Court finds that the Salaries Expense was incurred, reasonable and incurred for the purpose of gaining or producing income from business or property, which is not admitted but denied, he states that the amounts allowed by the Minister for a wholly dependant person for Rachel in each of the 2001 and 2002 taxation years must be revised pursuant to paragraph 118(1)(b) of the Act based on Rachel's revised net income.
[3] Assumptions 11 (a), (b), (c), (d), (e), (f) and (h) were not refuted by the evidence.
[4] Without dealing with the other assumptions, the Court finds that the alleged salaries paid never left the Appellant's control, so that in fact and in law, the alleged payments were never made to the children.
[5] The Appellant and Mathew testified that any money alleged paid to the children was deposited into a bank account or a mutual fund account in trust for the children. Only the Appellant could release the funds to the children from these accounts. They were in the sole legal control of the Appellant whose sole signature was required for them.
[6] The Appellant did not describe when or in what amounts or instalments deposits were made by the Appellant into these accounts. The Appellant and Mathew said that the amounts allegedly paid depended on two factors: one, the amount of work the children did, and two, the amount of income the Appellant earned from her commission agency.
[7] Mathew and the Appellant stated that together they discussed and agreed on any amounts to be withdrawn from the accounts and what the amounts were to be spent on. Some was withdrawn for Mathew to buy an ATV. Some was withdrawn for him to buy a motor vehicle when he was 16. Some is to be used for his education in the future.
[8] But to the Court, the key fact is that none could be withdrawn or used by the children unless the Appellant did so. Moreover, the amounts allegedly paid did not vary in the two years in question. Thus it would seem that the children's work and/or the Appellant's agency income did not vary.
[9] But in a related family, parent-child situation, payment must be made and deposited as it would be to a stranger. The payee must receive and control the alleged payment in his or her name and be able to use it for his or her benefit without any further control by the payer. That did not happen in this case.
[10] As a result, the appeal is dismissed.
Signed at Toronto, Ontario, this 11th day of September, 2006.
"D.W. Beaubier"
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