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Citation: 2004TCC585
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Date: 20040927
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Dockets: 2001-2106(IT)G
2002-3202(IT)G
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BETWEEN:
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ALAIN MARCEAU,
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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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[OFFICIAL ENGLISH TRANSLATION]
REASONS FOR JUDGMENT
Angers, J.
[1] The Appellant was appealing from
the assessments of his 1996, 1997 and 1998 taxation years.
The two dockets were heard on common evidence and certain changes
to the Replies to the Notices of Appeal somewhat modified the
issues. To this end, I am reproducing the facts assumed by
the Minister of National Revenue and the parties' position on
each:
Docket 2001-2106(IT) G
1999 and 1997 taxation years
Allowable Business Investment Loss claimed
a) the
Appellant did not loan Polyclinique
Médico-Santé Inc. $5,000 and if he did, it
was a non-interest bearing loan not subject to any repayment
provisions and the debt was not uncollectible at the end of the
1998 taxation year; (denied)
Employment expenses claimed
b) the
Appellant is an employee of the London Life Insurance Company;
(accepted)
c) the
Appellant's duties involve selling life insurance;
(accepted)
d) the
Appellant is required under his contract of employment to cover
his own expenses; (accepted)
e) the
Appellant is normally required to carry out the duties of his
employment somewhere other than at his employer's place of
business; (accepted)
f) the
Appellant's remuneration consists, in all or part, of commissions
based on the volume of sales made; (accepted)
g) the
Appellant received $131,594 in remuneration from the London Life
Insurance Company during the 1998 taxation year;
(accepted)
h) the
Appellant is not reimbursed or paid an allowance for his
travelling expenses; (accepted)
i) the
Appellant claimed a $68,182 deduction from his employment income
for expenses he incurred as a salesman during the 1998 taxation
year; (accepted)
j)
although the Appellant did not provide the prescribed form signed
by the London Life Insurance Company with his 1998 tax return to
certify his conditions of employment, the Minister of National
Revenue allowed $26,984 (now $30,441) of the
$68,182 deduction claimed for expenses incurred as a salesman;
(denied)
k) the
Minister of National Revenue, however, disallowed the other
$41,198 (now $37,741) deduction claimed for
expenses incurred as a salesman as follows:
Commission paid to a corporation
l) the
London Life Insurance Company paid the Appellant $131,594 in
remuneration for life insurance contracts sold by the latter
during the 1998 taxation year; (accepted)
m) the Appellant
claimed a $30,000 deduction for sales commission he says he paid
9071-2852 Québec Inc. for its participation in the
signing of certain life insurance contracts; (denied)
n) the
Appellant incorporated this corporation on December 2, 1998;
(accepted)
o) the
Appellant and a trust whose beneficiary is the Appellant's son
are the corporation's shareholders; (accepted)
p) the
Appellant is a director of the corporation; (accepted)
q) the
corporation was not involved in selling any life insurance
contracts for which the Appellant claims to have paid the $30,000
in commissions; (denied)
r) the
Appellant did not pay the corporation $30,000 and if he had, it
was not with a view to earning income from his employment with
the London Life Insurance Company; (denied)
Legal fees
s) the
Appellant claimed a deduction for the $500 he paid
Me Céline Plante during the 1998
taxation year for the services she rendered as part of the
incorporation of Bégin, Marceau, Morin Gestion
Privée Inc.; (accepted)
t) this
is not an expense incurred in the course of earning income from
his employment with the London Life Insurance Company;
(accepted)
Small policies paid (consent to judgment)
[u and
v]
[...]
Entertainment expenses
w) of the
$2,846 in expenses the Appellant incurred during the 1998
taxation year for food, beverages or entertainment, $1,426 was
spent on entertainment as part of his employment with the London
Life Insurance Company, $361 on leisure and $1,059 in
personal expenses; (denied)
[ ... ]
Automobile expenses
bb) the Appellant spent
$6,484 on motor vehicle related expenses during the 1998 taxation
year; (accepted)
cc) the Appellant used
this vehicle in the course of his employment with the London Life
Insurance Company and for personal purposes;
(accepted)
dd) the Appellant did not
keep a record of the kilometres he travelled as part of his
employment during the 1998 taxation year; (denied)
ee) 60% of his expenses,
or $3,890, was incurred as part of his employment with the London
Life Insurance Company and the other 40% of these expenses was
personal; (denied)
Parking
ff) the
Appellant incurred $98 in parking expenses for the purpose of
earning income from his employment with the London Life Insurance
Company during the 1998 taxation year; (denied)
Software
gg) the Appellant did not
pay $159 to purchase a computer software package during the
1998 taxation year, and if he had, it was not for the purpose of
earning income from his employment with the London Life Insurance
Company; (denied)
Docket 2002-3202(IT) G
1998 taxation year
Allowable Business Investment Loss
a) there is no
documentation of the Appellant's subscription to shares of
Industrie d'émaillage Acryteck Inc.;
(denied)
b) there is
documentation of the Appellant's payment for this share
subscription; (denied)
c) no share
certificate certifies that these shares were issued to the
Appellant; (accepted)
Life insurance premium for certain clients: (consent to
judgment)
[d to n] [...]
23. Subject to the
foregoing plea, the Deputy Attorney General of Canada adds the
following:
Allowable Business Investment Loss
a) the
Appellant made a $15,000 personal loan to Mr. Alain Gamache
on March 14, 1994; (denied)
b) there was
never any question of the Appellant purchasing shares of
Industrie d'émaillage Acryteck Inc.;
(denied)
c)
Mr. Gamache subsequently assigned his property pursuant to
the Bankruptcy and Insolvency Act as did Industrie
d'émaillage Acryteck Inc.; (accepted)
d) the
Appellant made a $10,128 claim in connection with the bankruptcy
of Industrie d'émaillage Acryteck Inc., but not
Mr. Gamache's bankruptcy, with a view to obtaining a tax
benefit, that is, an Allowable Business Investment Loss;
(denied)
e) the
Appellant also signed a letter for Mr. Gamache, when the
latter was experiencing financial problems with a view to making
this tax benefit plausible. (denied)
1996
[2] The Respondent disallowed the
Appellant's $123,481 deduction for life insurance premiums he
paid for clients in the 1996 taxation year. In the amended Reply
to the Notice of Appeal, the Respondent now allows the deduction
and therefore consents to the judgment. The 1996 taxation
year is therefore no longer at issue and the appeal for that year
is allowed through consent.
1997
[3] In 1997, the Appellant was
disallowed a deduction similar to that for the 1996 taxation
year. In its amended Reply to the Notice of Appeal, the
Respondent allowed the $74,173 deduction. At the beginning
of the hearing, the Respondent informed the Court that the $5,000
the Appellant paid Mr. Lofti Ghattas in life insurance
premiums (or commissions) had been allowed and added to the
$74,173. The sole issue before this Court is whether the
Appellant is entitled to deduct an $11,250 allowable business
investment loss in the 1997 taxation year.
1998
[4] The Appellant was allowed, in the
amended Reply to the Notice of Appeal, a $3,457 deduction the
Respondent had previously disallowed for life insurance premiums
he had paid. The Respondent also informed the Court that it had
agreed to allow a $2,589 deduction for commissions paid to
individuals, which had previously been disallowed. For his
part, the Appellant abandoned the portion of his appeal involving
the $500 legal fees and the $710 in entertainment expenses he had
been disallowed.
[5] Based on the assessment of March
8, 2001 for the 1998 taxation year, the following is a summary of
the expenses claimed by the Appellant which he is still
disallowed:
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Allowable Business Investment Loss
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$3,750
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Commissions paid to a corporation
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$30,000
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Automobile expenses
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$3,281
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Parking
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$502
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Software
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$159
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[6] During the taxation years at
issue, the Appellant was an employee of the London Life Insurance
Company. He was assigned to selling life insurance and carried
out his duties other than at his employer's place of business.
His remuneration consisted in whole or in part of commissions
based on his volume of sales. He was required, under his
contract of employment, to cover his own expenses and he did not
receive any reimbursement from his employer.
[7] In 1997, he was disallowed an
$11,250 deduction claimed as an Allowable Business
Investment Loss. This dates back to 1995. The Appellant met
Mr. Alain Gamache, a representative from Industrie
d'émaillage Acryteck Inc. (Acryteck). The
latter wanted to obtain certain research and development tax
credits and wanted the Appellant to do it for him. The
Appellant has an MFisc. from the Université de Sherbrooke
and has some experience in this area. It was agreed that
the Appellant's fee would be 15% of the amounts he was going to
collect as tax credits.
[8] Acryteck was, however, having
financial problems and this was when the Appellant decided to
invest $15,000 in the firm with a view to providing
assistance. He therefore wrote a cheque for $15,000, but it
was payable to
Mr. Alain Gamache. In return, he was supposed to
receive from Mr. Gamache either newly issued redeemable
common or preferred shares of Acryteck entitling the holder to a
10% dividend rate. The Appellant did not provide the cheque
which, it would seem, he dated 1994. The Appellant says that it
was obviously a mistake. He did, however, indicate 1994 in his
1997 tax return as the year in which he acquired shares, without
indicating the number or class of shares. The Appellant
says he was eventually supposed to receive preferred
shares. He cannot explain why he wrote the cheque to Alain
Gamache instead of Acryteck. The Appellant did not provide any
evidence that the funds given to Alain Gamache were
deposited into Acryteck's accounts.
[9] When he did not receive any share
certificates, the Appellant went to meet with Alain Gamache,
who informed him that the lawyer hired to issue the share
certificates had been disbarred and was unable to complete the
task. On April 1, 1996, the Appellant received an $11,000
cheque from Alain Gamache drawn on the Acryteck account and
payable to the Appellant. There was a note on the cheque to
the effect that it was a cash repayment of a loan and there were
instructions not to cash the cheque because Acryteck did not have
enough funds. On June 18 that same year, the Appellant
received a second cheque from Acryteck in the amount of
$5,000. There was a note on it to the effect that it was a
repayment of a loan balance and there were identical instructions
on it, that is, not to cash it because there were not enough
funds in the account. Both cheques were never in fact
cashed.
[10] The Appellant testified that it was a
repayment for the preferred shares to which he was supposed to
subscribe and later he added that it was to redeem the preferred
shares. No rescission from Acryteck was entered as evidence
confirming that the Appellant had purchased shares. In
fact, it is important to point out that the Appellant also
mentioned in his testimony that he took steps with
Alain Gamache to purchase this debt obligation. He
corrected himself and mentioned the redemption of preferred
shares. This same mistake was also made in Paragraph 31 of
the Appellant's Notice of Appeal, which reads as follows:
21. In 1994, a $15,000
cheque was made out to Mr. Alain Gamache to invest in
Industrie d'émaillage Acryteck in consideration for
the corporation's debt or share capital. Based on trust,
this amount was supposed to lead to a subscription to a debt, but
based on Mr. Gamache's arguments, the amount was supposed to
be put toward shares of the corporation. Mr. Gamache
declared personal bankruptcy shortly after the transaction.
The firm's president was then informed of the investment in the
corporation's share capital.
[11] Throughout his testimony, the Appellant
seemed to confuse debt and credit with share capital or
subscription to a debt.
[12] On November 8, 1996, Alain Gamache
assigned his property pursuant to the Bankruptcy and
Insolvency Act. Acryteck suffered the same fate and assigned
its property pursuant to the same Act on April 1, 1997. The
assignment of Acryteck's property was signed by
Mr. Michel Pageau, the then President of
Acryteck. Mention was made of the Appellant's financial
claim to $10,128, which represents his fees for the services
rendered to Acryteck in connection with the tax credits.
The Appellant had no financial claim in the assignment of Alain
Gamache's property.
[13] During the audit in 1999, the Appellant
asked Alain Gamache to confirm what they had agreed to when
the $15,000 was advanced to the latter. An undated letter
was faxed to the Appellant on September 20, 1999. In this
letter, the author, who did not testify, discussed the
Appellant's investment in Acryteck's share capital. This
same author had nonetheless indicated on the cheques dated April
1, 1996 and June 28, 1996 that they were loan
repayments.
[14] The audit of the Appellant began on
December 14, 1998. This audit covered the 1996 and 1997
taxation years. On September 21, 1999, the Appellant was
orally informed that he had to file his tax returns for the 1998
taxation year, and on September 22, 1999, he was so informed in
writing. The Appellant filed his 1998 tax return on
November 30, 1999, at the Quebec City Tax Centre. After
some confusion and the objection were resolved, the appealed
assessment for 1998 is dated March 8, 2001.
[15] On his 1998 tax return, the Appellant
deducted, among other things, a $3,750 business investment loss
which he was disallowed. I will come back to the other
disallowed expenses in 1998 later.
Mr. Pierre Trépanier, who was the operations
manager of the Polyclinique Médico-Santé Inc.
in 1997 and 1998, explained the steps the Appellant took. During
the period at issue, 1996, a Ms Veilleux was operations
manager.
[16] According to Mr. Trépanier,
the Polyclinique Médico-Santé Inc.
(Polyclinique) rented an office in 1996 from a firm called
Germain-des-Prés in Quebec City. This
office became too small and the Polyclinique had to purchase a
building; the purchase was to close on December 16, 1996. Since
he needed financial assistance until he purchased the building,
Mr. Trépanier applied for loans he termed
temporary. This is how he approached the Appellant.
The goal was to borrow money temporarily and to repay it
afterward by issuing shares. Under cross-examination, he
admitted that the shares would be in a new corporation to be
incorporated with a view to purchasing the building. These
two corporations would then be amalgamated.
[17] On August 28, 1996, the Appellant gave
the Polyclinique a cheque for $5,000. Mr. Trépanier
said the interest rate on this loan was supposed to be 10%.
He described this cheque as a subscription cheque and did not
provide any further details. There is nothing written on
the cheque itself to clarify the situation. In 1998, the
Polyclinique experienced financial problems and was unable to
repay its creditors, including the Appellant. Under
cross-examination, Mr. Trépanier said that the
Appellant had the choice when the building was purchased to
purchase shares of the new corporation or be repaid. He
also said that no terms or conditions of repayment were
negotiated with the Appellant.
[18] The Polyclinique's financial statements
were entered as evidence. Under the long-term debt heading,
there is a $5,000 debt to an unidentified individual and there
are no terms or conditions of repayment or interest. The
accountant was allegedly given this information by Ms. Veilleux
or on behalf of Mr. Trépanier;
Mr. Trépanier says that it was the debt to the
Appellant. The Appellant said that he did not have any
documentation on the loan because he trusted the people and he
did not have the energy to get any from them.
[19] Is there an Allowable Business
Investment Loss (ABIL) in these two cases? In Gill v.
Canada, [1998] T.C.J. no 765 (Q.L.), Mr. Justice
Brulé from our court defined an ABIL as follows in
Paragraph 14:
A business investment loss is a loss incurred on a disposition
of capital property under the conditions set forth in paragraph
39(1)(c). The following conditions must be met. Firstly, the
capital property must be a share of a "small business
corporation" or a debt owed to the taxpayer by such a
corporation. Secondly, the shares or debt are, unless
subsection 50(1) applies, disposed of to a person dealing with
the taxpayer at arm's length.
[20] The analysis of the first condition
must be continued by examining the definition of "small business
corporation" in subsection 248(1) of the Income tax Act
(the "Act"). We are referred in subparagraph 248(1)(a) of
this definition to subsections 248(1) and 125(7) for the
definition of "active business". These two definitions, in
virtually identical terms, themselves refer us to the definitions
of "specified investment business" and "personal services
business" in subsection 125(7) of the Act.
[21] In order to be able to determine
whether the second condition specified by Mr. Justice
Brulé is met, it is also necessary to determine whether
there was a "disposition" of the shares or debt. Pursuant
to subsection 50(1) of the Act, there may be a deemed disposition
in a number of situations. In Roy v. Canada, [2002] T.C.J.
No 134 (Q.L.), Mr. Justice Tardif of our court
summarized it all as follows in Paragraph 17:
There is a deemed disposition of a debt where the debt becomes
a bad debt. There is a deemed disposition of a share where
the corporation that issued the share (1) becomes a bankrupt; (2)
becomes insolvent within the meaning of the Winding-up Act
and in respect of which a winding-up order under that Act has
been made in the year or; (3) is insolvent at the end of the year
and neither the corporation nor a corporation controlled by it
carries on business.
[22] Last, the taxpayer who wants to claim
an ABIL must prove that the debt was acquired for the purpose of
earning income. Failing this, the loss incurred may be
deemed nil pursuant to subparagraph 40(2)(g)(ii) of the
Act.
[23] The following are the relevant legal
provisions:
39. (1) For the purposes of this Act,
[...]
(c) a taxpayer's business investment loss
for a taxation year from the disposition of any property is the
amount, if any, by which the taxpayer's capital loss for the
year from a disposition after 1977
(i) to which subsection 50(1) applies, or
(ii) to a person with whom the taxpayer was dealing at
arm's length
of any property that is
(iii) a share of the capital stock of a small business
corporation, or
(iv) a debt owing to the taxpayer by a Canadian-controlled
private corporation (other than, where the taxpayer is a
corporation, a debt owing to it by a corporation with which it
does not deal at arm's length) that is
(A) a small business corporation,
(B) a bankrupt (within the meaning assigned by subsection
128(3)) that was a small business corporation at the time it last
became a bankrupt, or
(C) a corporation referred to in section 6 of the Winding-up
Act that was insolvent (within the meaning of that Act) and was a
small business corporation at the time a winding-up order under
that Act was made in respect of the corporation,
[. . .]
40(2) Notwithstanding subsection 40(1),
[. . .]
(g) a taxpayer's loss, if any, from the disposition
of a property, to the extent that it is
(i) a superficial loss,
(ii) a loss from the disposition of a debt or other right to
receive an amount, unless the debt or right, as the case may be,
was acquired by the taxpayer for the purpose of gaining or
producing income from a business or property (other than exempt
income) or as consideration for the disposition of capital
property to a person with whom the taxpayer was dealing at
arm's length,
[. . .]
50.(1) For the purposes of this subdivision, where
(a) a debt owing to a taxpayer at the end of a taxation
year (other than a debt owing to the taxpayer in respect of the
disposition of personal-use property) is established by the
taxpayer to have become a bad debt in the year, or
(b) a share (other than a share received by a taxpayer
as consideration in respect of the disposition of personal-use
property) of the capital stock of a corporation is owned by the
taxpayer at the end of a taxation year and
(i) the corporation has during the year become a bankrupt
(within the meaning of subsection 128(3)),
(ii) the corporation is a corporation referred to in section 6
of the Winding-up Act that is insolvent (within the
meaning of that Act) and in respect of which a winding-up order
under that Act has been made in the year, or
(iii) at the end of the year,
(A) the corporation is insolvent,
(B) neither the corporation nor a corporation controlled by it
carries on business,
(C) the fair market value of the share is nil, and
(D) it is reasonable to expect that the corporation will be
dissolved or wound up and will not commence to carry on
business
and the taxpayer elects in the taxpayer's return of income
for the year to have this subsection apply in respect of the debt
or the share, as the case may be, the taxpayer shall be deemed to
have disposed of the debt or the share, as the case may be, at
the end of the year for proceeds equal to nil and to have
reacquired it immediately after the end of the year at a cost
equal to nil.
54: "disposition'' of any property, except as
expressly otherwise provided, includes
(a) any transaction or event entitling a taxpayer to
proceeds of disposition of the property,
(b) any transaction or event by which,
(i) where the property is a share, bond, debenture, note,
certificate, mortgage, agreement of sale or similar property, or
an interest in it, the property is redeemed in whole or in part
or is cancelled,
(ii) where the property is a debt or any other right to
receive an amount, the debt or other right is settled or
cancelled,
[. . .]
125(7)
"specified investment business" carried on by a
corporation in a taxation year means a business (other than a
business carried on by a credit union or a business of leasing
property other than real property) the principal purpose of which
is to derive income (including interest, dividends, rents and
royalties) from property but, except where the corporation was a
prescribed labour-sponsored venture capital corporation at any
time in the year, does not include a business carried on by the
corporation in the year where
(a) the corporation employs in the
business throughout the year more than 5 full-time employees,
or
(b) any other corporation associated with the
corporation provides, in the course of carrying on an active
business, managerial, administrative, financial, maintenance or
other similar services to the corporation in the year and the
corporation could reasonably be expected to require more than 5
full-time employees if those services had not been provided;
125(7) "personal services business" carried on by a
corporation in a taxation year means a business of providing
services where
(a) an individual who performs services on behalf of
the corporation (in this definition and paragraph 18(1)(p)
referred to as an "incorporated employee"), or
(b) any person related to the incorporated employee
is a specified shareholder of the corporation and the
incorporated employee would reasonably be regarded as an officer
or employee of the person or partnership to whom or to which the
services were provided but for the existence of the corporation,
unless
(c) the corporation employs in the business throughout
the year more than five full-time employees, or
(d) the amount paid or payable to the corporation in
the year for the services is received or receivable by it from a
corporation with which it was associated in the year;
125(7) "active business carried on by a corporation"
means any business carried on by the corporation other than a
specified investment business or a personal services
business and includes an adventure or concern in the nature of
trade;
248(1) "active business", in relation to any
business carried on by a taxpayer resident in Canada, means any
business carried on by the taxpayer other than a specified
investment business or a personal services business;
248(1) "small business corporation", at any
particular time, means, subject to subsection 110.6(15), a
particular corporation that is a Canadian-controlled private
corporation all or substantially all of the fair market value of
the assets of which at that time is attributable to assets that
are
(a) used principally in an active business carried on
primarily in Canada by the particular corporation or by a
corporation related to it,
(b) shares of the capital stock or indebtedness of one
or more small business corporations that are at that time
connected with the particular corporation (within the meaning of
subsection 186(4) on the assumption that the small business
corporation is at that time a "payer corporation"
within the meaning of that subsection), or
(c) assets described in paragraphs 248(1) "small
business corporation" (a) and 248(1) "small business
corporation" (b),
including, for the purpose of paragraph 39(1)(c), a
corporation that was at any time in the 12 months preceding that
time a small business corporation, and, for the purpose of this
definition, the fair market value of a net income stabilization
account shall be deemed to be nil;
[24] The Appellant's testimony concerning
the two transactions for which he claims an ABIL is very
ambiguous, to say the least. He had tremendous trouble
during the whole hearing pinpointing his thoughts. It is
difficult to determine, for the transaction with Acryteck, the
year in which the cheque was written and the fact that it was
payable to Alain Gamache, not Acryteck, whose shares to which he
was supposed to be subscribing. Were shares purchased from
Alain Gamache or Acryteck? Did the corporation finally
receive these funds or not? No share certificate was issued
and reference is made on both uncashed cheques to a loan.
The Appellant later testified that he wanted to purchase the debt
obligation or redeem preferred shares.
[25] The Appellant did not call any
witnesses who could confirm anything; he provided an undated
letter from Alain Gamache during the audit which indicated that
the Appellant's investment had been credited to Acryteck's share
capital. Alain Gamache did not testify and I attach little
significance to this element of proof.
[26] Faced with this ambiguity, it is
difficult to identify the exact nature of the transaction.
The capital property seems to be a debt obligation, not shares of
Acryteck's share capital. No shares were issued to the
Appellant. The $1,500 cheque written to Mr. Alain
Gamache did not create a debt obligation for a small business
corporation.
[27] It is also very difficult to identify
the exact nature of the transaction involving the
Polyclinique. Was it a loan or a subscription to shares of
the Polyclinique or another corporation to be incorporated? No
share certificate was issued in the Appellant's name. If it
was a loan, no repayment terms were discussed. Was the
Polyclinique a small business corporation? The Appellant did not
provide any evidence in connection with this issue.
[28] As a result of these ambiguities, the
Appellant did not discharge the burden of proof on him. For
these reasons, I conclude that the Appellant did not incur an
Allowable Business Investment Loss in the 1997 and 1998 taxation
years.
[29] A second deduction the Appellant was
disallowed for the 1998 taxation year is described as being
$30,000 in commissions paid to a corporation. The Appellant
testified that his contract of employment with his employer did
not reflect reality because he had his own office and he did not
have the same status as an employee. He therefore asked his
employer in September 1998 whether he could change his status on
the grounds that he had all the skills. He wanted to
incorporate a business that was going to become his employer's
representative. This request was however delayed and it was not
until March 22, 1999 that London Life signed an agreement
entitled "Convention du représentant constitué en
société [representative incorporation agreement]"
with 71-2852 Québec Inc., a corporation whose shares
are held by the Appellant and with a trust the beneficiary of
which is his son. It was incorporated on December 7, 1998.
The Respondent entered this document as evidence.
[30] The Conseil des assurances de personnes
[personal insurance council] issued two certificates to
9071-2852 Québec Inc., one on March 15, 1999 and
another on April 30, 1999. These certificates are identical and
certify that 9071-2852 complied with the provisions of the
Act Respecting Market Intermediaries and the By-Law of
the Conseil des assurances de personnes and that
9071-2852 is authorized to conduct activities as a
firm.
[31] The Appellant entered into evidence a
guide published by London Life on incorporating a business, which
explains among other things the steps to be taken to incorporate.
I have provided the following copy of this guide with a view to
illustrating the process and its legal repercussions:
Steps to incorporation
1. Submit an application for incorporation in
writing to the regional director. The application must be
approved by the regional director, the regional vice-president
and the senior vice-president.
2. Select a corporate name following a
name search and establish a corporate name in accordance with
provincial regulations.
3. Incorporate detailing the objects
of the corporation and share capital structure, and issue shares
to the intended shareholders
4. Prepare and execute a written
employment agreement between the new corporation and its
principal employee (the advisor).
5. Complete an application from
Field Operations, terminal 304, for licensing of the corporation.
This completed document should be returned to Field Operations
along with details of incorporation, including the articles of
incorporation and the date of incorporation.
6. In addition to the above documents,
Field Operations also requires a letter of direction for an
absolute assignment or a copy of a buy/sell agreement between the
individual advisor and the corporation in order to pay future
commissions to the corporation and to transfer existing
commissions from the individual advisor account to the corporate
account.
7. The letter of direction should
outline that future commissions and renewals have been
transferred from the individual advisor to the corporation. The
agreement should also indicate that the individual advisor has
waived all rights to any and all commissions and that all
policies are to be transferred.
8. Following submission of the
absolute assignment or buy/sell agreement, all subsequent
commissions will be paid to the corporation, including first year
commission and second and third year individual life renewal
commissions. Tax implications of this absolute assignment should
be reviewed with a tax advisor.
9. Field Operations will forward for
signature two copies of the Incorporated Representative Sales
Agreement once the incorporated license has been issued. An
authorized official of the corporation should sign and return
both copies of the agreement to Field Operations, Terminal 314.
One copy of the incorporated agreement will be returned to the
incorporated advisor signed by an authorized official of London
Life.
10. Ask Field Operations, Terminal 304, for an application for
the group insurance policy for incorporated advisors. Fill out
and return the application from Great West.
11. Open a corporate bank account for pay deposits and obtain
a corporate telephone listing, corporate stationery and business
cards.
12. Display the corporate name on building directories and,
where practical, on office entrances.
[32] Once the Appellant had made this
decision in September 1998, he decided to transfer his
commissions for October, November and December 1998 to his
corporation. When he received a total of $131,594 in commissions
from London Life for 1998, he simply took three quarters of his
annual income and arbitrarily set the commission amount at
$30,000. Based on his testimony, his corporation already
covered his operating expenses and had allegedly taken on his
contracts with his employer. On December 15, 1998,
9071-2852 produced a $30,000 invoice for commissions up to
December 31, 1998.
[33] To pay for the transfer of his
commissions, he explained that he transferred to his corporation
the right to purchase lots that he had personally agreed to
purchase from the Caisse populaire Saint-Thomas
d'Aquin. The Appellant gave the Caisse populaire in question
two cheques, one on November 12, 1998, for $25,000 and
another on December 18, 1998 for $15,000, as deposits to purchase
the lots.
[34] The transaction was carried out on
March 11, 1999. A transfer document indicating 9071-2852 as
the purchaser was provided. The Appellant said that the $40,000
indicated in the statement of adjustments was an instalment paid
to the vendor. The Appellant also said that this instalment
is the total of the two above-mentioned cheques, that is, $30,000
for an invoice from 9071-2852 and $10,000 for an advance to
his corporation, 9071-2852. No documents were provided from
9071-2852 to confirm these statements.
[35] The Appellant's version of the facts
once again lacks credibility and it is surprising to see the ease
with which he organizes his affairs. Based on the
documentary evidence provided, corporation 9071-2852, which was
incorporated by the Appellant, was able to receive commissions
only between March 15 and April 30, 2000. Corporation
9071-2852 Québec Inc. was incorporated on December 7,
1998. The $30,000 the Appellant said he transferred to his
corporation was in fact simply a transfer of commissions, and
therefore constituted income. It was therefore not
disbursed for the purpose of earning employment income. In
the case at hand, it is also merely an estimate that in no way
reflects reality.
[36] The Appellant did not corroborate any
of his testimony with any type of documentary evidence to show
that the payment was in fact made to 9071-2852
Québec Inc. No management contract signed by the
Appellant and 9071-2852 nor proof that his corporation had
taken over the contracts with London Life prior to March 1999 was
provided. In my opinion, this is not an expense incurred
for the purpose of earning employment income pursuant to
paragraph 8(1)(f) of the Act. The Minister was
therefore right to disallow this expense.
[37] With regard to his automobile expenses,
the Appellant stated in his tax return that he travelled
20,000 kilometres in 1998, 18,000 km for business
purposes and 2,000 km, personal. In his testimony, using his
agenda for 1998, he recalculated the trips he made in 1998 and
based on these new calculations, he arrived at 20,500 kilometres.
He did not take note of the total number of kilometres he put on
his car for the year, and he therefore could not calculate the
kilometres he travelled for personal purposes. He does not,
however, think he exceeded the 24,000 kilometres he was allowed
under his lease agreement. In total, he maintained that the
situation was the same the previous year for which he claimed 90%
of his expenses.
[38] For his part, during the audit, the
auditor had nothing with which he could establish a usage
percentage for personal purposes as the Appellant did not provide
any record of his travel. He therefore arbitrarily allowed
60% of automobile expenses. However, the Appellant
testified that he had two automobiles and rarely used his car for
personal purposes, except to get to work, a distance of about six
kilometres.
[39] Among his automobile expenses, the
Appellant claimed $2,000 for fuel. The auditor reduced this
amount to $1,265, based on the Appellant's vouchers. The
Appellant did not submit as evidence at the hearing any
justification for the missing $735. The auditor did not
allow the $750 in car insurance costs as the Appellant had not
provided a receipt and did not do so at the hearing.
[40] The auditor allowed only $98 of the
$600 total the Appellant claimed under the parking expenses
heading. He entered as evidence additional parking receipts
for a total of $161.04 as well as other receipts totalling $47.
The Respondent consented to these latter two amounts. The last
thing the Appellant said in this regard was that the money had
been put into parking meters, which did not issue receipts.
[41] The Appellant is responsible for
proving the expenses he claimed. It is clear in the case at
hand that the Appellant uses completely arbitrary and approximate
figures because he did not keep any records with which he can
prove the distance travelled during his taxation year and the
work-related percentage. He also did not provide any
evidence to justify the $735 in gas expenses he claimed in
addition to the $1,265 the auditor allowed him. The same is
true for the parking expenses at meters. The Appellant did
not provide any explanation to justify this expense and even less
so how the total expense is a round number like $600. This also
occurs with some of his other expenses. The Minister's
position is therefore reasonable under the circumstances.
[42] The last expense disallowed by the
auditor is the purchase of a $159 software package for which the
Appellant has no receipt. The Appellant said he paid his
brother, Sylvain Marceau, cash. It is a corporate tax
return software package, which I feel has nothing to do with an
expense incurred for the purpose of earning employment
income. The Minister was therefore correct to disallow this
expense.
[43] The appeals are allowed in part and the
assessments are referred to the Minister of National Revenue for
reconsideration and reassessment. In view of the divided
success, there will be no award of costs.
Signed at Ottawa, Canada, this 27th day of
September 2004.
Angers, J.
Translation certified true
on this 19th day of January 2005.
Wendy Blagdon, Translator
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