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Citation: 2004TCC322
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Date: 20040429
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Docket: 2000-3831(IT)G
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BETWEEN:
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STEVE PETRIK,
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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
General Procedure was heard at Lethbridge, Alberta on April 20,
2004. The Appellant was the only witness.
[2] Paragraphs 9 to 12 inclusive of
the Reply to the Notice of Appeal outline the matters in issue.
They read:
9. The
Minister further reassessed the Appellant on August 21, 1998 as
follows:
(a) to increase the
Appellant's claim for expenses by $28,168.40 from $12,949.79
to $41,118.19 for 1994, and by $17,052.24 from $0.00 to
$17,052.24 for 1995; and
(b) to increase
gross business income by $29,595.16 from $33,395.04 to $62,990.20
for 1994.
The revised gross business income for 1994 and the revised
expenses and net incomes for 1994 and 1995 are set out in
Schedule "A" attached to and forming part of the
Reply.
10. In so reassessing the
Appellant, the Minister relied on, inter alia, the
following assumptions of fact:
a) the facts
admitted and stated above;
b) at all
material times the Appellant operated a landscaping business (the
"business");
c) the
Appellant, by T1 returns dated June 03, 1996, initially reported
gross business income of $33,395.04 and total expenses of
$75,413.39 for 1994, and gross business income of $32,748.55 and
expenses of $52,107.90 for 1995;
d) the
Appellant, by T1 amended returns dated July 02, 1997, reported
gross business income of $33,683.04 for 1994 and no change to the
1994 expenses and 1995 income and expenses;
e) by way of
his original 1994 T1 return, the Appellant understated the gross
business income by the amount of $29,595.16;
f) in
1994, the Appellant incurred the amount of $41,118.19 as expenses
in the gaining or producing of income from the business;
g) in 1995,
the Appellant incurred the amount of $17,052.24 as expenses in
the gaining or producing of income from the business;
h) the amounts
of $22,697.20 and $25,070.66 claimed by the Appellant as expenses
for the 1994 and 1995 taxation years, respectively, were not
incurred and, if incurred, they were not incurred in the gaining
or producing of income from the business (the "disallowed
amounts");
i) the
amounts of $11,598.00 and $9,985.00 claimed as capital cost
allowance by the Appellant in the 1994 and 1995 taxation years
respectively were not incurred by the Appellant;
j) the
disallowed amounts, detailed in the attached Schedule
"A", were not incurred, and if incurred, were the
personal or living expenses of the Appellant.
B. ISSUE
TO BE DECIDED
11. The issue is whether
the Appellant incurred amounts as expenses beyond the amounts
allowed by the Minister in the gaining or producing of
business.
C. STATUTORY
PROVISIONS RELIED ON
12. The Deputy Attorney
General relies on sections 3, 9 and 18 and subsection 248(1) of
the Income Tax Act, R.S.C. 1985, c. 1 (5th Suppl), as
amended (the "Act").
[3] Assumptions 10(b), (c) and (d)
were not refuted by the evidence. The remainder are in dispute,
and are essentially a question of verified numbers, questions of
personal expenditures, or items claimed as expenses which are, in
fact, capital.
[4] Respondent's working papers
contained in Exhibit R-2 are the source of the material for the
assessments and were reviewed in detail in cross-examination.
From them, based on the Appellant's testimony, the Court
allows the Appellant the deduction of additional expenses over
those allowed by the Minister as itemized in R-2, and as
described hereafter:
1994, page 3:
Freddies Paint: $140.19, $70.10 and $186.92;
Just for Pets: 75 percent of $155, $90 and $149.54;
Logic Lumber: $280.37, $934.58, $373.83, $280.37 and
$225.78;
Thunderbird: $17.70, $15.46, $32.89, $11.85 and $29.58;
Page
5:
Fuel:
90 percent of $4,135.26.
Page
6:
G & E
Insurance: $500, $800 and $350;
Page 10:
Rent, Banker's Commercial: $401.25, $433.86 and
$10.54.
Page 17:
Capital cost allowance:
August 4, 1994, 1978 Ford one ton, capital expenditure,
$3,210;
November 1994, 1972 Ford three-quarter ton, capital
expenditure, $1,100.
1995, page 19:
Fuel Adjustment, add expense $2009.08;
Capital cost allowance, carry forward allowed balance from
1994.
[5] During 1994, the Appellant
operated a landscaping business. He did not keep books after his
divorce, upon separation from his wife. He did not invoice his
bids or jobs in those years. He frequently dealt in cash. He was
the subject of collection proceedings, and he had to sue on jobs.
If he won a lawsuit, as with "Cornerstone", the lawyer
collected and paid the Appellant's accounts from his trust
account, and the Appellant never recorded it. See Exhibit A-1.
The Appellant has no comprehension of the difference between a
capital expenditure, an "expense" or capital cost
allowance.
[6] The Appellant is obviously not
well-to-do, and may belong in bankruptcy. He conducted his own
case. His income tax returns were filed by an accounting firm
that simply accepted what he had and reported it the same way.
The "income" reported was the Appellant's bank
account deposits. The "expenses" claimed were whatever
he recorded as expenses. Then and now, there were often no
back-up records.
[7] Crown counsel was generous in her
cross-examination of the Appellant. Without that, he would not
have been allowed the additional amounts described herein.
[8] The appealed is allowed to permit
the Appellant to claim the additional sums described herein, and
the assessments are referred to the Minister for reconsideration
and reassessment accordingly.
[9] Properly appealed, this should be
an informal appeal; nonetheless, the Respondent was put to great
effort to get this matter before the Court, and even then the
trial was conducted very fairly by Respondent's counsel
herself. Nonetheless, and despite the courtesy granted by Crown
counsel in this matter, and because of the circumstances of the
Appellant, I am not awarding costs.
Signed at Saskatoon, Saskatchewan this 29th day of April
2004.
Beaubier, J.
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