[OFFICIAL ENGLISH TRANSLATION]
Date: 20030117
Docket: 2000-2504(IT)G
BETWEEN:
LISE GAGNÉ,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Tardif, J.T.C.C.
[1] This is an appeal concerning the 1997 and 1998
taxation years.
[2] The points at issue are as follows:
·
Did the appellant operate a business with a view to making
a profit?
·
If so, was the Minister of National Revenue (the "Minister")
correct in disallowing certain expenses, including and in particular a portion
of the amounts paid to various employees as salary?
Facts
[3] In 1997 and 1998, the appellant reported no business
income since, she said, her reported income was regular employee remuneration.
[4] During and after that period, the appellant offered
care and accommodation services to intellectually disabled persons.
[5] The six beneficiaries of her services were housed in a
residence that she rented from a non-profit corporation whose corporate name
was "Loge réadaptation Sag-Lac inc.".
[6] It was a residence where each beneficiary had his or
her room; there the beneficiaries were fed and cared for in accordance with
their degree of dependence.
[7] The services offered and dispensed were provided by
the appellant and a few persons whom she had hired to do so; the particular
care requiring an expertise was provided by resource persons from the outside
without any financial contribution from the appellant.
[8] The appellant did not reside in the same place and had
her private residence elsewhere; she travelled every day to the residence,
which housed the six beneficiaries, where she spent approximately 40 hours
a week.
[9] In consideration for her responsibilities, which were
to house, feed and see to the welfare, comfort and safety of the six
beneficiaries, the appellant received two classes of income: she received most
of the social assistance benefits that the beneficiaries received from the
provincial income security program and a per diem for each beneficiary from the
Centre de réadaptation du Québec through the Régie régionale de la santé.
[10] The appellant paid all the expenses relating to the
beneficiaries' occupation of the premises such as rent, beneficiary allowances,
indoor and outdoor maintenance of the premises, meals, transportation,
telephone and utilities.
[11] The appellant took a salary of $15,300 for the 1997
taxation year and a salary of $17,460 for 1998; that salary was taken out of
the income deposited to a special account to which only she and her father, an
accountant, had access.
[12] All the expenses were paid in cash, without receipts;
in the same manner, she also paid a very large component of the operating
costs—$25,785 for 1997 and $25,335 for 1998—as remuneration to persons whose
services she retained during periods when she was not present.
[13] The appellant received total income of $94,018.11 for
1997 and $93,769.10 for 1998 in the context of the activities described above.
[14] At the time of the audit, although they were not very
convincingly substantiated, the Minister allowed the following expenses
(Exhibit I‑2):
SUMMARY OF CHANGES
Computation of the income of Maison d'hébergement des Cyprès
|
Year
|
1998
|
1997
|
|
INCOME
Income
from the Centre de réadaptation
Income
from beneficiaries
|
$43,405.10
50,364.00
|
$44,548.11
49,470.00
|
|
EXPENSES
Land
maintenance
Allowance
to beneficiaries
Housing
Telephone
and utilities
Food
and cleaning
Vehicle
expenses and travel
Salaries
Miscellaneous
expenses
|
$93,769.10
1,154.00
10,656.00
26,980.00
745.62
18,720.00
1,500.00
5,000.00
1,315.35
|
$94,018.11
1,200.00
10,440.00
23,520.00
669.51
18,720.00
1,125.00
5,000.00
1,634.34
|
|
TOTAL:
|
$66,070.97
$27,698.13
|
$62,308.85
$31,709.26
|
|
|
|
. . .
[15] Although there was
no supporting documentation, the Minister in fact allowed all the expenses,
with the exception of those under the salary item, for which he allowed an
amount of $5,000 for each taxation year.
[16] The evidence also
showed that the appellant alone controlled the budget. All the expenses except
rent were variable, and the appellant had complete freedom as to how she
delivered the services she had agreed to render to the beneficiaries. She
moreover admitted that any surplus generated belonged to her by right.
[17] The appellant
first contended that she had not operated a business within the meaning of the Income
Tax Act (the "Act"); she said that she had no chance of
making a profit since she had no control over the income, which was fixed.
[18] She also stated
that she had no flexibility as to the number of beneficiaries established by
outside interveners. Lastly, she contended that the figures in her homemade
balance sheets showed that it was impossible to obtain income greater than the
salary she took. In her opinion, she had no chance of profit—only risk of loss.
[19] Operating a
business for the purpose of making a profit does not in any way require one to
have full control over all the components of income. One need only know the
income available and have broad flexibility with regard to expenses so as to
manage as carefully as possible in order to generate surpluses of which one is
the sole beneficiary.
[20] In support of her
claims that she had not operated a business, the appellant also claimed that
she had carried on a regulated activity excluded from the commercial sector by
the legislature.
[21] I do not believe
that the appellant qualified for the legal exclusion. She did not house the
persons for whom she was responsible at her home, in her private residence; she
had rented a house for the sole purpose of providing for the welfare, comfort
and safety of the residents entrusted to her on the basis of the premises.
[22] The appellant
travelled each day to the residence the sole purpose of which was to provide
for the care of the disabled persons entrusted to her; she saw to the proper
conduct of operations; she spent approximately 40 hours a week there. She
spent the rest of the time hiring various persons, including students, to
provide a presence and to ensure that the beneficiaries could have access to a
resource if required.
[23] The assessment was
made in the context of an investigation of a number of operators of residences
for persons suffering from severe mental or physical disabilities.
[24] Given the grey
area surrounding the exemption status conferred by the legislature on certain
residences established as reception centres for persons who, as a result of a
disability, have a high degree of dependence, the auditor clearly took a
sympathetic approach to the appellant's case.
[25] He allowed all
expenses without receipts or supporting documentation on the sole basis of the
appellant's oral statements and particulars, with the exception however of
those under the salary item, where once again the auditor allowed an amount of
$5,000 without any supporting documents.
[26] The appellant
filed utterly deficient and indeed baffling accounting, requiring an absolute
act of faith in view of the fact that everything had been paid for in cash,
without vouchers, or even any notation of any kind whatsoever.
[27] That way of doing
things was all the more surprising since the appellant admitted that her
father, an accountant by training, had handled the administration and accounting.
[28] As to the salary
heading, under which an amount of $5,000 had been granted for each of the
years, the appellant was unable to name the persons who had been paid in cash;
she filed no evidence regarding the work performed, timetables, schedules, rates
and so on. She essentially stated that, for each year in issue, she had paid
over $25,000 in cash to unidentified persons. She would like the Court to allow
deductions of $25,785 for 1997 and $25,335 for 1998 solely on the strength of
her testimony, on the assumption that it would conclude that she had operated a
business.
[29] The appellant
sought and accepted responsibility for taking care of six persons suffering
from severe mental impairment, at a place other than her private residence, in
exchange for income from two sources: the social assistance that the residents
received and a per diem. While that choice was not debatable in any way, the
consequence was that she and the members of her family could not ensure the
comfort, welfare and safety of the beneficiaries by their presence alone. In
other words, her choice resulted in higher service delivery costs because all
her absences had to be offset by the presence of third parties.
[30] To do so, she
contended that she had relied on a number of persons, including students, who
obviously had to be remunerated. All were paid under the table, in cash, with
the blessing of her accountant father, who prepared the envelopes without any
information on the workers in question.
[31] The appellant
devoting some 40 hours to the residents, other persons clearly had to be
put to work to ensure a constant presence.
[32] The residence for
which the appellant was responsible housed six mentally impaired persons.
During the day, there appears to have been people coming and going in such a
way as to meet the users' needs. There had to be an attendant at night and
during certain periods. How many hours? At what hourly rate? What duties had to
be performed? All those questions remained unanswered, except that the appellant
made a simple calculation to determine that one week represented
168 hours, that she was working approximately 40 hours, and thus the
house was left unsupervised for approximately 120 hours.
[33] The respondent
allowed an amount of $5,000; the appellant contends that she paid $25,785 in
1997 and $25,335 in 1998.
[34] This was not a
secondary or marginal component, but rather an amount greater than $50,000 for
two years, paid in cash to unidentified persons. Accepting as the only evidence
the testimony of an interested person without supporting documentation would be
tantamount to endorsing utterly unjustified behaviour and reckless disregard.
[35] I understand that
the appellant might have paid more than $5,000 a year, but I do not believe she
disbursed the amount claimed as an expense under that item. I therefore set
that amount, arbitrarily, I agree, but failing supporting documentation, I have
no other means of valuing it other than at $300 a week, or $15,600 a year, for
each of the taxation years.
[36] In support of her
claims, the appellant referred to a very interesting decision in Centre du
Florès c. St-Arnaud, C.S. Montréal 500‑05‑066368‑018,
2002‑03‑04, AZ‑50115188, D.T.E. 2002T‑309.
[37] In that case,
Viau J. was asked to review the decision of St‑Arnaud J., who
had reversed a decision by the Labour Commissioner, Jean Lalonde.
Viau J. dismissed the application for judicial review and affirmed St‑Arnaud J.'s
decision.
[38] It is easy to see
from that decision that many initiatives have been put forward over the years
to deinstitutionalize the health system in order to enable those suffering from
physical and mental disabilities to gain access to resources that are more
humane, more family-like, more reliable and especially unanimously recognized
as more advantageous for beneficiaries.
[39] The idea has been
to make use of foster families, which integrate beneficiaries requiring special
attention into family life. The private residences of foster families provide
an exceptional environment.
[40] In the
circumstances, relations between foster families and beneficiaries are shaped
by family spirit, dedication and more humanitarian than monetary concerns.
[41] It is possible of
course to track or account for some services, but that is not true of human
aspects, which are not quantifiable. It was therefore appropriate and entirely
legitimate for the legislature to recognize these new realities, which are
beneficial for many disadvantaged persons.
[42] Since demand has
exceeded supply, some conceived of and established other types of reception
centres where human and family-like supervision have considerably declined. I
do not believe that that type of residence is covered by the exemptions
provided for in sections 312 and 313 of the Act respecting health and
social services, which read as follows:
312. One or two persons receiving in their home a maximum of nine
children in difficulty entrusted to them by a public institution in order to
respond to their needs and afford them living conditions fostering a
parent-child relationship in a family-like environment may be recognized as a
foster family.
One or two persons receiving in their home a maximum of
nine adults or elderly persons entrusted to them by a public institution in
order to respond to their needs and afford them living conditions as close to a
natural environment as possible may be recognized as a foster home.
313. Activities and services provided by a family-type resource are
deemed not to be a commercial enterprise or a means to make profit.
(My
emphasis.)
[43] I also think it
useful to cite a passage from the judgment of Viau J. in which no emphasis
was made:
[TRANSLATION]
. . . the
performance of the required work, in accordance with article 3 of the
contract, to "reside and share his existence with the user" does not
imply in any way that the contract worker can escape that requirement without
failing to comply with his contract. He may of course have himself replaced
from time to time, but the nature of the contract remains "intuitu
personae". The Framework for Recognition of Intermediate Resources
(E‑9) imposes on every contract applicant, subject to selection by
interview, the requirement of strict criteria, including the following
enumeration of required personal qualities: degree of maturity; empathy;
self-esteem; quality of judgment; ability to have satisfactory relations with
others; degree of openness to the outside world; sexual maturity; and so on. If
the personal obligation to perform the work did not exist, it would be hard to
see the purpose of such criteria. According to the testimony of educator
DAGENAIS, the duty to warn the educator in case of replacement during vacation
still exists. Mr. Dagenais added that, if the user falls into
confusion, the contract employee can at all times communicate with an educator
to obtain assistance. An emergency number is available on weekends. Thus, this
legal relationship of subordination, which must be interpreted liberally and
may even be minimal, nevertheless exists, even though it may not be exercised
on a daily basis and may allow considerable flexibility in the performance of
duties, particularly in the administration of a user's personal expenses.
(My
emphasis.)
[44] In the instant
case, if the contract binding the appellant and the payers of the per diem
was a contract "intuitu personae", that was not apparent at
all from the evidence. The appellant essentially described her work as any work
to which she devoted approximately 40 hours a week. It was essentially a
business operated at a place other than her private residence.
[45] For all the
aforementioned reasons, there is no doubt that the appellant did in fact
operate a business during the years in issue. As a result, she was entitled to
deduct all the expenses relating to the operation of the business, provided
they were necessary and supported by the appropriate documents. Since the third
party remuneration component was the only point at issue, the Court, having
regard to the very deficient evidence, determines that the amount of that
expense was $15,600 for each of the years in issue.
[46] The appeal is
therefore allowed on the basis that for the 1995 and 1996 taxation years the
appellant was entitled to deduct from her business income an amount of $15,600
for remuneration paid to third parties, the whole without costs in view of the
fact that the case essentially arises from the absence of adequate accounting.
I am convinced that, if the appellant had been able to file a minimum of
supporting documents, the case would have been settled to her satisfaction
without her having to institute an appeal.
[47] As to costs, it
seemed clear to me that, with an elementary level of bookkeeping supported by a
minimum of supporting documents, the case would not have been the subject of an
appeal and would clearly have been settled to the appellant's satisfaction. In
other words, the appellant was the cause of her own problem, as a result of
which I allow the appeal in part, but without costs.
Signed at Ottawa, Canada, this 17th day
of January 2003.
J.T.C.C.
Translation
certified true
on this 10th day of March 2004.
Sophie Debbané,
Revisor
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