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Citation: 2003TCC482
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Date: 20030711
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Docket: 2002-236(IT)I
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BETWEEN:
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CHRISTA ILSE WEBER,
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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
Sarchuk J.
[1] These are appeals by Christa Ilse
Weber from reassessments of tax with respect to her 1994, 1995,
1996, 1997, 1998 and 1999 taxation years. Some background to
these reassessments is warranted.
1994 and 1995
[2] The Appellant failed to file an
income tax return for her 1994 and 1995 taxation years as
required under subsection 150(1) of the Income Tax
Act (the Act). Subsequently, on March 27, 2000 in
the course of an ongoing audit, the Appellant filed her returns
and in computing her income for those taxation years reported net
business income in the amounts of $763.98 and $5,819.02,
respectively, with respect to a "consulting" and
"performer and musician" business. The Minister of
National Revenue (the Minister) assessed the Appellant for these
taxation years on November 20, 2000 and reduced the business
expenses in the amount of $7,711 and $13,194, respectively,
reduced gross business income by the amount of $556.
1996, 1997 and 1998
[3] The Appellant failed to file an
income tax return for these taxation years as required under
subsection 150(1) of the Act. By notices dated March 3,
2000, the Minister assessed the Appellant's tax payable
pursuant to subsection 152(7) of the Act and in so doing,
assessed the Appellant tax in the amount of $3,177.22, $1,800.20
and $2,230.28, respectively, with applicable interest and
late-filing penalties.
[4] On March 27, 2000, the Appellant
filed her returns of income for these taxation years as a result
of which the Minister reassessed on October 17, 2000 and added to
the Appellant's returns for the said years additional net
business income, allowed deductions from total income in respect
of registered retirement savings plan contributions and deleted
net commission income in the amount of $1,368 for the 1997
taxation year.
1999
[5] In computing income for the 1999
taxation year, the Appellant reported net business income in the
amount of $38,232.85 in respect of the businesses. The Minister
assessed for that taxation year by virtue of which the
Appellant's business expenses were reduced by the amount of
$23,507.
[6] Subsequent to receiving the
Notices for the six years in issue, the Appellant served Notices
of Objection on the Minister and after due consideration, by
Notices dated October 3, 2001, the Minister further reassessed
her pursuant to subsection 165(3) of the Act to allow
additional business expenses in each of the taxation years,
reduced business income for the 1995 taxation year and deleted
employment income and increased the gross business income for the
1996, 1997 and 1998 taxation years, respectively.
[7] The issues in all of the years
under appeal are:
(a) Is the Appellant entitled to
deduct expenses in excess of the amounts allowed by the Minister
for the taxation years at issue?
(b) Was the Appellant properly
assessed interest in accordance with section 161 of the
Act? and
(c) Was the Appellant correctly
assessed late-filing penalties in respect of the 1994, 1995,
1996, 1997 and 1998 taxation years?
Appellant's Testimony
[8] At all relevant times, the
Appellant, as C. Weber Enterprises, carried on two separate and
distinct activities described by her as "consulting"
and "performing". As an example of her
"consulting" business, she referred to a contract as a
Y2K coordinator for a client which, she said, included the
provision of the requisite software manuals, training, business
resumption planning and administration of the "help desk
staff". The "performing" aspect of her business
related primarily to her involvement since 1986 in a community
theatre group, Scarborough Theatre Guild. The Appellant does not
dispute that her involvement had never been on a paid basis with
the exception of, in her words, "some acting actual cash
income from a couple of videos, an industrial video and a music
video type of thing".[1]
[9] The Appellant was unable to
support the vast majority of the disputed expense items by
vouchers, receipts, statements of account or any other
appropriate documentation. Thus with respect to both aspects of
her business she relied almost exclusively on daybook/calendars
for supporting material. With specific reference to the travel
expenses claimed, which were totally unvouchered, she reviewed
the daybooks for each period under appeal "and counted the
number of occurrences of travel related to generating work,
travel related to attending professional development and travel
related to conferences" and produced schedules relating to
"travel expenses, work", "travel expenses, classes
and rehearsals" and "travel expenses, conferences,
concerts, theatre".[2] By way of example, for March 1994, the schedule shows,
inter alia, "misc. bus/admin. x 17; health (physio,
etc.) x 11; and work x 18;" Each, she said, represents the
number of round trips by public transport for the described
purpose. In each case, the Appellant counted the number of
occurrences and, by reference to Toronto Transit fares arrived at
an expense figure based on $4.00 per return trip.
[10] The "office expenses" claimed
by the Appellant related for the most part to her consulting
activities and were justified by the Appellant as follows:
(a) "Business
clothing" reflected her perception that "a consultant
must maintain a certain image in order to, number one, get the
work and number two, keep the work". She also indicated that
the expenditure was necessary to "dress to hide my
weight" in order to create an appropriate "first
impression that people make when they see you". Similar
rationales were advanced with respect to other "office"
expenditures such as haircuts, dry-cleaning and clothing
repair.
(b) A similar pattern emerged in the
course of her testimony with respect to the
"performing" aspect of her business. Here in addition
to travel costs, expenses were claimed for meals and
entertainment and "professional development" which
included attending shows and movies as a form of training and
such items as ballroom dance classes which she attended with her
husband. In her view, dance classes and other similar activities
were necessary since "the more skills an actor has or a
performer of any kind, the more marketable they are. And
professional training is an allowable expense". This also
justified claiming, as a deductible expense, her husband's
portion of the cost relating to that "training". The
same rationale was applied to the cost of meals before or after
rehearsals with members of the cast. A few examples of these
expenses taken from Exhibit A-9 with respect to the 1998
taxation year will suffice:
Jan 10 -
$50 - supper with Gord to see movie[3]
Jan 27 - $16 - supper with Gord re: show rehearsal
Jan. 30 - $15 - with Gord re: karaoke (singing with audience,
experience)
Apr. 6, 7, 14 and 16 - $20 and - meals before or after
rehearsal with members of cast or husband.[4]
Nov 7 - $40 supper with Gord to see movie.
[11] Evidence was adduced on behalf of the
Respondent from Susan Shah an appeals officer with Canada Customs
and Revenue Agency who dealt with the Notices of Objection filed
in respect of the assessments. In that context she met with the
Appellant, her counsel, and her accountant and Shah was provided
with additional information which ultimately led to the
reassessments in issue. In the course of her testimony, Shah made
reference to a number of schedules attached to the Reply to the
Notice of Appeal which set out the various expenses claimed by
the Appellant as well as the amounts initially allowed by Audit
and those subsequently allowed by appeals.[5] Shah dealt with the two expense
categories as follows:
(i) Consulting:
The
expenses disallowed by the Minister in this category fell
principally into two categories: "office expenses" and
"others". With respect to the office expenses, Shah
testified that the Appellant had claimed the total cost of
"business clothing" as well as haircuts, dry-cleaning,
laundry, physiotherapy, unreceipted equipment, and other personal
expenditures.[6]
These were all considered to be personal expenses and, therefore,
not deductible and were disallowed by the Minister. The
"others" category for the most represented costs which
according to Shah related to travel between home and the place
where the Appellant carried on her consulting business. It is not
disputed that the entire travel costs were unvouchered and that
her discussions with the Appellant, her solicitor and the
accountant led to a consensus that 50% properly reflected
business use.
(ii) Performing
Business: Under the
heading performing business, the amounts disallowed also fell
into several categories, the principal one being
"others" which, as before, reflected local
transportation as well as unreceipted amounts regarding items
such as wardrobe, makeup and "professional
development". Under the heading "meals & ent",
Shah dealt with amounts claimed in respect of items such as meals
with her husband, attendance at movies, cost of ballroom dancing,
etc. According to Shah, the items disallowed reflected personal
expenditures.
Conclusion
[12] In the course of her submissions, the
Appellant raised several issues which had not been pleaded but
since no substantial objection was made on behalf of the
Respondent, I propose to deal with them. First, the Appellant
contends that business clothing expenses of $12,625 were claimed
in what she said was "a sincere belief that their purchase
was necessary to my professional image and thus to getting and
keeping clients". She spoke of corporations sending their
employees to image counsellors and said dressing for clients was
of utmost importance in creating the requisite "power
image" and that "a business suit for instance presents
a corporate image of trust, security and stability, particularly
important for the banking industry. That was the example they
used. And the banking industry has often been my clients".
Relying on Schedule II, Capital Cost Allowances, Class 12, items
(i) and (k),[7] the
Appellant now seeks the Court's approval to claim capital
cost allowance with respect to the items of clothing because they
were "uniforms required to obtain and keep contracts with my
clients".
[13] The Appellant's argument that the
clothing purchases should be treated as a capital cost item is
totally without merit. There is no basis upon which her
"outfits" could be considered as a "uniform".
The items of clothing in issue were personal wear and were not
solely necessary for her conduct of her business activities. Nor
is there any evidence that she was required to use any of her
clothing or accessories to appear on stage or in any related
activity. Accordingly, her alternative claim with respect to the
availability of these items for capital cost allowance must be
rejected.
[14] I have concluded that the clothing in
issue was used by the Appellant as personal wear in everyday
business and is not a deductible item. Furthermore, there is no
question that haircuts, dry-cleaning and clothing repair, whether
claimed in the consulting aspect of her endeavours or in the
performing aspect are clearly personal expenses unless, in the
latter instance, she had been able to adduce evidence to
establish that the clothing related to a professional (acting)
requirement. In this context, there is one aspect that cannot be
ignored and that is the fact that at no relevant time was the
Appellant involved in income-producing activity with her
community theatre group.
[15] The Appellant argues that the expense
of lunches and/or dining away from home when "travel and
time and distance do not permit you to eat a meal for free at
home" was deductible. She argues that in order to claim the
expenses, it is "not necessary to show that income actually
resulted from the particular outlay or expenditure itself. It is
sufficient that the outlay or expense was part of the
income-earning process". I am unable to accept this
proposition as supporting her right to claim deductions for
personal lunches, etc. and conclude that the Minister's
rejection of these expenses was quite appropriate. I am equally
satisfied that the Respondent's determination that 50% of the
travel expenses be allowed was generous in the circumstances. The
balance was properly disallowed as personal travel since driving
between home and her place of employment or between home and the
movie theatres she attended with her husband for
"professional training" is a personal cost, no part of
which can even remotely be considered as deductible.
[16] The Appellant also raised an issue (not
pleaded) with respect to the amount of $2,428 which could have
been claimed as a capital cost allowance in the taxation years in
issue but which had been overlooked by her accountant. As a
result, she says, this amount is no longer available to her and
argues that she should be permitted to claim it as a current
expense item. Shah testified that she examined all of the years
in issue, performed the additions and the UCC balances and found
that at the end of 1999, there was in fact a UCC balance of
$2,427.54. Shah agreed that an error had been made by the
accountant creating a discrepancy between the capital cost
allowances that were claimed for certain assets over the years
and the amount that could have been allowed. The Appellant seeks
to have these amounts treated as a business expense to be
deducted in the appropriate years. Aside from the fact that the
issue was not pleaded and thus raises the issue of the
Court's jurisdiction to deal with it, there is no legal basis
upon which it would be appropriate to convert what was
unquestionably a capital expenditure item into a business expense
as suggested by the Appellant.
[17] The Appellant also seeks a cancellation
of the interest, arrears and late filing penalties. Subsection
161(1) provides that a taxpayer must pay interest at an annual
rate as prescribed on the amounts of tax that are unpaid after
the end of the time allowed for the filing of the return. Logic
indicates that interest is payable on the amount that was unpaid
as of the required date since, as has often been stated, the
Appellant has available for his or her use after the due date of
the tax debt on April 30, funds which in other instances would in
the normal course have been in the hands of the Department of
National Revenue. As well, it is clear from the language of the
subsection this Court does not have jurisdiction to grant the
relief sought.
[18] With respect to the late-filing
penalty, subsection 162(1) of the Act provides:
162(1) Every person who fails to file a return of income
for a taxation year as and when required by subsection 150(1) is
liable to a penalty equal to the total of
(a) an amount
equal to 5% of the person's tax payable under this Part for
the year that was unpaid when the return was required to be
filed, and
(b) the
product obtained when 1% of the person's tax payable under
this Part for the year that was unpaid when the return was
required to be filed is multiplied by the number of complete
months, not exceeding 12, from the date on which the return was
required to be filed to the date on which the return was
filed.
There is no question that in this particular case, the
Appellant's returns of income for each of the taxation year
1994, 1995, 1996, 1997, 1998 and 1999 were filed late and there
is nothing before the Court to suggest that the reason therefor
was anything other that dereliction of duty on the part of the
taxpayer. On this aspect of the appeal, it is my opinion that
there is no jurisdiction in this Court to allow an appeal against
the imposition of penalties as mandated by this section.
[19] For the foregoing reasons, the appeals
are dismissed.
Signed at Ottawa, Canada, this 11th day of July, 2003.
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