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Citation: 2003TCC368
Date: 20030521
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Docket: 2002-2647(GST)I
2000-3207(IT)I
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BETWEEN:
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JACQUES DIEP,
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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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AMENDED REASONS FOR JUDGMENT
Beaubier,
J.T.C.C.
[1] These
appeals pursuant to the Informal Procedure were heard together on common
evidence at Vancouver, British Columbia on January 10, 2003. The Appellant
testified. The Appellant's agent, Fareed Raza, also testified. The Respondent's
auditor, Dal Jawandha testified for the Respondent.
[2] The
particulars of the Goods and Services Tax ("GST") matter in appeal
number 2002-2647(GST)I are set out in paragraphs 3, 4, 7 and 8 of the Reply to
the Notice of Appeal. They read:
3. The Appellant
filed Goods and Services Tax ("GST") returns for the period from
January 1, 1998 to December 31, 1999, and claimed a net refund totaling
$3,285.28 (see attached Schedule "A").
4. By Notice of
Assessment dated October 9, 2001, the Minister of National Revenue (the
"Minister") assessed the Appellant for additional GST totaling
$1,326.16, interest of $199.45 and penalties of $231.83
(the "Assessment").
7. In so
assessing the Appellant, the Minister relied on the following assumptions:
a) the facts
admitted and stated above;
b) the Appellant
was registered as a sole proprietorship under Part IX of the Excise Tax Act,
R.S.C. 1985, c. E-15, as amended (the "Act"), effective April
13, 1994, and was assigned GST No. 137929964;
c) the Appellant
is required to remit net GST on a quarterly basis;
d) the Appellant
is a courier driver for Van City Courier Service Inc.;
e) the Appellant
claimed Input Tax Credits ("ITCs") totaling $3,285.28 during the
period January 1, 1998 to December 31, 1999 (see Schedule "A"
attached);
f) the
Appellant overstated ITSc claimed by $1,326.16 during the period January 1,
1998 to December 31, 1999; and
g) the Appellant
failed to provide sufficient documentation to substantiate any further eligible
ITCs for the period under appeal.
B. ISSUES TO BE
DECIDED
8. The issue is
whether the Appellant is entitled to additional ITCs for the period under
appeal.
[3] The
essence of the GST dispute is the statement that from January 1, 1998 to
December 31, 1999, the Appellant over claimed a total of $1,326.16 in Input Tax
Credits ("ITC's). The decision respecting GST will follow mathematically
from the decision in the Income Tax appeal.
[4] The
particulars of the Income Tax appeal number 2002-3207(IT)I are set out in
paragraphs 3, 5, 8 and 9 of the Reply to the Notice of Appeal. They read:
3. In computing
income for the 1998 and 1999 taxation years, the Appellant reported net
business income of $11,051.27 and $14,924.72, as detailed in the attached
Schedule "A".
...
5. On November
20, 2001, the Minister reassessed the Appellant's 1998 and 1999 taxation years
to revise the Appellant's net business income from $11,051.27 and $14,924.72,
respectively, to $27,893.47 and $31,878.92, respectively, as detailed in the
attached Schedule "A".
...
8. In so
reassessing the Appellant, the Minister relied on the following assumptions of
fact:
a) the facts as
admitted and stated above;
b) at all
material times, the Appellant was self‑employed as a courier driver for
VanCity Courier Service Inc. ("VanCity Courier");
c) the fiscal
year end of the Appellant's courier business is the calendar year end;
d) the Appellant
was responsible for picking up and delivering packages, parcels and letters but
not the collection of payment for the services rendered;
e) VanCity
Courier handled all the billings and collecting;
f) VanCity
Courier paid the Appellant on a commission basis;
g) in 1998 and
1999, the Appellant earned self‑employed commission income from VanCity
Courier of $31,875.32 and $35,976.34, respectively, before deducting expenses;
h) the Appellant
is only entitled to deduct expenses against commission income earned at VanCity
Courier of $3,981.85 and $4,097.42 for the 1998 and 1999 taxation years,
respectively, as detailed in the attached Scheduled "A";
i) the
Appellant failed to provide documentation to substantiate that expenditures
incurred in excess of the amounts allowed, if any, were incurred to earn income
from his courier business and were not personal expenses for the 1998 and 1999
taxation years;
j) the
Appellant did not maintain a log book to support his claimed automobile
business usage;
k) the Appellant
did not maintain a reconciliation of the rent expense related to his courier
business for the 1998 and 1999 taxation years;
l) the
Appellant failed to provide an entertainment diary to support his claimed meals
and entertainment expenses for the 1998 and 1999 taxation years;
m) the Appellant
failed to document the capital cost of property in respect of capital cost
allowance claimed for the 1998 and 1999 taxation years; and
n) claimed expenses
in excess of the amounts allowed by the Minister were not incurred or made for
the purpose of gaining or producing income from a business, but rather were his
personal or living expenses;
B. ISSUES TO BE
DECIDED
9. The issues are whether
the Appellant is entitled to deduct:
a) expenses in
excess of the amounts allowed by the Minister; and
b) capital cost
allowance as claimed.
[5] Thus,
for the 1998 and 1999 calendar years, there are disputes over expenses and
capital costs allowance.
[6] All
of the assumptions in the Income Tax appeals except 8 h) and i) were confirmed
by the evidence. Respecting 8 l), the Appellant did have trip slips respecting
his courier business which he gave to VanCity Courier in order to get paid.
[7] Schedule
"A" to the Reply to the Income Tax Notice of appeal contains a
detailed outline of the assessment. The Respondent conceded the following
concessions respecting these appeals:
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1998
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1999
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Office Expenses
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$209.75
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Supplies
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$14.21
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CCA
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$892.54
(Based on 60% business allocation)
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$937.00
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Motor Vehicle
(fuel)
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$266.83
(Based on 60% business allocation)
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$1,996.00
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[8] The
Appellant merely gave all of his receipts to his accountant
"Somjee Valough, Tax Consultant" in a box. The accountant
prepared and filed the tax returns. The accountant made false expense claims on
a giant scale with no supporting evidence. The Appellant is a quiet rather
simple man who relied completely on his accountant to do the proper thing. The
accountant did not do that and the Appellant did not know the difference. When
in Court he relied completely on his agent and it was apparent that he did not
understand everything that was happening. It was perfectly clear that he had no
comprehension of the meaning of what was going on, except that it was about
paying more tax.
[9] The
Court finds that the only question that was not established in favour of the
Respondent after the concessions was the amount of business use of the
Appellant's only vehicle, a four door 1997 Metro. The auditor calculated its
business use at 5/7 based on a five day work week. This came to 71%. He then
reduced it by 11% to 60% based upon personal use by the Appellant, his wife
(who does not drive) and their two small children. However, the Appellant
testified that he also worked in the courier business, on average for 1/2 day
every Saturday or Sunday, each alternate weekend. He is believed. He is also
believed in particular when he testified that on weekdays he usually worked
from 6:45 a.m. until 5:30 or 7:00 p.m. For this reason, the Court finds
that there was little or no personal use of the Metro on week nights and some
business use on weekends. The results is that the Court finds the business use
of the vehicle to be 71%, not 60%.
[10] These appeals are referred to the Minister of National Revenue for
reconsideration and reassessment pursuant to these reasons respecting the
income tax, the GST and penalties.
[11] Because of the obvious innocence of the Appellant respecting what he
was entitled to deduct and the fact that it was necessary for him to rely on
his accountant and it was clear that he did so, the Court recommends that he
apply under the Fairness Package to be relieved from liability for any interest
that he may owe arising from these assessments. He is a family man with a small
income and very little means.
[12] Finally, it is equally clear that the Appellant's accountant inflated
the claims for deduction with no basis for such claims. Despite the fact that
the Appellant did not understand this, any accountant using the title
"Tax Consultant", as the Appellant's accountant did, would know
this. Based on the evidence before the Court, the accountant should be liable
for any penalty that the Appellant may be required to pay.
These Reasons for Judgment are issued in
substitution for the Reasons for Judgment dated January 15, 2003.
Signed at Ottawa, Canada, this 21st
day of May, 2003.
J.T.C.C.
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