Date: 20000915
Docket: 1999-3014(IT)I
BETWEEN:
ERNA JOSEFINE RAMSAY,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sarchuk J.T.C.C.
[1] This is an appeal by Erna Josefine
Ramsay from an assessment of tax with respect to her 1995
taxation year. In filing her 1995 T1 return, the Appellant
reported employment income of $16,295. Canada Pension Plan and
Unemployment Insurance contributions of $348.17 and $488.86,
respectively, as well as tax deductions of $5,416.85 were claimed
as credits. In filing this return, the Appellant also reported an
amount of $5,031 as gross business income, business expenses of
$7,972 and a net business loss of $2,941.
[2] In computing income for the
Appellant's 1995 taxation year, the Minister deleted the
amount of $16,295 reported by the Appellant as employment income
and disallowed tax credits with respect to the CPP and UI
contributions. The Minister then added the amounts of $16,295 and
$5,031 as "other income" for 1995. Furthermore, in
calculating her balance owing for the 1995 taxation year, the
Minister did not recognize the amount of $5,416.85 as income tax
she claimed had been withheld by Economy Drain Services
(Economy).
[3] In so assessing, the Minister
acted on the following basis:
(a) the business expenses of
$7,972 claimed by the Appellant were disallowed because there was
no evidence to establish that they had in fact been incurred.
(b) the Appellant's claim for a
credit in respect of CPP premiums, UI contributions and income
tax withheld was disallowed because the amounts that had
allegedly been withheld had never been reported or remitted by
Economy and the Appellant had not substantiated that these
amounts had in fact been deducted by Economy.
[4] The Respondent also took the
position that to the extent the Appellant is contesting the
Minister's refusal to recognize and credit her with the
amounts withheld on account of income tax, the Appellant is not
appealing an assessment of tax and in consequence, the Tax Court
of Canada does not have jurisdiction to determine this portion of
the appeal. I propose to deal with this issue first.
[5] Counsel for the Respondent argues
that neither the failing to deduct or withhold or failing to
fully remit an amount withheld forms part of the assessment
process. Thus, even if the Appellant were able to establish that
certain amounts were withheld but not remitted, this Court has no
jurisdiction because what is being raised by the Appellant is
merely a collection issue. This position is premised on the
proposition that an individual's income tax liability
calculation is not affected by the amount paid as or on account
of tax and, as contrasted to the various tax credits available
pursuant to the Act, the amount withheld is not a
"credit" for the purpose of calculating income tax
liability. Accordingly, the amount withheld does not form a
constituent element of the assessment.
[6] In Ashby v. The Queen,[1] the same issue was
raised in respect of which I stated:
This Court has original jurisdiction to hear and determine
appeals in matters arising under the Act (and other
statutes). I am satisfied that the matter before me is an appeal
from an assessment of tax within the meaning of the provisions of
subsection 171(1) of the Act. I am not inclined to follow the
decision in Brooks, supra,[2] for two reasons. First, the prayer for relief in
Brooks' Notice of Appeal discloses that he was seeking
a declaratory order from this Court. Clearly such relief is not
contemplated by subsection 171(1) of the Act. Second, and
this point was not argued in Brooks, section 118.7 of the
Act provides that for the purpose of computing the tax
payable under Part I of the Act by an individual for a
taxation year there may be deducted an amount in respect of an
employee's premium for the year under the Unemployment
Insurance Act, 1971 and the employee's contribution under
the Canada Pension Plan. These are statutory deductions
permitted to a taxpayer which this appellant says were made but
have been denied to him. There is no basis upon which the
respondent can reasonably argue that this Court is not entitled
to determine the question whether these deductions had in fact
been made and if so, to direct the Minister to reassess
accordingly. A taxpayer is entitled to the benefit of each
statutory exemption and deduction in the Act applicable to
him. I see no difference between a taxpayer's entitlement to
deduct the premiums and contributions pursuant to section 118.7
of the Act and a taxpayer's entitlement to deduct
appropriate expenses pursuant to section 18 of the Act.
Disallowance of a deduction by the Minister founded on an
incorrect assumption of facts is a reversible error. Furthermore,
while it might be argued that income tax deducted at source is
treated differently in the Act than UI premiums and CPP
contributions, it seems to me inappropriate, if I were to find
that First Choice made the required deductions from the
appellant's wages, to grant relief in respect of CPP and UI
and to deny relief with respect to a deduction of tax at source.
In my view the calculation of income tax payable is an integral
part of an assessment by the Minister. If the Minister's
calculation is wrong the appellant is entitled to relief. To
reject his appeal on the basis of "lack of jurisdiction" in these
circumstances is not warranted.
[7] This issue was also dealt with by
McArthur T.C.J. in Manke v. The Queen[3] where he stated:
[15] The jurisdictional issue
raised by the Respondent raises two questions to be determined by
the Court. The first is whether the Appellant has appealed an
assessment of tax. If he has, then the appeal is properly before
the Court and no question arises as to the jurisdiction of this
Court to hear the appeal. There is no doubt that the Appellant
has followed the proper procedure under the Act in appealing
assessments of tax to this Court. The second question is whether
the Appellant is seeking declaratory relief from this Court, or
whether he is seeking to have an assessment vacated, varied, or
sent back for reconsideration. If it is the former, then it is
clear that the Court does not have the statutory power to grant
the Appellant the relief he has requested.
[16] In Aallcann Wood
Suppliers Inc. v. The Queen, 94 DTC 1475 (T.C.C.), Bowman,
J.T.C.C. said the following at page 1476:
In challenging the assessment for a year in which tax is
payable on the basis that the Minister has incorrectly
ascertained the amount of a loss for a prior or subsequent year
that is available for deduction under section 111 in the
computation of the taxpayer's taxable income for the year
under appeal, the taxpayer is requesting the Court to do
precisely what the appeal procedures of the Income Tax Act
contemplate: to determine the correctness of an assessment of tax
by reviewing the correctness of one or more of the constituent
elements thereof, in this case the size of a loss available from
another year.
[17] The same logic should apply
here.[4] The
ultimate question before the Court is whether the Minister's
assessment of tax is correct. One of the constituent elements of
the assessment is the amount of credits to which the taxpayer is
entitled. The Appellant has appealed the assessment of tax to
this Court on the basis that the Minister has not properly taken
into account the credits to which he was entitled. The Court is
entitled to make a determination on this point so as to determine
whether the Minister's assessment of tax was correct. The
Court is not making a declaratory order that the Minister shall
grant the Appellant a tax credit, but rather the Court is
referring the matter back to the Respondent to reassess the
Appellant in accordance with the reasons, as is provided for
under section 169 of the Act.
[8] For the foregoing reasons, I am
unable to accede to the Respondent's position that this Court
has no jurisdiction to grant the relief requested by the
Appellant.
Source Deduction Issue
Evidence Adduced
[9] In or about 1990, the Appellant
married Edward J. Ramsay (Ramsay). At all relevant times, he was
the owner of E.J. Ramsay Contractors Ltd. and Economy. The latter
carried on the business of plumbing, rental of portable toilets
and the haulage of industrial waste. In 1994, the business office
of Economy was located in their residence in Millbrook, Ontario.
At some point of time that year, the Appellant commenced
employment with Economy attending to general clerical duties. She
stated that initially she received an hourly wage of "$10 to
$12 in the start" but this was subsequently increased to
$1,300 per month but is unsure as to when that occurred. In
support, she produced the following documents:
(a) A Record of Employment for
the period May 1, 1995 to July 26, 1995 in which insurable
earnings of $1,307.28 for 15 weeks and $608.40 for the final week
are reported;[5]
(b) A T4 statement for taxation year
1995 indicating employment income of $16,295.40, CPP and UI
premium deductions of $394.14 and $488.89 and income tax
deductions of $5,416.85;[6] and
(c) A Record of Employment with
respect to the period October 15, 1994 to January 31, 1995 which
indicates insurable earnings of $921.73 for each of 20 weeks for
a total of $18,434.[7]
It is not disputed that during the period of time shown in the
Record of Employment for the 1995 year, the Appellant was living
separate and apart from Ramsay, having separated at some point of
time towards the end of 1994.
Conclusion
Source Deductions
[10] The Appellant's position is that
the evidence adduced, both oral and documentary, clearly
establishes that the requisite source deductions had in fact been
made by Economy in the amounts set out in the T4 statement for
1995 (Exhibit A-2). There are two aspects to this portion of the
appeal. First, it must be determined whether any deductions were
actually made and second, if they were, have the amounts alleged
to have been deducted been established in whole or in part.
[11] With respect to the deduction issue,
the Appellant's testimony and that of Ramsay was at best
unsatisfactory and, particularly in the case of Ramsay, not
credible. The Appellant said that the Economy office was located
in their residence. The duties she described appear to have been
similar to those of any office clerk and included items such as
answering the telephone, booking portable toilets for rent,
typing bills, checking mail, filing and preparing lists for other
employees. Notwithstanding the fact she alleges to have spent a
considerable amount of time in the Economy office, she had no
idea who maintained the payroll records and was not aware whether
the deductions had been made but only assumed that they had been.
Thus, her claim rests on Ramsay's testimony that he withheld
the amounts from her salary and on the Records of Employment and
the 1995 T4 Supplementary.[8]
[12] Ramsay testified that he did the
calculations of the appropriate deductions from his
employees' wages including the Appellant. He said it was his
practice to pay all of them in cash which was placed in pay
envelopes with the appropriate deductions endorsed thereon. He
conceded that none of the amounts he alleges were deducted were
remitted in 1994 and 1995. The payroll records, which he says
were kept at the residence/office, are no longer available
because he had "a water backup in the basement and a lot of
stuff was damaged". He further says that at some later point
of time, he took "the rest of the stuff so nobody could see
and burned it" and that this was done to prevent them from
falling into the hands of his creditors which, from subsequent
testimony appears to have included Revenue Canada.
[13] In addition to the fact that no
business records exist, the testimony of the Appellant and that
of Ramsay with respect to the manner in which the hours of work
were recorded at Economy was at odds. The Appellant says she kept
track of her hours on a timesheet by noting when she began and
when she concluded working. This sheet was left in the office
where some other person, unnamed, transferred the entries into a
time book. Ramsay testified that all employees including the
Appellant, personally entered their times into the record book.
No such book was produced. Furthermore, her claim that she worked
from 8:00 a.m. to 7:00 p.m., seven days per week is not
supported by any other material fact and in addition, is
inconsistent with her application for unemployment insurance
benefits[9] in
which she stated that during the period from October 15, 1993 to
January 31, 1995, she normally worked 44 hours per week, six days
a week and earned $921 per week.
[14] The Appellant's reliance on the
Records of Employment and the 1995 T4 (Exhibit A-2) is also
questionable and must be considered in light of other documents
produced by counsel for the Respondent. These included two other
T4 slips for the 1995 taxation year (Exhibit R-1, tabs 12 and
13). Tab 12 appears to be a photocopy of Exhibit A-2, each has
the same content and bears the same serial number, however, tab
12 is a T4-1993 supplementary form while in Exhibit A-2 the
year has been altered to read T4-1995. Tab 13 is a T4-1995 but
bears a different serial number. The Appellant was unable to
explain the differences, did not know by whom or when these
documents were prepared and said that she had not sent tab 13 to
Revenue Canada although it was enclosed with a letter signed by
her.
[15] Three other T4 slips relating to the
1994 taxation year (Exhibits R-1, tabs 9, 10 and 11) were
produced by counsel for the Respondent. The first two indicate
employment income of $37,662 and income tax deducted of $17,980.
In each, the original SIN had been altered to that of the
Appellant. For its part, the third T4 slip shows employment
income of $47,929 and income tax deducted of $13,561. In this
document, the original SIN has also been deleted and the
Appellant's SIN was superimposed. The Appellant's
evidence with respect to these documents is not believable. She
says she did not send the T4 at tab 9 to Revenue Canada and says
she had no dealings with H & R Block Canada located in Oshawa
although the cover letter specifically relates to Erna Ramsay and
refers to her file number.[10] Furthermore, the Appellant initially testified
that she did not remember whether she forwarded either of the
other two T4s but later testified that one of them was remitted
following a discussion with someone at Revenue Canada. She was
unable to explain why the amounts of tax shown on tabs 10 and 11
as having been withheld were substantially different nor was she
able to explain why the income reported in tabs 9 and 10 was
$37,662 while in tab 11, it was $47,929.
[16] Ramsay's testimony not only failed
to explain the inconsistencies in all of the foregoing documents
but also added to the confusion. With respect to the T4 slips, he
said that he had not created tab 9; that tab 10 could have been
prepared by him and suggested that part-time help might have been
responsible for the creation of tab 11. He also denied that he
had prepared Exhibit A-2, the T4 for taxation year 1995, had no
idea who might have done so, and did not know whether the amount
of tax shown thereon was the amount deducted.
[17] On the evidence before the Court, it is
not possible to conclude that any amounts were deducted from the
Appellant's wages as required by the provisions of the
Act. Aside from the fact that no payroll records are
available, the evidence of Ramsay as to his business practices,
cash payments to unnamed employees and more specifically, his
contradictory and confusing testimony regarding his arrangement
with the Appellant gives rise to serious concern. A T4 summary
would normally report and reconcile the remittances to the
collectors. Ramsay admitted these were not being kept. The T4
supplementary tax return in the normal case provides some proof
that the appropriate income tax for any given period had been
deducted and retained for remission to the Minister. However,
given the nature of the documents presented in this appeal and
the testimony of the Appellant and Ramsay it is not possible to
rely on them for such purpose. On the evidence before me, I can
only conclude that the Appellant has failed to establish on a
balance of probabilities that the requisite source deductions
were withheld by the employer, Economy. Had I concluded
otherwise, the evidence adduced by the Appellant also falls short
of establishing what amounts if any were in fact deducted.
Business Expense Issue
Appellant's testimony
[18] Following the termination of her
employment with Economy in July 1995, the Appellant was
self-employed offering her services as a cleaner to J & A
Building Services Ltd. (J & A). The services included the
cleaning of a library in Oshawa and, to the best of her
recollection several other buildings. At all times, she supplied
her own equipment for the purpose of vacuuming, dusting, cleaning
washrooms, etc. and used her own vehicle to transport that
equipment. She reported gross business income of $5,031.09 and
claimed business expenses of $7,972 in respect of that employment
for the period September 1, 1995 to the end of that year.
[19] The Appellant testified that she leased
a GM Tracker in December 1994, the cost of which was $230 or $250
per month. In her 1995 return, she claimed vehicle expenses of
$6,111 which she said reflected the total amount of lease costs
in that year. When asked to explain why the whole of the amount
was deducted the response was that she did not "understand
what the accountants are doing here". Although payments on
the lease were made by way of automatic debit from her bank
account, she said that copies of her passbook or bank statements
were unavailable. To establish the balance of vehicle expenses
claimed the Appellant produced receipts for gas and oil for that
four-month period totalling $550.26. However, she concedes that
these reflect all of her expenses and not just that portion
incurred with respect to her employment with J & A. Car
insurance and license costs in the amount of $300 and $90,
respectively, were also claimed but again these appear to reflect
the annual premium and license fee.
[20] It is the responsibility of an
individual claiming business expenses to maintain records
adequate enough to provide support for the amounts sought to be
deducted. The documents submitted by the Appellant provides some
support for her position with respect to the expenses incurred
but clearly do not establish her entitlement to the totality of
the costs. In the course of his submissions, counsel for the
Respondent proposed that $500 for leasing costs and $500 for
other expenses for that period would be appropriate. There is
some merit in this proposal and it met with qualified approval by
counsel for the Appellant. I am satisfied that the evidence, such
as it was, supports the Appellant's claim for automobile and
other business expenses but in my view, the amount of $1,500 is
more appropriate.
[21] For the foregoing reasons I have
concluded that the Minister was also correct in disallowing the
Appellant's claim for a credit in respect of UI premiums. As
well, there is merit in the Respondent's position that the
Appellant was not eligible for a credit in respect of UI premiums
because that credit would only be available in the event there
was an amount payable by her as an employee's premium. In
this particular case, the Minister took the position that there
was no amount payable by her because there was no insurable
employment. That decision was appealed and on September 21, 1995,
the Minister of National Revenue issued a determination to the
effect that she was engaged in excepted employment. The Appellant
was entitled to appeal that determination to the Tax Court of
Canada but did not avail herself of that right.
[22] With respect to the CPP premiums, the
Respondent's position is, inter alia, that in light of
her self-employed earnings in that taxation year, the Appellant
be allowed a credit to the extent of $348.
[23] The appeal is allowed and the
assessment is referred back to the Minister of National Revenue
for reconsideration and reassessment on the basis that the
Appellant is entitled to deduct automobile and other business
expenses in the amount of $1,500 and is entitled to a credit for
contributions to the Canada Pension Plan in the amount of
$348.
Signed at Ottawa, Canada, this 15th day of September,
2000.
J.T.C.C.
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