Docket: 2012-2738(IT)I
BETWEEN:
PETER MISEK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeals
heard on June 27, 2013, at Victoria, British Columbia
By: The Honourable Justice
Campbell J. Miller
Appearances:
|
Agent for the Appellant:
|
Frank
Misek
|
|
Counsel for the Respondent:
|
Holly Popenia
|
____________________________________________________________________
JUDGMENT
The
Appeals from the reassessments made under the Income Tax Act for the
2007, 2008 and 2009 taxation years are allowed and the reassessments are
referred back to the Minister of National Revenue for reconsideration and
reassessment on the basis that:
a)
in 2007, the Appellant
is allowed additional deductions of:
- bank charges $446.32
- maintenance and repairs $1,102.71
- motor vehicle fuel $4,370
- vehicle insurance $460
- CCA $2,422
b)
in 2008, the Appellant
is allowed additional deductions of:
- maintenance and repairs
$1,022.19
- motor vehicle fuel
$2,913.92
- CCA $1,034
c)
in 2009, the Appellant
is allowed additional deductions of:
- motor vehicle fuel
$4,020.66
- vehicle insurance $426
- CCA $1,317
d)
a lump sum of costs of
$500 is awarded to the Appellant.
Signed at Toronto, Ontario, this 10th day of September 2013.
"Campbell J. Miller"
Citation: 2013 TCC 278
Date: 20130910
Docket: 2012-2738(IT)I
BETWEEN:
PETER MISEK,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
C. Miller J.
[2]
In 2007, 2008 and 2009,
the Appellant, Peter Misek, was the proprietor of Van Isle Artesian Springs, a
business selling and distributing bottled water. Due to poor health, Peter
Misek left the running of the business to his son, Frank. After long, and what
Frank Misek would no doubt describe as tortuous, dealings with the Canada Revenue
Agency ("CRA"), on December 17, 2012, the Minister of National
Revenue (the "Minister") reassessed Peter Misek. Instead of losses of
$9,002, $8,284 and $853 claimed by Peter Misek, the Minister assessed income of
$10,957, $13,075 and $12,834 for the 2007, 2008 and 2009 taxation years
respectively.
[3]
At trial, Frank Misek
acknowledged that the gross revenue figures relied upon by the CRA were
correct, but certain expenses remained in dispute.
[4]
There are five main heads
of disputed expenses as follows:
Expense 2007 2008 2009
Bank Charges/
Interest expense $446.32
Maintenance
and repairs $1,102.71 $1,022.19
Motor vehicle
Fuel $4,370.00 $2,913.92 $4,020.66
Vehicle insurance $460.00 $426.00
Capital Cost
Allowance $4,114.07 $2,919.84 $2,146.77
TOTAL $10,493.10 $6,855.95 $6,593.37
Although the Respondent conceded a number of these
matters in subsequent written submissions, I wish to touch briefly on all of
the issues as Mr. Misek spent considerable time going over each of them at
trial.
Bank charges/interest expenses – 2007
[5]
The Appellant used
several credit cards. The Minister did not accept bank charges arising from two
such cards, Mosaic and MBNA, and only accepted half of the outlays with respect
to the Appellant’s GM card, on the basis such expenses were not incurred to
earn business income. Frank Misek explained that the Mosaic and MBNA cards had
lower interest rates and were therefore used to pay off balances on the other
cards that were accepted as being used for business purposes. Frank Misek
presented copies of source documents showing the use of the Mosaic and MBNA
cards for paying off the other cards. I accept the charges relating to these
cards were indeed for business purposes. I also find the Minister’s 50% denial
of charges on the GM card was arbitrary based on some personal usage, though I
am satisfied based on Frank Misek’s explanation of the use of the card, that
personal usage was minimal. I allow these bank charges of $446.32 as a deductible
expense.
Maintenance and repairs expense ($1,102 in 2007 and
$1,022 in 2008)
[6]
These expenses were
supported by schedules identifying each expense, along with supporting
invoices. The Minister disallowed the above amounts as not being incurred for
the purpose of producing income.
[7]
Frank Misek’s schedules
not only indicate the items purchased but the area in which they were used; for
example, $554 incurred in May of 2007 was shown as a purchase from Corix Water
Products for PVC piping used at the well. The following is a list of the type
of items acquired: clamps, sealers, paint, stainless steel, pipe fittings,
roofing, glue, nut and bolts, spools and nails…etc. I surmise from the auditor’s
and appeals officer’s reports, produced as part of the Appellant’s over 800
pages of documents, that the Government’s concern was that part of the
warehouse may have been for personal use or for future rental, and that some of
these purchases, therefore, either did not qualify as being incurred in the
water business or were capital expenditures. The Government did not call any
witnesses.
[8]
I have Frank Misek’s
evidence that the warehouse was solely for business purposes. He provided
photos of the business premises. Yes, the Misek’s installed a bathroom and a
kitchen (no cooking facilities) in the warehouse (I will have more comments on
this later) but, given their residence was within several hundred feet, I do
not see this addition as personal. Further, given the nature of the dozens of
small expenditures making up these expenses, I am unable to determine that any
of them are capital in nature, but certainly appear more in the nature of
current expenses. I allow these deductions.
Motor vehicle fuel
[9]
Frank Misek provided a
detailed calculation of mileage and gasoline prices in estimating fuel costs.
More importantly, he provided a list of the actual costs, plus receipts,
indicating the date and the gas station. The Minister did not allow the full
amount of these fuel costs on the basis that the auditor’s estimate was
lower and that some percentage related to personal use. Frank Misek testified
that the only personal use related to just one of the vehicles, the Buick, and
that such costs had already been taken out of the business expenses sought. The
Minister argues Mr. Misek has not provided sufficient supporting
information to prove a breakdown between business and personal. On balance, I
accept Frank Misek’s explanation and his figures, and therefore allow the
additional fuel costs of $4,370, $2,931.92 and $4,020.60 in 2007, 2008 and 2009
respectively.
Motor vehicle insurance
[10]
The additional
insurance costs sought by the Appellant relate to the Buick, the only vehicle
which appears to have served a dual business and personal use purpose. The
insurance costs for the Buick (as proven by source documents) was $919 in 2007
and $850 in 2009, though the Appellant seeks only $446.32 in 2007 and $426 in
2009. I find the personal use has already been taken into account and therefore
allow the additional $446.32 and $426 in 2007 and 2009 respectively.
Capital Cost Allowance
[11]
Finally, I turn to the
additional Capital Cost Allowance ("CCA") sought by the Appellant.
There are two areas of dispute in this regard: first, with respect to motor
vehicles which were not insured to drive, and therefore not included by the
Minister in the CCA calculations, and second, with respect to renovations to
the warehouse which the Minister maintains were for personal rather than for
commercial use.
[12]
Regarding the trucks
not insured, it was Frank Misek’s testimony, supported by photos, that such
vehicles (a 1982 GMC truck, a 1981 International truck and 1988 International
6-ton truck) were used for storage. They were insulated and also easier to load
and unload than storing in the warehouse. From the photos, it was also evident
that storage space in the warehouse was limited. I accept Frank Misek’s
explanation and find these old trucks were properly added to capital cost of
Class 10 assets, as valid capital assets of the business.
[13]
With respect to capital
additions to the warehouse, relating to a bathroom and kitchen renovation, I
conclude that the warehouse was entirely devoted to the water business
enterprise. The so-called kitchen area did not include any fridge or stove but
a sink was added and an area established for eating lunch. The bathroom had a
toilet and a shower. The auditor in one report describes one room as possibly
serving as a bedroom. The photos and Frank Misek’s testimony satisfy me that
these were offices not bedrooms. I conclude the only use for this building was
a business use and that any capital additions are properly added to Class 1.
[14]
The Respondent did not
question the Appellant’s numbers in connection with the CCA other than an
addition of $29,149 back in 2003 to Class 10: the Appellant only sought an
addition of $9,798. This has the effect of reducing the additional CCA sought
by the Appellant in 2007 from $4,114 to $2,422, in 2008 from $2,219 to $1,034
and in 2009 from $2,147 to $1,317. These reductions represent the difference
between CCA calculated at the 30% rate on $9,799 rather than $29,149, as of
2003 (including a recognition of the 50% rule in 2003). In all other respects
the Respondent simply relied on the above two bases for not including assets in
Class 1 and Class 10. Given my finding, I accept the Appellant’s CCA
deductions, subject only to the changes indicated above.
[15]
Frank Misek presented
as thorough and detailed analysis of the disputed expenses as I have seen in a
case without counsel. His documents were well organized and extensive. He
wished to go into some detail of the roadblocks and inappropriate treatment he
believed he suffered at the hands of CRA officials. As I indicated to him,
the Court is concerned only with the correctness of the assessment and therefore
limited him to dealing with the real issues before the Court. It is regrettable
that it was necessary to incur the time and expense to take this matter to
trial. Frank Misek clearly has gone to considerable lengths to prove his
position, which he has done. In these circumstances, I find it is in order to
order a lump sum of costs in the amount of $500.
[16]
The Appeals are allowed
and referred back to the Minister for reconsideration and reassessment on the
following basis:
a)
in 2007, the Appellant
is allowed additional deductions of:
- bank charges $446.32
- maintenance and repairs $1,102.71
- motor vehicle fuel $4,370
- vehicle insurance $460
- CCA $2,422
b)
in 2008, the Appellant
is allowed additional deductions of:
- maintenance and repairs
$1,022.19
- motor vehicle fuel
$2,913.92
- CCA $1,034
c)
in 2009, the Appellant
is allowed additional deductions of:
- motor vehicle fuel
$4,020.66
- vehicle insurance $426
- CCA $1,317
As indicated, I also award a lump sum of costs in the
amount of $500 to the Appellant.
Signed at Toronto, Ontario, this 10th day of September 2013.
"Campbell J. Miller"
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