Caron v. R., [1996] 1 CTC 2158 (Informal Procedure)

Watson D.J.T.C.C.:— All of the parties have agreed that these two appeals, which relate to the 1988 and 1989 taxation years, should be heard on common evidence and that the decision in Mr. Caron’s case would apply to Ms. Bélanger’s case, since the result in Ms. Bélanger’s appeal depends entirely on the result in Mr. Carron’s appeal. These appeals were heard at Québec City, Québec, on February 11, 1993, under the informal procedure.

Jean-Irénée Caron

In computing his income for the 1988 taxation year, the appellant deducted a loss of $8,004.08 as a business loss, computed as follows:

Business Income nil

Less:

1/3 of automobile expenses: $2,762.31

Expenses for operating a lift: $3,421.77

Depreciation expense for the lift, a plow and two milking units: $1,820

Loss: $8,004.08

On the T2038 form attached to his 1988 tax return, the appellant showed the acquisition of property which qualified for the investment tax credit in the amount of $4,700, and an available investment tax credit in the amount of $940, computed as follows:

One plow ($4,000), two milking units ($700). Total: $4,700

Available investment tax credit:

$4,700 x 20% = $940

In computing his income tax payable for 1988, the appellant deducted an investment tax credit of $745.89 and a refundable portion of the credit in the amount of $77.65. As well, in 1988, the appellant stated that he had acquired a used lift at a cost of $9,000.

In issuing a notice of assessment to the appellant for 1988, dated July 24, 1989, the Minister of National Revenue (the “Minister”) revised the investment tax credit from $745.89 to $751.30 and the refundable portion of that credit from $77.65 to $68.72, and allowed an additional investment tax credit of $16.89 against the federal individual surtax.

In issuing a notice of reassessment to the appellant for 1988, dated March 11, 1991, the Minister disallowed the business loss of $8,004.08, the capital purchases of $4,700 and the investment tax credit relating thereto, as well as the purchase of the lift for $9,000.

In computing his income of the 1989 taxation year, the appellant claimed the following expenses, inter alia, against trucking income:

Expenses for servicing lift: $1,367

Casual wages: $480

Depreciation relating to assets described in paragraph 2: $3,451

Total:$5,298

In issuing a notice of reassessment of the appellant for 1989, date March 11, 1991, the Minister disallowed the deductions for the expenses set out in paragraph 8.

The Minister examined the facts set out in the notice of objection filed on May 7, 1991, and as a result of this examination a notice of confirmation was issued by the Minister for the 1988 and 1989 taxation years, on May 28, 1992, stating that it had not been established that the expenses incurred were made or incurred for the purpose of gaining or producing income from a business or property, within the meaning of paragraph 18(l)(a) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72,

c. 63) (the “Act”).

In making these reassessments, the Minister assumed the following facts, inter alia:

(a) during 1988 and 1989, the appellant was employed by his father, Fernand Caron, who operates a hardware store and a farm;

(b) in 1988, a truck was made available to the appellant by his employer, Fernand Caron;

(cb) in 1989, in addition to the salary he received from his father’s business, the appellant worked for himself transporting goods with a truck purchased at the beginning of the year;

(c) in 1988, the appellant claimed a loss of $8,004.08, computed as follows:

1/3 of his automobile expenses: $2,762.31

Expenses for operating a lift: $3,421.77

Depreciation expense for the lift, a plow and two milking units: $1,820

Loss: $8,004.08

(d) in 1989 the appellant claimed the following expenses, inter alia, against his trucking income:

Expenses for servicing lift: $1,367

Casual wages; $480

Depreciation relating to assets described in paragraph 2: $3,451

Total:$5,298

(e) the appellant did not establish that he incurred automobile expenses in 1988 in the course of his employment;

(f) the appellant did not establish that he had acquired a lift in 1988 at a cost of $9,000, despite the fact that officials of the Department of National Revenue urged the appellant on many occasions to produce reasonably acceptable evidence of such purchase;

(g) in 1988 and 1989 the lift was not covered by insurance, unlike the other equipment owned by the appellant;

(h) as a result, the appellant’s claim for the operating expenses and depreciation relating to the lift was disallowed;

(i) in 1988 and 1989, the appellant did not own a farm and did not report any farm income;

(j) in 1988, the farm equipment, the plow and milking units, were traced in the farm depreciation schedules of the appellant’s father, Fernand Caron;

(k) moreover, the appellant did not operate any business during the 1988 taxation year;

(l) in 1989, the casual wages claimed were paid to the appellant’s wife for work on the farm owned by the appellant’s father, who reported all the revenue therefrom and claimed the major expenses relating thereto;

(m) as a result, the depreciation relating to the farm equipment, the tax credits relating thereto and the casual wages were disallowed by the Minister;

(n) the appellant did not establish that he suffered the loss of $8,004.08 claimed in 1988, and did not establish that he incurred the expenses totalling $5,298 claimed in 1989;

(o) the appellant did not submit all the appropriate documents in support of the expenses claimed and as a result did not establish that the expenses, beyond the amount allowed by the Minister, were in fact paid or incurred;

(p) the expenses incurred by the appellant in excess of the amount allowed by the Minister were not incurred for the purpose of gaining or producing income from a business or property, but rather were the appellant’s personal or living expenses.

[Translation.]

At the hearing the appellant’s agent, Fernand Letellier, accountant, admitted paragraphs (a), (cb) to (d), (g) to (i), (1) and (m) and denied paragraphs (b), (e), (f), (j), (k) and (n) to (p).

The appellant was the first witness heard at the appeal. During the two years in issue, he worked as a clerk in his father’s hardware store in St. Simon (Québec) and used his father’s truck to deliver materials sold to the store’s customers. He was paid a salary of $366 per week in 1988 and $425 per week in 1989 for 40 hours per week. He intended setting up a small business for sale of motor oil to local garages and truckers and, in 1988, he claims that he visited approximately 45 potential customers in the evening using his personal automobile. He claimed $2,762.31 for 1/3 of the automobile expenses. The only supporting evidence of this was Exhibit A-1, a list of names prepared by the appellant in November 1989.

During 1988, he made no sale of oil and the revenue from his “business” was zero, with a loss of $2,762.31 for automobile expenses; in 1989, again there was no revenue and no expenses claimed. The business was more successful in subsequent years to the periods in issue. The oil business was registered in April 1990 only.

He claims that in 1988, he bought a lift for $9,000 from Mr. Réal Émond, a plow for $4,200 and two milking units for $1,700 and produced documentation as Exhibit A-2. The so-called receipt for the purchase from Mr. Emond was not dated, and had neither the name of the purchaser nor that of the vendor. The receipt for the purchase of the plow and milking units was dated October 10, 1988 and was made out to “Fernand Caron” (father of the appellant) as purchaser.

In 1989, he purchased a truck which he used in a gravel delivery business that is not pertinent in this appeal.

In cross-examination, he admitted that the oil vending business had not operated in 1988 and 1989 and the only item relating to this was the expenses for his private automobile in 1988. He did not know why he had never shown Exhibit A-1 or A-2 to the Revenue Canada investigators. The lift was used in his father’s hardware store business and the plow and two milking units were used on his father’s farm. Insorfar as the salary of $480 deducted in 1989 is concerned, he claims this was a salary for work done for him by his wife, Johanne Bélanger.

Johanne Bélanger also gave evidence at the hearing. She claims that she received $480 from her husband in 1989 but did not report this amount as income on her own 1989 income tax return. She also claimed that she loaned $9,000 to her husband in cash for the purchase of the lift.

I am satisfied on the evidence before me that the appellant did not operate the oil selling business in 1988 and 1989 and that he clearly did not have a reasonable expectation of profit in this business in those same years. Further, he did not operate a farming business in 1988 or 1989, and the claimed expenses relating to the plow, lift and milking units and the claimed depreciation for these items were not properly his but more likely belonged to his father. Lastly, I am not satisfied with the probative value of the receipts produced for the reasons set out above.

The appellant had the onus of establishing on a balance of probabilities that the Minister’s reassessment for 1988 and 1989 were ill founded in fact and in law and he has failed to do so. Consequently, the appeal is dismissed.

Johanne Bélanger

In computing her income tax payable for the 1988 and 1989 taxation years, the appellant computed her child tax credits to be $948.13 for 1988 and $2,016.47 for 1989.

In issuing notices of reassessment to the appellant for the 1988 and 1989 taxation years, the Minister of National Revenue (the “Minister”) established the child tax credit to be $722 in 1988 and $1,751.60 in 1989.

In making these reassessments, the Minister assumed the following facts, inter alia:

(a) for the 1988 and 1989 taxation years, the appellant claimed a child tax credit of $948.13 in 1988 and $2,016.47 in 1989;

(b) in computing the eligible amount of the credit, the appellant assumed that the net income of her husband Jean-Irénée Caron, for the 1988 and 1989 taxation years, was $14,270.33 and $11,115.43 respectively;

(c) on March 11, 1991, the Minister of National Revenue issued the reassessments revising the appellant’s husband’s net income for the 1988 taxation year to $18,794, and for the 1989 year to $16,413;

(d) based on the foregoing, the Minister of National Revenue recomputed the child tax credit and established it to be $722 in 1988 and $1,751.60 in 1989.

[Translation.]

In view of the result in Jean-Irénée Caron’s appeal, this appeal is dismissed.

Appeal dismissed.