Kevin Rafuse v. Her Majesty the Queen (Informal Procedure), [1994] 2 CTC 2094

Taylor, J.T.C.C. (orally):— Well I think it is obvious that I am neither a soothsayer, or Solomon, and there is no logical, rational or reasonable way to arrive at a conclusion in this case which could be statistically and arithmetically supportable. I can only do the best from my own assessment of this. I will bring this to a conclusion and if it is a bit rambling you will pardon me I hope.

This is an appeal from Kevin Rafuse with respect to his 1987 and 1989 income tax returns. The notice of appeal for 1987 and 1989 requested additional business expenses and certain personal expenses which appeared to be almost exclusively in the latter case, medical receipts.

The Minister’s reply to the notice of appeal is detailed and gives a record of the situation in that tax returns were not filed for the years 1987 or 1989 and that eventually the Minister of National Revenue prepared documentation and on the basis of that documentation struck the assessments at issue.

I turn first to the 1989 taxation year and the notice of appeal on it. One of the comments made by the Minister in the reply to the notice of appeal is dealt with in paragraph 13 and refers to subsection 8(10) of the Income Tax Act, R.S.C. 1952, c. 148 (am. S.C. 1970-71-72, c. 63) (the "Act"), which requires the filing of a Form T2200 where expenses such as those at issue here today are claimed and deductions requested.

Mr. Rafuse was not in business. Mr. Rafuse was an employee. Mr. Rafuse was on commission. As well as I can make out, totally on commission. So therefore. there are some limitations on the deductions available to him under paragraph 8(1 )(f) of the Act.

It is my conclusion in line with the comments made by the Minister in the aforementioned paragraph 13 of the reply to notice of appeal, that this Court did not have any jurisdiction to deal with it, we have the jurisdiction but we were required to deal with the appeal based on the more recent judgments in that vein. The one I noted was Canada v. Adelman, [1993] 2 C.T.C. 207, 93 D.T.C. 5376, a judgment of the Federal Court—Trial Division. It appears to me that without having filed a T2200 for the year 1989 nothing could be allowed as deductions, as further deductions claimed.

So for the year 1989 the appeal is to be dismissed.

Turning to the year 1987. We have had the benefit of Mr. Rafuse's testimony and the benefit of an official from Revenue Canada who has dealt with this file. Some specific documentation has been presented to the Court which has to do with the very major and contested item in the claimed additional expenses. The claimed additional expenses by virtue of the notice of appeal were $19,581.43. Of that an amount of $13,029.98 loosely characterized as what are called desk costs. That is in his role as a commission real estate agent it was Mr. Rafuse’s claim that he was paying substantial amounts to his employer, at that time N.R.S., for, I take it the utilization of space and various other facilities associated with their office. It was the contention of the Minister’s counsel that these were not deductible on one or both of two grounds. First of all they were deducted before the amounts shown as commission revenue were calculated and therefore not to be deducted again from that commission revenue, which Minister’s counsel alleges to be net commission revenue, that is net after these items called desk costs of $13,029.98.

The position of counsel for the appellant is that the appellant has testified with regard to these items that certain documentation has been submitted which would tend to support that.

One document is Exhibit A-5. It appears to be a kind of agreement made between a broker and a salesperson and part of its body does deal with an amount of $1,085 which is supposed to be paid monthly by the appellant to N.R.S. The testimony of the appellant was when there wasn't sufficient money available he had to make the money up himself.

I don't regard Exhibit A-5 as being of any value whatsoever. I doubt very much it is a contract. I doubt very much there is any time that it was ever utilized as such.

Another document was Exhibit A-4. Taken on its face this would indicate that Mr. Rafuse earned $1,960.09 on June 5, 1987 and nothing further from his employer until August 21, 1987 when he got a cheque for $961.70. During that period of time it is the testimony of Mr. Rafuse, as well as he recalls it, that he was indeed paying substantial amounts, 13, 14, $1,500 a month for this desk cost, plus several hundred dollars a month in entertainment and travelling expenses, telephone costs, et cetera. There was no indication other than a vague idea that he had borrowed some funds from his mother to make up these differences. In my opinion that simply is not good enough.

In the end analysis I do think that some of the expenses alleged to be paid by Mr. Rafuse indeed were paid. The documentation and evidence to support that is very slim indeed. Reference has been made by both counsel to what appears to be a computer page in A-1-3, and this is confusing at best, but if it can mean anything it simply means that where charges for $1,085 a month were placed against Mr. Rafuse by his employer these were later on credited.

In my view the only reasonable position to take is that the desk costs either were deducted from the amounts involved, which is one position taken by the Minister’s counsel. Or, in my view, more likely were never charged and never paid and never an obligation of Mr. Rafuse. I simply do not accept the testimony that all during this period of time he would have continued to pay the amounts involved, including these desk costs with virtually no income at all and at the same time support his family as he had to do.

In the final analysis that leaves an amount claimed of $6,551.45, of which it is clear with respect to the gasoline expenses as part of that of $166.01 applied to the year 1986, not 1987, leaving an amount there of $6,385.44 and barring anything else that I can arrive at to do I have decided that an amount of $3,192, that is half of what I just spoke of, $3,192.72 additional should be allowed to the appellant for the year 1987. In all other respects the appeals are dismissed. Thank you.

Appeal allowed in part.