Citation: 2014 TCC 101
Date: 20140328
Docket: 2013-1695(IT)I
BETWEEN:
ROBERTA M. ROGERS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Lyons J.
[1]
These are
appeals from reassessments made by the Minister of National Revenue (the
"Minister") for the 2008 and 2009 taxation years. In those years, Roberta
Rogers, the appellant, carried on a business of mostly buying, repairing and
selling motor vehicles.
[2]
In reassessing
the appellant, the Minister included unreported business income in the amount
of $3,200 in 2009, and disallowed amounts claimed by the appellant as business
expenses for salaries and meals for her two sons as follows:
2008 2009
Salary (vehicles) $4,300 $5,232
“Disallowed meals expenses” $1,218 $1,240
Meals (50%)
$292
*References to cents have been removed
from the above amounts.
FACTS
[3]
Ronald Rogers
is the spouse of the appellant and stated that he is the most knowledgeable
about the appellant’s proprietorship business (the “business”). He testified
on behalf of the appellant and with her concurrence. He said that he was the
only person that maintained the books and records of the business, and did so to
the best of his ability to be compliant, but underscored that he is not a
professional bookkeeper. At the end of the year, the books and records were
taken to an accountant who prepared the tax returns.
[4]
He explained
that the business was multifaceted but in 2008 and 2009 the business activities
involved mostly buying, repairing and selling cars. Previously it had bought
and sold boats, skidoos, collectibles, musical instruments and wooden consuls
for cars.
[5]
The appellant
had claimed salary expenses for her two sons in the amounts of $5,500 in 2008
and $5,232 in 2009. The Minister allowed the amount of $1,200 as an expense in
2008, and disallowed the remaining amounts.
[6]
The salary and disallowed meals
expenses were disallowed on the basis they were not made for the purpose of
gaining or producing income from a business under paragraph 18(1)(a),
and were personal or living expenses of the appellant pursuant to paragraph
18(1)(h) of the Income Tax Act (the “Act”). The Meals
expense of $292 was disallowed under section 67.1 of the Act.
LEGISLATION
[7]
Paragraphs
18(1)(a) and 18(1)(h), and subsection 67.1(1) of the Act read
as follows:
18.(1) General
limitations. In computing the income of a taxpayer from a business or property
no deduction shall be made in respect of
(a) an outlay or expense
except to the extent that it was made or incurred by the taxpayer for the
purpose of gaining or producing income from the business or property;
…
(h) personal or living
expenses of the taxpayer, other than travel expenses incurred by the taxpayer
while away from home in the course of carrying on the taxpayer’s business; …
67.1(1) Subject
to subsection (1.1), for the purposes of this Act, other than sections 62, 63,
118.01 and 118.2, an amount paid or payable in respect of the human consumption
of food or beverages or the enjoyment of entertainment is deemed to be 50 per
cent of the lesser of
(a) the amount actually
paid or payable in respect thereof, and
(b) an amount in respect
thereof that would be reasonable in the circumstances.
ANALYSIS
[8]
The onus is on
the appellant to prove the Minister’s reassessments are incorrect. Based on the
evidence presented, I must determine on the balance of probabilities if the
evidence presented by the appellant suffices to demolish any or all of the
Minister’s assumptions. The appellant can accomplish this where the appellant
makes out a prima facie case unless that is subsequently rebutted or the
contrary is proved.
[9]
Paragraph
18(1)(a) prohibits a deduction for an expense unless it was made or
incurred by a person for the purpose of gaining or producing income from the
business.[1]
[10]
I find that
some but not all of the amounts claimed by the appellant were expenses incurred
for business purposes.
Vehicles expense
[11]
The amount totaling
$3,206 is a deductible business expense in 2008 because the payments, allocable
to the value of vehicles given to their sons in 2008, were for the tasks
performed by their sons.[2]
[12]
Numerous times
throughout his testimony, Mr. Rogers stated that his sons were not paid
salaries in 2008 and 2009. He said that he erred in entering those amounts into
the books as salaries. His sons had been hired by the business and they were
paid up to 2007. After that, they found part-time work at Dairy Queen, near
their parents' home, and were not hired by the business on a scheduled basis.
They showed up if and when they had the time to help with the business.
[13]
Mr. Rogers
stated that to show her gratitude, the appellant gifted a vehicle from the
business to each son. However, he also described these as payments in
depreciable items that were in need of repair for which the appellant now seeks
to deduct as business expenses.
[14]
In 2008, Devan
received a 1987 Chevrolet Blazer (“Blazer”), and Kurtis received a 1996 Taurus
(“Taurus” and collectively “the vehicles”). In his testimony, Mr. Rogers said
that the vehicles were given to their sons with the intent of incurring income
for the appellant’s business in both years. The vehicles were used to go from
their homes to the Dairy Queen and then to their parents' home to help their
mother in the business whenever they were able, but the sons never received any
money in 2008 and 2009 from the business.
[15]
The respondent argues
that since the vehicles were gifts for work given as a goodwill gesture to
family, these are non‑deductible personal expenses as contemplated by
paragraph 18(1)(h) of the Act.[3]
The respondent’s position is
premised on Mr. Rogers
having indicated that gifts were given in exchange for work. However, it is
apparent from the evidence, oral and documentary, and the position advanced by the
appellant that the appellant considered the vehicles as payments, in
depreciable items, to her sons for tasks performed thus enabling the business
to earn income by controlling costs.[4]
[16]
Another concern
with the respondent’s position is that it fails to factor in the detailed explanation of the tasks that the
appellant’s sons performed. Mr. Rogers testified that they fixed and restored vehicles,
sandblasted frames and parts, did metal work and fabrication, welded, replaced
ball joints, repaired brakes, changed tires, fixed transmissions, removed and
reinstalled engines, dismantled a Chevy half ton, cut out rust, worked on
rocker panels and custom made pieces for the floor of the Chevy.
[17]
In support, he produced
a Task performance chart for each of 2008 and 2009 confirming the tasks
performed by his sons.[5]
While he candidly acknowledged that the charts were prepared sometime after the
fact, he said that the information in the charts is taken from the general
ledger which recorded the actual work done by both sons.
[18]
The chart for
2008 shows the total amount of $650 as allocable to the Taurus and describes it
as the actual cost to the business. In cross-examination, he was unequivocal in
admitting that the Taurus was valued at $650 and not $3,000 as recorded on exhibit
A5 which he said was an error.
[19]
On the same
chart, the total amount of $2,556, allocable to the Blazer, was calculated on
the same basis as the Taurus. Consistent with that chart, exhibit A5 shows the
amount of the Blazer as $2,500. Given that, I infer the value of the Blazer is
$2,556 in 2008. I find that the provision of the vehicles as payments, totaling
$3,206 in 2008, were for the tasks performed by their sons, and were incurred
for the purpose of earning income and deductible as business expenses.[6]
Mr. Rogers was forthright in his testimony and was a credible witness.
[20]
For the reasons
that follow, I find that the total amount of $5,232 is not a deductible business
expense in 2009.
[21]
The appellant has
failed to discharge her onus in failing to provide detailed information and
document her affairs in a reasonable manner with respect to 2009. Assertions
without proof are not sufficient to support claims.[7]
[22]
According to
the 2009 chart, the actual cost to the business is shown as $5,232 and
described as “gift – business cost.” However, other
than that assertion and unlike the explanations and documentation provided with
respect to the Taurus and Blazer for 2008, no evidence – oral or documentary - was
provided with respect to the $5,232 in 2009.”
[23]
Of some import,
during cross-examination Mr. Rogers admitted that other than the Taurus and the
Blazer given to theirs sons in 2008, their sons were not given any other
vehicles or items for their help nor were they paid money.
[24]
I find and conclude that the total
amount claimed of $5,232 in 2009 was not substantiated and did not establish
any business purpose and is prohibited by paragraph 18(1)(a) of the Act
as a deductible business expense.
Disallowed meals expenses
[25]
I find that the
disallowed meals expenses, $1,218 in 2008 and $1,240 in 2009, were personal
expenses as their sons need for food existed apart from - and were not
intrinsic to - the business.[8]
[26]
Mr. Rogers testified
that the disallowed meal expenses were for fast food lunches, twice weekly, for
their sons. He said that these were claimed in monthly batches and entered in
the general ledger as $100 each month. The burgers and fries were consumed in
the garage by his sons while working on cars or if the appellant needed help.
[27]
The appellant again
argues that the disallowed meals expenses enabled the business to earn income,
therefore the $100 per month for meals for two children should be allowed as
business expenses in 2008 and 2009, and the amount is extremely reasonable.
[28]
The respondent
argues that the disallowed meals expenses for the appellant's sons' lunches were
separate from - and does not constitute a need that is intrinsic to - the
business, thus were personal expenses prohibited by paragraph 18(1)(h).
As well, the amounts were unsubstantiated thus prohibited by paragraph 18(1)(a)
of the Act.
[29]
Counsel for the
respondent relied on the decision of Scott v Canada, 98 DTC 6530
(FCA), in which the Federal Court of Appeal recognized that the human need for
food exists independent from, and not intrinsic to, the business. At paragraph
6, the Court states:
… It is not a need that is intrinsic to the
business. While appropriate meals may make one available for business or better
able to perform at one’s business, the need to satisfy thirst and hunger exists
independently from the business. …
[30]
Since the disallowed
meals expenses were to satisfy their sons need to consume food that existed
independently of the business and was not intrinsic to any business need or
purpose, I find that the disallowed meals expenses are personal expenses that
are prohibited by paragraph 18(1)(h) of the Act, and, in any
event, since no receipts or other documentation were available relating to the
disallowed meals expenses, the appellant did not meet the onus of establishing that
she is entitled to deduct the disallowed meals expenses, thus are prohibited by
paragraph 18(1)(a) of the Act.
Meals
[31]
I find that the
amount that the appellant may claim in 2009 for meals is limited to the $292,
50% of $584, in 2009.
[32]
Mr. Rogers testified
that arrangements were made to stay at a private residence for no cost on this
trip. He also said that they had obtained car parts in exchange for the price
of a meal.
[33]
The appellant
disputes the reduction by 50% of the amount of $584 incurred and claimed for
meals in 2009. She asserts that because she was very careful about other
expenses on that business trip the $584 should be allowed as these are very
reasonable expenses in 2009.[9]
[34]
The difficulty
with the appellant’s argument is that subsection 67.1(1) of the Act
allows business persons to deduct only up to 50% of their food and beverage
expenses for meals of a business a nature.
[35]
Section 67.1
was added to the Act in 1988. Prior to the addition of this section, the
entire amount of reasonable meal expenses incurred for the purpose of earning
income from a business would have been deductible in computing income from that
business. However, after February 21, 1994, the limitation was changed to 50%
for expenses incurred. Thus that provision restricts claims for meals by 50% of
the reasonable amount ($584) that was incurred.
[36]
I find that
only $292, 50% of the $584, is deductible for meals for the business trip in
accordance with section 67.1 of the Act. I conclude that the Minister
correctly allowed the amount of $292 in 2009.
Unreported Income
[37]
I accept that
the payment of $3,200 in 2009 belonged to Mr. Rogers, not the appellant.[10]
[38]
He testified
that in July 2006 he had finished physiotherapy for an injury to his shoulder.
He had purchased a 1978 Chevy truck (the “truck”) which cost him $3,700
including repairs. He was hired as courier but could not use the truck because
the Workers Compensation Board would not allow him to do so.
In 2006, he transferred the truck and a 1991 Thunderbird
(the “Thunderbird”) to the business and was given a promissory note by the
business because it had no money. At some point those vehicles were transferred
back to Mr. Rogers. This was corroborated by documentation, including a
bill of sale and promissory note, tendered in evidence. In 2008 and 2009 he owned
and operated both vehicles. He stated that the payment of $3,200 in 2009,
relating to those vehicles, belonged to him, not the business. I find that the
source of the $3,200 was with respect to the sale of the truck and the
Thunderbird. I conclude that this was not unreported income of the appellant in
2009.
CONCLUSION
[39]
The appeals are
allowed on the bases that the amount of $3,206 in 2008 is a business expense,
and that the amount of $3,200 in 2009 is not unreported income and is to be
deleted from the appellant’s taxable income. The reassessments are
referred back to the Minister for reconsideration and reassessment on those bases.
In all other respects, the appeals with respect to the 2008 and 2009 taxation years
are dismissed.
Signed at
Toronto, Ontario, this 28th day of March 2014.
"K. Lyons"
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