Docket: 2008-3363(IT)G
BETWEEN:
ROCCHETTA M. CIRONE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeals
heard on March 1, 2010, at Toronto, Ontario,
By: The Honourable
Justice Brent Paris
Appearances:
|
For the
Appellant:
|
The
Appellant herself
|
|
Counsel for the Respondent:
|
Amit Ummat
|
____________________________________________________________________
JUDGMENT
The appeals from reassessments made under
the Income Tax Act for the 2003 and 2004 taxation years are allowed, and
the reassessments are referred back to the Minister of National Revenue for
reconsideration and reassessment on the basis that the Appellant had additional deductible
sales expenses of $1,186.91 in 2003 and $1,177.00 in 2004.
The appeal from the reassessment made under
the Act for the 2005 taxation year is dismissed.
Signed at Ottawa, Canada,
this 5th day of March, 2010.
“Brent Paris”
Citation: 2010 TCC 137
Date: 20100305
Docket: 2008-3363(IT)G
BETWEEN:
ROCCHETTA M. CIRONE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Paris J.
[1] These are appeals
from reassessments of the Appellant’s 2003, 2004 and 2005 taxation years. The Appellant
was employed during those years by Westside Cemeteries Limited to sell
mausoleums and she was paid on a commission basis. She was reassessed by the
Minister of National Revenue (the “Minister”) to disallow a portion of the
sales expenses claimed as a deduction under paragraph 8(1)(f) of
the Income Tax Act (the “ITA”). The Minister also disallowed the
corresponding portion of the goods and services tax (“GST”) rebate claimed by
the Appellant under section 253 of the Excise Tax Act (“ETA”) in
relation to her sales expenses.
[2] The Minister
disallowed the claimed expenses as follows:
|
Taxation Year
|
Claimed
|
Allowed
|
Disallowed
|
|
2003
|
$40,125
|
$16,051
|
$24,077
|
|
2004
|
$33,414
|
$13,366
|
$20,048
|
|
2005
|
$14,331
|
$5,770
|
$8,516
|
|
|
|
|
|
|
|
|
|
|
The Minister also disallowed GST
qualifying expenses as follows:
|
Taxation Year
|
Claimed
|
Allowed
|
Disallowed
|
|
2003
|
$37,367
|
$5,979
|
$31,388
|
|
2004
|
$31,299
|
$5,008
|
$26,291
|
|
2005
|
$13,588
|
$2,201
|
$11,657
|
|
|
|
|
|
In reassessing the Appellant, the
Minister assumed that the Appellant did not incur sales expenses or expenses qualifying
for the GST rebate in excess of the amounts allowed.
[3] At the hearing, the
Appellant gave evidence that she worked selling mausoleums for Westside Cemeteries
Ltd. until 2005, when she said her employment was terminated without notice. This
caused her great emotional upset, and as a result, within a few months of
losing her job, she threw out most of her records relating to her work at
Westside. The discarded material included all of her tax records for her 2003
and 2004 taxation years. Therefore, when she was later audited in 2006 by the
Canada Revenue Agency (the “CRA”), she was unable to supply receipts or
vouchers for any of the expenses she had claimed for those two years.
[4] At another point in
her testimony, the Appellant said that she had been led to believe that her
2004 taxation year was closed before she threw out her records. At some time in
2005 (prior to the audit that resulted in the reassessments under appeal) she
had been contacted by the CRA and asked to provide receipts to support her
claims for medical expenses she had claimed in her 2004 tax return. She sent
in the records, and on December 28, 2005, the CRA sent her a letter advising
that it had completed the review of her 2004 return and that no adjustment was
necessary. She said that she took this to mean that the CRA was satisfied that
her return was correct and that she did not need to keep her records any longer.
[5] I found this
explanation somewhat confusing, because the timing of the CRA letter does not
jibe with the Appellant’s earlier testimony that she threw out the records a
couple of months after losing her job in May 2005. Also, as noted by counsel
for the Respondent, the CRA letter advised the Appellant to retain the
documents that were being returned with the letter.
[6] The Appellant was
able to supply her records pertaining to her expenses for her 2005 taxation
year to the CRA auditor because she (the Appellant) had kept those records
apart from the 2003 and 2004 records. After examining those documents the auditor
disallowed approximately 60% of the claimed expenses for 2005.
[7] The auditor
testified at the hearing that a large part of the amounts claimed in 2005 were
not supported by receipts. For example, $2,825 of the $4,592 claimed by
Appellant for “supplies” was unvouchered. Also, no records or details were
provided to support the claim for “referral fees” of $2,200. In the case of
amounts reportedly expended on gifts given for promotional purposes, and on food
and entertainment, no client names were furnished to the auditor to connect
them with the Appellant’s employment.
[8] In
cross-examination, the Appellant conceded that she had claimed amounts incurred
for hairstyling and Tylenol as sales expenses. The auditor’s proposal letter
to the Appellant
also makes reference to amounts claimed by the Appellant for clothing,
cleaning, passport fees, rent and “education” as sales expenses. Those amounts
were not accepted by the auditor.
[9] The auditor also
reduced the Appellant’s 2005 car expenses to reflect 70% use of her vehicle for
employment purposes rather than 90% as claimed. In attempting to calculate the
amount of personal use of the vehicle the auditor looked at the distance driven
between the Appellant’s home and her work, and also assumed that some
additional mileage was in respect of personal errands. The Appellant was
unable to provide any explanation of how the business use of the vehicle was
determined.
[10] Since the Appellant
was unable to provide any records of expenses for 2003 and 2004, the auditor
allowed the same proportion – 40% - of the total expenses claimed in those
years as she had for 2005.
[11] At the hearing, the
Appellant produced some bank records and cancelled cheques which she said
showed payments she made for referral fees and gifts to clients in 2003 and
2004. She also produced three sales advertisements (one from 2003 and two from
2005) which she had placed in magazines. She could not recall how much she had
paid for the ads. Otherwise, the Appellant did not address any of the
particular expenses disallowed by the auditor. She simply stated that she was
an honourable and trustworthy person and that her tax returns had been prepared
by a reputable accounting firm.
Analysis
[12] The Appellant bears
the onus of proving that the facts upon which the Minister based the
reassessments are wrong: Johnston v.
Minister of National Revenue. Therefore, in order to succeed, the Appellant is required
to show that she incurred the disallowed expenses, and that they were incurred
to earn income from her employment.
[13] While the task of
proving expenses is made more difficult where a taxpayer has not kept any
records or receipts, it is still open for him or her to provide oral evidence
relating to those expenses. If that evidence is found to be credible, a Court
can allow the expenses in the absence of documentary proof. See Hickman
Motors Ltd. v. The Queen
at paragraph 87:
87 … Furthermore, where the ITA does not require
supporting documentation, credible oral evidence from a taxpayer is sufficient
notwithstanding the absence of records: Weinberger v. Minister of National
Revenue (1964), 64 D.T.C. 5060 (Can.
Ex. Ct.); Naka v. R. (1995), 95
D.T.C. 407 (T.C.C.); Page v. R. (1993), 95 D.T.C. 373 (T.C.C.).
[14] In my view, some degree
of precision regarding the type and amount of the expenditures claimed is
required, along with information sufficient to connect the expenditures with
the Appellant’s sales activities. The evidence provided by the Appellant falls
far short of this standard. In her testimony, she provided almost no
information relating to the specific expenses that were claimed except for
certain referral fees and gifts. For the most part, she simply asks the Court
to accept her word that she made the expenditures and that she did so to earn
income.
[15] Even for the 2005
taxation year, for which the Appellant presumably still had her records, no
attempt was made to show that the amounts disallowed by the auditor were
incorrect.
[16] I find that only the
referral fees and gifts of $1,186.91 in 2003 and $1,177.00 in 2004 have been
proven by the Appellant. The purpose of these payments, as explained by her,
was plausible and I accept that these amounts were paid for gifts to clients
and to persons who brought clients to her. Furthermore, the amounts appear
reasonable to me.
[17] Since there was no
evidence that the Appellant paid GST on the referral fees and since the making
of a gift does not involve the acquisition of a service or property by the
donor, none of the amounts which I have allowed as additional employment
expenses are eligible for the GST rebate under section 253 of the ETA.
[18] With respect to the
three advertisements presented by the Appellant, I note that only one related
to the 2003 year. I also note that the whole amount claimed by the Appellant
for advertising in 2005 was allowed by the auditor. Since the overall amounts
allowed for 2003 and 2004 were based on the results of the 2005 audit, it is
logical to conclude that the Appellant has already been allowed an amount for
advertising in those years. In any event, the Appellant could not say what she
paid for the 2003 ad. As a result, no additional amount will be allowed in
2003.
[19] For these reasons,
the appeals for 2003 and 2004 are allowed in part and the reassessments for those
taxation years are referred back to the Minister on the basis that the
Appellant is entitled to deduct additional sales expenses of $1,186.91 in 2003
and $1,177.00 in 2004. The appeal for 2005 is dismissed. No costs are awarded.
Signed at Ottawa, Canada, this 5th
day of March, 2010.
“Brent Paris”
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