Date: 19980924
Docket: 97-1671(IT)I
BETWEEN:
RUBIN SUSTERAS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Hamlyn, J.T.C.C.
[1] This appeal is in respect of the
Appellant's 1993 taxation year.
FACTS
[2] A Partial Agreement as to Facts,
Documents and Issues was filed. It reads in part as follows:
1. This is an
appeal for the 1993 taxation year. The Appellant's income tax
return for his 1993 taxation year with attachments is attached
hereto as Exhibit 1.
2. At all
material times, the Appellant was a driver for Muscillo
Transport, driving his own truck since 1988 under the business
name of Rubin Susteras Haulage ("Haulage").
3. He was
principally involved in short haul trips from the pick-up point
at Keele Street and Lawrence Avenue, and hauled garbage to the
dumpsite at Keele Valley.
4. He was paid
by tonnage hauled and usually made about 5-6 trips a day.
5. Haulage
reports on a fiscal period from February 1st to January 31st
each year.
6. From
January to December 1993, the Appellant was also employed by
Majestic Furniture Warehouse ("Warehouse") as a commission
salesman.
7. The
Appellant's employment commission received from the Warehouse and
expenditure claimed thereof were reported as that of Rubin
Susteras Sales and Distributing Company ("Sales").
8. The period
reported in the Appellant's 1993 income tax return for Haulage
was from February 1, 1992 to January 31, 1993. The period
reported for Sales (Warehouse) was from January 1, 1993 to
December 31, 1993.
9. The
Appellant's 1993 revenue from Haulage was reported as $73,250.00,
and his commission income from Warehouse for that year was
reported as $32,425.00. His total gross income from Haulage and
Warehouse for the 1993 taxation year was $105,675.00
10. In computing income
for the 1993 taxation year, the Appellant reported expenses in
the amount of $82,703.00 plus capital cost allowance in the
amount of $7,343.00 and claimed a business income loss of
$16,796.00 from his operation of Haulage. As well, he also
claimed other employment expenses of $11,105.00 from his
employment at Warehouse. The total expenses claimed by the
Appellant for operating Haulage and for his employment for the
1993 taxation year was $101,151.00.
11. By Notice of
Assessment dated August 29, 1994, (Exhibit 2) the Minister of
National Revenue (the "Minister") assessed the Appellant for the
1993 taxation year as filed.
12. By letter dated
January 19, 1995, (Exhibit 3) the Appellant was advised that his
1993 taxation year has been selected for review and he was
requested to supply original receipts and vouchers to
substantiate his business income expenses and other employment
expenses claimed.
13. The Appellant produced
proof for some of his expenses on February 28, 1995, and his 1993
taxation year was audited and reassessed. The result of this
audit is as set out in the auditor's Working Paper attached
hereto as Exhibit 4. Some expenses claimed were allowed although
no documentary proof was provided.
14. In reassessing the
Appellant for the 1993 taxation year by Notice of Reassessment
dated April 24, 1995, (Exhibit 5) the Minister disallowed
business expenses in the amount of $44,287.00 and other
employment expenses in the amount of $7,088.00. The amounts of
expenses allowed as a result of this audit for the Appellant's
1993 taxation year were $45,758.60 for Haulage and $4,017.00 for
Sales to a total of $49,775.00.
15. Itemized amount of
expenses claimed for Warehouse and disallowed for lack of
substantiation are as follows:
Claimed
Disallowed
a) Accounting,
Legal
$50.00
$0.00
a) Advertising
Interest
$2,110.00
$2,110.00
c) Bank
Charges/Comm.
$195.00
$195.00
d) Supplies,
Materials
$1,943.00
$1,943.00
Automobile
Expenses
$5,667.00
$0.00
Less: Personal
Use
$1,700.00
$0.00
e) Allowable
Amount
$3,967.00
$0.00
f) General
Office
$1,423.00
$1,423.00
g)
Administrative
$1,417.00
$1,417.00
Total:
$11,105.00
$7,088.00
16. Subsequently, the
Appellant requested a review. The Minister reviewed additional
submissions made by the Appellant and reassessed the Appellant's
1993 taxation year. The result of this review is as set out in
the Working Paper (Rev.) attached hereto as Exhibit 6. Some
additional expenses claimed were allowed although not supported
by documentary proof.
17. The Minister allowed
the Appellant additional expenses in regard to Haulage in the
amount of $8,036.00 for the 1993 taxation year by Notice of
Reassessment dated July 31, 1995 (Exhibit 7). As a consequent of
this review, the amounts of expenses allowed for the Appellant's
1993 taxation year were increased to $53,794.60 for Haulage and
$4,017.00 for Sales to a total of $57,811.00.
18. The Appellant served a
Notice of Objection dated September 1, 1995 for the 1993 taxation
year regarding the disallowed expenses for Haulage (Exhibit
8).
19. By letter dated March
5, 1996, (Exhibit 9) the Appellant was requested to produce
evidence to substantiate his claims. Statement of Expenses in the
Working Paper (Rev.) in Exhibit 6 was also provided to the
Appellant in this letter.
20. The Minister confirmed
the reassessment of the Appellant's 1993 taxation year by
Notification of Confirmation dated June 27, 1996 (Exhibit
10).
21. Itemized amounts of
expenses claimed for Haulage and disallowed for lack of
substantiation are as follows:
Claimed $
Disallowed $
Road Expenses - night meals, tools,
etc.
2,741.00
2,741.00
Bank Charges and
Interest
3,211.00
3,211.00
Brokerage
Fees/Comm.
12,920.00
236.91
Equipment
Leases/Subcontracts
5,984.00
5,984.00
Truck - fuel, repairs,
rentals,
45,914.45 20,553.94
insurance, etc.
General and
Office
210.00
210.00
Insurance
5,317.00
1,930.00
Phone, Pager, Heat, Hydro,
Water
1,752.00
552.00
Capital Cost
Allowance
7,343.00
833.00
Total
85,392.85[1] 36,251.85
ISSUE
[3] The issue to be decided is whether
the Appellant had incurred, for the purpose of gaining or
producing income from Rubin Susteras Haulage ("Haulage")
$36,251.85 more than the $53,794.60 expenses allowed by the
Minister of National Revenue (the "Minister") from Haulage's
gross revenue of $73,250.00.
ANALYSIS
[4] At all material times, the
Appellant was a driver for Muscillo Transport, driving his own
truck since 1988 under the business name of Rubin Susteras
Haulage. The Appellant was principally involved in short haul
trips and usually made five or six trips a day. He was paid by
the tonnage. From January to December 1993, the Appellant was
also employed by Majestic Furniture Warehouse ("Warehouse") as a
commissioned salesman. According to the Partial Agreement as to
Facts, Documents and Issues, the issue to be decided between the
parties is limited to expenses claimed by Haulage. The
Appellant's 1993 revenue from Haulage was reported at $73,250. In
computing his income for the 1993 taxation year, the Appellant
reported expenses in the amount of $82,703 plus capital cost
allowance in the amount of $7,343 and claimed a business income
loss of $16,796 from his operation of Haulage. The total expenses
claimed by the Appellant for operating Haulage and from his
employment for the 1993 taxation year was $101,151.
[5] By Notice of Assessment dated
August 29, 1994, the Minister assessed the Appellant for the 1993
taxation year. By letter dated January 19, 1995, the Appellant
was requested to supply original receipts and vouchers to
substantiate his business income expenses and other employment
expenses claimed. The Appellant produced proof for some of his
expenses on February 28, 1995 and his 1993 taxation year was
audited and reassessed. The itemized amounts of expenses claimed
for Haulage and disallowed for lack of substantiation are at
paragraph 21 of the Partial Agreement as to Facts, Documents and
Issues. In reassessing the Appellant for the 1993 taxation year
by way of a Notice of Reassessment dated April 24, 1995, the
Minister disallowed business expenses in the amount of
$44,287.00. The amounts of expenses allowed as a result of this
audit for the Appellant's 1993 taxation year were $45,758.60 for
Haulage. After a review requested by the Appellant, the amount of
expenses allowed for Haulage was increased to $53,794.60. Some of
the expenses claimed were allowed although no documentary proof
was provided. The Minister confirmed the reassessment of the
Appellant's 1993 taxation year by Notification of Confirmation
dated June 27, 1996.
[6] As a starting point for the
analysis of this case, it must be determined whether the
Appellant must provide vouchers or receipts for those expenses
that were disallowed. The expenses that have been
disallowed by the Minister due to lack of vouchers or receipts
are the bank charges, brokerage fees, equipment leases, truck
expenses and general and office expenses. The Appellant must show
that these expenses were "incurred by the taxpayer for the
purpose of gaining or producing income from the
business or property" under paragraph 18(1)(a) of the
Income Tax Act (the "Act").
[7] It is open to the Appellant to
provide the actual vouchers or receipts through the Court process
or to prove the expenses by other acceptable evidence. The proof
could be as simple as precise detailed oral evidence that clearly
addresses each disallowed amount and substantiates the claim. For
this to occur, the Appellant would have to provide specific
detailed credible evidence. When the oral evidence falls to
generalizations, unproved assertions or arguments, this
presentation does not amount to other acceptable evidence.
[8] The Minister is disallowing
$36,251.85 of the Appellant's claimed expenses. The great
majority of this amount, $32,125.85 is being disallowed due to
lack of vouchers or proper documentation.
[9] The Minister submits that the
disallowed expenses were not incurred for the purpose of gaining
or producing income from a business or property within the
meaning of paragraph 18(1)(a) of the Act but were
personal or living expenses of the Appellant within the meaning
of paragraph 18(1)(h) of the Act.
[10] The evidence of Mr. Susteras at
the hearing was that because of a flood that destroyed certain
documents, including vouchers and records, because of health
reasons, seizures and hospitalization, because he finds
bookkeeping tedious and therefore relied on others to maintain
his books and because of a business lock out, the Appellant did
not have complete records and documents.
[11] Specifically, no bank statements,
cancelled cheques or receipts for disallowed amounts were made
available to support the disputed claims.
[12] No documentary evidence was tendered to
support the relationship between monies borrowed by way of
mortgage on the Appellant's personal residence and the purchase
of a truck. Cheques purportedly paid out to a driver of the truck
were payable to another individual.
[13] On the issue of repairs, the figure
that was presented to Revenue Canada by the Appellant was a total
of $7,314.04 (Exhibit R-1, tab A). This amount was allowed by
Revenue Canada. Later, the Appellant presented to Revenue Canada
a claim for repairs of $15,854.03 (Exhibit R-1, tab B). At trial,
the Appellant presented to the Court a repair claim for
$30,631.00. On cross-examination the Appellant was unable to
clarify those expenses.
[14] Throughout the hearing the Appellant or
his agent asserted they could prove the expenses by way of
vouchers or cheques. On cross-examination, the question of the
insurance claim was explored as the Appellant's insurance expense
claim was $5,317.00. The documentation produced at trial
substantiated only $3,387.00 of the amount claimed. The amount
substantiated was allowed by Revenue Canada.
[15] The essence of the Appellant's evidence
was that he operated a business and he spent money. Therefore all
moneys spent must be and were related to the business
expenditure. Notwithstanding this submission, his disallowed
claims could not be substantiated by confirmed or correlated
acceptable evidence.
[16] It should be noted that this case was
adjourned during the trial process for two months so that the
Appellant could have another opportunity to correlate, check and
organize his records so that the Court would be provided clearly
with evidence to show what was allowed as well as what was
disallowed and provide the Court with acceptable evidence to
support the amounts claimed.
[17] On the second continued hearing, no
substantive further evidence was presented.
[18] The Appellant's approach to document or
record deficiencies was his assertion that the amounts claimed
were reasonable given the type of business he was operating.
While this submission has a certain sense it does not displace
the onus placed on the Appellant to specifically substantiate the
business expense claims when they are disputed and put in
issue.
[19] The Appellant's explanations for record
deficiencies (flood, illness, business lockout and the
tediousness of record keeping) do not expunge the requirement in
the absence of other acceptable evidence to keep clear records
and substantiate claims. The Appellant's assertions, in the
absence of better records, that his claims are reasonable can not
be the basis for a Court decision to allow the appeal.
DECISION
[20] The appeal is dismissed.
Signed at Ottawa, Canada, this 24th day of September 1998.
J.T.C.C.
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