Date: 19980515
Docket: 96-4752-IT-I
BETWEEN:
IMRE G. CSIZMADIA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Watson, D.J.T.C.C.
[1] This appeal was heard in Toronto, Ontario on May 5, 1998,
under the Informal Procedure.
[2] The Appellant appeals from the Notices of Reassessment
dated July 13, 1995 for the 1990, 1991, 1992 and 1993 taxation
years. The issues deal with research grants received during those
taxation years and whether the Appellant is entitled to deduct
certain amounts as expenses for accommodation, transportation and
professional assistance and, in the alternative, whether the
disallowed expenses were reasonable in the circumstances.
[3] The Appellant received research grant awards during the
four years in issue to supervise an international collaborative
research project related to protein folding, including peptide
conformations and organic sulphur stereochemistry. The amounts of
the grants varied from year to year and were not received at
regular intervals. These grants were awarded to the Appellant by
the University of Nancy in France in each year under appeal; in
addition, he received a lump sum amount of $47,944.00 from the
University of Toronto in the 1993 taxation year.
[4] In reassessing the Appellant for the 1990, 1991, 1992 and
1993 taxation years, the Minister of National Revenue (the
"Minister") included the above amounts and allowed
certain expenses as set out in the revised schedules to the Reply
to the Notice of Appeal.
[5] In so reassessing the Appellant, the Minister made the
following assumptions of fact:
"(a) the facts hereinbefore admitted or stated;
(b) at all material times, the Appellant was a Professor with
the University of Toronto;
(c) in the 1993 taxation year, the Appellant received a
research grant in the amount of $47,944.00 from the University of
Toronto;
(d) the research grant in the amount of $47,944.00 was income
to the Appellant in the 1993 taxation year;
Research Grants from University of Nancy
(e) in the 1990, 1991, 1992 and 1993 taxation years, the
Appellant was awarded gross research grants in the amounts of
158,635, 82,300, 97,989 and 44,265 French francs from the
University of Nancy, France;
(f) the University of Nancy made certain deductions at source.
These deductions included contributions for old age pension,
sickness and accident (the "Deductions");
(g) the Deductions were in respect of personal or living
expenses of the Appellant;
(h) the gross research grants before the Deductions were
income to the Appellant;
Accommodation Expenses
(i) in the 1990, 1991, 1992 and 1993 taxation years, the
Appellant deducted the amounts of $12,592.62, $12,846.58,
$16,251.09 and $14,018.45, respectively, as accommodation
expenses in computing his net research income;
(j) the Appellant deducted the amount of $5,157.75 in each of
the 1990, 1991, 1992 and 1993 taxation years and deducted the
amount of $399.20 in each of the 1991, 1992 and 1993 taxation
years, for the costs of furniture and furnishing, respectively,
in computing his net research income;
(k) the Appellant rented the Apartment for the entire year in
each of the 1990, 1991, 1992 and 1993 taxation years at an annual
rent of 33,150 French francs;
(l) in 1990, the Appellant furnished the Apartment with
approximately $25,788.00 worth of furniture and household items
(the "Furniture");
(m) the Appellant stayed in Europe for 4 ½ months in
1990, 5 months in 1991, 8 months in 1992 and 9 months in 1993.
The Appellant stayed in the Apartment in Nancy most of the
time;
(n) in the 1990, 1991, 1992 and 1993 taxation years, the
Appellant incurred additional accommodation expenses when he
travelled to other Universities, as follows:
1990 1991 1992 1993
University Hungary $1,900 $1,900 $1,350 $1,900
Hotels France 110
Hotels Hungary 666
Hotels Germany 3,582 1,057
Hotels Austria 212
169
Total $2,112 $1,900 $5,598
$3,236
(o) at all material times, the Appellant was separated and was
living apart from his spouse and his child;
(p) at all material times, the Appellant's mother resided
in Budapest, Hungary;
(q) at all material times, the Apartment was the
Appellant's temporary residence;
(r) the Appellant resided temporarily in Nancy, France and was
sojourning there during the years in question;
(s) the documentation provided by the Appellant did not
substantiate the total accommodation expenses claimed by the
Appellant;
(t) the accommodation expenses, in excess of the amounts i.e.
$2,301.16, $3,974.79, $6,560.29 and $8,030.89 allowed by the
Minister in the 1990, 1991, 1992 and 1993 taxation years, were
not incurred, or if incurred, were not incurred by the Appellant
for the purpose of carrying on the research work but were
personal or living expenses of the Appellant;
Transportation Expenses
(u) in the 1990, 1991, 1992 and 1993 taxation years, the
Appellant deducted the amounts of $6,331.75, $3,214.06, $7,999.45
and $8,787.00, respectively, as transportation expenses including
train tickets, car rentals, taxi service and use of a personal
vehicle in computing his net research income;
(v) in 1992, the Appellant purchased a motor vehicle (the
"Vehicle") for 1,900 Deutsche mark, approximately
$1,474.00 in Canadian funds;
(w) in the 1992 and 1993 taxation years, the Appellant
incurred transportation expenses related to the use of the
Vehicle including capital cost allowance ("CCA") for
the purpose of carrying on the research work, as follows:
1992 1993
Repairs $2,216.13
Insurance $341.31 238.84
Gas 495.67 499.09
Car Park 79.76
Toll charges 8.46 109.39
CCA 147.40 265.40
Total $992.84 $3,408.61
(x) the cost of the Vehicle was capital in nature;
(y) the documentation provided by the Appellant did not
substantiate the total transportation expenses claimed by the
Appellant;
(z) the transportation expenses, in excess of the amounts i.e.
$3,784.24, $2,416.73, $6,170.10 and $3,756.88 allowed by the
Minister in the 1990, 1991, 1992 and 1993 taxation years, were
not incurred, or if incurred, were not incurred by the Appellant
for the purpose of carrying on the research work, but were
personal or living expenses of the Appellant;
Expenses for Professional Assistance
(aa) in the 1990, 1992 and 1993 taxation years, the Appellant
deducted the amounts of $1,021.18, $1,321.36 and $623.19
respectively, as expenses for professional assistance in
computing his net research income;
(ab) in the 1990 taxation year, the Appellant incurred
convention expenses of $629.77;
(ac) in the 1992 taxation year, the expenses of $930.00 were
claimed twice by the Appellant or were incurred by other
persons;
(ad) in the 1993 taxation year, the expenses of $623.19 were
incurred by other persons;
(ae) the documentation provided by the Appellant did not
substantiate the total expenses for professional assistance
claimed by the Appellant;
(af) the expenses for professional assistance, in excess of
the amounts i.e. $121.18 and $41.36 allowed by the Minister in
the 1990 and 1992 taxation years, were not incurred, or if
incurred, were not incurred by the Appellant for the purpose of
carrying on the research work."
[6] At the hearing, Counsel for the Minister acknowledged that
the Appellant was entitled to an additional deduction for
expenses totalling $7,957.52 over the four years in issue for
various items that were verified by receipts received from the
Appellant after the setting of a date for the appeal. He further
acknowledged that the Appellant was entitled to a deduction for
the cost of meals while he was on travel status in Europe in
various locations other than Nancy, France at a per diem rate of
$40.00 as follows: 74 days in 1990, 53 days in 1991, 142 days in
1992, 144 days in 1993 and 83 days in 1994.
[7] The Appellant has the onus of establishing on a balance of
probabilities that the reassessments for the four years in issue
were ill-founded in fact and in law.
[8] Paragraph 56(1)(o) of the Income Tax Act
(the "Act"), which sets out the rules relating
to research grants, reads as follows:
"56.(1) Without restricting the generality of section 3,
there shall be included in computing the income of a taxpayer for
a taxation year,
...
(o) the amount, if any, by which any grant received by the
taxpayer in the year to enable the taxpayer to carry on research
or any similar work exceeds the total of expenses incurred by the
taxpayer in the year for the purpose of carrying on the work,
other than
(i) personal or living expenses of the taxpayer except travel
expenses (including the entire amount expended for meals and
lodging) incurred by the taxpayer while away from home in the
course of carrying on the work,
(ii) expenses in respect of which the taxpayer has been
reimbursed, or
(iii) expenses that are otherwise deductible in computing the
taxpayer's income for the year;"
The French version of that paragraph states:
« 56.(1) Sans préjudice de la portée
générale de l'article 3, sont à inclure
dans le calcul du revenu d'un contribuable pour une
année d'imposition:
...
o) l'excédent éventuel de toute
subvention reçue au cours de l'année par le
contribuable pour la poursuite de recherches ou de tous travaux
similaires sur le total des dépenses qu'il a
engagées pendant l'année dans le but de
poursuivre ces travaux, à l'exception :
(i) des frais personnels ou de subsistance du contribuable,
sauf ses frais de déplacement (y compris le montant entier
dépensé pour ses repas et son logement)
engagés par lui pendant qu'il vivait hors de chez lui
occupé a poursuivre ces travaux,
(ii) des dépenses qui lui ont été
remboursées,
(iii) des dépenses déductibles, comme il est
prévu par ailleurs, dans le calcul de son revenu de
l'année; »
[9] In the case of Scheinberg v. The Queen, [1996] 2
C.T.C. 2089 at paragraph 7, Bowman J. of this Court made the
following observations with respect to paragraph 56(1)(o)
of the Act:
"... Paragraph 56(1)(o) is not a provision that
allows a deduction. It requires the inclusion in income of the
amount of a research grant to the extent that it exceeds the
expenses relating to the research. Where the expenses exceed the
grant it does not authorize the deduction of the excess. If those
expenses are to be deducted the authority, if it exists at all,
must be found elsewhere."
[10] Both the English and French versions of paragraph
56(1)(o) clearly state that research income must be
included in a taxpayer's income, but only the portion which
exceeds expenses related to the research; however, it also
provides that certain expenses may not be deducted, as set out in
subparagraphs (i) to (iii).
[11] In his testimony, the Appellant explained that the
amounts received from the University of Nancy were in fact
135,004.86 F in 1990, 68,883.47 F in 1991, 79,044.56 F in 1992
and 43,991.23 F in 1994 and not 159,998.82 F, 82,300.32 F,
84,767.52 F and 57,486.82 F respectively; the University of Nancy
treated him as if he was an employee and made deductions at
source (for old age pension, etc.) over which the Appellant had
no control and for benefits that he clearly had been informed
that he was not entitled. The amounts of 24,993.96 F, 14,402.88
F, 6,734.78 F and 14,180.32 F respectively were included by the
Minister as part of the Appellant's income during the four
years in issue even though they were never received by him either
as payment, reimbursement or entitlement to benefits.
[12] Considering all of the circumstances of this appeal,
including the testimony of the two witnesses, the admissions of
the Appellant and of the Respondent, and the documentary
evidence, I am satisfied that the Appellant has succeeded in his
onus of establishing on a balance of probabilities that the
correct amounts received by him as research grants from the
University of Nancy were as follows: 135,004.86 F in 1990,
68,883.47 F in 1991, 79,044.56 F in 1992 and 43,991.23 F in
1993; however, in relation to the expenses claimed that were over
and above the amounts allowed by the Minister both in the
reassessment and the acknowledgement made by the Minister's
counsel at the hearing as set out above, I am satisfied that the
Appellant has failed in his onus of establishing that the various
expenses claimed, including accommodation expenses,
transportation, expenses and expenses for professional
assistance, were incurred by him "for the purposes of
carrying on the work" and not personal or living expenses.
It is indeed unfortunate for the Appellant that he was unable to
provide receipts and supporting documentation for various
expenses claimed. I am satisfied that the Appellant acted
honestly and in good faith in relation to his research work.
[13] Accordingly, the appeal is allowed and the matter is
referred back to the Minister for reconsideration and
reassessment in accordance with the reasons set out above.
Signed at Ottawa, Canada, this 15th day of May 1998.
"D.R. Watson"
D.J.T.C.C.
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