Docket: 2008-1493(IT)I
BETWEEN:
MARCIA CLARKE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Respondent’s
Preliminary Motions and
Appeals heard on October 24, 2011, at Toronto, Ontario
Before: The Honourable
Justice G. A. Sheridan
Appearances:
|
For the Appellant:
|
The
Appellant herself
|
|
Counsel for the Respondent:
|
Roxanne Wong
|
____________________________________________________________________
JUDGMENT
Preliminary Motions
In accordance with the attached Reasons for
Judgment, the Court hereby grants the Respondent’s
motion to quash the Appellant’s appeals in respect of her entitlement to the
Ontario Child Care Supplement for Working Families, the Canada Child Tax
Benefit in the 2006 and 2007 base taxation years and the Goods and Services Tax
Credit in the 2006 taxation year.
Appeals
In
accordance with the attached Reasons for Judgment, the appeals of reassessments
of the 2001, 2002, 2003, 2004 and 2005 taxation years are allowed and:
1. in respect of the 2001 and 2002 taxation years, the
reassessments, including penalties, are vacated;
2. in respect of the 2003, 2004 and 2005 taxation years,
the penalties are vacated;
3. in respect of the 2003 and 2004 taxation years, the
reassessments are referred back to the Minister for reconsideration and
reassessment on the basis that the Appellant is entitled to childcare expense
deductions as claimed, subject to the $7,000 limit imposed under section 63 of
the Income Tax Act; and
4. in respect of the 2005 taxation year, the reassessment
is referred back to the Minister for reconsideration and reassessment on the
basis that the Appellant is entitled to a charitable donation deduction of $25
in 2005.
IT IS FURTHER ORDERED that the filing fee of
$100 be refunded to the Appellant.
Signed at Ottawa, Canada,
this 7th day of December
2011.
“G. A. Sheridan”
Citation: 2011TCC548
Date: 20111207
Docket: 2008-1493(IT)I
BETWEEN:
MARCIA CLARKE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan J.
[1]
The Appellant, Marcia
Clarke, is appealing various aspects of reassessments made by the Minister of
National Revenue in respect of her 2001, 2002, 2003, 2004 and 2005 taxation
years.
Respondent’s
Preliminary Motions
[2]
At the commencement of
the hearing, the Respondent moved firstly, that the Appellant’s appeals in
respect of her entitlement to the Ontario
Child Care Supplement for Working Families be quashed. Counsel for the
Respondent submitted that it was a provincial tax matter and therefore the Tax
Court of Canada was without jurisdiction to entertain that aspect of the appeal.
That being a correct statement of the law, the Respondent’s motion was granted.
[3]
Counsel for the Respondent further
submitted that the Appellant’s appeals of her entitlement to a Canada Child Tax
Benefit (“CCTB”) for the 2006 and 2007 base taxation years (July 2007 to June
2008 and July 2008 to June 2009, respectively) and to a Goods and Services Tax
Credit (“GSTC”) in the 2006 taxation year (July 2007 to April 2008) be quashed.
Filed in support of the Respondent’s motion was the Affidavit of Tracey Cooper which
I am satisfied shows that the Appellant had not properly objected to the Minister’s
determination regarding the CCTB and in respect of the GSTC, the Minister had
not yet issued a determination. While it is not clear to me on the face of the
Appellant’s Notice of Appeal that she intended to appeal these matters, in the
event that she did, the appeals are quashed on the basis set out above.
Respondent’s
Concessions
[4]
At the hearing, counsel for the
Respondent advised that the Minister was prepared to concede certain issues and
submitted that the appeals ought to be allowed and:
1. in respect of the 2001 and 2002 taxation years, the
reassessments, including penalties, be vacated as they were statute-barred;
2. in respect of the 2003, 2004 and 2005 taxation years,
the penalties assessed be vacated as the Minister was not justified in imposing
them;
3. in respect of the 2003 and 2004 taxation years, the
reassessments referred back to the Minister for reconsideration and
reassessment on the basis that the Appellant was entitled to childcare expense
deductions as claimed, subject to the $7,000 limit imposed under section 63 of
the Income Tax Act; and
4. in respect of the 2005 taxation year, the reassessment
referred back to the Minister for reconsideration and reassessment on the basis
that the Appellant is entitled to a charitable donation deduction of $25 in
2005.
Issues
Under Appeal
[5]
The issues remaining have to do
with the Appellant’s entitlement, in various taxation years, to CCTB and GSTC payments
as well as deductions for rental losses, childcare expenses and a charitable
donation.
[6]
Before disposing of these matters,
a word must be said about the credibility of the Appellant and the reliability
of the documents presented in support of her claims. I regret to say I found
her testimony generally unconvincing. She often claimed to know nothing about
or not to recall the details of events or transactions, especially where they
might be to her detriment. For example, when asked about her marital status for
the purpose of determining her entitlement to CCTB payments, the Appellant
professed not to have known where her husband resided following their separation,
a position she maintained even when later confronted with evidence to show he
was using her father’s address as his residential address in his tax returns.
She claimed she did not to remember her parents’ address and further, that she had
never discussed her separation from her husband with them. This, after her own
testimony that during that period she had been in regular contact with her
father who helped her financially by buying groceries and baby supplies and
assisted her rental business by making repairs to the family home. The
Appellant claimed not to know that her husband owned another property which he
apparently rented to others and/or lived in himself at some point during their
alleged estrangement but then reluctantly admitted she had heard something
about this from unnamed “friends” sometime after the fact.
[7]
Further, while claiming to be
ignorant of tax matters, the Appellant’s practices demonstrated a certain
shrewdness in her financial transactions. For example, the Appellant dealt only
in cash and kept records only where it was likely to be to her advantage. Her
conduct is more consistent with a deliberate attempt to avoid detection by the
tax authorities than a lack of knowledge of fiscal matters. What few documents
she did produce tended to be self-serving and/or lacking in essential details
i.e., receipts without the payer’s full name or such basic information as to
the purpose of the amounts receipted.
[8]
The Respondent called Litigation
Officer Tracey Cooper and the Appellant’s husband, Wesley Clarke. Ms.
Cooper was thorough and careful in the presentation of the information gleaned
from reviewing the tax records of the Appellant and her husband. I have no
reason to doubt her evidence. Mr. Clarke’s testimony was as unpersuasive as the
Appellant’s.
1. CCTB
and GSTC Payments
[9]
The issue is whether the Appellant
and her husband, Wesley Clarke, were living “separate and apart” so as to
entitle the Appellant to receive CCTB payments during the base taxation years 2003,
2004 and 2005 and the GSTC for 2006. The Appellant had the onus of disproving
the Minister’s assumption that during the relevant period, the Appellant and
her husband were living together in a conjugal relationship with their two
children.
[10]
The Appellant essentially asked the
Court to take her at her word that as a result of his misconduct, the Appellant
asked her husband to leave the family home in late 1999 or early 2000 and that
he did not return until they reconciled their differences sometime in 2006. She
provided no corroborating testimony or documentation that would support her
position that they were leading independent lives during that period.
[11]
The Appellant’s case did not
become any stronger during cross-examination. She claimed never to have spoken
to her father or other family members about the separation because it was a
private matter. She admitted that after her husband’s alleged departure, she
took no legal action to protect her or her children’s rights for support. She
did nothing to stop the delivery of some of her husband’s mail (including T-4’s
and other important employment documentation) to the family home address. She said
her reason for not seeking sole ownership of their jointly owned family home was
that she needed her husband’s name on the deed to maintain the mortgage but provided
no evidence as to why that would be. Though she claimed to have made all the
mortgage payments herself, it was later revealed that Mr. Clarke’s tax refund
cheques were deposited in a joint account used for mortgage payments. While the
Appellant initially said she had to rent the basement of the family home to
help support herself, she later stated that “we” (meaning she and her husband)
had “always rented our basement”.
[12]
All in all, the Appellant has
failed to convince me that from 1999 to 2006 she and her husband were living
“separate and apart” for the purposes of the Act. In these
circumstances, there is no justification to interfere with the Minister’s
reassessment for the taxation years in question.
2. Business
Losses from Property Rental
[13]
The issue is whether in 2003, 2004
and 2005 the Appellant was in the business of renting out the basement of the
family home and if so, whether she incurred the expenses claimed in her returns
to generate the rental income reported.
[14]
The Appellant testified that she
rented the basement to students or families from time to time on a
month-to-month basis at whatever the going rate for apartments might be. She
provided no details of the nature of the rental accommodation. Her practice was
not to have written agreements with any of her alleged tenants and only to
accept rental payments in cash. The Appellant produced only a few sample
receipts (Exhibit A-1). These receipts were not issued to the individuals whose
names appear in them at the time the rent was paid; rather, the Appellant
prepared the receipts annually (apparently at the request of her tenants) and only
for the purpose of allowing them to claim provincial tax credits for rent. Most
of the receipts are incomplete and/or contain inaccuracies: two are made out
simply to “Vida”; receipt #3440 indicates that the amount was paid by “money
order” but the Appellant said this was wrong as it would have been in cash.
Some bear the signature “Marcia Clarke”, others “Marcia Ferguson”, one is unsigned
and in another the signature is illegible. The amounts receipted do not
correspond with the rental income reported in the Appellant’s return for that
year. Had the Appellant been a more credible witness, it might have been less
important for her to have produced books and records in support of her
position. As it was, the documentary evidence she relied on was no more convincing
than the Appellant’s testimony.
[15]
The Minister’s position is that
the Appellant was not in the business of renting her basement and accordingly,
no losses can be claimed in respect of it. As the Appellant has failed to rebut
this assumption, there is no need to consider whether the expenses claimed in
respect of the business were incurred. However, out of an abundance of caution,
I would add the following: the Appellant had no documentary evidence in support
of her claims other than a business card which she said was from someone who had
done some repairs at some point. She also claimed that her father was a
carpenter and that he had done some work on the house but she provided no proof
of what work was done or that she had paid any amounts for it in any of the
taxation years. The Appellant did not have any utility or tax invoices or
receipts for her property. In these circumstances, I am not at all persuaded
any of the expenses claimed were actually incurred.
3. Childcare
Expense Deductions 2005
[16]
The issue is whether in 2005 the
Appellant incurred childcare expenses of $4,000, an amount she said she paid in
cash to her childcare provider, “Lisa”. In support of her claim, the Appellant
put in evidence a receipt purportedly received from Lisa (Exhibit A-4). The
first problem with the receipt is that it was prepared by the Appellant herself
because, as she blithely explained, Lisa was not reporting her babysitting
income and therefore refused to provide her with the sort of details which
might otherwise have given it some legitimacy i.e., Lisa’s surname, address or
social insurance number.
[17]
Leaving the unreliability of the
receipt aside, I find it difficult to believe the Appellant would leave her son
with a childcare provider about whom she knew so little. The one point upon
which the Appellant was credible was in her explanation of the care she took in
finding quality childcare for her little boy in 2003 and 2004. She had receipts
from the Montessori school for those years which were ultimately accepted by
the Minister. It simply makes no sense to me that this same woman would the
following year leave her child with a virtual stranger, pay $4,000 in cash and
not obtain any proof of payment. As a result, I am left with a serious
suspicion that no such payment was ever made. For that reason, there is no
reason to interfere with the Minister’s reassessment in respect of her childcare
expense claim for that year.
4. Charitable
Donation Issue
[18]
In 2005, the Appellant reported
total charitable donations of $5,125. As mentioned above, the Minister conceded
that $25 of the amount reported was a valid charitable donation.
[19]
The Appellant contended that the
remaining $5,100 had been donated to a registered charity known as the “Africa
Support and Sustenance Organization”. This amount comprised cash payments
totaling $2,000 and in-kind donations valued at $3,100. In support of her
claim, she put in evidence a copy of a document entitled “Official Charitable
Tax Receipt” (Exhibit A-7).
[20]
She said that she had given the
$2,000 cash payment to her tax preparer to donate on her behalf but that he had
not given her a receipt for that amount. The in‑kind donation she said
was her late mother’s bedroom set which the tax preparer arranged to have
picked up from her garage.
[21]
On cross-examination the Appellant
said it was after having heard about the Africa Support and Sustenance
Organization from a friend or colleague that she had decided to make her donation.
Though she knew little about the charity, it was enough to know it had something
to do with Africa.
[22]
The Appellant admitted that after
all deductions were made, she was left with barely enough to cover her living
costs for herself and two children and that she received no support from her
husband. The source of the funds used to donate to the Africa Support and
Sustenance Organization was a cash bequest received from her late mother in
2001. The Appellant said she had also used this money to help support herself
yet oddly, could not recall how much she had received. Furthermore, she had no testamentary
documents to corroborate her story.
[23]
The Respondent put in evidence an Affidavit
sworn by Michael Scott, a director of the Africa Support and Sustenance
Organization responsible for the preparation and filing of its financial
statements from 2004 to 2007. The Appellant offered no response to his sworn
statement at paragraph 5 “that the Africa Support and Sustenance Organization
has never received any donations nor has the Organization ever issued any donation
receipts” other than to say she had a valid receipt from the organization
which, at the time she gave the cash and goods to her tax preparer in 2005, was
shown as a registered charity on the Canada Revenue Agency website.
[24]
The short answer to the
Appellant’s claim is that she is not entitled to the deduction claimed in
respect of the donation allegedly made to the Africa Support and Sustenance
Organization because the receipt entered as Exhibit A-7 does not meet the
requirements of subsection 118.1(2) of the Income Tax Act and section
3500 and 3501(1) of the Income Tax Regulations. Exhibit A-7 does not set
out “the place or locality where the receipt was issued” as required by
paragraph 3501(1)(d) or “a brief description of the property” comprising
the donation in-kind as required by subparagraph 3501(1)(e.1)(ii).
[25]
Even if these requirements were
met, however, I simply do not believe that the Appellant made a “gift” of
$5,100 to the Africa Support and Sustenance Organization. The word “gift” is
not defined in the legislation but in The Queen v. Friedberg, 92 DTC
6031 at page 6032, Linden J.A. defined “gift” as:
… [A] gift is
a voluntary transfer of property owned by a donor to a donee, in return for
which no benefit or consideration flows to the donor …
[26]
The Appellant described herself
as a woman with a modest income, abandoned by her husband with two children to
support, forced to rent out her basement and relying on her father to make ends
meet. Yet, in the same breath, she would have me believe that she was suddenly
moved to make a sizeable donation to a charity about which she knew virtually nothing.
She identified no credible source for the funds she alleged to have given to
the Africa Support and Sustenance Organization; nor did she provide any evidence
to corroborate her valuation of a used bedroom set (stored in her garage for
four years) at $3,100. Bad enough to have cheated on her taxes; even worse for
the Appellant to have passed herself off as a charitable donor in the process.
[27]
In these circumstances, there is
no justification for allowing more than the $25 amount conceded by the
Respondent in respect of the 2005 taxation year.
Conclusion
[28]
The appeals of the reassessments
of the 2001, 2002, 2003, 2004 and 2005 taxation years are allowed only to give
effect to the Respondent’s concessions:
1. in respect of the 2001 and 2002 taxation years, the
reassessments, including penalties, are vacated;
2. in respect of the 2003, 2004 and 2005 taxation years,
the penalties are vacated;
3. in respect of the 2003 and 2004 taxation years, the
reassessments are referred back to the Minister for reconsideration and
reassessment on the basis that the Appellant is entitled to childcare expense
deductions as claimed, subject to the $7,000 limit imposed under section 63 of
the Income Tax Act; and
4. in respect of the 2005 taxation year, the reassessment
is referred back to the Minister for reconsideration and reassessment on the
basis that the Appellant is entitled to a charitable donation deduction of $25
in 2005.
Signed at Ottawa, Canada, this 7th day of December 2011.
“G. A. Sheridan”
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