Date:
20021112
Docket:
2002-1509-IT-I
BETWEEN:
GIOVANNI
CHIRIATTI,
Appellant,
and
HER MAJESTY
THE QUEEN,
Respondent.
___________________________________________________________________
For the
Appellant:
The Appellant himself
Counsel for the
Respondent:
A'Amer Ather
____________________________________________________________________
Reasons
for Judgment
(Delivered
orally from the Bench at Toronto, Ontario,
on Monday,
October 7, 2002 and revised as to style and syntax at
Ottawa,
Canada on November 12, 2002)
Margeson,
J.T.C.C.
[1]
The matter before the Court at this time is that of
Giovanni Chiriatti v. Her Majesty the Queen. The sole
question before the Court is whether or not the Appellant is
entitled to deduct expenses for the 1998 and 1999 taxation years
in addition to those amounts which were allowed by the Minister
of National Revenue ("Minister") as set out in the
Reply to the Notice of Appeal ("Reply") and in
Schedule "A", Auditor's Report, which is
attached to the Reply.
[2]
The Appellant says that he
was involved in a business which we can call a distribution
business, during the years in question, having to do with hair
care products. In general he did everything that he could to try
to make it a business and to generate revenue. He did what he
thought he had to do. He visited salons; he obtained
advertisements; he bought some equipment; he gave equipment to
salons; he talked to people; he visited possible clients in the
United States and in Europe, to try to promote his business. He
used a motor vehicle in support of his business. As the claim for
expenses indicates, he had advertising expenses, automobile
expenses, office expenses, "supplies", as he called
them, accounting expenses, travel expenses, telephone expenses in
each of the years 1998 and 1999. These are the types of expenses
one would expect that someone would have to incur if they were
involved in a business as he was.
[3]
There is no doubt that the
individual in the years in question was involved in a business.
As a matter of fact, the Minister did allow some expenses of
operating a business in the years in question. The only issue is
whether he allowed him enough. The Appellant said he did not. The
Minister said he did; that any expenses which were disallowed
were not proven to be expended, they were unreasonable under the
circumstances or they were not directed towards the earning of
income from the business.
[4]
With respect to the last
argument, the Court is more than satisfied that all of the
expenses that were claimed were directed towards the earning of
income. There is no doubt in the world about that. It would be
rather foolish for him to be spending money on advertisement for
hair products, care products, for brochures and buying equipment
that he could loan to hair salons to try to obtain their
business, for any other reason except for business. They were
definitely business-related expenses.
[5]
One problem that is inherent
in this type of claim is the fact that he did not keep sufficient
receipts, he did not keep a proper breakdown of his automobile
expenses, he did not keep a diary or a log. The very essence of
the complaints that the Minister makes about business expense
claims are that they are not properly categorized and that
receipts are not properly maintained. The Appellant here is certainly guilty, as is his
accountant, of some laxity in providing sufficient receipts for
the Minister. The Court cannot question the Minister's
actions in considering, as he did, that some of these expenses
were not proper.
[6]
In any event, this Court has to decide whether or not the Minister was completely right
in what he was doing and whether any additional expenses should
be allowed to the Appellant.
[7]
At the outset the Court
states that it was impressed with the Appellant's testimony.
It is satisfied that the Appellant was operating a business and
that he was doing his best to obtain income from the business. He
was an honest person and the Court places great credibility on
his evidence. It is true that some of the items that he claimed
were not corroborated completely by receipts or by bank
statements. In some cases they were invoices only but the
Appellant has testified with respect to those invoices. His
evidence was given straightforwardly and can be relied
upon.
[8]
For the year 1998, the Appellant
claimed advertising expenses in the amount of $5,375, and his
evidence was that he spent that in 1998 to create a brochure. He
produced evidence as to what the brochure looked like. It was
called "Olajos". It is not for the Court to say how
much these items cost or should cost. It does seem like a
relatively large amount for that kind of a brochure, but it is
glossy, it is well put together and it is quite detailed. When
one considers the amount of work that one would have to put into
it, the ground work that would have to go into it, the number of
pamphlets that might have to be produced, it does not seem to be
unreasonable that that amount of money would have been required
to produce that brochure.
[9]
Counsel for the Respondent said
that there is a real issue about that because the Appellant's
evidence was not consistent. The Appellant gave evidence that he
produced 200 or 300 of them in the year in question although the invoice itself does
indicate that there were considerably more produced than that.
This would, at first blush, appear to be inconsistent. But the
Appellant's explanation for that was that he made a mistake,
he was just generalizing, he gave a rough idea as to the number
printed, but when he looked at the invoice he realized that this
was not correct and that the expenditure was in fact
$5,375.
[10]
The Court is satisfied that this is
the type of expense that would have been expended by a person in
this kind of business. Taking the invoice itself into account, as
well as the evidence of the Appellant, the Court is satisfied
that this item should be allowed. The Court sees no possible way
that there was any personal benefit from the use of this
advertisement. The Appellant is entitled to claim the $5,375 as
an expense.
[11]
The Court considers the automobile expense of
$2,160. This does not really represent repairs only. As the
Appellant indicated at first and it was obvious from his
testimony that the claim of $2,160 was not repairs, but a
percentage that he was claiming of the total expenses for the
automobile, which included gas and oil. The two invoices that he
presented totalled $2,320.30. These were just for repairs and
there were no other invoices which were presented to support the
Appellant's claim for 55 per cent of the total
amounts expended or what they were expended for.
[12]
Furthermore, there is a problem
with respect to the percentage that he claimed. Counsel for the
Respondent's position is well taken when he says there was
really no basis for the presentation of the claim of
55 per cent. That was just a figure that was the
percentage that was created by his accountant and himself after
discussions. There was no log, there was no record of the motor
vehicle and one cannot determine what the $2,160 was expended on.
The only thing we are certain of was that he spent $2,320.30 on
repairs.
[13]
The Court is satisfied that the
Appellant should be allowed to deduct something for this
automobile. He obviously needed an automobile to carry on this
business. It would be unfair for him not to be able to claim
something. His receipts and documentation are a bit weak. The 55
per cent that he has claimed by talking to his accountant is too
high. The Court is satisfied
that he is only entitled to a portion of the total invoiced
amount of $2,320.30. The Court is satisfied that that should not
be 55 per cent, but rather 30 per cent. The Court will
allow 30 per cent of the amount of $2,320.30, which can be
deducted by the Appellant in the year in question.
[14]
With respect to the office
supplies, that is, $180, he had no receipts whatever for those.
The Court is unable to say what they were for. The Court will
disallow that claim of $180.
[15]
With respect to the $840, the
Appellant has presented an invoice with respect to that $840, and
the Minister has shown that it was vouchered. The Court is
satisfied that the Appellant should be entitled to deduct that
amount and he will be able to do so.
[16]
With respect to travel expenses
claimed in the amount of $1,360 in the year 1998, the Appellant
said that he actually spent $1,645.60. He went to Florence to
meet people with respect to advancing the business. He expected
to create income from which
he could claim 25 per cent in the event that he were
successful. He was not successful and this venture did not
produce any income, but the Court is satisfied that it was not
unreasonable for him to travel there in an attempt to produce
income. On the basis of his evidence, the Court is satisfied that
when he went to Florence, he did not meet with his personal
friends, he did not meet with relatives. He said that his
relatives lived in a different portion of the country, so he did
not spend any time with them. The Court is satisfied that this
was basically a business trip, and that he should be allowed to
claim something for that trip.
[17]
Exhibit A-4 was an invoice
for $1,645.60. The Minister disallowed the $1,360 claimed. The
Court is satisfied that it was unreasonable for the Minister not
to allow this claim. The Court is satisfied that he did expend
that amount of money. It was business-related and was meant
to produce income, so he should be allowed to claim
$1,360.
[18] There was a
claim of $1,280 for the telephone. Counsel for the Respondent said that these bills
were not specifically broken down as to specific telephone
numbers that were called and when they were called. The Court is
satisfied, in essence, with the evidence of the Appellant
referable to these telephone calls and in relation to the
telephone numbers to his business. The Court is satisfied in the
end result that the documents that he supplied, together with his
own evidence, are sufficient to establish the claim of $1,280.
These expenses will be allowed.
[19]
With respect to the capital cost
allowance, the Court is satisfied that there is no evidence with
respect to that. The Appellant did not know what it was for. The
Court will not allow it.
[20]
With respect to the 1999
taxation year, the Appellant claimed $1,825 for purchases which
were allowed. That is not in dispute.
[21]
The item in dispute is advertising
in the amount of $4,888 as invoiced. The Appellant produced an
invoice as Exhibit A-6. Counsel for the Respondent took some
issue with that, but at the end of day, the Court is satisfied
that that type of an advertisement was the type of advertisement
that one would expect the Appellant to be using in his business.
It was not unreasonable. The Court is satisfied on the basis of
the invoice and the Appellant's own testimony that that
amount was expended, and so the Court will allow that amount to
be deducted.
[22]
The automobile expenses claimed
were $1,850. The Appellant producedinvoices at Exhibit A-7. The Minister
disallowed the whole amount of $1,850 that was claimed. The Court
is satisfied that the proper amount that the Appellant should be
entitled to claim in the year is 30 per cent of the
total amount established of $2,101.63. The Court will allow him
30 per cent of $2,101.63.
[23] With
respect to office supplies,
$275, there were no receipts whatsoever for the office supplies,
so those will not be allowed. Supplies in the amount
of $788 were allegedly expended for an instrument which he said
he supplied to salons. He had no receipt for that so the Court is
unable to accede to his request for that. This will not be
allowed.
[26] There was
an amount claimed of $214
for accounting expenses. There is no doubt in the Court's
mind that that is a reasonable amount. The Court is satisfied
that he expended that amount. It is consistent with the income
tax return. It is consistent with the charges in the previous
year which the Minister allowed.
[27]
With respect to travel expenses of
$1,585, there were no invoices for this amount. This was a global
amount. It is obvious that the Appellant went to New York
and he met with somebody there, but the amounts that he gave for
the travel and for the accommodation for the meals and so on were
only guesstimates and they are not sufficient for these
proceedings. The amount of $1,585 is not allowed.
[28]
The Court is satisfied that there
is sufficient evidence to support a claim for $975 for the
telephone.
[29]
Capital cost allowances are
disallowed as there was no evidence to support the
claim.
[30]
The appeal is allowed with respect
to the assessments for the 1998 and 1999 taxation years, without
costs and the assessments are referred back to the Minister of
National Revenue for reconsideration and reassessment based upon
the Court's finding that the Appellant will be allowed the
further deductions that are indicated earlier in this decision.
The Appellant is entitled to no further relief.
Signed at
Ottawa, Canada, this 12th day of November 2002.
J.T.C.C.COURT
FILE
NO.:
2002-1509(IT)I
STYLE OF
CAUSE:
Giovannin Chiriatti and
Her Majesty the Queen
PLACE OF
HEARING:
Toronto, Ontario
DATE OF
HEARING:
October 7, 2002
REASONS FOR
JUDGMENT BY: The Honourable T.E.
Margeson
DATE OF
JUDGMENT:
November 12, 2002
APPEARANCES:
For the
Appellant:
The Appellant himself
Counsel
for the
Respondent:
A'Amer Ather
COUNSEL OF
RECORD:
For the
Appellant:
Name:
Firm:
For the
Respondent:
Morris Rosenberg
Deputy Attorney General of Canada
Ottawa, Canada
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