Citation: 2011 TCC 249
Date: 20110506
Docket: 2010-1220(IT)I
BETWEEN:
BUD SAGE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Little J.
A. FACTS
[1]
The Appellant commenced
a business in 1971.
[2]
The business sells sports
uniforms, choir uniforms, T-shirts, golf shirts, sweatshirts, jackets,
sweaters, hats and other types of clothing to schools, corporations and
businesses.
[3]
The Appellant said that
he buys the products from various suppliers and sells the products to the
customers.
[4]
In 1997, the Appellant
incorporated a company by the name of B. Sage Team and Corporate Wear
Ltd. (the “Corporation”) under the British Columbia Company
Act, R.S.B.C. 1996, c. 62. The Appellant said that he incorporated the
Corporation to save the name of the business.
[5]
In his Notice of
Appeal, the Appellant said:
C) iv) Mr. Sage [i]ncorporated his business to protect his personal
assets, from any potential liability incurred through the operation of the
business.
[6]
The Appellant said that
all sales that were made by him were reported as business income of the Corporation.
[7]
The Appellant said the
shares of the Corporation are owned as follows:
Bud Sage - 50 per cent
Susan Sage (the Appellant’s
wife) - 50 per cent.
[8]
The Appellant is the
President of the Corporation and the Appellant and his wife are the Directors
of the Corporation.
[9]
The Appellant is the
only salesperson of the Corporation.
[10]
The Minister of
National Revenue (the “Minister”) maintains that the Appellant received the
following amount of employment income from the Corporation:
2006 - $29,000
2007 - $32,000.
[11]
The Appellant admitted
that the Corporation has a bank account, it files a tax return and owns or leases
various assets.
[12]
The Appellant also
admitted that he was responsible for all aspects of running the Corporation and
that his wife was the bookkeeper of the Corporation.
[13]
During the argument,
the Appellant said:
… I really believe that my strongest argument is that Bud Sage is
self-employed.
…
And I realize we have the company that is separate.
(Transcript, page 47, lines 4
to 6 and 11 to 12)
[14]
When the Appellant
filed his income tax returns for the 2006 and 2007 taxation years, he
claimed a number of expenses. The Minister took the following position with
respect to the claims made by the Appellant:
2006 Taxation Year
|
|
Claimed/
Reported
|
Post Review (Disallowed)
|
Appeals (Allowed)
|
Total Disallowed
|
|
Expenses
|
|
|
|
|
|
Advertising and
Promotion
|
$911.33
|
$911.33
|
$0.00
|
$911.33
|
|
Mortgage Interest
|
$3,363.51
|
$3,363.51
|
$949.52
|
$2,413.99
|
|
Work-Space-in-the-Home
|
$2,474.66
|
$2,348.06
|
$513.77
|
$1,834.29
|
|
Total Employment Expenses
|
$6,749.50
|
$6,622.90
|
$1,463.29
|
$5,159.61
|
(See Schedule “A” of the Reply)
2007 Taxation Year
|
|
Claimed/
Reported
|
Post Review (Disallowed)
|
Appeals (Allowed)
|
Total Disallowed
|
|
Expenses
|
|
|
|
|
|
Advertising and
Promotion
|
$1,158.53
|
$1,158.53
|
$0.00
|
$1,158.53
|
|
Mortgage Interest
|
$5,823.75
|
$5,823.75
|
$691.52
|
$5,132.23
|
|
Work-Space-in-the-Home
|
$2,119.38
|
$2,010.29
|
$442.70
|
$1,567.59
|
|
Total Employment Expenses
|
$9,101.66
|
$8,992.57
|
$1,134.22
|
$7,858.35
|
(See Schedule “B” of the Reply)
[15]
The Minister issued
Notices of Reassessment to disallow the amounts as shown in paragraph [14]
above.
[16]
The Appellant filed
Notices of Objection to the said Reassessments and after the Reassessments were
confirmed by the Minister, the Appellant filed Notices of Appeal to the Tax
Court.
B. ISSUES
[17]
The issues are whether
the Appellant:
(a) was an employee of
the Corporation for the 2006 and 2007 taxation years; and
(b) is entitled to claim
employment expenses in excess of amounts allowed by the Minister in computing
his employment income for the 2006 and 2007 taxation years.
C. ANALYSIS AND DECISION
[18]
With respect to the status
of the Appellant, I have concluded that he was an employee of the Corporation
in the 2006 and 2007 taxation years. He was not an independent contractor. I
have also concluded that he was not a commission sales person as that term is
defined in paragraph 8(1)(f) of the Income Tax Act.
[19]
I have reached this
conclusion based on the testimony of the Appellant and based upon the fact that
the Corporation is a separate legal entity. Counsel for the Respondent noted
that any monies generated by Mr. Sage’s activities were monies that went to the
Corporation. Counsel for the Respondent also noted that all profits and losses
would accrue to the Corporation and not the Appellant.
[20]
At page 211 of the
transcript, Counsel for the Respondent said:
The appellant sought the benefits of incorporation by incorporating the
company to in part protect his personal assets from potential liability. He
cannot now turn around, in my submission, and claim the activities he was
carrying out on behalf of the company was really him carrying out his own
business for the company.
(Transcript, page 211, lines 3 to 9)
I agree with the comments of Counsel for the
Respondent.
[21]
I will now deal with
the deductions claimed by the Appellant.
[22]
Counsel for the
Respondent said:
The mortgage interest, the issue in my submission comes down to the
approach to calculating the deduction, and hence a quantum. The taxpayer sought
to deduct the amounts he paid in 2006 and 2007 as interest on the sum of
$54,000 and $56,000, plus in 2007 he sought to deduct principal as well, but
the taxpayer has conceded that was an error. The appeals officer allowed
deductions in both years, but he did so by looking at the shareholder loan
account and looking at how much of that money, the $50,000, was actually in the
account in '06 and '07 and then applied the interest against that sum.
(Transcript, page 185, lines 5 to 15)
[23]
During the hearing,
Counsel for the Respondent called Peter Leong (the Appeals Officer) as a
witness. Mr. Leong said:
… And with those (sic) information, I came up with the average amount
that is due to a shareholder, and that is $16,093.50 for 2006, $12,348.50 for
2007.
(Transcript, page 112, lines 2 to 4)
[24]
During
cross-examination of the Appellant, Counsel for the Respondent referred to the Appellant’s
claim of mortgage interest of $5,823.75 in 2007. Counsel for the Respondent
said:
… You
will see that you were attempting to deduct $5,823.75?
A
Mm-hmm.
Q
And I'm going to ask you to turn now to tab 12, which is your mortgage statement
from the Investor's Group. And you'll see total of all payments made is
$5,823.75. Correct?
A
That is correct, and I would say that was in error.
Q
Right, so you agree that in fact in 2007 you erroneously tried to deduct both
principal and interest payments?
A
I would.
(Transcript,
page 75, lines 13 to 25)
[25]
I have concluded that
the position as adopted by the Minister in the Reassessments was correct.
However, during the hearing, Counsel for the Respondent agreed to the following
additional allowances. Based on the new information submitted, Counsel for the
Respondent agreed that the following additional amounts should be allowed as
deductions:
1. Burglar Alarm
2006 $318.00 Allow
- $81.09
2007 $318.00 Allow
- $81.09
(Transcript, page 216, lines 3 to 13)
2. Shaw Cable and Internet
Paid Per
Year Business Allow
2006 $720.00 $360.00 $91.80
2007 $720.00 $360.00 $91.80
(Transcript, page 229, lines 2 to 17)
3. Maintenance and Repairs
Paid Per
Year Business Allow
2006 $2,856.10 $1,428.05 $364.15
2007 $1,132.82 $566.41 $144.43
(Transcript, page 216, lines 16 to 25 and
page 217, lines 1 to 16)
[26]
The appeals are
allowed, without costs and the Minister is to make the adjustments as outlined
above.
Signed at Vancouver, British
Columbia, this
6th day of May 2011.
“L.M. Little”
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