Docket: 2010-2525(IT)I
BETWEEN:
GORDON G. FELSKE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal
heard on June 27, 2011, at Cranbrook, British Columbia
Before: The Honourable
Justice G. A. Sheridan
Appearances:
|
For the Appellant:
|
The
Appellant himself
|
|
Counsel for the Respondent:
|
Rob R.A. Whittaker
|
____________________________________________________________________
JUDGMENT
In accordance with the attached Reasons for Judgment,
the appeals from the reassessment by the Minister of National Revenue under the
Income Tax Act of the Appellant’s 2004 and 2005 taxation years are
allowed, without costs, and the matter is referred back to the Minister for
reconsideration and reassessment on the basis that:
For 2004:
1.
the Appellant’s gross business
income was $60,170 and his professional business income was ‘nil’;
2.
the Appellant incurred business
expenses of 30% of his gross business income; and
3.
the Appellant is entitled to a
capital cost allowance deduction of $18,507.
For 2005:
1.
the Appellant’s gross business
income was $61,367 and his professional business
income was ‘nil’;
2.
the Appellant incurred business
expenses of 30% of his gross business income; and
3.
the Appellant is entitled to a
capital cost allowance deduction of $20,710.
Signed at Ottawa, Canada,
this 29th day of July 2011.
“G.A. Sheridan”
Citation: 2011TCC372
Date: 20110829
Docket: 2010-2525(IT)I
BETWEEN:
GORDON G. FELSKE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan J.
[1]
The Appellant, Gordon Feske, is
appealing the reassessment by the Minister of National Revenue of his 2004 and
2005 taxation years. In each of those years the Appellant failed to file income
tax returns and as a consequence, in September 2007 arbitrary assessments were
issued under subsection 152(7) of the Income Tax Act. The
Appellant subsequently filed returns for 2004
and 2005.
Because of the Appellant’s failure to provide documentation to substantiate the
claims made in his returns, the amounts originally assessed in respect of gross
business and professional income, business expenses and capital cost allowance
were ultimately confirmed. It is from these assessments that the Appellant appeals.
[2]
In 2004 and 2005, the Appellant
was a sole proprietor carrying on a general construction and snow clearing
business under the name Rocky Mountain Construction. During that time, he was
also the principal of several numbered companies incorporated for a variety of
purposes including 581488 B.C. Ltd., a business engaged in constructing
trusses. All of these enterprises seem to have operated out in the same
premises.
[3]
The Appellant represented himself
and was the only witness to testify on his behalf. As was the case at the
objection stage, the great weakness of the Appellant’s evidence was the lack of
supporting documentation. This he blamed largely on the misconduct of the
sheriff who in January 2009, conducted a seizure of assets on behalf of the Canada
Revenue Agency Collections Department.
He also said he had been hampered in his dealings with the Minister’s officials
by the poor performance of the fiscal advisors he had retained to represent
him.
[4]
Keeping records is especially
important when, as in the Appellant’s case, a taxpayer engages in several
different ventures both personally and as the directing mind of multiple
corporate entities. While I accept the Appellant’s testimony that some receipts
and invoices may have gone astray during the seizure process, the fact remains
that he did not as a rule devote much attention to records keeping; most
importantly, he did not maintain any sort of journal or ledger for his business
operations. However, to the extent that records did exist prior to the seizure
of assets, the Appellant had no good explanation for not having provided them
to the Respondent when he filed his returns or during the audit or at the
objection stage.
[5]
In any case, at the hearing of his
appeals, the Appellant had little more than bank statements to support his position. Without
the source documents, it is difficult to verify from the statements what the
amounts were for. When asked on cross-examination why he had not tried to get
duplicates of invoices for expenses from local professionals and suppliers, the
Appellant replied that it was too difficult to retrieve such documents after so
much time had passed – illustrating perfectly why the Act imposes on the
taxpayer the obligation to maintain such records himself.
[6]
The Appellant took the same
approach to reporting his income as he did to records keeping. In addition to
filing his returns late and only after having been assessed under subsection
152(7), the Appellant refused to sign his returns and did not fully complete
them. He struck me as an intelligent fellow and he did not pretend to be
unsophisticated in fiscal matters. In all the circumstances, the Appellant’s conduct
gave me the impression that his failure to keep his books in order was more a
deliberate strategy than mere carelessness. For his sake and that of his
family, I certainly hope the Appellant will take a more sensible approach in
the future.
[7]
Called for the Respondent was
Cindy Yip, the Appeals Officer assigned to the Appellant’s objection to the
2004 and 2005 reassessments. I found Ms. Yip to be clear and concise in her
explanation of her analysis of the Appellant’s claims on objection.
[8]
At the hearing of the appeal,
after being provided with some previously undisclosed documentation, counsel
for the Respondent advised the Court that the Minister conceded the capital
cost allowance amounts claimed by the Appellant in his 2004 and 2005 income tax
returns, $18,507 and $20,710 respectively. That left for the Court’s
determination only the quantum of the Appellant’s business and professional
income and his business expenses, each of which is dealt with under the
headings below.
Business Income
[9]
In 2004, the Appellant reported
business income from his sole proprietorship of $60,170 and business expenses
of $31,625. He said that because of the Sheriff’s seizure, he had no documents
to show the source of his income other than the sole proprietorship’s bank
records for 2004.
[10]
In 2005, the Appellant reported
business income of $35,000 and claimed no business expenses. The Appellant said
that the income amount was received entirely from 581488 B.C. Ltd., a company
formerly owned by his father and engaged in the business of manufacturing
trusses for housing construction. The Appellant received the $35,000, not as
invoiced amounts for work done for the corporation but rather, as advances to
himself over the course of the year. The Appellant arrived at the $35,000
figure by reviewing the bank statements of 581488 B.C. Ltd. for 2005 and attributing various
amounts for cash withdrawals for his personal use and payments made by the
company on his behalf for his personal credit card charges, gas, repairs,
entertainment and so on. The Appellant could not explain why he did not have
any bank statements for the sole proprietorship for 2005. He claimed no
expenses when he filed his 2005 return because he felt pressured to get it done
and the capital cost allowance deduction was sufficient in itself to reduce his
taxable income.
[11]
Notwithstanding his lack of
documentation, having heard the Appellant’s evidence in regard to the nature of
his business, his earnings for 2003, 2004 and 2005 and the difficulties he
endured during those years, I am satisfied on a balance of probabilities that
his business income in 2004 and 2005 would have been in keeping with the amount
reported in 2003, $62,563. I find that his gross business income for 2004 was
$60,170 and in 2005, $ 61,367, the average of his 2003 and 2004 gross business
income.
Business Expenses
[12]
Having received no receipts from
the Appellant for any of the expenses claimed in his 2004 return, the Minister
estimated them at 30% of the gross business income assessed in each of the
taxation years. As mentioned above, at the hearing, the Appellant blamed his
lack of documentation on the collection action seizure and his fiscal advisors.
In the absence of any records, the Appellant argued, the Minister ought to have
estimated his income for 2004 and 2005 based on standard earnings in the
industry together with the amount of income accepted as reported in 2003.
[13]
The Act imposes a duty on
taxpayers to keep adequate books and records. Having failed to do so meant the
Appellant could not substantiate the specific expenditures claimed. In these
circumstances, I see no reason to interfere with the Minister’s approach of
estimating his business expenses at 30% of his gross business income in each of
the taxation years.
Professional Income
[14]
Ms. Yip testified that the
Minister assessed professional income of $10,000 in each of 2004 and 2005 based
on the Appellant’s having reported that amount in 2003. No business expenses
were allowed as none had been claimed by the Appellant, consistent with his
position that he had not earned any professional income in those years.
[15]
I accept the Appellant’s evidence
that the amount claimed in 2003 was in effect a one-time “draw” from one of his
corporations which, for lack of a better descriptor, he reported as
“professional income”. I am satisfied he did not earn any professional income
in either of the taxation years under appeal.
Conclusion
[16]
The appeal is allowed and the
reassessments of the 2004 and 2005 taxation years are referred back to the
Minister of National Revenue for reconsideration and reassessment on the
following basis:
For 2004:
1.
the Appellant’s gross business
income was $60,170 and his professional business income was ‘nil’;
2.
the Appellant incurred business
expenses of 30% of his gross business income; and
3.
the Appellant is entitled to a
capital cost allowance deduction of $18,507.
For 2005:
1.
the Appellant’s gross business income
was $61,367 and his professional business income
was ‘nil’;
2.
the Appellant incurred business
expenses of 30% of his gross business income; and
3.
the Appellant is entitled to a
capital cost allowance deduction of $20,710.
Signed at Ottawa, Canada, this 29th day of July 2011.
“G.A. Sheridan”
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