Docket: 2009-831(IT)I
BETWEEN:
CONSTANTINA BITZANIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal
heard on common evidence with the appeal of
Nickolaos Bitzanis (2009-832(IT)I)
on June 21, 2010, at Montréal, Quebec
Before: The Honourable
Justice G. A. Sheridan
Appearances:
|
For the Appellant:
|
The
Appellant herself
|
|
Counsel for the Respondent:
|
Sarom Bahk
|
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Income
Tax Act for the 2003 taxation year is dismissed in accordance with the
attached Reasons for Judgment.
Signed at Morell, Prince Edward Island,
this 22nd day of July,
2010.
“G. A. Sheridan”
Docket: 2009-832(IT)I
BETWEEN:
NICKOLAOS BITZANIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
____________________________________________________________________
Appeal heard together on common evidence
with the appeal of
Constantina Bitzanis (2009-831(IT)I)
on June 21, 2010, at Montréal, Quebec
Before: The Honourable Justice G. A.
Sheridan
Appearances:
|
For the
Appellant:
|
The Appellant himself
|
|
Counsel for the
Respondent:
|
Sarom Bahk
|
____________________________________________________________________
JUDGMENT
The appeal from the reassessment made under the Income
Tax Act for the 2003 taxation year is dismissed in accordance with the
attached Reasons for Judgment.
Signed at Morell,
Prince Edward Island, this 22nd day of July, 2010.
“G. A. Sheridan”
Citation: 2010TCC354
Date: 20100628
Dockets: 2009-831(IT)I
2009-832(IT)I
BETWEEN:
CONSTANTINA BITZANIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent,
AND BETWEEN:
2009-832(IT)I
NICKOLAOS BITZANIS,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
Sheridan, J.
[1] The appeals of
Nickolaos Bitzanis and Constantina Bitzanis were heard together on common
evidence. Both Appellants testified at the hearing. Called for the Crown was
Clodie Robitaille, the Canada Revenue Agency Appeals Officer in charge of the
Appellants’ files. The only issue in this Informal Procedure appeal is the
deductibility of a management fee in the Appellants’ rental property business.
[2] In reassessing
the Appellants’ 2003 taxation year, the Minister of National Revenue relied on
the same assumptions of fact for both Appellants:
a)
In reporting the rental income for the 2003 taxation year [each
Appellant] reported the following amounts of net rental income:
|
Property
|
Interest
|
Total
(Loss),
Profit
|
Appellant’s
Interest
|
|
3960-662 Grand Allee, Montreal
|
25%
|
$
1,391.00
|
$
347.75
|
|
1831-1835
Delorimier, Montreal
|
50%
|
($
8,898.00)
|
-($4,449.00)
|
|
158 1st
Avenue, Lasalle
|
50%
|
($11,874.00)
|
($5,937.00)
|
|
3767-3771 Verdun Ave. Montreal
|
25%
|
$
779.00
|
$
194.75
|
|
3773-3783 Verdun Ave. Montreal
|
50%
|
($14,526.00)
|
($7,263.00)
|
|
2721-29 St
Helen, Montreal
|
25%
|
$
2,044.00
|
$
511.00
|
|
|
|
($31,084.00)
|
($16,595.50)
|
b)
During the taxation year the properties at 3767-3771 Verdun Ave.,
Montreal, 3773-3783 Verdun Ave., Montreal, and 158 1st Avenue,
Lasalle were disposed of, with a sharing for the realized gain shared by the
owners at 25% for [each Appellant] and 50% for Adam Bitzanis, nephew of the
appellant.
c)
In determining the rental income for the 2003 taxation year for:
i)
158 1st Avenue, Lasalle, [each Appellant] claimed $5,000 (Appellant’s
interest 50% of $10,000) as Administration fees;
ii)
3773-3783 Verdun Avenue, Montreal, [each Appellant] claimed $10,000
(Appellant’s interest 50% of $20,000) as Administration fees;
iii)
1831-1835 Delorimier, Montreal, [each Appellant] claimed $5,000
(Appellant’s interest 50% of $10,000) as Administration fees;
iv)
The amounts so claimed were allegedly paid by the [Appellants] to Charalambos
(Bobby) Bitzanis and Adam Bitzanis;
v)
The [Appellants] could not provide evidence as to proof of payment of
the $40,000 allegedly paid to Charalambos (Bobby) Bitzanis and Adam Bitzanis;
vi)
The [Appellants] did not claim any similar amounts for Administration
fees for any other years of ownership;
vii)
The amount provided was not reasonable and is considered, by the CRA, to
be a gift by the [Appellants] to [their] relatives.
[3] In 2003, the
Appellants claimed a deduction for management fees totalling $40,000 for three
of these properties owned jointly with their nephew Adam (“Adam the Nephew”).
The Appellants also have a son Adam (“Adam the Son”) and another son, Charalambos.
[4] They testified
that the $40,000 had been paid to their sons for performing management tasks for
the rental properties, including maintenance and repairs, collecting rents and
taking care of problems in the buildings or with tenants. In addition to being
reimbursed for their out-of-pocket expenses i.e., transportation costs, repair
materials and so on, the sons were paid a salary. As often happens in
family-run businesses, there were no written agreements between the Appellants
and their sons for their management work nor were records of the payments kept.
Both Appellants said that the $40,000 had been paid in cash in various amounts over
the year depending on the work done and the amount of funds available to pay
them. Neither of the sons reported any such payments in their 2003 income tax
returns. Apparently, after some urging from his father, Charalambos reported an
amount of approximately $27,000 in 2009.
[5] The Minister
disallowed the management fee on the basis that there was no evidence that the
work had actually been done by the sons, that the payments had been made or
that, if they had been made, the $40,000 claimed in respect of the management
fee was unreasonable given that the gross revenue from the properties was only
just over $29,000. On the other hand, the Minister did allow the deduction of
all the other expenses claimed i.e., property taxes, maintenance and repair,
advertising and so on.
[6] It goes without
saying that the onus is on the Appellants to show that the Minister’s
reassessment is incorrect. Both Appellants struck me as hard-working
individuals with a respect for their obligations under the Income Tax Act. I
have no doubt that they paid $40,000 to their sons in 2003 or that from time to
time, their sons helped out with the rental properties. However, the evidence
falls far short of establishing that their sons actually performed management
services in respect of the properties.
[7] Mr. Bitzanis
urged the Court to take into account the fact that in 2009 one of the sons took
his parents’ advice and reported the receipt of a $20,000 payment in 2003. I
agree with the Appeals Officer, Ms. Robitaille, that the mere fact of reporting
an amount paid does not convert that amount into a valid management fee. The
Appellants must still be able to prove that their sons did management work and
that the amount paid was reasonable. For a business expense to be deductible
under paragraph 18(1)(a) of the Income Tax Act, the taxpayer has
to be able to show that that cost was incurred for the purpose of earning
income from that business.
[8] In
the present case, I am not persuaded that the $40,000 that the Appellants paid
to their sons did anything to generate income from the rental properties. It
seems much more likely that the amounts were paid to help their sons out during
difficult times in their lives; for this, the Appellants cannot be faulted. But
that does not mean the sons performed management services. The evidence is
clear that the co-owner of the properties, Adam the Nephew, was responsible for
property management; I simply do not believe the Appellants’ claim that his
management role was limited to his 50% interest in the rental properties. The
Appellants had no documentation to support their claims. Their sons were not
called to testify. The Appellants themselves claimed not to be able to remember
what amounts were paid, when or for what tasks. There were inconsistencies
between the information provided to the Canada Revenue Agency officials at
various stages in the inquiry and their evidence at the hearing. Even if I
accept that the sons did do some work in respect of the properties, it seems to
me that it was more in the line of maintenance and repair, the value of which
has already been allowed as a regular business expense deduction. And even if
that work could be characterized as management services, given the gross income
of the rental properties in question, a payment of $40,000 for such work would
not be reasonable. In all the circumstances, there is simply not sufficient
evidence to justify interfering with the Minister’s reassessment of the 2003
taxation year. Accordingly, the appeals are dismissed.
Signed at Morell, Prince
Edward Island, this 22nd
day of July, 2010.
“G. A. Sheridan”
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