Citation: 2009 TCC 320
Date: 20090624
Dockets: 2008-91(IT)I
2008-92(IT)I
BETWEEN:
NORTON SOLOMON and
THOMAS STEYNOR,
Appellants,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
McArthur J.
[1]
These appeals were
heard simultaneously and for the most part on common evidence for Mr. Solomon’s
2003, 2004 and 2005 taxation years and Mr. Steynor’s 2005 taxation year.
The issues boil down to whether the Appellants received taxable benefits from
their employer, TRS Relief Solutions Inc. (“TRS”) for travel expenses, and secondly,
whether they are entitled to allocate part of their 2005 employer’s income
to taxation years 2003 and 2004. It was difficult to determine all the remedies
the Appellants were seeking. They were employed by TRS, a corporation owned and
operated by the Appellant, Thomas Steynor. I have accepted the issues as
presented by the Respondent and no others.
[2]
I do not believe it is
contested that Mr. Steynor’s Notice of Appeal for 2004 was filed prior to the
90-day period allowed to the Minister of National Revenue after the filing of
the Appellant’s objection to vacate, confirm or reassess Mr. Steynor,
rendering his attempted appeal for 2004 not properly before the Court and it is
hereby quashed.
[3]
The kilometres
travelled by both Appellants for business purposes is uncontested.
[4]
The first position of
the Respondent is that the 60 cents per kilometre that the Appellants were
paid, by their employer, was not reasonable pursuant to subparagraph 6(1)(b)(v)
of the Income Tax Act (the “Act”) and section 7306 of the Income Tax
Regulations. Secondly, the Respondent submits that the taxpayers cannot,
retroactively, allocate part of the income they received and expenses in 2005
to previous years 2003 and 2004. There is no reference to this in the Replies
to the Notices of Appeal. The Notices of Appeal state “The expense
accounts were for two corporate fiscal years, but over a three-year calendar
period”.
[5]
The facts as I
understand them include the following. The Appellants worked for TRS which was
in the business of collecting money for charities. I believe the
Appellants’ focus was recruiting and organizing commissioned collectors
although the evidence in regard to their duties was vague like most other
statements referred to. A seven-page Management Employment Agreement for Mr.
Solomon (Exhibit A‑1) refers to employment duties at paragraph 1.a.;
the employee has the required skills and experience to perform the
duties and exercise the responsibilities required of a Marketing Director and
Director of Finance”.
Strangely, the agreement was not presented until the
day of the hearing of the appeals, although Canada Revenue Agency (“CRA”) had
been dealing with the Appellants for over a year.
[6]
Exhibit A-1, Document
#17, is a CRA 2005 Income Statement for TRS indicating:
“Total Revenue $665,529” and Operating Expenses of $657,018 which
includes $580,472 paid for Commissions
and $75,960 paid for travel expenses.
It is the travel expenses that are the primary subject
of these appeals.
[7]
In 2005, the Appellants
were paid by TRS the amount of 60 cents per kilometre for their business travel
which the Respondent finds unreasonably high. Both Appellants state in part in
their Notices of Appeal:
Relevant facts overlooked;
My SUV carries equipment, goods, and passengers, and it also acts
for a motel room on many nights. There are many occasions that I sleep in
the Vehicle. It is used as an office with a permanent telephone
installed. On many occasions I park with the engine running providing electricity
for the computers and coolers in the back of the vehicle or for heat during the
winter months. This vehicle is my traveling office.
My vehicle is not an automobile as defined in subsection 248(1) of
the Income Tax Act because it meets the exception in subparagraph
(e)(ii) as being a similar vehicle used all or substantially all of the time in
the year to transport goods, equipment or passengers, or as an office and/or bedroom.
[8]
The two Notices of
Appeal are confusing in that they are, for the most part, identical, yet should
have set out the specific and different amounts for each taxpayer along with
other differences in duties, etc. For example, only Mr. Steynor drove an SUV
(Hyundai Santa Fe). Mr. Solomon testified that he drove a Ford 150 (pick‑up truck)
for business purposes; my decision is not affected by this although it is
unlikely he slept in his truck.
[9]
The first issue is
whether the rate to be applied per kilometres travelled should be 60 cents or
closer to 40 cents per kilometre as provided in Regulation 7306 of
the Act.
Mr. Steynor claimed $16,245 for 27,075 kilometres. The Minister allowed $10,047
for the 27,075 kilometres. Mr. Solomon claimed $19,697 for 32,829 kilometres.
The Minister allowed $12,118 for the 32,829 kilometres.
[10]The relevant legislation includes subsection 6(1)(b)(v)
of the Act which reads in part:
6(1) There shall be included in computing the
income of a taxpayer for a taxation year as income from an office or employment
such of the following amounts as are applicable:
…
(b) all amounts received by the taxpayer in
the year as an allowance for personal or living expenses or as an allowance for
any other purpose, except
…
(v) reasonable allowances for travel
expenses received by an employee from the employee’s employer in respect of a
period when the employee was employed in connection with the selling of
property or negotiating of contracts for the employee’s employer, …
[Emphasis added]
The Respondent’s counsel submits that the
rate to be applied is that set out in Regulation 7306, as changed for
2005, which reads as follows:
7306. For
the purposes of paragraph 18(1)(r) of the Act, the amount in
respect of the use of one or more automobiles in a taxation year by an
individual for kilometres driven in the year for the purpose of earning income
of the individual is the total of
(a) the product of 36
cents multiplied by the number of those kilometres;
(b) the product of 6
cents multiplied by the lesser of 5,000 and the number of those kilometres; and
(c) the product of 4
cents multiplied by the number of those kilometres driven in the Yukon
Territory, the Northwest Territories or Nunavut.
[11]The Appellants further submit that their vehicles are
not automobiles as defined in subsection 248(1) because they meet the exception
in the definition of “automobile” in subparagraph 248(1)(e)(ii) in
that their vehicles were used “all or substantially all for the
transportation of goods, equipment or passengers in the course of gaining or
producing income”. I agree with the counsel for the Respondent that the
Appellants have not advanced sufficient evidence to establish that their
vehicles fall within the exception of subparagraph 248(1)(e)(ii).
No doubt, at least the SUV carried an impressive display of office
equipment that was used for the benefit of their employer but the evidence,
which was, for the most part, general statements, falls far short of
establishing that their vehicles were:
248(1)(e)(ii) of a type commonly called a
van or pick-up truck, or a similar vehicle, the use of which, in the taxation
year in which it is acquired or leased, is all or substantially all for the
transportation of goods, equipment or passengers in the course of gaining or
producing income, or …
[12]I do not agree with the Appellants’ submission that 60
cents per kilometre was reasonable and in arriving at that decision, I rely on
the impressive evidence and position of the Respondent’s auditor, Bryce Corbett.
He accepted the mileage as submitted by the Appellants, although an earlier
auditor did not. In my opinion, the payment to them in 2005 of 60 cents
per kilometre is completely unreasonable and cannot be claimed as travel
pursuant to the Act and Regulations.
[13]I will now deal with the question of whether the
Appellants can arbitrarily allocate part of their 2005 income to previous
years. I accept the Respondent’s counsel and the auditor’s position that
taxpayers have to report income in the year they receive it. Apparently, TRS
was unable to pay all of the Appellants’ income and/or expenses in 2003 and
2004. There is no provision in the Act to permit allocation of some of
the amount paid in 2005 to earlier years. Subsection 5(1) of the Act provides
that:
… a taxpayer’s income for a taxation year from an office or
employment is the salary, wages and other remuneration, including gratuities,
received by the taxpayer in the year.
[14]The fact that Mr. Steynor controlled TRS is to be
considered. It is important to recognize the separate identity of a
corporation. See Solomon v. Solomon, [1897] A.C. 22. The Appellants
cannot manipulate the corporation to meet their present‑day needs. There
was no evidence that the Appellants and the Corporation made provision in their
2003 and 2004 returns for unpaid salary and expenses. In 2005, it was too
late for retroactive tax planning.
[15] It is understandable if the auditor was frustrated.
He was presented with unsupported numbers which the Appellants represented as
legitimate expenses. Mr. Corbett is a meticulous auditor-accountant. He
and his colleagues need details to include facts, receipts, witnesses and other
corroboration to support that the claimed expenditures were incurred by the
Appellants during their employment with TRS and were required and come under
those expenditures permitted in sections 6 and 8 of the Act.
[16]The Corporation’s name appears to be a misnomer “Tax Relief”
but no evidence was given to explain what the tax relief was, although this has
no effect on my decision.
[17]Unfortunately, the Appellants’ facts lacked precision both
before the Minister and also before this Court. The numbers, such as the page 2
in the bundle filed as Exhibit A-1 can be reality or fiction – perhaps prepared
long after the fact. Dates and amounts alone mean very little. Concrete evidence
of expenditures to include receipts and when, where, why, how they were made is
of assistance. I am not an auditor and will not guess in deciding what expenses
are legitimate business expenses. The Appellants did not meet their burden to
establish that the amount allowed by the Minister for the kilometres driven in
2005 to earn income, was unreasonable. I accept the position of the auditor and
Respondent’s counsel that no increased expenditures for the years in question
for both Appellants are allowed.
[18]In conclusion, the Solomon Appeals for the 2003, 2004
and 2005 taxation years are dismissed, and the Thomas Steynor appeal for 2005
is also dismissed. Further, the Thomas Steynor purported appeal for 2004 is
quashed.
Signed at Ottawa, Canada, this 24th day of June, 2009.
“C.H. McArthur”
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