Citation: 2007TCC655
Date: 20071116
Docket: 2006-1684(IT)I
BETWEEN:
ROBIN ARSENAULT VÉZINA,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
[OFFICIAL ENGLISH
TRANSLATION]
REASONS FOR JUDGMENT
Archambault J.
[1] Robin Arsenault Vézina appeals the
assessments made on January 6, 2005, by the Minister of National Revenue (Minister)
for the 2000, 2001, 2002 and 2003 taxation years (relevant period).
In these assessments, the Minister included the income that Robin earned from
performing in the amount of $8,080 for the year 2000, $19,211 for 2001, $21,542
for 2002 and $30,581 for 2003. He also assessed a penalty for each of these
years for the late filing of the income tax returns.
[2] The Minister had to proceed with arbitrary
assessments because Robin had not filed income tax returns for any of the
taxation years, despite a specific request from the Minister. It must be noted
that during the relevant period, he was 11-14 years old. At the first hearing,
held November 29, 2006, Robin was not present, but was represented by his
father, Bruno Vézina. In his testimony, Mr. Vézina stated that he had
asked the Ministère de la Sécurité du revenu of Quebec if the amount earned by
his son was considered income for the purposes of calculating welfare benefits,
to which Mr. Vézina was entitled; the response was negative. As Mr. Vézina
attended the hearing without any supporting documentation, or income and loss
statements, except for the year 2003, to determine the net income earned by
Robin, I exceptionally granted a recess to allow him to provide the Minister
with the income tax returns for each of the taxation years in dispute on or
before January 29, 2007. He was also required to submit a detailed income
statement for the taxation years and the related documentation. Following
receipt of these documents, the Minister proceeded to make reassessments on
February 14, 2007, as indicated in a letter from counsel for the Respondent
dated February 26, 2007. In this letter, counsel asked the Court to refer
Robin’s docket to the trial list so that I could hear the parties.
[3] During the hearing held on October 9, 2007,
counsel for the Respondent produced Exhibit I‑5 entitled “Memorandum,” in
which an agent for the Respondent took into account the correcting entries made
to the assessments for the relevant period. As the Minister accepted a total of
$4,019.73 in expenditures for the year 2000, no taxable income remained for
that year. Consequently, the hearings pertained only to 2001, 2002 and 2003. In
his 2001 assessment, the Minister accepted expenditures of $8,930 out of
the $13,063 deduction that was requested. For 2002, the amount increased to
$8,845 out of $13,818, and for 2003, to $12,331 out of $18,771.
[4] Essentially, the remaining question for each of these
taxation years pertains to the admissibility of four expenditure items:
accompaniment expenses, beauty care expenses, clothing expenses and office
expenses. The Minister dismissed all of these expenses, except office expenses,
where a marginal part relating to pager and cellular phone costs was allowed.
Factual Background
[5] During the relevant period, Robin lived with his
parents in Ireland, a municipality situated in the region of
Thetford Mines. He received contracts for several roles in film,
television and advertising productions. Robin was a member of the Union des
artistes and ACTRA, the Union’s Canadian counterpart.
[6] Most often, Robin had to travel to Montréal for
auditions and, following that, to perform if he was selected for the position.
As his grandmother lived in Verdun, he was able to stay with her. According to
Mr. Vézina, Robin needed to attend approximately ten auditions to get one job.
During his travels, Robin was accompanied by his mother, who had no other
paying job at the time.
Analysis
[7] The Minister justifies the denial of the
deduction of beauty care, clothing and office expenses by the fact that they
represent personal expenses. Essentially, he takes the same position regarding
the accompaniment expenses. Here is the explanation given by the agent for the
Minister in a memorandum:
[translation]
... This invoice
is signed by a person who is not at arm’s length to the taxpayer who, in this
case, is his mother. Concerning the expenses incurred by her, the taxpayer
already reimburses the cost of gas and meals. We believe that the accompaniment
costs are expenses that are not necessary to earn income. Consequently, the
expense is disallowed (18(1)(h).
[8] Before performing a detailed analysis of the
expenses in dispute, it is useful to remember the relevant passages of the Income
Tax Act (Act):
9(1) [Income –] Subject to this Part, a taxpayer’s income for a taxation year
from a business or property is the taxpayer’s profit from that
business or property for the year.
18
(1) [General
limitations –] In computing the income of a taxpayer
from a business or property no deduction shall be made in respect of
(a) [General limitation –] an outlay or expense except
to the extent that it was made or incurred by the taxpayer for the purpose of
gaining or producing income from the business or property;
(b) [Capital outlay or loss –] an outlay, loss
or replacement of capital, a payment on account of capital or an
allowance in respect of depreciation, obsolescence or depletion except as
expressly permitted by this Part;
...
(h) [Personal and living expenses –] personal or living expenses of the taxpayer, other than travel expenses incurred by the taxpayer while away
from home in the course of carrying on the taxpayer’s business;
[Emphasis
added.]
[9] It is also useful to remember the courts’
interpretation of this type of expense; I would like to bring your attention to
two decisions I rendered in 2004: Riley v. The Queen,
2003 TCC 409, [2003] 4 C.T.C. 2961 and Arthurs v. The Queen,
2003 TCC 636, [2004] 1 C.T.C. 2948.
[10] At the end of the hearing, Mr. Vézina expressed
that it was unfair for the Minister to deny certain expenses, notably for
clothing, which performers must purchase for their work. He stated that he
wanted to solicit the Union des artistes to defend this particular point of
view. Under the circumstances, I believe it opportune to recall the comments I
made in Riley, which, in my opinion, largely apply to this case:
7 I would like to state at the outset that these appeals were made
under the Informal Procedure and accordingly, by law, these reasons for
judgment do not have any precedential value.[2] Although I very rarely make this statement when I render
judgments under the Informal Procedure, I do so here because I sense a move by
the performing arts industry, at least in British Columbia, to contest the
administrative practices of the Canada Customs and Revenue Agency (CCRA).
Such a contestation raises difficult issues. Many of the expenses claimed by
performing arts artists such as Ms. Riley could be described as borderline
because they have a significant personal component. If my perception as to
the intention of the performing arts industry is right, I believe that the
contestation of the CCRA's administrative practices should be done within the
framework of an appeal under the General Procedure as a sort of test case,
hopefully with the assistance of a well-qualified tax lawyer. This lawyer would
have to introduce all the proper and relevant evidence as to what the expenses
are and in what circumstances they were incurred. It is important that this
Court not be left with generalities and vague statements as to how the
trade is being carried on and as to the purpose for which the expenses were
incurred.
8 Unfortunately, in this case the evidence was not sufficient to
convince me that all the expenses were actually incurred for business and
not personal consumption purposes. ...
10 The greatest difficulty facing Ms. Riley in her appeals was dealing
with this last-mentioned prohibition in the Act. To illustrate the scope
of that provision, counsel for the respondent relied on several court decisions.
The first, which involved very similar facts to those in this particular case,
is No. 360 v. M.N.R., 16 Tax A.B.C. 31. This is a case of a taxpayer who
was, as described by the Chairman of the Tax Appeal Board, an "actress,
commentator and dramatic artist . . . a star of the stage, radio and television
- and occasionally of the screen". She was also a person earning income
from a business, self-employed, as it is more commonly put. The Chairman
acknowledged that her success was due both to "her great talent as an
actress and to her charm and grooming".
11 The actress in question claimed expenses with respect to her
clothing and that is the description we find in the
Chairman's reasons. The evidence was that she had to provide her own
costumes for modern plays and, in most of her television engagements, she was
required to furnish her own dresses, which had to be varied and always in
the best taste. The appellant in that case also testified that because her
viewers complained when she wore the same clothes more than once, she had to
buy a large number of dresses and accessories if she wanted to retain her
television contracts. As in the case at bar, it was a situation where the
dresses could be worn not only for business purposes but also for personal
purposes on other occasions. It was even argued that she had to maintain her
reputation as a well-dressed woman both on and off the stage.
12
Based on these facts, the Chairman rendered
the following judgment:
The question here has arisen in
a great number of cases heard by this Board. In all such cases it was decided
that such expenses were personal expenses and a deduction was not allowed.
I find nothing in the present case which would warrant a decision different
from the one reached by my colleagues and myself in similar cases, to wit, that
these are "personal or living expenses" within the meaning of section
12(1)(h) [at the time] of the Act and consequently are not deductible.
13 The other precedent submitted by counsel for the Respondent is the
decision of the Supreme Court of Canada in Symes v. Canada, [1994] 1
C.T.C. 40. Symes is not a case dealing with the same kind of expenses as
those claimed in these particular appeals: it deals rather with child care
expenses. However, it does contain a review of the notion of "personal or
living expenses" as found in paragraph 18(1)(h) of the Act.
Writing on behalf of the majority of the Supreme Court, Mr. Justice Iacobucci
made the following statements as to how one goes about determining if an
expense is a personal or living expense. The three most relevant paragraphs of
his reasons are 76, 77 and 79.
14 At page 59, Mr. Justice Iacobucci refers to this statement written
by Professor Brooks:
If a person would have incurred a particular expense
even if he or she had not been working, there is a strong inference that the
expense has a personal purpose. For example, it is necessary in order to earn
income from a business that a business person be fed, clothed and sheltered.
However, since these are expenses that a person would incur even if not
working, it can be assumed they are incurred for a personal purpose - to stay
alive, covered , and out of the rain. These expenses do not increase
significantly when one undertakes to earn income.
At pages 59-60, Justice
Iacobucci writes:
Since I have commented upon the underlying concept of
the "business need" above, it may also be helpful to discuss the
factors relevant to expense classification in need-based terms. In particular,
it may be helpful to resort to a "but for" test applied not to the
expense but to the need which the expense meets. Would the need exist apart
from the business? If a need exists even in the absence of business activity,
and irrespective of whether the need was or might have been satisfied by an
expenditure to a third party or by the opportunity cost of personal labour,
then an expense to meet the need would traditionally be viewed as a personal
expense.
[Emphasis added.]
[11] It is in light of these legislative rules and
precedential rulings that I will now address each of the expenditure items in
dispute.
Accompaniment Expenses
[12] According to her testimony, the agent for the
Minister stated that she dismissed the deduction of these expenses for two
reasons. The first being that she was not convinced that the amounts in
question were paid by Robin to his mother. There was some doubt because the
mother had not entered accompaniment income in the income tax returns she had
produced. The second reason is that the agent for the Minister considered the
expense unrelated to Robin’s artistic activities.
[13] Mr. Vézina acknowledged that the four
invoices for accompaniment services, which he presented in Court as Exhibit I‑9,
were created to justify this expense when he produced the income tax returns
for his son.
However, these invoices reflected the existence during the relevant period of
an obligation for Robin to pay his mother for accompanying him not only to his
film sets, but also to numerous auditions that he had to attend. According to
Mr. Vézina, his wife had the right to fees of 10% of the talent fees earned by
his son, which amounted to $1,921 for 2001, $2,154 for 2002 and $3,000 for
2003.
[14] Moreover, in support of his submissions, he
produced guidelines concerning child performers that were published by the
Ontario Ministry of Labour in April 2007. These guidelines, which are not legal
requirements, were developed by a child performer joint sub-committee, with
members from the Ministry of Labour’s Live Performance and Film and Television
Health and Safety Advisory Committees. These guidelines recognize that child
performers are special persons who need individual attention and protection. In
Part III of this document, entitled “Industry Standards,” it states:
Even though the industry standards in Part III of this
guideline do not fall within the scope of the Occupational Health and Safety
Act, the Ministry of Labour recognises these additional industry-supported
standards as part of a broader commitment to the health and safety of child
performers. Workplaces within the entertainment industry are strongly
encouraged to incorporate them into their workplace practices.
[15] Two passages from these guidelines are worth
reproducing here; one passage concerns the presence of parents and the other
pertains to psychologist services in psychologically stressful situations:
Film, Television, and other Recorded Media
Where a child performer is less than 16-years-old, a
parent should be at the location and accessible to the child performer at all
times when the child performer is on set, accompany the child performer to and
from the set, and accompany the child performer to hair, makeup and wardrobe.
...
Psychological Stress
When a child performer is engaged to perform subject
matter that could be psychologically damaging to the child, or results in
psychological stress, a psychologist or therapist who is properly accredited by
the applicable ministry should be hired by the producer to guide and assist the
child to handle the emotional and mental stress of such subject matter.
[16] In my opinion, an accompaniment expense is not of
a personal nature when a child performer is accompanied by an adult, be it one
of his or her parents or another adult. In this case, the accompaniment expense
would not have been incurred if Robin had not participated in his business
activities. If Robin had not had to travel to Montréal, sometimes the day
before filming, to perform his work, it would have been unnecessary not only
for his mother to accompany him, but also to incur transportation and living
expenses in Montréal, which are expenses that the Minister has allowed. I do
not see any difference between these types of expenses.
[17] Furthermore, I do not see a distinction between a
well known performer who must hire a bodyguard to ensure his safety when
performing and an adult accompanying a young child for the same reason. In
these two cases, we can consider it an expense incurred to earn income from a
business (when these performers act as independent workers). The fact that the
adult in this situation is the mother of young Robin does not change the need
to hire someone to ensure his safety.
[18] Concerning the question of payment, it is true
that the fact that the mother did not include the amounts claimed as
accompaniment fees in her income raises doubt concerning the remittance of
these amounts. On the other hand, the fact that a taxpayer did not declare
income does not necessarily mean that he or she did not earn it. I rely on Mr.
Vézina’s testimony, which maintains that these amounts were remitted to his
wife for the accompaniment of his son. It appears quite reasonable to me that
Robin compensated his mother for all of her services when he was performing. In
other words, the amounts deducted appear to be quite reasonable given the
circumstances. Accordingly, nothing makes them inadmissible as an expense in
the calculation of Robin’s income.
Clothing
[19] During his testimony, Mr. Vézina maintained that
the clothing had been purchased for his son so that he could perform better at
his auditions and land the roles he was pursuing. He presented a series of
expenses related to the purchase of clothing that, according to him, were
necessary for either the auditions or film sets. For example, he said that it
could have been necessary to have clothing to keep Robin warm between different
takes, since the scenes could have been filmed in inclement weather conditions.
To justify that these expenses would not have been incurred had it not been for
Robin’s artistic activities, Mr. Vézina stated that, when his family
purchased clothing, they did so in thrift stores where the prices were minimal;
however, for sets or auditions, they had to buy brand new clothing, which was
usually purchased at Wal-Mart, l'Aubainerie or Magasin Croteau.
[20] Firstly, I must emphasize that the documents to
support the deduction of expenses incurred for Robin were not identified and
classified by
Mr. Vézina until several years after the purchase of the clothing. As we have
seen, no income tax returns were produced for the relevant period, within the
period specified by the Act. The returns were not produced until several years
later and for the most part, not until the start of 2007 after I had to suspend
Robin’s appeal hearing to allow him to produce his supporting documentation.
Under these circumstances, it is difficult to see the link between a personal
appearance expense and Robin’s professional activities.
[21] Secondly, during Mr. Vézina’s cross-examination by
counsel for the Respondent, he had to admit that some of the invoices for which
he was requesting an expense deduction were expenses for women’s clothing
because the purchases were made in women’s clothing stores. This fact illustrates that it
is difficult to determine what clothing was actually worn for his son’s
performances and to what extent years after the fact.
[22] I believe it would be opportune to reconsider the
approach of courts, which have, in the past, disallowed any clothing expense by
qualifying it as a personal expense, unless the clothing is used solely for the
purpose of artistic activities. I believe that a valid argument could be made
in favour of the view that at least a part of the cost of clothing could
constitute a relevant expense when calculating the business income of a
performer, as it is in the case of expenses related to a vehicle used for both
business and personal use. It is the same situation when a taxpayer has the
right to deduct expenses related to the part of his or her housing that is used
to carry on a business. Unfortunately, in this case, the evidence is
insufficient to establish with an acceptable degree of confidence that the
clothing was actually used for Robin’s professional activities; the evidence is
also insufficient to establish the percentage of business use compared to
personal use. Among the clothing for which expense deductions were requested,
there were jeans, jackets, hats, boots, mittens, toques and underwear. Since
these clothes can be used in everyday life, their cost could be considered a
personal expense and non‑deductible.
Beauty Care
[23] Among the beauty care expenses that Mr. Vézina
claimed as deductions for his son, we find many that are not related to beauty
care. For example, there is a receipt for $8.03 from Wal-Mart for the purchase
of a calculator. Evidently, this expense could have been considered an office
expense, but it would be capital outlay. On the other hand, it is another good
that could be considered useful for both personal and business use. Business
use is not established satisfactorily. This is the case for all or almost all
of the beauty care expenses. However, an exception could be made for makeup
expenses–foundation for $7.98 and blush for $4.98–expenses whose total, once
increased by the GST to $14.91, could have been deductible. Regarding these
expenses incurred in October 2002, Mr. Vézina indicated that his wife did
not wear makeup and, accordingly, these makeup products had to have been used
by his son for his professional activities.
[24] Among the beauty care expenses, there were dental
surgeon and eyeglass costs, which, in my opinion, are expenses that would have
been incurred regardless of Robin’s artistic endeavours. Accordingly, they were
personal expenses, which are not deductible. On the other hand, an exception
might be made for the psychologist expense of $120, which, according to
Mr. Vézina, was incurred in April 2003 because of the stress his son
experienced from performing in certain scenes. Under these circumstances, we
can conclude that it was an expense incurred to gain or produce income from a
business as it was incurred for the purpose of Robin’s professional activities
and would not have been incurred without these activities. The fact that
medical costs could be deductible under another provision of the Act does not
preclude that the expense is admissible in the calculation of business income
under subsection 9(1) of the Act. It would have been necessary to use the other
provision if the expense had been of a personal nature.
Office Expenses
[25] Among the office expenses, it is difficult to
determine which were incurred for carrying out Robin’s business and which were
incurred for personal use—for example, tuition fees and school supply costs.
Whether or not Robin was a child performer, he would have incurred these costs.
Accordingly, these expenses fall under the category of personal expenses. For
those expenses that were incurred for both business and personal use, it is not
possible in this case to determine the percentage of business use.
[26] Among the office expenses, there is an expense of
$79 for the purchase of skates and their sharpening in 2002. Mr. Vézina
maintained that these skates were only used on set or for an audition.
Accordingly, this amount can be considered an expense related to stunts, an
expense that the Minister allowed. This expense of $79 should be admissible.
[27] For these reasons, the appeals of
Robin Arsenault Vézina for the taxation years of 2001, 2002 and 2003
are allowed and the assessments of
February 14, 2007, are referred back to the Minister for reconsideration and
reassessment on the basis that Robin has the right, in the calculation of his
income gained or produced from a business, to a deduction of the following
amounts:
|
|
2001
|
2002
|
2003
|
|
Accompaniment
|
1,921.00
|
2,154.00
|
3,000.00
|
|
Skates
|
|
79.00
|
|
|
Psychologist
|
|
|
120.00
|
|
Makeup
|
|
14.91
|
|
|
Total
|
1,921.00
|
2,247.91
|
3,120.00
|
The appeal for the
year 2000 is dismissed, without costs.
Signed at Ottawa, Canada, this 16th day of
November 2007.
“Pierre Archambault”
Translation certified true
On this 18th day of December 2007.
Monica F. Chamberlain, Translator
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